<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-37848 and 811-6028.
<PAGE>
<PAGE>
THE ALLIANCE
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STOCK FUNDS
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P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
October 31, 1997
Domestic Stock Funds
-The Alliance Fund
-Alliance Growth Fund
-Alliance Premier Growth Fund
-Alliance Technology Fund
-Alliance Quasar Fund
Global Stock Funds
-Alliance International Fund
-Alliance Worldwide Privatization Fund
-Alliance New Europe Fund
-Alliance All-Asia Investment Fund
-Alliance Global Small Cap Fund
Total Return Funds
-Alliance Strategic Balanced Fund
-Alliance Balanced Shares
-Alliance Income Builder Fund
-Alliance Utility Income Fund
-Alliance Growth and Income Fund
-Alliance Real Estate Investment Fund
Table of Contents Page
The Funds at a Glance............................. 2
Expense Information............................... 4
Financial Highlights.............................. 7
Glossary.......................................... 19
Description of the Funds.......................... 20
Investment Objectives and Policies............. 20
Additional Investment Practices................ 30
Certain Fundamental Investment Policies........ 37
Risk Considerations............................ 40
Purchase and Sale of Shares....................... 44
Management of the Funds........................... 47
Dividends, Distributions and Taxes................ 51
General Information............................... 53
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Stock Funds provide a broad selection of investment alternatives to
investors seeking capital growth or high total return. The Domestic Stock Funds
invest mainly in the United States equity markets and the Global Stock Funds
diversify their investments among equity markets around the world, while the
Total Return Funds invest in both equity and fixed-income securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund which provides
further information regarding certain matters discussed in this Prospectus and
other matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or call the "For Literature" telephone number shown above.
Each Fund offers three classes of shares through this Prospectus. These shares
may be purchased, at the investor's choice, at a price equal to their net asset
value (i) plus an initial sales charge imposed at the time of purchase (the
"Class A shares"), (ii) with a contingent deferred sales charge imposed on most
redemptions made within four years of purchase (the "Class B shares"), or (iii)
without any initial or contingent deferred sales charge, as long as the shares
are held for one year or more (the "Class C shares"). See "Purchase and Sale of
Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Alliance(R)
Investing without the Mystery.(SM)
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
<PAGE>
The Funds At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
The Funds' Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 100 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $217
billion in assets under management as of September 30, 1997. Alliance provides
investment management services to employee benefit plans for 28 of the FORTUNE
100 companies.
Domestic Stock Funds
Alliance Fund
Seeks . . . Long-term growth of capital and income primarily through investment
in common stocks.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, have the potential to achieve capital appreciation.
Growth Fund
Seeks . . . Long-term growth of capital by investing primarily in common stocks
and other equity securities.
Invests Principally in . . . A diversified portfolio of equity securities of
companies with a favorable outlook for earnings and whose rate of growth is
expected to exceed that of the United States economy over time.
Premier Growth Fund
Seeks . . . Long-term growth of capital by investing in the equity securities of
a limited number of large, carefully selected, high-quality American companies
from a relatively small universe of intensively researched companies.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, are likely to achieve superior earnings growth.
Normally, approximately 40 companies will be represented in the Fund's
investment portfolio. The Fund's investments in 25 of these companies most
highly regarded at any point in time by Alliance will usually constitute
approximately 70% of the Fund's net assets.
Technology Fund
Seeks . . . Growth of capital through investment in companies expected to
benefit from advances in technology.
Invests Principally in . . . A diversified portfolio of securities of companies
which use technology extensively in the development of new or improved products
or processes.
Quasar Fund
Seeks . . . Growth of capital by pursuing aggressive investment policies.
Invests Principally in . . . A diversified portfolio of equity securities of any
company and industry and in any type of security which is believed to offer
possibilities for capital appreciation.
Global Stock Funds
International Fund
Seeks . . . A total return on its assets from long-term growth of capital and
from income.
Invests Principally in . . . A diversified portfolio of marketable securities of
established non-United States companies, companies participating in foreign
economies with prospects for growth, and foreign government securities.
Worldwide Privatization Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities
issued by enterprises that are undergoing, or have undergone, privatization. The
balance of the Fund's investment portfolio will include securities of companies
that are believed by Alliance to be beneficiaries of the privatization process.
New Europe Fund
Seeks . . . Long-term capital appreciation through investment primarily in the
equity securities of companies based in Europe.
Invests Principally in . . . A non-diversified portfolio of equity securities of
European companies.
All-Asia Investment Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities of
Asian/Pacific companies.
Global Small Cap Fund
Seeks . . . Long-term growth of capital.
Invests Principally in . . . A diversified global portfolio of the equity
securities of small capitalization companies.
Total Return Funds
Strategic Balanced Fund
Seeks . . . A high long-term total return by investing in a combination of
equity and debt securities.
2
<PAGE>
Invests Principally in . . . A diversified portfolio of dividend-paying common
stocks and fixed-income securities, and also in equity-type securities such as
warrants, preferred stocks and convertible debt instruments.
Balanced Shares
Seeks . . . A high return through a combination of current income and capital
appreciation.
Invests Principally in . . . A diversified portfolio of equity and fixed-income
securities such as common and preferred stocks, U.S. Government and agency
obligations, bonds and senior debt securities.
Income Builder Fund
Seeks . . . Both an attractive level of current income and long-term growth of
income and capital.
Invests Principally in . . . A non-diversified portfolio of fixed-income
securities and dividend-paying common stocks. Alliance currently expects to
continue to maintain approximately 60% of the Fund's net assets in fixed-income
securities and 40% in equity securities.
Utility Income Fund
Seeks . . . Current income and capital appreciation through investment in the
utilities industry.
Invests Principally in . . . A diversified portfolio of equity securities, such
as common stocks, securities convertible into common stocks and rights and
warrants to subscribe for purchase of common stocks, and in fixed-income
securities such as bonds and preferred stocks.
Growth and Income Fund
Seeks . . . Income and appreciation through investment in dividend-paying common
stocks of quality companies.
Invests Principally in . . . A diversified portfolio of dividend-paying common
stocks of good quality, and, under certain market conditions, other types of
securities, including bonds, convertible bonds and preferred stocks.
Real Estate Investment Fund
Seeks . . . Total return on its assets from long-term growth of capital and from
income.
Invests Principally in . . . A diversified portfolio of equity securities of
issuers that are primarily engaged in or related to the real estate industry.
Distributions . . .
Balanced Shares, Income Builder Fund, Utility Income Fund, Growth and Income
Fund and Real Estate Investment Fund intend to make distributions quarterly to
shareholders. These distributions may include ordinary income and capital gain
(each of which is taxable) and a return of capital (which is generally
non-taxable). See "Dividends, Distributions and Taxes."
A Word About Risk . . .
The price of the shares of the Alliance Stock Funds will fluctuate as the daily
prices of the individual securities in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost. With
respect to those Funds permitted to invest in foreign currency denominated
securities, these fluctuations may be magnified by changes in foreign exchange
rates. Investment in the Global Stock Funds involves risks not associated with
funds that invest primarily in securities of U.S. issuers. While the Funds
invest principally in common stocks and other equity securities, in order to
achieve their investment objectives the Funds may at times use certain types of
investment derivatives, such as options, futures, forwards and swaps. These
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. An investment in the Real Estate
Investment Fund is subject to certain risks associated with the direct ownership
of real estate in general, including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. These risks are fully discussed in this Prospectus.
Getting Started . . .
Shares of the Funds are available through your financial representative and most
banks, insurance companies and brokerage firms nationwide. Shares can be
purchased for a minimum initial investment of $250, and subsequent investments
can be made for as little as $50. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares." In addition, the Funds offer
several time and money saving services to investors. Be sure to ask your
financial representative about:
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AUTOMATIC REINVESTMENT
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AUTOMATIC INVESTMENT PROGRAM
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RETIREMENT PLANS
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SHAREHOLDER COMMUNICATIONS
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DIVIDEND DIRECTION PLANS
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AUTO EXCHANGE
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SYSTEMATIC WITHDRAWALS
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A CHOICE OF PURCHASE PLANS
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TELEPHONE TRANSACTIONS
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24 HOUR INFORMATION
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Alliance(R)
Investing without the Mystery.(SM)
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
<PAGE>
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EXPENSE INFORMATION
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Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Fund. The following table summarizes your maximum transaction costs
from investing in a Fund and annual expenses for each class of shares of each
Fund. For each Fund, the "Examples" to the right of the table below show the
cumulative expenses attributable to a hypothetical $1,000 investment in each
class for the periods specified.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) ............. 4.25%(a) None None
Sales charge imposed on dividend reinvestments .. None None None
Deferred sales charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) ............................. None(a) 4.0% 1.0%
during the during the
first year, first year,
decreasing 1.0% 0% thereafter
annually to 0%
after the
fourth year (b)
Exchange fee .................................... None None None
</TABLE>
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(a) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a 1% deferred
sales charge on redemptions within one year of purchase. See "Purchase and
Sale of Shares--How to Buy Shares" -page 44.
(b) Class B shares of each Fund other than Premier Growth Fund automatically
convert to Class A shares after eight years and the Class B shares of
Premier Growth Fund convert to Class A shares after six years. See
"Purchase and Sale of Shares--How to Buy Shares" -page 44.
<TABLE>
<CAPTION>
Operating Expenses Examples
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Alliance Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .70% .70% .70% After 1 year $ 53 $ 59 $ 19 $ 29 $ 19
12b-1 fees .19% 1.00% 1.00% After 3 years $ 74 $ 79 $ 59 $ 58 $ 58
Other expenses (a) .15% .17% .16% After 5 years $ 97 $101 $101 $101 $101
---- ---- ---- After 10 years $164 $197(b) $197(b) $218 $218
Total fund
operating expenses 1.04% 1.87% 1.86%
==== ==== ====
<CAPTION>
Growth Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .75% .75% .75% After 1 year $ 55 $ 60 $ 20 $ 30 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 82 $ 82 $ 62 $ 63 $ 63
Other expenses (a) .25% .24% .25% After 5 years $111 $107 $107 $108 $108
---- ---- ---- After 10 years $193 $214(b) $214(b) $233 $233
Total fund
operating expenses 1.30% 1.99% 2.00%
==== ==== ====
<CAPTION>
Premier Growth Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 59 $ 64 $ 24 $ 34 $ 24
12b-1 fees .33% 1.00% 1.00% After 3 years $ 92 $ 92 $ 72 $ 72 $ 72
Other expenses (a) .32% .32% .32% After 5 years $128 $124 $124 $124 $124
---- ---- ---- After 10 years $230 $249(b) $249(b) $266 $266
Total fund
operating expenses 1.65% 2.32% 2.32%
==== ==== ====
<CAPTION>
Technology Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (g) 1.11% 1.11% 1.11% After 1 year $ 59 $ 65 $ 25 $ 35 $ 25
12b-1 fees .30% 1.00% 1.00% After 3 years $ 95 $ 96 $ 76 $ 76 $ 76
Other expenses (a) .33% .33% .33% After 5 years $133 $130 $130 $130 $130
---- ---- ---- After 10 years $239 $260(b) $260(b) $278 $278
Total fund
operating expenses 1.74% 2.44% 2.44%
==== ==== ====
</TABLE>
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Please refer to the footnotes on page 6.
4
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ------------------------------------------------------------- ------------------------------------------------------------------
Quasar Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (g) 1.15% 1.15% 1.15% After 1 year $ 60 $ 67 $ 27 $ 36 $ 26
12b-1 fees .21% 1.00% 1.00% After 3 years $ 96 $101 $ 81 $ 81 $ 81
Other expenses (a) .43% .47% .46% After 5 years $135 $139 $139 $139 $139
---- ---- ---- After 10 years $244 $275(b) $275(b) $294 $294
Total fund
operating expenses 1.79% 2.62% 2.61%
==== ==== ====
International Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees
(after waiver) (c) .85% .85% .85% After 1 year $ 58 $ 65 $ 25 $ 35 $ 25
12b-1 fees .17% 1.00% 1.00% After 3 years $ 90 $ 96 $ 76 $ 75 $ 75
Other expenses (a) .56% .58% .57% After 5 years $125 $130 $130 $129 $129
---- ---- ---- After 10 years $222 $256(b) $256(b) $276 $276
Total fund
operating expenses (d) 1.58% 2.43% 2.42%
==== ==== ====
Worldwide Privatization Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 59 $ 65 $ 25 $ 35 $ 25
12b-1 fees .30% 1.00% 1.00% After 3 years $ 94 $ 96 $ 76 $ 75 $ 75
Other expenses (a) .42% .43% .42% After 5 years $132 $130 $130 $129 $129
---- ---- ---- After 10 years $237 $259(b) $259(b) $276 $276
Total fund
operating expenses 1.72% 2.43% 2.42%
==== ==== ====
New Europe Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.06% 1.06% 1.06% After 1 year $ 62 $ 68 $ 28 $ 38 $ 28
12b-1 fees .30% 1.00% 1.00% After 3 years $104 $105 $ 85 $ 85 $ 85
Other expenses (a) .69% .69% .68% After 5 years $148 $145 $145 $145 $145
---- ---- ---- After 10 years $270 $291(b) $291(b) $307 $307
Total fund
operating expenses 2.05% 2.75% 2.74%
==== ==== ====
All-Asia Investment Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees After 1 year $ 73 $ 78 $ 38 $ 48 $ 38
(after waiver) (c) .65% .65% .65% After 3 years $135 $137 $117 $117 $117
12b-1 fees .30% 1.00% 1.00% After 5 years $199 $197 $197 $197 $197
Other expenses After 10 years $371 $390(b) $390(b) $405 $405
Administration fees
(after waiver) (f) .00% .00% .00%
Other operating
expenses (a) 2.17% 2.17% 2.17%
---- ---- ----
Total other expenses 2.17% 2.17% 2.17%
---- ---- ----
Total fund
operating expenses (d) 3.12% 3.82% 3.82%
==== ==== ====
Global Small Cap Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 66 $ 71 $ 31 $ 41 $ 31
12b-1 fees .30% 1.00% 1.00% After 3 years $114 $116 $ 96 $ 96 $ 96
Other expenses (a) 1.11% 1.11% 1.10% After 5 years $166 $163 $163 $163 $163
---- ---- ---- After 10 years $305 $326(b) $326(b) $341 $341
Total fund
operating expenses 2.41% 3.11% 3.10%
==== ==== ====
Strategic Balanced Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees
(after waiver) (c) .09% .09% .09% After 1 year $ 56 $ 62 $ 22 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 86 $ 66 $ 66 $ 66
Other expenses (a) 1.02% 1.03% 1.03% After 5 years $116 $114 $114 $114 $114
---- ---- ---- After 10 years $204 $227(b) $227(b) $245 $245
Total fund
operating expenses (d) 1.41% 2.12% 2.12%
==== ==== ====
</TABLE>
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Please refer to the footnotes on page 6.
5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ------------------------------------------------------------- ------------------------------------------------------------------
Balanced Shares Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .63% .63% .63% After 1 year $ 57 $ 63 $ 23 $ 33 $ 23
12b-1 fees .24% 1.00% 1.00% After 3 years $ 87 $ 90 $ 70 $ 70 $ 70
Other expenses (a) .60% .62% .60% After 5 years $119 $120 $120 $119 $119
---- ---- ---- After 10 years $211 $239(b) $239(b) $256 $256
Total fund
operating expenses 1.47% 2.25% 2.23%
==== ==== ====
Income Builder Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .75% .75% .75% After 1 year $ 64 $ 70 $ 30 $ 40 $ 30
12b-1 fees .30% 1.00% 1.00% After 3 years $108 $110 $ 90 $ 91 $ 91
Other expenses (a) 1.15% 1.17% 1.18% After 5 years $155 $154 $154 $154 $154
---- ---- ---- After 10 years $285 $307(b) $307(b) $325 $325
Total fund
operating expenses 2.20% 2.92% 2.93%
==== ==== ====
Utility Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.00% 0.00% 0.00% After 1 year $ 57 $ 62 $ 22 $ 32 $ 22
(after waiver) (c) After 3 years $ 88 $ 89 $ 69 $ 69 $ 69
12b-1 fees .30% 1.00% 1.00% After 5 years $121 $118 $118 $118 $118
Other expenses (a) 1.20% 1.20% 1.20% After 10 years $214 $236(b) $236(b) $253 $253
---- ---- ----
Total fund
operating expenses (e) 1.50% 2.20% 2.20%
==== ==== ====
Growth and Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .51% .51% .51% After 1 year $ 52 $ 58 $ 18 $ 28 $ 18
12b-1 fees .21% 1.00% 1.00% After 3 years $ 72 $ 76 $ 56 $ 55 $ 55
Other expenses (a) .25% .27% .25% After 5 years $ 94 $ 96 $ 96 $ 95 $ 95
---- ---- ---- After 10 years $156 $188(b) $188(b) $207 $207
Total fund
operating expenses .97% 1.78% 1.76%
==== ==== ====
Real Estate Investment Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .90% .90% .90% After 1 year $ 60 $ 65 $ 25 $ 35 $ 25
12b-1 fees .30% 1.00% 1.00% After 3 years $ 96 $ 96 $ 76 $ 76 $ 76
Other expenses (a) .57% .54% .53% After 5 years $134 $130 $130 $130 $130
---- ---- ---- After 10 years $242 $261(b) $261(b) $277 $277
Total fund
operating expenses 1.77% 2.44% 2.43%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance. The expenses shown do not reflect
the application of credits that reduce Fund expenses.
(b) Assumes Class B shares converted to Class A shares after eight years, or
six years with respect to Premier Growth Fund.
(c) Net of voluntary fee waiver. In the absence of such waiver, management fees
would be .75% for Strategic Balanced Fund and Utility Income Fund, 1.00%
for All-Asia Investment Fund and 1.01% for International Fund.
International Fund's fee, absent the voluntary fee waiver, is calculated
based on average daily net assets. Maximum contractual rate, based on
quarter-end net assets, is 1.00%.
(d) Net of voluntary fee waiver and/or expense reimbursement. In the absence of
such waiver and/or reimbursement, total fund operating expenses for
Strategic Balanced Fund would have been 2.06%, 2.76% and 2.76%,
respectively, for Class A, Class B and Class C shares, total fund operating
expenses for All-Asia Investment Fund would have been 3.61%, 4.33% and
4.30%, respectively, for Class A, Class B and Class C shares annualized and
total fund operating expenses for International Fund would have been 1.74%,
2.59% and 2.58%, respectively, for Class A, Class B and Class C annualized.
(e) Net of expense reimbursements. Absent expense reimbursements, total fund
operating expenses for Utility Income Fund would be 3.38%, 4.08%, 4.07%,
respectively, for Class A, Class B and Class C shares.
(f) Net of voluntary fee waiver. Absent such fee waiver, administration fees
would have been .15% for the Fund's Class A, Class B and Class C shares.
Reflects the fees payable by All-Asia Investment Fund to Alliance pursuant
to an administration agreement.
(g) Calculated based on average daily net assets. Maximum contractual rate,
based on quarter-end net assets, is 1.00% for Quasar Fund and Technology
Fund.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Fund will bear directly or
indirectly. Long-term shareholders of a Fund may pay aggregate sales charges
totaling more than the economic equivalent of the maximum initial sales charges
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. See "Management of the Funds--Distribution Services Agreements."
The Rule 12b-1 fee for each class comprises a service fee not exceeding .25% of
the aggregate average daily net assets of the Fund attributable to the class and
an asset-based sales charge equal to the remaining portion of the Rule 12b-1
fee. "Management fees" for International Fund and All-Asia Investment Fund and
"Administration fees" for All-Asia Investment Fund have been restated to reflect
current voluntary fee waivers. The examples set forth above assume reinvestment
of all dividends and distributions and utilize a 5% annual rate of return as
mandated by Commission regulations. The examples should not be considered
representative of past or future expenses; actual expenses may be greater or
less than those shown.
6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. Except
as otherwise indicated, the information in the tables for Alliance Fund, Growth
Fund, Premier Growth Fund, Strategic Balanced Fund, Balanced Shares, Utility
Income Fund, Worldwide Privatization Fund and Growth and Income Fund has been
audited by Price Waterhouse LLP, the independent auditors for each Fund, and for
All-Asia Investment Fund, Technology Fund, Quasar Fund, International Fund, New
Europe Fund, Global Small Cap Fund, Real Estate Investment Fund and Income
Builder Fund by Ernst & Young LLP, the independent auditors for each Fund. A
report of Price Waterhouse LLP or Ernst & Young LLP, as the case may be, on the
information with respect to each Fund, appears in the Fund's Statement of
Additional Information. The following information for each Fund should be read
in conjunction with the financial statements and related notes which are
included in the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's annual
report to shareholders, which may be obtained without charge by contacting
Alliance Fund Services, Inc. at the address or the "For Literature" telephone
number shown on the cover of this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Alliance Fund
Class A
12/1/96 to 5/31/97+++.... $ 7.71 $ (.01)(b) $ .67 $ .66 $ (.02) $(1.06)
Year ended 11/30/96 ..... 7.72 .02 1.06 1.08 (.02) (1.07)
Year ended 11/30/95 ..... 6.63 .02 2.08 2.10 (.01) (1.00)
1/1/94 to 11/30/94** .... 6.85 .01 (.23) (.22) 0.00 0.00
Year ended 12/31/93 ..... 6.68 .02 .93 .95 (.02) (.76)
Year ended 12/31/92 ..... 6.29 .05 .87 .92 (.05) (.48)
Year ended 12/31/91 ..... 5.22 .07 1.70 1.77 (.07) (.63)
Year ended 12/31/90 ..... 6.87 .09 (.32) (.23) (.18) (1.24)
Year ended 12/31/89 ..... 5.60 .12 1.19 1.31 (.04) 0.00
Year ended 12/31/88 ..... 5.15 .08 .80 .88 (.08) (.35)
Year ended 12/31/87 ..... 6.87 .08 .27 .35 (.13) (1.94)
Year ended 12/31/86 ..... 11.15 .11 .87 .98 (.10) (5.16)
Class B
12/1/96 to 5/31/97+++.... $ 7.40 $ (.03)(b) $ .63 $ .60 $ 0.00 $(1.06)
Year ended 11/30/96 ..... 7.49 (.01) .99 .98 0.00 (1.07)
Year ended 11/30/95 ..... 6.50 (.03) 2.02 1.99 0.00 (1.00)
1/1/94 to 11/30/94** .... 6.76 (.03) (.23) (.26) 0.00 0.00
Year ended 12/31/93 ..... 6.64 (.03) .91 .88 0.00 (.76)
Year ended 12/31/92 ..... 6.27 (.01)(b) .87 .86 (.01) (.48)
3/4/91++ to 12/31/91 .... 6.14 .01(b) .79 .80 (.04) (.63)
Class C
12/1/96 to 5/31/97+++.... $ 7.41 $ (.03)(b) $ .62 $ .59 $ 0.00 $(1.06)
Year ended 11/30/96 ..... 7.50 (.02) 1.00 .98 0.00 (1.07)
Year ended 11/30/95 ..... 6.50 (.03) 2.03 2.00 0.00 (1.00)
1/1/94 to 11/30/94** .... 6.77 (.03) (.24) (.27) 0.00 0.00
5/3/93++ to 12/31/93 .... 6.67 (.02) .88 .86 0.00 (.76)
Growth Fund(i)
Class A
11/1/96 to 4/30/97+++.... $34.91 $ (.01)(b) $ 1.91 $ 1.90 $ 0.00 $(1.03)
Year ended 10/31/96 ..... 29.48 .05 6.20 6.25 (.19) (.63)
Year ended 10/31/95 ..... 25.08 .12 4.80 4.92 (.11) (.41)
5/1/94 to 10/31/94** .... 23.89 .09 1.10 1.19 0.00 0.00
Year ended 4/30/94 ...... 22.67 (.01)(c) 3.55 3.54 0.00 (2.32)
Year ended 4/30/93 ...... 20.31 .05(c) 3.68 3.73 (.14) (1.23)
Year ended 4/30/92 ...... 17.94 .29(c) 3.95 4.24 (.26) (1.61)
9/4/90++ to 4/30/91 ..... 13.61 .17(c) 4.22 4.39 (.06) 0.00
Class B
11/1/96 to 4/30/97+++.... $29.21 $ (.11)(b) $ 1.60 $ 1.49 $ 0.00 $(1.03)
Year ended 10/31/96 ..... 24.78 (.12) 5.18 5.06 0.00 (.63)
Year ended 10/31/95 ..... 21.21 (.02) 4.01 3.99 (.01) (.41)
5/1/94 to 10/31/94** .... 20.27 .01 .93 .94 0.00 0.00
Year ended 4/30/94 ...... 19.68 (.07)(c) 2.98 2.91 0.00 (2.32)
Year ended 4/30/93 ...... 18.16 (.06)(c) 3.23 3.17 (.03) (1.62)
Year ended 4/30/92 ...... 16.88 .17(c) 3.67 3.84 (.21) (2.35)
Year ended 4/30/91 ...... 14.38 .08(c) 3.22 3.30 (.09) (.71)
Year ended 4/30/90 ...... 14.13 .01(b)(c) 1.26 1.27 0.00 (1.02)
Year ended 4/30/89 ...... 12.76 (.01)(c) 2.44 2.43 0.00 (1.06)
10/23/87+ to 4/30/88 .... 10.00 (.02)(c) 2.78 2.76 0.00 0.00
Class C
11/1/96 to 4/30/97+++.... $29.22 $ (.11)(b) $ 1.60 $ 1.49 $ 0.00 $(1.03)
Year ended 10/31/96 ..... 24.79 (.12) 5.18 5.06 0.00 (.63)
Year ended 10/31/95 ..... 21.22 (.03) 4.02 3.99 (.01) (.41)
5/1/94 to 10/31/94** .... 20.28 .01 .93 .94 0.00 0.00
8/2/93++ to 4/30/94 ..... 21.47 (.02)(c) 1.15 1.13 0.00 (2.32)
Premier Growth Fund
Class A
12/1/96 to 5/31/97+++.... $17.98 $ (.03)(b) $ 2.64 $ 2.61 $ 0.00 $(1.08)
Year ended 11/30/96 ..... 16.09 (.04)(b) 3.20 3.16 0.00 (1.27)
Year ended 11/30/95 ..... 11.41 (.03) 5.38 5.35 0.00 (.67)
Year ended 11/30/94 ..... 11.78 (.09) (.28) (.37) 0.00 0.00
Year ended 11/30/93 ..... 10.79 (.05) 1.05 1.00 (.01) 0.00
9/28/92+ to 11/30/92 .... 10.00 .01 .78 .79 0.00 0.00
Class B
12/1/96 to 5/31/97+++.... $17.52 $ (.09)(b) $ 2.56 $ 2.47 $ 0.00 $(1.08)
Year ended 11/30/96 ..... 15.81 (.14)(b) 3.12 2.98 0.00 (1.27)
Year ended 11/30/95 ..... 11.29 (.11) 5.30 5.19 0.00 (.67)
Year ended 11/30/94 ..... 11.72 (.15) (.28) (.43) 0.00 0.00
Year ended 11/30/93 ..... 10.79 (.10) 1.03 .93 0.00 0.00
9/28/92+ to 11/30/92 .... 10.00 0.00 .79 .79 0.00 0.00
Class C
12/1/96 to 5/31/97+++.... $17.54 $ (.09)(b) $ 2.57 $ 2.48 $ 0.00 $(1.08)
Year ended 11/30/96 ..... 15.82 (.14)(b) 3.13 2.99 0.00 (1.27)
Year ended 11/30/95 ..... 11.30 (.08) 5.27 5.19 0.00 (.67)
Year ended 11/30/94 ..... 11.72 (.09) (.33) (.42) 0.00 0.00
5/3/93++ to 11/30/93 .... 10.48 (.05) 1.29 1.24 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 18.
8
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss) Average
And End Of on Net Asset (000's To Average To Average Portfolio Commission
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate Rate (k)
------------- ------------- ------------ ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (1.08) $ 7.29 10.46% $1,024,652 1.05%* (.16)%* 107% $0.0559
(1.09) 7.71 16.49 999,067 1.04 .30 80 0.0646
(1.01) 7.72 37.87 945,309 1.08 .31 81 --
0.00 6.63 (3.21) 760,679 1.05* .21* 63 --
(.78) 6.85 14.26 831,814 1.01 .27 66 --
(.53) 6.68 14.70 794,733 .81 .79 58 --
(.70) 6.29 33.91 748,226 .83 1.03 74 --
(1.42) 5.22 (4.36) 620,374 .81 1.56 71 --
(.04) 6.87 23.42 837,429 .75 1.79 81 --
(.43) 5.60 17.10 760,619 .82 1.38 65 --
(2.07) 5.15 4.90 695,812 .76 1.03 100 --
(5.26) 6.87 12.60 652,009 .61 1.39 46 --
$ (1.06) $ 6.94 9.98% $ 50,785 1.88%* (.99)%* 107% $0.0559
(1.07) 7.40 15.47 44,450 1.87 (.53) 80 0.0646
(1.00) 7.49 36.61 31,738 1.90 (.53) 81 --
0.00 6.50 (3.85) 18,138 1.89* (.60)* 63 --
(.76) 6.76 13.28 12,402 1.90 (.64) 66 --
(.49) 6.64 13.75 3,825 1.64 (.04) 58 --
(.67) 6.27 13.10 852 1.64* .10* 74 --
$ (1.06) $ 6.94 9.83% $ 15,670 1.86%* (.97)%* 107% $0.0559
(1.07) 7.41 15.48 13,899 1.86 (.51) 80 0.0646
(1.00) 7.50 36.79 10,078 1.89 (.51) 81 --
0.00 6.50 (3.99) 6,230 1.87* (.59)* 63 --
(.76) 6.77 13.95 4,006 1.94* (.74)* 66 --
$ (1.03) $ 35.78 5.46% $ 579,580 1.24%* (.03)%* 19% $0.0537
(.82) 34.91 21.65 499,459 1.30 .15 46 0.0584
(.52) 29.48 20.18 285,161 1.35 .56 61 --
0.00 25.08 4.98 167,800 1.35* .86* 24 --
(2.32) 23.89 15.66 102,406 1.40 (f) .32 87 --
(1.37) 22.67 18.89 13,889 1.40 (f) .20 124 --
(1.87) 20.31 23.61 8,228 1.40 (f) 1.44 137 --
(.06) 17.94 32.40 713 1.40*(f) 1.99* 130 --
$ (1.03) $ 29.67 5.12% $2,829,994 1.94%* (.74)%* 19% $0.0537
(.63) 29.21 20.82 2,498,097 1.99 (.54) 46 0.0584
(.42) 24.78 19.33 1,052,020 2.05 (.15) 61 --
0.00 21.21 4.64 751,521 2.05* .16* 24 --
(2.32) 20.27 14.79 394,227 2.10 (f) (.36) 87 --
(1.65) 19.68 18.16 56,704 2.15 (f) (.53) 124 --
(2.56) 18.16 22.75 37,845 2.15 (f) .78 137 --
(.80) 16.88 24.72 22,710 2.10 (f) .56 130 --
(1.02) 14.38 8.81 15,800 2.00 (f) .07 165 --
(1.06) 14.13 20.31 7,672 2.00 (f) (.03) 139 --
0.00 12.76 27.60 1,938 2.00*(f) (.40)* 52 --
$ (1.03) $ 29.68 5.11% $ 472,104 1.94%* (.73)%* 19% $0.0537
(.63) 29.22 20.81 403,478 2.00 (.55) 46 0.0584
(.42) 24.79 19.32 226,662 2.05 (.15) 61 --
0.00 21.22 4.64 114,455 2.05* .16* 24 --
(2.32) 20.28 5.27 64,030 2.10*(f) (.31)* 87 --
$ (1.08) $ 19.51 15.70% $ 215,464 1.57%* (.36)%* 47% $0.0598
(1.27) 17.98 21.52 172,870 1.65 (.27) 95 0.0651
(.67) 16.09 49.95 72,366 1.75 (.28) 114 --
0.00 11.41 (3.14) 35,146 1.96 (.67) 98 --
(.01) 11.78 9.26 40,415 2.18 (.61) 68 --
0.00 10.79 7.90 4,893 2.17* .91* 0 --
$ (1.08) $ 18.91 15.29% $ 550,297 2.26%* (1.05)%* 47% $0.0598
(1.27) 17.52 20.70 404,137 2.32 (.94) 95 0.0651
(.67) 15.81 49.01 238,088 2.43 (.95) 114 --
0.00 11.29 (3.67) 139,988 2.47 (1.19) 98 --
0.00 11.72 8.64 151,600 2.70 (1.14) 68 --
0.00 10.79 7.90 19,941 2.68*(f) .35* 0 --
$ (1.08) $ 18.94 15.33% $ 91,551 2.25% (1.05)%* 47% $0.0598
(1.27) 17.54 20.76 60,194 2.32 (.94) 95 0.0651
(.67) 15.82 48.96 20,679 2.42 (.97) 114 --
0.00 11.30 (3.58) 7,332 2.47 (1.16) 98 --
0.00 11.72 11.83 3,899 2.79* (1.35)* 68 --
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Technology Fund
Class A
12/1/96 to 5/31/97+++.... $51.15 $ (.20)(b) $ .70 $ .50 $ 0.00 $ (.42)
Year ended 11/30/96 ..... 46.64 (.39)(b) 7.28 6.89 0.00 (2.38)
Year ended 11/30/95 ..... 31.98 (.30) 18.13 17.83 0.00 (3.17)
1/1/94 to 11/30/94** .... 26.12 (.32) 6.18 5.86 0.00 0.00
Year ended 12/31/93 ..... 28.20 (.29) 6.39 6.10 0.00 (8.18)
Year ended 12/31/92 ..... 26.38 (.22)(b) 4.31 4.09 0.00 (2.27)
Year ended 12/31/91 ..... 19.44 (.02) 10.57 10.55 0.00 (3.61)
Year ended 12/31/90 ..... 21.57 (.03) (.56) (.59) 0.00 (1.54)
Year ended 12/31/89 ..... 20.35 0.00 1.22 1.22 0.00 0.00
Year ended 12/31/88 ..... 20.22 (.03)(c) .16 .13 0.00 0.00
Year ended 12/31/87 ..... 23.11 (.10)(c) 4.54 4.44 0.00 (7.33)
Year ended 12/31/86 ..... 20.64 (.14)(c) 2.62 2.48 (.01) 0.00
Class B
12/1/96 to 5/31/97+++.... $49.76 $ (.35)(b) $ .66 $ .31 $ 0.00 $ (.42)
Year ended 11/30/96 ..... 45.76 (.70)(b) 7.08 6.38 0.00 (2.38)
Year ended 11/30/95 ..... 31.61 (.60)(b) 17.92 17.32 0.00 (3.17)
1/1/94 to 11/30/94** .... 25.98 (.23) 5.86 5.63 0.00 0.00
5/3/93++ to 12/31/93 .... 27.44 (.12) 6.84 6.72 0.00 (8.18)
Class C
12/1/96 to 5/31/97+++.... $49.76 $ (.35)(b) $ .66 $ .31 $ 0.00 $ (.42)
Year ended 11/30/96 ..... 45.77 (.70)(b) 7.07 6.37 0.00 (2.38)
Year ended 11/30/95 ..... 31.61 (.58)(b) 17.91 17.33 0.00 (3.17)
1/1/94 to 11/30/94** .... 25.98 (.24) 5.87 5.63 0.00 0.00
5/3/93++ to 12/31/93 .... 27.44 (.13) 6.85 6.72 0.00 (8.18)
Quasar Fund
Class A
10/1/96 to 3/31/97+++.... $27.92 $ (.11)(b) $ .27 $ .16 $ 0.00 $(4.11)
Year ended 9/30/96 ...... 24.16 (.25) 8.82 8.57 0.00 (4.81)
Year ended 9/30/95 ...... 22.65 (.22)(b) 5.59 5.37 0.00 (3.86)
Year ended 9/30/94 ...... 24.43 (.60) (.36) (.96) 0.00 (.82)
Year ended 9/30/93 ...... 19.34 (.41) 6.38 5.97 0.00 (.88)
Year ended 9/30/92 ...... 21.27 (.24) (1.53) (1.77) 0.00 (.16)
Year ended 9/30/91 ...... 15.67 (.05) 5.71 5.66 (.06) 0.00
Year ended 9/30/90 ...... 24.84 .03(b) (7.18) (7.15) 0.00 (2.02)
Year ended 9/30/89 ...... 17.60 .02(b) 7.40 7.42 0.00 (.18)
Year ended 9/30/88 ...... 24.47 (.08)(c) (2.08) (2.16) 0.00 (4.71)
Year ended 9/30/87(d).... 21.80 (.14)(c) 5.88 5.74 0.00 (3.07)
Class B
10/1/96 to 3/31/97+++.... $26.13 $ (.19)(b) $ .24 $ .05 $ 0.00 $(4.11)
Year ended 9/30/96 ...... 23.03 (.20) 8.11 7.91 0.00 (4.81)
Year ended 9/30/95 ...... 21.92 (.37)(b) 5.34 4.97 0.00 (3.86)
Year ended 9/30/94 ...... 23.88 (.53) (.61) (1.14) 0.00 (.82)
Year ended 9/30/93 ...... 19.07 (.18) 5.87 5.69 0.00 (.88)
Year ended 9/30/92 ...... 21.14 (.39) (1.52) (1.91) 0.00 (.16)
Year ended 9/30/91 ...... 15.66 (.13) 5.67 5.54 (.06) 0.00
9/17/90++ to 9/30/90 .... 17.17 (.01) (1.50) (1.51) 0.00 0.00
Class C
10/1/96 to 3/31/97+++.... $26.14 $ (.19)(b) $ .23 $ .04 $ 0.00 $(4.11)
Year ended 9/30/96 ...... 23.05 (.20) 8.10 7.90 0.00 (4.81)
Year ended 9/30/95 ...... 21.92 (.37)(b) 5.36 4.99 0.00 (3.86)
Year ended 9/30/94 ...... 23.88 (.36) (.78) (1.14) 0.00 (.82)
5/3/93++ to 9/30/93 ..... 20.33 (.10) 3.65 3.55 0.00 0.00
International Fund
Class A
Year ended 6/30/97 ...... $18.32 $ .06(b) $ 1.51 $ 1.57 $ (.12) $(1.08)
Year ended 6/30/96 ...... 16.81 .05(b) 2.51 2.56 0.00 (1.05)
Year ended 6/30/95 ...... 18.38 .04 .01 .05 0.00 (1.62)
Year ended 6/30/94 ...... 16.01 (.09) 3.02 2.93 0.00 (.56)
Year ended 6/30/93 ...... 14.98 (.01) 1.17 1.16 (.04) (.09)
Year ended 6/30/92 ...... 14.00 .01(b) 1.04 1.05 (.07) 0.00
Year ended 6/30/91 ...... 17.99 .05 (3.54) (3.49) (.03) (.47)
Year ended 6/30/90 ...... 17.24 .03 2.87 2.90 (.04) (2.11)
Year ended 6/30/89 ...... 16.09 .05 3.73 3.78 (.13) (2.50)
Year ended 6/30/88 ...... 23.70 .17 (1.22) (1.05) (.21) (6.35)
Class B
Year ended 6/30/97 ...... $17.45 $ (.09)(b) $ 1.43 $ 1.34 $ 0.00 $(1.08)
Year ended 6/30/96 ...... 16.19 (.07)(b) 2.38 2.31 0.00 (1.05)
Year ended 6/30/95 ...... 17.90 (.01) (.08) (.09) 0.00 (1.62)
Year ended 6/30/94 ...... 15.74 (.19)(b) 2.91 2.72 0.00 (.56)
Year ended 6/30/93 ...... 14.81 (.12) 1.14 1.02 0.00 (.09)
Year ended 6/30/92 ...... 13.93 (.11)(b) 1.02 .91 (.03) 0.00
9/17/90++ to 6/30/91 .... 15.52 .03 (1.12) (1.09) (.03) (.47)
Class C
Year ended 6/30/97 ...... $17.46 $ (.09)(b) $ 1.44 $ 1.35 $ 0.00 $(1.08)
Year ended 6/30/96 ...... 16.20 (.07)(b) 2.38 2.31 0.00 (1.05)
Year ended 6/30/95 ...... 17.91 (.14) .05 (.09) 0.00 (1.62)
Year ended 6/30/94 ...... 15.74 (.11) 2.84 2.73 0.00 (.56)
5/3/93++ to 6/30/93 ..... 15.93 0.00 (.19) (.19) 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 18.
10
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss) Average
And End Of on Net Asset (000's To Average To Average Portfolio Commission
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate Rate (k)
------------- ------------- ------------ ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (.42) $ 51.23 .99% $631,967 1.64%* (.81)%* 28% $0.0576
(2.38) 51.15 16.05 594,861 1.74 (.87) 30 0.0612
(3.17) 46.64 61.93 398,262 1.75 (.77) 55 --
0.00 31.98 22.43 202,929 1.66* (1.22)* 55 --
(8.18) 26.12 21.63 173,732 1.73 (1.32) 64 --
(2.27) 28.20 15.50 173,566 1.61 (.90) 73 --
(3.61) 26.38 54.24 191,693 1.71 (.20) 134 --
(1.54) 19.44 (3.08) 131,843 1.77 (.18) 147 --
0.00 21.57 6.00 141,730 1.66 .02 139 --
0.00 20.35 0.64 169,856 1.42(f) (.16) 139 --
(7.33) 20.22 19.16 167,608 1.31(f) (.56) 248 --
(.01) 23.11 12.03 147,733 1.13(f) (.57) 141 --
$ (.42) $ 49.65 .64% $864,200 2.35%* (1.50)%* 28% $0.0576
(2.38) 49.76 15.20 660,921 2.44 (1.61) 30 0.0612
(3.17) 45.76 60.95 277,111 2.48 (1.47) 55 --
0.00 31.61 21.67 18,397 2.43* (1.95)* 55 --
(8.18) 25.98 24.49 1,645 2.57* (2.30)* 64 --
$ (.42) $ 49.65 .64% $145,146 2.36%* (1.50)%* 28% $0.0576
(2.38) 49.76 15.17 108,488 2.44 (1.60) 30 0.0612
(3.17) 45.77 60.98 43,161 2.48 (1.47) 55 --
0.00 31.61 21.67 7,470 2.41* (1.94)* 55 --
(8.18) 25.98 24.49 1,096 2.52* (2.25)* 64 --
$ (4.11) $ 23.97 .88% $265,131 1.54%* (.81)%* 75% $0.0533
(4.81) 27.92 42.42 229,798 1.79 (1.11) 168 0.0596
(3.86) 24.16 30.73 146,663 1.83 (1.06) 160 --
(.82) 22.65 (4.05) 155,470 1.67 (1.15) 110 --
(.88) 24.43 31.58 228,874 1.65 (1.00) 102 --
(.16) 19.34 (8.34) 252,140 1.62 (.89) 128 --
(.06) 21.27 36.28 333,806 1.64 (.22) 118 --
(2.02) 15.67 (30.81) 251,102 1.66 .16 90 --
(.18) 24.84 42.68 263,099 1.73 .10 90 --
(4.71) 17.60 (8.61) 90,713 1.28(f) (.40) 58 --
(3.07) 24.47 29.61 134,676 1.18(f) (.56) 76 --
$ (4.11) $ 22.07 .48% $229,756 2.35%* (1.61)%* 75% $0.0533
(4.81) 26.13 41.48 112,490 2.62 (1.96) 168 0.0596
(3.86) 23.03 29.78 16,604 2.65 (1.88) 160 --
(.82) 21.92 (4.92) 13,901 2.50 (1.98) 110 --
(.88) 23.88 30.53 16,779 2.46 (1.81) 102 --
(.16) 19.07 (9.05) 9,454 2.42 (1.67) 128 --
(.06) 21.14 35.54 7,346 2.41 (1.28) 118 --
0.00 15.66 (8.79) 71 2.09* (.26)* 90 --
$ (4.11) $ 22.07 .44% $ 66,742 2.34%* (1.59)%* 75% $0.0533
(4.81) 26.14 41.46 28,541 2.61 (1.94) 168 0.0596
(3.86) 23.05 29.87 1,611 2.64* (1.76)* 160 --
(.82) 21.92 (4.92) 1,220 2.48 (1.96) 110 --
0.00 23.88 17.46 118 2.49* (1.90)* 102 --
$ (1.20) $ 18.69 9.30% $190,173 1.74%(l) .31% 94% $0.0363
(1.05) 18.32 15.83 196,261 1.72 .31 78 --
(1.62) 16.81 .59 165,584 1.73 .26 119 --
(.56) 18.38 18.68 201,916 1.90 (.50) 97 --
(.13) 16.01 7.86 161,048 1.88 (.14) 94 --
(.07) 14.98 7.52 179,807 1.82 .07 72 --
(.50) 14.00 (19.34) 214,442 1.73 .37 71 --
(2.15) 17.99 16.98 265,999 1.45 .33 37 --
(2.63) 17.24 27.65 166,003 1.41 .39 87 --
(6.56) 16.09 (4.20) 132,319 1.41 .84 55 --
$ (1.08) $ 17.71 8.37% $ 77,725 2.59%(l) (.51)% 94% $0.0363
(1.05) 17.45 14.87 72,470 2.55 (.46) 78 --
(1.62) 16.19 (.22) 48,998 2.57 (.62) 119 --
(.56) 17.90 17.65 29,943 2.78 (1.15) 97 --
(.09) 15.74 6.98 6,363 2.70 (.96) 94 --
(.03) 14.81 6.54 5,585 2.68 (.70) 72 --
(.50) 13.93 (6.97) 3,515 3.39* .84* 71 --
$ (1.08) $ 17.73 8.42% $ 23,268 2.58%(l) (.51)% 94% $0.0363
(1.05) 17.46 14.85 26,965 2.53 (.47) 78 --
(1.62) 16.20 (.22) 19,395 2.54 (.88) 119 --
(.56) 17.91 17.72 13,503 2.78 (1.12) 97 --
0.00 15.74 (1.19) 229 2.57* .08* 94 --
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase Distributions
Value Unrealized (Decrease) In Dividends From In Excess of Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Income Realized Gains
--------------------- ------------ -------------- ------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Worldwide Privatization Fund
Class A
Year ended 6/30/97 ...... $12.13 $ .15(b) $ 2.55 $ 2.70 $ (.15) $ 0.00 $(1.42)
Year ended 6/30/96 ...... 10.18 .10(b) 1.85 1.95 0.00 0.00 0.00
Year ended 6/30/95 ...... 9.75 .06 .37 .43 0.00 0.00 0.00
6/2/94+ to 6/30/94 ...... 10.00 .01 (.26) (.25) 0.00 0.00 0.00
Class B
Year ended 6/30/97 ...... $11.96 $ .08(b) $ 2.50 $ 2.58 $ (.08) $ 0.00 $(1.42)
Year ended 6/30/96 ...... 10.10 (.02) 1.88 1.86 0.00 0.00 0.00
Year ended 6/30/95 ...... 9.74 .02 .34 .36 0.00 0.00 0.00
6/2/94+ to 6/30/94 ...... 10.00 .00 (.26) (.26) 0.00 0.00 0.00
Class C
Year ended 6/30/97 ...... $11.96 $ .12(b) $ 2.46 $ 2.58 $ (.08) $ 0.00 $(1.42
Year ended 6/30/96 ...... 10.10 .03 1.83 1.86 0.00 0.00 0.00
2/8/95++ to 6/30/95 ..... 9.53 .05 .52 .57 0.00 0.00 0.00
New Europe Fund
Class A
Year ended 7/31/97 ...... $15.84 $ .07(b) $ 4.20 $ 4.27 $ (.15) $ (.03) $(1.32)
Year ended 7/31/96 ...... 15.11 .18 1.02 1.20 0.00 0.00 (.47)
Year ended 7/31/95 ...... 12.66 .04 2.50 2.54 (.09) 0.00 0.00
Period ended 7/31/94** .. 12.53 .09 .04 .13 0.00 0.00 0.00
Year ended 2/28/94 ...... 9.37 .02(b) 3.14 3.16 0.00 0.00 0.00
Year ended 2/28/93 ...... 9.81 .04 (.33) (.29) (.15) 0.00 0.00
Year ended 2/29/92 ...... 9.76 .02(b) .05 .07 (.02) 0.00 0.00
4/2/90+ to 2/28/91 ...... 11.11(e) .26 (.91) (.65) (.26) 0.00 (.44)
Class B
Year ended 7/31/97 ...... $15.31 $ (.04)(b) $ 4.02 $ 3.98 $ 0.00 $ (.10) $(1.32)
Year ended 7/31/96 ...... 14.71 .08 .99 1.07 0.00 0.00 (.47)
Year ended 7/31/95 ...... 12.41 (.05) 2.44 2.39 (.09) 0.00 0.00
Period ended 7/31/94** .. 12.32 .07 .02 .09 0.00 0.00 0.00
Year ended 2/28/94 ...... 9.28 (.05)(b) 3.09 3.04 0.00 0.00 0.00
Year ended 2/28/93 ...... 9.74 (.02) (.33) (.35) (.11) 0.00 0.00
3/5/91++ to 2/29/92 ..... 9.84 (.04)(b) (.04) (.08) (.02) 0.00 0.00
Class C
Year ended 7/31/97 ...... $15.33 $ (.04)(b) $ 4.02 $ 3.98 $ 0.00 $ (.10) $(1.32)
Year ended 7/31/96 ...... 14.72 .08 1.00 1.08 0.00 0.00 (.47)
Year ended 7/31/95 ...... 12.42 (.07) 2.46 2.39 (.09) 0.00 0.00
Period ended 7/31/94** .. 12.33 .06 .03 .09 0.00 0.00 0.00
5/3/93++ to 2/28/94 ..... 10.21 (.04)(b) 2.16 2.12 0.00 0.00 0.00
All-Asia Investment Fund
Class A
11/1/96 to 4/30/97+++ ... $11.04 $ (.13)(b) $ (.50) $ (.63) $ 0.00 $ 0.00 $ (.34)
Year ended 10/31/96 ..... 10.45 (.21)(b)(c) .88 .67 0.00 0.00 (.08)
11/28/94+ to 10/31/95 ... 10.00 (.19)(c) .64 .45 0.00 0.00 0.00
Class B
11/1/96 to 4/30/97+++ ... $10.90 $ (.16)(b) $ (.49) $ (.65) $ 0.00 $ 0.00 $ (.34)
Year ended 10/31/96 ..... 10.41 (.28)(b)(c) .85 .57 0.00 0.00 (.08)
11/28/94+ to 10/31/95 ... 10.00 (.25)(c) .66 .41 0.00 0.00 0.00
Class C
11/1/96 to 4/30/97+++ ... $10.91 $ (.16)(b) $ (.49) $ (.65) $ 0.00 $ 0.00 $ (.34)
Year ended 10/31/96 ..... 10.41 (.28)(b)(c) .86 .58 0.00 0.00 (.08)
11/28/94+ to 10/31/95 ... 10.00 (.35)(c) .76 .41 0.00 0.00 0.00
Global Small Cap Fund
Class A
Year ended 7/31/97 ...... $11.61 $ (.15)(b) $ 2.97 $ 2.82 $ 0.00 $ 0.00 $(1.56)
Year ended 7/31/96 ...... 10.38 (.14)(b) 1.90 1.76 0.00 0.00 (.53)
Year ended 7/31/95 ...... 11.08 (.09) 1.50 1.41 0.00 0.00 (2.11)(j)
Period ended 7/31/94** .. 11.24 (.15)(b) (.01) (.16) 0.00 0.00 0.00
Year ended 9/30/93 ...... 9.33 (.15) 2.49 2.34 0.00 0.00 (.43)
Year ended 9/30/92 ...... 10.55 (.16) (1.03) (1.19) 0.00 0.00 (.03)
Year ended 9/30/91 ...... 8.26 (.06) 2.35 2.29 0.00 0.00 0.00
Year ended 9/30/90 ...... 15.54 (.05)(b) (4.12) (4.17) 0.00 0.00 (3.11)
Year ended 9/30/89 ...... 11.41 (.03) 4.25 4.22 0.00 0.00 (.09)
Year ended 9/30/88 ...... 15.07 (.05) (1.83) (1.88) 0.00 0.00 (1.78)
Year ended 9/30/87 ...... 15.47 (.07) 4.19 4.12 (.04) 0.00 (4.48)
Class B
Year ended 7/31/97 ...... $11.03 $ (.21)(b) $ 2.77 $ 2.56 $ 0.00 $ 0.00 $(1.56)
Year ended 7/31/96 ...... 9.95 (.20)(b) 1.81 1.61 0.00 0.00 (.53)
Year ended 7/31/95 ...... 10.78 (.12) 1.40 1.28 0.00 0.00 (2.11)(j)
Period ended 7/31/94** .. 11.00 (.17)(b) (.05) (.22) 0.00 0.00 0.00
Year ended 9/30/93 ...... 9.20 (.15) 2.38 2.23 0.00 0.00 (.43)
Year ended 9/30/92 ...... 10.49 (.20) (1.06) (1.26) 0.00 0.00 (.03)
Year ended 9/30/91 ...... 8.26 (.07) 2.30 2.23 0.00 0.00 0.00
9/17/90++ to 9/30/90 .... 9.12 (.01) (.85) (.86) 0.00 0.00 0.00
Class C
Year ended 7/31/97 ...... $11.05 $ (.22)(b) $ 2.78 $ 2.56 $ 0.00 $ 0.00 $(1.56)
Year ended 7/31/96 ...... 9.96 (.20)(b) 1.82 1.62 0.00 0.00 (.53)
Year ended 7/31/95 ...... 10.79 (.17) 1.45 1.28 0.00 0.00 (2.11)(j)
Period ended 7/31/94** .. 11.00 (.17)(b) (.04) (.21) 0.00 0.00 0.00
5/3/93++ to 9/30/93 ..... 9.86 (.05) 1.19 1.14 0.00 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 18.
12
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss) Average
And End Of on Net Asset (000's To Average To Average Portfolio Commission
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate Rate (k)
------------- ------------- ------------ ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (1.57) $ 13.26 25.16% $561,793 1.72% 1.27% 48% $0.0132
0.00 12.13 19.16 672,732 1.87 .95 28 --
0.00 10.18 4.41 13,535 2.56 .66 36 --
0.00 9.75 (2.50) 4,990 2.75* 1.03* 0 --
$ (1.50) $ 13.04 24.34% $121,173 2.43% .66% 48% $0.0132
0.00 11.96 18.42 83,050 2.83 (.20) 28 --
0.00 10.10 3.70 79,359 3.27 .01 36 --
0.00 9.74 (2.60) 22,859 3.45* .33* 0 --
$ (1.50) $ 13.04 24.33% $ 12,929 2.42% 1.06% 48% $0.0132
0.00 11.96 18.42 2,383 2.57 .63 28 --
0.00 10.10 5.98 338 3.27* 2.65* 36 --
$ (1.50) $ 18.61 28.78% $ 78,578 2.05%(l) .40% 89% $0.0569
(.47) 15.84 8.20 74,026 2.14 1.10 69 --
(.09) 15.11 20.22 86,112 2.09 .37 74 --
0.00 12.66 1.04 86,739 2.06* 1.85* 35 --
0.00 12.53 33.73 90,372 2.30 .17 94 --
(.15) 9.37 (2.82) 79,285 2.25 .47 125 --
(.02) 9.81 .74 108,510 2.24 .16 34 --
(.70) 9.76 (5.63) 188,016 1.52* 2.71* 48 --
$ (1.42) $ 17.87 27.76% $ 66,032 2.75%(l) (.23)% 89% $0.0569
(.47) 15.31 7.53 42,662 2.86 .59 69 --
(.09) 14.71 19.42 34,527 2.79 (.33) 74 --
0.00 12.41 .73 31,404 2.76* 1.15* 35 --
0.00 12.32 32.76 20,729 3.02 (.52) 94 --
(.11) 9.28 (3.49) 1,732 3.00 (.50) 125 --
(.02) 9.74 .03 1,423 3.02* (.71)* 34 --
$ (1.42) $ 17.89 27.73% $ 16,907 2.74%(l) (.23)% 89% $0.0569
(.47) 15.33 7.59 10,141 2.87 .58 69 --
(.09) 14.72 19.40 7,802 2.78 (.33) 74 --
0.00 12.42 .73 11,875 2.76* 1.15* 35 --
0.00 12.33 20.77 10,886 3.00* (.52)* 94 --
$ (.34) $ 10.07 (5.99)% $ 8,840 3.45%* (2.29)%* 56% $0.0269
(.08) 11.04 6.43 12,284 3.37*(f) (1.75) 66 0.0280
0.00 10.45 4.50 2,870 4.42*(f) (1.87)* 90 --
$ (.34) $ 9.91 (6.26)% $ 19,696 4.16%* (2.99)%* 56% $0.0269
(.08) 10.90 5.49 23,784 4.07(f) (2.44) 66 0.0280
0.00 10.41 4.10 5,170 5.20*(f) (2.64)* 90 --
$ (.34) $ 9.92 (6.25)% $ 2,898 4.14%* (2.98)%* 56% $0.0269
(.08) 10.91 5.59 4,228 4.07(f) (2.42) 66 0.0280
0.00 10.41 4.10 597 5.84*(f) (3.41) 90 --
$ (1.56) $ 12.87 26.47% $ 85,217 2.41%(l) (1.25)% 129% $0.0364
(.53) 11.61 17.46 68,623 2.51 (1.22) 139 --
(2.11) 10.38 16.62 60,057 2.54(f) (1.17) 128 --
0.00 11.08 (1.42) 61,372 2.42* (1.26)* 78 --
(.43) 11.24 25.83 65,713 2.53 (1.13) 97 --
(.03) 9.33 (11.30) 58,491 2.34 (.85) 108 --
0.00 10.55 27.72 84,370 2.29 (.55) 104 --
(3.11) 8.26 (31.90) 68,316 1.73 (.46) 89 --
(.09) 15.54 37.34 113,583 1.56 (.17) 106 --
(1.78) 11.41 (8.11) 90,071 1.54(f) (.50) 74 --
(4.52) 15.07 34.11 113,305 1.41(f) (.44) 98 --
$ (1.56) $ 12.03 25.42% $ 31,946 3.11%(l) (1.92)% 129% $0.0364
(.53) 11.03 16.69 14,247 3.21 (1.88) 139 --
(2.11) 9.95 15.77 5,164 3.20(f) (1.92) 128 --
0.00 10.78 (2.00) 3,889 3.15* (1.93)* 78 --
(.43) 11.00 24.97 1,150 3.26 (1.85) 97 --
(.03) 9.20 (12.03) 819 3.11 (1.31) 108 --
0.00 10.49 27.00 121 2.98 (1.39) 104 --
0.00 8.26 (9.43) 183 2.61* (1.30)* 89 --
$ (1.56) $ 12.05 25.37% $ 8,718 3.10%(l) (1.93)% 129% $0.0364
(.53) 11.05 16.77 4,119 3.19 (1.85) 139 --
(2.11) 9.96 15.75 1,407 3.25(f) (2.10) 128 --
0.00 10.79 (1.91) 1,330 3.13* (1.92)* 78 --
0.00 11.00 11.56 261 3.75* (2.51)* 97 --
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Strategic Balanced Fund(i)
Class A
Year ended 7/31/97 .... $18.48 $ .47(b)(c) $ 3.56 $ 4.03 $ (.39) $(2.33)
Year ended 7/31/96 .... 17.98 .35(b)(c) 1.08 1.43 (.32) (.61)
Year ended 7/31/95 .... 16.26 .34(c) 1.64 1.98 (.22) (.04)
Period ended 7/31/94** 16.46 .07(c) (.27) (.20) 0.00 0.00
Year ended 4/30/94 .... 16.97 .16(c) .74 .90 (.24) (1.17)
Year ended 4/30/93 .... 17.06 .39(c) .59 .98 (.42) (.65)
Year ended 4/30/92 .... 14.48 .27(c) 2.80 3.07 (.17) (.32)
9/4/90++ to 4/30/91 ... 12.51 .34(c) 1.66 2.00 (.03) 0.00
Class B
Year ended 7/31/97 .... $15.89 $ .28(b)(c) $ 3.02 $ 3.30 $ (.27) $(2.33)
Year ended 7/31/96 .... 15.56 .16(b)(c) .98 1.14 (.20) (.61)
Year ended 7/31/95 .... 14.10 .22(c) 1.40 1.62 (.12) (.04)
Period ended 7/31/94** 14.30 .03(c) (.23) (.20) 0.00 0.00
Year ended 4/30/94 .... 14.92 .06(c) .63 .69 (.14) (1.17)
Year ended 4/30/93 .... 15.51 .23(c) .53 .76 (.25) (1.10)
Year ended 4/30/92 .... 13.96 .22(c) 2.70 2.92 (.29) (1.08)
Year ended 4/30/91 .... 12.40 .43(c) 1.60 2.03 (.47) 0.00
Year ended 4/30/90 .... 11.97 .50(b)(c) .60 1.10 (.25) (.42)
Year ended 4/30/89 .... 11.45 .48(c) 1.11 1.59 (.30) (.77)
10/23/87+ to 4/30/88 .. 10.00 .13(c) 1.38 1.51 (.06) 0.00
Class C
Year ended 7/31/97 .... $15.89 $ .28(b)(c) $ 3.02 $ 3.30 $ (.27) $(2.33)
Year ended 7/31/96 .... 15.57 .14(b)(c) .99 1.13 (.20) (.61)
Year ended 7/31/95 .... 14.11 .16(c) 1.46 1.62 (.12) (.04)
Period ended 7/31/94** 14.31 .03(c) (.23) (.20) 0.00 0.00
8/2/93++ to 4/30/94 ... 15.64 .15(c) (.17) (.02) (.14) (1.17)
Balanced Shares
Class A
Year ended 7/31/97 .... $14.01 $ .31(b) $ 3.97 $ 4.28 $ (.32) $(1.80)
Year ended 7/31/96 .... 15.08 .37 .45 .82 (.41) (1.48)
Year ended 7/31/95 .... 13.38 .46 1.62 2.08 (.36) (.02)
Period ended 7/31/94** 14.40 .29 (.74) (.45) (.28) (.29)
Year ended 9/30/93 .... 13.20 .34 1.29 1.63 (.43) 0.00
Year ended 9/30/92 .... 12.64 .44 .57 1.01 (.45) 0.00
Year ended 9/30/91 .... 10.41 .46 2.17 2.63 (.40) 0.00
Year ended 9/30/90 .... 14.13 .45 (2.14) (1.69) (.40) (1.63)
Year ended 9/30/89 .... 12.53 .42 2.18 2.60 (.46) (.54)
Year ended 9/30/88 .... 16.33 .46 (1.07) (.61) (.44) (2.75)
Year ended 9/30/87 .... 14.64 .67 1.62 2.29 (.60) 0.00
Class B
Year ended 7/31/97 .... $13.79 $ .19(b) $ 3.89 $ 4.08 $ (.24) $(1.80)
Year ended 7/31/96 .... 14.88 .28 .42 .70 (.31) (1.48)
Year ended 7/31/95 .... 13.23 .30 1.65 1.95 (.28) (.02)
Period ended 7/31/94** 14.27 .22 (.75) (.53) (.22) (.29)
Year ended 9/30/93 .... 13.13 .29 1.22 1.51 (.37) 0.00
Year ended 9/30/92 .... 12.61 .37 .54 .91 (.39) 0.00
2/4/91++ to 9/30/91 ... 11.84 .25 .80 1.05 (.28) 0.00
Class C
Year ended 7/31/97 .... $13.81 $ .20(b) $ 3.89 $ 4.09 $ (.24) $(1.80)
Year ended 7/31/96 .... 14.89 .26 .45 .71 (.31) (1.48)
Year ended 7/31/95 .... 13.24 .30 1.65 1.95 (.28) (.02)
Period ended 7/31/94** 14.28 .24 (.77) (.53) (.22) (.29)
5/3/93++ to 9/30/93 ... 13.63 .11 .71 .82 (.17) 0.00
Income Builder Fund(h)
Class A
11/1/96 to 4/30/97+++ . $11.57 $ .24(b) $ .69 $ .93 $ (.25) $ (.61)
Year ended 10/31/96 ... 10.70 .56(b) .98 1.54 (.55) (.12)
Year ended 10/31/95 ... 9.69 .93(b) .59 1.52 (.51) 0.00
3/25/94++ to 10/31/94 . 10.00 .96 (1.02) (.06) (.05)(g) (.20)
Class B
11/1/96 to 4/30/97+++ . $11.55 $ .20(b) $ .70 $ .90 $ (.22) $ (.61)
Year ended 10/31/96 ... 10.70 .47(b) .98 1.45 (.48) (.12)
Year ended 10/31/95 ... 9.68 .63(b) .83 1.46 (.44) 0.00
3/25/94++ to 10/31/94 . 10.00 .88 (.98) (.10) (.06)(g) (.16)
Class C
11/1/96 to 4/30/97+++ . $11.52 $ .21(b) $ .68 $ .89 $ (.22) $ (.61)
Year ended 10/31/96 ... 10.67 .46(b) .99 1.45 (.48) (.12)
Year ended 10/31/95 ... 9.66 .40(b) 1.05 1.45 (.44) 0.00
Year ended 10/31/94 ... 10.47 .50 (.85) (.35) (.11)(g) (.35)
Year ended 10/31/93 ... 9.80 .52 .51 1.03 (.36) 0.00
Year ended 10/31/92 ... 10.00 .55 (.28) .27 (.47) 0.00
10/25/91+ to 10/31/91 . 10.00 .01 0.00 .01 (.01) 0.00
Utility Income Fund
Class A
12/1/96 to 5/31/97+++ . $10.59 $ .16(b)(c) $ .07 $ .23 $ (.18) $ (.13)
Year ended 11/30/96 ... 10.22 .18(b)(c) .65 .83 (.46) 0.00
Year ended 11/30/95 ... 8.97 .27(c) 1.43 1.70 (.45) 0.00
Year ended 11/30/94 ... 9.92 .42(c) (.89) (.47) (.48) 0.00
10/18/93+ to 11/30/93 . 10.00 .02(c) (.10) (.08) 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 18.
