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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Sono Group NV | NASDAQ:SEV | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.207 | 0.211 | 0.2138 | 0 | 01:00:00 |
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 2013
FILE NO. 33-21844
FILE NO. 811-5555
FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] PRE-EFFECTIVE AMENDMENT NO._ [_] POST-EFFECTIVE AMENDMENT NO. 58 [X] AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] AMENDMENT NO. 59 [X] (CHECK APPROPRIATE BOX OR BOXES) ----------------- |
SANFORD C. BERNSTEIN FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-212-756-4097
MARK R. MANLEY, ESQ.
ALLIANCEBERNSTEIN L.P.
NEW YORK, NEW YORK 10105
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
MARGERY K. NEALE, ESQ.
WILLKIE FARR & GALLAGHER LLP
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019-6099
It is proposed that this filing will become effective (check appropriate box):
[X]immediately upon filing pursuant to paragraph (b)
[_]on (date) pursuant to paragraph (b)
[_]60 days after filing pursuant to paragraph (a)(1)
[_]on January 31, 2013 pursuant to paragraph (a)(1)
[_]75 days after filing pursuant to paragraph (a)(2)
[_]on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[_]This post-effective amendment designates a new effective date for a
previously filed post effective amendment.
This filing relates solely to the Emerging Markets Portfolio, Short Duration New York Municipal Portfolio, Short Duration California Municipal Portfolio, Short Duration Diversified Municipal Portfolio, New York Municipal Portfolio, California Municipal Portfolio, Diversified Municipal Portfolio, U.S. Government Short Duration Portfolio, Short Duration Plus Portfolio, Intermediate Duration Portfolio, Overlay A Portfolio, Tax-Aware Overlay A Portfolio, Overlay B Portfolio, Tax-Aware Overlay B Portfolio, Tax-Aware Overlay C Portfolio, and Tax-Aware Overlay N Portfolio.
PROSPECTUS | JANUARY 31, 2013
Sanford C. Bernstein Fund, Inc.
NON-U.S. STOCK PORTFOLIOS FIXED-INCOME TAXABLE PORTFOLIOS (Class Offered--Exchange Ticker Symbol) (Class Offered--Exchange Ticker Symbol) International Portfolio SHORT DURATION PORTFOLIOS (International Class-SIMTX) U.S. Government Short Duration Portfolio Tax-Managed International Portfolio (U.S. Government Short Duration Class-SNGSX) (Tax-Managed International Class-SNIVX) Short Duration Plus Portfolio Emerging Markets Portfolio (Short Duration Plus Class-SNSDX) (Emerging Markets Class-SNEMX) INTERMEDIATE DURATION PORTFOLIOS FIXED-INCOME MUNICIPAL PORTFOLIOS (Class Offered--Exchange Ticker Symbol) Intermediate Duration Portfolio (Intermediate Duration Class-SNIDX) SHORT DURATION PORTFOLIOS OVERLAY PORTFOLIOS Short Duration New York Municipal Portfolio (Classes Offered--Exchange Ticker Symbol) (Short Duration New York Municipal Class-SDNYX) Overlay A Portfolio Short Duration California Municipal Portfolio (Class 1-SAOOX; Class 2-SAOTX) (Short Duration California Municipal Class-SDCMX) Tax-Aware Overlay A Portfolio Short Duration Diversified Municipal Portfolio (Class 1-SATOX; Class 2-SATTX) (Short Duration Diversified Municipal Class-SDDMX) Overlay B Portfolio INTERMEDIATE DURATION PORTFOLIOS (Class 1-SBOOX; Class 2-SBOTX) New York Municipal Portfolio (New York Municipal Class-SNNYX) Tax-Aware Overlay B Portfolio California Municipal Portfolio (Class 1-SBTOX; Class 2-SBTTX) (California Municipal Class-SNCAX) Diversified Municipal Portfolio Tax-Aware Overlay C Portfolio (Diversified Municipal Class-SNDPX) (Class 1-SCTOX; Class 2-SCTTX) Tax-Aware Overlay N Portfolio (Class 1-SNTOX; Class 2-SNTTX) |
The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
[LOGO]
AB
ALLIANCEBERNSTEIN
Investment Products Offered
. Are Not FDIC Insured
. May Lose Value
. Are Not Bank Guaranteed
SUMMARY INFORMATION................................................... 4 INTERNATIONAL PORTFOLIO............................................. 4 TAX-MANAGED INTERNATIONAL PORTFOLIO................................. 8 EMERGING MARKETS PORTFOLIO.......................................... 13 SHORT DURATION NEW YORK MUNICIPAL PORTFOLIO......................... 18 SHORT DURATION CALIFORNIA MUNICIPAL PORTFOLIO....................... 23 SHORT DURATION DIVERSIFIED MUNICIPAL PORTFOLIO...................... 28 NEW YORK MUNICIPAL PORTFOLIO........................................ 33 CALIFORNIA MUNICIPAL PORTFOLIO...................................... 38 DIVERSIFIED MUNICIPAL PORTFOLIO..................................... 43 U.S. GOVERNMENT SHORT DURATION PORTFOLIO............................ 48 SHORT DURATION PLUS PORTFOLIO....................................... 53 INTERMEDIATE DURATION PORTFOLIO..................................... 58 OVERLAY A PORTFOLIO................................................. 63 TAX-AWARE OVERLAY A PORTFOLIO....................................... 69 OVERLAY B PORTFOLIO................................................. 75 TAX-AWARE OVERLAY B PORTFOLIO....................................... 81 TAX-AWARE OVERLAY C PORTFOLIO....................................... 87 TAX-AWARE OVERLAY N PORTFOLIO....................................... 93 ADDITIONAL INFORMATION ABOUT INVESTMENT PROCESSES..................... 99 ADDITIONAL INVESTMENT INFORMATION, SPECIAL INVESTMENT TECHNIQUES AND RELATED RISKS......................................................... 101 INVESTING IN THE PORTFOLIOS........................................... 114 How to Buy Shares................................................... 114 How to Exchange Shares.............................................. 115 How to Sell or Redeem Shares........................................ 115 Frequent Purchases and Redemptions of Portfolio Shares.............. 117 How the Portfolios Value Their Shares............................... 118 MANAGEMENT OF THE PORTFOLIOS.......................................... 120 DIVIDENDS, DISTRIBUTIONS AND TAXES.................................... 123 GLOSSARY OF INVESTMENT TERMS.......................................... 126 |
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide long-term capital growth.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
SHAREHOLDER FEES (fees paid directly from your investment)
INTERNATIONAL CLASS ------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None ------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None ------------------------------------------------------------------------------- Redemption Fee (as a percentage of amount redeemed) None ------------------------------------------------------------------------------- Exchange Fee None ------------------------------------------------------------------------------- Maximum Account Fee None |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
INTERNATIONAL CLASS ------------------------------------------------------------------------------- Management Fees 0.90% Distribution and/or Service (12b-1) Fees None Other Expenses: Shareholder Servicing 0.25% Other Expenses 0.06% ----- Total Other Expenses 0.31% ----- Total Portfolio Operating Expenses 1.21% ===== ------------------------------------------------------------------------------- |
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
INTERNATIONAL CLASS ------------------------------------------------------------------------------- After 1 Year $ 123 After 3 Years $ 384 After 5 Years $ 665 After 10 Years $1,466 ------------------------------------------------------------------------------- |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account.
These transaction costs, which are not reflected in the Annual Portfolio Operating Expenses or in the Examples, affect the Portfolio's performance. During the most recent fiscal year, the Portfolio's portfolio turnover rate was 69% of the average value of its portfolio.
PRINCIPAL STRATEGIES:
The Portfolio invests primarily in equity securities of issuers in countries
that make up the Morgan Stanley Capital International ("MSCI") EAFE Index
(Europe, Australasia and the Far East) and Canada. AllianceBernstein L.P., the
Portfolio's investment manager (the "Manager"), diversifies the Portfolio among
many foreign countries, but not necessarily in the same proportion that the
countries are represented in the MSCI EAFE Index. Under normal circumstances,
the Manager will invest in companies in at least three countries (and normally
substantially more) other than the United States. The Portfolio also invests in
less developed or emerging equity markets. The Manager may diversify the
Portfolio across multiple research strategies as well as capitalization ranges.
The Manager relies on both fundamental and quantitative research to manage both
risk and return for the Portfolio. The Portfolio may own stocks from the
Manager's bottom-up fundamental research in value, growth, stability and other
disciplines. Within each investment discipline, the Manager draws on the
capabilities of separate investment teams. The research analyses that support
buy and sell decisions for the Portfolio are fundamental and bottom-up, based
largely on specific company and industry findings and taking into account broad
economic forecasts. The Portfolio is managed without regard to tax
considerations.
The Portfolio may invest in companies of any size. The Portfolio will invest primarily in common stocks but may also invest in preferred stocks, warrants and convertible securities of foreign issuers, including sponsored or unsponsored American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). The Portfolio may use derivatives, such as options, futures, forwards and swaps. The Portfolio may enter into foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives transactions, such as forward currency exchange contracts, currency futures and options thereon, and options on currencies. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio. The Portfolio will generally invest in foreign-currency futures contracts or foreign-currency forward contracts with terms of up to one year. The Portfolio will also purchase foreign currency for immediate settlement in order to purchase foreign securities. In addition, the Portfolio may invest a portion of its uncommitted cash balances in futures contracts to expose that portion of the Portfolio to the equity markets. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indexes, futures contracts (including futures contracts on individual securities and stock indexes) or shares of exchange-traded funds ("ETFs"). These options transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio's portfolio from a decline in value, sometimes within certain ranges.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money.
There is no guarantee that the Portfolio will achieve its investment objective.
. Foreign (Non-U.S.) Securities Risk: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets.
. Country Concentration Risk: The Portfolio may not always be diversified among countries or regions and the effect on the share price of the Portfolio of specific risks identified above such as political, regulatory and currency may be magnified due to concentration of the Portfolio's investments in a particular country or region.
. Emerging Markets Securities Risk: The risks of investing in foreign (non-U.S.) securities are heightened with respect to issuers in emerging-market countries, because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. Foreign Currency Risk: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. Actions by a Few Major Investors: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that stock prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
. ALLOCATION RISK: The allocation of investments among investment disciplines may have a significant effect on the Portfolio's performance when the investment disciplines in which the Portfolio has greater exposure perform worse than the investment disciplines with less exposure.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's International Class
shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ------ ------ ------ ------ ------ ------- ------ ----- ------- ------- 39.35% 18.48% 14.67% 24.21% 9.15% -48.98% 26.25% 5.04% -18.86% 14.25% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 24.94%, 2ND QUARTER, 2003; AND WORST QUARTER WAS DOWN
-24.89%, 3RD QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS -------------------------------------------------------------------------------------------------------------- International Class Return Before Taxes 14.25% -8.91% 4.88% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions 14.11% -9.03% 4.37% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 9.86% -7.19% 4.55% -------------------------------------------------------------------------------------------------------------- MSCI EAFE Index (reflects no deduction for fees, expenses, or taxes) 17.32% -3.69% 8.21% -------------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE --------------------------------------------------------------------------- Kent W. Hargis Since 2013 Senior Vice President of the Manager Patrick J. Rudden Since 2009 Senior Vice President of the Manager Laurent Saltiel Since 2012 Senior Vice President of the Manager Karen Sesin Since 2011 Senior Vice President of the Manager Kevin F. Simms Since 2012 Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no minimum
amount for subsequent investments in the same Portfolio. You may sell (redeem)
your shares each day the New York Stock Exchange is open. You may sell your
shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio intends to distribute dividends and/or distributions that may be
taxed as ordinary income and/or capital gains.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide long-term capital growth.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
Tax-Managed International Class --------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None --------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None --------------------------------------------------------------------------------------------------- Redemption Fee (as a percentage of amount redeemed) None --------------------------------------------------------------------------------------------------- Exchange Fee None --------------------------------------------------------------------------------------------------- Maximum Account Fee............................................................ None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Tax-Managed International Class ------------------------------------------------------------- Management Fees 0.87% Distribution and/or Service (12b-1) Fees. None Other Expenses:.......................... Shareholder Servicing 0.25% Other Expenses 0.04% ----- Total Other Expenses 0.29% ----- Total Portfolio Operating Expenses 1.16% ===== ============================================================= |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
Tax-Managed International Class ----------------------------------- After 1 Year $ 118 After 3 Years.. $ 368 After 5 Years.. $ 638 After 10 Years. $1,409 ----------------------------------- |
Portfolio Turnover
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 62% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
The Portfolio invests primarily in equity securities of issuers in countries
that make up the Morgan Stanley Capital International ("MSCI") EAFE Index
(Europe, Australasia and the Far East) and Canada. AllianceBernstein L.P., the
Portfolio's investment manager (the "Manager"), diversifies the Portfolio among
many foreign countries, but not necessarily in the same proportion that the
countries are represented in the MSCI EAFE Index. Under normal circumstances,
the Manager will invest in companies in at least three countries (and normally
substantially more) other than the United States. The Portfolio also invests in
less developed or emerging equity markets. The Manager may diversify the
Portfolio across multiple research strategies as well as capitalization ranges.
The Manager relies on both fundamental and quantitative research to manage both
risk and return for the Portfolio. The Portfolio may own stocks from the
Manager's bottom-up fundamental research in value, growth, stability and other
disciplines. Within each investment discipline, the Manager draws on the
capabilities of separate investment teams. The research analyses that support
buy and sell decisions for the Portfolio are fundamental and bottom-up, based
largely on specific company and industry findings and taking into account broad
economic forecasts. The Portfolio seeks to minimize the impact of taxes on
shareholders' returns.
The Portfolio may invest in companies of any size. The Portfolio will invest primarily in common stocks but may also invest in preferred stocks, warrants and convertible securities of foreign issuers, including sponsored or unsponsored American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). The Portfolio may use derivatives, such as options, futures, forwards and swaps. The Portfolio may enter into foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives transactions, such as forward currency exchange contracts, currency futures and options thereon, and options on currencies. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio. The Portfolio will generally invest in foreign-currency futures contracts or foreign-currency forward contracts with terms of up to one year. The Portfolio will also purchase foreign currency for immediate settlement in order to purchase foreign securities. In addition, the Portfolio may invest a portion of its uncommitted cash balances in futures contracts to expose that portion of the Portfolio to the equity markets. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indexes, futures contracts (including futures contracts on individual securities and stock indexes) or shares of exchange-traded funds ("ETFs"). These options transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio's portfolio from a decline in value, sometimes within certain ranges.
The Portfolio seeks to maximize after-tax returns to shareholders by pursuing a number of strategies that take into account the tax impact of buy and sell investment decisions on its shareholders. For example, the Manager may sell certain securities in order to realize capital losses. Capital losses may be used to offset realized capital gains. To minimize capital gains distributions, the Manager may sell securities in the Portfolio with the highest cost basis. The Manager may monitor the length of time the Portfolio has held an investment to evaluate whether the investment should be sold at a short-term gain or held for a longer period so that the gain on the investment will be taxed at the lower long-term rate. In making this decision, the Manager will consider whether, in its judgment, the risk of continued exposure to the investment is worth the tax savings of a lower capital gains rate. There can be no assurance that any of these strategies will be effective or that their use will not adversely affect the gross returns of the Portfolio.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
. FOREIGN (NON-U.S.) SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets.
. COUNTRY CONCENTRATION RISK: The Portfolio may not always be diversified among countries or regions and the effect on the share price of the Portfolio of specific risks identified above such as political, regulatory and currency may be magnified due to concentration of the Portfolio's investments in a particular country or region.
. EMERGING MARKETS SECURITIES RISK: The risks of investing in foreign (non-U.S.) securities are heightened with respect to issuers in emerging-market countries, because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. Actions by a Few Major Investors: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of the Portfolio.
. Market Risk: The Portfolio is subject to market risk, which is the risk that stock prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. Capitalization Risk: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
. Allocation Risk: The allocation of investments among investment disciplines may have a significant effect on the Portfolio's performance when the investment disciplines in which the Portfolio has greater exposure perform worse than the investment disciplines with less exposure.
. Derivatives Risk: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. Management Risk: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Tax-Managed
International Class shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ------ ------ ------ ------ ------ ------- ------ ----- ------- ------- 38.83% 17.58% 14.44% 24.86% 7.37% -49.05% 27.37% 4.72% -18.75% 14.40% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 24.55%, 2ND QUARTER, 2003; AND WORST QUARTER WAS DOWN
-25.05%, 3RD QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS -------------------------------------------------------------------------------------------------------------- Tax-Managed Return Before Taxes 14.40% -8.78% 4.69% International Class ----------------------------------------------------------------------------------------- Return After Taxes on Distributions 14.22% -8.85% 4.18% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 10.00% -7.04% 4.49% - ----------------------------------------------------------------------------------------- MSCI EAFE Index (reflects no deduction for fees, expenses, or taxes) 17.32% -3.69% 8.21% -------------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE --------------------------------------------------------------------------- Kent W. Hargis Since 2013 Senior Vice President of the Manager Patrick J. Rudden Since 2009 Senior Vice President of the Manager Laurent Saltiel Since 2012 Senior Vice President of the Manager Karen Sesin Since 2011 Senior Vice President of the Manager Kevin F. Simms Since 2012 Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no minimum
amount for subsequent investments in the same Portfolio. You may sell (redeem)
your shares each day the New York Stock Exchange is open. You may sell your
shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio intends to distribute dividends and/or distributions that may
be taxed as ordinary income and/or capital gains.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide long-term capital growth
through investments in equity securities of companies in emerging-market
countries.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
Emerging Markets Class ------------------------------------------------------------------------------------------------ Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None ------------------------------------------------------------------------------------------------ Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None ------------------------------------------------------------------------------------------------ Portfolio Transaction Fee upon Purchase of Shares (as a percentage of amount invested) 1.00% ------------------------------------------------------------------------------------------------ Portfolio Transaction Fee upon Redemption of Shares (as a percentage of amount redeemed) 1.00% ------------------------------------------------------------------------------------------------ Portfolio Transaction Fee upon Exchange of Shares 1.00% ------------------------------------------------------------------------------------------------ Maximum Account Fee............................................................ None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Emerging Markets Class ------------------------------------------------------------------------------- Management Fees............................................... 1.15% Distribution and/or Service (12b-1) Fees...................... None Other Expenses:............................................... Shareholder Servicing 0.25% Transfer Agent 0.02% Other Expenses 0.07% ----- Total Other Expenses.......................................... 0.34% ----- Total Portfolio Operating Expenses............................ 1.49% ===== ============================================================================== |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
Emerging Markets Class ------------------------------------------------------------------------------- After 1 Year $ 152 After 3 Years................................................. $ 471 After 5 Years................................................. $ 813 After 10 Years................................................ $1,779 ------------------------------------------------------------------------------- |
You would pay the following expenses if you did not redeem your shares at the end of the period:
Emerging Markets Class ------------------------------------------------------------------------------- After 1 Year $ 152 After 3 Years................................................. $ 471 After 5 Years................................................. $ 813 After 10 Years................................................ $1,779 ------------------------------------------------------------------------------- |
The amounts shown in the portion of the example showing expenses if you did not redeem your shares at the end of the period reflect the portfolio transaction fee on purchases but do not reflect the portfolio transaction fee on redemptions. If this fee were included, your costs would be higher.
The portfolio transaction fees on purchases and redemptions are received by the Portfolio, not by the Manager, and are neither sales loads nor contingent deferred sales loads. The purpose of these fees is to allocate transaction costs associated with purchases and redemptions to the investors making those purchases and redemptions, not to other shareholders. For more information on the portfolio transaction fees, see the "How to Buy Shares" section below.
Portfolio Turnover
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 55% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
The Portfolio invests, under normal circumstances, at least 80% of its net
assets in securities of companies in emerging markets. For purposes of this
policy, net assets include any borrowings for investment purposes. You will be
notified at least 60 days prior to any change to the Portfolio's 80% investment
policy. Issuers of these securities may be large or relatively small companies.
AllianceBernstein L.P., the Portfolio's investment manager (the "Manager"), will determine which countries are emerging-market countries. In general, these will be the countries considered to be developing countries by the international financial community and will include those countries considered by the International Finance Corporation (a subsidiary of the World Bank) to have an "emerging stock market." Examples of emerging-market countries include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, the Philippines, Poland, Russia, South Africa, South Korea, Taiwan, Thailand and Turkey.
The Manager diversifies the investment portfolio between growth and value equity investment styles. The Manager selects emerging markets growth and emerging markets value equity securities based on its fundamental growth and value investment disciplines to produce a blended portfolio. Within each investment discipline, the Manager draws on the capabilities of separate investment teams.
The Portfolio's emerging markets growth stocks are selected using the Manager's emerging markets growth investment discipline. The emerging markets growth investment team selects stocks using a process that seeks to identify companies with strong management, superior industry positions and superior earnings-growth prospects.
The Portfolio's emerging markets value stocks are selected using the Manager's fundamental emerging markets value investment discipline. In selecting stocks for the Portfolio, the Manager's emerging markets value investment team looks for stocks that are attractively priced relative to their future earnings power and dividend-paying capability.
Normally, approximately 50% of the value of the Portfolio will consist of emerging markets value stocks and 50% will consist of emerging markets growth stocks. The Manager will rebalance the Portfolio as necessary to maintain this targeted allocation. Depending on market conditions, however, the actual weightings of securities from each investment discipline in the Portfolio may vary within a range. In extraordinary circumstances, when research determines conditions favoring one investment style are compelling, the range may be 40%-60% before rebalancing occurs. Prior to May 2, 2005, 100% of the value of the Portfolio consisted of emerging markets value stocks.
The Portfolio may invest in companies of any size. The Portfolio will invest primarily in common stocks but may also invest in preferred stocks, Real Estate Investment Trusts ("REITs"), warrants and convertible securities of foreign issuers, including sponsored or unsponsored American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs").
Under most conditions, the Portfolio intends to have its assets diversified among emerging-market countries, although the Portfolio may also invest in more developed country markets. In allocating the Portfolio's assets among emerging-market countries, the
Manager will consider such factors as the geographical distribution of the Portfolio, the sizes of the stock markets represented and the various key economic characteristics of the countries. However, the Portfolio may not necessarily be diversified on a geographical basis. The Manager will also consider the transaction costs and volatility of each individual market.
The Manager may hedge currency risk when it believes there is potential to enhance risk-adjusted returns. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio. In addition, the Portfolio may invest a portion of its uncommitted cash balances in futures contracts to expose that portion of the Portfolio to the equity markets. The Portfolio may use derivatives, such as options, futures, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indexes, futures contracts (including futures contracts on individual securities and stock indexes) or shares of exchange-traded funds ("ETFs"). These options transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio's portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may also make investments in developed foreign securities that comprise the Morgan Stanley Capital International ("MSCI") EAFE Index.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
. EMERGING MARKETS SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. equities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets. These risks are heightened with respect to issuers in emerging-market countries because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. COUNTRY CONCENTRATION RISK: The Portfolio may not always be diversified among countries or regions and the effect on the share price of the Portfolio of specific risks identified above such as political, regulatory and currency may be magnified due to concentration of the Portfolio's investments in a particular country or region.
. ACTIONS BY A FEW MAJOR INVESTORS: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that stock prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
. ALLOCATION RISK: This is the risk that, by combining the growth and value styles, returns may be lower over any given time period than if the Portfolio had invested only pursuant to the equity style that performed better during that period. Also, as the Portfolio will be periodically rebalanced to maintain the target allocation between styles, there will be transaction costs which may be, over time, significant.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves
go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
The returns in the bar chart do not reflect the portfolio transaction fee of 1.00% that is payable to the Portfolio when shares of the Portfolio are purchased and when shares are sold. If these fees were reflected in the chart, the returns would be less than those shown.
BAR CHART
The annual returns in the bar chart are for the Emerging Markets Class shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ------ ------ ------ ------ ------ ------- ------ ------ ------- ------ 76.89% 39.18% 28.78% 28.89% 34.04% -56.51% 87.40% 15.62% -23.64% 18.19% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 35.83%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-32.15%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS ----------------------------------------------------------------------------------------------------------- Emerging Markets Return Before Taxes 15.86% -3.58% 16.28% Class ----------------------------------------------------------------------------------------- Return After Taxes on Distributions 15.87% -3.72% 15.23% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 10.83% -2.78% 15.00% - ----------------------------------------------------------------------------------------- MSCI Emerging Markets Index (Net) (reflects no deduction for fees, expenses, or taxes) 18.22% -0.92% 16.52% ----------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management
of the Portfolio:
Length of Employee Service Title ------------------------------------ Henry D'Auria Since Senior 2012 Vice President of the Manager Patrick J. Rudden Since Senior 2009 Vice President of the Manager Laurent Saltiel Since Senior 2012 Vice President of the Manager Karen Sesin Since Senior 2011 Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no
minimum amount for subsequent investments in the same Portfolio. You may sell
(redeem) your shares each day the New York Stock Exchange is open. You may sell
your shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio intends to distribute dividends and/or distributions that may
be taxed as ordinary income and/or capital gains.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide safety of principal and a
moderate rate of return after taking account of federal, state and local taxes
for New York residents.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
Short Duration New York Municipal Class ----------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None ----------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None ----------------------------------------------------------------------------------------------- Redemption Fee (as a percentage of amount redeemed) None ----------------------------------------------------------------------------------------------- Exchange Fee None ----------------------------------------------------------------------------------------------- Maximum Account Fee............................................................ None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Short Duration New York Municipal Class --------------------------------------------------------- Management Fees.......................... 0.45% Distribution and/or Service (12b-1) Fees. None Other Expenses:.......................... Shareholder Servicing.................. 0.10% Transfer Agent......................... 0.01% Other Expenses......................... 0.08% ----- Total Other Expenses..................... 0.19% ----- Total Portfolio Operating Expenses....... 0.64% ===== ========================================================= |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
Short Duration New York Municipal Class ------------------------------- After 1 Year $ 65 After 3 Years.. $205 After 5 Years.. $357 After 10 Years. $798 ------------------------------- |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 54% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
As a matter of fundamental policy, the Portfolio, under normal circumstances,
invests at least 80% of its net assets in municipal securities. In addition, as
a matter of fundamental policy, the Portfolio, under normal circumstances,
invests at least 80% of its net assets in a portfolio of municipal securities
issued by the State of New York or its political subdivisions, or otherwise
exempt from New York state income tax. For purposes of these policies, net
assets include any borrowings for investment purposes.
The municipal securities in which the Portfolio may invest are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, the District of Columbia or possessions and territories of the United States, or financing for specific projects or public facilities. The interest paid on these securities is generally exempt from federal and New York state and local personal income tax, although in certain instances, it may be includable in income subject to alternative minimum tax.
The Portfolio invests at least 80% of its total assets in municipal securities rated A or better by national rating agencies (or, if unrated, determined by AllianceBernstein L.P., the Portfolio's investment manager (the "Manager"), to be of comparable quality) and comparably rated municipal notes. The Portfolio may invest up to 20% of its total assets in fixed-income securities rated BB or B by national rating agencies, which are not investment-grade (commonly known as "junk bonds").
The Portfolio may invest more than 25% of its net assets in revenue bonds, which generally do not have the pledge of the credit of the issuer. The Portfolio may invest more than 25% of its total assets in securities or obligations that are related in such a way that business or political developments or changes affecting one such security could also affect the others (for example, securities with interest that is paid from projects of a similar type).
The Portfolio may also invest up to 20% of its net assets in fixed-income securities of U.S. issuers that are not municipal securities if, in the Manager's opinion, these securities will enhance the after-tax return for New York investors.
The Portfolio may use derivatives, such as options, futures, forwards and swaps.
In managing the Portfolio, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Manager may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of one-half year to two and one-half years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Manager selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Manager takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives or other contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. RISKIER THAN A MONEY-MARKET FUND: The Portfolio is invested in securities with longer maturities and in some cases lower quality than the assets of the type of mutual fund known as a money-market fund. The risk of a decline in the market value of the Portfolio is greater than for a money-market fund since the credit quality of the Portfolio's securities may be lower and the effective duration of the Portfolio will be longer.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. The value of municipal securities may also be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Most of the Portfolio's investments are in New York municipal securities. Thus, the Portfolio may be vulnerable to events adversely affecting New York's economy. New York's economy has a relatively large share of the nation's financial activities. With the financial services sector contributing over one-fifth of the state's wages, the state's economy is especially vulnerable to adverse events affecting the financial markets such as occurred in 2008-2009. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, are subject to the risk that factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. NON-DIVERSIFICATION RISK: Concentration of investments in a small number of securities tends to increase risk. The Portfolio is not "diversified." This means that the Portfolio can invest more of its assets in a relatively small number of issuers with greater concentration of risk. Matters affecting these issuers can have a more significant effect on the Portfolio's net asset value.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that bond prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. TAX RISK: There is no guarantee that all of the Portfolio's income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's net asset value could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Short Duration New York
Municipal Class shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1.80% 1.01% 1.52% 2.79% 3.65% 2.87% 3.76% 0.13% 2.26% 0.80% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 1.52%, 1ST QUARTER, 2008; AND WORST QUARTER WAS DOWN
-0.67%, 4TH QUARTER, 2010.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS ---------------------------------------------------------------------------------------------------------- Short Duration Return Before Taxes 0.80% 1.94% 2.04% New York ----------------------------------------------------------------------------------------- Municipal Class Return After Taxes on Distributions 0.75% 1.91% 2.03% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 0.73% 1.89% 2.03% - ----------------------------------------------------------------------------------------- Barclays 1-Year Municipal Index (reflects no deduction for fees, expenses, or taxes) 0.84% 2.32% 2.34% ---------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management
of the Portfolio:
Length of Employee Service Title -------------------------------------- Michael Brooks Since Senior 1999 Vice President of the Manager Fred S. Cohen Since Senior 1994 Vice President of the Manager R.B. Davidson III Since Senior inception Vice President of the Manager Wayne Godlin Since Senior 2010 Vice President of the Manager Terrance T. Hults Since Senior 2002 Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no
minimum amount for subsequent investments in the same Portfolio. You may sell
(redeem) your shares each day the New York Stock Exchange is open. You may sell
your shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio anticipates distributing primarily exempt-interest dividends
(i.e., distributions out of interest earned on municipal securities). Any
dividends paid by the Portfolio that are properly reported as exempt-interest
dividends will not be subject to regular federal income tax.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide safety of principal and a
moderate rate of return after taking account of federal and state taxes for
California residents.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
Short Duration California Municipal Class -------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None -------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None -------------------------------------------------------------------------------- Redemption Fee (as a percentage of amount redeemed) None -------------------------------------------------------------------------------- Exchange Fee None -------------------------------------------------------------------------------- Maximum Account Fee............................................. None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Short Duration California Municipal Class ------------------------------------------------------------------------------- Management Fees 0.45% Distribution and/or Service (12b-1) Fees....................... None Other Expenses:................................................ Shareholder Servicing 0.10% Transfer Agent 0.02% Other Expenses 0.10% ----- Total Other Expenses 0.22% ----- Total Portfolio Operating Expenses 0.67% ===== ============================================================================== |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
Short Duration California Municipal Class ------------------------------------------------------------------------------- After 1 Year $ 68 After 3 Years.................................................. $214 After 5 Years.................................................. $373 After 10 Years................................................. $835 ------------------------------------------------------------------------------- |
Portfolio Turnover
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account.
These transaction costs, which are not reflected in the Annual Portfolio Operating Expenses or in the Examples, affect the Portfolio's performance. During the most recent fiscal year, the Portfolio's portfolio turnover rate was 45% of the average value of its portfolio.
PRINCIPAL STRATEGIES:
As a matter of fundamental policy, the Portfolio, under normal circumstances,
invests at least 80% of its net assets in municipal securities. In addition, as
a matter of fundamental policy, the Portfolio, under normal circumstances,
invests at least 80% of its net assets in a portfolio of municipal securities
issued by the State of California or its political subdivisions, or otherwise
exempt from California state income tax. For purposes of this policy, net
assets include any borrowings for investment purposes.
The municipal securities in which the Portfolio may invest are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, the District of Columbia or possessions and territories of the United States, or financing for specific projects or public facilities. The interest paid on these securities is generally exempt from federal and California state personal income tax, although in certain instances, it may be includable in income subject to alternative minimum tax.
The Portfolio invests at least 80% of its total assets in municipal securities rated A or better by national rating agencies (or, if unrated, determined by AllianceBernstein L.P., the Portfolio's investment manager (the "Manager"), to be of comparable quality) and comparably rated municipal notes. The Portfolio may invest up to 20% of its total assets in fixed-income securities rated BB or B by national rating agencies, which are not investment-grade (commonly known as "junk bonds").
The Portfolio may invest more than 25% of its net assets in revenue bonds, which generally do not have the pledge of the credit of the issuer. The Portfolio may invest more than 25% of its total assets in securities or obligations that are related in such a way that business or political developments or changes affecting one such security could also affect the others (for example, securities with interest that is paid from projects of a similar type).
The Portfolio may also invest up to 20% of its net assets in fixed-income securities of U.S. issuers that are not municipal securities if, in the Manager's opinion, these securities will enhance the after-tax return for California investors.
The Portfolio may use derivatives, such as options, futures, forwards and swaps.
In managing the Portfolio, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Manager may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of one-half year to two and one-half years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Manager selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Manager takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives or other contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. RISKIER THAN A MONEY-MARKET FUND: The Portfolio is invested in securities with longer maturities and in some cases lower quality than the assets of the type of mutual fund known as a money-market fund. The risk of a decline in the market value of the Portfolio is greater than for a money-market fund since the credit quality of the Portfolio's securities may be lower and the effective duration of the Portfolio will be longer.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. The value of municipal securities may also be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. The Portfolio's investments in California municipal securities may be vulnerable to events adversely affecting California's economy. California's economy, the largest of the 50 states, however, continues to be affected by serious fiscal conditions as a result of voter-passed initiatives that limit the ability of state and local governments to raise revenues, particularly with respect to real property taxes. The recent economic downturn has had a severe and negative impact on California, causing a significant deterioration in California's economic base. In addition, state expenditures are difficult to reduce because of constitutional provisions that require a minimum level of spending, for certain government programs, such as education. California's economy may also be affected by natural disasters, such as earthquakes or fires. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, are subject to the risk that factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. NON-DIVERSIFICATION RISK: Concentration of investments in a small number of securities tends to increase risk. The Portfolio is not "diversified." This means that the Portfolio can invest more of its assets in a relatively small number of issuers with greater concentration of risk. Matters affecting these issuers can have a more significant effect on the Portfolio's net asset value.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that bond prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. TAX RISK: There is no guarantee that all of the Portfolio's income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's net asset value could also decline as yields on municipal bonds,
which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Short Duration California
Municipal Class shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1.51% 0.77% 1.17% 2.70% 3.57% 3.07% 3.52% 0.41% 1.82% 0.39% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 1.56%, 1ST QUARTER, 2008; AND WORST QUARTER WAS DOWN
-0.83%, 4TH QUARTER, 2010.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS --------------------------------------------------------------------------------------------------------------- Short Duration Return Before Taxes 0.39% 1.83% 1.89% California Municipal ----------------------------------------------------------------- ------ ------- -------- Class Return After Taxes on Distributions 0.35% 1.78% 1.85% ----------------------------------------------------------------- ------ ------- -------- Return After Taxes on Distributions and Sale of Portfolio Shares 0.43% 1.78% 1.86% - ----------------------------------------------------------------------------------------- Barclays 1-Year Municipal Index (reflects no deduction for fees, expenses, or taxes) 0.84% 2.32% 2.34% --------------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management
of the Portfolio:
Length of Employee Service Title -------------------------------------- Michael Brooks Since Senior 1999 Vice President of the Manager Fred S. Cohen Since Senior 1994 Vice President of the Manager R.B. Davidson III Since Senior inception Vice President of the Manager Wayne Godlin Since Senior 2010 Vice President of the Manager Terrance T. Hults Since Senior 2002 Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no
minimum amount for subsequent investments in the same Portfolio. You may sell
(redeem) your shares each day the New York Stock Exchange is open. You may sell
your shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio anticipates distributing primarily exempt-interest dividends
(i.e., distributions out of interest earned on municipal securities). Any
dividends paid by the Portfolio that are properly reported as exempt-interest
dividends will not be subject to regular federal income tax.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide safety of principal and a
moderate rate of return after taking account of federal taxes.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
Short Duration Diversified Municipal Class ------------------------------------------------------------------------------------------------ Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None ------------------------------------------------------------------------------------------------ Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None ------------------------------------------------------------------------------------------------ Redemption Fee (as a percentage of amount redeemed) None ------------------------------------------------------------------------------------------------ Exchange Fee None ------------------------------------------------------------------------------------------------ Maximum Account Fee............................................................. None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Short Duration Diversified Municipal Class ------------------------------------------------------------------------------------------------ Management Fees................................................................. 0.45% Distribution and/or Service (12b-1) Fees........................................ None Other Expenses:................................................................. Shareholder Servicing 0.10% Other Expenses 0.04% ----- Total Other Expenses............................................................ 0.14% ----- Total Portfolio Operating Expenses.............................................. 0.59% ===== =============================================================================================== |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
Short Duration Diversified Municipal Class ------------------------------------------------------------------------------------------------ After 1 Year $ 60 After 3 Years................................................................... $189 After 5 Years................................................................... $329 After 10 Years.................................................................. $738 ------------------------------------------------------------------------------------------------ |
Portfolio Turnover
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 51% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
As a matter of fundamental policy, the Portfolio, under normal
circumstances, invests at least 80% of its net assets in municipal securities.
For purposes of this policy, net assets include any borrowings for investment
purposes. The Portfolio will invest no more than 25% of its total assets in
municipal securities of issuers located in any one state.
The municipal securities in which the Portfolio may invest are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, the District of Columbia or possessions and territories of the United States, or financing for specific projects or public facilities. The interest paid on these securities is generally exempt from federal income tax, although in certain instances, it may be includable in income subject to alternative minimum tax.
The Portfolio invests at least 80% of its total assets in municipal securities rated A or better by national rating agencies (or, if unrated, determined by AllianceBernstein L.P., the Portfolio's investment manager (the "Manager"), to be of comparable quality) and comparably rated municipal notes. The Portfolio may invest up to 20% of its total assets in fixed-income securities rated BB or B by national rating agencies, which are not investment-grade (commonly known as "junk bonds").
The Portfolio may invest more than 25% of its net assets in revenue bonds, which generally do not have the pledge of the credit of the issuer. The Portfolio may invest more than 25% of its total assets in securities or obligations that are related in such a way that business or political developments or changes affecting one such security could also affect the others (for example, securities with interest that is paid from projects of a similar type).
The Portfolio may also invest up to 20% of its net assets in fixed-income securities of U.S. issuers that are not municipal securities if, in the Manager's opinion, these securities will enhance the after-tax return for Portfolio investors.
The Portfolio may use derivatives, such as options, futures, forwards and swaps.
In managing the Portfolio, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Manager may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of one-half year to two and one-half years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Manager selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Manager takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money.
There is no guarantee that the Portfolio will achieve its investment objective.
. Interest Rate Risk: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. Credit Risk: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives or other contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. Duration Risk: The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. RISKIER THAN A MONEY-MARKET FUND: The Portfolio is invested in securities with longer maturities and in some cases lower quality than the assets of the type of mutual fund known as a money-market fund. The risk of a decline in the market value of the Portfolio is greater than for a money-market fund since the credit quality of the Portfolio's securities may be lower and the effective duration of the Portfolio will be longer.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. The value of municipal securities may also be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. To the extent the Portfolio invests in a particular state's municipal securities, it may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes and earthquakes. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, are subject to the risk that factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that bond prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. TAX RISK: There is no guarantee that all of the Portfolio's income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's net asset value could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Short Duration Diversified
Municipal Class shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1.86% 1.10% 1.43% 2.84% 3.73% 2.88% 3.83% 0.50% 2.17% 0.79% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 1.35%, 1ST QUARTER, 2008; AND WORST QUARTER WAS DOWN
-0.54%, 4TH QUARTER, 2010.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS ---------------------------------------------------------------------------------------------------------- Short Duration Return Before Taxes 0.79% 2.03% 2.11% Diversified ----------------------------------------------------------------- ------ ------- -------- Municipal Class Return After Taxes on Distributions 0.69% 1.99% 2.08% ----------------------------------------------------------------- ------ ------- -------- Return After Taxes on Distributions and Sale of Portfolio Shares 0.83% 1.97% 2.08% - ----------------------------------------------------------------------------------------- Barclays 1-Year Municipal Index (reflects no deduction for fees, expenses, or taxes) 0.84% 2.32% 2.34% ---------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE --------------------------------------------------------------------------- Michael Brooks Since 1999 Senior Vice President of the Manager Fred S. Cohen Since 1994 Senior Vice President of the Manager R.B. Davidson III Since inception Senior Vice President of the Manager Wayne Godlin Since 2010 Senior Vice President of the Manager Terrance T. Hults Since 2002 Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no minimum
amount for subsequent investments in the same Portfolio. You may sell (redeem)
your shares each day the New York Stock Exchange is open. You may sell your
shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio anticipates distributing primarily exempt-interest dividends
(i.e., distributions out of interest earned on municipal securities). Any
dividends paid by the Portfolio that are properly reported as exempt-interest
dividends will not be subject to regular federal income tax.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide safety of principal and
maximize total return after taking account of federal, state and local taxes
for New York residents.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
New York Municipal Class ------------------------------------------------------------------------------------------------ Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None ------------------------------------------------------------------------------------------------ Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None ------------------------------------------------------------------------------------------------ Redemption Fee (as a percentage of amount redeemed) None ------------------------------------------------------------------------------------------------ Exchange Fee None ------------------------------------------------------------------------------------------------ Maximum Account Fee............................................................. None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
New York Municipal Class ------------------------------------------------------------------------------------------------ Management Fees................................................................. 0.48% Distribution and/or Service (12b-1) Fees........................................ None Other Expenses:................................................................. Shareholder Servicing 0.10% Other Expenses 0.03% ----- Total Other Expenses............................................................ 0.13% ----- Total Portfolio Operating Expenses.............................................. 0.61% ===== =============================================================================================== |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
New York Municipal Class ------------------------------------------------------------------------------------------------ After 1 Year $ 62 After 3 Years................................................................... $195 After 5 Years................................................................... $340 After 10 Years.................................................................. $762 ------------------------------------------------------------------------------------------------ |
Portfolio Turnover
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 14% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
As a matter of fundamental policy, the Portfolio, under normal circumstances,
invests at least 80% of its net assets in municipal securities. In addition, as
a matter of fundamental policy, the Portfolio, under normal circumstances,
invests at least 80% of its net assets in a portfolio of municipal securities
issued by the State of New York or its political subdivisions, or otherwise
exempt from New York state income tax. For purposes of this policy, net assets
include any borrowings for investment purposes.
The municipal securities in which the Portfolio may invest are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, the District of Columbia or possessions and territories of the United States, or financing for specific projects or public facilities. The interest paid on these securities is generally exempt from federal and New York state and local personal income tax, although in certain instances, it may be includable in income subject to alternative minimum tax.
The Portfolio invests at least 80% of its total assets in municipal securities rated A or better by national rating agencies (or, if unrated, determined by AllianceBernstein L.P., the Portfolio's investment manager (the "Manager"), to be of comparable quality) and comparably rated municipal notes. The Portfolio may invest up to 20% of its total assets in fixed-income securities rated BB or B by national rating agencies, which are not investment-grade (commonly known as "junk bonds").
The Portfolio may invest more than 25% of its net assets in revenue bonds, which generally do not have the pledge of the credit of the issuer. The Portfolio may invest more than 25% of its total assets in securities or obligations that are related in such a way that business or political developments or changes affecting one such security could also affect the others (for example, securities with interest that is paid from projects of a similar type).
The Portfolio may also invest up to 20% of its net assets in fixed-income securities of U.S. issuers that are not municipal securities if, in the Manager's opinion, these securities will enhance the after-tax return for New York investors.
The Portfolio may also use derivatives, such as options, futures, forwards and swaps.
In managing the Portfolio, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Manager may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of three and one-half years to seven years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Manager selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Manager takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives or other contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. The value of municipal securities may also be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Most of the Portfolio's investments are in New York municipal securities. Thus, the Portfolio may be vulnerable to events adversely affecting New York's economy. New York's economy has a relatively large share of the nation's financial activities. With the financial services sector contributing over one-fifth of the state's wages, the state's economy is especially vulnerable to adverse events affecting the financial markets such as occurred in 2008-2009. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, are subject to the risk that factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. NON-DIVERSIFICATION RISK: Concentration of investments in a small number of securities tends to increase risk. The Portfolio is not "diversified." This means that the Portfolio can invest more of its assets in a relatively small number of issuers with greater concentration of risk. Matters affecting these issuers can have a more significant effect on the Portfolio's net asset value.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that bond prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. TAX RISK: There is no guarantee that all of the Portfolio's income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's net asset value could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's New York Municipal
Class shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.95% 2.53% 1.74% 3.21% 4.00% 1.35% 8.16% 2.65% 6.58% 3.15% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 4.58%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-2.12%, 4TH QUARTER, 2010.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS ---------------------------------------------------------------------------------------------------------- New York Return Before Taxes 3.15% 4.35% 3.71% Municipal Class ----------------------------------------------------------------------------------------- Return After Taxes on Distributions 3.14% 4.31% 3.69% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 3.07% 4.17% 3.64% - ----------------------------------------------------------------------------------------- Barclays 5-Year General Obligation Municipal Bond Index (reflects no deduction for fees, expenses, or taxes) 2.36% 5.10% 4.21% ---------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE --------------------------------------------------------------------------- Michael Brooks Since 1999 Senior Vice President of the Manager Fred S. Cohen Since 1994 Senior Vice President of the Manager R.B. Davidson III Since inception Senior Vice President of the Manager Wayne Godlin Since 2010 Senior Vice President of the Manager Terrance T. Hults Since 2002 Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no minimum
amount for subsequent investments in the same Portfolio. You may sell (redeem)
your shares each day the New York Stock Exchange is open. You may sell your
shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio anticipates distributing primarily exempt-interest dividends
(i.e., distributions out of interest earned on municipal securities). Any
dividends paid by the Portfolio that are properly reported as exempt-interest
dividends will not be subject to regular federal income tax.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide safety of principal and
maximize total return after taking account of federal and state taxes for
California residents.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
California Municipal Class ----------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None ----------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None ----------------------------------------------------------------------------------------------- Redemption Fee (as a percentage of amount redeemed) None ----------------------------------------------------------------------------------------------- Exchange Fee None ----------------------------------------------------------------------------------------------- Maximum Account Fee............................................................ None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
California Municipal Class ------------------------------------------------------------------------------- Management Fees................................................ 0.49% Distribution and/or Service (12b-1) Fees....................... None Other Expenses:................................................ Shareholder Servicing 0.10% Other Expenses 0.04% ----- Total Other Expenses........................................... 0.14% ----- Total Portfolio Operating Expenses............................. 0.63% ===== ============================================================================== |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
California Municipal Class ------------------------------------------------------------------------------- After 1 Year $ 64 After 3 Years.................................................. $202 After 5 Years.................................................. $351 After 10 Years................................................. $786 ------------------------------------------------------------------------------- |
Portfolio Turnover
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 15% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
As a matter of fundamental policy, the Portfolio, under normal circumstances,
invests at least 80% of its net assets in municipal securities. In addition, as
a matter of fundamental policy, the Portfolio, under normal circumstances,
invests at least 80% of its net assets in a portfolio of municipal securities
issued by the State of California or its political subdivisions, or otherwise
exempt from California state income tax. For purposes of these policies, net
assets include any borrowings for investment purposes.
The municipal securities in which the Portfolio may invest are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, the District of Columbia or possessions and territories of the United States, or financing for specific projects or public facilities. The interest paid on these securities is generally exempt from federal and California state personal income tax, although in certain instances, it may be includable in income subject to alternative minimum tax.
The Portfolio invests at least 80% of its total assets in municipal securities rated A or better by national rating agencies (or, if unrated, determined by AllianceBernstein L.P., the Portfolio's investment manager (the "Manager"), to be of comparable quality) and comparably rated municipal notes. The Portfolio may invest up to 20% of its total assets in fixed-income securities rated BB or B by national rating agencies, which are not investment-grade (commonly known as "junk bonds").
The Portfolio may invest more than 25% of its net assets in revenue bonds, which generally do not have the pledge of the credit of the issuer. The Portfolio may invest more than 25% of its total assets in securities or obligations that are related in such a way that business or political developments or changes affecting one such security could also affect the others (for example, securities with interest that is paid from projects of a similar type).
The Portfolio may also invest up to 20% of its net assets in fixed-income securities of U.S. issuers that are not municipal securities if, in the Manager's opinion, these securities will enhance the after-tax return for California investors.
The Portfolio may use derivatives, such as options, futures, forwards and swaps.
In managing the Portfolio, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Manager may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of three and one-half years to seven years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Manager selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Manager takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives or other contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. The value of municipal securities may also be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. The Portfolio's investments in California municipal securities may be vulnerable to events adversely affecting California's economy. California's economy, the largest of the 50 states, however, continues to be affected by serious fiscal conditions as a result of voter-passed initiatives that limit the ability of state and local governments to raise revenues, particularly with respect to real property taxes. The recent economic downturn has had a severe and negative impact on California, causing a significant deterioration in California's economic base. In addition, state expenditures are difficult to reduce because of constitutional provisions that require a minimum level of spending, for certain government programs, such as education. California's economy may also be affected by natural disasters, such as earthquakes or fires. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, are subject to the risk that factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. NON-DIVERSIFICATION RISK: Concentration of investments in a small number of securities tends to increase risk. The Portfolio is not "diversified." This means that the Portfolio can invest more of its assets in a relatively small number of issuers with greater concentration of risk. Matters affecting these issuers can have a more significant effect on the Portfolio's net asset value.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that bond prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. TAX RISK: There is no guarantee that all of the Portfolio's income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's net asset value could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's California
Municipal Class shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.68% 2.57% 1.54% 3.30% 3.96% 1.52% 6.85% 3.16% 7.36% 3.35% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 5.03%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-2.53%, 4TH QUARTER, 2010.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS ---------------------------------------------------------------------------------------------------------- California Return Before Taxes 3.35% 4.43% 3.71% Municipal Class ----------------------------------------------------------------------------------------- Return After Taxes on Distributions 3.34% 4.37% 3.67% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 3.22% 4.26% 3.63% - ----------------------------------------------------------------------------------------- Barclays 5-Year General Obligation Municipal Bond Index (reflects no deduction for fees, expenses, or taxes) 2.36% 5.10% 4.21% ---------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
Employee Length of Service Title --------------------------------------------------------------------------- Michael Brooks Since 1999 Senior Vice President of the Manager Fred S. Cohen Since 1994 Senior Vice President of the Manager R.B. Davidson III Since inception Senior Vice President of the Manager Wayne Godlin Since 2010 Senior Vice President of the Manager Terrance T. Hults Since 2002 Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no
minimum amount for subsequent investments in the same Portfolio. You may sell
(redeem) your shares each day the New York Stock Exchange is open. You may sell
your shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio anticipates distributing primarily exempt-interest dividends
(i.e., distributions out of interest earned on municipal securities). Any
dividends paid by the Portfolio that are properly reported as exempt-interest
dividends will not be subject to regular federal income tax.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide safety of principal and
maximize total return after taking account of federal taxes.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
Diversified Municipal Class -------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None -------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None -------------------------------------------------------------------------------------------- Redemption Fee (as a percentage of amount redeemed) None -------------------------------------------------------------------------------------------- Exchange Fee None -------------------------------------------------------------------------------------------- Maximum Account Fee............................................................. None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Diversified Municipal Class ------------------------------------------------------------------------------------------------ Management Fees 0.43% Distribution and/or Service (12b-1) Fees........................................ None Other Expenses:................................................................. Shareholder Servicing 0.10% Other Expenses 0.03% ----- Total Other Expenses 0.13% ----- Total Portfolio Operating Expenses 0.56% ===== =============================================================================================== |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
Diversified Municipal Class ------------------------------------------------------------------------------------------------ After 1 Year $ 57 After 3 Years................................................................... $179 After 5 Years................................................................... $313 After 10 Years.................................................................. $701 ------------------------------------------------------------------------------------------------ |
Portfolio Turnover
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 16% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
As a matter of fundamental policy, the Portfolio, under normal circumstances,
invests at least 80% of its net assets in municipal securities. For purposes of
this policy, net assets include any borrowings for investment purposes. The
Portfolio will invest no more than 25% of its total assets in municipal
securities of issuers located in any one state.
The municipal securities in which the Portfolio may invest are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, the District of Columbia or possessions and territories of the United States, or financing for specific projects or public facilities. The interest paid on these securities is generally exempt from federal income tax, although in certain instances, it may be includable in income subject to alternative minimum tax.
The Portfolio invests at least 80% of its total assets in municipal securities rated A or better by national rating agencies (or, if unrated, determined by AllianceBernstein L.P., the Portfolio's investment manager (the "Manager"), to be of comparable quality) and comparably rated municipal notes. The Portfolio may invest up to 20% of its total assets in fixed-income securities rated BB or B by national rating agencies, which are not investment-grade (commonly known as "junk bonds").
The Portfolio may invest more than 25% of its net assets in revenue bonds, which generally do not have the pledge of the credit of the issuer. The Portfolio may invest more than 25% of its total assets in securities or obligations that are related in such a way that business or political developments or changes affecting one such security could also affect the others (for example, securities with interest that is paid from projects of a similar type).
The Portfolio may also invest up to 20% of its net assets in fixed-income securities of U.S. issuers that are not municipal securities if, in the Manager's opinion, these securities will enhance the after-tax return for Portfolio investors.
The Portfolio may use derivatives, such as options, futures, forwards and swaps.
In managing the Portfolio, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Manager may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of three and one-half years to seven years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Manager selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Manager takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives or other contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic
conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. The value of municipal securities may also be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. To the extent the Portfolio invests in a particular state's municipal securities, it may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes and earthquakes. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, are subject to the risk that factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that bond prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. TAX RISK: There is no guarantee that all of the Portfolio's income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's net asset value could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to
the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Diversified
Municipal Class shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 4.04% 2.60% 1.48% 3.18% 4.05% 2.49% 7.04% 2.65% 7.06% 3.07% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 4.06%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-2.06%, 4TH QUARTER, 2010.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS ---------------------------------------------------------------------------------------------------------- Diversified Return Before Taxes 3.07% 4.44% 3.75% Municipal Class ----------------------------------------------------------------------------------------- Return After Taxes on Distributions 3.02% 4.39% 3.72% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 2.97% 4.24% 3.66% - ----------------------------------------------------------------------------------------- Barclays 5-Year General Obligation Municipal Bond Index (reflects no deduction for fees, expenses, or taxes) 2.36% 5.10% 4.21% ---------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE --------------------------------------------------------------------------- Michael Brooks Since 1999 Senior Vice President of the Manager Fred S. Cohen Since 1994 Senior Vice President of the Manager R.B. Davidson III Since inception Senior Vice President of the Manager Wayne Godlin Since 2010 Senior Vice President of the Manager Terrance T. Hults Since 2002 Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no minimum
amount for subsequent investments in the same Portfolio. You may sell (redeem)
your shares each day the New York Stock Exchange is open. You may sell your
shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio anticipates distributing primarily exempt-interest dividends
(i.e., distributions out of interest earned on municipal securities). Any
dividends paid by the Portfolio that are properly reported as exempt-interest
dividends will not be subject to regular federal income tax.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide safety of principal and a
moderate rate of income that is generally exempt from state and local taxes.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
U.S. Government Short Duration Class ---------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None ---------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None ---------------------------------------------------------------------------------------------------- Redemption Fee (as a percentage of amount redeemed) None ---------------------------------------------------------------------------------------------------- Exchange Fee None ---------------------------------------------------------------------------------------------------- Maximum Account Fee............................................................ None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
U.S. Government Short Duration Class -------------------------------------------------------------------------------- Management Fees............................................ 0.45% Distribution and/or Service (12b-1) Fees................... None Other Expenses:............................................ Shareholder Servicing 0.10% Transfer Agent 0.02% Other Expenses............................................ 0.11% ----- Total Other Expenses....................................... 0.23% ----- Total Portfolio Operating Expenses......................... 0.68% ===== =============================================================================== |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
U.S. Government Short Duration Class -------------------------------------------------------------------------------- After 1 Year $ 69 After 3 Years.............................................. $218 After 5 Years.............................................. $379 After 10 Years............................................. $847 -------------------------------------------------------------------------------- |
Portfolio Turnover
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account.
These transaction costs, which are not reflected in the Annual Portfolio Operating Expenses or in the Examples, affect the Portfolio's performance. During the most recent fiscal year, the Portfolio's portfolio turnover rate was 95% of the average value of its portfolio.
PRINCIPAL STRATEGIES:
The Portfolio invests, under normal circumstances, at least 80% of its net
assets in U.S. Government and agency securities. For purposes of this policy,
net assets include any borrowings for investment purposes. You will be notified
at least 60 days prior to any change to the Portfolio's 80% investment policy.
The Portfolio may also invest in high-quality money-market securities, which
are securities that have remaining maturities of one year or less and are rated
A-1 or better by Standard & Poor's Corporation ("S&P"), F-1 by Fitch Ratings,
Inc. ("Fitch") or P-1 or better by Moody's Investors Service, Inc. ("Moody's")
or the comparable long-term ratings (or, if unrated, determined by
AllianceBernstein L.P., the Portfolio's investment manager (the "Manager"), to
be of comparable quality). Additionally, up to 10% of the Portfolio's total
assets may be invested in other securities rated A or better by national rating
agencies and comparably rated commercial paper and notes.
Many types of securities may be purchased by the Portfolio, including bills, notes, corporate bonds, inflation-protected securities, mortgage-backed securities and asset-backed securities, as well as others. The Portfolio may use derivatives, such as options, futures, forwards and swaps.
The income earned by the Portfolio is generally exempt from state and local taxes; however, states have different requirements for tax-exempt distributions and there is no assurance that your distributions from the Portfolio's income will not be subject to the state and local taxes of your state. Please consult your tax advisor with respect to the tax treatment of such distributions in your state.
In managing the Portfolio, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Manager may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of one to three years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Manager selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Manager takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives or other contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. NO GOVERNMENT GUARANTEE: Investments in the Portfolio are not insured by the U.S. Government.
. RISKIER THAN A MONEY-MARKET FUND: The Portfolio is invested in securities with longer maturities and in some cases lower quality than the assets of the type of mutual fund known as a money-market fund. The risk of a decline in the market value of the Portfolio is greater than for a money-market fund since the credit quality of the Portfolio's securities may be lower and the effective duration of the Portfolio will be longer.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. INFLATION-PROTECTED SECURITIES RISK: The terms of inflation-protected securities provide for the coupon and/or maturity value to be adjusted based on changes in inflation. Decreases in the inflation rate or in investors' expectations about inflation could cause these securities to underperform non-inflation-adjusted securities on a total-return basis. In addition, these securities may have limited liquidity in the secondary market.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MORTGAGE-RELATED SECURITIES RISK: In the case of investments in mortgage-related securities, a loss could be incurred if the collateral backing these securities is insufficient.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
. SUBORDINATION RISK: The Portfolio may invest in securities that are subordinated to more senior securities of an issuer, or which represent interests in pools of such subordinated securities. Subordinated securities will be disproportionately affected by a default or even a perceived decline in creditworthiness of the issuer. Subordinated securities are more likely to suffer a credit loss than non-subordinated securities of the same issuer, any loss incurred by the subordinated securities is likely to be proportionately greater, and any recovery of interest or principal may take more time.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that bond prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the U.S. Government Short Duration
Class shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1.44% 0.94% 1.16% 3.69% 5.65% 3.19% 2.48% 2.32% 1.14% 0.22% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 2.07%, 1ST QUARTER, 2008; AND WORST QUARTER WAS DOWN
-1.29%, 2ND QUARTER, 2004.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS ---------------------------------------------------------------------------------------------------------- U.S. Government Return Before Taxes 0.22% 1.87% 2.21% Short Duration ----------------------------------------------------------------------------------------- Class Return After Taxes on Distributions -0.02% 1.29% 1.34% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 0.20% 1.27% 1.38% - ----------------------------------------------------------------------------------------- BofA Merrill Lynch 1-3 Year Treasury Index (reflects no deduction for fees, expenses, or taxes) 0.43% 2.32% 2.72% ---------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE ---------------------------------------------------------------------------- Jon P. Denfeld Since 2008 Vice President of the Manager Shawn E. Keegan Since 2005 Vice President of the Manager Alison M. Martier Since 2009 Senior Vice President of the Manager Douglas J. Peebles Since 2009 Senior Vice President of the Manager Greg J. Wilensky Since 2009 Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no minimum
amount for subsequent investments in the same Portfolio. You may sell (redeem)
your shares each day the New York Stock Exchange is open. You may sell your
shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio anticipates distributing primarily ordinary income dividends
(i.e., distributions out of net short-term capital gains, dividends and
non-exempt interest).
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide safety of principal and a
moderate rate of income that is subject to taxes.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
Short Duration Plus Class ----------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None ----------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None ----------------------------------------------------------------------------------------------- Redemption Fee (as a percentage of amount redeemed) None ----------------------------------------------------------------------------------------------- Exchange Fee None ----------------------------------------------------------------------------------------------- Maximum Account Fee............................................................. None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Short Duration Plus Class -------------------------------------------------------------------------------- Management Fees 0.45% Distribution and/or Service (12b-1) Fees......................... None Other Expenses:.................................................. Shareholder Servicing 0.10% Other Expenses 0.07% ----- Total Other Expenses 0.17% ----- Total Portfolio Operating Expenses 0.62% ===== =============================================================================== |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
Short Duration Plus Class -------------------------------------------------------------------------------- After 1 Year $ 63 After 3 Years.................................................... $199 After 5 Years.................................................... $346 After 10 Years................................................... $774 -------------------------------------------------------------------------------- |
Portfolio Turnover
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 134% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
The Portfolio invests at least 80% of its total assets in securities rated A
or better by national rating agencies (or, if unrated, determined by
AllianceBernstein L.P., the Portfolio's investment manager (the "Manager"), to
be of comparable quality) and comparably rated commercial paper and notes. Many
types of securities may be purchased by the Portfolio, including corporate
bonds, notes, U.S. Government and agency securities, asset-backed securities,
mortgage-related securities, inflation-protected securities, bank loan debt and
preferred stock, as well as others. The Portfolio may also invest up to 20% of
its total assets in fixed-income foreign securities in developed or
emerging-market countries.
The Portfolio may use derivatives, such as options, futures, forwards and swaps.
The Portfolio may invest up to 20% of its total assets in fixed-income securities rated BB or B by national rating agencies, which are not investment-grade (commonly known as "junk bonds").
In managing the Portfolio, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Manager may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of one to three years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Manager selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Manager takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
The Portfolio may enter into foreign currency transactions on a spot (i.e., cash) basis or through the use of derivatives transactions, such as forward currency exchange contracts, currency futures and options thereon, and options on currencies. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money.
There is no guarantee that the Portfolio will achieve its investment objective.
. Interest Rate Risk: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. Credit Risk: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives or other contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. Duration Risk: The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. Riskier than a Money-Market Fund: The Portfolio is invested in securities with longer maturities and in some cases lower quality than the assets of the type of mutual fund known as a money-market fund. The risk of a decline in the market value of the Portfolio is greater than for a money-market fund since the credit quality of the Portfolio's securities may be lower and the effective duration of the Portfolio will be longer.
. Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. INFLATION-PROTECTED SECURITIES RISK: The terms of inflation-protected securities provide for the coupon and/or maturity value to be adjusted based on changes in inflation. Decreases in the inflation rate or in investors' expectations about inflation could cause these securities to underperform non-inflation-adjusted securities on a total-return basis. In addition, these securities may have limited liquidity in the secondary market.
. FOREIGN (NON-U.S.) SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets.
. EMERGING MARKETS SECURITIES RISK: The risks of investing in foreign (non-U.S.) securities are heightened with respect to issuers in emerging-market countries, because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MORTGAGE-RELATED SECURITIES RISK: In the case of investments in mortgage-related securities, a loss could be incurred if the collateral backing these securities is insufficient.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
. SUBORDINATION RISK: The Portfolio may invest in securities that are subordinated to more senior securities of an issuer, or which represent interests in pools of such subordinated securities. Subordinated securities will be disproportionately affected by a default or even a perceived decline in creditworthiness of the issuer. Subordinated securities are more likely to suffer a credit loss than non-subordinated securities of the same issuer, any loss incurred by the subordinated securities is likely to be proportionately greater, and any recovery of interest or principal may take more time.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. LEVERAGE RISK: To the extent the Portfolio uses leveraging techniques, its net asset value may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio's investments.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.
. FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. ACTIONS BY A FEW MAJOR INVESTORS: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local securities prices and, therefore, share prices of the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that bond prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Short Duration Plus
Class shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- 2.57% 1.27% 1.35% 4.08% 3.86% -3.80% 6.82% 3.31% 1.04% 0.65% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 2.40%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-1.63%, 1ST QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS -------------------------------------------------------------------------------------------------------------- Short Duration Plus Return Before Taxes 0.65% 1.54% 2.08% Class ----------------------------------------------------------------- ------ ------- -------- Return After Taxes on Distributions 0.34% 0.81% 1.07% ----------------------------------------------------------------- ------ ------- -------- Return After Taxes on Distributions and Sale of Portfolio Shares 0.42% 0.89% 1.18% - ----------------------------------------------------------------------------------------- BofA Merrill Lynch 1-3 Year Treasury Index (reflects no deduction for fees, expenses, or taxes) 0.43% 2.32% 2.72% -------------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE ---------------------------------------------------------------------------- Jon P. Denfeld Since 2008 Vice President of the Manager Shawn E. Keegan Since 2005 Vice President of the Manager Alison M. Martier Since 2009 Senior Vice President of the Manager Douglas J. Peebles Since 2009 Senior Vice President of the Manager Greg J. Wilensky Since 2009 Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no minimum
amount for subsequent investments in the same Portfolio. You may sell (redeem)
your shares each day the New York Stock Exchange is open. You may sell your
shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio anticipates distributing primarily ordinary income dividends
(i.e., distributions out of net short-term capital gains, dividends and
non-exempt interest).
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The Portfolio's investment objective is to provide safety of principal and a
moderate to high rate of income that is subject to taxes.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
Shareholder Fees (fees paid directly from your investment)
Intermediate Duration Class ---------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None ---------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None ---------------------------------------------------------------------------------------------- Redemption Fee (as a percentage of amount redeemed) None ---------------------------------------------------------------------------------------------- Exchange Fee None ---------------------------------------------------------------------------------------------- Maximum Account Fee............................................................ None |
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Intermediate Duration Class -------------------------------------------------------------------------------- Management Fees.................................................. 0.44% Distribution and/or Service (12b-1) Fees......................... None Other Expenses:.................................................. Shareholder Servicing 0.10% Other Expenses 0.03% ----- Total Other Expenses 0.13% ----- Total Portfolio Operating Expenses 0.57% ===== =============================================================================== |
Examples
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
Intermediate Duration Class ----------------------------------------------------------------------------------------------- After 1 Year $ 58 After 3 Years................................................................... $183 After 5 Years................................................................... $318 After 10 Years.................................................................. $714 ----------------------------------------------------------------------------------------------- |
Portfolio Turnover
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 154% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
The Portfolio seeks to maintain an average portfolio quality minimum of A,
based on ratings given to the Portfolio's securities by national rating
agencies (or, if unrated, determined by AllianceBernstein L.P., the Portfolio's
investment manager (the "Manager"), to be of comparable quality). Many types of
securities may be purchased by the Portfolio, including corporate bonds, notes,
U.S. Government and agency securities, asset-backed securities,
mortgage-related securities, bank loan debt, preferred stock and
inflation-protected securities, as well as others. The Portfolio may also
invest up to 25% of its total assets in fixed-income, non-U.S. Dollar
denominated foreign securities, and may invest without limit in fixed-income,
U.S. Dollar denominated foreign securities, in each case in developed or
emerging-market countries.
The Portfolio may use derivatives, such as options, futures, forwards and swaps.
The Portfolio may invest up to 25% of its total assets in fixed-income securities rated below investment grade (BB or below) by national rating agencies (commonly known as "junk bonds"). No more than 5% of the Portfolio's total assets may be invested in fixed-income securities rated CCC by national rating agencies.
In managing the Portfolio, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Manager may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of three to six years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Manager selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Manager takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
The Portfolio may enter into foreign currency transactions on a spot (i.e., cash) basis or through the use of derivatives transactions, such as forward currency exchange contracts, currency futures and options thereon, and options on currencies. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives or other contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. INFLATION-PROTECTED SECURITIES RISK: The terms of inflation-protected securities provide for the coupon and/or maturity value to be adjusted based on changes in inflation. Decreases in the inflation rate or in investors' expectations about inflation could cause these securities to underperform non-inflation-adjusted securities on a total-return basis. In addition, these securities may have limited liquidity in the secondary market.
. FOREIGN (NON-U.S.) SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets.
. EMERGING MARKETS SECURITIES RISK: The risks of investing in foreign (non-U.S.) securities are heightened with respect to issuers in emerging-market countries, because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. MORTGAGE-RELATED SECURITIES RISK: In the case of investments in mortgage-related securities, a loss could be incurred if the collateral backing these securities is insufficient.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
. SUBORDINATION RISK: The Portfolio may invest in securities that are subordinated to more senior securities of an issuer, or which represent interests in pools of such subordinated securities. Subordinated securities will be disproportionately affected by a default or even a perceived decline in creditworthiness of the issuer. Subordinated securities are more likely to suffer a credit loss than non-subordinated securities of the same issuer, any loss incurred by the subordinated securities is likely to be proportionately greater, and any recovery of interest or principal may take more time.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.
. FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. ACTIONS BY A FEW MAJOR INVESTORS: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local securities prices and, therefore, share prices of the Portfolio.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that bond prices in general may decline over short or extended periods. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over ten years; and
. how the Portfolio's average annual returns for one, five and ten years compare to those of a broad-based securities market index.
You may obtain updated performance information for the Portfolio at www.bernstein.com (click on "Investments," then "Stocks," then "Mutual Fund Performance at a Glance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Intermediate Duration Class
shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ------ ------ ----- ----- ----- 5.10% 4.07% 2.46% 4.55% 5.40% -4.40% 17.29% 8.95% 6.82% 5.50% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 7.09%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-3.66%, 3RD QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS --------------------------------------------------------------------------------------------------------- Intermediate Return Before Taxes 5.50% 6.60% 5.45% Duration Class ----------------------------------------------------------------- ------ ------- -------- Return After Taxes on Distributions 4.15% 4.85% 3.80% ----------------------------------------------------------------- ------ ------- -------- Return After Taxes on Distributions and Sale of Portfolio Shares 3.57% 4.65% 3.70% - ----------------------------------------------------------------------------------------- Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes) 4.21% 5.95% 5.18% --------------------------------------------------------------------------------------------------------- |
After-tax returns are an estimate, which is based on the highest historical individual federal marginal income-tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown, and are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT MANAGER:
AllianceBernstein L.P. is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE ---------------------------------------------------------------------------- Paul J. DeNoon Since 2009 Senior Vice President of the Manager Shawn E. Keegan Since 2005 Vice President of the Manager Alison M. Martier Since 2005 Senior Vice President of the Manager Douglas J. Peebles Since 2007 Senior Vice President of the Manager Greg J. Wilensky Since 2005 Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
The minimum initial investment in the Portfolio is $25,000. There is no minimum
amount for subsequent investments in the same Portfolio. You may sell (redeem)
your shares each day the New York Stock Exchange is open. You may sell your
shares by sending a request to Sanford C. Bernstein & Co., LLC ("Bernstein
LLC").
TAX INFORMATION:
The Portfolio anticipates distributing primarily ordinary income dividends
(i.e., distributions out of net short-term capital gains, dividends and
non-exempt interest) but may distribute capital gains.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels but may also be sold through intermediaries.
If you purchase shares of the Portfolio through a broker-dealer or other
financial intermediary (such as a bank), the Portfolio and its related
companies may pay the intermediary for the sale of Portfolio shares and related
services. These payments may provide a financial incentive for the
broker-dealer or other financial intermediary and your salesperson to recommend
the Portfolio over another investment. Ask your salesperson or visit your
financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The investment objective of the Overlay A Portfolio ("Portfolio") is to
moderate the volatility of an equity-oriented asset allocation over the long
term, as part of an investor's overall asset allocation managed by Sanford C.