14
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss) Average
And End Of on Net Asset (000's To Average To Average Portfolio Commission
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate Rate (k)
------------- ------------- ------------ ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (2.72) $ 19.79 23.90% $ 20,312 1.41%(f)(l) 2.50%(c) 170% $0.0395
(.93) 18.48 8.05 18,329 1.40(f) 1.78 173 --
(.26) 17.98 12.40 10,952 1.40(f) 2.07 172 --
0.00 16.26 (1.22) 9,640 1.40(f) 1.63* 21 --
(1.41) 16.46 5.06 9,822 1.40*(f) 1.67 139 --
(1.07) 16.97 5.85 8,637 1.40(f) 2.29 98 --
(.49) 17.06 20.96 6,843 1.40(f) 1.92 103 --
(.03) 14.48 16.00 443 1.40*(f) 3.54* 137 --
$ (2.60) $ 16.59 23.01% $ 28,037 2.12%(f)(l) 1.78% 170% $0.0395
(.81) 15.89 7.41 28,492 2.10(f) .99 173 --
(.16) 15.56 11.63 37,301 2.10(f) 1.38 172 --
0.00 14.10 (1.40) 43,578 2.10*(f) .92* 21 --
(1.31) 14.30 4.29 43,616 2.10(f) .93 139 --
(1.35) 14.92 4.96 36,155 2.15(f) 1.55 98 --
(1.37) 15.51 20.14 31,842 2.15(f) 1.34 103 --
(.47) 13.96 16.73 22,552 2.10(f) 3.23 137 --
(.67) 12.40 8.85 19,523 2.00(f) 3.85 120 --
(1.07) 11.97 14.66 5,128 2.00(f) 4.31 103 --
(.06) 11.45 15.10 2,344 2.00*(f) 2.44* 72 --
$ (2.60) $ 16.59 23.01% $ 3,045 2.12%(f)(l) 1.78% 170% $0.0395
(.81) 15.89 7.34 3,157 2.10(f) .99 173 --
(.16) 15.57 11.62 4,113 2.10(f) 1.38 172 --
0.00 14.11 (1.40) 4,317 2.10*(f) .93* 21 --
(1.31) 14.31 .45 4,289 2.10*(f) .69* 139 --
$ (2.12) $ 16.17 33.46% $115,500 1.47%(l) 2.11% 207% $0.0552
(1.89) 14.01 5.23 102,567 1.38 2.41 227 --
(.38) 15.08 15.99 122,033 1.32 3.12 179 --
(.57) 13.38 (3.21) 157,637 1.27* 2.50* 116 --
(.43) 14.40 12.52 172,484 1.35 2.50 188 --
(.45) 13.20 8.14 143,883 1.40 3.26 204 --
(.40) 12.64 25.52 154,230 1.44 3.75 70 --
(2.03) 10.41 (13.12) 140,913 1.36 4.01 169 --
(1.00) 14.13 22.27 159,290 1.42 3.29 132 --
(3.19) 12.53 (1.10) 111,515 1.42 3.74 190 --
(.60) 16.33 15.80 129,786 1.17 4.14 136 --
$ (2.04) $ 15.83 32.34% $ 24,192 2.25%(l) 1.32% 207% $0.0552
(1.79) 13.79 4.45 18,393 2.16 1.61 227 --
(.30) 14.88 15.07 15,080 2.11 2.30 179 --
(.51) 13.23 (3.80) 14,347 2.05* 1.73* 116 --
(.37) 14.27 11.65 12,789 2.13 1.72 188 --
(.39) 13.13 7.32 6,499 2.16 2.46 204 --
(.28) 12.61 8.96 1,830 2.13* 3.19* 70 --
$ (2.04) $ 15.86 32.37% $ 5,510 2.23%(l) 1.37% 207% $0.0552
(1.79) 13.81 4.52 6,096 2.15 1.63 227 --
(.30) 14.89 15.06 5,108 2.09 2.32 179 --
(.51) 13.24 (3.80) 6,254 2.03* 1.81* 116 --
(.17) 14.28 6.01 1,487 2.29* 1.47* 188 --
$ (.86) $ 11.64 8.31% $ 1,943 2.30%* 4.22%* 169% $0.0519
(.67) 11.57 14.82 2,056 2.20 4.92 108 0.0600
(.51) 10.70 16.22 1,398 2.38 5.44 92 --
(.25) 9.69 (.54) 600 2.52* 6.11* 126 --
$ (.83) $ 11.62 8.01% $ 7,328 3.01%* 3.53%* 169% $0.0519
(.60) 11.55 13.92 5,775 2.92 4.19 108 0.0600
(.44) 10.70 15.55 3,769 3.09 4.73 92 --
(.22) 9.68 (.99) 1,998 3.09* 5.07* 126 --
$ (.83) $ 11.58 7.94% $ 43,577 3.00%* 3.53%* 169% $0.0519
(.60) 11.52 13.96 44,441 2.93 4.13 108 0.0600
(.44) 10.67 15.47 49,107 3.02 4.81 92 --
(.46) 9.66 (3.44) 64,027 2.67 3.82 126 --
(.36) 10.47 10.65 106,034 2.32 6.85 101 --
(.47) 9.80 2.70 152,617 2.33 5.47 108 --
(.01) 10.00 .11 41,813 0.00* .94* 0 --
$ (.31) $ 10.51 2.19% $ 3,571 1.50%*(f) 3.06%* 23% $0.0411
(.46) 10.59 8.47 3,294 1.50(f) 1.67 98 0.0536
(.45) 10.22 19.58 2,748 1.50(f) 2.48 162 --
(.48) 8.97 (4.86) 1,068 1.50(f) 4.13 30 --
0.00 9.92 (.80) 229 1.50*(f) 2.35* 11 --
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Utility Income Fund(continued)
Class B
12/1/96 to 5/31/97+++ ........ $10.57 $ .12(b)(c) $ .08 $ .20 $ (.15) $ (.13)
Year ended 11/30/96 .......... 10.20 .10(b)(c) .67 .77 (.40) 0.00
Year ended 11/30/95 .......... 8.96 .18(c) 1.45 1.63 (.39) 0.00
Year ended 11/30/94 .......... 9.91 .37(c) (.91) (.54) (.41) 0.00
10/18/93+ 11/30/93 ........... 10.00 .01(c) (.10) (.09) 0.00 0.00
Class C
12/1/96 to 5/31/97+++ ........ $10.59 $ .12(b)(c) $ .07 $ .19 $ (.15) $ (.13)
Year ended 11/30/96 .......... 10.22 .11(b)(c) .66 .77 (.40) 0.00
Year ended 11/30/95 .......... 8.97 .18(c) 1.46 1.64 (.39) 0.00
Year ended 11/30/94 .......... 9.92 .39(c) (.93) (.54) (.41) 0.00
10/27/93+ to 11/30/93 ........ 10.00 .01(c) (.09) (.08) 0.00 0.00
Growth and Income Fund
Class A
11/1/96 to 4/30/97+++ ........ $ 3.00 $ .03(b) $ .36 $ .39 $ (.03) $ (.38)
Year ended 10/31/96 .......... 2.71 .05 .50 .55 (.05) (.21)
Year ended 10/31/95 .......... 2.35 .02 .52 .54 (.06) (.12)
Year ended 10/31/94 .......... 2.61 .06 (.08) (.02) (.06) (.18)
Year ended 10/31/93 .......... 2.48 .06 .29 .35 (.06) (.16)
Year ended 10/31/92 .......... 2.52 .06 .11 .17 (.06) (.15)
Year ended 10/31/91 .......... 2.28 .07 .56 .63 (.09) (.30)
Year ended 10/31/90 .......... 3.02 .09 (.30) (.21) (.10) (.43)
Year ended 10/31/89 .......... 3.05 .10 .43 .53 (.08) (.48)
Year ended 10/31/88 .......... 3.48 .10 .33 .43 (.08) (.78)
Year ended 10/31/87 .......... 3.52 .11 (.03) .08 (.12) 0.00
Class B
11/1/96 to 4/30/97+++ ........ $ 2.99 $ .01(b) $ .36 $ .37 $ (.02) $ (.38)
Year ended 10/31/96 .......... 2.69 .03 .51 .54 (.03) (.21)
Year ended 10/31/95 .......... 2.34 .01 .49 .50 (.03) (.12)
Year ended 10/31/94 .......... 2.60 .04 (.08) (.04) (.04) (.18)
Year ended 10/31/93 .......... 2.47 .05 .28 .33 (.04) (.16)
Year ended 10/31/92 .......... 2.52 .04 .11 .15 (.05) (.15)
2/8/91++ to 10/31/91 ......... 2.40 .04 .12 .16 (.04) 0.00
Class C
11/1/96 to 4/30/97+++ ........ $ 2.99 $ .01(b) $ .37 $ .38 $ (.02) $ (.38)
Year ended 10/31/96 .......... 2.70 .03 .50 .53 (.03) (.21)
Year ended 10/31/95 .......... 2.34 .01 .50 .51 (.03) (.12)
Year ended 10/31/94 .......... 2.60 .04 (.08) (.04) (.04) (.18)
5/3/93 ++ to 10/31/93 ........ 2.43 .02 .17 .19 (.02) 0.00
Real Estate Investment Fund
Class A
10/1/96+ to 8/31/97 .......... $10.00 $ .30(b) $ 2.88 $ 3.18 $ (.38)(m) $ 0.00
Class B
Year ended 10/1/96+ to 8/31/97 $10.00 $ .23(b) $ 2.89 $ 3.12 $ (.33)(m) $ 0.00
Class C
Year ended 10/1/96+ to 8/31/97 $10.00 $ .23(b) $ 2.89 $ 3.12 $ (.33)(m) $ 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 18.
16
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss) Average
And End Of on Net Asset (000's To Average To Average Portfolio Commission
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate Rate (k)
------------- ------------- ------------ ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (.28) $ 10.49 1.86% $ 12,972 2.20%*(f) 2.40%* 23% $ 0.0411
(.40) 10.57 7.82 13,561 2.20(f) .95 98 0.0536
(.39) 10.20 18.66 10,988 2.20(f) 1.60 162 --
(.41) 8.96 (5.59) 2,353 2.20(f) 3.53 30 --
0.00 9.91 (.90) 244 2.20*(f) 2.84* 11 --
$ (.28) $ 10.50 1.76% $ 3,195 2.20%*(f) 2.39%* 23% $ 0.0411
(.40) 10.59 7.81 3,376 2.20(f) .94 98 0.0536
(.39) 10.22 18.76 3,500 2.20(f) 1.88 162 --
(.41) 8.97 (5.58) 2,651 2.20(f) 3.60 30 --
0.00 9.92 (.80) 18 2.20*(f) 3.08* 11 --
$ (.41) $ 2.98 13.29% $628,306 .91%* 1.76%* 55% $ 0.0585
(.26) 3.00 21.51 553,151 .97 1.73 88 0.0625
(.18) 2.71 24.21 458,158 1.05 1.88 142 --
(.24) 2.35 (.67) 414,386 1.03 2.36 68 --
(.22) 2.61 14.98 459,372 1.07 2.38 91 --
(.21) 2.48 7.23 417,018 1.09 2.63 104 --
(.39) 2.52 31.03 409,597 1.14 2.74 84 --
(.53) 2.28 (8.55) 314,670 1.09 3.40 76 --
(.56) 3.02 21.59 377,168 1.08 3.49 79 --
(.86) 3.05 16.45 350,510 1.09 3.09 66 --
(.12) 3.48 2.04 348,375 .86 2.77 60 --
$ (.40) $ 2.96 12.60% $326,163 1.72%* .96%* 55% $ 0.0585
(.24) 2.99 21.20 235,263 1.78 .91 88 0.0625
(.15) 2.69 22.84 136,758 1.86 1.05 142 --
(.22) 2.34 (1.50) 102,546 1.85 1.56 68 --
(.20) 2.60 14.22 76,633 1.90 1.58 91 --
(.20) 2.47 6.22 29,656 1.90 1.69 104 --
(.04) 2.52 6.83 10,221 1.99* 1.67* 84 --
$ (.40) $ 2.97 12.98% $ 78,967 1.70%* .97%* 55% $ 0.0585
(.24) 2.99 20.72 61,356 1.76 .93 88 0.0625
(.15) 2.70 23.30 35,835 1.84 1.04 142 --
(.22) 2.34 (1.50) 19,395 1.84 1.61 68 --
(.02) 2.60 7.85 7,774 1.96* 1.45* 91 --
$ (.38) $ 12.80 32.24% $ 37,638 1.77%*(l) 2.73%* 20% $ 0.0518
$ (.33) $ 12.79 31.49% $186,802 2.44%*(l) 2.08%* 20% $ 0.0518
$ (.33) $ 12.79 31.49% $ 42,719 2.43%*(l) 2.06%* 20% $ 0.0518
</TABLE>
17
<PAGE>
- ----------
+ Commencement of operations.
++ Commencement of distribution.
+++ Unaudited.
* Annualized.
** Reflects a change in fiscal year end.
(a) 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 the net asset value during the period, and a
redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment returns calculated for periods of
less than one year are not annualized.
(b) Based on average shares outstanding.
(c) Net of fee waiver and/or expense reimbursement.
(d) Adjusted for a 200% stock dividend paid to shareholders of record on
January 15, 1988.
(e) Net of offering costs of ($.05).
(f) Net of expenses assumed and/or waived/reimbursed. If the following Funds
had borne all expenses in their most recent five fiscal years, their
expense ratios, giving effect to the expense offset arrangement described
in (l) below, would have been as follows:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
All-Asia Investment Fund
Class A -- -- 10.57%# 3.62% --
Class B -- -- 11.32%# 4.32% --
Class C -- -- 11.38%# 4.32% --
Growth Fund
Class A 1.94% 1.84% 1.46% -- -- --
Class B 2.65% 2.52% 2.13% -- -- --
Class C -- -- 2.13%# --
Premier Growth
Class A 3.33%# -- -- -- -- --
Class B 3.78%# -- -- -- -- --
Global Small Cap Fund
Class A -- -- -- 2.61% -- --
Class B -- -- -- 3.27% -- --
Class C -- -- -- 3.31% -- --
Strategic Balanced Fund
Class A -- 1.85% 1.70%1 1.81% 1.76% 2.06%
1.94%#2
Class B -- 2.56% 2.42%1 2.49% 2.47% 2.76%
2.64%#2
Class C -- -- 2.07%#1 2.50% 2.48% 2.76%
2.64%#2
Utility Income Fund
Class A -- 145.63%# 13.72% 4.86%# 3.38% 3.41%
Class B -- 133.62%# 14.42% 5.34%# 4.08% 4.12%
Class C -- 148.03%# 14.42% 5.99%# 4.07% 4.11%
</TABLE>
# annualized
1. For the period ended April 30, 1994
2. For the period ended July 31, 1994
For the expense ratios of the Funds in years prior to fiscal year 1992, assuming
the Funds had borne all expenses, please see the Financial Statements in each
Fund's Statement of Additional Information.
(g) "Dividends from Net Investment Income" includes a return of capital. Income
Builder Fund had a return of capital with respect to Class A shares, for
the period ended October 31, 1994, of $(.01); with respect to Class B
shares, $(.01); and with respect to Class C shares, for the year ended
October 31, 1994, $(.02).
(h) On March 25, 1994, all existing shares of Income Builder Fund, previously
known as Alliance Multi-Market Income and Growth Trust, were converted into
Class C shares.
(i) Prior to July 22, 1993, Equitable Capital Management Corporation
("Equitable Capital") served as the investment adviser to the predecessor
to The Alliance Portfolios, of which Growth Fund and Strategic Balanced
Fund are series. On July 22, 1993, Alliance acquired the business and
substantially all assets of Equitable Capital and became investment adviser
to the Funds.
(j) "Distributions from Net Realized Gains" includes a return of capital of
$(.12).
(k) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
(l) The following funds benefitted from an expense offset arrangement with the
transfer agent. Had such expense offset not been in effect, the ratio of
expenses to average net assets, absent the assumption and/or
waiver/reimbursement of expenses described in (f) above, would have been as
follows:
<TABLE>
<CAPTION>
Balanced Shares 1997 International Fund 1997 Strategic Balanced 1997
<S> <C> <C> <C> <C> <C>
Class A 1.46% Class A 1.73% Class A 2.07%
Class B 2.24% Class B 2.58% Class B 2.78%
Class C 2.22% Class C 2.56% Class C 2.77%
<CAPTION>
Real Estate 1997 Global Small Cap Fund 1997 New Europe 1997
<S> <C> <C> <C> <C> <C>
Class A 1.77% Class A 2.38% Class A 2.04%
Class B 2.43% Class B 3.08% Class B 2.74%
Class C 2.42% Class C 3.08% Class C 2.73%
</TABLE>
(m) Distributions from net investment income include a tax return of capital of
$.08, $.09 and $.08 for Class A, B and C shares, respectively.
18
<PAGE>
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
The following terms are frequently used in this Prospectus.
Equity securities are (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.
Debt securities are bonds, debentures, notes, bills, repurchase agreements,
loans, other direct debt instruments and other fixed, floating and variable rate
debt obligations, but do not include convertible securities.
Fixed-income securities are debt securities and dividend-paying preferred stocks
and include floating rate and variable rate instruments.
Convertible securities are fixed-income securities that are convertible into
common stock.
U.S. Government securities are securities issued or guaranteed by the United
States Government, its agencies or instrumentalities.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by governments, quasi-governmental entities,
governmental agencies or other governmental entities.
Asian company is an entity that (i) is organized under the laws of an Asian
country and conducts business in an Asian country, (ii) derives 50% or more of
its total revenues from business in Asian countries, or (iii) issues equity or
debt securities that are traded principally on a stock exchange in an Asian
country.
Asian countries are Australia, the Democratic Socialist Republic of Sri Lanka,
Hong Kong, the Islamic Republic of Pakistan, Japan, the Kingdom of Thailand,
Malaysia, Negara Brunei Darussalam (Brunei), New Zealand, the People's Republic
of China, the People's Republic of Kampuchea (Cambodia), the Republic of China
(Taiwan), the Republic of India, the Republic of Indonesia, the Republic of
Korea (South Korea), the Republic of the Philippines, the Republic of Singapore,
the Socialist Republic of Vietnam and the Union of Myanmar.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch Investors Service, L.P.
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."
Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
Qualifying bank deposits are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.
Commission is the Securities and Exchange Commission.
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
19
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder vote.
No Fund will change a non-fundamental objective or policy without notifying its
shareholders. There is no guarantee that any Fund will achieve its investment
objective.
INVESTMENT OBJECTIVES AND POLICIES
DOMESTIC STOCK FUNDS
The Domestic Stock Funds have been designed to offer investors seeking capital
appreciation a range of alternative approaches to investing in the U.S. equity
markets.
The Alliance Fund
The Alliance Fund, Inc. ("Alliance Fund") is a diversified investment company
that seeks long-term growth of capital and income primarily through investment
in common stocks. The Fund normally invests substantially all of its assets in
common stocks that Alliance believes will appreciate in value, but it may invest
in other types of securities such as convertible securities, high grade
instruments, U.S. Government securities and high quality, short-term obligations
such as repurchase agreements, bankers' acceptances and domestic certificates of
deposit, and may invest without limit in foreign securities. While the
diversification and generally high quality of the Fund's investments cannot
prevent fluctuations in market values, they tend to limit investment risk and
contribute to achieving the Fund's objective. The Fund generally does not effect
portfolio transactions in order to realize short-term trading profits or
exercise control.
The Fund may also: (i) make secured loans of its portfolio securities equal in
value up to 25% of its total assets to brokers, dealers and financial
institutions; (ii) enter into repurchase agreements of up to one week in
duration with commercial banks, but only if those agreements together with any
restricted securities and any securities which do not have readily available
market quotations do not exceed 10% of its net assets; and (iii) write
exchange-traded covered call options with respect to up to 25% of its total
assets. For additional information on the use, risks and costs of these policies
and practices see "Additional Investment Practices."
Alliance Growth Fund
Alliance Growth Fund ("Growth Fund") is a diversified investment company that
seeks long-term growth of capital. Current income is only an incidental
consideration. The Fund seeks to achieve its objective by investing primarily in
equity securities of companies with favorable earnings outlooks and whose
long-term growth rates are expected to exceed that of the U.S. economy over
time. The Fund's investment objective is not fundamental.
The Fund may also invest up to 25% of its total assets in lower-rated
fixed-income and convertible bonds. See "Risk Considerations--Securities
Ratings" and "--Investment in Lower-Rated Fixed-Income Securities." The Fund
generally will not invest in securities rated at the time of purchase below Caa-
by Moody's and CCC- by S&P, Duff & Phelps or Fitch or in securities judged by
Alliance to be of comparable investment quality. However, from time to time, the
Fund may invest in securities rated in the lowest grades (i.e., C by Moody's or
D or equivalent by S&P, Duff & Phelps or Fitch), or securities Alliance judges
to be of comparable investment quality, if there are prospects for an upgrade or
a favorable conversion into equity securities. If the credit rating of a
security held by the Fund falls below its rating at the time of purchase (or
Alliance determines that the quality of such security has so deteriorated), the
Fund may continue to hold the security if such investment is considered
appropriate under the circumstances.
The Fund may also: (i) invest in "zero-coupon" bonds and "payment-in-kind"
bonds; (ii) invest in foreign securities, although the Fund will not generally
invest more than 15% of its total assets in foreign securities; (iii) invest in
securities that are not publicly traded, including Rule 144A securities; (iv)
buy or sell foreign currencies, options on foreign currencies, foreign currency
futures contracts (and related options) and deal in forward foreign exchange
contracts; (v) lend portfolio securities amounting to not more than 25% of its
total assets; (vi) enter into repurchase agreements of up to 25% of its total
assets and purchase and sell securities on a forward commitment basis; (vii) buy
and sell stock index futures contracts and buy and sell options on those
contracts and on stock indices; (viii) purchase and sell futures contracts,
options thereon and options with respect to U.S. Treasury securities; (ix) write
covered call and put options on securities it owns or in which it may invest;
and (x) purchase and sell put and call options. For additional information on
the use, risks and costs of these policies and practices see "Additional
Investment Practices."
Alliance Premier Growth Fund
Alliance Premier Growth Fund, Inc. ("Premier Growth Fund") is a diversified
investment company that seeks long-term growth of capital by investing
predominantly in the equity securities of a limited number of large, carefully
selected, high-quality U.S. companies that are judged likely to achieve superior
earnings growth. Normally, about 40 companies will be represented in the Fund's
portfolio, with the 25 most highly regarded of these companies usually
constituting approximately 70% of the Fund's net assets. The Fund is thus
atypical from most equity mutual funds in its focus on a relatively small number
of intensively researched companies and is designed for those seeking to
accumulate capital over time with less volatility than that associated with
investment in smaller companies.
As a matter of fundamental policy, the Fund normally invests at least 85% of its
total assets in the equity securities of U.S. companies. These are companies (i)
organized under U.S. law that have their principal office in the U.S., and (ii)
the equity securities of which are traded principally in the U.S.
Alliance's investment strategy for the Fund emphasizes stock selection and
investment in the securities of a limited number of issuers. Alliance relies
heavily upon the fundamental analysis
20
<PAGE>
and research of its large internal research staff, which generally follows a
primary research universe of more than 600 companies that have strong
management, superior industry positions, excellent balance sheets and superior
earnings growth prospects. An emphasis is placed on identifying companies whose
substantially above average prospective earnings growth is not fully reflected
in current market valuations.
In managing the Fund, Alliance seeks to utilize market volatility judiciously
(assuming no change in company fundamentals), striving to capitalize on
apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. The Fund
normally remains nearly fully invested and does not take significant cash
positions for market timing purposes. During market declines, while adding to
positions in favored stocks, the Fund becomes somewhat more aggressive,
gradually reducing the number of companies represented in its portfolio.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Fund becomes somewhat more conservative, gradually increasing the
number of companies represented in its portfolio. Alliance thus seeks to gain
positive returns in good markets while providing some measure of protection in
poor markets.
Alliance expects the average market capitalization of companies represented in
the Fund's portfolio normally to be in the range, or in excess, of the average
market capitalization of companies comprising the "S&P 500" (the Standard &
Poor's 500 Composite Stock Price Index, a widely recognized unmanaged index of
market activity).
The Fund may also: (i) invest up to 20% of its net assets in convertible
securities of companies whose common stocks are eligible for purchase by it;
(ii) invest up to 5% of its net assets in rights or warrants; (iii) invest up to
15% of its total assets in securities of foreign issuers whose common stocks are
eligible for purchase by it; (iv) purchase and sell exchange-traded index
options and stock index futures contracts; and (v) write covered exchange-traded
call options on common stocks, unless as a result, the amount of its securities
subject to call options would exceed 15% of its total assets, and purchase and
sell exchange-traded call and put options on common stocks written by others,
but the total cost of all options held by the Fund (including exchange-traded
index options) may not exceed 10% of its total assets. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices." The Fund will not write put options.
Alliance Technology Fund
Alliance Technology Fund, Inc. ("Technology Fund") is a diversified investment
company that emphasizes growth of capital and invests for capital appreciation,
and only incidentally for current income. The Fund may seek income by writing
listed call options. The Fund invests primarily in securities of companies
expected to benefit from technological advances and improvements (i.e.,
companies that use technology extensively in the development of new or improved
products or processes). The Fund will normally have at least 80% of its assets
invested in the securities of these companies. The Fund normally will have
substantially all its assets invested in equity securities, but it also invests
in debt securities offering an opportunity for price appreciation. The Fund will
invest in listed and unlisted securities and U.S. and foreign securities, but it
will not purchase a foreign security if as a result 10% or more of the Fund's
total assets would be invested in foreign securities.
The Fund's policy is to invest in any company and industry and in any type of
security with potential for capital appreciation. It invests in well-known and
established companies and in new and unseasoned companies.
The Fund may also: (i) write and purchase exchange-listed call options and
purchase listed put options, including exchange-traded index put options; (ii)
invest up to 10% of its total assets in warrants; (iii) invest in restricted
securities and in other assets having no ready market if as a result no more
than 10% of the Fund's net assets are invested in such securities and assets;
(iv) lend portfolio securities equal in value to not more than 30% of the Fund's
total assets; and (v) invest up to 10% of its total assets in foreign
securities. For additional information on the use, risks and costs of the
policies and practices see "Additional Investment Practices."
Alliance Quasar Fund
Alliance Quasar Fund, Inc. ("Quasar Fund") is a diversified investment company
that seeks growth of capital by pursuing aggressive investment policies. It
invests for capital appreciation and only incidentally for current income. The
selection of securities based on the possibility of appreciation cannot prevent
loss in value. Moreover, because the Fund's investment policies are aggressive,
an investment in the Fund is risky and investors who want assured income or
preservation of capital should not invest in the Fund.
The Fund invests in any company and industry and in any type of security with
potential for capital appreciation. It invests in well-known and established
companies and in new and unseasoned companies. When selecting securities,
Alliance considers the economic and political outlook, the values of specific
securities relative to other investments, trends in the determinants of
corporate profits and management capability and practices.
The Fund invests principally in equity securities, but it also invests to a
limited degree in non-convertible bonds and preferred stocks. The Fund invests
in listed and unlisted U.S. and foreign securities. The Fund periodically
invests in special situations, which occur when the securities of a company are
expected to appreciate due to a development particularly or uniquely applicable
to that company and regardless of general business conditions or movements of
the market as a whole.
The Fund may also: (i) invest in restricted securities and in other assets
having no ready market, but not more than 10% of its total assets may be
invested in such securities or assets; (ii) make short sales of securities
"against the box," but not more than 15% of its net assets may be deposited on
short sales; and (iii) write call options and purchase and sell
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put and call options written by others. For additional information on the use,
risks and costs of these policies and practices see "Additional Investment
Practices."
GLOBAL STOCK FUNDS
The Global Stock Funds have been designed to enable investors to participate in
the potential for long-term capital appreciation available from investment in
foreign securities.
Alliance International Fund
Alliance International Fund ("International Fund") is a diversified investment
company that seeks a total return on its assets from long-term growth of capital
and from income primarily through a broad portfolio of marketable securities of
established non-U.S. companies, companies participating in foreign economies
with prospects for growth, including U.S. companies having their principal
activities and interests outside the U.S. and foreign government securities.
Normally, more than 80% of the Fund's assets will be invested in such issuers.
The Fund expects to invest primarily in common stocks of established non-U.S.
companies that Alliance believes have potential for capital appreciation or
income or both, but the Fund is not required to invest exclusively in common
stocks or other equity securities, and it may invest in any other type of
investment grade security, including convertible securities, as well as in
warrants, or obligations of the U.S. or foreign governments and their political
subdivisions.
The Fund intends to diversify its investments broadly among countries and
normally invests in at least three foreign countries, although it may invest a
substantial portion of its assets in one or more of such countries. In this
regard, at June 30, 1997, approximately 28% of the Fund's assets were invested
in securities of Japanese issuers. The Fund may invest in companies, wherever
organized, that Alliance judges have their principal activities and interests
outside the U.S. These companies may be located in developing countries, which
involves exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability,
than those of developed countries. The Fund currently does not intend to invest
more than 10% of its total assets in companies in, or governments of, developing
countries.
The Fund may also: (i) purchase or sell forward foreign currency exchange
contracts; (ii) write, sell and purchase U.S. or foreign exchange-listed put and
call options, including exchange-traded index options; (iii) enter into
financial futures contracts, including contracts for the purchase or sale for
future delivery of foreign currencies and stock index futures, and purchase and
write put and call options on futures contracts traded on U.S. or foreign
exchanges or over-the-counter; (iv) purchase and write put options on foreign
currencies traded on securities exchanges or boards of trade or
over-the-counter; (v) lend portfolio securities equal in value to not more than
30% of its total assets; and (vi) enter into repurchase agreements of up to
seven days' duration, provided that not more than 10% of the Fund's total assets
would be so invested. For additional information on the use, risks and costs of
these policies and practices see "Additional Investment Practices."
Alliance Worldwide Privatization Fund
Alliance Worldwide Privatization Fund, Inc. ("Worldwide Privatization Fund") is
a non-diversified investment company that seeks long-term capital appreciation.
As a fundamental policy, the Fund invests at least 65% of its total assets in
equity securities issued by enterprises that are undergoing, or have undergone,
privatization (as described below), although normally significantly more of its
assets will be invested in such securities. The balance of its investments will
include securities of companies believed by Alliance to be beneficiaries of
privatizations. The Fund is designed for investors desiring to take advantage of
investment opportunities, historically inaccessible to U.S. individual
investors, that are created by privatizations of state enterprises in both
established and developing economies, including those in Western Europe and
Scandinavia, Australia, New Zealand, Latin America, Asia and Eastern and Central
Europe and, to a lesser degree, Canada and the United States.
The Fund's investments in enterprises undergoing privatization may comprise
three distinct situations. First, the Fund may invest in the initial offering of
publicly traded equity securities (an "initial equity offering") of a
government- or state-owned or controlled company or enterprise (a "state
enterprise"). Secondly, the Fund may purchase securities of a current or former
state enterprise following its initial equity offering. Finally, the Fund may
make privately negotiated purchases of stock or other equity interests in a
state enterprise that has not yet conducted an initial equity offering. Alliance
believes that substantial potential for capital appreciation exists as
privatizing enterprises rationalize their management structures, operations and
business strategies in order to compete efficiently in a market economy, and the
Fund will thus emphasize investments in such enterprises.
The Fund diversifies its investments among a number of countries and normally
invests in issuers based in at least four, and usually considerably more,
countries. No more than 15% of the Fund's total assets, however, will be
invested in issuers in any one foreign country, except that the Fund may invest
up to 30% of its total assets in issuers in any one of France, Germany, Great
Britain, Italy and Japan. The Fund may invest all of its assets within a single
region of the world. To the extent that the Fund's assets are invested within
any one region, the Fund may be subject to any special risks that may be
associated with that region.
Privatization is a process through which the ownership and control of companies
or assets changes in whole or in part from the public sector to the private
sector. Through privatization a government or state divests or transfers all or
a portion of its interest in a state enterprise to some form of private
ownership. Governments and states with established
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economies, including France, Great Britain, Germany and Italy, and those with
developing economies, including Argentina, Mexico, Chile, Indonesia, Malaysia,
Poland and Hungary, are engaged in privatizations. The Fund will invest in any
country believed to present attractive investment opportunities.
A major premise of the Fund's approach is that the equity securities of
privatized companies offer opportunities for significant capital appreciation.
In particular, because privatizations are integral to a country's economic
restructuring, securities sold in initial equity offerings often are priced
attractively so as to secure the issuer's successful transition to private
sector ownership. Additionally, these enterprises often dominate their local
markets and typically have the potential for significant managerial and
operational efficiency gains.
Although the Fund anticipates that it will not concentrate its investments in
any industry, it is permitted to invest more than 25% of its total assets in
issuers whose primary business activity is that of national commercial banking.
Prior to so concentrating, however, the Fund's Directors must determine that its
ability to achieve its investment objective would be adversely affected if it
were not permitted to concentrate. The staff of the Commission is of the view
that registered investment companies may not, absent shareholder approval,
change between concentration and non-concentration in a single industry. The
Fund disagrees with the staff's position but has undertaken that it will not
concentrate in the securities of national commercial banks until, if ever, the
issue is resolved. If the Fund were to invest more than 25% of its total assets
in national commercial banks, the Fund's performance could be significantly
influenced by events or conditions affecting this industry, which is subject to,
among other things, increases in interest rates and deteriorations in general
economic conditions, and the Fund's investments may be subject to greater risk
and market fluctuation than if its portfolio represented a broader range of
investments.
The Fund may invest up to 35% of its total assets in debt securities and
convertible debt securities of issuers whose common stocks are eligible for
purchase by the Fund. The Fund may maintain not more than 5% of its net assets
in lower-rated securities. See "Risk Considerations-- Securities Ratings" and
"--Investment in Lower-Rated Fixed-Income Securities." The Fund will not retain
a non-convertible security that is downgraded below C or determined by Alliance
to have undergone similar credit quality deterioration following purchase.
The Fund may also: (i) invest up to 20% of its total assets in rights or
warrants; (ii) write covered put and call options and purchase put and call
options on securities of the types in which it is permitted to invest and on
exchange-traded index options; (iii) enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including any index of U.S. Government
securities, foreign government securities, or common stock and may purchase and
write options on future contracts; (iv) purchase and write put and call options
on foreign currencies for hedging purposes; (v) purchase or sell forward
contracts; (vi) enter in forward commitments for the purchase or sale of
securities; (vii) enter into standby commitment agreements; (viii) enter into
currency swaps for hedging purposes; (ix) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (x) make short sales of
securities or maintain a short position; and (xi) make secured loans of its
portfolio securities not in excess of 30% of its total assets to entities with
which it can enter into repurchase agreements. For additional information on the
use, risks and costs of these policies and practices see "Additional Investment
Practices."
Alliance New Europe Fund
Alliance New Europe Fund, Inc. ("New Europe Fund") is a non-diversified
investment company that seeks long-term capital appreciation through investment
primarily in the equity securities of companies based in Europe. The Fund
intends to invest substantially all of its assets in the equity securities of
European companies and has a fundamental policy of normally investing at least
65% of its total assets in such securities. Up to 35% of its total assets may be
invested in high quality U.S. dollar or foreign currency denominated
fixed-income securities issued or guaranteed by European governmental entities,
or by European or multinational companies or supranational organizations.
Alliance believes that the quickening pace of economic integration and political
change in Europe creates the potential for many European companies to experience
rapid growth and that the emergence of new market economies in Europe and the
broadening and strengthening of other European economies may significantly
accelerate economic development. The Fund will invest in companies that Alliance
believes possess rapid growth potential. Thus, the Fund will emphasize
investments in larger, established companies, but will also invest in smaller,
emerging companies.
In recent years, economic ties between the former "east bloc" countries of
Eastern Europe and certain other European countries have been strengthened.
Alliance believes that as this strengthening continues, some Western European
financial institutions and other companies will have special opportunities to
facilitate East-West transactions. The Fund will seek investment opportunities
among such companies and, as such become available, within the former "east
bloc," although the Fund will not invest more than 20% of its total assets in
issuers based therein, or more than 10% of its total assets in issuers based in
any one such country.
The Fund diversifies its investments among a number of European countries and,
under normal circumstances, will invest in companies based in at least three
such countries. Subject to the foregoing and to the limitation on investment in
any one former "east bloc" country, the Fund may invest without limit in a
single European country. While the Fund does not intend to concentrate its
investments in a single country, at times 25% or more of its assets may be
invested in issuers located in a single country. During such times, the Fund
would be subject to a correspondingly greater risk of loss due to
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adverse political or regulatory developments, or an economic downturn, within
that country. In this regard, at July 31, 1997, approximately 32% of the Fund's
assets were invested in securities of issuers in the United Kingdom.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants and rights to purchase equity securities of European companies; (iii)
invest in depositary receipts or other securities convertible into securities of
companies based in European countries, debt securities of supranational entities
denominated in the currency of any European country, debt securities denominated
in European Currency Units of an issuer in a European country (including
supranational issuers) and "semi-governmental securities"; (iv) purchase and
sell forward contracts; (v) write, sell and purchase exchange-traded put and
call options, including exchange-traded index options; (vi) enter into financial
futures contracts, including contracts for the purchase or sale for future
delivery of foreign currencies and futures contracts based on stock indices, and
purchase and write options on futures contracts; (vii) purchase and write put
options on foreign currencies traded on securities exchanges or boards of trade
or over-the-counter; (viii) make secured loans of portfolio securities not in
excess of 30% of its total assets to brokers, dealers and financial
institutions; (ix) enter into forward commitments for the purchase or sale of
securities; and (x) enter into standby commitment agreements. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance All-Asia Investment Fund
Alliance All-Asia Investment Fund, Inc. ("All-Asia Investment Fund") is a
non-diversified investment company whose investment objective is to seek
long-term capital appreciation. In seeking to achieve its investment objective,
the Fund will invest at least 65% of its total assets in equity securities (for
the purposes of this investment policy, rights, warrants and options to purchase
common stocks are not deemed to be equity securities), preferred stocks and
equity-linked debt securities issued by Asian companies. The Fund may invest up
to 35% of its total assets in debt securities issued or guaranteed by Asian
companies or by Asian governments, their agencies or instrumentalities. The Fund
may also invest in securities issued by non-Asian issuers, provided that the
Fund will invest at least 80% of its total assets in securities issued by Asian
companies and the Asian debt securities referred to above. The Fund expects to
invest, from time to time, a significant portion, but less than 50%, of its
assets in equity securities of Japanese companies.
In the past decade, Asian countries generally have experienced a high level of
real economic growth due to political and economic changes, including foreign
investment and reduced government intervention in the economy. Alliance believes
that certain conditions exist in Asian countries which create the potential for
continued rapid economic growth. These conditions include favorable demographics
and competitive wage rates, increasing levels of foreign direct investment,
rising per capita incomes and consumer demand, a high savings rate and numerous
privatization programs. Asian countries are also becoming more industrialized
and are increasing their intra-Asian exports while reducing their dependence on
Western export demand. Alliance believes that these conditions are important to
the long-term economic growth of Asian countries.
As the economies of many Asian countries move through the "emerging market"
stage, thus increasing the supply of goods, services and capital available to
less developed Asian markets and helping to spur economic growth in those
markets, the potential is created for many Asian companies to experience rapid
growth. In addition, many Asian companies the securities of which are listed on
exchanges in more developed Asian countries will be participants in the rapid
economic growth of the lesser developed countries. These companies generally
offer the advantages of more experienced management and more developed market
regulation.
As their economies have grown, the securities markets in Asian countries have
also expanded. New exchanges have been created and the number of listed
companies, annual trading volume and overall market capitalization have
increased significantly. Additionally, new markets continue to open to foreign
investments. For example, South Korea and India have recently relaxed investment
restrictions and Vietnamese direct investments have recently become available to
U.S. investors. The Fund also offers investors the opportunity to access
relatively restricted markets. Alliance believes that investment opportunities
in Asian countries will continue to expand.
The Fund will invest in companies believed to possess rapid growth potential.
Thus, the Fund will invest in smaller, emerging companies, but will also invest
in larger, more established companies in such growing economic sectors as
capital goods, telecommunications and consumer services.
The Fund will invest in investment grade debt securities, except that the Fund
may maintain not more than 5% of its net assets in lower-rated securities and
lower-rated loans and other lower-rated direct debt instruments. See "Risk
Considerations--Securities Ratings", "--Investment in Lower-Rated Fixed-Income
Securities" and Appendix C in the Fund's Statement of Additional Information for
a description of such ratings. The Fund will not retain a security that is
downgraded below C or determined by Alliance to have undergone similar credit
quality deterioration following purchase.
The Fund may also: (i) invest up to 25% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 20% of its net assets in rights or warrants; (iii)
invest in depositary receipts, instruments of supranational entities denominated
in the currency of any country, securities of multinational companies and
"semi-governmental securities;" (iv) invest up to 25% of its net assets in
equity-linked debt securities with the objective of realizing capital
appreciation; (v) invest up to 25% of its net assets in loans and other direct
debt instruments; (vi) write covered put and call options on
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securities of the types in which it is permitted to invest and on
exchange-traded index options; (vii) enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including any index of U.S. Government
securities, securities issued by foreign government entities, or common stock
and may purchase and write options on future contracts; (viii) purchase and
write put and call options on foreign currencies for hedging purposes; (ix)
purchase or sell forward contracts; (x) enter into interest rate swaps and
purchase or sell interest rate caps and floors; (xi) enter into forward
commitments for the purchase or sale of securities; (xii) enter into standby
commitment agreements; (xiii) enter into currency swaps for hedging purposes;
(xiv) enter into repurchase agreements pertaining to U.S. Government securities
with member banks of the Federal Reserve System or primary dealers in such
securities; (xv) make short sales of securities or maintain a short position, in
each case only if "against the box;" and (xvi) make secured loans of its
portfolio securities not in excess of 30% of its total assets to entities with
which it can enter into repurchase agreements. For additional information on the
use, risks and costs of these policies and practices see "Additional Investment
Practices."
Alliance Global Small Cap Fund
Alliance Global Small Cap Fund, Inc. ("Global Small Cap Fund") is a diversified
investment company that seeks long-term growth of capital through investment in
a global portfolio of the equity securities of selected companies with
relatively small market capitalization. The Fund's portfolio emphasizes
companies with market capitalizations that would have placed them (when
purchased) in about the smallest 20% by market capitalization of actively traded
U.S. companies, or market capitalizations of up to about $1 billion. Because the
Fund applies the U.S. size standard on a global basis, its foreign investments
might rank above the lowest 20%, and, in fact, might in some countries rank
among the largest, by market capitalization in local markets. Normally, the Fund
invests at least 65% of its assets in equity securities of these smaller
capitalization issuers, and these issuers are located in at least three
countries, one of which may be the U.S. Up to 35% of the Fund's total assets may
be invested in securities of companies whose market capitalizations exceed the
Fund's size standard. The Fund's portfolio securities may be listed on a U.S. or
foreign exchange or traded over-the-counter.
Alliance believes that smaller capitalization issuers often have sales and
earnings growth rates exceeding those of larger companies, and that these growth
rates tend to cause more rapid share price appreciation. Investing in smaller
capitalization stocks, however, involves greater risk than is associated with
larger, more established companies. For example, smaller capitalization
companies often have limited product lines, markets, or financial resources.
They may be dependent for management on one or a few key persons, and can be
more susceptible to losses and risks of bankruptcy. Their securities may be
thinly traded (and therefore have to be sold at a discount from current market
prices or sold in small lots over an extended period of time), may be followed
by fewer investment research analysts and may be subject to wider price swings
and thus may create a greater chance of loss than when investing in securities
of larger capitalization companies. Transaction costs in small capitalization
stocks may be higher than in those of larger capitalization companies.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants to purchase equity securities; (iii) invest in depositary receipts or
other securities representing securities of companies based in countries other
than the U.S.; (iv) purchase or sell forward foreign currency contracts; (v)
write and purchase exchange-traded call options and purchase exchange-traded put
options, including put options on market indices; and (vi) make secured loans of
portfolio securities not in excess of 30% of its total assets to brokers,
dealers and financial institutions. For additional information on the use, risks
and costs of these policies and practices see "Additional Investment Practices."
TOTAL RETURN FUNDS
The Total Return Funds have been designed to provide a range of investment
alternatives to investors seeking both growth of capital and current income.
Alliance Strategic Balanced Fund
Alliance Strategic Balanced Fund ("Strategic Balanced Fund") is a diversified
investment company that seeks a high long-term total return by investing in a
combination of equity and debt securities. The portion of the Fund's assets
invested in each type of security varies in accordance with economic conditions,
the general level of common stock prices, interest rates and other relevant
considerations, including the risks associated with each investment medium. The
Fund's investment objective is not fundamental.
The Fund's equity securities will generally consist of dividend-paying common
stocks and other equity securities of companies with favorable earnings outlooks
and long-term growth rates that Alliance expects will exceed that of the U.S.
economy. The Fund's debt securities may include U.S. Government securities and
securities issued by private corporations. The Fund may also invest in
mortgage-backed securities, adjustable rate securities, asset-backed securities
and so-called "zero-coupon" bonds and "payment-in-kind" bonds.
As a fundamental policy, the Fund will invest at least 25% of its total assets
in fixed-income securities, which for this purpose include debt securities,
preferred stocks and that portion of the value of convertible securities that is
attributable to the fixed-income characteristics of those securities.
The Fund's debt securities will generally be of investment grade. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." In the event that the rating of any debt securities
held by the Fund falls below investment grade, the Fund will not be obligated to
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dispose of such obligations and may continue to hold them if considered
appropriate under the circumstances.
The Fund may also: (i) invest in foreign securities, although the Fund will not
generally invest more than 15% of its total assets in foreign securities; (ii)
invest, without regard to this 15% limit, in Eurodollar CDs, which are
dollar-denominated certificates of deposit issued by foreign branches of U.S.
banks that are not insured by any agency or instrumentality of the U.S.
Government; (iii) write covered call and put options on securities it owns or in
which it may invest; (iv) buy and sell put and call options and buy and sell
combinations of put and call options on the same underlying securities; (v) lend
portfolio securities amounting to not more than 25% of its total assets; (vi)
enter into repurchase agreements on up to 25% of its total assets; (vii)
purchase and sell securities on a forward commitment basis; (viii) buy or sell
foreign currencies, options on foreign currencies, foreign currency futures
contracts (and related options) and deal in forward foreign exchange contracts;
(ix) buy and sell stock index futures contracts and buy and sell options on
those contracts and on stock indices; (x) purchase and sell futures contracts,
options thereon and options with respect to U.S. Treasury securities; and (xi)
invest in securities that are not publicly traded, including Rule 144A
securities. For additional information on the use, risks and costs of these
policies and practices see "Additional Investment Practices."
Alliance Balanced Shares
Alliance Balanced Shares, Inc. ("Balanced Shares") is a diversified investment
company that seeks a high return through a combination of current income and
capital appreciation. Although the Fund's investment objective is not
fundamental, the Fund is a "balanced fund" as a matter of fundamental policy.
The Fund will not purchase a security if as a result less than 25% of its total
assets will be in fixed-income senior securities (including short- and long-term
debt securities, preferred stocks, and convertible debt securities and
convertible preferred stocks to the extent that their values are attributable to
their fixed-income characteristics). Subject to these restrictions, the
percentage of the Fund's assets invested in each type of security will vary. The
Fund's assets are invested in U.S. Government securities, bonds, senior debt
securities and preferred and common stocks in such proportions and of such type
as are deemed best adapted to the current economic and market outlooks. The Fund
may invest up to 15% of the value of its total assets in foreign equity and
fixed-income securities eligible for purchase by the Fund under its investment
policies described above. See "Risk Considerations--Foreign Investment."
The Fund may also: (i) enter into contracts for the purchase or sale for future
delivery of foreign currencies; and (ii) purchase and write put and call options
on foreign currencies and enter into forward foreign currency exchange contracts
for hedging purposes. Subject to market conditions, the Fund may also seek to
realize income by writing covered call options listed on a domestic exchange.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
Alliance Income Builder Fund
Alliance Income Builder Fund, Inc. ("Income Builder Fund") is a non-diversified
investment company that seeks an attractive level of current income and
long-term growth of income and capital by investing principally in fixed-income
securities and dividend-paying common stocks. Its investments in equity
securities emphasize common stocks of companies with a historical or projected
pattern of paying rising dividends. Normally, at least 65% of the Fund's total
assets are invested in income-producing securities. The Fund may vary the
percentage of assets invested in any one type of security based upon Alliance's
evaluation as to the appropriate portfolio structure for achieving the Fund's
investment objective, although Alliance currently maintains approximately 60% of
the Fund's net assets in fixed-income securities and 40% in equity securities.
The Fund may invest in fixed-income securities of domestic and foreign issuers,
including U.S. Government securities and repurchase agreements pertaining
thereto, corporate fixed-income securities of U.S. issuers, qualifying bank
deposits and prime commercial paper.
The Fund may maintain up to 35% of its net assets in lower-rated securities. See
"Risk Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." The Fund will not retain a non-convertible security
that is downgraded below CCC or determined by Alliance to have undergone similar
credit quality deterioration following purchase.
Foreign securities in which the Fund invests may include fixed-income securities
of foreign corporate and governmental issuers, denominated in U.S. Dollars, and
equity securities of foreign corporate issuers, denominated in foreign
currencies or in U.S. Dollars. The Fund will not invest more than 10% of its net
assets in equity securities of foreign issuers nor more than 15% of its total
assets in issuers of any one foreign country. See "Risk Considerations--Foreign
Investment."
The Fund may also: (i) invest up to 5% of its net assets in rights or warrants;
(ii) invest in depositary receipts and U.S. Dollar denominated securities issued
by supranational entities; (iii) write covered put and call options and purchase
put and call options on securities of the types in which it is permitted to
invest that are exchange-traded; (iv) purchase and sell exchange-traded options
on any securities index composed of the types of securities in which it may
invest; (v) enter into contracts for the purchase or sale for future delivery of
fixed-income securities or foreign currencies, or contracts based on financial
indices, including any index of U.S. Government securities, foreign government
securities, corporate fixed income securities, or common stock, and purchase and
write options on future contracts; (vi) purchase and write put and call options
on foreign currencies and enter into forward contracts for hedging purposes;
(vii) enter into interest rate swaps and purchase or sell interest rate caps and
floors; (viii) enter into forward commitments for the purchase or sale of
securities; (ix) enter into standby commitment agreements; (x) enter into
repurchase agreements pertaining to U.S.
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Government securities with member banks of the Federal Reserve System or primary
dealers in such securities; (xi) make short sales of securities or maintain a
short position as described below under "Additional Investment Policies and
Practices--Short Sales;" and (xii) make secured loans of its portfolio
securities not in excess of 20% of its total assets to brokers, dealers and
financial institutions. For additional information on the use, risks and costs
of these policies and practices see "Additional Investment Practices."
Alliance Utility Income Fund
Alliance Utility Income Fund, Inc. ("Utility Income Fund") is a diversified
investment company that seeks current income and capital appreciation by
investing primarily in equity and fixed-income securities of companies in the
utilities industry. The Fund may invest in securities of both U.S. and foreign
issuers, although no more than 15% of the Fund's total assets will be invested
in issuers in any one foreign country. The utilities industry consists of
companies engaged in (i) the manufacture, production, generation, provision,
transmission, sale and distribution of gas and electric energy, and
communications equipment and services, including telephone, telegraph,
satellite, microwave and other companies providing communication facilities for
the public, or (ii) the provision of other utility or utility-related goods and
services, including, but not limited to, entities engaged in water provision,
cogeneration, waste disposal system provision, solid waste electric generation,
independent power producers and non-utility generators. The Fund is designed to
take advantage of the characteristics and historical performance of securities
of utility companies, many of which pay regular dividends and increase their
common stock dividends over time. As a fundamental policy, the Fund normally
invests at least 65% of its total assets in securities of companies in the
utilities industry. The Fund considers a company to be in the utilities industry
if, during the most recent twelve-month period, at least 50% of the company's
gross revenues, on a consolidated basis, were derived from its utilities
activities.
At least 65% of the Fund's total assets are invested in income-producing
securities, but there is otherwise no limit on the allocation of the Fund's
investments between equity securities and fixed-income securities. The Fund may
maintain up to 35% of its net assets in lower-rated securities. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." The Fund will not retain a security that is downgraded
below B or determined by Alliance to have undergone similar credit quality
deterioration following purchase.
The United States utilities industry has experienced significant changes in
recent years. Electric utility companies in general have been favorably affected
by lower fuel costs, the full or near completion of major construction programs
and lower financing costs. In addition, many utility companies have generated
cash flows in excess of current operating expenses and construction
expenditures, permitting some degree of diversification into unregulated
businesses. Regulatory changes with respect to nuclear and conventionally fueled
generating facilities, however, could increase costs or impair the ability of
such electric utilities to operate such facilities, thus reducing their ability
to service dividend payments with respect to the securities they issue.
Furthermore, rates of return of utility companies generally are subject to
review and limitation by state public utilities commissions and tend to
fluctuate with marginal financing costs. Rate changes, however, ordinarily lag
behind the changes in financing costs, and thus can favorably or unfavorably
affect the earnings or dividend pay-outs on utilities stocks depending upon
whether such rates and costs are declining or rising.
Gas transmission companies, gas distribution companies and telecommunications
companies are also undergoing significant changes. Gas utilities have been
adversely affected by declines in the prices of alternative fuels, and have also
been affected by oversupply conditions and competition. Telephone utilities are
still experiencing the effects of the break-up of American Telephone & Telegraph
Company, including increased competition and rapidly developing technologies
with which traditional telephone companies now compete. Although there can be no
assurance that increased competition and other structural changes will not
adversely affect the profitability of such utilities, or that other negative
factors will not develop in the future, in Alliance's opinion, increased
competition and change may provide better positioned utility companies with
opportunities for enhanced profitability.
Utility companies historically have been subject to the risks of increases in
fuel and other operating costs, high interest costs, costs associated with
compliance with environmental and nuclear safety regulations, service
interruptions, economic slowdowns, surplus capacity, competition and regulatory
changes. There can also be no assurance that regulatory policies or accounting
standards changes will not negatively affect utility companies' earnings or
dividends. Utility companies are subject to regulation by various authorities
and may be affected by the imposition of special tariffs and changes in tax
laws. To the extent that rates are established or reviewed by governmental
authorities, utility companies are subject to the risk that such authorities
will not authorize increased rates. Because of the Fund's policy of
concentrating its investments in utility companies, the Fund is more susceptible
than most other mutual funds to economic, political or regulatory occurrences
affecting the utilities industry.
Foreign utility companies, like those in the U.S., are generally subject to
regulation, although such regulations may or may not be comparable to domestic
regulations. Foreign utility companies in certain countries may be more heavily
regulated by their respective governments than utility companies located in the
U.S. and, as in the U.S., generally are required to seek government approval for
rate increases. In addition, because many foreign utility companies use fuels
that cause more pollution than those used in the U.S., such utilities may yet be
required to invest in pollution control equipment. Foreign utility regulatory
systems vary from country to country and may evolve in ways different from
regulation in the U.S. The percentage of the Fund's assets invested in issuers
of
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particular countries will vary. See "Risk Considerations-- Foreign Investment."
The Fund may invest up to 35% of its total assets in equity and fixed-income
securities of domestic and foreign corporate and governmental issuers other than
utility companies, including U.S. Government securities and repurchase
agreements pertaining thereto, foreign government securities, corporate
fixed-income securities of domestic issuers, corporate fixed-income securities
of foreign issuers denominated in foreign currencies or in U.S. dollars (in each
case including fixed-income securities of an issuer in one country denominated
in the currency of another country), qualifying bank deposits and prime
commercial paper.
The Fund may also: (i) invest up to 30% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 5% of its net assets in rights or warrants; (iii) invest
in depositary receipts, securities of supranational entities denominated in the
currency of any country, securities denominated in European Currency Units and
"semi-governmental securities;" (iv) write covered put and call options and
purchase put and call options on securities of the types in which it is
permitted to invest that are exchange-traded and over-the-counter; (v) purchase
and sell exchange-traded options on any securities index composed of the types
of securities in which it may invest; (vi) enter into contracts for the purchase
or sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including an index of U.S. Government
securities, foreign government securities, corporate fixed-income securities, or
common stock, and may purchase and write options on futures contracts; (vii)
purchase and write put and call options on foreign currencies traded on U.S. and
foreign exchanges or over-the-counter for hedging purposes; (viii) purchase or
sell forward contracts; (ix) enter into interest rate swaps and purchase or sell
interest rate caps and floors; (x) enter in forward commitments for the purchase
or sale of securities; (xi) enter into standby commitment agreements; (xii)
enter into repurchase agreements pertaining to U.S. Government securities with
member banks of the Federal Reserve System or primary dealers in such
securities; (xiii) make short sales of securities or maintain a short position
as described below under "Additional Investment Practices--Short Sales;" and
(xiv) make secured loans of its portfolio securities not in excess of 20% of its
total assets to brokers, dealers and financial institutions. For additional
information on the use, risk and costs of these policies and practices, see
"Additional Investment Practices."
Alliance Growth and Income Fund
Alliance Growth and Income Fund, Inc. ("Growth and Income Fund") is a
diversified investment company that seeks appreciation through investments
primarily in dividend-paying common stocks of good quality, although it is
permitted to invest in fixed-income securities and convertible securities.
The Fund may also try to realize income by writing covered call options listed
on domestic securities exchanges. The Fund also invests in foreign securities.
Since the purchase of foreign securities entails certain political and economic
risks, the Fund has restricted its investments in securities in this category to
issues of high quality. The Fund may also purchase and sell financial forward
and futures contracts and options thereon for hedging purposes. For additional
information on the use, risk and costs of these policies and practices, see
"Additional Investment Practices."
Alliance Real Estate Investment Fund
Alliance Real Estate Investment Fund, Inc. ("Real Estate Investment Fund") is a
diversified investment company that seeks a total return on its assets from
long-term growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of real estate investment trusts ("REITS") and
other real estate industry companies. A "real estate industry company" is a
company that derives at least 50% of its gross revenues or net profits from the
ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate or interests therein. The
equity securities in which the Fund will invest for this purpose consist of
common stock, shares of beneficial interest of REITs and securities with common
stock characteristics, such as preferred stock or convertible securities ("Real
Estate Equity Securities").
The Fund may invest up to 35% of its total assets in (a) securities that
directly or indirectly represent participations in, or are collateralized by and
payable from, mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real estate mortgage
investment conduit ("REMIC") certificates and collateralized mortgage
obligations ("CMOs") and (b) short-term investments. These instruments are
described below. The risks associated with the Fund's transactions in REMICs,
CMOs and other types of mortgage-backed securities, which are considered to be
derivative securities, may include some or all of the following: market risk,
leverage and volatility risk, correlation risk, credit risk and liquidity and
valuation risk. See "Risk Considerations" for a description of these and other
risks.
As to any investment in Real Estate Equity Securities, Alliance's analysis will
focus on determining the degree to which the company involved can achieve
sustainable growth in cash flow and dividend paying capability. Alliance
believes that the primary determinant of this capability is the economic
viability of property markets in which the company operates and that the
secondary determinant of this capability is the ability of management to add
value through strategic focus and operating expertise. The Fund will purchase
Real Estate Equity Securities when, in the judgment of Alliance, their market
price does not adequately reflect this potential. In making this determination,
Alliance will take into account fundamental
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trends in underlying property markets as determined by proprietary models, site
visits conducted by individuals knowledgeable in local real estate markets,
price-earnings ratios (as defined for real estate companies), cash flow growth
and stability, the relationship between asset value and market price of the
securities, dividend payment history, and such other factors which Alliance may
determine from time to time to be relevant. Alliance will attempt to purchase
for the Fund Real Estate Equity Securities of companies whose underlying
portfolios are diversified geographically and by property type.
The Fund may invest without limitation in shares of REITs. REITs are pooled
investment vehicles which invest primarily in income producing real estate or
real estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to investment companies
such as the Fund, REITs are not taxed on income distributed to shareholders
provided they comply with several requirements of the Code. The Fund will
indirectly bear its proportionate share of expenses incurred by REITs in which
the Fund invests in addition to the expenses incurred directly by the Fund.
Investment Process for Real Estate Equity Securities. The Fund's investment
strategy with respect to Real Estate Equity Securities is based on the premise
that property market fundamentals are the primary determinant of growth
underlying the success of Real Estate Equity Securities. Value added management
will further distinguish the most attractive Real Estate Equity Securities. The
Fund's research and investment process is designed to identify those companies
with strong property fundamentals and strong management teams. This process is
comprised of real estate market research, specific property inspection and
securities analysis.
The universe of property-owning real estate industry firms consists of
approximately 130 companies of sufficient size and quality to merit
consideration for investment by the Fund. In implementing the Fund's research
and investment process, Alliance will avail itself of the consulting services of
CB Commercial Real Estate Group, Inc. ("CBC"), a publicly held company and the
largest real estate services company in the United States, comprised of real
estate brokerage, property and facilities management, and real estate finance
and investment advisory activities (CBC in August of 1997 acquired Koll
Management Services ("Koll"), which previously provided these consulting
services to Alliance). In 1996, CBC (and Koll, on a combined basis) completed
25,000 sale and lease transactions, managed over 4,100 client properties,
created over $3.5 billion in mortgage originations, and completed over 2,600
appraisal and consulting assignments. In addition, they advised and managed for
institutions over $4 billion in real estate investments. As consultant to
Alliance, CBC provides access to its proprietary model, REIToScore, that
analyzes the approximately 12,000 properties owned by these 130 companies. Using
proprietary databases and algorithms, CBC analyzes local market rent, expense,
and occupancy trends, market specific transaction pricing, demographic and
economic trends, and leading indicators of real estate supply such as building
permits. Over 650 asset-type specific geographic markets are analyzed and ranked
on a relative scale by CBC in compiling its REIToScore database. The relative
attractiveness of these real estate industry companies is similarly ranked based
on the composite rankings of the properties they own. See "Management of the
Funds--Consultant to Adviser" for more information about CBC.
Once the universe of real estate industry companies has been distilled through
the market research process, CBC's local market presence provides the capability
to perform site specific inspections of key properties. This analysis examines
specific location, condition, and sub-market trends. CBC's use of locally based
real estate professionals provides Alliance with a window on the operations of
the portfolio companies as information can immediately be put in the context of
local market events. Only those companies whose specific property portfolios
reflect the promise of their general markets will be considered for initial and
continued investment by the Fund.
Alliance further screens the universe of real estate industry companies by using
rigorous financial models and by engaging in regular contact with management of
targeted companies. Each management's strategic plan and ability to execute the
plan are determined and analyzed. Alliance will make extensive use of CBC's
network of industry analysts in order to assess trends in tenant industries.
This information is then used to further interpret management's strategic plans.
Financial ratio analysis is used to isolate those companies with the ability to
make value-added acquisitions. This information is combined with property market
trends and used to project future earnings potential.
Alliance believes that this process will result in a portfolio that will consist
of Real Estate Equity Securities of companies that own assets in the most
desirable markets across the country, diversified geographically and by property
type.
The short-term investments in which Real Estate Investment Fund may invest are:
corporate commercial paper and other short-term commercial obligations, in each
case rated or issued by companies with similar securities outstanding that are
rated Prime-1, Aa or better by Moody's or A-1, AA or better by S&P; obligations
(including certificates of deposit, time deposits, demand deposits and bankers'
acceptances) of banks with securities outstanding that are rated Prime-1, Aa or
better by Moody's or A-1, AA or better by S&P; and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities with
remaining maturities not exceeding 18 months.
The Fund may invest in debt securities rated BBB or higher by S&P or Baa or
higher by Moody's or, if not so rated, of equivalent credit quality as
determined by Alliance. The Fund expects that it will not retain a debt security
which is downgraded below BBB or Baa or, if unrated, determined by
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Alliance to have undergone similar credit quality deterioration, subsequent to
purchase by the Fund.
The Fund may also engage in the following investment practices to the extent
indicated: (i) invest up to 10% of its net assets in rights or warrants; (ii)
invest up to 15% of its net assets in the convertible securities of companies
whose common stocks are eligible for purchase by the Fund; (iii) lend portfolio
securities equal in value to not more than 25% of total assets; (iv) enter into
repurchase agreements of up to seven days' duration; (v) enter into forward
commitment transactions as long as the Fund's aggregate commitments under such
transactions are not more than 30% of the Fund's total assets; (vi) enter into
standby commitment agreements; (vii) make short sales of securities or maintain
a short position but only if at all times when a short position is open not more
than 25% of the Fund's net assets (taken at market value) is held as collateral
for such sales; and (viii) invest in illiquid securities unless, as a result,
more than 15% of its net assets would be so invested.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to the
extent described above.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which 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 stock,
although the higher yield tends to make the convertible security less volatile
than the underlying common stock. 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. For a
description of these risks, see "Risk Considerations-- Securities Ratings" and
"--Investment in Lower-Rated Fixed-Income Securities."
Rights and Warrants. A Fund will invest in rights or warrants only if the
underlying equity securities themselves are deemed appropriate by Alliance for
inclusion in the Fund's portfolio. Rights and warrants entitle the holder to buy
equity securities at a specific price for a specific period of time. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative than certain other types
of investments in that they do not entitle a holder to dividends or voting
rights with respect to the underlying securities nor do they represent any
rights in the assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying security, although
the value of a right or warrant may decline because of a decrease in the value
of the underlying security, the passage of time or a change in perception as to
the potential of the underlying security, or any combination thereof. If the
market price of the underlying security is below the exercise price set forth in
the warrant on the expiration date, the warrant will expire worthless. Moreover,
a right or warrant ceases to have value if it is not exercised prior to the
expiration date.
Depositary Receipts and Securities of Supranational Entities. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the issuers
of the stock of unsponsored depositary receipts are not obligated to disclose
material information in the United States and, therefore, there may not be a
correlation between such information and the market value of the depositary
receipts. ADRs are depositary receipts typically issued by a U.S. bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation. GDRs and other types of depositary receipts are typically issued by
foreign banks or trust companies and evidence ownership of underlying securities
issued by either a foreign or a U.S. company. Generally, depositary receipts in
registered form are designed for use in the U.S. securities markets, and
depositary receipts in bearer form are designed for use in foreign securities
markets. For purposes of determining the country of issuance, investments in
depositary receipts of either type are deemed to be investments in the
underlying securities except with respect to Growth Fund, Strategic Balanced
Fund and Income Builder Fund, where investments in ADRs are deemed to be
investments in securities issued by U.S. issuers and those in GDRs and other
types of depositary receipts are deemed to be investments in the underlying
securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the World
Bank (International Bank for Reconstruction and Development) and the European
Investment Bank. A European Currency Unit is a basket of specified amounts of
the currencies of the member states of the European Economic Community.
"Semi-governmental securities" are securities issued by entities owned by either
a national, state or equivalent government or are obligations of one of such
government jurisdictions which are not backed by its full faith and credit and
general taxing powers.
Mortgage-Backed Securities. 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-
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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 investing
in such securities would be required to reinvest the proceeds at the lower
interest rates then available. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective 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.