Bernstein & Co. LLC.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS 1 CLASS 2 SHARES SHARES ----------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None ----------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None None ----------------------------------------------------------------------------------------------- Exchange Fee None None |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------- Management Fees 0.90% 0.90% Distribution and/or Service (12b-1) Fees None None Other Expenses: Shareholder Servicing 0.20% None Other Expenses 0.06% 0.06% ----- ----- Total Other Expenses 0.26% 0.06% ----- ----- Total Annual Portfolio Operating Expenses 1.16% 0.96% ===== ===== ------------------------------------------------------------------------------- |
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------- After 1 Year $ 118 $ 98 After 3 Years $ 368 $ 306 After 5 Years $ 638 $ 531 After 10 Years $1,409 $1,178 ------------------------------------------------------------------------------- |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 99% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
The Portfolio is intended to be used as part of a broader investment program
administered directly by the Bernstein Global Wealth Management Unit of
AllianceBernstein L.P. ("Bernstein"). The performance and objectives of the
Portfolio should be evaluated only in the context of the investor's complete
investment program. The Portfolio is NOT designed to be used as a stand-alone
investment.
The Portfolio may invest in a diversified portfolio of securities and other financial instruments, including derivative instruments, that provide investment exposure to a variety of asset classes. These asset classes may include: equity securities and fixed-income instruments of issuers located within and outside the United States, real estate related securities, below-investment grade ("high yield") securities (commonly known as "junk bonds"), currencies and commodities. By adjusting investment exposure among the various asset classes in the Portfolio, AllianceBernstein L.P. ("Manager") will seek to moderate the volatility of diversified client portfolios managed by Bernstein that reflect a significant allocation to equity securities. The Portfolio's asset class exposures may be implemented and adjusted either through transactions in individual securities or through derivatives. The Portfolio is managed without regard to tax considerations.
The Portfolio may obtain equity exposure by investing in common stocks, but may also invest in preferred stocks, warrants and convertible securities of U.S. and foreign issuers, including sponsored or unsponsored American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") and derivatives. In selecting equity investments, the Manager may draw on the capabilities of separate investment teams that specialize in different areas that are defined by investment style. The Manager selects growth and value equity securities by drawing from its fundamental growth and value investment disciplines. The research analyses supporting buy and sell decisions for the Portfolio's direct investments in equity securities are fundamental and bottom-up, based largely on specific company and industry findings rather than on broad economic forecasts.
The Portfolio may obtain fixed-income exposure principally through derivatives but may also invest in U.S., international and emerging market fixed-income instruments, including high yield securities and inflation-protected securities. To identify attractive bonds for the Portfolio, the Manager combines quantitative and fundamental research forecasts through a disciplined investment process to identify opportunities among country/yield curves, sectors, securities and currencies. The Portfolio's fixed-income instruments will primarily be investment grade debt securities, but may also include below-investment grade securities and preferred stock.
The Manager will alter asset class exposures as market and economic conditions change. The Manager will employ risk/return tools and fundamental research insights to determine how to adjust the Portfolio's exposures to various asset classes. These dynamic adjustments to the Portfolio's asset class exposures will be implemented principally through the use of derivatives. The Portfolio's use of derivatives to alter investment exposure of an investor's Bernstein account may create significant leveraged exposure to certain asset classes within the Portfolio. The Portfolio may invest part or all of its portfolio in U.S. Government obligations or investment-grade debt securities of U.S. issuers, including municipal issuers.
The Manager also may use exchange traded funds ("ETFs"), exchange traded notes, structured investments and commodity-linked notes in seeking to carry out the Portfolio's investment strategies. The Portfolio may enter into foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indexes, futures contracts (including futures contracts on individual securities and stock indexes) or shares of ETFs. These options transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio's portfolio from a decline in value, sometimes within certain ranges.
Exposure to certain asset classes may also be achieved through investment in the AllianceBernstein Pooling Portfolios--Multi-Asset Real Return Portfolio. The Manager may use other AllianceBernstein Mutual Funds in the future, in addition to or instead of that in the preceding sentence.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
The Portfolio is intended to be used as part of a broader investment program administered directly by Bernstein. The performance and objectives of the Portfolio should be evaluated only in the context of the investor's complete investment program. Changes in value of the Portfolio may be particularly pronounced because the Portfolio is managed in such a fashion as to affect the investor's assets subject to that broader investment program. The Portfolio is NOT designed to be used as a stand-alone investment.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that stock and bond prices in general may decline over short or extended periods. The value of the Portfolio's securities will fluctuate as the stock or bond market fluctuates. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. The Portfolio does not seek to control risk relative to, or to outperform, a particular securities market benchmark. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. ALLOCATION RISK: The allocation of investments among different global asset classes may have a significant effect on the Portfolio's net asset value when one of these asset classes is performing more poorly than others. As both the direct investments and derivative positions will be periodically rebalanced to reflect the Manager's view of market and economic conditions, there will be transaction costs which may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.
. DERIVATIVES RISK: The Portfolio intends to use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. LEVERAGE RISK: Leverage creates exposure to gains and losses in a greater amount than the dollar amount made in an investment by attempting to enhance return or value without increasing the investment amount. Leverage can magnify the effects of changes in the value of the Portfolio's investments and make it more volatile. The use of leverage may cause the Portfolio to liquidate portfolio positions when it may not be advantageous to do so.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid investments at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.
. FOREIGN (NON-U.S.) SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets.
. EMERGING MARKETS SECURITIES RISK: The risks of investing in foreign (non-U.S.) securities are heightened with respect to issuers in emerging-market countries, because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. ACTIONS BY A FEW MAJOR INVESTORS: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of the Portfolio.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. COMMODITY RISK: The value of commodity-linked derivatives, exchange traded notes and exchange traded funds may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. INFLATION-PROTECTED SECURITIES RISK: The terms of inflation-protected securities provide for the coupon and/or maturity value to be adjusted based on changes in inflation. Decreases in the inflation rate or in investors' expectations about inflation could cause these securities to underperform non-inflation-adjusted securities on a total-return basis.
. MORTGAGE-RELATED SECURITIES RISK: In the case of investments in mortgage-related securities, a loss could be incurred if the collateral backing these securities is insufficient.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
. SUBORDINATION RISK: The Portfolio may invest in securities that are subordinated to more senior securities of an issuer, or which represent interests in pools of such subordinated securities. Subordinated securities will be disproportionately affected by a default or even a perceived decline in creditworthiness of the issuer. Subordinated securities are more likely to suffer a credit loss than non-subordinated securities of the same issuer, any loss incurred by the subordinated securities is likely to be proportionately greater, and any recovery of interest or principal may take more time.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. REAL ESTATE RELATED SECURITIES RISK: Investing in real estate related securities includes, among others, the following risks: possible declines in the value of real estate; risks related to general and local economic conditions, including increases in the rate of inflation; 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. Investing in Real Estate Investment Trusts ("REITs") involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation.
. INVESTMENT IN OTHER INVESTMENT COMPANIES RISK: As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, if the Portfolio acquires shares of investment companies, shareholders bear both their proportionate share of expenses in the Portfolio (including management and advisory fees) and, indirectly, the expenses of the investment companies.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over the life of the Portfolio; and
. how the Portfolio's average annual returns for one year and over the life of the Portfolio compare to those of a broad-based securities market index.
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class 1 shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ---- ---- ---- ---- ---- ---- ---- ---- ------ ----- n/a n/a n/a n/a n/a n/a n/a n/a -2.98% 4.62% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 7.72%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-7.35%, 2ND QUARTER, 2012.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
SINCE 1 YEAR INCEPTION* ---------------------------------------------------------------------------------------------- Class 1** Return Before Taxes 4.62% 5.94% ----------------------------------------------------------------------------------- Return After Taxes on Distributions 4.51% 4.93% ----------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 3.15% 4.68% ---------------------------------------------------------------------------------------------- Class 2 Return Before Taxes 4.83% 6.12% ---------------------------------------------------------------------------------------------- S&P 500 Stock Index (reflects no deduction for fees, expenses, or taxes) 16.00% 13.30% ---------------------------------------------------------------------------------------------- Composite Benchmark*** (reflects no deduction for fees, expenses, or taxes) 15.51% 11.56% ---------------------------------------------------------------------------------------------- |
* Inception date for Class 1 and Class 2 shares: 2/8/10.
** After-tax returns:
-Are shown for Class 1 shares only and will vary for Class 2 shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***Composite Index is comprised of 47.6% S&P 500 Stock Index, 17% MSCI EAFE Index, 3.4% MSCI Emerging Markets Index, 12% FTSE EPRA/NAREIT Developed Index, and 20% Barclays U.S. Aggregate Bond Index.
INVESTMENT MANAGER:
AllianceBernstein L.P. ("Manager") is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE -------------------------------------------------------------------------------- Seth J. Masters Since inception Senior Vice President of the Manager Daniel J. Loewy Since inception Senior Vice President of the Manager Dianne F. Lob Since inception Senior Vice President of the Manager Andrew Y. Chin Since inception Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
PURCHASE MINIMUMS*
INITIAL SUBSEQUENT -------------------------------------------------------------------------------------------- Class 1 $25,000 None -------------------------------------------------------------------------------------------- Class 2 $1,500,000 None -------------------------------------------------------------------------------------------- |
*Note: Initial purchase minimums are measured across all Overlay Portfolios in the aggregate. The Portfolio may waive investment minimums for certain types of retirement accounts or under certain other circumstances.
You may sell (redeem) your shares each day the New York Stock Exchange is open. You may sell your shares by sending a request to Sanford C. Bernstein & Co. LLC, 1345 Avenue of the Americas, New York, NY 10105.
TAX INFORMATION:
The Portfolio intends to distribute dividends and/or distributions that may be
taxed as ordinary income and/or capital gains.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels. If you purchase shares of the Portfolio
through a broker-dealer or other financial intermediary (such as a bank), the
Portfolio and its related companies may pay the intermediary for the sale of
Portfolio shares and related services. These payments may provide a financial
incentive for the broker-dealer or other financial intermediary and your
salesperson to recommend the Portfolio over another investment. Ask your
salesperson or visit your financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The investment objective of the Tax-Aware Overlay A Portfolio ("Portfolio") is
to moderate the volatility of an equity-oriented asset allocation over the long
term, as part of an investor's overall asset allocation managed by Sanford C.
Bernstein & Co. LLC.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS 1 CLASS 2 SHARES SHARES --------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None --------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None None --------------------------------------------------------------------------------- Exchange Fee None None |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
CLASS 1 CLASS 2 SHARES SHARES --------------------------------------------------------------------------------- Management Fees 0.90% 0.90% Distribution and/or Service (12b-1) Fees None None Other Expenses: Shareholder Servicing 0.20% None Other Expenses 0.04% 0.04% ----- ----- Total Other Expenses 0.24% 0.04% ----- ----- Total Annual Portfolio Operating Expenses 1.14% 0.94% ===== ===== --------------------------------------------------------------------------------- |
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
CLASS 1 CLASS 2 SHARES SHARES --------------------------------------------------------------------------------- After 1 Year $ 116 $ 96 After 3 Years $ 362 $ 300 After 5 Years $ 628 $ 520 After 10 Years $1,386 $1,155 --------------------------------------------------------------------------------- |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 86% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
The Portfolio is intended to be used as part of a broader investment program
administered directly by the Bernstein Global Wealth Management Unit of
AllianceBernstein L.P. ("Bernstein"). The performance and objectives of the
Portfolio should be evaluated only in the context of the investor's complete
investment program. The Portfolio is NOT designed to be used as a stand-alone
investment.
The Portfolio may invest in a diversified portfolio of securities and other financial instruments, including derivative instruments, that provide investment exposure to a variety of asset classes. These asset classes may include: equity securities and fixed-income instruments of issuers located within and outside the United States, real estate related securities, below-investment grade ("high yield") securities (commonly known as "junk bonds"), currencies and commodities. By adjusting investment exposure among the various asset classes in the Portfolio, AllianceBernstein L.P. ("Manager") will seek to moderate the volatility of diversified client portfolios managed by Bernstein that reflect a significant allocation to equity securities. The Portfolio's asset class exposures may be implemented and adjusted either through transactions in individual securities or through derivatives. The Portfolio seeks to minimize the impact of federal income taxes on shareholders' returns over time by managing the impact of portfolio turnover. Income earned by the Portfolio may be taxable.
The Portfolio may obtain equity exposure by investing principally in common stocks, but may also invest in preferred stocks, warrants and convertible securities of U.S. and foreign issuers, including sponsored or unsponsored American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") and derivatives. In selecting equity investments, the Manager may draw on the capabilities of separate investment teams that specialize in different areas that are defined by investment style. The Manager selects growth and value equity securities by drawing from its fundamental growth and value investment disciplines. The research analyses supporting buy and sell decisions for the Portfolio's direct investments in equity securities are fundamental and bottom-up, based largely on specific company and industry findings rather than on broad economic forecasts.
The Portfolio may obtain fixed-income exposure through derivatives but may also invest in U.S., international and emerging market fixed-income instruments, including high yield securities and inflation-protected securities. To identify attractive bonds for the Portfolio, the Manager combines quantitative and fundamental research forecasts through a disciplined investment process to identify opportunities among country/yield curves, sectors, securities and currencies. The Portfolio's fixed-income instruments will primarily be investment grade debt securities, but may also include below-investment grade securities and preferred stock.
The Manager will alter asset class exposures as market and economic conditions change. The Manager will employ risk/return tools and fundamental research insights to determine how to adjust the Portfolio's exposures to various asset classes. These dynamic adjustments to the Portfolio's asset class exposures will be implemented principally through the use of derivatives. The Portfolio's use of derivatives to alter investment exposure of an investor's Bernstein account may create significant leveraged exposure to certain asset classes within the Portfolio. The Portfolio may invest part or all of its portfolio in U.S. Government obligations or investment-grade debt securities of U.S. issuers, including municipal issuers.
The Manager also may use exchange traded funds ("ETFs"), exchange traded notes, structured investments and commodity-linked notes in seeking to carry out the Portfolio's investment strategies. The Portfolio may enter into foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio.
The Manager will employ tax management strategies in an attempt to reduce the impact of taxes on shareholders in the Portfolio. For example, the Manager will consider the tax impact that buy and sell investment decisions will have on the Portfolio's shareholders. The Manager may sell certain securities in order to realize capital losses. Capital losses may be used to offset realized capital gains. To minimize capital gains distributions, the Manager may sell securities in the Portfolio with the highest cost basis. The Manager may monitor the length of time the Portfolio has held an investment to evaluate whether the investment should be sold at a short-term gain or held for a longer period so that the gain on the investment will be taxed at the lower long-term rate. In making this decision, the Manager will consider whether, in its judgment, the risk of continued exposure to the investment is worth the tax savings of a lower capital gains rate. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indexes, futures contracts (including futures contracts on individual securities and stock indexes) or shares of ETFs. These options transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio's portfolio from a decline in value, sometimes within certain ranges.
Exposure to certain asset classes may also be achieved through investment in the AllianceBernstein Pooling Portfolios - Multi-Asset Real Return Portfolio. The Manager may use other AllianceBernstein Mutual Funds in the future, in addition to or instead of that in the preceding sentence.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
The Portfolio is intended to be used as part of a broader investment program administered directly by Bernstein. The performance and objectives of the Portfolio should be evaluated only in the context of the investor's complete investment program. Changes in value of the Portfolio may be particularly pronounced because the Portfolio is managed in such a fashion as to affect the investor's assets subject to that broader investment program. The Portfolio is NOT designed to be used as a stand-alone investment.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that stock and bond prices in general may decline over short or extended periods. The value of the Portfolio's securities will fluctuate as the stock or bond market fluctuates. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. The Portfolio does not seek to control risk relative to, or to outperform, a particular securities market benchmark. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. ALLOCATION RISK: The allocation of investments among different global asset classes may have a significant effect on the Portfolio's net asset value when one of these asset classes is performing more poorly than others. As both the direct investments and derivative positions will be periodically rebalanced to reflect the Manager's view of market and economic conditions, there will be transaction costs which may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.
. DERIVATIVES RISK: The Portfolio intends to use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. LEVERAGE RISK: Leverage creates exposure to gains and losses in a greater amount than the dollar amount made in an investment by attempting to enhance return or value without increasing the investment amount. Leverage can magnify the effects of changes in the value of the Portfolio's investments and make it more volatile. The use of leverage may cause the Portfolio to liquidate portfolio positions when it may not be advantageous to do so.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid investments at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.
. FOREIGN (NON-U.S.) SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets.
. EMERGING MARKETS SECURITIES RISK: The risks of investing in foreign (non-U.S.) securities are heightened with respect to issuers in emerging-market countries, because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. ACTIONS BY A FEW MAJOR INVESTORS: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of the Portfolio.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations. Credit risk is greater for medium-quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative credit risks.
. DURATION RISK: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. INFLATION-PROTECTED SECURITIES RISK: The terms of inflation-protected securities provide for the coupon and/or maturity value to be adjusted based on changes in inflation. Decreases in the inflation rate or in investors' expectations about inflation could cause these securities to underperform non-inflation-adjusted securities on a total-return basis.
. COMMODITY RISK: The value of commodity-linked derivatives, exchange traded notes and exchange traded funds may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
. MORTGAGE-RELATED SECURITIES RISK: In the case of investments in mortgage-related securities, a loss could be incurred if the collateral backing these securities is insufficient.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
. SUBORDINATION RISK: The Portfolio may invest in securities that are subordinated to more senior securities of an issuer, or which represent interests in pools of such subordinated securities. Subordinated securities will be disproportionately affected by a default or even a perceived decline in creditworthiness of the issuer. Subordinated securities are more likely to suffer a credit loss than non-subordinated securities of the same issuer, any loss incurred by the subordinated securities is likely to be proportionately greater, and any recovery of interest or principal may take more time.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. REAL ESTATE RELATED SECURITIES RISK: Investing in real estate related securities includes, among others, the following risks: possible declines in the value of real estate; risks related to general and local economic conditions, including increases in the rate of inflation; 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. Investing in Real Estate
Investment Trusts ("REITs") involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation.
. INVESTMENT IN OTHER INVESTMENT COMPANIES RISK: As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, if the Portfolio acquires shares of investment companies, shareholders bear both their proportionate share of expenses in the Portfolio (including management and advisory fees) and, indirectly, the expenses of the investment companies.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over the life of the Portfolio; and
. how the Portfolio's average annual returns for one year and over the life of the Portfolio compare to those of a broad-based securities market index.
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class 1 shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ------ ----- n/a n/a n/a n/a n/a n/a n/a n/a -7.47% 3.85% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 8.38%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-9.28%, 3RD QUARTER, 2011.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
SINCE 1 YEAR INCEPTION* ---------------------------------------------------------------------------------------------- Class 1** Return Before Taxes 3.85% 4.51% ----------------------------------------------------------------------------------- Return After Taxes on Distributions 3.79% 4.21% ----------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 2.58% 3.85% - ----------------------------------------------------------------------------------- Class 2 Return Before Taxes 4.06% 4.75% ---------------------------------------------------------------------------------------------- S&P 500 Stock Index (reflects no deduction for fees, expenses, or taxes) 16.00% 13.30% ---------------------------------------------------------------------------------------------- Composite Benchmark*** (reflects no deduction for fees, expenses, or taxes) 13.98% 10.30% ---------------------------------------------------------------------------------------------- |
* Inception date for Class 1 and Class 2 shares: 2/8/10.
** After-tax returns:
-Are shown for Class 1 shares only and will vary for Class 2 shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***Composite Index is comprised of 56% S&P 500 Stock Index, 20% MSCI EAFE Index, 4% MSCI Emerging Markets Index, 20% Barclays 1-10 Year Municipal Bond Index.
INVESTMENT MANAGER:
AllianceBernstein L.P. ("Manager") is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE ------------------------------------------------------------------------- Seth J. Masters Since inception Senior Vice President of the Manager Daniel J. Loewy Since inception Senior Vice President of the Manager Dianne F. Lob Since inception Senior Vice President of the Manager Andrew Y. Chin Since inception Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
PURCHASE MINIMUMS*
INITIAL SUBSEQUENT -------------------------------------------------------------------------------------------- Class 1 $25,000 None -------------------------------------------------------------------------------------------- Class 2 $1,500,000 None -------------------------------------------------------------------------------------------- |
*Note: Initial purchase minimums are measured across all Overlay Portfolios in the aggregate. The Portfolio may waive investment minimums for certain types of retirement accounts or under certain other circumstances.
You may sell (redeem) your shares each day the New York Stock Exchange is open. You may sell your shares by sending a request to Sanford C. Bernstein & Co. LLC, 1345 Avenue of the Americas, New York, NY 10105.
TAX INFORMATION:
The Portfolio intends to distribute dividends and/or distributions that may be
taxed as ordinary income and/or capital gains.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels. If you purchase shares of the Portfolio
through a broker-dealer or other financial intermediary (such as a bank), the
Portfolio and its related companies may pay the intermediary for the sale of
Portfolio shares and related services. These payments may provide a financial
incentive for the broker-dealer or other financial intermediary and your
salesperson to recommend the Portfolio over another investment. Ask your
salesperson or visit your financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The investment objective of the Overlay B Portfolio ("Portfolio") is to
moderate the volatility of a fixed-income-oriented asset allocation over the
long term, as part of an investor's overall asset allocation managed by Sanford
C. Bernstein & Co. LLC.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None ------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None None ------------------------------------------------------------------------------- Exchange Fee None None |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------- Management Fees 0.65% 0.65% Distribution and/or Service (12b-1) Fees None None Other Expenses: Shareholder Servicing 0.15% None Transfer Agent 0.01% 0.01% Other Expenses 0.06% 0.06% ----- ----- Total Other Expenses 0.22% 0.07% ----- ----- Total Annual Portfolio Operating Expenses 0.87% 0.72% ===== ===== ------------------------------------------------------------------------------- |
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------- After 1 Year $ 89 $ 74 After 3 Years $ 278 $230 After 5 Years $ 482 $401 After 10 Years $1,073 $894 ------------------------------------------------------------------------------- |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 111% of the average value of its
portfolio.
PRINCIPAL STRATEGIES:
The Portfolio is intended to be used as part of a broader investment program
administered directly by the Bernstein Global Wealth Management Unit of
AllianceBernstein L.P. ("Bernstein"). The performance and objectives of the
Portfolio should be evaluated only in the context of the investor's complete
investment program. The Portfolio is NOT designed to be used as a stand-alone
investment.
The Portfolio may invest in a diversified portfolio of securities and other financial instruments, including derivative instruments, that provide investment exposure to a variety of asset classes. These asset classes may include: fixed-income instruments and equity securities of issuers located within and outside the United States, real estate related securities, below-investment grade ("high yield") securities (commonly known as "junk bonds"), currencies and commodities. By adjusting investment exposure among the various asset classes in the Portfolio, AllianceBernstein L.P. ("Manager") will seek to moderate the volatility of diversified client portfolios managed by Bernstein that reflect a significant allocation to fixed-income securities. The Portfolio's asset class exposures may be implemented and adjusted either through transactions in individual securities or through derivatives. The Portfolio is managed without regard to tax considerations.
The Portfolio may obtain fixed-income exposure by investing in U.S., international and emerging market fixed-income instruments, including high yield securities and inflation-protected securities, and derivatives. To identify attractive bonds for the Portfolio, the Manager combines quantitative and fundamental research forecasts through a disciplined investment process to identify opportunities among country/yield curves, sectors, securities and currencies. Many types of securities may be purchased by the Portfolio, including corporate bonds, government and agency securities, asset-backed securities, mortgage-related securities, bank loan debt, preferred stock and inflation-protected securities, as well as others. The Portfolio may also invest without limit in U.S. Dollar denominated foreign fixed-income securities, in each case in developed or emerging-market countries.
The Portfolio's fixed-income securities will primarily be investment grade debt securities, but may also include high yield securities and preferred stock. High yield securities are less liquid instruments that are often considered to be speculative and involve greater risk of default or price change due to changes in the issuer's creditworthiness or in response to periods of general economic difficulty.
The Portfolio may obtain equity exposure principally through derivatives, but may also invest in common stocks, preferred stocks, warrants and convertible securities of U.S. and foreign issuers, including sponsored or unsponsored American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). In selecting equity investments, the Manager may draw on the capabilities of separate investment teams that specialize in different areas that are defined by investment style. The Manager selects growth and value equity securities by drawing from its fundamental growth and value investment disciplines. The research analyses supporting buy and sell decisions for the Portfolio's direct investments in equity securities are fundamental and bottom-up, based largely on specific company and industry findings rather than on broad economic forecasts.
The Manager will alter asset class exposures as market and economic conditions change. The Manager will employ risk/return tools and fundamental research insights to determine how to adjust the Portfolio's exposures to various asset classes. These dynamic adjustments to the Portfolio's asset class exposures will be implemented principally through the use of derivatives. The Portfolio's use of derivatives to alter investment exposure of an investor's Bernstein account may create significant leveraged exposure to certain asset classes within the Portfolio. The Portfolio may invest part or all of its portfolio in U.S. Government obligations or investment-grade debt securities of U.S. issuers. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indexes, futures contracts (including futures contracts on individual securities and stock indexes) or shares of exchange-traded funds ("ETFs"). These options transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio's portfolio from a decline in value, sometimes within certain ranges.
The Manager also may use ETFs, exchange traded notes, structured investments and commodity-linked notes in seeking to carry out the Portfolio's investment strategies. The Portfolio may enter into foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio.
Exposure to certain asset classes may also be achieved through investment in the AllianceBernstein Pooling Portfolios - Multi-Asset Real Return Portfolio. The Manager may use other AllianceBernstein Mutual Funds in the future, in addition to or instead of that in the preceding sentence.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
The Portfolio is intended to be used as part of a broader investment program administered directly by Bernstein. The performance and objectives of the Portfolio should be evaluated only in the context of the investor's complete investment program. Changes in value of the Portfolio may be particularly pronounced because the Portfolio is managed in such a fashion as to affect the investor's assets subject to that broader investment program. The Portfolio is NOT designed to be used as a stand-alone investment.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that stock and bond prices in general may decline over short or extended periods. The value of the Portfolio's securities will fluctuate as the stock or bond market fluctuates. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. The Portfolio does not seek to control risk relative to, or to outperform, a particular securities market benchmark. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. ALLOCATION RISK: The allocation of investments among different global asset classes may have a significant effect on the Portfolio's net asset value when one of these asset classes is performing more poorly than others. As both the direct investments and derivative positions will be periodically rebalanced to reflect the Manager's view of market and economic conditions, there will be transaction costs which may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.
. DERIVATIVES RISK: The Portfolio intends to use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. LEVERAGE RISK: Leverage creates exposure to gains and losses in a greater amount than the dollar amount made in an investment by attempting to enhance return or value without increasing the investment amount. Leverage can magnify the effects of changes in the value of the Portfolio's investments and make it more volatile. The use of leverage may cause the Portfolio to liquidate portfolio positions when it may not be advantageous to do so.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid investments at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.
. MORTGAGE-RELATED SECURITIES RISK: In the case of investments in mortgage-related securities, a loss could be incurred if the collateral backing these securities is insufficient.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
. SUBORDINATION RISK: The Portfolio may invest in securities that are subordinated to more senior securities of an issuer, or which represent interests in pools of such subordinated securities. Subordinated securities will be disproportionately affected by a default or even a perceived decline in creditworthiness of the issuer. Subordinated securities are more likely to suffer a credit loss than non-subordinated securities of the same issuer, any loss incurred by the subordinated securities is likely to be proportionately greater, and any recovery of interest or principal may take more time.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. FOREIGN (NON-U.S.) SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets.
. EMERGING MARKETS SECURITIES RISK: The risks of investing in foreign (non-U.S.) securities are heightened with respect to issuers in emerging-market countries, because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. ACTIONS BY A FEW MAJOR INVESTORS: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of the Portfolio.
. COMMODITY RISK: The value of commodity-linked derivatives, exchange traded notes and exchange traded funds may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. INFLATION-PROTECTED SECURITIES RISK: The terms of inflation-protected securities provide for the coupon and/or maturity value to be adjusted based on changes in inflation. Decreases in the inflation rate or in investors' expectations about inflation could cause these securities to underperform non-inflation-adjusted securities on a total-return basis.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. REAL ESTATE RELATED SECURITIES RISK: Investing in real estate related securities includes, among others, the following risks: possible declines in the value of real estate; risks related to general and local economic conditions, including increases in the rate of inflation; 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. Investing in Real Estate Investment Trusts ("REITs") involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation.
. INVESTMENT IN OTHER INVESTMENT COMPANIES RISK: As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, if the Portfolio acquires shares of investment companies, shareholders bear both their proportionate share of expenses in the Portfolio (including management and advisory fees) and, indirectly, the expenses of the investment companies.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over the life of the Portfolio; and
. how the Portfolio's average annual returns for one year and over the life of the Portfolio compare to those of a broad-based securities market index.
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class 1 shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- n/a n/a n/a n/a n/a n/a n/a n/a 3.48% 3.97% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 3.19%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-2.27%, 2ND QUARTER, 2012.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
SINCE 1 YEAR INCEPTION* ---------------------------------------------------------------------------------------------- Class 1** Return Before Taxes 3.97% 5.94% ----------------------------------------------------------------- ------ ---------- Return After Taxes on Distributions 3.20% 4.99% ----------------------------------------------------------------- ------ ---------- Return After Taxes on Distributions and Sale of Portfolio Shares 2.87% 4.62% ---------------------------------------------------------------------------------------------- Class 2 Return Before Taxes 4.01% 6.07% ---------------------------------------------------------------------------------------------- Barclays Global Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes) 4.32% 5.30% ---------------------------------------------------------------------------------------------- Composite Benchmark*** (reflects no deduction for fees, expenses, or taxes) 8.29% 8.07% ---------------------------------------------------------------------------------------------- |
* Inception date for Class 1 and Class 2 shares: 2/8/10.
** After-tax returns:
-Are shown for Class 1 shares only and will vary for Class 2 shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***Composite Index is comprised of 18.9% S&P 500 Stock Index, 6.75% MSCI EAFE Index, 1.35% MSCI Emerging Markets Index, 3% FTSE EPRA/NAREIT Developed Index, and 70% Barclays U.S. Aggregate Bond Index.
INVESTMENT MANAGER:
AllianceBernstein L.P. ("Manager") is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE ------------------------------------------------------------------------- Seth J. Masters Since inception Senior Vice President of the Manager Daniel J. Loewy Since inception Senior Vice President of the Manager Dianne F. Lob Since inception Senior Vice President of the Manager Andrew Y. Chin Since inception Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
PURCHASE MINIMUMS*
INITIAL SUBSEQUENT -------------------------------------------------------------------------------------------- Class 1 $25,000 None -------------------------------------------------------------------------------------------- Class 2 $1,500,000 None -------------------------------------------------------------------------------------------- |
*Note: Initial purchase minimums are measured across all Overlay Portfolios in the aggregate. The Portfolio may waive investment minimums for certain types of retirement accounts or under certain other circumstances.
You may sell (redeem) your shares each day the New York Stock Exchange is open. You may sell your shares by sending a request to Sanford C. Bernstein & Co. LLC, 1345 Avenue of the Americas, New York, NY 10105.
TAX INFORMATION:
The Portfolio intends to distribute dividends and/or distributions that may be
taxed as ordinary income and/or capital gains.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels. If you purchase shares of the Portfolio
through a broker-dealer or other financial intermediary (such as a bank), the
Portfolio and its related companies may pay the intermediary for the sale of
Portfolio shares and related services. These payments may provide a financial
incentive for the broker-dealer or other financial intermediary and your
salesperson to recommend the Portfolio over another investment. Ask your
salesperson or visit your financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The investment objective of the Tax-Aware Overlay B Portfolio ("Portfolio") is
to moderate the volatility of a fixed-income-oriented asset allocation over the
long term, as part of an investor's overall asset allocation managed by Sanford
C. Bernstein & Co. LLC.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS 1 CLASS 2 SHARES SHARES ----------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None ----------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None None ----------------------------------------------------------------------------------------------- Exchange Fee None None |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------------------------ Management Fees 0.65% 0.65% Distribution and/or Service (12b-1) Fees None None Other Expenses: Shareholder Servicing 0.15% None Other Expenses 0.04% 0.04% ----- ----- Total Other Expenses 0.19% 0.04% ----- ----- Total Annual Portfolio Operating Expenses 0.84% 0.69% ===== ===== ------------------------------------------------------------------------------------------------ |
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------------------------ After 1 Year $ 86 $ 70 After 3 Years $ 268 $221 After 5 Years $ 466 $384 After 10 Years $1,037 $859 ------------------------------------------------------------------------------------------------ |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. For the most recent fiscal year, the Portfolio's
portfolio turnover rate was 21% of the average value of its portfolio.
PRINCIPAL STRATEGIES:
The Portfolio is intended to be used as part of a broader investment program
administered directly by the Bernstein Global Wealth Management Unit of
AllianceBernstein L.P. ("Bernstein"). The performance and objectives of the
Portfolio should be evaluated only in the context of the investor's complete
investment program. The Portfolio is NOT designed to be used as a stand-alone
investment.
The Portfolio may invest in a diversified portfolio of securities and other financial instruments, including derivative instruments, that provide investment exposure to a variety of asset classes. These asset classes may include: fixed-income instruments and equity securities of issuers located within and outside the United States, real estate related securities, below-investment grade ("high yield") securities (commonly known as "junk bonds"), currencies and commodities. By adjusting investment exposure among the various asset classes in the Portfolio, AllianceBernstein L.P. ("Manager") will seek to moderate the volatility of diversified client portfolios managed by Bernstein that reflect a significant allocation to municipal securities. The Portfolio's asset class exposures may be implemented and adjusted either through transactions in individual securities or through derivatives. The Portfolio seeks to minimize the impact of federal income taxes on shareholders' returns over time.
The Portfolio may obtain fixed-income exposure primarily by investing in municipal securities rated A or better by national rating agencies (or, if unrated, determined by the Manager to be of comparable quality), comparably rated municipal notes and derivatives. The Portfolio will invest no more than 25% of its total assets in municipal securities of issuers located in any one state. The municipal securities in which the Portfolio may invest are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, the District of Columbia or possessions and territories of the United States, or financing for specific projects or public facilities. The interest paid on these securities is generally exempt from federal personal income tax, although in certain instances, it may be includable in income subject to alternative minimum tax. The Portfolio may invest in fixed-income securities of U.S. issuers that are not municipal securities if, in the Manager's opinion, these securities may enhance the after-tax return for Portfolio investors. The Portfolio's fixed-income securities may include high yield securities and preferred stock. To identify attractive bonds for the Portfolio, the Manager combines quantitative and fundamental research forecasts through a disciplined investment process to identify opportunities among country/yield curves, sectors, securities and currencies.
The Portfolio may obtain equity exposure principally through derivatives but may also invest in common stocks, preferred stocks, warrants and convertible securities of U.S. and foreign issuers, including sponsored or unsponsored American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). In selecting equity investments, the Manager may draw on the capabilities of separate investment teams that specialize in different areas that are defined by investment style. The Manager selects growth and value equity securities by drawing from its fundamental growth and value investment disciplines. The research analyses supporting buy and sell decisions for the Portfolio's direct investments in equity securities are fundamental and bottom-up, based largely on specific company and industry findings rather than on broad economic forecasts.
The Manager will alter asset class exposures as market and economic conditions change. The Manager will employ risk/return tools and fundamental research insights to determine how to adjust the Portfolio's exposures to various asset classes. These dynamic adjustments to the Portfolio's asset class exposures will be implemented principally through the use of derivatives. The Portfolio's use of derivatives to alter investment exposure of an investor's Bernstein account may create significant leveraged exposure to certain asset classes within the Portfolio. The Portfolio may invest part or all of its portfolio in U.S. Government obligations or investment-grade debt securities of U.S. issuers. The Portfolio also may invest without limit in high-quality municipal notes or variable rate demand obligations, or in taxable cash equivalents.
The Manager also may use exchange traded funds ("ETFs"), exchange traded notes, structured investments and commodity-linked notes in seeking to carry out the Portfolio's investment strategies. The Portfolio may enter into foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indexes, futures contracts (including futures contracts on individual securities and stock indexes) or shares of ETFs. These options transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio's portfolio from a decline in value, sometimes within certain ranges.
The Manager will employ tax management strategies in an attempt to reduce the impact of taxes on shareholders in the Portfolio. For example, the Manager will consider the tax impact that buy and sell investment decisions will have on the Portfolio's shareholders. The Manager may sell certain securities in order to realize capital losses. Capital losses may be used to offset realized capital gains. To minimize capital gains distributions, the Manager may sell securities in the Portfolio with the highest cost basis. The Manager may monitor the length of time the Portfolio has held an investment to evaluate whether the investment should be sold at a short-term gain or held for a longer period so that the gain on the investment will be taxed at the lower long-term rate. In making this decision, the Manager will consider whether, in its judgment, the risk of continued exposure to the investment is worth the tax savings of a lower capital gains rate.
Exposure to certain asset classes may also be achieved through investment in the AllianceBernstein Pooling Portfolios--Multi-Asset Real Return Portfolio. The Manager may use other AllianceBernstein Mutual Funds in the future, in addition to or instead of that in the preceding sentence.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
The Portfolio is intended to be used as part of a broader investment program administered directly by Bernstein. The performance and objectives of the Portfolio should be evaluated only in the context of the investor's complete investment program. Changes in value of the Portfolio may be particularly pronounced because the Portfolio is managed in such a fashion as to affect the investor's assets subject to that broader investment program. The Portfolio is NOT designed to be used as a stand-alone investment.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that stock and bond prices in general may decline over short or extended periods. The value of the Portfolio's securities will fluctuate as the stock or bond market fluctuates. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. The Portfolio does not seek to control risk relative to, or to outperform, a particular securities market benchmark. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. ALLOCATION RISK: The allocation of investments among different global asset classes may have a significant effect on the Portfolio's net asset value, or NAV, when one of these asset classes is performing more poorly than others. As both the direct investments and derivative positions will be periodically rebalanced to reflect the Manager's view of market and economic conditions, there will be transaction costs which may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.
. DERIVATIVES RISK: The Portfolio intends to use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. LEVERAGE RISK: Leverage creates exposure to gains and losses in a greater amount than the dollar amount made in an investment by attempting to enhance return or value without increasing the investment amount. Leverage can magnify the effects of changes in the value of the Portfolio's investments and make it more volatile. The use of leverage may cause the Portfolio to liquidate portfolio positions when it may not be advantageous to do so.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid investments at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.
. MORTGAGE-RELATED SECURITIES RISK: In the case of investments in mortgage-related securities, a loss could be incurred if the collateral backing these securities is insufficient.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
. SUBORDINATION RISK: The Portfolio may invest in securities that are subordinated to more senior securities of an issuer, or which represent interests in pools of such subordinated securities. Subordinated securities will be disproportionately affected by a default or even a perceived decline in creditworthiness of the issuer. Subordinated securities are more likely to suffer a credit loss than non-subordinated securities of the same issuer, any loss incurred by the subordinated securities is likely to be proportionately greater, and any recovery of interest or principal may take more time.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. The value of municipal securities may also be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. To the extent the Portfolio invests in a particular state's municipal securities, it may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes and earthquakes. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, are subject to the risk that factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. FOREIGN (NON-U.S.) SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets.
. EMERGING MARKETS SECURITIES RISK: The risks of investing in foreign (non-U.S.) securities are heightened with respect to issuers in emerging-market countries, because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. ACTIONS BY A FEW MAJOR INVESTORS: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of the Portfolio.
. COMMODITY RISK: The value of commodity-linked derivatives, exchange traded notes and exchange traded funds may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. INFLATION-PROTECTED SECURITIES RISK: The terms of inflation-protected securities provide for the coupon and/or maturity value to be adjusted based on changes in inflation. Decreases in the inflation rate or in investors' expectations about inflation could cause these securities to underperform non-inflation-adjusted securities on a total-return basis.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. REAL ESTATE RELATED SECURITIES RISK: Investing in real estate related securities includes, among others, the following risks: possible declines in the value of real estate; risks related to general and local economic conditions, including increases in the rate of inflation; 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. Investing in Real Estate Investment Trusts ("REITs") involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation.
. INVESTMENT IN OTHER INVESTMENT COMPANIES RISK: As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, if the Portfolio acquires shares of investment companies, shareholders bear both their proportionate share of expenses in the Portfolio (including management and advisory fees) and, indirectly, the expenses of the investment companies.
. TAX RISK: There is no guarantee that all of the Portfolio's municipal bond income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's NAV could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over the life of the Portfolio; and
. how the Portfolio's average annual returns for one year and over the life of the Portfolio compare to those of a broad-based securities market index.
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class 1 shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- n/a n/a n/a n/a n/a n/a n/a n/a 2.82% 3.63% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 3.64%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-2.80%, 2ND QUARTER, 2012.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
SINCE 1 YEAR INCEPTION* ---------------------------------------------------------------------------------------------- Class 1** Return Before Taxes 3.63% 5.23% ----------------------------------------------------------------------------------- Return After Taxes on Distributions 3.52% 4.90% ----------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 2.83% 4.46% - ----------------------------------------------------------------------------------- Class 2 Return Before Taxes 3.75% 5.38% ---------------------------------------------------------------------------------------------- Barclays 5-Year General Obligation Municipal Bond Index (reflects no deduction for fees, expenses, or taxes) 2.36% 3.90% ---------------------------------------------------------------------------------------------- Composite Benchmark*** (reflects no deduction for fees, expenses, or taxes) 7.47% 6.90% ---------------------------------------------------------------------------------------------- |
* Inception date for Class 1 and Class 2 shares: 2/8/10.
** After-tax returns:
-Are shown for Class 1 shares only and will vary for Class 2 shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***Composite Index is comprised of 21% S&P 500 Stock Index, 7.5% MSCI EAFE Index, 1.5% MSCI Emerging Markets Index, 70% Barclays 1-10 Year Municipal Bond Index.
INVESTMENT MANAGER:
AllianceBernstein L.P. ("Manager") is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE ------------------------------------------------------------------------- Seth J. Masters Since inception Senior Vice President of the Manager Daniel J. Loewy Since inception Senior Vice President of the Manager Dianne F. Lob Since inception Senior Vice President of the Manager Andrew Y. Chin Since inception Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
PURCHASE MINIMUMS*
INITIAL SUBSEQUENT -------------------------------------------------------------------------------------------- Class 1 $25,000 None -------------------------------------------------------------------------------------------- Class 2 $1,500,000 None -------------------------------------------------------------------------------------------- |
*Note: Initial purchase minimums are measured across all Overlay Portfolios in the aggregate. The Portfolio may waive investment minimums for certain types of retirement accounts or under certain other circumstances.
You may sell (redeem) your shares each day the New York Stock Exchange is open. You may sell your shares by sending a request to Sanford C. Bernstein & Co. LLC, 1345 Avenue of the Americas, New York, NY 10105.
TAX INFORMATION:
The Portfolio intends to distribute dividends and/or distributions that may be
taxed as ordinary income and/or capital gains. Any dividends paid by the
Portfolio that are properly reported as exempt-interest dividends will not be
subject to regular federal income tax.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels. If you purchase shares of the Portfolio
through a broker-dealer or other financial intermediary (such as a bank), the
Portfolio and its related companies may pay the intermediary for the sale of
Portfolio shares and related services. These payments may provide a financial
incentive for the broker-dealer or other financial intermediary and your
salesperson to recommend the Portfolio over another investment. Ask your
salesperson or visit your financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The investment objective of the Tax-Aware Overlay C Portfolio ("Portfolio") is
to moderate the volatility of a fixed-income-oriented asset allocation over the
long term, as part of an investor's overall asset allocation managed by Sanford
C. Bernstein & Co. LLC.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS 1 CLASS 2 SHARES SHARES ----------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None ----------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None None ----------------------------------------------------------------------------------------------- Exchange Fee None None |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------- Management Fees 0.65% 0.65% Distribution and/or Service (12b-1) Fees None None Other Expenses: Shareholder Servicing 0.15% None Transfer Agent 0.01% 0.01% Other Expenses 0.08% 0.08% ----- ----- Total Other Expenses 0.24% 0.09% ----- ----- Total Annual Portfolio Operating Expenses 0.89% 0.74% ===== ===== ------------------------------------------------------------------------------- |
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------- After 1 Year $ 91 $ 76 After 3 Years $ 284 $237 After 5 Years $ 493 $411 After 10 Years $1,096 $918 ------------------------------------------------------------------------------- |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. For the most recent fiscal year, the Portfolio's
portfolio turnover rate was 19% of the average value of its portfolio.
PRINCIPAL STRATEGIES:
The Portfolio is intended to be used as part of a broader investment program
administered directly by the Bernstein Global Wealth Management Unit of
AllianceBernstein L.P. ("Bernstein"). The performance and objectives of the
Portfolio should be evaluated only in the context of the investor's complete
investment program. The Portfolio is NOT designed to be used as a stand-alone
investment.
The Portfolio may invest in a diversified portfolio of securities and other financial instruments, including derivative instruments, that provide investment exposure to a variety of asset classes. These asset classes may include: fixed-income instruments and equity securities of issuers located within and outside the United States, real estate related securities, below-investment grade ("high yield") securities (commonly known as "junk bonds"), currencies and commodities. By adjusting investment exposure among the various asset classes in the Portfolio, AllianceBernstein L.P. ("Manager") will seek to moderate the volatility of diversified client portfolios managed by Bernstein whose fixed-income investments reflect a significant allocation to California municipal securities. The Portfolio's asset class exposures may be implemented and adjusted either through transactions in individual securities or through derivatives. The Portfolio seeks to minimize the impact of federal and state income taxes on shareholders' returns over time for California residents.
The Portfolio may obtain fixed-income exposure primarily by investing in municipal securities rated A or better by national rating agencies (or, if unrated, determined by the Manager to be of comparable quality), comparably rated municipal notes and derivatives. The municipal securities in which the Portfolio may invest are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, the District of Columbia or possessions and territories of the United States, or financing for specific projects or public facilities. The interest paid on these securities is generally exempt from federal and California state personal income tax, although in certain instances, it may be includable in income subject to alternative minimum tax. The Portfolio may invest in fixed-income securities of U.S. issuers that are not municipal securities if, in the Manager's opinion, these securities may enhance the after-tax return for Portfolio investors. The Portfolio's fixed-income securities may include high yield securities and preferred stock. To identify attractive bonds for the Portfolio, the Manager combines quantitative and fundamental research forecasts through a disciplined investment process to identify opportunities among country/yield curves, sectors, securities and currencies.
The Portfolio may obtain equity exposure principally through derivatives but may also invest in common stocks, preferred stocks, warrants and convertible securities of U.S. and foreign issuers, including sponsored or unsponsored American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). In selecting equity investments, the Manager may draw on the capabilities of separate investment teams that specialize in different areas that are defined by investment style. The Manager selects growth and value equity securities by drawing from its fundamental growth and value investment disciplines. The research analyses supporting buy and sell decisions for the Portfolio's direct investments in equity securities are fundamental and bottom-up, based largely on specific company and industry findings rather than on broad economic forecasts.
The Manager will alter asset class exposures as market and economic conditions change. The Manager will employ risk/return tools and fundamental research insights to determine how to adjust the Portfolio's exposures to various asset classes. These dynamic adjustments to the Portfolio's asset class exposures will be implemented principally through the use of derivatives. The Portfolio's use of derivatives to alter investment exposure of an investor's Bernstein account may create significant leveraged exposure to certain asset classes within the Portfolio. The Portfolio may invest part or all of its portfolio in U.S. Government obligations or investment-grade debt securities of U.S. issuers. The Portfolio also may invest without limit in high-quality municipal notes or variable rate demand obligations, or in taxable cash equivalents.
The Manager also may use exchange traded funds ("ETFs"), exchange traded notes, structured investments and commodity-linked notes in seeking to carry out the Portfolio's investment strategies. The Portfolio may enter into foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indexes, futures contracts (including futures contracts on individual securities and stock indexes) or shares of ETFs. These options transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio's portfolio from a decline in value, sometimes within certain ranges.
The Manager will employ tax management strategies in an attempt to reduce the impact of taxes on shareholders in the Portfolio. For example, the Manager will consider the tax impact that buy and sell investment decisions will have on the Portfolio's shareholders. The Manager may sell certain securities in order to realize capital losses. Capital losses may be used to offset realized capital gains. To minimize capital gains distributions, the Manager may sell securities in the Portfolio with the highest cost basis. The Manager may monitor the length of time the Portfolio has held an investment to evaluate whether the investment should be sold at a short-term gain or held for a longer period so that the gain on the investment will be taxed at the lower long-term rate. In making this decision, the Manager will consider whether, in its judgment, the risk of continued exposure to the investment is worth the tax savings of a lower capital gains rate.
Exposure to certain asset classes may also be achieved through investment in the AllianceBernstein Pooling Portfolios--Multi-Asset Real Return Portfolio. The Manager may use other AllianceBernstein Mutual Funds in the future, in addition to or instead of that in the preceding sentence.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
The Portfolio is intended to be used as part of a broader investment program administered directly by Bernstein. The performance and objectives of the Portfolio should be evaluated only in the context of the investor's complete investment program. Changes in value of the Portfolio may be particularly pronounced because the Portfolio is managed in such a fashion as to affect the investor's assets subject to that broader investment program. The Portfolio is NOT designed to be used as a stand-alone investment.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that stock and bond prices in general may decline over short or extended periods. The value of the Portfolio's securities will fluctuate as the stock or bond market fluctuates. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. The Portfolio does not seek to control risk relative to, or to outperform, a particular securities market benchmark. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. ALLOCATION RISK: The allocation of investments among different global asset classes may have a significant effect on the Portfolio's net asset value, or NAV, when one of these asset classes is performing more poorly than others. As both the direct investments and derivative positions will be periodically rebalanced to reflect the Manager's view of market and economic conditions, there will be transaction costs which may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.
. DERIVATIVES RISK: The Portfolio intends to use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. LEVERAGE RISK: Leverage creates exposure to gains and losses in a greater amount than the dollar amount made in an investment by attempting to enhance return or value without increasing the investment amount. Leverage can magnify the effects of changes in the value of the Portfolio's investments and make it more volatile. The use of leverage may cause the Portfolio to liquidate portfolio positions when it may not be advantageous to do so.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid investments at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. The value of municipal securities may also be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. The Portfolio's investments in California municipal securities may be vulnerable to events adversely affecting California's economy. California's economy, the largest of the 50 states, however, continues to be affected by serious fiscal conditions as a result of voter-passed initiatives that limit the ability of state and local governments to raise revenues, particularly with respect to real property taxes. The recent
economic downturn has had a severe and negative impact on California, causing a significant deterioration in California's economic base. In addition, state expenditures are difficult to reduce because of constitutional provisions that require a minimum level of spending, for certain government programs, such as education. California's economy may also be affected by natural disasters, such as earthquakes or fires. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, are subject to the risk that factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. FOREIGN (NON-U.S.) SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets.
. EMERGING MARKETS SECURITIES RISK: The risks of investing in foreign (non-U.S.) securities are heightened with respect to issuers in emerging-market countries, because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. ACTIONS BY A FEW MAJOR INVESTORS: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of the Portfolio.
. COMMODITY RISK: The value of commodity-linked derivatives, exchange traded notes and exchange traded funds may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. INFLATION-PROTECTED SECURITIES RISK: The terms of inflation-protected securities provide for the coupon and/or maturity value to be adjusted based on changes in inflation. Decreases in the inflation rate or in investors' expectations about inflation could cause these securities to underperform non-inflation-adjusted securities on a total-return basis.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. REAL ESTATE RELATED SECURITIES RISK: Investing in real estate related securities includes, among others, the following risks: possible declines in the value of real estate; risks related to general and local economic conditions, including increases in the rate of inflation; 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. Investing in Real Estate Investment Trusts ("REITs") involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation.
. INVESTMENT IN OTHER INVESTMENT COMPANIES RISK: As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, if the Portfolio acquires shares of investment companies, shareholders bear both their proportionate share of expenses in the Portfolio (including management and advisory fees) and, indirectly, the expenses of the investment companies.
. TAX RISK: There is no guarantee that all of the Portfolio's municipal bond income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's NAV could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over the life of the Portfolio; and
. how the Portfolio's average annual returns for one year and over the life of the Portfolio compare to those of a broad-based securities market index.
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class 1 shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- n/a n/a n/a n/a n/a n/a n/a n/a 2.69% 3.80% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 3.85%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-2.87%, 3RD QUARTER, 2011.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
SINCE 1 YEAR INCEPTION* ---------------------------------------------------------------------------------------------- Class 1** Return Before Taxes 3.80% 5.24% ----------------------------------------------------------------------------------- Return After Taxes on Distributions 3.69% 4.86% ----------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 2.86% 4.42% - ----------------------------------------------------------------------------------- Class 2 Return Before Taxes 3.82% 5.36% ---------------------------------------------------------------------------------------------- Barclays 5-Year General Obligation Municipal Bond Index (reflects no deduction for fees, expenses, or taxes) 2.36% 3.90% ---------------------------------------------------------------------------------------------- Composite Benchmark*** (reflects no deduction for fees, expenses, or taxes) 7.47% 6.90% ---------------------------------------------------------------------------------------------- |
* Inception date for Class 1 and Class 2 shares: 2/8/10.
** After-tax returns:
-Are shown for Class 1 shares only and will vary for Class 2 shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***Composite Index is comprised of 21% S&P 500 Stock Index, 7.5% MSCI EAFE Index, 1.5% MSCI Emerging Markets Index, 70% Barclays 1-10 Year Municipal Bond Index.
INVESTMENT MANAGER:
AllianceBernstein L.P. ("Manager") is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE ------------------------------------------------------------------------- Seth J. Masters Since inception Senior Vice President of the Manager Daniel J. Loewy Since inception Senior Vice President of the Manager Dianne F. Lob Since inception Senior Vice President of the Manager Andrew Y. Chin Since inception Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
PURCHASE MINIMUMS*
INITIAL SUBSEQUENT -------------------------------------------------------------------------------------------- Class 1 $25,000 None -------------------------------------------------------------------------------------------- Class 2 $1,500,000 None -------------------------------------------------------------------------------------------- |
*Note: Initial purchase minimums are measured across all Overlay Portfolios in the aggregate. The Portfolio may waive investment minimums for certain types of retirement accounts or under certain other circumstances.
You may sell (redeem) your shares each day the New York Stock Exchange is open. You may sell your shares by sending a request to Sanford C. Bernstein & Co. LLC, 1345 Avenue of the Americas, New York, NY 10105.
TAX INFORMATION:
The Portfolio intends to distribute dividends and/or distributions that may be
taxed as ordinary income and/or capital gains. Any dividends paid by the
Portfolio that are properly reported as exempt-interest dividends will not be
subject to regular federal income tax.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels. If you purchase shares of the Portfolio
through a broker-dealer or other financial intermediary (such as a bank), the
Portfolio and its related companies may pay the intermediary for the sale of
Portfolio shares and related services. These payments may provide a financial
incentive for the broker-dealer or other financial intermediary and your
salesperson to recommend the Portfolio over another investment. Ask your
salesperson or visit your financial intermediary's website for more information.
INVESTMENT OBJECTIVE:
The investment objective of the Tax-Aware Overlay N Portfolio ("Portfolio") is
to moderate the volatility of a fixed-income-oriented asset allocation over the
long term, as part of an investor's overall asset allocation managed by Sanford
C. Bernstein & Co. LLC.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS 1 CLASS 2 SHARES SHARES ----------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None ----------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None None ----------------------------------------------------------------------------------------------- Exchange Fee None None |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------- Management Fees 0.65% 0.65% Distribution and/or Service (12b-1) Fees None None Other Expenses: Shareholder Servicing 0.15% None Transfer Agent 0.01% 0.01% Other Expenses 0.08% 0.08% ----- ----- Total Other Expenses 0.24% 0.09% ----- ----- Total Annual Portfolio Operating Expenses 0.89% 0.74% ===== ===== ------------------------------------------------------------------------------- |
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs as reflected in the Examples would
be:
CLASS 1 CLASS 2 SHARES SHARES ------------------------------------------------------------------------------- After 1 Year $ 91 $ 76 After 3 Years $ 284 $237 After 5 Years $ 493 $411 After 10 Years $1,096 $918 ------------------------------------------------------------------------------- |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Portfolio Operating Expenses or in the Examples, affect
the Portfolio's performance. For the most recent fiscal year, the Portfolio's
portfolio turnover rate was 29% of the average value of its portfolio.
PRINCIPAL STRATEGIES:
The Portfolio is intended to be used as part of a broader investment program
administered directly by the Bernstein Global Wealth Management Unit of
AllianceBernstein L.P. ("Bernstein"). The performance and objectives of the
Portfolio should be evaluated only in the context of the investor's complete
investment program. The Portfolio is NOT designed to be used as a stand-alone
investment. The Portfolio may invest in a diversified portfolio of securities
and other financial instruments, including derivative instruments, that provide
investment exposure to a variety of asset classes. These asset classes may
include: fixed-income instruments and equity securities of issuers located
within and outside the United States, real estate related securities,
below-investment grade ("high yield") securities (commonly known as "junk
bonds"), currencies and commodities. By adjusting investment exposure among the
various asset classes in the Portfolio, AllianceBernstein L.P. ("Manager") will
seek to moderate the volatility of diversified client portfolios managed by
Bernstein whose fixed-income investments reflect a significant allocation to
New York municipal securities. The Portfolio's asset class exposures may be
implemented and adjusted either through transactions in individual securities
or through derivatives. The Portfolio seeks to minimize the impact of federal,
state and local income taxes on shareholders' returns over time for New York
residents.
The Portfolio may obtain fixed-income exposure primarily by investing in municipal securities rated A or better by national rating agencies (or, if unrated, determined by the Manager to be of comparable quality), comparably rated municipal notes and derivatives. The municipal securities in which the Portfolio may invest are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, the District of Columbia or possessions and territories of the United States, or financing for specific projects or public facilities. The interest paid on these securities is generally exempt from federal and New York state and local personal income tax, although in certain instances, it may be includable in income subject to alternative minimum tax. The Portfolio may invest in fixed-income securities of U.S. issuers that are not municipal securities if, in the Manager's opinion, these securities may enhance the after-tax return for Portfolio investors. The Portfolio's fixed-income securities may include high yield securities and preferred stock. To identify attractive bonds for the Portfolio, the Manager combines quantitative and fundamental research forecasts through a disciplined investment process to identify opportunities among country/yield curves, sectors, securities and currencies.
The Portfolio may obtain equity exposure principally through derivatives but may also invest in common stocks, preferred stocks, warrants and convertible securities of U.S. and foreign issuers, including sponsored or unsponsored American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). In selecting equity investments, the Manager may draw on the capabilities of separate investment teams that specialize in different areas that are defined by investment style. The Manager selects growth and value equity securities by drawing from its fundamental growth and value investment disciplines. The research analyses supporting buy and sell decisions for the Portfolio's direct investments in equity securities are fundamental and bottom-up, based largely on specific company and industry findings rather than on broad economic forecasts.
The Manager will alter asset class exposures as market and economic conditions change. The Manager will employ risk/return tools and fundamental research insights to determine how to adjust the Portfolio's exposures to various asset classes. These dynamic adjustments to the Portfolio's asset class exposures will be implemented principally through the use of derivatives. The Portfolio's use of derivatives to alter investment exposure of an investor's Bernstein account may create significant leveraged exposure to certain asset classes within the Portfolio. The Portfolio may invest part or all of its portfolio in U.S. Government obligations or investment-grade debt securities of U.S. issuers. The Portfolio also may invest without limit in high-quality municipal notes or variable rate demand obligations, or in taxable cash equivalents.
The Manager also may use exchange traded funds ("ETFs"), exchange traded notes, structured investments and commodity-linked notes in seeking to carry out the Portfolio's investment strategies. The Portfolio may enter into foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives. An appropriate hedge of currency exposure resulting from the Portfolio's securities positions may not be available or cost effective, or the Manager may determine not to hedge the positions, possibly even under market conditions where doing so could benefit the Portfolio. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indexes, futures contracts (including futures contracts on individual securities and stock indexes) or shares of ETFs. These options transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio's portfolio from a decline in value, sometimes within certain ranges.
The Manager will employ tax management strategies in an attempt to reduce the impact of taxes on shareholders in the Portfolio. For example, the Manager will consider the tax impact that buy and sell investment decisions will have on the Portfolio's shareholders. The Manager may sell certain securities in order to realize capital losses. Capital losses may be used to offset realized capital gains. To minimize capital gains distributions, the Manager may sell securities in the Portfolio with the highest cost basis. The Manager may monitor the length of time the Portfolio has held an investment to evaluate whether the investment should be sold at a short-term gain or held for a longer period so that the gain on the investment will be taxed at the lower long-term rate. In making this decision, the Manager will consider whether, in its judgment, the risk of continued exposure to the investment is worth the tax savings of a lower capital gains rate.
Exposure to certain asset classes may also be achieved through investment in the AllianceBernstein Pooling Portfolios--Multi-Asset Real Return Portfolio. The Manager may use other AllianceBernstein Mutual Funds in the future, in addition to or instead of that in the preceding sentence.
PRINCIPAL RISKS:
The share price of the Portfolio will fluctuate and you may lose money. There
is no guarantee that the Portfolio will achieve its investment objective.
The Portfolio is intended to be used as part of a broader investment program administered directly by Bernstein. The performance and objectives of the Portfolio should be evaluated only in the context of the investor's complete investment program. Changes in value of the Portfolio may be particularly pronounced because the Portfolio is managed in such a fashion as to affect the investor's assets subject to that broader investment program. The Portfolio is NOT designed to be used as a stand-alone investment.
. MARKET RISK: The Portfolio is subject to market risk, which is the risk that stock and bond prices in general may decline over short or extended periods. The value of the Portfolio's securities will fluctuate as the stock or bond market fluctuates. Equity and debt markets around the world have experienced unprecedented volatility, including as a result of the recent European sovereign debt crisis, and these market conditions may continue or get worse. This financial environment has caused a significant decline in the value and liquidity of many investments, and could make identifying investment risks and opportunities especially difficult. High public debt in the United States and other countries creates ongoing systemic and market risks and policy making uncertainty. In addition, policy and legislative changes in the United States and in other countries are affecting many aspects of financial regulation. The impact of these changes, and the practical implications for market participants, may not be fully known for some time.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment portfolio. The Manager will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but its decisions may not produce the desired results. The Portfolio does not seek to control risk relative to, or to outperform, a particular securities market benchmark. In some cases, derivative and other investment techniques may be unavailable or the Manager may determine not to use them, possibly even under market conditions where their use could benefit the Portfolio.
. ALLOCATION RISK: The allocation of investments among different global asset classes may have a significant effect on the Portfolio's net asset value, or NAV, when one of these asset classes is performing more poorly than others. As both the direct investments and derivative positions will be periodically rebalanced to reflect the Manager's view of market and economic conditions, there will be transaction costs which may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.
. DERIVATIVES RISK: The Portfolio intends to use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. In addition to other risks such as the credit risk of the counterparty, derivatives involve the risk that changes in the value of the derivative may not correlate with relevant assets, rates or indices. Derivatives may be illiquid and difficult to price or unwind, and small changes may produce disproportionate losses for the Portfolio. Assets required to be set aside or posted to cover or secure derivatives positions may themselves go down in value, and these collateral and other requirements may limit investment flexibility. Some derivatives involve leverage, which can make the Portfolio more volatile and can compound other risks. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation are not yet fully known and may not be for some time. The regulation may make derivatives more costly, may limit their availability, or may otherwise adversely affect their value or performance.
. LEVERAGE RISK: Leverage creates exposure to gains and losses in a greater amount than the dollar amount made in an investment by attempting to enhance return or value without increasing the investment amount. Leverage can magnify the effects of changes in the value of the Portfolio's investments and make it more volatile. The use of leverage may cause the Portfolio to liquidate portfolio positions when it may not be advantageous to do so.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid investments at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. The value of municipal securities may also be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Most of the Portfolio's investments are in New York municipal securities. Thus, the Portfolio may be vulnerable to events adversely affecting New York's economy.
New York's economy has a relatively large share of the nation's financial activities. With the financial services sector contributing over one-fifth of the state's wages, the state's economy is especially vulnerable to adverse events affecting the financial markets such as occurred in 2008-2009. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, are subject to the risk that factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of the Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or duration.
. CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
. DURATION RISK: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. FOREIGN (NON-U.S.) SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which the Portfolio invests and adversely affect the value of the Portfolio's assets.
. EMERGING MARKETS SECURITIES RISK: The risks of investing in foreign (non-U.S.) securities are heightened with respect to issuers in emerging-market countries, because the markets are less developed and less liquid and there may be a greater amount of economic, political and social uncertainty.
. FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of the Portfolio's investments or reduce the returns of the Portfolio. For example, the value of the Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar).
. ACTIONS BY A FEW MAJOR INVESTORS: In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of the Portfolio.
. COMMODITY RISK: The value of commodity-linked derivatives, exchange traded notes and exchange traded funds may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. INFLATION-PROTECTED SECURITIES RISK: The terms of inflation-protected securities provide for the coupon and/or maturity value to be adjusted based on changes in inflation. Decreases in the inflation rate or in investors' expectations about inflation could cause these securities to underperform non-inflation-adjusted securities on a total-return basis.
. LOWER-RATED SECURITIES RISK: Lower-rated securities, or junk bonds/high yield securities, are subject to greater risk of loss of principal and interest and greater market risk than higher-rated securities. The capacity of issuers of lower-rated securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates.
. REAL ESTATE RELATED SECURITIES RISK: Investing in real estate related securities includes, among others, the following risks: possible declines in the value of real estate; risks related to general and local economic conditions, including increases in the rate of inflation; 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. Investing in Real Estate Investment Trusts ("REITs") involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation.
. INVESTMENT IN OTHER INVESTMENT COMPANIES RISK: As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, if the Portfolio acquires shares of investment companies, shareholders bear both their proportionate share of expenses in the Portfolio (including management and advisory fees) and, indirectly, the expenses of the investment companies.
. TAX RISK: There is no guarantee that all of the Portfolio's municipal bond income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's NAV could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over the life of the Portfolio; and
. how the Portfolio's average annual returns for one year and over the life of the Portfolio compare to those of a broad-based securities market index.
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. As with all investments, you may lose money by investing in the Portfolio.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class 1 shares.
[CHART]
03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- n/a n/a n/a n/a n/a n/a n/a n/a 2.47% 3.51% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 3.68%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-2.97%, 3RD QUARTER, 2011.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
SINCE 1 YEAR INCEPTION* ---------------------------------------------------------------------------------------------- Class 1** Return Before Taxes 3.51% 5.03% ----------------------------------------------------------------------------------- Return After Taxes on Distributions 3.38% 4.63% ----------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 2.69% 4.23% - ----------------------------------------------------------------------------------- Class 2 Return Before Taxes 3.62% 5.17% ---------------------------------------------------------------------------------------------- Barclays 5-Year General Obligation Municipal Bond Index (reflects no deduction for fees, expenses, or taxes) 2.36% 3.90% ---------------------------------------------------------------------------------------------- Composite Benchmark*** (reflects no deduction for fees, expenses, or taxes) 7.47% 6.90% ---------------------------------------------------------------------------------------------- |
* Inception date for Class 1 and Class 2 shares: 2/8/10.
** After-tax returns:
-Are shown for Class 1 shares only and will vary for Class 2 shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***Composite Index is comprised of 21% S&P 500 Stock Index, 7.5% MSCI EAFE Index, 1.5% MSCI Emerging Markets Index, 70% Barclays 1-10 Year Municipal Bond Index.
INVESTMENT MANAGER:
AllianceBernstein L.P. ("Manager") is the investment manager for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE ------------------------------------------------------------------------- Seth J. Masters Since inception Senior Vice President of the Manager Daniel J. Loewy Since inception Senior Vice President of the Manager Dianne F. Lob Since inception Senior Vice President of the Manager Andrew Y. Chin Since inception Senior Vice President of the Manager |
PURCHASE AND SALE OF PORTFOLIO SHARES:
PURCHASE MINIMUMS*
INITIAL SUBSEQUENT -------------------------------------------------------------------------------------------- Class 1 $25,000 None -------------------------------------------------------------------------------------------- Class 2 $1,500,000 None -------------------------------------------------------------------------------------------- |
*Note: Initial purchase minimums are measured across all Overlay Portfolios in the aggregate. The Portfolio may waive investment minimums for certain types of retirement accounts or under certain other circumstances.
You may sell (redeem) your shares each day the New York Stock Exchange is open. You may sell your shares by sending a request to Sanford C. Bernstein & Co. LLC, 1345 Avenue of the Americas, New York, NY 10105.
TAX INFORMATION:
The Portfolio intends to distribute dividends and/or distributions that may be
taxed as ordinary income and/or capital gains. Any dividends paid by the
Portfolio that are properly reported as exempt-interest dividends will not be
subject to regular federal income tax.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES:
Shares of the Portfolio are offered primarily through the Manager's private
client and institutional channels. If you purchase shares of the Portfolio
through a broker-dealer or other financial intermediary (such as a bank), the
Portfolio and its related companies may pay the intermediary for the sale of
Portfolio shares and related services. These payments may provide a financial
incentive for the broker-dealer or other financial intermediary and your
salesperson to recommend the Portfolio over another investment. Ask your
salesperson or visit your financial intermediary's website for more information.
This section contains additional information about Portfolios' investment processes and certain principal risks. This Prospectus refers to Alliance Bernstein L.P. as the "Manager" or "AllianceBernstein" and shareholders of the Portfolios as "you."
OVERLAY PORTFOLIOS
THE OVERLAY PORTFOLIOS ARE INTENDED TO BE USED AS PART OF A BROADER INVESTMENT
PROGRAM ADMINISTERED DIRECTLY BY BERNSTEIN. THE PERFORMANCE AND OBJECTIVES OF
THE OVERLAY PORTFOLIOS SHOULD BE EVALUATED ONLY IN THE CONTEXT OF THE
INVESTOR'S COMPLETE INVESTMENT PROGRAM. THE BOARD OF DIRECTORS OF SANFORD C.
BERNSTEIN FUND, INC. DOES NOT OVERSEE THE INVESTMENT MANAGEMENT SERVICES
PROVIDED BY BERNSTEIN DIRECTLY TO PRIVATE CLIENTS. THE OVERLAY PORTFOLIOS ARE
NOT DESIGNED TO BE USED AS STAND-ALONE INVESTMENTS.
Each Overlay Portfolio may access a wide range of asset class exposures to alter the near-term expected risk and reward of a representative investor's overall asset allocation strategy--one that includes an investment in the Overlay Portfolios and a diversified portfolio of stocks and bonds held through Bernstein. Each of the Overlay A and Tax-Aware Overlay A Portfolios is designed to complement an equity-oriented asset allocation managed by Bernstein, and each of the Overlay B, Tax-Aware Overlay B, Tax-Aware Overlay C and Tax-Aware Overlay N Portfolios is designed to complement a fixed-income-oriented asset allocation managed by Bernstein. Combinations of the various Overlay Portfolios can be used to suit a variety of intermediate asset allocations.
Investors in the Overlay Portfolios will experience short-term market fluctuations and should have a long-term investment horizon. Investors should evaluate the Overlay Portfolios' risk in combination with their other Bernstein investments when selecting an Overlay Portfolio. Each Overlay Portfolio may not achieve its goal and is not intended as a complete investment program.
Asset Allocation Overlay. The Manager will employ its risk/return tools and research insights to implement adjustments to the Overlay Portfolios' asset class exposures, and thereby those within an investor's Bernstein account, as market and economic conditions change. For example, the Manager may employ derivatives to increase (by taking a long position) or decrease (by taking a short position) exposures to certain asset classes created by its direct investments or to provide market exposure to certain asset classes not held in the Overlay Portfolios. The Overlay Portfolios intend to use derivatives to reduce risk or to seek enhanced returns from certain asset classes as well as to leverage their exposure to certain asset classes. The Overlay Portfolios may maintain a significant percentage of their assets in cash and cash equivalent instruments, some of which may serve as margin or collateral for the Overlay Portfolios' obligations under derivative transactions. The Manager may use exchange traded funds, exchange traded notes, structured investments and commodity-linked notes in seeking to carry out an Overlay Portfolio's investment strategies.
Direct Investment. The Overlay Portfolios may invest in a diversified portfolio of securities and other financial instruments that provide exposure to a variety of asset classes, including: fixed-income instruments and equity securities of issuers located within and outside the United States, high yield securities, currencies, commodities and real estate. In addition, the Overlay Portfolios will generally invest a portion of their uncommitted cash balances in derivatives to expose that portion of the Overlay Portfolio to the fixed-income and/or equity markets.
Fixed-Income Instrument Selection: To identify attractive bonds for the Overlay Portfolios, the Manager combines quantitative and fundamental research forecasts through a disciplined investment process to identify opportunities among country/yield curves, sectors, securities and currencies.