Adjustable Rate Securities. Adjustable rate securities 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 reduce sharp
changes in the value of adjustable rate securities, these securities can change
in value based on changes in market interest rates or the issuer's
creditworthiness. 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 interest rate.
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.
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. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently. Even though such bonds do not
pay current interest in cash, a Fund is nonetheless required to accrue interest
income on such investments and to distribute such amounts at least annually to
shareholders. Thus, a Fund could be required at times to liquidate other
investments in order to satisfy its dividend requirements.
Equity-Linked Debt Securities. Equity-linked debt securities are securities with
respect to which the amount of interest and/or principal that the issuer thereof
is obligated to pay is linked to the performance of a specified index of equity
securities. Such amount may be significantly greater or less than payment
obligations in respect of other types of debt securities. Adverse changes in
equity securities indices and other adverse changes in the securities markets
may reduce payments made under, and/or the principal of, equity-linked debt
securities held by the Fund. Furthermore, as with any debt securities, the
values of equity-linked debt securities will generally vary inversely with
changes in interest rates. The Fund's ability to dispose of equity-linked debt
securities will depend on the availability of liquid markets for such
securities. Investment in equity-linked debt securities may be considered to be
speculative. As with other securities, the Fund could lose its entire investment
in equity-linked debt securities.
Loans and Other Direct Debt Instruments. Loans and other direct debt instruments
are interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or services (trade claims
or other receivables), or to other creditors. Direct debt instruments involve
the risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to the Fund in the event of fraud or misrepresentation
than debt securities. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments may also include standby financing commitments that obligate the
Fund to supply additional cash to the borrower on demand. Loans and other direct
debt instruments are generally illiquid and may be transferred only through
individually negotiated private transactions.
Purchasers of loans and other forms of direct indebtedness depend primarily upon
the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If the Fund does not receive scheduled interest or principal payments
on such indebtedness, the Fund's share price and yield could be adversely
affected. Loans that are fully secured offer the Fund more protection than
unsecured loans in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured
loan would satisfy the borrower's obligation, or that the collateral can be
liquidated. Indebtedness of borrowers whose creditworthiness is poor may involve
substantial risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of Asian countries will
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also involve a risk that the governmental entities responsible for the repayment
of the debt may be unable, or unwilling, to pay interest and repay principal
when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the Fund. For
example, if a loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary.
A loan is often administered by a bank or other financial institution that acts
as agent for all holders. The agent administers the terms of the loan, as
specified on the loan agreement. Unless, under the terms of the loan or other
indebtedness, the Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of the Fund were determined to be
subject to the claims of the agent's general creditors, the Fund might incur
certain costs and delays in realizing payment on the loan or loan participation
and could suffer a loss of principal or interest.
Direct indebtedness purchased by the Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
the Fund to pay additional cash on demand. These commitments may have the effect
of requiring the Fund to increase its investment in a borrower at a time when it
would not otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid.
Mortgage-Backed Securities and Associated Risks. 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.
Guaranteed Mortgage Pass-Through Securities. Real Estate Investment Fund may
invest in guaranteed mortgage pass-through securities which represent
participation interests in pools of residential mortgage loans and are issued by
U.S. governmental or private lenders and guaranteed by the U.S. Government or
one of its agencies or instrumentalities, including but not limited to the
Government National Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full
faith and credit of the United States Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately-owned corporation for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate instrumentality of the
United States Government, for timely payment of interest and the ultimate
collection of all principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
Mortgage-Backed Securities also include CMOs and REMIC pass-through or
participation certificates, which may be issued by, among others, U.S.
Government agencies and instrumentalities as well as private lenders. CMOs and
REMIC certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several classes of
CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis. Real Estate Investment Fund
will not invest in the lowest tranche of CMOs and REMIC certificates.
Typically, CMOs are collateralized by Ginnie Mae or Freddie Mac certificates but
also may be collateralized by other mortgage assets such as whole loans or
private mortgage pass-through securities. Debt service on CMOs is provided from
payments of principal and interest on collateral of mortgaged assets and any
reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although the Fund does
not intend to invest in residual interests.
Risks. Investing in Mortgage-Backed Securities involves certain unique risks in
addition to those generally associated with investing in the real estate
industry in general. These unique risks include the failure of a counterparty to
meet its commitments, adverse interest rate changes and the effects of
prepayments on mortgage cash flows. See "Risk Considerations--Mortgage-Backed
Securities" for a more complete description of the characteristics of
Mortgage-Backed Securities and associated risks.
Illiquid Securities. Subject to any more restrictive applicable fundamental
investment policy, none of the Funds will maintain more than 15% of its net
assets in illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many individually negotiated currency swaps and any assets
used to cover currency swaps and most privately negotiated investments in state
enterprises that have not yet conducted an initial equity offering, (ii)
over-the-counter options and assets used to cover over-the-counter options, and
(iii) repurchase agreements not terminable within seven days.
Because of the absence of a trading market for illiquid securities, a Fund may
not be able to realize their full value upon sale. With respect to each Fund
that may invest in such securities, Alliance will monitor their illiquidity
under the supervision of the Directors of the Fund. To the extent
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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 a Fund's Directors. Investment in
non-publicly traded securities by each of Growth Fund and Strategic Balanced
Fund is restricted to 5% of its total assets (not including for these purposes
Rule 144A securities, to the extent permitted by applicable law) and is also
subject to the 15% restriction on investment in illiquid securities described
above.
A Fund that invests in securities for which there is no ready market may
therefore not be able to readily sell such securities. To the extent that these
securities are foreign securities, there is no law in many of the countries in
which a Fund may invest similar to the Securities Act requiring an issuer to
register the sale of securities with a governmental agency or imposing legal
restrictions on resales of securities, either as to length of time the
securities may be held or manner of resale. However, there may be contractual
restrictions on resales of securities.
Options. 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 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.
Worldwide Privatization Fund, All-Asia Investment Fund, Income Builder Fund and
Utility Income Fund each may write call options for cross-hedging purposes. 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. These risks could be reduced by
entering into a closing transaction (i.e., by disposing of the option prior to
its exercise). 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.
Technology Fund, Quasar Fund, International Fund, New Europe Fund and Global
Small Cap Fund will not write uncovered call options. Technology Fund and Global
Small Cap Fund will not write a call option if the premium to be received by the
Fund in doing so would not produce an annualized return of at least 15% of the
then current market value of the securities subject to the option (without
giving effect to commissions, stock transfer taxes and other expenses that are
deducted from premium receipts). Technology Fund, Quasar Fund and Global Small
Cap Fund will not write a call option if, as a result, the aggregate of the
Fund's portfolio securities subject to outstanding call options (valued at the
lower of the option price or market value of such securities) would exceed 15%
of the Fund's total assets or more than 10% of the Fund's assets would be
committed to call options that at the time of sale have a remaining term of more
than 100 days. The aggregate cost of all outstanding options purchased and held
by each of Premier Growth Fund, Technology Fund, Quasar Fund and Global Small
Cap Fund will at no time exceed 10% of the Fund's total assets. Neither
International Fund nor New Europe Fund will write uncovered put options.
A Fund that purchases or writes options on securities in privately negotiated
(i.e., over-the-counter) transactions will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks or
savings and loan institutions) deemed creditworthy by Alliance, and Alliance has
adopted procedures for monitoring the creditworthiness of such entities. 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. See "Illiquid Securities."
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
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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.
Options on futures contracts written or purchased by a Fund will be 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.
No Fund will enter into any futures contracts or options on futures contracts if
immediately thereafter the market values of the outstanding futures contracts of
the Fund and the currencies and futures contracts subject to outstanding options
written by the Fund would exceed 50% of its total assets, and Income Builder
Fund will also not do so if immediately thereafter the aggregate of initial
margin deposits on all the outstanding futures contracts of the Fund and
premiums paid on outstanding options on futures contracts would exceed 5% of the
market value of the total assets of the Fund. Premier Growth Fund and Growth and
Income Fund may not purchase or sell a stock index future if immediately
thereafter more than 30% of its total assets would be hedged by stock index
futures. Premier Growth Fund and Growth and Income Fund may not purchase or sell
a stock index future if, immediately thereafter, the sum of the amount of margin
deposits on the Fund's existing futures positions would exceed 5% of the market
value of the Fund's total assets.
Options on Foreign Currencies. As in the case of other kinds of options, the
writing of an option on a foreign currency constitutes only a partial hedge, up
to the amount of the premium received, and a Fund could be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to a Fund's position, it may forfeit the entire amount of
the premium plus related transaction costs. See the Statement of Additional
Information of each Fund that may invest in options on foreign currencies for
further discussion of the use, risks and costs of options on foreign currencies.
Forward Foreign Currency Exchange Contracts. A Fund purchases or sells forward
contracts to minimize the risk to it from adverse changes in the relationship
between the U.S. dollar and other currencies. A forward contract is an
obligation to purchase or sell a specific currency for an agreed price at a
future date, and is individually negotiated and privately traded.
A Fund may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). A Fund will not engage in transaction hedges with respect
to the currency of a particular country to an extent greater than the aggregate
amount of the Fund's transactions in that currency. When a Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount ("position hedge"). A Fund will not position hedge with
respect to a particular currency to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfolio
denominated or quoted in that currency. Instead of entering into a position
hedge, a Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where the Fund
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which portfolio securities of the Fund are denominated
("cross-hedge"). Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such forward
contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. International Fund, New
Europe Fund and Global Small Cap Fund will not enter into a forward contract
with a term of more than one year or if, as a result, more than 50% of its total
assets would be committed to such contracts. The dealings of International Fund,
New Europe Fund and Global Small Cap Fund in forward contracts will be limited
to hedging involving either specific transactions or portfolio positions.
Growth Fund and Strategic Balanced Fund may also purchase and sell foreign
currency on a spot basis.
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 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 settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are subject to market
fluctuation, and no interest or dividends accrue to the purchaser prior to the
settlement date. At the time a Fund intends to enter into a forward commitment,
it records the transaction and thereafter reflects the value of the security
purchased or, if a sale, the proceeds
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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.
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, thereby obtaining the benefit of
currently higher cash yields. However, if 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. No forward commitments will be made by New Europe Fund, All-Asia
Investment Fund, Worldwide Privatization Fund, Income Builder Fund, Real Estate
Investment Fund or Utility Income Fund if, as a result, the Fund's aggregate
commitments under such transactions would be more than 30% of the Fund's total
assets. In the event the other party to a forward commitment transaction were to
default, a Fund might lose the opportunity to invest money at favorable rates or
to dispose of securities at favorable prices.
Standby Commitment Agreements. Standby commitment agreements commit a Fund, for
a stated period of time, to purchase a stated amount of a security that may be
issued and sold to the Fund at the option of the issuer. The price and coupon of
the security are fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether the
security ultimately is issued, typically equal to approximately 0.5% of the
aggregate purchase price of the security the Fund has committed to purchase. A
Fund will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
to the Fund and unavailable on a firm commitment basis. No Fund, other than
Income Builder Fund, will enter into a standby commitment with a remaining term
in excess of 45 days. Investments in standby commitments will be limited so that
the aggregate purchase price of the securities subject to the commitments will
not exceed 25% with respect to New Europe Fund and Real Estate Investment Fund,
50% with respect to Worldwide Privatization Fund and All-Asia Investment Fund,
and 20% with respect to Utility Income Fund, of the Fund's assets taken at the
time of making the commitment.
There is no guarantee that a security subject to a standby commitment will be
issued and the value of the security, if issued, on the delivery date may be
more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, a Fund will bear the
risk of capital loss in the event the value of the security declines and may not
benefit from an appreciation in the value of the security during the commitment
period if the issuer decides not to issue and sell the security to the Fund.
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. The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each currency swap will
be accrued on a daily basis. 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 other party thereto 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 other party to such a transaction,
such Fund will have contractual remedies pursuant to the agreements related to
the transactions.
Interest Rate Transactions. Each Fund that may enter into interest rate
transactions expects to do so primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments). Interest rate swaps are entered on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments). With
respect to All-Asia Investment Fund and Utility Income Fund, the exchange
commitments can involve payments in the same currency or in different
currencies. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on an agreed principal amount
from the party selling the interest rate floor.
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A Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities. The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each interest rate swap, cap
and floor is accrued daily. A Fund will not enter into an interest rate swap,
cap or floor transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is then rated in the highest rating category
of at least one nationally recognized rating organization. Alliance will monitor
the creditworthiness of counterparties on an ongoing basis. The swap market has
grown substantially in recent years, with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized documentation
has not yet been developed and, accordingly, they are less liquid than swaps.
The use of interest rate transactions is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If Alliance were to incorrectly
forecast market values, interest rates and other applicable factors, the
investment performance of a Fund would be adversely affected by the use of these
investment techniques. Moreover, even if Alliance is correct in its forecasts,
there is a risk that the transaction position may correlate imperfectly with the
price of the asset or liability being hedged. There is no limit on the amount of
interest rate transactions that may be entered into by a Fund that is permitted
to enter into such transactions. These transactions do not involve the delivery
of securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate transactions is limited to the net amount of
interest payments that a Fund is contractually obligated to make. If the other
party to an interest rate transaction defaults, a Fund's risk of loss consists
of the net amount of interest payments that the Fund contractually is entitled
to receive.
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. There is no
percentage restriction on a Fund's ability to enter into repurchase agreements,
other than as indicated under "Investment Objectives and Policies."
Short Sales. A short sale is effected by selling a security that a Fund does not
own, or if the Fund does own such security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" to the extent that a
Fund contemporaneously owns or has the right to obtain securities identical to
those sold short without payment. Worldwide Privatization Fund, All-Asia
Investment Fund, Income Builder Fund and Utility Income Fund each may make short
sales of securities or maintain short positions only for the purpose of
deferring realization of gain or loss for U.S. federal income tax purposes,
provided that at all times when a short position is open the Fund owns an equal
amount of securities of the same issue as, and equal in amount to, the
securities sold short. In addition, each of those Funds may not make a short
sale if as a result more than 10% of the Fund's net assets would be held as
collateral for short sales, except that All-Asia Investment Fund and Real Estate
Investment Fund may not make a short sale if as a result more than 25% of the
Fund's net assets would be held as collateral for short sales. If the price of
the security sold short increases between the time of the short sale and the
time a Fund replaces the borrowed security, the Fund will incur a loss;
conversely, if the price declines, the Fund will realize a capital gain. See
"Certain Fundamental Investment Policies." Certain special federal income tax
considerations may apply to short sales entered into by a Fund. See "Dividends,
Distributions and Taxes" in the relevant Fund's Statement of Additional
Information.
Loans of Portfolio Securities. 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 earned thereon
and the Fund may invest any cash collateral in portfolio securities, thereby
earning 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. A Fund
will not lend its portfolio securities to any officer, director, employee or
affiliate of the Fund or Alliance.
General. The successful use of the foregoing investment practices draws upon
Alliance's special skills and experience with respect to such instruments 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
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with respect to 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 with respect
to 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 for the purposes
set forth above. Furthermore, a Fund's ability to engage in options and futures
transactions may be limited by tax considerations. See "Dividends, Distributions
and Taxes" in the Statement of Additional Information of each Fund that invests
in options and futures.
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.
Defensive Position. For temporary defensive purposes, each Fund may invest in
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 may also include
short-term, foreign-currency denominated securities of the type mentioned above
issued by foreign governmental entities, companies and supranational
organizations. For a complete description of the types of securities each Fund
may invest in while in a temporary defensive position, please see such Fund's
Statement of Additional Information.
Portfolio Turnover. Portfolio turnover rates are set forth under "Financial
Highlights." These portfolio turnover rates are greater than those of most other
investment companies, including those which emphasize capital appreciation as a
basic policy. A high rate of portfolio turnover involves correspondingly greater
brokerage and other expenses than a lower rate, 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. See "Dividends, Distributions and
Taxes" in each Fund's Statement of Additional Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement of
Additional Information.
Alliance Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. Government); (ii) acquire more
than 10% of the voting or other securities of any one issuer; or (iii) buy
securities of any company that (including its predecessors) has not been in
business at least three continuous years. Pursuant to investment policies which
are not fundamental, the Fund does not invest (i) in puts or calls (except as
discussed above); (ii) in straddles, spreads, or any combination thereof; (iii)
in oil, gas or other mineral exploration or development programs; or (iv) more
than 5% of its gross assets in securities the disposition of which would be
subject to restrictions under the federal securities laws.
Growth Fund and Strategic Balanced Fund each may not: (i) invest more than 5% of
its total assets in the securities of any one issuer (other than U.S. Government
securities and repurchase agreements relating thereto), although up to 25% of
each 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.
Premier Growth Fund may not: (i) purchase more than 10% of the outstanding
voting securities of any one issuer; (ii) invest 25% or more of the value of its
total assets in the same industry; (iii) borrow money or issue senior securities
except for temporary or emergency purposes in an amount not exceeding 5% of the
value of its total assets at the time the borrowing is made; (iv) pledge,
mortgage, hypothecate or otherwise encumber any of its assets except in
connection with the writing of call options and except to secure permitted
borrowings; or (v) invest in the securities of any issuer that has a record of
less than three years of continuous operation (including the operation of any
predecessor) if as a result more than 10% of the value of the total assets of
the Fund would be invested in the securities of such issuer or issuers.
Technology Fund may not: (i) with respect to 75% of its total assets, have such
assets represented by other than:(a) cash and cash items, (b) U.S. Government
securities, or (c) securities of any one issuer (other than the U.S. Government
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and its agencies or instrumentalities) not greater in value than 5% of the
Fund's total assets, and not more than 10% of the outstanding voting securities
of such issuer; (ii) purchase the securities of any one issuer, other than the
U.S. Government and its agencies or instrumentalities, if as a result (a) the
value of the holdings of the Fund in the securities of such issuer exceeds 25%
of its total assets, or (b) the Fund owns more than 25% of the outstanding
securities of any one class of securities of such issuer; (iii) concentrate its
investments in any one industry, but the Fund has reserved the right to invest
up to 25% of its total assets in a particular industry; and (iv) invest in the
securities of any issuer which has a record of less than three years of
continuous operation (including the operation of any predecessor) if such
purchase would cause 10% or more of its total assets to be invested in the
securities of such issuers.
Quasar Fund may not: (i) purchase the securities of any one issuer, other than
the U.S. Government or any of its agencies or instrumentalities, if as a result
more than 5% of its total assets would be invested in such issuer or the Fund
would own more than 10% of the outstanding voting securities of such issuer,
except that up to 25% of its total assets may be invested without regard to
these 5% and 10% limitations; (ii) invest more than 25% of its total assets in
any particular industry; (iii) borrow money except for temporary or emergency
purposes in an amount not exceeding 5% of its total assets at the time the
borrowing is made; or (iv) invest more than 10% of its assets in restricted
securities.
International Fund may not: (i) invest more than 5% of the value of its total
assets in securities of a single issuer (including repurchase agreements with
any one entity), except U.S. Government securities or foreign government
securities; provided, however, that the Fund may not, with respect to 75% of its
total assets, invest more than 5% of its total assets in securities of any one
foreign government issuer; (ii) own more than 10% of the outstanding securities
of any class of any issuer (for this purpose, all preferred stocks of an issuer
shall be deemed a single class, and all indebtedness of an issuer shall be
deemed a single class), except U.S. Government securities; (iii) invest more
than 25% of the value of its total assets in securities of issuers having their
principal business activities in the same industry; provided, that this
limitation does not apply to U.S. Government securities or foreign government
securities; (iv) invest more than 5% of the value of its total assets in the
securities of any issuer that has a record of less than three years of
continuous operation (including the operation of any predecessor or
unconditional guarantor), except U.S. Government securities or foreign
government securities; (v) invest more than 5% of the value of its total assets
in securities with legal or contractual restrictions on resale, other than
repurchase agreements, or more than 10% of the value of its total assets in
securities that are not readily marketable (including restricted securities and
repurchase agreements not terminable within seven business days); and (vi)
borrow money, except as a temporary measure for extraordinary or emergency
purposes, and then only from banks in amounts not exceeding 5% of its total
assets.
Worldwide Privatization Fund may not: (i) invest 25% or more of its total assets
in securities of issuers conducting their principal business activities in the
same industry, except that this restriction does not apply to (a) U.S.
Government securities, or (b) the purchase of securities of issuers whose
primary business activity is in the national commercial banking industry, so
long as the Fund's Directors determine, on the basis of factors such as
liquidity, availability of investments and anticipated returns, that the Fund's
ability to achieve its investment objective would be adversely affected if the
Fund were not permitted to invest more than 25% of its total assets in those
securities, and so long as the Fund notifies its shareholders of any decision by
the Directors to permit or cease to permit the Fund to invest more than 25% of
its total assets in those securities, such notice to include a discussion of any
increased investment risks to which the Fund may be subjected as a result of the
Directors' determination; (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; outstanding borrowings in excess of 5% of the value of the Fund's total
assets will be repaid before any investments are made; or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings. The exception contained in clause (i)(b) above is subject
to the operating policy regarding concentration described in this Prospectus.
New Europe Fund may not: (i) purchase more than 10% of the outstanding voting
securities of any one issuer; (ii) invest more than 15% of its total assets in
the securities of any one issuer or 25% or more of its total assets in the same
industry, provided, however, that the foregoing restriction shall not be deemed
to prohibit the Fund from purchasing the securities of any issuer pursuant to
the exercise of rights distributed to the Fund by the issuer, except that no
such purchase may be made if as a result the Fund will fail to meet the
diversification requirements of the Code and any such acquisition in excess of
the foregoing 15% or 25% limits will be sold by the Fund as soon as reasonably
practicable (this restriction does not apply to U.S. Government securities, but
will apply to foreign government securities unless the Commission permits their
exclusion); (iii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests that might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the Fund's total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the Fund's total assets will be repaid
before any subsequent investments are made; or (iv) purchase a security (unless
the security is acquired pursuant to a plan of reorganization or an offer of
exchange) if,
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as a result, the Fund would own any securities of an open-end investment company
or more than 3% of the total outstanding voting stock of any closed-end
investment company, or more than 5% of the value of the Fund's total assets
would be invested in securities of any closed-end investment company, or more
than 10% of such value in closed-end investment companies in general.
All-Asia Investment Fund may not: (i) invest 25% or more of its total assets in
securities of issuers conducting their principal business activities in the same
industry; (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests that might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the Fund's total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the value of the Fund's total assets
will be repaid before any investments are made; or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
Global Small Cap Fund may not: (i) purchase the securities of any one issuer,
other than the U.S. Government or any of its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total assets
would be invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the
Fund's total assets may be invested without regard to these 5% and 10%
limitations; (ii) invest 25% or more of its total assets in the same industry;
this restriction does not apply to U.S. Government securities, but will apply to
foreign government securities unless the Commission permits their exclusion;
(iii) borrow money except from banks for emergency or temporary purposes in an
amount not exceeding 5% of the total assets of the Fund; or (iv) make short
sales of securities or maintain a short position, unless at all times when a
short position is open it owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount to, the
securities sold short and unless not more than 5% of the Fund's net assets is
held as collateral for such sales at any one time.
Balanced Shares may not: (i) invest more than 5% of its total assets in the
securities of any one issuer, except U.S. Government securities; or (ii) own
more than 10% of the outstanding voting securities of any one issuer.
Income Builder Fund may not: (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry, except that
this restriction does not apply to U.S. Government securities; (ii) borrow money
except from banks for temporary or emergency purposes, including the meeting of
redemption requests that might require the untimely disposition of securities;
borrowing in the aggregate may not exceed 15%, and borrowing for purposes other
than meeting redemptions may not exceed 5%, of the Fund's total assets
(including the amount borrowed) less liabilities (not including the amount
borrowed) at the time borrowing is made; securities will not be purchased while
borrowings in excess of 5% of the Fund's total assets are outstanding; or (iii)
pledge, hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.
Utility Income Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer except the U.S. Government, although with respect
to 25% of its total assets it may invest in any number of issuers; (ii) invest
25% or more of its total assets in the securities of issuers conducting their
principal business activities in any one industry, other than the utilities
industry, except that this restriction does not apply to U.S. Government
securities; (iii) purchase more than 10% of any class of the voting securities
of any one issuer; (iv) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; outstanding borrowings in excess of 5% of the Fund's total assets will be
repaid before any subsequent investments are made; or (v) purchase a security
if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own any securities of an
open-end investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or more than 5% of the value of the
Fund's net assets would be invested in securities of any one or more closed-end
investment companies.
Growth and Income Fund may not (i) invest more than 5% of its net assets in the
security of any one issuer, except U.S. Government obligations or (ii) own more
than 10% of the outstanding voting securities of any issuer.
Real Estate Investment Fund may not: (i) with respect to 75% of its total
assets, have such assets represented by other than: (a) cash and cash items, (b)
U.S. Government securities, or (c) securities of any one issuer (other than the
U.S. Government and its agencies or instrumentalities) not greater in value than
5% of the Fund's total assets, and not more than 10% of the outstanding voting
securities of such issuer; (ii) purchase the securities of any one issuer, other
than the U.S. Government and its agencies or instrumentalities, if as a result
(a) the value of the holdings of the Fund in the securities of such issuer
exceeds 25% of its total assets, or (b) the Fund owns more than 25% of the
outstanding securities of any one class of securities of such issuer; (iii)
invest 25% or more of its total assets in the securities of issuers conducting
their principal business activities in any one industry, other than the real
estate industry in which the Fund will invest at least 25% or more of its total
assets, except that this restriction does not apply to U.S. Government
securities; (iv) purchase or sell real estate, except that it may purchase and
sell securities of companies which deal in real estate or interests therein,
including Real Estate Equity
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Securities; or (v) borrow money except for temporary or emergency purposes or to
meet redemption requests, in an amount not exceeding 5% of the value of its
total assets at the time the borrowing is made.
RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. These risks may be heightened when investing in emerging
markets.
Investment in Privatized Enterprises by Worldwide Privatization Fund. In certain
jurisdictions, the ability of foreign entities, such as the Fund, to participate
in privatizations may be limited by local law, or the price or terms on which
the Fund may be able to participate may be less advantageous than for local
investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.
Furthermore, in the case of certain of the enterprises in which the Fund may
invest, large blocks of the stock of those enterprises may be held by a small
group of stockholders, even after the initial equity offerings by those
enterprises. The sale of some portion or all of those blocks could have an
adverse effect on the price of the stock of any such enterprise.
Most state enterprises or former state enterprises go through an internal
reorganization of management prior to conducting an initial equity offering in
an attempt to better enable these enterprises to compete in the private sector.
However, certain reorganizations could result in a management team that does not
function as well as the enterprise's prior management and may have a negative
effect on such enterprise. After making an initial equity offering, enterprises
that may have enjoyed preferential treatment from the respective state or
government that owned or controlled them may no longer receive such preferential
treatment and may become subject to market competition from which they were
previously protected. Some of these enterprises may not be able to effectively
operate in a competitive market and may suffer losses or experience bankruptcy
due to such competition. In addition, the privatization of an enterprise by its
government may occur over a number of years, with the government continuing to
hold a controlling position in the enterprise even after the initial equity
offering for the enterprise.
Currency Considerations. Substantially all of the assets of International Fund,
New Europe Fund, All-Asia Investment Fund, and Worldwide Privatization Fund and
a substantial portion of the assets of Global Small Cap Fund will be invested in
securities denominated in foreign currencies, and a corresponding portion of
these Funds' revenues will be received in such 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 certain
currency hedging transactions, which themselves involve certain special risks.
See "Additional Investment Practices" above.
Foreign Investment. 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 such
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. These problems are particularly severe in India, where settlement
is through physical delivery, and, where, currently, a severe shortage of vault
capacity exists among custodial banks, although efforts are being undertaken to
alleviate the shortage. 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 which 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,
and if a deterioration occurs in a country's balance of payments, the country
could impose temporary restrictions on foreign capital remittances.
A Fund could also be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures, which may involve additional costs
to a Fund. The liquidity of a Fund's investments in any country in which any of
these factors exists could be affected and Alliance will monitor the effect of
any such factor or factors on a Fund's investments. Furthermore, transaction
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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 or the
Fund's investments in such country. 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.
Investment in United Kingdom Issuers. Investment in securities of United Kingdom
issuers involves certain considerations not present with investment in
securities of U.S. issuers. As with any investment not denominated in the U.S.
dollar, the U.S. dollar value of the Fund's investment denominated in the
British pound sterling will fluctuate with pound sterling--dollar exchange rate
movements. Between 1972, when the pound sterling was allowed to float against
other currencies, and the end of 1992, the pound sterling generally depreciated
against most major currencies, including the U.S. dollar. Between September and
December 1992, after the United Kingdom's exit from the Exchange Rate Mechanism
of the European Monetary System, the value of the pound sterling fell by almost
20% against the U.S. dollar. The pound sterling continued to fall in early 1993,
but recovered due to interest rate cuts throughout Europe and an upturn in the
economy of the United Kingdom. The average exchange rate of the U.S. dollar to
the pound sterling was 1.50 in 1993 and 1.56 in 1996. On September 30, 1997 the
U.S. dollar-pound sterling exchange rate was 1.61.
The United Kingdom's largest stock exchange is the London Stock Exchange, which
is the third largest exchange in the world. As measured by the FT-SE 100 index,
the performance of the 100 largest companies in the United Kingdom reached
4118.5 at the end of 1996, up approximately 12% from the end of 1995. On
September 30, 1997 the FT-SE 100 index closed at 5244.2, up approximately 27%
from the end of 1996.
The public sector borrowing requirement ("PSBR"), a mandated measure of the
amount required to balance the budget, has been, over the last two fiscal years,
higher than forecast. The general government fiscal deficit has been in excess
of the eligibility limit prescribed by the European Union for countries that
intend to participate in the Economic and Monetary Union ("EMU"), which is
scheduled to take effect in January 1999. The government, however, expects that
the deficit will drop below that limit during calendar year 1997 and will
continue to drop in the 1997-98 and 1998-99 fiscal years. Although the
government has not yet made a formal announcement with respect to the United
Kingdom's participation in the EMU, remarks of the Chancellor of the Exchequer
made in mid-October 1997 suggest that the United Kingdom will not participate in
the EMU beginning in January 1999 but may do so thereafter.
From 1979 until 1997 the Conversative Party controlled Parliament. In the May 1,
1997 general elections, however, the Labour Party, led by Tony Blair, won a
majority in Parliament, holding 418 of 658 seats in the House of Commons. Mr.
Blair, who was appointed Prime Minister, has launched a number of reform
initiatives, including an overhaul of the monetary policy framework intended to
protect monetary policy from political forces by vesting responsibility for
setting interest rates in a new Monetary Policy Committee headed by the Governor
of the Bank of England, as opposed to the Treasury. Prime Minister Blair has
also undertaken a comprehensive restructuring of the regulation of the financial
services industry. For further information regarding the United Kingdom, see the
Statement of Additional Information of New Europe Fund.
Investment in Japanese Issuers. Investment in securities of Japanese issuers
involves certain considerations not present with investment in securities of
U.S. issuers. As with any investment not denominated in the U.S. dollar, the
U.S. dollar value of each Fund's investments denominated in the Japanese yen
will fluctuate with yen-dollar exchange rate movements. Between 1985 and 1995,
the Japanese yen generally appreciated against the U.S. dollar, but has fallen
from its post-World War II high (in 1995) against the U.S. dollar.
Japan's largest stock exchange is the Tokyo Stock Exchange, the First Section of
which is reserved for larger, established companies. As measured by the TOPIX, a
capitalization-weighted composite index of all common stocks listed in the First
Section, the performance of the First Section reached a peak in 1989.
Thereafter, the TOPIX declined approximately 50% through the end of 1993. In
1994, the TOPIX closed at 1,559.09, up approximately 8% from the end of 1993; in
1995, the TOPIX closed at 1,577.70, up approximately 1% from the end of 1994;
and in 1996, the TOPIX closed at 1,470.94, down approximately 7% from the end of
1995. On September 30, 1997, the TOPIX closed at 1,388.22, down 5.6% from the
end of 1996. Certain valuation measures, such as price-to-book value and
price-to-cash flow ratios, indicate that the Japanese stock market is near its
lowest level in the last twenty years relative to other world markets. The
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price/earnings ratios of First Section companies, however, are on average high
in comparison with other major stock markets.
In recent years, Japan has consistently recorded large current account trade
surpluses with the U.S. that have caused difficulties in the relations between
the two countries. On October 1, 1994, the U.S. and Japan reached an agreement
that may lead to more open Japanese markets with respect to trade in certain
goods and services. In June 1995, the two countries agreed in principle to
increase Japanese imports of American automobiles and automotive parts.
Nevertheless it is expected that the continuing friction between the U.S. and
Japan with respect to trade issues will continue for the foreseeable future.
Each Fund's investments in Japanese issuers will be subject to uncertainty
resulting from the instability of recent Japanese ruling coalitions. From 1955
to 1993, Japan's government was controlled by a single political party. Between
August 1993 and October 1996 Japan was ruled by a series of four coalition
governments. As the result of a general election on October 20, 1996, however,
Japan has returned to a single-party government led by Prime Minister Ryutaro
Hashimoto. While Mr. Hashimoto's party does not control a majority of the seats
in the parliament, it is only three seats short of the 251 seats required to
attain a majority in the House of Representatives (down from a 12-seat shortfall
just after the October 1996 election). For further information regarding Japan,
see the Statements of Additional Information of All-Asia Investment Fund and
International Fund.
Investment in Smaller, Emerging Companies. The Funds may invest in smaller,
emerging companies. Global Small Cap Fund and New Europe Fund will emphasize
investment in, and All-Asia Investment Fund may emphasize investment in,
smaller, emerging companies. Investment in such companies involves greater risks
than is customarily associated with securities of more established companies.
The securities of smaller companies may have relatively limited marketability
and may be subject to more abrupt or erratic market movements than securities of
larger companies or broad market indices.
The Real Estate Industry. Although Real Estate Investment Fund does not invest
directly in real estate, it does invest primarily in Real Estate Equity
Securities and does have a policy of concentration of its investments in the
real estate industry. Therefore, an investment in the Fund is subject to certain
risks associated with the direct ownership of real estate and with the real
estate industry in general. These risks include, among others: possible declines
in the value of real estate; risks related to general and local economic
conditions; possible lack of availability of mortgage funds; overbuilding;
extended vacancies of properties; increases in competition, property taxes and
operating expenses; changes in zoning laws; costs resulting from the clean-up
of, and liability to third parties for damages resulting from, environmental
problems; casualty or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and variations in rents;
and changes in interest rates. To the extent that assets underlying the Fund's
investments are concentrated geographically, by property type or in certain
other respects, the Fund may be subject to certain of the foregoing risks to a
greater extent.
In addition, if Real Estate Investment Fund receives rental income or income
from the disposition of real property acquired as a result of a default on
securities the Fund owns, the receipt of such income may adversely affect the
Fund's ability to retain its tax status as a regulated investment company. See
"Dividends, Distributions and Taxes" in the Statement of Additional Information.
Investments by the Fund in securities of companies providing mortgage servicing
will be subject to the risks associated with refinancings and their impact on
servicing rights.
REITs. Investing in REITs involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, are
subject to heavy cash flow dependency, default by borrowers and
self-liquidation. REITs are also subject to the possibilities of failing to
qualify for tax free pass-through of income under the Code and failing to
maintain their exemptions from registration under the 1940 Act.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's 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 a REIT's 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.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities. Historically, small
capitalization stocks, such as REITs, have been more volatile in price than the
larger capitalization stocks included in the S&P Index of 500 Common Stocks.
Mortgage-Backed Securities. As discussed above, 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
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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, such as those
in which Real Estate Investment Fund may invest, 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 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.
U.S. and Foreign Taxes. A Fund's investment in foreign securities may be subject
to taxes withheld at the source on dividend or interest payments. Foreign taxes
paid by a Fund may be creditable or deductible by U.S. shareholders for U.S.
income tax purposes. No assurance can be given that applicable tax laws and
interpretations will not change in the future. Moreover, non-U.S. investors may
not be able to credit or deduct such foreign taxes. Investors should review
carefully the information discussed under the heading "Dividends, Distributions
and Taxes" and should discuss with their tax advisers the specific tax
consequences of investing in a Fund.
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.
Under normal market conditions, the average dollar-weighted maturity of a Fund's
portfolio of debt or other fixed-income securities is expected to vary between
five and 30 years in the case of All-Asia Investment Fund, between eight and 15
years in the case of Income Builder Fund, between five and 25 years in the case
of Utility Income Fund and between one year or less and 30 years in the case of
all other Funds that invest in such securities. 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. See "Additional
Investment Practices--Mortgage-Backed Securities."
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps and Fitch are
considered to be of the highest quality; capacity to pay interest and repay
principal is extremely strong. Securities rated Aa by Moody's and AA by S&P,
Duff & Phelps and Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist that make risks
appear somewhat larger than exist with securities rated Aaa or AAA. Securities
rated A are considered by Moody's to possess adequate factors giving security to
principal and interest. S&P, Duff & Phelps and Fitch consider such securities to
have a strong capacity to pay interest and repay principal. Such securities are
more susceptible to adverse changes in economic conditions and circumstances
than higher-rated securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps and Fitch are
considered to have an adequate capacity to pay interest and repay principal.
Such securities are considered to have speculative characteristics and share
some of the same characteristics as lower-rated securities. 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. Securities rated Ba by Moody's and
BB by S&P, Duff & Phelps and Fitch are considered to have speculative
characteristics with respect to capacity to pay interest and repay principal
over time; their future cannot be considered as well-assured. Securities rated B
by Moody's, S&P, Duff & Phelps and Fitch are considered to have highly
speculative characteristics with respect to capacity to pay interest and repay
principal. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps and Fitch are of
poor standing and there is a present danger with respect to payment of principal
or interest. Securities rated Ca by Moody's and CC by S&P and Fitch are
43
<PAGE>
minimally protected, and default in payment of principal or interest is
probable. Securities rated C by Moody's, S&P and Fitch are in imminent default
in payment of principal or interest and have extremely poor prospects of ever
attaining any real investment standing. Securities rated D by S&P and Fitch are
in default. The issuer of securities rated DD by Duff & Phelps is under an order
of liquidation.
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 risk of loss of principal and interest than
higher-rated securities. They are also generally considered to be subject to
greater market risk than higher-rated securities, and the capacity of issuers of
lower-rated securities to pay interest and repay principal is more likely to
weaken than is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In addition,
lower-rated securities may be more susceptible to real or perceived adverse
economic conditions than investment grade securities.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty in
valuing such securities and, in turn, the Fund's assets. 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. See the
Statement of Additional Information for each Fund that invests in lower-rated
securities for a description of the bond ratings of Moody's, S&P, Duff & Phelps
and Fitch.
Certain lower-rated securities in which Growth Fund, Income Builder Fund,
Strategic Balanced and Utility Income Fund may invest 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.
Non-Diversified Status. Each of Worldwide Privatization Fund, New Europe Fund,
All-Asia Investment Fund and Income Builder Fund is a "non-diversified"
investment company, which means the Fund is not limited in the proportion of its
assets that may be invested in the securities of a single issuer. However, each
Fund intends to conduct its operations so as to qualify to be taxed as a
"regulated investment company" for purposes of the Code, which will relieve the
Fund of any liability for federal income tax to the extent its earnings are
distributed to shareholders. See "Dividends, Distributions and Taxes" in each
Fund's Statement of Additional Information. To so qualify, among other
requirements, the Fund will limit its investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the Fund's total assets
will be invested in the securities of a single issuer, and (ii) with respect to
50% of its total assets, not more than 5% of its total assets will be invested
in the securities of a single issuer and the Fund will not own more than 10% of
the outstanding voting securities of a single issuer. A Fund's investments in
U.S. Government securities and other regulated investment companies are not
subject to these limitations. Because each of Worldwide Privatization Fund, New
Europe Fund, All-Asia Investment Fund and Income Builder Fund is a
non-diversified investment company, it may invest in a smaller number of
individual issuers than a diversified investment company, and an investment in
such Fund may, under certain circumstances, present greater risk to an investor
than an investment in a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers.
- --------------------------------------------------------------------------------
PURCHASE AND SALE
- --------------------------------------------------------------------------------
OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of any of the Funds at a price based on the next
calculation of their net asset value after receipt of a proper purchase order
either through broker-dealers, banks or other financial intermediaries, or
directly through Alliance Fund Distributors, Inc. ("AFD"), each Fund's principal
underwriter. The minimum initial investment in each Fund is $250. The minimum
for subsequent investments in each Fund is $50. Investments of $25 or more are
allowed under the automatic investment program of each Fund. Share certificates
are issued only upon request. See the Subscription Application and Statements of
Additional Information for more information.
Existing shareholders may make subsequent purchases by electronic funds transfer
if they have completed the Telephone Transactions section of the Subscription
Application or
44
<PAGE>
the Shareholder Options form obtained from Alliance Fund Services, Inc. ("AFS"),
each Fund's registrar, transfer agent and dividend disbursing agent. Telephone
purchase orders can be made by calling (800) 221-5672 and may not exceed
$500,000.
Each Fund offers three classes of shares through this prospectus, Class A, Class
B and Class C. The Funds may refuse any order to purchase shares. In this
regard, the Funds reserve the right to restrict purchases of Fund shares
(including through exchanges) when they appear to evidence a pattern of frequent
purchases and sales made in response to short-term considerations.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus an initial sales charge,
as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
- --------------------------------------------------------------------------------
$100,000 to
less than $250,000 3.36 3.25 3.00
- --------------------------------------------------------------------------------
$250,000 to
less than $500,000 2.30 2.25 2.00
- --------------------------------------------------------------------------------
$500,000 to
less than $1,000,000 1.78 1.75 1.50
- --------------------------------------------------------------------------------
</TABLE>
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a contingent deferred sales charge ("CDSC") equal to 1% of the lesser of net
asset value at the time of redemption or original cost if you redeem within one
year; Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced or
eliminated sales charges in accordance with 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 Subscription Application and Statements of Additional
Information.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value without an initial sales
charge. A Fund will thus receive the full amount of your purchase. However, you
may pay a CDSC if you redeem shares within four years after purchase. The amount
of the CDSC (expressed as a percentage of the lesser of the current net asset
value or original cost) will vary according to the number of years from the
purchase of Class B shares until the redemption of those shares.
The amount of the CDSC for Class B shares for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's current
Statement of Additional Information.
Year Since Purchase CDSC
-------------------------------------------
First .............................. 4.0%
Second ............................. 3.0%
Third .............................. 2.0%
Fourth ............................. 1.0%
Fifth .............................. None
Class B shares are subject to higher distribution fees than Class A shares for a
period (after which they convert to Class A shares) of eight years, or six years
with respect to Premier Growth Fund. The higher fees mean a higher expense
ratio, so Class B shares pay correspondingly lower dividends and may have a
lower net asset value than Class A shares.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares at net asset value without any initial sales
charge. A Fund will thus receive the full amount of your purchase, and, if you
hold your shares for one year or more, you will receive the entire net asset
value of your shares upon redemption. Class C shares incur higher distribution
fees than Class A shares and do not convert to any other class of shares of the
Fund. The higher fees mean a higher expense ratio, so Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
Class C shares redeemed within one year of purchase will be subject to a CDSC
equal to 1% of the lesser of their original cost or net asset value at the time
of redemption.
Application of the CDSC
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 pursuant to a monthly, bimonthly or quarterly systematic
withdrawal plan. See the Statements of Additional Information.
How the Funds Value Their Shares
The net asset value of each Class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that Class by the outstanding
shares of that Class. Shares are valued each day the New York Stock Exchange
(the "Exchange") is open as of the close of regular trading (currently 4:00 p.m.
Eastern time). The securities in a Fund are valued 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 Fund's Directors believe accurately
reflects fair market value.
Employee Benefit Plans
Certain employee benefit plans, including employer-sponsored tax-qualified
401(k) plans and other defined contribution retirement plans ("Employee Benefit
Plans"), may establish requirements as to the purchase, sale or exchange of
shares of the Funds including maximum and minimum initial investment
requirements, that are different from those described in this Prospectus. Such
Employee Benefit Plans may also not offer all classes of shares of the Funds. In
order to enable participants investing through such Employee Benefit Plans to
purchase shares of the Funds, the maximum and minimum investment amounts may be
different for shares purchased through these 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 such Employee Benefit Plans.
45
<PAGE>
General
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 Class
A shares. If you are making a smaller investment, you might consider Class B
shares because 100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C shares because
there is no initial sales charge and no CDSC as long as the shares are held for
one year or more. Consult your financial agent. 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.
Each Fund offers a fourth class of shares, Advisor Class shares, by means of
separate prospectus. Advisor Class shares may be purchased and held solely by
(i) accounts established under a fee-based program sponsored and maintained by a
registered broker-dealer or other financial intermediary and approved by AFD,
(ii) a self-directed defined contribution employee benefit plan (e.g., a 401(k)
plan) that has at least 1,000 participants or $25 million in assets and (iii)
certain other categories of investors described in the prospectus for the
Advisor Class, including investment advisory clients of, and certain other
persons associated with, Alliance and its affiliates or the Funds. Advisor Class
shares are offered without any initial sales charge or CDSC and without an
ongoing distribution fee and are expected, therefore, to have different
performance than Class A, Class B or Class C shares. You can obtain more
information about Advisor Class shares by contacting AFS at 800-221-5672 or by
contacting your financial representative.
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
intermediaries 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 a Fund, including requirements as to the minimum initial and subsequent
investment amounts.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., an affiliate of AFD, in connection
with the sale of shares of the Funds. Such additional amounts may be utilized,
in whole or in part, in some cases together with other revenues of such dealers
or agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC) next
calculated after the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for shares recently
purchased by check or electronic funds transfer, a Fund will not send proceeds
until it is reasonably satisfied that the check or electronic funds transfer has
been collected (which may take up to 15 days).
Selling Shares Through Your Broker
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for you
to receive that day's net asset value (less any applicable CDSC). Your broker is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Selling Shares Directly To A Fund
Send a signed letter of instruction or stock power form to AFS along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a national
stock exchange or other eligible guarantor institution. 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. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value, and, except for
certain omnibus accounts, may be made only once in any 30-day period. A
shareholder who has completed the Telephone Transactions section of the
Subscription Application, or the Shareholder Options form obtained from AFS, can
elect to have the proceeds of his or her redemption sent to his or her bank via
an electronic funds transfer. Proceeds of telephone redemptions also may be sent
by check to a shareholder's address of record. Redemption requests by electronic
funds transfer may not exceed $100,000 and redemption requests by check may not
exceed $50,000. Telephone redemption is not available for shares held in nominee
or "street name"
46
<PAGE>
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.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it fails to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder's
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Fund 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 net asset values next
determined, 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 purposes of
determining the CDSC, if any, upon redemption and, in the case of Class B
shares, for the purposes 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.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors of the Fund.
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
Principal occupation
during the past
Fund Employee; year; title five years
- --------------------------------------------------------------------------------
The Alliance Fund Alden M. Stewart since 1997-- Associated with
Executive Vice President of Alliance since
Alliance Capital Management 1993; prior
Corporation (ACMC*) thereto,
associated with
Equitable Capital
Management
Corporation
("Equitable
Capital")**
Randall E. Haase since 1997-- Associated with
Senior Vice President of ACMC Alliance since July
1993; prior
thereto,
associated with
Equitable Capital
Growth Fund Tyler Smith since inception-- Associated with
Senior Vice President of ACMC Alliance since
July 1993; prior
thereto,
associated with
Equitable Capital
Premier Growth Fund Alfred Harrison since inception-- Associated with
Vice Chairman of ACMC Alliance
Technology Fund Peter Anastos since 1992-- Associated with
Senior Vice President of ACMC Alliance
Gerald T. Malone since 1992-- Associated with
Senior Vice President of ACMC Alliance since
1992; prior
thereto
associated with
College
Retirement
Equities Fund
Quasar Fund Alden M. Stewart since 1994-- (see above)
(see above)
Randall E. Haase since 1994-- (see above)
(see above)
International Fund A. Rama Krishna since 1993-- Associated with
Senior Vice President of ACMC Alliance since
and director of Asian Equity 1993; prior
research thereto,
Chief Investment
Strategist and
Director--Equity
Research for CS
First Boston
47
<PAGE>
Principal occupation
during the past
Fund Employee; year; title five years
- --------------------------------------------------------------------------------
Worldwide
Privatization Mark H. Breedon since inception-- Associated with
Senior Vice President of ACMC Alliance
and Director and Vice President
of Alliance Capital Limited ***
New Europe Fund Steven Beinhacker since 1997-- Associated with
Vice President of ACMC Alliance
All-Asia Investment A. Rama Krishna since inception-- (see above)
Fund (see above)
Global Small Cap Alden M. Stewart since 1994-- (see above)
Fund (see above)
Randall E. Haase since 1994-- (see above)
(see above)
Ronald L. Simcoe since 1993-- Associated with
Vice President of ACMC Alliance since
1993; prior thereto,
associated with
Equitable Capital
Strategic Balanced Nicholas D.P. Carn Associated with
Fund since 1997-- Alliance since
Vice President of ACMC 1997; prior
thereto, Chief
Investment
Officer and
Portfolio Manager
at Draycott
Partners
Balanced Shares Paul Rissman since 1997-- Associated with
Senior Vice President of ACMC Alliance
Income Builder Fund Andrew M. Aran since 1994-- Associated with
Senior Vice President of ACMC Alliance
Thomas M. Perkins since 1991-- Associated with
Senior Vice President of ACMC Alliance
Vita Marie Pike since 1997 Associated with
Vice President of ACMC Alliance
Corinne Molof Hill since 1997 Associated with
Vice President of ACMC Alliance
Utility Income Fund Paul Rissman since 1996-- Associated with
(See above) Alliance
Growth & Income Paul Rissman since 1994-- Associated with
Fund (see above) Alliance
Real Estate Daniel G. Pine since 1996-- Associated with
Investment Fund Senior Vice President of ACMC Alliance since
1996; prior
thereto, Senior
Vice President of
Desai Capital
Management
David Kruth since 1997-- Associated with
Vice President of ACMC Alliance since
1997; prior
thereto Senior
Vice President of
the Yarmouth
Group
- --------------------------------------------------------------------------------
* The sole general partner of Alliance.
** Equitable Capital was, prior to Alliance's acquisition of it, a management
firm under common control with Alliance.
*** An indirect wholly-owned subsidiary of Alliance.
Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1997 totaling more than $217 billion
(of which approximately $81 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations and
endowment funds. The 54 registered investment companies managed by Alliance
comprising 116 separate investment portfolios currently have over two million
shareholders. As of September 30, 1997, Alliance was an investment manager of
employee benefit plan assets for 28 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA-UAP, a French insurance holding company. Certain information concerning
the ownership and control of Equitable by AXA-UAP is set forth in each Fund's
Statement of Additional Information under "Management of the Funds."
Performance of Similarly Managed Portfolios. In addition to managing the assets
of Premier Growth Fund, Mr. Harrison has ultimate responsibility for the
management of discretionary tax-exempt accounts of institutional clients managed
as described below without significant client-imposed restrictions ("Historical
Portfolios"). These accounts have substantially the same investment objectives
and policies and are managed in accordance with essentially the same investment
strategies and techniques as those for Premier Growth Fund, except for the
ability of Premier Growth Fund to use futures and options as hedging tools and
to invest in warrants. The Historical Portfolios are also not subject to certain
limitations, diversification requirements and other restrictions imposed under
the 1940 Act and the Code to which Premier Growth Fund, as a registered
investment company, is subject and which if applicable to the Historical
Portfolios, may have adversely affected the performance results of the
Historical Portfolios. See "Investment Objective and Policies."
Set forth below is performance data provided by Alliance relating to the
Historical Portfolios for each of the eighteen full calendar years during which
Mr. Harrison has managed the Historical Portfolios as an employee of Alliance
and cumulatively through September 30, 1997. As of September 30, 1997, the
assets in the Historical Portfolios totaled approximately $12.4 billion and the
average size of an institutional account in the Historical Portfolio was $355
million. Each Historical Portfolio has a nearly identical composition of
individual investment holdings and related percentage weightings.
The performance data is net of all fees (including brokerage commissions)
charged to those accounts. The performance data is computed in accordance with
standards formulated by the Association of Investment Management and Research
and has not been adjusted to reflect any fees that will be payable by Premier
Growth Fund, which are higher than the fees imposed on the Historical Portfolio
and will result in a higher expense ratio and lower returns for Premier Growth
Fund. Expenses associated with the distribution of Class A, Class B and Class C
shares of Premier Growth Fund in accordance with the plan adopted by Premier
Growth Fund's Board of Directors pursuant to Rule 12b-1
48
<PAGE>
of the 1940 Act ("distribution fees") are also excluded. See "Expense
Information." The performance data has also not been adjusted for corporate or
individual taxes, if any, payable by the account owners.
Alliance has calculated the investment performance of the Historical Portfolios
on a trade-date basis. Dividends have been accrued at the end of the month and
cash flows weighted daily. Composite investment performance for all portfolios
has been determined on an asset weighted basis. New accounts are included in the
composite investment performance computations at the beginning of the quarter
following the initial contribution. The composite total returns set forth below
are calculated using a method that links the monthly return amounts for the
disclosed periods, resulting in a time-weighted rate of return.
As reflected below, the Historical Portfolios have over time performed favorably
when compared with the performance of recognized performance indices. The S&P
500 Index is a widely recognized, unmanaged index of market activity based upon
the aggregate performance of a selected portfolio of publicly traded common
stocks, including monthly adjustments to reflect the reinvestment of dividends
and other distributions. The S&P 500 Index reflects the total return of
securities comprising the Index, including changes in market prices as well as
accrued investment income, which is presumed to be reinvested. The Russell 1000
universe of securities is compiled by Frank Russell Company and is segmented
into two style indices, based on the capitalization-weighted median
book-to-price ratio of each of the securities. At each reconstitution, the
Russell 1000 constituents are ranked by their book-to-price ratio. Once so
ranked, the breakpoint for the two styles is determined by the median market
capitalization of the Russell 1000. Thus, those securities falling within the
top fifty percent of the cumulative market capitalization (as ranked by
descending book-to-price) become members of the Russell Price-Driven Indices.
The Russell 1000 Growth Index is, accordingly, designed to include those Russell
1000 securities with a greater-than-average growth orientation. In contrast with
the securities in the Russell Price-Driven Indices, companies in the Growth
Index tend to exhibit higher price-to-book and price-earnings ratios, lower
dividend yield and higher forecasted growth values.
To the extent Premier Growth Fund does not invest in U.S. common stocks or
utilizes investment techniques such as futures or options, the S&P 500 and
Russell 1000 Growth Index may not be substantially comparable to Premier Growth
Fund. The S&P 500 and Russell 1000 Growth Index are included to illustrate
material economic and market factors that existed during the time period shown.
The S&P 500 and Russell 1000 Growth Index do not reflect the deduction of any
fees. If Premier Growth Fund were to purchase a portfolio of securities
substantially identical to the securities comprising the S&P 500 Index or the
Russell 1000 Growth Index, Premier Growth Fund's performance relative to the
index would be reduced by Premier Growth Fund's expenses, including brokerage
commissions, advisory fees, distribution fees, custodial fees, transfer agency
costs and other administrative expenses as well as by the impact on Premier
Growth Fund's shareholders of sales charges and income taxes.
The Lipper Growth Fund Index is prepared by Lipper Analytical Services, Inc. and
represents a composite index of the investment performance for the 30 largest
growth mutual funds. The composite investment performance of the Lipper Growth
Fund Index reflects investment management and administrative fees and other
operating expenses paid by these mutual funds and reinvested income dividends
and capital gain distributions, but excludes the impact of any income taxes and
sales charges.
The following performance data is provided solely to illustrate Mr. Harrison's
performance in managing the Historical Portfolios and the Premier Growth Fund as
measured against certain broad based market indices and against the composite
performance of other open-end growth mutual funds. Investors should not rely on
the following performance data of the Historical Portfolios as an indication of
future performance of Premier Growth Fund. The composite investment performance
for the periods presented may not be indicative of future rates of return. Other
methods of computing investment performance may produce different results, and
the results for different periods may vary.
Schedule of Composite Investment Performance--Historical Portfolios*
<TABLE>
<CAPTION>
Russell Lipper
Premier Historical S&P 500 1000 Growth
Growth Portfolios Index Growth Index Fund Index
Fund Total Return** Total Return Total Return Total Return
------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December:
1996*** .... 18.84% 22.22% 22.96% 23.12% 17.48%
1995*** .... 40.66 40.12 37.58 37.19 32.65
1994 ....... (9.78) (4.83) 1.32 2.66 (1.57)
1993 ....... 5.35 10.62 10.08 2.90 11.98
1992 ....... -- 12.27 7.62 5.00 7.63
1991 ....... -- 39.19 30.47 41.16 35.20
1990 ....... -- (1.57) (3.10) (0.26) (5.00)
1989 ....... -- 39.08 31.69 35.92 28.60
1988 ....... -- 10.96 16.61 11.27 15.80
1987 ....... -- 8.57 5.25 5.31 1.00
1986 ....... -- 27.60 18.67 15.36 15.90
1985 ....... -- 37.68 31.73 32.85 30.30
1984 ....... -- (3.33) 6.27 (.95) (2.80)
1983 ....... -- 20.95 22.56 15.98 22.30
1982 ....... -- 28.23 21.55 20.46 20.20
1981 ....... -- (1.10) (4.92) (11.31) (8.40)
1980 ....... -- 51.10 32.50 39.57 37.30
1979 ....... -- 30.99 18.61 23.91 27.40
Cumulative total
return for the
period
January 1,
1979 to
September
30, 1997 ... -- 3188.99 1888.65 1656.41 1772.84
</TABLE>
- --------------------------------------------------------------------------------
* Total return is a measure of investment performance that is based upon the
change in value of an investment from the beginning to the end of a
specified period and assumes reinvestment of all dividends and other
distributions. The basis of preparation of this data is described in the
preceding discussion. Total returns for Premier Growth Fund are for Class A
shares, with imposition of the maximum 4.25% sales charge.
** Assumes imposition of the maximum advisory fee charged by Alliance for any
Historical Portfolio for the period involved, although not the impact of the
payment of that fee on a quarterly rather than an annual basis and the
compounding effect thereof over the periods for which return information is
provided in the table on page 50, which would correspondingly reduce the
returns presented.
*** During this period, the Historical Portfolios differed from Premier Growth
Fund in that Premier Growth Fund invested a portion of its net assets in
warrants on equity securities in which the Historical Portfolios were
unable, by their investment restrictions, to purchase. In lieu of warrants,
the Historical Portfolios acquired the common stock upon which the warrants
were based.
49
<PAGE>
The average annual total returns presented below are based upon the cumulative
total return as of September 30, 1997 and, for more than one year, assume a
steady compounded rate of return and are not year-by-year results, which
fluctuated over the periods as shown.
<TABLE>
<CAPTION>
Average Annual Total Returns
------------------------------------------------------
Premier Russell Lipper
Growth Historical S&P 500 1000 Growth
Fund Portfolios Index Growth Index Fund Index
------- ---------- ----- ------------ ----------
<S> <C> <C> <C> <C> <C>
One year..... 47.16% 54.05% 40.45% 36.30% 33.52%
Three years.. 32.34 32.26 29.92 29.81 24.84
Five years... 21.93 21.99 20.77 19.66 18.62
Ten years.... 21.88* 16.03 14.75 14.66 13.19
Since January 1,
1979....... -- 20.48 11.69 16.51 16.18
</TABLE>
- --------------------------------------------------------------------------------
* Since inception on 9/28/92
ADMINISTRATOR TO ALL-ASIA INVESTMENT FUND
Alliance has been retained by All-Asia Investment Fund under an administration
agreement (the "Administration Agreement") to perform administrative services
necessary for the operation of the Fund. For a description of such services, see
the Statement of Additional Information of the Fund.
CONSULTANT TO ALLIANCE WITH RESPECT TO INVESTMENT IN REAL ESTATE SECURITIES
Alliance, with respect to investment in real estate securities, has retained as
a consultant CB Commercial Real Estate Group, Inc. ("CBC"), a publicly held
company and the largest real estate services company in the United States,
comprised of real estate brokerage, property and facilities management, and real
estate finance and investment advisory activities (CBC in August of 1997
acquired Koll, which previously provided these consulting services to Alliance).
In 1996, CBC (and Koll, on a combined basis) completed 25,000 sale and lease
transactions, managed over 4,100 client properties, created over $3.5 billion in
mortgage originations, and completed over 2,600 appraisal and consulting
assignments. In addition, they advised and managed for institutions over $4
billion in real estate investments. CBC will make available to Alliance the CBC
National Real Estate Index, which gathers, analyzes and publishes targeted
research data for the 65 largest U.S. markets, based on a variety of
public-sector and private-sector sources as well as CBC's proprietary database
of approximately 60,000 property transactions representing over $400 billion of
investment property. This information provides a substantial component of the
research and data used to create the REIToScore model. As a consultant, CBC
provides to Alliance, at Alliance's expense, such in-depth information regarding
the real estate market, the factors influencing regional valuations and analysts
of recent transactions in office, retail, industrial and multi-family properties
as Alliance shall from time to time request. CBC will not furnish advice or make
recommendations regarding the purchase or sale of securities by the Fund nor
will it be responsible for making investment decisions involving Fund assets.
CBC is one of the three largest fee-based property management firms in the
United States, the largest commercial real estate lease brokerage firm in the
country, the largest investment property brokerage firm in the country, as well
as one of the largest publishers of real estate research, with approximately
6,000 employees nationwide. CBC will provide Alliance with exclusive access to
its REIToScore model which ranks approximately 130 REITS based on the relative
attractiveness of the property markets in which they own real estate. This model
scores the approximately 12,000 individual properties owned by these companies.
REIToScore is in turn based on CBC's National Real Estate Index which gathers,
analyzes and publishes targeted research for the 65 largest U.S. real estate
markets based on a variety of public- and private-sector sources as well as
CBC's proprietary database of 60,000 commercial property transactions
representing over $400 billion of investment property and over 3,000 tracked
properties which report rent and expense data quarterly. CBC has previously
provided access to its REIToScore model results primarily to the institutional
market through subscriptions. The model is no longer provided to any research
publications and the Fund is currently the only mutual fund available to retail
investors that has access to CBC's REIToScore model.
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a Distribution
Services Agreement (the "Agreement") with AFD. Pursuant to its Plan, a Fund pays
to AFD a Rule 12b-1 distribution services fee, which may not exceed an annual
rate of .30% (.50% with respect to Growth Fund, Premier Growth Fund and
Strategic Balanced Fund) of the Fund's aggregate average daily net assets
attributable to the Class A shares, 1.00% of the Fund's aggregate average daily
net assets attributable to the Class B shares and 1.00% of the Fund's aggregate
average daily net assets attributable to the Class C shares, for distribution
expenses. The Directors of Growth Fund and Strategic Balanced Fund currently
limit payments with respect to Class A shares under the Plan to .30% of each
Fund's aggregate average daily net assets attributable to Class A shares. The
Directors of Premier Growth Fund currently limit payments under the Plan with
respect to sales of Class A shares made after November 1993 to .30% of the
Fund's aggregate average daily net assets. The Plans provide that a portion of
the distribution services fee in an amount not to exceed .25% of the aggregate
average daily net assets of each Fund attributable to each of the Class A, Class
B and Class C shares constitutes a service fee used for personal service and/or
the maintenance of shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund, and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to .25%,
annualized, with respect to Class A shares and Class B shares, and 1.00%,
annualized, with
50
<PAGE>
respect to Class C shares, of the assets maintained in a Fund by their
customers. Distribution services fees received from the Funds, except Growth
Fund and Strategic Balanced Fund, with respect to Class A shares will not be
used to pay any interest expenses, carrying charges or other financing costs or
allocation of overhead of AFD. Distribution services fees received from the
Funds, with respect to Class B and Class C shares, may be used for these
purposes. The Plans also provide that Alliance may use its own resources to
finance the distribution of each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services fee
in excess of the amounts set forth above. Except as noted below for Growth Fund
and Strategic Balanced Fund, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
Except as noted below for Growth Fund and Strategic Balanced Fund, AFD's
compensation with respect to Class B and Class C shares under the Plans of the
other Funds is directly tied to its expenses incurred. Actual distribution
expenses for such Class B and Class C shares for any given year, however, will
probably exceed the distribution services fees payable under the applicable Plan
with respect to the class involved and, in the case of Class B and Class C
shares, payments received from CDSCs. The excess will be carried forward by AFD
and reimbursed from distribution services fees payable under the Plan with
respect to the class involved and, in the case of Class B and Class C shares,
payments subsequently received through CDSCs, so long as the Plan and the
Agreement are in effect. Since AFD's compensation under the Plans of Growth Fund
and Strategic Balanced Fund is not directly tied to the expenses incurred by
AFD, the amount of compensation received by it under the applicable Plan during
any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal period, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds were, as of
that time, as follows:
<TABLE>
<CAPTION>
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
------------------------------------------------
Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance Fund .............. $ 2,718,791 (6.12%) $ 815,553 (5.87%)
Growth Fund ................ $63,986,412 (2.56%) $ 2,280,463 (0.57%)
Premier Growth Fund ........ $ 9,179,357 (2.27%) $ 597,937 (0.99%)
Technology Fund ............ $20,749,046 (3.14%) $ 892,004 (0.82%)
Quasar Fund ................ $ 3,754,485 (3.34%) $ 408,356 (1.43%)
International Fund ......... $ 2,566,420 (3.30%) $ 807,347 (3.47%)
Worldwide Privatization Fund $ 5,013,479 (4.14%) $ 251,109 (1.94%)
New Europe Fund ............ $ 2,535,456 (3.84%) $ 541,239 (3.20%)
All-Asia Investment Fund ... $ 1,402,190 (5.90%) $ 93,183 (2.20%)
Global Small Cap Fund ...... $ 2,055,687 (6.43%) $ 586,919 (6.73%)
Strategic Balanced Fund .... $ 1,172,983 (4.18%) $ 372,907 (12.25%)
Balanced Shares ............ $ 1,533,382 (6.34%) $ 463,860 (8.42%)
Income Builder Fund ........ $ 748,972 (12.97%) $ 1,789,259 (4.03%)
Utility Income Fund ........ $ 1,114,037 (8.21%) $ 406,214 (12.03%)
Growth and Income Fund ..... $ 5,883,895 (2.50%) $ 975,417 (1.59%)
Real Estate Investment Fund $ 6,726,437 (3.60%) $ 366,120 (0.86%)
- --------------------------------------------------------------------------------
</TABLE>
The Plans are in compliance with rules of the National Association of Securities
Dealers, Inc. which effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class. The
rules also limit the aggregate of all front-end, deferred and asset-based sales
charges imposed with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of shares of that
class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a bank
or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other services arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
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 such 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.