Many types of debt securities may be purchased by the Overlay Portfolios, including corporate bonds, notes, U.S. Government and agency securities, municipal securities, asset-backed securities, mortgage-related securities, bank loan debt, preferred stock and inflation-protected securities, and foreign securities in developed or emerging-market countries.
Each Overlay Portfolio may invest in fixed-income securities rated below investment grade (BB or below) by national rating agencies (high yield bonds). High yield bonds are less liquid instruments that are often considered to be speculative and involve greater risk of default or price change due to changes in the issuer's creditworthiness or in response to periods of general economic difficulty. No more than 5% of an Overlay Portfolio's total assets may be invested in fixed-income securities rated CCC by national rating agencies.
Equity Security Selection: In managing the Overlay Portfolios, the Manager may diversify the direct equity component across multiple research strategies as well as capitalization ranges. The Manager relies on both fundamental and quantitative research to manage both risk and return for the Overlay Portfolios. The Overlay Portfolios may own stocks from our bottom-up fundamental research in value, growth, stability and other disciplines. Within each investment discipline, the Manager draws on the capabilities of separate investment teams. The research analyses that support buy and sell decisions are fundamental and bottom-up, based largely on specific company and industry findings and taking into account broad economic forecasts.
The Overlay Portfolios' direct equity investments will be comprised primarily of common stocks but the Overlay Portfolios may also invest in preferred stocks, warrants and convertible securities of foreign issuers, including sponsored or unsponsored ADRs and GDRs. The Overlay Portfolios may enter into foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the
use of derivatives transactions, such as forward currency exchange contracts, currency futures and options thereon, and options on currencies. The Overlay Portfolios will generally invest in foreign-currency futures contracts or foreign-currency forward contracts with terms of up to one year. The Overlay Portfolios will also purchase foreign currency for immediate settlement in order to purchase foreign securities. The Overlay Portfolios may also make investments in less developed or emerging equity markets. See "Additional Investment Information, Special Investment Techniques and Related Risks--Foreign Currency Transactions" for more information about currency trading in the Overlay Portfolios.
ADDITIONAL STRATEGIES APPLICABLE TO THE TAX-AWARE OVERLAY PORTFOLIOS The Manager will employ tax management strategies in an attempt to reduce the impact of taxes on shareholders in the Tax-Aware Overlay Portfolios. For example, the Manager will consider the tax impact that buy and sell investment decisions will have on such Portfolios' shareholders. The Manager may sell certain securities in order to realize capital losses. Capital losses may be used to offset realized capital gains. To minimize capital gains distributions, the Manager may sell securities in each such Portfolio with the highest cost basis. The Manager may monitor the length of time such Portfolios have held an investment to evaluate whether the investment should be sold at a short-term gain or held for a longer period so that the gain on the investment will be taxed at the lower long-term rate. In making this decision, the Manager will consider whether, in its judgment, the risk of continued exposure to the investment is worth the tax savings of a lower capital gains rate. In addition, the Tax-Aware Overlay Portfolios will generally maintain a larger exposure to municipal obligations than the other Portfolios. The use of derivatives will generate taxable income for the Tax-Aware Overlay Portfolios, which may compromise the Manager's ability to minimize the tax impact of the Tax-Aware Overlay Portfolios' investment strategies. There can be no assurance that any of these strategies will be effective or that their use will not adversely affect the gross returns of the Tax-Aware Overlay Portfolios.
In addition to the principal investments previously described, the Portfolios may invest in other investments. This section of the Prospectus provides additional information about the Portfolios' investment practices and related risks. Most of these investment practices are discretionary, which means that the Manager may or may not decide to use them. This Prospectus does not describe all of a Portfolio's investment practices and additional information about each Portfolio's risks and investments can be found in the Portfolios' SAI.
INTEREST ONLY/PRINCIPAL ONLY SECURITIES
The Fixed-Income Portfolios and Overlay Portfolios may invest in a type of
mortgage-related security where all interest payments go to one class of
holders--"Interest Only" or "IO"--and all of the principal goes to a second
class of holders--"Principal Only" or "PO."
The market values of both IOs and POs are sensitive to prepayment rates; the value of POs varies directly with prepayment rates, while the value of IOs varies inversely with prepayment rates. If prepayment rates are high, investors may actually receive less cash from the IO than was initially invested. IOs and POs issued by the U.S. Government or its agencies and instrumentalities that are backed by fixed-rate mortgages may be considered liquid securities under guidelines established by each Portfolio's Board of Directors (the "Board"); all other IOs and POs will be considered illiquid (see discussion of Illiquid Securities below).
OBLIGATIONS OF SUPRANATIONAL AGENCIES
The Fixed-Income Portfolios and Overlay Portfolios may invest in the
obligations of supranational agencies. Supranational agencies rely on
participating countries (which may include the United States) for funds. Some
supranationals, such as the International Bank for Reconstruction and
Development (the "World Bank"), have the right to borrow from participating
countries, including the United States. Other supranationals must request funds
from participating countries; however, such requests may not always be honored.
Moreover, the securities of supranational agencies, depending on where and how
they are issued, may be subject to some of the risks associated with
investments in foreign securities.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS
Fixed-income securities may have fixed, variable or floating rates of interest.
Variable and floating rate securities pay interest at rates that are adjusted
periodically, according to a specified formula. A "variable" interest rate
adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a
"floating" interest rate adjusts whenever a specified benchmark rate (such as
the bank prime lending rate) changes.
Each Fixed-Income Portfolio and each Overlay Portfolio may invest in variable rate demand notes ("VRDNs") which are instruments whose interest rates change on a specific date (such as coupon date or interest payment date) or whose interest rates vary with changes in a designated base rate (such as prime interest rate). These instruments are payable on demand and are secured by letters of credit or other credit support agreements from major banks.
Each Fixed-Income Portfolio and each Overlay Portfolio may invest in fixed-income securities that pay interest at a coupon rate equal to a base rate, plus additional interest for a certain period of time if short-term interest rates rise above a predetermined level. The amount of such an additional interest payment typically is calculated under a formula based on a short-term interest rate index multiplied by a designated factor and may be subject to a "cap."
Each Fixed-Income Portfolio and each Overlay Portfolio may invest in "inverse floaters," which are securities with two variable components that, when combined, result in a fixed interest rate. The "auction component" typically pays an interest rate that is reset periodically through an auction process, while the "residual component" pays a current residual interest rate based on the difference between the total interest paid on the securities and the auction rate paid on the auction component. A Portfolio may purchase both auction and residual components. When an inverse floater is in the residual mode (leveraged), the interest rate typically resets in the opposite direction from the variable or floating market rate of interest on which the floater is based. The degree of leverage inherent in inverse floaters is associated with a greater degree of volatility of market value, such that the market values of inverse floaters that represent the residual component tend to decrease more rapidly during periods of increasing interest rates than those of fixed-rate securities.
ZERO COUPON SECURITIES
Zero coupon securities are debt securities that have been issued without
interest coupons or stripped of their unmatured interest coupons, and include
receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
FIXED-INCOME SECURITIES
The Fixed-Income Municipal Portfolios, the U.S. Government Short Duration
Portfolio and the Short Duration Plus Portfolio may invest in medium-quality
securities rated A or Baa by Moody's, or A or BBB by S&P or Fitch. It is
generally expected that these Portfolios will not retain a security downgraded
below B by Moody's, S&P and Fitch, or if unrated, determined by the
Manager to have undergone similar credit quality deterioration, however, the Portfolios are not required to dispose of such downgraded securities. The Tax-Aware Overlay B Portfolio, the Tax-Aware Overlay C Portfolio and the Tax-Aware Overlay N Portfolio may obtain fixed-income exposure primarily by investing in municipal securities rated A or better by national rating agencies. The Intermediate Duration Portfolio and the Overlay Portfolios may invest in below-investment grade securities rated Ba, B or Caa by Moody's or BB, B or CCC by S&P and Fitch.
FIXED-INCOME PORTFOLIOS AND OVERLAY PORTFOLIOS: The value of each Fixed-Income Portfolio's and each Overlay Portfolio's shares will fluctuate with the value of its investments.
INTEREST RATE RISK: This is the risk that changes in interest rates will affect the value of a Portfolio's investments in fixed-income debt securities such as bonds and notes. Interest rates in the United States have recently been historically low. Increases in interest rates may cause the value of a Portfolio's investments to decline and this decrease in value may not be offset by higher income from new investments. A Portfolio may experience increased interest rate risk to the extent it invests in fixed-income securities with longer maturities or durations. There is also the risk that a floating rate fixed-income security may reset its interest rate when its specified benchmark rate changes. Because prices of intermediate-duration bonds are more sensitive to interest rate changes than those of shorter duration, intermediate-duration Portfolios have greater interest rate risk than the short-duration Portfolios.
CREDIT RISK: This is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives or other contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations. The degree of risk for a particular security may be reflected in its credit rating. A Portfolio may rely upon rating agencies to determine credit ratings, but those ratings are opinions and are not absolute guarantees of quality. Credit risk is greater for medium-quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative credit risks. Credit rating agencies may lower the credit rating of certain debt securities held by a Portfolio. If a debt security's credit rating is downgraded, its price is likely to decline, which would lower an investor's total return.
LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Illiquid securities may also be difficult to value. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. To the extent a Portfolio invests in municipal securities, the Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets. A Portfolio is exposed to liquidity risk when low trading volume, lack of a market maker, a large position, or legal restrictions limit or prevent a Portfolio from selling securities or closing derivative positions at desirable prices. In addition, liquidity risk tends to increase to the extent a Portfolio invests in securities whose sale may be restricted by law or by contract.
MUNICIPAL SECURITIES
The two principal classifications of municipal securities are bonds and notes.
Municipal bonds are intended to meet longer-term capital needs while municipal
notes are intended to fulfill short-term capital needs. Municipal notes
generally have original maturities not exceeding one year. Municipal notes
include tax anticipation notes, revenue anticipation notes, bond anticipation
notes, variable rate demand obligations, and tax-exempt commercial paper.
Municipal bonds are typically classified as "general obligation" or "revenue" or "special obligation" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit, and taxing power for payment of principal and interest. Revenue or special obligation bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other tax, but not from general tax revenues. The payment of the principal and interest on revenue bonds is dependent solely on the ability of the user of the facilities financed by the bonds to meet its financial obligations and the pledge, if any, of real and personal property financed as security for such payment.
A Portfolio may purchase municipal securities the interest on which, in the opinion of bond counsel, is exempt from federal income tax. Neither AllianceBernstein nor any Portfolio guarantees that this opinion is correct, and there is no assurance that the Internal Revenue Service (the "IRS") will agree with bond counsel's opinion. If the IRS determines that an issuer of a municipal security has not complied with applicable tax requirements, interest from the security could become subject to federal income tax, possibly retroactively to the date the security was issued, and the value of the security could decline significantly and past distributions to Portfolio shareholders could be recharacterized as taxable.
Bonds of certain sectors have special risks. For example, the health-care industry can be affected by federal or state legislation, electric utilities are subject to governmental regulation, and private-activity bonds are not government-backed. Attempts to restructure the federal tax system may have adverse effects on the value of municipal securities or make them less attractive to investors relative to taxable investments.
MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of a Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related
to the tax status of municipal securities, or the rights of investors in these securities. The value of municipal securities may also be adversely affected by rising health care costs, increasing unfunded pension liabilities, and by the phasing out of federal programs providing financial support. Investments in municipal securities are subject to the supply of and demand for such securities, which may vary from time to time. Supply and demand factors can also affect the value of municipal securities. Most of the Short Duration New York Municipal Portfolio's, the New York Municipal Portfolio's and the Tax-Aware Overlay N Portfolio's investments are in New York State's municipal securities. Thus, the Portfolios may be more vulnerable to events adversely affecting New York's economy. New York's economy has a relatively large share of the nation's financial activities. With the financial services sector contributing over one-fifth of the state's wages, the state's economy is especially vulnerable to adverse events affecting the financial markets such as have occurred in 2008-2009. Each of the Short Duration California Municipal Portfolio's, the California Municipal Portfolio's and the Tax-Aware Overlay C Portfolio's investments in California municipal securities may be vulnerable to events adversely affecting California's economy. California's economy, the largest of the 50 states, continues to be affected by serious fiscal conditions as a result of voted-passed initiatives that limit the ability of state and local governments to raise revenues, particularly with respect to real property taxes. The recent economic downturn has had a severe and negative impact on California, causing a significant deterioration in California's economic base. In addition, state expenditures are difficult to reduce because of constitutional provisions that require a minimum level of spending for certain government programs, such as education. California's economy may also be affected by natural disasters, such as earthquakes or fires. To the extent the Short Duration Diversified Municipal Portfolio, the Diversified Municipal Portfolio and the Tax-Aware Overlay B Portfolio invest in a particular state's municipal securities, they may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes and earthquakes. A Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities. In addition, the credit quality of private activity bonds is tied to the credit quality of related corporate issuers.
Also, some municipal securities are municipal lease obligations. A municipal lease obligation is not backed by the full faith and credit of the issuing municipality, but is usually backed by the municipality's pledge to make annual appropriations for lease payments. Thus, it is possible that a municipality will not appropriate money for lease payments. Additionally, some municipal lease obligations may allow for lease cancellation prior to the maturity date of the security. Municipal lease obligations may be less readily marketable than other municipal securities and some may be illiquid.
INVESTMENT IN EXCHANGE-TRADED FUNDS AND OTHER INVESTMENT COMPANIES The Overlay Portfolios may invest to a significant extent in shares of ETFs, subject to the restrictions and limitations of the 1940 Act or any applicable rules, exemptive orders or regulatory guidance. ETFs are pooled investment vehicles, which may be managed or unmanaged, that generally seek to track the performance of a specific index. The ETFs in which a Portfolio invests will not be able to replicate exactly the performance of the indices they track because the total return generated by the securities will be reduced by transaction costs incurred in adjusting the actual balance of the securities. In addition, the ETFs in which a Portfolio invests will incur expenses not incurred by their applicable indices. Certain securities comprising the indices tracked by the ETFs may, from time to time, temporarily be unavailable, which may further impede the ability of the ETFs to track their applicable indices. The market value of the ETF shares may differ from their net asset value ("NAV"). This difference in price may be due to the fact that the supply and demand in the market for ETF shares at any point in time is not always identical to the supply and demand in the market for the underlying basket of securities. Accordingly, there may be times when an ETF's shares trade at a discount to its NAV.
The Overlay Portfolios may invest in other investment companies, including affiliated investment companies, as permitted by the Investment Company Act of 1940, as amended (the "1940 Act"). As with ETFs, if the Portfolios acquire shares in investment companies, shareholders would bear, indirectly, the expenses of such investment companies (which may include management and advisory fees), which are in addition to the Portfolios' expenses. The Portfolios intend to invest uninvested cash balances in an affiliated money market fund as permitted by Rule 12d1-1 under the 1940 Act and, as indicated above, the Overlay Portfolios intend to invest from time to time in the AllianceBernstein Pooling Portfolios--Multi-Asset Real Return Portfolio. A brief description of the Multi-Asset Real Return Portfolio follows. Additional details are available in the prospectus and SAI for the AllianceBernstein Pooling Portfolios. You may request a free copy of the prospectus and/or SAI of the AllianceBernstein Pooling Portfolios by contacting your Financial Advisor.
AllianceBernstein Pooling Portfolios--AllianceBernstein Multi-Asset Real Return ("Multi-Asset Pooling Portfolio") has an investment objective to maximize real return over inflation. Real return is the rate of total return (including income and capital appreciation) after adjusting for inflation. The Multi-Asset Pooling Portfolio pursues an investment strategy involving a variety of asset classes that the Manager expects to outperform broad equity indices during periods of rising inflation. Under normal circumstances, the Multi-Asset Pooling Portfolio invests its assets principally in the following instruments that, in the judgment of the Manager, are affected directly or indirectly by the level and change in rate of inflation: inflation-protected fixed-income securities, such as TIPS and similar bonds issued by governments outside of the United States, commodities, equity securities, such
as commodity-related stocks, real estate securities, utility securities, infra-structure related securities, securities and derivatives linked to the price of other assets (such as commodities, stock indices and real estate), and currencies.
The Multi-Asset Pooling Portfolio may seek to gain exposure to physical commodities traded in the commodities markets through investments in a variety of derivative instruments, including investments in commodity index-linked notes. The Multi-Asset Pooling Portfolio seeks to gain exposure to commodities and commodities-related instruments and derivatives primarily through investments in AllianceBernstein Cayman Inflation Pooling Subsidiary, Ltd., a wholly-owned subsidiary of the Portfolio organized under the laws of the Cayman Islands. The Multi-Asset Pooling Portfolio limits its investment in the subsidiary to no more than 25% of its net assets.
BANK LOAN DEBT
The Short Duration Plus, the Intermediate Duration Portfolios and the Overlay
Portfolios may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between borrowers and one or more financial
institutions ("Lenders"). Such loans are often referred to as bank loan debt.
The Portfolios' investments in Loans are expected in most instances to be in
the form of participations in Loans ("Participations") and assignments of all
or a portion of Loans ("Assignments") from third parties. The lack of a liquid
secondary market for such securities may have an adverse impact on the value of
such securities and a Portfolio's ability to dispose of particular Assignments
or Participations when necessary to meet the Portfolio's liquidity needs in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower.
ILLIQUID SECURITIES
Each Portfolio will limit its investments in illiquid securities to 15% of its
net assets. Illiquid securities generally include (i) direct placements or
other securities for which there is no readily available market (e.g., when
market makers do not exist or will not entertain bids or offers),
(ii) over-the-counter options and assets used to cover over-the-counter
options, and (iii) repurchase agreements not terminable within seven days. Rule
144A securities that have legal or contractual restrictions on resale but have
a readily available market are not deemed illiquid. AllianceBernstein will
monitor the liquidity of each Portfolio's Rule 144A portfolio securities. A
Portfolio that invests in illiquid securities may not be able to sell such
securities and may not be able to realize their full value upon sale.
PREFERRED STOCK
Each Portfolio may invest in preferred stock. Preferred stock is subordinated
to any debt the issuer has outstanding. Accordingly, preferred stock dividends
are not paid until all debt obligations are first met. Preferred stock may be
subject to more fluctuations in market value, due to changes in market
participants' perceptions of the issuer's ability to continue to pay dividends,
than debt of the same issuer.
FOREIGN (NON-U.S.) SECURITIES
The equity securities in which the Non-U.S. Stock Portfolios and the Overlay
Portfolios may invest include common and preferred stocks, warrants and
convertible securities. These Portfolios may invest in foreign securities
directly or in the form of sponsored or unsponsored ADRs, GDRs or other similar
securities convertible into securities of foreign issuers without limitation.
ADRs are receipts typically issued by a U.S. bank or trust company that
evidence ownership of the underlying securities. GDRs are receipts typically
issued by a non-U.S. bank or trust company evidencing a similar arrangement.
The issuers of unsponsored ADRs 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 ADR. Depositary receipts
may not necessarily be denominated in the same currency as the underlying
securities into which they may be converted. 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.
FOREIGN (NON-U.S.) SECURITIES RISK: Investments in foreign securities entail significant risks in addition to those customarily associated with investing in U.S. securities. These risks include risks related to adverse market, economic, political and regulatory factors and social instability, all of which could disrupt the financial markets in which a Portfolio invests and adversely affect the value of the Portfolio's assets. These risks are heightened with respect to investments in emerging market countries. Investments in foreign securities are subject to the risk that the investment may be affected by foreign tax laws and restrictions on receiving investment proceeds from a foreign country. In general, since investments in foreign countries are not subject to the Securities and Exchange Commission ("SEC") or U.S. reporting requirements, there may be less publicly available information concerning foreign issuers of securities held by a Portfolio than will be available concerning U.S. companies. In addition, the enforcement of legal rights in foreign countries and against foreign governments may be difficult and costly and there may be special difficulties enforcing claims against foreign governments. National policies may also restrict investment opportunities. For example, there may be restrictions on investment in issuers or industries deemed sensitive to national interests.
OTHER FOREIGN INVESTMENT RISKS INCLUDE:
. the availability of less public information on issuers of securities
. less governmental supervision of brokers and issuers of securities
. lack of uniform accounting, auditing and financial-reporting standards
. settlement practices that differ from those in the U.S. and may result in delays or may not fully protect the Portfolios against loss or theft of assets
. the possibility of nationalization of a company or industry and expropriation or confiscatory taxation
. the imposition of foreign taxes
. high inflation and rapid fluctuations in inflation rates
. less developed legal structures governing private or foreign investment
Higher costs associated with foreign investing: Investments in foreign securities will also result in generally higher expenses due to:
. the costs of currency exchange
. higher brokerage commissions in certain foreign markets
. the expense of maintaining securities with foreign custodians
FOREIGN CURRENCY RISK: This is the risk that changes in foreign (non-U.S.) currency exchange rates may negatively affect the value of a Portfolio's investments or reduce the returns of a Portfolio. For example, the value of a Portfolio's investments in foreign securities and foreign currency positions may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar). Currency markets generally are not as regulated as securities markets. In addition, currency exchange rates may fluctuate significantly over short periods of time, causing a Portfolio's NAV to fluctuate. Currency exchange rates are determined by supply and demand in the foreign exchange markets, the relative merits of investments in different countries, actual or perceived changes in interest rates, and other complex factors. Currency exchange rates also can be affected unpredictably by intervention (or the failure to intervene) by U.S. or foreign governments or central banks or by currency controls or political developments.
It is possible that foreign governments will impose currency exchange control regulations or other restrictions that would prevent cash from being brought back to the U.S. Foreign governments may also intervene in currency markets or interpose registration/approval processes, which may adversely affect a Portfolio and your investment. Certain countries in which a Portfolio may invest are members of the European Union ("EU") and have adopted the Euro as their sole currency. A monetary and economic union on this scale has not been attempted before and there is uncertainty whether participating countries will remain committed to the EU.
Although forward contracts may be used to protect a Portfolio from adverse currency movements, they involve the risk that anticipated currency movements will not be accurately predicted and the Portfolio's total return could be adversely affected as a result.
DERIVATIVES
Each Portfolio may, but is not required to, use derivatives for hedging or risk
management purposes or as part of its investment strategies. Each Overlay
Portfolio intends to use derivatives to achieve its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index.
Derivatives can be used by investors such as the Portfolios to earn income and enhance returns, to hedge or adjust the risk profile of its investments, to replace more traditional direct investments and to obtain exposure to otherwise inaccessible markets. Each of the Portfolios is permitted to use derivatives for one or more of these purposes. A Portfolio may take a significant position in those derivatives that are within its investment policies if, in AllianceBernstein's judgment, this represents the most effective response to current or anticipated market conditions. There are four principal types of derivatives, including options, futures, forwards and swaps, each of which is described below. Derivatives may be (i) standardized, exchange-traded contracts or (ii) customized, privately negotiated contracts. Exchange-traded derivatives tend to be more liquid and subject to less credit risk than those that are privately negotiated.
A Portfolio's use of derivatives may involve risks that are different from, or possibly greater than, the risks associated with investing directly in securities or other more traditional instruments. These risks include the risk that the value of a derivative instrument may not correlate perfectly, or at all, with the value of the assets, reference rates, or indexes that they are designed to track. Other risks include the possible absence of a liquid secondary market for a particular instrument and possible exchange-imposed price fluctuation limits, either of which may make it difficult or impossible to close out a position when desired and the risk that the counterparty will not perform its obligations. Certain derivatives may have a leverage component and involve leverage risk. Adverse changes in the value or level of the underlying asset, note or index can result in a loss substantially greater than the Portfolio's investment (in some cases, the potential loss is unlimited).
The Portfolios' investments in derivatives may include, but are not limited to, the following:
. FORWARD CONTRACTS--A forward contract is an agreement that obligates one party to buy, and the other party to sell, a specific quantity of an underlying commodity or other tangible asset for an agreed upon price at a future date. A forward contract generally is settled by physical delivery of the commodity or tangible asset to an agreed-upon location (rather than settled by cash), rolled forward into a new forward contract or, in the case of a non-deliverable forward, by a cash payment at maturity. The Portfolios' investments in forward contracts may include the following:
- Forward Currency Exchange Contracts. A Portfolio may purchase or sell forward currency exchange contracts for hedging purposes to minimize the risk from adverse changes in the relationship between the U.S. Dollar and other currencies or for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions". A Portfolio, for example, may enter into a forward contract as a transaction hedge (to "lock in" the U.S. Dollar price of a non-U.S. Dollar security), as a position hedge (to protect the value of securities the Portfolio owns that are denominated in a foreign currency against substantial changes in the value of the foreign currency) or as a cross-hedge (to protect the value
of securities the Portfolio owns that are denominated in a foreign currency against substantial changes in the value of that foreign currency by entering into a forward contract for a different foreign currency that is expected to change in the same direction as the currency in which the securities are denominated).
. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A futures contract is a standardized, exchange-traded agreement that obligates the buyer to buy and the seller to sell a specified quantity of an underlying asset (or settle for cash the value of a contract based on an underlying asset, rate or index) at a specific price on the contract maturity date. Options on futures contracts are options that call for the delivery of futures contracts upon exercise. A Portfolio may purchase or sell futures contracts and options thereon to hedge against changes in interest rates, securities (through index futures or options) or currencies. Options on futures contracts written or purchased by the Fixed-Income Municipal Intermediate Duration Portfolios will be traded on U.S. exchanges and will be used only for hedging purposes or to manage the effective maturity or duration of fixed-income securities. The Non-U.S. Stock Portfolios and Overlay Portfolios may also purchase or sell futures contracts for foreign currencies or options thereon for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions".
. OPTIONS--An option is an agreement that, for a premium payment or fee, gives the option holder (the buyer) the right but not the obligation to buy (a "call option") or sell (a "put option") the underlying asset (or settle for cash an amount based on an underlying asset, rate, or index) at a specified price (the exercise price) during a period of time or on a specified date. Investments in options are considered speculative. A Portfolio may lose the premium paid for them if the price of the underlying security or other assets decreased or remained the same (in the case of a call option) or increased or remained the same (in the case of a put option). If a put or call option purchased by a Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. The Portfolios' investments in options include the following:
- Options on Foreign Currencies. The Portfolios may invest in options on foreign currencies that are privately negotiated or traded on U.S. or foreign exchanges for hedging purposes to protect against declines in the U.S. Dollar value of foreign currency denominated securities held by a Portfolio and against increases in the U.S. Dollar cost of securities to be acquired. The purchase of an option on a foreign currency may constitute an effective hedge against fluctuations in exchange rates, although if rates move adversely, a Portfolio may forfeit the entire amount of the premium plus related transaction costs. The Non-U.S. Stock Portfolios and the Overlay Portfolios may also invest in options on foreign currencies for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions".
- Options on Securities. A Portfolio may purchase or write a put or call option on securities. The Non-U.S. Stock Portfolios and the Fixed-Income Portfolios will write only covered options on securities, which means writing an option for securities the Portfolio owns. None of the Non-U.S. Stock Portfolios or Fixed-Income Portfolios will write any option if, immediately thereafter, the aggregate value of the Portfolio's securities subject to outstanding options would exceed 25% of its net assets.
- Options on Securities Indices. An option on a securities index is similar to an option on a security except that, rather than taking or making 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.
- A Portfolio may write put or call options on securities indices to, among other things, earn income. If the value of the chosen index declined below the exercise price of the put option, the Portfolio has the risk of loss of the amount of the difference between the exercise price and the closing level of the chosen index, which it would be required to pay to the buyer of the put option and which may not be offset by the premium it received upon sale of the put option. Similarly, if the value of the index is higher than the exercise price of the call option, the Portfolio has the risk of loss of the amount of the difference between the exercise price and the closing level of the chosen index, which may not be off set by the premium it received upon sale of the call option. If the decline or increase in the value securities index is significantly below or above the exercise price of the written option, the Portfolio could experience a substantial loss.
- Other Option Strategies. In an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of its portfolio from a decline in value, sometimes within certain ranges, a Portfolio may use option strategies such as the concurrent purchase of a call or put option, including on individual securities and stock indexes, futures contracts (including on individual securities and stock indexes) or shares of ETFs at one strike price and the writing of a call or put option on the same individual security, stock index, futures contract or ETF at a higher strike price in the case of a call option or at a lower strike price in the case of a put option. The maximum profit from this strategy would result for the call options from an increase in the value of the individual security, stock index, futures contract or ETF above the higher strike price or, for the put options, the decline in the value of the individual security, stock index, futures contract or ETF below the lower strike price. If the price of the individual security, stock index,
futures contract or ETF declines in the case of the call option, or increases in the case of the put option, the Portfolio has the risk of losing the entire amount paid for the call or put options.
. SWAPS--A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals (payment dates) based upon or calculated by reference to changes in specified prices or rates (e.g., interest rates in the case of interest rate swaps or currency exchange rates in the case of currency swaps) for a specified amount of an underlying asset (the "notional" principal amount). Except for currency swaps, as described below, the notional principal amount is used solely to calculate the payment stream, but is not exchanged. Rather, most swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments). Payments received by a Fixed-Income Municipal Portfolio from swap agreements will result in taxable income, either as ordinary income or capital gains, rather than tax-exempt income, which will increase the amount of taxable distributions received by shareholders. The Portfolios' investments in swap transactions include the following:
- Currency Swaps. The Non-U.S. Stock Portfolios, the Short Duration Plus Portfolio, the Intermediate Duration Portfolio and the Overlay Portfolios may invest in currency swaps for hedging purposes to protect against adverse changes in exchange rates between the U.S. Dollar and other currencies or for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions". Currency swaps involve the individually negotiated exchange by a Portfolio with another party of a series of payments in specified currencies. Actual principal amounts of currencies may be exchanged by the counterparties at the initiation, and again upon the termination, of the transaction. Therefore, the entire principal value of a currency swap is subject to the risk that the swap counterparty will default on its contractual delivery obligations. If there is a default by the counterparty to the transaction, the Portfolio will have contractual remedies under the transaction agreements.
- Total Return Swaps. A Portfolio may enter into total return swaps in order to take a "long" or "short" position with respect to an underlying asset. A total return swap involves commitments to pay interest in exchange for a market-linked return based on a notional amount of the underlying asset. Therefore, when a Portfolio enters into a total return swap, it is subject to the market price volatility of the underlying asset. To the extent that the total return of the security, group of securities or index underlying the swap exceeds or falls short of the offsetting interest obligation, the Portfolio will receive or make a payment to the counterparty.
- Interest Rate Swaps, Swaptions, Caps, and Floors. Interest rate swaps involve the exchange by a Portfolio with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating rate payments for fixed rate payments). Unless there is a counterparty default, the risk of loss to the Portfolio from interest rate swap transactions is limited to the net amount of interest payments that the Portfolio is contractually obligated to make. If the counterparty to an interest rate swap transaction defaults, the Portfolio's risk of loss consists of the net amount of interest payments that the Portfolio contractually is entitled to receive.
An option on a swap agreement, also called a "swaption", is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based "premium". A receiver swaption gives the owner the right to receive the total return of a specified asset reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
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 the 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. Caps and floors may be less liquid than swaps.
There is no limit on the amount of interest rate transactions that may be entered into by a Portfolio. The value of these transactions will fluctuate based on changes in interest rates. Interest rate swap, swaption, cap, and floor transactions may be used to preserve a return or spread on a particular investment or a portion of a Portfolio's portfolio or to protect against an increase in the price of securities a Portfolio anticipates purchasing at a later date. Interest rate swaps may also be used to leverage a Portfolio's investments by creating positions that are functionally similar to purchasing a municipal or other fixed-income security but may only require payments to a swap counterparty under certain circumstances and allow the Portfolio to efficiently increase (or decrease) its duration and income.
A Portfolio will enter into interest rate swap, cap or floor transactions only with counterparties whose debt securities (or whose guarantors' debt securities) are rated at least A (or the equivalent) by at least one nationally recognized rating organization and are on the Manager's approved list of swap counterparties for that Portfolio.
Each Fixed-Income Municipal Intermediate Duration Portfolio expects to enter into these transactions primarily for hedging purposes, which may include preserving a return or a spread on a particular investment or a portion of its portfolio or protecting against an increase in the
price of securities the Portfolio anticipates purchasing at a later date, and as a duration management technique. The Fixed-Income Municipal Intermediate Duration Portfolios do not intend to use these transactions in a speculative manner.
INFLATION (CPI) SWAPS. Each Portfolio may enter into inflation swap agreements. Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swap agreements may be used to protect the NAV of a Portfolio against an unexpected change in the rate of inflation measured by an inflation index. A Portfolio will enter into inflation swaps on a net basis. The net amount of the excess, if any, of the Portfolio's obligations over its entitlements with respect to each inflation swap will be accrued on a daily basis, and an amount of cash or liquid instruments having an aggregate NAV at least equal to the accrued excess will be segregated by the Portfolio. The values of inflation swap agreements are expected to change in response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and the rate of inflation. If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value of an inflation swap agreement. Additionally, payments received by a Portfolio from inflation swap agreements will result in taxable income, either as ordinary income or capital gains, rather than tax-exempt income, which will increase the amount of taxable distributions received by shareholders.
CREDIT DEFAULT SWAP AGREEMENTS. The "buyer" in a credit default swap contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract in return for a contingent payment upon the occurrence of a credit event with respect to an underlying reference obligation. Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or modified restructuring. A Portfolio may be either the buyer or seller in the transaction. As a seller, a Portfolio receives a fixed rate of income throughout the term of the contract, which typically is between one month and five years, provided that no credit event occurs. If a credit event occurs, a Portfolio typically must pay the contingent payment to the buyer, which will be either (i) the "par value" (face amount) of the reference obligation in which case the Portfolio will receive the reference obligation in return or (ii) an amount equal to the difference between the par value and the current market value of the reference obligation. The periodic payments previously received by the Portfolio, coupled with the value of any reference obligation received, may be less than the full amount it pays to the buyer, resulting in a loss to the Portfolio. If a Portfolio is a buyer and no credit event occurs, the Portfolio will lose its periodic stream of payments over the term of the contract. However, if a credit event occurs, the buyer typically receives full notional value for a reference obligation that may have little or no value.
Credit default swaps may involve greater risks than if a Portfolio had invested in the reference obligation directly. Credit default swaps are subject to general market risk, liquidity risk and credit risk.
A Portfolio will enter into credit default swap transactions only with counterparties whose debt securities (or whose guarantor's debt securities) are rated at least A (or the equivalent) by at least one nationally recognized statistical rating organization and are on the Manager's approved list of swap counterparties for that Portfolio.
A Portfolio may enter into a credit default swap that provides for settlement by physical delivery if, at the time of entering into the swap, such delivery would not result in the Portfolio investing more than 20% of its total assets in securities rated lower than A by Standard & Poor's, Fitch or Moody's. A subsequent deterioration of the credit quality of the underlying obligation of the credit default swap will not require the Portfolio to dispose of the swap.
OTHER DERIVATIVES AND STRATEGIES
- Currency Transactions. The Non-U.S. Stock Portfolios, the Short Duration
Plus Portfolio, the Intermediate Duration Portfolio and the Overlay
Portfolios may invest in non-U.S. Dollar-denominated securities on a
currency hedged or un-hedged basis. The Manager may actively manage a
Portfolio's currency exposures and may seek investment opportunities by
taking long or short positions in currencies through the use of
currency-related derivatives, including forward currency exchange contracts,
futures and options on futures, swaps and options. The Manager may enter
into currency transactions for investment opportunities when it anticipates
that a foreign currency will appreciate or depreciate in value but
securities denominated in that currency are not held by a Portfolio and do
not present attractive investment opportunities. Such transactions may also
be used when the Manager believes that it may be more efficient than a
direct investment in a foreign currency-denominated security. A Portfolio
may also conduct currency exchange contracts on a spot basis (i.e., for cash
at the spot rate prevailing in the currency exchange market for buying or
selling currencies).
- Synthetic Foreign Equity Securities. The Non-U.S. Stock Portfolios and the Overlay Portfolios may invest in different types of derivatives generally referred to as synthetic foreign equity securities. These securities may include international warrants or local access products. International warrants are financial instruments issued by banks or other financial institutions, which may or may not be traded on a foreign exchange. International warrants are a form of derivative security that may give holders the right to buy or sell an underlying security or a basket of securities representing an index from or to the issuer of the warrant for a particular price or may entitle holders to receive a cash payment relating to the value of the underlying security or index, in each case upon exercise by the Portfolio. Local access products are similar to options in that they are exercisable by the holder for an underlying security or a cash payment based upon the value of that security, but are generally exercisable over a longer term than typical
options. These types of instruments may be American style, which means that they can be exercised at any time on or before the expiration date of the international warrant, or European style, which means that they may be exercised only on the expiration date.
Other types of synthetic foreign equity securities in which a Portfolio may invest include covered warrants and low exercise price warrants. Covered warrants entitle the holder to purchase from the issuer, typically a financial institution, upon exercise, common stock of an international company or receive a cash payment (generally in U.S. Dollars). The issuer of the covered warrants usually owns the underlying security or has a mechanism, such as owning equity warrants on the underlying securities, through which it can obtain the securities. The cash payment is calculated according to a predetermined formula, which is generally based on the difference between the value of the underlying security on the date of exercise and the strike price. Low exercise price warrants are warrants with an exercise price that is very low relative to the market price of the underlying instrument at the time of issue (e.g., one cent or less). The buyer of a low exercise price warrant effectively pays the full value of the underlying common stock at the outset. In the case of any exercise of warrants, there may be a time delay between the time a holder of warrants gives instructions to exercise and the time the price of the common stock relating to exercise or the settlement date is determined, during which time the price of the underlying security could change significantly. In addition, the exercise or settlement date of the warrants may be affected by certain market disruption events, such as difficulties relating to the exchange of a local currency into U.S. Dollars, the imposition of capital controls by a local jurisdiction or changes in the laws relating to foreign investments. These events could lead to a change in the exercise date or settlement currency of the warrants, or postponement of the settlement date. In some cases, if the market disruption events continue for a certain period of time, the warrants may become worthless, resulting in a total loss of the purchase price of the warrants.
A Portfolio will acquire synthetic foreign equity securities issued by entities deemed to be creditworthy by the Manager, which will monitor the creditworthiness of the issuers on an ongoing basis. Investments in these instruments involve the risk that the issuer of the instrument may default on its obligation to deliver the underlying security or cash in lieu thereof. These instruments may also be subject to liquidity risk because there may be a limited secondary market for trading the warrants. They are also subject, like other investments in foreign securities, to foreign (non-U.S.) risk and currency risk.
COMMODITY-LINKED DERIVATIVE INSTRUMENTS
The Overlay Portfolios may invest in commodity-linked derivatives such as
commodity-linked structure notes, commodity index-linked securities and other
derivatives that provide exposure to the investment returns of the commodity
markets without direct investment in physical commodities or commodities
futures contracts. Commodities are assets such as oil, gas, industrial and
precious metals, livestock, and agricultural or meat products, or other items
that have tangible properties as compared to stocks and bonds, which are
financial instruments. The Manager may seek to provide exposure to various
commodities and commodity sectors.
The Overlay Portfolios may invest in commodity-linked notes that pay a return linked to the performance of a commodities index or basket of futures contracts with respect to all of the commodities in an index. In some cases, the return is based on a multiple of the performance of the relevant index or basket. The notes are derivative debt instruments with principal payments generally linked to the value of commodities, commodity futures contracts or the performance of commodity indices and interest and coupon payments pegged to a market-based interest rate, such as LIBOR or a bank's prime rate. The value of these notes will rise or fall in response to changes in the underlying commodity or related index or investment. These notes expose the Portfolios economically to movements in commodity prices.
The value of commodity-linked derivatives may be affected by a variety of factors, including, but not limited to, overall market movements and other factors affecting the value of particular industries or commodities, such as weather, disease, embargoes, acts of war or terrorism, or political and regulatory developments. The prices of commodity-linked derivatives may move in different directions than investments in traditional equity and debt securities when the value of those traditional securities is declining due to adverse economic conditions. For example, during periods of rising inflation, debt securities have historically tended to decline in value due to the general increase in prevailing interest rates. Conversely, during those same periods of rising inflation, the prices of certain commodities, such as oil and metals, have historically tended to increase. There is no guarantee that these investments will perform in that manner in the future and, at certain times, the price movements of commodity-linked derivatives have been parallel to those of debt and equity securities.
Commodities have historically tended to increase and decrease in value during different parts of the business cycle than financial assets. Nevertheless, at various times, commodities prices may move in tandem with the prices of financial assets and thus may not provide overall portfolio diversification benefits.
STRUCTURED PRODUCTS
A Portfolio may invest in certain hybrid derivatives-type investments that
combine a traditional stock or bond with, for example, a futures contract or an
option. These investments include structured notes and indexed securities,
commodity-linked notes and commodity index-linked notes and credit-linked
securities. The performance of the structured product, which is generally a
fixed-income security, is tied (positively or negatively) to the price or
prices of an unrelated reference indicator such as a security or basket of
securities, currencies, commodities, a securities or commodities index or a
credit
default swap or other kinds of swaps. The structured product may not pay interest or protect the principal invested. The structured product or its interest rate may be a multiple of the reference indicator and, as a result, may be leveraged and move (up or down) more rapidly than the reference indicator. Investments in structured products may provide a more efficient and less expensive means of investing in underlying securities. commodities or other derivatives, but may potentially be more volatile, less liquid and carry greater market risk than investments in traditional securities. The purchase of a structured product also exposes a Portfolio to the credit risk of the structured product.
Structured notes are derivative debt instruments. The interest rate or principal of these notes are determined by reference to an unrelated indicator (for example, a currency, security, or indices thereof) unlike a typical note where the borrower agrees to make fixed or floating interest payments and to pay a fixed sum at maturity, Indexed securities may include structured notes as well as securities other than debt securities, the interest or principal of which is determined by an unrelated indicator.
Commodity-linked notes and commodity index-linked notes provide exposure to the commodities markets. These are derivative securities with one or more commodity-linked components that have payment features similar to commodities futures contracts, commodity options, commodity indices or similar instruments. Commodity-linked products may be either equity or debt securities, leveraged or unleveraged, and have both security and commodity-like characteristics. A portion of the value of these instruments may be derived from the value of a commodity, futures contract, index or other economic variable.
A Portfolio may also invest in certain hybrid derivatives-type investments that combine a traditional bond with certain derivatives such as a credit default swap, an interest rate swap or other securities. These investments include credit-linked securities. The issuers of these securities frequently are limited purpose trusts or other special purpose vehicles that invest in a derivative instrument or basket of derivative instruments in order to provide exposure to certain fixed-income markets. For instance, a Portfolio may invest in credit-linked securities as a cash management tool to gain exposure to a certain market or to remain fully invested when more traditional income-producing securities are not available. The performance of the structured product, which is generally a fixed-income security, is linked to the receipt of payments from the counterparties to the derivatives instruments or other securities. A Portfolio's investments in credit-linked securities are indirectly subject to the risks associated with derivative instruments, including among others credit risk, default risk, counterparty risk, interest rate risk and leverage risk. These securities are generally structured as Rule 144A securities so that they may be freely traded among institutional buyers. However, changes in the market for credit-linked securities or the availability of willing buyers may result in the securities becoming illiquid.
None of the Non-U.S. Stock Portfolios or the Fixed Income Portfolios will invest more than 20% of its total assets in structured products.
REAL ESTATE INVESTMENT TRUSTS
The Non-U.S. Stock Portfolios and the Overlay Portfolios may invest in Real
Estate Investment Trusts ("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 Portfolios,
REITs in the United States are not taxed on income distributed to shareholders
provided they comply with several requirements of the Internal Revenue Code of
1986, as amended (the "Code"). Each Portfolio will indirectly bear its
proportionate share of expenses incurred by REITs in which the Portfolio
invests in addition to the expenses incurred directly by the Portfolio.
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, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation.
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 had more price volatility than larger capitalization stocks.
REITs are 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) also are 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.
FORWARD COMMITMENTS
Each Portfolio may purchase or sell securities on a forward commitment basis.
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 or approval of a proposed financing by appropriate authorities (i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but payment for and delivery of the securities take place at a later date. 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. There is the risk of loss if the value of either a purchased security declines before the settlement date or the security sold increases before the settlement date. The use of forward commitments helps a Portfolio to protect against anticipated changes in interest rates and prices.
REPURCHASE AGREEMENTS AND BUY/SELL BACK TRANSACTIONS
Each Portfolio may enter into repurchase agreements in which a Portfolio
purchases a security from a bank or broker-dealer, which agrees to repurchase
it from the Portfolio at an agreed-upon future date, normally a day or a few
days later. The purchase and repurchase obligations are transacted under one
document. 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 Portfolio to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature. If the bank or broker-dealer defaults on its repurchase
obligation, a Portfolio would suffer a loss to the extent that the proceeds
from the sale of the security were less than the repurchase price.
A Portfolio may enter into buy/sell back transactions, which are similar to repurchase agreements. In this type of transaction, a Portfolio enters a trade to buy securities at one price and simultaneously enters a trade to sell the same securities at another price on a specified date. Similar to a repurchase agreement, the repurchase price is higher than the sale price and reflects current interest rates. Unlike a repurchase agreement, however, the buy/sell back transaction is considered two separate transactions.
REVERSE REPURCHASE AGREEMENTS
The Portfolios may enter into reverse repurchase agreements with banks and
broker-dealers from time to time. In a reverse repurchase transaction, it is
the Portfolio, rather than the other party to the transaction, that sells the
securities and simultaneously agrees to repurchase them at a price reflecting
an agreed-upon rate of interest. A Portfolio may not enter into reverse
repurchase agreements if its obligations thereunder would be in excess of one
third of the Portfolio's total assets, less liabilities other than obligations
under such reverse repurchase agreements. During the time a reverse repurchase
agreement is outstanding, each Portfolio that has entered into such an
agreement maintains liquid assets in a segregated account with its custodian
having a value at least equal to the repurchase price under the reverse
repurchase agreement. Reverse repurchase agreements may create leverage,
increasing a Portfolio's opportunity for gain and risk of loss for a given
fluctuation in the value of the Portfolio's assets. There may also be risks of
delay in recovery and, in some cases, even loss of rights in the underlying
securities, should the opposite party fail financially.
SHORT SALES
The Non-U.S. Stock Portfolios, the Short Duration New York Municipal Portfolio,
the Short Duration California Municipal Portfolio, the Short Duration
Diversified Municipal Portfolio and the Overlay Portfolios may engage in short
sales. A short sale is effected by selling a security that a Portfolio does not
own, or, if the Portfolio does own such security, it is not to be delivered
upon consummation of the sale. The Non-U.S. Stock Portfolios, the Short
Duration New York Municipal Portfolio, the Short Duration California Municipal
Portfolio and the Short Duration Diversified Municipal Portfolio may only make
short sales "against the box." A short sale is "against the box" to the extent
that a Portfolio contemporaneously owns or has the right to obtain securities
identical to those sold short without payment. A Portfolio may utilize short
selling in order to attempt both to protect its portfolio against the effects
of potential downtrends in the securities markets and as a means of enhancing
its overall performance.
A short sale of a security involves the risk that instead of declining, the price of the security sold short will rise. If the price of the security sold short increases between the time of a short sale and the time a Portfolio replaces the borrowed security, the Portfolio will incur a loss; conversely, if the price declines, the Portfolio will realize a gain. The short sale of securities involves the possibility of a theoretically unlimited loss since there is a theoretically unlimited potential for the market price of the security sold short to increase.
DOLLAR ROLLS
Each of the Fixed-Income Portfolios and the Overlay Portfolios may enter into
dollar rolls. Dollar rolls involve sales by a Portfolio of securities for
delivery in the current month and the Portfolio's simultaneously contracting to
repurchase substantially similar (same type and coupon) securities on a
specified future date. During the roll period, the Portfolio forgoes principal
and interest paid on the securities. The Portfolio is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. Dollar rolls involve the risk
that the market value of the securities a Portfolio is obligated to repurchase
under the agreement may decline below the repurchase price. Each of the
Fixed-Income Portfolios and the Overlay Portfolios may also enter into a type
of dollar roll known as a "fee roll." In a fee roll, a Portfolio is compensated
for entering into the commitment to repurchase by "fee income," which is
received when the Portfolio enters into the commitment. Such fee income is
recorded as deferred income and accrued by the Portfolio over the roll period.
Dollar rolls may be considered to be borrowings by a Portfolio. When a
Portfolio engages in a dollar roll, it is exposed to loss both on the
investment of the cash proceeds of the sale and on the securities it has agreed
to purchase.
MORTGAGE RELATED SECURITIES
Each of the Fixed-Income Taxable Portfolios and the Overlay Portfolios may
invest in mortgage-related securities. Mortgage-related securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals,
stripped mortgage-backed securities ("SMBSs") and other securities that
directly or indirectly represent a participation in or are secured by and
payable from mortgage loans on real property. These securities may be issued or
guaranteed by the U.S. Government or one of its sponsored entities or may be
issued by private organizations.
The value of mortgage-related securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Portfolio to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Portfolio may not be able to realize the rate of return it expected.
One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or "IO" class) while the other class will receive all of the principal (the principal-only, or "PO" class). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the Portfolio's yield to maturity from these securities.
NO GOVERNMENT GUARANTEE
Investments in the Portfolios are not insured by the U.S. Government.
While securities issued by the U.S. Treasury and some U.S. agency securities are backed by the U.S. Government, other U.S. agency securities are backed only by the credit of the issuing agency or instrumentality. For example, securities issued by Government National Mortgage Association ("GNMA" or "Ginnie Mae") are backed by the United States while securities issued by Freddie Mac and Fannie Mae are backed only by the credit of Freddie Mac and Fannie Mae, respectively. However, some issuers of agency securities may have the right to borrow from the U.S. Treasury to meet their obligations, such as the U.S. Postal Service.
On September 7, 2008, due to the value of Freddie Mac's and Fannie Mae's securities falling sharply and concerns that the firms did not have sufficient capital to offset losses resulting from the mortgage crisis, the Federal Housing Finance Agency placed Freddie Mac and Fannie Mae into conservatorship. The U.S. Government also took steps to provide additional financial support to Freddie Mac and Fannie Mae. Although the U.S. Government or its agencies currently provide financial support to such entities, no assurance can be given that they will always do so. The U.S. Government and its agencies and instrumentalities do not guarantee the market value of their securities; consequently, the value of such securities will fluctuate.
INVESTMENTS IN LOWER-RATED SECURITIES
Lower-rated securities, i.e., those rated Ba and lower by Moody's or BB and
lower by S&P and Fitch (commonly known as "junk bonds"), are subject to greater
risk of loss of principal and interest than higher-rated securities. They also
are generally considered to be subject to greater market risk than higher-rated
securities. The capacity of issuers of lower-rated securities to pay interest
and repay principal is more likely to weaken than is that of issuers of
higher-rated securities in times of deteriorating economic conditions or rising
interest rates. In addition, lower-rated securities may be more susceptible to
real or perceived adverse economic conditions than investment-grade securities.
The market for lower-rated securities may be less liquid 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 Portfolio may experience difficulty in valuing such securities and, in turn, the Portfolio's assets.
The Manager will try to reduce the risk inherent in investment in lower-rated securities through credit analysis, diversification, attention to current developments and trends in interest rates, and economic and political conditions. There can, however, be no assurance that losses will not occur. Since the risk of default is higher for lower-rated securities, the Manager's research and credit analysis are a correspondingly more important aspect of its program for managing a Portfolio's securities than would be the case if a Portfolio did not invest in lower-rated securities. In considering investments for a Portfolio, the Manager will attempt to identify issuers of lower-rated securities whose financial conditions are adequate to meet future obligations, have improved, or are expected to improve in the future.
UNRATED SECURITIES
The Manager also will consider investments in unrated securities for a
Portfolio when the Manager believes that the financial condition of the issuers
of the securities, or the protection afforded by the terms of the securities
themselves, limits the risk to the Portfolio to a degree comparable to rated
securities that are consistent with the Portfolio's objective and policies.
BORROWING AND LEVERAGE
The Portfolios may use borrowings for investment purposes subject to the limit
imposed by the 1940 Act, which is up to 33 1/3% of a Portfolio's assets.
Borrowings by a Portfolio result in leveraging of the Portfolio's shares. The
Portfolios may also use leverage for investment transactions by entering into
transactions such as reverse repurchase agreements, forward contracts and
dollar rolls. This means that a Portfolio uses cash made available during the
term of these transactions to make investments in other fixed-income securities.
Utilization of leverage, which is usually considered speculative, involves certain risks to a Portfolio's shareholders. These include a higher volatility of the net asset value of a Portfolio's shares and the relatively greater effect on the net asset value of the shares. So long as a Portfolio is able to realize a net return on its investment portfolio that is higher than the interest expense paid on borrowings or the carrying costs of leveraged transactions, the effect of leverage will be to cause the Portfolio's shareholders to realize a higher current net investment income than if the Portfolio were not leveraged. If the interest expense on borrowings or the carrying costs of leveraged transactions approaches the net return on a Portfolio's investment portfolio, the benefit of leverage to the Portfolio's shareholders will be reduced. If the interest expense on borrowings or the carrying costs of leveraged transactions were to exceed the net return to shareholders, a Portfolio's use of leverage would result in a lower rate of return. Similarly, the effect of leverage in a declining market could be a greater decrease in net asset value per share. If a Portfolio's current investment income were not sufficient to meet the interest expense on borrowing or the carrying costs of leveraged transactions or it did not have enough cash available to pay principal or interest, it could be necessary for the Portfolio to liquidate certain of its investments thereby reducing the net asset value of a Portfolio's shares. A Portfolio may reduce the degree to which it is leveraged by repaying amounts borrowed.
NON-DIVERSIFIED STATUS
Each of the Short-Duration New York Municipal Portfolio, Short-Duration
California Municipal Portfolio, New York Municipal Portfolio and California
Municipal Portfolio (the "State Portfolios") is a "non-diversified" investment
company, which means the Portfolio may invest more of its assets in a
relatively smaller number of issuers. Because each State Portfolio will
normally invest solely or substantially in municipal securities of a particular
state, it is more susceptible to local risk factors than a geographically
diversified municipal securities portfolio. These risks arise from the
financial condition of a particular state and its municipalities. If state or
local governmental entities are unable to meet their financial obligations, the
income derived by the State Portfolios, their ability to preserve or realize
appreciation of their portfolio assets and their liquidity could be impaired.
Each Portfolio's SAI provides specific information about the state in which a
Portfolio invests.
FUTURE DEVELOPMENTS
A Portfolio may, following written notice to its shareholders, take advantage
of other investment practices that are not currently contemplated for use by
the Portfolio, or are not available but may yet be developed, to the extent
such investment practices are consistent with the Portfolio's investment
objective and legally permissible for the Portfolio. Such investment practices,
if they arise, may involve risks that exceed those involved in the activities
described above.
PORTFOLIO HOLDINGS
Each Portfolio's SAI includes a description of the policies and procedures that
apply to disclosure of the Portfolios' portfolio holdings.
TEMPORARY DEFENSIVE POSITIONS
Under exceptional conditions abroad or when the Manager believes that economic
or market conditions warrant, any of the Non-U.S. Stock Portfolios may
temporarily, for defensive purposes, invest part or all of its portfolio in
U.S. Government obligations or investment-grade debt or equity securities of
U.S. issuers, or may hold cash.
In attempting to respond to adverse market, economic, political, or other conditions, each Fixed-Income Municipal Portfolio may invest without limit in municipal securities other than those described above that are in all other respects consistent with the Portfolio's investment policies. For temporary defensive purposes, each Portfolio also may invest without limit in high-quality municipal notes or variable rate demand obligations, or in taxable cash equivalents. When a Portfolio is investing for temporary defensive purposes, it is not pursuing its investment goal.
CHANGING THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS; WHEN
SHAREHOLDER APPROVAL IS REQUIRED
A fundamental investment objective or policy cannot be changed without
shareholder approval. As a fundamental investment policy, under normal
circumstances, each Fixed-Income Municipal Portfolio will invest no less than
80% of its net assets in municipal securities. Except as noted, all other
investment objectives and policies of the Portfolios are not fundamental and
thus may be changed without shareholder approval. Under normal circumstances,
shareholders will receive at least 60 days' prior written notice before any
change to the investment objectives of any Portfolio is implemented.
INVESTMENT POLICIES AND LIMITATIONS APPLY AT TIME OF PURCHASE ONLY Unless otherwise specified, the policies and limitations discussed in this Prospectus apply at the time an instrument is purchased. Thus, a change of circumstances will not require the sale of an investment if it was otherwise properly purchased.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Portfolio is included in the SUMMARY
INFORMATION section as well as the FINANCIAL HIGHLIGHTS section. The Overlay
Portfolios' investment strategies will result in high portfolio turnover. The
Portfolios generally buy portfolio securities with the intention of holding
them for investment. However, when market conditions or other circumstances
warrant, securities may be purchased and sold without regard to the length of
time held. From time to time, the Portfolios may engage in active short-term
trading to benefit from yield disparities among different issues of municipal
securities (in the case of the Fixed-Income Municipal Portfolios), to seek
short-term profits during periods of fluctuating interest rates, or for other
reasons. This trading will increase a Portfolio's rate of turnover and the
incidence of short-term capital gain taxable as ordinary income. A higher rate
of portfolio turnover increases transaction costs, which must be borne by a
Portfolio and its shareholders.
This section discusses how to buy, sell or redeem, or exchange different classes of shares of a Portfolio that are offered in this Prospectus. The share class(es) offered by the Portfolios through this Prospectus are available to certain private clients and institutional clients of the Manager. For certain Portfolios, different share classes are available to retail investors and offered through separate prospectuses.
HOW TO BUY SHARES
MINIMUM INVESTMENTS
Except as otherwise provided, the minimum initial investment in any of the
Non-U.S. Stock Portfolios and the Fixed-Income Portfolios of the Sanford C.
Bernstein Fund, Inc. ("SCB" or the "Fund") is $25,000. Except as otherwise
provided, the minimum initial investment in Class 1 shares of the Overlay
Portfolios is $25,000, and the minimum initial investment in Class 2 shares of
the Overlay Portfolios is $1,500,000. Minimum initial investments are measured
across all Overlay Portfolios in the aggregate. There is no minimum amount for
subsequent investments in the same Portfolio although SCB reserves the right to
impose a minimum investment amount. For shareholders who have met the initial
minimum investment requirement in a Fixed-Income Portfolio, the minimum
subsequent investment in any other Fixed-Income Portfolio is $5,000. With
respect to the Non-U.S. Stock Portfolios, the Fixed-Income Portfolios and Class
1 of the Overlay Portfolios, for Uniform Gifts to Minors Act/Uniform Transfers
to Minors Act accounts, the minimum initial investment is $20,000. The minimum
initial investment in any Portfolio for employees of the Manager and its
subsidiaries and their immediate families, as well as Directors of the
Portfolios, is $5,000; an account maintenance fee will not be charged to these
accounts. There is no minimum amount for reinvestment of dividends and
distributions declared by a Portfolio in the shares of that Portfolio.
Unless you inform us otherwise, in January and June of each year, the cash balances in any account carried by Bernstein LLC which is invested solely in a single Portfolio (including the discretionary investment management accounts of the Manager) will be invested in the same Portfolio without regard to the minimum investment requirement.
For clients of Bernstein's investment-management services, Bernstein may, at a client's request, maintain a specified percentage of assets in one or more of the Portfolios of SCB or vary the percentage based on Bernstein's opinion of the relative allocation to the Portfolios. In keeping with these client mandates or for tax considerations, Bernstein may, without additional instructions from the client, purchase shares of any Portfolio from time to time.
These purchases and sales by Bernstein will be subject to the following minimum investment requirements:
. initial purchases of shares of the Portfolios (other than the Emerging Markets Portfolio) will be subject to the initial minimum investment requirements specified above, but the subsequent minimum investment requirements may be waived;
. initial purchases of shares of the Emerging Markets Portfolio will be subject to a minimum investment requirement of $10,000; and
. Bernstein may, in its discretion, waive the initial minimum investment requirement in certain circumstances.
Any purchases and sales of shares of the Emerging Markets Portfolio will incur a portfolio transaction fee on purchases and redemptions. The Emerging Markets Portfolio assesses a portfolio transaction fee on purchases of Portfolio shares equal to 1% of the dollar amount invested in the Portfolio. The portfolio transaction fee on purchases applies to an initial investment in the Emerging Markets Portfolio and to all subsequent purchases, but not to reinvested dividends or capital gains distributions. The portfolio transaction fee on purchases is deducted automatically from the amount invested; it cannot be paid separately. The Emerging Markets Portfolio also assesses a portfolio transaction fee on redemptions of Portfolio shares equal to 1% of the dollar amount redeemed from the Portfolio (including redemptions made by exchanging shares of the Emerging Markets Portfolio for shares of other Portfolios). The portfolio transaction fee on redemptions is deducted from redemption or exchange proceeds. The portfolio transaction fees on purchases and redemptions are received by the Emerging Markets Portfolio, not by the Manager, and are neither sales loads nor contingent deferred sales loads.
The purpose of the portfolio transaction fees discussed above is to allocate transaction costs associated with purchases and redemptions to the investors making those purchases and redemptions, not to other shareholders. The Emerging Markets Portfolio, unlike the other Portfolios of SCB, imposes transaction fees because transaction costs incurred when purchasing or selling stocks of companies in emerging-market countries are considerably higher than those incurred in either the United States or other developed countries. The portfolio transaction fees reflect the Manager's estimate of the brokerage and other transaction costs that the Emerging Markets Portfolio incurs as a result of purchases or redemptions. Without the fees, the Emerging Markets Portfolio would not be reimbursed for these transaction costs, resulting in reduced investment performance for all shareholders of the Portfolio. With the fees, the transaction costs occasioned by purchases or sales of shares of the Emerging Markets Portfolio are borne not by existing shareholders, but by the investors making the purchases and redemptions.
PROCEDURES
Generally, to purchase shares, you must open a discretionary account with a
Bernstein advisor (unless you currently have an account with us) and pay for
the requested shares. Certain non-discretionary accounts may also invest in the
Portfolios,
including but not limited to, non-discretionary accounts held by employees and existing investors in the Portfolios. With respect to discretionary accounts, Bernstein has the authority and responsibility to formulate an investment strategy on your behalf, including which securities to buy and sell, when to buy and sell, and in what amounts, in accordance with agreed-upon objectives. Procedures relating to discretionary accounts are outlined in the Bernstein Investment-Management Services and Policies brochure available on Bernstein's website at www.bernstein.com. Payment may be made by wire transfer or check. Unless waived, bank or certified checks are required if you are not an investment-management client of Bernstein. All checks should be made payable to the particular Portfolio in which you are purchasing shares. Payment must be made in U.S. Dollars. All purchase orders will be confirmed in writing.
The share price you pay will depend on when your order is received in proper form. Orders received by the Portfolio Closing Time, which is the close of regular trading on any day the New York Stock Exchange (the "Exchange") is open (ordinarily 4:00 p.m. Eastern time, but sometimes earlier, as in the case of scheduled half-day trading or unscheduled suspensions of trading), on any business day will receive the offering price determined as of the closing time that day. Orders received after the close of regular trading will receive the next business day's price. With respect to non-discretionary accounts, if no indication is made to the contrary, dividends and distributions payable by each Portfolio are automatically reinvested in additional shares of that Portfolio at the net asset value on the reinvestment date.
Each Fixed-Income Portfolio or Overlay Portfolio may, at its sole option, accept securities as payment for shares if the Manager believes that the securities are appropriate investments for the Portfolio. The securities are valued by the method described under "Pricing Portfolio Shares" above as of the date the Portfolio receives the securities and corresponding documentation necessary to transfer the securities to the Portfolio. This is a taxable transaction to the shareholder.
If you purchase shares through broker-dealers, banks or other financial institutions, they may impose fees and conditions on you that are not described in this Prospectus. Each Portfolio has arrangements with certain broker-dealers, banks and other financial institutions such that orders through these entities are considered received when the entity receives the order in good form together with the purchase price of the shares ordered. The order will be priced at the Portfolio's NAV computed after acceptance by these entities. The entity is responsible for transmitting the order to the Portfolio.
A Portfolio is required by law to obtain, verify and record certain personal information from you or persons on your behalf in order to establish an account. Required information includes name, date of birth, permanent residential address or business address and taxpayer identification number (for most investors, your social security number). A Portfolio may also ask to see other identifying documents. If you do not provide the information, the Portfolio will not be able to open your account. If a Portfolio is unable to verify your identity, or that of another person(s) authorized to act on your behalf, or if the Portfolio believes it has identified potentially criminal activity, the Portfolio reserves the right to take action as it deems appropriate or as required by law, which may include closing your account. If you are not a U.S. citizen or Resident Alien, your account must be affiliated with a FINRA member firm.
A Portfolio is required to withhold 28% of taxable dividends, capital gains distributions, and redemptions paid to any shareholder who has not provided the Portfolio with his or her certified taxpayer identification number. To avoid this, you must provide your correct tax identification number (social security number for most investors) on your Mutual Fund Application.
A Portfolio may refuse any order to purchase shares. The Portfolios reserve the right to suspend the sale of their shares to the public in response to conditions in the securities markets or for other reasons.
TRANSACTION FEES: As discussed above, if you purchase shares of the Emerging Markets Portfolio, you will pay to this Portfolio a transaction fee of 1.00% of the amount invested.
HOW TO EXCHANGE SHARES
You may exchange your shares in a Portfolio, including Class 1 shares of the
Overlay Portfolios, of SCB for shares in any other Portfolio, including Class 1
shares of the Overlay Portfolios, of SCB. You may exchange your Class 2 shares
in any Overlay Portfolio for shares of the Intermediate Duration Institutional
Portfolio of Sanford C. Bernstein Fund II, Inc. After proper receipt of the
exchange request in good order, exchanges of shares are made at the next
determined respective NAVs of the shares of each Portfolio. Exchanges are
subject to the minimum investment requirements of the Portfolio into which the
exchange is being made. Each Portfolio reserves the right to reject any
exchange of shares. Shares purchased through broker-dealers, banks or other
financial institutions may be exchanged through such entities.
On any exchanges of other Portfolio shares for shares of the Emerging Markets Portfolio, shareholders will be charged the portfolio transaction fee of 1% of the dollar amount exchanged; on any exchanges of shares of the Emerging Markets Portfolio for other Portfolio shares, shareholders will be charged the 1% redemption fee. See the "Emerging Markets Portfolio" section above for additional information.
The exchange privilege is available only in states where the exchange may legally be made. While each Portfolio plans to maintain this exchange policy, changes to this policy may be made upon 90 days' prior written notice to shareholders.
For shareholders subject to federal income taxes, an exchange constitutes a taxable transaction upon which a gain or loss may be realized. See "Dividends, Distributions and Taxes" below.
HOW TO SELL OR REDEEM SHARES
You may sell your shares of the Portfolios by sending a request to Bernstein
LLC, along with duly endorsed share certificates, if issued. Orders for
redemption given to a bank, broker-dealer
or financial institution authorized by a Portfolio are considered received when such third party receives a written request, accompanied by duly endorsed share certificates, if issued. The bank, broker-dealer or other financial institution is responsible for transmitting the order to each Portfolio.
Your signature must appear on your written redemption order and must be guaranteed by a financial institution that meets each Portfolio's requirements (such as a commercial bank that is a member of the Federal Deposit Insurance Corporation, a trust company, a member firm of a domestic securities exchange or other institution). An authorized person at the guarantor institution must sign the guarantee and "Signature Guaranteed" must appear with the signature. Signature guarantees by notaries or institutions that do not provide reimbursement in the case of fraud are not acceptable. Signature guarantees may be waived by each Portfolio in certain instances. Each Portfolio may waive the requirement that a redemption request must be in writing. Each Portfolio may request further documentation from corporations, executors, administrators, trustees or guardians.
The Manager will normally make payment to you of your sales proceeds by check within seven days of receipt of your sell order in proper form and any issued share certificates. The check will be sent to you at your address on record with a Portfolio unless prior other instructions are on file. If you are a client of Bernstein's investment advisory services, the sales proceeds will be held in your account with Bernstein unless you have previously provided alternative written instructions. If you redeem shares through an authorized bank, broker-dealer or other financial institution, unless otherwise instructed the proceeds will be sent to your brokerage account within seven days. Your broker may charge a separate or additional fee for sales of Portfolio shares. The cost of wire transfers will be borne by the shareholder. No interest will accumulate on amounts represented by uncashed distribution or sales proceeds checks.
The price you will receive when you sell your shares will depend on when a Portfolio or the authorized third-party bank, broker-dealer or other financial institution receives your sell order in proper form. Orders received at or prior to the Portfolio Closing Time will receive the offering price determined as of the closing time that day. Orders received after the close of regular trading will receive the next business day's price.
When you sell your shares, you may receive more or less than what you paid for them. Any capital gain or loss realized on any sale of Portfolio shares is subject to federal income taxes.
For additional information, see "Dividends, Distributions and Taxes" below.
If you are selling shares recently purchased with a check, the Manager may delay sending you the proceeds for up to 15 days until your check clears. This delay may be avoided if the shares were originally purchased by certified or bank check or by wire transfer.
TRANSACTION FEES UPON REDEMPTION: You will be charged a 1% redemption fee upon the sale of shares of the Emerging Markets Portfolio that will be deducted from the proceeds of the sale and paid to the Portfolio. This transaction fee is payable only by investors in this Portfolio and is charged because of the additional costs involved in the purchase and sale of these shares. For more information, see the "Emerging Markets Portfolio" section above.
RESTRICTIONS ON SALES: There may be times during which you may not be able to sell your shares or the Manager may delay payment of the proceeds for longer than seven days such as when the Exchange is closed (other than for customary weekend or holiday closings), when trading on the Exchange is restricted, an emergency situation exists when it is not reasonably practicable for a Portfolio to determine its NAV or to sell its investments, or for such other periods as the SEC may, by order, permit.
SALE IN-KIND: Each Portfolio normally pays proceeds of a sale of Portfolio shares in cash. However, each of the Portfolios has reserved the right to pay the sale price in part by a distribution in-kind of securities in lieu of cash. If payment is made in-kind, you may incur brokerage commissions if you elect to sell the securities for cash. For more information, see the SAI.
AUTOMATIC SALE OF YOUR SHARES--FOR ALL PORTFOLIOS, INCLUDING CLASS 1 SHARES OF THE OVERLAY PORTFOLIOS: Under certain circumstances, a Portfolio may redeem your shares without your consent. Maintaining small shareholder accounts is costly. Accordingly, if you make a sale that reduces the value of your account to less than $1,000, the Manager may, on at least 60 days' prior written notice, sell your remaining shares in that Portfolio and close your account. The Manager will not close your account if you increase your account balance to $1,000 during the 60-day notice period.
AUTOMATIC SALE OF YOUR SHARES--CLASS 2 SHARES OF THE OVERLAY PORTFOLIOS: Under certain circumstances, a Portfolio may redeem your shares without your consent. Maintaining small shareholder accounts is costly. Accordingly, if you make a sale that reduces the value of your account to less than $500,000, the Manager may, on at least 60 days' prior written notice, sell your remaining shares in the Portfolio and close your account. The Manager will not close your account if you increase your account balance to $500,000 during the 60-day notice period.
SYSTEMATIC WITHDRAWAL PLAN: A systematic withdrawal plan enables shareholders
to sell shares automatically at regular monthly intervals. In general, a
systematic withdrawal plan is available only to shareholders who own book-entry
shares worth $25,000 or more. The proceeds of these sales will be sent directly
to you or your designee. The use of this service is at each Portfolio's
discretion. For further information, call your Bernstein advisor at
(212) 486-5800.
FREQUENT PURCHASES AND REDEMPTIONS OF PORTFOLIO SHARES
The Board has adopted policies and procedures designed to detect and deter
frequent purchases and redemptions of Portfolio shares or excessive or
short-term trading that may disadvantage long-term Portfolio shareholders.
These policies are described below. The Portfolios reserve the right to
restrict, reject or cancel, without any prior notice, any purchase or exchange
order for any reason, including any purchase or exchange order accepted by any
shareholder's financial intermediary.
RISKS ASSOCIATED WITH EXCESSIVE OR SHORT-TERM TRADING GENERALLY. While the Portfolios will try to prevent market timing by utilizing the procedures described below, these procedures may not be successful in identifying or stopping excessive or short-term trading in all circumstances. By realizing profits through short-term trading, shareholders that engage in rapid purchases and sales or exchanges of a Portfolio's shares dilute the value of shares held by long-term shareholders. Volatility resulting from excessive purchases and sales or exchanges of Portfolio shares, especially involving large dollar amounts, may disrupt efficient portfolio management and cause each Portfolio to sell shares at inopportune times to raise cash to accommodate redemptions relating to short-term trading activity. In particular, a Portfolio may have difficulty implementing its long-term investment strategies if it is forced to maintain a higher level of its assets in cash to accommodate significant short-term trading activity. In addition, a Portfolio may incur increased administrative and other expenses due to excessive or short-term trading, including increased brokerage costs and realization of taxable capital gains.
A Portfolio that invests significantly in securities of foreign issuers may be particularly susceptible to short-term trading strategies. This is because securities of foreign issuers are typically traded on markets that close well before the Portfolio Closing Time, which gives rise to the possibility that developments may have occurred in the interim that would affect the value of these securities. The time zone differences among international stock markets can allow a shareholder engaging in a short-term trading strategy to exploit differences in Portfolio share prices that are based on closing prices of securities of foreign issuers established some time before a Portfolio calculates its own share price (referred to as "time zone arbitrage"). The Portfolios have procedures, referred to as fair value pricing, designed to adjust closing market prices of foreign securities to reflect what is believed to be the fair value of those securities at the time a Portfolio calculates its NAV. While there is no assurance, the Portfolios expect that the use of fair value pricing, in addition to the short-term trading policies discussed below, will significantly reduce a shareholder's ability to engage in time zone arbitrage to the detriment of other Portfolio shareholders.
A shareholder engaging in a short-term trading strategy may also target a Portfolio irrespective of its investments in securities of foreign issuers. Any Portfolio that invests in securities that are, among other things, thinly traded, traded infrequently, or relatively illiquid has the risk that the current market price for the securities may not accurately reflect current market values. A shareholder may seek to engage in short-term trading to take advantage of these pricing differences (referred to as "price arbitrage"). All Portfolios may be adversely affected by price arbitrage.
POLICY REGARDING SHORT-TERM TRADING. Purchases and exchanges of shares of the Portfolios should be made for investment purposes only. The Portfolios seek to prevent patterns of excessive purchases and sales or exchanges of Portfolio shares to the extent they are detected by the procedures described below, subject to the Portfolios' ability to monitor purchase, sale and exchange activity. The Portfolios reserve the right to modify this policy, including any surveillance or account blocking procedures established from time to time to effectuate this policy, at any time without notice.
. TRANSACTION SURVEILLANCE PROCEDURES. The Portfolios, through their agent, Bernstein LLC, maintain surveillance procedures to detect excessive or short-term trading in Portfolio shares. This surveillance process involves several factors, which include scrutinizing transactions in Portfolio shares that exceed certain monetary thresholds or numerical limits within a specified period of time. Generally, more than two exchanges of Portfolio shares during any 60-day period or purchases of shares followed by a sale within 60 days will be identified by these surveillance procedures. For purposes of these transaction surveillance procedures, the Portfolios may consider trading activity in multiple accounts under common ownership, control or influence. Trading activity identified by either, or a combination, of these factors, or as a result of any other information available at the time, will be evaluated to determine whether such activity might constitute excessive or short-term trading. With respect to managed or discretionary accounts for which the account owner gives his/her broker, investment adviser or other third party authority to buy and sell Portfolio shares, the Portfolios may consider trades initiated by the account owner, such as trades initiated in connection with bona fide cash management purposes, separately in their analysis. These surveillance procedures may be modified from time to time, as necessary or appropriate to improve the detection of excessive or short-term trading or to address specific circumstances.
. ACCOUNT BLOCKING PROCEDURES. If the Portfolios determine, in their sole discretion, that a particular transaction or pattern of transactions identified by the transaction surveillance procedures described above is excessive or short-term trading in nature, the relevant Portfolio will take remedial action that may include issuing a warning, revoking certain account-related privileges (such as the ability to place purchase, sale and exchange orders over the internet or by phone) or prohibiting or "blocking" future purchase or exchange activity. However, sales of Portfolio shares back to a Portfolio or redemptions will continue to be permitted in accordance with the terms of the Portfolio's current Prospectus. As a result, unless the shareholder redeems his or her shares, which may have consequences if the shares have
declined in value or adverse tax consequences may result, the shareholder may be "locked" into an unsuitable investment. A blocked account will generally remain blocked for 90 days. Subsequent detections of excessive or short-term trading may result in an indefinite account block or an account block until the account holder or the associated broker, dealer or other financial intermediary provides evidence or assurance acceptable to the Portfolio that the account holder did not or will not in the future engage in excessive or short-term trading.
. APPLICATIONS OF SURVEILLANCE PROCEDURES AND RESTRICTIONS TO OMNIBUS ACCOUNTS. Omnibus account arrangements are common forms of holding shares of the Portfolios, particularly among certain brokers, dealers and other financial intermediaries, including sponsors of retirement plans and variable insurance products. The Portfolios apply their surveillance procedures to these omnibus account arrangements. As required by SEC rules, the Portfolios have entered into agreements with all of their financial intermediaries that require the financial intermediaries to provide the Portfolios, upon the request of the Portfolios or their agents, with individual account level information about their transactions. If the Portfolios detect excessive trading through their monitoring of omnibus accounts, including trading at the individual account level, the financial intermediaries will also execute instructions from the Portfolios to take actions to curtail the activity, which may include applying blocks to accounts to prohibit future purchases and exchanges of Portfolio shares. For certain retirement plan accounts, the Portfolios may request that the retirement plan or other intermediary revoke the relevant participant's privilege to effect transactions in Portfolio shares via the internet or telephone, in which case the relevant participant must submit future transaction orders via the U.S. Postal Service (i.e., regular mail).
RISKS TO SHAREHOLDERS RESULTING FROM IMPOSITION OF ACCOUNT BLOCKS IN RESPONSE TO EXCESSIVE SHORT-TERM TRADING ACTIVITY. A shareholder identified as having engaged in excessive or short-term trading activity whose account is "blocked" and who may not otherwise wish to redeem his or her shares effectively may be "locked" into an investment in a Portfolio that the shareholder did not intend to hold on a long-term basis or that may not be appropriate for the shareholder's risk profile. To rectify this situation, a shareholder with a "blocked" account may be forced to redeem Portfolio shares, which could be costly if, for example, these shares have declined in value or the sale results in adverse tax consequences to the shareholder. To avoid this risk, a shareholder should carefully monitor the purchases, sales, and exchanges of Portfolio shares and avoid frequent trading in Portfolio shares.
LIMITATIONS ON ABILITY TO DETECT AND CURTAIL EXCESSIVE TRADING PRACTICES. Shareholders seeking to engage in excessive short-term trading activities may deploy a variety of strategies to avoid detection and, despite the efforts of the Portfolios and their agents to detect excessive or short duration trading in Portfolio shares, there is no guarantee that the Portfolios will be able to identify these shareholders or curtail their trading practices. In particular, the Portfolios may not be able to detect excessive or short-term trading in Portfolio shares attributable to a particular investor who effects purchase and/or exchange activity in Portfolio shares through omnibus accounts. Also, multiple tiers of these entities may exist, each utilizing an omnibus account arrangement, which may further compound the difficulty of detecting excessive or short duration trading activity in Portfolio shares.
HOW THE PORTFOLIOS VALUE THEIR SHARES
Each Portfolio's NAV is calculated at the close of regular trading on any day
the Exchange is open (ordinarily, 4:00 p.m., Eastern time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled
suspensions of trading). To calculate NAV, each Portfolio's assets are valued
and totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding. If a Portfolio invests in
securities that are primarily traded on foreign exchanges that trade on
weekends or other days when the Portfolio does not price its shares, the NAV of
the Portfolio's shares may change on days when shareholders will not be able to
purchase or redeem their shares in the Portfolio.
Each Portfolio values its securities at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Board. When a Portfolio uses fair value pricing, it may take into account any factors it deems appropriate. A Portfolio may determine fair value based upon developments related to a specific security, current valuations of foreign stock indices (as reflected in U.S. futures markets) and/or U.S. sector or broader stock market indices. The prices of securities used by a Portfolio to calculate its NAV may differ from quoted or published prices for the same securities. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security is materially different than the value that could be realized upon the sale of that security.
The Portfolios expect to use fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the early closing of the exchange on which a security is traded or suspension of trading in the security. The Portfolios may use fair value pricing more frequently for securities primarily traded on non-U.S. markets because, among other things, most foreign markets close well before the Portfolios value their securities at the close of regular trading on the Exchange. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. For example, each Portfolio believes that foreign security values may be affected by events that occur after the close of foreign securities markets. To account for this, the Portfolios may frequently value many of their foreign equity securities using fair value prices based on third-party vendor modeling tools to the extent available.
Subject to the Board's oversight, the Board has delegated responsibility for valuing each Portfolio's assets to AllianceBernstein. AllianceBernstein has established a Valuation Committee, which
operates under the policies and procedures approved by the Board, to value each Portfolio's assets on behalf of the Portfolio. The Valuation Committee values Portfolio assets as described above. More information about the Portfolios' valuation procedures is available in the Portfolios' SAI.
INVESTMENT MANAGER
Each Portfolio's Manager is AllianceBernstein L.P., 1345 Avenue of the
Americas, New York, NY 10105. The Manager is a leading international investment
adviser managing client accounts with assets as of September 30, 2012 totaling
approximately $419 billion (of which more than $85 billion represented assets
of registered investment companies of the Manager). As of September 30, 2012,
the Manager managed retirement assets for many of the largest public and
private employee benefit plans (including 16 of the nation's FORTUNE 100
companies), for public employee retirement funds in 31 states and the District
of Columbia, for investment companies, and for foundations, endowments, banks
and insurance companies worldwide. Currently, the 33 registered investment
companies managed by the Manager, comprising approximately 120 separate
investment portfolios, had approximately 2.7 million shareholder accounts.
The Manager provides investment advisory services and order placement facilities for the Portfolios. For these advisory services, each of the Portfolios paid the Manager, during its most recent fiscal year, a percentage of net assets as follows:
FEE AS A PERCENTAGE OF FISCAL YEAR PORTFOLIO AVERAGE NET ASSETS ENDED ------------------------------------------------------------------------ International 0.86%* 9/30/12 Tax-Managed International 0.83%* 9/30/12 Emerging Markets 1.10%* 9/30/12 Short Duration New York Municipal 0.45% 9/30/12 Short Duration California Municipal 0.45% 9/30/12 Short Duration Diversified Municipal 0.45% 9/30/12 New York Municipal 0.48% 9/30/12 California Municipal 0.49% 9/30/12 Diversified Municipal 0.43% 9/30/12 U.S. Government Short Duration 0.45% 9/30/12 Short Duration Plus 0.45% 9/30/12 Intermediate Duration 0.44% 9/30/12 Overlay A 0.90% 9/30/12 Tax-Aware Overlay A 0.90% 9/30/12 Overlay B 0.65% 9/30/12 Tax-Aware Overlay B 0.65% 9/30/12 Tax-Aware Overlay C 0.65% 9/30/12 Tax-Aware Overlay N 0.65% 9/30/12 |
* Fee stated net of any waivers and/or reimbursements. The Manager has agreed to voluntarily waive the annual investment management fees of the Non-U.S. Stock Portfolios by an amount equal to 0.05% per annum of the respective net assets of the Portfolios. This waiver is effective through October 31, 2013.
**Fee stated net of any waivers and/or reimbursements. The Manager has contractually agreed to waive its fee and/or bear certain expenses as described in the Fees and Expenses of the Portfolio table under the Summary Information section.
A discussion regarding the basis for the Board's approval of each Portfolio's investment advisory agreement is available in the Portfolio's semi-annual report to shareholders for the fiscal period ended March 31, 2012.
The Manager may act as an investment adviser to other persons, firms or corporations, including investment companies, hedge funds, pension funds and other institutional investors. The Manager may receive management fees, including performance fees, that may be higher or lower than the advisory fees it receives from the Portfolios. Certain other clients of the Manager may have investment objectives and policies similar to those of a Portfolio. The Manager may, from time to time, make recommendations that result in the purchase or sale of a particular security by its other clients simultaneously with a Portfolio. 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 Manager to allocate advisory recommendations and the placing of orders in a manner that is deemed equitable by the Manager to the accounts involved, including the Portfolios. When two or more of the clients of the Manager (including a Portfolio) are purchasing or selling the same security on a given day from the same broker-dealer, such transactions may be averaged as to price.
PORTFOLIO MANAGERS:
The day-to-day management of, and investment decisions for, the INTERNATIONAL
PORTFOLIO and TAX-MANAGED INTERNATIONAL PORTFOLIO are made by the International
Team, comprised of senior International portfolio managers. The International
Team relies heavily on the Manager's growth, value and fixed-income investment
teams and, in turn, the fundamental research of the Manager's large internal
research staff. No one person is principally responsible for coordinating the
Portfolios' investments.
The following table lists the persons within the International Team with the most significant responsibility for the day-to-day management of the Portfolios, the length of time that each person has been jointly and primarily responsible for the Portfolios, and each person's principal occupation during the past five years:
PRINCIPAL OCCUPATION DURING EMPLOYEE; LENGTH OF SERVICE; TITLE THE PAST FIVE (5) YEARS ------------------------------------------------------------------------------------- Kent W. Hargis; since 2013; Senior Vice Senior Vice President of the Manager, President of the Manager with which he has been associated in a similar capacity to his current position since prior to 2008, and Director of Quantitative Research Equities. Patrick J. Rudden; since 2009; Senior Vice Senior Vice President of the Manager, President of the Manager with which he has been associated in a similar capacity to his current position since prior to 2008, and Head of Blend Strategies. Laurent Saltiel; since 2012; Senior Vice Team Leader and Senior Portfolio President of the Manager Manager--International Large Cap Growth and Emerging Markets Growth. Mr. Saltiel has been associated with the Manager in a similar capacity since June 2010. Prior thereto, he was associated with Janus Capital as a portfolio manager since prior to 2008. Karen Sesin; since 2011; Senior Vice Senior Vice President of the Manager, President of the Manager with which she has been associated in a similar capacity to her current position since prior to 2008. |
PRINCIPAL OCCUPATION DURING EMPLOYEE; LENGTH OF SERVICE; TITLE THE PAST FIVE (5) YEARS -------------------------------------------------------------------------------- Kevin F. Simms; since 2012; Senior Vice Senior Vice President of the Manager, President of the Manager with which he has been associated in a substantially similar capacity to his current position since prior to 2008. Mr. Simms was appointed Chief Investment Officer of International Value Equities in 2012, after having served as co-CIO since prior to 2008. |
The day-to-day management of, and investment decisions for, the EMERGING MARKETS PORTFOLIO are made by the Emerging Markets Team, comprised of senior portfolio managers. The Team relies heavily on the Manager's growth, value and fixed-income investment teams and, in turn, the fundamental research of the Manager's large internal research staff. No one person is principally responsible for coordinating the Portfolios' investments.
The following table lists the persons within the Team with the most significant responsibility for the day-to-day management of the Portfolios, the length of time that each person has been jointly and primarily responsible for the Portfolios, and each person's principal occupation during the past five years:
PRINCIPAL OCCUPATION DURING EMPLOYEE; LENGTH OF SERVICE; TITLE THE PAST FIVE (5) YEARS ----------------------------------------------------------------------------------- Henry D'Auria; since 2012; Senior Vice Chief Investment Officer--Emerging President of the Manager Markets Value Equities and Co-Chief Investment Officer--International Value Equities. Mr. D'Auria has been associated with the Manager in similar capacities since prior to 2008. Patrick J. Rudden; since 2009; Senior Vice (See above) President of the Manager Laruent Saltiel; since 2012; Senior Vice (See above) President of the Manager Karen Sesin; since 2011; Senior Vice (See above) President of the Manager |
The day-to-day management of, and investment decisions for, the Fixed-Income Municipal Portfolios are made by the Municipal Bond Investment Team. The Municipal Bond Investment Team relies heavily on the fundamental analysis and research of the Manager's large internal research staff. No one person is principally responsible for coordinating the Portfolios' investments.
The following table lists the persons within the Municipal Bond Investment Team with the most significant responsibility for the day-to-day management of the Portfolios, the length of time that each person has been jointly and primarily responsible for the Portfolios, and each person's principal occupation during the past five years:
PRINCIPAL OCCUPATION DURING EMPLOYEE; LENGTH OF SERVICE; TITLE THE PAST FIVE (5) YEARS ------------------------------------------------------------------------------- Michael Brooks; since 1999; Senior Vice Senior Vice President of the Manager, President of the Manager with which he has been associated since prior to 2008. Fred S. Cohen; since 1994; Senior Vice Senior Vice President of the Manager, President of the Manager with which he has been associated since prior to 2008, and Director of Municipal Bond Trading. |
PRINCIPAL OCCUPATION DURING EMPLOYEE; LENGTH OF SERVICE; TITLE THE PAST FIVE (5) YEARS ----------------------------------------------------------------------------------- R.B. Davidson III; since inception; Senior Senior Vice President of the Manager, Vice President of the Manager with which he has been associated since prior to 2008, and Director of Municipal Bond Management. Wayne Godlin; since 2010; Senior Vice Senior Vice President of the Manager President of the Manager since December 2009. Prior thereto, an investment manager and a Managing Director of Van Kampen Asset Management with which he had been associated since prior to 2008. Terrance T. Hults; since 2002; Senior Vice Senior Vice President of the Manager, President of the Manager with which he has been associated since prior to 2008. |
The day-to-day management of, and investment decisions for, the U.S. GOVERNMENT
SHORT DURATION PORTFOLIO and SHORT DURATION PLUS PORTFOLIO are made by the
Manager's U.S. Investment Grade: Liquid Markets Structured Products Investment
Team. The U.S. Investment Grade: Liquid Markets Structured Products Investment
Team relies heavily on the fundamental analysis and research of the Manager's
large internal research staff. No one person is principally responsible for
coordinating the Portfolios' investments.
The following table lists the persons within the U.S. Investment Grade: Liquid Markets Structured Products Investment Team with the most significant responsibility for the day-to-day management of the Portfolios, the length of time that each person has been jointly and primarily responsible for the Portfolios, and each person's principal occupation during the past five years:
PRINCIPAL OCCUPATION DURING EMPLOYEE; LENGTH OF SERVICE; TITLE THE PAST FIVE (5) YEARS ------------------------------------------------------------------------------- Jon P. Denfeld; since 2008; Vice President of the Manager, with Vice President of the Manager which he has been associated since May 2008. Prior thereto, he was a Senior U.S. Portfolio Manager at UBS Global Asset Management from 2006- 2007. Shawn E. Keegan; since 2005; Vice President of the Manager, with Vice President of the Manager which he has been associated since prior to 2008. Alison M. Martier; since 2009; Senior Vice President of the Manager, Senior Vice President of the Manager with which she has been associated since prior to 2008, and Director of the Fixed Income Senior Portfolio Manager Team. Douglas J. Peebles; since 2009; Senior Vice President of the Manager, Senior Vice President of the Manager with which he has been associated since prior to 2008, and Chief Investment Officer and Head of AllianceBernstein Fixed Income. Greg J. Wilensky; since 2009; Senior Vice President of the Manager, Senior Vice President of the Manager with which he has been associated since prior to 2008, and Director of Stable Value Investments. |
The day-to-day management of, and investment decisions for, the INTERMEDIATE DURATION PORTFOLIO are made by the U.S. Investment Grade: Core Fixed Income Team. The U.S. Investment Grade: Core Fixed Income Team relies heavily on the fundamental analysis and research of the Manager's
large internal research staff. No one person is principally responsible for coordinating the Portfolio investments.
The following table lists the persons within the U.S. Investment Grade: Core Fixed Income Team with the most significant responsibility for the day-to-day management of the Portfolio, the length of time that each person has been jointly and primarily responsible for the Portfolio, and each person's principal occupation during the past five years:
PRINCIPAL OCCUPATION DURING EMPLOYEE; LENGTH OF SERVICE; TITLE THE PAST FIVE (5) YEARS -------------------------------------------------------------------------------- Paul J. DeNoon; since 2009; Senior Vice Senior Vice President of the Manager, President of the Manager with which he has been associated in a substantially similar capacity to his current position since prior to 2008, and Director of Emerging Market Debt. Shawn E. Keegan; since 2005; (see above) Vice President of the Manager Alison M. Martier; since 2005; (see above) Senior Vice President of the Manager Douglas J. Peebles; since 2007; (see above) Senior Vice President of the Manager Greg J. Wilensky; since 2005; (see above) Senior Vice President of the Manager |
The day-to-day management of, and investment decisions for each of the OVERLAY PORTFOLIOS are made by the Asset Allocation Team. The Asset Allocation Team relies heavily on the Manager's growth, value and fixed-income investment teams and, in turn, the fundamental research of the Manager's large internal research staff. No one person is principally responsible for coordinating the Portfolios' investments.
The following table lists the persons within the Asset Allocation Team with the most significant responsibility for the day-to-day management of the Portfolios, the length of time that each person has been jointly and primarily responsible for the Portfolios, and each person's principal occupation during the past five years:
PRINCIPAL OCCUPATION DURING EMPLOYEE; LENGTH OF SERVICE; TITLE THE PAST FIVE (5) YEARS ----------------------------------------------------------------------------- Seth J. Masters; since inception; Chief Investment Officer--Asset Senior Vice President of the Manager Allocation and Bernstein Global Wealth Management since June 2008. Mr. Masters has been associated with the Manager in similar capacities since prior to 2008. Daniel J. Loewy; since inception; Research Director and Co-Chief Senior Vice President of the Manager Investment Officer--Dynamic Asset Allocation. Mr. Loewy has been associated with the Manager in similar capacities since prior to 2008. Dianne F. Lob; since inception; Chairman--Private Client Investment Senior Vice President of the Manager Policy Group. Ms. Lob has been associated with the Manager in similar capacities since prior to 2008. Andrew Y. Chin; since inception; Global Head of Quantitative Research. Senior Vice President of the Manager Mr. Chin has been associated with the Manager in similar capacities since prior to 2008. |
Each Portfolio's SAI provides additional information about the portfolio managers' compensation, other accounts managed by the portfolio managers, and the portfolio managers' ownership of securities in the Portfolios.
SHAREHOLDER SERVICING FEES
AllianceBernstein provides SCB with shareholder servicing services. For these
services, AllianceBernstein charges each Fixed-Income Portfolio an annual fee
of 0.10% of each such Portfolio's average daily assets, each Non-U.S. Stock
Portfolio an annual fee of 0.25% of each such Portfolio's average daily net
assets and Class 1 shares of each Overlay Portfolio an annual fee of 0.15% of
each such Portfolio's average daily assets in Class 1 shares (0.20% for Class 1
shares of Overlay A Portfolio and Tax-Aware Overlay A Portfolio). These
shareholder services include: providing information to shareholders concerning
their Portfolio investments, systematic withdrawal plans, Portfolio dividend
payments and reinvestments, shareholder account or transactions status, net
asset value of shares, Portfolio performance, Portfolio services, plans and
options, Portfolio investment policies, portfolio holdings and tax consequences
of Portfolio investments; dealing with shareholder complaints and other
correspondence relating to Portfolio matters; and communications with
shareholders when proxies are being solicited from them with respect to voting
their Portfolio shares.
DISTRIBUTION SERVICES
Bernstein LLC, a Delaware limited liability company and registered
broker-dealer and investment adviser, provides each of the Portfolios with
distribution services pursuant to a Distribution Agreement between the Fund and
Bernstein LLC. Bernstein LLC does not charge a fee for these services.
Bernstein LLC is a wholly-owned subsidiary of AllianceBernstein.
RETIREMENT PLAN SERVICES
Employer-sponsored defined contribution retirement plans, such as 401(k) plans,
may hold Portfolio shares in the name of the plan, rather than the individual
participants. In these cases, the plan recordkeeper performs transfer-agency
functions for these shareholder accounts. Plan recordkeepers may be paid, or
plans may be reimbursed, by the Portfolio for each plan participant portfolio
account in an amount equal to the lesser of 0.12% of the assets of the
Portfolio attributable to such plan or $12 per account, per annum. To the
extent any of these payments for retirement plan accounts are made by the
Portfolio, they are included in the amount appearing opposite the caption
"Other Expenses" found in the Portfolio expense tables under "Annual Portfolio
Operating Expenses." The Manager, at its expense, may provide additional
payments to plan recordkeepers for the services they provide to plan
participants that have invested in a Portfolio.
ADDITIONAL FEES FOR CERTAIN INVESTORS
Certain investors in the Portfolios are private advisory clients of affiliates
of the Manager and in such capacity pay separate fees to such affiliates. These
fees are in addition to Portfolio related fees. For more information on such
fees, please contact your Bernstein advisor.
Each Portfolio will distribute substantially all of its net investment income (interest and dividends less expenses) and realized net capital gains, if any, from the sale of securities to its shareholders.
The Fixed-Income Portfolios intend to declare dividends daily and pay them monthly. The Non-U.S. Stock Portfolios and the Overlay Portfolios intend to declare and pay dividends at least annually, generally in December. All Portfolios distribute capital gains distributions at least annually, generally in December. You will be taxed on dividends and capital gains distributions generally in the year you receive them, except that dividends declared in October, November or December and paid in January of the following year will be taxable to you in the year they are declared.
Dividends and capital gains distributions, if any, of all the Portfolios will be either reinvested in shares of the same Portfolio on which they were paid or paid in cash. The number of shares you receive if you reinvest your distributions is based upon the net asset value of the Portfolio on the record date. Such reinvestments automatically occur on the payment date of such dividends and capital gains distributions. In the alternative, you may elect in writing, received by us not less than five business days prior to the record date, to receive dividends and/or capital gains distributions in cash. Please contact your Bernstein Advisor. You will not receive interest on uncashed dividend, distribution or redemption checks.
If you purchase shares shortly before the record date of a distribution, the share price will include the value of the distribution and you may be subject to tax on this distribution when it is received, even though the distribution represents, in effect, a return of a portion of your purchase price.
Based on its investment objectives and strategies, the Manager expects that, in general, the Fixed-Income Municipal Portfolios will distribute primarily exempt-interest dividends (i.e., distributions out of interest earned on municipal securities), the Fixed-Income Taxable Portfolios will distribute primarily ordinary income dividends (i.e., distributions out of net short-term capital gains, dividends and non-exempt interest). The Non-U.S. Stock Portfolios and the Overlay Portfolios may distribute ordinary income dividends and/or capital gains distributions. Any dividends paid by a Fixed-Income Portfolio that are properly reported as exempt-interest dividends will not be subject to regular federal income tax. Based on our investment objectives and strategies, we expect that, in general, the Tax-Aware Overlay Portfolios will distribute less ordinary income dividends than the Overlay A Portfolio and the Overlay B Portfolio.
If you are subject to taxes, you may be taxed on dividends (unless, as described below, they are derived from the interest earned on municipal securities and certain conditions are met) and capital gains distributions from the Portfolios whether they are received in cash or additional shares. Regardless of how long you have owned your shares in a Portfolio, distributions of long-term capital gains are taxed as such and distributions of net investment income, short-term capital gains and certain foreign currency gains are generally taxed as ordinary income. For individual taxpayers, ordinary income is taxed at a maximum rate of 39.6%, and long-term capital gains are taxed at a maximum rate of 15% for individuals with incomes below $400,000 ($450,000 if married filing jointly) and 20% for individuals with any income above those amounts that is long-term capital gain. Income dividends that are exempt from federal income tax may be subject to state and local taxes.
Generally, it is intended that dividends paid on shares in the Fixed-Income Municipal Portfolios will be exempt from federal income taxes. However, any of these Portfolios may invest a portion of its assets in securities that generate income that is not exempt from federal or state income tax. In addition, you may be taxed on any capital gains distributions from these Portfolios.
Interest on certain "private activity bonds" issued after August 7, 1986 are items of tax preference for purposes of the corporate and individual alternative minimum tax. If you hold shares in a Portfolio that invests in private activity bonds, you may be subject to the alternative minimum tax on that portion of the Portfolio's distributions derived from interest income on those bonds. Additionally, tax-exempt income constitutes adjusted current earnings for purposes of calculating the ACE adjustment for the corporate alternative minimum tax.
Beginning in 2013, a 3.8 percent Medicare contribution tax will be imposed on net investment income, including interest, dividends, and capital gain, of U.S. individuals with income exceeding $200,000 (or $250,000 if married filing jointly), and of estates and trusts.
If, for any taxable year, a Portfolio distributes income from dividends from domestic corporations and complies with certain requirements, corporate shareholders may be entitled to take a dividends-received deduction for some or all of the dividends they receive. In general, dividends on the shares of a Portfolio will not qualify for the dividends-received deduction for corporations since they will not be derived from dividends paid by U.S. corporations.
Dividends and interest received by the Non-U.S. Stock Portfolios, the Overlay Portfolios and the Fixed-Income Portfolios that invest in foreign securities may be subject to foreign tax and withholding. Some emerging markets countries may impose taxes on capital gains earned by a Portfolio in such countries. However, tax treaties between certain countries and the United States may reduce or eliminate such taxes.
Certain dividends on the shares of a Portfolio received by non-corporate shareholders (including individuals) may be eligible for long-term capital gain tax rates, provided that the non-corporate shareholder receiving the dividend satisfies certain holding period and other requirements. Such rate would not apply to dividends received from the Fixed-Income Portfolios. However, dividends received from Non-U.S. Stock Portfolios may qualify for such rate in certain cases.
If you redeem shares of a Portfolio or exchange them for shares of another Portfolio, generally you will recognize a capital gain or loss on the transaction. Any such gain or loss will be a long-term capital gain or loss if you held your shares for more than one year. Losses recognized on a sale and repurchase are disallowed to the extent that the shares disposed of are replaced within a 61-day period beginning 30 days before and ending 30 days after the transaction date. However, if you experience a loss and have held your shares for only six months or less, such loss generally will be treated as a long-term capital loss to the extent that you treat any dividends as long-term capital gains. Additionally, any such loss will be disallowed to the extent of any dividends derived from the interest earned on municipal securities.
Dividends or other income (including, in some cases, capital gains) received by the Non-U.S. Stock Portfolios from investments in foreign securities may be subject to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes in some cases. Under certain circumstances, the Portfolios may elect for U.S. federal income tax purposes to treat foreign income taxes paid by such Portfolios as paid by their shareholders. The Portfolio may qualify for and make this election in some, but not necessarily all, of its taxable years. If this election is made, you will be required to include your pro rata share of such foreign taxes in computing your taxable income--treating an amount equal to your share of such taxes as a U.S. federal income tax deduction or foreign tax credit against your U.S. federal income taxes. Each of these Portfolios may determine, as it deems appropriate in applying the relevant U.S. federal income tax rules, not to pass through to shareholders certain foreign taxes paid by such Portfolio. You will not be entitled to claim a deduction for foreign taxes if you do not itemize your deductions on your returns. Generally, a foreign tax credit is more advantageous than a deduction. Other limitations may apply regarding the extent to which the credit or deduction may be claimed. To the extent that such Portfolios may hold securities of corporations which are considered to be passive foreign investment companies, capital gains on these securities may be treated as ordinary income and the Portfolios may be subject to corporate income taxes and interest charges on certain dividends and capital gains from these securities.
A 30% withholding tax will be imposed on dividends paid after December 31, 2013 and redemption proceeds paid after December 31, 2016, to (i) foreign financial institutions including non-U.S. investment funds unless they agree to collect and disclose to the IRS information regarding their direct and indirect U.S. account holders and (ii) certain other foreign entities unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, a foreign financial institution will need to (i) enter into agreements with the IRS that state that they will provide the IRS information including the names, addresses and taxpayer identification numbers of direct and indirect U.S. account holders, comply with due diligence procedures with respect to the identification of U.S. accounts, report to the IRS certain information with respect to U.S. accounts maintained, agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required information, and determine certain other information as to their account holders, or (ii) in the event that an intergovernmental agreement and implementing legislation are adopted, provide local revenue authorities with similar account holder information. Other foreign entities will need to provide the name, address, and tax payer identification number of each substantial U.S. owner or certifications of no substantial U.S. ownership unless certain exceptions apply.
The Short Duration New York Municipal Portfolio and New York Municipal Portfolio provide income that is generally tax-free for New York state and local personal income tax purposes to the extent that the income is derived from New York Municipal Securities or securities issued by possessions of the United States. Similarly, the Short Duration California Municipal Portfolio and California Municipal Portfolio provide income that is generally tax-free for California state personal income tax purposes to the extent that the income is derived from California Municipal Securities or securities issued by possessions of the United States. A portion of income of the other Portfolios may also be exempt from state and local income taxes in certain states to the extent that the Portfolio derives income from securities the interest on which is exempt from taxes in that state.
To a limited extent, the Tax-Aware Overlay N Portfolio provides income which is tax-free (except for alternative minimum tax) for federal and New York state and local individual income tax purposes to the extent of income derived from New York Municipal Securities or securities issued by possessions of the United States. To a limited extent, the Tax-Aware Overlay C Portfolio provides income which is tax-free (except for alternative minimum tax) for federal and California state personal income tax purposes to the extent of income derived from California Municipal Securities or securities issued by possessions of the United States. Tax-Aware Overlay B Portfolio provide income which is tax-free for federal income tax purposes (except for alternative minimum tax) and which may be partially tax-free for state tax purposes, to the extent of income derived from Municipal Securities. For this purpose, gains from transactions in options, futures contracts, options on futures contracts, market discount and swap income, as well as gains on the sale of Municipal Securities are not tax-exempt. Accordingly, the Portfolios will expect to comply with the requirement of Code Section 852(b)(5) that at least 50% of the value of each such Portfolio's total assets consists of Municipal Securities. This requirement may limit these Portfolios' ability to engage in transactions in options, futures contracts and options on futures contracts or in certain other transactions. A portion of the income of these Portfolios may be exempt from state income taxes in certain states to the extent the Portfolio's income is derived from securities the interest on which is exempt from income taxes in that state. Shareholders may wish to consult a tax advisor about the status of distributions from the Portfolios in their individual states or localities.
We will send you information after the end of each year setting forth the amount of dividends and long-term capital gains distributed to you during the prior year. Likewise, the amount of tax exempt income, including any tax exempt income subject to alternative minimum tax, that each Portfolio distributes will be reported to you and such income must be reported on your federal income tax return.
As a result of entering into swap contracts, a Portfolio may make or receive periodic net payments. A Portfolio may also make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute ordinary income or deductions, while termination of a swap will generally result in capital gain or loss (which will be a long-term capital gain or loss if the Portfolio has been a party to the swap for more than one year). With respect to certain types of swaps, a Portfolio may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss.
This Prospectus summarizes only some of the tax implications you should consider when investing in a Portfolio. You are urged to consult your own tax adviser regarding specific questions you may have as to federal, state, local and foreign taxes. Statements as to the tax status of dividends and distributions of each Portfolio are mailed annually.
BARCLAYS 5-YEAR GENERAL OBLIGATION MUNICIPAL BOND INDEX--The Barclays Municipal Bond Index is a rules-based, market-value-weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark. The GO Bond Index component of the Municipal Bond index. General Obligation classification bonds, excluding insured and prerefunded, are eligible for inclusion in the Barclays 5-year GO Municipal Bond Index. The bonds must have a maturity of greater than 4-years and less than 6-years.
BARCLAYS GLOBAL AGGREGATE BOND INDEX--Represents the performance of the global investment-grade developed fixed income markets.
BARCLAYS 1-YEAR MUNICIPAL INDEX--The Barclays Municipal Bond Index is a rules-based, market-value-weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark. This index is the 1 Year (1-2) component of the Municipal Bond index.
BOFA MERRILL LYNCH 1-3 YEAR TREASURY INDEX--An unmanaged index that tracks the performance of the direct sovereign debt of the U.S. Government having a maturity of at least one year and less than three years.
THE FINANCIAL TIMES STOCK EXCHANGE(R) (FTSE) EUROPEAN PUBLIC REAL ESTATE ASSOCIATION (EPRA)/NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS (NAREIT) DEVELOPED INDEX--The FTSE EPRA/NAREIT Developed Index is a free-float adjusted index designed to track the performance of listed real estate companies and real estate investment trusts (REITs) worldwide.
MSCI EAFE INDEX (EUROPE, AUSTRALASIA, FAR EAST)--A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. As of the date of this prospectus, the MSCI EAFE Index consisted of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
MSCI EMERGING MARKETS INDEX--A free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. As of the date of this prospectus, the MSCI Emerging Markets Index consisted of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
STANDARD & POOR'S (S&P) 500 STOCK INDEX--The S&P 500 Stock Index includes 500 U.S. stocks and is a common representation of the performance of the overall U.S. stock market.
FINANCIAL NON-U.S. The financial highlights table is intended to help you understand the fi- HIGHLIGHTS STOCK PORTFOLIOS nancial performance of the Portfolio for the periods indicated. Certain information reflects financial results for a single Portfolio share. The total . TAX-MANAGED returns in the table represent the rate that an investor would have earned INTERNATIONAL (or lost) on an investment in the Portfolio (assuming reinvestment of all PORTFOLIO dividends and distributions). The information for each fiscal-year-end period has been audited by PricewaterhouseCoopers LLP, whose re- . INTERNATIONAL ports, along with the Portfolio's financial statements, are included in the PORTFOLIO Portfolio's 2012 annual report, which is available upon request. . EMERGING MARKETS PORTFOLIO |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.36 $ 15.08 $ 15.00 $ 16.51 $ 29.38 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.23++ 0.23 0.22 0.25 0.50 Net realized and unrealized gain (loss) on investment and foreign currency transactions 0.90 (2.68) 0.14 (1.31) (9.89) ---------- ---------- ---------- ---------- ---------- Total from investment operations 1.13 (2.45) 0.36 (1.06) (9.39) ---------- ---------- ---------- ---------- ---------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.26) (0.27) (0.28) (0.45) (0.44) Distributions from net realized gain on investment transactions -0- -0- -0- -0- (3.04) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (0.26) (0.27) (0.28) (0.45) (3.48) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 13.23 $ 12.36 $ 15.08 $ 15.00 $ 16.51 ========== ========== ========== ========== ========== TOTAL RETURN(a) 9.32% (16.61)% 2.43% (5.59)% (36.07)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $1,485,757 $1,495,894 $2,073,462 $2,364,571 $2,788,102 Average net assets (000 omitted) $1,546,251 $2,015,954 $2,199,418 $2,032,024 $3,828,486 Ratio to average net assets of: Expenses, net of waivers/reimbursements 1.16% 1.18% 1.17%(d) 1.19% 1.18% Expenses, before waivers/reimbursements 1.21% 1.18% 1.17%(d) 1.19% 1.18% Net investment income 1.79%++ 1.50% 1.49%(d) 2.03% 2.16% Portfolio turnover rate 69% 62% 84% 91% 53% ------------------------------------------------------------------------------------------------------------ |
Please refer to footnotes on page 141.
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.46 $ 15.19 $ 15.16 $ 16.52 $ 29.64 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.25++ 0.24 0.22 0.25 0.52 Net realized and unrealized gain (loss) on investment and foreign currency transactions 0.91 (2.70) 0.09 (1.16) (10.22) Contributions from Manager -0- -0- -0- (c) -0-(c) -0- ---------- ---------- ---------- ---------- ---------- Total from investment operations 1.16 (2.46) 0.31 (0.91) (9.70) ---------- ---------- ---------- ---------- ---------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.29) (0.27) (0.28) (0.45) (0.42) Distributions from net realized gain on investment transactions -0- -0- -0- -0- (3.00) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (0.29) (0.27) (0.28) (0.45) (3.42) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 13.33 $ 12.46 $ 15.19 $ 15.16 $ 16.52 ========== ========== ========== ========== ========== TOTAL RETURN(a) 9.56% (16.56)% 2.07% (4.64)% (36.75)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $3,446,598 $3,587,820 $4,845,829 $5,286,906 $6,024,221 Average net assets (000 omitted) $3,598,435 $4,714,049 $5,004,731 $4,376,859 $8,333,321 Ratio to average net assets of: Expenses, net of waivers/reimbursements 1.11% 1.14% 1.13%(d) 1.15% 1.12% Expenses, before waivers/reimbursements 1.16% 1.14% 1.13%(d) 1.15% 1.12% Net investment income 1.88%++ 1.54% 1.53%(d) 2.07% 2.21% Portfolio turnover rate 62% 61% 85% 84% 70% ------------------------------------------------------------------------------------------------------------- |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 --------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 24.46 $ 31.40 $ 26.67 $ 25.97 $ 50.62 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS Investment income, net+ 0.31++ 0.33 0.27 0.24 0.53 Net realized and unrealized gain (loss) on investment and foreign currency transactions 3.03 (7.10) 4.54 2.25 (14.32) Contributions from Manager -0- -0- -0- -0- -0-(c) ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.34 (6.77) 4.81 2.49 (13.79) ---------- ---------- ---------- ---------- ---------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.24) (0.31) (0.20) (0.39) (0.44) Distributions from net realized gain on investment transactions (0.94) -0- -0- (1.50) (10.55) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (1.18) (0.31) (0.20) (1.89) (10.99) ---------- ---------- ---------- ---------- ---------- Portfolio transaction fee 0.10 0.14 0.12 0.10 0.13 ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 26.72 $ 24.46 $ 31.40 $ 26.67 $ 25.97 ========== ========== ========== ========== ========== TOTAL RETURN(a) 14.63%(b) (22.95)%(b) 16.19%(b) 13.54%(b) (36.23)%(b) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $1,239,480 $1,249,690 $1,912,856 $1,949,728 $1,950,976 Average net assets (000 omitted) $1,303,241 $1,823,362 $1,928,521 $1,458,886 $2,877,534 Ratio to average net assets of: Expenses, net of waivers/reimbursements 1.44% 1.45% 1.44%(d) 1.48% 1.51% Expenses, before waivers/reimbursements 1.49% 1.45% 1.44%(d) 1.48% 1.51% Net investment income 1.19%++ 1.03% 0.94%(d) 1.25% 1.35% Portfolio turnover rate 55% 57% 67% 70% 55% --------------------------------------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
FINANCIAL FIXED-INCOME The financial highlights table is intended to help you understand the finan- HIGHLIGHTS MUNICIPAL PORTFOLIOS cial performance of the Portfolios for the periods indicated. Certain in- formation reflects financial results for a single Portfolio share. The total . NEW YORK returns in the table represent the rate that an investor would have earned MUNICIPAL (or lost) on an investment in the Portfolio (assuming reinvestment of all PORTFOLIO dividends and distributions). The information for each fiscal-year-end period has been audited by PricewaterhouseCoopers LLP, whose reports, . SHORT DURATION along with the Portfolio's financial statements, are included in the Portfo- NEW lio's 2012 annual report, which is available upon request. YORK MUNICIPAL PORTFOLIO |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.42 $ 14.53 $ 14.36 $ 13.61 $ 13.83 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.43 0.44 0.44 0.46 0.47 Net realized and unrealized gain (loss) on investment transactions 0.24 (0.06) 0.20 0.79 (0.22) ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.67 0.38 0.64 1.25 0.25 ---------- ---------- ---------- ---------- ---------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from tax-exempt net investment income (0.43) (0.44) (0.44) (0.46) (0.47) Distributions from net realized gain on investment transactions -0- (0.05) (0.03) (0.04) -0- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (0.43) (0.49) (0.47) (0.50) (0.47) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 14.66 $ 14.42 $ 14.53 $ 14.36 $ 13.61 ========== ========== ========== ========== ========== TOTAL RETURN(a) 4.69% 2.74% 4.55% 9.42% 1.80% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $1,498,388 $1,579,981 $1,745,720 $1,692,410 $1,817,154 Average net assets (000 omitted) $1,541,811 $1,652,024 $1,752,608 $1,643,093 $1,828,067 Ratio to average net assets of: Expenses 0.61% 0.61% 0.61%(d) 0.61% 0.61% Net investment income 2.93% 3.09% 3.05%(d) 3.33% 3.38% Portfolio turnover rate 14% 14% 18% 19% 24% ------------------------------------------------------------------------------------------------------- |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ----------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.49 $ 12.53 $ 12.59 $ 12.40 $ 12.40 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Investment income, net+ 0.10 0.20 0.22 0.30 0.37 Net realized and unrealized gain (loss) on investment transactions 0.07 (0.04) (0.06) 0.20 -0- Contributions from Manager -0- -0- -0- -0- -0-(c) -------- -------- -------- -------- -------- Total from investment operations 0.17 0.16 0.16 0.50 0.37 -------- -------- -------- -------- -------- LESS DIVIDENDS: Dividends from tax-exempt net investment income (0.10) (0.20) (0.22) (0.31) (0.37) -------- -------- -------- -------- -------- Net asset value, end of period $ 12.56 $ 12.49 $ 12.53 $ 12.59 $ 12.40 ======== ======== ======== ======== ======== TOTAL RETURN(a) 1.34% 1.28% 1.29% 4.14% 3.08% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $132,909 $158,478 $273,147 $235,326 $161,836 Average net assets (000 omitted) $148,340 $200,953 $262,227 $186,124 $132,487 Ratio to average net assets of: Expenses 0.64% 0.61% 0.61%(d) 0.63% 0.67% Net investment income 0.77% 1.61% 1.75%(d) 2.42% 2.98% Portfolio turnover rate 54% 32% 30% 45% 103% ----------------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
FINANCIAL FIXED-INCOME The financial highlights table is intended to help you understand the fi- HIGHLIGHTS MUNICIPAL PORTFOLIOS nancial performance of the Portfolios for the periods indicated. Certain information reflects financial results for a single Portfolio share. The total . CALIFORNIA returns in the table represent the rate that an investor would have earned MUNICIPAL (or lost) on an investment in the Portfolio (assuming reinvestment of all PORTFOLIO dividends and distributions). The information for each fiscal-year-end period has been audited by PricewaterhouseCoopers LLP, whose reports, . SHORT DURATION along with the Portfolio's financial statements, are included in the CALIFORNIA Portfolio's 2012 annual report, which is available upon request. MUNICIPAL PORTFOLIO |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.62 $ 14.85 $ 14.55 $ 13.96 $ 14.18 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.45 0.46 0.47 0.48 0.48 Net realized and unrealized gain (loss) on investment transactions 0.29 (0.08) 0.34 0.63 (0.22) ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.74 0.38 0.81 1.11 0.26 ---------- ---------- ---------- ---------- ---------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from tax-exempt net investment income (0.45) (0.46) (0.47) (0.48) (0.48) Distributions from net realized gain on investment transactions -0- (0.15) (0.04) (0.04) -0- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (0.45) (0.61) (0.51) (0.52) (0.48) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 14.91 $ 14.62 $ 14.85 $ 14.55 $ 13.96 ========== ========== ========== ========== ========== TOTAL RETURN(a) 5.11% 2.70% 5.71% 8.09% 1.83% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 991,764 $1,031,911 $1,103,565 $1,154,961 $1,363,736 Average net assets (000 omitted) $1,026,677 $1,059,794 $1,163,905 $1,186,613 $1,414,368 Ratio to average net assets of: Expenses 0.63% 0.63% 0.63%(d) 0.63% 0.62% Net investment income 3.03% 3.19% 3.23%(d) 3.39% 3.38% Portfolio turnover rate 15% 14% 33% 14% 26% ------------------------------------------------------------------------------------------------------- |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 --------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.55 $ 12.62 $ 12.68 $ 12.53 $ 12.49 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Investment income, net+ 0.06 0.13 0.21 0.34 0.35 Net realized and unrealized gain (loss) on investment transactions 0.04 (0.04) 0.01 0.15 0.05 -------- -------- -------- -------- -------- Total from investment operations 0.10 0.09 0.22 0.49 0.40 -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from tax-exempt net investment income (0.07) (0.13) (0.21) (0.34) (0.36) Distributions from net realized gain on investment transactions -0- (0.03) (0.07) -0- -0- -------- -------- -------- -------- -------- Total dividends and distributions (0.07) (0.16) (0.28) (0.34) (0.36) -------- -------- -------- -------- -------- Net asset value, end of period $ 12.58 $ 12.55 $ 12.62 $ 12.68 $ 12.53 ======== ======== ======== ======== ======== TOTAL RETURN(a) 0.76% 0.74% 1.77% 3.95% 3.24% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $100,149 $121,747 $144,606 $109,040 $141,225 Average net assets (000 omitted) $103,813 $127,326 $127,870 $119,438 $106,703 Ratio to average net assets of: Expenses 0.67% 0.63% 0.65%(d) 0.65% 0.69% Net investment income 0.51% 1.08% 1.66%(d) 2.68% 2.81% Portfolio turnover rate 45% 81% 64% 52% 134% --------------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
FINANCIAL The financial highlights table is intended to help you understand the fi- HIGHLIGHTS FIXED-INCOME MUNICIPAL nancial performance of the Portfolios for the periods indicated. Certain PORTFOLIOS information reflects financial results for a single Portfolio share. The total returns in the table represent the rate that an investor would have earned . DIVERSIFIED (or lost) on an investment in the Portfolio (assuming reinvestment of all MUNICIPAL dividends and distributions). The information for each fiscal-year-end PORTFOLIO period has been audited by PricewaterhouseCoopers LLP, whose re- ports, along with the Portfolio's financial statements, are included in the . SHORT Portfolio's 2012 annual report, which is available upon request. DURATION DIVERSIFIED MUNICIPAL PORTFOLIO |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.65 $ 14.75 $ 14.53 $ 13.81 $ 14.00 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.41 0.45 0.45 0.48 0.48 Net realized and unrealized gain (loss) on investment transactions 0.29 (0.03) 0.25 0.73 (0.19) ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.70 0.42 0.70 1.21 0.29 ---------- ---------- ---------- ---------- ---------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from tax-exempt net investment income (0.42) (0.45) (0.46) (0.48) (0.48) Distributions from net realized gain on investment transactions (0.01) (0.07) (0.02) (0.01) -0- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (0.43) (0.52) (0.48) (0.49) (0.48) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 14.92 $ 14.65 $ 14.75 $ 14.53 $ 13.81 ========== ========== ========== ========== ========== TOTAL RETURN(a) 4.81% 2.96% 4.90% 8.96% 2.04% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $4,684,176 $4,907,931 $5,129,063 $4,942,157 $5,065,599 Average net assets (000 omitted) $4,839,804 $4,991,204 $5,176,769 $4,716,436 $5,052,989 Ratio to average net assets of: Expenses 0.56% 0.56% 0.56%(d) 0.57% 0.57% Net investment income 2.79% 3.08% 3.10%(d) 3.39% 3.38% Portfolio turnover rate 16% 18% 21% 12% 28% --------------------------------------------------------------------------------------------------------------------------- |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ----------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.70 $ 12.69 $ 12.68 $ 12.53 $ 12.50 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Investment income, net+ 0.10 0.17 0.21 0.32 0.38 Net realized and unrealized gain on investment transactions 0.05 0.01 0.01 0.16 0.04 -------- -------- -------- -------- -------- Total from investment operations 0.15 0.18 0.22 0.48 0.42 -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from tax-exempt net investment income (0.10) (0.16) (0.21) (0.33) (0.39) Distributions from net realized gain on investment transactions (0.01) (0.01) -0- -0- -0- -------- -------- -------- -------- -------- Total dividends and distributions (0.11) (0.17) (0.21) (0.33) (0.39) -------- -------- -------- -------- -------- Net asset value, end of period $ 12.74 $ 12.70 $ 12.69 $ 12.68 $ 12.53 ======== ======== ======== ======== ======== TOTAL RETURN(a) 1.18% 1.42% 1.75% 3.85% 3.35% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $394,515 $418,586 $591,202 $457,515 $328,867 Average net assets (000 omitted) $437,015 $515,306 $556,818 $368,993 $277,346 Ratio to average net assets of: Expenses 0.59% 0.62% 0.62%(d) 0.62% 0.64% Net investment income 0.80% 1.31% 1.65%(d) 2.55% 3.05% Portfolio turnover rate 51% 39% 23% 54% 94% ----------------------------------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
FINANCIAL FIXED-INCOME The financial highlights table is intended to help you understand the fi- HIGHLIGHTS TAXABLE PORTFOLIOS nancial performance of the Portfolios for the periods indicated. Certain information reflects financial results for a single Portfolio share. The total . U.S. GOVERNMENT returns in the table represent the rate that an investor would have earned SHORT DURATION (or lost) on an investment in the Portfolio (assuming reinvestment of all PORTFOLIO dividends and distributions). The information for each fiscal-year-end period has been audited by PricewaterhouseCoopers LLP, whose re- . SHORT DURATION ports, along with the Portfolio's financial statements, are included in the PLUS PORTFOLIO Portfolio's 2012 annual report, which is available upon request. |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.82 $ 12.89 $ 12.70 $ 12.47 $ 12.47 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Investment income, net+ 0.02 0.09 0.10 0.24 0.43 Net realized and unrealized gain on investment transactions 0.05 0.02 0.22 0.25 0.01 -------- -------- -------- -------- -------- Total from investment operations 0.07 0.11 0.32 0.49 0.44 -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.07) (0.13) (0.13) (0.26) (0.44) Distributions from net realized gain on investment transactions (0.09) (0.05) -0- -0- -0- -------- -------- -------- -------- -------- Total dividends and distributions (0.16) (0.18) (0.13) (0.26) (0.44) -------- -------- -------- -------- -------- Net asset value, end of period $ 12.73 $ 12.82 $ 12.89 $ 12.70 $ 12.47 ======== ======== ======== ======== ======== TOTAL RETURN(a) 0.55% 0.87% 2.55% 3.96% 3.56% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $111,263 $130,219 $163,015 $172,741 $116,067 Average net assets (000 omitted) $126,795 $149,555 $175,298 $163,493 $ 94,678 Ratio to average net assets of: Expenses 0.68% 0.64% 0.64%(d) 0.63% 0.73% Net investment income 0.14% 0.67% 0.81%(d) 1.90% 3.43% Portfolio turnover rate 95% 170% 181% 312% 143% --------------------------------------------------------------------------------------------------------------------------- |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.89 $ 11.92 $ 11.65 $ 11.45 $ 12.24 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.06 0.12 0.20 0.35 0.46 Net realized and unrealized gain (loss) on investment and foreign currency transactions 0.06 (0.01) 0.29 0.22 (0.77) -------- -------- -------- -------- -------- Total from investment operations 0.12 0.11 0.49 0.57 (0.31) -------- -------- -------- -------- -------- LESS DIVIDENDS: Dividends from taxable net investment income (0.10) (0.14) (0.22) (0.37) (0.48) -------- -------- -------- -------- -------- Net asset value, end of period $ 11.91 $ 11.89 $ 11.92 $ 11.65 $ 11.45 ======== ======== ======== ======== ======== TOTAL RETURN(a) 1.04% 0.96% 4.29%* 5.08% (2.61)%* RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $549,979 $629,603 $534,551 $424,137 $369,337 Average net assets (000 omitted) $544,248 $624,052 $481,956 $367,415 $342,890 Ratio to average net assets of: Expenses 0.62% 0.60% 0.62%(d) 0.63% 0.64% Net investment income 0.47% 0.99% 1.69%(d) 3.08% 3.88% Portfolio turnover rate 134% 99% 107% 176% 116% ----------------------------------------------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
FINANCIAL FIXED-INCOME The financial highlights table is intended to help you understand the fi- HIGHLIGHTS TAXABLE PORTFOLIOS nancial performance of the Portfolios for the periods indicated. Certain information reflects financial results for a single Portfolio share. The total . INTERMEDIATE returns in the table represent the rate that an investor would have earned DURATION (or lost) on an investment in the Portfolio (assuming reinvestment of all PORTFOLIO dividends and distributions). With respect to the Intermediate Duration Portfolio, the information for each fiscal-year-end period has been aud- ited by PricewaterhouseCoopers LLP, whose reports, along with the Portfolio's financial statements, are included in the Portfolio's 2012 annual report, which is available upon request. The information for the prior years has been audited by the previous independent registered pub- lic accounting firm for this Portfolio. |
YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.16 $ 14.13 $ 13.18 $ 12.25 $ 13.11 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS Investment income, net+ 0.36 0.50 0.54 0.60 0.62 Net realized and unrealized gain (loss) on investment and foreign currency transactions 0.41 0.18 0.97 1.07 (0.80) ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.77 0.68 1.51 1.67 (0.18) ---------- ---------- ---------- ---------- ---------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.38) (0.50) (0.56) (0.62) (0.68) Distributions from net realized gain on investment transactions (0.31) (0.15) -0- (0.12) -0- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (0.69) (0.65) (0.56) (0.74) (0.68) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 14.24 $ 14.16 $ 14.13 $ 13.18 $ 12.25 ========== ========== ========== ========== ========== TOTAL RETURN(a) 5.65%** 5.09% 11.68% 14.41%* (1.53)%^* RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $4,821,926 $5,159,683 $5,375,563 $5,007,391 $4,886,527 Average net assets (000 omitted) $4,944,151 $5,261,269 $5,305,650 $4,463,855 $5,220,966 Ratio to average net assets of: Expenses 0.57% 0.56% 0.56%(d) 0.57% 0.57% Net investment income 2.56% 3.55% 3.99%(d) 4.96% 4.75% Portfolio turnover rate 154% 110% 90% 82% 95% ------------------------------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
FINANCIAL OVERLAY PORTFOLIOS The financial highlights table is intended to help you understand the fi- HIGHLIGHTS nancial performance of the Portfolio for the periods indicated. Certain . OVERLAY A information reflects financial results for a single Portfolio share. The total PORTFOLIO returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Portfolio (assuming reinvestment of all . TAX-AWARE dividends and distributions). The information for each fiscal-period has OVERLAY A been audited by PricewaterhouseCoopers LLP, whose reports, along PORTFOLIO with the Portfolio's financial statements, are included in the Portfolio's 2012 annual report, which is available upon request. . OVERLAY B PORTFOLIO . TAX-AWARE OVERLAY B PORTFOLIO . TAX-AWARE OVERLAY C PORTFOLIO . TAX-AWARE OVERLAY N PORTFOLIO |
CLASS 1 FEBRUARY 8, 2010(e) TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 2012 2011 2010 --------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.94 $ 10.87 $ 10.00 ---------- ---------- -------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.05 0.03 0.02(f) Net realized and unrealized gain on investment and foreign currency transactions 0.36 0.25 0.85 ---------- ---------- -------- Total from investment operations 0.41 0.28 0.87 ---------- ---------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.11) (0.05) -0- Distributions from net realized gain on investment transactions (0.87) (0.16) -0- ---------- ---------- -------- Total dividends and distributions (0.98) (0.21) -0- ---------- ---------- -------- Net asset value, end of period $ 10.37 $ 10.94 $ 10.87 ========== ========== ======== TOTAL RETURN(a) 4.08% 2.51% 8.70% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $1,218,127 $1,178,056 $763,900 Average net assets (000 omitted) $1,215,244 $1,029,460 $384,476 Ratio to average net assets of: Expenses, net of waivers/reimbursements 1.16% 1.17% 1.20%++(d) Expenses, before waivers/reimbursement 1.16% 1.17% 1.27%++(d) Net investment income 0.47% 0.29% 0.26%++(f)(d) Portfolio turnover rate 99% 70% 29% --------------------------------------------------------------------------------------------------------- |
CLASS 2 FEBRUARY 8, 2010(e) TO YEAR ENDED SEPTEMBER 30 SEPTEMBER 30, 2012 2011 2010 -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.96 $ 10.88 $ 10.00 -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.07 0.06 0.03(f) Net realized and unrealized gain on investment and foreign currency transactions 0.36 0.24 0.85 -------- -------- -------- Total from investment operations 0.43 0.30 0.88 -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.13) (0.06) -0- Distributions from net realized gain on investment transactions (0.87) (0.16) -0- -------- -------- -------- Total dividends and distributions (1.00) (0.22) -0- -------- -------- -------- Net asset value, end of period $ 10.39 $ 10.96 $ 10.88 ======== ======== ======== TOTAL RETURN(a) 4.26% 2.72% 8.80% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $238,054 $215,163 $103,467 Average net assets (000 omitted) $238,644 $168,369 $ 51,153 Ratio to average net assets of: Expenses, net of waivers/reimbursements 0.96% 0.97% 1.00%++(d) Expenses, before waivers/reimbursement 0.96% 0.97% 1.10%++(d) Net investment income 0.66% 0.51% 0.42%++(f)(d) Portfolio turnover rate 99% 70% 29% -------------------------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
CLASS 1 FEBRUARY 8, 2010(e) TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 2012 2011 2010 ---------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.75 $ 10.74 $ 10.00 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Investment income (loss), net+ 0.04 0.03 (0.00)(f)(c) Net realized and unrealized gain on investment and foreign currency transactions 0.21 0.12 0.74 Contributions from Manager -0- 0.00(c) -0- ---------- ---------- ---------- Total from investment operations 0.25 0.15 0.74 ---------- ---------- ---------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.02) -0- -0- Distributions from net realized gain on investment transactions (0.41) (0.14) -0- ---------- ---------- ---------- Total dividends and distributions (0.43) (0.14) -0- ---------- ---------- ---------- Net asset value, end of period $ 10.57 $ 10.75 $ 10.74 ========== ========== ========== TOTAL RETURN(a) 2.38% 1.33% 7.40% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $2,183,824 $2,039,576 $1,358,482 Average net assets (000 omitted) $2,171,291 $1,888,892 $ 671,456 Ratio to average net assets of: Expenses, net of waivers/reimbursements 1.14% 1.14% 1.20%++(d) Expenses, before waivers/reimbursement 1.14% 1.14% 1.23%++(d) Net investment income (loss) 0.42% 0.24% (0.01)%++(f)(d) Portfolio turnover rate 86% 71% 37% ---------------------------------------------------------------------------------------- |
CLASS 2 FEBRUARY 8, 2010(a) TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 2012 2011 2010 ------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.78 $ 10.76 $ 10.00 -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.07 0.05 0.01(f) Net realized and unrealized gain on investment and foreign currency transactions 0.20 0.12 0.75 Contributions from Manager -0- 0.00(c) -0- -------- -------- -------- Total from investment operations 0.27 0.17 0.76 -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.04) (0.01) -0- Distributions from net realized gain on investment transactions (0.41) (0.14) -0- -------- -------- -------- Total dividends and distributions (0.45) (0.15) -0- -------- -------- -------- Net asset value, end of period $ 10.60 $ 10.78 $ 10.76 ======== ======== ======== TOTAL RETURN(a) 2.57% 1.51% 7.60% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $648,996 $607,676 $347,555 Average net assets (000 omitted) $653,109 $531,588 $160,224 Ratio to average net assets of: Expenses, net of waivers/reimbursements 0.94% 0.95% 1.00%++(d) Expenses, before waivers/reimbursement 0.94% 0.95% 1.04%++(d) Net investment income 0.62% 0.45% 0.19%++(f)(d) Portfolio turnover rate 86% 71% 37% ------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
CLASS 1 FEBRUARY 8, 2010(e) TO SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, 2010 2012 2011 ------------- ------------------------------------------------------------------ Net asset value, beginning of period $ 10.75 $ 10.83 $ 10.00 -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.07 0.11 0.06(f) Net realized and unrealized gain on investment and foreign currency transactions 0.50 0.17 0.77 Contributions from Manager -0- -0- 0.00(c) -------- -------- -------- Total from investment operations 0.57 0.28 0.83 -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.25) (0.08) -0- Distributions from net realized gain on investment transactions (0.09) (0.28) -0- -------- -------- -------- Total dividends and distributions (0.34) (0.36) -0- -------- -------- -------- Net asset value, end of period $ 10.98 $ 10.75 $ 10.83 ======== ======== ======== TOTAL RETURN(a) 5.39% 2.66% 8.30% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $861,886 $780,228 $557,549 Average net assets (000 omitted) $841,055 $711,857 $278,747 Ratio to average net assets of: Expenses, net of waivers/reimbursements 0.87% 0.87% 0.90%++(d) Expenses, before waivers/reimbursement 0.87% 0.87% 0.98%++(d) Net investment income 0.68% 1.02% 0.92%++(f)(d) Portfolio turnover rate 111% 98% 38% ------------------------------------------------------------------------------------- |
CLASS 2 FEBRUARY 8, 2010(e) TO SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, 2010 2012 2011 ------------- ------------------------------------------------------------------ Net asset value, beginning of period $ 10.76 $ 10.83 $ 10.00 -------- -------- ------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.09 0.13 0.07(f) Net realized and unrealized gain on investment and foreign currency transactions 0.49 0.17 0.76 Contributions from Manager -0- -0- 0.00(c) -------- -------- ------- Total from investment operations 0.58 0.30 0.83 -------- -------- ------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.26) (0.09) -0- Distributions from net realized gain on investment transactions (0.09) (0.28) -0- -------- -------- ------- Total dividends and distributions (0.35) (0.37) -0- -------- -------- ------- Net asset value, end of period $ 10.99 $ 10.76 $ 10.83 ======== ======== ======= TOTAL RETURN(a) 5.53% 2.85% 8.30% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $201,385 $145,789 $84,559 Average net assets (000 omitted) $178,148 $127,585 $43,708 Ratio to average net assets of: Expenses, net of waivers/reimbursements 0.72% 0.73% 0.75 %++(d) Expenses, before waivers/reimbursement 0.72% 0.73% 0.86 %++(d) Net investment income 0.82% 1.18% 1.06 %++(f)(d) Portfolio turnover rate 111% 98% 38% ------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
CLASS 1 FEBRUARY 8, 2010(e) TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 2012 2011 2010 ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.55 $ 10.62 $ 10.00 ---------- ---------- -------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.10 0.08 0.02(f) Net realized and unrealized gain on investment and foreign currency transactions 0.49 0.20 0.60 ---------- ---------- -------- Total from investment operations 0.59 0.28 0.62 ---------- ---------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.08) (0.03) -0- Distributions from net realized gain on investment transactions (0.05) (0.32) -0- ---------- ---------- -------- Total dividends and distributions (0.13) (0.35) -0- ---------- ---------- -------- Net asset value, end of period $ 11.01 $ 10.55 $ 10.62 ========== ========== ======== TOTAL RETURN(a) 5.60% 2.61% 6.20% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $1,143,322 $1,033,989 $660,484 Average net assets (000 omitted) $1,117,359 $ 878,207 $333,447 Ratio to average net assets of: Expenses, net of waivers/reimbursements 0.84% 0.86% 0.90%++(d) Expenses, before waivers/reimbursement 0.84% 0.86% 0.97%++(d) Net investment income 0.91% 0.71% 0.40%++(f)(d) Portfolio turnover rate 21% 15% 26% ------------------------------------------------------------------------------------------------------------------- |
CLASS 2 FEBRUARY 8, 2010(e) TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 2012 2011 2010 ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.57 $ 10.63 $ 10.00 -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.12 0.09 0.03(f) Net realized and unrealized gain on investment and foreign currency transactions 0.48 0.20 0.60 -------- -------- -------- Total from investment operations 0.60 0.29 0.63 -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (.09) (0.03) -0- Distributions from net realized gain on investment transactions (.05) (0.32) -0- -------- -------- -------- Total dividends and distributions (.14) (0.35) -0- -------- -------- -------- Net asset value, end of period $ 11.03 $ 10.57 $ 10.63 ======== ======== ======== TOTAL RETURN(a) 5.73% 2.80% 6.30% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $568,815 $526,880 $297,618 Average net assets (000 omitted) $558,652 $443,050 $136,271 Ratio to average net assets of: Expenses, net of waivers/reimbursements 0.69% 0.71% 0.75%++(d) Expenses, before waivers/reimbursement 0.69% 0.71% 0.84%++(d) Net investment income 1.06% 0.86% 0.55%++(f)(d) Portfolio turnover rate 21% 15% 26% ------------------------------------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
CLASS 1 FEBRUARY 8, 2010(e) TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 2012 2011 2010 ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.50 $ 10.66 $ 10.00 -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.09 0.07 0.02(f) Net realized and unrealized gain on investment and foreign currency transactions 0.50 0.15 0.64 -------- -------- -------- Total from investment operations 0.59 0.22 0.66 -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.07) (0.02) -0- Distributions from net realized gain on investment transactions (0.04) (0.36) -0- -------- -------- -------- Total dividends and distributions (0.11) (0.38) -0- -------- -------- -------- Net asset value, end of period $ 10.98 $ 10.50 $ 10.66 ======== ======== ======== TOTAL RETURN(a) 5.67% 2.13% 6.60% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $272,315 $243,235 $171,603 Average net assets (000 omitted) $262,729 $219,646 $ 87,845 Ratio to average net assets of: Expenses, net of waivers/reimbursements 0.89% 0.89% 0.90%++(d) Expenses, before waivers/reimbursement 0.89% 0.89% 1.06%++(d) Net investment income 0.83% 0.62% 0.32%++(f)(d) Portfolio turnover rate 19% 13% 33% ------------------------------------------------------------------------------------------------------------------- |
CLASS 2 FEBRUARY 8, 2010(e) TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 2012 2011 2010 ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.51 $ 10.67 $ 10.00 -------- -------- ------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.11 0.08 0.03(f) Net realized and unrealized gain on investment and foreign currency transactions 0.50 0.15 0.64 -------- -------- ------- Total from investment operations 0.61 0.23 0.67 -------- -------- ------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.09) (0.03) -0- Distributions from net realized gain on investment transactions (0.04) (0.36) -0- -------- -------- ------- Total dividends and distributions (0.13) (0.39) -0- -------- -------- ------- Net asset value, end of period $ 10.99 $ 10.51 $ 10.67 ======== ======== ======= TOTAL RETURN(a) 5.81% 2.21% 6.70% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $160,947 $151,838 $68,459 Average net assets (000 omitted) $162,199 $100,484 $35,401 Ratio to average net assets of: Expenses, net of waivers/reimbursements 0.74% 0.74% 0.75%++(d) Expenses, before waivers/reimbursement 0.74% 0.74% 0.96%++(d) Net investment income 0.98% 0.79% 0.47%++(f)(d) Portfolio turnover rate 19% 13% 33% ------------------------------------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
CLASS 1 FEBRUARY 8, 2010(e) TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 2012 2011 2010 ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.47 $ 10.63 $ 10.00 -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.08 0.06 (f) 0.01(f) Net realized and unrealized gain on investment and foreign currency transactions 0.48 0.17 0.62 -------- -------- -------- Total from investment operations 0.56 0.23 0.63 -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.07) (0.02) -0- Distributions from net realized gain on investment transactions (0.05) (0.37) -0- -------- -------- -------- Total dividends and distributions (0.12) (0.39) -0- -------- -------- -------- Net asset value, end of period $ 10.91 $ 10.47 $ 10.63 ======== ======== ======== TOTAL RETURN(a) 5.37% 2.20% 6.30% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $314,941 $290,436 $187,654 Average net assets (000 omitted) $309,928 $250,755 $ 93,386 Ratio to average net assets of: Expenses, net of waivers/reimbursements 0.89% 0.90% 0.90%++(d) Expenses, before waivers/reimbursement 0.89% 0.91% 1.08%++(d) Net investment income 0.75% 0.59%(f) 0.18%++(f)(d) Portfolio turnover rate 29% 14% 39% ------------------------------------------------------------------------------------------------------------------- |
CLASS 2 FEBRUARY 8, 2010(e) TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 2012 2011 2010 ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.49 $ 10.64 $ 10.00 ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Investment income, net+ 0.10 0.08(f) 0.02(f) Net realized and unrealized gain on investment and foreign currency transactions 0.47 0.17 0.62 ------- ------- ------- Total from investment operations 0.57 0.25 0.64 ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from taxable net investment income (0.08) (0.03) -0- Distributions from net realized gain on investment transactions (0.05) (0.37) -0- ------- ------- ------- Total dividends and distributions (0.13) (0.40) -0- ------- ------- ------- Net asset value, end of period $ 10.93 $ 10.49 $ 10.64 ======= ======= ======= TOTAL RETURN(a) 5.50% 2.38% 6.40% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $61,587 $47,730 $32,066 Average net assets (000 omitted) $57,931 $41,437 $16,930 Ratio to average net assets of: Expenses, net of waivers/reimbursements 0.74% 0.75% 0.75%++(d) Expenses, before waivers/reimbursement 0.74% 0.76% 1.05%++(d) Net investment income 0.90% 0.73%(f) 0.33%++(f)(d) Portfolio turnover rate 29% 14% 39% ------------------------------------------------------------------------------------------------------------------- |
Please refer to footnotes on page 141.
FinancialHighlights (notes)
* Includes the impact of proceeds received and credited to the Portfolio resulting from the class action settlements, which enhanced the performance of the Intermediate Duration Portfolio for the years ended September 30, 2009 and September 30, 2008 by 0.01% and 0.02%, respectively, of the Short Duration Plus Portfolio for the year ended September 30, 2010 and September 30, 2008 by 0.01% and 0.05%, respectively.
**Includes the Manager's reimbursement in respect of the Lehman Bankruptcy Claim which contributed to the Portfolio's performance by 0.10% for the year ended September 30, 2012.
^ The total return includes the impact of losses resulting from swap counterparty exposure to Lehman Brothers, which detracted from the performance of the Intermediate Duration Portfolio for the year ended September 30, 2008 by (0.16)%.
+ Based on average shares outstanding.
++Annualized.
++Net of fees and expenses waived by the Manager.
(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 net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.