Each income dividend and capital gains distribution, if any, declared by a Fund
on its outstanding shares will, at the election of each shareholder, be paid in
cash or in additional shares of the same class of shares of that Fund having an
aggregate net asset value as of the close of business on the day following the
declaration date of such dividend or distribution equal to the cash amount of
such income dividend or distribution. Election to receive dividends and
distributions in cash or shares is made at the time shares are initially
purchased and may be changed at any time prior to the record date for a
particular dividend or distribution. Cash dividends can be paid by check or, if
the shareholder so elects, electronically via the ACH network. There is no sales
or other charge in connection with the reinvestment of dividends and capital
gains distributions. Dividends paid by a Fund, if any, with respect to Class A,
Class B and Class C shares will be calculated in the same manner at the same
time on the same day and will be in the same amount,
51
<PAGE>
except that the higher distribution services fees applicable to Class B and 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.
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 such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital gains
from investments. There is no fixed dividend rate, and there can be no assurance
that a Fund will pay any dividends or realize any capital gains. Since REITs pay
distributions based on cash flow, without regard to depreciation and
amortization, a portion of the distributions paid to Real Estate Investment Fund
and subsequently distributed to shareholders may be a nontaxable return of
capital. The final determination of the amount of a Fund's return of capital
distributions for the period will be made after the end of each calendar year.
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.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits for foreign income taxes paid
(or to permit shareholders to claim a deduction for such foreign taxes), but
there can be no assurance that any Fund will be able to do so.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that a Fund distributes its taxable income and net
capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income taxes on that part of its taxable
income, including net capital gains, which it pays out to its shareholders.
Dividends out of net ordinary income and distributions of net short-term capital
gains are taxable to the recipient shareholders as ordinary income. In the case
of corporate shareholders, such dividends may be eligible for the
dividends-received deduction, except that the amount eligible for the deduction
is limited to the amount of qualifying dividends received by the Fund.
Distributions received from a REIT generally do not constitute qualifying
dividends. A corporation's dividends-received deduction generally will be
disallowed unless the corporation holds shares in the Fund at least 46 days
during the 90-day period beginning 45 days before the date on which the
corporation becomes entitled to receive the dividend. Furthermore, the
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of a Fund is financed with indebtedness.
Distributions of net capital gains are not eligible for the dividends-received
deduction referred to above.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains--that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on capital assets held
for more than one year but not more than 18 months ("mid-term gains"), and a
second rate (generally 20%) applies to the balance of such net capital gains
("adjusted net capital gains"). Distributions of mid-term gains and adjusted net
capital gains will be taxable to shareholders as such, regardless of how long a
shareholder has held shares in the Fund.
Distributions received by a shareholder may include nontaxable returns of
capital, which will reduce a shareholder's basis in shares of the 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 gain.
Under the current federal tax law, the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him or her
as described above. If a shareholder held shares six months or less and during
that period received a distribution of net capital gains, any loss realized on
the sale of such shares during such six-month period would be a long-term
capital loss to the extent of such distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
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.
Distributions by a Fund may be subject to state and local taxes. Alliance Fund,
Premier Growth Fund, Technology Fund, Income Builder Fund, Quasar Fund, New
Europe Fund, Balanced Shares and Growth and Income Fund are qualified to do
business in the Commonwealth of Pennsylvania and, therefore, are subject to the
Pennsylvania foreign franchise and corporate net income tax in respect of their
business activities in Pennsylvania. Accordingly, shares of such Funds are
exempt from Pennsylvania personal property taxes. These Funds anticipate
continuing such business activities but
52
<PAGE>
reserve the right to suspend them at any time, resulting in the termination of
the exemptions.
A Fund will be required to withhold 31% of any payments made to a shareholder if
the shareholder has not provided a certified taxpayer identification number to
the Fund, or the Secretary of the Treasury notifies a Fund that a shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return.
Under certain circumstances, if a Fund realizes losses 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. See
"Dividends, Distributions and Taxes" in the Statement of Additional Information.
Shareholders will be advised annually as to the federal tax status of dividends
and capital gains and return of capital distributions made by a Fund for the
preceding year. Shareholders are urged to consult their tax advisers regarding
their own tax situation.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: The Alliance Fund, Inc. (1938), Alliance Balanced Shares, Inc.
(1932), Alliance Premier Growth Fund, Inc. (1992), Alliance Technology Fund,
Inc. (1980), Alliance Quasar Fund, Inc. (1968), Alliance Worldwide Privatization
Fund, Inc. (1994), Alliance New Europe Fund, Inc. (1990), Alliance All-Asia
Investment Fund, Inc. (1994), Alliance Global Small Cap Fund, Inc. (1966),
Alliance Income Builder Fund, Inc. (1991), Alliance Utility Income Fund, Inc.
(1993), Alliance Growth and Income Fund, Inc. (1932), and Alliance Real Estate
Investment Fund, Inc. (1996). Each of the following Funds is either a
Massachusetts business trust or a series of a Massachusetts business trust
organized in the year indicated: Alliance Growth Fund and Alliance Strategic
Balanced Fund (each a series of The Alliance Portfolios) (1987), and Alliance
International Fund (1980). Prior to August 2, 1993, The Alliance Portfolios was
known as The Equitable Funds, Growth Fund was known as The Equitable Growth Fund
and Strategic Balanced Fund was known as The Equitable Balanced Fund. Prior to
March 22, 1994, Income Builder Fund was known as Alliance Multi-Market Income
and Growth Trust, Inc.
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 Directors.
A shareholder in a Fund 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 CDSC. The
Funds are empowered to establish, without shareholder approval, additional
portfolios, which may have different investment objectives, and additional
classes of shares. If an additional portfolio or class were established in a
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 Directors, that
affect each portfolio and class in substantially the same manner. Class A, B, C
and Advisor Class shares have identical voting, dividend, liquidation and other
rights, except that each class bears its own transfer agency expenses, each of
Class A, Class B and Class C shares bears its own distribution expenses and
Class B shares and Advisor Class shares convert to Class A shares under certain
circumstances. Each class of shares votes separately with respect to a 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 Directors and, in liquidation of a
Fund, are entitled to receive the net assets of the Fund. Since this Prospectus
sets forth information about all the Funds, it is theoretically possible that a
Fund might be liable for any materially inaccurate or incomplete disclosure in
this Prospectus concerning another Fund. Based on the advice of counsel,
however, the Funds believe that the potential liability of each Fund with
respect to the disclosure in this Prospectus extends only to the disclosure
relating to that Fund. Certain additional matters relating to a Fund's
organization are discussed in its Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds. The transfer agency fee with respect to the
Class B shares will be higher than the transfer agency fee with respect to the
Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "total return," which is computed
separately for Class A, Class B and Class C shares. Such advertisements disclose
a Fund's average annual compounded total return for the periods prescribed by
the Commission. A Fund's total return for each such period is computed by
finding, through the use of a formula prescribed by the Commission, the average
annual compounded rate of return
53
<PAGE>
over the period that would equate an assumed initial amount invested to the
value of the investment at the end of the period. For purposes of computing
total return, income dividends and capital gains distributions paid on shares of
a Fund are assumed to have been reinvested when paid and the maximum sales
charges applicable to purchases and redemptions of a Fund's shares are assumed
to have been paid.
Balanced Shares, Growth and Income Fund, Income Builder Fund, Real Estate
Investment Fund and Utility Income Fund may also advertise their "yield," which
is also computed separately for Class A, Class B and Class C shares. A Fund's
yield for any 30-day (or one-month) period is computed by dividing the net
investment income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then annualizing
such 30-day (or one-month) yield in accordance with a formula prescribed by the
Commission which provides for compounding on a semi-annual basis.
Real Estate Investment Fund, Balanced Shares, Income Builder Fund, Utility
Income Fund and Growth and Income Fund may also state in sales literature an
"actual distribution rate" for each class which is computed in the same manner
as yield except that actual income dividends declared per share during the
period in question are substituted for net investment income per share. The
actual distribution rate is computed separately for Class A, Class B and Class C
shares.
A Fund's advertisements may quote performance rankings or ratings of a Fund by
financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various
indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to any
other Fund. See "General Information--Organization."
54
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-37848 and 811-6028.
<PAGE>
<PAGE>
THE ALLIANCE
- --------------------------------------------------------------------------------
STOCK FUNDS
- --------------------------------------------------------------------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
(Advisor Class)
October 31, 1997
Domestic Stock Funds Global Stock Funds
-The Alliance Fund -Alliance International Fund
-Alliance Growth Fund -Alliance Worldwide Privatization Fund
-Alliance Premier Growth Fund -Alliance New Europe Fund
-Alliance Technology Fund -Alliance All-Asia Investment Fund
-Alliance Quasar Fund -Alliance Global Small Cap Fund
Total Return Funds
-Alliance Strategic Balanced Fund
-Alliance Balanced Shares
-Alliance Income Builder Fund
-Alliance Utility Income Fund
-Alliance Growth and Income Fund
-Alliance Real Estate Investment Fund
Table of Contents Page
The Funds at a Glance............................. 2
Expense Information............................... 4
Glossary.......................................... 7
Financial Highlights ............................. 7
Description of the Funds.......................... 10
Investment Objectives and Policies............. 10
Additional Investment Practices................ 20
Certain Fundamental Investment Policies........ 27
Risk Considerations............................ 30
Purchase and Sale of Shares....................... 35
Management of the Funds........................... 36
Dividends, Distributions and Taxes................ 40
Conversion Feature................................ 41
General Information............................... 52
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Stock Funds provide a broad selection of investment alternatives to
investors seeking capital growth or high total return. The Domestic Stock Funds
invest mainly in the United States equity markets and the Global Stock Funds
diversify their investments among equity markets around the world, while the
Total Return Funds invest in both equity and fixed-income securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund which provides
further information regarding certain matters discussed in this Prospectus and
other matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or call the "For Literature" telephone number shown above.
This Prospectus offers the Advisor Class shares of each Fund which may be
purchased at net asset value without any initial or contingent deferred sales
charges and without ongoing distribution expenses. Advisor Class shares are
offered solely to (i) investors participating in fee-based programs meeting
certain standards established by Alliance Fund Distributors, Inc., each Fund's
principal underwriter, (ii) participants in self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that meet certain minimum standards
and (iii) certain other categories of investors described in the Prospectus,
including investment advisory clients of, and certain other persons associated
with, Alliance Capital Management L.P. and its affiliates or the Funds. See
"Purchase and Sale of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Alliance(R)
Investing without the Mystery.(SM)
(R)/(SM) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
<PAGE>
The Funds At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
The Funds' Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 100 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $217
billion in assets under management as of September 30, 1997. Alliance provides
investment management services to employee benefit plans for 28 of the FORTUNE
100 companies.
Domestic Stock Funds
Alliance Fund
Seeks . . . Long-term growth of capital and income primarily through investment
in common stocks.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, have the potential to achieve capital appreciation.
Growth Fund
Seeks . . . Long-term growth of capital by investing primarily in common stocks
and other equity securities.
Invests Principally in . . . A diversified portfolio of equity securities of
companies with a favorable outlook for earnings and whose rate of growth is
expected to exceed that of the United States economy over time.
Premier Growth Fund
Seeks . . . Long-term growth of capital by investing in the equity securities of
a limited number of large, carefully selected, high-quality American companies
from a relatively small universe of intensively researched companies.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, are likely to achieve superior earnings growth.
Normally, approximately 40 companies will be represented in the Fund's
investment portfolio. The Fund's investments in 25 of these companies most
highly regarded at any point in time by Alliance will usually constitute
approximately 70% of the Fund's net assets.
Technology Fund
Seeks . . . Growth of capital through investment in companies expected to
benefit from advances in technology.
Invests Principally in . . . A diversified portfolio of securities of companies
which use technology extensively in the development of new or improved products
or processes.
Quasar Fund
Seeks . . . Growth of capital by pursuing aggressive investment policies.
Invests Principally in . . . A diversified portfolio of equity securities of any
company and industry and in any type of security which is believed to offer
possibilities for capital appreciation.
Global Stock Funds
International Fund
Seeks . . . A total return on its assets from long-term growth of capital and
from income.
Invests Principally in . . . A diversified portfolio of marketable securities of
established non-United States companies, companies participating in foreign
economies with prospects for growth, and foreign government securities.
Worldwide Privatization Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities
issued by enterprises that are undergoing, or have undergone, privatization. The
balance of the Fund's investment portfolio will include securities of companies
that are believed by Alliance to be beneficiaries of the privatization process.
New Europe Fund
Seeks . . . Long-term capital appreciation through investment primarily in the
equity securities of companies based in Europe.
Invests Principally in . . . A non-diversified portfolio of equity securities of
European companies.
All-Asia Investment Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities of
Asian/Pacific companies.
Global Small Cap Fund
Seeks . . . Long-term growth of capital.
Invests Principally in . . . A diversified global portfolio of the equity
securities of small capitalization companies.
Total Return Funds
Strategic Balanced Fund
Seeks . . . A high long-term total return by investing in a combination of
equity and debt securities.
Invests Principally in . . . A diversified portfolio of dividend-paying common
stocks and fixed-income securities, and also in equity-type securities such as
warrants, preferred stocks and convertible debt instruments.
Balanced Shares
Seeks . . . A high return through a combination of current income and capital
appreciation.
2
<PAGE>
Invests Principally in . . . A diversified portfolio of equity and fixed-income
securities such as common and preferred stocks, U.S. Government and agency
obligations, bonds and senior debt securities.
Income Builder Fund
Seeks . . . Both an attractive level of current income and long-term growth of
income and capital.
Invests Principally in . . . A non-diversified portfolio of fixed-income
securities and dividend-paying common stocks. Alliance currently expects to
continue to maintain approximately 60% of the Fund's net assets in fixed-income
securities and 40% in equity securities.
Utility Income Fund
Seeks . . . Current income and capital appreciation through investment in the
utilities industry.
Invests Principally in . . . A diversified portfolio of equity securities, such
as common stocks, securities convertible into common stocks and rights and
warrants to subscribe for purchase of common stocks, and in fixed-income
securities such as bonds and preferred stocks.
Growth and Income Fund
Seeks . . . Income and appreciation through investment in dividend-paying common
stocks of quality companies.
Invests Principally in . . . A diversified portfolio of dividend-paying common
stocks of good quality, and, under certain market conditions, other types of
securities, including bonds, convertible bonds and preferred stocks.
Real Estate Investment Fund
Seeks . . . Total return on its assets from long-term growth of capital and from
income.
Invests Principally in . . . A diversified portfolio of equity securities of
issuers that are primarily engaged in or related to the real estate industry.
Distributions . . .
Balanced Shares, Income Builder Fund, Utility Income Fund, Growth and Income
Fund and Real Estate Investment Fund intend to make distributions quarterly to
shareholders. These distributions may include ordinary income and capital gain
(each of which is taxable) and a return of capital (which is generally
nontaxable). See "Dividends, Distributions and Taxes."
A Word About Risk . . .
The price of the shares of the Alliance Stock Funds will fluctuate as the daily
prices of the individual securities in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost. With
respect to those Funds permitted to invest in foreign currency denominated
securities, these fluctuations may be magnified by changes in foreign exchange
rates. Investment in the Global Stock Funds involves risks not associated with
funds that invest primarily in securities of U.S. issuers. While the Funds
invest principally in common stocks and other equity securities, in order to
achieve their investment objectives the Funds may at times use certain types of
investment derivatives, such as options, futures, forwards and swaps. These
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. An investment in the Real Estate
Investment Fund is subject to certain risks associated with the direct ownership
of real estate in general, including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. These risks are fully discussed in this Prospectus.
Getting Started . . .
Shares of the Funds are available through your financial representative. Each
Fund offers multiple classes of shares, of which only the Advisor Class is
offered by this Prospectus. Advisor Class shares may be purchased at net asset
value without any initial or contingent deferred sales charges and are not
subject to ongoing distribution expenses. Advisor Class shares may be purchased
and held solely (i) through accounts established under a fee-based program,
sponsored and maintained by a registered broker-dealer or other financial
intermediary and approved by Alliance Fund Distributors, Inc. ("AFD"), each
Fund's principal underwriter, (ii) through a self-directed defined contribution
employee benefit plan (e.g., a 401(k) plan) that has at least 1,000 participants
or $25 million in assets, (iii) by investment advisory clients of, and certain
other persons associated with, Alliance and its affiliates or the Funds, and
(iv) through 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 AFD 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. A shareholder's
Advisor Class shares will automatically convert to Class A shares of the same
Fund under certain circumstances. See "Conversion Feature--Conversion to Class A
Shares." Generally, a fee-based program must charge an asset-based or other
similar fee and must invest at least $250,000 in Advisor Class shares of each
Fund in which the program invests in order to be approved by AFD for investment
in Advisor Class shares. For more detailed information about who may purchase
and hold Advisor Class shares see the Statement of Additional Information.
Fee-based and other programs through which Advisor Class shares may be purchased
may impose different requirements with respect to investment in Advisor Class
shares than described above. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares."
Alliance(R)
Investing without the Mystery.(SM)
(R)/(SM) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
<PAGE>
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Fund. The following table summarizes your maximum transaction costs
from investing in the Advisor Class shares of each Fund and estimated annual
expenses for Advisor Class shares of each Fund. For each Fund, the "Examples" to
the right of the table below show the cumulative expenses attributable to a
hypothetical $1,000 investment in Advisor Class shares for the periods
specified.
Advisor Class Shares
--------------------
Maximum sales charge imposed on purchases ............... None
Sales charge imposed on dividend reinvestments .......... None
Deferred sales charge ................................... None
Exchange fee ............................................ None
- --------------------------------------------------------------------------------
Operating Expenses Examples
--------------------------------------------- ------------------------------
Alliance Fund Advisor Class Advisor Class
------------- -------------
Management fees .70% After 1 year $ 9
12b-1 fees None After 3 years $ 27
Other expenses (a) .15% After 5 years $ 47
----
Total fund After 10 years $105
operating expenses (b) .85%
====
Growth Fund Advisor Class Advisor Class
------------- -------------
Management fees .75% After 1 year $ 10
12b-1 fees None After 3 years $ 32
Other expenses (a) .25% After 5 years $ 55
----
Total fund After 10 years $122
operating expenses (b) 1.00%
====
Premier Growth Fund Advisor Class Advisor Class
------------- -------------
Management fees 1.00% After 1 year $ 13
12b-1 fees None After 3 years $ 42
Other expenses (a) .32% After 5 years $ 72
----
Total fund After 10 years $159
operating expenses (b) 1.32%
====
Technology Fund Advisor Class Advisor Class
------------- -------------
Management fees (g) 1.11% After 1 year $ 15
12b-1 fees None After 3 years $ 46
Other expenses (a) .33% After 5 years $ 79
----
Total fund After 10 years $172
operating expenses (b) 1.44%
====
Quasar Fund Advisor Class Advisor Class
------------- -------------
Management fees (g) 1.15% After 1 year $ 16
12b-1 fees None After 3 years $ 50
Other expenses (a) .43% After 5 years $ 86
----
Total fund After 10 years $188
operating expenses (b) 1.58%
====
International Fund Advisor Class Advisor Class
------------- -------------
Management fees
(after waiver) (c) .85% After 1 year $ 16
12b-1 fees None After 3 years $ 48
Other expenses (a) .68% After 5 years $ 83
----
Total fund After 10 years $182
operating expenses (b) (e) 1.53%
====
- --------------------------------------------------------------------------------
Please refer to the footnotes and the discussion following these tables on page
6.
4
<PAGE>
Operating Expenses Examples
--------------------------------------------- ------------------------------
Worldwide Privatization Fund Advisor Class Advisor Class
------------- -------------
Management fees 1.00% After 1 year $ 20
12b-1 fees None After 3 years $ 62
Other expenses (a) .96% After 5 years $106
----
Total fund After 10 years $229
operating expenses (b) 1.96%
====
New Europe Fund Advisor Class Advisor Class
------------- -------------
Management fees 1.06% After 1 year $ 17
12b-1 fees None After 3 years $ 54
Other expenses (a) .65% After 5 years $ 93
----
Total fund After 10 years $202
operating expenses (b) 1.71%
====
All-Asia Investment Fund Advisor Class Advisor Class
------------- -------------
Management fees
(after waiver) (c) .65% After 1 year $ 29
12b-1 fees None After 3 years $ 87
Other expenses After 5 years $149
Administration fees After 10 years $315
(after waiver) (d) .00%
Other operating expenses (a) 2.17%
----
Total other expenses 2.17%
----
Total fund
operating expenses (b) (e) 2.82%
====
Global Small Cap Fund Advisor Class Advisor Class
------------- -------------
Management fees 1.00% After 1 year $ 21
12b-1 fees None After 3 years $ 64
Other expenses (a) 1.05% After 5 years $110
----
Total fund After 10 years $238
operating expenses (b) 2.05%
====
Strategic Balanced Fund Advisor Class Advisor Class
------------- -------------
Management fees
(after waiver) (c) .09% After 1 year $ 11
12b-1 fees None After 3 years $ 35
Other expenses (a) 1.01% After 5 years $ 61
----
Total fund After 10 years $134
operating expenses (b) (e) 1.10%
====
Balanced Shares Advisor Class Advisor Class
------------- -------------
Management fees .63% After 1 year $ 13
12b-1 fees None After 3 years $ 41
Other expenses (a) .67% After 5 years $ 71
----
Total fund After 10 years $157
operating expenses (b) 1.30%
====
Income Builder Fund Advisor Class Advisor Class
------------- -------------
Management fees .75% After 1 year $ 19
12b-1 fees None After 3 years $ 59
Other expenses (a) 1.20% After 5 years $100
----
Total fund After 10 years $211
operating expenses (b) 1.95%
====
Utility Income Fund Advisor Class Advisor Class
------------- -------------
Management fees
(after waiver) (c) 0.00% After 1 year $ 12
12b-1 fees None After 3 years $ 38
Other expenses (a) 1.20% After 5 years $ 66
----
Total fund After 10 years $145
operating expenses (b) (f) 1.20%
====
5
<PAGE>
Operating Expenses Examples
--------------------------------------------- ------------------------------
Growth and Income Fund Advisor Class Advisor Class
------------- -------------
Management fees .51% After 1 year $ 8
12b-1 fees None After 3 years $ 24
Other expenses (a) .25% After 5 years $ 42
----
Total fund After 10 years $ 94
operating expenses (b) .76%
====
Real Estate Investment Fund Advisor Class Advisor Class
------------- -------------
Management fees .90% After 1 year $ 15
12b-1 fees None After 3 years $ 46
Other expenses (a) .55% After 5 years $ 79
----
After 10 years $174
Total fund
operating expenses (b) 1.45%
====
- --------------------------------------------------------------------------------
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance. The expenses shown do not include
the application of credits that reduce Fund expenses.
(b) The expense information does not reflect any charges or expenses imposed by
your financial representative or your employee benefit plan.
(c) Net of voluntary fee waiver. In the absence of such waiver, management fees
would be 1.00% for All-Asia Investment Fund and .75% for Strategic Balanced
Fund and Utility Income Fund and 1.01% for International Fund. International
Fund's fee, absent the voluntary fee waiver, is calculated based on average
daily net assets. Maximum contractual rate, based on quarter-end net assets,
is 1.00%.
(d) Net of voluntary fee waiver. Absent such fee waiver, administration fees
would have been .15% for the Fund's shares. Reflects the fees payable by
All-Asia Investment Fund to Alliance pursuant to an administration
agreement.
(e) Net of voluntary fee waiver and/or expense reimbursement. In the absence of
such waiver and/or reimbursement, total fund operating expenses for
Strategic Balanced Fund would have been 2.35%, total fund operating expenses
for All-Asia Investment Fund would have been 3.32% annualized and total fund
operating expenses for International Fund would have been 1.69%, annualized.
(f) Net of expense reimbursements. Absent expense reimbursements, total fund
operating expenses for Utility Income Fund would be 3.48%.
(g) Calculated based on average daily net assets. Maximum contractual rate,
based on quarter-end net assets, is 1.00% for Quasar Fund and Technology
Fund.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Fund will bear directly or
indirectly. The information shown in the table for the Alliance Fund, Premier
Growth Fund, Technology Fund, Quasar Fund, All-Asia Investment Fund, Strategic
Balanced Fund, Income Builder Fund, Utility Income Fund and Growth and Income
Fund reflects expenses based on the Funds' most recent fiscal periods. For all
other Funds, "Other Expenses" are based on estimated amounts for those Fund's
current fiscal year. "Management fees" for International Fund and All-Asia
Investment Fund and "Administration fees" for All-Asia Investment Fund have been
restated to reflect current voluntary fee waivers. The Examples set forth above
assume reinvestment of all dividends and distributions and utilize a 5% annual
rate of return as mandated by Commission regulations. The Examples should not be
considered representative of future expenses; actual expenses may be greater or
less than those shown.
6
<PAGE>
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
The following terms are frequently used in this Prospectus.
Equity securities are (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.
Debt securities are bonds, debentures, notes, bills, repurchase agreements,
loans, other direct debt instruments and other fixed, floating and variable rate
debt obligations, but do not include convertible securities.
Fixed-income securities are debt securities and dividend-paying preferred stocks
and include floating rate and variable rate instruments.
Convertible securities are fixed-income securities that are convertible into
common stock.
U.S. Government securities are securities issued or guaranteed by the United
States Government, its agencies or instrumentalities.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by governments, quasi-governmental entities,
governmental agencies or other governmental entities.
Asian company is an entity that (i) is organized under the laws of an Asian
country and conducts business in an Asian country, (ii) derives 50% or more of
its total revenues from business in Asian countries, or (iii) issues equity or
debt securities that are traded principally on a stock exchange in an Asian
country.
Asian countries are Australia, the Democratic Socialist Republic of Sri Lanka,
Hong Kong, the Islamic Republic of Pakistan, Japan, the Kingdom of Thailand,
Malaysia, Negara Brunei Darussalam (Brunei), New Zealand, the People's Republic
of China, the People's Republic of Kampuchea (Cambodia), the Republic of China
(Taiwan), the Republic of India, the Republic of Indonesia, the Republic of
Korea (South Korea), the Republic of the Philippines, the Republic of Singapore,
the Socialist Republic of Vietnam and the Union of Myanmar.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch Investors Service, L.P.
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."
Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
Qualifying bank deposits are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.
Commission is the Securities and Exchange Commission.
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables on the following pages present per share income and capital changes
for an Advisor Class share outstanding throughout each period indicated. Except
as otherwise indicated, information for Alliance Fund, Growth Fund, Premier
Growth Fund, Strategic Balanced Fund, Balanced Shares, Utility Income Fund,
Worldwide Privatization Fund and Growth and Income Fund has been audited by
Price Waterhouse LLP, the independent auditors for each such Fund, and for
All-Asia Investment Fund, Technology Fund, Quasar Fund, International Fund, New
Europe Fund, Global Small Cap Fund, Real Estate Investment Fund and Income
Builder Fund by Ernst & Young LLP, the independent auditors for each such Fund.
A report of Price Waterhouse LLP or Ernst & Young LLP, as the case may be, on
the information with respect to each Fund, appears in the Fund's Statement of
Additional Information. The following information for each Fund should be read
in conjunction with the financial statements and related notes which are
included in the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's annual
report to shareholders, which may be obtained without charge by contacting
Alliance Fund Services, Inc. at the address or the "For Literature" telephone
number shown on the cover of this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase Distributions
Value Unrealized (Decrease) In Dividends From In Excess Of
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment Net Investment
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Income
- --------------------- ------------ -------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Alliance Fund
Advisor Class
12/1/96 to 5/31/97++ $ 7.71 $ (.01)(b) $ .67 $ .66 $ (.04) $ 0.00
10/2/96+ to 11/30/96 6.99 0.00 .72 .72 .00 0.00
Growth Fund
Advisor Class
11/1/96 to 4/30/97++ $34.91 $ .02(b) $ 1.94 $ 1.96 $ 0.00 $ 0.00
10/2/96+ to 10/31/96 34.14 0.00(b) .77 .77 0.00 0.00
Premier Growth Fund
Advisor Class
12/1/96 to 5/31/97++ $17.99 $ (.02)(b) $ 2.66 $ 2.64 $ 0.00 $ 0.00
10/2/96+ to 11/30/96 15.94 (0.01)(b) 2.06 2.05 0.00 0.00
Technology Fund
Advisor Class
12/1/96 to 5/31/97++ $51.17 $ (.10)(b) $ .68 $ .58 $ 0.00 $ 0.00
10/2/96+ to 11/30/96 47.32 (.05)(b) 3.90 3.85 0.00 0.00
Quasar Fund
Advisor Class
10/2/96+ to 3/31/96++ $27.82 $ (.04)(b) $ .33 $ .29 $ 0.00 $ 0.00
International Fund
Advisor Class
10/2/96+ to 6/30/97 $17.96 $ .16(b) $ 1.78 $ 1.94 $ (.15) $ 0.00
Worldwide Privatization Fund
Advisor Class
10/2/96+ to 6/30/97 $12.14 $ .18(b) $ 2.52 $ 2.70 $ (.19) $ 0.00
New Europe Fund
Advisor Class
10/2/96+ to 7/31/97 $16.25 $ .11(b) $ 3.76 $ 3.87 $ (.09) $ (.14)
All Asia Investment Fund
Advisor Class
11/1/96 to 4/30/97++ $11.04 $ (.09)(b) $ (.53) $ (.62) $ 0.00 $ 0.00
10/2/96+ to 10/31/96 11.65 0.00(c) (.61) (.61) .00 0.00
Global Small Cap Fund
Advisor Class
10/2/96+ to 7/31/97 $12.56 $ (.08)(b) $ 1.97 $ 1.89 $ 0.00 $ 0.00
Strategic Balanced Fund
Advisor Class
10/2/96+ to 7/31/97 $19.49 $ .42(b)(c) $ (.12) $ .30 $ 0.00 $ 0.00
Balanced Shares
Advisor Class
10/2/96+ to 7/31/97 $14.79 $ .23 $ 3.22 $ 3.45 $ (.27) $ 0.00
Income Builder Fund
Advisor Class
10/2/96 to 4/30/97++ $10.00 $ .25(b) $ 2.27 $ 2.52 $ (.27) $ 0.00
Utility Income Fund
Advisor Class
12/1/96 to 5/31/97++ $10.59 $ .18(b)(c) $ .07 $ .25 $ (.20) $ 0.00
10/2/96+ to 11/30/96 9.95 .03(c) .61 .64 0.00 0.00
Growth and Income Fund
Advisor Class
11/1/96 to 4/30/97++ $ 3.00 $ .03 $ .36 $ .39 $ (.03)
10/2/96+ to 10/31/96 2.97 0.00 .03 .03 0.00 $ 0.00
Real Estate Investment Fund
Advisor Class
10/1/96+ to 8/31/97 $10.00 $ .35(b) $ 2.88 $ 3.23 $ (.41)(f) $ 0.00
</TABLE>
- --------------------------------------------------------------------------------
+ Commencement of distribution.
++ Unaudited
* Annualized.
(a) 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 the net asset value during the period, and a
redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment returns calculated for periods of
less than one year are not annualized.
(b) Based on average shares outstanding.
(c) Net of fee waiver and/or expense reimbursement.
(d) Net of expenses assumed and/or waived/reimbursed. If the following Funds
had borne all expenses in their most recent fiscal year, their expense
ratios , giving effect to the expense offset arrangements described in(e)
below, would have been as follows:
1996 1997 1997
All-Asia Investment Fund Strategic Balanced
Advisor Class 5.54%# -- Advisor Class 2.35%#
Utility Income Fund
Advisor Class 3.48%# 3.14#
Real Estate Investment Fund
Advisor Class 1.47 # --
8
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Distributions Dividends Value Return Based Period Expenses Income (Loss) Average
From Net And End Of on Net Asset (000's To Average To Average Portfolio Commission
Realized Gains Distributions Period Value(a) omitted) Net Assets Net Assets Turnover Rate Rate
- -------------- ------------- ----------- ------------- ------------ ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(1.06) $(1.10) $ 7.27 10.43% $ 8,693 .89%* (.19)%* 107% $0.0559
0.00 0.00 7.71 10.30 1,083 .89* 0.38* 80 0.0646
$(1.03) $(1.03) $35.84 5.64% $54,075 .99%* .11%* .19% $0.0537
0.00 .00 34.91 2.26 946 1.26* 0.50* 46 0.0584
$(1.08) $(1.08) $19.55 15.87% $33,225 1.28%* (.30)%* 47% $0.0598
0.00 .00 17.99 12.86 1,922 1.50* (.48)* 95 0.0651
$ (.42) $(.42) $51.33 1.15% $77,548 1.55%* (.48)%* 28% $0.0576
0.00 .00 51.17 8.14 566 1.75* (1.21)* 30 0.0612
$(4.11) $(4.11) $24.00 1.36% $14,761 1.34%*(e) (.40)%* 75% $0.0533
$(1.08) $(1.23) $18.67 11.57% $ 8,697 1.69%* (1.47)%* 94% $0.0363
$(1.42) $(1.61) $13.23 25.24% $ 374 1.96%* 2.97%* 48% $0.0132
$(1.32) $(1.55) $18.57 25.76% $ 4,130 1.71%* .77%* 89% $0.0569
$ (.34) $(.34) $10.08 (5.89)% $ 2,479 3.44%* (2.30)%* 56% $0.0269
0.00 0.00 11.04 (5.24) 27 3.07*(d) 1.63* 66 0.0280
$(1.56) $(1.56) $12.89 17.08% $ 333 2.05%*(e) (.84)%* 129% $0.0364
$ 0.00 $0.00 $19.79 1.54% $ 50 1.10%(d)(e)* 3.40%* 170% $0.0395
$(1.80) $(2.07) $16.17 25.96% $ 1,565 1.30%*(e) 2.15%* 207% $0.0552
$ (.61) $(.88) $11.64 8.48% $ 73 2.07%* 4.56%* 169% $0.0519
$ (.13) $(.33) $10.51 2.35% $ 39 1.20%*(d) 3.45%* 23% $0.0411
0.00 0.00 10.59 6.33 33 1.20*(d) 4.02* 98 0.0536
$ (.38) $(.41) $ 2.98 13.46% $ 1,850 .75%* 1.95%* 55% $0.0585
0.00 0.00 3.00 1.01 87 0.37* 3.40* 88 0.0625
$ 0.00 $(.41) $12.82 32.72% $ 2,313 1.45%*(d)(e) 3.07%* 20% $0.0518
</TABLE>
- --------------------------------------------------------------------------------
(e) The following funds benefitted from an expense offset arrangement with the
transfer agent. Had such expense offsets not been in effect, the rate of
expense to average net assets absent the assumption and/or waived
reimbursement of expenses described in note(d) above would have been as
follows:
1997 1997
International Fund New Europe Fund
Advisor Class 1.69%# Advisor Class 1.71%#
Global Small Cap Fund Balanced Shares Fund
Advisor Class 2.04%# Advisor Class 1.29%#
Strategic Balanced Fund Real Estate Fund
Advisor Class 2.35%# Advisor Class 1.44%#
----------
# annualized
(f) Distributions from net investment income include a tax return of capital
of $.03.
9
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder vote.
No Fund will change a non-fundamental objective or policy without notifying its
shareholders. There is no guarantee that any Fund will achieve its investment
objective.
INVESTMENT OBJECTIVES AND POLICIES
DOMESTIC STOCK FUNDS
The Domestic Stock Funds have been designed to offer investors seeking capital
appreciation a range of alternative approaches to investing in the U.S. equity
markets.
The Alliance Fund
The Alliance Fund, Inc. ("Alliance Fund") is a diversified investment company
that seeks long-term growth of capital and income primarily through investment
in common stocks. The Fund normally invests substantially all of its assets in
common stocks that Alliance believes will appreciate in value, but it may invest
in other types of securities such as convertible securities, high grade
instruments, U.S. Government securities and high quality, short-term obligations
such as repurchase agreements, bankers' acceptances and domestic certificates of
deposit, and may invest without limit in foreign securities. While the
diversification and generally high quality of the Fund's investments cannot
prevent fluctuations in market values, they tend to limit investment risk and
contribute to achieving the Fund's objective. The Fund generally does not effect
portfolio transactions in order to realize short-term trading profits or
exercise control.
The Fund may also: (i) make secured loans of its portfolio securities equal in
value up to 25% of its total assets to brokers, dealers and financial
institutions; (ii) enter into repurchase agreements of up to one week in
duration with commercial banks, but only if those agreements together with any
restricted securities and any securities which do not have readily available
market quotations do not exceed 10% of its net assets; and (iii) write
exchange-traded covered call options with respect to up to 25% of its total
assets. For additional information on the use, risks and costs of these policies
and practices see "Additional Investment Practices."
Alliance Growth Fund
Alliance Growth Fund ("Growth Fund") is a diversified investment company that
seeks long-term growth of capital. Current income is only an incidental
consideration. The Fund seeks to achieve its objective by investing primarily in
equity securities of companies with favorable earnings outlooks and whose
long-term growth rates are expected to exceed that of the U.S. economy over
time. The Fund's investment objective is not fundamental. The Fund may also
invest up to 25% of its total assets in lower-rated fixed-income and convertible
securities. See "Risk Considerations--Securities Ratings" and "--Investment in
Lower-Rated Fixed-Income Securities." The Fund generally will not invest in
securities rated at the time of purchase below Caa- by Moody's and CCC- by S&P,
Duff & Phelps or Fitch or in securities judged by Alliance to be of comparable
investment quality. However, from time to time, the Fund may invest in
securities rated in the lowest grades (i.e., C by Moody's or D or equivalent by
S&P, Duff & Phelps or Fitch), or securities Alliance judges to be of comparable
investment quality, if there are prospects for an upgrade or a favorable
conversion into equity securities. f the credit rating of a security held by the
Fund falls below its rating at the time of purchase (or Alliance determines that
the quality of such security has so deteriorated), the Fund may continue to hold
the security if such investment is considered appropriate under the
circumstances.
The Fund may also: (i) invest in "zero-coupon" bonds and "payment-in-kind"
bonds; (ii) invest in foreign securities, although the Fund will not generally
invest more than 15% of its total assets in foreign securities; (iii) invest in
securities that are not publicly traded, including Rule 144A securities; (iv)
buy or sell foreign currencies, options on foreign currencies, foreign currency
futures contracts (and related options) and deal in forward foreign exchange
contracts; (v) lend portfolio securities amounting to not more than 25% of its
total assets; (vi) enter into repurchase agreements of up to 25% of its total
assets and purchase and sell securities on a forward commitment basis; (vii) buy
and sell stock index futures contracts and buy and sell options on those
contracts and on stock indices; (viii) purchase and sell futures contracts,
options thereon and options with respect to U.S. Treasury securities; (ix) write
covered call and put options on securities it owns or in which it may invest;
and (x) purchase and sell put and call options. For additional information on
the use, risks and costs of these policies and practices see "Additional
Investment Practices."
Alliance Premier Growth Fund
Alliance Premier Growth Fund, Inc. ("Premier Growth Fund") is a diversified
investment company that seeks long-term growth of capital by investing
predominantly in the equity securities of a limited number of large, carefully
selected, high-quality U.S. companies that are judged likely to achieve superior
earnings growth. Normally, about 40 companies will be represented in the Fund's
portfolio, with the 25 most highly regarded of these companies usually
constituting approximately 70% of the Fund's net assets. The Fund is thus
atypical from most equity mutual funds in its focus on a relatively small number
of intensively researched companies and is designed for those seeking to
accumulate capital over time with less volatility than that associated with
investment in smaller companies.
As a matter of fundamental policy, the Fund normally invests at least 85% of its
total assets in the equity securities of U.S. companies. These are companies (i)
organized under U.S. law that have their principal office in the U.S., and (ii)
the equity securities of which are traded principally in the U.S.
10
<PAGE>
Alliance's investment strategy for the Fund emphasizes stock selection and
investment in the securities of a limited number of issuers. Alliance relies
heavily upon the fundamental analysis and research of its large internal
research staff, which generally follows a primary research universe of more than
600 companies that have strong management, superior industry positions,
excellent balance sheets and superior earnings growth prospects. An emphasis is
placed on identifying companies whose substantially above average prospective
earnings growth is not fully reflected in current market valuations.
In managing the Fund, Alliance seeks to utilize market volatility judiciously
(assuming no change in company fundamentals), striving to capitalize on
apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. The Fund
normally remains nearly fully invested and does not take significant cash
positions for market timing purposes. During market declines, while adding to
positions in favored stocks, the Fund becomes somewhat more aggressive,
gradually reducing the number of companies represented in its portfolio.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Fund becomes somewhat more conservative, gradually increasing the
number of companies represented in its portfolio. Alliance thus seeks to gain
positive returns in good markets while providing some measure of protection in
poor markets.
Alliance expects the average market capitalization of companies represented in
the Fund's portfolio normally to be in the range, or in excess, of the average
market capitalization of companies comprising the "S&P 500" (the Standard &
Poor's 500 Composite Stock Price Index, a widely recognized unmanaged index of
market activity).
The Fund may also: (i) invest up to 20% of its net assets in convertible
securities of companies whose common stocks are eligible for purchase by it;
(ii) invest up to 5% of its net assets in rights or warrants; (iii) invest up to
15% of its total assets in securities of foreign issuers whose common stocks are
eligible for purchase by it; (iv) purchase and sell exchange-traded index
options and stock index futures contracts; and (v) write covered exchange-traded
call options on common stocks, unless as a result, the amount of its securities
subject to call options would exceed 15% of its total assets, and purchase and
sell exchange-traded call and put options on common stocks written by others,
but the total cost of all options held by the Fund (including exchange-traded
index options) may not exceed 10% of its total assets. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices." The Fund will not write put options.
Alliance Technology Fund
Alliance Technology Fund, Inc. ("Technology Fund") is a diversified investment
company that emphasizes growth of capital and invests for capital appreciation,
and only incidentally for current income. The Fund may seek income by writing
listed call options. The Fund invests primarily in securities of companies
expected to benefit from technological advances and improvements (i.e.,
companies that use technology extensively in the development of new or improved
products or processes). The Fund will normally have at least 80% of its assets
invested in the securities of these companies. The Fund normally will have
substantially all its assets invested in equity securities, but it also invests
in debt securities offering an opportunity for price appreciation. The Fund will
invest in listed and unlisted securities and U.S. and foreign securities, but it
will not purchase a foreign security if as a result 10% or more of the Fund's
total assets would be invested in foreign securities.
The Fund's policy is to invest in any company and industry and in any type of
security with potential for capital appreciation. It invests in well-known and
established companies and in new and unseasoned companies.
The Fund may also: (i) write and purchase exchange-listed call options and
purchase listed put options, including exchange-traded index put options; (ii)
invest up to 10% of its total assets in warrants; (iii) invest in restricted
securities and in other assets having no ready market if as a result no more
than 10% of the Fund's net assets are invested in such securities and assets;
(iv) lend portfolio securities equal in value to not more than 30% of the Fund's
total assets; and (v) invest up to 10% of its total assets in foreign
securities. For additional information on the use, risks and costs of the
policies and practices see "Additional Investment Practices."
Alliance Quasar Fund
Alliance Quasar Fund, Inc. ("Quasar Fund") is a diversified investment company
that seeks growth of capital by pursuing aggressive investment policies. It
invests for capital appreciation and only incidentally for current income. The
selection of securities based on the possibility of appreciation cannot prevent
loss in value. Moreover, because the Fund's investment policies are aggressive,
an investment in the Fund is risky and investors who want assured income or
preservation of capital should not invest in the Fund.
The Fund invests in any company and industry and in any type of security with
potential for capital appreciation. It invests in well-known and established
companies and in new and unseasoned companies. When selecting securities,
Alliance considers the economic and political outlook, the values of specific
securities relative to other investments, trends in the determinants of
corporate profits and management capability and practices.
The Fund invests principally in equity securities, but it also invests to a
limited degree in non-convertible bonds and preferred stocks. The Fund invests
in listed and unlisted U.S. and foreign securities. The Fund periodically
invests in special situations, which occur when the securities of a company are
expected to appreciate due to a development particularly or uniquely applicable
to that company and regardless of general business conditions or movements of
the market as a whole.
The Fund may also: (i) invest in restricted securities and in other assets
having no ready market, but not more than 10%
11
<PAGE>
of its total assets may be invested in such securities or assets; (ii) make
short sales of securities "against the box," but not more than 15% of its net
assets may be deposited on short sales; and (iii) write call options and
purchase and sell put and call options written by others. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
GLOBAL STOCK FUNDS
The Global Stock Funds have been designed to enable investors to participate in
the potential for long-term capital appreciation available from investment in
foreign securities.
Alliance International Fund
Alliance International Fund ("International Fund") is a diversified investment
company that seeks a total return on its assets from long-term growth of capital
and from income primarily through a broad portfolio of marketable securities of
established non-U.S. companies, companies participating in foreign economies
with prospects for growth, including U.S. companies having their principal
activities and interests outside the U.S. and foreign government securities.
Normally, more than 80% of the Fund's assets will be invested in such issuers.
The Fund expects to invest primarily in common stocks of established non-U.S.
companies that Alliance believes have potential for capital appreciation or
income or both, but the Fund is not required to invest exclusively in common
stocks or other equity securities, and it may invest in any other type of
investment grade security, including convertible securities, as well as in
warrants, or obligations of the U.S. or foreign governments and their political
subdivisions.
The Fund intends to diversify its investments broadly among countries and
normally invests in at least three foreign countries, although it may invest a
substantial portion of its assets in one or more of such countries. In this
regard, at June 30, 199 7, approximately 28% of the Fund's assets were
invested in securities of Japanese issuers. The Fund may invest in companies,
wherever organized, that Alliance judges have their principal activities and
interests outside the U.S. These companies may be located in developing
countries, which involves exposure to economic structures that are generally
less diverse and mature, and to political systems which can be expected to have
less stability, than those of developed countries. The Fund currently does not
intend to invest more than 10% of its total assets in companies in, or
governments of, developing countries.
The Fund may also: (i) purchase or sell forward foreign currency exchange
contracts; (ii) write, sell and purchase U.S. or foreign exchange-listed put and
call options, including exchange-traded index options; (iii) enter into
financial futures contracts, including contracts for the purchase or sale for
future delivery of foreign currencies and stock index futures, and purchase and
write put and call options on futures contracts traded on U.S. or foreign
exchanges or over-the-counter; (iv) purchase and write put options on foreign
currencies traded on securities exchanges or boards of trade or
over-the-counter; (v) lend portfolio securities equal in value to not more than
30% of its total assets; and (vi) enter into repurchase agreements of up to
seven days' duration, provided that not more than 10% of the Fund's total assets
would be so invested. For additional information on the use, risks and costs of
these policies and practices see "Additional Investment Practices."
Alliance Worldwide Privatization Fund
Alliance Worldwide Privatization Fund, Inc. ("Worldwide Privatization Fund") is
a non-diversified investment company that seeks long-term capital appreciation.
As a fundamental policy, the Fund invests at least 65% of its total assets in
equity securities issued by enterprises that are undergoing, or have undergone,
privatization (as described below), although normally significantly more of its
assets will be invested in such securities. The balance of its investments will
include securities of companies believed by Alliance to be beneficiaries of
privatizations. The Fund is designed for investors desiring to take advantage of
investment opportunities, historically inaccessible to U.S. individual
investors, that are created by privatizations of state enterprises in both
established and developing economies, including those in Western Europe and
Scandinavia, Australia, New Zealand, Latin America, Asia and Eastern and Central
Europe and, to a lesser degree, Canada and the United States.
The Fund's investments in enterprises undergoing privatization may comprise
three distinct situations. First, the Fund may invest in the initial offering of
publicly traded equity securities (an "initial equity offering") of a
government- or state-owned or controlled company or enterprise (a "state
enterprise"). Secondly, the Fund may purchase securities of a current or former
state enterprise following its initial equity offering. Finally, the Fund may
make privately negotiated purchases of stock or other equity interests in a
state enterprise that has not yet conducted an initial equity offering. Alliance
believes that substantial potential for capital appreciation exists as
privatizing enterprises rationalize their management structures, operations and
business strategies in order to compete efficiently in a market economy, and the
Fund will thus emphasize investments in such enterprises.
The Fund diversifies its investments among a number of countries and normally
invests in issuers based in at least four, and usually considerably more,
countries. No more than 15% of the Fund's total assets, however, will be
invested in issuers in any one foreign country, except that the Fund may invest
up to 30% of its total assets in issuers in any one of France, Germany, Great
Britain, Italy and Japan. The Fund may invest all of its assets within a single
region of the world. To the extent that the Fund's assets are invested within
any one region, the Fund may be subject to any special risks that may be
associated with that region.
Privatization is a process through which the ownership and control of companies
or assets changes in whole or in part from the public sector to the private
sector. Through
12
<PAGE>
privatization a government or state divests or transfers all or a portion of its
interest in a state enterprise to some form of private ownership. Governments
and states with established economies, including France, Great Britain, Germany
and Italy, and those with developing economies, including Argentina, Mexico,
Chile, Indonesia, Malaysia, Poland and Hungary, are engaged in privatizations.
The Fund will invest in any country believed to present attractive investment
opportunities.
A major premise of the Fund's approach is that the equity securities of
privatized companies offer opportunities for significant capital appreciation.
In particular, because privatizations are integral to a country's economic
restructuring, securities sold in initial equity offerings often are priced
attractively so as to secure the issuer's successful transition to private
sector ownership. Additionally, these enterprises often dominate their local
markets and typically have the potential for significant managerial and
operational efficiency gains.
Although the Fund anticipates that it will not concentrate its investments in
any industry, it is permitted to invest more than 25% of its total assets in
issuers whose primary business activity is that of national commercial banking.
Prior to so concentrating, however, the Fund's Directors must determine that its
ability to achieve its investment objective would be adversely affected if it
were not permitted to concentrate. The staff of the Commission is of the view
that registered investment companies may not, absent shareholder approval,
change between concentration and non-concentration in a single industry. The
Fund disagrees with the staff's position but has undertaken that it will not
concentrate in the securities of national commercial banks until, if ever, the
issue is resolved. If the Fund were to invest more than 25% of its total assets
in national commercial banks, the Fund's performance could be significantly
influenced by events or conditions affecting this industry, which is subject to,
among other things, increases in interest rates and deteriorations in general
economic conditions, and the Fund's investments may be subject to greater risk
and market fluctuation than if its portfolio represented a broader range of
investments.
The Fund may invest up to 35% of its total assets in debt securities and
convertible debt securities of issuers whose common stocks are eligible for
purchase by the Fund. The Fund may maintain not more than 5% of its net assets
in lower-rated securities. See "Risk Considerations--Securities Ratings" and
"--Investment in Lower-Rated Fixed-Income Securities." The Fund will not retain
a non-convertible security that is downgraded below C or determined by Alliance
to have undergone similar credit quality deterioration following purchase.
The Fund may also: (i) invest up to 20% of its total assets in rights or
warrants; (ii) write covered put and call options and purchase put and call
options on securities of the types in which it is permitted to invest and on
exchange-traded index options; (iii) enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including any index of U.S. Government
securities, foreign government securities, or common stock and may purchase and
write options on future contracts; (iv) purchase and write put and call options
on foreign currencies for hedging purposes; (v) purchase or sell forward
contracts; (vi) enter in forward commitments for the purchase or sale of
securities; (vii) enter into standby commitment agreements; (viii) enter into
currency swaps for hedging purposes; (ix) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (x) make short sales of
securities or maintain a short position; and (xi) make secured loans of its
portfolio securities not in excess of 30% of its total assets to entities with
which it can enter into repurchase agreements. For additional information on the
use, risks and costs of these policies and practices see "Additional Investment
Practices."
Alliance New Europe Fund
Alliance New Europe Fund, Inc. ("New Europe Fund") is a non-diversified
investment company that seeks long-term capital appreciation through investment
primarily in the equity securities of companies based in Europe. The Fund
intends to invest substantially all of its assets in the equity securities of
European companies and has a fundamental policy of normally investing at least
65% of its total assets in such securities. Up to 35% of its total assets may be
invested in high quality U.S. dollar or foreign currency denominated
fixed-income securities issued or guaranteed by European governmental entities,
or by European or multinational companies or supranational organizations.
Alliance believes that the quickening pace of economic integration and political
change in Europe creates the potential for many European companies to experience
rapid growth and that the emergence of new market economies in Europe and the
broadening and strengthening of other European economies may significantly
accelerate economic development. The Fund will invest in companies that Alliance
believes possess rapid growth potential. Thus, the Fund will emphasize
investments in larger, established companies, but will also invest in smaller,
emerging companies
In recent years, economic ties between the former "east bloc" countries of
Eastern Europe and certain other European countries have been strengthened.
Alliance believes that as this strengthening continues, some Western European
financial institutions and other companies will have special opportunities to
facilitate East-West transactions. The Fund will seek investment opportunities
among such companies and, as such become available, within the former "east
bloc," although the Fund will not invest more than 20% of its total assets in
issuers based therein, or more than 10% of its total assets in issuers based in
any one such country.
The Fund diversifies its investments among a number of European countries and,
under normal circumstances, will invest in companies based in at least three
such countries. Subject to the foregoing and to the limitation on investment in
any one former "east bloc" country, the Fund may invest without limit in a
single European country. While the Fund does not intend to concentrate its
investments in a single country,
13
<PAGE>
at times 25% or more of its assets may be invested in issuers located in a
single country. During such times, the Fund would be subject to a
correspondingly greater risk of loss due to adverse political or regulatory
developments, or an economic downturn, within that country. In this regard, at
July 31, 199 7, approximately (Y)(Y) 32% of the Fund's assets were invested in
securities of issuers in the United Kingdom.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants and rights to purchase equity securities of European companies; (iii)
invest in depositary receipts or other securities convertible into securities of
companies based in European countries, debt securities of supranational entities
denominated in the currency of any European country, debt securities denominated
in European Currency Units of an issuer in a European country (including
supranational issuers) and "semi-governmental securities"; (iv) purchase and
sell forward contracts; (v) write, sell and purchase exchange-traded put and
call options, including exchange-traded index options; (vi) enter into financial
futures contracts, including contracts for the purchase or sale for future
delivery of foreign currencies and futures contracts based on stock indices, and
purchase and write options on futures contracts; (vii) purchase and write put
options on foreign currencies traded on securities exchanges or boards of trade
or over-the-counter; (viii) make secured loans of portfolio securities not in
excess of 30% of its total assets to brokers, dealers and financial
institutions; (ix) enter into forward commitments for the purchase or sale of
securities; and (x) enter into standby commitment agreements. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance All-Asia Investment Fund
Alliance All-Asia Investment Fund, Inc. ("All-Asia Investment Fund") is a
non-diversified investment company whose investment objective is to seek
long-term capital appreciation. In seeking to achieve its investment objective,
the Fund will invest at least 65% of its total assets in equity securities (for
the purposes of this investment policy, rights, warrants and options to purchase
common stocks are not deemed to be equity securities), preferred stocks and
equity-linked debt securities issued by Asian companies. The Fund may invest up
to 35% of its total assets in debt securities issued or guaranteed by Asian
companies or by Asian governments, their agencies or instrumentalities. The Fund
may also invest in securities issued by non-Asian issuers, provided that the
Fund will invest at least 80% of its total assets in securities issued by Asian
companies and the Asian debt securities referred to above. The Fund expects to
invest, from time to time, a significant portion, but less than 50%, of its
assets in equity securities of Japanese companies.
In the past decade, Asian countries generally have experienced a high level of
real economic growth due to political and economic changes, including foreign
investment and reduced government intervention in the economy. Alliance believes
that certain conditions exist in Asian countries which create the potential for
continued rapid economic growth. These conditions include favorable demographics
and competitive wage rates, increasing levels of foreign direct investment,
rising per capita incomes and consumer demand, a high savings rate and numerous
privatization programs. Asian countries are also becoming more industrialized
and are increasing their intra-Asian exports while reducing their dependence on
Western export demand. Alliance believes that these conditions are important to
the long-term economic growth of Asian countries.
As the economies of many Asian countries move through the "emerging market"
stage, thus increasing the supply of goods, services and capital available to
less developed Asian markets and helping to spur economic growth in those
markets, the potential is created for many Asian companies to experience rapid
growth. In addition, many Asian companies the securities of which are listed on
exchanges in more developed Asian countries will be participants in the rapid
economic growth of the lesser developed countries. These companies generally
offer the advantages of more experienced management and more developed market
regulation.
As their economies have grown, the securities markets in Asian countries have
also expanded. New exchanges have been created and the number of listed
companies, annual trading volume and overall market capitalization have
increased significantly. Additionally, new markets continue to open to foreign
investments. For example, South Korea and India have recently relaxed investment
restrictions and Vietnamese direct investments have recently become available to
U.S. investors. The Fund also offers investors the opportunity to access
relatively restricted markets. Alliance believes that investment opportunities
in Asian countries will continue to expand.
The Fund will invest in companies believed to possess rapid growth potential.
Thus, the Fund will invest in smaller, emerging companies, but will also invest
in larger, more established companies in such growing economic sectors as
capital goods, telecommunications and consumer services.
The Fund will invest in investment grade debt securities, except that the Fund
may maintain not more than 5% of its net assets in lower-rated securities and
lower-rated loans and other lower-rated direct debt instruments. See "Risk
Considerations--Securities Ratings," "--Investment in Lower-Rated Fixed-Income
Securities" and Appendix C in the Fund's Statement of Additional Information for
a description of such ratings. The Fund will not retain a security that is
downgraded below C or determined by Alliance to have undergone similar credit
quality deterioration following purchase.
The Fund may also: (i) invest up to 25% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 20% of its net assets in rights or warrants; (iii)
invest in depositary receipts, instruments of supranational entities denominated
in the currency of any country, securities of multinational companies and
"semi-governmental securities;" (iv) invest up to 25% of its net assets in
equity-linked debt securities with
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the objective of realizing capital appreciation; (v) invest up to 25% of its net
assets in loans and other direct debt instruments; (vi) write covered put and
call options on securities of the types in which it is permitted to invest and
on exchange-traded index options; (vii) enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including any index of U.S. Government
securities, securities issued by foreign government entities, or common stock
and may purchase and write options on future contracts; (viii) purchase and
write put and call options on foreign currencies for hedging purposes; (ix)
purchase or sell forward contracts; (x) enter into interest rate swaps and
purchase or sell interest rate caps and floors; (xi) enter into forward
commitments for the purchase or sale of securities; (xii) enter into standby
commitment agreements; (xiii) enter into currency swaps for hedging purposes;
(xiv) enter into repurchase agreements pertaining to U.S. Government securities
with member banks of the Federal Reserve System or primary dealers in such
securities; (xv) make short sales of securities or maintain a short position, in
each case only if "against the box;" and (xvi) make secured loans of its
portfolio securities not in excess of 30% of its total assets to entities with
which it can enter into repurchase agreements. For additional information on the
use, risks and costs of these policies and practices see "Additional Investment
Practices."
Alliance Global Small Cap Fund
Alliance Global Small Cap Fund, Inc. ("Global Small Cap Fund") is a diversified
investment company that seeks long-term growth of capital through investment in
a global portfolio of the equity securities of selected companies with
relatively small market capitalization. The Fund's portfolio emphasizes
companies with market capitalizations that would have placed them (when
purchased) in about the smallest 20% by market capitalization of actively traded
U.S. companies, or market capitalizations of up to about $1 billion. Because the
Fund applies the U.S. size standard on a global basis, its foreign investments
might rank above the lowest 20%, and, in fact, might in some countries rank
among the largest, by market capitalization in local markets. Normally, the Fund
invests at least 65% of its assets in equity securities of these smaller
capitalization issuers, and these issuers are located in at least three
countries, one of which may be the U.S. Up to 35% of the Fund's total assets may
be invested in securities of companies whose market capitalizations exceed the
Fund's size standard. The Fund's portfolio securities may be listed on a U.S. or
foreign exchange or traded over-the-counter.
Alliance believes that smaller capitalization issuers often have sales and
earnings growth rates exceeding those of larger companies, and that these growth
rates tend to cause more rapid share price appreciation. Investing in smaller
capitalization stocks, however, involves greater risk than is associated with
larger, more established companies. For example, smaller capitalization
companies often have limited product lines, markets, or financial resources.
They may be dependent for management on one or a few key persons, and can be
more susceptible to losses and risks of bankruptcy. Their securities may be
thinly traded (and therefore have to be sold at a discount from current market
prices or sold in small lots over an extended period of time), may be followed
by fewer investment research analysts and may be subject to wider price swings
and thus may create a greater chance of loss than when investing in securities
of larger capitalization companies. Transaction costs in small capitalization
stocks may be higher than in those of larger capitalization companies.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants to purchase equity securities; (iii) invest in depositary receipts or
other securities representing securities of companies based in countries other
than the U.S.; (iv) purchase or sell forward foreign currency contracts; (v)
write and purchase exchange-traded call options and purchase exchange-traded put
options, including put options on market indices; and (vi) make secured loans of
portfolio securities not in excess of 30% of its total assets to brokers,
dealers and financial institutions. For additional information on the use, risks
and costs of these policies and practices see "Additional Investment Practices."
TOTAL RETURN FUNDS
The Total Return Funds have been designed to provide a range of investment
alternatives to investors seeking both growth of capital and current income.
Alliance Strategic Balanced Fund
Alliance Strategic Balanced Fund ("Strategic Balanced Fund") is a diversified
investment company that seeks a high long-term total return by investing in a
combination of equity and debt securities. The portion of the Fund's assets
invested in each type of security varies in accordance with economic conditions,
the general level of common stock prices, interest rates and other relevant
considerations, including the risks associated with each investment medium. The
Fund's investment objective is not fundamental.
The Fund's equity securities will generally consist of dividend-paying common
stocks and other equity securities of companies with favorable earnings outlooks
and long-term growth rates that Alliance expects will exceed that of the U.S.
economy. The Fund's debt securities may include U.S. Government securities and
securities issued by private corporations. The Fund may also invest in
mortgage-backed securities, adjustable rate securities, asset-backed securities
and so-called "zero-coupon" bonds and "payment-in-kind" bonds.
As a fundamental policy, the Fund will invest at least 25% of its total assets
in fixed-income securities, which for this purpose include debt securities,
preferred stocks and that portion of the value of convertible securities that is
attributable to the fixed-income characteristics of those securities.
The Fund's debt securities will generally be of investment grade. See "Risk
Considerations--Securities Ratings" and
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"--Investment in Lower-Rated Fixed-Income Securities." In the event that the
rating of any debt securities held by the Fund falls below investment grade, the
Fund will not be obligated to dispose of such obligations and may continue to
hold them if considered appropriate under the circumstances.
The Fund may also: (i) invest in foreign securities, although the Fund will not
generally invest more than 15% of its total assets in foreign securities; (ii)
invest, without regard to this 15% limit, in Eurodollar CDs, which are
dollar-denominated certificates of deposit issued by foreign branches of U.S.
banks that are not insured by any agency or instrumentality of the U.S.
Government; (iii) write covered call and put options on securities it owns or in
which it may invest; (iv) buy and sell put and call options and buy and sell
combinations of put and call options on the same underlying securities; (v) lend
portfolio securities amounting to not more than 25% of its total assets; (vi)
enter into repurchase agreements on up to 25% of its total assets; (vii)
purchase and sell securities on a forward commitment basis; (viii) buy or sell
foreign currencies, options on foreign currencies, foreign currency futures
contracts (and related options) and deal in forward foreign exchange contracts;
(ix) buy and sell stock index futures contracts and buy and sell options on
those contracts and on stock indices; (x) purchase and sell futures contracts,
options thereon and options with respect to U.S. Treasury securities; and (xi)
invest in securities that are not publicly traded, including Rule 144A
securities. For additional information on the use, risks and costs of these
policies and practices see "Additional Investment Practices."
Alliance Balanced Shares
Alliance Balanced Shares, Inc. ("Balanced Shares") is a diversified investment
company that seeks a high return through a combination of current income and
capital appreciation. Although the Fund's investment objective is not
fundamental, the Fund is a "balanced fund" as a matter of fundamental policy.
The Fund will not purchase a security if as a result less than 25% of its total
assets will be in fixed-income senior securities (including short- and long-term
debt securities, preferred stocks, and convertible debt securities and
convertible preferred stocks to the extent that their values are attributable to
their fixed-income characteristics). Subject to these restrictions, the
percentage of the Fund's assets invested in each type of security will vary. The
Fund's assets are invested in U.S. Government securities, bonds, senior debt
securities and preferred and common stocks in such proportions and of such type
as are deemed best adapted to the current economic and market outlooks. The Fund
may invest up to 15% of the value of its total assets in foreign equity and
fixed-income securities eligible for purchase by the Fund under its investment
policies described above. See "Risk Considerations--Foreign Investment."
The Fund may also: (i) enter into contracts for the purchase or sale for future
delivery of foreign currencies; and (ii) purchase and write put and call options
on foreign currencies and enter into forward foreign currency exchange contracts
for hedging purposes. Subject to market conditions, the Fund may also seek to
realize income by writing covered call options listed on a domestic exchange.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
Alliance Income Builder Fund
Alliance Income Builder Fund, Inc. ("Income Builder Fund") is a non-diversified
investment company that seeks an attractive level of current income and
long-term growth of income and capital by investing principally in fixed-income
securities and dividend-paying common stocks. Its investments in equity
securities emphasize common stocks of companies with a historical or projected
pattern of paying rising dividends. Normally, at least 65% of the Fund's total
assets are invested in income-producing securities. The Fund may vary the
percentage of assets invested in any one type of security based upon Alliance's
evaluation as to the appropriate portfolio structure for achieving the Fund's
investment objective, although Alliance currently maintains approximately 60% of
the Fund's net assets in fixed-income securities and 40% in equity securities.
The Fund may invest in fixed-income securities of domestic and foreign issuers,
including U.S. Government securities and repurchase agreements pertaining
thereto, corporate fixed-income securities of U.S. issuers, qualifying bank
deposits and prime commercial paper.
The Fund may maintain up to 35% of its net assets in lower-rated securities. See
"Risk Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." The Fund will not retain a non-convertible security
that is downgraded below CCC or determined by Alliance to have undergone similar
credit quality deterioration following purchase.
Foreign securities in which the Fund invests may include fixed-income securities
of foreign corporate and governmental issuers, denominated in U.S. Dollars, and
equity securities of foreign corporate issuers, denominated in foreign
currencies or in U.S. Dollars. The Fund will not invest more than 10% of its net
assets in equity securities of foreign issuers nor more than 15% of its total
assets in issuers of any one foreign country. See "Risk Considerations--Foreign
Investment."