(b)This reflects the return to a shareholder who purchased shares of the Portfolio at the beginning of the period and redeemed them at the end of the period, paying, in each case, the applicable portfolio transaction fee. Effective May 2, 2005 the portfolio transaction fee payable when shares of the Portfolio are purchased or sold was reduced from 2.00% to 1.00%. Total return to a shareholder for the years ending September 30, 2011, September 30, 2010, September 30, 2009, September 30, 2008 and September 30, 2007, without taking into account these transaction fees would have been (21.38)%, 18.55%, 15.85%, (34.93)% and 53.46%, respectively.
(c)Amount is less than $.005.
(d)The ratio includes expenses attributable to costs of proxy solicitation.
(e)Commencement of operations.
(f)Net of fees waived/reimbursed by the Manager.
For more information about the Portfolios, the following documents are available upon request:
. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The Portfolios' annual and semi-annual reports to shareholders contain additional information on the Portfolios' investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected a Portfolio's performance during its last fiscal year.
. STATEMENT OF ADDITIONAL INFORMATION (SAI) The Portfolios have an SAI, which contains more detailed information about the Portfolios, including their operations and investment policies. The Portfolios' SAI and the independent registered public accounting firms' reports and financial statements in each Portfolio's most recent annual report to shareholders are incorporated by reference into (and are legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI, or make inquiries concerning the Portfolios, by contacting your Bernstein advisor, or by contacting the Manager:
BY MAIL: AllianceBernstein L.P. 1345 Avenue of the Americas New York, NY 10105 BY PHONE: (212) 486-5800 ON THE INTERNET: www.bernstein.com |
Or you may view or obtain these documents from the Commission:
. Call the Commission at 1-202-551-8090 for information on the operation of the Public Reference Room.
. Reports and other information about the Portfolios are available on the EDGAR Database on the Commission's Internet site at http://www.sec.gov.
. Copies of the information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Commission's Public Reference Section, Washington DC 20549-1520.
FUND SEC FILE NO. --------------------------------------------- Sanford C. Bernstein Fund, Inc. 811-05555 |
PRIVACY NOTICE
(THIS INFORMATION IS NOT PART OF THE PROSPECTUS)
At Bernstein, protecting the privacy and confidentiality of our clients'
personal information is a priority. We understand that you have entrusted us
with your private financial information, and we do everything possible to
maintain that trust. The following sets forth details of our approach to
ensuring the confidentiality of your personal information. We never sell client
lists or information about our clients (or former clients) to anyone. In the
normal course of business we collect information about our clients from the
following sources: (1) account documentation, including applications or other
forms (which may include information such as the client's name, address, social
security number, assets, and income) and (2) information about our clients'
transactions with us (such as account balances and account activity). We have
strict policies and procedures to safeguard personal information about our
clients (or former clients) which include (1) restricting access and
(2) maintaining physical, electronic, and procedural safeguards that comply
with federal standards for protecting such information. To be able to serve our
clients and to provide financial products efficiently and accurately, it is
sometimes necessary to share information with companies that perform
administrative services for us or on our behalf. These companies are required
to use this information only for the services for which we hired them, and are
not permitted to use or share this information for any other purpose. If you
have any questions regarding the above policy, please call your Bernstein
advisor.
PRO-0119-0113
[GRAPHIC]
PROSPECTUS | JANUARY 31, 2013
AllianceBernstein Municipal Income Portfolios
AllianceBernstein Intermediate Municipal Portfolios Intermediate Diversified Municipal Portfolio (Class A-AIDAX; Class B-AIDBX; Class C-AIMCX) Intermediate California Municipal Portfolio (Class A-AICAX; Class B-ACLBX; Class C-ACMCX) Intermediate New York Municipal Portfolio (Class A-ANIAX; Class B-ANYBX; Class C-ANMCX) |
The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
[LOGO]
AB
ALLIANCEBERNSTEIN
INVESTMENT PRODUCTS OFFERED
. ARE NOT FDIC INSURED
. MAY LOSE VALUE
. ARE NOT BANK GUARANTEED
Page SUMMARY INFORMATION....................................................... 4 INTERMEDIATE MUNICIPAL PORTFOLIOS......................................... 4 INTERMEDIATE DIVERSIFIED MUNICIPAL PORTFOLIO............................ 4 INTERMEDIATE CALIFORNIA MUNICIPAL PORTFOLIO............................. 8 INTERMEDIATE NEW YORK MUNICIPAL PORTFOLIO............................... 12 ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS' RISKS AND INVESTMENTS........ 17 INVESTING IN THE PORTFOLIOS............................................... 24 How to Buy Shares....................................................... 24 The Different Share Class Expenses...................................... 25 Sales Charge Reduction Programs for Class A Shares...................... 26 CDSC Waivers and Other Programs......................................... 27 Choosing a Share Class.................................................. 28 Payments to Financial Advisors and Their Firms.......................... 28 How to Exchange Shares.................................................. 30 How to Sell or Redeem Shares............................................ 30 Frequent Purchases and Redemptions of Portfolio Shares.................. 30 How the Portfolios Value Their Shares................................... 32 MANAGEMENT OF THE PORTFOLIOS.............................................. 33 DIVIDENDS, DISTRIBUTIONS AND TAXES........................................ 35 GENERAL INFORMATION....................................................... 36 GLOSSARY.................................................................. 37 FINANCIAL HIGHLIGHTS...................................................... 38 APPENDIX A--HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION............... A-1 |
INVESTMENT OBJECTIVE:
The investment objective of the Portfolio is to provide safety of principal and
maximize total return after taking account of federal taxes.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AllianceBernstein Mutual Funds. More information about these and
other discounts is available from your financial intermediary and in Investing
in the Portfolios--Sales Charge Reduction Programs for Class A Shares on page
75 of this Prospectus and in Purchase of Shares--Sales Charge Reduction
Programs for Class A Shares on page 73 of the Portfolio's SAI.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS B SHARES CLASS A (NOT CURRENTLY OFFERED CLASS C SHARES TO NEW INVESTORS) SHARES ------------------------------------------------------------------------------------------------------------------------ Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 3.00% None None ------------------------------------------------------------------------------------------------------------------------ Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None 3.00%(a) 1.00%(b) ------------------------------------------------------------------------------------------------------------------------ Exchange Fee None None None |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
CLASS A CLASS B CLASS C ------------------------------------------------------------------ Management Fees .43% .43% .43% Distribution and/or Service (12b-1) Fees .30% 1.00% 1.00% Other Expenses: Transfer Agent .02% .07% .02% Other Expenses .03% .03% .03% ---- ----- ----- Total Other Expenses .05% .10% .05% ==== ===== ===== Total Annual Portfolio Operating Expenses .78% 1.53% 1.48% ==== ===== ===== ------------------------------------------------------------------ |
(a)Class B shares automatically convert to Class A shares after six years. The CDSC decreases over time. For Class B shares the CDSC decreases 1.00% annually to 0% after the third year.
(b)For Class C shares, the CDSC is 0% after the first year.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C ------------------------------------------------------------------------------- After 1 Year $ 377 $ 456 $ 251 After 3 Years $ 542 $ 583 $ 468 After 5 Years $ 720 $ 834 $ 808 After 10 Years $1,237 $1,435 $1,768 ------------------------------------------------------------------------------- |
For the share classes listed below, you would pay the following expenses if you did not redeem your shares at the end of period:
CLASS B CLASS C ------------------------------------------------------------------------------- After 1 Year $ 156 $ 151 After 3 Years $ 483 $ 468 After 5 Years $ 834 $ 808 After 10 Years $1,435 $1,768 ------------------------------------------------------------------------------- |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
Portfolio shares are held in a taxable account. These transaction costs, which
are not reflected in the Annual Portfolio Operating Expenses or in the
Examples, affect the Portfolio's performance. During the most recent fiscal
year, the Portfolio's portfolio turnover rate was 16% of the average value of
its portfolio.
PRINCIPAL STRATEGIES:
The Portfolio pursues its objective by, under normal circumstances, as a matter
of fundamental policy, investing at least 80% of its net assets in municipal
securities. The interest paid on these securities is generally exempt from
federal income tax, although in certain instances, it may be includable in
income subject to the federal AMT. The Portfolio will invest no more than 25%
of its total assets in municipal securities of issuers located in any one state.
The Portfolio also invests at least 80% of its total assets in municipal securities rated A or better by national rating agencies (or, if unrated, determined by the Adviser to be of comparable quality) and comparably rated municipal notes. The Portfolio may invest up to 20% of its total assets in fixed income securities rated BB or B by national rating agencies, which are not investment-grade (commonly known as "junk bonds").
The Portfolio may invest more than 25% of its net assets in revenue bonds, which generally do not have the pledge of the credit of the issuer. The Portfolio may also invest more than 25% of its total assets in securities or obligations that are related in such a way that business or political developments or changes affecting one such security could also affect the others (for example, securities with interest that is paid from projects of a similar type).
The Portfolio may also invest up to 20% of its net assets in fixed-income securities of U.S. issuers that are not municipal securities, if, in the Adviser's opinion, these securities will enhance the after-tax return for Portfolio investors.
The Portfolio may use derivatives, such as options, futures, forwards and swaps.
In managing the Portfolio, the Adviser may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Adviser may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of three and one-half to seven years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
PRINCIPAL RISKS:
. MARKET RISK: The value of the Portfolio's assets will fluctuate as the bond
market fluctuates. The value of the Portfolio's investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
. BELOW INVESTMENT GRADE SECURITIES RISK: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative performance of the junk bond market generally and less secondary market liquidity.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent the Portfolio invests in a particular state's municipal securities, it may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes and earthquakes. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. TAX RISK: There is no guarantee that all of the Portfolio's income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's NAV could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. DURATION RISK: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. Investments in derivatives may be illiquid, difficult to price or unwind, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over the life of the Portfolio; and
. how the Portfolio's average annual returns for one and five years and over the life of the Portfolio compare to those of a broad-based securities market index.
You may obtain updated performance information on the Portfolio's website at www.AllianceBernstein.com (click on "Individuals-U.S." then "Products & Performance").
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over the life of the Portfolio; and
. how the Portfolio's average annual returns for one and five years and over the life of the Portfolio compare to those of a broad-based securities market index.
You may obtain updated performance information on the Portfolio's website at www.AllianceBernstein.com (click on "Individuals-U.S." then "Products & Performance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class A shares and
do not reflect sales loads. If sales loads were reflected, returns would be
less than those shown.
[CHART] Calendar Year End (%) 03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.83% 2.26% 1.28% 2.88% 3.67% 2.28% 6.69% 2.40% 6.80% 2.90% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 3.99%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-2.12%, 4TH QUARTER, 2010.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS --------------------------------------------------------------------------------------------------- Class A* Return Before Taxes -0.20% 3.55% 3.17% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions -0.25% 3.50% 3.14% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 0.74% 3.44% 3.11% --------------------------------------------------------------------------------------------------- Class B Return Before Taxes -0.93% 3.45% 3.05% --------------------------------------------------------------------------------------------------- Class C Return Before Taxes 1.18% 3.47% 2.77% --------------------------------------------------------------------------------------------------- Barclays 5-Year General Obligation Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.36% 5.10% 4.21% --------------------------------------------------------------------------------------------------- |
* After-tax Returns:
-Are shown for Class A shares only and will vary for Class B and C shares because these Classes have higher expense ratios;
-Are an estimate, which is based on the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT ADVISER:
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE --------------------------------------------------------------------------- Michael G. Brooks Since 1999 Senior Vice President of the Adviser Fred S. Cohen Since 1994 Senior Vice President of the Adviser R.B. Davidson III Since Inception Senior Vice President of the Adviser Wayne Godlin Since 2010 Senior Vice President of the Adviser Terrance T. Hults Since 2002 Senior Vice President of the Adviser |
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 64 in this Prospectus.
INVESTMENT OBJECTIVE:
The investment objective of the Portfolio is to provide safety of principal and
maximize total return after taking account of federal and state taxes for
California residents.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AllianceBernstein Mutual Funds. More information about these and
other discounts is available from your financial intermediary and in Investing
in the Portfolios--Sales Charge Reduction Programs for Class A Shares on page
75 of this Prospectus, and in Purchase of Shares--Sales Charge Reduction
Programs for Class A Shares on page 73 of the Portfolio's SAI.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS B SHARES CLASS A (NOT CURRENTLY OFFERED CLASS C SHARES TO NEW INVESTORS) SHARES ------------------------------------------------------------------------------------------------------------------------ Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 3.00% None None ------------------------------------------------------------------------------------------------------------------------ Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None 3.00%(a) 1.00%(b) ------------------------------------------------------------------------------------------------------------------------ Exchange Fee None None None |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
CLASS A CLASS B CLASS C ------------------------------------------------------------------------------- Management Fees .49% .49% .49% Distribution and/or Service (12b-1) Fees .30% 1.00% 1.00% Other Expenses: Transfer Agent .03% .05% .04% Other Expenses .05% .05% .05% ---- ----- ----- Total Other Expenses .08% .10% .09% ---- ----- ----- Total Portfolio Operating Expenses .87% 1.59% 1.58% ==== ===== ===== ------------------------------------------------------------------------------- |
(a)Class B shares automatically convert to Class A shares after six years. The CDSC decreases over time. For Class B shares the CDSC decreases 1.00% annually to 0% after the third year.
(b)For Class C shares, the CDSC is 0% after the first year.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C ------------------------------------------------------------------------------- After 1 Year $ 386 $ 462 $ 261 After 3 Years $ 569 $ 602 $ 499 After 5 Years $ 768 $ 866 $ 860 After 10 Years $1,340 $1,519 $1,878 ------------------------------------------------------------------------------- |
For the share classes listed below, you would pay the following expenses if you did not redeem your shares at the end of period:
CLASS B CLASS C ------------------------------------------------------------------------------- After 1 Year $ 162 $ 161 After 3 Years $ 502 $ 499 After 5 Years $ 866 $ 860 After 10 Years $1,519 $1,878 ------------------------------------------------------------------------------- |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
Portfolio shares are held in a taxable account. These transaction costs, which
are not reflected in the Annual Portfolio Operating Expenses or in the
Examples, affect the Portfolio's performance. During the most recent fiscal
year, the Portfolio's portfolio turnover rate was 15% of the average value of
its portfolio.
PRINCIPAL STRATEGIES:
The Portfolio pursues its objective by, under normal circumstances, as a matter
of fundamental policy, investing at least 80% of its net assets in municipal
securities. In addition, the Portfolio invests, under normal circumstances, as
a matter of fundamental policy, at least 80% of its net assets in a portfolio
of municipal securities issued by California or its political subdivisions, or
otherwise exempt from California's state income tax. The interest paid on those
securities is generally exempt from federal and California state personal
income tax, although in certain instances, it may be includable in income
subject to the federal AMT.
The Portfolio invests at least 80% of its total assets in municipal securities rated A or better by national rating agencies (or, if unrated, determined by the Adviser to be of comparable quality) and comparably rated municipal notes. The Portfolio may invest up to 20% of its total assets in fixed-income securities rated BB or B by national rating agencies, which are not investment-grade (commonly known as "junk bonds").
The Portfolio may invest more than 25% of its net assets in revenue bonds, which generally do not have the pledge of the credit of the issuer. The Portfolio may also invest more than 25% of its total assets in securities or obligations that are related in such a way that business or political developments or changes affecting one such security could also affect the others (for example, securities with interest that is paid from projects of a similar type).
The Portfolio may also invest up to 20% of its net assets in fixed-income securities of U.S. issuers that are not municipal securities if, in the Adviser's opinion, these securities will enhance the after-tax return for California investors.
The Portfolio may use derivatives, such as options, futures, forwards and swaps.
In managing the Portfolio, the Adviser may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Adviser may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of three and one-half to seven years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Adviser takes into account various factors, including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
The Portfolio is "non-diversified", meaning that it can invest more of its assets in a fewer number of issuers.
PRINCIPAL RISKS:
. MARKET RISK: The value of the Portfolio's assets will fluctuate as the bond
market fluctuates. The value of the Portfolio's investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
. BELOW INVESTMENT GRADE SECURITIES RISK: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative performance of the junk bond market generally and less secondary market liquidity.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. Most of the Portfolio's investments are in California municipal securities. Thus, the Portfolio may be vulnerable to events adversely affecting California's economy. California's economy, the largest of the 50 states, however, continues to be affected by serious fiscal conditions as a result of voter-passed initiatives that limit the ability of state and local governments to raise revenues, particularly with respect to real property taxes. The recent economic downturn has had a severe and negative
impact on California, causing a significant deterioration in California's economic base. In addition, state expenditures are difficult to reduce because of constitutional provisions that require a minimum level of spending, for certain government programs, such as education. California's economy may also be affected by natural disasters, such as earthquakes or fires. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. TAX RISK: There is no guarantee that all of the Portfolio's income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's NAV could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. DURATION RISK: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. NON-DIVERSIFICATION RISK: Concentration of investments in a small number of securities tends to increase risk. The Portfolio may have more risk because it is "non-diversified", meaning that it can invest more of its assets in a smaller number of issuers.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. Investments in derivatives may be illiquid, difficult to price or unwind, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over the life of the Portfolio; and
. how the Portfolio's average annual returns for one and five years and over the life of the Portfolio compare to those of a broad-based securities market index.
You may obtain updated performance information on the Portfolio's website at www.AllianceBernstein.com (click on "Individuals-U.S." then "Products & Performance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class A shares and
do not reflect sales loads. If sales loads were reflected, returns would be
less than those shown.
[CHART] Calendar Year End (%) 03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.43% 2.35% 1.29% 3.02% 3.65% 1.23% 6.59% 2.90% 7.07% 3.11% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 4.96%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-2.53%, 4TH QUARTER, 2010.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS --------------------------------------------------------------------------------------------------- Class A* Return Before Taxes 0.00% 3.52% 3.13% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions -0.02% 3.47% 3.09% ----------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Portfolio Shares 0.92% 3.43% 3.08% --------------------------------------------------------------------------------------------------- Class B Return Before Taxes -0.56% 3.43% 3.01% --------------------------------------------------------------------------------------------------- Class C Return Before Taxes 1.39% 3.43% 2.72% --------------------------------------------------------------------------------------------------- Barclays 5-Year General Obligation Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.36% 5.10% 4.21% --------------------------------------------------------------------------------------------------- |
* After-tax Returns:
-Are shown for Class A shares only and will vary for Class B and C shares because these Classes have higher expense ratios;
-Are an estimate, which is based on the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT ADVISER:
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE --------------------------------------------------------------------------- Michael G. Brooks Since 1999 Senior Vice President of the Adviser Fred S. Cohen Since 1994 Senior Vice President of the Adviser R.B. Davidson III Since Inception Senior Vice President of the Adviser Wayne Godlin Since 2010 Senior Vice President of the Adviser Terrance T. Hults Since 2002 Senior Vice President of the Adviser |
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 64 in this Prospectus.
INVESTMENT OBJECTIVE:
The investment objective of the Portfolio is to provide safety of principal and
maximize total return after taking account of federal, state and local taxes
for New York residents.
FEES AND EXPENSES OF THE PORTFOLIO:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AllianceBernstein Mutual Funds. More information about these and
other discounts is available from your financial intermediary and in Investing
in the Portfolios--Sales Charge Reduction Programs for Class A Shares on page
75 of this Prospectus and in Purchase of Shares--Sales Charge Reduction
Programs for Class A Shares on page 73 of the Portfolio's SAI.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS B SHARES CLASS A (NOT CURRENTLY OFFERED CLASS C SHARES TO NEW INVESTORS) SHARES ------------------------------------------------------------------------------------------------------------------------ Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 3.00% None None ------------------------------------------------------------------------------------------------------------------------ Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None 3.00%(a) 1.00%(b) ------------------------------------------------------------------------------------------------------------------------ Exchange Fee None None None |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
CLASS A CLASS B CLASS C ----------------------------------------------------------------- Management Fees .48% .48% .48% Distribution and/or Service (12b-1) Fees .30% 1.00% 1.00% Other Expenses: Transfer Agent .03% .08% .03% Other Expenses .04% .04% .04% ---- ----- ----- Total Other Expenses .07% .12% .07% ---- ----- ----- Total Portfolio Operating Expenses .85% 1.60% 1.55% ==== ===== ===== ----------------------------------------------------------------- |
(a)Class B shares automatically convert to Class A shares after six years. The CDSC decreases over time. For Class B shares the CDSC decreases 1.00% annually to 0% after the third year.
(b)For Class C shares, the CDSC is 0% after the first year.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C --------------------------------------- After 1 Year $ 384 $ 463 $ 258 After 3 Years $ 563 $ 605 $ 490 After 5 Years $ 757 $ 871 $ 845 After 10 Years $1,318 $1,514 $1,845 --------------------------------------- |
For the share classes listed below, you would pay the following expenses if you did not redeem your shares at the end of period:
CLASS B CLASS C ------------------------------- After 1 Year $ 163 $ 158 After 3 Years $ 505 $ 490 After 5 Years $ 871 $ 845 After 10 Years $1,514 $1,845 ------------------------------- |
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
Portfolio shares are held in a taxable account. These transaction costs, which
are not reflected in the Annual Portfolio Operating Expenses or in the
Examples, affect the Portfolio's performance. During the most recent fiscal
year, the Portfolio's portfolio turnover rate was 14% of the average value of
its portfolio.
PRINCIPAL STRATEGIES:
The Portfolio pursues its objective by, under normal circumstances, as a matter
of fundamental policy, investing at least 80% of its net assets in municipal
securities. In addition, the Portfolio invests, under normal circumstances, as
a matter of fundamental policy, at least 80% of its net assets in a portfolio
of municipal securities issued by New York or its political subdivisions, or
otherwise exempt from New York state income tax. The interest paid on these
securities is generally exempt from federal and New York state and local
personal income tax, although in certain instances, it may be includable in
income subject to the federal AMT.
The Portfolio also invests at least 80% of its total assets in municipal securities rated A or better by national rating agencies (or, if unrated, determined by the Adviser to be of comparable quality) and comparably rated municipal notes. The Portfolio may invest up to 20% of the total assets in fixed-income securities rated BB or B by national rating agencies, which are not investment-grade (commonly known as "junk bonds").
The Portfolio may invest more than 25% of its net assets in revenue bonds, which generally do not have the pledge of the credit of the issuer. The Portfolio may also invest more than 25% of its total assets in securities or obligations that are related in such a way that business or political developments or changes affecting one such security could also affect the others (for example, securities with interest that is paid from projects of a similar type).
The Portfolio may also invest up to 20% of its net assets in fixed-income securities of U.S. issuers that are not municipal securities if, in the Adviser's opinion, these securities will enhance the after-tax return for New York investors.
The Portfolio may also use derivatives, such as options, futures, forwards and swaps.
In managing the Portfolio, the Adviser may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Adviser may moderately shorten the average duration of the Portfolio when it expects interest rates to rise and modestly lengthen average duration when it anticipates that interest rates will fall.
The Portfolio seeks to maintain an effective duration of three and one-half to seven years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average term to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments.
The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio's other holdings.
The Portfolio is "non-diversified", meaning that it can invest more of its assets in a fewer number of issuers.
PRINCIPAL RISKS:
. MARKET RISK: The value of the Portfolio's assets will fluctuate as the bond
market fluctuates. The value of the Portfolio's investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
. BELOW INVESTMENT GRADE SECURITIES RISK: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative performance of the junk bond market generally and less secondary market liquidity.
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio's investments in municipal securities. These factors include economic
conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. Most of the Portfolio's investments are in New York municipal securities. Thus, the Portfolio may be vulnerable to events adversely affecting New York's economy. New York's economy has a relatively large share of the nation's financial activities. With the financial services sector contributing over one-fifth of the state's wages, the state's economy is especially vulnerable to adverse events affecting the financial markets such as occurred in 2008-2009. The Portfolio's investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project's ability to make payments of principal and interest on these securities.
. TAX RISK: There is no guarantee that all of the Portfolio's income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio's NAV could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio's yield.
. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. DURATION RISK: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. PREPAYMENT AND EXTENSION RISK: Prepayment risk is the risk that a loan, bond or other security might be called or otherwise converted, prepaid or redeemed before maturity. If this happens, particularly during a time of declining interest rates or credit spreads, the Portfolio may not be able to invest the proceeds in securities providing as much income, resulting in a lower yield to the Portfolio. Conversely, extension risk is the risk that as interest rates rise or spreads widen, payments of securities may occur more slowly than anticipated by the market. When this happens, the values of these securities may go down because their interest rates are lower than current market rates and they remain outstanding longer than anticipated.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio's assets can decline as can the value of the Portfolio's distributions. This risk is significantly greater for fixed-income securities with longer maturities.
. NON-DIVERSIFICATION RISK: Concentration of investments in a small number of securities tends to increase risk. The Portfolio may have more risk because it is "non-diversified", meaning that it can invest more of its assets in a smaller number of issuers.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these illiquid securities at an advantageous price. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
. DERIVATIVES RISK: The Portfolio may use derivatives as direct investments to earn income, enhance return and broaden portfolio diversification, which entail greater risk than if used solely for hedging purposes. Investments in derivatives may be illiquid, difficult to price or unwind, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
. MANAGEMENT RISK: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
. how the Portfolio's performance changed from year to year over the life of the Portfolio; and
. how the Portfolio's average annual returns for one and five years and over the life of the Portfolio compare to those of a broad-based securities market index.
You may obtain updated performance information on the Portfolio's website at www.AllianceBernstein.com (click on "Individuals-U.S." then "Products & Performance").
The Portfolio's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future.
BAR CHART
The annual returns in the bar chart are for the Portfolio's Class A shares and
do not reflect sales loads. If sales loads were reflected, returns would be
less than those shown.
[CHART] Calendar Year End (%) 03 04 05 06 07 08 09 10 11 12 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.69% 2.26% 1.39% 2.93% 3.77% 0.98% 7.89% 2.48% 6.32% 2.83% |
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 4.45%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-2.10%, 4TH QUARTER, 2010.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
1 YEAR 5 YEARS 10 YEARS --------------------------------------------------------------------------------------------------- Class A* Return Before Taxes -0.26% 3.44% 3.12% ----------------------------------------------------------------- ------ ------- -------- Return After Taxes on Distributions -0.27% 3.40% 3.09% ----------------------------------------------------------------- ------ ------- -------- Return After Taxes on Distributions and Sale of Portfolio Shares 0.73% 3.34% 3.08% --------------------------------------------------------------------------------------------------- Class B Return Before Taxes -0.86% 3.34% 3.01% --------------------------------------------------------------------------------------------------- Class C Return Before Taxes 1.17% 3.36% 2.72% --------------------------------------------------------------------------------------------------- Barclays 5-Year General Obligation Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.36% 5.10% 4.21% --------------------------------------------------------------------------------------------------- |
* After-tax Returns:
-Are shown for Class A shares only and will vary for Class B and C shares because these Classes have higher expense ratios;
-Are an estimate, which is based on the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Portfolio shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT ADVISER:
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE --------------------------------------------------------------------------- Michael G. Brooks Since 1999 Senior Vice President of the Adviser Fred S. Cohen Since 1994 Senior Vice President of the Adviser R.B. Davidson III Since Inception Senior Vice President of the Adviser Wayne Godlin Since 2010 Senior Vice President of the Adviser Terrance T. Hults Since 2002 Senior Vice President of the Adviser |
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 64 in this Prospectus.
ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL INTERMEDIARIES
. PURCHASE AND SALE OF PORTFOLIO SHARES
PURCHASE MINIMUMS
INITIAL SUBSEQUENT ------------------------------------------------------------------------------------------------------------ Class A/Class C Shares, including traditional IRAs and Roth IRAs $2,500 $50 (Class B Shares are not currently offered to new shareholders) ------------------------------------------------------------------------------------------------------------ Automatic Investment Program None $50 If initial investment is less than $2,500, then $200 monthly until account balance reaches $2,500 ------------------------------------------------------------------------------------------------------------ |
You may sell (redeem) your shares each day the New York Stock Exchange ("Exchange") is open. You may sell your shares through your financial intermediary or by mail (AllianceBernstein Investor Services, Inc., P.O. Box 786003, San Antonio, TX 78278-6003) or telephone (800-221-5672).
. TAX INFORMATION
The Portfolios may make capital gains distributions, which may be taxable as ordinary income or capital gains, and income dividends. The Portfolios anticipate that substantially all of their income dividends will be exempt from regular federal income tax and, for Portfolios that invest in a named state, relevant state and local personal income taxes.
. PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase shares of a Portfolio through a broker-dealer or other financial intermediary (such as a bank), the Portfolio and its related companies may pay the intermediary for the sale of Portfolio shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary and your salesperson to recommend the Portfolio over another investment. Ask your salesperson or visit your financial intermediary's website for more information.
This section of the Prospectus provides additional information about the Portfolios' investment practices and related risks. Most of these investment practices are discretionary, which means that the Adviser may or may not decide to use them. This Prospectus does not describe all of a Portfolio's investment practices and additional descriptions of each Portfolio's risks and investments can be found in the Portfolios' SAIs.
MUNICIPAL SECURITIES. The two principal classifications of municipal securities are bonds and notes. Municipal bonds are intended to meet longer-term capital needs while municipal notes are intended to fulfill short-term capital needs. Municipal notes generally have original maturities not exceeding one year. Municipal notes include tax anticipation notes, revenue anticipation notes, bond anticipation notes, variable rate demand obligations, and tax-exempt commercial paper.
Municipal bonds are typically classified as "general obligation" or "revenue" or "special obligation" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit, and taxing power for the payment of principal and interest. Revenue or special obligation bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other tax, but not from general tax revenues. Each Portfolio may invest more than 25% of its net assets in revenue bonds, which generally do not have the pledge of the credit of the issuer. The payment of the principal and interest on revenue bonds is dependent solely on the ability of the user of the facilities financed by the bonds to meet its financial obligations and the pledge, if any, of real and personal property financed as security for such payment.
The Portfolios may invest in municipal lease obligations. A municipal lease obligation is not backed by the full faith and credit of the issuing municipality, but is usually backed by the municipality's pledge to make annual appropriations for lease payments. Thus, it is possible that a municipality will not appropriate money for lease payments. Additionally, some municipal lease obligations may allow for lease cancellation prior to the maturity date of the security. Municipal lease obligations may be less readily marketable than other municipal securities and some may be illiquid.
Current federal tax law distinguishes between municipal securities issued to finance certain private activities ("private activity bonds") and other municipal securities. Private activity bonds, most of which are AMT-Subject bonds and are also revenue bonds, include bonds issued to finance such projects as airports, housing projects, resource recovery programs, solid waste disposal facilities, and student loan programs. Bonds of certain sectors have special risks. For example, the health-care industry can be affected by federal or state legislation, electric utilities are subject to governmental regulation, and private-activity bonds are not government-backed. Attempts to restructure the tax system may have adverse effects on the value of municipal securities or make them less attractive to investors relative to taxable treatments. It is generally expected that the AllianceBernstein Intermediate Municipal Portfolios will not retain a security downgraded below B by Moody's, S&P and Fitch or if unrated, determined by the Adviser to have undergone similar credit quality deterioration.
INVESTMENT IN BELOW INVESTMENT GRADE MUNICIPAL SECURITIES. The Portfolios may also invest in below investment grade tax-exempt securities. Investments in these securities may be subject to greater risk of loss of principal and interest than higher-rated securities. These securities are also generally considered to be subject to greater market risk than higher-rated securities. The capacity of issuers of these 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, below investment grade securities may be more susceptible to real or perceived adverse economic conditions than investment grade securities.
The market for these 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 these securities, a Portfolio may experience difficulty in valuing such securities and, in turn, the Portfolio's assets.
UNRATED SECURITIES. Unrated municipal securities may be purchased by a Portfolio when the Adviser believes that the financial condition of the issuers of such obligations or the protections afforded by their terms limit risk to a level comparable to that of rated securities that are consistent with the Portfolio's investment policies.
As of the Portfolios' fiscal years ended in 2012, the percentages of the Portfolios' total net assets invested in securities rated in particular rating categories by S&P or, if not rated by S&P, considered by the Adviser to be of equivalent quality to such ratings, and the percentage of the Portfolios' net assets invested in AMT-Subject bonds, were as follows:
BELOW AMT- INVESTMENT SUBJECT PRE- NOT PORTFOLIO AAA AA A BBB SP-1+ GRADE BONDS* REFUNDED RATED --------------------------------------------------------------------------------- ALLIANCEBERNSTEIN INTERMEDIATE MUNICIPAL PORTFOLIOS: --------------------------------------------------------------------------------- Intermediate Diversified Municipal 12.4% 45.2% 31.6% 2.9% 0.0% 0.6% 4.7% 3.6% 1.0% Intermediate California Municipal 2.5 61.6 22.6 4.8 0.0 0.1 7.0 7.1 1.4 Intermediate New York Municipal 20.7 40.3 24.4 6.1 0.0 0.1 3.8 4.1 1.1 |
*The percentage is as of December 31, 2012.
INSURED SECURITIES. The Portfolios may purchase municipal securities that are insured as to the payment of principal and
interest under policies issued by certain insurance companies. Historically, insured municipal securities typically received a higher credit rating, which meant that the issuer of the securities paid a lower interest rate. As a result of declines in the credit quality and associated downgrades of most insurers, insurance has less value than it did in the past. The market now values insured municipal securities primarily based on the credit quality of the issuer of the security with little value given to the insurance feature. In purchasing such insured securities, the Adviser evaluates the risk and return of municipal securities through its own research.
If an insurance company's rating is downgraded or the company becomes insolvent, the prices of municipal securities insured by the insurance company may decline. As of the Portfolios' fiscal years ended in 2012, the Portfolios' percentage of total investments in insured bonds and the respective amounts of which are pre-refunded bonds (bonds that are backed or secured by U.S. treasury bonds) were as follows:
PORTFOLIO INSURED BONDS PRE-REFUNDED BONDS -------------------------------------------------------------------- ALLIANCEBERNSTEIN INTERMEDIATE MUNICIPAL PORTFOLIOS: -------------------------------------------------------------------- Intermediate Diversified Municipal Portfolio 19.95% 1.72% Intermediate California Municipal Portfolio 10.69 1.13 Intermediate New York Municipal Portfolio 10.73 1.31 |
The Adviser believes that downgrades in insurance company ratings or insurance company insolvencies present limited risk to the Portfolios. The generally investment grade underlying credit quality of the insured municipal securities reduces the risk of a significant reduction in the value of the insured municipal security.
DERIVATIVES. Each Portfolio may, but is not required to, use derivatives for hedging or risk management purposes or as part of its investment strategies. Derivatives are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index. A Portfolio may use derivatives to earn income and enhance returns, to hedge or adjust the risk profile of its investments, to replace more traditional direct investments and to obtain exposure to otherwise inaccessible markets.
There are four principal types of derivatives--options, futures, forwards and swaps--each of which is described below. Derivatives may be (i) standardized, exchange-traded contracts or (ii) customized, privately negotiated contracts. Exchange-traded derivatives tend to be more liquid and subject to less credit risk than those that are privately negotiated.
A Portfolio's use of derivatives may involve risks that are different from, or possibly greater than, the risks associated with investing directly in securities or other more traditional instruments. These risks include the risk that the value of a derivative instrument may not correlate perfectly, or at all, with the value of the assets, reference rates, or indices that they are designed to track. Other risks include the possible absence of a liquid secondary market for a particular instrument and possible exchange-imposed price fluctuation limits, either of which may make it difficult or impossible to close out a position when desired and the risk that the counterparty will not perform its obligations. Certain derivatives may have a leverage component and involve leverage risk. Adverse changes in the value or level of the underlying asset, note or index can result in a loss substantially greater than the Portfolio's investment (in some cases, the potential loss is unlimited).
The Portfolios' investments in derivatives may include, but are not limited to, the following:
. FORWARD CONTRACTS. A forward contract is an agreement that obligates one party to buy, and the other party to sell, a specific quantity of an underlying commodity or other tangible asset for an agreed-upon price at a future date. A forward contract generally is settled by physical delivery of the commodity or tangible asset to an agreed-upon location (rather than settled by cash) or is rolled forward into a new forward contract, or in the case of a non-deliverable forward, by a cash payment at maturity.
. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A futures contract is a standardized, exchange-traded agreement that obligates the buyer to buy and the seller to sell a specified quantity of an underlying asset (or settle for cash the value of a contract based on an underlying asset, rate, or index) at a specific price on the contract maturity date. Options on futures contracts are options that call for the delivery of futures contracts upon exercise. Futures contracts that a Portfolio may buy and sell may include futures contracts on municipal securities, U.S. Government securities and contracts based on an index of municipal securities, U.S. Government securities, or financial indices or reference rates. Options on futures contracts written or purchased by the Intermediate Municipal Portfolios will be traded on U.S. exchanges and will be used only for hedging purposes or to manage the effective maturity or duration of fixed-income securities.
. OPTIONS. An option is an agreement that, for a premium payment or fee, gives the option holder (the buyer) the right but not the obligation to buy (a "call option") or sell (a "put option") the underlying asset (or settle for cash an amount based on an underlying asset, rate, or index) at a specified price (the exercise price) during a period of time or on a specified date. Investments in options are considered speculative. A Portfolio may lose the premium paid for them if the price of the underlying security or other asset decreased or remained the same (in the case of a call option) or increased or remained the same (in the case of a put option). If a put or call option purchased by a Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. The Portfolios' investments in options include the following:
- Options on Municipal and U.S. Government Securities. In an effort to increase current income and to reduce fluctuations in NAV, the Portfolios may write covered or uncovered put and call options and purchase put and call options on municipal securities, U.S. Government securities and financial indices or reference rates. The Portfolios may also enter into options on the yield "spread" or
yield differential between two securities. In contrast to other types of options, this option is based on the difference between the yields of designated securities, futures or other instruments. In addition, the Portfolios may write covered straddles. A straddle is a combination of a call and a put written on the same underlying security. In purchasing an option on securities, a Portfolio would be in a position to realize a gain if, during the option period, the price of the underlying securities 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 Portfolio would experience a loss not greater than the premium paid for the option. Thus, a Portfolio would realize a loss if the price of the underlying security declined or remained the same (in the case of a call) or increased or remained the same (in the case of a put) or otherwise did not increase (in the case of a put) or decrease (in the case of a call) by more than the amount of the premium. If a put or call option purchased by a Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio.
A Portfolio that purchases or writes privately negotiated options on securities will effect such transactions only with investment dealers and other financial institutions (such as commercial banks or savings and loan institutions) deemed creditworthy by the Adviser. The Adviser has adopted procedures for monitoring the creditworthiness of such counterparties.
None of the Intermediate Municipal Portfolios will write any option if, immediately thereafter, the aggregate value of the Portfolio's securities subject to outstanding options will exceed 25% of its net assets.
- Options on Municipal and U.S. Government Securities Indices. An option on a securities index is similar to an option on a security except that, rather than taking or making 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.
. SWAP TRANSACTIONS. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals (payment dates) based upon or calculated by reference to changes in specified prices or rates (e.g., interest rates in the case of interest rate swaps) for a specified amount of an underlying asset (the "notional" principal amount). The notional principal amount is used solely to calculate the payment stream, but is not exchanged. Most swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments). Payments received by a Portfolio from swap agreements will result in taxable income, either as ordinary income or capital gains, rather than tax-exempt income, which will increase the amount of taxable distributions received by shareholders. The Portfolios' investments in swap transactions include the following:
- Interest Rate Swaps, Swaptions, Caps and Floors. Interest rate swaps involve the exchange by a Portfolio with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating rate payments for fixed rate payments). Unless there is a counterparty default, the risk of loss to the Portfolio from interest rate swap transactions is limited to the net amount of interest payments that the Portfolio is contractually obligated to make. If the counterparty to an interest rate swap transaction defaults, the Portfolio's risk of loss consists of the net amount of interest payments that the Portfolio contractually is entitled to receive.
An option on a swap agreement, also called a "swaption", is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based "premium". A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
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 the 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. Caps and floors may be less liquid than swaps.
There is no limit on the amount of interest rate transactions that may be entered into by a Portfolio. The value of these transactions will fluctuate based on changes in interest rates.
Interest rate swap, swaption, cap or floor transactions may be used to preserve a return or spread on a particular investment or portion of a Portfolio's portfolio or to protect against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Interest rate swaps may also be used to leverage a Portfolio's investments by creating positions that are functionally similar to purchasing a municipal or other fixed-income security but may only require payments to a swap counterparty under certain circumstances and allow the Portfolio to efficiently increase (or decrease) its duration and income. The Intermediate Municipal Portfolios may enter into these transactions as a duration management technique.
The Intermediate Municipal Portfolios will enter into interest rate swap, swaption, cap or floor transactions only
with counterparties whose debt securities (or whose guarantors' debt securities) are rated at least A (or the equivalent) by at least one national recognized statistical rating organization ("NRSRO") and are on the Adviser's approval list of swap counterparties for that Portfolio.
- Inflation (CPI) Swaps. Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swap agreements may be used to protect the NAV of a Portfolio against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements may be expected to increase if unexpected inflation increases. A Portfolio will enter into inflation swaps on a net basis. The values of inflation swap agreements are expected to change in response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and the rate of inflation. If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value of an inflation swap agreement.
- Credit Default Swap Agreements. The "buyer" in a credit default swap contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract in return for a contingent payment upon the occurrence of a credit event with respect to an underlying reference obligation. Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or restructuring. A Portfolio may be either the buyer or seller in the transaction. As a seller, a Portfolio receives a fixed rate of income throughout the term of the contract, which typically is between one month and ten years, provided that no credit event occurs. If a credit event occurs, a Portfolio typically must pay the contingent payment to the buyer, which will be either (i) the "par value" (face amount) of the reference obligation in which case the Portfolio will receive the reference obligation in return or (ii) an amount equal to the difference between the par value and the current market value of the reference obligation. The periodic payments previously received by the Portfolio, coupled with the value of any reference obligation received, may be less than the full amount it pays to the buyer, resulting in a loss to the Portfolio. If the reference obligation is a defaulted security, physical delivery of the security will cause a Portfolio to hold a defaulted security. If a Portfolio is a buyer and no credit event occurs, the Portfolio will lose its periodic stream of payments over the term of the contract. However, if a credit event occurs, the buyer typically receives full notional value for a reference obligation that may have little or no value.
Credit default swaps may involve greater risks than if a Portfolio had invested in the reference obligation directly. Credit default swaps are subject to general market risk, liquidity risk and credit risk.
The Intermediate Municipal Portfolios will enter into credit default swap transactions only with counterparties whose debt securities (or whose guarantors' debt securities) are rated at least A (or the equivalent) by at least one NRSRO and are on the Adviser's approved list of swap counterparties for that Portfolio. These Portfolios will not enter into a credit default swap that provides for physical delivery of the underlying obligation if, at the time of entering into the swap, such delivery would result in a Portfolio investing more than 20% of its total assets in securities rated lower than A by a NRSRO. A subsequent deterioration of the credit quality of the underlying obligation will not cause a Portfolio to dispose of the credit default swap.
FORWARD COMMITMENTS. Each Portfolio may purchase or sell municipal securities on a forward commitment basis. 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 or approval of a proposed financing by appropriate authorities (i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but payment for and delivery of the securities take place at a later date. 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. There is the risk of loss if the value of either a purchased security declines before the settlement date or the security sold increases before the settlement date. The use of forward commitments helps a Portfolio to protect against anticipated changes in interest rates and prices.
ILLIQUID SECURITIES. Under current Securities and Exchange Commission (the "SEC") guidelines, each Portfolio limits its investments in illiquid securities to 15% of its net assets. The term "illiquid securities" for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount a Portfolio has valued the securities. A Portfolio that invests in illiquid securities may not be able to sell such securities and may not be able to realize their full value upon sale. Restricted securities (securities subject to legal or contractual restrictions on resale) may be illiquid. Some restricted securities (such as securities issued pursuant to Rule 144A under the Securities Act of 1933 or certain commercial paper) may be treated as liquid, although they may be less liquid than registered securities traded on established secondary markets.
MORTGAGE-RELATED SECURITIES. A Portfolio may invest in mortgage-related securities. Mortgage-related securities include mortgage pass-through securities, collateralized mortgage obligations ("CMOs"), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed
securities ("SMBSs") and other securities that directly or indirectly represent a participation in or are secured by and payable from mortgage loans on real property. These securities may be issued or guaranteed by the U.S. Government or one of its sponsored entities or may be issued by private organizations.
The value of mortgage-related securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Portfolio to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Portfolio may not be able to realize the rate of return it expected.
One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or "IO" class). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the Portfolio's yield to maturity from these securities.
PREFERRED STOCK. Each Portfolio may invest in preferred stock. Preferred stock is subordinated to any debt the issuer has outstanding. Accordingly, preferred stock dividends are not paid until all debt obligations are first met. Preferred stock may be subject to more fluctuations in market value, due to changes in market participants' perceptions of the issuer's ability to continue to pay dividends, than debt of the same issuer.
REPURCHASE AGREEMENTS AND BUY/SELL BACK TRANSACTIONS. A Portfolio may enter into repurchase agreements in which a Portfolio purchases a security from a bank or broker-dealer, which agrees to repurchase the security from the Portfolio at an agreed-upon future date, normally a day or a few days later. The purchase and repurchase transactions are transacted under one agreement. 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 Portfolio to keep all of its assets at work while retaining "overnight" flexibility in pursuit of investments of a longer-term nature. If the bank or broker-dealer defaults on its repurchase obligation, a Portfolio would suffer a loss to the extent that the proceeds from the sale of the security were less than the repurchase price.
A Portfolio may enter into buy/sell back transactions, which are similar to repurchase agreements. In this type of transaction, a Portfolio enters a trade to buy securities at one price and simultaneously enters a trade to sell the same securities at another price on a specified date. Similar to a repurchase agreement, the repurchase price is higher than the sale price and reflects current interest rates. Unlike a repurchase agreement, however, the buy/sell back transaction is considered two separate transactions.
STRUCTURED PRODUCTS. A Portfolio may invest in certain hybrid derivatives-type investments that combine a traditional stock or bond with, for example, a futures contract or an option. These investments include structured notes and indexed securities, commodity-linked notes and commodity index-linked notes and credit-linked securities. The performance of the structured product, which is generally a fixed-income security, is tied (positively or negatively) to the price or prices of an unrelated reference indicator such as a security or basket of securities, currencies, commodities, a securities or commodities index or a credit default swap or other kinds of swaps. The structured product may not pay interest or protect the principal invested. The structured product or its interest rate may be a multiple of the reference indicator and, as a result, may be leveraged and move (up or down) more rapidly than the reference indicator. Investments in structured products may provide a more efficient and less expensive means of investing in underlying securities, commodities or other derivatives, but may potentially be more volatile, less liquid and carry greater market risk than investments in traditional securities. The purchase of a structured product also exposes a Portfolio to the credit risk of the structured product.
Structured notes are derivative debt instruments. The interest rate or principal of these notes is determined by reference to an unrelated indicator (for example, a currency, security, or indices thereof) unlike a typical note where the borrower agrees to make fixed or floating interest payments and to pay a fixed sum at maturity. Indexed securities may include structured notes as well as securities other than debt securities, the interest or principal of which is determined by an unrelated indicator.
Commodity-linked notes and commodity index-linked notes provide exposure to the commodities markets. These are derivative securities with one or more commodity-linked components that have payment features similar to commodities futures contracts, commodity options, commodity indices or similar instruments. Commodity-linked products may be either equity or debt securities, leveraged or unleveraged, and have both security and commodity-like characteristics. A portion of the value of these instruments may be derived from the value of a commodity, futures contract, index or other economic variable.
A Portfolio may also invest in certain hybrid derivatives-type investments that combine a traditional bond with certain derivatives such as a credit default swap, an interest rate swap or other securities. These investments include credit-linked securities. The issuers of these securities frequently are limited purpose trusts or other special purpose vehicles that invest in a derivative instrument or basket of derivative instruments in order to provide exposure to certain fixed-income markets. For instance, a Portfolio may invest in credit-linked securities as a cash management tool to gain exposure to a certain market or to remain fully invested when more traditional income-producing securities are not available. The performance of the structured product, which is generally a fixed-income security, is linked to the receipt of payments from the counterparties to the derivatives instruments or other securities. A Portfolio's investments in credit-linked securities are indirectly subject to
the risks associated with derivative instruments, including, among others, credit risk, default risk, counterparty risk, interest rate risk and leverage risk. These securities are generally structured as Rule 144A securities so that they may be freely traded among institutional buyers. However, changes in the market for credit-linked securities or the availability of willing buyers may result in the securities becoming illiquid.
TENDER OPTION BOND TRANSACTIONS. A Portfolio may enter into TOBs in which a Portfolio may sell a highly-rated municipal security to a broker, which, in turn, deposits the bond into a special purpose vehicle, which is generally organized as a trust, sponsored by the broker (the "Trust"). The Portfolio receives cash and a residual interest security (sometimes referred to as "inverse floaters") issued by the Trust in return. The Trust simultaneously issues securities that pay an interest rate that is reset each week based on an index of high-grade short-term demand notes. These securities (sometimes referred to as "floaters") are bought by third parties, including tax-exempt money market funds, and can be tendered by these holders to a liquidity provider at par, unless certain events occur. Under certain circumstances, the Trust may be terminated or collapsed, either by the Portfolio or upon the occurrence of certain events, such as a downgrade in the credit quality of the underlying bond or in the event holders of the floaters tender their securities to the liquidity provider. The Portfolio continues to earn all the interest from the transferred bond less the amount of interest paid on the floaters and the expenses of the Trust, which include payments to the trustee and the liquidity provider and organizational costs. The Portfolio uses the cash received from the transaction for investment purposes, which involves leverage risk. For a discussion of the risks of TOBs, see "Leverage" below.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS. Variable and floating rate securities pay interest at rates that are adjusted periodically according to a specified formula. A "variable" interest rate adjusts at predetermined intervals (e.g., daily, weekly, or monthly), while a "floating" interest rate adjusts whenever a specified benchmark rate (such as the bank prime lending rate) changes.
The Portfolios may invest in inverse floating rate instruments ("inverse floaters"). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may have greater volatility in market value in that, during periods of rising interest rates, the market values of inverse floaters will tend to decrease more rapidly than those of fixed rate securities.
ZERO-COUPON SECURITIES. Zero-coupon securities are debt securities that have been issued without interest coupons or stripped of their unmatured interest coupons, and include receipts or certificates representing interests in such stripped debt obligations and coupons. Such a security pays no interest to its holder during its life. Its value to an investor consists of the difference between its face value at the time of maturity and the price for which it was acquired, which is generally an amount significantly less than its face value. Such securities usually trade at a deep discount from their face or par value and are subject to greater fluctuations in market value in response to changing interest rates than debt obligations of comparable maturities and credit quality that make current distributions of interest. On the other hand, because there are no periodic interest payments to be reinvested prior to maturity, these securities eliminate reinvestment risk and "lock in" a rate of return to maturity.
LEVERAGE. The Portfolios may use leverage for investment purposes to seek to enhance the yield and NAV attributable to their shares. In particular, a Portfolio may enter into such transactions as TOB transactions and interest rate swaps. This means that the Portfolios use cash made available during the term of these transactions to make other investments or to make investments through interest rate swaps that are functionally equivalent to the purchase of a fixed-income security. The utilization of leverage, which is considered speculative, involves certain risks for the Portfolios' shareholders. These risks include a higher volatility of the NAV of the Portfolios' shares and the relatively greater effect on their NAV. So long as the Portfolios are able to realize a net return on their investments that is higher than the carrying costs of the leveraged transaction, the effect of leverage will be to cause the Portfolios' shareholders to realize a higher current net investment income than if the Portfolios were not leveraged. If the carrying costs of leveraged transactions approach the return on the Portfolios' investments made through leverage, the benefit of leverage to the Portfolios' shareholders will be reduced. If the carrying costs of leveraged transactions were to exceed the return to shareholders, the Portfolios' use of leveraged transactions would result in a lower rate of return. In an extreme case, if a Portfolio's current investment income were not sufficient to meet the carrying costs of leveraged transactions, it could be necessary for the Portfolio to liquidate certain of its investments in adverse circumstances, potentially significantly reducing its NAV.
During periods of rising short-term interest rates, the interest paid on floaters in TOBs would increase, which may adversely affect a Portfolio's net return. If rising short-term rates coincide with a period of rising long-term rates, the value of the long-term municipal bonds purchased with the proceeds of leverage would decline, adversely affecting the Portfolio's NAV. In certain circumstances, adverse changes in interest rates or other events could cause a TOB Trust to terminate or collapse, potentially requiring a Portfolio to liquidate longer-term municipal securities at unfavorable prices to meet the Trust's outstanding obligations.
FUTURE DEVELOPMENTS. A Portfolio may take advantage of other investment practices that are not currently contemplated for use by the Portfolio, or are not available but may yet be developed, to the extent such investment practices are consistent with the Portfolio's investment objective and legally permissible for the Portfolio. Such investment practices, if they arise, may involve risks that exceed those involved in the activities described above.
CHANGES IN INVESTMENT OBJECTIVE AND POLICIES. Each Portfolio's Board of Directors/Trustees (the "Board") may change a Portfolio's investment objective without shareholder approval. A
Portfolio will provide shareholders with 60 days' prior written notice of any change to the Portfolio's investment objective. All of the Portfolios have a fundamental policy to invest at least 80% of their net assets in municipal securities and will not change this policy without shareholder approval. Unless otherwise noted, all other investment policies of the Portfolios may be changed without shareholder approval.
TEMPORARY DEFENSIVE POSITION. For temporary defensive purposes to attempt to respond to adverse market, economic, political, or other conditions, each Portfolio may invest without limit in other municipal securities that are in all other respects consistent with the Portfolio's investment policies. For temporary defensive purposes, each Portfolio also may invest without limit in high-quality municipal notes or variable rate demand obligations, or in taxable cash equivalents. While the Portfolios are investing for temporary defensive purposes, they may not achieve their investment objective.
PORTFOLIO HOLDINGS. A description of the Portfolios' policies and procedures with respect to the disclosure of the Portfolios' portfolio securities is available in the Portfolios' SAIs.
This section discusses how to buy, sell or redeem, or exchange different classes of shares in a Portfolio that are offered in this Prospectus. The Portfolios offer three classes of shares through this Prospectus.
Each share class represents an investment in the same portfolio of securities, but the classes may have different sales charges and bear different ongoing distribution expenses. For additional information on the differences between the different classes of shares and factors to consider when choosing among them, please see "The Different Share Class Expenses" and "Choosing a Share Class" below. ONLY CLASS A SHARES OFFER QUANTITY DISCOUNTS ON SALES CHARGES, as described below.
HOW TO BUY SHARES
The purchase of a Portfolio's shares is priced at the next-determined NAV after
your order is received in proper form.
CLASS A, CLASS B AND CLASS C SHARES - SHARES AVAILABLE TO RETAIL INVESTORS EFFECTIVE JANUARY 31, 2009, SALES OF CLASS B SHARES OF A PORTFOLIO TO NEW INVESTORS WERE SUSPENDED. CLASS B SHARES MAY ONLY BE PURCHASED (I) BY EXISTING CLASS B SHAREHOLDERS AS OF JANUARY 31, 2009, (II) THROUGH EXCHANGE OF CLASS B SHARES FROM ANOTHER ALLIANCEBERNSTEIN MUTUAL FUND, OR (III) AS OTHERWISE DESCRIBED BELOW.
You may purchase a Portfolio's Class A, Class B, or Class C shares through financial intermediaries, such as broker-dealers or banks. You also may purchase shares directly from the Portfolios' principal underwriter, AllianceBernstein Investments, Inc., or ABI. These purchases may be subject to an initial sales charge, an asset-based sales charge or CDSC, as described below.
MINIMUMS:*
--Initial: $2,500
--Subsequent: $ 50
*Purchase minimums may not apply to some accounts established in connection
with the Automatic Investment Program and to some retirement-related
investment programs. These investment minimums also do not apply to persons
participating in a fee-based program sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by ABI.
MAXIMUMS:
--Class A Shares None --Class B Shares $100,000 --Class C Shares $500,000 |
OTHER PURCHASE INFORMATION
Your broker or financial advisor must receive your purchase request by the
Portfolio Closing Time which is the close of regular trading on any day the
Exchange is open (ordinarily 4:00 p.m., Eastern time, but sometimes earlier, as
in the case of scheduled half-day trading or unscheduled suspensions of
trading) and submit it to the Portfolio by a pre-arranged time for you to
receive the next-determined NAV, less any applicable initial sales charge.
If you are an existing Portfolio shareholder and you have completed the appropriate section of the Mutual Fund Application, you may purchase additional shares by telephone with payment by electronic funds transfer in amounts not exceeding $500,000. AllianceBernstein Investor Services, Inc., or ABIS, must receive and confirm telephone requests before the Portfolio Closing Time to receive that day's public offering price. Call 800-221-5672 to arrange a transfer from your bank account.
RETIREMENT PLANS, TAX-DEFERRED ACCOUNTS AND EMPLOYEE BENEFIT PLANS Special eligibility rules apply to these types of investments. Although the Portfolios offer their shares to various types of tax-deferred accounts as described below, investments in the Portfolios may not be appropriate for tax-deferred accounts because the Portfolios' returns consist primarily of tax-exempt interest income. Except as indicated, there are no investment minimums for the plans listed below. Class A shares are available to:
. traditional and Roth IRAs (the minimums listed in the table above apply);
. SEPs, SAR-SEPs, SIMPLE IRAs, and individual 403(b) plans;
. all 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit-sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans where plan level or omnibus accounts are held on the books of the Portfolio ("group retirement plans") with assets of $1,000,000 or more;
. AllianceBernstein-sponsored Coverdell Education Savings Accounts ($2,000 initial investment minimum, $150 Automatic Investment Program monthly minimum);
. AllianceBernstein-sponsored group retirement plans;
. AllianceBernstein Link, AllianceBernstein Individual 401(k), and AllianceBernstein SIMPLE IRA plans with at least $250,000 in plan assets and 100 employees; and
. certain defined contribution retirement plans that do not have plan level or omnibus accounts on the books of a Portfolio.
Group retirement plans that selected Class B shares as an investment alternative under their plan before September 2, 2003 may continue to purchase Class B shares.
Class C shares are available to AllianceBernstein Link, AllianceBernstein Individual 401(k), and AllianceBernstein SIMPLE IRA plans with less than $250,000 in plan assets and 100 employees and to group retirement plans with plan assets of less than $1,000,000.
IRA custodians, plan sponsors, plan fiduciaries and other intermediaries may establish their own eligibility requirements as to the purchase, sale or exchange of Portfolio shares, including minimum and maximum investment requirements.
REQUIRED INFORMATION
A Portfolio is required by law to obtain, verify and record certain personal
information from you or persons on your behalf in order to establish an
account. Required information includes name, date of birth, permanent
residential address and taxpayer identification number (for most investors,
your social security number). A Portfolio may also ask to see other identifying
documents. If you do not provide the information, the Portfolio will not be
able to open your account. If a Portfolio is unable to verify your identity, or
that of another person(s) authorized to act on your behalf, or, if the
Portfolio believes it has identified potentially criminal activity, the
Portfolio reserves the right to take action it deems appropriate or as required
by law, which may include closing your account. If you are not a U.S. citizen
or resident alien, your account must be affiliated with a Financial Industry
Regulatory Authority, or FINRA, member firm.
A Portfolio is required to withhold 28% of taxable dividends, capital gains distributions, and redemptions paid to any individual shareholder who has not provided the Portfolio with his or her correct taxpayer identification number. To avoid this, you must provide your correct tax identification number on your Mutual Fund Application.
GENERAL
ABI may refuse any order to purchase shares. Each Portfolio 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 DIFFERENT SHARE CLASS EXPENSES
This section describes the different expenses of investing in each class and
explains factors to consider when choosing a class of shares. The expenses can
include distribution and/or service (Rule 12b-1) fees, initial sales charges
and/or CDSCs. ONLY CLASS A SHARES OFFER QUANTITY DISCOUNTS, as described below.
ASSET-BASED SALES CHARGES OR DISTRIBUTION AND/OR SERVICE
(RULE 12B-1) FEES
WHAT IS A RULE 12B-1 FEE?
A Rule 12b-1 fee is a fee deducted from a Portfolio's assets that is used to
pay for personal service, maintenance of shareholder accounts and
distribution costs, such as advertising and compensation of financial
intermediaries. Each Portfolio has adopted a plan under Rule 12b-1 under the
1940 Act that allows the Portfolio to pay asset-based sales charges or
distribution and/or service fees for the distribution and sale of its shares.
The amount of each share class's Rule 12b-1 fee, if any, is disclosed below
and in the relevant Portfolio's fee table in the Summary Information section
above.
The amount of Rule 12b-1 and/or service fees for each class of a Portfolio's
shares is up to:
DISTRIBUTION AND/OR SERVICE (RULE 12B-1) FEE (AS A PERCENTAGE OF AGGREGATE AVERAGE DAILY NET ASSETS) ------------------------------------ Class A 0.30% Class B 1.00% Class C 1.00% |
Because these fees are paid out of a Portfolio's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales fees. Class B and Class C shares are subject to higher Rule 12b-1 fees than Class A shares. Class B shares are subject to these higher fees for a period of six years, after which they convert to Class A shares. Because higher fees mean a higher expense ratio, Class B and Class C shares pay correspondingly lower dividends and may have a lower NAV (and returns) than Class A shares. All or some of these fees may be paid to financial intermediaries, including your financial advisor's firm.
SALES CHARGES
CLASS A SHARES
You can purchase Class A shares at their public offering price (or cost), which
is NAV plus an initial sales charge of up to 3.00% of the offering price. Any
applicable sales charge will be deducted directly from your investment. Larger
investments are subject to "breakpoints" or "quantity discounts" as discussed
below. Purchases of Class A shares in the amount of $500,000 or more or by
AllianceBernstein or non-AllianceBernstein sponsored group retirement plans are
not subject to an initial sales charge but may be subject to a 1% CDSC if
redeemed or terminated within one year.
The initial sales charge you pay each time you buy Class A shares differs depending on the amount you invest and may be reduced or eliminated for larger purchases as indicated below. These discounts, which are also known as BREAKPOINTS OR QUANTITY DISCOUNTS, can reduce or, in some cases, eliminate the initial sales charges that would otherwise apply to your investment in Class A shares.
The sales charge schedule of Class A share QUANTITY DISCOUNTS is as follows:
INITIAL SALES CHARGE ------------------ AS % OF AS % OF NET AMOUNT OFFERING AMOUNT PURCHASED INVESTED PRICE --------------------------------------------- Up to $100,000 3.09% 3.00% $100,000 up to $250,000 2.04 2.00 $250,000 up to $500,000 1.01 1.00 $500,000 and above 0.00 0.00 |
CLASS A SHARE PURCHASES NOT SUBJECT TO SALES CHARGES. The Portfolios may sell their Class A shares at NAV without an initial sales charge to some categories of investors, including:
. AllianceBernstein Link, AllianceBernstein Individual 401(k), and AllianceBernstein SIMPLE IRA plans with at least $250,000 in plan assets or 100 employees;
. persons participating in a fee-based program, sponsored and maintained by a registered broker-dealer or other financial intermediary and approved by ABI, under which persons pay an asset-based fee for services in the nature of investment advisory or administrative services or clients of broker-dealers or other financial intermediaries approved by ABI who purchase Class A shares for their own accounts through an omnibus account with the broker-dealers or other financial intermediaries;
. plan participants who roll over amounts distributed from employer maintained retirement plans to AllianceBernstein-sponsored IRAs where the plan is a client of or serviced by the Advisor's Institutional Investment Management Division or Bernstein Global Wealth Management Division, including subsequent contributions to those IRAs; or
. certain other investors, such as investment management clients of the Adviser or its affiliates, including clients and prospective clients of the Adviser's AllianceBernstein Institutional Investment Management Division, employees of selected dealers authorized to sell a Portfolio's shares and employees of the Adviser.
Please see the Portfolios' SAIs for more information about purchases of Class A shares without sales charges.
CLASS B SHARES
EFFECTIVE JANUARY 31, 2009, SALES OF CLASS B SHARES OF A PORTFOLIO TO NEW
INVESTORS WERE SUSPENDED. CLASS B SHARES MAY ONLY BE PURCHASED (I) BY EXISTING
CLASS B SHAREHOLDERS AS OF JANUARY 31, 2009, (II) THROUGH EXCHANGE OF CLASS B
SHARES FROM ANOTHER ALLIANCEBERNSTEIN MUTUAL FUND, OR (III) AS OTHERWISE
DESCRIBED BELOW. THE HIGH INCOME MUNICIPAL PORTFOLIO DOES NOT OFFER CLASS B
SHARES.
You can purchase Class B shares at NAV without an initial sales charge. This means that the full amount of your purchase is invested in the Portfolio. Your investment is subject to a CDSC if you redeem shares within three years of purchase. The CDSC varies depending on the number of years you hold the shares. The CDSC amounts for Class B shares are:
YEAR SINCE PURCHASE CDSC ---------------------------- First 3.00% Second 2.00% Third 1.00% Fourth and thereafter None |
If you exchange your shares for the Class B shares of another AllianceBernstein Mutual Fund, the CDSC also will apply to the Class B shares received. If you redeem your shares and directly invest the proceeds in units of CollegeBoundfund, the CDSC will apply to the units of CollegeBoundfund. The CDSC period begins with the date of your original purchase, not the date of exchange for the other Class B shares or purchase of CollegeBoundfund units.
Class B shares purchased for cash automatically convert to Class A shares six years after the end of the month of your purchase. If you purchase shares by exchange for the Class B shares of another AllianceBernstein Mutual Fund, the conversion period runs from the date of your original purchase.
CLASS C SHARES
You can purchase Class C shares at NAV without an initial sales charge. This
means that the full amount of your purchase is invested in a Portfolio. Your
investment is subject to a 1% CDSC if you redeem your shares within 1 year. If
you exchange your shares for the Class C shares of another AllianceBernstein
Mutual Fund, the 1% CDSC also will apply to the Class C shares received. If you
redeem your shares and directly invest the proceeds in units of
CollegeBoundfund, the CDSC will apply to the units of CollegeBoundfund. The
1-year period for the CDSC begins with the date of your original purchase, not
the date of the exchange for the other Class C shares or purchase of
CollegeBoundfund units.
Class C shares do not convert to any other class of shares of a Portfolio.
HOW IS THE CDSC CALCULATED?
The CDSC is applied to the lesser of NAV at the time of redemption or the original cost of shares being redeemed (or, as to Portfolio shares acquired through an exchange, the cost of the AllianceBernstein Mutual Fund shares originally purchased for cash). This means that no sales charge is assessed on increases in NAV above the initial purchase price. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. In determining the CDSC, it will be assumed that the redemption is, first, of any shares not subject to a CDSC and, second, of shares held the longest.
SALES CHARGE REDUCTION PROGRAMS FOR CLASS A SHARES
THIS SECTION INCLUDES IMPORTANT INFORMATION ABOUT SALES CHARGE REDUCTION
PROGRAMS AVAILABLE TO INVESTORS IN CLASS A SHARES AND DESCRIBES INFORMATION OR
RECORDS YOU MAY NEED TO PROVIDE TO A PORTFOLIO OR YOUR FINANCIAL INTERMEDIARY
IN ORDER TO BE ELIGIBLE FOR SALES CHARGE REDUCTION PROGRAMS.
Information about sales charge reduction programs also is available free of charge and in a clear and prominent format on our website at www.AllianceBernstein.com (click on "AllianceBernstein Mutual Fund Investors--U.S." then "Investor Resources--Understanding Sales Charges").
RIGHTS OF ACCUMULATION
To determine if a new investment in Class A shares is eligible for a QUANTITY
DISCOUNT, a shareholder can combine the value of the new investment in a
Portfolio with the higher of cost or NAV of existing investments in the
Portfolio, any other AllianceBernstein Mutual Fund, any AllianceBernstein
Institutional Fund and certain CollegeBoundfund accounts for which the
shareholder, his or her spouse or domestic partner, or child under the age of
21 is the participant. The AllianceBernstein Mutual Funds use the higher of
cost or current NAV of your existing investments when combining them with your
new investment.
COMBINED PURCHASE PRIVILEGES
A shareholder may qualify for a QUANTITY DISCOUNT by combining purchases of
shares of a Portfolio into a single "purchase". A "purchase" means a single
purchase or concurrent purchases of shares of a Portfolio or any other
AllianceBernstein Mutual Fund, including any AllianceBernstein Institutional
Fund, by:
. an individual, his or her spouse or domestic partner, or the individual's children under the age of 21 purchasing shares for his, her or their own account(s), including certain CollegeBoundfund accounts;
. a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account with one or more beneficiaries involved;
. the employee benefit plans of a single employer; or
. any company that has been in existence for at least six months or has a purpose other than the purchase of shares of the Portfolio.
LETTER OF INTENT
An investor may not immediately invest a sufficient amount to reach a QUANTITY
DISCOUNT, but may plan to make one or more additional investments over a period
of time that, in the end, would qualify for a QUANTITY DISCOUNT. For these
situations, the Portfolios offer a LETTER OF INTENT, which permits new
investors to express the intention, in writing, to invest at least $100,000 in
Class A shares of the fund or any AllianceBernstein Mutual Fund within 13
months. The Portfolio will then apply the QUANTITY DISCOUNT to each of the
investor's purchases of Class A shares that would apply to the total amount
stated in the LETTER OF INTENT. In the event an existing investor chooses to
initiate a LETTER OF INTENT, the AllianceBernstein Mutual Funds will use the
higher of cost or current NAV of the investor's existing investments and of
those accounts with which investments are combined via COMBINED PURCHASE
PRIVILEGES toward the fulfillment of the LETTER OF INTENT. For example, if the
combined cost of purchases totaled $80,000 and the current NAV of all
applicable accounts is $85,000 at the time a $100,000 LETTER OF INTENT is
initiated, the subsequent investment of an additional $15,000 would fulfill the
LETTER OF INTENT. If an investor fails to invest the total amount stated in the
LETTER OF INTENT, the fund will retroactively collect the sales charge
otherwise applicable by redeeming shares in the investor's account at their
then current NAV. Investors qualifying for a COMBINED PURCHASE PRIVILEGE may
purchase shares under a single LETTER OF INTENT.
REQUIRED SHAREHOLDER INFORMATION AND RECORDS
In order for shareholders to take advantage of sales charge reductions, a
shareholder or his or her financial intermediary must notify a Portfolio that
the shareholder qualifies for a reduction. Without notification, the Portfolio
is unable to ensure that the reduction is applied to the shareholder's account.
A shareholder may have to provide information or records to his or her
financial intermediary or the Portfolio to verify eligibility for breakpoint
privileges or other sales charge waivers. This may include information or
records, including account statements, regarding shares of the Portfolio or
other AllianceBernstein Mutual Funds held in:
. all of the shareholder's accounts at the Portfolios or a financial intermediary; and
. accounts of related parties of the shareholder, such as members of the same family, at any financial intermediary.
CDSC WAIVERS AND OTHER PROGRAMS
Here Are Some Ways To Avoid Or
Minimize Charges On Redemption.
CDSC WAIVERS
The Portfolios will waive the CDSCs on redemptions of shares in the following
circumstances, among others:
. permitted exchanges of shares;
. following the death or disability of a shareholder;
. if the redemption represents a minimum required distribution from an IRA or other retirement plan to a shareholder who has attained the age of 70 1/2;
. if the proceeds of the redemption are invested directly in a CollegeBoundfund account; or
. if the redemption is necessary to meet a plan participant's or beneficiary's request for a distribution or loan from a group retirement plan or to accommodate a plan participant's or beneficiary's direction to reallocate his or her plan account among other investment alternatives available under a group retirement plan.
OTHER PROGRAMS
DIVIDEND REINVESTMENT PROGRAM
Shareholders may elect to have all income and capital gains distributions from
their account paid to them in the form of additional shares of the same class
of a Portfolio under the Portfolio's Dividend Reinvestment Program. There is no
initial sales charge or CDSC imposed on shares issued pursuant to the Dividend
Reinvestment Program.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains accounts in more than one AllianceBernstein
Mutual Fund may direct the automatic investment of income dividends and/or
capital gains by one Portfolio, in any amount, without the payment of any sales
charges, in shares of the same class of one or more other AllianceBernstein
Mutual Fund(s).
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program allows investors to purchase shares of a
Portfolio through pre-authorized transfers of funds from the investor's bank
account. Under the Automatic Investment Program, an investor may (i) make an
initial purchase of at least $2,500 and invest at least $50 monthly or
(ii) make an initial purchase of less than $2,500 and commit to
a monthly investment of $200 or more until the investor's account balance is $2,500 or more. As of January 31, 2009, the Automatic Investment Program is available for purchase of Class B shares only if a shareholder was enrolled in the program prior to January 31, 2009. Please see the Portfolios' SAIs for more details.
REINSTATEMENT PRIVILEGE
A shareholder who has redeemed all or any portion of his or her Class A shares
may reinvest all or any portion of the proceeds from the redemption in Class A
shares of any AllianceBernstein Mutual Fund at NAV without any sales charge, if
the reinvestment is made within 120 calendar days after the redemption date.