The Fund may also: (i) invest up to 5% of its net assets in rights or warrants;
(ii) invest in depositary receipts and U.S. Dollar denominated securities issued
by supranational entities; (iii) write covered put and call options and purchase
put and call options on securities of the types in which it is permitted to
invest that are exchange-traded; (iv) purchase and sell exchange-traded options
on any securities index composed of the types of securities in which it may
invest; (v) enter into contracts for the purchase or sale for future delivery of
fixed-income securities or foreign currencies, or contracts based on financial
indices, including any index of U.S. Government securities, foreign government
securities, corporate fixed income securities, or common stock, and purchase and
write options on future contracts; (vi) purchase and write put and
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call options on foreign currencies and enter into forward contracts for hedging
purposes; (vii) enter into interest rate swaps and purchase or sell interest
rate caps and floors; (viii) enter into forward commitments for the purchase or
sale of securities; (ix) enter into standby commitment agreements; (x) enter
into repurchase agreements pertaining to U.S. Government securities with member
banks of the Federal Reserve System or primary dealers in such securities; (xi)
make short sales of securities or maintain a short position as described below
under "Additional Investment Policies and Practices--Short Sales;" and (xii)
make secured loans of its portfolio securities not in excess of 20% of its total
assets to brokers, dealers and financial institutions. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance Utility Income Fund
Alliance Utility Income Fund, Inc. ("Utility Income Fund") is a diversified
investment company that seeks current income and capital appreciation by
investing primarily in equity and fixed-income securities of companies in the
utilities industry. The Fund may invest in securities of both U.S. and foreign
issuers, although no more than 15% of the Fund's total assets will be invested
in issuers in any one foreign country. The utilities industry consists of
companies engaged in (i) the manufacture, production, generation, provision,
transmission, sale and distribution of gas and electric energy, and
communications equipment and services, including telephone, telegraph,
satellite, microwave and other companies providing communication facilities for
the public, or (ii) the provision of other utility or utility-related goods and
services, including, but not limited to, entities engaged in water provision,
cogeneration, waste disposal system provision, solid waste electric generation,
independent power producers and non-utility generators. The Fund is designed to
take advantage of the characteristics and historical performance of securities
of utility companies, many of which pay regular dividends and increase their
common stock dividends over time. As a fundamental policy, the Fund normally
invests at least 65% of its total assets in securities of companies in the
utilities industry. The Fund considers a company to be in the utilities industry
if, during the most recent twelve-month period, at least 50% of the company's
gross revenues, on a consolidated basis, were derived from its utilities
activities.
At least 65% of the Fund's total assets are invested in income-producing
securities, but there is otherwise no limit on the allocation of the Fund's
investments between equity securities and fixed-income securities. The Fund may
maintain up to 35% of its net assets in lower-rated securities. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." The Fund will not retain a security that is downgraded
below B or determined by Alliance to have undergone similar credit quality
deterioration following purchase.
The United States utilities industry has experienced significant changes in
recent years. Electric utility companies in general have been favorably affected
by lower fuel costs, the full or near completion of major construction programs
and lower financing costs. In addition, many utility companies have generated
cash flows in excess of current operating expenses and construction
expenditures, permitting some degree of diversification into unregulated
businesses. Regulatory changes with respect to nuclear and conventionally fueled
generating facilities, however, could increase costs or impair the ability of
such electric utilities to operate such facilities, thus reducing their ability
to service dividend payments with respect to the securities they issue.
Furthermore, rates of return of utility companies generally are subject to
review and limitation by state public utilities commissions and tend to
fluctuate with marginal financing costs. Rate changes, however, ordinarily lag
behind the changes in financing costs, and thus can favorably or unfavorably
affect the earnings or dividend pay-outs on utilities stocks depending upon
whether such rates and costs are declining or rising.
Gas transmission companies, gas distribution companies and telecommunications
companies are also undergoing significant changes. Gas utilities have been
adversely affected by declines in the prices of alternative fuels, and have also
been affected by oversupply conditions and competition. Telephone utilities are
still experiencing the effects of the break-up of American Telephone & Telegraph
Company, including increased competition and rapidly developing technologies
with which traditional telephone companies now compete. Although there can be no
assurance that increased competition and other structural changes will not
adversely affect the profitability of such utilities, or that other negative
factors will not develop in the future, in Alliance's opinion, increased
competition and change may provide better positioned utility companies with
opportunities for enhanced profitability.
Utility companies historically have been subject to the risks of increases in
fuel and other operating costs, high interest costs, costs associated with
compliance with environmental and nuclear safety regulations, service
interruptions, economic slowdowns, surplus capacity, competition and regulatory
changes. There can also be no assurance that regulatory policies or accounting
standards changes will not negatively affect utility companies' earnings or
dividends. Utility companies are subject to regulation by various authorities
and may be affected by the imposition of special tariffs and changes in tax
laws. To the extent that rates are established or reviewed by governmental
authorities, utility companies are subject to the risk that such authorities
will not authorize increased rates. Because of the Fund's policy of
concentrating its investments in utility companies, the Fund is more susceptible
than most other mutual funds to economic, political or regulatory occurrences
affecting the utilities industry.
Foreign utility companies, like those in the U.S., are generally subject to
regulation, although such regulations may or may not be comparable to domestic
regulations. Foreign utility companies in certain countries may be more heavily
regulated by their respective governments than utility companies located in the
U.S. and, as in the U.S., generally are required to seek government approval for
rate increases. In addition, because
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many foreign utility companies use fuels that cause more pollution than those
used in the U.S., such utilities may yet be required to invest in pollution
control equipment. Foreign utility regulatory systems vary from country to
country and may evolve in ways different from regulation in the U.S. The
percentage of the Fund's assets invested in issuers of particular countries will
vary. See "Risk Considerations-- Foreign Investment."
The Fund may invest up to 35% of its total assets in equity and fixed-income
securities of domestic and foreign corporate and governmental issuers other than
utility companies, including U.S. Government securities and repurchase
agreements pertaining thereto, foreign government securities, corporate
fixed-income securities of domestic issuers, corporate fixed-income securities
of foreign issuers denominated in foreign currencies or in U.S. dollars (in each
case including fixed-income securities of an issuer in one country denominated
in the currency of another country), qualifying bank deposits and prime
commercial paper.
The Fund may also: (i) invest up to 30% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 5% of its net assets in rights or warrants; (iii) invest
in depositary receipts, securities of supranational entities denominated in the
currency of any country, securities denominated in European Currency Units and
"semi-governmental securities;" (iv) write covered put and call options and
purchase put and call options on securities of the types in which it is
permitted to invest that are exchange-traded and over-the-counter; (v) purchase
and sell exchange-traded options on any securities index composed of the types
of securities in which it may invest; (vi) enter into contracts for the purchase
or sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including an index of U.S. Government
securities, foreign government securities, corporate fixed-income securities, or
common stock, and may purchase and write options on futures contracts; (vii)
purchase and write put and call options on foreign currencies traded on U.S. and
foreign exchanges or over-the-counter for hedging purposes; (viii) purchase or
sell forward contracts; (ix) enter into interest rate swaps and purchase or sell
interest rate caps and floors; (x) enter in forward commitments for the purchase
or sale of securities; (xi) enter into standby commitment agreements; (xii)
enter into repurchase agreements pertaining to U.S. Government securities with
member banks of the Federal Reserve System or primary dealers in such
securities; (xiii) make short sales of securities or maintain a short position
as described below under "Additional Investment Practices--Short Sales;" and
(xiv) make secured loans of its portfolio securities not in excess of 20% of its
total assets to brokers, dealers and financial institutions. For additional
information on the use, risk and costs of these policies and practices, see
"Additional Investment Practices."
Alliance Growth and Income Fund
Alliance Growth and Income Fund, Inc. ("Growth and Income Fund") is a
diversified investment company that seeks appreciation through investments
primarily in dividend-paying common stocks of good quality, although it is
permitted to invest in fixed-income securities and convertible securities.
The Fund may also try to realize income by writing covered call options listed
on domestic securities exchanges. he Fund also invests in foreign securities.
Since the purchase of foreign securities entails certain political and economic
risks, the Fund has restricted its investments in securities in this category to
issues of high quality. The Fund may also purchase and sell financial forward
and futures contracts and options thereon for hedging purposes. For additional
information on the use, rights and costs of these policies and practices, see
"Additional Investment Practices. "
Alliance Real Estate Investment Fund
Alliance Real Estate Investment Fund, Inc. (" Real Estate Investment Fund") is a
diversified investment company that seeks a total return on its assets from
long-term growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of real estate investment trusts ("RE ITs") and
other real estate industry companies. A "real estate industry company" is a
company that derives at least 50% of its gross revenues or net profits from the
ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate or interests therein. The
equity securities in which the Fund will invest for this purpose consist of
common stock, shares of beneficial interest of REITs and securities with common
stock characteristics, such as preferred stock or convertible securities ("Real
Estate Equity Securities").
The Fund may invest up to 35% of its total assets in (a) securities that
directly or indirectly represent participations in, or are collateralized by and
payable from, mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real estate mortgage
investment conduit ("REMIC") certificates and collateralized mortgage
obligations ("CMOs") and (b) short-term investments. These instruments are
described below. The risks associated with the Fund's transactions in REMICs,
CMOs and other types of mortgage-backed securities, which are considered to be
derivative securities, may include some or all of the following: market risk,
leverage and volatility risk, correlation risk, credit risk and liquidity and
valuation risk. See "Risk Considerations" for a description of these and other
risks.
As to any investment in Real Estate Equity Securities, Alliance's analysis will
focus on determining the degree to which the company involved can achieve
sustainable growth in cash flow and dividend paying capability. Alliance
believes that the primary determinant of this capability is the economic
viability of property markets in which the company operates and that the
secondary determinant of this capability is the ability of management to add
value through strategic focus and operating expertise. The Fund will purchase
Real Estate Equity
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Securities when, in the judgment of Alliance, their market price does not
adequately reflect this potential. In making this determination, Alliance will
take into account fundamental trends in underlying property markets as
determined by proprietary models, site visits conducted by individuals
knowledgeable in local real estate markets, price-earnings ratios (as defined
for real estate companies), cash flow growth and stability, the relationship
between asset value and market price of the securities, dividend payment
history, and such other factors which Alliance may determine from time to time
to be relevant. Alliance will attempt to purchase for the Fund Real Estate
Equity Securities of companies whose underlying portfolios are diversified
geographically and by property type.
The Fund may invest without limitation in shares of REITs. REITs are pooled
investment vehicles which invest primarily in income producing real estate or
real estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to investment companies
such as the Fund, REITs are not taxed on income distributed to shareholders
provided they comply with several requirements of the Code. The Fund will
indirectly bear its proportionate share of expenses incurred by REITs in which
the Fund invests in addition to the expenses incurred directly by the Fund.
Investment Process for Real Estate Equity Securities
Real Estate Investment Fund's investment strategy with respect to Real Estate
Equity Securities is based on the premise that property market fundamentals are
the primary determinant of growth underlying the success of Real Estate Equity
Securities. Value added management will further distinguish the most attractive
Real Estate Equity Securities. The Fund's research and investment process is
designed to identify those companies with strong property fundamentals and
strong management teams. This process is comprised of real estate market
research, specific property inspection and securities analysis.
The universe of property-owning real estate industry firms consists of
approximately 130 companies of sufficient size an d quality to merit
consideration for investment by the Fund. In implementing the Fund's research
and investment process, Alliance will avail itself of the consulting services of
CB Commercial Real Estate Group, Inc. ("CBC"), a publicly held company and the
largest real estate services company in the United States, comprised of real
estate brokerage, property and facilities management, and real estate finance
and investment advisory activities (CBC in August of 1997 acquired Koll
Management Services ("Koll"), which previously provided these consulting
services to Alliance). In 1996, CBC (and Koll, on a combined basis) completed
25,000 sale and lease transactions, managed over 4,100 client properties,
created over $3.5 billion in mortgage originations, and completed over 2,600
appraisal and consulting assignments. In addition, they advised and managed for
institutions over $4 billion in real estate investments. As consultant to
Alliance, CBC provides access to its proprietary model, REIT o Score, that
analyzes the approximately 12,000 properties owned by these 130 companies. Using
proprietary databases and algorithms, CBC analyzes local market rent, expense,
and occupancy trends, market specific transaction pricing, demographic and
economic trends, and leading indicators of real estate supply such as building
permits. Over 650 asset-type specific geographic markets are analyzed and ranked
on a relative scale by CBC in compiling its REIT o Score database. The relative
attractiveness of these real estate industry companies is similarly ranked
based on the composite rankings of the properties they own. See "Management of
the Funds --Consultant to Adviser" for more information about CBC.
Once the universe of real estate industry companies has been distilled through
the market research process, CBC's local market presence provides the capability
to perform site specific inspections of key properties. This analysis examines
specific location, condition, and sub-market trends. CBC's use of locally based
real estate professionals provides Alliance with a window on the operations of
the portfolio companies as information can immediately be put in the context of
local market events. Only those companies whose specific property portfolios
reflect the promise of their general markets will be considered for initial and
continued investment by the Fund.
Alliance further screens the universe of real estate industry companies by using
rigorous financial models and by engaging in regular contact with management of
targeted companies. Each management's strategic plan and ability to execute the
plan are determined and analyzed. Alliance will make extensive use of CBC's
network of industry analysts in order to assess trends in tenant industries.
This information is then used to further interpret management's strategic plans.
Financial ratio analysis is used to isolate those companies with the ability to
make value-added acquisitions. This information is combined with property market
trends and used to project future earnings potential.
Alliance believes that this process will result in a portfolio that will consist
of Real Estate Equity Securities of companies that own assets in the most
desirable markets across the country, diversified geographically and by property
type.
The short-term investments in which Real Estate Investment Fund may in vest are:
corporate commercial paper and other short-term commercial obligations, in
each case rated or issued by companies with similar securities outstanding that
are rated Prime-1, Aa or better by Moody's or A-1, AA or better by S&P;
obligations (including certificates of deposit, time deposits, demand deposits
and bankers' acceptances) of banks with securities outstanding that are rated
Prime-1, Aa or better by Moody's or A-1, AA or better by S&P; and obligations
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issued or guaranteed by the U.S. Government or its agencies or instrumentalities
with remaining maturities not exceeding 18 months.
The Fund may invest in debt securities rated BBB or higher by S&P or Baa or
higher by Moody's or, if not so rated, of equivalent credit quality as
determined by Alliance. The Fund expects that it will not retain a debt security
which is downgraded below BBB or Baa or, if unrated, determined by Alliance to
have undergone similar credit quality deterioration, subsequent to purchase by
the Fund.
The Fund may also engage in the following investment practices to the extent
indicated: (i) invest up to 10% of its net assets in rights or warrants; (ii)
invest up to 15% of its net assets in the convertible securities of companies
whose common stocks are eligible for purchase by the Fund; (iii) lend portfolio
securities equal in value to not more than 25% of total assets; (iv) enter into
repurchase agreements of up to seven days' duration; (v) enter into for ward
commitments transactions as long as the Fund's aggregate commitments under such
transactions are not more than 30% of the Fund's total assets; (vi) enter into
standby commitment agreements; (vii) make short sales of securities or maintain
a short position but only if at all times when a short position is open not
more than 25% of the Fund's net assets (taken at market value) is held as
collateral for such sales; and (viii) invest in illiquid securities unless, as a
result, more than 15% of its net assets would be so invested.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to the
extent described above.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which 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 stock,
although the higher yield tends to make the convertible security less volatile
than the underlying common stock. 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. For a
description of these risks, see "Risk Considerations--Securities Ratings" and
"--Investment in Lower-Rated Fixed-Income Securities."
Rights and Warrants. A Fund will invest in rights or warrants only if the
underlying equity securities themselves are deemed appropriate by Alliance for
inclusion in the Fund's portfolio. Rights and warrants entitle the holder to buy
equity securities at a specific price for a specific period of time. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative than certain other types
of investments in that they do not entitle a holder to dividends or voting
rights with respect to the underlying securities nor do they represent any
rights in the assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying security, although
the value of a right or warrant may decline because of a decrease in the value
of the underlying security, the passage of time or a change in perception as to
the potential of the underlying security, or any combination thereof. If the
market price of the underlying security is below the exercise price set forth in
the warrant on the expiration date, the warrant will expire worthless. Moreover,
a right or warrant ceases to have value if it is not exercised prior to the
expiration date.
Depositary Receipts and Securities of Supranational Entities. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the issuers
of the stock of unsponsored depositary receipts are not obligated to disclose
material information in the United States and, therefore, there may not be a
correlation between such information and the market value of the depositary
receipts. ADRs are depositary receipts typically issued by a U.S. bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation. GDRs and other types of depositary receipts are typically issued by
foreign banks or trust companies and evidence ownership of underlying securities
issued by either a foreign or a U.S. company. Generally, depositary receipts in
registered form are designed for use in the U.S. securities markets, and
depositary receipts in bearer form are designed for use in foreign securities
markets. For purposes of determining the country of issuance, investments in
depositary receipts of either type are deemed to be investments in the
underlying securities except with respect to Growth Fund, Strategic Balanced
Fund and Income Builder Fund, where investments in ADRs are deemed to be
investments in securities issued by U.S. issuers and those in GDRs and other
types of depositary receipts are deemed to be investments in the underlying
securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the World
Bank (International Bank for Reconstruction and Development) and the European
Investment Bank. A European Currency Unit is a basket of specified amounts of
the currencies of the member states of the European Economic Community.
"Semi-governmental securities" are securities issued by entities owned by either
a national, state or equivalent government or are obligations of one of such
government jurisdictions which are not backed by its full faith and credit and
general taxing powers.
Mortgage-Backed Securities. Interest and principal payments (including
prepayments) on the mortgages underlying
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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 investing in such
securities would be required to reinvest the proceeds at the lower interest
rates then available. Conversely, during periods of rising interest rates, a
reduction in prepayments may increase the effective 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.
Adjustable Rate Securities. Adjustable rate securities 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 reduce sharp
changes in the value of adjustable rate securities, these securities can change
in value based on changes in market interest rates or the issuer's
creditworthiness. 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 interest rate.
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. 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. Accordingly,
such bonds may involve greater credit risks than bonds paying interest
currently. Even though such bonds do not pay current interest in cash, a Fund is
nonetheless required to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, a Fund could be
required at times to liquidate other investments in order to satisfy its
dividend requirements.
Equity-Linked Debt Securities. Equity-linked debt securities are securities with
respect to which the amount of interest and/or principal that the issuer thereof
is obligated to pay is linked to the performance of a specified index of equity
securities. Such amount may be significantly greater or less than payment
obligations in respect of other types of debt securities. Adverse changes in
equity securities indices and other adverse changes in the securities markets
may reduce payments made under, and/or the principal of, equity-linked debt
securities held by the Fund. Furthermore, as with any debt securities, the
values of equity-linked debt securities will generally vary inversely with
changes in interest rates. The Fund's ability to dispose of equity-linked debt
securities will depend on the availability of liquid markets for such
securities. Investment in equity-linked debt securities may be considered to be
speculative. As with other securities, the Fund could lose its entire investment
in equity-linked debt securities.
Loans and Other Direct Debt Instruments. Loans and other direct debt instruments
are interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or services (trade claims
or other receivables), or to other creditors. Direct debt instruments involve
the risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to the Fund in the event of fraud or misrepresentation
than debt securities. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments may also include standby financing commitments that obligate the
Fund to supply additional cash to the borrower on demand. Loans and other direct
debt instruments are generally illiquid and may be transferred only through
individually negotiated private transactions.
Purchasers of loans and other forms of direct indebtedness depend primarily upon
the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If the
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Fund does not receive scheduled interest or principal payments on such
indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer the Fund more protection than unsecured loans
in the event of non-payment of scheduled interest or principal. However, there
is no assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral can be liquidated.
Indebtedness of borrowers whose creditworthiness is poor may involve substantial
risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of Asian countries will also involve a risk that the governmental
entities responsible for the repayment of the debt may be unable, or unwilling,
to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the Fund. For
example, if a loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary.
A loan is often administered by a bank or other financial institution that acts
as agent for all holders. The agent administers the terms of the loan, as
specified on the loan agreement. Unless, under the terms of the loan or other
indebtedness, the Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of the Fund were determined to be
subject to the claims of the agent's general creditors, the Fund might incur
certain costs and delays in realizing payment on the loan or loan participation
and could suffer a loss of principal or interest.
Direct indebtedness purchased by the Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
the Fund to pay additional cash on demand. These commitments may have the effect
of requiring the Fund to increase its investment in a borrower at a time when it
would not otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid.
Mortgage-Backed Securities and Associated Risks. 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.
Guaranteed Mortgage Pass-Through Securities. Real Estate Investment Fund may
invest in guaranteed mortgage pass- through securities which represent
participation interests in pools of residential mortgage loans and are issued by
U.S. governmental or private lenders and guaranteed by the U.S. Government or
one of its agencies or instrumentalities, including but not limited to the
Government National Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full
faith and credit of the United States Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately-owned corporation for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate instrumentality of the
United States Government, for timely payment of interest and the ultimate
collection of all principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
Mortgage-Backed Securities also include CMOs and REMIC pass-through or
participation certificates, which may be issued by, among others, U.S.
Government agencies and instrumentalities as well as private lenders. CMOs and
REMIC certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several classes of
CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis. Real Estate Investment Fund
will not invest in the lowest tranche of CMOs and REMIC certificates.
Typically, CMOs are collateralized by Ginnie Mae or Freddie Mac certificates but
also may be collateralized by other mortgage assets such as whole loans or
private mortgage pass-through securities. Debt service on CMOs is provided from
payments of principal and interest on collateral of mortgaged assets and any
reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although the Fund does
not intend to invest in residual interests.
Risks. Investing in Mortgage-Backed Securities involves certain unique risks in
addition to those generally associated with investing in the real estate
industry in general. These unique risks include the failure of a counterparty
to meet its commitments, ad verse interest rate changes and the effects of
prepayments on mortgage cash flows. See "Risk Considerations--Mortgage-Backed
Securities" for a more complete description of the characteristics of
Mortgage-Backed Securities and associated risks.
Illiquid Securities. Subject to any more restrictive applicable fundamental
investment policy, none of the Funds will maintain more than 15% of its net
assets in illiquid securities. Illiquid securities generally include (i) direct
placements or other
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securities that are subject to legal or contractual restrictions on resale or
for which there is no readily available market (e.g., when trading in the
security is suspended or, in the case of unlisted securities, when market makers
do not exist or will not entertain bids or offers), including many individually
negotiated currency swaps and any assets used to cover currency swaps and most
privately negotiated investments in state enterprises that have not yet
conducted an initial equity offering, (ii) over-the-counter options and assets
used to cover over-the-counter options, and (iii) repurchase agreements not
terminable within seven days.
Because of the absence of a trading market for illiquid securities, a Fund may
not be able to realize their full value upon sale. With respect to each Fund
that may invest in such securities, Alliance will monitor their illiquidity
under the supervision of the Directors of the Fund. 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 a Fund's Directors. Investment in non-publicly traded
securities by each of Growth Fund and Strategic Balanced Fund is restricted to
5% of its total assets (not including for these purposes Rule 144A securities,
to the extent permitted by applicable law) and is also subject to the 15%
restriction on investment in illiquid securities described above.
A Fund that invests in securities for which there is no ready market may
therefore not be able to readily sell such securities. To the extent that these
securities are foreign securities, there is no law in many of the countries in
which a Fund may invest similar to the Securities Act requiring an issuer to
register the sale of securities with a governmental agency or imposing legal
restrictions on resales of securities, either as to length of time the
securities may be held or manner of resale. However, there may be contractual
restrictions on resales of securities.
Options. 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 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.
Worldwide Privatization Fund, All-Asia Investment Fund, Income Builder Fund and
Utility Income Fund each may write call options for cross-hedging purposes. 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. These risks could be reduced by
entering into a closing transaction (i.e., by disposing of the option prior to
its exercise). 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.
Technology Fund, Quasar Fund, International Fund, New Europe Fund and Global
Small Cap Fund will not write uncovered call options. Technology Fund and Global
Small Cap Fund will not write a call option if the premium to be received by the
Fund in doing so would not produce an annualized return of at least 15% of the
then current market value of the securities subject to the option (without
giving effect to commissions, stock transfer taxes and other expenses that are
deducted from premium receipts). Technology Fund, Quasar Fund and Global Small
Cap Fund will not write a call option if, as a result, the aggregate of the
Fund's portfolio securities subject to outstanding call options (valued at the
lower of the option price or market value of such securities) would exceed 15%
of the Fund's total assets or more than 10% of the Fund's assets would be
committed to call options that at the time of sale have a remaining term of more
than 100 days. The aggregate cost of all outstanding options purchased and held
by each of Premier Growth Fund, Technology Fund, Quasar Fund and Global Small
Cap Fund will at no time exceed 10% of the Fund's total assets. Neither
International Fund nor New Europe Fund will write uncovered put options.
A Fund that purchases or writes options on securities in privately negotiated
(i.e., over-the-counter) transactions will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks or
savings and loan institutions) deemed creditworthy by Alliance, and Alliance has
adopted procedures for monitoring the creditworthiness of such entities. 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. See "Illiquid Securities."
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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.
Options on futures contracts written or purchased by a Fund will be 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.
No Fund will enter into any futures contracts or options on futures contracts if
immediately thereafter the market values of the outstanding futures contracts of
the Fund and the currencies and futures contracts subject to outstanding options
written by the Fund would exceed 50% of its total assets, and Income Builder
Fund will also not do so if immediately thereafter the aggregate of initial
margin deposits on all the outstanding futures contracts of the Fund and
premiums paid on outstanding options on futures contracts would exceed 5% of the
market value of the total assets of the Fund. Premier Growth Fund and Growth and
Income Fund may not purchase or sell a stock index future if immediately
thereafter more than 30% of its total assets would be hedged by stock index
futures. Premier Growth Fund and Growth and Income Fund may not purchase or sell
a stock index future if, immediately thereafter, the sum of the amount of margin
deposits on the Fund's existing futures positions would exceed 5% of the market
value of the Fund's total assets.
Options on Foreign Currencies. As in the case of other kinds of options, the
writing of an option on a foreign currency constitutes only a partial hedge, up
to the amount of the premium received, and a Fund could be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to a Fund's position, it may forfeit the entire amount of
the premium plus related transaction costs. See the Statement of Additional
Information of each Fund that may invest in options on foreign currencies for
further discussion of the use, risks and costs of options on foreign currencies.
Forward Foreign Currency Exchange Contracts. A Fund purchases or sells forward
contracts to minimize the risk to it from adverse changes in the relationship
between the U.S. dollar and other currencies. A forward contract is an
obligation to purchase or sell a specific currency for an agreed price at a
future date, and is individually negotiated and privately traded.
A Fund may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). A Fund will not engage in transaction hedges with respect
to the currency of a particular country to an extent greater than the aggregate
amount of the Fund's transactions in that currency. When a Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount ("position hedge"). A Fund will not position hedge with
respect to particular currency to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfolio
denominated or quoted in that currency. Instead of entering into a position
hedge, a Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where the Fund
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which portfolio securities of the Fund are denominated
("cross-hedge"). Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such forward
contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. International Fund, New
Europe Fund and Global Small Cap Fund will not enter into a forward contract
with a term of more than one year or if, as a result, more than 50% of its total
assets would be committed to such contracts. The dealings of International Fund,
New Europe Fund and Global Small Cap Fund in forward contracts will be limited
to hedging involving either specific transactions or portfolio positions.
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Growth Fund and Strategic Balanced Fund may also purchase and sell foreign
currency on a spot basis.
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 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 settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are subject to market
fluctuation, and no interest or dividends accrue to the purchaser prior to the
settlement date. At the time a Fund intends to enter into a forward commitment,
it records the transaction and thereafter reflects 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.
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, thereby obtaining the benefit of
currently higher cash yields. However, if 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. No forward commitments will be made by New Europe Fund, All-Asia
Investment Fund, Worldwide Privatization Fund, Income Builder Fund, Utility
Income Fund or Real Estate Investment Fund if, as a result, the Fund's aggregate
commitments under such transactions would be more than 30% of the Fund's total
assets. In the event the other party to a forward commitment transaction were to
default, a Fund might lose the opportunity to invest money at favorable rates or
to dispose of securities at favorable prices.
Standby Commitment Agreements. Standby commitment agreements commit a Fund, for
a stated period of time, to purchase a stated amount of a security that may be
issued and sold to the Fund at the option of the issuer. The price and coupon of
the security are fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether the
security ultimately is issued, typically equal to approximately 0.5% of the
aggregate purchase price of the security the Fund has committed to purchase. A
Fund will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
to the Fund and unavailable on a firm commitment basis. No Fund, other than
Income Builder Fund, will enter into a standby commitment with a remaining term
in excess of 45 days. Investments in standby commitments will be limited so that
the aggregate purchase price of the securities subject to the commitments will
not exceed 25% with respect to New Europe Fund and Real Estate Investment Fund,
50% with respect to Worldwide Privatization Fund and All-Asia Investment Fund,
and 20% with respect to Utility Income Fund, of the Fund's assets taken at the
time of making the commitment.
There is no guarantee that a security subject to a standby commitment will be
issued and the value of the security, if issued, on the delivery date may be
more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, a Fund will bear the
risk of capital loss in the event the value of the security declines and may not
benefit from an appreciation in the value of the security during the commitment
period if the issuer decides not to issue and sell the security to the Fund.
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. The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each currency swap will
be accrued on a daily basis. 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 other party thereto 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 other party to such a transaction,
such Fund will have contractual remedies pursuant to the agreements related to
the transactions.
Interest Rate Transactions. Each Fund that may enter into interest rate
transactions expects to do so primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the
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price of securities the Fund anticipates purchasing at a later date. The Funds
do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments). Interest rate swaps are entered on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments). With
respect to All-Asia Investment Fund and Utility Income Fund, the exchange
commitments can involve payments in the same currency or in different
currencies. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on an agreed principal amount
from the party selling the interest rate floor.
A Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities. The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each interest rate swap, cap
and floor is accrued daily. A Fund will not enter into an interest rate swap,
cap or floor transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is then rated in the highest rating category
of at least one nationally recognized rating organization. Alliance will monitor
the creditworthiness of counterparties on an ongoing basis. The swap market has
grown substantially in recent years, with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized documentation
has not yet been developed and, accordingly, they are less liquid than swaps.
The use of interest rate transactions is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If Alliance were to incorrectly
forecast market values, interest rates and other applicable factors, the
investment performance of a Fund would be adversely affected by the use of these
investment techniques. Moreover, even if Alliance is correct in its forecasts,
there is a risk that the transaction position may correlate imperfectly with the
price of the asset or liability being hedged. There is no limit on the amount of
interest rate transactions that may be entered into by a Fund that is permitted
to enter into such transactions. These transactions do not involve the delivery
of securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate transactions is limited to the net amount of
interest payments that a Fund is contractually obligated to make. If the other
party to an interest rate transaction defaults, a Fund's risk of loss consists
of the net amount of interest payments that the Fund contractually is entitled
to receive.
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. There is no
percentage restriction on a Fund's ability to enter into repurchase agreements,
other than as indicated under "Investment Objectives and Policies."
Short Sales. A short sale is effected by selling a security that a Fund does not
own, or if the Fund does own such security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" to the extent that a
Fund contemporaneously owns or has the right to obtain securities identical to
those sold short without payment. Worldwide Privatization Fund, All-Asia
Investment Fund, Income Builder Fund and Utility Income Fund each may make short
sales of securities or maintain short positions only for the purpose of
deferring realization of gain or loss for U.S. federal income tax purposes,
provided that at all times when a short position is open the Fund owns an equal
amount of securities of the same issue as, and equal in amount to, the
securities sold short. In addition, each of those Funds may not make a short
sale if as a result more than 10% of the Fund's net assets would be held as
collateral for short sales, except that All-Asia Investment Fund and Real Estate
Investment Fund may not make a short sale if as a result more than 25% of the
Fund's net assets would be held as collateral for short sales. If the price of
the security sold short increases between the time of the short sale and the
time a Fund replaces the borrowed security, the Fund will incur a loss;
conversely, if the price declines, the Fund will realize a capital gain. See
"Certain Fundamental Investment Policies." Certain special federal income tax
considerations may apply to short sales entered into by a Fund. See "Dividends,
Distributions and Taxes" in the relevant Fund's Statement of Additional
Information.
Loans of Portfolio Securities. 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 earned thereon
and the Fund may invest any cash collateral in portfolio
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securities, thereby earning 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. A Fund will not lend its portfolio securities to any
officer, director, employee or affiliate of the Fund or Alliance.
General. The successful use of the foregoing investment practices draws upon
Alliance's special skills and experience with respect to such instruments 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 with respect to 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 with respect
to 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 for the purposes
set forth above. Furthermore, a Fund's ability to engage in options and futures
transactions may be limited by tax considerations. See "Dividends, Distributions
and Taxes" in the Statement of Additional Information of each Fund that invests
in options and futures.
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.
Defensive Position. For temporary defensive purposes, each Fund may invest in
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 may also include
short-term, foreign-currency denominated securities of the type mentioned above
issued by foreign governmental entities, companies and supranational
organizations. For a complete description of the types of securities each Fund
may invest in while in a temporary defensive position, please see such Fund's
Statement of Additional Information.
Portfolio Turnover. Portfolio turnover rates for the existing classes of shares
of the Fund are set forth in the tables that begin on page 8. These portfolio
turnover rates are greater than those of most other investment companies,
including those which emphasize capital appreciation as a basic policy. A high
rate of portfolio turnover involves correspondingly greater brokerage and other
expenses than a lower rate, 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. See "Dividends, Distributions and
Taxes" in each Fund's Statement of Additional Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement of
Additional Information.
Alliance Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. Government); (ii) acquire more
than 10% of the voting or other securities of any one issuer; or (iii) buy
securities of any company that (including its predecessors) has not been in
business at least three continuous years. Pursuant to investment policies which
are not fundamental, the Fund does not invest (i) in puts or calls (except as
discussed above); (ii) in straddles, spreads, or any combination thereof; (iii)
in oil, gas or other mineral exploration or development programs; or (iv) more
than 5% of its gross assets in securities the disposition of which would be
subject to restrictions under the federal securities laws.
Growth Fund and Strategic Balanced Fund each may not: (i) invest more than 5% of
its total assets in the securities of any one issuer (other than U.S. Government
securities and repurchase agreements relating thereto), although up to 25% of
each 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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Premier Growth Fund may not: (i) purchase more than 10% of the outstanding
voting securities of any one issuer; (ii) invest 25% or more of the value of its
total assets in the same industry; (iii) borrow money or issue senior securities
except for temporary or emergency purposes in an amount not exceeding 5% of the
value of its total assets at the time the borrowing is made; (iv) pledge,
mortgage, hypothecate or otherwise encumber any of its assets except in
connection with the writing of call options and except to secure permitted
borrowings; or (v) invest in the securities of any issuer that has a record of
less than three years of continuous operation (including the operation of any
predecessor) if as a result more than 10% of the value of the total assets of
the Fund would be invested in the securities of such issuer or issuers.
Technology Fund may not: (i) with respect to 75% of its total assets, have such
assets represented by other than: (a) cash and cash items, (b) U.S. Government
securities, or (c) securities of any one issuer (other than the U.S. Government
and its agencies or instrumentalities) not greater in value than 5% of the
Fund's total assets, and not more than 10% of the outstanding voting securities
of such issuer; (ii) purchase the securities of any one issuer, other than the
U.S. Government and its agencies or instrumentalities, if as a result (a) the
value of the holdings of the Fund in the securities of such issuer exceeds 25%
of its total assets, or (b) the Fund owns more than 25% of the outstanding
securities of any one class of securities of such issuer; (iii) concentrate its
investments in any one industry, but the Fund has reserved the right to invest
up to 25% of its total assets in a particular industry; and (iv) invest in the
securities of any issuer which has a record of less than three years of
continuous operation (including the operation of any predecessor) if such
purchase would cause 10% or more of its total assets to be invested in the
securities of such issuers.
Quasar Fund may not: (i) purchase the securities of any one issuer, other than
the U.S. Government or any of its agencies or instrumentalities, if as a result
more than 5% of its total assets would be invested in such issuer or the Fund
would own more than 10% of the outstanding voting securities of such issuer,
except that up to 25% of its total assets may be invested without regard to
these 5% and 10% limitations; (ii) invest more than 25% of its total assets in
any particular industry; (iii) borrow money except for temporary or emergency
purposes in an amount not exceeding 5% of its total assets at the time the
borrowing is made; or (iv) invest more than 10% of its assets in restricted
securities.
International Fund may not: (i) invest more than 5% of the value of its total
assets in securities of a single issuer (including repurchase agreements with
any one entity), except U.S. Government securities or foreign government
securities; provided, however, that the Fund may not, with respect to 75% of its
total assets, invest more than 5% of its total assets in securities of any one
foreign government issuer; (ii) own more than 10% of the outstanding securities
of any class of any issuer (for this purpose, all preferred stocks of an issuer
shall be deemed a single class, and all indebtedness of an issuer shall be
deemed a single class), except U.S. Government securities; (iii) invest more
than 25% of the value of its total assets in securities of issuers having their
principal business activities in the same industry; provided, that this
limitation does not apply to U.S. Government securities or foreign government
securities; (iv) invest more than 5% of the value of its total assets in the
securities of any issuer that has a record of less than three years of
continuous operation (including the operation of any predecessor or
unconditional guarantor), except U.S. Government securities or foreign
government securities; (v) invest more than 5% of the value of its total assets
in securities with legal or contractual restrictions on resale, other than
repurchase agreements, or more than 10% of the value of its total assets in
securities that are not readily marketable (including restricted securities and
repurchase agreements not terminable within seven business days); and (vi)
borrow money, except as a temporary measure for extraordinary or emergency
purposes, and then only from banks in amounts not exceeding 5% of its total
assets.
Worldwide Privatization Fund may not: (i) invest 25% or more of its total assets
in securities of issuers conducting their principal business activities in the
same industry, except that this restriction does not apply to (a) U.S.
Government securities, or (b) the purchase of securities of issuers whose
primary business activity is in the national commercial banking industry, so
long as the Fund's Directors determine, on the basis of factors such as
liquidity, availability of investments and anticipated returns, that the Fund's
ability to achieve its investment objective would be adversely affected if the
Fund were not permitted to invest more than 25% of its total assets in those
securities, and so long as the Fund notifies its shareholders of any decision by
the Directors to permit or cease to permit the Fund to invest more than 25% of
its total assets in those securities, such notice to include a discussion of any
increased investment risks to which the Fund may be subjected as a result of the
Directors' determination; (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; outstanding borrowings in excess of 5% of the value of the Fund's total
assets will be repaid before any investments are made; or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings. The exception contained in clause (i)(b) above is subject
to the operating policy regarding concentration described in this Prospectus.
New Europe Fund may not: (i) purchase more than 10% of the outstanding voting
securities of any one issuer; (ii) invest more than 15% of its total assets in
the securities of any one issuer or 25% or more of its total assets in the same
industry, provided, however, that the foregoing restriction shall not be
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deemed to prohibit the Fund from purchasing the securities of any issuer
pursuant to the exercise of rights distributed to the Fund by the issuer, except
that no such purchase may be made if as a result the Fund will fail to meet the
diversification requirements of the Code and any such acquisition in excess of
the foregoing 15% or 25% limits will be sold by the Fund as soon as reasonably
practicable (this restriction does not apply to U.S. Government securities, but
will apply to foreign government securities unless the Commission permits their
exclusion); (iii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests that might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the Fund's total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the Fund's total assets will be repaid
before any subsequent investments are made; or (iv) purchase a security (unless
the security is acquired pursuant to a plan of reorganization or an offer of
exchange) if, as a result, the Fund would own any securities of an open-end
investment company or more than 3% of the total outstanding voting stock of any
closed-end investment company, or more than 5% of the value of the Fund's total
assets would be invested in securities of any closed-end investment company, or
more than 10% of such value in closed-end investment companies in general.
All-Asia Investment Fund may not: (i) invest 25% or more of its total assets in
securities of issuers conducting their principal business activities in the same
industry; (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests that might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the Fund's total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the value of the Fund's total assets
will be repaid before any investments are made; or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
Global Small Cap Fund may not: (i) purchase the securities of any one issuer,
other than the U.S. Government or any of its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total assets
would be invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the
Fund's total assets may be invested without regard to these 5% and 10%
limitations; (ii) invest 25% or more of its total assets in the same industry;
this restriction does not apply to U.S. Government securities, but will apply to
foreign government securities unless the Commission permits their exclusion;
(iii) borrow money except from banks for emergency or temporary purposes in an
amount not exceeding 5% of the total assets of the Fund; or (iv) make short
sales of securities or maintain a short position, unless at all times when a
short position is open it owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount to, the
securities sold short and unless not more than 5% of the Fund's net assets is
held as collateral for such sales at any one time.
Balanced Shares may not: (i) invest more than 5% of its total assets in the
securities of any one issuer, except U.S. Government securities; or (ii) own
more than 10% of the outstanding voting securities of any one issuer.
Income Builder Fund may not: (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry, except that
this restriction does not apply to U.S. Government securities; (ii) borrow money
except from banks for temporary or emergency purposes, including the meeting of
redemption requests that might require the untimely disposition of securities;
borrowing in the aggregate may not exceed 15%, and borrowing for purposes other
than meeting redemptions may not exceed 5%, of the Fund's total assets
(including the amount borrowed) less liabilities (not including the amount
borrowed) at the time borrowing is made; securities will not be purchased while
borrowings in excess of 5% of the Fund's total assets are outstanding; or (iii)
pledge, hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.
Utility Income Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer except the U.S. Government, although with respect
to 25% of its total assets it may invest in any number of issuers; (ii) invest
25% or more of its total assets in the securities of issuers conducting their
principal business activities in any one industry, other than the utilities
industry, except that this restriction does not apply to U.S. Government
securities; (iii) purchase more than 10% of any class of the voting securities
of any one issuer; (iv) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; outstanding borrowings in excess of 5% of the Fund's total assets will be
repaid before any subsequent investments are made; or (v) purchase a security
if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own any securities of an
open-end investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or more than 5% of the value of the
Fund's net assets would be invested in securities of any one or more closed-end
investment companies.
Growth and Income Fund may not (i) invest more than 5% of its net assets in the
security of any one issuer, except U.S.
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Government obligations or (ii) own more than 10% of the outstanding voting
securities of any issuer.
Real Estate Investment Fund may not: (i) with respect to 75% of its total
assets, have such assets represented by other than: (a) cash and cash items, (b)
U.S. Government securities, or (c) securities of any one issuer (other than the
U.S. Government and its agencies or instrumentalities) not greater in value than
5% of the Fund's total assets, and not more than 10% of the outstanding voting
securities of such issuer; (ii) purchase the securities of any one issuer, other
than the U.S. Government and its agencies or instrumentalities, if as a result
(a) the value of the holdings of the Fund in the securities of such issuer
exceeds 25% of its total assets, or (b) the Fund owns more than 25% of the
outstanding securities of any one class of securities of such issuer; (iii)
invest 25% or more of its total assets in the securities of issuers conducting
their principal business activities in any one industry, other than the real
estate industry in which the Fund will invest at least 25% or more of its total
assets, except that this restriction does not apply to U.S. Government
securities; (iv) purchase or sell real estate, except that it may purchase and
sell securities of companies which deal in real estate or interests therein,
including Real Estate Equity Securities; or (v) borrow money except for
temporary or emergency purposes or to meet redemption requests, in an amount not
exceeding 5% of the value of its total assets at the time the borrowing is made.
RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. These risks may be heightened when investing in emerging
markets.
Investment in Privatized Enterprises by Worldwide Privatization Fund. In certain
jurisdictions, the ability of foreign entities, such as the Fund, to participate
in privatizations may be limited by local law, or the price or terms on which
the Fund may be able to participate may be less advantageous than for local
investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.
Furthermore, in the case of certain of the enterprises in which the Fund may
invest, large blocks of the stock of those enterprises may be held by a small
group of stockholders, even after the initial equity offerings by those
enterprises. The sale of some portion or all of those blocks could have an
adverse effect on the price of the stock of any such enterprise.
Most state enterprises or former state enterprises go through an internal
reorganization of management prior to conducting an initial equity offering in
an attempt to better enable these enterprises to compete in the private sector.
However, certain reorganizations could result in a management team that does not
function as well as the enterprise's prior management and may have a negative
effect on such enterprise. After making an initial equity offering, enterprises
that may have enjoyed preferential treatment from the respective state or
government that owned or controlled them may no longer receive such preferential
treatment and may become subject to market competition from which they were
previously protected. Some of these enterprises may not be able to effectively
operate in a competitive market and may suffer losses or experience bankruptcy
due to such competition. In addition, the privatization of an enterprise by its
government may occur over a number of years, with the government continuing to
hold a controlling position in the enterprise even after the initial equity
offering for the enterprise.
Currency Considerations. Substantially all of the assets of International Fund,
New Europe Fund, All-Asia Investment Fund, and Worldwide Privatization Fund and
a substantial portion of the assets of Global Small Cap Fund will be invested in
securities denominated in foreign currencies, and a corresponding portion of
these Funds' revenues will be received in such 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 certain
currency hedging transactions, which themselves involve certain special risks.
See "Additional Investment Practices" above.
Foreign Investment. 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 such
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. These problems are particularly severe in India, where settlement
is through physical delivery, and, where, currently, a severe shortage of vault
capacity exists among custodial banks, although efforts are being undertaken to
alleviate the shortage. 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 which may have less advantageous terms (including
price) than securities of the company available
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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, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances.
A Fund could also be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures, which may involve additional costs
to a Fund. The liquidity of a Fund's investments in any country in which any of
these factors exists could be affected 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 or the
Fund's investments in such country. 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.
Investment in United Kingdom Issuers. Investment in securities of United Kingdom
issuers involves certain considerations not present with investment in
securities of U.S. issuers. As with any investment not denominated in the U.S.
dollar, the U.S. dollar value of the Fund's investment denominated in the
British pound sterling will fluctuate with pound sterling--dollar exchange rate
movements. Between 1972, when the pound sterling was allowed to float against
other currencies, and the end of 1992, the pound sterling generally depreciated
against most major currencies, including the U.S. dollar. Between September and
December 1992, after the United Kingdom's exit from the Exchange Rate Mechanism
of the European Monetary System, the value of the pound sterling fell by almost
20% against the U.S. dollar. The pound sterling continued to fall in early 1993,
but recovered due to interest rate cuts throughout Europe and an upturn in the
economy of the United Kingdom. The average exchange rate of the U.S. dollar to
the pound sterling was 1.50 in 1993 and 1.56 in 1996. On September 30, 1997 the
U.S. dollar-pound sterling exchange rate was 1.61.
The United Kingdom's largest stock exchange is the London Stock Exchange, which
is the third largest exchange in the world. As measured by the FT-SE 100 index,
the performance of the 100 largest companies in the United Kingdom reached
4118.5 at the end of 1996, up approximately 12% from the end of 1995. On
September 30, 1997 the FT-SE 100 index closed at 5,244.2, up approximately 27%
from the end of 1996.
The public sector borrowing requirement a mandated measure of the amount
required to balance the budget, has been, over the last two fiscal years, higher
than forecast. The general government fiscal deficit has been in excess of the
eligibility limit prescribed by the European Union for countries that intend to
participate in the Economic and Monetary Union ("EMU"), which is scheduled to
take effect in January 1999. The government, however, expects that the deficit
will drop below that limit during calendar year 1997 and will continue to drop
in the 1997-98 and 1998-99 fiscal years. Although the government has not yet
made a formal announcement with respect to the United Kingdom's participation in
the EMU, remarks of the Chancellor of the Exchequer made in mid-October 1997
suggest that the United Kingdom will not participate in the EMU beginning in
January 1999 but may do so thereafter.
From 1979 until 1997 the Conservative Party controlled Parliament. In the May 1,
1997 general elections, however, the Labour Party, led by Tony Blair, won a
majority in Parliament, holding 418 of 658 seats in the House of Commons. Mr.
Blair, who was appointed Prime Minister, has launched a number of reform
initiatives, including an overhaul of the monetary policy framework intended to
protect monetary policy from political forces by vesting responsibility for
setting interest rates in a new Monetary Policy Committee headed by the Governor
of the Bank of England, as opposed to the Treasury. Prime Minister Blair has
also undertaken a comprehensive restructuring of the regulation of the financial
services industry. For further information regarding the United Kingdom, see the
Statement of Additional Information of New Europe Fund.
Investment in Japanese Issuers. Investment in securities of Japanese issuers
involves certain considerations not present with investment in securities of
U.S. issuers. As with any investment not denominated in the U.S. dollar, the
U.S. dollar value of each Fund's investments denominated in the Japanese yen
will fluctuate with yen-dollar exchange rate movements. Between 1985 and 1995,
the Japanese yen generally appreciated against the U.S. dollar, but has fallen
from its post-World War II high (in 1995) against the U.S. dollar.
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<PAGE>
Japan's largest stock exchange is the Tokyo Stock Exchange, the First Section of
which is reserved for larger, established companies. As measured by the TOPIX, a
capitalization-weighted composite index of all common stocks listed in the First
Section, the performance of the First Section reached a peak in 1989.
Thereafter, the TOPIX declined approximately 50% through the end of 1993. In
1994, the TOPIX closed at 1,559.09, up approximately 8% from the end of 1993; in
1995, the TOPIX closed at 1,577.70, up approximately 1% from the end of 1994;
and in 1996, the TOPIX closed at 1,470.94, down approximately 7% from the end of
1995. On September 30, 1997, the TOPIX closed at 1,388.32, down 5.6% from the
end of 1996 Certain valuation measures, such as price-to-book value and
price-to-cash flow ratios, indicate that the Japanese stock market is near its
lowest level in the last twenty years relative to other world markets. The
price/earnings ratios of First Section companies, however, are on average high
in comparison with other major stock markets.
In recent years, Japan has consistently recorded large current account trade
surpluses with the U.S. that have caused difficulties in the relations between
the two countries. On October 1, 1994, the U.S. and Japan reached an agreement
that may lead to more open Japanese markets with respect to trade in certain
goods and services. In June 1995, the two countries agreed in principle to
increase Japanese imports of American automobiles and automotive parts.
Nevertheless it is expected that the continuing friction between the U.S. and
Japan with respect to trade issues will continue for the foreseeable future.
Each Fund's investments in Japanese issuers will be subject to uncertainty
resulting from the instability of recent Japanese ruling coalitions. From 1955
to 1993, Japan's government was controlled by a single political party. Between
August 1993 and October 1996 Japan was ruled by a series of four coalition
governments. As the result of a general election on October 20, 1996, however,
Japan has returned to a single-party government led by Prime Minister Ryutaro
Hashimoto. While Mr. Hashimoto's party does not control a majority of the seats
in the parliament, it is only three seats short of the 251 seats required to
attain a majority in the House of Representatives (down from a 12-seat shortfall
just after the October 1996 election). For further information regarding Japan,
see the Statements of Additional Information for All-Asia Investment Fund and
International Fund.
Investment in Smaller, Emerging Companies. The Funds may invest in smaller,
emerging companies. Global Small Cap Fund and New Europe Fund will emphasize
investment in, and All-Asia Investment Fund may emphasize investment in,
smaller, emerging companies. Investment in such companies involves greater risks
than is customarily associated with securities of more established companies.
The securities of smaller companies may have relatively limited marketability
and may be subject to more abrupt or erratic market movements than securities of
larger companies or broad market indices.
The Real Estate Industry. Although Real Estate Investment Fund does not invest
directly in real estate, it does invest primarily in Real Estate Equity
Securities and does have a policy of concentration of its investments in the
real estate industry. Therefore, an investment in the Fund is subject to certain
risks associated with the direct ownership of real estate and with the real
estate industry in general. These risks include, among others: possible declines
in the value of real estate; risks related to general and local economic
conditions; possible lack of availability of mortgage funds; overbuilding;
extended vacancies of properties; increases in competition, property taxes and
operating expenses; changes in zoning laws; costs resulting from the clean-up
of, and liability to third parties for damages resulting from, environmental
problems; casualty or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and variations in rents;
and changes in interest rates. To the extent that assets underlying the Fund's
investments are concentrated geographically, by property type or in certain
other respects, the Fund may be subject to certain of the foregoing risks to a
greater extent.
In addition, if Real Estate Investment Fund receives rental income or income
from the disposition of real property acquired as a result of a default on
securities the Fund owns, the receipt of such income may adversely affect the
Fund's ability to retain its tax status as a regulated investment company. See
"Dividends, Distributions and Taxes" in the Statement of Additional Information.
Investments by the Fund in securities of companies providing mortgage servicing
will be subject to the risks associated with refinancings and their impact on
servicing rights.
REITs. Investing in REITs involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, are
subject to heavy cash flow dependency, default by borrowers and
self-liquidation. REITs are also subject to the possibilities of failing to
qualify for tax free pass-through of income under the Code and failing to
maintain their exemptions from registration under the 1940 Act.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's 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 a REIT's 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.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities. Historically, small
capitalization stocks, such as REITs, have been more volatile in price than the
larger capitalization stocks included in the S&P Index of 500 Common Stocks.
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<PAGE>
Mortgage-Backed Securities. As discussed above, 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, such as those
in which Real Estate Investment Fund may invest, 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 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.
U.S. and Foreign Taxes. A Fund's investment in foreign securities may be subject
to taxes withheld at the source on dividend or interest payments. Foreign taxes
paid by a Fund may be creditable or deductible by U.S. shareholders for U.S.
income tax purposes. No assurance can be given that applicable tax laws and
interpretations will not change in the future. Moreover, non-U.S. investors may
not be able to credit or deduct such foreign taxes. Investors should review
carefully the information discussed under the heading "Dividends, Distributions
and Taxes" and should discuss with their tax advisers the specific tax
consequences of investing in a Fund.
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.
Under normal market conditions, the average dollar-weighted maturity of a Fund's
portfolio of debt or other fixed-income securities is expected to vary between
five and 30 years in the case of All-Asia Investment Fund, between eight and 15
years in the case of Income Builder Fund, between five and 25 years in the case
of Utility Income Fund and between one year or less and 30 years in the case of
all other Funds that invest in such securities. 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. See "Additional Investment
Practices--Mortgage-Backed Securities."
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps and Fitch are
considered to be of the highest quality; capacity to pay interest and repay
principal is extremely strong. Securities rated Aa by Moody's and AA by S&P,
Duff & Phelps and Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist that make risks
appear somewhat larger than exist with securities rated Aaa or AAA. Securities
rated A are considered by Moody's to possess adequate factors giving security to
principal and interest. S&P, Duff & Phelps and Fitch consider such securities to
have a strong capacity to pay interest and repay principal. Such securities are
more susceptible to adverse changes in economic conditions and circumstances
than higher-rated securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps and Fitch are
considered to have an adequate capacity to pay interest and repay principal.
Such securities are considered to have speculative characteristics and share
some of the same characteristics as lower-rated securities. 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. Securities rated Ba by Moody's and
BB by S&P, Duff & Phelps and Fitch are considered to have speculative
characteristics with respect to
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<PAGE>
capacity to pay interest and repay principal over time; their future cannot be
considered as well-assured. Securities rated B by Moody's, S&P, Duff & Phelps
and Fitch are considered to have highly speculative characteristics with respect
to capacity to pay interest and repay principal. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small.
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps and Fitch are of
poor standing and there is a present danger with respect to payment of principal
or interest. Securities rated Ca by Moody's and CC by S&P and Fitch are
minimally protected, and default in payment of principal or interest is
probable. Securities rated C by Moody's, S&P and Fitch are in imminent default
in payment of principal or interest and have extremely poor prospects of ever
attaining any real investment standing. Securities rated D by S&P and Fitch are
in default. The issuer of securities rated DD by Duff & Phelps is under an order
of liquidation.
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 risk of loss of principal and interest than
higher-rated securities. They are also generally considered to be subject to
greater market risk than higher-rated securities, and the capacity of issuers of
lower-rated securities to pay interest and repay principal is more likely to
weaken than is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In addition,
lower-rated securities may be more susceptible to real or perceived adverse
economic conditions than investment grade securities.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty in
valuing such securities and, in turn, the Fund's assets. 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. See the
Statement of Additional Information for each Fund that invests in lower-rated
securities for a description of the bond ratings of Moody's, S&P, Duff & Phelps
and Fitch.
Certain lower-rated securities in which Growth Fund, Income Builder Fund,
Strategic Balanced Fund and Utility Income Fund may invest 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.
Non-Diversified Status. Each of Worldwide Privatization Fund, New Europe Fund,
All-Asia Investment Fund and Income Builder Fund is a "non-diversified"
investment company, which means the Fund is not limited in the proportion of its
assets that may be invested in the securities of a single issuer. However, each
Fund intends to conduct its operations so as to qualify to be taxed as a
"regulated investment company" for purposes of the Code, which will relieve the
Fund of any liability for federal income tax to the extent its earnings are
distributed to shareholders. See "Dividends, Distributions and Taxes" in each
Fund's Statement of Additional Information. To so qualify, among other
requirements, the Fund will limit its investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the Fund's total assets
will be invested in the securities of a single issuer, and (ii) with respect to
50% of its total assets, not more than 5% of its total assets will be invested
in the securities of a single issuer and the Fund will not own more than 10% of
the outstanding voting securities of a single issuer. A Fund's investments in
U.S. Government securities and other regulated investment companies are not
subject to these limitations. Because each of Worldwide Privatization Fund, New
Europe Fund, All-Asia Investment Fund and Income Builder Fund is a
non-diversified investment company, it may invest in a smaller number of
individual issuers than a diversified investment company, and an investment in
such Fund may, under certain circumstances, present greater risk to an investor
than an investment in a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers.
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PURCHASE AND SALE
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OF SHARES
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HOW TO BUY SHARES
Each Fund offers multiple classes of shares, of which only the Advisor Class is
offered by this Prospectus. Advisor Class shares of each Fund may be purchased
through your financial representative at net asset value without any initial or
contingent deferred sales charges and are not subject to ongoing distribution
expenses. Advisor Class shares may be purchased and held solely (i) through
accounts established under a fee-based program, sponsored and maintained by a
registered broker-dealer or other financial intermediary and approved by AFD,
(ii) through a self-directed defined contribution employee benefit plan (e.g., a
401(k) plan) that has at least 1,000 participants or $25 million in assets,
(iii) by investment advisory clients of, and certain other persons associated
with, Alliance and its affiliates or the Funds, and (iv) through 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 AFD 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. For more detailed information about who may
purchase and hold Advisor Class shares see the Statements of Additional
Information. A shareholder's Advisor Class shares will automatically convert to
Class A shares of the same Fund under certain circumstances. For a more detailed
description of the conversion feature and Class A shares, see "Conversion
Feature."
Generally, a fee-based program must charge an asset-based or other similar fee
and must invest at least $250,000 in Advisor Class shares of each Fund in which
the program invests in order to be approved by AFD for investment in Advisor
Class shares. Share certificates are issued only upon request. See the
Subscription Application and the Statements of Additional Information for more
information.
The Funds may refuse any order to purchase Advisor Class shares. In this regard,
the Funds reserve the right to restrict purchases of Advisor Class shares
(including through exchanges) when there appears to be evidence of a pattern of
frequent purchases and sales made in response to short-term considerations.
How the Funds Value Their Shares
The net asset value of Advisor Class shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to the Advisor Class by the
outstanding shares of the Advisor Class. Shares are valued each day the New York
Stock Exchange (the "Exchange") is open as of the close of regular trading
(currently 4:00 p.m. Eastern time). The securities in a Fund are valued 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 Fund's Directors
believe nual Caretaccurately reflects fair market value.
HOW TO SELL SHARES
You may "redeem," i.e., sell your shares in a Fund to the Fund on any day the
Exchange is open, either directly or through your financial representative. The
price you will receive is the net asset value next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check or electronic
funds transfer, a Fund will not send proceeds until it is reasonably satisfied
that the check or electronic funds transfer has been collected (which may take
up to 15 days). If you are in doubt about what documents are required by your
fee-based program or employee benefit plan, you should contact your financial
representative.
Selling Shares Through Your Financial Representative
Your financial representative must receive your request before 4:00 p.m. Eastern
time, and your financial representative must transmit your request to the Fund
by 5:00 p.m. Eastern time, for you to receive that day's net asset value. Your
financial representative is responsible for furnishing all necessary
documentation to a Fund and may charge you for this service.
Selling Shares Directly To A Fund
Send a signed letter of instruction or stock power form to AFS along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a national
stock exchange or other eligible guarantor institution. Stock power forms are
available from your financial representative, AFS, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
intermediaries, fiduciaries and surviving joint owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value, and, except for
certain omnibus accounts, may be made only once in any 30-day period. A
shareholder who has completed the Telephone Transactions section of the
Subscription Application, or the Shareholder Options form obtained from AFS, can
elect to have the proceeds of his or her redemption sent to his or her bank via
an electronic funds transfer. Proceeds of telephone redemptions also may be sent
by check to a shareholder's address of record. Except for certain omnibus
accounts, redemption requests by electronic funds transfer may not exceed
$100,000 and redemption requests by check may not exceed $50,000. Telephone
redemption is not available for
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<PAGE>
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.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672.
HOW TO EXCHANGE SHARES
You may exchange your Advisor Class shares of any Fund for Advisor Class shares
of other Alliance Mutual Funds (including AFD Exchange Reserves, a money market
fund managed by Alliance). Exchanges of shares are made at the net asset value
next determined 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.
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.
GENERAL
If you are a Fund shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with respect to the
purchase, sale or exchange of Advisor Class shares of a Fund that are different
from those described in this Prospectus. 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 Advisor Class shares made through such financial
representative. Such financial intermediaries 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 a Fund, including requirements as to the
minimum initial and subsequent investment amounts.
Each Fund offers three classes of shares other than the Advisor Class, which are
Class A, Class B and Class C. All classes of shares of a Fund have a common
investment objective and investment portfolio. Class A shares are offered with
an initial sales charge and pay a distribution services fee. Class B shares have
a contingent deferred sales charge (a "CDSC") and also pay a distribution
services fee. Class C shares have no initial sales charge or CDSC as long as
they are not redeemed within one year of purchase, but pay a distribution
services fee. Because Advisor Class shares have no initial sales charge or CDSC
and pay no distribution services fee, Advisor Class shares are expected to have
different performance from Class A, Class B or Class C shares. You can obtain
more information about Class A, Class B and Class C shares, which are not
offered by this Prospectus, by contacting AFS by telephone at 1-800-221-5672 or
by contacting your financial representative.
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Management Of The Funds
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Adviser
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors of the Fund.
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
Principal occupation
during the past
Fund Employee; year; title five years
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The Alliance Fund Alden M. Stewart since 1997-- Associated with
Executive Vice President of Alliance since
Alliance Capital Management 1993; prior
Corporation ("ACMC"*) thereto,
associated with
Equitable Capital
Management
Corporation
("Equitable
Capital")**
Randall E. Haase since 1997-- Associated with
Senior Vice President of ACMC Alliance since July
1993; prior
thereto,
associated with
Equitable Capital
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Principal occupation
during the past
Fund Employee; year; title five years
- --------------------------------------------------------------------------------
Growth Fund Tyler Smith since inception-- Associated with
Senior Vice President of ACMC Alliance since
July 1993; prior
thereto,
associated with
Equitable Capital
Premier Growth Fund Alfred Harrison since inception-- Associated with
Vice Chairman of ACMC Alliance
Technology Fund Peter Anastos since 1992-- Associated with
Senior Vice President of ACMC Alliance
Gerald T. Malone since 1992-- Associated with
Senior Vice President of ACMC Alliance since
1992; prior
thereto
associated with
College
Retirement
Equities Fund
Quasar Fund Alden M. Stewart since 1994-- (see above)
(see above)
Randall E. Haase since 1994-- (see above)
(see above)
International Fund A. Rama Krishna since 1993-- Associated with
Senior Vice President of ACMC Alliance since
and director of Asian Equity 1993; prior
research thereto,
Chief Investment
Strategist and
Director--Equity
Research for CS
First Boston
Worldwide
Privatization Mark H. Breedon since inception-- Associated with
Senior Vice President of ACMC Alliance
and Director and Vice President
of Alliance Capital Limited ***
New Europe Fund Steven Beinhacker since 1997-- Associated with
Vice President of ACMC Alliance
All-Asia Investment A. Rama Krishna since inception-- (see above)
Fund (see above)
Global Small Cap Alden M. Stewart since 1994-- (see above)
Fund (see above)
Randall E. Haase since 1994-- (see above)
(see above)
Ronald L. Simcoe since 1993-- Associated with
Vice President of ACMC Alliance since
1993; prior thereto,
associated with
Equitable Capital
Strategic Balanced Nicholas D.P. Carn Associated with
Fund since 1997-- Alliance since
Vice President of ACMC 1997; prior
thereto, Chief
Investment
Officer and
Portfolio Manager
at Draycott
Partners
Balanced Shares Paul Rissman since 1997-- Associated with
Senior Vice President of ACMC Alliance
Income Builder Fund Andrew M. Aran since 1994-- Associated with
Senior Vice President of ACMC Alliance
Thomas M. Perkins since 1991-- Associated with
Senior Vice President of ACMC Alliance
Vita Marie Pike since 1997-- Associated with
Vice President of ACMC Alliance
Corinne Molof Hill since 1997-- Associated with
Vice President of ACMC Alliance
Utility Income Fund Paul Rissman since 1996-- Associated with
(See above) Alliance
Growth & Income Paul Rissman since 1994-- Associated with
Fund (see above) Alliance
Real Estate Daniel G. Pine since 1996-- Associated with
Investment Fund Senior Vice President of ACMC Alliance since
1996; prior
thereto, Senior
Vice President of
Desai Capital
Management
David Kruth since 1997-- Associated with
Vice President of ACMC Alliance since
1997; prior
thereto Senior
Vice President of
the Yarmouth
Group
- --------------------------------------------------------------------------------
* The sole general partner of Alliance.
** Equitable Capital was, prior to Alliance's acquisition of it, a management
firm under common control with Alliance.
*** An indirect wholly-owned subsidiary of Alliance.
Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1997 totaling more than $217 billion
(of which approximately $81 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations and
endowment funds. The 54 registered investment companies managed by Alliance
comprising 116 separate investment portfolios currently have over two million
shareholders. As of September 30, 1997, Alliance was an investment manager of
employee benefit plan assets for 28 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA-UAP, a French insurance holding company. Certain information concerning
the ownership and control of Equitable by AXA-UAP is set forth in each Fund's
Statement of Additional Information under "Management of the Funds."
Performance of Similarly Managed Portfolios. In addition to managing the assets
of Premier Growth Fund, Mr. Harrison has ultimate responsibility for the
management of discretionary tax-exempt accounts of institutional clients managed
as described below without significant client-imposed restrictions ("Historical
Portfolios"). These accounts have substantially the same investment objectives
and
37
<PAGE>
policies and are managed in accordance with essentially the same investment
strategies and techniques as those for Premier Growth Fund, except for the
ability of Premier Growth Fund to use futures and options as hedging tools and
to invest in warrants. The Historical Portfolios are also not subject to certain
limitations, diversification requirements and other restrictions imposed under
the 1940 Act and the Code to which Premier Growth Fund, as a registered
investment company, is subject and which if applicable to the Historical
Portfolios, may have adversely affected the performance results of the
Historical Portfolios. See "Investment Objective and Policies."
Set forth below is performance data provided by Alliance relating to the
Historical Portfolios for each of the eighteen full calendar years during which
Mr. Harrison has managed the Historical Portfolios as an employee of Alliance
and cumulatively through September 30, 1997. As of September 30, 1997, the
assets in the Historical Portfolios totaled approximately $12.4 billion and the
average size of an institutional account in the Historical Portfolio was $355
million. Each Historical Portfolio has a nearly identical composition of
individual investment holdings and related percentage weightings.
The performance data is net of all fees (including brokerage commissions)
charged to those accounts. The performance data is computed in accordance with
standards formulated by the Association of Investment Management and Research
and has not been adjusted to reflect any fees that will be payable by Premier
Growth Fund, which are higher than the fees imposed on the Historical Portfolio
and will result in a higher expense ratio and lower returns for Premier Growth
Fund. Expenses associated with the distribution of Class A, Class B and Class C
shares of Premier Growth Fund in accordance with the plan adopted by Premier
Growth Fund's Board of Directors pursuant to Rule 12b-1 of the 1940 Act
("distribution fees") are also excluded. See "Expense Information." The
performance data has also not been adjusted for corporate or individual taxes,
if any, payable by the account owners.
Alliance has calculated the investment performance of the Historical Portfolios
on a trade-date basis. Dividends have been accrued at the end of the month and
cash flows weighted daily. Composite investment performance for all portfolios
has been determined on an asset weighted basis. New accounts are included in the
composite investment performance computations at the beginning of the quarter
following the initial contribution. The composite total returns set forth below
are calculated using a method that links the monthly return amounts for the
disclosed periods, resulting in a time-weighted rate of return.
As reflected below, the Historical Portfolios have over time performed favorably
when compared with the performance of recognized performance indices. The S&P
500 Index is a widely recognized, unmanaged index of market activity based upon
the aggregate performance of a selected portfolio of publicly traded common
stocks, including monthly adjustments to reflect the reinvestment of dividends
and other distributions. The S&P 500 Index reflects the total return of
securities comprising the Index, including changes in market prices as well as
accrued investment income, which is presumed to be reinvested. The Russell 1000
universe of securities is compiled by Frank Russell Company and is segmented
into two style indices, based on the capitalization-weighted median
book-to-price ratio of each of the securities. At each reconstitution, the
Russell 1000 constituents are ranked by their book-to-price ratio. Once so
ranked, the breakpoint for the two styles is determined by the median market
capitalization of the Russell 1000. Thus, those securities falling within the
top fifty percent of the cumulative market capitalization (as ranked by
descending book-to-price) become members of the Russell Price-Driven Indices.
The Russell 1000 Growth Index is, accordingly, designed to include those Russell
1000 securities with a greater-than-average growth orientation. In contrast with
the securities in the Russell Price-Driven Indices, companies in the Growth
Index tend to exhibit higher price-to-book and price-earnings ratios, lower
dividend yield and higher forecasted growth values.
To the extent Premier Growth Fund does not invest in U.S. common stocks or
utilizes investment techniques such as futures or options, the S&P 500 and
Russell 1000 Growth Index may not be substantially comparable to Premier Growth
Fund. The S&P 500 and Russell 1000 Growth Index are included to illustrate
material economic and market factors that existed during the time period shown.
The S&P 500 and Russell 1000 Growth Index do not reflect the deduction of any
fees. If Premier Growth Fund were to purchase a portfolio of securities
substantially identical to the securities comprising the S&P 500 Index or the
Russell 1000 Growth Index, Premier Growth Fund's performance relative to the
index would be reduced by Premier Growth Fund's expenses, including brokerage
commissions, advisory fees, distribution fees, custodial fees, transfer agency
costs and other administrative expenses as well as by the impact on Premier
Growth Fund's shareholders of sales charges and income taxes.
The Lipper Growth Fund Index is prepared by Lipper Analytical Services, Inc. and
represents a composite index of the investment performance for the 30 largest
growth mutual funds. The composite investment performance of the Lipper Growth
Fund Index reflects investment management and administrative fees and other
operating expenses paid by these mutual funds and reinvested income dividends
and capital gain distributions, but excludes the impact of any income taxes and
sales charges.
The following performance data is provided solely to illustrate Mr. Harrison's
performance in managing the Historical Portfolios and the Premier Growth Fund as
measured against certain broad based market indices and against the composite
performance of other open-end growth mutual funds. Investors should not rely on
the following performance data of the Historical Portfolios as an indication of
future performance of Premier Growth Fund. The composite investment performance
for the periods presented may not be indicative of future rates of return. Other
methods of computing investment performance may produce different results, and
the results for different periods may vary.
38
<PAGE>
Schedule of Composite Investment Performance--Historical Portfolios*
<TABLE>
<CAPTION>
Russell Lipper
Premier Historical S&P 500 1000 Growth
Growth Portfolios Index Growth Index Fund Index
Fund Total Return** Total Return Total Return Total Return
------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended:
1996*** .... 18.84% 22.22% 22.96% 23.12% 17.48%
1995*** .... 40.66 40.12 37.58 37.19 32.65
1994 ....... (9.78) (4.83) 1.32 2.66 (1.57)
1993 ....... 5.35 10.62 10.08 2.90 11.98
1992 ....... -- 12.27 7.62 5.00 7.63
1991 ....... -- 39.19 30.47 41.16 35.20
1990 ....... -- (1.57) (3.10) (0.26) (5.00)
1989 ....... -- 39.08 31.69 35.92 28.60
1988 ....... -- 10.96 16.61 11.27 15.80
1987 ....... -- 8.57 5.25 5.31 1.00
1986 ....... -- 27.60 18.67 15.36 15.90
1985 ....... -- 37.68 31.73 32.85 30.30
1984 ....... -- (3.33) 6.27 (.95) (2.80)
1983 ....... -- 20.95 22.56 15.98 22.30
1982 ....... -- 28.23 21.55 20.46 20.20
1981 ....... -- (1.10) (4.92) (11.31) (8.40)
1980 ....... -- 51.10 32.50 39.57 37.30
1979 ....... -- 30.99 18.61 23.91 27.40
Cumulative total
return for the
period
January 1,
1979 to
September
30, 1997 ... -- 3188.99 1888.65 1656.41 1772.84
</TABLE>
- --------------------------------------------------------------------------------
* Total return is a measure of investment performance that is based upon the
change in value of an investment from the beginning to the end of a
specified period and assumes reinvestment of all dividends and other
distributions. The basis of preparation of this data is described in the
preceding discussion. Total returns for Premier Growth Fund are for Class A
shares, with imposition of the maximum 4.25% sales charge.
** Assumes imposition of the maximum advisory fee charged by Alliance for any
Historical Portfolio for the period involved, although not the impact of the
payment of that fee on a quarterly rather than an annual basis and the
compounding effect thereof over the periods for which return information is
provided in the table on page 50, which would correspondingly reduce the
returns presented.
*** During this period, the Historical Portfolios differed from Premier Growth
Fund in that Premier Growth Fund invested a portion of its net assets in
warrants on equity securities in which the Historical Portfolios were
unable, by their investment restrictions, to purchase. In lieu of warrants,
the Historical Portfolios acquired the common stock upon which the warrants
were based.
The average annual total returns presented below are based upon the cumulative
total return as of September 30, 1997 and, for more than one year, assume a
steady compounded rate of return and are not year-by-year results, which
fluctuated over the periods as shown.
<TABLE>
<CAPTION>
Average Annual Total Returns
------------------------------------------------------
Premier Russell Lipper
Growth Historical S&P 500 1000 Growth
Fund Portfolios Index Growth Index Fund Index
------- ---------- ----- ------------ ----------
<S> <C> <C> <C> <C> <C>
One year..... 47.16% 54.05% 40.45% 36.30% 33.52%
Three years.. 32.34 32.26 29.92 29.81 24.84
Five years... 21.93 21.99 20.77 19.66 18.62
Ten years.... 21.88* 16.07 14.75 14.66 13.19
Since January 1,
1979....... -- 20.48 17.29 16.51 16.18
</TABLE>
- --------------------------------------------------------------------------------
* Since inception on 9/28/92
ADMINISTRATOR TO ALL-ASIA INVESTMENT FUND
Alliance has been retained by All-Asia Investment Fund under an administration
agreement (the "Administration Agreement") to perform administrative services
necessary for the operation of the Fund. For a description of such services, see
the Statement of Additional Information of the Fund.
CONSULTANT TO ALLIANCE WITH RESPECT TO INVESTMENT IN REAL ESTATE SECURITIES
Alliance, with respect to investment in real estate securities, has retained as
a consultant CB Commercial Real Estate Group, Inc. ("CBC"), a publicly held
company and the largest real estate services company in the United States,
comprised of real estate brokerage, property and facilities management, and real
estate finance and investment advisory activities (CBC in August of 1997
acquired Koll, which previously provided these consulting services to Alliance).
In 1996, CBC (and Koll, on a combined basis) completed 25,000 sale and lease
transactions, managed over 4,100 client properties, created over $3.5 billion in
mortgage originations, and completed over 2,600 appraisal and consulting
assignments. In addition, they advised and managed for institutions over $4
billion in real estate investments. CBC will make available to Alliance the CBC
National Real Estate Index, which gathers, analyzes and publishes targeted
research data for the 65 largest U.S. markets, based on a variety of
public-sector and private-sector sources as well as CBC's proprietary database
of approximately 60,000 property transactions representing over $400 billion of
investment property. This information provides a substantial component of the
research and data used to create the REIToScore model. As a consultant, CBC
provides to Alliance, at Alliance's expense, such in-depth information regarding
the real estate market, the factors influencing regional valuations and analysts
of recent transactions in office, retail, industrial and multi-family properties
as Alliance shall from time to time request. CBC will not furnish advice or make
recommendations regarding the purchase or sale of securities by the Fund nor
will it be responsible for making investment decisions involving Fund assets.
CBC is one of the three largest fee-based property management firms in the
United States, the largest commercial real estate lease brokerage firm in the
country, the largest investment property brokerage firm in the country, as well
as one of the largest publishers of real estate research, with approximately
6,000 employees nationwide. CBC will provide Alliance with exclusive access to
its REIToScore model which ranks approximately 130 REITS based on the relative
attractiveness of the property markets in which they own real estate. This model
scores the approximately 12,000 individual properties owned by these companies.
REIToScore is in turn based on CBC's National Real Estate Index which gathers,
analyzes and publishes targeted research for the 65 largest U.S. real estate
markets based on a variety of public- and private-sector sources as well as
CBC's proprietary database of 60,000 commercial property transactions
representing over $400 billion of investment property and over 3,000 tracked
properties which report rent and expense data quarterly. CBC
39
<PAGE>
has previously provided access to its REIToScore model results primarily to the
institutional market through subscriptions. The model is no longer provided to
any research publications and the Fund is currently the only mutual fund
available to retail investors that has access to CBC's REIToScore model.
DISTRIBUTION SERVICES AGREEMENTS
Each Fund has entered into a Distribution Services Agreement with AFD with
respect to the Advisor Class shares. The Glass-Steagall Act and other applicable
laws may limit the ability of a bank or other depository institution to become
an underwriter or distributor of securities. However, in the opinion of the
Funds' management, based on the advice of counsel, these laws do not prohibit
such depository institutions from providing services for investment companies
such as the administrative, accounting and other services referred to in the
Agreements. In the event that a change in these laws prevented a bank from
providing such services, it is expected that other service arrangements would be
made and that shareholders would not be adversely affected. The State of Texas
requires that shares of a Fund may be sold in that state only by dealers or
other financial institutions that are registered there as broker-dealers.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
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 such 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.
Each income dividend and capital gains distribution, if any, declared by a Fund
on its outstanding shares will, at the election of each shareholder, be paid in
cash or in additional shares of the same class of shares of that Fund having an
aggregate net asset value as of the payment date of such dividend or
distribution equal to the cash amount of such income dividend or distribution.
Election to receive dividends and distributions in cash or shares is made at the
time shares are initially purchased and may be changed at any time prior to the
record date for a particular dividend or distribution. Cash dividends can be
paid by check or, if the shareholder so elects, electronically via the ACH
network. There is no sales or other charge in connection with the reinvestment
of dividends and capital gains distributions.
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 such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital gains
from investments. There is no fixed dividend rate, and there can be no assurance
that a Fund will pay any dividends or realize any capital gains. Since REITs pay
distributions based on cash flow, without regard to depreciation and
amortization, a portion of the distributions paid to Real Estate Investment Fund
and subsequently distributed to shareholders may be a nontaxable return of
capital. The final determination of the amount of a Fund's return of capital
distributions for the period will be made after the end of each calendar year.
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.
Foreign Income Taxes
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits for foreign income taxes paid
(or to permit shareholders to claim a deduction for such foreign taxes), but
there can be no assurance that any Fund will be able to do so.
U.S. Federal Income Taxes
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that a Fund distributes its taxable income and net
capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income taxes on that part of its taxable
income including net capital gains which it pays out to its shareholders.
Dividends out of net ordinary income and distributions of net short-term capital
gains are taxable to the recipient shareholders as ordinary income. In the case
of corporate shareholders, such dividends may be eligible for the
dividends-received deduction, except that the amount eligible for the deduction
is limited to the amount of qualifying dividends received by the Fund. Dividends
received from REITs generally do not constitute qualifying dividends. A
corporation's dividends-received deduction generally will be disallowed unless
the corporation holds shares in the Fund at least 46 days during the 90 day
period beginning 45 days before the date on which the corporation becomes
entitled to receive the dividend. Furthermore, the dividends-received deduction
will be disallowed to the extent a corporation's investment in shares of a Fund
is financed with indebtedness.
Distributions of net capital gains are not eligible for the dividends-received
deduction referred to above.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains--that is, the excess of net
40
<PAGE>
gains from capital assets held for more than one year over net losses from
capital assets held for not more than one year. One rate (generally 28%) applies
to net gains on capital assets held for more than one year but not more than 18
months ("mid-term gains"), and a second rate (generally 20%) applies to the
balance of such net capital gains ("adjusted net capital gains"). Distributions
of mid-term gains and adjusted net capital gains will be taxable to shareholders
as such, regardless of how long a shareholder has held shares in the Fund.
Distributions received by a shareholder may include nontaxable returns of
capital, which will reduce a shareholder's basis in shares of the 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 gain.
Under the current federal tax law, the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or although in effect a return of capital to that particular
shareholder, would be taxable to him or her as described above. If a shareholder
held shares six months or less and during that period received a distribution of
net capital gains, any loss realized on the sale of such shares during such
six-month period would be a long-term capital loss to the extent of such
distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, generally such as an individual retirement
account, 403(b)(7) retirement plan or corporate pension or profit-sharing plan,
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.
Distributions by a Fund may be subject to state and local taxes. Alliance Fund,
Premier Growth Fund, Technology Fund, Income Builder Fund, Quasar Fund, New
Europe Fund, Balanced Shares and Growth and Income Fund are qualified to do
business in the Commonwealth of Pennsylvania and, therefore, are subject to the
Pennsylvania foreign franchise and corporate net income tax in respect of their
business activities in Pennsylvania. Accordingly, shares of such Funds are
exempt from Pennsylvania personal property taxes. These Funds anticipate
continuing such business activities but reserve the right to suspend them at any
time, resulting in the termination of the exemptions.
A Fund will be required to withhold 31% of any payments made to a shareholder if
the shareholder has not provided a certified taxpayer identification number to
the Fund, or the Secretary of the Treasury notifies a Fund that a shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return.
Under certain circumstances, if a Fund realizes losses 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. See
"Dividends, Distributions and Taxes" in the Statements of Additional
Information. Shareholders will be advised annually as to the tax status of
dividends and capital gains and return of capital distributions. Shareholders
are urged to consult their tax advisors regarding their own tax situation.
- --------------------------------------------------------------------------------
CONVERSION FEATURE
- --------------------------------------------------------------------------------
CONVERSION TO CLASS A SHARES
Advisor Class shares may be held solely through the fee-based program accounts,
employee benefit plans and registered investment advisory or other financial
intermediary relationships described above under "--How to Buy Shares," and by
investment advisory clients of, and certain other persons associated with,
Alliance and its affiliates or the Funds. If (i) a holder of Advisor Class
shares ceases to participate in the fee-based program or plan, or to be
associated with an investment advisor or financial intermediary, in each case
that satisfies the requirements to purchase shares set forth under "--How to Buy
Shares" or (ii) the holder is otherwise no longer eligible to purchase Advisor
Class shares as described in this Prospectus (each, a "Conversion Event"), then
all Advisor Class shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice contained in this
Prospectus, to Class A shares of the Fund during the calendar month following
the month in which the Fund is informed of the occurrence of the Conversion
Event. The failure of a shareholder or a fee-based program to satisfy the
minimum investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the basis of the
relative net asset values of the two classes and without the imposition of any
sales load, fee or other charge.
DESCRIPTION OF CLASS A SHARES
The following sets forth maximum transaction costs, annual expenses, per share
income and capital charges for Class A shares of each of the Funds. Class A
shares are subject to a distribution fee that may not exceed an annual rate of
.30%. The higher fees mean a higher expense ratio, so Class A shares pay
correspondingly lower dividends and may have a lower net asset value than
Advisor Class shares.
41
<PAGE>
Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Fund. The following table summarizes your maximum transaction costs
from investing in Class A shares of a Fund and annual expenses for Class A
shares of each Fund. For each Fund, the "Examples" to the right of the table
below show the cumulative expenses attributable to a hypothetical $1,000
investment for the periods specified.
<TABLE>
<CAPTION>
Class A Shares
--------------
<S> <C>
Maximum sales charge imposed on purchases (as a percentage of
offering price) (a) ................................................ None (sales
charge waived)
Sales charge imposed on dividend reinvestments ..................... None
Deferred sales charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) ................................................ None
Exchange fee ....................................................... None
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Expenses Examples(a)
- --------------------------------------- ------------------------------
Alliance Fund Class A Class A
------- -------
<S> <C> <C>
Management fees .70% After 1 year $ 11
12b-1 fees .19% After 3 years $ 33
Other expenses (b) .15% After 5 years $ 57
---- After 10 years $127
Total fund
operating expenses 1.04%
====
<CAPTION>
Growth Fund Class A Class A
------- -------
<S> <C> <C>
Management fees .75% After 1 year $ 13
12b-1 fees .30% After 3 years $ 41
Other expenses (b) .25% After 5 years $ 71
---- After 10 years $157
Total fund
operating expenses 1.30%
====
<CAPTION>
Premier Growth Fund Class A Class A
------- -------
<S> <C> <C>
Management fees 1.00% After 1 year $ 17
12b-1 fees .33% After 3 years $ 52
Other expenses (b) .32% After 5 years $ 90
---- After 10 years $195
Total fund
operating expenses 1.65%
====
<CAPTION>
Technology Fund Class A Class A
------- -------
<S> <C> <C>
Management fees (g) 1.11% After 1 year $ 18
12b-1 fees .30% After 3 years $ 55
Other expenses (b) .33% After 5 years $ 94
---- After 10 years $205
Total fund
operating expenses 1.74%
====
<CAPTION>
Quasar Fund Class A Class A
------- -------
<S> <C> <C>
Management fees (g) 1.15% After 1 year $ 18
12b-1 fees .21% After 3 years $ 56
Other expenses (b) .43% After 5 years $ 97
---- After 10 years $211
Total fund
operating expenses 1.79%
====
<CAPTION>
International Fund Class A Class A
------- -------
<S> <C> <C>
Management fees
(after waiver) (c) .85% After 1 year $ 16
12b-1 fees .17% After 3 years $ 50
Other expenses (b) .56% After 5 years $ 86
---- After 10 years $188
Total fund
operating expenses (d) 1.58%
====
<CAPTION>
Worldwide Privatization Fund Class A Class A
------- -------
<S> <C> <C>
Management fees 1.00% After 1 year $ 17
12b-1 fees .30% After 3 years $ 54
Other expenses (b) .42% After 5 years $ 93
---- After 10 years $203
Total fund
operating expenses 1.72%
====
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 44.
42
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples(a)
- --------------------------------------- ------------------------------
New Europe Fund Class A Class A
------- -------
<S> <C> <C>
Management fees 1.06% After 1 year $ 21
12b-1 fees .30% After 3 years $ 64
Other expenses (b) .69% After 5 years $110
---- After 10 years $238
Total fund
operating expenses 2.05%
====
<CAPTION>
All-Asia Investment Fund Class A Class A
------- -------
<S> <C> <C>
Management fees After 1 year $ 31
(after waiver) (c) .65% After 3 years $ 96
12b-1 fees .30% After 5 years $163
Other expenses After 10 years $343
Administration fees
(after waiver) (d) .00%
Other operating
expenses (b) 2.17%
----
Total other expenses 2.17%
----
Total fund
operating expenses (e) 3.12%
====
<CAPTION>
Global Small Cap Fund Class A Class A
------- -------
<S> <C> <C>
Management fees 1.00% After 1 year $ 24
12b-1 fees .30% After 3 years $ 75
Other expenses (b) 1.11% After 5 years $129
---- After 10 years $275
Total fund
operating expenses 2.41%
====
<CAPTION>
Strategic Balanced Fund Class A Class A
------- -------
<S> <C> <C>
Management fees
(after waiver) (c) .09% After 1 year $ 14
12b-1 fees .30% After 3 years $ 44
Other expenses (b) 1.01% After 5 years $ 77
---- After 10 years $168
Total fund
operating expenses (e) 1.40%
====
<CAPTION>
Balanced Shares Class A Class A
------- -------
<S> <C> <C>
Management fees .63% After 1 year $ 15
12b-1 fees .24% After 3 years $ 46
Other expenses (b) .60% After 5 years $ 80
----
Total fund After 10 years $176
operating expenses 1.47%
====
<CAPTION>
Income Builder Fund Class A Class A
------- -------
<S> <C> <C>
Management fees .75% After 1 year $ 23
12b-1 fees .30% After 3 years $ 70
Other expenses (b) 1.20% After 5 years $120
---- After 10 years $258
Total fund
operating expenses 2.25%
====
<CAPTION>
Utility Income Fund Class A Class A
------- -------
<S> <C> <C>
Management fees
(after waiver) (c) 0.00% After 1 year $ 15
12b-1 fees .30% After 3 years $ 47
Other expenses (b) 1.20% After 5 years $ 82
---- After 10 years $179
Total fund
operating expenses (f) 1.50%
====
<CAPTION>
Growth and Income Fund Class A Class A
------- -------
<S> <C> <C>
Management fees .51% After 1 year $ 10
12b-1 fees .21% After 3 years $ 31
Other expenses (b) .25% After 5 years $ 54
---- After 10 years $119
Total fund
operating expenses .97%
====
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 44.
43
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples(a)
- --------------------------------------- ------------------------------
Real Estate Investment Fund Class A Class A
------- -------
<S> <C> <C>
Management fees .90% After 1 year $ 18
12b-1 fees .30% After 3 years $ 56
Other expenses (b) .57% After 5 years $ 96
---- After 10 years $208
Total fund
operating expenses 1.77%
====
</TABLE>
- --------------------------------------------------------------------------------
(a) Advisor Class shares convert to Class A shares at net asset value and
without the imposition of any sales charge and accordingly the maximum
sales charge of 4.25% on most purchases of Class A shares for cash does
not apply.
(b) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance.
(c) Net of voluntary fee waiver. In the absence of such waiver, management
fees would be .75% for Strategic Balanced Fund and Utility Income Fund and
1.00% for All-Asia Investment Fund and 1.01% for International Fund.
International Fund's fee, absent the voluntary fee waiver, is calculated
based on average daily net assets. Maximum contractual rate, based on
quarter-end net assets, is 1.00%.
(d) Net voluntary fee waiver. Absent such fee waiver, administration fees
would have been .15% for the Fund's Class A shares. Reflects the fees
payable by All-Asia Investment Fund to Alliance pursuant to an
administration agreement.
(e) Net of voluntary fee waiver and/or expense reimbursement. In the absence
of such waiver and/or reimbursement, total fund operating expenses for
Strategic Balanced Fund would have been 2.08 for Class A shares. Total
fund operating expenses for All-Asia Investment Fund would have been 3.62%
for Class A shares annualized and total fund operating expenses for
International Fund would have been 1.74%, for Class A, annualized.
(f) Net of expense reimbursements. Absent expense reimbursements, total fund
operating expenses for Utility Income Fund would be 3.38 for Class A
shares.
(g) Calculated based on average daily net assets. Maximum contractual rate,
based on quarter-end net assets, is 1.00% for Quasar Fund and Technology
Fund.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Fund will bear directly or
indirectly. Long-term shareholders of Class A shares of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. The Rule 12b-1 fee for Class A comprises a service fee
not exceeding .25% of the aggregate average daily net assets of the Fund
attributable to Class A and an asset-based sales charge equal to the remaining
portion of the Rule 12b-1 fee. "Management fees" for International Fund and
All-Asia Investment Fund and "Administration fees" for All-Asia Investment Fund
have been restated to reflect current voluntary fee waivers. The Examples set
forth above assume reinvestment of all dividends and distributions and utilize a
5% annual rate of return as mandated by Commission regulations. The Examples
should not be considered representative of past or future expenses; actual
expenses may be greater or less than those shown.
Financial Highlights. The tables on the following pages present, for each Fund,
per share income and capital changes for a Class A share outstanding throughout
each period indicated. Except as indicated below, the information in the tables
for Alliance Fund, Growth Fund, Premier Growth Fund, Strategic Balanced Fund,
Balanced Shares, Utility Income Fund, Worldwide Privatization Fund and Growth
and Income Fund has been audited by Price Waterhouse LLP, the independent
auditors for each Fund, and for All-Asia Investment Fund, Technology Fund,
Quasar Fund, International Fund, New Europe Fund, Global Small Cap Fund, Real
Estate Investment Fund and Income Builder Fund by Ernst & Young LLP, the
independent auditors for each Fund. A report of Price Waterhouse LLP or Ernst &
Young LLP, as the case may be, on the information with respect to each Fund,
appears in the Fund's Statement of Additional Information. The following
information for each Fund should be read in conjunction with the financial
statements and related notes which are included in the Fund's Statement of
Additional Information.
Further information about a Fund's performance is contained in the Fund's annual
report to shareholders, which may be obtained without charge by contacting AFS
at the address or the "For Literature" telephone number shown on the cover of
this Prospectus.
44
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK
45
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Alliance Fund
Class A
12/1/96 to 5/31/97+++.... $ 7.71 $ (.01)(b) $ .67 $ .66 $ (.02) $(1.06)
Year ended 11/30/96 ..... 7.72 .02 1.06 1.08 (.02) (1.07)
Year ended 11/30/95 ..... 6.63 .02 2.08 2.10 (.01) (1.00)
1/1/94 to 11/30/94** .... 6.85 .01 (.23) (.22) 0.00 0.00
Year ended 12/31/93 ..... 6.68 .02 .93 .95 (.02) (.76)
Year ended 12/31/92 ..... 6.29 .05 .87 .92 (.05) (.48)
Year ended 12/31/91 ..... 5.22 .07 1.70 1.77 (.07) (.63)
Year ended 12/31/90 ..... 6.87 .09 (.32) (.23) (.18) (1.24)
Year ended 12/31/89 ..... 5.60 .12 1.19 1.31 (.04) 0.00
Year ended 12/31/88 ..... 5.15 .08 .80 .88 (.08) (.35)
Year ended 12/31/87 ..... 6.87 .08 .27 .35 (.13) (1.94)
Year ended 12/31/86 ..... 11.15 .11 .87 .98 (.10) (5.16)
Growth Fund(i)
Class A
11/1/96 to 4/30/97+++.... $34.91 $ (.01)(b) $ 1.91 $ 1.90 $ 0.00 $(1.03)
Year ended 10/31/96 ..... 29.48 .05 6.20 6.25 (.19) (.63)
Year ended 10/31/95 ..... 25.08 .12 4.80 4.92 (.11) (.41)
5/1/94 to 10/31/94** .... 23.89 .09 1.10 1.19 0.00 0.00
Year ended 4/30/94 ...... 22.67 (.01)(c) 3.55 3.54 0.00 (2.32)
Year ended 4/30/93 ...... 20.31 .05(c) 3.68 3.73 (.14) (1.23)
Year ended 4/30/92 ...... 17.94 .29(c) 3.95 4.24 (.26) (1.61)
9/4/90++ to 4/30/91 ..... 13.61 .17(c) 4.22 4.39 (.06) 0.00
Premier Growth Fund
Class A
12/1/96 to 5/31/97+++.... $17.98 $ (.03)(b) $ 2.64 $ 2.61 $ 0.00 $(1.08)
Year ended 11/30/96 ..... 16.09 (.04)(b) 3.20 3.16 0.00 (1.27)
Year ended 11/30/95 ..... 11.41 (.03) 5.38 5.35 0.00 (.67)
Year ended 11/30/94 ..... 11.78 (.09) (.28) (.37) 0.00 0.00
Year ended 11/30/93 ..... 10.79 (.05) 1.05 1.00 (.01) 0.00
9/28/92+ to 11/30/92 .... 10.00 .01 .78 .79 0.00 0.00
Technology Fund
Class A
12/1/96 to 5/31/97+++.... $51.15 $ (.20)(b) $ .70 $ .50 $ 0.00 $ (.42)
Year ended 11/30/96 ..... 46.64 .39(b) 7.28 6.89 0.00 (2.38)
Year ended 11/30/95 ..... 31.98 (.30)(b) 18.13 17.83 0.00 (3.17)
1/1/94 to 11/30/94** .... 26.12 (.32) 6.18 5.86 0.00 0.00
Year ended 12/31/93 ..... 28.20 (.29) 6.39 6.10 0.00 (8.18)
Year ended 12/31/92 ..... 26.38 (.22)(b) 4.31 4.09 0.00 (2.27)
Year ended 12/31/91 ..... 19.44 (.02) 10.57 10.55 0.00 (3.61)
Year ended 12/31/90 ..... 21.57 (.03) (.56) (.59) 0.00 (1.54)
Year ended 12/31/89 ..... 20.35 0.00 1.22 1.22 0.00 0.00
Year ended 12/31/88 ..... 20.22 (.03) .16 .13 0.00 0.00
Year ended 12/31/87 ..... 23.11 (.10) 4.54 4.44 0.00 (7.33)
Year ended 12/31/86 ..... 20.64 (.14) 2.62 2.48 (.01) 0.00
Quasar Fund
Class A
10/1/96 to 3/31/97+++.... $27.92 $ (.11)(b) $ .27 $ .16 $ 0.00 $(4.11)
Year ended 9/30/96 ...... 24.16 (.25) 8.82 8.57 0.00 (4.81)
Year ended 9/30/95 ...... 22.65 (.22)(b) 5.59 5.37 0.00 (3.86)
Year ended 9/30/94 ...... 24.43 (.60) (.36) (.96) 0.00 (.82)
Year ended 9/30/93 ...... 19.34 (.41) 6.38 5.97 0.00 (.88)
Year ended 9/30/92 ...... 21.27 (.24) (1.53) (1.77) 0.00 (.16)
Year ended 9/30/91 ...... 15.67 (.05) 5.71 5.66 (.06) 0.00
Year ended 9/30/90 ...... 24.84 .03(b) (7.18) (7.15) 0.00 (2.02)
Year ended 9/30/89 ...... 17.60 .02(b) 7.40 7.42 0.00 (.18)
Year ended 9/30/88 ...... 24.47 (.08) (2.08) (2.16) 0.00 (4.71)
Year ended 9/30/87(d).... 21.80 (.14) 5.88 5.74 0.00 (3.07)
International Fund
Class A
Year ended 6/30/97 ...... $18.32 $ .06(b) $ 1.51 $ 1.57 $ (.12) $(1.08)
Year ended 6/30/96 ...... 16.81 .05(b) 2.51 2.56 0.00 (1.05)
Year ended 6/30/95 ...... 18.38 .04 .01 .05 0.00 (1.62)
Year ended 6/30/94 ...... 16.01 (.09) 3.02 2.93 0.00 (.56)
Year ended 6/30/93 ...... 14.98 (.01) 1.17 1.16 (.04) (.09)
Year ended 6/30/92 ...... 14.00 .01(b) 1.04 1.05 (.07) 0.00
Year ended 6/30/91 ...... 17.99 .05 (3.54) (3.49) (.03) (.47)
Year ended 6/30/90 ...... 17.24 .03 2.87 2.90 (.04) (2.11)
Year ended 6/30/89 ...... 16.09 .05 3.73 3.78 (.13) (2.50)
Year ended 6/30/88 ...... 23.70 .17 (1.22) (1.05) (.21) (6.35)
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 50.
46
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss) Average
And End Of on Net Asset (000's To Average To Average Portfolio Commission
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate Rate (k)
------------- ------------- ------------ ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (1.08) $ 7.29 10.46% $1,024,652 1.05%* (.16)%* 107% $0.0559
(1.09) 7.71 16.49 999,067 1.04 .30 80 0.0646
(1.01) 7.72 37.87 945,309 1.08 .31 81 --
0.00 6.63 (3.21) 760,679 1.05* .21* 63 --
(.78) 6.85 14.26 831,814 1.01 .27 66 --
(.53) 6.68 14.70 794,733 .81 .79 58 --
(.70) 6.29 33.91 748,226 .83 1.03 74 --
(1.42) 5.22 (4.36) 620,374 .81 1.56 71 --
(.04) 6.87 23.42 837,429 .75 1.79 81 --
(.43) 5.60 17.10 760,619 .82 1.38 65 --
(2.07) 5.15 4.90 695,812 .76 1.03 100 --
(5.26) 6.87 12.60 652,009 .61 1.39 46 --
$ (1.03) $ 35.78 5.46% $ 579,580 1.24%* (.03)%* 19% $0.0537
(.82) 34.91 21.65 499,459 1.30 .15 46 0.0584
(.52) 29.48 20.18 285,161 1.35 .56 61 --
0.00 25.08 4.98 167,800 1.35* .86* 24 --
(2.32) 23.89 15.66 102,406 1.40 (f) .32 87 --
(1.37) 22.67 18.89 13,889 1.40 (f) .20 124 --
(1.87) 20.31 23.61 8,228 1.40 (f) 1.44 137 --
(.06) 17.94 32.40 713 1.40*(f) 1.99* 130 --
$ (1.08) $ 19.51 15.70% $ 215,464 1.57%* (.36)%* 47% $0.0598
(1.27) 17.98 21.52 172,870 1.65 (.27) 95 0.0651
(.67) 16.09 49.95 72,366 1.75 (.28) 114 --
0.00 11.41 (3.14) 35,146 1.96 (.67) 98 --
(.01) 11.78 9.26 40,415 2.18 (.61) 68 --
0.00 10.79 7.90 4,893 2.17* .91* 0 --
$ (.42) $ 51.23 .99% $631,967 1.64%* (.81)%* 28% $0.0576
(2.38) 51.15 16.05 594,861 1.74 (.87) 30 0.0612
(3.17) 46.64 61.93 398,262 1.75 (.77) 55 --
0.00 31.98 22.43 202,929 1.66* (1.22)* 55 --
(8.18) 26.12 21.63 173,732 1.73 (1.32) 64 --
(2.27) 28.20 15.50 173,566 1.61 (.90) 73 --
(3.61) 26.38 54.24 191,693 1.71 (.20) 134 --
(1.54) 19.44 (3.08) 131,843 1.77 (.18) 147 --
0.00 21.57 6.00 141,730 1.66 .02 139 --
0.00 20.35 0.64 169,856 1.42(f) (.16) 139 --
(7.33) 20.22 19.16 167,608 1.31(f) (.56) 248 --
(.01) 23.11 12.03 147,733 1.13(f) (.57) 141 --
$ (4.11) $ 23.97 .88% $265,131 1.54%* (.81)%* 75% $0.0533
(4.81) 27.92 42.42 229,798 1.79 (1.11) 168 0.0596
(3.86) 24.16 30.73 146,663 1.83 (1.06) 160 --
(.82) 22.65 (4.05) 155,470 1.67 (1.15) 110 --
(.88) 24.43 31.58 228,874 1.65 (1.00) 102 --
(.16) 19.34 (8.34) 252,140 1.62 (.89) 128 --
(.06) 21.27 36.28 333,806 1.64 (.22) 118 --
(2.02) 15.67 (30.81) 251,102 1.66 .16 90 --
(.18) 24.84 42.68 263,099 1.73 .10 90 --
(4.71) 17.60 (8.61) 90,713 1.28(f) (.40) 58 --
(3.07) 24.47 29.61 134,676 1.18(f) (.56) 76 --
$ (1.20) $ 18.69 9.30% $190,173 1.74%(l) .31% 94% $0.0363
(1.05) 18.32 15.83 196,261 1.72 .31 78 --
(1.62) 16.81 .59 165,584 1.73 .26 119 --
(.56) 18.38 18.68 201,916 1.90 (.50) 97 --
(.13) 16.01 7.86 161,048 1.88 (.14) 94 --
(.07) 14.98 7.52 179,807 1.82 .07 72 --
(.50) 14.00 (19.34) 214,442 1.73 .37 71 --
(2.15) 17.99 16.98 265,999 1.45 .33 37 --
(2.63) 17.24 27.65 166,003 1.41 .39 87 --
(6.56) 16.09 (4.20) 132,319 1.41 .84 55 --
</TABLE>
- --------------------------------------------------------------------------------
47
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase Distributions
Value Unrealized (Decrease) In Dividends From In Excess of Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Income Realized Gains
--------------------- ------------ -------------- ------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Worldwide Privatization Fund
Class A
Year ended 6/30/97 ...... $12.13 $ .15(b) $ 2.55 $ 2.70 $ (.15) $ 0.00 $(1.42)
Year ended 6/30/96 ...... 10.18 .10(b) 1.85 1.95 0.00 0.00 0.00
Year ended 6/30/95 ...... 9.75 .06 .37 .43 0.00 0.00 0.00
6/2/94+ to 6/30/94 ...... 10.00 .01 (.26) (.25) 0.00 0.00 0.00
New Europe Fund
Class A
Year ended 7/31/97 ...... $15.84 $ .07(b) $ 4.20 $ 4.27 $ (.15) $ (.03) $(1.32)
Year ended 7/31/96 ...... 15.11 .18 1.02 1.20 0.00 0.00 (.47)
Year ended 7/31/95 ...... 12.66 .04 2.50 2.54 (.09) 0.00 0.00
Period ended 7/31/94** .. 12.53 .09 .04 .13 0.00 0.00 0.00
Year ended 2/28/94 ...... 9.37 .02(b) 3.14 3.16 0.00 0.00 0.00
Year ended 2/28/93 ...... 9.81 .04 (.33) (.29) (.15) 0.00 0.00
Year ended 2/29/92 ...... 9.76 .02(b) .05 .07 (.02) 0.00 0.00
4/2/90+ to 2/28/91 ...... 11.11(e) .26 (.91) (.65) (.26) 0.00 (.44)
All-Asia Investment Fund
Class A
11/1/96 to 4/30/97+++ ... $11.04 $ (.13)(b) $ (.50) $ (.63) $ 0.00 $ 0.00 $ (.34)
Year ended 10/31/96 ..... 10.45 (.21)(b)(c) .88 .67 0.00 0.00 (.08)
11/28/94+ to 10/31/95 ... 10.00 (.19)(c) .64 .45 0.00 0.00 0.00
Global Small Cap Fund
Class A
Year ended 7/31/97 ...... $11.61 $ (.15)(b) $ 2.97 $ 2.82 $ 0.00 $ 0.00 $(1.56)
Year ended 7/31/96 ...... 10.38 (.14)(b) 1.90 1.76 0.00 0.00 (.53)
Year ended 7/31/95 ...... 11.08 (.09) 1.50 1.41 0.00 0.00 (2.11)(j)
Period ended 7/31/94** .. 11.24 (.15)(b) (.01) (.16) 0.00 0.00 0.00
Year ended 9/30/93 ...... 9.33 (.15) 2.49 2.34 0.00 0.00 (.43)
Year ended 9/30/92 ...... 10.55 (.16) (1.03) (1.19) 0.00 0.00 (.03)
Year ended 9/30/91 ...... 8.26 (.06) 2.35 2.29 0.00 0.00 0.00
Year ended 9/30/90 ...... 15.54 (.05)(b) (4.12) (4.17) 0.00 0.00 (3.11)
Year ended 9/30/89 ...... 11.41 (.03) 4.25 4.22 0.00 0.00 (.09)
Year ended 9/30/88 ...... 15.07 (.05) (1.83) (1.88) 0.00 0.00 (1.78)
Year ended 9/30/87 ...... 15.47 (.07) 4.19 4.12 (.04) 0.00 (4.48)
Strategic Balanced Fund(i)
Class A
Year ended 7/31/97 .... $18.48 $ .47(b)(c) $ 3.56 $ 4.03 $ (.39) $ 0.00 $(2.33)
Year ended 7/31/96 .... 17.98 .35(b)(c) 1.08 1.43 (.32) 0.00 (.61)
Year ended 7/31/95 .... 16.26 .34(c) 1.64 1.98 (.22) 0.00 (.04)
Period ended 7/31/94** 16.46 .07(c) (.27) (.20) 0.00 0.00 0.00
Year ended 4/30/94 .... 16.97 .16(c) .74 .90 (.24) 0.00 (1.17)
Year ended 4/30/93 .... 17.06 .39(c) .59 .98 (.42) 0.00 (.65)
Year ended 4/30/92 .... 14.48 .27(c) 2.80 3.07 (.17) 0.00 (.32)
9/4/90++ to 4/30/91 ... 12.51 .34(c) 1.66 2.00 (.03) 0.00 0.00
Balanced Shares
Class A
Year ended 7/31/97 .... $14.01 $ .31(b) $ 3.97 $ 4.28 $ (.32) $ 0.00 $ (.18)
Year ended 7/31/96 .... 15.08 .37 .45 .82 (.41) 0.00 (1.48)
Year ended 7/31/95 .... 13.38 .46 1.62 2.08 (.36) 0.00 (.02)
Period ended 7/31/94** 14.40 .29 (.74) (.45) (.28) 0.00 (.29)
Year ended 9/30/93 .... 13.20 .34 1.29 1.63 (.43) 0.00 0.00
Year ended 9/30/92 .... 12.64 .44 .57 1.01 (.45) 0.00 0.00
Year ended 9/30/91 .... 10.41 .46 2.17 2.63 (.40) 0.00 0.00
Year ended 9/30/90 .... 14.13 .45 (2.14) (1.69) (.40) 0.00 (1.63)
Year ended 9/30/89 .... 12.53 .42 2.18 2.60 (.46) 0.00 (.54)
Year ended 9/30/88 .... 16.33 .46 (1.07) (.61) (.44) 0.00 (2.75)
Year ended 9/30/87 .... 14.64 .67 1.62 2.29 (.60) 0.00 0.00
Income Builder Fund(h)
Class A
11/1/96 to 4/30/97+++ . $11.57 $ .24(b) $ .69 $ .93 $ (.25) $ 0.00 $ (.61)
Year ended 10/31/96 ... 10.70 .56(b) .98 1.54 (.55) 0.00 (.12)
Year ended 10/31/95 ... 9.69 .93(b) .59 1.52 (.51) 0.00 0.00
3/25/94++ to 10/31/94 . 10.00 .96 (1.02) (.06) (.05)(g) 0.00 (.20)
Utility Income Fund
Class A
12/1/96 to 5/31/97+++ . $10.59 $ .16(b)(c) $ .07 $ .23 $ (.18) $ 0.00 $ (.13)
Year ended 11/30/96 ... 10.22 .18(b)(c) .65 .83 (.46) 0.00 0.00
Year ended 11/30/95 ... 8.97 .27(c) 1.43 1.70 (.45) 0.00 0.00
Year ended 11/30/94 ... 9.92 .42(c) (.89) (.47) (.48) 0.00 0.00
10/18/93+ to 11/30/93 . 10.00 .02(c) (.10) (.08) 0.00 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 50.
48
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss) Average
And End Of on Net Asset (000's To Average To Average Portfolio Commission
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate Rate (k)
------------- ------------- ------------ ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (1.57) $ 13.26 25.16% $561,793 1.72% 1.27% 48% $0.0132
0.00 12.13 19.16 672,732 1.87 .95 28 --
0.00 10.18 4.41 13,535 2.56 .66 36 --
0.00 9.75 (2.50) 4,990 2.75* 1.03* 0 --
$ (1.50) $ 18.61 28.78% $ 78,578 2.05%(l) .40% 89% $0.0569
(.47) 15.84 8.20 74,026 2.14 1.10 69 --
(.09) 15.11 20.22 86,112 2.09 .37 74 --
0.00 12.66 1.04 86,739 2.06* 1.85* 35 --
0.00 12.53 33.73 90,372 2.30 .17 94 --
(.15) 9.37 (2.82) 79,285 2.25 .47 125 --
(.02) 9.81 .74 108,510 2.24 .16 34 --
(.70) 9.76 (5.63) 188,016 1.52* 2.71* 48 --
$ (.34) $ 10.07 (5.99)% $ 8,840 3.45%* (2.29)%* 56% $0.0269
(.08) 11.04 6.43 12,284 3.37*(f) (1.75) 66 0.0280
0.00 10.45 4.50 2,870 4.42*(f) (1.87)* 90 --
$ (1.56) $ 12.87 26.47% $ 85,217 2.41%(l) (1.25)% 129% $0.0364
(.53) 11.61 17.46 68,623 2.51 (1.22) 139 --
(2.11) 10.38 16.62 60,057 2.54(f) (1.17) 128 --
0.00 11.08 (1.42) 61,372 2.42* (1.26)* 78 --
(.43) 11.24 25.83 65,713 2.53 (1.13) 97 --
(.03) 9.33 (11.30) 58,491 2.34 (.85) 108 --
0.00 10.55 27.72 84,370 2.29 (.55) 104 --
(3.11) 8.26 (31.90) 68,316 1.73 (.46) 89 --
(.09) 15.54 37.34 113,583 1.56 (.17) 106 --
(1.78) 11.41 (8.11) 90,071 1.54(f) (.50) 74 --
(4.52) 15.07 34.11 113,305 1.41(f) (.44) 98 --
$ (2.72) $ 19.79 23.90% $ 20,312 1.41%(f)(l) 2.50% 170% $0.0395
(.93) 18.48 8.05 18,329 1.40(f) 1.78 173 --
(.26) 17.98 12.40 10,952 1.40(f) 2.07 172 --
0.00 16.26 (1.22) 9,640 1.40(f) 1.63* 21 --
(1.41) 16.46 5.06 9,822 1.40*(f) 1.67 139 --
(1.07) 16.97 5.85 8,637 1.40(f) 2.29 98 --
(.49) 17.06 20.96 6,843 1.40(f) 1.92 103 --
(.03) 14.48 16.00 443 1.40*(f) 3.54* 137 --
$ (2.12) $ 16.17 33.46% $115,500 1.47%(m) 2.11% 207% $0.0552
(1.89) 14.01 5.23 102,567 1.38 2.41 227 --
(.38) 15.08 15.99 122,033 1.32 3.12 179 --
(.57) 13.38 (3.21) 157,637 1.27* 2.50* 116 --
(.43) 14.40 12.52 172,484 1.35 2.50 188 --
(.45) 13.20 8.14 143,883 1.40 3.26 204 --
(.40) 12.64 25.52 154,230 1.44 3.75 70 --
(2.03) 10.41 (13.12) 140,913 1.36 4.01 169 --
(1.00) 14.13 22.27 159,290 1.42 3.29 132 --
(3.19) 12.53 (1.10) 111,515 1.42 3.74 190 --
(.60) 16.33 15.80 129,786 1.17 4.14 136 --
$ (.86) $ 11.64 8.31% $ 1,943 2.30%* 4.22%* 169% $0.0519
(.67) 11.57 14.82 2,056 2.20 4.92 108 0.0600
(.51) 10.70 16.22 1,398 2.38 5.44 92 --
(.25) 9.69 (.54) 600 2.52* 6.11* 126 --
$ (.31) $ 10.51 2.19% $ 3,571 1.50%*(f) 3.06%* 23% $0.0411
(.46) 10.59 8.47 3,294 1.50(f) 1.67 98 0.0536
(.45) 10.22 19.58 2,748 1.50(f) 2.48 162 --
(.48) 8.97 (4.86) 1,068 1.50(f) 4.13 30 --
0.00 9.92 (.80) 229 1.50*(f) 2.35* 11 --
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Fund
Class A
11/1/96 to 4/30/97+++ ........ $ 3.00 $ .03(b) $ .36 $ .39 $ (.03) $ (.38)
Year ended 10/31/96 .......... 2.71 .05 .50 .55 (.05) (.21)
Year ended 10/31/95 .......... 2.35 .02 .52 .54 (.06) (.12)
Year ended 10/31/94 .......... 2.61 .06 (.08) (.02) (.06) (.18)
Year ended 10/31/93 .......... 2.48 .06 .29 .35 (.06) (.16)
Year ended 10/31/92 .......... 2.52 .06 .11 .17 (.06) (.15)
Year ended 10/31/91 .......... 2.28 .07 .56 .63 (.09) (.30)
Year ended 10/31/90 .......... 3.02 .09 (.30) (.21) (.10) (.43)
Year ended 10/31/89 .......... 3.05 .10 .43 .53 (.08) (.48)
Year ended 10/31/88 .......... 3.48 .10 .33 .43 (.08) (.78)
Year ended 10/31/87 .......... 3.52 .11 (.03) .08 (.12) 0.00
Real Estate Investment Fund
Class A
10/1/96+ to 8/31/97 .......... $10.00 $ .30(b) $ 2.88 $ 3.18 $ (.38)(m) $ 0.00
</TABLE>
- ----------
+ Commencement of operations.
++ Commencement of distribution.
+++ Unaudited.
* Annualized.
** Reflects a change in fiscal year end.
(a) 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 the net asset value during the period, and a
redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment returns calculated for periods of
less than one year are not annualized.
(b) Based on average shares outstanding.
(c) Net of fee waiver and/or expense reimbursement.
(d) Adjusted for a 200% stock dividend paid to shareholders of record on
January 15, 1988.
(e) Net of offering costs of ($.05).
(f) Net of expenses assumed and/or waived/reimbursed. If the following Funds
had borne all expenses in their most recent five fiscal years, their
expense ratios, giving effect to the expense offset arrangement described
in (l) below, would have been as follows:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
All-Asia Investment Fund
Class A -- -- -- -- 10.57%# 3.62% --
Growth Fund
Class A 8.79%# 1.94% 1.84% 1.46% -- -- --
Premier Growth
Class A -- 3.33%# -- -- -- -- --
Global Small Cap Fund
Class A -- -- -- -- 2.61% -- --
Strategic Balanced Fund
Class A 11.59%# -- 1.85% 1.70%1 1.81% 1.76% 2.06%
1.94%#2
Utility Income Fund
Class A -- -- 145.63%# 13.72% 4.86%# 3.38% 3.41%
</TABLE>
# annualized
1. For the period ended April 30, 1994
2. For the period ended July 31, 1994
For the expense ratios of the Funds in years prior to fiscal year 1992,
assuming the Funds had borne all expenses, please see the Financial
Statements in each Fund's Statement of Additional Information.
(g) "Dividends from Net Investment Income" includes a return of capital.
Income Builder Fund had a return of capital with respect to Class A
shares, for the period ended October 31, 1994, of $(.01).
(h) On March 25, 1994, all existing shares of Income Builder Fund, previously
known as Alliance Multi-Market Income and Growth Trust, were converted
into Class C shares.
(i) Prior to July 22, 1993, Equitable Capital Management Corporation
("Equitable Capital") served as the investment adviser to the predecessor
to The Alliance Portfolios, of which Growth Fund and Strategic Balanced
Fund are series. On July 22, 1993, Alliance acquired the business and
substantially all assets of Equitable Capital and became investment
adviser to the Funds.
(j) "Distributions from Net Realized Gains" includes a return of capital.
Global Small Cap Fund had a return of capital with respect to Class A
shares, for the year ended July 31, 1995, of $(.12).
(k) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are changed.
(l) The following funds benefitted from an expense offset arrangement with the
transfer agent. Had such expense offsets not been in effect, the ratios of
expenses to average net assets, absent the assumption and/or
waiver/reimbursement of expenses described in (f) above, would have been
as follows:
1997
------
International Fund
Class A 1.73%
Global Small Cap Fund
Class A 2.38%
Strategic Balanced Fund
Class A 2.07%
New Europe Fund
Class A 2.04%
Balanced Shares
Class A 1.46%
(m) Distributions from net investment income include a tax return of capital
of $0.08.
50
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss) Average
And End Of on Net Asset (000's To Average To Average Portfolio Commission
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate Rate (k)
------------- ------------- ------------ ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (.41) $ 2.98 13.29% $628,306 .91%* 1.76%* 55% $ 0.0585
(.26) 3.00 21.51 553,151 .97 1.73 88 0.0625
(.18) 2.71 24.21 458,158 1.05 1.88 142 --
(.24) 2.35 (.67) 414,386 1.03 2.36 68 --
(.22) 2.61 14.98 459,372 1.07 2.38 91 --
(.21) 2.48 7.23 417,018 1.09 2.63 104 --
(.39) 2.52 31.03 409,597 1.14 2.74 84 --
(.53) 2.28 (8.55) 314,670 1.09 3.40 76 --
(.56) 3.02 21.59 377,168 1.08 3.49 79 --
(.86) 3.05 16.45 350,510 1.09 3.09 66 --
(.12) 3.48 2.04 348,375 .86 2.77 60 --
$ (.38) $ 12.80 32.24% $ 37,638 1.77%*(l) 2.73%* 20% $ 0.0518
</TABLE>
51
<PAGE>
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: The Alliance Fund, Inc. (1938), Alliance Balanced Shares, Inc.
(1932), Alliance Premier Growth Fund, Inc. (1992), Alliance Technology Fund,
Inc. (1980), Alliance Quasar Fund, Inc. (1968), Alliance Worldwide Privatization
Fund, Inc. (1994), Alliance New Europe Fund, Inc. (1990), Alliance All-Asia
Investment Fund, Inc. (1994), Alliance Global Small Cap Fund, Inc. (1966),
Alliance Income Builder Fund, Inc. (1991), Alliance Utility Income Fund, Inc.
(1993), Alliance Growth and Income Fund, Inc. (1932) and Real Estate Investment
Fund, Inc. (1996). Each of the following Funds is either a Massachusetts
business trust or a series of a Massachusetts business trust organized in the
year indicated: Alliance Growth Fund and Alliance Strategic Balanced Fund (each
a series of The Alliance Portfolios) (1987), and Alliance International Fund
(1980). Prior to August 2, 1993, The Alliance Portfolios was known as The
Equitable Funds, Growth Fund was known as The Equitable Growth Fund and
Strategic Balanced Fund was known as The Equitable Balanced Fund. Prior to March
22, 1994, Income Builder Fund was known as Alliance Multi-Market Income and
Growth Trust, Inc.
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 Directors.
A shareholder in a Fund 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. The Funds are empowered to
establish, without shareholder approval, additional portfolios, which may have
different investment objectives, and additional classes of shares. If an
additional portfolio or class were established in a 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 Directors, that affect each portfolio
and class in substantially the same manner. Advisor Class, 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 bears its own distribution expenses and Class B and
Advisor Class shares convert to Class A shares under certain circumstances. Each
class of shares votes separately with respect to matters for which separate
class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Directors and, in
liquidation of a Fund, are entitled to receive the net assets of the Fund. Since
this Prospectus sets forth information about all the Funds, it is theoretically
possible that a Fund might be liable for any materially inaccurate or incomplete
disclosure in this Prospectus concerning another Fund. Based on the advice of
counsel, however, the Funds believe that the potential liability of each Fund
with respect to the disclosure in this Prospectus extends only to the disclosure
relating to that Fund. Certain additional matters relating to a Fund's
organization are discussed in its Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "total return," which is computed
separately for each class of shares, including Advisor Class shares. Such
advertisements disclose a Fund's average annual compounded total return for the
periods prescribed by the Commission. A Fund's total return for each such period
is computed by finding, through the use of a formula prescribed by the
Commission, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, income
dividends and capital gains distributions paid on shares of a Fund are assumed
to have been reinvested when paid and the maximum sales charges applicable to
purchases and redemptions of a Fund's shares are assumed to have been paid.
Balanced Shares, Growth and Income Fund, Income Builder Fund, Real Estate
Investment Fund and Utility Income Fund may also advertise their "yield," which
is also computed separately for each class of shares, including Advisor Class
shares. A Fund's yield for any 30-day (or one-month) period is computed by
dividing the net investment income per share earned during such period by the
maximum public offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a formula
prescribed by the Commission which provides for compounding on a semi-annual
basis.
52
<PAGE>
Balanced Shares, Income Builder Fund, Utility Income Fund, Real Estate
Investment Fund and Growth and Income Fund may also state in sales literature an
"actual distribution rate" for each class which is computed in the same manner
as yield except that actual income dividends declared per share during the
period in question are substituted for net investment income per share. The
actual distribution rate is computed separately for each class of shares,
including Advisor Class shares.
A Fund's advertisements may quote performance rankings or ratings of a Fund by
financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various
indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to any
other Fund. See "General Information--Organization."
53
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-37848 and 811-6028.
<PAGE>
(LOGO)
ALLIANCE NEW EUROPE FUND, INC.
______________________________________________________________
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
October 31, 1997
______________________________________________________________
This Statement of Additional Information is not a
prospectus and should be read in conjunction with the Fund's
current Prospectus for the Alliance New Europe Fund, Inc. (the
"Fund") that offers the Class A, Class B and Class C shares of
the Fund and the current Prospectus for the Fund that offers the
Advisor Class shares of the Fund (the "Advisor Class Prospectus"
and, together with the Prospectus for the Fund that offers the
Class A, Class B, and Class C shares of the Fund, the
"Prospectus"). Copies of such Prospectuses may be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone numbers shown above.
Table Of Contents
Page
Description of the Fund..................................... 2
Management of the Fund...................................... 20
Expenses of the Fund........................................ 27
Purchase of Shares.......................................... 31
Redemption and Repurchase of Shares......................... 49
Shareholder Services........................................ 53
Net Asset Value............................................. 59
Dividends, Distributions and Taxes.......................... 61
Brokerage and Portfolio Transactions........................ 66
General Information......................................... 68
Financial Statements and Report of Independent Auditors..... 73
Appendix A Special Risk Considerations...................... A-1
Appendix B Currency Hedging Techniques...................... B-1
Appendix C Additional Information About The
United Kingdom............................................ C-1
_______________________________________________________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_______________________________________________________________
DESCRIPTION OF THE FUND
_______________________________________________________________
Introduction to the Fund
The Fund is a non-diversified, open-end management
investment company commonly known as a "mutual fund." Until
February 8, 1991, the Fund operated as a closed-end investment
company, and its shares (which then comprised a single class)
were listed and traded on the New York Stock Exchange until
February 1, 1991. The investment objective and policies of the
Fund are set forth below. The Fund's investment objective is a
"fundamental policy" within the meaning of the Investment Company
Act of 1940, as (the "1940 Act"), and, therefore, may not be
changed by the Directors without a shareholder vote. Except as
provided below, the Fund's investment policies are not
fundamental and, therefore, may be changed by the Board of
Directors without shareholder approval; however, the Fund will
not change its investment policies without contemporaneous
written notice to shareholders. There can be, of course, no
assurance that the Fund will achieve its investment objective.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital
appreciation through investment primarily in the equity
securities of companies based in Europe. As a matter of
fundamental policy, the Fund will, under normal circumstances,
invest at least 65% of its total assets in the equity securities
of European companies. The Fund defines European companies to be
companies (a) that are organized under the laws of a European
country and have a principal office in a European country or
(b) that derive 50% or more of their total revenues from business
in Europe or (c) the equity securities of which are traded
principally on a stock exchange in Europe. Under normal market
conditions the Fund expects to invest substantially all of its
assets in the equity securities of companies based in Europe.
When Alliance Capital Management L.P., the Fund's Adviser (the
"Adviser") believes that such investments provide the opportunity
for capital appreciation, however, up to 35% of the Fund's total
assets may be invested in U.S. dollar or foreign currency
denominated fixed-income securities issued or guaranteed by
European governmental entities, or by European or multinational
companies or supranational organizations which are rated AA or
better by Standard & Poor's Corporation or Aa or better by
Moody's Investors Service, Inc. or, if not so rated, of
equivalent investment quality as determined by the Fund's
Adviser.
2
<PAGE>
Unless otherwise indicated, Europe consists of the
Republic of Austria, the Kingdom of Belgium, the Kingdom of
Denmark, Germany, the Republic of Finland, the Republic of
France, the Hellenic Republic ("Greece"), the Republic of
Iceland, the Republic of Ireland, the Italian Republic, the Grand
Duchy of Luxembourg, the Kingdom of the Netherlands, the Kingdom
of Norway, the Republic of Portugal, the Kingdom of Spain, the
Kingdom of Sweden, the Swiss Confederation ("Switzerland"), the
Republic of Turkey and the United Kingdom of Great Britain and
Northern Ireland (together, "Western Europe"), plus the People's
Republic of Bulgaria, the Czech Republic and Slovakia, the
Republic of Hungary, the Republic of Poland, Romania and the
states formed from the break-up of the former Socialist Federal
Republic of Yugoslavia (together, "Eastern Europe"). Additional
countries on the continent of Europe may be considered part of
the Fund's definition of Europe and appropriate spheres of
investment by the Fund as the securities markets of those
countries develop. The Fund's definition of European companies
may include companies that have characteristics and business
relationships common to companies in other regions. As a result,
the value of the securities of such companies may reflect
economic and market forces applicable to other regions, as well
as to Europe. The Fund believes, however, that investment in
such companies will be appropriate in light of the Fund's
investment objective, because the Advisor, will select among such
companies only those which in its view, have sufficiently strong
exposure to economic and market forces in Europe such that their
value will reflect European developments to a greater extent than
developments in other regions. For example, the Adviser may
invest in companies organized and located in the United States or
other countries outside of Europe, including companies having
their entire production facilities outside of Europe, when such
companies meet one or more elements of the Fund's definition of
European companies so long as the Adviser believes at the time of
investment that the value of the company's securities will
reflect principally conditions in Europe.
The Adviser believes that the quickening pace of
economic integration and political change in Europe, reflected in
such developments as the reduction of barriers to free trade
within the European Community, creates the potential for many
European companies to experience rapid growth. The emergence of
market economies in certain European countries as well as the
broadening and strengthening of such economies in other European
countries may significantly contribute to the potential for
accelerated economic development. Companies engaged in business
in European countries with relatively mature capital markets may
also benefit from local or international trends encouraging the
development of capital markets and diminishing governmental
intervention in economic affairs. Furthermore, new technologies,
innovative products and favorable regulatory developments may
3
<PAGE>
support earnings growth. The Fund will invest in companies
which, in the opinion of the Adviser, possess such rapid growth
potential. Thus, the Fund will emphasize investments in smaller,
emerging companies, but will also seek investment opportunities
among larger, established companies in such growing economic
sectors as capital goods, telecommunications, pollution control
and consumer services. The Adviser's subsidiaries maintain
offices in London, Luxembourg and Istanbul, and investment
professionals from those offices conduct frequent visits and
interviews with management of European companies. The Adviser's
local expertise in Europe facilitates its investment approach of
buying stocks based on its on-site research of European companies
as contrasted to a strategy of selecting countries with favorable
outlooks and then selecting stocks of companies located in those
countries.
The Fund will emphasize investment in European companies
believed by the Adviser to be the likely beneficiaries of the
efforts of the European Union (the "EU") to remove substantially
all barriers to the free movement of goods, persons, services and
capital within the European Community. The EU is a European
economic cooperative organization consisting of Belgium, Denmark,
France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain and the United Kingdom. In this
regard, the Adviser will give consideration to the existence and
extent of economic barriers in various industrial and corporate
sectors and the likelihood and potential timing of the
elimination of such barriers pursuant to the EU's Program. The
Adviser believes that the beneficial effects of the EU's Program
upon economies, sectors and companies may be most pronounced in
the coming decade.
The Fund's investment objective and policies reflect the
Adviser's opinion that attractive investment opportunities will
result from an evolving long-term European trend favoring the
development and emergence of U.S./U.K.-style capital markets. The
Adviser believes that such opportunities are available in a
number of European countries, including Austria, Belgium,
Denmark, Finland, Greece, Ireland, Luxembourg, the Netherlands,
Norway, Portugal, Spain, Sweden and Turkey, which appear to be in
the process of broadening and strengthening their capital
markets, and which may as a result experience relatively high
rates of economic growth during the next decade.
Other European countries, although having relatively
mature capital markets, may also be in a position to benefit from
local or international trends encouraging the development of
capital markets and diminishing governmental intervention in
economic affairs. Several European governments have deregulated
significant sectors of their national economies to enable them to
compete more effectively both within and outside Europe. Specific
4
<PAGE>
examples include, to differing degrees and in particular
countries, the lifting of price controls, exchange controls and
restrictions on foreign investment, and the deregulation of
financial services. In addition, a number of European countries
have in recent years employed tax policy, in the form of both
reduced tax burdens on corporations and investors and tax
incentives for business, to stimulate private investment and
economic growth.
Certain European governments including, among others,
the governments of Austria, Germany, Greece, Portugal and Spain,
have, to varying degrees, embarked on "privatization" programs
contemplating the sale of all or part of their interests in
state-owned enterprises. The Adviser believes that
privatization's may offer investors opportunities for significant
capital appreciation and intends to invest assets of the Fund in
them in appropriate circumstances. In certain jurisdictions, the
ability of foreign entities, such as the Fund, to participate in
privatization's may be limited by local law, or the price or
terms on which the Fund may be able to participate may be less
advantageous than for local investors. Moreover, there can be no
assurance that governments will continue to divest currently
government-owned or controlled companies or that privatization
proposals will be successful.