SYSTEMATIC WITHDRAWAL PLAN
The Portfolios offer a systematic withdrawal plan that permits the redemption
of Class A, Class B or Class C shares without payment of a CDSC. Under this
plan, redemptions equal to 1% a month, 2% every two months or 3% a quarter of
the value of a Portfolio account would be free of a CDSC. Shares would be
redeemed so that Class B shares not subject to a CDSC (such as shares acquired
with reinvested dividends or distributions) would be redeemed first and Class B
shares that are held the longest would be redeemed next. For Class A and Class
C shares, shares held the longest would be redeemed first.
CHOOSING A SHARE CLASS
Each share class represents an interest in the same portfolio of securities,
but each class has its own sales charge and expense structure, allowing you to
choose the class that best fits your situation. In choosing a class of shares,
you should consider:
. the amount you intend to invest;
. how long you expect to own shares;
. expenses associated with owning a particular class of shares;
. whether you qualify for any reduction or waiver of sales charges (for example, if you are making a large investment that qualifies for a QUANTITY DISCOUNT, you might consider purchasing Class A shares); and
. whether a share class is available for purchase.
Among other things, Class A shares, with their lower Rule 12b-1 fees, are designed for investors with a long-term investing time frame. Class C shares should not be considered as a long-term investment because they are subject to a higher distribution fee indefinitely. Class C shares do not, however, have an initial sales charge or a CDSC so long as the shares are held for one year or more. Class C shares are designed for investors with a short-term investing time frame.
A transaction, service, administrative or other similar fee may be charged by your broker-dealer, agent or other financial intermediary, with respect to the purchase, sale or exchange of Class A, Class B or Class C shares made through your financial advisor. Financial intermediaries, or a fee-based program, also may impose requirements on the purchase, sale or exchange of shares that are different from, or in addition to, those described in this Prospectus and the Portfolios' SAIs, including requirements as to the minimum initial and subsequent investment amounts. A Portfolio is not responsible for, and has no control over, the decision of any financial intermediary, plan sponsor or fiduciary to impose such differing requirements.
CHOOSING A CLASS OF SHARES FOR GROUP RETIREMENT PLANS
Group retirement plans with plan assets of $1,000,000 or more are eligible to
purchase Class A shares at NAV. In addition, under certain circumstances, the
1%, 1-year CDSC may be waived. Class C shares are available to group retirement
plans with plan level assets of less than $1,000,000.
YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR FOR ASSISTANCE IN CHOOSING A CLASS OF PORTFOLIO SHARES.
PAYMENTS TO FINANCIAL ADVISORS AND THEIR FIRMS
Financial intermediaries market and sell shares of the Portfolios. These
financial intermediaries employ financial advisors and receive compensation for
selling shares of the Portfolios. This compensation is paid from various
sources, including any sales charge, CDSC and/or Rule 12b-1 fee that you or the
Portfolios may pay. Your individual financial advisor may receive some or all
of the amounts paid to the financial intermediary that employs him or her.
WHAT IS A FINANCIAL INTERMEDIARY?
A financial intermediary is a firm that receives compensation for selling shares of the Portfolios offered in this Prospectus and/or provides services to the Portfolios' shareholders. Financial intermediaries may include, among others, your broker, your financial planner or advisor, banks, pension plan consultants and insurance companies. Financial intermediaries may employ financial advisors who deal with you and other investors on an individual basis.
All or a portion of the initial sales charge that you pay may be paid by ABI to financial intermediaries selling Class A shares. ABI may also pay these financial intermediaries a fee of up to 1% on purchases of $1,000,000 or more or for AllianceBernstein Link, AllianceBernstein SIMPLE IRA plans with more than $250,000 in assets or for purchases made by certain other retirement plans.
ABI will pay, at the time of your purchase, a commission to financial intermediaries selling Class B shares in an amount equal to 4% of your investment for sales of Class B shares and an amount equal to 1% of your investment for sales of Class C shares.
For Class A and Class C shares, up to 100% and, for Class B shapes, up to 30% of the Rule 12b-1 fees applicable to these classes of shares each year may be paid to financial intermediaries, including your financial intermediary.
Your financial advisor's firm receives compensation from the Portfolios, ABI and/or the Adviser in several ways from various sources, which include some or all of the following:
- upfront sales commissions;
- Rule 12b-1 fees;
- additional distribution support;
- defrayal of costs for educational seminars and training; and
- payments related to providing shareholder record-keeping and/or transfer
agency services.
Please read the Prospectus carefully for information on this compensation.
OTHER PAYMENTS FOR DISTRIBUTION SERVICES AND EDUCATIONAL SUPPORT
In addition to the commissions paid to financial intermediaries at the time of
sale and Rule 12b-1 fees, some or all of which may be paid to financial
intermediaries (and, in turn, to your financial advisor), ABI, at its expense,
currently provides additional payments to firms that sell shares of the
AllianceBernstein Mutual Funds. Although the individual components may be
higher and the total amount of payments made to each qualifying firm in any
given year may vary, the total amount paid to a financial intermediary in
connection with the sale of shares of the AllianceBernstein Mutual Funds will
generally not exceed the sum of (a) 0.25% of the current year's fund sales by
that firm and (b) 0.10% of average daily net assets attributable to that firm
over the year. These sums include payments to reimburse directly or indirectly
the costs incurred by these firms and their employees in connection with
educational seminars and training efforts about the AllianceBernstein Mutual
Funds for the firms' employees and/or their clients and potential clients. The
costs and expenses associated with these efforts may include travel, lodging,
entertainment and meals. ABI may pay a portion of "ticket" or other
transactional charges.
For 2013, ABI's additional payments to these firms for distribution services and educational support related to the AllianceBernstein Mutual Funds are expected to be approximately 0.05% of the average monthly assets of the AllianceBernstein Mutual Funds, or approximately $21 million. In 2012, ABI paid approximately 0.05% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $19 million for distribution services and educational support related to the AllianceBernstein Mutual Funds.
A number of factors are considered in determining the additional payments, including each firm's AllianceBernstein Mutual Fund sales, assets and redemption rates, and the willingness and ability of the firm to give ABI access to its financial advisors for educational and marketing purposes. In some cases, firms will include the AllianceBernstein Mutual Funds on a "preferred list". ABI's goal is to make the financial advisors who interact with current and prospective investors and shareholders more knowledgeable about the AllianceBernstein Mutual Funds so that they can provide suitable information and advice about the Funds and related investor services.
The Portfolios and ABI also make payments for recordkeeping and other transfer agency services to financial intermediaries that sell AllianceBernstein Mutual Fund shares. Please see "Management of the Portfolios--Transfer Agency and Retirement Plan Services" below. These expenses paid by the Portfolios are included in "Other Expenses" under "Fees and Expenses of the Portfolios--Annual Portfolio Operating Expenses" in the Summary Information at the beginning of this Prospectus.
IF ONE MUTUAL FUND SPONSOR MAKES GREATER DISTRIBUTION ASSISTANCE PAYMENTS THAN ANOTHER, YOUR FINANCIAL ADVISOR AND HIS OR HER FIRM MAY HAVE AN INCENTIVE TO RECOMMEND ONE FUND COMPLEX OVER ANOTHER. SIMILARLY, IF YOUR FINANCIAL ADVISOR OR HIS OR HER FIRM RECEIVES MORE DISTRIBUTION ASSISTANCE FOR ONE SHARE CLASS VERSUS ANOTHER, THEN THEY MAY HAVE AN INCENTIVE TO RECOMMEND THAT CLASS.
PLEASE SPEAK WITH YOUR FINANCIAL ADVISOR TO LEARN MORE ABOUT THE TOTAL AMOUNTS PAID TO YOUR FINANCIAL ADVISOR AND HIS OR HER FIRM BY THE PORTFOLIOS, THE ADVISER, ABI AND BY SPONSORS OF OTHER MUTUAL FUNDS HE OR SHE MAY RECOMMEND TO YOU. YOU SHOULD ALSO CONSULT DISCLOSURES MADE BY YOUR FINANCIAL ADVISOR AT THE TIME OF PURCHASE.
As of the date of this Prospectus, ABI anticipates that the firms that will receive additional payments for distribution services and/or educational support include:
Advisor Group, Inc.
Ameriprise Financial Services
AXA Advisors
Cadaret, Grant & Co.
CCO Investment Services Corp.
Chase Investment Services
Citigroup Global Markets, Inc.
Commonwealth Financial Network
Donegal Securities
Financial Network Investment Company
LPL Financial
Merrill Lynch
Morgan Stanley
Multi-Financial Securities Corporation
Northwestern Mutual Investment Services
PrimeVest Financial Services
Raymond James
RBC Wealth Management
Robert W. Baird
UBS Financial Services
Wells Fargo Advisors
Although the Portfolios may use brokers and dealers that sell shares of the Portfolios to effect portfolio transactions, the Portfolios do not consider the sale of AllianceBernstein Mutual Fund shares as a factor when selecting brokers or dealers to effect portfolio transactions.
HOW TO EXCHANGE SHARES
You may exchange your Portfolio shares for shares of the same class of other
AllianceBernstein Mutual Funds (including AllianceBernstein Exchange Reserves,
a money market fund managed by the Adviser) provided that the Fund offers the
same class of shares. Exchanges of shares are made at the next-determined NAV,
without sales or service charges after your order is received in proper form.
All exchanges are subject to the minimum investment restrictions set forth in
the prospectus for the AllianceBernstein Mutual Fund whose shares are being
acquired. You may request an exchange either directly or through your financial
intermediary. In order to receive a day's NAV, ABIS or your financial
intermediary must receive and confirm your telephone exchange request by the
Portfolio Closing Time on that day. The Portfolios may modify, restrict, or
terminate the exchange privilege on 60 days' written notice.
HOW TO SELL OR REDEEM SHARES
You may "redeem" your shares (i.e., sell your shares to a Portfolio) on any day
the Exchange is open, either directly or through your financial intermediary.
Your sale price will be the next-determined NAV, less any applicable CDSC,
after the Portfolio receives your redemption request in proper form. Normally,
redemption proceeds are sent to you within 7 days. If you recently purchased
your shares by check or electronic funds transfer, your redemption payment may
be delayed until the Portfolio 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 OR OTHER FINANCIAL ADVISOR Your broker or financial advisor must receive your sales request by the Portfolio Closing Time and submit it to a Portfolio by a pre-arranged time for you to receive that day's NAV, less any applicable CDSC. Your broker or financial advisor is responsible for submitting all necessary documentation to the Portfolio and may charge you a fee for this service.
SELLING SHARES DIRECTLY TO A PORTFOLIO
BY MAIL:
. Send a signed letter of instruction or stock power, along with certificates,
to:
AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
. For certified or overnight deliveries, send to:
AllianceBernstein Investor Services, Inc.
8000 IH 10 W, 4th floor
San Antonio, TX 78230
. For your protection, a bank, a member firm of a national stock exchange, or other eligible guarantor institution, must guarantee signatures. Stock power forms are available from your financial intermediary, ABIS, and many commercial banks. Additional documentation is required for the sale of shares by corporations, intermediaries, fiduciaries, and surviving joint owners. If you have any questions about these procedures, contact ABIS.
BY TELEPHONE:
. You may redeem your shares for which no stock certificates have been issued
by telephone request. Call ABIS at 800-221-5672 with instructions on how you
wish to receive your sale proceeds.
. ABIS must receive and confirm a telephone redemption request by the Portfolio Closing Time for you to receive that day's NAV, less any applicable CDSC.
. For your protection, ABIS will request personal or other information from you to verify your identity and will generally record the calls. Neither a Portfolio nor the Adviser, ABIS, ABI or other Portfolio agent will be liable for any loss, injury, damage or expense as a result of acting upon telephone instructions purporting to be on your behalf that ABIS reasonably believes to be genuine.
. If you have selected electronic funds transfer in your Mutual Fund Application, the redemption proceeds will be sent directly to your bank. Otherwise, the proceeds will be mailed to you.
. Redemption requests by electronic funds transfer or check may not exceed $100,000 per Portfolio account per day.
. Telephone redemption is not available for shares held in nominee or "street name" accounts, retirement plan accounts, or shares held by a shareholder who has changed his or her address of record within the previous 30 calendar days.
FREQUENT PURCHASES AND REDEMPTIONS OF PORTFOLIO SHARES
Each Portfolio's Board has adopted policies and procedures designed to detect
and deter frequent purchases and redemptions of Portfolio shares or excessive
or short-term trading that may disadvantage long-term Portfolio shareholders.
These policies are described below. There is no guarantee that a Portfolio will
be able to detect excessive or short-term trading or to identify shareholders
engaged in such practices, particularly with respect to transactions in omnibus
accounts. Shareholders should be aware that application of these policies may
have adverse consequences, as described below, and avoid frequent trading in
Portfolio shares through purchases, sales and exchanges of shares. Each
Portfolio reserves the right to restrict, reject or cancel, without any prior
notice, any purchase or exchange order for any reason, including any purchase
or exchange order accepted by any shareholder's financial intermediary.
RISKS ASSOCIATED WITH EXCESSIVE OR SHORT-TERM TRADING GENERALLY. While the Portfolios will try to prevent market timing by utilizing the procedures described below, these procedures may not be successful in identifying or stopping excessive or short-term trading in all circumstances. By realizing profits through short-term trading, shareholders that engage in rapid purchases and sales or exchanges of a Portfolio's shares dilute the value of shares held by long-term shareholders. Volatility resulting from excessive purchases and sales or exchanges of Portfolio shares, especially involving large dollar amounts, may disrupt efficient portfolio management and cause a Portfolio to sell portfolio securities at inopportune times to raise cash
to accommodate redemptions relating to short-term trading activity. In particular, a Portfolio may have difficulty implementing its long-term investment strategies if it is forced to maintain a higher level of its assets in cash to accommodate significant short-term trading activity. In addition, a Portfolio may incur increased administrative and other expenses due to excessive or short-term trading, including increased brokerage costs and realization of taxable capital gains.
While the Portfolios do not typically invest in securities of foreign issuers, these securities may be particularly susceptible to short-term trading strategies. This is because securities of foreign issuers are typically traded on markets that close well before the time a Portfolio calculates its NAV at 4:00 p.m., Eastern time, which gives rise to the possibility that developments may have occurred in the interim that would affect the value of these securities. The time zone differences among international stock markets can allow a shareholder engaging in a short-term trading strategy to exploit differences in Portfolio share prices that are based on closing prices of securities of foreign issuers established some time before the Portfolio calculates its own share price (referred to as "time zone arbitrage"). The Portfolios have procedures, referred to as fair value pricing, designed to adjust closing market prices of securities of foreign issuers to reflect what is believed to be the fair value of those securities at the time a Portfolio calculates its NAV. While there is no assurance, the Portfolios expect that the use of fair value pricing, in addition to the short-term trading policies discussed below, will significantly reduce a shareholder's ability to engage in time zone arbitrage to the detriment of other Portfolio shareholders.
A shareholder engaging in a short-term trading strategy may also target a Portfolio irrespective of its investments in securities of foreign issuers. Any Portfolio that invests in securities that are, among other things, thinly traded, traded infrequently or relatively illiquid has the risk that the current market price for the securities may not accurately reflect current market values. A shareholder may seek to engage in short-term trading to take advantage of these pricing differences (referred to as "price arbitrage"). All Portfolios may be adversely affected by price arbitrage.
POLICY REGARDING SHORT-TERM TRADING. Purchases and exchanges of shares of the Portfolios should be made for investment purposes only. The Portfolios seek to prevent patterns of excessive purchases and sales of Portfolio shares to the extent they are detected by the procedures described below, subject to the Portfolios' ability to monitor purchase, sale and exchange activities. The Portfolios reserve the right to modify this policy, including any surveillance or account blocking procedures established from time to time to effectuate this policy, at any time without notice.
. TRANSACTION SURVEILLANCE PROCEDURES. The Portfolios, through their agents, ABI and ABIS, maintain surveillance procedures to detect excessive or short-term trading in Portfolio shares. This surveillance process involves several factors, which include scrutinizing transactions in Portfolio shares that exceed certain monetary thresholds or numerical limits within a specified period of time. Generally, more than two exchanges of Portfolio shares during any 60-day period or purchases of shares followed by a sale within 60 days will be identified by these surveillance procedures. For purposes of these transaction surveillance procedures, the Portfolios may consider trading activity in multiple accounts under common ownership, control or influence. Trading activity identified by either, or a combination, of these factors, or as a result of any other information available at the time, will be evaluated to determine whether such activity might constitute excessive or short-term trading. With respect to managed or discretionary accounts for which the account owner gives his/her broker, investment adviser or other third party authority to buy and sell Portfolio shares, the Portfolios may consider trades initiated by the account owner, such as trades initiated in connection with bona fide cash management purposes, separately in their analysis. These surveillance procedures may be modified from time to time, as necessary or appropriate to improve the detection of excessive or short-term trading or to address specific circumstances.
. ACCOUNT BLOCKING PROCEDURES. If the Portfolios determine, in their sole discretion, that a particular transaction or pattern of transactions identified by the transaction surveillance procedures described above is excessive or short-term trading in nature, the Portfolios will take remedial action that may include issuing a warning, revoking certain account-related privileges (such as the ability to place purchase, sale and exchange orders over the internet or by phone) or prohibiting or "blocking" future purchase or exchange activity. However, sales of Portfolio shares back to a Portfolio or redemptions will continue to be permitted in accordance with the terms of the Portfolio's current Prospectus. As a result, unless the shareholder redeems his or her shares, which may have consequences if the shares have declined in value, a CDSC is applicable or adverse tax consequences may result, the shareholder may be "locked" into an unsuitable investment. A blocked account will generally remain blocked for 90 days. Subsequent detections of excessive or short-term trading may result in an indefinite account block or an account block until the account holder or the associated broker, dealer or other financial intermediary provides evidence or assurance acceptable to the Portfolio that the account holder did not or will not in the future engage in excessive or short-term trading.
. APPLICATIONS OF SURVEILLANCE PROCEDURES AND RESTRICTIONS TO OMNIBUS ACCOUNTS. Omnibus account arrangements are common forms of holding shares of the Portfolios, particularly among certain brokers, dealers and other financial intermediaries, including sponsors of retirement plans. The Portfolios apply their surveillance procedures to these omnibus account arrangements. As required by SEC rules, the Portfolios have entered into agreements with all of their financial intermediaries that require the financial intermediaries to provide the Portfolios, upon the request of the Portfolios or their agents, with individual account level information about their transactions. If the Portfolios detect excessive trading through their monitoring of omnibus accounts, including trading at the
individual account level, the financial intermediaries will also execute instructions from the Portfolios to take actions to curtail the activity, which may include applying blocks to accounts to prohibit future purchases and exchanges of Portfolio shares. For certain retirement plan accounts, the Portfolios may request that the retirement plan or other intermediary revoke the relevant participant's privilege to effect transactions in Portfolio shares via the internet or telephone, in which case the relevant participant must submit future transaction orders via the U.S. Postal Service (i.e., regular mail).
HOW THE PORTFOLIOS VALUE THEIR SHARES
Each Portfolio's NAV is calculated at the close of regular trading on any day
the Exchange is open (ordinarily, 4:00 p.m., Eastern time but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled
suspensions of trading), only on days when the Exchange is open for business.
To calculate NAV, a Portfolio's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. If a Portfolio invests in securities that are primarily
traded on foreign exchanges that trade on weekends or other days when the
Portfolio does not price its shares, the NAV of the Portfolio's shares may
change on days when shareholders will not be able to purchase or redeem their
shares in the Portfolio.
The Portfolios value their securities at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of each Portfolio's Board. When a Portfolio uses fair value pricing, it may take into account any factors it deems appropriate. A Portfolio may determine fair value based upon developments related to a specific security and/or U.S. sector or broader stock market indices. The prices of securities used by the Portfolio to calculate its NAV may differ from quoted or published prices for the same securities. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security is materially different than the value that could be realized upon the sale of that security.
Securities for which market quotations are not readily available or deemed unreliable (including restricted securities) are valued at fair market value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer or analysts, or by analysis of the issuer's financial statements. The Portfolios may value these securities using fair value prices based on independent pricing services.
Subject to its oversight, each Portfolio's Board has delegated responsibility for valuing a Portfolio's assets to the Adviser. The Adviser has established a Valuation Committee, which operates under the policies and procedures approved by the Board, to value the Portfolio's assets on behalf of the Portfolio. The Valuation Committee values Portfolio assets as described above. More information about the Portfolios' valuation procedures is available in the Portfolios' SAIs.
INVESTMENT ADVISER AND PORTFOLIO MANAGERS
Each Portfolio's investment adviser is AllianceBernstein L.P. (the "Adviser"),
1345 Avenue of the Americas, New York, New York 10105. The Adviser is a leading
international investment adviser supervising client accounts with assets as of
September 30, 2012 totaling approximately $419 billion (of which more than $85
billion represented assets of investment companies). As of September 30, 2012,
the Adviser managed retirement assets for many of the largest public and
private employee benefit plans (including 16 of the nation's FORTUNE 100
companies), for public employee retirement funds in 31 states and the District
of Columbia, for investment companies, and for foundations, endowments, banks
and insurance companies worldwide. The 33 registered investment companies
managed by the Adviser, comprising approximately 120 separate investment
portfolios, currently have approximately 2.7 million shareholder accounts.
The Adviser provides investment advisory services and order placement facilities for the Portfolios. For these advisory services, each Portfolio paid the Adviser as a percentage of average daily net assets:
FEE AS A PERCENTAGE OF AVERAGE DAILY NET FISCAL YEAR PORTFOLIO ASSETS* ENDED ---------------------------------------------------------------------- ALLIANCEBERNSTEIN INTERMEDIATE MUNICIPAL PORTFOLIOS: Intermediate Diversified Municipal Portfolio 0.43% 9/30/12 Intermediate California Municipal Portfolio 0.49% 9/30/12 Intermediate New York Municipal Portfolio 0.48% 9/30/12 |
*Fees are stated net of any waivers and/or reimbursements. See "Fees and Expenses of the Portfolios" in the Summary Information at the beginning of this Prospectus for more information about fee waivers.
A discussion regarding the basis of each Board's approval of each Portfolio's investment advisory agreement is available in the Portfolio's semi-annual report to shareholders for the fiscal period ended March 31, 2012.
The Adviser may act as an investment adviser to other persons, firms or corporations, including investment companies, hedge funds, pension funds and other institutional investors. The Adviser may receive management fees, including performance fees, that may be higher or lower than the advisory fees it receives from the Portfolios. Certain other clients of the Adviser may have investment objectives and policies similar to those of the Portfolios. The Adviser may, from time to time, make recommendations that result in the purchase or sale of a particular security by its other clients simultaneously with the Portfolios. 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 that is deemed equitable by the Adviser to the accounts involved, including the Portfolios. When two or more of the clients of the Adviser (including the Portfolios) are purchasing or selling the same security on a given day from the same broker-dealer, such transactions may be averaged as to price.
PORTFOLIO MANAGERS
The day-to-day management of and investment decisions for the Portfolios are
made by the Municipal Bond Investment Team. The Municipal Bond Investment Team
relies heavily on the fundamental analysis and research of the Adviser's large
internal research staff. No one person is principally responsible for making
recommendations for the Portfolios' investments.
The following table lists the four or five persons within the Municipal Bond Investment Team with the most significant responsibility for the day-to-day management of each Portfolio's portfolio, the length of time that each person has been jointly and primarily responsible for the Portfolio, and each person's principal occupation during the past five years:
PRINCIPAL OCCUPATION DURING EMPLOYEE; TITLE; YEAR THE PAST FIVE (5) YEARS --------------------------------------------------------------------------------------- Michael G. Brooks; Senior Vice President Senior Vice President of the Adviser, (since 1999 with respect to the with which he has been associated in a AllianceBernstein Intermediate Municipal substantially similar capacity since prior Portfolios) to 2007. Fred S. Cohen; Senior Vice President Senior Vice President of the Adviser, (since 1994 with respect to the with which he has been associated in a AllianceBernstein Intermediate Municipal substantially similar capacity since prior Portfolios) to 2007. R. B. Davidson, III; Senior Vice President Senior Vice President of the Adviser, (since inception with respect to the with which he has been associated in a AllianceBernstein Intermediate Municipal substantially similar capacity since prior Portfolios) to 2007. Wayne Godlin; Senior Vice President Senior Vice President of the Adviser, (since 2010) with which he has been associated in a substantially similar capacity since December 2009. Prior thereto, an investment manager and a Managing Director of Van Kampen Asset Management with which he had been associated since prior to 2006. Terrance T. Hults; Senior Vice President Senior Vice President of the Adviser, (since 2002 with respect to the with which he has been associated in a AllianceBernstein Intermediate Municipal substantially similar capacity since prior Portfolios) to 2007. |
The Portfolios' SAIs provide additional information about the Portfolio Managers' compensation, other accounts managed by the Portfolio Managers, and the Portfolio Managers' ownership of securities in the Portfolios.
TRANSFER AGENCY AND RETIREMENT PLAN SERVICES
ABIS acts as the transfer agent for the Portfolios. ABIS, an indirect
wholly-owned subsidiary of the Adviser, registers the transfer, issuance and
redemption of Portfolio shares and disburses dividends and other distributions
to Portfolio shareholders.
Many Portfolio shares are owned by financial intermediaries for the benefit of their customers. Retirement plans may also hold Portfolio
shares in the name of the plan, rather than the participant. In those cases, the Portfolios often do not maintain an account for you. Thus, some or all of the transfer agency functions for these accounts are performed by the financial intermediaries and plan recordkeepers. Financial intermediaries and recordkeepers, who may have affiliated financial intermediaries who sell shares of a Portfolio, may be paid for each plan participant portfolio account in amounts up to $19 per account per annum and/or up to 0.25% per annum of the average daily assets held through the intermediary. To the extent any of these payments for recordkeeping services or transfer agency services are made by the Portfolio, they are included in the amount appearing opposite the caption "Other Expenses" found in the Portfolio expense tables under "Fees and Expenses of the Portfolios" in the Summary Information at the beginning of this Prospectus. In addition, financial intermediaries may be affiliates of entities that receive compensation from the Adviser or ABI for maintaining retirement plan "platforms" that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans.
Because financial intermediaries and plan recordkeepers may be paid varying amounts per class for sub-transfer agency and related recordkeeping services, the service requirements of which may also vary by class, this may create an additional incentive for financial intermediaries and their financial advisors to favor one fund complex over another or one class of shares over another.
For more information, please refer to the Portfolios' SAIs, call your financial advisor or visit our website at www.AllianceBernstein.com.
DIVIDENDS AND DISTRIBUTIONS
The Portfolios declare dividends on their shares on each business day from each
Portfolio's net investment income. Dividends on shares for Saturdays, Sundays
and holidays will be declared on the previous business day. Each Portfolio pays
dividends on its shares after the close of business on the last day of each
month, except for Intermediate Diversified Municipal Portfolio, Intermediate
California Municipal Portfolio and Intermediate New York Municipal Portfolio
each of which pays dividends on its shares after the close of business on the
twentieth day of each month or, if such day is not a business day, the first
business day after that day. At your election (which you may change at least 30
days prior to the record date for a particular dividend or distribution),
dividends and distributions are paid in cash or reinvested without charge in
additional shares of the same class having an aggregate NAV as of the payment
date of the dividend or distribution equal to the cash amount thereof.
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 Portfolio without charge by returning to the Adviser, with appropriate instructions, the check representing the dividend or distribution. Thereafter, unless you otherwise specify, you will be deemed to have elected to reinvest all subsequent dividends and distributions in shares of that Portfolio.
There is no fixed dividend rate and there can be no assurance that a Portfolio will pay any dividends. The amount of any dividend distribution paid on shares of a Portfolio must necessarily depend upon the realization of income and capital gains from the Portfolio's investments.
TAXES
GENERAL
Distributions to shareholders out of tax-exempt interest income earned by a
Portfolio are not subject to federal income tax. Under current tax law, some
individuals and corporations may be subject to the AMT on distributions to
shareholders out of income from the AMT-Subject bonds in which all Portfolios
invest. Further, under current tax law, certain corporate taxpayers may be
subject to the AMT based on their "adjusted current earnings". Distributions
from a Portfolio that are excluded from gross income will generally be included
in such corporation's "adjusted current earnings" for purposes of computation
of the AMT. Distributions out of taxable interest, other investment income, and
net realized short-term capital gains are taxable to shareholders as ordinary
income. Any distributions of long-term capital gains generally will be taxable
to you as long-term capital gains regardless of how long you have held your
shares. Since a Portfolio's investment income is derived from interest rather
than dividends, no portion of its distributions will be eligible for the
dividends-received deduction available to corporations, and for non-corporate
shareholders no portion of such distributions will be treated as "qualified
dividend income" taxable at the same potential tax rates applicable to
long-term capital gains.
Interest on indebtedness incurred by shareholders to purchase or carry shares of a Portfolio is not deductible for federal income tax purposes. Further, persons who are "substantial users" (or related persons) of facilities financed by AMT-Subject bonds should consult their tax advisers before purchasing shares of a Portfolio.
If you buy shares just before a Portfolio deducts a distribution from its NAV, you will pay the full price for the shares and then receive a portion of the price back as a distribution, which may be taxable.
For tax purposes, an exchange is treated as a sale of Portfolio shares. The sale or exchange of Portfolio shares is a taxable transaction for federal income tax purposes.
The Portfolios anticipate that substantially all of their dividends will be exempt from regular federal income taxes. Shareholders may be subject to state and local taxes on distributions from a Portfolio, including distributions that are exempt from federal income taxes. The Portfolios will report annually to shareholders the percentage and source of interest earned by a Portfolio that is exempt from federal income tax and, except in the case of the INTERMEDIATE DIVERSIFIED MUNICIPAL PORTFOLIO, relevant state and local personal income taxes.
Each investor should consult his or her own tax adviser to determine the tax status, with regard to his or her tax situation, of distributions from the Portfolios.
INTERMEDIATE STATE PORTFOLIOS
INTERMEDIATE CALIFORNIA PORTFOLIO. It is anticipated that substantially all of
the dividends paid by this Portfolio will be exempt from California personal
income tax. Dividends will be exempt from this tax to the extent derived from
interest income from municipal securities issued by the State of California or
its political subdivisions. Distributions of capital gains will be subject to
California personal income tax. Distributions paid to corporate shareholders
will be subject to the California corporate franchise tax but exempt from the
California corporate income tax.
INTERMEDIATE NEW YORK MUNICIPAL PORTFOLIO. It is anticipated that substantially all of the dividends paid by this Portfolio will be exempt from New York State and New York City personal and fiduciary income taxes. Distributions of capital gains will be subject to these taxes. Interest on indebtedness incurred to buy or carry shares of the Portfolio generally will not be deductible for New York income tax purposes. Distributions paid to corporate shareholders will be included in New York entire net income for purposes of the New York State franchise tax and the New York City general corporation tax. The value of shares of the Portfolio will be included in computing investment capital or business capital (but not both) for purposes of the franchise tax.
Under unusual circumstances, a Portfolio may suspend redemptions or postpone payment for up to seven days or longer, as permitted by federal securities law. Each Portfolio reserves the right to close an account that has remained below $1,000 for 90 days.
During drastic economic or market developments, you might have difficulty in reaching ABIS by telephone, in which event you should issue written instructions to ABIS. ABIS is not responsible for the authenticity of telephone requests to purchase, sell, or exchange shares. ABIS 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 telephone requests. The telephone service may be suspended or terminated at any time without notice.
Shareholder Services. ABIS offers a variety of shareholder services. For more information about these services or your account, call ABIS's toll-free number, 800-221-5672. Some services are described in the Mutual Fund Application.
Householding. Many shareholders of the AllianceBernstein Mutual Funds have family members living in the same home who also own shares of the same Funds. In order to reduce the amount of duplicative mail that is sent to homes with more than one Fund account and to reduce expenses of the Fund, all AllianceBernstein Mutual Funds will, until notified otherwise, send only one copy of each prospectus, shareholder report and proxy statement to each household address. This process, known as "householding", does not apply to account statements, confirmations, or personal tax information. If you do not wish to participate in householding, or wish to discontinue householding at any time, call ABIS at 1-800-221-5672. We will resume separate mailings for your account within 30 days of your request.
This Prospectus uses the following terms.
AMT is the federal alternative minimum tax.
AMT-SUBJECT BONDS are municipal securities with interest that is an item of "tax preference" and thus subject to the AMT when received by a person in a tax year during which the person is subject to the AMT. These securities are primarily private activity bonds, including revenue bonds.
BONDS are interest-bearing or discounted securities that obligate the issuer to pay the bond holder a specified sum of money, usually at specified intervals, and to repay the principal amount of the loan at maturity.
MUNICIPAL SECURITIES are debt obligations issued by states, territories and possessions of the United States and the District of Columbia, and their political subdivisions, duly constituted authorities and corporations. Municipal securities include municipal bonds, which are intended to meet longer-term capital needs and municipal notes, which are intended to fulfill short-term capital needs.
BARCLAYS 5-YEAR GENERAL OBLIGATION MUNICIPAL BOND INDEX is an unmanaged index comprised of long-term, investment-grade tax-exempt bonds with maturities ranging from four to six years.
The financial highlights table is intended to help you understand each Portfolio's financial performance for the past five years (or, if shorter, the period of the Portfolio's operations). Certain information reflects financial results for a single Portfolio share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Portfolio (assuming reinvestment of all dividends and distributions). This information for the ALLIANCEBERNSTEIN INTERMEDIATE MUNICIPAL PORTFOLIOS has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm of the INTERMEDIATE DIVERSIFIED MUNICIPAL PORTFOLIO, INTERMEDIATE CALIFORNIA MUNICIPAL PORTFOLIO and INTERMEDIATE NEW YORK MUNICIPAL PORTFOLIO. The independent registered public accounting firms' reports, along with each Portfolio's financial statements, are included in each Portfolio's annual report, which is available upon request.
CLASS A YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.66 $ 14.75 $ 14.54 $ 13.81 $ 14.01 -------- -------- -------- -------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income+ .38 .41 .41 .44 .44 Net realized and unrealized gain (loss) on investment transactions .27 (.01) .24 .74 (.20) -------- -------- -------- -------- ------- Total from investment operations .65 .40 .65 1.18 .24 -------- -------- -------- -------- ------- LESS DIVIDENDS AND DISTRIBUTIONS: Dividends from tax-exempt net investment income (.38) (.42) (.42) (.44) (.44) Distributions from net realized gain on investment transactions (.01) (.07) (.02) (.01) - 0 - -------- -------- -------- -------- ------- Total dividends and distributions (.39) (.49) (.44) (.45) (.44) -------- -------- -------- -------- ------- Net asset value, end of period $ 14.92 $ 14.66 $ 14.75 $ 14.54 $ 13.81 ======== ======== ======== ======== ======= TOTAL RETURN(a) 4.50% 2.79% 4.55% 8.74% 1.70% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $810,284 $535,805 $346,040 $114,769 $46,537 Average net assets (000 omitted) $655,183 $380,510 $213,627 $ 72,153 $34,879 Ratio to average net assets of: Expenses .78% .79% .79%(b) .82% 82% Net investment income 2.55% 2.83% 2.82%(b) 3.11% 3.13% Portfolio turnover rate 16% 18% 21% 12% 28% -------------------------------------------------------------------------------------------------------------------------- |
CLASS B YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $14.66 $14.76 $14.54 $13.82 $ 14.01 ------ ------ ------ ------ ------- INCOME FROM INVESTMENT OPERATIONS Net investment income+ .27 .30 .31 .34 .34 Net realized and unrealized gain (loss) on investment transactions .28 (.02) .24 .73 (.19) ------ ------ ------ ------ ------- Total from investment operations .55 .28 .55 1.07 .15 ------ ------ ------ ------ ------- LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from tax-exempt net investment income (.27) (.31) (.31) (.34) (.34) Distributions from net realized gain on investment transactions (.01) (.07) (.02) (.01) - 0 - ------ ------ ------ ------ ------- Total dividends and distributions (.28) (.38) (.33) (.35) (.34) ------ ------ ------ ------ ------- Net asset value, end of period $14.93 $14.66 $14.76 $14.54 $ 13.82 ====== ====== ====== ====== ======= TOTAL RETURN(a) 3.79% 1.97% 3.87% 7.91% 1.08% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 536 $ 817 $1,556 $3,333 $11,674 Average net assets (000 omitted) $ 724 $1,032 $2,193 $7,976 $18,414 Ratio to average net assets of: Expenses 1.53% 1.53% 1.53%(b) 1.56% 1.53% Net investment income 1.82% 2.12% 2.14%(b) 2.43% 2.43% Portfolio turnover rate 16% 18% 21% 12% 28% ------------------------------------------------------------------------------------------------------------------ |
See footnotes on page 44.
CLASS C YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 14.66 $ 14.75 $ 14.54 $ 13.81 $ 14.01 -------- -------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income+ .27 .31 .31 .34 .34 Net realized and unrealized gain (loss) on investment transactions .28 (.02) .24 .74 (.20) -------- -------- ------- ------- ------- Total from investment operations .55 .29 .55 1.08 .14 -------- -------- ------- ------- ------- LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from tax-exempt net investment income (.28) (.31) (.32) (.34) (.34) Distributions from net realized gain on investment transactions (.01) (.07) (.02) (.01) - 0 - -------- -------- ------- ------- ------- Total dividends and distributions (.29) (.38) (.34) (.35) (.34) -------- -------- ------- ------- ------- Net asset value, end of period $ 14.92 $ 14.66 $ 14.75 $ 14.54 $ 13.81 ======== ======== ======= ======= ======= TOTAL RETURN(a) 3.77% 2.07% 3.82% 7.99% 1.00% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $172,473 $111,400 $96,996 $46,061 $32,593 Average net assets (000 omitted) $139,330 $103,683 $65,992 $38,868 $34,110 Ratio to average net assets of: Expenses 1.48% 1.49% 1.50%(b) 1.53% 1.53% Net investment income 1.85% 2.14% 2.13%(b) 2.42% 2.43% Portfolio turnover rate 16% 18% 21% 12% 28% ------------------------------------------------------------------------------------------------------------------------ |
See footnotes on page 44.
CLASS A YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.62 $ 14.84 $ 14.55 $ 13.96 $ 14.18 -------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income+ .41 .42 .43 .44 .44 Net realized and unrealized gain (loss) on investment transactions .29 (.07) .33 .63 (.22) -------- ------- ------- ------- ------- Total from investment operations .70 .35 .76 1.07 .22 -------- ------- ------- ------- ------- LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from tax-exempt net investment income (.41) (.42) (.43) (.44) (.44) Distributions from net realized gain on investment transactions - 0 - (.15) (.04) (.04) - 0 - -------- ------- ------- ------- ------- Total dividends and distributions (.41) (.57) (.47) (.48) (.44) -------- ------- ------- ------- ------- Net asset value, end of period $ 14.91 $ 14.62 $ 14.84 $ 14.55 $ 13.96 ======== ======= ======= ======= ======= TOTAL RETURN(a) 4.85% 2.50% 5.36% 7.82% 1.55% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $113,889 $59,978 $49,944 $41,130 $29,827 Average net assets (000 omitted) $ 88,033 $49,895 $43,000 $34,945 $25,239 Ratio to average net assets of: Expenses .87% .88% .87%(b) .89% .90% Net investment income 2.76% 2.94% 2.97%(b) 3.11% 3.10% Portfolio turnover rate 15% 14% 33% 14% 26% ----------------------------------------------------------------------------------------------------------------------- |
CLASS B YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ----------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $14.62 $14.84 $14.55 $13.97 $14.18 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income+ .31 .32 .32 .34 .34 Net realized and unrealized gain (loss) on investment transactions .29 (.07) .34 .62 (.21) ------ ------ ------ ------ ------ Total from investment operations .60 .25 .66 .96 .13 ------ ------ ------ ------ ------ LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from tax-exempt net investment income (.31) (.32) (.33) (.34) (.34) Distributions from net realized gain on investment transactions - 0 - (.15) (.04) (.04) - 0 - ------ ------ ------ ------ ------ Total dividends and distributions (.31) (.47) (.37) (.38) (.34) ------ ------ ------ ------ ------ Net asset value, end of period $14.91 $14.62 $14.84 $14.55 $13.97 ====== ====== ====== ====== ====== TOTAL RETURN(a) 4.11% 1.79% 4.62% 7.00% 0.92% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 65 $ 160 $ 491 $1,873 $6,380 Average net assets (000 omitted) $ 112 $ 305 $1,066 $4,073 $8,903 Ratio to average net assets of: Expenses 1.59% 1.59% 1.61%(b) 1.61% 1.60% Net investment income 2.09% 2.23% 2.26%(b) 2.42% 2.40% Portfolio turnover rate 15% 14% 33% 14% 26% ----------------------------------------------------------------------------------------------------------------- |
See footnotes on page 44.
CLASS C YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ---------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.62 $ 14.84 $ 14.55 $ 13.96 $ 14.18 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income+ .31 .32 .33 .34 .34 Net realized and unrealized gain (loss) on investment transactions .29 (.07) .33 .63 (.22) ------- ------- ------- ------- ------- Total from investment operations .60 .25 .66 .97 .12 ------- ------- ------- ------- ------- LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from tax-exempt net investment income (.31) (.32) (.33) (.34) (.34) Distributions from net realized gain on investment transactions - 0 - (.15) (.04) (.04) - 0 - ------- ------- ------- ------- ------- Total dividends and distributions (.31) (.47) (.37) (.38) (.34) ------- ------- ------- ------- ------- Net asset value, end of period $ 14.91 $ 14.62 $ 14.84 $ 14.55 $ 13.96 ======= ======= ======= ======= ======= TOTAL RETURN(A) 4.12% 1.79% 4.64% 7.08% 0.84% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $25,647 $20,163 $21,612 $18,717 $17,416 Average net assets (000 omitted) $22,572 $19,880 $19,944 $18,309 $17,306 Ratio to average net assets of: Expenses 1.58% 1.59% 1.58%(b) 1.60% 1.60% Net investment income 2.07% 2.23% 2.28%(b) 2.42% 2.40% Portfolio turnover rate 15% 14% 33% 14% 26% ---------------------------------------------------------------------------------------------------------------------- |
See footnotes on page 44.
CLASS A YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.41 $ 14.52 $ 14.35 $ 13.60 $ 13.83 -------- -------- -------- ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income+ .39 .41 .40 .42 .43 Net realized and unrealized gain (loss) on investment transactions .25 (.06) .20 .79 (.23) -------- -------- -------- ------- ------- Total from investment operations .64 .35 .60 1.21 .20 -------- -------- -------- ------- ------- LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from tax-exempt net investment income (.39) (.41) (.40) (.42) (.43) Distributions from net realized gain on investment transactions - 0 - (.05) (.03) (.04) - 0 - -------- -------- -------- ------- ------- Total dividends and distributions (.39) (.46) (.43) (.46) (.43) -------- -------- -------- ------- ------- Net asset value, end of period $ 14.66 $ 14.41 $ 14.52 $ 14.35 $ 13.60 ======== ======== ======== ======= ======= TOTAL RETURN(a) 4.50% 2.50% 4.28% 9.15% 1.43% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $246,050 $183,641 $161,499 $67,472 $38,508 Average net assets (000 omitted) $210,357 $163,702 $111,181 $47,909 $30,308 Ratio to average net assets of: Expenses .85% .84% .85%(b) .87% .89% Net investment income 2.68% 2.86% 2.78%(b) 3.05% 3.09% Portfolio turnover rate 14% 14% 18% 19% 24% ------------------------------------------------------------------------------------------------------------------------- |
CLASS B YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $14.40 $14.51 $14.35 $13.60 $ 13.82 ------ ------ ------ ------ ------- INCOME FROM INVESTMENT OPERATIONS Net investment income+ .28 .30 .30 .33 .33 Net realized and unrealized gain (loss) on investment transactions .25 (.06) .19 .79 (.21) ------ ------ ------ ------ ------- Total from investment operations .53 .24 .49 1.12 .12 ------ ------ ------ ------ ------- LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from tax-exempt net investment income (.28) (.30) (.30) (.33) (.34) Distributions from net realized gain on investment transactions - 0 - (.05) (.03) (.04) - 0 - ------ ------ ------ ------ ------- Total dividends and distributions (.28) (.35) (.33) (.37) (.34) ------ ------ ------ ------ ------- Net asset value, end of period $14.65 $14.40 $14.51 $14.35 $ 13.60 ====== ====== ====== ====== ======= TOTAL RETURN(a) 3.73% 1.75% 3.47% 8.39% .80% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 595 $ 754 $1,118 $3,426 $11,912 Average net assets (000 omitted) $ 692 $ 920 $2,345 $8,161 $17,351 Ratio to average net assets of: Expenses 1.60% 1.58% 1.59%(b) 1.60% 1.60% Net investment income 1.95% 2.13% 2.09%(b) 2.39% 2.40% Portfolio turnover rate 14% 14% 18% 19% 24% ------------------------------------------------------------------------------------------------------------------ |
See footnotes on page 44.
CLASS C YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ---------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.41 $ 14.52 $ 14.35 $ 13.60 $ 13.83 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income+ .29 .31 .30 .32 .33 Net realized and unrealized gain (loss) on investment transactions .25 (.06) .20 .80 (.23) ------- ------- ------- ------- ------- Total from investment operations .54 .25 .50 1.12 .10 ------- ------- ------- ------- ------- LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from tax-exempt net investment income (.29) (.31) (.30) (.33) (.33) Distributions from net realized gain on investment transactions - 0 - (.05) (.03) (.04) - 0 - ------- ------- ------- ------- ------- Total dividends and distributions (.29) (.36) (.33) (.37) (.33) ------- ------- ------- ------- ------- Net asset value, end of period $ 14.66 $ 14.41 $ 14.52 $ 14.35 $ 13.60 ======= ======= ======= ======= ======= TOTAL RETURN(a) 3.77% 1.78% 3.55% 8.39% 0.72% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $91,139 $64,599 $63,112 $30,877 $17,618 Average net assets (000 omitted) $76,424 $61,580 $44,917 $21,250 $17,493 Ratio to average net assets of: Expenses 1.55% 1.54% 1.55%(b) 1.57% 1.60% Net investment income 1.97% 2.16% 2.08%(b) 2.34% 2.40% Portfolio turnover rate 14% 14% 18% 19% 24% ---------------------------------------------------------------------------------------------------------------------- |
+ Based on average shares outstanding.
(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 net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized.
(b)The ratio includes expenses attributable to costs of proxy solicitation.
The settlement agreement between the Adviser and the New York State Attorney General requires the Portfolios to include the following supplemental hypothetical investment information, which provides additional information calculated and presented in a manner different from expense information found under "Fees and Expenses of the Portfolios" in this Prospectus, about the effect of a Portfolio's expenses, including investment advisory fees and other Portfolio costs, on the Portfolio's returns over a 10-year period. The chart shows the estimated expenses (net of any fee or expense waiver for the first year) that would be charged on a hypothetical investment of $10,000 in Class A shares of the Portfolio assuming a 5% return each year, including an initial sales charge of 3.00%. Except as otherwise indicated, the chart also assumes that the current annual expense ratio stays the same throughout the 10-year period. The current annual expense ratio for each Portfolio is the same as stated under "Financial Highlights". If you wish to obtain hypothetical investment information for other classes of shares of the Portfolio, please refer to "Investor Resources--Calculators--Mutual Funds--Hypothetical Fee and Expenses Calculator" on www.AllianceBernstein.com. Your actual expenses may be higher or lower.
HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT -------------------------------------------------------------------------- 1 $10,000.00 $ 485.00 $10,185.00 $ 379.44 $10,105.56 2 10,105.56 505.28 10,610.84 82.76 10,528.08 3 10,528.08 526.40 11,054.48 86.22 10,968.26 4 10,968.26 548.41 11,516.67 89.83 11,426.84 5 11,426.84 571.34 11,998.18 93.59 11,904.59 6 11,904.59 595.23 12,499.82 97.50 12,402.32 7 12,402.32 620.12 13,022.44 101.58 12,920.86 8 12,920.86 646.04 13,566.90 105.82 13,461.08 9 13,461.08 673.05 14,134.13 110.25 14,023.88 10 14,023.88 701.19 14,725.07 114.86 14,610.21 -------------------------------------------------------------------------- Cumulative $5,872.06 $1,261.85 |
HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT -------------------------------------------------------------------------- 1 $10,000.00 $ 485.00 $10,185.00 $ 388.61 $10,096.39 2 10,096.39 504.82 10,601.21 92.23 10,508.98 3 10,508.98 525.45 11,034.43 96.00 10,938.43 4 10,938.43 546.92 11,485.35 99.92 11,385.43 5 11,385.43 569.27 11,954.70 104.01 11,850.69 6 11,850.69 592.53 12,443.22 108.26 12,334.96 7 12,334.96 616.75 12,951.71 112.68 12,839.03 8 12,839.03 641.95 13,480.98 117.28 13,363.70 9 13,363.70 668.19 14,031.89 122.08 13,909.81 10 13,909.81 695.49 14,605.30 127.07 14,478.23 -------------------------------------------------------------------------- Cumulative $5,846.37 $1,368.14 |
HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT -------------------------------------------------------------------------- 1 $10,000.00 $ 485.00 $10,185.00 $ 386.57 $10,098.43 2 10,098.43 504.92 10,603.35 90.13 10,513.22 3 10,513.22 525.66 11,038.88 93.83 10,945.05 4 10,945.05 547.25 11,492.30 97.68 11,394.62 5 11,394.62 569.73 11,964.35 101.70 11,862.65 6 11,862.65 593.13 12,455.78 105.87 12,349.91 7 12,349.91 617.50 12,967.41 110.22 12,857.19 8 12,857.19 642.86 13,500.05 114.75 13,385.30 9 13,385.30 669.27 14,054.57 119.46 13,935.11 10 13,935.11 696.76 14,631.87 124.37 14,507.50 -------------------------------------------------------------------------- Cumulative $5,852.08 $1,344.58 |
* Expenses are net of any fee waiver or expense waiver for the first year. Thereafter, the expense ratio reflects the Portfolio's operating expenses as reflected under "Fees and Expenses of the Portfolios" before waiver.
For more information about the Portfolios, the following documents are available upon request:
. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The Portfolios' annual and semi-annual reports to shareholders contain additional information on the Portfolios' investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected a Portfolio's performance during its last fiscal year.
. STATEMENT OF ADDITIONAL INFORMATION (SAI) The Portfolios have SAIs, which contain more detailed information about each Portfolio, including its operations and investment policies. The Portfolios' SAIs and independent registered public accounting firms' reports and financial statements in each Portfolio's most recent annual report to shareholders are incorporated by reference into (and are legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAIs, or make inquiries concerning the Portfolios by contacting your broker or other financial intermediary, or by contacting the Adviser:
BY MAIL: c/o AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 BY PHONE: For Information: 800-221-5672 For Literature: 800-227-4618 ON THE INTERNET: www.AllianceBernstein.com |
Or you may view or obtain these documents from the Securities and Exchange Commission (the "Commission"):
. Call the Commission at 1-202-551-8090 for information on the operation of the Public Reference Room.
. Reports and other information about the Portfolios are available on the EDGAR Database on the Commission's Internet site at http://www.sec.gov.
. Copies of the information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Commission's Public Reference Section, Washington, DC 20549-0102.
AllianceBernstein and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
FUND SEC FILE NO. --------------------------------------------- Sanford C. Bernstein Fund, Inc. 811-05555 |
PRO-0116-0113
[GRAPHIC]
PROSPECTUS | JANUARY 31, 2013
The AllianceBernstein Bond Funds
Stability
(Shares Offered--Exchange Ticker Symbol)
AllianceBernstein Short Duration Portfolio
(Class A-ADPAX; Class B-ADPBX; Class C-ADPCX)
The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
[LOGO]
AB
ALLIANCEBERNSTEIN
INVESTMENT PRODUCTS OFFERED
. ARE NOT FDIC INSURED
. MAY LOSE VALUE
. ARE NOT BANK GUARANTEED
Page SUMMARY INFORMATION........................................... 4 STABILITY..................................................... 4 ALLIANCEBERNSTEIN SHORT DURATION PORTFOLIO.................. 4 ADDITIONAL INFORMATION ABOUT THE FUND'S RISKS AND INVESTMENTS. 8 INVESTING IN THE FUND......................................... 17 How to Buy Shares........................................... 17 The Different Share Class Expenses.......................... 18 Sales Charge Reduction Programs for Class A Shares.......... 19 CDSC Waivers and Other Programs............................. 20 Choosing a Share Class...................................... 21 Payments to Financial Advisors and Their Firms.............. 21 How to Exchange Shares...................................... 22 How to Sell or Redeem Shares................................ 22 Frequent Purchases and Redemptions of Fund Shares........... 23 How the Fund Values Its Shares.............................. 24 MANAGEMENT OF THE FUND........................................ 26 DIVIDENDS, DISTRIBUTIONS AND TAXES............................ 28 GENERAL INFORMATION........................................... 29 GLOSSARY OF INVESTMENT TERMS.................................. 30 FINANCIAL HIGHLIGHTS.......................................... 31 APPENDIX A--BOND RATINGS...................................... APPENDIX B--HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION... B-1 |
INVESTMENT OBJECTIVE
The Fund seeks to provide safety of principal and a moderate rate of income
that is subject to taxes.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AllianceBernstein Mutual Funds. More information about these and
other discounts is available from your financial intermediary and in Investing
in the Funds--Sales Charge Reduction Programs for Class A Shares on page 43 of
this Prospectus and in Purchase of Shares--Sales Charge Reduction Programs on
page 73 of the Fund's Statement of Additional Information ("SAI").
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS B SHARES CLASS A (NOT CURRENTLY OFFERED CLASS C SHARES TO NEW INVESTORS) SHARES -------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.25% None None -------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None(a) 3.00%(b) 1.00%(c) -------------------------------------------------------------------------------------------- Exchange Fee None None None |
ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)
CLASS A CLASS B CLASS C ----------------------------------------------------------------- Management Fees .45% .45% .45% Distribution and/or Service (12b-1) Fees .30% 1.00% 1.00% Other Expenses: Transfer Agent .10% .15% .11% Other Expenses .09% .18% .16% ---- ----- ----- Total Other Expenses .19% .33% .27% ---- ----- ----- Total Annual Fund Operating Expenses .94% 1.78% 1.72% ==== ===== ===== ----------------------------------------------------------------- |
(a)Purchases of Class A shares in amounts of $1,000,000 or more, or by certain group retirement plans, may be subject to a 1%, 1-year contingent deferred sales charge ("CDSC"), which may be subject to waiver in certain circumstances.
(b)Class B shares automatically convert to Class A shares after six years. The CDSC decreases over time. For Class B shares, the CDSC decreases 1.00% annually to 0% after the third year.
(c)For Class C shares, the CDSC is 0% after the first year.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Examples assume that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year and that the Fund's operating expenses
stay the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
CLASS A CLASS B CLASS C --------------------------------------- After 1 Year $ 517 $ 481 $ 275 After 3 Years $ 712 $ 660 $ 542 After 5 Years $ 923 $ 964 $ 933 After 10 Years $1,531 $1,669 $2,030 --------------------------------------- |
You would pay the following expenses if you did not redeem your shares at the end of period:
CLASS B CLASS C ------------------------------- After 1 Year $ 181 $ 175 After 3 Years $ 560 $ 542 After 5 Years $ 964 $ 933 After 10 Years $1,669 $2,030 ------------------------------- |
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys or sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Fund Operating Expenses or in the Examples, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio
turnover rate was 134% of the average value of its portfolio.
PRINCIPAL STRATEGIES
The Fund invests at least 80% of its total assets in securities rated A or
better by national ratings agencies (or, if unrated, determined by the Adviser
to be of comparable quality) and comparably rated commercial paper and notes.
The Fund may purchase many types of securities, including corporate bonds,
notes, U.S. Government and agency securities, asset-backed securities,
mortgage-related securities, inflation-protected securities, loan
participations and preferred stock, as well as others. The Fund also may invest
up to 20% of its total assets in foreign fixed-income securities in developed
or emerging market countries. The Fund may invest up to 20% of its fixed-income
securities rated BB or B by national rating agencies, which are not investment
grade (commonly known as "junk bonds").
The Fund seeks to maintain an effective duration of one to three years under normal market conditions. Duration is a measure that relates the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average time to maturity, expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments. Thus, by definition, duration is always less than or equal to full maturity.
In managing the Fund, the Adviser may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Adviser may moderately shorten the average duration of the Fund when the Adviser expects interest rates to rise and modestly lengthen its average duration when the Adviser anticipates that interest rates will fall.
The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors, including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund's other holdings.
The Fund may also invest in derivatives, such as options, futures, forwards and swaps. The Fund also may invest up to 20% of its assets in structured products, which have characteristics of futures, options, currencies, and securities.
The Fund may enter into foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives transactions, such as forward currency exchange contracts, currency futures and options thereon, and options on currencies.
PRINCIPAL RISKS
. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or
bond market fluctuates. The value of its investments may decline, sometimes
rapidly and unpredictably, simply because of economic changes or other
events that affect large portions of the market.
. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
. DURATION RISK: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
. BELOW INVESTMENT GRADE SECURITIES: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility, due to such factors as specific corporate developments, interest rate sensitivity, negative perception of the junk bond market generally and less secondary market liquidity.
. RISKIER THAN A MONEY-MARKET FUND: The Fund is invested in securities with longer maturities and in some cases lower quality than the assets of the type of mutual fund known as a money-market fund. The risk of a decline in the market value of the Fund's assets is greater than for a money-market fund since the credit quality of the Fund's securities may be lower and the effective duration of the Fund will be longer.
. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund's assets can decline as can the value of the Fund's distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities.
. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. These risks may be heightened with respect to investments in emerging-market countries, where there may be an increased amount of economic, political and social instability.
. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect the value of the Fund's investments or reduce its returns.
. PREPAYMENT RISK: The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Fund to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Fund may not be able to realize the rate of return it expected.
. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its net asset value, or NAV, may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund's investments.
. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Fund from selling out of these illiquid securities at an advantageous price. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.
. DERIVATIVES RISK: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments.
. MANAGEMENT RISK: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Fund by showing:
. how the Fund's performance changed from year to year over the life of the Fund; and
. how the Fund's average annual returns for one and five years and over the life of the Fund compare to those of a broad-based securities market index.
You may obtain updated performance information on the Fund's website at www.AllianceBernstein.com (click on "Individuals--U.S." then "Products & Performance").
The Fund's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do
not reflect sales loads. If sales loads were reflected, returns would be less
than those shown.
[CHART] 03 04 05 06 07 08 09 10 11 12 ---- ----- ----- ----- ----- ------ ----- ----- ----- ----- n/a 0.92% 1.02% 3.75% 3.50% -4.18% 6.52% 2.90% 0.80% 0.34% |
Calendar Year End (%)
During the period shown in the bar chart, the Fund's:
BEST QUARTER WAS UP 2.32% IN THE 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN -1.79% IN THE 1ST QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
SINCE 1 YEAR 5 YEARS INCEPTION* ------------------------------------------------------------------------------------------------- Class A** Return Before Taxes -3.94% 0.34% 1.21% --------------------------------------------------------------------------- ---------- Return After Taxes on Distributions -4.13% -0.27% 0.33% --------------------------------------------------------------------------- ---------- Return After Taxes on Distributions and Sale of Fund Shares -2.56% -0.07% 0.51% ------------------------------------------------------------------------------------------------- Class B Return Before Taxes -3.04% 0.58% 1.21% ------------------------------------------------------------------------------------------------- Class C Return Before Taxes -0.97% 0.61% 1.00% ------------------------------------------------------------------------------------------------- BofA Merrill Lynch 1-3 Year Treasury Index (reflects no deduction for fees, expenses, or taxes) 0.43% 2.32% 2.71% ------------------------------------------------------------------------------------------------- |
* Inception date for Class A, Class B and Class C shares: 5/21/03
** After-tax returns:
-Are shown for Class A shares only and will vary for Class B and Class C shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Fund.
PORTFOLIO MANAGER
The following table lists the persons responsible for day-to-day management of
the Fund's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE ---------------------------------------------------------------------------- Jon P. Denfeld Since 2008 Vice President of the Adviser Shawn E. Keegan Since 2005 Vice President of the Adviser Alison M. Martier Since 2009 Senior Vice President of the Adviser Douglas J. Peebles Since 2009 Senior Vice President of the Adviser Greg J. Wilensky Since 2009 Senior Vice President of the Adviser |
ADDITIONAL INFORMATION
For important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 30 in this Prospectus.
This section of the Prospectus provides additional information about the Fund's investment practices and related risks. Most of these investment practices are discretionary, which means that the Adviser may or may not decide to use them. This Prospectus does not describe all of the Fund's investment practices and additional information about the Fund's risks and investments can be found in the Fund's SAI.
DERIVATIVES
The Fund may, but is not required to, use derivatives for hedging or other risk
management purposes or as part of its investment strategies. Derivatives are
financial contracts whose value depends on, or is derived from, the value of an
underlying asset, reference rate or index. The Fund may use derivatives to earn
income and enhance returns, to hedge or adjust the risk profile of its
investments, to replace more traditional direct investments and to obtain
exposure to otherwise inaccessible markets.
There are four principal types of derivatives--options, futures, forwards and swaps--each of which is described below. Derivatives may be (i) standardized, exchange-traded contracts or (ii) customized, privately-negotiated contracts. Exchange-traded derivatives tend to be more liquid and subject to less credit risk than those that are privately negotiated.
The Fund's use of derivatives may involve risks that are different from, or possibly greater than, the risks associated with investing directly in securities or other more traditional instruments. These risks include the risk that the value of a derivative instrument may not correlate perfectly, or at all, with the value of the assets, reference rates, or indices that they are designed to track. Other risks include: the possible absence of a liquid secondary market for a particular instrument and possible exchange-imposed price fluctuation limits, either of which may make it difficult or impossible to close out a position when desired; and the risk that the counterparty will not perform its obligations. Certain derivatives may have a leverage component and involve leverage risk. Adverse changes in the value or level of the underlying asset, note or index can result in a loss substantially greater than the Fund's investment (in some cases, the potential loss is unlimited).
The Fund's investments in derivatives may include, but are not limited to, the following:
. FORWARD CONTRACTS--A forward contract is an agreement that obligates one party to buy, and the other party to sell, a specific quantity of an underlying commodity or other tangible asset for an agreed-upon price at a future date. A forward contract generally is settled by physical delivery of the commodity or tangible asset to an agreed-upon location (rather than settled by cash), or is rolled forward into a new forward contract or, in the case of a non-deliverable forward, by a cash payment at maturity. The Fund's investments in forward contracts may include the following:
- Forward Currency Exchange Contracts. The Fund may purchase or sell forward currency exchange contracts for hedging purposes to minimize the risk from adverse changes in the relationship between the U.S. Dollar and other currencies or for non-hedging purposes as a means of making direct investments in foreign currencies as described below under "Other Derivatives and Strategies--Currency Transactions". The Fund, for example, may enter into a forward contract as a transaction hedge (to "lock in" the U.S. Dollar price of a non-U.S. Dollar security), as a position hedge (to protect the value of securities the Fund owns that are denominated in a foreign currency against substantial changes in the value of the foreign currency) or as a cross-hedge (to protect the value of securities the Fund owns that are denominated in a foreign currency against substantial changes in the value of that foreign currency by entering into a forward contract for a different foreign currency that is expected to change in the same direction as the currency in which the securities are denominated).
. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A futures contract is a standardized, exchange-traded agreement that obligates the buyer to buy and the seller to sell a specified quantity of an underlying asset (or settle for cash the value of a contract based on an underlying asset, rate or index) at a specific price on the contract maturity date. Options on futures contracts are options that call for the delivery of futures contracts upon exercise. The Fund may purchase or sell futures contracts and options thereon to hedge against changes in interest rates, securities (through index futures or options) or currencies. The Fund may also purchase or sell futures contracts for foreign currencies or options thereon for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions".
. OPTIONS--An option is an agreement that, for a premium payment or fee, gives the option holder (the buyer) the right but not the obligation to buy (a "call option") or sell (a "put option") the underlying asset (or settle for cash an amount based on an underlying asset, rate or index) at a specified price (the exercise price) during a period of time or on a specified date. Investments in options are considered speculative. The Fund may lose the premium paid for them if the price of the underlying security or other asset decreased or remained the same (in the case of a call option) or increased or remained the same (in the case of a put option). If a put or call option purchased by the Fund were permitted to expire without being sold or exercised, its premium would represent a loss to the Fund. The Fund's investments in options include the following:
- Options on Foreign Currencies. The Fund may invest in options on foreign currencies that are privately negotiated or traded on U.S. or foreign exchanges for hedging
purposes to protect against declines in the U.S. Dollar value of foreign currency denominated securities held by a Fund and against increases in the U.S. Dollar cost of securities to be acquired. The purchase of an option on a foreign currency may constitute an effective hedge against fluctuations in exchange rates, although if rates move adversely, the Fund may forfeit the entire amount of the premium plus related transaction costs. The Fund may also invest in options on foreign currencies for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions".
- Options on Securities. The Fund may purchase or write a put or call option on securities. The Fund may write covered options, which means writing an option for securities the Fund owns, and uncovered options.
- Options on Securities Indices. An option on a securities index is similar to an option on a security except that, rather than taking or making 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.
. SWAP TRANSACTIONS--A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals (payment dates) based upon or calculated by reference to changes in specified prices or rates (e.g., interest rates in the case of interest rate swaps, currency exchange rates in the case of currency swaps) for a specified amount of an underlying asset (the "notional" principal amount). Except for currency swaps, as described below, the notional principal amount is used solely to calculate the payment stream, but is not exchanged. Rather, most swaps are entered into 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). The Fund's investments in swap transactions include the following:
- Interest Rate Swaps, Swaptions, Caps and Floors. Interest rate swaps involve the exchange by a Fund with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating rate payments for fixed-rate payments). Unless there is a counterparty default, the risk of loss to the Fund from interest rate swap transactions is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the counterparty to an interest rate swap transaction defaults, the Fund's risk of loss consists of the net amount of interest payments that the Fund contractually is entitled to receive.
An option on a swap agreement, also called a "swaption", is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based "premium". A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
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 the 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. Caps and floors may be less liquid than swaps.
There is no limit on the amount of interest rate transactions that may be entered into by the Fund. The value of these transactions will fluctuate based on changes in interest rates.
Interest rate swap, swaption, cap and floor transactions may, for example, be used to preserve a return or spread on a particular investment or a portion of the Fund's portfolio or to protect against an increase in the price of securities the Fund anticipates purchasing at a later date.
The SHORT DURATION PORTFOLIO will enter into interest rate swap, swaption, cap or floor transactions only with counterparties whose debt securities (or whose guarantors' debt securities) are rated at least A (or the equivalent) by at least one national recognized statistical rating organization ("NRSRO") and are on the Adviser's approval list of swap counterparties for the Fund.
- Inflation (CPI) Swaps. Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swap agreements may be used to protect the NAV of the Fund against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases.
- Credit Default Swap Agreements. The "buyer" in a credit default swap contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract in return for a contingent payment upon the occurrence of a credit event with respect to an underlying reference obligation. Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or restructuring. The Fund may be either the buyer or seller in the transaction. If the Fund is a seller, the Fund receives a fixed rate of income throughout the term of the contract, which typically is between one month and ten years, provided that no credit event occurs. If a credit event occurs, the Fund typically must pay the contingent payment to
the buyer, which will be either (i) the "par value" (face amount) of the reference obligation, in which case the Fund will receive the reference obligation in return or (ii) an amount equal to the difference between the par value and the current market value of the reference obligation. The periodic payments previously received by the Fund, coupled with the value of any reference obligation received, may be less than the full amount it pays to the buyer, resulting in a loss to the Fund. If the Fund is a buyer and no credit event occurs, the Fund will lose its periodic stream of payments over the term of the contract. However, if a credit event occurs, the buyer typically receives full notional value for a reference obligation that may have little or no value.
Credit default swaps may involve greater risks than if a Fund had invested in the reference obligation directly. Credit default swaps are subject to general market risk, liquidity risk and credit risk.
The SHORT DURATION PORTFOLIO will enter into credit default swap transactions only with counterparties whose debt securities (or whose guarantors' debt securities) are rated at least A (or the equivalent) by at least one NRSRO and are on the Adviser's approved list of swap counterparties for the Fund. The Fund will not enter into a credit default swap that provides for physical delivery of the underlying obligation if, at the time of entering into the swap, such delivery would result in the Fund investing more than 20% of its total assets in securities rated lower than A by a NRSRO. A subsequent deterioration of the credit quality of the underlying obligation will not cause the Fund to dispose of the credit default swap.
- Currency Swaps. The Fund may invest in currency swaps for hedging purposes to protect against adverse changes in exchange rates between the U.S. Dollar and other currencies or for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions". Currency swaps involve the individually negotiated exchange by the Fund with another party of a series of payments in specified currencies. Actual principal amounts of currencies may be exchanged by the counterparties at the initiation, and again upon the termination, of the transaction. Therefore, the entire principal value of a currency swap is subject to the risk that the swap counterparty will default on its contractual delivery obligations.
- Total Return Swaps. The Fund may enter into total return swaps, under which one party agrees to pay the other the total return of a defined underlying asset, such as a security or basket of securities, or non-asset reference, such as a securities index, during the specified period in return for periodic payments based on a fixed or variable interest rate or the total return from different underlying assets or references. Total return swaps could result in losses if the underlying asset or reference does not perform as anticipated.
- Variance and Correlation Swaps. The Fund may enter into variance or correlation swaps to hedge equity market risk or adjust exposure to the equity markets. Variance swaps are contracts in which two parties agree to exchange cash payments based on the difference between the stated level of variance and the actual variance realized on an underlying asset or index. Actual "variance" as used here is defined as the sum of the square of the returns on the reference asset or index (which in effect is a measure of its "volatility") over the length of the contract term. So the parties to a variance swap can be said to exchange actual volatility for a contractually stated rate of volatility. Correlation swaps are contracts in which two parties agree to exchange cash payments based on the differences between the stated and the actual correlation realized on the underlying equity securities within a given equity index. "Correlation" as used here is defined as the weighted average of the correlations between the daily returns of each pair of securities within a given equity index. If two assets are said to be closely correlated, it means that their daily returns vary in similar proportions or along similar trajectories.
. OTHER DERIVATIVES AND STRATEGIES--
- Eurodollar Instruments. Eurodollar instruments are essentially U.S. Dollar-denominated futures contracts or options that are linked to the London Interbank Offered Rate (LIBOR). Eurodollar futures contracts enable purchasers to obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate for borrowings.
- Currency Transactions. The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or un-hedged basis. The Adviser may actively manage the Fund's currency exposures and may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps and options. The Adviser may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
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 or approval of a
proposed financing by appropriate authorities (i.e., a "when, as and if issued"
trade).
The Fund may invest significantly in TBA-mortgage-backed securities. A TBA, or "To Be Announced", trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agreed-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.
When forward commitments with respect to fixed-income securities are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but payment for and delivery of the securities take place at a later date. 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. There is the risk of loss if the value of either a purchased security declines before the settlement date or the security sold increases before the settlement date. The use of forward commitments helps the Fund to protect against anticipated changes in interest rates and prices.
ILLIQUID SECURITIES
Under current Securities and Exchange Commission ("Commission") guidelines, the
Fund limits its investments in illiquid securities to 15% of their net assets.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount a Fund has valued the securities. To the extent that
the Fund invests in illiquid securities it may not be able to sell such
securities and may not be able to realize their full value upon sale.
Restricted securities (securities subject to legal or contractual restrictions
on resale) may be illiquid. Some restricted securities (such as securities
issued pursuant to Rule 144A under the Securities Act of 1933 or certain
commercial paper) may be treated as liquid, although they may be less liquid
than registered securities traded on established secondary markets.
INDEXED COMMERCIAL PAPER
Indexed commercial paper may have its principal linked to changes in foreign
currency exchange rates whereby its principal amount is adjusted upwards or
downwards (but not below zero) at maturity to reflect changes in the referenced
exchange rate. The Fund will receive interest and principal payments on such
commercial paper in the currency in which such commercial paper is denominated,
but the amount of principal payable by the issuer at maturity will change in
proportion to the change (if any) in the exchange rate between the two
specified currencies between the date the instrument is issued and the date the
instrument matures. While such commercial paper entails the risk of loss of
principal, the potential for realizing gains as a result of changes in foreign
currency exchange rates enables the Fund to hedge (or cross-hedge) against a
decline in the U.S. Dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. The Fund
will purchase such commercial paper for hedging purposes only, not for
speculation.
INFLATION-PROTECTED SECURITIES
Inflation-protected securities, or IPS, are fixed-income securities whose
principal value is periodically adjusted according to the rate of inflation. If
the index measuring inflation falls, the principal value of these securities
will be adjusted downward, and consequently the interest payable on these
securities (calculated with respect to a smaller principal amount) will be
reduced.