In recent years, there has been a trend toward the
strengthening of economic ties between the former "east bloc"
countries of Eastern Europe and certain other European countries,
notably Germany and, on a smaller scale, Austria. The Adviser
believes that as such trend continues, developing market
economies within former "east bloc" countries will provide some
Western European financial institutions and other companies with
special opportunities in facilitating East-West transactions. The
Fund will seek investment opportunities among such companies.
The Fund will actively seek investment opportunities
within the former "east bloc" countries of Eastern Europe.
However, the Fund will not invest more than 20% of its total
assets in the equity and fixed income securities of issuers based
in the former "east bloc" countries, nor more than 10% of its
total assets in the securities of issuers based in any one such
country. The Adviser believes that, at the present time, there
are very few investments suitable for the Fund's portfolio
available in the former "east bloc" countries. While the Adviser
expects that additional such investments will become available in
the future, there can be no assurance that this will be the case.
Most Eastern European countries are currently implementing
reforms directed at political and economic liberalization,
including efforts to move toward more market-oriented economies
and to foster multi-party political systems. For example,
Hungary, Poland and, more recently, Czechoslovakia have adopted
5
<PAGE>
reforms to stimulate their economies and encourage foreign
investment. Specifically, laws have been enacted in Hungary and
Poland and Czechoslovakia to allow private individuals to own and
operate businesses and to protect the property rights of
investors. Such laws seek to assure foreign investors of the
right to own interests in and, under certain circumstances,
control local companies and to repatriate capital and profits
and, in certain cases, grant favorable tax treatment to companies
with foreign participation.
As a result of these and other measures, the Adviser
expects that foreign direct investment in Eastern Europe may
increase. In addition, the International Bank for Reconstruction
and Development (the "World Bank"), the International Monetary
Fund and various national governments are providing financing to
governments of Eastern European countries. Financing for certain
companies and private sector projects based in Eastern Europe is
being provided by the International Finance Corporation, a
subsidiary of the World Bank. The European Community has entered
into association agreements with Hungary, Poland and
Czechoslovakia providing for enhanced trade and cooperation
between the European Community and those countries and the
European Community has provided technical and financial
assistance to Hungary, Poland and Czechoslovakia. Further, the
United States has granted Hungary, Poland and Czechoslovakia
"most favored nation" status with respect to trade matters.
There can be no assurance that the reforms initiated by
the former "east bloc" countries of Eastern Europe will continue
or, if continued, will achieve their goals. As influence of the
former Union of Soviet Socialist Republics over those countries
has subsided, several of them have experienced political and
economic instability due to conflicts among regional and ethnic
factions. To the extent such instability continues, it may
reduce the range of suitable investment opportunities for the
Fund in these countries.
In addition to the trends and developments described
above, the Adviser has also identified certain other factors that
it believes may generate attractive investment opportunities in
Europe. These factors include increased direct investment in
Europe by U.S. and Japanese companies, the development of new
stock markets in certain European countries, increased merger and
acquisition activity, an increase in capital spending on
transportation and communications and a trend toward the transfer
of production facilities from countries having higher production
costs to European countries having lower production costs.
Furthermore, the Adviser believes that many European countries
are emerging from recession and that, historically, equities have
performed well during post-recessionary periods due to low
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interest rates, rising consumer consumption, rising currency
exchange rates and local investment in infrastructure.
The Adviser will adjust the Fund's exposure to each
European economy based on its perception of the most favorable
markets and issuers. The Fund intends to spread investment risk
among the capital markets of a number of European countries and,
under normal circumstances, will invest in the equity securities
of companies based in at least three such countries. The
percentage of the Fund's assets invested in securities of a
particular country or denominated in a particular currency will
vary in accordance with the Adviser's assessment of the
appreciation potential of such securities and the strength of
that currency. Subject to the foregoing, and apart from the 10%
limitation on investment in any one Eastern European country,
there is no limit on the amount of the Fund's assets that may be
invested in securities of issuers located in a single European
country. While the Fund has no present intention of concentrating
its investments in a single European country, at times a
substantial amount (i.e., 25% or more) of the Fund's assets may
be invested in issuers located in a single country. In such
event, the Fund's portfolio would be subject to a correspondingly
greater risk of loss due to adverse political or regulatory
developments, or an economic downturn, within that country. The
Fund may invest in a small number of leading or actively traded
companies in a country's capital markets in the expectation that
the investment performance of such securities will substantially
represent the investment performance of the country's capital
markets as a whole.
Investors should understand and consider carefully the
substantial risks involved in investing in the equity securities
of companies based in Europe, some of which are referred to in
Appendix A hereto, and which are in addition to the usual risks
inherent in domestic investments. See Appendix A, "Special Risk
Considerations" and Appendix C, "United Kingdom."
The Fund may invest up to 10% of its total assets in
securities for which there is no ready market. The Fund may
therefore not be able to readily sell such securities. There is
no law in many of the countries in which the Fund may invest
similar to the U.S. Securities Act of 1933, as amended (the
"Securities Act"), requiring an issuer to register the sale of
securities with a governmental agency or imposing legal
restrictions on resales of securities, either as to length of
time the securities may be held or manner of resale. However,
there may be contractual restrictions on resale of securities.
The Fund has the ability to invest up to 20% of its
total assets in warrants to purchase equity securities issued by
European companies to the extent consistent with the Fund's
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<PAGE>
investment objective; however, the Fund does not presently intend
to invest more than 10% of its total assets in such warrants. The
warrants in which the Fund may invest are a type of security,
usually issued together with another equity or debt security of
an issuer, that entitles the holder to buy a fixed amount of
common or preferred stock of such issuer at a specified price for
a fixed period of time (which may be in perpetuity). Warrants
are commonly issued attached to other securities of the issuer as
a method of making such securities more attractive and are
usually detachable and, thus, may be bought or sold separately
from the issued security. Warrants are a speculative instrument.
The value of a warrant may decline because of a decrease in the
value of the underlying stock, the passage of time or a change in
perception as to the potential of the underlying stock, or any
combination thereof. If the market price of the underlying stock
is below the exercise price set forth in the warrant on the
expiration date, the warrant will expire worthless. Warrants
issued by European companies generally are freely transferable
and are generally traded on one or more of the major European
stock exchanges. The Fund anticipates that the warrants in which
it will invest will have exercise periods of approximately two to
ten years. The Fund may also invest in rights which are similar
to warrants except that they have a substantially shorter
duration.
In addition to purchasing corporate securities of
European issuers in European markets, the Fund may invest in
American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs) or other securities convertible into securities of
companies based in European countries. Transactions in these
securities may not necessarily be settled in the same currency as
transactions in the securities into which they may be converted.
Generally, ADRs, in registered form, are designed for use in the
U.S. securities markets and EDRs, in bearer form, are designed
for use in European securities markets.
The Fund will also be authorized to invest in debt
securities of supranational entities denominated in the currency
of any European country. A supranational entity is an entity
designated or supported by the national government of one or more
countries to promote economic reconstruction or development.
Examples of supranational entities include, among others, the
World Bank and the European Investment Bank. The governmental
members, or "stockholders," usually make initial capital
contributions to the supranational entity and in many cases are
committed to make additional contributions if the supranational
entity is unable to repay its borrowings. Each supranational
entity's lending activities are limited to a percentage of its
total capital (including "callable capital" contributed by
members at the entity's call), reserves and net income. The Fund
may, in addition, invest in debt securities denominated in
8
<PAGE>
European Currency Units of an issuer in a European country
(including supranational issuers). A European Currency Unit is a
basket of specified amounts of the currencies of the twelve
member states of the European Economic Union. The Fund is
further authorized to invest in "semi-governmental securities,"
which are debt securities issued by entities owned by either a
national, state or equivalent government or are obligations of
one of such government jurisdictions which are not backed by its
full faith and credit and general taxing powers. An example of a
semi-governmental issuer is the City of Stockholm.
For temporary defensive purposes, the Fund may vary from
its investment policy during periods in which conditions in
European securities markets or other economic or political
conditions in Europe warrant. The Fund may reduce its position
in equity securities and increase its position in debt
securities, which may include U.S. Government securities, rated
AA or better by Standard & Poor's Corporation or Aa or better by
Moody's Investors Service, Inc. or if not so rated, of equivalent
investment quality as determined by the Adviser, short-term
indebtedness or cash equivalents denominated in either foreign
currencies or U.S. dollars. The Fund may also at any time
temporarily invest funds awaiting reinvestment or held as
reserves for dividends and other distributions to shareholders in
U.S. dollar-denominated money market instruments including:
(i) U.S. Government securities, (ii) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of
banks having total assets of more than $1 billion and which are
members of the Federal Deposit Insurance Corporation and
(iii) commercial paper of prime quality rated A-1 or better by
Standard & Poor's Ratings Services ("S&P") or Prime 1 or better
by Moody's Investors Service, Inc. ("Moody's") or, if not rated,
issued by companies which have an outstanding debt issue rated AA
or better by S&P or Aa or better by Moody's.
The Fund is a "non-diversified" investment company,
which means the Fund is not limited in the proportion of its
assets that may be invested in the securities of a single issuer.
However, the Fund intends to conduct its operations so as to
qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the "Code"), which
will relieve the Fund of any liability for federal income tax to
the extent its earnings are distributed to shareholders. See
"Dividends, Distributions and Taxes--U.S. Federal Income Taxes."
To so qualify, among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the taxable
year, (i) not more than 25% of the market value of the Fund's
total assets will be invested in the securities of a single
issuer and (ii) with respect to 50% of the market value of its
total assets, not more than five percent of the market value of
its total assets will be invested in the securities of a single
9
<PAGE>
issuer and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer. The Fund's investments in
U.S. Government securities are not subject to these limitations.
Because the Fund, as a non-diversified investment company, may
invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Fund may,
under certain circumstances, present greater risk to an investor
than an investment in a diversified company.
Derivative Investment Products
The Fund may use various derivative investment products
to reduce certain risks to the Fund of exposure to local market
and currency movements. These products include forward foreign
currency exchange contracts, futures contracts, including stock
index futures, and options thereon, put and call options and
combinations thereof. The Adviser will use such products as
market conditions warrant. The Fund's ability to use these
products may be limited by market conditions, regulatory limits
and tax considerations and there can be no assurance that any of
these products would succeed in reducing the risk to the Fund of
exposure to local market and currency movements. New financial
products and risk management techniques continue to be developed
and the Fund may use these new investments and techniques to the
extent consistent with its investment objective and policies.
Currency Hedging Techniques. The Fund may engage in
various portfolio strategies to hedge its portfolio against
currency risks. These strategies include use of currency options
and futures, options on such futures and forward foreign currency
transactions. The Fund may enter into such transactions only in
connection with its hedging strategies. While the Fund's use of
hedging strategies is intended to reduce the volatility of the
net asset value of Fund shares, the Fund's net asset will
fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund will only
engage in hedging activities from time to time and may not
necessarily be engaging in hedging activities when movements in
the currency exchange rates occur.
Although certain risks are involved in options and
futures transactions, the Adviser believes that, because the Fund
will only engage in these transactions for hedging purposes, the
options and futures portfolio strategies of the Fund will not
subject the Fund to the risks frequently associated with the
speculative use of futures transactions. Tax requirements may
limit the Fund's ability to engage in hedging transactions. See
Appendix B hereto for a further discussion of the use, risks and
costs of the hedging instruments the Fund may utilize.
10
<PAGE>
Forward Foreign Currency Exchange Contracts. The Fund
may purchase or sell 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 other currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded
by currency traders and their customers. The Fund's dealings in
forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward contracts with respect
to specific receivables or payables of the Fund accruing in
connection with the purchase and sale of its portfolio securities
or the payment of dividends and distributions by the Fund.
Position hedging is the sale of forward contracts with respect to
portfolio security positions denominated or quoted in such
foreign currency. The Fund will not speculate in forward
contracts and, therefore, the Adviser believes that the Fund will
not be subject to the risks frequently associated with the
speculative use of such transactions. The Fund may not position
hedge with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio
denominated or quoted in that particular foreign currency. To
the extent required by applicable law, if the Fund enters into a
position hedging transaction, its custodian bank will place
liquid assets in a separate account of the Fund in an amount
equal to the value of the Fund's total assets committed to the
consummation of such forward contract. If the value of the
assets placed in the separate account declines, additional liquid
assets will be placed in the account so that the value of the
account will equal the amount of the Fund's commitment with
respect to such contracts. In addition, the Fund may use such
other methods of "cover" as are permitted by applicable law.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedge currency should rise. Moreover, it may not be
possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The Fund will not enter into a forward contract
with a term of more than one year or if, as a result thereof,
more than 50% of the Fund's total assets would be committed to
such contracts.
Options On Foreign Currencies. The Fund may write, sell
and purchase put and call options on foreign currencies traded on
securities exchanges or boards of trade (foreign and domestic) or
over-the-counter. As in the case of other kinds of options, the
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<PAGE>
writing of an option on a foreign currency constitutes only a
partial hedge, up to the amount of the premium received, and the
Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although,
in the event of rate movements adverse to the Fund's position, it
may forfeit the entire amount of the premium plus related
transaction costs. There is no specific percentage limitation on
the Fund's investments in options on foreign currencies.
Options. The Fund may write, sell and purchase put and
call options listed on one or more U.S. or foreign securities
exchanges, including options on market indices. A call option
gives the purchaser of the option, for paying the writer a
premium, the right to call upon the writer to deliver a specified
number of shares of a specified stock on or before a fixed date,
at a predetermined price. A put option gives the buyer of the
option, for paying the writer a premium, the right to deliver a
specified number of shares of a stock to the writer of the option
on or before a fixed date, at a predetermined price.
Writing, purchasing and selling put and call options are
highly specialized activities and entail greater than ordinary
investment risks. When puts written by the Fund are exercised,
the Fund will be obligated to purchase stocks above their then
current market price. The Fund will not write a put option
unless at all times during the option period the Fund has
(a) sold short the optioned securities, or securities convertible
into or carrying rights to acquire the optioned securities, or
(b) purchased an offsetting put on the same securities. When
calls written by the Fund are exercised, the Fund will be
obligated to sell stocks below their then current market price.
The Fund will not write a call option unless the Fund at all
times during the option period owns either (a) the optioned
securities, or securities convertible into or carrying rights to
acquire the optioned securities, or (b) an offsetting call option
on the same securities.
Options on Market 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.
Financial Futures Contracts, Including Stock Index
Futures, and Options on Futures Contracts. The Fund may enter
into financial futures contracts, including contracts for the
12
<PAGE>
purchase or sale for future delivery of foreign currencies and
futures contracts based on stock indices and may purchase and
write put and call options to buy or sell futures contracts
("options on futures contracts"). A sale of a futures contract
entails the acquisition of a contractual obligation to deliver
the foreign currency or other commodity called for by the
contract at a specified price on a specified date. A purchase of
a futures contract entails the incurring of a contractual
obligation to acquire the 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 and the price at which the contract was
originally struck. No physical delivery of the securities
underlying the index is made. In connection with its purchase of
stock index futures contracts the Fund will deposit in a
segregated account with the Fund's custodian an amount of liquid
assets equal to the market value of the futures contracts less
any amounts maintained in a margin account with the Fund's
broker. Options on futures contracts to be written or purchased
by the Fund will be traded on U.S. or foreign exchanges or over-
the-counter. See the Fund's Statement of Additional Information
for further discussion of the use, risks and costs of futures
contracts and options on futures contracts.
With respect to futures contracts and options on futures
contracts that are purchased for purposes other than for "bona
fide hedging purposes" (as defined in Commodity Futures Trading
Commission regulations promulgated under the Commodity Exchange
Act), the aggregate initial margin and premiums required to be
paid by the Fund to establish such positions will not exceed on
all the outstanding futures contracts of the Fund and premiums
paid on outstanding options on futures contracts would exceed 5%
of the liquidation value of the total assets of the Fund, after
taking into account unrealized profits and unrealized losses on
any such contracts the Fund has entered into.
General. The successful use of the foregoing derivative
investment products draws upon the Adviser's special skills and
substantial experience with respect to such products and depends
on the Adviser's ability to forecast currency exchange rate
movements correctly. Should exchange rates move in an unexpected
manner, the Fund may not necessarily achieve the anticipated
benefits of futures contracts, options or forward contracts or
may realize losses and thus be in a worse position than if such
products had not been used. Unlike many exchange-traded futures
contracts and options on futures contracts, there are no daily
price fluctuation limits with respect to options on currencies
and forward contracts, and adverse market movements could
therefore continue to an unlimited extent over a period of time.
13
<PAGE>
In addition, the correlation between movements in the prices of
such instruments and movements in the prices of the securities
and currencies hedged or used for cover will not be perfect and
could produce unanticipated losses.
The Fund's ability to dispose of its positions in
futures contracts, options and forward contracts will depend on
the availability of liquid markets in such instruments. Markets
in options and futures with respect to a number of securities and
currencies are relatively new and still developing. 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 did not exist with respect to
an over-the-counter option purchased or written by the 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 futures contract or currency upon
exercise. Therefore, no assurance can be given that the Fund
will be able to utilize these instruments effectively for the
purposes set forth above. Furthermore, the Fund's ability to
engage in options and futures transactions may be limited by tax
considerations. See "Dividends, Distributions and Taxes--U.S.
Federal Income Taxes."
Other Investment Practices
Lending Of Portfolio Securities. In order to increase
income, the Fund may from time to time lend portfolio securities
to brokers, dealers and financial institutions and receive
collateral in the form of liquid assets. Under the Fund's
procedures, collateral for such loans must be maintained at all
times in an amount equal to at least 100% of the current market
value of the loaned securities (including interest accrued on the
loaned securities). The interest accruing on the loaned
securities will be paid to the Fund and the Fund will have the
right, on demand, to call back the loaned, or equivalent,
securities. The Fund may pay fees to arrange the loans. The
Fund will neither lend portfolio securities in excess of 30% of
the value of its total assets nor lend its portfolio securities
to any officer, director, employee or affiliate of the Fund or
the Adviser.
Forward Commitments. The Fund may enter into forward
commitments for the purchase or sale of securities. Such
transactions 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 of a
14
<PAGE>
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, which is generally expressed in yield terms, 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 delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest or dividends accrue to the
purchaser prior to the settlement date. At the time the Fund
enters 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. No forward commitments will be made
by the Fund if, as a result, the Fund's aggregate commitments
under such transactions would be more than 30% of the then
current value of the Fund's total assets.
The Fund's right to receive or deliver a security under
a forward commitment may be sold prior to the settlement date,
but the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
Custodian will maintain, in the segregated account of the Fund,
liquid assets having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis
and, with respect to forward commitments to sell portfolio
securities of the Fund, the portfolio securities themselves. If
the Fund, however, chooses to dispose of the right to receive or
deliver a security subject to a forward commitment prior to the
settlement date of the transaction, it might incur a gain or
loss. In the event the other party to a forward commitment
transaction were to default, the Fund might lose the opportunity
to invest money at favorable rates or to dispose of securities at
favorable prices.
The use of forward commitments for the purchase or sale
of fixed income securities enables the Fund to protect against
anticipated changes in interest rates and prices. For instance,
in periods of rising interest rates and falling bond prices, the
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, the
Fund might sell a security in its portfolio and purchase the same
or a similar security on a when-issued or forward commitment
15
<PAGE>
basis, thereby obtaining the benefit of currently higher cash
yields. However, if the Adviser were to forecast incorrectly the
direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices
inferior to then current market values.
Standby Commitment Agreements. The Fund may from time
to time enter into standby commitment agreements. Such
agreements commit the Fund, for a stated period of time, to
purchase a stated amount of a fixed income security which may be
issued and sold to the Fund at the option of the issuer. The
price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement the Fund
is paid a commitment fee, regardless of whether or not the
security is ultimately issued, which is typically approximately
0.5% of the aggregate purchase price of the security which the
Fund has committed to purchase. The fee is payable whether or
not the security is ultimately issued. The Fund will enter into
such agreements only for the purpose of investing in the security
underlying the commitment at a yield and price which are
considered advantageous to the Fund and which are unavailable on
a firm commitment basis. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and will
limit its investment in such commitments so that the aggregate
purchase price of the securities subject to such commitments,
together with the value of portfolio securities that are not
readily marketable, will not exceed 25% of its assets taken at
the time of acquisition of such commitment of security. The Fund
will at all times maintain a segregated account with its
custodian of liquid assets in an aggregate amount equal to the
purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to
a standby commitment will be issued and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund will bear the risk of capital loss in the event the value of
the security declines and may not benefit from an appreciation in
the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
The purchase of a security subject to a standby
commitment agreement and the related commitment fee will be
recorded on the date on which the security can reasonably be
expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net
asset value. The cost basis of the security will be adjusted by
the amount of the commitment fee. In the event the security is
not issued, the commitment fee will be recorded as income on the
expiration date of the standby commitment.
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<PAGE>
Future Developments. The Fund may, following written
notice thereof to its shareholders, take advantage of
opportunities in the area of futures contracts and options on
futures contracts which are not presently contemplated for use by
the Fund or which are not currently available but which may be
developed, to the extent such opportunities are both consistent
with the Fund's investment objective and legally permissible for
the Fund. Such opportunities, if they arise, may involve risks
which exceed those involved in the options and futures activities
described above.
Portfolio Turnover. Generally, the Fund's policy with
respect to portfolio turnover is to purchase securities with a
view to holding them for periods of time sufficient to assure
that the Fund will realize less than 30% of its gross income from
the sale or other disposition of securities held for less than
three months and generally will hold its securities for six
months or longer. However, it is also the Fund's policy to sell
any security whenever, in the judgment of the Adviser, its
appreciation possibilities have been substantially realized or
the business or market prospects for such security have
deteriorated, irrespective of the length of time that such
security has been held. The Adviser anticipates that the Fund's
annual rate of portfolio turnover will not exceed 200%. A 200%
annual turnover rate would occur if all the securities of the
Fund's portfolio were replaced twice within a period of one year.
The turnover rate has a direct effect on the transaction costs to
be borne by the Fund. For the fiscal years ended July 31, 1996
and July 31, 1997, the Fund's portfolio turnover was 69% and 89%
respectively.
Fundamental Investment Policies
In addition to the investment objective and policies
described above, the Fund has adopted certain fundamental
investment policies which may not be changed without shareholder
approval. Briefly, these policies provide that the Fund may not:
(i) purchase more than 10% of the outstanding voting securities
of any one issuer; (ii) invest more than 15% of the value of its
total assets in the securities of any one issuer or 25% or more
of the value of its total assets in the same industry, provided,
however, that the foregoing restriction shall not be deemed to
prohibit the Fund from purchasing the securities of any issuer
pursuant to the exercise of rights distributed to the Fund by the
issuer, except that no such purchase may be made if as a result
the Fund will fail to meet the diversification requirements of
the Code, and any such acquisition in excess of the foregoing 15%
or 25% limits will be sold by the Fund as soon as reasonably
practicable (this restriction does not apply to securities issued
or guaranteed by the U.S. government, its agencies and
instrumentalities, but will apply to foreign government
17
<PAGE>
obligations unless the Securities and Exchange Commission (the
"Commission") permits their exclusion); (iii) borrow money except
from banks for temporary or emergency purposes, including the
meeting of redemption requests which might require the untimely
disposition of securities; borrowing in the aggregate may not
exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5%, of the value of the Fund's total
assets (including the amount borrowed) less liabilities (not
including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the value of the Fund's
total assets will be repaid before any subsequent investments are
made; (iv) purchase a security (unless the security is acquired
pursuant to a plan of reorganization or an offer of exchange) if,
as a result, the Fund would own any securities of an open-end
investment company or more than 3% of the total outstanding
voting stock of any closed-end investment company, or more than
5% of the value of the Fund's total assets would be invested in
securities of any closed-end investment company, or more than 10%
of such value in closed-end investment companies in general;
(v) make loans except through (a) the purchase of debt
obligations in accordance with its investment objective and
policies and (b) the lending of portfolio securities;
(vi) pledge, hypothecate, mortgage or otherwise encumber its
assets, except (a) to secure permitted borrowings and (b) in
connection with initial and variation margin deposits relating to
futures contracts; (vii) invest in companies for the purpose of
exercising control; (viii) make short sales of securities or
maintain a short position, unless at all times when a short
position is open it owns an equal amount of such securities or
securities convertible into or exchangeable for, without payment
of any further consideration, securities of the same issue as,
and equal in amount to, the securities sold short ("short sales
against the box"), and unless not more than 10% of the Fund's net
assets (taken at market value) is held as collateral for such
sales at any one time (it is the Fund's present intention to make
such sales only for the purpose of deferring realization of gain
or loss for federal income tax purposes); (ix) buy or write
(i.e., sell) put or call options, except (a) the Fund may buy
foreign currency options or write covered foreign currency
options and options on foreign currency futures and (b) the Fund
may purchase warrants; or (x) purchase or sell real estate,
except that it may (a) purchase and sell securities of companies
which deal in real estate or interests therein, (b) purchase or
sell commodities or commodity contracts (except foreign
currencies, foreign currency options and futures and forward
contracts or contracts for the future acquisition or delivery of
foreign currencies and related options on futures contracts and
other similar contracts), (c) invest in interests in oil, gas, or
other mineral exploration or development programs, except that it
may purchase and sell securities of companies that deal in oil,
gas or other mineral exploration or development programs,
18
<PAGE>
(d) purchase securities on margin, except for such short-term
credits as may be necessary for the clearance of transactions or
(e) act as an underwriter of securities, except that the Fund may
acquire securities in private placements under circumstances in
which, if such securities were sold, the Fund might be deemed to
be an underwriter within the meaning of the Securities Act.
State Undertakings
In connection with the qualification or registration of
the Fund's shares for sale under the securities laws of certain
states, the Fund has agreed, in addition to the investment
restrictions described in the Prospectus, that it will not
(i) purchase the securities of any company that has a record of
less than three years of continuous operation (including that of
predecessors) if such purchase at the time thereof would cause
more than 5% of its total assets, taken at current value, to be
invested in the securities of such companies; (ii) invest in oil,
gas or other mineral leases; (iii) purchase or sell real property
(including limited partnership interests, but excluding readily
marketable interests in real estate investment trusts or readily
marketable securities of companies which invest in real estate);
(iv) invest in warrants (other than warrants acquired by the Fund
as a part of a unit or attached to securities at the time of
purchase) if as a result of such warrants valued at the lower of
such cost or market would exceed 10% of the value of the Fund's
assets at the time of purchase; (v) invest in the securities of
any open-end investment company; (vi) it will prohibit the
purchase or retention by the Fund of the securities of any issuer
if the officers, directors or trustees of the Fund, its advisers
or managers scoping beneficially more than one-half of one
percent of the securities of each issuer together own
beneficially more than five percent of such securities; (vii) it
will prohibit the investment of any assets of the Fund in the
securities of other investment companies except 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 commissions, or except when such purchase is part of a
plan of merger, consolidation, reorganization or acquisition;
(viii) it will limit its investments in illiquid securities
together with restricted securities (excluding Rule 144A
securities) to no more than 15% of the Fund's average net assets;
and (ix) meetings of stockholders for any purpose may be called
by 10% of its outstanding shareholders.
19
<PAGE>
____________________________________________________________
MANAGEMENT OF THE FUND
____________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
Alliance is a leading international investment manager
supervising client accounts with assets as of September 30, 1997
of more than $217 billion (of which more than $81 billion
represented the assets of investment companies). The Adviser's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundation and endowment funds. As of September 30, 1997, the
Adviser was an investment manager of employee benefit fund assets
for 28 of the FORTUNE 100 companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,500
employees who operated out of domestic offices and the offices of
subsidiaries in Bahrain, Bangalore, Chennai, Istanbul, London,
Madrid, Mumbai, Paris, Singapore, Tokyo and Toronto and affiliate
offices located in Vienna, Warsaw, Hong Kong, Sao Paulo and
Moscow. The 54 registered investment companies comprising more
than 116 separate investment portfolios managed by the Adviser
currently have more than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"). ECI is a holding company
controlled by AXA-UAP, a French insurance holding company which
at September 30, 1997, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1997, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
20
<PAGE>
AXA-UAP is a holding company for an international group
of insurance and related financial services companies. AXA-UAP's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA-UAP is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, as of
September 30, 1997 more than 25% of the voting power of AXA-UAP
was controlled directly and indirectly by FINAXA, a French
holding company. As of September 30, 1997 more than 25% of the
voting power of FINAXA was controlled directly and indirectly by
four French mutual insurance companies (the "Mutuelles AXA"), one
of which, AXA Assurances I.A.R.D. Mutuelle, itself controlled
directly and indirectly more than 25% of the voting power of
FINAXA. Acting as a group, the Mutuelles AXA control AXA-UAP and
FINAXA.
The Advisory Agreement became effective on July 22,
1992. The Advisory Agreement replaced an earlier, substantially
identical agreement (the "First Advisory Agreement") that
terminated because of its technical assignment as a result of
AXA's acquisition of control over Equitable. In anticipation of
the assignment of the First Advisory Agreement, the Advisory
Agreement was approved by the unanimous vote, cast in person, of
the Fund's Directors (including the Directors who are not parties
to the Advisory Agreement or "interested persons" as defined in
the Act of any such party) at a meeting called for the purpose
and held on September 12, 1991. At a meeting held on June 8,
1992, a majority of the outstanding voting securities of the Fund
approved the Advisory Agreement.
The Advisory Agreement continues in effect for
successive twelve-month periods (computed from each January 1) if
approved annually (a) by the Directors of the Fund or by vote of
a majority of the outstanding voting securities of the Fund and
(b) by vote of the majority of the Directors who are not
"interested persons" of the Fund within the meaning of the 1940
Act, cast in person at a meeting called for the purpose of voting
on such approval. Most recently, continuance of the Advisory
Agreement was approved for the period ending December 31, 1997 by
the Directors, including a majority of the Directors who are not
"interested persons," as defined in the Act, at their Regular
Meeting held on December 6-7, 1996.
Under the Advisory Agreement, the Adviser furnishes
investment advice and recommendations to the Fund and provides
21
<PAGE>
office space in New York, order placement facilities and persons
satisfactory to the Fund's Board of Directors to act as officers
of the Fund. Such officers, as well as certain Directors of the
Fund, may be employees of the Adviser or directors, officers or
employees of its affiliates. For the Adviser's services under
the Advisory Agreement, the Fund pays the Adviser a monthly
management fee at an annualized rate of 1.10% of the Fund's
average daily net assets up to $100 million, .95% of the next
$100 million of the Fund's average daily net assets, and .80% of
the Fund's average daily net assets over $200 million. For the
fiscal years ended July 31, 1995, July 31, 1996 and July 31,
1997, the Adviser received an advisory fee in the amount of
$1,315,618, $1,318,528, and $1,497,867 respectively.
The Advisory Agreement is terminable at any time,
without penalty, on 60 days' written notice to the Adviser by
vote of a majority of the Fund's outstanding voting securities,
or by vote of a majority of the Fund's Board of Directors, or by
the Adviser with respect to the Fund, on 60 days' written notice
to the Fund, and will automatically terminate in the event of its
assignment. The Advisory Agreement may not be amended except upon
approval by the Directors and stockholders of the Fund as
described in the preceding sentence. The Advisory Agreement
provides that in the absence of willful misfeasance, bad faith or
gross negligence on the part of the Adviser, or of reckless
disregard of its obligations and duties thereunder, the Adviser
shall not be liable for any action or failure to act in
accordance with its duties thereunder.
The Adviser is, under the Advisory Agreement,
responsible for any expenses incurred by the Fund in promoting
the sale of Fund shares (other than the portion of the
promotional expenses borne by the Fund in accordance with an
effective plan pursuant to Rule 12b-1 under the 1940 Act, and the
costs of printing and mailing Fund prospectuses and other reports
to shareholders and all expenses and fees related to proxy
solicitations and registrations and filings with the Commission
and with state regulatory authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may employ its own personnel.
For such services, it also may utilize personnel employed by the
Adviser or by other subsidiaries of Equitable and, in such event,
the services will be provided to the Fund at cost and the
payments therefore must be specifically approved by the Fund's
Directors. The Fund paid to the Adviser a total of $139,000 in
respect of such services during the fiscal year of the Fund ended
in 1997.
22
<PAGE>
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The
Adviser may, from time to time, make recommendations which result
in the purchase or sale of a particular security by its other
clients simultaneously with the Fund. If transactions on behalf
of more than one client during the same period increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity.
It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing the same security on
a given day from the same broker-dealer, such transactions may be
averaged as to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following: ACM Institutional
Reserves, Inc., AFD Exchange Reserves, Alliance All-Asia
Investment Fund, Inc., The Alliance Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Capital
Reserves, Alliance Developing Markets Fund, Inc., Alliance Global
Dollar Government Fund, Inc., Alliance Global Environment Fund,
Inc., Alliance Global Small Cap Fund, Inc., Alliance Government
Reserves, Alliance Greater China '97 Fund, Inc., Alliance Growth
and Income Fund, Inc., Alliance High Yield Fund, Inc., Alliance
Income Builder Fund, Inc., Alliance International Fund, Alliance
Money Market Fund, Alliance Mortgage Securities Income Fund,
Inc., Alliance Limited Maturity Government Fund, Inc., Alliance
Multi-Market Strategy Trust, Inc., Alliance Municipal Income
Fund, Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income Fund,
Inc., Alliance Variable Products Series Fund, Inc., Alliance
World Income Trust, Inc., Alliance Worldwide Privatization Fund,
Inc., The Alliance Portfolios, Fiduciary Management Associates
and The Hudson River Trust, all registered open-end investment
companies; and to ACM Government Income Fund, Inc., ACM
Government Securities Fund, Inc., ACM Government Spectrum Fund,
Inc., ACM Government Opportunity Fund, Inc., ACM Managed Dollar
Income Fund, Inc., ACM Managed Income Trust, Inc., ACM Municipal
Securities Income Fund, Inc., Alliance All-Market Advantage Fund,
Inc., Alliance World Dollar Government Fund, Inc., Alliance World
Dollar Government Fund II, Inc., The Austria Fund, Inc., The
Korean Investment Fund, Inc., The Southern Africa Fund, Inc. and
The Spain Fund, Inc., all registered closed-end investment
companies.
23
<PAGE>
The Adviser may from time to time retain particular
European banks or other financial institutions for research and
consulting services with respect to general economic and monetary
conditions in Europe and, in particular, with respect to a number
of the smaller, developing securities markets in which the Fund
will seek investment opportunities. For such services, the
Adviser will from its own funds pay each consultant a fee to be
arranged by the Adviser and each consultant. The consultants
will have no responsibility for the Fund's investments.
Under the terms of the Advisory Agreement, the Fund will
discontinue the use of the term "Alliance" in the Fund's name or
the use of any marks or symbols owned by the Adviser if the
Adviser ceases to act as the Fund's investment adviser or if the
Adviser so requests.
Directors and Officers
The Directors and principal officers of the Fund, their
ages and their primary occupations during the past five years are
set forth below. Each such Director and officer is also a
trustee, director or officer of other investment companies
sponsored by the Adviser. Unless otherwise specified the address
of each of the following persons is 1345 Avenue of the Americas,
New York, New York 10105.
Directors
John D. Carifa,* 52, Chairman of the Directors, is the
President, the Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC"), with which he has been
associated since prior to 1992.
David H. Dievler, 68, was formerly a Senior Vice
President of ACMC, with which he had been associated since prior
to 1992 through 1994. He is currently an independent consultant.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
John H. Dobkin, 55, has been the President of Historic
Hudson Valley (historic preservation) since 1990. His address is
105 West 55th Street, New York, New York 10019.
W.H. Henderson, 70, has been an oil and gas consultant
since prior to 1992. He is also a Director of Nippon Peroxide
Co. Limited; a consultant to LaPorte Industries PLC and Reckitt
and Colman PLC. His address is Quarrey House, Charlton
Horethorne, Sherborne, Dorset DT9 4NY, England.
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
24
<PAGE>
Stig Host, 71, is Chairman and Chief Executive Officer
of International Energy Corp. (oil and gas exploration), with
which he has been associated with since prior to 1992. He is
also Chairman and Director of Kriti Exploration Corporation (oil
and gas exploration and production); Managing Director of Kriti
Oil and Minerals, N.V.; Chairman of Kriti Properties and
Development Corporation (real estate); Chairman of International
Marine Sales, Inc. (marine fuels); a Director of Florida Fuels,
Inc. (marine fuels); and President of Alexander Host Foundation.
He is a Trustee of the Winthrop Focus Funds. His address is 103
Oneida Drive, Greenwich, Connecticut 06530.
Richard M. Lilly, 67, was formerly the President and
Chief Executive Officer of Esso Italiana, S.p.A, with which he
had been associated with since prior to 1992. His address is 70
Palace Gardens Terrace, London, W8 4RR England.
Alan Stoga, 45, has been a Managing Director and a
member of the Board of Directors of Kissinger Associates, Inc.
since prior to 1992. His address is Kissinger Associates, Inc.,
350 Park Avenue, New York, New York 10022.
Officers
John D. Carifa, Chairman of the Board and President, see
biography above.
Kathleen A. Corbet, 37, Senior Vice President, is a
Senior Vice President of ACMC, with which she has been associated
since prior to 1992.
Thomas J. Bardong, 52, Vice President, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1992.
Francis P. Reeves, 24, Vice President, is an Assistant
Vice President with Alliance Capital Limited ("ACL"), with which
he has been associated since 1992.
Stephen M. Beinhacker, 46, Vice President, is a Vice
President of ACMC with which he has been associated since prior
to 1992.
Daniel V. Panker, 58, Vice President, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1992.
Edmund P. Bergan, Jr., 47, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors
("AFD") with which he has been associated since prior to 1992.
25
<PAGE>
Mark D. Gersten, 47, Treasurer and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services
("AFS"), with which he has been associated since prior to 1992.
Domenick Pugliese, 36, Assistant Secretary, is Vice
President and Assistant General Counsel of AFD with which he has
been associated since May 1995. Previously, he was Vice
President and Counsel of Concord Financial Holding Corporation
since 1994, Vice President and Associate General Counsel of
Prudential Securities since 1992.
Emilie D. Wrapp, 41, Assistant Secretary, is Special
Counsel of ACMC, with which she has been associated since prior
to 1992.
Andrew L. Gangolf, 43, Assistant Secretary, has been a
Vice President and Assistant General Counsel of AFD since
December 1994. Prior thereto he was a Vice President and
Assistant Secretary of Delaware Management Company, Inc. since
October 1992 and a Vice President and Counsel to Equitable since
prior to 1992.
Vincent S. Noto, 33, Controller, is an Assistant Vice
President of AFS, with which he has been associated since prior
to 1992.
While the Fund is a Maryland corporation, certain of its
Directors and officers are residents of the United Kingdom and
substantially all of the assets of such persons may be located
outside of the United States. As a result, it may be difficult
for U.S. investors to effect service of process on such Directors
or officers within the United States or to realize judgments of
courts of the United States predicated upon civil liabilities of
such Directors or officers under the federal securities laws of
the United States. The Fund has been advised that there is
substantial doubt as to the enforceability in the United Kingdom
of such civil remedies and criminal penalties as are afforded by
the federal securities laws of the United States. Also, it is
unclear if extradition treaties now in effect between the United
States and the United Kingdom would subject such Directors and
officers to effective enforcement of the criminal penalties of
the federal securities laws.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended July 31, 1997, the
aggregate compensation paid to each of the Directors during
calendar year 1996 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies (and separate investment portfolios within
those companies) in the Alliance Fund Complex with respect to
26
<PAGE>
which each of the Directors serves as a director or trustee, are
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
Total Number
Total Number of Investment
of Funds in Portfolios
the Alliance Within the
Total Fund Complex, Funds,
Compensation Including the Including
From the Fund, as to the Fund, as
Alliance Fund which the to which the
Aggregate Complex, Director is a Director is
Compensation Including the Director or a Director or
Name of Director From the Fund Fund Trustee Trustee
________________ _____________ _____________ ______________ _____________
John D. Carifa $0 $0 52 114
David H. Dievler $4,589 $182,000 45 79
John H. Dobkin $4,575 $121,250 31 52
W.H. Henderson $5,126 $ 31,750 5 5
Stig Host $5,126 $ 31,750 5 5
Richard M. Lilly $5,126 $ 31,750 5 5
Alan Stoga $4,750 $ 31,750 5 5
As of October 6, 1997, the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund. As
of October 6, 1997, Mr. Richard M. Lilly owned 1.30% of the
Advisor Class shares of the Fund.
____________________________________________________________
EXPENSES OF THE FUND
____________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Fund's shares and to permit the Fund to pay distribution
services fees to defray expenses associated with distribution of
its Class A shares, Class B shares and Class C shares in
accordance with a plan of distribution which is included in the
Agreement and has been duly adopted and approved in accordance
27
<PAGE>
with Rule 12b-1 adopted by the Commission under the 1940 Act (the
"Rule 12b-1 Plan").
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard the purpose and
function of the combined contingent deferred sales charge and
distribution services fee on the Class B shares and Class C
shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and/or distribution services
fee provide for the financing of the distribution of the relevant
class of the Fund's shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the
Fund on a quarterly basis. Also, the Agreement provides that the
selection and nomination of Directors who are not "interested
persons" of the Fund, as defined in the 1940 Act, are committed
to the discretion of such disinterested Directors then in office.
The Agreement became effective on July 22, 1992 and was
amended as of April 30, 1993 with respect to Class C shares and
June 20, 1996 with respect to Advisor Class shares.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
During the Fund's fiscal year ended July 31, 1997, with
respect to Class A shares, the Fund paid distribution services
fees for expenditures under the Agreement, in the aggregate
amount of $217,076 which constituted approximately .30% of the
Fund's average daily net assets attributable to the Class A
shares during the period, and the Adviser made payments from its
own resources as described above, aggregating $299,598. Of the
$516,674 paid by the Fund and the Adviser under the Plan, with
respect to the Class A shares, $51,672 was spent on advertising,
$3,971 on the printing and mailing of prospectuses for persons
other than current shareholders, $278,195 for compensation to
broker-dealers and other financial intermediaries (including,
$96,389 to the Fund's Principal Underwriter), $67,524 for
28
<PAGE>
compensation to sales personnel and, $115,312 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the Fund's fiscal year ended July 31, 1997, with
respect to Class B shares, the Fund paid distribution services
fees for expenditures under the Agreement in the aggregate amount
of $524,057, which constituted 1.00% of the Fund's average daily
net assets attributable to Class B shares during the period, and
the Adviser made payments from its own resources, as described
above, aggregating $425,837. Of the $949,894 paid by the Fund
and the Adviser under the Plan, with respect to Class B shares,
$43,717 was spent on advertising, $4,744 on the printing and
mailing of prospectuses for persons other than current
shareholders, $724,504 for compensation to broker-dealers and
other financial intermediaries (including, $81,592 to the Fund's
Principal Underwriter), $20,914 for compensation to sales
personnel, $87,890 was spent on printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses and $68,125 on interest on Class B shares financing.
During the Fund's fiscal year ended July 31, 1997, with
respect to Class C shares, the Fund paid distribution services
fees for expenditures under the Agreement, in the aggregate
amount of $135,749 which constituted approximately 1.00%,
annualized, of the Fund's average daily net assets attributable
to Class C shares during the period, and the Adviser made
payments from its own resources, as described above, aggregating
$146,600. Of the $282,349 paid by the Fund and the Adviser under
the Plan, with respect to Class C shares, $18,646 was spent on
advertising, $2,268 on the printing and mailing of prospectuses
for persons other than current shareholders, $193,775 for
compensation to broker-dealers and other financial intermediaries
(including, $34,934 to the Fund's Principal Underwriter), $19,880
for compensation to sales personnel, and $37,043 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses and $10,737 was spent on
on Class C shares financing.
The Agreement will continue in effect for successive
twelve-month periods (computed from each January 1), provided,
however, that such continuance is specifically approved at least
annually by the Directors of the Fund or by vote of the holders
of a majority of the outstanding voting securities (as defined in
the 1940 Act) of that class, and, in either case, by a majority
of the Directors of the Fund who are not parties to the Agreement
or "interested persons," as defined in the 1940 Act, of any such
party (other than as directors of the Fund) and who have no
direct or indirect financial interest in the operation of the
Rule 12b-1 Plan or any agreement related thereto. Most recently
the continuance of the Agreement until December 31, 1997 was
29
<PAGE>
approved by a vote, cast in person, of the Directors, including a
majority of the Directors who are not "interested persons", as
defined in the 1940 Act, at their meeting held on December 6-7,
1996.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that a particular class may bear
pursuant to the Agreement without the approval of a majority of
the holders of the outstanding voting shares of the class or
classes affected. The Agreement may be terminated (a) by the
Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting
separately by class or by a majority vote of the Directors who
are not "interested persons" as defined in the 1940 Act, or
(b) by the Principal Underwriter. To terminate the Agreement,
any party must give the other parties 60 days' written notice; to
terminate the Rule 12b-1 Plan only, the Fund need give no notice
to the Principal Underwriter. The Agreement will terminate
automatically in the event of its assignment.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class A shares, Class B shares,
Class C shares and Advisor Class shares of the Fund, plus
reimbursement for out-of-pocket expenses. The transfer agency
fee with respect to the Class B and Class C shares is higher than
the transfer agency fee with respect to the Class A and Advisor
Class shares, reflecting the additional costs associated with the
Class B and Class C contingent deferred sales charge. For the
fiscal year ended July 31, 1997, the Fund paid Alliance Fund
Services, Inc. $252,068 for transfer agency services.
30
<PAGE>
____________________________________________________________
PURCHASE OF SHARES
____________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares-How To Buy Shares."
General
Shares of the Fund 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 ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge, in each case as described below. Shares of
the Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
into selected agent agreements with the Principal Underwriter
("selected agents"), and (iii) the Principal Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, all of whom are not eligible to purchase and hold
Advisor Class shares) or, (iv) by directors and present or
retired full-time employees of CB Commercial Real Estate Group,
Inc. Generally, a fee-based program must charge an asset-based
or other similar fee and must invest at least $250,000 in Advisor
Class shares of the Fund in order to be approved by the Principal
Underwriter for investment in Advisor Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
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<PAGE>
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 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 Fund's
shares may receive differing compensation for selling Class A,
Class B, Class C or Advisor Class shares. The Fund may refuse
any order for the purchase of shares. The Fund reserves the
right to suspend the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below. On each
Fund business day on which a purchase or redemption order is
received by the 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 Fund's Articles of Incorporation 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 Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day
is any day on which the Exchange is open for trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset value of
the Class A and Advisor Class shares, as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
32
<PAGE>
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
applicable, is responsible for transmitting such orders by
5:00 p.m. If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as
applicable. If the selected dealer, agent or financial
representative, as applicable, receives the order after the close
of regular trading on the Exchange, the price will be based on
the net asset value determined as of the close of regular trading
on the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application 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, stock
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.
33
<PAGE>
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other Alliance Mutual
Funds, as defined below, during a specific period of time. On
some occasions, such cash or other incentives may take the form
of payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United
States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
do Class A shares, and Advisor Class shares do not bear such a
fee, (iii) Class B and Class C shares bear higher transfer agency
costs than do Class A and Advisor Class shares, (iv) each of
Class A, Class B and Class C shares has exclusive voting rights
with respect to provisions of the Rule 12b-1 Plan pursuant to
which its distribution services fee is paid and other matters for
which separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class A
shareholders, an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class A shares, then such amendment will also be submitted
to the Class B shareholders and Advisor Class shareholders and
the Class A shareholders, the Class B shareholders and the
Advisor Class shareholders will vote separately by class, and
(v) Class B shares and Advisor Class shares are subject to a
conversion feature. Each class has different exchange privileges
and certain different shareholder service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
34
<PAGE>
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**
Class A, Class B and Class C shares have the following
alternative purchase arrangements: Class A shares are sold to
investors choosing the initial sales charge alternative, Class B
shares are sold to investors choosing the deferred sales charge
alternative, and Class C shares are sold to investors choosing
the asset-based sales charge alternative. These alternative
purchase arrangements 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
Fund, the accumulated distribution services fee and contingent
deferred sales charges on Class B shares prior to conversion, or
the accumulated distribution services fee and contingent deferred
sales charges on Class C shares, would be less than the initial
sales charge and accumulated distribution services fee on Class A
shares purchased at the same time, and to what extent such
differential would be offset by the higher return of Class A
shares. Class A shares will normally be more beneficial than
Class B shares to the investor who qualifies for reduced initial
sales charges on Class A shares, as described below. In this
regard, the Principal Underwriter will reject any order (except
orders from certain retirement plans) 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
____________________
** Advisor Class shares are sold only to investors described
above in this section under "--General."
35
<PAGE>
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 of Class A shares. In
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value
of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
four-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Fund's fiscal year ended July 31, 1997,
July 31, 1996 and July 31, 1995, the aggregate amount of
underwriting commission payable with respect to shares of the
Fund were $210,208, $131,250 and $97,846, respectively. Of that
amount, the Principal Underwriter received the amounts of
$10,280, $20,247 and $4,412, respectively, representing that
portion of the sales charges paid on shares of the Fund sold
during the year which was not reallowed to selected dealers (and
was, accordingly, retained by the Principal Underwriter). During
the Fund's fiscal years ended in 1997, 1996 and 1995, the
Principal Underwriter received contingent deferred sales charges
of $3,183, $-0- and $-0-, respectively, on Class A Shares,
$109,336, $92,235 and $159,380, respectively, on Class B shares,
and $9,181, $-0- and $-0-, 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.
36
<PAGE>
Sales Charge
Discount Or
Commission
As % of To Dealers
As % of the Public Or Agents
Amount of Net Amount Offering As % of
Purchase 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 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 offering price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gain 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 Fund in
connection with the sales of Class A shares, such as the payment
37
<PAGE>
of compensation to selected dealers and agents for selling
Class A Shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "Class B
Shares - Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares". The Fund receives the entire net
asset value of its Class A shares sold to investors. The
Principal Underwriter's commission is the sales charge shown
above 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 reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities
Act.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of
the Fund at July 31, 1997.
38
<PAGE>
Net Asset Value per Class A Share $18.61
at July 31, 1997
Class A Per Share Sales Charge -
4.25% of offering price (4.44% of
net asset value per share) .83
_____
Class A Per Share Offering Price
to the public $19.44
======
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
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 to 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 the 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 the 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 the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
The Alliance Fund, Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
39
<PAGE>
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
40
<PAGE>
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right Of Accumulation).
An investor's purchase of additional Class A shares of the Fund
may qualify for a Cumulative Quantity Discount. The applicable
sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all shares of the Fund held by the
investor and (b) all shares of any other Alliance Mutual Fund
held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder eligible to combine
his or her purchase with that of the investor into a single
"purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the initial sales charge for the $100,000
purchase would be at the 2.25% rate applicable to a single
$300,000 purchase of shares of the Fund, rather than the 3.25%
rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the 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 the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs a Statement of Intention; however, the 13-month period
41
<PAGE>
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 the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a total of $60,000 during the following 13 months in
shares of the Fund or any other Alliance Mutual Fund, to qualify
for the 3.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher 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 sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in sales charge will
be used to purchase additional shares of the Fund subject to the
rate of the sales charge applicable to the actual amount of the
aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the 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 Alliance Fund Services, Inc.
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 the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of the shares of the Fund will be that normally
42
<PAGE>
applicable, under the schedule of the sales charges set forth in
this Statement of Additional Information, 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 purchase 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 the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinstatement of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the repurchase or redemption transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without an 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 Directors of the
Fund; 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,
Alliance Fund Services, Inc. and their affiliates; officers and
directors of ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates; officers, directors and
present full-time employees of selected dealers or agents; or the
spouse, sibling, direct ancestor or direct descendent
(collectively, "relatives") of any such person; or any trust,
43
<PAGE>
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 sales are made for investment
purposes (such shares may not be resold except to the Fund);
(iii) the Adviser, Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates; certain employee benefit
plans for employees of the Adviser, the Principal Underwriter,
Alliance Fund Services, Inc. and their affiliates;
(iv) registered investment advisers or other financial
intermediaries who charge a management, consulting or other fee
for their services 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 other financial intermediary, or its affiliate
or agent, for service in the nature of investment advisory or
administrative services;
(vi) persons who establish to the Principal
Underwriter's satisfaction that they are investing, within such
time period as may be designated by the Principal Underwriter,
proceeds of redemption of shares of such other registered
investment companies as may be designated from time to time by
the Principal Underwriter; and
(vii) employer-sponsored qualified pensions 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
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sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
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 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 Fund to sell the 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 until the time of
redemption of such shares.
45
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Contingent Deferred Sales Charge as a %
of Dollar Amount Subject to Charge
Shares purchased Shares purchased
before on or after
Year Since Purchase November 19, 1993 November 19, 1993
First 5.5% 4.0%
Second 4.5% 3.0%
Third 3.5% 2.0%
Fourth 2.5% 1.0%
Fifth 1.5% None
Sixth 0.5% None
Seventh and thereafter None None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions) and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the 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 Directors of the Fund, 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. Eight years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
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For purposes of conversion to Class A, 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, 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.
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 one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the 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 the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees than Class A shares, and 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 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
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<PAGE>
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
related to Class A shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts and employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in a
fee-based program or plan that satisfies the requirements to
purchase shares set forth under "Purchase of Shares--General" or
(ii) the holder is otherwise no longer eligible to purchase
Advisor Class shares as described in the Advisor Class Prospectus
and this Statement of Additional Information (each, a "Conversion
Event"), then all Advisor Class shares held by the shareholder
will convert automatically and without notice to the shareholder,
other than the notice contained in the Advisor Class Prospectus
and this Statement of Additional Information, to Class A shares
of the Fund during the calendar month following the month in
which the Fund is informed of the occurrence of the Conversion
Event. The failure of a shareholder or a fee-based program to
satisfy the minimum investment requirements to purchase Advisor
Class shares shall not constitute a Conversion Event. The
conversion would occur on the basis of the relative net asset
48
<PAGE>
values of the two classes and without the imposition of any sales
load, fee or other charge. Class A shares currently bear a .30%
distribution services fee and have a higher expense ratio than
Advisor Class shares. As a result, Class A shares may pay
correspondingly lower dividends and have a lower net asset value
than Advisor Class shares. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
____________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
____________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares --How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A, Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within
seven days after the Fund's receipt of such tender for
49
<PAGE>
redemption. If a shareholder is in doubt about what documents
are required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the the Exchange is closed (other than customary
weekend and holiday closings) or during which the Commission
determines that trading thereon is restricted, or for any period
during which an emergency (as determined by the Commission)
exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or as a result of which
it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or for such other periods as the
Commission may by order permits for the protection of security
holders of the 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 the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his shares, assuming the shares
constitute capital assets in his hands, will result in long-term
or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the 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 "eligible guarantor institution" as defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the 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
stock 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 stock certificate or certificates or, where
50
<PAGE>
tender is made by mail, separately mailed to the 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
fund transfer once in any 30 day period (except for certain
omnibus accounts) of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request may not exceed $100,000 (except
for certain omnibus accounts), and must be made by 4:00 p.m.
Eastern time on a Fund business day as defined above. Proceeds
of telephone redemptions will be sent by electronic funds
transfer to a shareholder's designated bank account at a bank
selected by the shareholder that is a member of the NACHA.
Telephone Redemption By Check. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check, once in any 30-day
period, of Fund shares for which no stock 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. Telephone redemption by check 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. A shareholder otherwise eligible for
telephone redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., 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 Alliance Fund Services, Inc. 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 Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Neither the Fund
nor the Adviser, the Principal Underwriter or Alliance Fund
Services, Inc. will be responsible for the authenticity of
telephone requests for redemptions that the Fund reasonably
51
<PAGE>
believes to be genuine. The Fund 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 the Fund
did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers or agents may charge a commission for handling
telephone requests for redemptions.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A shares, Class B shares and Class C
shares), except that requests placed through selected dealers or
agents before the close of regular trading on the Exchange on any
day will be executed at the net asset value determined as of such
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. If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A shares, Class B shares and Class C shares).
Normally, if shares of the Fund are offered through a financial
intermediary or selected dealer or agent, the repurchase is
settled by the shareholder as an ordinary transaction with or
through the selected dealer or agent, who may charge the
shareholder for this service. The repurchase of shares of the
Fund as described above is a voluntary service of the Fund and
the Fund may suspend or terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
52
<PAGE>
of the Fund recently purchased by check, redemption proceeds will
not be made available until the 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 Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. 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 Fund 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, Alliance
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<PAGE>
Fund Services, Inc. and their affiliates may, on a tax-free
basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by Alliance Fund Services,
Inc. 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
Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. With respect to exchanges of Class A
shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal tax purposes. The exchange
service may be changed, suspended, or terminated on 60 days
written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
54
<PAGE>
Alliance Fund Services, Inc., 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
stock 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 Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. 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 Alliance Fund Services, Inc. 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 following
Fund business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund 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 the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
55
<PAGE>
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund 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 Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. 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 the 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
other 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 $1 million
on or before December 15 in any year, all Class B or C shares of
the Fund held by the plan can be exchanged, at the Plan's
request, without any sales charge, for Class A shares of the
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
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<PAGE>
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirements plans under which an employee may agree that moneys
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
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund accounts,
a Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on the shareholder's Class A, Class B,
Class C or Advisor Class Fund shares be automatically reinvested,
in any amount, without the payment of any sales or service
charges, in shares of the same class of such other Alliance
Mutual Fund(s). Further information can be obtained by contacting
Alliance Fund Services, Inc. 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 Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the 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
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than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the 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 the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the 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 Alliance Fund Services, Inc. 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
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<PAGE>
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 of the Fund 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 Fund's independent auditors, Ernst & Young LLP, as
well as a confirmation of each purchase and redemption. By
contacting his or her broker or Alliance Fund Services, Inc., a
shareholder can arrange for copies of his or her account
statements to be sent to another person.
________________________________________________________________
NET ASSET VALUE
________________________________________________________________
The net asset value per share is computed in accordance
with the Fund's Articles of Incorporation and By-Laws as of the
next close of trading on the Exchange (currently 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
(and on such other day as the Directors of the Fund deem
necessary in order to comply with Rule 22c-1 under the 1940 Act,
by dividing the value of the Fund's total assets less its
liabilities, by the total number of the Fund's shares then
outstanding. For this purpose, a Fund's business day is any
weekday exclusive of New Year's Day, Washington's Birthday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The Fund intends to calculate and make available for
daily publication the net asset value of its shares. Net asset
value per share will be determined by adding the market value of
all securities in the Fund's portfolio and other assets,
subtracting liabilities accrued, and dividing by the total number
of the Fund's shares then outstanding.
All securities listed on a European stock exchange for
which market quotations are readily available are valued at the
closing price on the exchange on the day of valuation or, if no
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<PAGE>
such closing price is available, at the last bid price on such
day. Other securities, including securities of issuers within
Eastern European countries, for which market quotations are
readily available will be valued in a like manner. Options will
be valued at such market value or fair value if no market exists.
Futures contracts will be valued in a like manner, except that
open futures contracts sales will be valued using the closing
settlement price or, in the absence of such a price, the most
recent quoted asked price. If there are no quotations available
for the day of valuations, the last available closing price will
be used. However, readily marketable fixed income securities may
be valued on the basis of prices provided by a pricing service
when such prices are believed by the Adviser to reflect the fair
market value of such securities. The prices provided by a
pricing service take into account institutional size trading in
similar groups of securities and any developments related to
specific securities. Securities, including securities of issuers
within Eastern European countries, and assets for which market
quotations are not readily available (including investments that
are subject to limitations as to their sale) are valued at fair
value as determined in good faith by the Fund's Board of
Directors. In making this determination, the Board of Directors
will consider, among other things, publicly available information
regarding an issue, recent transactions in the issuer's
securities, market conditions, and values ascribed to comparable
investments in companies in the country where the particular
issuer is located.
Short-term debt securities that mature in less than 60
days are valued at amortized cost if their term to maturity from
date of purchase was less than 60 days, or by amortizing their
value on the 61st day prior to maturity if their term to maturity
from date of purchase when acquired by the Fund was more than 60
days, unless such amortized cost is determined by the Board of
Directors not to represent fair value.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in
foreign currencies 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 foreign exchange market or on the basis of a
pricing service that takes into account the quotes provided by a
number of such major banks.
The Directors may suspend the determination of the
Fund's net asset value (and the offering and sales of shares),
subject to the rules of the Commission and other governmental
rules and regulations at time when: (1) the New York Stock
Exchange is closed, other than customary weekend and holiday
closing, (2) an emergency exists as a result of which it is not
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reasonably practical for the Fund to dispose of securities owned
by it or to determine fairly the value of its net assets, or
(3) for the protection of shareholders, the Commission by order
permits a suspension of the right of redemption or a postponement
of the date of payment on redemption.
The assets belonging to the Class A shares, the Class B
shares, the Class C shares and the Advisor Class shares will be
invested together in a single portfolio. The net asset value of
each class will be determined separately by subtracting the
expenses and liabilities allocated to that class from the assets
belonging to that class.
____________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
____________________________________________________________
Foreign Income Taxes. Investment income received by the
Fund from sources within foreign countries may be subject to
foreign income taxes withheld at the source. The United States
has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of such taxes or exemption
from taxes on such income. It is impossible to determine the
effective rate of foreign tax in advance since the amount of the
Fund's assets to be invested within various countries is not
known.
U.S. Federal Income Taxes. The Fund intends for each
year to qualify for tax treatment as a "regulated investment
company" under the Code. To the extent that the Fund distributes
its taxable income and net capital gain to its shareholders,
qualification as a regulated investment company and the
satisfaction of certain distribution requirements contained in
the Code relieves the Fund of federal income and excise taxes.
Investors should consult their own counsel for a complete
understanding of the requirements the Fund must meet to qualify
for such treatment. The following discussion relates solely to
U.S. federal income taxes on dividends and distributions by the
Fund and assumes that the Fund qualifies as a regulated
investment company. Investors should consult their own counsel
for further details, including their entitlement to foreign tax
credits that might be "passed through" to them under the rules
described below, and the application of state and local tax laws
to his or her particular situation.
Income dividends and distributions of any realized
short-term capital gains are included in the income of U.S.
shareholders as ordinary income. Pursuant to the Taxpayer Relief
Act of 1997, two different tax rates apply to net capital gains--
that is, the excess of net gains from capital assets held for
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more than one year over net losses from capital assets held for
not more than one year. One rate (generally 28%) applies to net
gains on capital assets held for more than one year but not more
than 18 months ("mid-term gains"), and a second rate (generally
20%) applies to the balance of such net capital gains ("adjusted
net capital gains"). Except as noted below, distributions of net
capital gains will be treated in the hands of shareholders as
mid-term gains to the extent designated by the Fund as deriving
from net gains from assets held for more than one year but not
more than 18 months, and the balance will be treated as adjusted
net capital gains. Gains derived from assets sold before May 7,
1997 and held for more than 18 months will be treated as mid-term
gains. Gains derived from assets sold after May 6, 1997 and
before July 19, 1997 and held for more than one year will be
treated as adjusted net capital gains. Distributions of mid-term
gains and adjusted net capital gains will be taxable to
shareholders as such, regardless of how long a shareholder has
held shares of the Fund. The dividends-received deduction for
corporations will not be applicable to any portion of the Fund's
dividends of net ordinary income and distributions of net
realized short-term capital gains.
Under current federal tax law the amount of an income
dividend or capital gains distribution declared by the Fund
during October, November or December of a year to shareholders of
record as of a specified date in such a month that is paid during
January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Income received by the Fund from sources within various
foreign countries may be subject to foreign income tax. If more
than 50% of the value of the Fund's total assets at the close of
its taxable year consists of the stock or securities of foreign
corporations, the Fund may elect to "pass through" to the Fund's
shareholders the amount of foreign income taxes paid by the Fund.
Pursuant to such election, shareholders would be required: (i) to
include in gross income, even though not actually received, their
respective pro-rata shares of the Fund's gross income from
foreign sources; (ii) treat their pro rata share of such foreign
taxes as having been paid by them; and (iii) either to deduct
their pro-rata share of foreign taxes in computing their taxable
income, or to use it as a foreign tax credit against federal
income (but not both). No deduction for foreign taxes could be
claimed by a shareholder who does not itemize deductions. In
addition, certain shareholders may be subject to rules which
limit their ability to fully deduct, or claim a credit for, their
pro rata share of the foreign taxes paid by the Fund. A
shareholder's foreign tax credit with respect to a dividend
received from the Fund will be disallowed unless the shareholder
holds shares in the Fund on the ex-dividend date and for at least
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15 other days during the 30-day period beginning 15 days prior to
the ex-dividend date.
The Fund intends to meet for each fiscal year, the
requirements of the Code to "pass through" to its shareholder
foreign income taxes paid, but there can be no assurance that the
Fund will be able to do so. Each shareholder will be notified
within 60 days after the close of each taxable year of the Fund
whether the foreign taxes paid by the Fund will "pass through"
for that year, and, if so, the amount of each shareholder's pro-
rata share (by country) of (i) the foreign taxes paid, and
(ii) the Fund's gross income from foreign sources. Shareholders
who are not liable for federal income taxes, such as retirement
plans qualified under Section 401 of the Code, will not be
affected by any such "pass through" of foreign tax credits.
Backup Withholding. The Fund may be required to
withhold United States federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification
numbers or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to
backup withholding. Corporate shareholders and certain other
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a shareholder's
United States federal income tax liability or refunded.
United States Federal Income Taxation Of the Fund
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
Currency Fluctuations--"Section 988" Gains or Losses.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly,
gains or losses from the disposition of foreign currencies, from
the disposition of debt securities denominated in a foreign
currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also
are treated as ordinary gain or loss. These gains or losses,
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referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. To the
extent that such distributions exceed such shareholder's basis,
each will be treated as a gain from the sale of shares.
Options, Futures Contracts, and Forward Foreign Currency
Contracts. Certain listed options, regulated futures contracts,
and forward foreign currency contracts are considered "section
1256 contracts" for federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will
be "marked to market" and treated for federal income tax purposes
as though sold for fair market value on the last business day of
such taxable year. Gain or loss realized by the Fund on section
1256 contracts other than forward foreign currency contracts will
be considered 60% long-term and 40% short-term capital gain or
loss. Gain or loss realized by the Fund on forward foreign
currency contracts will be treated as section 988 gain or loss
and will therefore be characterized as ordinary income or loss
and will increase or decrease the amount of the Fund's net
investment income available to be distributed to shareholders as
ordinary income, as described above. The Fund can elect to
exempt its section 1256 contracts which are part of a "mixed
straddle" (as described below) from the application of section
1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations under this authority generally should not apply to
the type of hedging transactions in which the Fund intends to
engage.