The value of IPS tends to react to changes in real interest rates. In general, the price of IPS can fall when real interest rates rise, and can rise when real interest rates fall. In addition, the value of IPS can fluctuate based on fluctuations in expectations of inflation. Interest payments on IPS can be unpredictable and will vary as the principal and/or interest is adjusted for inflation.
LOAN PARTICIPATIONS
The Fund may invest in corporate loans either by participating as co-lender at
the time the loan is originated or by buying an interest in the loan in the
secondary market from a financial institution or institutional investor. The
financial status of an institution interposed between the Fund and a borrower
may affect the ability of the Fund to receive principal and interest payments.
The success of the Fund may depend on the skill with which an agent bank administers the terms of the corporate loan agreements, monitors borrower compliance with covenants, collects principal, interest and fee payments from borrowers and, where necessary, enforces creditor remedies against borrowers. Agent banks typically have broad discretion in enforcing loan agreements.
MORTGAGE-RELATED SECURITIES, OTHER ASSET-BACKED SECURITIES AND STRUCTURED
SECURITIES
The Fund may invest in mortgage-related or other asset-backed securities.
Mortgage-related securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), commercial mortgage-backed
securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed
securities ("SMBSs") and other securities that directly or indirectly represent
a participation in or are secured by and payable from mortgage loans on real
property. These securities may be issued or guaranteed by the U.S. Government
or one of its sponsored entities or may be issued by private organizations.
The value of mortgage-related or other asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Fund to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them
to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Fund may not be able to realize the rate of return it expected.
One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or "IO" class), while the other class will receive all of the principal (the principal-only, or "PO" class). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund's yield to maturity from these securities.
The Fund may invest in collateralized debt obligations ("CDOs"), which include collateralized bond obligations ("CBOs"), collateralized loan obligations ("CLOs"), and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust that is backed by a diversified pool of high-risk, below investment grade fixed-income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. The Fund may invest in other asset-backed securities that have been offered to investors.
The securitization techniques used to develop mortgage-related securities are being applied to a broad range of financial assets. Through the use of trusts and special purpose corporations, various types of assets, including automobile loans and leases, credit card receivables, home equity loans, equipment leases and trade receivables, are being securitized in structures similar to the structures used in mortgage securitizations.
The Fund may also invest in various types of structured securities and basket securities. Structured securities are securities issued in structured financing transactions, which generally involve aggregating types of debt assets in a pool or special purpose entity and then issuing new securities. Types of structured financings include securities described elsewhere in this Prospectus, such as mortgage-related and other asset-backed securities. The Fund's investments include investments in structured securities that represent interests in entities organized and operated solely for the purpose of restructuring the investment characteristics of particular debt obligations. This type of restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments (such as commercial bank loans or high-yield bonds) and the issuance by that entity of one or more classes of structured securities backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics such as varying maturities, payment priorities and interest rate provisions, and the extent of the payments made with respect to structured securities is dependent on the extent of the cash flow from the underlying instruments. Structured securities of a given class may be either subordinated or unsubordinated to the payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities.
Basket securities in which the Fund may invest may consist of entities organized and operated for the purpose of holding a basket of other securities. Baskets involving debt obligations may be designed to represent the characteristics of some portion of the debt securities market or the entire debt securities market.
PREFERRED STOCK
The Fund may invest in preferred stock. Preferred stock is subordinated to any
debt the issuer has outstanding. Accordingly, preferred stock dividends are not
paid until all debt obligations are first met. Preferred stock may be subject
to more fluctuations in market value, due to changes in market participants'
perceptions of the issuer's ability to continue to pay dividends, than debt of
the same issuer. These investments include convertible preferred stock, which
includes an option for the holder to convert the preferred stock into the
issuer's common stock under certain conditions, among which may be the
specification of a future date when the conversion must begin, a certain number
of common shares per preferred share, or a certain price per share for the
common stock. Convertible preferred stock tends to be more volatile than
non-convertible preferred stock, because its value is related to the price of
the issuer's common stock as well as the dividends payable on the preferred
stock.
REPURCHASE AGREEMENTS AND BUY/SELL BACK TRANSACTIONS
The Fund may enter into repurchase agreements in which the Fund purchases a
security from a bank or broker-dealer, which agrees to repurchase the security
from the Fund at an agreed-upon future date, normally a day or a few days
later. The purchase and repurchase transactions are transacted under one
agreement. 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 the Fund to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature. If the bank or broker-dealer defaults on its repurchase
obligation, the Fund would suffer a loss to the extent that the proceeds from
the sale of the security were less than the repurchase price.
The Fund may enter into buy/sell back transactions, which are similar to repurchase agreements. In this type of transaction, the Fund enters a trade to buy securities at one price and simultaneously enters a trade to sell the same securities at another price on a specified date. Similar to a repurchase agreement, the repurchase price is higher than the sale price and reflects current interest rates. Unlike a repurchase agreement, however, the buy/sell back transaction is considered two separate transactions.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
The Fund may enter into reverse repurchase agreements and dollar rolls, subject
to the Fund's limitations on borrowings. A reverse repurchase agreement or
dollar roll involves the sale of
a security by the Fund and its agreement to repurchase the instrument at a specified time and price, and may be considered a form of borrowing for some purposes. Reverse repurchase agreements, dollar rolls and other forms of borrowings may create leverage risk for the Fund. In addition, reverse repurchase agreements and dollar rolls involve the risk that the market value of the securities the Fund is obligated to repurchase may decline below the purchase price.
Dollar rolls involve sales by the Fund of securities for delivery in the current month and the Fund's simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Fund forgoes principal and interest paid on the securities. The Fund is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market value of the securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement or dollar roll files for bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities.
RIGHTS AND WARRANTS
Rights and warrants are option securities permitting their holders to subscribe
for other securities. Rights are similar to warrants except that they have a
substantially shorter duration. Rights and warrants do not carry with them
dividend or voting rights with respect to the underlying securities, or any
rights in the assets of the issuer. As a result, an investment in rights and
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not
necessarily change with the value of the underlying securities, and a right or
a warrant ceases to have value if it is not exercised prior to its expiration
date.
STANDBY COMMITMENT AGREEMENTS
Standby commitment agreements are similar to put options that commit the 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. The 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.
There is no guarantee that a security subject to a standby commitment will be issued. In addition, 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 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.
SOVEREIGN DEBT OBLIGATIONS
No established secondary markets may exist for many sovereign debt obligations.
Reduced secondary market liquidity may have an adverse effect on the market
price and the Fund's ability to dispose of particular instruments when
necessary to meet its liquidity requirements or in response to specific
economic events such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain sovereign debt obligations may
also make it more difficult for the Fund to obtain accurate market quotations
for the purpose of valuing its portfolio. Market quotations are generally
available on many sovereign debt obligations only from a limited number of
dealers and may not necessarily represent firm bids of those dealers or prices
for actual sales.
By investing in sovereign debt obligations, the Fund will be exposed to the direct or indirect consequences of political, social, and economic changes in various countries. Political changes in a country may affect the willingness of a foreign government to make or provide for timely payments of its obligations. The country's economic status, as reflected in, among other things, its inflation rate, the amount of its external debt and its gross domestic product, will also affect the government's ability to honor its obligations.
The Fund is permitted to invest in sovereign debt obligations that are not current in the payment of interest or principal or are in default so long as the Adviser believes it to be consistent with the Fund's investment objectives. The Fund may have limited legal recourse in the event of a default with respect to certain sovereign debt obligations they hold. For example, remedies from defaults on certain sovereign debt obligations, unlike those on private debt, must, in some cases, be pursued in the courts of the defaulting party itself. Legal recourse therefore may be significantly diminished. Bankruptcy, moratorium, and other similar laws applicable to issuers of sovereign debt obligations may be substantially different from those applicable to issuers of private debt obligations. The political context, expressed as the willingness of an issuer of sovereign debt obligations to meet the terms of the debt obligation, for example, is of considerable importance. In addition, no assurance can be given that the holders of commercial bank debt will not contest payments to the holders of securities issued by foreign governments in the event of default under commercial bank loan agreements.
STRUCTURED PRODUCTS
The Fund may invest in certain hybrid derivatives-type investments that combine
a traditional stock or bond with, for example, a futures contract or an option.
These investments include structured notes and indexed securities,
commodity-linked notes and commodity index-linked notes and credit-linked
securities. The performance of the structured product, which is generally a
fixed-income security, is tied (positively or negatively) to the price or
prices of an unrelated reference
indicator such as a security or basket of securities, currencies, commodities, a securities or commodities index or a credit default swap or other kinds of swaps. The structured product may not pay interest or protect the principal invested. The structured product or its interest rate may be a multiple of the reference indicator and, as a result, may be leveraged and move (up or down) more rapidly than the reference indicator. Investments in structured products may provide a more efficient and less expensive means of investing in underlying securities, commodities or other derivatives, but may potentially be more volatile, less liquid and carry greater market risk than investments in traditional securities. The purchase of a structured product also exposes the Fund to the credit risk of the structured product.
Structured notes are derivative debt instruments. The interest rate or principal of these notes is determined by reference to an unrelated indicator (for example, a currency, security, or indices thereof) unlike a typical note where the borrower agrees to make fixed or floating interest payments and to pay a fixed sum at maturity. Indexed securities may include structured notes as well as securities other than debt securities, the interest or principal of which is determined by an unrelated indicator.
Commodity-linked notes and commodity index-linked notes provide exposure to the commodities markets. These are derivative securities with one or more commodity-linked components that have payment features similar to commodity futures contracts, commodity options, commodity indices or similar instruments. Commodity-linked products may be either equity or debt securities, leveraged or unleveraged, and have both security and commodity-like characteristics. A portion of the value of these instruments may be derived from the value of a commodity, futures contract, index or other economic variable.
The Fund may also invest in certain hybrid derivatives-type investments that combine a traditional bond with certain derivatives such as a credit default swap, an interest rate swap or other securities. These investments include credit-linked securities. The issuers of these securities frequently are limited purpose trusts or other special purpose vehicles that invest in a derivative instrument or basket of derivative instruments in order to provide exposure to certain fixed-income markets. For instance, the Fund may invest in credit-linked securities as a cash management tool to gain exposure to a certain market or to remain fully invested when more traditional income-producing securities are not available. The performance of the structured product, which is generally a fixed-income security, is linked to the receipt of payments from the counterparties to the derivatives instruments or other securities. The Fund's investments in credit-linked securities are indirectly subject to the risks associated with derivative instruments, including among others, credit risk, default risk, counterparty risk, interest rate risk and leverage risk. These securities are generally structured as Rule 144A securities so that they may be freely traded among institutional buyers. However, changes in the market for credit-linked securities or the availability of willing buyers may result in the securities becoming illiquid.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS
Variable and floating rate securities pay interest at rates that are adjusted
periodically, according to a specified formula. A "variable" interest rate
adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a
"floating" interest rate adjusts whenever a specified benchmark rate (such as
the bank prime lending rate) changes.
The Fund may also invest in inverse floating rate debt instruments ("inverse floaters"). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may have greater volatility in market value, in that, during periods of rising interest rates, the market values of inverse floaters will tend to decrease more rapidly than those of fixed rate securities.
ZERO-COUPON AND PRINCIPAL-ONLY SECURITIES
Zero-coupon securities and principal-only (PO) securities are debt securities
that have been issued without interest coupons or stripped of their unmatured
interest coupons, and include receipts or certificates representing interests
in such stripped debt obligations and coupons. Such a security pays no interest
to its holder during its life. Its value to an investor consists of the
difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value. Such securities usually trade at a deep discount from their face or
par value and are subject to greater fluctuations in market value in response
to changing interest rates than debt obligations of comparable maturities and
credit quality that make current distributions of interest. On the other hand,
because there are no periodic interest payments to be reinvested prior to
maturity, these securities eliminate reinvestment risk and "lock in" a rate of
return to maturity.
ADDITIONAL RISK AND OTHER CONSIDERATIONS
Investments in the Fund involve the special risk considerations described below.
BORROWING AND LEVERAGE
The Fund may use borrowings for investment purposes subject to applicable
statutory or regulatory requirements. Borrowings by the Fund result in
leveraging of the Fund's shares. The Fund may also use leverage for investment
transactions by entering into transactions such as reverse repurchase
agreements, forward contracts and dollar rolls. This means that the Fund uses
cash made available during the term of these transactions to make investments
in other fixed-income securities.
Utilization of leverage, which is usually considered speculative, involves certain risks to the Fund's shareholders. These include a higher volatility of the NAV of the Fund's shares and the relatively greater effect on the NAV of the shares. So long as the Fund is able to realize a net return on its investment portfolio that is higher than the interest expense paid on borrowings or the carrying costs of leveraged transactions, the effect of leverage will be to cause the Fund's shareholders to realize a higher current net investment income than if the Fund were not leveraged. If the interest expense on borrowings or the carrying costs of leveraged transactions approaches
the net return on the Fund's investment portfolio, the benefit of leverage to the Fund's shareholders will be reduced. If the interest expense on borrowings or the carrying costs of leveraged transactions were to exceed the net return to shareholders, the Fund's use of leverage would result in a lower rate of return. Similarly, the effect of leverage in a declining market would normally be a greater decrease in NAV. In an extreme case, if the Fund's current investment income were not sufficient to meet the carrying costs of leveraged transactions, it could be necessary for the Fund to liquidate certain of its investments in adverse circumstances, potentially significantly reducing its NAV.
FOREIGN (NON-U.S.) SECURITIES
Investing in foreign securities involves special risks and considerations not
typically associated with investing in U.S. securities. The securities markets
of many foreign countries are relatively small, with the majority of market
capitalization and trading volume concentrated in a limited number of companies
representing a small number of industries. To the extent that the Fund invests
in foreign fixed-income securities it may experience greater price volatility
and significantly lower liquidity than a portfolio invested solely in
securities of U.S. companies. These markets may be subject to greater influence
by adverse events generally affecting the market, and by large investors
trading significant blocks of securities, than is usual in the United States.
Securities registration, custody, and settlement may in some instances be subject to delays and legal and administrative uncertainties. Foreign investment in the securities markets of certain foreign countries is restricted or controlled to varying degrees. These restrictions or controls may at times limit or preclude investment in certain securities and may increase the costs and expenses of the Fund. In addition, the repatriation of investment income, capital or the proceeds of sales of securities from certain of the countries is controlled under regulations, including in some cases the need for certain advance government notification or authority, and if a deterioration occurs in a country's balance of payments, the country could impose temporary restrictions on foreign capital remittances.
The Fund also could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation, as well as by the application to it of other restrictions on investment. Investing in local markets may require the Fund to adopt special procedures or seek local governmental approvals or other actions, any of which may involve additional costs to the Fund. These factors may affect the liquidity of the Fund's investments in any country and the Adviser will monitor the effect of any such factor or factors on the Fund's investments. 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 most U.S. issuers.
The economies of individual foreign countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product or gross national product, rate of inflation, capital reinvestment, resource self-sufficiency, and balance of payments position. Nationalization, expropriation or confiscatory taxation, currency blockage, political changes, government regulation, political or social instability, revolutions, wars or diplomatic developments could affect adversely the economy of a foreign country. In the event of nationalization, expropriation, or other confiscation, the Fund could lose its entire investment in securities in the country involved. In addition, laws in foreign countries governing business organizations, bankruptcy and insolvency may provide less protection to security holders such as the Fund than that provided by U.S. laws.
Investments in securities of companies in emerging markets involve special risks. There are approximately 100 countries identified by the World Bank as Low Income, Lower Middle Income and Upper Middle Income countries that are generally regarded as Emerging Markets. Emerging market countries that the Adviser currently considers for investment are listed below. Countries may be added to or removed from this list at any time.
Argentina Hungary Peru Belarus India Philippines Belize Indonesia Poland Brazil Iraq Russia Bulgaria Ivory Coast Senegal Chile Jamaica Serbia China Jordan South Africa Colombia Kazakhstan South Korea Croatia Lebanon Sri Lanka Dominican Republic Lithuania Taiwan Ecuador Malaysia Thailand Egypt Mexico Turkey El Salvador Mongolia Ukraine Gabon Nigeria Uruguay Georgia Pakistan Venezuela Ghana Panama Vietnam |
Investing in emerging market securities imposes risks different from, or greater than, risks of investing in domestic securities or in foreign, developed countries. These risks include: smaller market capitalization of securities markets, which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign investment; and possible repatriation of investment income and capital. In addition, foreign investors may be required to register the proceeds of sales and future economic or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies. The
currencies of emerging market countries may experience significant declines against the U.S. Dollar, and devaluation may occur subsequent to investments in these currencies by the Fund. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries.
Additional risks of emerging market securities may include: greater social, economic and political uncertainty and instability; more substantial governmental involvement in the economy; less governmental supervision and regulation; unavailability of currency hedging techniques; companies that are newly organized and small; differences in auditing and financial reporting standards, which may result in unavailability of material information about issuers; and less developed legal systems. In addition, emerging securities markets may have different clearance and settlement procedures, which may be unable to keep pace with the volume of securities transactions or otherwise make it difficult to engage in such transactions. Settlement problems may cause the Fund to miss attractive investment opportunities, hold a portion of its assets in cash pending investment, or be delayed in disposing of a portfolio security. Such a delay could result in possible liability to a purchaser of the security.
FOREIGN (NON-U.S.) CURRENCIES
To the extent that the Fund invests some portion of its assets in securities
denominated in, and receives revenues in, foreign currencies it will be
adversely affected by reductions in the value of those currencies relative to
the U.S. Dollar. Foreign currency exchange rates may fluctuate significantly.
They are determined by supply and demand in the foreign exchange markets, the
relative merits of investments in different countries, actual or perceived
changes in interest rates, and other complex factors. Currency exchange rates
also can be affected unpredictably by intervention (or the failure to
intervene) by U.S. or foreign governments or central banks or by currency
controls or political developments. In light of these risks, the Fund may
engage in certain currency hedging transactions, as described above, which
involve certain special risks.
The Fund may also invest directly in foreign currencies for non-hedging purposes on a spot basis (i.e., cash) or through derivatives transactions, such as forward currency exchange contracts, futures and options thereon, swaps and options as described above. These investments will be subject to the same risks. In addition, currency exchange rates may fluctuate significantly over short periods of time, causing the Fund's NAV to fluctuate.
INVESTMENT IN BELOW INVESTMENT GRADE FIXED-INCOME SECURITIES
Investments in securities rated below investment grade (commonly known as "junk
bonds") may be subject to greater risk of loss of principal and interest than
higher-rated securities. These securities are also generally considered to be
subject to greater market risk than higher-rated securities. The capacity of
issuers of these 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, below
investment grade securities may be more susceptible to real or perceived
adverse economic conditions than investment grade securities.
The market for these 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 these securities, the Fund may experience difficulty in valuing such securities and, in turn, the Fund's assets.
UNRATED SECURITIES
The Fund may invest in unrated securities when the Adviser believes that the
financial condition of the issuers of such securities, or the protection
afforded by the terms of the securities themselves, limits the risk to the Fund
to a degree comparable to that of rated securities that are consistent with the
Fund's objective and policies.
FUTURE DEVELOPMENTS
The Fund may 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.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES
The Fund's Board of Directors (the "Board") may change the Fund's investment
objective without shareholder approval. The Fund will provide shareholders with
60 days' prior written notice of any change to the Fund's investment objective.
Unless otherwise noted, all other investment policies of a Fund may be changed
without shareholder approval.
TEMPORARY DEFENSIVE POSITION
For temporary defensive purposes in an attempt to respond to adverse market,
economic, political or other conditions, the Fund may invest in certain types
of short-term, liquid, investment grade or high-quality (depending on the Fund)
debt securities. While the Fund is investing for temporary defensive purposes,
it may not meet its investment objectives.
PORTFOLIO HOLDINGS
A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's SAI.
This section discusses how to buy, sell or redeem, or exchange different classes of shares of a Fund that are offered in this Prospectus. The Fund offers three classes of shares through this Prospectus.
Each share class represents an investment in the same portfolio of securities, but the classes may have different sales charges and bear different ongoing distribution expenses. For additional information on the differences between the different classes of shares and factors to consider when choosing among them, please see "The Different Share Class Expenses" and "Choosing a Share Class" below. ONLY CLASS A SHARES OFFER QUANTITY DISCOUNTS ON SALES CHARGES, as described below.
HOW TO BUY SHARES
The purchase of the Fund's shares is priced at the next determined NAV after
your order is received in proper form.
CLASS A, CLASS B AND CLASS C SHARES - SHARES AVAILABLE TO RETAIL INVESTORS EFFECTIVE JANUARY 31, 2009, SALES OF CLASS B SHARES OF THE FUND TO NEW INVESTORS WERE SUSPENDED. CLASS B SHARES MAY ONLY BE PURCHASED (I) BY EXISTING CLASS B SHAREHOLDERS AS OF JANUARY 31, 2009, (II) THROUGH EXCHANGE OF CLASS B SHARES FROM ANOTHER ALLIANCEBERNSTEIN MUTUAL FUND, OR (III) AS OTHERWISE DESCRIBED BELOW.
You may purchase the Fund's Class A, Class B, or Class C shares through financial intermediaries, such as broker-dealers or banks. You also may purchase shares directly from the Fund's principal underwriter, AllianceBernstein Investments, Inc., or ABI. These purchases may be subject to an initial sales charge, an asset-based sales charge or CDSC as described below.
MINIMUMS:*
--Initial: $2,500
--Subsequent: $ 50
*Purchase minimums may not apply to some accounts established in connection with the Automatic Investment Program and to some retirement-related investment programs. These investment minimums do not apply to persons participating in a fee-based program sponsored and maintained by a registered broker-dealer or other financial intermediary and approved by ABI.
MAXIMUM INDIVIDUAL PURCHASE AMOUNT:
--Class A shares None --Class B shares $ 100,000 --Class C shares $1,000,000 |
OTHER PURCHASE INFORMATION
Your broker or financial advisor must receive your purchase request by the Fund
Closing Time, which is the close of regular trading on any day the Exchange is
open (ordinarily, 4:00 p.m., Eastern time, but sometimes earlier, as in the
case of scheduled half-day trading or unscheduled suspensions of trading), and
submit it to the Fund by a pre-arranged time for you to receive the
next-determined NAV, less any applicable initial sales charge.
If you are an existing Fund shareholder and you have completed the appropriate section of the Mutual Fund Application, you may purchase additional shares by telephone with payment by electronic funds transfer in amounts not exceeding $500,000. AllianceBernstein Investor Services, Inc., or ABIS, must receive and confirm telephone requests before the Fund Closing Time, to receive that day's public offering price. Call 800-221-5672 to arrange a transfer from your bank account.
. TAX-DEFERRED ACCOUNTS
Class A shares are also available to the following tax-deferred arrangements:
- Traditional and Roth IRAs (minimums listed in the table above apply);
- SEPs, SAR-SEPs, SIMPLE IRAs, and individual 403(b) plans (no investment minimum); and
- AllianceBernstein-sponsored Coverdell Education Savings Accounts ($2,000 initial investment minimum, $150 Automatic Investment Program monthly minimum).
Class C shares are available to AllianceBernstein Link, AllianceBernstein Individual 401(k), AllianceBernstein SIMPLE IRA plans with less than $250,000 in plan assets and 100 employees, and to group retirement plans with plan assets of less than $1,000,000.
CLASS A - SHARES AVAILABLE TO GROUP RETIREMENT PLANS
Class A shares are available at NAV, without an initial sales charge, to 401(k)
plans, 457 plans, employer-sponsored 403(b) plans, profit-sharing and money
purchase pension plans, defined benefit plans, and non-qualified deferred
compensation plans where plan level or omnibus accounts are held on the books
of the Fund ("group retirement plans"), as follows:
. Class A shares are designed for group retirement plans with assets in excess of $10,000,000. Class A shares are also available at NAV to the AllianceBernstein Link, AllianceBernstein Individual 401(k) and AllianceBernstein SIMPLE IRA plans with at least $250,000 in plan assets or 100 employees, and to certain defined contribution retirement plans that do not have plan level or omnibus accounts on the books of the Fund. Class A shares are also available to certain AllianceBernstein-sponsored group retirement plans.
REQUIRED INFORMATION
The Fund is required by law to obtain, verify, and record certain personal
information from you or persons on your behalf in order to establish an
account. Required information includes name, date of birth, permanent
residential address and taxpayer identification number (for most investors,
your social security number). The Fund may also ask to see other identifying
documents. If you do not provide the information, the Fund will not be able to
open your account. If the Fund is unable to verify your identity, or that of
another person(s) authorized to act on your behalf, or, if the Fund believes it
has identified
potentially criminal activity, the Fund reserves the right to take action it deems appropriate or as required by law, which may include closing your account. If you are not a U.S. citizen or resident alien, your account must be affiliated with a Financial Industry Regulatory Authority, or FINRA, member firm.
The Fund is required to withhold 28% of taxable dividends, capital gains distributions, and redemptions paid to any shareholder who has not provided the Fund with his or her correct taxpayer identification number. To avoid this, you must provide your correct tax identification number on your Mutual Fund Application.
GENERAL
IRA custodians, plan sponsors, plan fiduciaries, plan recordkeepers, and other
financial intermediaries may establish their own eligibility requirements as to
the purchase, sale or exchange of Fund shares, including minimum and maximum
investment requirements. The Fund is not responsible for, and has no control
over, the decisions of any plan sponsor, fiduciary or other financial
intermediary to impose such differing requirements. ABI may refuse any order to
purchase 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 DIFFERENT SHARE CLASS EXPENSES
This section describes the different expenses of investing in each class and
explains factors to consider when choosing a class of shares. The expenses can
include distribution and/or service (Rule 12b-1) fees, initial sales charges
and/or CDSCs. ONLY CLASS A SHARES OFFER QUANTITY DISCOUNTS as described below.
ASSET-BASED SALES CHARGES OR DISTRIBUTION AND/OR SERVICE (RULE 12B-1) FEES
WHAT IS A RULE 12B-1 FEE?
A Rule 12b-1 fee is a fee deducted from the Fund's assets that is used to pay for personal service, maintenance of shareholder accounts and distribution costs, such as advertising and compensation of financial intermediaries. The Fund has adopted a plan under Rule 12b-1 that allows the Fund to pay asset-based sales charges or distribution and/or service (Rule 12b-1) fees for the distribution and sale of its shares. The amount of each share class's Rule 12b-1 fee, if any, is disclosed below and in the Fund's fee table included in the Summary Information section above.
The amount of these fees for each class of the Fund's shares is:
DISTRIBUTION AND/OR SERVICE (RULE 12B-1) FEE (AS A PERCENTAGE OF AGGREGATE AVERAGE DAILY NET ASSETS) ------------------------------------ Class A 0.30% Class B 1.00% Class C 1.00% |
Because these fees are paid out of the Fund's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales fees. Class B and Class C shares are subject to higher Rule 12b-1 fees than Class A shares. Class B shares are subject to these higher fees for a period of six years, after which they convert to Class A shares. Share classes with higher Rule 12b-1 fees will have a higher expense ratio, pay correspondingly lower dividends and may have a lower NAV (and returns). All or some of these fees may be paid to financial intermediaries, including your financial intermediary's firm.
SALES CHARGES
CLASS A SHARES
You can purchase Class A shares at their public offering price (or cost), which
is NAV plus an initial sales charge of up to 4.25% of the offering price. Any
applicable sales charge will be deducted directly from your investment.
The initial sales charge you pay each time you buy Class A shares differs depending on the amount you invest and may be reduced or eliminated for larger purchases as indicated below. These discounts, which are also known as BREAKPOINTS OR QUANTITY DISCOUNTS, can reduce or, in some cases, eliminate the initial sales charges that would otherwise apply to your investment in Class A shares.
The sales charge schedule of Class A share QUANTITY DISCOUNTS is as follows:
INITIAL SALES CHARGE ------------------ AS % OF AS % OF NET AMOUNT OFFERING AMOUNT PURCHASED INVESTED PRICE ----------------------------------------------- Up to $100,000 4.44% 4.25% $100,000 up to $250,000 3.36 3.25 $250,000 up to $500,000 2.30 2.25 $500,000 up to $1,000,000 1.78 1.75 $1,000,000 and above 0.00 0.00 |
Except as noted below, purchases of Class A shares in the amount of $1,000,000 or more or by AllianceBernstein or non-AllianceBernstein sponsored group retirement plans are not subject to an initial sales charge, but may be subject to a 1% CDSC if redeemed or terminated within one year.
CLASS A SHARE PURCHASES NOT SUBJECT TO SALES CHARGES. The Fund may sell its Class A shares at NAV without an initial sales charge or CDSC to some categories of investors, including:
- persons participating in a fee-based program, sponsored and maintained by a registered broker-dealer or other financial intermediary and approved by ABI, under which persons pay an asset-based fee for services in the nature of investment advisory or administrative services or clients of broker-dealers or other financial intermediaries approved by ABI who purchase Class A shares for their own accounts through an omnibus account with the broker-dealers or other financial intermediaries;
- plan participants who roll over amounts distributed from employer maintained retirement plans to AllianceBernstein-sponsored IRAs where the plan is a client of or serviced by AllianceBernstein's Institutional Investment Management Division or Bernstein Global Wealth Management Division, including subsequent contributions to those IRAs; or
- certain other investors, such as investment management clients of the Adviser or its affiliates, including clients and prospective clients of the Adviser's AllianceBernstein Institutional Investment Management Division, employees of selected dealers authorized to sell a Fund's shares, and employees of the Adviser.
Please see the Fund's SAIs for more information about purchases of Class A shares without sales charges.
CLASS B SHARES - DEFERRED SALES CHARGE ALTERNATIVE
EFFECTIVE JANUARY 31, 2009, SALES OF CLASS B SHARES OF THE FUND TO NEW
INVESTORS WERE SUSPENDED. CLASS B SHARES MAY ONLY BE PURCHASED (I) BY EXISTING
CLASS B SHAREHOLDERS AS OF JANUARY 31, 2009, (II) THROUGH EXCHANGE OF CLASS B
SHARES FROM ANOTHER ALLIANCEBERNSTEIN MUTUAL FUND, OR (III) AS OTHERWISE
DESCRIBED BELOW.
You can purchase Class B shares at NAV without an initial sales charge. This means that the full amount of your purchase is invested in the Fund. Your investment is subject to a CDSC if you redeem shares within three years of purchase.
The CDSC varies depending on the number of years you hold the shares. The CDSC amounts for Class B shares are:
YEAR SINCE PURCHASE CDSC ------------------------------- First 4.00% Second 3.00% Third 2.00% Fourth 1.00% Fifth and thereafter None |
If you exchange your shares for the Class B shares of another AllianceBernstein Mutual Fund, the CDSC also will apply to the Class B shares received. If you redeem your shares and directly invest the proceeds in units of CollegeBoundfund, the CDSC will apply to the units of CollegeBoundfund. The CDSC period begins with the date of your original purchase, not the date of exchange for the other Class B shares or purchase of CollegeBoundfund units.
Class B shares purchased for cash automatically convert to Class A shares six years after the end of the month of your purchase. If you purchase shares by exchange for the Class B shares of another AllianceBernstein Mutual Fund, the conversion period runs from the date of your original purchase.
CLASS C SHARES
You can purchase Class C shares at NAV without an initial sales charge. This
means that the full amount of your purchase is invested in the Fund. Your
investment is subject to a 1% CDSC if you redeem your shares within 1 year. If
you exchange your shares for the Class C shares of another AllianceBernstein
Mutual Fund, the 1% CDSC also will apply to the Class C shares received. If you
redeem your shares and directly invest the proceeds in units of
CollegeBoundfund, the CDSC will apply to the units of CollegeBoundfund. The
1-year period for the CDSC begins with the date of your original purchase, not
the date of the exchange for the other Class C shares or purchase of
CollegeBoundfund units.
Class C shares do not convert to any other class of shares of the Fund.
HOW IS THE CDSC CALCULATED?
The CDSC is applied to the lesser of NAV at the time of redemption or the original cost of shares being redeemed (or, as to Fund shares acquired through an exchange, the cost of the AllianceBernstein Mutual Fund shares originally purchased for cash). This means that no sales charge is assessed on increases in NAV above the initial purchase price. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. In determining the CDSC, it will be assumed that the redemption is, first, of any shares not subject to a CDSC and, second, of shares held the longest.
SALES CHARGE REDUCTION PROGRAMS FOR CLASS A SHARES
THIS SECTION INCLUDES IMPORTANT INFORMATION ABOUT SALES CHARGE REDUCTION
PROGRAMS AVAILABLE TO INVESTORS IN CLASS A SHARES AND DESCRIBES INFORMATION OR
RECORDS YOU MAY NEED TO PROVIDE TO THE FUND OR YOUR FINANCIAL INTERMEDIARY IN
ORDER TO BE ELIGIBLE FOR SALES CHARGE REDUCTION PROGRAMS.
Information about QUANTITY DISCOUNTS and sales charge reduction programs also is available free of charge and in a clear and prominent format on our website at www.AllianceBernstein.com (click on "AllianceBernstein Mutual Fund Investors-U.S. then "Investor Resources-Understanding Sales Charges").
RIGHTS OF ACCUMULATION
To determine if a new investment in Class A shares is eligible for a QUANTITY
DISCOUNT, a shareholder can combine the value of the new investment in the Fund
with the higher of cost or NAV of existing investments in the Fund, any other
AllianceBernstein Mutual Fund, AllianceBernstein Institutional Funds and
certain CollegeBoundfund accounts for which the shareholder, his or her spouse
or domestic partner, or child under the age of 21 is the participant. The
AllianceBernstein Mutual Funds use the higher of cost or current NAV of your
existing investments when combining them with your new investment.
COMBINED PURCHASE PRIVILEGES
A shareholder may qualify for a QUANTITY DISCOUNT by combining purchases of
shares of the Fund into a single "purchase". A "purchase" means a single
purchase or concurrent purchases of shares of the Fund or any other
AllianceBernstein Mutual Fund, including AllianceBernstein Institutional Funds,
by:
. an individual, his or her spouse or domestic partner, or the individual's children under the age of 21 purchasing shares for his, her or their own account(s), including certain CollegeBoundfund accounts;
. a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account with one or more beneficiaries involved;
. the employee benefit plans of a single employer; or
. any company that has been in existence for at least six months or has a purpose other than the purchase of shares of the Fund.
LETTER OF INTENT
An investor may not immediately invest a sufficient amount to reach a QUANTITY
DISCOUNT, but may plan to make one or more additional investments over a period
of time that, in the end, would qualify for a QUANTITY DISCOUNT. For these
situations, the Fund offers a LETTER OF INTENT, which permits new investors to
express the intention, in writing, to invest at least $100,000 in Class A
shares of the Fund or any AllianceBernstein Mutual Fund within 13 months. The
Fund will then apply the QUANTITY DISCOUNT to each of the investor's purchases
of Class A shares that would apply to the total amount stated in the LETTER OF
INTENT. In the event an existing investor chooses to initiate a LETTER OF
INTENT, the AllianceBernstein Mutual Funds will use the higher of cost or
current NAV of the investor's existing investments and of those accounts with
which investments are combined via COMBINED PURCHASE PRIVILEGES toward the
fulfillment of the LETTER OF INTENT. For example, if the combined cost of
purchases totaled $80,000 and the current NAV of all applicable accounts is
$85,000 at the time a $100,000 LETTER OF INTENT is initiated, the subsequent
investment of an additional $15,000 would fulfill the LETTER OF INTENT. If an
investor fails to invest the total amount stated in the LETTER OF INTENT, the
Fund will retroactively collect the sales charge otherwise applicable by
redeeming shares in the investor's account at their then current NAV. Investors
qualifying for COMBINED PURCHASE PRIVILEGES may purchase shares under a single
LETTER OF INTENT.
REQUIRED SHAREHOLDER INFORMATION AND RECORDS
In order for shareholders to take advantage of sales charge reductions, a
shareholder or his or her financial intermediary must notify the Fund that the
shareholder qualifies for a reduction. Without notification, the Fund is unable
to ensure that the reduction is applied to the shareholder's account. A
shareholder may have to provide information or records to his or her financial
intermediary or the Fund to verify eligibility for breakpoint privileges or
other sales charge waivers. This may include information or records, including
account statements, regarding shares of the Fund or other AllianceBernstein
Mutual Funds held in:
. all of the shareholder's accounts at the Fund or a financial intermediary; and
. accounts of related parties of the shareholder, such as members of the same family, at any financial intermediary.
CDSC WAIVERS AND OTHER PROGRAMS
Here Are Some Ways To Avoid Or
Minimize Charges On Redemption.
CDSC WAIVERS
The Fund will waive the CDSCs on redemptions of shares in the following
circumstances, among others:
. permitted exchanges of shares;
. following the death or disability of a shareholder;
. if the redemption represents a minimum required distribution from an IRA or other retirement plan to a shareholder who has attained the age of 70 1/2; or
. if the proceeds of the redemption are invested directly in a CollegeBoundfund account; or a group retirement plan or to accommodate a plan participant's or beneficiary's direction to reallocate his or her plan account among other investment alternatives available under a group retirement plan.
OTHER PROGRAMS
DIVIDEND REINVESTMENT PROGRAM
Shareholders may elect to have all income and capital gains distributions from
their account paid to them in the form of additional shares of the same class
of the Fund under the Fund's Dividend Reinvestment Program. There is no initial
sales charge or CDSC imposed on shares issued pursuant to the Dividend
Reinvestment Program.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains accounts in more than one AllianceBernstein
Mutual Fund may direct the automatic investment of income dividends and/or
capital gains by one Fund, in any amount, without the payment of any sales
charges, in shares of the same class of one or more other AllianceBernstein
Mutual Fund(s).
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program allows investors to purchase shares of the
Fund through pre-authorized transfers of funds from the investor's bank
account. Under the Automatic Investment Program, an investor may (i) make an
initial purchase of at least $2,500 and invest at least $50 monthly or
(ii) make an initial purchase of less than $2,500 and commit to a monthly
investment of $200 or more until the investor's account balance is $2,500 or
more. As of January 31, 2009, the Automatic Investment Program is available for
purchase of Class B shares only if a shareholder was enrolled in the Program
prior to January 31, 2009. Please see the Fund's SAI for more details.
REINSTATEMENT PRIVILEGE
A shareholder who has redeemed all or any portion of his or her Class A shares
may reinvest all or any portion of the proceeds from the redemption in Class A
shares of any AllianceBernstein Mutual Fund at NAV without any sales charge, if
the reinvestment is made within 120 calendar days after the redemption date.
SYSTEMATIC WITHDRAWAL PLAN
The Fund offers a systematic withdrawal plan that permits the redemption of
Class A, Class B or Class C shares without payment of a CDSC. Under this plan,
redemptions equal to 1% a month, 2% every two months or 3% a quarter of the
value of a Fund account would be free of a CDSC. Shares would be redeemed so
that Class B shares not subject to a CDSC (such as shares acquired with
reinvested dividends or distributions) would be redeemed first and Class B
shares that are held the longest would be redeemed next. For Class A and Class
C shares, shares held the longest would be redeemed first.
CHOOSING A SHARE CLASS
Each share class represents an interest in the same portfolio of securities,
but each class has its own sales charge and expense structure allowing you to
choose the class that best fits your situation. In choosing a class of shares,
you should consider:
. the amount you intend to invest;
. how long you expect to own shares;
. expenses associated with owning a particular class of shares;
. whether you qualify for any reduction or waiver of sales charges (for example, if you are making a large investment that qualifies for a QUANTITY DISCOUNT, you might consider purchasing Class A shares); and
. whether a share class is available for purchase.
Among other things, Class A shares, with their lower Rule 12b-1 fees, are designed for investors with a long-term investing time frame. Class C shares should not be considered as a long-term investment because they are subject to a higher distribution fee indefinitely. Class C shares do not, however, have an initial sales charge or a CDSC so long as the shares are held for one year or more. Class C shares are designed for investors with a short-term investing time frame.
A transaction, service, administrative or other similar fee may be charged by your broker-dealer, agent or other financial intermediary, with respect to the purchase, sale or exchange of Class A, Class B or Class C Class shares made through your financial advisor. Financial intermediaries, a fee-based program, or, for group retirement plans, a plan sponsor or plan fiduciary, also may impose requirements on the purchase, sale or exchange of shares that are different from, or in addition to, those described in this Prospectus and the Fund's SAI, including requirements as to the minimum initial and subsequent investment amounts. In addition, group retirement plans may not offer all classes of shares of the Fund. The Fund is not responsible for, and has no control over, the decision of any financial intermediary, plan sponsor or fiduciary to impose such differing requirements.
YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR FOR ASSISTANCE IN CHOOSING A CLASS OF FUND SHARES.
PAYMENTS TO FINANCIAL ADVISORS AND THEIR FIRMS
Financial intermediaries market and sell shares of the Fund. These financial
intermediaries employ financial advisors and receive compensation for selling
shares of the Fund. This compensation is paid from various sources, including
any sales charge, CDSC, and/or Rule 12b-1 fee that you or the Fund may pay.
Your individual financial advisor may receive some or all of the amounts paid
to the financial intermediary that employs him or her.
WHAT IS A FINANCIAL INTERMEDIARY?
A financial intermediary is a firm that receives compensation for selling shares of the Fund offered in this Prospectus and/or provides services to the Fund's shareholders. Financial intermediaries may include, among others, your broker, your financial planner or advisor, banks and insurance companies. Financial intermediaries may employ financial advisors who deal with you and other investors on an individual basis.
All or a portion of the initial sales charge that you pay may be paid by ABI to financial intermediaries selling Class A shares. ABI may also pay financial intermediaries a fee of up to 1% on purchases of Class A shares that are sold without an initial sales charge.
ABI may pay, at the time of your purchase, a commission to financial intermediaries selling Class B shares in an amount equal to 4% of your investment for sales of Class B shares and an amount equal to 1% of your investment for sales of Class C shares.
For Class A and Class C shares, up to 100% and, for Class B shares, up to 30% of the Rule 12b-1 fees applicable to these classes of shares each year may be paid to financial intermediaries.
Your financial advisor's firm receives compensation from the Fund, ABI and/or the Adviser in several ways from various sources, which include some or all of the following:
- upfront sales commissions;
- Rule 12b-1 fees;
- additional distribution support;
- defrayal of costs for educational seminars and training; and
- payments related to providing shareholder recordkeeping and/or transfer
agency services.
Please read this Prospectus carefully for information on this compensation.
OTHER PAYMENTS FOR DISTRIBUTION SERVICES AND EDUCATIONAL SUPPORT
In addition to the commissions paid to financial intermediaries at the time of
sale and Rule 12b-1 fees, some or all of which may be paid to financial
intermediaries (and, in turn, to your financial advisor), ABI, at its expense,
currently provides additional payments to firms that sell shares of the
AllianceBernstein Mutual Funds. Although the individual components may be
higher and the total amount of payments made to each qualifying firm in any
given year may vary, the total amount paid to a financial intermediary in
connection with the sale of shares of the AllianceBernstein Mutual Funds will
generally not exceed the sum of (a) 0.25% of the current year's fund sales by
that firm and (b) 0.10% of average daily net assets attributable to that firm
over the year. These sums include payments to reimburse directly or indirectly
the costs incurred by these firms and their employees in connection with
educational seminars and training efforts about the AllianceBernstein Mutual
Funds for the firms' employees and/or their clients and potential
clients. The costs and expenses associated with these efforts may include travel, lodging, entertainment and meals. ABI may pay a portion of "ticket" or other transactional charges.
For 2013, ABI's additional payments to these firms for distribution services and educational support related to the AllianceBernstein Mutual Funds are expected to be approximately 0.05% of the average monthly assets of the AllianceBernstein Mutual Funds, or approximately $21 million. In 2012, ABI paid approximately 0.05% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $19.0 million for distribution services and educational support related to the AllianceBernstein Mutual Funds.
A number of factors are considered in determining the additional payments, including each firm's AllianceBernstein Mutual Fund sales, assets and redemption rates, and the willingness and ability of the firm to give ABI access to its financial advisors for educational and marketing purposes. In some cases, firms will include the AllianceBernstein Mutual Funds on a "preferred list". ABI's goal is to make the financial advisors who interact with current and prospective investors and shareholders more knowledgeable about the AllianceBernstein Mutual Funds so that they can provide suitable information and advice about the funds and related investor services.
The Fund and ABI also make payments for recordkeeping and other transfer agency services to financial intermediaries that sell AllianceBernstein Mutual Fund shares. Please see "Management of the Fund--Transfer Agency and Retirement Plan Services" below. These expenses paid by the Fund are included in "Other Expenses" under "Fees and Expenses of the Fund--Annual Fund Operating Expenses" in the Summary Information at the beginning of this Prospectus.
IF ONE MUTUAL FUND SPONSOR MAKES GREATER DISTRIBUTION ASSISTANCE PAYMENTS THAN ANOTHER, YOUR FINANCIAL ADVISOR AND HIS OR HER FIRM MAY HAVE AN INCENTIVE TO RECOMMEND ONE FUND COMPLEX OVER ANOTHER. SIMILARLY, IF YOUR FINANCIAL ADVISOR OR HIS OR HER FIRM RECEIVES MORE DISTRIBUTION ASSISTANCE FOR ONE SHARE CLASS VERSUS ANOTHER, THEN THEY MAY HAVE AN INCENTIVE TO RECOMMEND THAT CLASS.
PLEASE SPEAK WITH YOUR FINANCIAL ADVISOR TO LEARN MORE ABOUT THE TOTAL AMOUNTS PAID TO YOUR FINANCIAL ADVISOR AND HIS OR HER FIRM BY THE FUND, THE ADVISER, ABI AND BY SPONSORS OF OTHER MUTUAL FUNDS HE OR SHE MAY RECOMMEND TO YOU. YOU SHOULD ALSO CONSULT DISCLOSURES MADE BY YOUR FINANCIAL ADVISOR AT THE TIME OF PURCHASE.
As of the date of this Prospectus, ABI anticipates that the firms that will receive additional payments for distribution services and/or educational support include:
Advisor Group, Inc.
Ameriprise Financial Services
AXA Advisors
Cadaret, Grant & Co.
CCO Investment Services Corp.
Chase Investment Services
Citigroup Global Markets, Inc.
Commonwealth Financial Network
Donegal Securities
Financial Network Investment Company
LPL Financial
Merrill Lynch
Morgan Stanley
Multi-Financial Securities Corporation
Northwestern Mutual Investment Services
PrimeVest Financial Services
Raymond James
RBC Wealth Management
Robert W. Baird
UBS Financial Services
Wells Fargo Advisors
Although the Fund may use brokers and dealers that sell shares of the Fund to effect portfolio transactions, the Fund does not consider the sale of AllianceBernstein Mutual Fund shares as a factor when selecting brokers or dealers to effect portfolio transactions.
HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of the same class of other
AllianceBernstein Mutual Funds (including AllianceBernstein Exchange Reserves,
a money market fund managed by the Adviser) provided that the other fund offers
the same class of shares and, in the case of retirement plans, is an investment
option under the plan. Exchanges of shares are made at the next-determined NAV,
without sales or service charges, after your order is received in proper form.
All exchanges are subject to the minimum investment restrictions set forth in
the prospectus for the AllianceBernstein Mutual Fund whose shares are being
acquired. You may request an exchange either directly or through your financial
intermediary or, in the case of retirement plan participants, by following the
procedures specified by your plan sponsor or plan recordkeeper. In order to
receive a day's NAV, ABIS must receive and confirm your telephone exchange
request by the Fund Closing Time, on that day. The Fund may modify, restrict,
or terminate the exchange privilege on 60 days' written notice.
HOW TO SELL OR REDEEM SHARES
You may "redeem" your shares (i.e., sell your shares to the Fund) on any day
the Exchange is open, either directly or through your financial intermediary
or, in the case of retirement plan participants, by following the procedures
specified by your plan sponsor or plan recordkeeper. Your sale price will be
the next-determined NAV, less any applicable CDSC, after the Fund receives your
redemption request in proper form. Normally, redemption proceeds are sent to
you within 7 days. If you recently purchased your shares by check or electronic
funds transfer, your redemption payment may be delayed until the Fund is
reasonably satisfied that the check or electronic funds transfer has been
collected (which may take up to 15 days).
SELLING SHARES THROUGH YOUR FINANCIAL INTERMEDIARY OR RETIREMENT PLAN Your broker or financial advisor must receive your sales request by the Fund Closing Time, and submit it to the Fund by a pre-arranged time for you to receive that day's NAV, less any applicable CDSC. Your financial intermediary, plan sponsor or plan recordkeeper is responsible for submitting all necessary documentation to the Fund and may charge you a fee for this service.
SELLING SHARES DIRECTLY TO THE FUND
BY MAIL:
. Send a signed letter of instruction or stock power, along with certificates,
to:
AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
. For certified or overnight deliveries, send to:
AllianceBernstein Investor Services, Inc.
8000 IH 10 W, 4th floor
San Antonio, TX 78230
. For your protection, a bank, a member firm of a national stock exchange or another eligible guarantor institution must guarantee signatures. Stock power forms are available from your financial intermediary, ABIS and many commercial banks. Additional documentation is required for the sale of shares by corporations, intermediaries, fiduciaries and surviving joint owners. If you have any questions about these procedures, contact ABIS.
BY TELEPHONE:
. You may redeem your shares for which no stock certificates have been issued
by telephone request. Call ABIS at 800-221-5672 with instructions on how you
wish to receive your sale proceeds.
. ABIS must receive and confirm a telephone redemption request by the Fund Closing Time, for you to receive that day's NAV, less any applicable CDSC.
. For your protection, ABIS will request personal or other information from you to verify your identity and will generally record the calls. Neither the Fund nor the Adviser, ABIS, ABI or other Fund agent will be liable for any loss, injury, damage or expense as a result of acting upon telephone instructions purporting to be on your behalf that ABIS reasonably believes to be genuine.
. If you have selected electronic funds transfer in your Mutual Fund Application, the redemption proceeds will be sent directly to your bank. Otherwise, the proceeds will be mailed to you.
. Redemption requests by electronic funds transfer or check may not exceed $100,000 per Fund account per day.
. Telephone redemption is not available for shares held in nominee or "street name" accounts, retirement plan accounts, or shares held by a shareholder who has changed his or her address of record within the previous 30 calendar days.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
The Fund's Board has adopted policies and procedures designed to detect and
deter frequent purchases and redemptions of Fund shares or excessive or
short-term trading that may disadvantage long-term Fund shareholders. These
policies are described below. There is no guarantee that the Fund will be able
to detect excessive or short-term trading activity or to identify shareholders
engaged in such practices, particularly with respect to transactions in omnibus
accounts. Shareholders should be aware that application of these policies may
have adverse consequences, as described below, and should avoid frequent
trading in Fund shares through purchases, sales and exchanges of shares. The
Fund reserves the right to restrict, reject, or cancel, without any prior
notice, any purchase or exchange order for any reason, including any purchase
or exchange order accepted by any shareholder's financial intermediary.
RISKS ASSOCIATED WITH EXCESSIVE OR SHORT-TERM TRADING GENERALLY. While the Fund will try to prevent market timing by utilizing the procedures described below, these procedures may not be successful in identifying or stopping excessive or short-term trading in all circumstances. By realizing profits through short-term trading, shareholders that engage in rapid purchases and sales or exchanges of the Fund's shares dilute the value of shares held by long-term shareholders. Volatility resulting from excessive purchases and sales or exchanges of Fund shares, especially involving large dollar amounts, may disrupt efficient portfolio management and cause the Fund to sell shares at inopportune times to raise cash to accommodate redemptions relating to short-term trading activity. In particular, the Fund may have difficulty implementing its long-term investment strategies if it is forced to maintain a higher level of its assets in cash to accommodate significant short-term trading activity. In addition, the Fund may incur increased administrative and other expenses due to excessive or short-term trading, including increased brokerage costs and realization of taxable capital gains.
To the extent that the that may invest significantly in securities of foreign issuers it may be particularly susceptible to short-term trading strategies. This is because securities of foreign issuers are typically traded on markets that close well before the time the Fund calculates its NAV at 4:00 p.m., Eastern time, which gives rise to the possibility that developments may have occurred in the interim that would affect the value of these securities. The time zone differences among international stock markets can allow a shareholder engaging in a short-term trading strategy to exploit differences in Fund share prices that are based on closing prices of securities of foreign issuers established some time before the Fund calculates its own share price (referred to as "time zone arbitrage"). The Fund has procedures, referred to as fair value pricing, designed to adjust closing market prices of securities of foreign issuers to reflect what is believed to be the fair value of those securities at the time the Fund calculates its NAV. While there is no assurance, the Fund expects that the use of fair value pricing, in addition to the short-term trading policies discussed below, will significantly reduce a shareholder's ability to engage in time zone arbitrage to the detriment of other Fund shareholders.
A shareholder engaging in a short-term trading strategy may also target the Fund irrespective of its investments in securities of foreign issuers. To the extent that the Fund invests in securities that are, among other things, thinly traded, traded infrequently or relatively illiquid it has the risk that the current market price for the securities may not accurately reflect current market values. A shareholder may seek to engage in short-term trading to take advantage of these pricing differences (referred to as "price arbitrage"). The Fund may be adversely affected by price arbitrage.
POLICY REGARDING SHORT-TERM TRADING. Purchases and exchanges of shares of the Fund should be made for investment purposes only. The Fund seeks to prevent patterns of excessive purchases and sales of Fund shares to the extent they are detected by the procedures described below, subject to the Fund's ability to monitor purchase, sale and exchange activity. The Fund reserves the right to modify this policy, including any surveillance or account blocking procedures established from time to time to effectuate this policy, at any time without notice.
. TRANSACTION SURVEILLANCE PROCEDURES. The Fund, through its agents, ABI and ABIS, maintain surveillance procedures to detect excessive or short-term trading in Fund shares. This surveillance process involves several factors, which include scrutinizing transactions in Fund shares that exceed certain monetary thresholds or numerical limits within a specified period of time. Generally, more than two exchanges of Fund shares during any 60-day period or purchases of shares followed by a sale within 60 days will be identified by these surveillance procedures. For purposes of these transaction surveillance procedures, the Fund may consider trading activity in multiple accounts under common ownership, control, or influence. Trading activity identified by either, or a combination, of these factors, or as a result of any other information available at the time, will be evaluated to determine whether such activity might constitute excessive or short-term trading. With respect to managed or discretionary accounts for which the account owner gives his/her broker, investment adviser or other third party authority to buy and sell Fund shares, the Fund may consider trades initiated by the account owner, such as trades initiated in connection with bona fide cash management purposes, separately in their analysis. These surveillance procedures may be modified from time to time, as necessary or appropriate to improve the detection of excessive or short-term trading or to address specific circumstances.
. ACCOUNT BLOCKING PROCEDURES. If the Fund determines, in their sole discretion, that a particular transaction or pattern of transactions identified by the transaction surveillance procedures described above is excessive or short-term trading in nature, the Fund will take remedial actions that may include issuing a warning, revoking certain account-related activities (such as the ability to place purchase, sale and exchange orders over the internet or by phone) or prohibiting or "blocking" future purchase or exchange activity. However, sales of Fund shares back to the Fund or redemptions will continue to be permitted in accordance with the terms of the Fund's current Prospectus. As a result, unless the shareholder redeems his or her shares, which may have consequences if the shares have declined in value, a CDSC is applicable or adverse tax consequences may result, the shareholder may be "locked" into an unsuitable investment. A blocked account will generally remain blocked for 90 days. Subsequent detections of excessive or short-term trading may result in an indefinite account block, or an account block until the account holder or the associated broker, dealer or other financial intermediary provides evidence or assurance acceptable to the Fund that the account holder did not or will not in the future engage in excessive or short-term trading.
. APPLICATIONS OF SURVEILLANCE PROCEDURES AND RESTRICTIONS TO OMNIBUS ACCOUNTS. Omnibus account arrangements are common forms of holding shares of the Fund, particularly among certain brokers, dealers and other financial intermediaries, including sponsors of retirement plans. The Fund applies its surveillance procedures to these omnibus account arrangements. As required by Commission rules, the Fund have entered into agreements with all of their financial intermediaries that require the financial intermediaries to provide the Fund, upon the request of the Fund or its agents, with individual account level information about their transactions. If the Fund detects excessive trading through its monitoring of omnibus accounts, including trading at the individual account level, the financial intermediaries will also execute instructions from the Fund to take actions to curtail the activity, which may include applying blocks to accounts to prohibit future purchases and exchanges of Fund shares. For certain retirement plan accounts, the Fund may request that the retirement plan or other intermediary revoke the relevant participant's privilege to effect transactions in Fund shares via the internet or telephone, in which case the relevant participant must submit future transaction orders via the U.S. Postal Service (i.e., regular mail).
HOW THE FUND VALUES ITS SHARES
The Fund's NAV is calculated at the close of regular trading on any day the
Exchange is open (ordinarily, 4:00 p.m., Eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading). To calculate NAV, the Fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. If the Fund invests in securities that are
primarily traded on foreign exchanges that trade on weekends or other days when
the Fund does not price its shares, the NAV of the Fund's shares may change on
days when shareholders will not be able to purchase or redeem their shares in
the Fund.
The Fund values its securities at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Board. When the Fund uses fair value pricing, it may take into account any factors it deems appropriate. The Fund may determine fair value
based upon developments related to a specific security, current valuations of foreign stock indices (as reflected in U.S. futures markets) and/or U.S. sector or broader stock market indices. The prices of securities used by the Fund to calculate its NAV may differ from quoted or published prices for the same securities. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security is materially different than the value that could be realized upon the sale of that security.
The Fund expects to use fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the early closing of the exchange on which a security is traded or suspension of trading in the security. The Fund may use fair value pricing more frequently for securities primarily traded in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. For example, the Fund believes that foreign security values may be affected by events that occur after the close of foreign securities markets. To account for this, the Fund may frequently value many of their foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
Subject to its oversight, the Fund's Board has delegated responsibility for valuing the Fund's assets to the Adviser. The Adviser has established a Valuation Committee, which operates under the policies and procedures approved by the Board, to value the Fund's assets on behalf of the Fund. The Valuation Committee values Fund assets as described above. More information about the valuation of the Fund's assets is available in the Fund's SAI.
INVESTMENT ADVISER
The Fund's Adviser is AllianceBernstein L.P., 1345 Avenue of the Americas, New
York, New York 10105. The Adviser is a leading international investment adviser
supervising client accounts with assets as of September 30, 2012, totaling
approximately $419 billion (of which more than $85 billion represented assets
of investment companies sponsored by the Adviser). As of September 30, 2012,
the Adviser managed retirement assets for many of the largest public and
private employee benefit plans (including 16 of the nation's FORTUNE 100
companies), for public employee retirement funds in 31 states and the District
of Columbia, for investment companies, and for foundations, endowments, banks
and insurance companies worldwide. Currently, the 33 registered investment
companies managed by the Adviser, comprising 120 separate investment
portfolios, have approximately 2.7 million accounts.
The Adviser provides investment advisory services and order placement facilities for the Fund. For these advisory services, the Fund paid the Adviser during its most recent fiscal year a management fee as a percentage of average daily net assets as follows:
FEE AS A PERCENTAGE OF AVERAGE DAILY NET FISCAL YEAR FUND ASSETS ENDED ------------------------------------------------------------------------------ AllianceBernstein Short Duration Portfolio .45% 9/30/12 |
A discussion regarding the basis for the Board's approval of the Fund's investment advisory agreement is available in the Fund's semi-annual reports to shareholders for the fiscal period ended March 31, 2012 or April 30, 2012, as applicable.
The Adviser may act as an investment adviser to other persons, firms, or corporations, including investment companies, hedge funds, pension funds, and other institutional investors. The Adviser may receive management fees, including performance fees, that may be higher or lower than the advisory fees it receives from the Fund. Certain other clients of the Adviser may have investment objectives and policies similar to those of a Fund. The Adviser may, from time to time, make recommendations that 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 that 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 or selling the same security on a given day from the same broker-dealer, such transactions may be averaged as to price.
PORTFOLIO MANAGERS
The management of, and investment decisions for, the Fund's portfolios are made
by certain Investment Policy Teams. Each Investment Policy Team relies heavily
on the fundamental analysis and research of the Adviser's large internal
research staff. No one person is principally responsible for coordinating the
Fund's investments.
The following table lists the Investment Policy Teams, the persons within each Investment Policy Team with the most significant responsibility for day-to-day management of the Fund's portfolio, the length of time that each person has been jointly and primarily responsible for the Fund, and each person's principal occupation during the past five years:
FUND AND PRINCIPAL OCCUPATION(S) RESPONSIBLE DURING THE PAST FIVE (5) TEAM EMPLOYEE; YEAR; TITLE YEARS ----------------------------------------------------------------------------- AllianceBernstein Short Jon P. Denfeld; since Vice President of the Duration Portfolio 2008; Vice President of Adviser, with which he U.S. Investment Grade: the Adviser has been associated in a Liquid Markets/Structured substantially similar Products Investment Team capacity to his current position since May 2008. Prior thereto, he was a Senior U.S. Portfolio Manager for UBS Global Asset Management from 2006 to 2007. Prior thereto, he served as a Portfolio Manager for Shay Asset Management since prior to 2008. Shawn E. Keegan; since Vice President of the 2005; Vice President of Adviser, with which he the Adviser has been associated in a substantially similar capacity to his current position since prior to 2008. Alison M. Martier; since Senior Vice President of 2009; Senior Vice the Adviser, with which President of the Adviser she has been associated and Director of the in a substantially Fixed Income Senior similar capacity to her Portfolio Management Team current position since prior to 2008. Douglas J. Peebles; Senior Vice President of since 2009; Senior Vice the Adviser, with which President of the he has been associated Adviser, and Chief in a substantially Investment Officer and similar capacity to his Head of Fixed Income current position since prior to 2008. Greg J. Wilensky; since Senior Vice President of 2009; Senior Vice the Adviser, with which President of the Adviser he has been associated and Director of Stable in a substantially Value Investments similar capacity to his current position since prior to 2008. |
The Fund's SAI provide additional information about the Portfolio Managers' compensation, other accounts managed by the Portfolio Managers, and the Portfolio Managers' ownership of securities in the Fund.
TRANSFER AGENCY AND RETIREMENT PLAN SERVICES
ABIS acts as the transfer agent for the Fund. ABIS, an indirect wholly-owned
subsidiary of the Adviser, registers the transfer, issuance and redemption of
Fund shares, and disburses dividends and other distributions to Fund
shareholders.
Many Fund shares are owned by financial intermediaries for the benefit of their customers. Retirement plans may also hold Fund shares in the name of the plan, rather than the participant. In those cases, the Fund often does not maintain an account for you. Thus, some or all of the transfer agency functions for these and certain other accounts are performed by the financial intermediaries and plan recordkeepers. The Fund, ABI and/or the Adviser pay to these financial intermediaries and recordkeepers, including those that sell shares of the AllianceBernstein Mutual Funds, fees for sub-transfer agency and recordkeeping services in amounts ranging up to $19 per customer fund account per annum and/or up to 0.25% per annum of the average daily assets held through the intermediary. To the extent any of these payments for recordkeeping services or transfer agency services are made by the Fund, they are included in the amount appearing opposite the caption "Other Expenses" found in the Fund expense tables under "Fees and Expenses of the Fund" in the Summary Information at the beginning of this Prospectus. In addition, financial intermediaries may be affiliates of entities that receive compensation from the Adviser or ABI for maintaining retirement plan "platforms" that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans.
Because financial intermediaries and plan recordkeepers may be paid varying amounts per class for sub-transfer agency and recordkeeping services, the service requirements of which may also vary by class, this may create an additional incentive for financial intermediaries and their financial advisors to favor one fund complex over another or one class of shares over another.
The Fund's income dividends and capital gains distributions, if any, declared by the 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 the Fund. If paid in additional shares, the shares will have an aggregate NAV as of the close of business on the declaration date of the dividend or distribution equal to the cash amount of the dividend or distribution. You may make an election to receive dividends and distributions in cash or in shares at the time you purchase shares. Your election can be changed at any time prior to a record date for a dividend. There is no sales or other charge in connection with the reinvestment of dividends or capital gains distributions. Cash dividends may be paid by check, or, at your election, electronically via the ACH network.
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 the Fund without charge by returning to the Adviser, with appropriate instructions, the check representing the dividend or distribution. Thereafter, unless you otherwise specify, you will be deemed to have elected to reinvest all subsequent dividends and distributions in shares of the Fund.
While it is the intention of the Fund to distribute to its shareholders substantially all of each fiscal year's net income and net realized capital gains, if any, the amount and timing of any dividend or distribution will depend on the realization by the Fund of income and capital gains from investments. There is no fixed dividend rate and there can be no assurance that the Fund will pay any dividends or realize any capital gains. The final determination of the amount of the Fund's return of capital distributions for the period will be made after the end of each calendar year.
You will normally have to pay federal income tax, and any state or local income taxes, on the distributions you receive from the Fund, whether you take the distributions in cash or reinvest them in additional shares. Distributions of net capital gains from the sale of investments that the Fund owned for more than one year and that are properly designated as capital gains distributions are taxable as long-term capital gains. Distributions of dividends to the Fund's non-corporate shareholders may be treated as "qualified dividend income", which is taxed at reduced rates, if such distributions are derived from, and designated by the Fund as, "qualified dividend income" and provided that holding period and other requirements are met by both the shareholder and the Fund. "Qualified dividend income" generally is income derived from dividends from U.S. corporations and "qualified foreign corporations". Other distributions by the Fund are generally taxable to you as ordinary income. Dividends declared in October, November, or December and paid in January of the following year are taxable as if they had been paid the previous December. The Fund will notify you as to how much of the Fund's distributions, if any, qualify for these reduced tax rates.
Investment income received by the Fund from sources within foreign countries may be subject to foreign income taxes withheld at the source. To the extent that the Fund is liable for foreign income taxes withheld at the source, the 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 the Fund will be able to do so, and to the extent that the Fund invests primarily in U.S. securities it will not do so. Furthermore, a shareholder's ability to claim a foreign tax credit or deduction for foreign taxes paid by the Fund may be subject to certain limitations imposed by the Code, as a result of which a shareholder may not be permitted to claim a credit or deduction for all or a portion of the amount of such taxes.
Under certain circumstances, if the Fund realizes losses (e.g., from fluctuations in currency exchange rates) after paying a dividend, all or a portion of the dividend may subsequently be characterized as a return of capital. Returns of capital are generally nontaxable, but will reduce a shareholder's basis in shares of 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 a capital gain.
If you buy shares just before the Fund deducts a distribution from its NAV, you will pay the full price for the shares and then receive a portion of the price back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for federal income tax purposes.
Each year shortly after December 31, the Fund will send you tax information stating the amount and type of all of its distributions for the year. You are encouraged to consult your tax adviser about the federal, state, and local tax consequences in your particular circumstances, as well as about any possible foreign tax consequences.
NON-U.S. SHAREHOLDERS
If you are a nonresident alien individual or a foreign corporation for federal
income tax purposes, please see the Fund's SAI for information on how you will
be taxed as a result of holding shares in the Fund.
Under unusual circumstances, the Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by federal securities law. The Fund reserves the right to close an account that has remained below $1,000 for 90 days.
During drastic economic or market developments, you might have difficulty in reaching ABIS by telephone, in which event you should issue written instructions to ABIS. ABIS is not responsible for the authenticity of telephone requests to purchase, sell, or exchange shares. ABIS 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 telephone requests. The telephone service may be suspended or terminated at any time without notice.
Shareholder Services. ABIS offers a variety of shareholder services. For more information about these services or your account, call ABIS's toll-free number, 800-221-5672. Some services are described in the Mutual Fund Application.
Householding. Many shareholders of the AllianceBernstein Mutual Funds have family members living in the same home who also own shares of the Fund. In order to reduce the amount of duplicative mail that is sent to homes with more than one Fund account and to reduce expenses of the Fund, all AllianceBernstein Mutual Funds will, until notified otherwise, send only one copy of each prospectus, shareholder report and proxy statement to each household address. This process, known as "householding", does not apply to account statements, confirmations, or personal tax information. If you do not wish to participate in householding, or wish to discontinue householding at any time, call ABIS at 1-800-221-5672. We will resume separate mailings for your account within 30 days of your request.
BONDS are interest-bearing or discounted government or corporate securities that obligate the issuer to pay the bond holder a specified sum of money, usually at specified intervals, and to repay the principal amount of the loan at maturity.
FIXED-INCOME SECURITIES are investments, such as bonds, that pay a fixed rate of return.
NON-U.S. COMPANY OR NON-U.S. ISSUER is an entity that (i) is organized under
the laws of a foreign country and conducts business in a foreign country,
(ii) derives 50% or more of its total revenues from business in foreign
countries, or (iii) issues equity or debt securities that are traded
principally on a stock exchange in a foreign country.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including obligations that are issued by private issuers that are guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities, or by certain government-sponsored entities (entities chartered by or sponsored by Act of Congress). These securities include securities backed by the full faith and credit of the United States, those supported by the right of the issuer to borrow from the U.S. Treasury, and those backed only by the credit of the issuing agency or entity itself. The first category includes U.S. Treasury securities (which are U.S. Treasury bills, notes, and bonds) and certificates issued by GNMA. U.S. Government securities not backed by the full faith and credit of the United States or a right to borrow from the U.S. Treasury include certificates issued by FNMA and FHLMC.
THE BOFA MERRILL LYNCH 1-3 YEAR TREASURY INDEX is an unmanaged index consisting of all public U.S. Treasury obligations having maturities from 1 to 2.99 years and reflects total return. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
The financial highlights table is intended to help you understand the Fund's financial performance for the past five years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single share of a class of the Fund. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP. The independent public accounting firm's report, along with the Fund's financial statements, are included in the Fund's Annual Report, which is available upon request.
CLASS A YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.89 $ 11.92 $ 11.65 $ 11.46 $ 12.24 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income+ .02 .08 .16 .31 .43 Net realized and unrealized gain (loss) on investment and foreign currency transactions .07 (.01) .30 .21 (.77) ------- ------- ------- ------- ------- Total from investment operations .09 .07 .46 .52 (.34) ------- ------- ------- ------- ------- LESS: DIVIDENDS Dividends from taxable net investment income (.07) (.10) (.19) (.33) (.44) ------- ------- ------- ------- ------- Net asset value, end of period $ 11.91 $ 11.89 $ 11.92 $ 11.65 $ 11.46 ======= ======= ======= ======= ======= TOTAL RETURN(a) .72% .63% 3.95%** 4.61% (2.83)%** RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $52,991 $67,806 $65,233 $53,643 $33,197 Average net assets (000 omitted) $56,893 $64,792 $59,630 $44,395 $36,957 Ratio to average net assets of: Expenses .94% .92% .94%(b) .99% .96% Net investment income .16% .67% 1.35%(b) 2.72% 3.60% Portfolio turnover rate 134% 99% 107% 176% 116% ------------------------------------------------------------------------------------------------------------------------- |
CLASS B YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.89 $11.92 $11.64 $ 11.45 $12.24 ------ ------ ------ ------- ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss)+ (.04)(c) (.00)(c)(d) .08 .23 .34 Net realized and unrealized gain (loss) on investment and foreign currency transactions .07 (.01) .30 .20 (.77) ------ ------ ------ ------- ------ Total from investment operations .03 (.01) .38 .43 (.43) ------ ------ ------ ------- ------ LESS: DIVIDENDS Dividends from taxable net investment income (.03) (.02) (.10) (.24) (.36) ------ ------ ------ ------- ------ Net asset value, end of period $11.89 $11.89 $11.92 $ 11.64 $11.45 ====== ====== ====== ======= ====== TOTAL RETURN(a) .23% (.05)% 3.27%** 3.86% (3.59)%** RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $2,592 $4,559 $6,538 $ 8,913 $9,125 Average net assets (000 omitted) $3,567 $5,443 $7,381 $10,523 $9,304 Ratio to average net assets of: Expenses, net of waivers/reimbursements 1.45% 1.60% 1.69%(b) 1.72% 1.66% Expenses, before waivers/reimbursements 1.78% 1.66% 1.69%(b) 1.72% 1.66% Net investment income (loss) (.34)%(c) (.01)%(c) .72%(b) 2.02% 2.91% Portfolio turnover rate 134% 99% 107% 176% 116% ------------------------------------------------------------------------------------------------------------------------------- |
See footnotes on page 60.