Gain or loss realized by the Fund on the lapse or sale
of put and call options on foreign currencies which are traded
over-the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
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above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund. In
general, if the Fund exercises such an option on a foreign
currency, or if such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, or forward
foreign currency contract, or other position entered into or held
by the Fund in conjunction with any other position held by the
Fund may constitute a "straddle" for federal income tax purposes.
A straddle of which at least one, but not all, the positions are
section 1256 contracts may constitute a "mixed straddle". In
general, straddles are subject to certain rules that may affect
the character and timing of the Fund's gains and losses with
respect to straddle positions by requiring, among other things,
that (i) loss realized on disposition of one position of a
straddle not be recognized to the extent that the Fund has
unrealized gains with respect to the other position in such
straddle; (ii) the Fund's holding period in straddle positions be
suspended while the straddle exists (possibly resulting in gain
being treated as short- term capital gain rather than long-term
capital gain); (iii) losses recognized with respect to certain
straddle positions which are part of a mixed straddle and which
are non-section 1256 positions be treated as 60% long-term and
40% short-term capital loss; (iv) losses recognized with respect
to certain straddle positions which would otherwise constitute
short-term capital losses be treated as long- term capital
losses; and (v) the deduction of interest and carrying charges
attributable to certain straddle positions may be deferred. The
Treasury Department is authorized to issue regulations providing
for the proper treatment of a mixed straddle where at least one
position consists of an ordinary asset and at least one position
consists of a capital asset. No such regulations have yet been
issued. Various elections are available to the Fund which may
mitigate the effects of the straddle rules, particularly with
respect to mixed straddles. In general, the straddle rules
described above do not apply to any straddles held by the Fund
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all of the offsetting positions of which consist of section 1256
contracts.
Taxation of Foreign Stockholders. The foregoing
discussion relates only to U.S. federal income tax law as it
affects shareholders who are U.S. residents or U.S. corporations.
The effects of federal income tax law on shareholders who are
non- resident aliens or foreign corporations may be substantially
different. Foreign investors should consult their counsel for
further information as to the U.S. tax consequences of receipt of
income from the Fund.
________________________________________________________________
BROKERAGE AND PORTFOLIO TRANSACTIONS
________________________________________________________________
Subject to the general supervision of the Fund's Board
of Directors, the Adviser is responsible for the investment
decisions and the placing of the orders for portfolio
transactions for the Fund. The Fund intends to allocate
portfolio transactions for execution by banks and brokers that
offer best execution, taking into account such factors as size of
order, difficulty of execution and skill required to execute, in
the case of agency transactions, the commission, and in the case
of principal transactions, the net price. Brokerage commission
rates in certain countries in which the Fund may invest may be
discounted for certain large domestic and foreign investors such
as the Fund. Any number of banks and brokers may be used for
execution of the Fund's portfolio transactions.
Subject to best execution, orders may be placed with
banks and brokers that supply research, market and statistical
information to the Fund and the Adviser. The research may be
used by the Adviser in advising other clients, and the Fund's
negotiated commissions to brokers and banks supplying research
may not represent the lowest obtainable commission rates.
Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc. and subject to seeking
the most favorable price and execution available and other such
policies as the Directors may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
Most transactions for the Fund's portfolio in equity
securities will occur on foreign stock exchanges. Transactions
on stock exchanges involve the payment of brokerage commissions.
On many foreign stock exchanges these commissions are fixed.
Securities traded in foreign over-the-counter markets (including
most fixed-income securities) are purchased from and sold to
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dealers acting as principal. Over-the-counter transactions
generally do not involve the payment of a stated commission, but
the price usually includes an undisclosed commission or markup.
The prices of underwritten offerings, however, generally, include
a stated underwriter's discount.
The Adviser expects to effect the bulk of its
transactions in securities of companies based in Europe through
brokers, dealers or underwriters located in such countries. U.S.
Government or corporate debt or other U.S. securities
constituting permissible investments will be purchased and sold
through U.S. brokers, dealers or underwriters. The Fund is
permitted to place brokerage orders with Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), a U.S. registered
broker-dealer and an affiliate of the Adviser. With respect to
orders placed with DLJ for execution on a 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 Fund), or
any affiliated person of such person to receive a brokerage
commission from such registered company provided that such
commission is reasonable and fair compared to the commission
received by other brokers in connection with comparable
transactions involving similar securities during a comparable
period of time.
During the fiscal years ended in 1997, 1996 and 1995,
the Fund incurred brokerage commissions amounting in the
aggregate to $1,511,793, $316,516 and $314,188, respectively.
During the fiscal years ended in 1997, 1996 and 1995, brokerage
commissions amounting in the aggregate to $0, $0 and $0,
respectively, were paid to DLJ and brokerage commissions
amounting in the aggregate to $0, $0, and $0, respectively, were
paid to brokers utilizing the Pershing Division of DLJ. During
the fiscal year ended July 31, 1997, the brokerage commissions
paid to DLJ constituted 0% of the Fund's aggregate brokerage
commissions and the brokerage commissions paid to brokers
utilizing the Pershing Division of DLJ constituted 0% of the
Fund's aggregate brokerage commissions. During the fiscal year
ended in July 31, 1997, of the Fund's aggregate dollar amount of
brokerage transactions involving the payment of commissions, 0%
were effected through DLJ and 0% were effected through brokers
utilizing the Pershing Division of DLJ. During the fiscal year
ended July 31, 1997, transactions in portfolio securities of the
Fund aggregating $46,430,542 with associated brokerage
commissions of approximately $-0- were allocated to persons or
firms supplying research services to the Fund or the Adviser.
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________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The Fund was organized as a Maryland corporation in
January 1990. The authorized Capital Stock of the Fund consists
of 50,000,000 shares of Class A Common Stock, 50,000,000 shares
of Class B Common Stock, 50,000,000 shares of Class C Common
Stock and 50,000,000 shares of Advisor Class Common Stock, each
having a par value of $.01 per share. All shares of the Fund,
when issued, are fully paid and non-assessable.
The Directors are authorized to reclassify and issue any
unissued shares to any number of additional classes or series
without shareholder approval. Accordingly, the Directors in the
future, for reasons such as the desire to establish one or more
additional portfolios with different investment objectives,
policies or restrictions, may create additional classes or series
of shares. Any issuance of shares of another class would be
governed by the 1940 Act and the law of the State of Maryland. If
shares of another class were issued in connection with the
creation of a second portfolio, each share of either portfolio
would normally be entitled to one vote for all purposes.
Generally, shares of both portfolios would vote as a single
series for the election of Directors and on any other matter that
affected both portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of
the Advisory Agreement and changes in investment policy, shares
of each portfolio would vote as separate classes.
The Fund's shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares
voting for election of Directors can elect 100% of the Directors
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
Directors will not be able to elect any persons or persons as
Directors.
Procedures for calling a shareholder's meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act, are available to shareholders of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders. The rights of the holders of
shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
As of the close of business on October 6, 1997, there
were 4,219,171 Class A, 3,752,087 Class B, 966,202 Class C and
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201,302 Advisor Class shares of common stock of the Fund
outstanding. To the knowledge of the Fund, the following persons
owned of record or beneficially, 5% or more of the outstanding
shares of the Fund as of October 15, 1997:
Name and Address Shares % of Class
MLPF&S
For the Sole Benefit of
Its Customers
Attn Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville,
FL 32246-6486 272,965 6.47%
of Class A
MLPF&S
For the Sole Benefit of
Its Customers
Attn Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville,
FL 32246-6486 1,098,146 29.27%
of Class B
MLPF&S
For the Sole Benefit of
Its Customers
Attn Fund Administration
4800 Deer Lake Dr.
East 3rd Floor
Jacksonville,
FL 32246-6486 448,142 46.38%
of Class C
Meiji Mutual Life Insurance
Company
Separate Acct. #161
Attn Tatsuya Mori
1-1 Marunouchi 2-chrome
Chiyoda-Ku
Tokyo 100 Japan 38,311 19.03%
of Advisor Class
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Meiji Mutual Life Insurance
Company
Separate Acct. #162
Attn Tatsuya Mori
1-1 Marunouchi 2-chrome
Chiyoda-Ku
Tokyo 100 Japan 74,198 36.86%
of Advisor Class
Trust For Profit Sharing
Plan For Employees of Alliance
Capital Mgmt. L.P. Plans
Attn Jill Smith 32nd Fl
1345 Avenue of the Americas
New York NY 10105-0302 77,226 38.36%
of Advisor Class
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement, the Fund has agreed to indemnify the
Principal Underwriter, in the absence of its willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations thereunder, against certain civil liabilities,
including liabilities under the Securities Act.
Counsel
Legal matters in connection with the issuance of the
shares of Common Stock offered hereby are passed upon by Seward &
Kissel, New York, New York. Seward & Kissel has relied upon the
opinion of Venable, Baetjer and Howard, LLP, Baltimore, Maryland,
for matters relating to Maryland law.
Independent Auditors
Ernst & Young LLP, New York, New York, have been
appointed independent auditors for the Fund.
Performance Information
From time to time, the Fund advertises its "total
return." Such advertisements disclose the Fund's average annual
compounded total return for a recent one year period and the
period since the Fund's inception. The Fund's total return for
each such period is computed, through the use of a formula
prescribed by the Commission, by finding the average annual
compounded rate of return over the period that would equate an
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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 the 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.
From April 2, 1990 through February 11, 1991, the Fund
operated as a closed-end investment company. On February 11,
1991, the Fund commenced operations as an open-end investment
company and all outstanding shares of the Fund were reclassified
as Class A shares. The Fund's average annual compounded total
return for the one, five and ten year periods ended July 31, 1997
(or since inception through that date, as noted) was as follows:
12 months Ended 5 Years Ended 10 Years Ended
7/31/97 7/31/97 7/31/97
Class A 23.32% 15.87% 9.90%*
Class B 23.76% 16.07% 12.28%*
Class C 26.73% 17.66%* N/A
Advisor Class 25.76%* N/A N/A
*Inception Dates: Class A - February 11, 1991
Class B - March 5, 1991
Class C - May 3, 1993
Advisor Class - October 1, 1996
The Fund's total return is computed separately for
Class A, Class B, Class C and Advisor Class shares. The 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. 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 the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar Inc. and advertisements presenting the historical
performance of the Fund 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 the Fund may also from
time to time be sent to investors. In addition, written material
prepared by the organization mentioned above may also be used in
advertisements and sales literature.
71
<PAGE>
Custodian
The Bank of New York, 48 Wall Street, New York, New
York, will act as the Fund's custodian for the assets of the Fund
but plays no part in deciding the purchase or sale of portfolio
securities. Subject to the supervision of the Fund's Directors,
The Bank of New York may enter into sub-custodial agreements for
the holding of the Fund's foreign securities.
Additional Information
Any shareholder inquiries may be directed to the
shareholders broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information.
This Statement of Additional Information does not
contain all the information set forth in the Registration
Statement filed by the Fund with the Commission under the
Securities Act. Copies of the Registration Statement may be
obtained at a reasonable charge from the Commission or may be
examined, without charge, at the offices of the Commission in
Washington, D.C.
72
<PAGE>
_______________________________________________________________
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS
_______________________________________________________________
73
<PAGE>
ALLIANCE NEW EUROPE FUND
ANNUAL REPORT
JULY 31, 1997
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
JULY 31, 1997 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-91.7%
DENMARK-1.6%
Den Danske Bank 18,000 $ 1,898,355
Sophus Berendsen A. S. Ser. B 5,800 818,345
------------
2,716,700
FINLAND-3.8%
Huhtamaki Group Ser. I 24,780 1,118,095
Kesko 47,600 666,843
Nokia Corp. 12,000 1,035,960
Orion-yhtyma Oy Ser. B 39,600 1,433,751
Outokumpu Oy Ser. A 36,100 683,071
Rauma Group Oy 32,000 703,303
Rautaruukki Oy 45,000 462,580
UPM-Kymmene Corp. Oy 9,380 227,488
------------
6,331,091
FRANCE-15.4%
Accor, S.A. (a) 9,918 1,492,621
Alcatel Alsthom (Cie Generale) (a) 11,400 1,489,234
Assurances Generales de France (a) 57,000 2,047,926
Axime (a) (b) 16,000 1,785,285
Eaux (Cie Generale) 11,292 1,427,717
Warrants expiring 5/02/01 11,292 6,747
Elf Aquitaine, S.A. (a) 24,900 2,842,681
GTM Entrepose, S.A. (a) 12,740 717,555
Legris Industries, S.A. (a) 25,884 1,128,508
Michelin (CGDE) Ser. B (a) 23,850 1,485,414
Pechiney, S.A. Ser.A (a) 27,000 1,172,368
Salomon, S.A. (a) 10,500 805,364
SEFIMEG (a) 9,700 596,769
SGS - Thomson Microelectronics N.V. (a) (b) 13,700 1,241,060
Societe Generale (a) 8,000 1,056,703
Total, S.A. Cl.B (a) 37,662 3,782,711
Unibail 11,720 1,069,265
Usinor Sacilor (a) 71,000 1,415,907
------------
25,563,835
GERMANY-7.4%
Adidas A.G. 8,500 997,013
Deutsche Telekom A.G. 35,700 843,307
Lufthansa A.G. 104,000 2,092,425
Mannesmann A.G. 2,900 1,351,181
Preussag A.G. 5,000 1,515,069
Schmalbach Lubeca A.G. 6,740 1,374,353
Sueddeutsche Zucker A.G. 2,833 1,356,886
Veba A.G. 24,000 1,393,212
Volkswagen A.G. 1,760 1,347,597
------------
12,271,043
ITALY-3.1%
Edison S.p.A. 101,900 473,504
Eni S.p.A (Ente Nazionale Idrocarburi) 317,000 1,854,096
Saipem S.p.A. 66,400 330,028
Telecom Italia S.p.A. 375,388 2,387,205
------------
5,044,833
NETHERLANDS-9.1%
Akzo Nobel 26,500 4,100,323
Fortis Amev N.V. 48,100 2,187,735
International Nederlanden Groep NV 77,000 3,743,597
Philips Electronics N.V. 32,700 2,649,689
Stork N.V. 24,000 963,102
Thermo Eurotech N.V. (b) (c) 160,000 463,030
Vendex International N.V. 18,000 927,217
------------
15,034,693
NORWAY-1.5%
Bergesen Cl.A 63,850 1,634,115
Orkla A.S.A. Ser. A 11,800 852,699
------------
2,486,814
PORTUGAL-0.4%
Electricidade de Portugal, S.A. 40,000 678,400
8
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
SPAIN-1.8%
Banco Santander, S.A. 37,800 $ 1,054,759
Tabacalera, S.A. Ser. A 24,500 1,305,848
Unidad Editorial, S.A. (b) (c) 549,920 565,707
------------
2,926,314
SWEDEN-4.5%
ABB AB Ser. A 121,600 1,622,837
Autoliv, Inc. (b) 27,000 947,357
Granges AB (b) 55,900 826,581
Pricer AB Ser. B (b) 23,500 827,496
Sparbanken Sverige AB Ser. A 67,000 1,473,478
Stora Kopparbergs Ser. B 70,878 1,163,521
Trygg-Hansa AB Ser. B 34,017 660,723
------------
7,521,993
SWITZERLAND-11.3%
Baloise Holdings 740 1,803,447
Ciba Specialty Chemicals A.G. (b) 34,500 3,178,621
Holderbank Financiere Glarus A.G. 1,000 933,228
Nestle, S.A. 1,570 1,989,849
Novartis A.G. 3,450 5,530,117
Schindler Holding A.G. 1,330 1,747,157
Sairgroup A.G. (b) 1,130 1,448,603
Zurich Versicherungsgesellschaft 5,200 2,115,580
------------
18,746,602
UNITED KINGDOM-31.7%
BAA Plc. 114,000 1,072,869
Bass Plc. 135,000 1,847,602
Beazer Group Plc. 225,000 596,298
BPB Plc. 315,100 1,734,800
British Aerospace Plc. 133,000 2,910,404
British Airways Plc. 90,000 980,662
British Petroleum Co. Plc. 212,000 2,903,159
Cable & Wireless Plc. 266,100 2,676,788
Compass Group Plc. 169,000 1,697,253
Energy Group Plc. 99,200 1,059,745
General Accident Plc. 90,000 1,358,748
General Electric Co.Plc. 368,200 2,132,883
Holliday Chemical Holdings Plc. 324,000 725,749
Kingfisher Plc. 104,300 1,232,325
Ladbroke Group Plc. 453,100 1,825,384
Lloyds TSB Group Plc. 89,000 986,561
National Grid Group Plc. 453,000 1,910,469
Next Plc. 7,700 95,968
Pearson Plc. 134,700 1,505,301
Rank Group Plc. 284,000 1,607,852
Reed International Plc. 238,200 2,392,224
Reuters Holdings Plc. 101,600 1,097,054
Rio Tinto Plc. 58,000 940,834
Royal & Sun Alliance Insurance Group Plc. 122,000 1,005,014
Rugby Group Plc. 498,000 911,198
Scottish Power Plc. 70,000 495,090
Shell Transport & Trading Co. Plc. 335,700 2,481,731
Siebe Plc. 123,000 2,213,208
SmithKline Beecham Plc. 82,000 1,600,615
TI Group Plc. 230,000 2,055,106
Tomkins Plc. 519,000 2,610,396
United Assurance Group Plc. 158,000 1,107,117
United News & Media Plc. 125,100 1,444,209
Vodafone Group Plc. 251,000 1,266,565
------------
52,481,181
OTHER-0.1%
Asesores Bursatiles Capital
Fund N.V. (b) (c) 8 159,189
Total Common Stocks & Other Investments
(cost $120,194,761) 151,962,688
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
PREFERRED STOCKS-2.3%
GERMANY-2.3%
Henkel KGaA Vz 39,240 $ 2,184,143
Hornbach Holding A.G. 10,000 722,237
Klein, Schanz & Beck 3,440 868,640
ProSieben Media A.G. (b) 1,377 60,569
Total Preferred Stocks
(cost $2,732,006) 3,835,589
TOTAL INVESTMENTS-94.0%
(cost $122,926,767) $155,798,277
Other assets less liabilities-6.0% 9,849,123
NET ASSETS-100% $165,647,400
(a) Securities or portion thereof, with an aggregate market value of
$23,060,106 have been segregated to collateralize a forward exchange currency
contract.
(b) Non-income producing.
(c) Restricted and illiquid securities, valued at fair value (see Notes A & F).
See notes to financial statements.
10
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $122,926,767) $155,798,277
Cash, at value (cost $4,422,418) 4,417,749
Receivable for investment securities sold 15,515,428
Unrealized appreciation of forward exchange currency contract 1,409,340
Receivable for capital stock sold 1,120,642
Dividends receivable 992,305
Total assets 179,253,741
LIABILITIES
Payable for investment securities purchased 11,846,839
Payable for capital stock redeemed 1,193,574
Advisory fee payable 146,183
Distribution fee payable 90,169
Accrued expenses and other liabilities 329,576
Total liabilities 13,606,341
NET ASSETS $165,647,400
COMPOSITION OF NET ASSETS
Capital stock, at par $ 90,841
Additional paid-in capital 120,563,125
Distributions in excess of net investment income (108,026)
Accumulated net realized gain on investments and foreign
currency transactions 10,926,554
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 34,174,906
$165,647,400
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($78,577,953/
4,222,355 shares of
capital stock issued and outstanding) $18.61
Sales charge--4.25% of public offering price .83
Maximum offering price $19.44
CLASS B SHARES
Net asset value and offering price per share ($66,031,769/
3,694,124 shares of
capital stock issued and outstanding) $17.87
CLASS C SHARES
Net asset value and offering price per share ($16,907,167/
945,310 shares of
capital stock issued and outstanding) $17.89
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share($4,130,511
/222,298 shares of capital stock issued and outstanding) $18.58
See notes to financial statements.
11
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1997 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $506,949) $ 3,504,862
EXPENSES
Advisory fee $1,497,867
Distribution fee - Class A 217,076
Distribution fee - Class B 524,057
Distribution fee - Class C 135,749
Transfer agency 252,068
Custodian 225,194
Audit and legal 142,492
Administrative 139,000
Registration 83,739
Printing 76,623
Directors' fees 34,000
Miscellaneous 32,247
Total expenses 3,360,112
Less: expense offset arrangement (see note B) (17,417)
Net expenses 3,342,695
Net investment income 162,167
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 11,157,469
Net realized loss on foreign currency transactions (309,271)
Net change in unrealized appreciation (depreciation) of:
Investments 23,275,056
Foreign currency denominated assets and liabilities 1,721,649
Net gain on investments and foreign currency transactions 35,844,903
NET INCREASE IN NET ASSETS FROM OPERATIONS $36,007,070
See notes to financial statements.
12
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 162,167 $ 1,112,997
Net realized gain on investments and foreign
currency transactions 10,848,198 11,244,256
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities 24,996,705 (3,136,809)
Net increase in net assets from operations 36,007,070 9,220,444
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (576,971) -0-
Class B -0- -0-
Class C -0- -0-
Advisor Class (27,293) -0-
Distributions in excess of net investment income
Class A (110,528) -0-
Class B (294,871) -0-
Class C (77,561) -0-
Advisor Class (44,709) -0-
Net realized gain on investments
Class A (5,185,709) (2,403,847)
Class B (3,892,291) (1,133,126)
Class C (1,023,804) (271,554)
Advisor Class (413,229) -0-
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) 14,458,994 (7,025,006)
Total increase (decrease) 38,819,098 (1,613,089)
NET ASSETS
Beginning of year 126,828,302 128,441,391
End of year (including undistributed net
investment income of $386,447 at
July 31, 1996) $165,647,400 $126,828,302
See notes to financial statements.
13
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997 ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance New Europe Fund, Inc. (the "Fund"), which is a Maryland corporation,
is registered under the Investment Company Act of 1940, as a non-diversified,
open-end management investment company. The Fund offers Class A, Class B, Class
C and Advisor Class shares. Class A shares are sold with a front-end sales
charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to
purchases of $1,000,000 or more, Class A shares redeemed within one year of
purchase will be subject to a contingent deferred sales charge of 1%. Class B
shares are sold with a contingent deferred sales charge which declines from 4%
to zero depending on the period of time the shares are held. Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase. Class C shares are subject to a contingent deferred
sales charge of 1% on redemptions made within the first year after purchase.
Advisor Class shares are sold without an initial or contingent deferred sales
charge and are not subject to ongoing distribution expenses. Advisor Class
shares are offered to investors participating in fee based programs and to
certain retirement plan accounts. All four classes of shares have identical
voting, dividend, liquidation and other rights, except that each class bears
different distribution expenses and has exclusive voting rights with respect to
its distribution plan. The following is a summary of significant accounting
policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a United States or European stock exchange for
which market quotations are readily available are valued at the last quoted
sales price on that exchange on the day of valuation or, if no such closing
price is available, at the last bid price quoted on such day. Other securities,
including securities of issuers within Eastern European countries, for which
market quotations are readily available are valued in a like manner. Readily
marketable fixed income securities are valued on the basis of prices provided
by a pricing service when such prices are believed by the Adviser to reflect
the fair market value of such securities. Securities, including securities of
issuers within Eastern European countries, and assets for which market
quotations are not readily available, including investments that are subject to
limitations as to their sale (restricted securities), are valued at fair value
as determined in good faith by the Fund's Board of Directors. In determining
fair value, consideration is given to cost, operating and other financial data.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized foreign exchange gains and losses represent foreign exchange gains
and losses from sales and maturities of debt securities and forward currency
exchange contracts, holding of foreign currencies, exchange gains or losses
realized between the trade and settlement dates on security transactions, and
the difference between the amounts of dividends, interest and foreign taxes
receivable recorded on the Fund's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net currency gains and losses from valuing
foreign currency denominated assets and liabilities at period end exchange
rates are reflected as a component of net unrealized appreciation of foreign
currency denominated assets and liabilities.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. Investment gains and losses are determined on the identified
cost basis. The Fund accretes discounts on short-term securities as adjustments
to interest income.
14
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences, do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to the tax treatment of Passive Foreign Investment Companies and
foreign currency gains and losses, resulted in a decrease to additional paid-in
capital, accumulated net realized gain on investments and foreign currency
denominated assets and liabilities and distributions in excess of net
investment income. This reclassification had no affect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under an investment advisory agreement, the Fund pays Alliance Capital
Management L.P. (the "Adviser") a monthly fee equal to the annualized rate of
1.10% of the Fund's average daily net assets up to $100 million, .95% of the
next $100 million of the Fund's average daily net assets and .80% of the Fund's
average daily net assets over $200 million. Pursuant to the advisory agreement,
the Fund paid $139,000 to the Adviser representing the cost of certain legal
and accounting services provided to the Fund by the Adviser for the year ended
July 31, 1997.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $168,765 for the year ended July 31, 1997.
In addition, for the year ended July 31, 1997, the fund's expenses were reduced
by $17,417 under an expense offset arrangements with Alliance Fund Services.
Transfer Agency fees reported in the statement of operations exclude these
credits.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $10,280 from the sale of Class A shares and $3,183,
$109,336 and $9,181 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class A, B and Class C shares, respectively, for
the year ended July 31, 1997.
Brokerage commissions paid on investment transactions for the year ended July
31, 1997, amounted to $1,511,793, none of which was paid to brokers utilizing
the services of the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corp. ("DLJ"), an affiliate of the Adviser, nor to DLJ directly.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the average daily net assets attributable to the
Class A shares and 1% of the average daily net assets attributable to the Class
B and Class C shares. There is no distribution fee on the Advisor Class shares.
The fees are accrued daily and paid monthly. The Agreement provides that the
Distributor will use such payments in their entirety for distribution
assistance and promotional activities. The Distributor has incurred expenses in
excess of the distribution costs reimbursed by the Fund in the amount of
$2,535,456 and $541,239 for Class B and C shares, respectively; such costs may
be recovered from the Fund in future periods so long as the Agreement is in
effect. In accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs, incurred by the Distributor, beyond the
current fiscal year for Class A shares. The Agreement also provides that the
Adviser may use its own resources to finance the distribution of the Fund's
shares.
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $122,680,116 and $123,750,426,
respectively, for the year ended July 31, 1997. There were no purchases or
sales of U.S. government and government agency obligations for the year ended
July 31, 1997.
At July 31, 1997, the cost of investments for federal income tax purposes was
$123,449,514. Accordingly, gross unrealized appreciation of investments was
$34,198,229 and gross unrealized depreciation of investments was $1,849,466,
resulting in net unrealized appreciation of $32,348,763.
FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward foreign exchange currency contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings and to hedge certain firm purchase and sale commitments
denominated in foreign currencies. A forward foreign exchange currency contract
is a commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. The gain or loss arising from the difference between
the original contract and the closing of such contract is included in net
realized gain or loss from foreign currency transactions.
Fluctuations in the value of forward foreign exchange currency contracts are
recorded for financial reporting purposes as unrealized gains or losses by the
Fund.
The Fund's custodian will place and maintain cash not available for investment
or liquid assets in a separate account of the Fund having a value equal to the
aggregate amount of the Fund's commitments under forward foreign exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of the counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, reflects the total exposure the Fund has in that particular currency
contract.
At July 31, 1997, the Fund had an outstanding forward foreign exchange currency
contract, as follows:
CONTRACT VALUE ON U.S. $
AMOUNT ORIGINATION CURRENT UNREALIZED
(000) DATE VALUE APPRECIATION
-------- ----------- ----------- -----------
FOREIGN CURRENCY SALE CONTRACT
French Francs, maturing 9/06/97 130,000 $22,447,077 $21,037,737 $1,409,340
NOTE E: CAPITAL STOCK
There are 200,000,000 shares of $0.01 par value capital stock authorized,
divided into four classes, designated Class A, Class B, Class C and Advisor
Class shares. Each class consists of 50,000,000 authorized shares. Transactions
in shares of beneficial interest were as
follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 1,303,075 1,080,506 $ 21,713,136 $ 16,829,742
Shares issued in
reinvestment of
dividends and
distributions 254,664 87,353 3,984,275 1,262,243
Shares converted
from Class B 100,299 38,780 1,691,373 620,439
Shares redeemed (2,108,514) (2,233,336) (35,513,171) (33,970,313)
Net decrease (450,476) (1,026,697) $ (8,124,387) $(15,257,889)
16
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS B
Shares sold 1,781,457 1,396,359 $ 28,883,265 $ 20,526,104
Shares issued in
reinvestment of
dividends and
distributions 172,848 46,664 2,609,985 654,706
Shares converted
to Class A (104,138) (39,816) (1,691,373) (620,439)
Shares redeemed (941,780) (965,104) (15,417,285) (14,257,684)
Net increase 908,387 438,103 $ 14,384,592 $ 6,302,687
CLASS C
Shares sold 1,141,931 818,362 $ 18,134,537 $ 12,075,167
Shares issued in
reinvestment of
dividends and
distributions 35,907 5,746 543,388 80,733
Shares redeemed (893,992) (692,655) (14,251,265) (10,225,704)
Net increase 283,846 131,453 $ 4,426,660 $ 1,930,196
OCT. 2, 1996(A) OCT. 2, 1996(A)
TO TO
JULY 31, 1997 JULY 31, 1997
-------------- ----------------
ADVISOR CLASS
Shares sold 572,938 $ 9,725,312
Shares issued in
reinvestment of
distributions 26,029 405,264
Shares redeemed (376,669) (6,358,447)
Net increase 222,298 $ 3,772,129
NOTE F: RESTRICTED AND ILLIQUID SECURITIES
DATE
SECURITY ACQUIRED U.S. $ COST
- -------- ---------- -----------
Asesores Bursatiles Capital Fund N.V. 10/29/90 $340,973
Thermo Eurotech N.V. 3/19/91 512,088
Unidad Editorial, S.A. 10/01/92 699,170
The securities shown above are restricted as to sale and have been valued at
fair value in accordance with procedures described in Note A. The value of
these securities at July 31, 1997 was $1,187,926, representing 0.7% of net
assets.
NOTE G: CONCENTRATION OF RISK
The Fund has invested approximately 32% of its net assets in United Kingdom
equity securities. Political, social or economic changes in this market may
have a greater impact on the value of the Fund's portfolio due to this
concentration.
(a) Commencement of distribution.
17
FINANCIAL HIGHLIGHTS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
MARCH 1,
1994
YEAR ENDED JULY 31, TO YEAR ENDED FEBRUARY 28,
-------------------------------------- JULY 31, ------------------------
1997 1996 1995 1994(A) 1994 1993
------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.84 $15.11 $12.66 $12.53 $9.37 $9.81
INCOME FROM INVESTMENT OPERATIONS
Net investment income .07(b) .18 .04 .09 .02(b) .04
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 4.20 1.02 2.50 .04 3.14 (.33)
Net increase (decrease) in net asset
value from operations 4.27 1.20 2.54 .13 3.16 (.29)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.15) -0- (.09) -0- -0- (.15)
Distributions in excess of net investment
income (.03) -0- -0- -0- -0- -0-
Distributions from net realized gains on
investments and foreign currency
transactions (1.32) (.47) -0- -0- -0- -0-
Total dividends and distributions (1.50) (.47) (.09) -0- -0- (.15)
Net asset value, end of period $18.61 $15.84 $15.11 $12.66 $12.53 $9.37
TOTAL RETURN
Total investment return based on net
asset value (c) 28.78% 8.20% 20.22% 1.04% 33.73% (2.82)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $78,578 $74,026 $86,112 $86,739 $90,372 $79,285
Ratio of expenses to average net assets 2.05%(d) 2.14% 2.09% 2.06%(e) 2.30% 2.25%
Ratio of net investment income to
average net assets .40% 1.10% .37% 1.85%(e) .17% .47%
Portfolio turnover rate 89% 69% 74% 35% 94% 125%
Average commission rate paid (f) $.0569 -- -- -- -- --
</TABLE>
See footnote summary on page 21.
18
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
MARCH 1,
1994
YEAR ENDED JULY 31, TO YEAR ENDED FEBRUARY 28,
-------------------------------------- JULY 31, ------------------------
1997 1996 1995 1994(A) 1994 1993
------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.31 $14.71 $12.41 $12.32 $9.28 $9.74
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.04)(b) .08 (.05) .07 (.05)(b) (.02)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 4.02 .99 2.44 .02 3.09 (.33)
Net increase (decrease) in net asset
value from operations 3.98 1.07 2.39 .09 3.04 (.35)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.09) -0- -0- (.11)
Dividends in excess of net investment income (.10) -0- -0- -0- -0- -0-
Dividends from net realized gains on
investments and foreign currency
transactions (1.32) (.47) -0- -0- -0- -0-
Total dividends and distributions (1.42) (.47) (.09) -0- -0- (.11)
Net asset value, end of period $17.87 $15.31 $14.71 $12.41 $12.32 $9.28
TOTAL RETURN
Total investment return based on net
asset value (c) 27.76% 7.53% 19.42% .73% 32.76% (3.49)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $66,032 $42,662 $34,527 $31,404 $20,729 $1,732
Ratio of expenses to average net assets 2.75%(d) 2.86% 2.79% 2.76%(e) 3.02% 3.00%
Ratio of net investment income (loss) to
average net assets (.23)% .59% (.33)% 1.15%(e) (.52)% (.50)%
Portfolio turnover rate 89% 69% 74% 35% 94% 125%
Average commission rate paid (f) $.0569 -- -- -- -- --
</TABLE>
See footnote summary on page 21.
19
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------
MARCH 1, MAY 3,
1994 1993(G)
YEAR ENDED JULY 31, TO TO
-------------------------------------- JULY 31, FEBRUARY 28,
1997 1996 1995 1994(A) 1994
------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.33 $14.72 $12.42 $12.33 $10.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.04)(b) .08 (.07) .06 (.04)(b)
Net realized and unrealized gain
on investments and foreign currency
transactions 4.02 1.00 2.46 .03 2.16
Net increase in net asset value
from operations 3.98 1.08 2.39 .09 2.12
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.09) -0- -0-
Distributions in excess of net
investment income (.10) -0- -0- -0- -0-
Distributions from net realized gains on
investments and foreign currency
transactions (1.32) (.47) -0- -0- -0-
Total dividends and distributions (1.42) (.47) (.09) -0- -0-
Net asset value, end of period $17.89 $15.33 $14.72 $12.42 $12.33
TOTAL RETURN
Total investment return based on net
asset value (c) 27.73% 7.59% 19.40% .73% 20.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $16,907 $10,141 $7,802 $11,875 $10,886
Ratio of expenses to average net assets 2.74%(d) 2.87% 2.78% 2.76%(e) 3.00%(e)
Ratio of net investment income (loss)
to average net assets (.23)% .58% (.33)% 1.15%(e) (.52)%(e)
Portfolio turnover rate 89% 69% 74% 35% 94%
Average commission rate paid (f) $.0569 -- -- -- --
</TABLE>
See footnote summary on page 21.
20
ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
ADVISOR CLASS
------------------
OCTOBER 2, 1996(G)
TO
JULY 31, 1997
------------------
Net asset value, beginning of period $16.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .11
Net realized and unrealized gain on investments
and foreign currency transactions 3.76
Net increase in net asset value from operations 3.87
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.09)
Distribution in excess of net investment income (.14)
Distributions from net realized gains on investments
and foreign currency transactions (1.32)
Total dividends and distributions (1.55)
Net asset value, end of period $18.57
TOTAL RETURN
Total investment return based on net asset value (c) 25.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,130
Ratio of expenses to average net assets (e) 1.71%
Ratio of net investment income to average net assets (e) .77%
Portfolio turnover rate 89%
Average commission rate paid $.0569
(a) The Fund changed its year end from February 28 to July 31.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total investment
return. Total investment return for a period of less than one year is not
annualized.
(d) Ratio reflects expenses grossed up for expense offset arrangement with the
Transfer Agent. For the year ended July 31, 1997, the net expense ratio was
2.04%, 2.74%, 2.73%, 1.71% for Class A, B, C and Advisor Class shares,
respectively.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate per share for trades on which
commissions are charged.
(g) Commencement of distribution.
21
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE NEW EUROPE FUND
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE NEW EUROPE FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance New Europe Fund, Inc. (the "Fund"), including the portfolio of
investments, as of July 31, 1997, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assur-ance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance New Europe Fund, Inc. at July 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
indicated periods, in conformity with generally accepted accounting principles.
New York, New York
September 3, 1997
FOREIGN TAX CREDIT (UNAUDITED)
_______________________________________________________________________________
The Fund paid foreign taxes during the fiscal year ended July 31, 1997, which
it intends to pass through pursuant to Section 853 of the Internal Revenue Code
to its shareholders.
22
<PAGE>
_______________________________________________________________
APPENDIX A
Special Risk Considerations
_______________________________________________________________
Investing in securities of European companies involves
certain considerations set forth below not usually associated
with investing in U.S. securities.
Currency Risks. Because the Fund's assets will be
invested in equity securities of European companies and fixed
income securities denominated in foreign currencies and because
the great majority of the Fund's revenues will be received in
currencies other than the U.S. dollar, the U.S. dollar equivalent
of the Fund's net assets and distributions will be adversely
affected by reductions in the value of certain foreign currencies
relative to the U.S. dollar. Such changes will also affect the
Fund's income. If the value of the foreign currencies in which
the 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 the Fund has insufficient cash
in U.S. dollars to meet distribution requirements. Similarly, if
the exchange rate declines between the time the 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.
Many of the currencies of Eastern European countries
have experienced a steady devaluation relative to western
currencies. Any future devaluation may have a detrimental impact
on any investments made by the Fund in Eastern Europe. The
currencies of most Eastern European countries are not freely
convertible into other currencies and are not internationally
traded. The Fund will not invest its assets in non-convertible
fixed income securities denominated in currencies that are not
freely convertible into other currencies.
Investment In Securities Of Smaller Companies. Under
normal circumstances, the Fund will invest a significant portion
of its assets in the equity securities of companies whose total
market capitalization is less than the average for Europe as a
whole. Investment in smaller companies involves greater risk than
is customarily associated with the securities of more established
companies. The securities of small companies may have relatively
limited marketability and may be subject to more abrupt or
A-1
<PAGE>
erratic market movements than securities of larger companies or
broad market indices.
Market Characteristics. The securities markets of many
European 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, the Fund's investment portfolio may
experience greater price volatility and significantly lower
liquidity than a portfolio invested 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.
Investment And Repatriation Restrictions. Foreign
investment in the securities markets of certain European
countries is restricted or controlled to varying degrees. These
restrictions or controls may at times limit or preclude
investment in certain securities and may increase the cost and
expenses of the Fund. As illustrations, certain countries
require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in
a particular company, or limit the investment by foreign persons
to only a specific class of securities of a company which may
have less advantageous terms than securities of the company
available for purchase by nationals. In addition, the
repatriation of both investment income and capital from certain
of the countries is controlled under regulations, including in
some cases the need for certain advance government notification
or authority. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental approval for
repatriation.
In accordance with the 1940 Act, the Fund may invest up
to 10% of its total assets in securities of closed-end investment
companies. This restriction on investments in securities of
closed-end investment companies may limit opportunities for the
Fund to invest indirectly in certain small capital markets. If
the Fund acquires shares in closed-end investment companies,
shareholders would bear both their proportionate share of
expenses in the Fund (including management and advisory fees)
and, indirectly, the expenses of such closed-end investment
companies (including management and advisory fees). The Fund
also may seek, at its own cost, to create its own investment
entities under the laws of certain countries.
Role Of Banks In Capital Markets. In a number of
European countries, commercial banks act as securities brokers
A-2
<PAGE>
and dealers, and as underwriters, investment fund managers and
investment advisers. They also may hold equity participations,
as well as controlling interests, in industrial, commercial or
financial enterprises, including companies whose securities are
publicly traded and listed on European stock exchanges. Investors
should consider the potential conflicts of interest that result
from the combination in a single firm of commercial banking and
diversified securities activities.
The Fund is prohibited under the 1940 Act, in the
absence of an exemptive rule or other exemptive relief, from
purchasing the securities of any company that, in its most recent
fiscal year, derived more than 15% of its gross revenues from
securities-related activities.
Corporate Disclosure Standards. Issuers of securities
in European jurisdictions are 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
European countries differ from U.S. standards in important
respects and less information is available to investors in
securities of European countries than to investors in U.S.
securities.
Transaction Costs. Brokerage commissions and
transaction costs for transaction both on and off the securities
exchanges in many European countries are generally higher than in
the United States.
U.S. and Foreign Taxes. Foreign taxes paid by the Fund
may be creditable or deductible for U.S. income tax purposes. No
assurance can be given that applicable tax laws and
interpretations will not change in the future. Moreover, non-U.S.
investors may not be able to credit or deduct such foreign taxes.
Investors should review carefully the information discussed under
the heading "Taxation" and should discuss with their tax advisers
the specific tax consequences of investing in the Fund.
Economic and Political Risks. The economies of
individual European countries may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross
domestic product ("GDP") or gross national product, as the case
may be, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. In addition,
securities traded in certain emerging European securities markets
may be subject to risks due to the inexperience of financial
intermediaries, the lack of modern technology, the lack of
sufficient capital base to expand business operations and the
possibility of permanent or temporary termination of trading and
A-3
<PAGE>
greater spreads between bid and asked prices for securities in
such markets. Business entities in many Eastern European
countries do not have any recent history of operating in a
market-oriented economy, and the ultimate impact of Eastern
European countries' attempts to move toward more market-oriented
economies is currently unclear. In addition, any change in the
leadership or policies of Eastern European countries may halt the
expansion of or reverse the liberalization of foreign investment
policies now occurring and adversely affect existing investment
opportunities.
Other Risks of Foreign Investments. The Fund's
investments could in the future be adversely affected by any
increase in taxes or by political, economic or diplomatic
developments. The Fund intends to seek investment opportunities
within the former "east bloc" countries in Eastern Europe. See
"Investment Objective and Policies" in the Prospectus. All or a
substantial portion of such investments may be considered "not
readily marketable" for purposes of the limitations set forth
below.
Most Eastern European countries have had a centrally
planned, socialist economy since shortly after World War II. The
governments of a number of Eastern European countries currently
are implementing reforms directed at political and economic
liberalization, including efforts to decentralize the economic
decision making process and move towards a market economy. There
can be no assurance that these reforms will continue or, if
continued will achieve their goals.
Investing in the securities of the former "east bloc"
Eastern European issuers involves certain considerations not
usually associated with investing in securities of issuers in
more developed capital markets such as the United States, Japan
or Western Europe, including (i) political and economic
considerations, such as greater risks of expropriation,
confiscatory taxation, nationalization and less social, political
and economic stability; (ii) the small current size of markets
for such securities and the currently low or non-existent volume
of trading, resulting in lack of liquidity and in price
volatility; (iii) certain national policies which may restrict
the Fund's investment opportunities, including, without
limitation, restrictions on investing in issuers or industries
deemed sensitive to relevant national interest; and (iv) the
absence of developed legal structures governing foreign private
investments and private property. Applicable accounting and
financial reporting standards in Eastern Europe may be
substantially different from U.S. accounting standards and, in
certain Eastern European countries, no reporting standards
currently exist. Consequently, substantially less information is
available to investors in Eastern Europe, and the information
A-4
<PAGE>
that is available may not be conceptually comparable to, or
prepared on the same basis as that available in more developed
capital markets, which may make it difficult to assess the
financial status of particular companies. However, in order to
become attractive to Western international investors such as the
Fund, some Eastern European companies may submit to reviews of
their financial conditions conducted in accordance with
accounting standards employed in Western European countries. The
Adviser believes that such information, together with the
application of other analytical techniques, can provide an
adequate basis on which to assess the financial viability of such
companies.
The governments of certain Eastern European countries
may require that a governmental or quasi-governmental authority
act as custodian of the Fund's assets invested in such countries.
These authorities may not be qualified to act as foreign
custodians under the 1940 Act and, as a result, the Fund would
not be able to invest in these countries in the absence of
exemptive relief from the Commission. In addition, the risk of
loss through government confiscation may be increased in such
countries.
Securities Not Readily Marketable. Although the Fund
expects to invest primarily in listed securities of established
companies, it may invest up to 10% of its total assets in
securities which are not readily marketable and which may involve
a high degree of business and financial risk that can result in
substantial losses. Because of the absence of a trading market
for these investments, the Fund may not be able to realize their
value upon sale.
Non-Diversified Status. As a non-diversified investment
company, the Fund's investments will involve greater risk than
would be the case for a similar diversified investment company
because the Fund is not limited by the 1940 Act, in the
proportion of its assets that may be invested in the securities
of a single issuer. The Fund's investment restrictions provide
that the Fund may not invest more than 15% of its total assets in
the securities of a single issuer and the Fund intends to comply
with the diversification and other requirements of the Code
applicable to regulated investment companies. The effect of
these investment restrictions will be to require the Fund, when
fully invested, to maintain investments in the securities of at
least 14 different issuers. See "Dividends, Distributions and
Taxes" in the Prospectus.
A-5
<PAGE>
________________________________________________________________
APPENDIX B
Futures Contracts and Options on Futures
Contracts and Foreign Currencies
________________________________________________________________
Futures Contracts
The Fund may enter into financial futures contracts,
including contracts for the purchase or sale for future delivery
of foreign currencies and futures contracts based on stock
indices. U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC"), and must be executed through
a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade
on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange.
At the same time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 1/2%-5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Fund would provide or receive cash that reflects any decline or
increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
B-1
<PAGE>
contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.
In addition, futures contracts entail risks. Although
the Fund believes that use of such contracts will benefit the
Fund, if the Adviser's investment judgment is incorrect about the
general direction of a stock market index for example, the Fund's
overall performance would be poorer than if it had not entered
into any such contract. For example, if the Fund has hedged
against the possibility of a bear market in equities in a
particular country in which would adversely affect the price of
equities held in its portfolio and there is a bull market
instead, the Fund will lose part or all of the benefit of the
increased value of the equities that it has hedged because it
will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash,
it may have to sell equities from its portfolio to meet daily
variation margin requirements. Such sales may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it
may be disadvantageous to do so.
Options On Futures Contracts
The Fund intends to purchase and write options on
futures contracts. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of
the option compared to either the price of the futures contract
upon which it is based or the price of the underlying securities,
B-2
<PAGE>
it may or may not be less risky than ownership of the futures
contract or underlying securities.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract. If the futures price at expiration of
the option is below the exercise price, the 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 security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the
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 the 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 futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes
in the value of portfolio securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Fund may
purchase a put option on a futures contract to hedge the Fund's
portfolio against the risk of a general market decline.
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option 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 purchased.
Options On Foreign Currencies
The Fund may purchase and write options on foreign
currencies in a manner similar to that in which futures contracts
on foreign currencies, or forward contracts, will be utilized.
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 Fund
may purchase put options on the foreign currency. If the value
of the currency does decline, the Fund will have the right to
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sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio
which otherwise would have resulted.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Fund 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 the Fund deriving from
purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the 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.
The Fund may also write options on foreign currencies
for the same purposes. For example, where the Fund anticipates a
decline in the dollar value of foreign currency denominated
securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on
the relevant currency. If the expected decline occurs, the
option will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the
premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the 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
would 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, the 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.
The Fund intends to write covered call options on
foreign currencies. A call option written on a foreign currency
by the Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash
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consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversion or exchange
of other foreign currency held in its portfolio. A call option
is also covered if the Fund has a call on the same foreign
currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities or
other appropriate liquid securities in a segregated account with
its Custodian.
The Fund also intends to write call options on foreign
currencies that are not covered for cross-hedging purposes. A
call option on a foreign currency is for cross-hedging purposes
if it is not covered, but is designed to provide a hedge against
a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the
exchange rate. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
Custodian, cash or U.S. government securities or other
appropriate liquid securities in an amount not less than the
value of the underlying foreign currency in U.S. dollars marked
to market daily.
Additional Risks of Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies
Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the SEC. To
the contrary, such instruments are 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. Similarly, options
on currencies may be traded over-the-counter. 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 and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such
positions.
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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 the 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, 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, the
OCC may, if it 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, 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.
In addition, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies
may be traded on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting trading in
or the prices of foreign currencies or securities. The value of
such positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii) lesser
availability than in the United States of data, on which to make
trading decisions, (iii) delays in the Fund's ability to act upon
economic events occurring in foreign markets during non business
hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.
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_______________________________________________________________
APPENDIX C: ADDITIONAL INFORMATION ABOUT THE UNITED KINGDOM
_______________________________________________________________
The information in this section is based on material
obtained by the Fund from various United Kingdom government and
other sources believed to be accurate but has not been
independently verified by the Fund or the Adviser. It is not
intended to be a complete description of The United Kingdom, its
economy or the consequences of investing in United Kingdom
securities.
The United Kingdom of Great Britain and Northern Ireland
is located off the continent of Europe in the Atlantic Ocean.
Its population is approximately 58 million.
GOVERNMENT
The United Kingdom is a constitutional monarchy. Queen
Elizabeth II has been the head of state since she acceded to the
throne in 1952. The monarchy was established in 1066. The
monarch's power has eroded over the centuries, but the monarch
retains the power to call and dissolve Parliament, to give assent
to bills passed by Parliament, to appoint the Prime Minister and
to sign treaties or declare war. In practice, most of these acts
are performed by government ministers, and supreme legislative
authority now resides in the Parliament. Parliament, the
bicameral legislature, consists of the House of Commons and the
House of Lords. Acts of Parliament passed in 1911 and 1949 limit
the powers of the House of Lords to prevent bills passed by the
House of Commons from becoming law. The main purpose of the
House of Lords is now to revise and amend laws passed by the
House of Commons. The national government is headed by the Prime
Minister who is appointed by the monarch on the basis of ability
to form a government with the support of the House of Commons.
POLITICS
Since World War II the national government has been
formed by either the Conservative Party or the Labour Party. The
Conservative Party under the leadership of Margaret Thatcher
achieved a parliamentary majority and formed a new government in
May 1979. In June 1983 and again in June 1987, the Conservative
Party under her leadership was reelected. The Party pursued
policies of reducing state intervention in the economy, reducing
taxes, de-regulating business and industry and privatizing state-
owned enterprises. It also displayed an antipathy toward the
European Union. In November 1990, Mrs. Thatcher faced a
challenge for the leadership of the party from Michael Heseltine,
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one of her former cabinet ministers. The opposition proposed
changes in policy, including increased government intervention in
the economy and a less confrontational approach toward the
European Union. The two wings of the Conservative Party looked
for someone who could unite the Party and elected John Major as
its leader and, by virtue of the Conservative Party majority, to
the post of Prime Minister.
Mr. Major led the Conservative Party to its fourth
successive general election victory in April 1992, after which
time, the popularity of both Mr. Major and the Conservative Party
fell. In April 1995, the Conservative Party won only 11% of the
vote in Scotland local elections, which resulted in Conservative
Party control of only 81 council seats out of 1,161. It won only
25% of the vote in local council elections in England and Wales
in May 1995. In July 1995, Mr. Major won a vote of confidence
with his reelection as leader of the Conservative Party. Despite
Mr. Major's strengthened position within the Conservative Party,
the Party continued to suffer setbacks. Within two weeks of
Mr. Major's victory, the Conservative Party lost its fifth by-
election since the general election of 1992. By 1996, his
overall majority was reduced to one. In the next general
election, on May 1, 1997, Mr. Major and the Conservative Party
were defeated by the Labour Party led by Tony Blair, who
subsequently was appointed Prime Minister. The Labour Party now
holds 418 of the 659 seats in the House of Commons.
ECONOMY
The United Kingdom's economy is the fifth largest in the
Organization for Economic Cooperation and Development, behind the
United States, Japan, Germany and France. Its economy maintained
an average annual growth rate of 3.0% in real growth domestic
product ("GDP") terms from 1950 through 1973; from 1973 through
1981 growth slowed to an annual average of 0.7%; from 1982
through 1988 annual growth recovered to 3.6%; and from 1989
through 1993, the United Kingdom's real GDP annual growth rate
was 1.0%. In 1994 and 1995, real GDP growth was 4.3% and 2.7%,
respectively, higher than earlier reported. The economy has
continued to experience the moderate growth that began in 1993,
after the 1990-1992 recession. Having grown by 2.3% in 1996, the
GDP grew by 3.4% between the second quarter of 1996 and the
second quarter of 1997, and is expected to continue to grow at
the same rate during 1997.
The average annual rate of inflation from 1989 through
1994 was 4.6%. In 1995 and 1996, the rate of inflation was 3.4%
and 2.5%, respectively. During the second quarter of 1997,
annual inflation stood at 2.6%, down slightly from the first
quarter.
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The sluggish growth in the United Kingdom's
manufacturing sector since the 1990-1992 recession continued the
trend toward the decreased importance of manufacturing in the
economy. Manufacturing accounted for just 21.8% of GDP in 1995
compared with 36.5% in 1960. The long-term decline in
manufacturing's share of GDP accelerated during the 1980-1981
recession. In those two years, manufacturing output and
employment each fell by approximately 14%. The United Kingdom's
traditional manufacturing industries of steel, shipbuilding and
textiles have not remained competitive in the international
marketplace. Since 1983, the United Kingdom has been a net
importer of manufactured goods for the first time since the
industrial revolution.
As the United Kingdom's manufacturing industry has
declined in importance, the service industry, including financial
services, has increased in importance. The service industries'
share of GDP has increased to almost two-thirds from 45% in 1960.
Employment has been shifting from manufacturing to the
service industry, a trend expected to continue for the
foreseeable future. Despite this development and the fact that
between the fourth quarter of 1988 and the fourth quarter of 1993
more than 900,000 manufacturing jobs were lost, until 1995 the
manufacturing sector remained the biggest single source of jobs.
By 1995, however, the manufacturing sector, while still
accounting for 8% of jobs, was no longer the biggest single
source. Overall, unemployment continued to fall from a post-
recession high point of 10.6% in January 1993 to 5.7% in May
1997.
Foreign trade remains an important part of the United
Kingdom's economy. In 1996, exports of goods represented 29.2%
of GDP. The United Kingdom has historically been an exporter of
manufactured products and an importer of food and raw materials,
but there is a growing trend toward manufactured goods forming a
larger proportion of imports. Machinery and transport equipment
accounted for 40.9% of imports in 1996 compared to 20.4% in 1975
and for 44.1% of exports in 1996 compared to 42.3% in 1975. For
every year since 1982, the United Kingdom has been a net importer
of goods. The relative importance of the United Kingdom's
trading partners has also shifted. In 1995, the other members of
the European Union accounted for 58% of all exports and 56% of
its imports, as compared to 43.3% and 41.3%, respectively in
1980. In 1995, Germany remained the United Kingdom's single
largest trading partner.
Historically, the United Kingdom's current account
consisted of relatively small trade deficits, sometimes
outweighed by surpluses on invisibles (services, interest,
dividends, profits and transfers). Since 1980, several important
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changes have taken place with regard to the United Kingdom's
trading position. Those include the increased importance to the
economy of oil exports from the North Sea, the change from being
a net exporter to a net importer of goods and the diminishing
surpluses from invisibles. These developments have led to a
balance of payments deficit, which is expected to continue for
the foreseeable future.
With regard to the public sector of the economy, the
national government publishes forecasts for the economy and the
public sector borrowing requirement ("PSBR"). The PSBR is a
mandated measure of the amount required to balance the national
government's budget. The PSBR continues to exceed forecasts.
Figures for the fiscal year ended March 31, 1997, show a PSBR
equal to 3% of GDP (or a general government financial deficit of
4%). As a result, the general government budget balance for the
1996/1997 fiscal year was in excess of the permitted level for
countries scheduled to participate in the Economic and Monetary
Union ("EMU") beginning in January 1999. However, it is expected
that the general government budget balance will fall to 1.4% of
GDP in the 1997-98 fiscal year and 0.2% in the 1998-99 fiscal
year, well below the EU criteria for participation in the EMU.
While the government has not yet made a formal announcement on
the subject of participation in the EMU, remarks of the
Chancellor of the Exchequer made in mid-October 1997 suggest that
the United Kingdom will not participate in the EMU when it is
scheduled to go into effect in January 1999, but may do so at a
later date.
MONETARY AND BANKING SYSTEM
The central bank of the United Kingdom is the Bank of
England. Its main functions are to advise on the formulation and
execution of monetary policy, to supervise banking operations in
the United Kingdom, to manage the domestic currency, and, as
agent for the Government, the country's foreign exchange
reserves. Additionally, Prime Minister Blair recently vested
responsibility for setting interest rates in a new Monetary
Policy Committee headed by the Bank of England, as opposed to the
Treasury.
The City of London is one of the world's major financial
centers. It has the greatest concentration of banks and the
largest insurance market in the world. It is estimated that
United Kingdom insurers handle approximately 20% of the general
insurance business placed in the international market. Financial
services currently form approximately 23% of the country's GDP.
The currency unit of the United Kingdom is the Pound
Sterling. In June 1972, the Pound was allowed to float against
other currencies. The general trend since then has been a
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depreciation against most major currencies, including the U.S.
Dollar, Japanese Yen, German Deutsche Mark ("DM"), French Franc
and the European Currency Unit. On October 8, 1990, Pound
Sterling became part of the Exchange Rate Mechanism ("ERM") of
the European Monetary System at a central rate of L1:DM2.95.
Membership in the ERM requires that each currency remain within a
certain fluctuation range against other currencies. If this
range is not maintained, the currency must be revalued.
Initially, the Pound remained competitive within the DM range of
2.80 to 2.98, but the pressures exerted by ERM membership made it
increasingly difficult for the United Kingdom to allow the Pound
to remain in the ERM. While the government continued to defend
the relative value of the Pound by raising interest rates, it
became clear that the Pound was not competitive against the
Deutsche Mark. On September 16, 1992, the Pound's membership in
the ERM was suspended. The value of the Pound continued to fall
rapidly after the exit from the ERM, reaching a low of DM2.335 at
the end of February 1993. It has since recovered against the
Deutsche Mark and other currencies. In addition to the United
Kingdom's membership in the ERM, the growing importance of trade
with the European Union has made the Deutsche Mark exchange rate
more important to the United Kingdom than the U.S. Dollar
exchange rate. From 1988 through 1993, the Pound declined at an
average annual rate of approximately 15% against the U.S. Dollar
and approximately 20% against the Deutsche Mark. Since 1993, the
exchange rate between the Pound and the U.S. Dollar has remained
fairly constant, while the exchange rate between the Pound and
the Deutsche Mark has risen significantly, by over 35% between
January 1996 and July 1997. In 1996, the average annual exchange
rates against the U.S. Dollar and the Deutsche Mark were L1:$1.59
and L1:DM2.41, respectively. At the end of the second quarter of
1997, the exchange rates against the U.S. Dollar and the Deutsche
Mark were L1:$1.66 and L1:DM2.89, respectively.
THE LONDON STOCK EXCHANGE
The London Stock Exchange ("LSE") is both the national
stock exchange for the United Kingdom and the world's leading
marketplace for the trading of international equities. The LSE
provides a secondary market for trading in more than 10,000
securities. It offers markets for domestic securities
(securities issued by companies in the United Kingdom or
Ireland), foreign equities, United Kingdom gilts (securities
issued by the national government), bonds or fixed interest
stocks (usually issued by companies or local authorities) and
options. At the end of 1996, foreign equities constituted
approximately 69% and United Kingdom equities constituted
approximately 31% of the market value of all LSE listed and
quoted equity securities. Currently, the LSE is the world's
third largest in terms of market value, behind the New York Stock
Exchange and the Tokyo Stock Exchange.
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The LSE developed as demand for capital increased with
the advent of the industrial revolution. By 1965, regional
exchanges had banded together to form the Federation of Stock
Exchanges. In 1973, the Irish Stock Exchange based in Dublin and
the London Stock Exchange merged, thereby creating a unified
exchange. On December 8, 1995, pursuant to a European Union
directive requiring its members to regulate stock exchanges in
their own countries, the Dublin Stock Exchange separated from the
LSE and became independent.
The LSE comprises different markets. In addition to the
market for officially-listed securities, the LSE includes a
market created in 1995 for smaller and newer companies known as
AIM. As of December 31, 1996, 252 companies with an aggregate
market value of L5.3 billion were traded on AIM. As of
December 31, 1996, the market value of the securities traded on
AIM was less than 1% of the market value of the securities
officially listed on the LSE.
In 1979, the abolition of foreign exchange controls made
it easier for United Kingdom savings institutions to invest money
overseas in non-United Kingdom securities. As a result, the
LSE's members were exposed for the first time to competition from
overseas brokers. The international competition and government
pressure led the LSE to institute major reforms. Deregulation of
the LSE, culminating on October 27, 1986 in what is commonly
referred to as "Big Bang", involved the introduction of
negotiated commissions on securities transactions, the
elimination of the system that had maintained a distinction
between brokers and marketmakers, ownership of member firms by
outside entities and the transfer of voting rights from
individual members to member firms.
The LSE runs markets for trading securities by providing
a market structure, regulating the operation of the markets,
supervising the conduct of member firms dealing in the markets,
publishing company news and providing trade confirmation and
settlement services. The domestic market is based on the
competing marketmaker system. The bid and offer prices are
distributed digitally via the Exchange's automated price
information system, SEAQ (Stock Exchange Automated Quotations),
which provides widespread dissemination of the securities prices
for the United Kingdom equity market. Throughout the trading
day, marketmakers display their bid (buying) and offer (selling)
prices and the maximum transaction size to which these prices
relate. These prices are firm to other LSE member firms, except
that the prices for larger transactions are negotiable.
Marketmakers in the international equity market display
their quotes on SEAQ International. The system operates in a
manner similar to the domestic SEAQ, but is divided into 40
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separate country sectors, of which 15 are developing markets
sectors.
On October 20, 1997 the LSE launched the new Stock
Exchange Electronic Trading Service, an initiative that will
improve efficiency and lower share trading costs, and is expected
to attract more volume and thus increase liquidity.
Sector Analysis of the LSE. The LSE's domestic and
foreign securities include a broad cross-section of companies
involved in many different industries. In December 1996, the
five largest industry sectors by turnover among domestic
securities were banking with 10.4% of the aggregate market value
of domestic market securities, engineering with 6.5%,
pharmaceuticals with 6.5%, retailing with 6.4% and media with
6.0%. In 1996, the five largest country sectors by turnover
among listed and SEAQ International quoted securities were Japan
with 17.8% of the aggregate market value of listed and SEAQ
International quoted securities, Germany with 11.2%, France with
10.4%, The Netherlands with 9.5% and Switzerland with 6.4%.
Market Growth of the LSE. LSE market value and the
trading volume have increased dramatically since the end of 1990.
In 1996, 239.6 billion domestic shares and 202.5 billion foreign
shares were traded as compared with 155.4 billion and 34.8
billion, respectively in 1991. At the end of 1996, the market
value of listed domestic companies and foreign companies
increased to L1,011.7 billion and L2,258.1 billion from L450.5
billion and L1,124.1 billion, respectively, from the end of 1990.
Market Performance of the LSE. The FT-SE 100 is an
index that consists of the 100 largest United Kingdom companies.
The FT-SE 100 was introduced by the LSE in cooperation with The
Financial Times and the Institute and Faculty of Actuaries in
1984. As measured by the FT-SE 100, the performance of the 100
largest companies reached a high of 5244.2 on September 30, 1997,
up nearly 27% from the end of 1996.
REGULATION OF THE UNITED KINGDOM EQUITIES MARKETS
The principal securities law in the United Kingdom is
the Financial Services Act (the "FSA"). The FSA, which became
law in November 1986, established a new regulatory system for the
conduct of investment businesses in the United Kingdom. Most of
the statutory powers under the Act were transferred to the
Securities and Investments Board ("SIB"), a designated agency
created for this purpose. The SIB has wide-ranging enforcement
powers and is accountable to Parliament through the Treasury. A
system of self regulating organizations ("SROs"), which regulate
their members, is accountable to the SIB. There are three SROs
covering the financial market, including the Securities and
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Futures Authority which is responsible for overseeing activities
on the Exchange. The other SROs are the Investment Management
Regulatory Organization and the Personal Investment Authority. In
1988, it became illegal for any firm to conduct business without
authorization from the SRO responsible for overseeing its
activities. In addition, Recognized Investment Exchanges
("RIEs"), which include the London Stock Exchange of London, the
London International Financial Futures and Options Exchange, the
London Commodities Exchange, the International Petroleum Exchange
of London, the London Metal Exchange and the London Securities
and Derivatives Exchange are accountable to the SIB. Recognition
as an RIE exempts the exchange (but not its members) from
obtaining authorization for actions taken in its capacity as an
RIE. To become an RIE, an exchange must satisfy the SIB that it
meets various prerequisites set out in the Act, including having
effective arrangements for monitoring and enforcing compliance
with its rules. Recognized Professional Bodies ("RPBs")
supervise the conduct of lawyers, actuaries, accountants and some
insurance brokers. Together the SROs, RIEs and RPBs provide the
framework for protection for investors and integrity of the
markets.
The European Union's Investment Services Directive
("ISD") will, with the various banking directives, provide the
framework for a single market in financial services in Europe.
Authorized firms will be able to operate on the basis of one
authorization throughout Europe. Member states were given until
January 1, 1996 to implement the ISD. While the United Kingdom
has fully implemented the ISD, there are three member states
(Germany, Spain and Luxembourg) that have failed to do so.
Basic restrictions on insider dealing in securities are
contained in the Company Securities Act of 1985. The FSA
provides guidelines for investigations into insider dealing under
the Criminal Justice Act of 1993 and penalties for any person who
fails to cooperate with such an investigation. In addition, the
FSA introduced new listing and disclosure requirements for
companies.
REGULATION OF THE FINANCIAL SERVICES INDUSTRY
On May 20, 1997 the newly installed Labour government
announced a proposed major restructuring of the regulation and
supervision of the financial services industry in the United
Kingdom. The main feature of the restructuring plan is to
transfer regulatory authority over banks from the Bank of England
to an expanded SIB. In addition, the plan calls for the merger
of the three SROs with regulatory authority over members of the
investment businesses in the United Kingdom (the Securities and
Futures Authority, the Investment Management Regulatory
Organisation and the Personal Investment Authority) into the SIB,
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which was renamed the Financial Services Authority ("FSA") on
October 28, 1997. The transfer of banking supervision from the
Bank of England to the FSA is expected to take place at the end
of 1997 by legislative action. The consolidation of the SROs
into the FSA is more complex and more controversial.
UNITED KINGDOM FOREIGN EXCHANGE AND INVESTMENT CONTROLS
The United Kingdom has no exchange or investment
controls, and funds and capital may be moved freely in and out of
the country. Exchange controls were abolished in 1979. As a
member of the European Union, the United Kingdom applies the
European Union's common external tariff.
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