CLASS C YEAR ENDED SEPTEMBER 30, 2012 2011 2010 2009 2008 ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 11.89 $ 11.92 $ 11.64 $ 11.45 $ 12.23 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income (loss)+ (.03)(c) .00(c)(d) .08 .24 .34 Net realized and unrealized gain (loss) on investment and foreign currency transactions .06 (.00)(d) .30 .20 (.76) ------- ------- ------- ------- ------- Total from investment operations .03 (.00)(d) .38 .44 (.42) ------- ------- ------- ------- ------- LESS: DIVIDENDS Dividends from taxable net investment income (.03) (.03) (.10) (.25) (.36) ------- ------- ------- ------- ------- Net asset value, end of period $ 11.89 $ 11.89 $ 11.92 $ 11.64 $ 11.45 ======= ======= ======= ======= ======= TOTAL RETURN(a) .25% (.02)% 3.31%** 3.88% (3.52)%** RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $20,608 $24,840 $27,105 $25,193 $16,176 Average net assets (000 omitted) $22,617 $25,340 $26,317 $24,703 $14,051 Ratio to average net assets of: Expenses 1.38% 1.57% 1.65%(b) 1.70% 1.66% Expenses, before waivers/reimbursements 1.72% 1.63% 1.65%(b) 1.70% 1.66% Net investment income (loss) (.27)%(c) .02%(c) .66%(b) 2.04% 2.89% Portfolio turnover rate 134% 99% 107% 176% 116% ------------------------------------------------------------------------------------------------------------------------ |
+ Based on average shares outstanding.
(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 net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized.
(b)The ratio includes expenses attributable to costs of proxy solicitation.
(c)Net of fees and expenses waived by Distributor.
(d)Amount is less than .005.
** Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio's performance for the years ended September 30, 2010 and September 30, 2008 by 0.01% and 0.05%, respectively.
A settlement agreement between the Adviser and the New York State Attorney General requires the Fund to include the following supplemental hypothetical investment information, which provides additional information calculated and presented in a manner different from expense information found under "Fees and Expenses of the Fund" in the Summary Information at the beginning of this Prospectus about the effect of the Fund's expenses, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A shares of the Fund assuming a 5% return each year, including an initial sales charge of 4.25%. Except as otherwise indicated, the chart also assumes that the current annual expense ratio stays the same throughout the 10-year period. The current annual expense ratio for the Fund is the same as stated under "Financial Highlights". If you wish to obtain hypothetical investment information for other classes of shares of each Fund, please refer to the "Investor Resources--Calculators--Mutual Funds--Hypothetical Fee and Expense Calculator" on www.AllianceBernstein.com. Your actual expenses may be higher or lower.
HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT --------------------------------------------------------------------- 1 $10,000.00 $ 478.75 $10,053.75 $ 519.51 $ 9,959.24 2 9,959.24 497.96 10,457.20 98.30 10,358.90 3 10,358.90 517.95 10,876.85 102.24 10,774.61 4 10,774.61 538.73 11,313.34 106.35 11,206.99 5 11,206.99 560.35 11,767.34 110.61 11,656.73 6 11,656.73 582.84 12,239.57 115.05 12,124.52 7 12,124.52 606.23 12,730.75 119.67 12,611.08 8 12,611.08 630.55 13,241.63 124.47 13,117.16 9 13,117.16 655.86 13,773.02 129.47 13,643.55 10 13,643.55 682.18 14,325.73 134.66 14,191.07 --------------------------------------------------------------------- Total $5,751.40 $1,560.33 |
For more information about the Fund, the following documents are available upon request:
. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The Fund's annual and semi-annual reports to shareholders contain additional information on the Fund's investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year.
. STATEMENT OF ADDITIONAL INFORMATION (SAI) The Fund has SAI, which contain more detailed information about the Fund, including its operations and investment policies. The Fund's SAI and the independent registered public accounting firm's report and financial statements in the Fund's most recent annual report to shareholders are incorporated by reference into (and are legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI, or make inquiries concerning the Fund, by contacting your broker or other financial intermediary, or by contacting the Adviser:
BY MAIL: c/o AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 BY PHONE: For Information: (800) 221-5672 For Literature: (800) 227-4618 ON THE INTERNET: www.AllianceBernstein.com |
Or you may view or obtain these documents from the Securities and Exchange Commission (the "Commission"):
. Call the Commission at 1-202-551-8090 for information on the operation of the Public Reference Room.
. Reports and other information about the Fund are available on the EDGAR Database on the Commission's Internet site at http://www.sec.gov.
. Copies of the information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Commission's Public Reference Section, Washington, DC 20549-1520.
You also may find these documents and more information about the Adviser and the Fund on the Internet at: www.AllianceBernstein.com.
AllianceBernstein(R) and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
FUND SEC FILE NO. -------------------------------------------------------- AllianceBernstein Short Duration Portfolio 811-05555 |
PRO-0115-0113
[GRAPHIC]
SANFORD C. BERNSTEIN FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
(212) 756-4097
Statement of Additional Information
January 31, 2013
This Statement of Additional Information ("SAI") relates to the following 18 series (each, a "Portfolio") and classes (each, a "Class") of shares of the Sanford C. Bernstein Fund, Inc. (the "Fund"):
EXCHANGE TICKER PORTFOLIO AND CLASS (IF APPLICABLE) SYMBOL ----------------------------------- --------------- NON-U.S. STOCK PORTFOLIOS International Portfolio International Class SIMTX Tax-Managed International Portfolio Tax-Managed International Class SNIVX Emerging Markets Portfolio SNEMX FIXED-INCOME PORTFOLIOS Short Duration New York Municipal Portfolio SDNYX Short Duration California Municipal Portfolio SDCMX Short Duration Diversified Municipal Portfolio SDDMX New York Municipal Portfolio New York Municipal Class SNNYX California Municipal Portfolio California Municipal Class SNCAX Diversified Municipal Portfolio Diversified Municipal Class SNDPX U.S. Government Short Duration Portfolio SNGSX Short Duration Plus Portfolio Short Duration Plus Class SNSDX Intermediate Duration Portfolio SNIDX EXCHANGE TICKER OVERLAY PORTFOLIOS SYMBOL ------------------ --------------- CLASS 1 CLASS 2 ------- ------- Overlay A Portfolio SAOOX SAOTX Tax-Aware Overlay A Portfolio SATOX SATTX Overlay B Portfolio SBOOX SBOTX Tax-Aware Overlay B Portfolio SBTOX SBTTX Tax-Aware Overlay C Portfolio SCTOX SCTTX Tax-Aware Overlay N Portfolio SNTOX SNTTX |
The Overlay Portfolios are intended to be used as part of a broader investment program administered directly by Bernstein Global Wealth Management Unit of AllianceBernstein L.P. ("Bernstein"). The performance and objectives of the Overlay Portfolios should be evaluated only in the context of the investor's complete investment program. The Overlay Portfolios are NOT designed to be used as stand-alone investments. The Overlay Portfolios should be considered for a portion of an overall investment program managed by Bernstein and not as a balanced investment program.
This SAI is not a prospectus, and should be read in conjunction with the Fund's Prospectus, dated January 31, 2013, as it may be amended and/or supplemented from time to time.
Certain financial statements from the Fund's annual report dated September 30, 2012 are incorporated by reference into this SAI. Copies of the Fund's Prospectus and annual report may be obtained by writing to or telephoning (collect) the Fund at the above address or telephone number or on the Internet at www.bernstein.com.
Capitalized terms used herein but not defined have the meanings assigned to them in the Prospectus.
TABLE OF CONTENTS
PAGE ---- FUND HISTORY.............................................................. 3 INVESTMENT STRATEGIES AND RELATED RISKS................................... 3 INVESTMENT RESTRICTIONS................................................... 24 INVESTMENTS............................................................... 30 DIRECTORS AND OFFICERS AND PRINCIPAL HOLDERS OF SECURITIES................ 51 MANAGEMENT OF THE FUND.................................................... 58 NET ASSET VALUE........................................................... 76 PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 78 PURCHASE AND REDEMPTION OF SHARES......................................... 82 CODE OF ETHICS AND PROXY VOTING PROCEDURES................................ 84 TAXES..................................................................... 85 CUSTODIAN, TRANSFER AGENT, COUNSEL, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS................................ 92 DESCRIPTION OF SHARES..................................................... 92 APPENDIX A................................................................ A-1 APPENDIX B................................................................ B-1 |
AllianceBernstein and the AllianceBernstein logo are registered trademarks and service marks used by permission of their owner, AllianceBernstein L.P.
FUND HISTORY
The Fund was incorporated under the laws of the State of Maryland on May 4, 1988 as an open-end management investment company.
As of February 1, 2002, the names of each Portfolio (other than the Overlay Portfolios) were changed to delete "Bernstein" from their names. As of the same date, "Bernstein Government Short Duration Portfolio" changed its name to "U.S. Government Short Duration Portfolio." As of September 2, 2003, the "Tax-Managed International Value Portfolio" changed its name to "Tax-Managed International Portfolio," and the "International Value Portfolio II" changed its name to "International Portfolio." To reflect a change in investment style from value to a blend of growth and value, as of May 2, 2005, the "Emerging Markets Value Portfolio" changed its name to "Emerging Markets Portfolio."
Each Portfolio of the Fund is diversified except for the New York Municipal Portfolio, Short Duration New York Municipal Portfolio, California Municipal Portfolio and the Short Duration California Municipal Portfolio.
The term "net assets," as used in this SAI, means net assets plus any borrowings.
INVESTMENT STRATEGIES AND RELATED RISKS
For a summary description of the objectives, principal investment strategies and policies of each Portfolio, see each Portfolio's sections of the Fund's Prospectus entitled "Investment Objective," "Principal Strategies," "Fees and Expenses of the Portfolio," "Principal Risks," and "Bar Chart and Performance Information" as well as the section entitled "Additional Information About Principal Investment Strategies and Risks." The following information is provided for those investors desiring information in addition to that contained in the Prospectus.
Except for those policies and objectives of each Portfolio that are described in the Prospectus or SAI as fundamental, the investment policies and objectives of each Portfolio may be changed by the Fund's Board of Directors (the "Board") without shareholder approval. If there is a change in investment policy or objective, shareholders should consider whether the Portfolio remains an appropriate investment in light of their then-current financial position and needs. There is no assurance that any Portfolio will achieve its investment objective.
Fixed-Income and Overlay Portfolios evaluate a wide variety of instruments and issuers, utilizing a variety of internally developed, quantitatively based valuation techniques. Except as otherwise specified, each of the Fixed-Income and Overlay Portfolios may invest in any of the securities described in the Prospectus and this SAI. In addition, each of the Fixed-Income and Overlay Portfolios may use any of the special investment techniques, some of which are commonly called derivatives, described in the Prospectus and this SAI to earn income and enhance returns, to hedge or adjust the risk profile of an investment portfolio, to obtain exposure to certain markets or to manage the effective maturity or duration of fixed-income securities.
To identify attractive bonds for the Fixed-Income Portfolios, AllianceBernstein L.P. ("AllianceBernstein" or the "Manager") evaluates securities and sectors to identify the most attractive securities in the market at a given time--those offering the highest expected return in relation to their risks. In addition, the Manager may analyze the yield curve to determine the optimum combination of duration for given degrees of interest rate risk. Finally, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time, within specified limits for each Portfolio.
None of the Fixed-Income Portfolios (other than Intermediate Duration Portfolio) will purchase any security if immediately after that purchase less than 80% of the Portfolio's total assets would consist of securities or commercial paper rated A or higher by Standard & Poor's Corporation ("Standard & Poor's" or "S&P"), Fitch Ratings, Inc. ("Fitch") or Moody's Investors Service, Inc. ("Moody's"); SP-1 by Standard & Poor's, F-1 by Fitch or MIG 1 or VMIG 1 by Moody's; A-1 by Standard & Poor's, or P-1 by Moody's; or of securities and commercial paper that are rated by other rating agencies or are not rated but in either case are determined by the Manager to be of comparable quality. In addition, none of the Fixed-Income Portfolios (other than Intermediate Duration Portfolio) will purchase a security or commercial paper rated less than B by Standard & Poor's, Fitch or Moody's; less than A-2 or SP-2 by Standard & Poor's, less than F-2 by Fitch or less than P-2, MIG 2 or VMIG 2 by Moody's; or securities and commercial paper that are rated by other ratings agencies or not rated but in either case are determined by the Manager to be of comparably poor quality. Intermediate Duration Portfolio may invest in securities rated CCC by Standard & Poor's and Fitch, or Caa by Moody's. In the event of differing ratings, the higher rating shall apply. The impact of changing economic conditions, investment risk and changing interest rates is increased by investing in securities rated below A by Standard & Poor's, Fitch or Moody's; below
SP-1 or A-1 by Standard & Poor's, below F-1 by Fitch or below MIG 1, VMIG 1 or P-1 by Moody's. In addition, the secondary trading market for lower-rated bonds may be less liquid than the market for higher-grade bonds. Accordingly, lower-rated bonds may be difficult to value accurately. Securities rated BBB by Standard & Poor's and Fitch or Baa by Moody's are investment grade. Securities that are rated BB, B or CCC by Standard & Poor's and Fitch, or Ba, B or Caa by Moody's are considered to be speculative with regard to the payment of interest and principal.
In addition to these policies, which govern all Fixed-Income Portfolios, individual Portfolios have individual policies, discussed below, pertaining to the minimum ratings and types of investments permitted, as well as the effective duration and average maturity of the Portfolio. Effective duration, a statistic that is expressed in time periods, is a measure of the exposure of the Portfolio to changes in interest rates. Unlike maturity, which is the latest possible date for the final payment to be received from a bond, effective duration is a measure of the timing of all the expected interest and principal payments. Depending on the Manager's interest-rate forecast, the Manager may adjust the actual duration of each of the Fixed-Income Portfolios. When interest rates are expected to rise, the Manager may shorten the Portfolio's duration. When interest rates are expected to fall, the Manager may lengthen the Portfolio's duration.
The maturity composition of each of the Fixed-Income Portfolios may also vary, depending upon the shape of the yield curve and opportunities in the bond market, at times being concentrated in the middle part of the targeted range, while at other times consisting of a greater amount of securities with maturities that are shorter and others that are longer than the targeted range.
Each Overlay Portfolio may invest in securities rated CCC by S&P and Fitch, or Caa by Moody's. Each of the Tax-Aware Overlay B, Tax-Aware Overlay C or Tax-Aware Overlay N Portfolios, however, will generally invest in municipal securities rated A or better by S&P, Fitch or Moody's (or, if unrated, determined by the Manager to be of comparable quality), comparably rated municipal notes and derivatives. In the event of differing ratings, the higher rating shall apply. The impact of changing economic conditions, investment risk and changing interest rates is increased by investing in securities rated below A by Standard & Poor's, Fitch or Moody's; below SP-1 or A-1 by Standard & Poor's, below F-1 by Fitch or below MIG 1, VMIG 1 or P-1 by Moody's. In addition, the secondary trading market for lower-rated bonds may be less liquid than the market for higher-grade bonds. Accordingly, lower-rated bonds may be difficult to value accurately. Securities rated BBB by Standard & Poor's and Fitch or Baa by Moody's are investment grade. Securities that are rated BB, B or CCC by Standard & Poor's and Fitch, or Ba, B or Caa by Moody's are considered to be speculative with regard to the payment of interest and principal.
Generally, the value of debt securities changes as the general level of interest rates fluctuates. During periods of rising interest rates, the values of fixed-income securities generally decline. Conversely, during periods of falling interest rates, the values of these securities nearly always increase. Generally, the longer the maturity or effective duration, the greater the sensitivity of the price of a fixed-income security to any given change in interest rates. The value of each Portfolio's shares fluctuates with the value of its investments.
The Portfolios (other than Tax-Aware Overlay B Portfolio, Tax-Aware Overlay C Portfolio and Tax-Aware Overlay N Portfolio) may invest in mortgage-backed securities ("MBS"), including those that are issued by private issuers, and therefore may have some exposure to subprime loans as well as to the mortgage and credit markets generally. Private issuers include commercial banks, savings associations, mortgage companies, investment banking firms, finance companies and special purpose finance entities (called special purpose vehicles or SPVs) and other entities that acquire and package mortgage loans for resale as MBS.
Unlike MBS issued or guaranteed by the U.S. Government or one of its sponsored entities, MBS issued by private issuers do not have a government or government-sponsored entity guarantee, but may have credit enhancement provided by external entities such as banks or financial institutions or achieved through the structuring of the transaction itself. Examples of such credit support arising out of the structure of the transaction include the issue of senior and subordinated securities (e.g., the issuance of securities by an SPV in multiple classes or "tranches," with one or more classes being senior to other subordinated classes as to the payment of principal and interest, with the result that defaults on the underlying mortgage loans are borne first by the holders of the subordinated class); creation of "reserve funds" (in which case cash or investments, sometimes funded from a portion of the payments on the underlying mortgage loans, are held in reserve against future losses); and "overcollateralization" (in which case the scheduled payments on, or the principal amount of, the underlying mortgage loans exceed that required to make payment of the securities and pay any servicing or other fees). However, there can be no guarantee that credit enhancements, if any, will be sufficient to prevent losses in the event of defaults on the underlying mortgage loans.
In addition, MBS that are issued by private issuers are not subject to the underwriting requirements for the underlying mortgages that are applicable to those MBS that have a government or government-sponsored entity guarantee. As a result, the mortgage loans underlying private MBS may, and frequently do, have less favorable collateral, credit risk or other underwriting characteristics than government or government-sponsored MBS and have wider variances in a number of terms including interest rate, term, size, purpose and borrower characteristics. Privately issued pools more frequently include second mortgages, high loan-to-value mortgages and manufactured housing loans. The coupon rates and maturities of the underlying mortgage loans in a private-label MBS pool may vary to a greater extent than those included in a government guaranteed pool, and the pool may include subprime mortgage loans. Subprime
loans refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their loans. For these reasons, the loans underlying these securities have had in many cases higher default rates than those loans that meet government underwriting requirements.
The risk of non-payment is greater for MBS that are backed by mortgage pools that contain subprime loans, but a level of risk exists for all loans. Market factors adversely affecting mortgage loan repayments may include a general economic turndown, high unemployment, a general slowdown in the real estate market, a drop in the market prices of real estate, or an increase in interest rates resulting in higher mortgage payments by holders of adjustable rate mortgages.
If a Portfolio purchases subordinated MBS, the subordinated MBS may serve as a credit support for the senior securities purchased by other investors. In addition, the payments of principal and interest on these subordinated securities generally will be made only after payments are made to the holders of securities senior to the Portfolios' securities. Therefore, if there are defaults on the underlying mortgage loans, the Portfolios will be less likely to receive payments of principal and interest, and will be more likely to suffer a loss.
Privately issued MBS are not traded on an exchange and there may be a limited market for the securities, especially when there is a perceived weakness in the mortgage and real estate market sectors. Without an active trading market, MBS held in a Portfolio's portfolio may be particularly difficult to value because of the complexities involved in assessing the value of the underlying mortgage loans.
The Portfolios may also purchase asset-backed securities ("ABS") that have many of the same characteristics and risks as the MBS described above, except that ABS may be backed by non-real-estate loans, leases or receivables such as auto, credit card or home equity loans.
Each of the Portfolios may purchase commercial paper, including asset-backed commercial paper ("ABCP") that is issued by structured investment vehicles or other conduits. These conduits may be sponsored by mortgage companies, investment banking firms, finance companies, hedge funds, private equity firms and special purpose finance entities. ABCP typically refers to a debt security with an original term to maturity of up to 270 days, the payment of which is supported by cash flows from underlying assets, or one or more liquidity or credit support providers, or both. Assets backing ABCP, which may be included in revolving pools of assets with large numbers of obligors, include credit card, car loan and other consumer receivables and home or commercial mortgages, including subprime mortgages. The repayment of ABCP issued by a conduit depends primarily on the cash collections received from the conduit's underlying asset portfolio and the conduit's ability to issue new ABCP. Therefore, there could be losses to a Portfolio investing in ABCP in the event of credit or market value deterioration in the conduit's underlying portfolio, mismatches in the timing of the cash flows of the underlying asset interests and the repayment obligations of maturing ABCP, or the conduit's inability to issue new ABCP. To protect investors from these risks, ABCP programs may be structured with various protections, such as credit enhancement, liquidity support, and commercial paper stop-issuance and wind-down triggers. However there can be no guarantee that these protections will be sufficient to prevent losses to investors in ABCP.
Some ABCP programs provide for an extension of the maturity date of the ABCP if, on the related maturity date, the conduit is unable to access sufficient liquidity through the issue of additional ABCP. This may delay the sale of the underlying collateral and a Portfolio may incur a loss if the value of the collateral deteriorates during the extension period. Alternatively, if collateral for ABCP commercial paper deteriorates in value, the collateral may be required to be sold at inopportune times or at prices insufficient to repay the principal and interest on the ABCP. ABCP programs may provide for the issuance of subordinated notes as an additional form of credit enhancement. The subordinated notes are typically of a lower credit quality and have a higher risk of default. A Portfolio purchasing these subordinated notes will therefore have a higher likelihood of loss than investors in the senior notes.
The Portfolios may also invest in other types of fixed-income securities which are subordinated or "junior" to more senior securities of the issuer, or which represent interests in pools of such subordinated or junior securities. Such securities may include preferred stock. Under the terms of subordinated securities, payments that would otherwise be made to their holders may be required to be made to the holders of more senior securities, and/or the subordinated or junior securities may have junior liens, if they have any rights at all, in any collateral (meaning proceeds of the collateral are required to be paid first to the holders of more senior securities). As a result, subordinated or junior securities will be disproportionately adversely affected by a default or even a perceived decline in creditworthiness of the issuer.
A Portfolio's compliance with its investment restrictions and limitations is usually determined at the time of investment. If the credit rating on a security is downgraded or the credit quality deteriorates after purchase by a Portfolio, or if the maturity of a security is extended after purchase by a Portfolio, the portfolio managers will decide whether the security should be held or sold. Certain mortgage- or asset-backed securities may provide, upon the occurrence of certain triggering events or defaults, for the investors to become the holders of the underlying assets. In that case a Portfolio may become the holder of securities that it could not otherwise purchase, based on its investment strategies or its investment restrictions and limitations, at a time when such securities may be difficult to dispose of because of adverse market conditions.
The U.S. Government Short Duration Portfolio invests, under normal circumstances, at least 80% of its net assets in marketable obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. These include issues of the U.S. Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies and instrumentalities established under the authority of an act of Congress. The latter issues include, but are not limited to, obligations of the Bank for Cooperatives, Federal Financing Bank, Federal Home Loan Bank, Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association and Tennessee Valley Authority. Some of the securities are supported by the full faith and credit of the U.S. Treasury, others are supported by the right of the issuer to borrow from the Treasury, and still others are supported only by the credit of the agency or instrumentality.
Shareholders' investments in this Portfolio are not insured by the U.S. Government. To the extent that this Portfolio is invested in U.S. Government securities, as defined for tax purposes in a given state, its income is generally not subject to state and local income taxation. Most states allow a pass-through to the individual shareholders of the tax-exempt character of this income for purposes of those states' taxes. However, states have different requirements for tax-exempt distributions and there is no assurance that your distributions from the Portfolio's income will not be subject to the state and local taxes of your state. Please consult your tax advisor with respect to the tax treatment of such distributions in your state.
The U.S. Government Short Duration Portfolio will purchase only securities rated A or better by Standard & Poor's, Fitch or Moody's; commercial paper rated A-1 by Standard & Poor's, F-1 by Fitch or P-1 by Moody's; or securities and commercial paper that are not rated but that are determined by the Manager to be of comparable quality.
As a fundamental policy, each of the six Municipal Portfolios, under normal circumstances, invests at least 80% of its net assets in municipal securities. The Tax-Aware Overlay B, C and N Portfolios may invest significantly in municipal securities. For purposes of this policy, net assets include any borrowings for investment purposes. "Municipal Securities" are securities issued by states and their various political subdivisions along with agencies and instrumentalities of states and their various political subdivisions and by possessions and territories of the United States, such as Puerto Rico, the Virgin Islands and Guam and their various political subdivisions. The income from these securities is exempt from federal taxation but, in certain instances, may be includable in income subject to the alternative minimum tax ("AMT").
In addition to Municipal Securities, each Municipal Portfolio and each of the Tax-Aware Overlay B, C and N Portfolios may invest in non-Municipal Securities when, in the opinion of the Manager, the inclusion of the non-municipal security will enhance the expected after-tax return of the Portfolio in accordance with the Portfolio's objectives.
The New York Municipal, California Municipal and Diversified Municipal Portfolios are referred to below as the "Fixed-Income Municipal Intermediate Duration Portfolios."
Under current federal income tax law, (1) interest on tax-exempt Municipal
Securities issued after August 7, 1986 which are specified "private activity
bonds," and the proportionate share of any exempt-interest dividend paid by a
regulated investment company which receives interest from such specified
private activity bonds, will be treated as an item of tax preference for
purposes of the AMT imposed on individuals and corporations, though for regular
federal income tax purposes such interest will remain fully tax-exempt, and
(2) interest on all tax-exempt obligations will be included in "adjusted
current earnings" of corporations for AMT purposes. Such private activity bonds
("AMT-Subject bonds"), which include industrial development bonds and bonds
issued to finance such projects as airports, housing projects, solid waste
disposal facilities, student loan programs and water and sewage projects, have
provided, and may continue to provide, somewhat higher yields than other
comparable Municipal Securities.
Investors should consider that, in most instances, no state, municipality or other governmental unit with taxing power will be obligated with respect to AMT-Subject bonds. AMT-Subject bonds are in most cases revenue bonds and do not generally have the pledge of the credit or the taxing power, if any, of the issuer of such bonds. AMT-Subject bonds are generally limited obligations of the issuer supported by payments from private business entities and not by the full faith and credit of a state or any governmental subdivision. Typically the obligation of the issuer of AMT-Subject bonds is to make payments to bond holders only out of and to the extent of, payments made by the private business entity for whose benefit the AMT-Subject bonds were issued. Payment of the principal and interest on such revenue bonds depends solely on the ability of the user of the facilities financed by the bonds to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. It is not possible to provide specific detail on each of these obligations in which Portfolio assets may be invested.
Each of the Short Duration New York Municipal Portfolio and the New York Municipal Portfolio (the "New York Municipal Portfolios") invests in those securities which the Manager believes offer the highest after-tax returns for New York residents (without regard to any alternative minimum tax) consistent with a prudent level of credit risk. As a matter of fundamental policy, each New York Municipal Portfolio, under normal circumstances, invests at least 80% of its net assets, at the time of investment, in a portfolio of Municipal Securities issued by the State of New York or its political subdivisions, or otherwise exempt from New York State income tax ("New York Municipal Securities"). For purposes of this policy, net assets include any borrowings for investment purposes. The income from these securities is exempt from federal, New York State and local income taxes but, in certain instances, may be includable in income subject to the alternative minimum tax.
Each New York Municipal Portfolio is a non-diversified portfolio under the Investment Company Act of 1940, as amended (the "1940 Act"). Nonetheless, the Fund intends to continue to qualify each New York Municipal Portfolio, like each of the other Portfolios, as a "regulated investment company" for purposes of the Internal Revenue Code of 1986, as amended (the "Code"). This requires, at the close of each quarter of each fiscal year, that at least 50% of the market value of each New York Municipal Portfolio's total assets be represented by cash, cash items, U.S. Government securities and other securities limited, in respect to any one issuer, to an amount no greater than 5% of such Portfolio's total assets, and that each New York Municipal Portfolio invest no more than 25% of the value of its total assets in the securities of any one issuer (other than the U.S. Government). If either New York Municipal Portfolio's assets consist of the securities of a small number of issuers, any change in the market's assessment, or in the financial condition, of any one of those issuers could have a significant impact on the performance of such Portfolio.
Because the New York Municipal Portfolios invest primarily in New York Municipal Securities, the Portfolios' performance is closely tied to economic conditions within the State of New York and the financial condition of the State and its agencies and municipalities.
The New York Municipal Portfolios are not appropriate for tax-exempt investors. Moreover, because the New York Municipal Portfolios seek income exempt from New York State and local taxes as well as federal income tax, such Portfolios may not be appropriate for taxable investors, such as non-New York State residents, who are not subject to New York State income taxes. Shareholders may wish to consult a tax advisor about the status of distributions from the Portfolios in their individual states or localities.
Each of the Short Duration California Municipal Portfolio and the California Municipal Portfolio (the "California Municipal Portfolios") invests in those securities which the Manager believes offer the highest after-tax returns for California residents (without regard to any alternative minimum tax) consistent with a prudent level of credit risk. As a matter of fundamental policy, each California Municipal Portfolio, under normal circumstances, invests at least 80% of its net assets, at the time of investment, in a portfolio of Municipal Securities issued by the State of California or its political subdivisions, or otherwise exempt from California State income tax ("California Municipal Securities"). For purposes of this policy, net assets include any borrowings for investment purposes. The income from these securities is exempt from federal and California personal income taxes but, in certain instances, may be includable in income subject to the alternative minimum tax.
Each California Municipal Portfolio is a non-diversified portfolio under the 1940 Act. Nonetheless, the Fund intends to continue to qualify each California Municipal Portfolio as a "regulated investment company" for purposes of the Code. This requires, at the close of each quarter of each fiscal year, that at least 50% of the market value of each California Municipal Portfolio's total assets be represented by cash, cash items, U.S. Government securities and other securities limited, in respect to any one issuer, to an amount no greater than 5% of such Portfolio's total assets, and that each California Municipal Portfolio invest no more than 25% of the value of its total assets in the securities of any one issuer (other than the U.S. Government). If either California Municipal Portfolio's assets consist of the securities of a small number of issuers, any change in the market's assessment, or in the financial condition, of any one of those issuers could have a significant impact on the performance of such Portfolio.
Because the California Municipal Portfolios invest primarily in California Municipal Securities, the performance of these Portfolios is closely tied to economic conditions within the State of California and the financial condition of the State and its agencies and municipalities.
The California Municipal Portfolios are not appropriate for tax-exempt investors. Moreover, because the California Municipal Portfolios seek income exempt from California personal income taxes as well as federal income tax, the California Municipal Portfolios may not be appropriate for taxable investors, such as non-California residents, who are not subject to California personal
income taxes. Shareholders may wish to consult a tax advisor about the status of distributions from the Portfolio in their individual states or localities.
The Tax-Aware Overlay B Portfolio will not purchase a security if such purchase would result in the Portfolio, at the time of such purchase, having more than 25% of its total assets in Municipal Securities of issuers located in any one state. The Portfolio is not appropriate for tax-exempt investors under normal market conditions.
To obtain direct fixed-income exposure, the Tax-Aware Overlay C Portfolio may invest in those securities which the Manager believes offer the highest after-tax returns for California residents (without regard to any alternative minimum tax) consistent with a prudent level of credit risk. The investments include California Municipal Securities. For purposes of this policy, net assets include any borrowings for investment purposes. The income from these securities is exempt from federal and California personal income taxes but, in certain instances, may be includable in income subject to the alternative minimum tax.
Because the Portfolio focuses its direct investments in California Municipal Securities, the performance of the Portfolio is closely tied to economic conditions within the State of California and the financial condition of the State and its agencies and municipalities.
The Portfolio is not appropriate for tax-exempt investors under normal market conditions. Moreover, because the Portfolio seeks income exempt from California personal income taxes as well as federal income tax, the Portfolio may not be appropriate for taxable investors, such as non-California residents, who are not subject to California personal income taxes. Shareholders may wish to consult a tax advisor about the status of distributions from the Portfolio in their individual states or localities.
To obtain direct fixed-income exposure, the Tax-Aware Overlay N Portfolio invests in those securities which the Manager believes offer the highest after-tax returns for New York residents (without regard to any alternative minimum tax) consistent with a prudent level of credit risk. The investments include New York Municipal Securities. The income from these securities is exempt from federal and New York personal income taxes but, in certain instances, may be includable in income subject to the alternative minimum tax.
Because the Portfolio focuses its direct investments in New York Municipal Securities, the Portfolio's performance is closely tied to economic conditions within the State of New York and the financial condition of the State and its agencies and municipalities.
The Portfolio is not appropriate for tax-exempt investors under normal market conditions. Moreover, because the Portfolio seeks income exempt from New York State and local taxes as well as federal income tax, such Portfolio may not be appropriate for taxable investors, such as non-New York State residents, who are not subject to New York State income taxes. Shareholders may wish to consult a tax advisor about the status of distributions from the Portfolio in their individual states or localities.
The primary purpose of investing in a portfolio of a single state's Municipal Securities is the special tax treatment afforded the state's resident individual investors. However, payment of interest and preservation of principal depends upon the continuing ability of the state's issuers and/or obligors on state, municipal and public authority debt obligations to meet their obligations thereunder. Investors should be aware of certain factors that might affect the financial condition of issuers of Municipal Securities, consider the greater risk of the concentration of a Portfolio versus the relative safety that often comes with a less concentrated investment portfolio and compare yields available in portfolios of the relevant state's issues with those of more diversified portfolios, including out-of-state issues, before making an investment decision.
Municipal Securities in which a Portfolio's assets are invested may include debt obligations of the municipalities and other subdivisions of the relevant state issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, schools, streets and water and sewer works. Other purposes for which Municipal Securities may be issued include the obtaining of funds to lend to public or private institutions for the construction of facilities such as educational, hospital, housing, and solid waste disposal facilities. The latter, including most AMT-Subject bonds, are generally payable from private sources which, in varying degrees, may depend on local economic conditions, but are not necessarily affected by the ability of the state and its political subdivisions to pay their debts. It is not practicable to provide specific detail on each of these
obligations in which Portfolio assets may be invested. However, all such securities, the payment of which is not a general obligation of an issuer having general taxing power, must satisfy, at the time of an acquisition by the Portfolio, the minimum rating(s) described above under "Investment Strategies and Related Risks--Fixed-Income Portfolios and Overlay Portfolios." See also Appendix A: "Description of Corporate and Municipal Bond Ratings" for a description of ratings and rating criteria. Some Municipal Securities may be rated based on a "moral obligation" contract which allows the municipality to terminate its obligation by deciding not to make an appropriation. Generally, no legal remedy is available against the municipality that is a party to the "moral obligation" contract in the event of such non-appropriation.
The following brief summaries are included for the purpose of providing certain information regarding the economic climate and financial condition of the states of New York and California, and are based primarily on information from the Annual Information Statement dated May 11, 2012, as updated on August 10, 2012 with respect to New York and an Official Statement dated October 2012 with respect to California in connection with the issuance of certain securities, and other documents and sources, and does not purport to be complete. The Fund has not undertaken to verify independently such information and the Fund assumes no responsibility for the accuracy of such information. These summaries do not provide information regarding many securities in which the Portfolios are permitted to invest and in particular do not provide specific information on the issuers or types of Municipal Securities in which a Portfolio invests or the private business entities whose obligations support the payments on AMT-Subject bonds in which the Portfolios will invest. Therefore, the general risk factors as to the credit of the state or its political subdivisions discussed herein may not be relevant to the Portfolio. Although revenue obligations of a state or its political subdivisions may be payable from a specific project or source, there can be no assurance that future economic difficulties and the resulting impact on state and local government finances will not adversely affect the market value of a Portfolio or the ability of the respective obligors to make timely payments of principal and interest on such obligations. In addition, a number of factors may adversely affect the ability of the issuers of Municipal Securities to repay their borrowings that are unrelated to the financial or economic condition of a state, and that, in some cases, are beyond their control. Furthermore, issuers of Municipal Securities are generally not required to provide ongoing information about their finances and operations to holders of their debt obligations, although a number of cities, counties and other issuers prepare annual reports.
The following is based on information obtained from the Annual Information Statement of the State of New York, dated May 11, 2012, and the Update to the Annual Information Statement dated August 10, 2012.
The Debt Reform Act of 2000 ("Debt Reform Act") implemented statutory
initiatives intended to improve the borrowing practices of the State of New
York (the "State"). The Debt Reform Act applies to all new State-supported debt
issued on and after April 1, 2000 and includes the following provisions: (a) a
phased-in cap on new State-supported debt outstanding of 4% of personal income;
(b) a phased-in cap on new State-supported debt service costs of 5% of total
governmental funds receipts; (c) a limit on the use of debt to capital works
and purposes only; and (d) a limit on the maximum term of new State-supported
debt to 30 years.
The cap on new State-supported debt outstanding began at 0.75% of personal income in 2000-01 and was fully phased in at 4% of personal income in 2010-11. Similarly, the phased-in cap on new State-supported debt service costs began at 0.75% of total governmental funds receipts and is gradually increasing until it is fully phased in at 5% in 2013-14.
The Debt Reform Act requires the limitations on the issuance of State-supported debt and debt service costs to be calculated by October 31 of each year and reported in the quarterly Financial Plan Update most proximate to October 31 of each year. If the calculations for new State-supported debt outstanding and debt service costs are less than the State-supported debt outstanding and debt service costs permitted under the Debt Reform Act, new State-supported debt may continue to be issued. However, if either the debt outstanding or the debt service cap is met or exceeded, the State, absent a change in law, would be precluded from contracting new State-supported debt until the next annual cap calculation is made and State-supported debt is found to be within the appropriate limitations. The Division of the Budget ("DOB") intends to manage subsequent capital plans and issuance schedules consistent with the limits.
The State was found to be in compliance with the statutory caps for the most recent calculation period (October 2011).
Current projections estimate that debt outstanding and debt service costs will continue to remain below the limits imposed by the Act throughout the next several years. However, the State has entered into a period of relatively limited debt capacity. Available cap room, in regards to debt outstanding, is expected to decline from $3.6 billion in 2011-12 to $752 million in 2013-14. The State is continuing to implement measures to address capital spending priorities and debt financing practices.
New York is one of the largest issuers of municipal debt, ranking second among the states, behind California, in the amount of debt outstanding. As of March 31, 2012, total State-related debt outstanding was $56.8 billion and 5.7% of personal income. New York ranks fifth in debt per capita, behind Connecticut, Massachusetts, Hawaii and New Jersey.
For purposes of analyzing the financial condition of the State, debt may be classified as State-supported debt and State-related debt. State-supported debt includes general obligation debt, to which the full faith and credit of the State has been pledged, and lease-purchase and contractual obligations of public authorities and municipalities, where the State's legal obligation to make payments to those public authorities and municipalities is subject to and paid from annual appropriations made by the Legislature. State-related debt includes State-supported debt, as well as State-guaranteed debt (to which the full faith and credit of the State has been pledged), moral obligation financings and certain contingent-contractual obligation financings, where debt service is expected to be paid from other sources and State appropriations are contingent in that they may be made and used only under certain circumstances.
The State has never defaulted on any of its general obligation indebtedness or its obligations under lease-purchase or contractual obligation financing arrangements and has never been called upon to make any direct payments pursuant to its guarantees.
As of March 31, 2012, the total amount of general obligation debt outstanding was $3.5 billion. The Enacted Budget Capital Plan projects that about $436 million in general obligation bonds will be issued in 2012-13.
Also included in State-supported debt are certain long-term financing mechanisms, lease-purchase and contractual-obligation financings, including certificates of participation ("COPs"), which involve obligations of public authorities or municipalities where debt service is payable by the State, but are not general obligations of the State. Under these financing arrangements, certain public authorities and municipalities have issued obligations to finance certain payments to local governments (see "New York Local Government Assistance Corporation" below), various capital programs, educational and health facilities, prison construction, housing programs and equipment acquisitions, and expect to meet their debt service requirements through the receipt of rental or other contractual payments made by the State.
The State expects to continue to use lease-purchase and contractual-obligation financing arrangements to finance its capital programs, and expects to finance many of these capital programs with State Personal Income Tax ("PIT") Revenue Bonds. Based on current assumptions, DOB anticipates that there will be $25.5 billion of State PIT Revenue Bonds outstanding during fiscal year 2012-13.
In 1990, as part of a State fiscal reform program, legislation was enacted creating the New York Local Government Assistance Corporation (the "LGAC"), a public benefit corporation empowered to issue long-term obligations to fund certain payments to local governments traditionally funded through the State's annual seasonal borrowing. The legislation also dedicated revenues equal to the first one percent of the State sales and use tax to pay debt service on these bonds. The legislation imposed a limitation on the annual seasonal borrowing of the State except in cases where the Governor and the legislative leaders have certified the need for additional borrowing and provided a schedule for eliminating it over time. Any seasonal borrowing is required by law to be eliminated by the fourth fiscal year after the limit was first exceeded. This provision limiting the seasonal borrowing was included as a covenant with LGAC's bondholders in the resolution authorizing such bonds. No such restrictions were placed on the State's ability to issue deficit notes.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of $4.7 billion, completing the program. The impact of LGAC's borrowing is that the State has been able to meet its cash flow needs throughout the fiscal year without relying on short-term seasonal borrowings.
The fiscal stability of the State is related, in part, to the fiscal stability of its public authorities (the "Authorities"). Authorities, which have responsibility for financing, constructing and/or operating revenue producing public facilities, are not subject to the constitutional restrictions on the incurrence of debt which apply to the State itself and may issue bonds and notes within the amounts, and as otherwise restricted by, their legislative authorizations. The State's access to the public credit markets could be impaired, and the market price of its outstanding debt may be materially adversely affected, if any of its Authorities were to default on their respective obligations, particularly those using State-supported or State-related financing techniques. As of December 31, 2011, there were 17 Authorities that had aggregate outstanding debt of $163 billion, only a portion of which constitutes State-supported or State-related debt.
Moral obligation financing generally involves the issuance of debt by an Authority to finance a revenue-producing project or other activity. The debt is secured by project revenues and includes statutory provisions requiring the State, subject to appropriation by the Legislature, to make up any deficiencies that may occur in the issuer's debt service reserve fund. There has never been a default on any moral obligation debt of any Authority. The State does not intend to increase statutory authorizations for moral obligation bond programs. From 1976 through 1987, the State was called upon to appropriate and make payments totaling $162.8 million to make up deficiencies in the debt service reserve funds of the Housing Finance Agency pursuant to moral obligation provisions. In the same period, the State also expended additional funds to assist the Project Finance Agency, the New York State Urban Development Corporation and other Authorities that had moral obligation debt outstanding. The State has not been called upon to make any payments pursuant to any moral obligations since the 1986-87 fiscal year and no such requirements are anticipated during the 2012-13 fiscal year.
Authorities' operating expenses and debt service costs are generally paid by revenues generated by the projects financed or operated, such as tolls charged for the use of highways, bridges or tunnels, charges for public power, electric and gas utility services, rentals charged for housing units, and charges for occupancy at medical care facilities. In addition, State legislation authorizes several financing techniques for Authorities. Also, there are statutory arrangements providing for State local assistance payments, otherwise payable to localities, to be made under certain circumstances to Authorities. Although the State has no obligation to provide additional assistance to localities whose local assistance payments have been paid to Authorities under these arrangements, if local assistance payments are so diverted, the affected localities could seek additional State assistance. Some Authorities also receive moneys from State appropriations to pay for the operating costs of certain of their programs.
The Metropolitan Transportation Authority (the "MTA"), which receives the bulk of State appropriations to the Authorities, oversees New York City's subway and bus lines by its affiliates, the New York City Transit Authority and the Manhattan and Bronx Surface Transit Operating Authority (collectively, the "TA"). The MTA operates certain commuter rail and bus lines in the New York metropolitan area through the MTA's subsidiaries, the Long Island Rail Road Company, the Metro-North Commuter Railroad Company and the Metropolitan Suburban Bus Authority. In addition, the Staten Island Rapid Transit Operating Authority, an MTA subsidiary, operates a rapid transit line on Staten Island. Through its affiliated agency, the Triborough Bridge and Tunnel Authority (the "TBTA"), the MTA operates certain intrastate toll bridges and tunnels. Because fare revenues are not sufficient to finance the mass transit portion of these operations, the MTA has depended and will continue to depend on operating support from the State, local governments and TBTA, including loans, grants and subsidies. If current revenue projections are not realized and/or operating expenses exceed current projections, the TA or commuter railroads may be required to seek additional State assistance, raise fares or take other actions.
The State ended FY 2012 in balance on a cash basis in the General Fund, and maintained a closing balance of $1.79 billion, consisting of $1.1 billion in the Tax Stabilization Reserve, $175 million in the Rainy Day Reserve, $102 million in the Community Projects Fund, $21 million in the Contingency Reserve, $283 million reserved for potential retroactive labor settlements, and $75 million in an undesignated fund balance. The FY 2012 closing balance was $411 million greater than the FY 2011 closing balance, which largely reflects actions to establish designated resource that can be used to address costs associated with potential retroactive labor agreements, and to build the State's general emergency reserve fund balances. The State made a $100 million deposit to the Tax Stabilization Reserve at the close of FY 2012, the first deposit to the State's "rainy day" reserves since FY 2008.
General Fund receipts, including transfers from other funds, totaled $56.9 billion in FY 2012. Total receipts during FY 2012 were $2.5 billion (4.5%) higher than in the prior fiscal year. Total tax receipts were $3.1 billion higher than the previous fiscal year, mainly due to growth in PIT collections ($2.4 billion) and business tax collections ($481 million). A decrease in the level of excess balances transferred from other funds partly offset the annual increase in tax receipts.
General Fund disbursements, including transfers to other funds, totaled $56.5 billion in FY 2012, $1.1 billion (2.0%) higher than in the prior fiscal year. Excluding the impact of a $2.1 billion school aid deferral from March 2010 to the statutory deadline of June 2010, annual spending grew by $3.2 billion. Spending growth is largely due to the phase-out of extraordinary Federal aid that temporarily reduced State-share spending in FY 2011. Annual General Fund spending for agency operations in FY 2012 was lower than in FY 2011, consistent with management expectations and continued efforts in managing the workforce and controlling costs.
The State ended FY 2011 in balance on a cash basis in the General Fund. The General Fund ended FY 2011 with a closing balance of $1.38 billion, consisting of $1.0 billion in the Tax Stabilization Reserve, $175 million in the Rainy Day Reserve, $136 million in the Community Projects Fund, $21 million in the Contingency Reserve, and $13 million in an undesignated fund balance.
The closing balance was $928 million lower than FY 2010. This reflected the planned use of a fund balance to pay for expenses deferred from FY 2010 into FY 2011.
General Fund receipts, including transfers from other funds, totaled $54.4
billion in FY 2011. Total receipts during FY 2011 were $1.9 billion
(3.6%) higher than in the prior fiscal year. Total tax receipts were $2.5
billion higher, mainly due to the growth in PIT collections, sales taxes,
estate taxes, and the real estate transfer tax, resulting from changes to the
law as well as the economic recovery. Non-tax revenue was $631 million below
the prior year. This was primarily due to the following FY 2010 collections
that were not received, or were received in lower amounts, in FY 2011:
temporary utility surcharge; Power Authority resources; Energy Research and
Development Authority; and fine collections. An increase in the level of excess
balances transferred from other funds partly offset the annual decline in
miscellaneous receipts.
General Fund disbursements, including transfers to other funds, totaled $55.4 billion in FY 2011. Disbursements in FY 2011 were $3.2 billion (6.1%) higher than in the prior fiscal year. Spending growth was affected by the deferral of a $2.06 billion payment to schools from March 2010 to the statutory deadline of June 2010. Adjusting for this anomaly, spending would have been approximately $950 million below FY 2010 levels.
Receipts during FY 2010 fell substantially below projections. General Fund receipts, including transfers from other funds, totaled $52.6 billion, or $1.78 billion lower than the State's initial projections for FY 2010. General Fund disbursements, including transfers to other funds, totaled $52.2 billion, a decrease of $2.71 billion from initial projections. However, actual disbursements were affected by $2.1 billion in payment deferrals (described below) taken by the State to end the fiscal year without the use of its rainy day reserves and other designated balances. Without the deferrals, disbursements for the fiscal year would have been approximately $665 million below initial projections.
In the final quarter of the fiscal year, in order to avoid depleting its reserves, the State deferred a planned payment to school districts ($2.1 billion), which reduced spending from planned levels, and certain tax refunds, which increased available receipts from planned levels ($500 million). Both the school aid payment and the tax refunds were scheduled to be paid in FY 2010 but, by statute, were not due until June 1, 2010. The combined value of the deferrals had the effect of increasing the closing balance in the General Fund for FY 2010 to $2.3 billion, or approximately $900 million above the level required to restore the rainy day reserves and other balances to their anticipated levels. The higher closing balance was due exclusively to the cash management actions described above and did not represent an improvement in the State's financial operations. In early April 2010, the State paid the $500 million in tax refunds that had been deferred from FY 2010 to FY 2011. On June 1, 2010, the State paid the $2.1 billion in school aid deferred from FY 2010.
General Fund receipts, including transfers from other funds were $1.2 billion below FY 2009 results. Tax receipts decreased by $1.2 billion and transfers decreased by $750 million, partly offset by increased miscellaneous receipts of $744 million. The $1.2 billion annual decline in tax receipts included a $541 million decline in personal income taxes and a $302 million decline in sales and use tax receipts.
General Fund disbursements, including transfers to other funds, were $2.4 billion below FY 2009 results. The annual decline reflects the deferral of $2.1 billion in school aid, the impact of mid-year spending reductions, and the use of Federal American Recovery and Reinvestment Act of 2009 ("ARRA") funds in place of General Fund spending.
The General Fund closing balance consisted of $1.2 billion in the State's rainy day reserves, $21 million in the contingency reserve fund (to guard against litigation risks), $96 million in the Community Projects Fund, and $978 million in the Refund Reserve Account, of which approximately $900 million was attributable to the deferrals described above.
New York is the third most populous state in the nation and has a relatively high level of personal wealth. The State's economy is diverse, with a comparatively large share of the nation's financial activities, information, education and health services employment, and a very small share of the nation's farming and mining activity. The State's location and its air transport facilities and natural harbors have made it an important link in international commerce. Travel and tourism constitute an important part of the economy. Like the rest of the nation, the State has a declining proportion of its workforce engaged in manufacturing, and an increasing proportion engaged in service industries.
The services sector, which includes professional and business services, private education and healthcare, leisure and hospitality services, and other services, is the State's leading economic sector. The services sector accounts for more than four of every ten nonagricultural jobs in New York and has a higher proportion of total jobs than does the rest of the nation.
Manufacturing employment continues to decline in importance in New York, as in most other states, and New York's economy is less reliant on this sector than in the past. However, it remains an important sector of the State economy, particularly for the upstate region, as high concentrations of manufacturing industries for transportation equipment, optics and imaging, materials processing, and refrigeration, heating and electrical equipment products are located in the upstate region.
The trade, transportation and utilities sector accounts for the largest component of nonagricultural jobs in New York but is only the fourth largest, when measured by wage share. This sector accounts for slightly less employment and wages for the State than for the nation.
New York City is the nation's leading center of banking and finance and, as a result, this is a far more important sector in the State than in the nation as a whole. Although this sector accounts for under one-tenth of all nonagricultural jobs in the State, it contributes about one-fifth of total wages.
Farming is an important part of the economy in rural areas, although it constitutes a very minor part of total State output. Principal agricultural products of the State include milk and dairy products, greenhouse and nursery products, fruits, and vegetables. New York ranks among the nation's leaders in the production of these commodities.
Federal, State and local government together comprise the second largest sector in terms of nonagricultural jobs, with the bulk of the employment accounted for by local governments. Public education is the source of nearly one-half of total state and local government employment.
The State is likely to be less affected than the nation as a whole during an economic recession that is concentrated in manufacturing and construction, but likely to be more affected during a recession that is concentrated in the services sector.
In the calendar years 1990 through 1998, the State's rate of economic growth was somewhat slower than that of the nation. In particular, during the 1990-91 recession and post-recession period, the economy of the State, and that of the rest of the Northeast, was more heavily damaged than that of the nation as a whole and was slower to recover. However, the situation subsequently improved. In 1999, for the first time in 13 years, the employment growth rate of the State surpassed the national growth rate and, in 2000, the rates were essentially the same. In 2001, the September 11 terrorist attacks resulted in a slowdown in New York that was more serious than in the nation as a whole. In contrast, the State labor market fared better than that of the nation as a whole during the most recent downturn that began in 2008, though New York experienced a historically large wage decline in 2009. The State unemployment rate was higher than the national rate from 1991 to 2000, but the gap between them has since closed, with the State rate below that of the nation from the start of the national recession through the end of 2011. In 2011, the State unemployment rate was 8.2, compared to 9.0% for the nation as a whole.
State per capita personal income has historically been significantly higher than the national average, although the ratio has varied substantially. Because New York City is a regional employment center for a multi-state region, State personal income measured on a residence basis understates the relative importance of the State to the national economy and the size of the base to which State taxation applies. In 2011, New York per capita personal income was $50,545, compared to $41,663 for the nation as a whole.
The most recent data indicate that the pace of New York employment growth remains healthy. Private sector employment growth of 1.5% is now projected for 2012, following growth of 2.0% for 2011. Total employment growth of 1.1% is projected for this year, following growth of 1.2% for 2011. Consistent with a strong job market, State wage growth of 3.1% is expected for 2012, with growth in total personal income projected at 3.4%. Although these growth rates represent an improving outlook, they remain substantially below historical averages.
All of the risks to the U.S. forecast apply to the State forecast as well, although as the nation's financial capital, the volume of financial market activity and equity market volatility pose a particularly large degree of uncertainty for New York. In addition, with Wall Street firms still adjusting their compensation practices in the wake of the passage of financial reform, both the bonus and non-bonus components of employee pay are becoming increasingly difficult to estimate. A weaker labor market than projected could also result in lower wages, which in turn could result in weaker household consumption. Similarly, should financial and real estate markets be weaker than anticipated, taxable capital gains realizations could be negatively affected. These effects could ripple through
the State economy, depressing both employment and wage growth. In contrast, stronger national and world economic growth, or a stronger upturn in stock prices, along with even stronger activity in mergers and acquisitions and other Wall Street activities, could result in higher wage and bonus growth than projected.
The fiscal demands on the State may be affected by the fiscal condition of New York City, which relies in part on State aid to balance its budget and meet its cash requirements. It is also possible that the State's finances may be affected by the ability of New York City to market securities successfully in the public credit markets.
Certain localities outside New York City have experienced financial problems and have requested and received additional State assistance during the last several State fiscal years. While a relatively infrequent practice, deficit financing has become more common in recent years. Between 2004 and January 2012, the State Legislature authorized 21 bond issuances to finance local government operating deficits. There were four new or additional deficit financing authorizations during the 2009 and 2010 legislative sessions.
Like the State, local governments must respond to changing political, economic and financial influences over which they have little or no control. Such changes may adversely affect the financial condition of certain local governments. For example, the federal government may reduce (or in some cases eliminate) federal funding of some local programs which, in turn, may require local governments to fund these expenditures from their own resources. The loss of temporary Federal stimulus funding in 2011 also adversely impacted counties and school districts in New York State. The State's cash flow problems have resulted in delays to the payment of State aid, and in some cases, have necessitated borrowing by the localities. Additionally, recent enactment of legislation that caps most local government and school district property tax levies may affect the amount of property tax revenue available for local government and school district purposes. The legislation does not apply to New York City. Changes to sales tax distributions resulting from the 2010 Federal population census may also have a material impact on certain local governments. Ultimately, localities or any of their respective public authorities may suffer serious financial difficulties that could jeopardize local access to the public credit markets, which may adversely affect the marketability of notes and bonds issued by localities within the State. Localities may also face unanticipated problems resulting from certain pending litigation, judicial decisions and long-range economic trends. Other large scale potential problems, such as declining urban populations, increasing expenditures, and the loss of skilled manufacturing jobs, may also adversely affect localities and necessitate State assistance.
The State is a defendant in legal proceedings involving State finances and programs and miscellaneous civil rights, real property, and contract and other tort claims where the monetary claims against the State are deemed to be material, generally in excess of $100 million or involving significant challenges to or impacts on the State's financial policies or practices. These proceedings could affect adversely the financial condition of the State in FY 2013 or thereafter.
Adverse developments in these proceedings or the initiation of new proceedings could affect the ability of the State to maintain a balanced FY 2013 Financial Plan. The State believes that the FY 2013 Enacted Budget Financial Plan includes sufficient reserves for the payment of judgments that may be required during FY 2013. There can be no assurance, however, that adverse decisions in legal proceedings against the State would not exceed the amount of all potential FY 2013 Enacted Budget Financial Plan resources available for the payment of judgments, and could therefore adversely affect the ability of the State to maintain a balanced FY 2013 Enacted Budget Financial Plan.
The following is based on information obtained from an Official Statement, dated October 23, 2012, relating to State of California $539,245,000 Various Purpose General Obligation Refunding Bonds (the "Official Statement").
Certain California (the "State") constitutional amendments, legislative measures, executive orders, civil actions and voter initiatives could adversely affect the ability of issuers of the State's municipal securities to pay interest and principal on municipal securities.
Article XIII B was modified substantially by Propositions 98 and 111 in 1988 and 1990, respectively. (See "Proposition 98" below.) "Appropriations subject to limitation," with respect to the State, are authorizations to spend "proceeds of taxes," which consist of tax revenues, and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by the entity in providing the regulation, product or service," but "proceeds of taxes" exclude most State subsidies to local governments, tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on appropriations of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non-tax funds.
Not included in the Appropriations Limit are appropriations for the debt service costs of bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, appropriations for tax refunds, appropriations of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels, and appropriation of certain special taxes imposed by initiative (e.g., cigarette and tobacco taxes). The Appropriations Limit may also be exceeded in cases of emergency.
The State's yearly Appropriations Limit is based on the limit for the prior year with annual adjustments for changes in California per capita personal income and population and any transfers of financial responsibility for providing services to or from another unit of government.
The Department of Finance projected the Appropriations Subject to Limit to be $61.796 billion and $70.280 billion under the Appropriations Limit in Fiscal Years 2011-12 and 2012-13, respectively.
Under Proposition 98 (as modified by Proposition 111 which was enacted on June 5, 1990), K-14 schools are guaranteed the greater of (a) in general, a fixed percentage of General Fund revenues (the "first test"), (b) the amount appropriated to K-14 schools in the prior year, adjusted for changes in the cost of living (measured as in Article XIII B by reference to State per capita personal income) and enrollment (the "second test"), or (c) a third test, which would replace the second test in any year when the percentage growth in per capita General Fund revenues from the prior year plus one half of one percent is less than the percentage growth in State per capita personal income. Under the third test, schools would receive the amount appropriated in the prior year adjusted for changes in enrollment and per capita General Fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test would become a "credit" to schools which would be the basis of payments in future years when per capita General Fund revenue growth exceeds per capita personal income growth.
The Proposition 98 guarantee is funded from two sources: local property taxes and the General Fund. Any amount not funded by local property taxes is funded by the General Fund. Thus, local property tax collections represent an offset to General Fund costs in a second test or third test year.
The State Treasurer is responsible for the sale of debt obligations of the State and its various authorities and agencies. The State has always paid the principal of and interest on its general obligation bonds, general obligation commercial paper notes, lease-purchase debt and short-term obligations, including revenue anticipation notes and revenue anticipation warrants, when due.
The State Constitution prohibits the creation of general obligation indebtedness of the State unless a bond measure is approved by a majority of the electorate voting at a general election or a direct primary. General obligation bond acts provide that debt service on general obligation bonds shall be appropriated annually from the General Fund and all debt service on general obligation bonds is paid from the General Fund. Under the State Constitution, debt service on general obligation bonds is the second charge to the General Fund after the application of moneys in the General Fund to the support of the public school system and public institutions of higher education. Certain general obligation bond programs receive revenues from sources other than the sale of bonds or the investment of bond proceeds.
As of September 1, 2012, the State had outstanding $79,148,265,000 aggregate principal amount of long-term general obligation bonds, and unused voter authorizations for the future issuance of $34,380,904,000 of long-term general obligations bonds, some of which may first be issued as commercial paper notes.
The General Obligation Bond Law permits the State to issue as variable rate indebtedness up to 20% of the aggregate amount of long-term general obligation bonds outstanding. The State had outstanding $4,160,635,000 of variable rate general obligation bonds, representing about 5.3% of the State's total outstanding general obligation bonds as of September 1, 2012.
In addition to general obligation bonds, the State builds and acquires capital facilities through the use of lease-purchase borrowing. Under these arrangements, the State Public Works Board, another State or local agency or a joint powers authority issues bonds to pay for the construction of facilities such as office buildings, university buildings or correctional institutions. These facilities are leased to a State agency, the California State University, the University of California or the Judicial Council under a long-term lease which provides the source of payment of the debt service on the lease-purchase bonds. In some cases, there is not a separate bond issue, but a trustee directly creates certificates of participation in the State's lease obligation, which are marketed to investors. The State had $11,300,005,000 General Fund-supported lease-purchase debt outstanding as of September 1, 2012.
As part of its cash management program, the State has regularly issued short-term obligations to meet cash flow needs. The State has issued revenue anticipation notes ("RANs") in all but one fiscal year since the mid-1980s and they have always been paid at maturity. RANs are issued to partially fund timing differences between revenues and expenditures, as the majority of General Fund revenues are received in the last part of the fiscal year. By law, RANs must mature prior to the end of the fiscal year of issuance. If additional external cash flow borrowings are required, the State has issued revenue anticipation warrants ("RAWs"), which can mature in a subsequent fiscal year.
The State entered Fiscal Year 2012-13 in a stronger cash position than it had in some prior years. Timely enactment of the 2012 Budget Act allowed the State to carry out its regular cash management borrowing with RANs early in the year, and without the need for Interim RANs for the first time in three years. The State issued $10 million of RANs on August 23, 2012.
As in previous years, the Legislature has enacted a cash management bill which authorizes deferral of certain payments during Fiscal Year 2012-13, including payments to K-12 schools, reimbursements to the federal government for certain social service costs, certain local government social services, transportation payments and Proposition 63 mental health payments (not to exceed $1 billion in the aggregate at one time) and higher education. The applicable deferrals were made in July 2012.
The State will also benefit from $1.7 billion of additional internal borrowable resources in the SAIF Fund during the first part of the fiscal year. The deposits in the State Agency Investment Fund are scheduled to be returned in late April 2013. The Legislature has created a Voluntary Investment Program Fund, which could provide additional short-term cash management borrowing resources, but there are no current agreements for deposits into this Fund.
State fiscal officials will continue to monitor the State's cash position during the fiscal year, and will take appropriate steps if necessary to manage any projected cash shortfalls which may occur, as they have done in prior years.
The State's fiscal year begins on July 1 and ends on June 30 of the following year. The State's General Fund Budget operates on a legal basis, generally using a modified accrual system of accounting for its General Fund, with revenues credited in the period in which they are measurable and available and expenditures debited in the period in which the corresponding liabilities are incurred.
The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the "Governor's Budget"). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues for the ensuing fiscal year. Following the submission of the Governor's Budget, the Legislature takes up the proposal. As required by the Balanced Budget Amendment ("Proposition 58"), beginning with fiscal year 2004-2005, the Legislature may not pass a budget bill in which General Fund expenditures exceed estimated General Fund revenues and fund balances at the time of the passage and as set forth in the budget bill. Proposition 58 requires the adoption of a balanced budget and restricts future borrowing to cover budget deficits.
Under the State Constitution, money may be drawn from the Treasury only though an appropriation made by law. The primary source of annual expenditure appropriations is the annual Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the Legislature. The governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature.
The economic downturn of the last few years adversely affected the State's budget situation. Despite the economy's gradual recovery, the State faced estimated annual gaps between spending and revenues of roughly $20 billion as of January 2011. The State's fiscal challenges were exacerbated by unprecedented levels of debt, deferrals, and budgetary obligations accumulated over the prior decade. The 2011 Budget Act and the 2012 Budget Act have rejected the past approach of over-relying on one-time solutions. The last two budgets addressed this deficit through three dollars of ongoing spending reductions for every dollar of tax increases. Specifically, 76% of the structural deficit has been addressed through spending cuts in health and human services, corrections, education, and other areas. Under current projections, the Administration projects that the General Fund budget will be balanced in an ongoing manner for at least the next four fiscal years, which would represent the first time in over a decade that future spending is expected to stay within available revenues.
Even with this plan, risks to the budget remain. Potential cost increases associated with actions to reduce the federal deficit, federal government actions, court decisions, the pace of the economic recovery, an aging population, and rising health care and pension costs all threaten the ability of the State to achieve and maintain a balanced budget over the long term. In addition, the exact level of capital gains and income growth for top earners remains uncertain, which will have a major impact on personal income tax receipts.
The 2012-13 budget package closed a projected budget gap of $15.7 billion over the two fiscal years 2011-12 and 2012-13, and projected a $948 million reserve by June 30, 2013, by enacting a total of $16.6 billion in solutions (including a combination of expenditure reductions, additional revenues, and other solutions). General Fund revenues and transfers for Fiscal Year 2012-13 were projected at $95.9 billion, an increase of $9.1 billion compared with Fiscal Year 2011-12. General Fund expenditures for Fiscal Year 2012-13 were projected at $91.3 billion, an increase of $4.3 billion compared to the prior year. General Fund spending outside of Proposition 98 is projected to decline by $1.5 billion, or 2.8%, excluding a required one-time repayment of $2.1 billion the State borrowed from local governments in 2009. In approving the 2012 Budget Act, the Governor exercised his line-item veto power to reduce General Fund expenditures by about $129 million. The 2012 Budget Act also includes special fund expenditures of $39.4 billion and bond fund expenditures of $11.7 billion.
The 2011 Budget Act, enacted on June 30, 2011, projected that the State would end Fiscal Year 2011-12 with a $543 million General Fund reserve. General Fund revenues and transfers for Fiscal Year 2011-12 were projected at $88.5 billion, a reduction of $6.3 billion compared with Fiscal Year 2010-11. General Fund expenditures for Fiscal Year 2011-12 were projected at $85.9 billion--a reduction of $5.5 billion compared to the prior year. These amounts compare to the following figures proposed in the 2011-12 Governor's Budget: revenues and transfers of $89.7 billion, expenditures of $84.6 billion, and an ending reserve of $955 million. In approving the 2011 Budget Act, the Governor exercised his line-item veto power to reduce General Fund expenditures by about $24 million, mostly in the Judicial Branch ($22.9 million related to parole revocation workload). The 2011 Budget Act also includes special fund expenditures of $34.2 billion and bond fund expenditures of $9.4 billion.
The estimated General Fund revenue reflected a combination of factors, including expiration of temporary taxes and surcharges (which totaled approximately $7.1 billion in Fiscal Year 2010-11) and transfer of about one percent of the State sales tax rate to local governments to fund the realignment described further below. Offsetting these reductions were improved revenue estimates for the remaining State tax sources. Expenditures reflected increases needed to offset the termination of federal stimulus funding (ARRA) which supported about $4.2 billion of General Fund programs in Fiscal Year 2010-11.
The 2010 Budget Act enacted on October 8, 2010, projected to end Fiscal Year 2010-11 with a $1.3 billion reserve. General Fund revenues and transfers for Fiscal Year 2010-11 are projected at $94.2 billion, an increase of $7.3 billion compared with Fiscal Year 2009-10. General Fund expenditures for Fiscal Year 2010-11 are projected at $86.6 billion--essentially flat compared to the prior year. These amounts compared to the following, which were proposed in the 2010-11 Governor's Budget: revenues and transfers of $89.3 billion, expenditures of $82.9 billion, and an ending reserve of $1.0 billion. In approving the 2010 Budget Act, the Governor exercised his line-item veto power to reduce General Fund expenditures by about $960 million, mostly in the areas of health care and social services. The 2010 Budget Act also included Special Fund expenditures of $30.9 billion and Bond Fund expenditures of $7.9 billion.
Prior to enactment of the 2010 Budget Act, the Administration had reported a budget gap of $19.3 billion, including a $1.3 billion reserve based on projected General Fund revenues and transfers in Fiscal Year 2010-11 compared against projected expenditures (assuming the workload budget from Fiscal Year 2009-10, adjusted for increases in costs and certain other developments but no changes in law). The 2010 Budget Act planned to close the estimated budget gap by a combination of expenditure reductions, federal funds, and other solutions. The majority of these solutions were one-time or temporary in nature, so that budget gaps would recur in Fiscal Year 2011-12 and beyond. Furthermore, many of the assumed solutions did not come to fruition, and the 2010 Budget Act soon fell out of balance.
The State of California is by far the most populous state in the nation, 50% larger than Texas, the second-ranked state, according to the 2010 U.S. Census. The State's 2011 population of about 37.5 million represented over 12% of the total United States population.
California's economy, the largest among the 50 states and most diverse in the world, has major components in high technology, trade, entertainment, agriculture, manufacturing, government, tourism, construction and services. The relative proportion of the various components of the California economy closely resembles the make-up of the national economy.
In 2011, per capita personal income in California averaged $44,481, compared to $41,663 for the nation. The unemployment rate in 2011 was 11.7%, compared to 8.9% for the nation. The trade, transportation and utilities sector represented the largest component (18.9%) of California's non-farm workforce, followed by federal, state and local government (17.0%), professional and business services (15.1%), educational and health services (13.0%) and leisure and hospitality (10.9%).
The State is a party to numerous legal proceedings. Certain of these proceedings have been identified by the State as having a potentially significant fiscal impact upon the State's expenditures or its revenues.
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The Portfolios may obtain insurance on their municipal bonds or purchase insured municipal bonds covered by policies issued by monoline insurance companies. Currently, only Assured Guaranty Municipal Corp. ("AGM") is writing policies on newly issued municipal bonds. AGM (formerly, Financial Security Assurance Holdings Ltd.) is an indirect subsidiary of Assured Guaranty Ltd. ("Assured"). Prior to the recent financial crisis, there were several other insurers writing policies on municipal bonds, but the ratings of these insurers have been severely downgraded and, while they are still insuring municipal bonds under policies written prior to the financial crisis, they are no longer writing new policies. These insurers include National Public Finance Guarantee Corporation ("National"), a wholly-owned subsidiary of MBIA Inc. ("MBIA"); Financial Guaranty Insurance Company ("FGIC"); Ambac Assurance Corporation ("Ambac"), a wholly-owned subsidiary of Ambac Financial Group, Inc.; ACA Financial Guaranty Corporation ("ACA"); Radian Asset Assurance, Inc. (formerly, Asset Guaranty Insurance Company) ("Radian"), a wholly-owned subsidiary of Radian Group, Inc.; Syncora Guarantee Inc. ("Syncora") (formerly XL Capital Assurance, Inc.), a wholly-owned subsidiary of Syncora Holdings Ltd. (formerly Security Capital Assurance Ltd.); CIFG Assurance North America, Inc. (formerly, CDC IXIS Financial Guaranty North America, Inc.) ("CIFG NA"); and Berkshire Hathaway Assurance Corporation ("BHAC"), a wholly owned subsidiary of Berkshire Hathaway Inc. As noted above, most of these insurers have been downgraded and it is possible that additional downgrades may occur. Moody's and S&P ratings reflect the respective rating agency's current assessment of the creditworthiness of each insurer and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the ratings may be obtained only from the applicable rating agency. The ratings are not recommendations to buy, sell or hold the municipal bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of either or both ratings may have an adverse effect on the market price of the municipal bonds.
It should be noted that insurance is not a substitute for the basic credit of an issuer, but supplements the existing credit and provides additional security therefore. Moreover, while insurance coverage for the municipal securities held by the Portfolios may reduce credit risk, it does not protect against market fluctuations caused by changes in interest rates and other factors. As a result of declines in the credit quality and associated downgrades of most fund insurers, insurance has less value than it did in the past. The market now values insured municipal securities primarily based on the credit quality of the issuer of the security with little value given to the insurance feature. In purchasing insured municipal securities, the Manager currently evaluates the risk and return of such securities through its own research.
The information relating to MBIA, FGIC, Ambac, AGM, ACA, Radian, Syncora, CIFG NA and BHAC contained below has been furnished by such companies, respectively. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information.
Each of the Short Duration Diversified Municipal Portfolio and the Diversified Municipal Portfolio (the "Diversified Municipal Portfolios") will not purchase a security if such purchase would result in the Portfolio, at the time of such purchase, having more than 25% of its total assets in Municipal Securities of issuers located in any one state. Neither Diversified Municipal Portfolio is appropriate for tax-exempt investors under normal market conditions.
The Tax-Managed International Portfolio, the International Portfolio (collectively referred to as the "International Portfolios") and the Emerging Markets Portfolio seek long-term capital growth. The Emerging Markets Portfolio will invest primarily in equity securities of both large and small emerging market companies. The International Portfolios will and the Emerging Markets Portfolio may invest in equity securities of issuers in countries that comprise the Morgan Stanley(R) Capital International Europe, Australasia, Far East (MSCI EAFE) index. The International Portfolios will also invest in equity securities of companies in less developed or emerging market countries.
As used in this statement of additional information, emerging market countries are those countries that, in the opinion of the Manager, are considered to be developing countries by the international financial community, and will include those countries considered by the International Finance Corporation ("IFC"), a subsidiary of the World Bank, to have an "emerging stock market."
EMERGING MARKETS PORTFOLIO: The research analyses supporting buy and sell decisions are fundamental and bottom-up, based largely on specific company and industry findings rather than on broad economic forecasts for the Emerging Markets Portfolio. In managing the Emerging Markets Portfolio, the Manager diversifies the investment portfolios between growth and value equity investment styles. The Manager selects emerging markets growth and emerging markets value equity securities by drawing from its fundamental growth and value investment disciplines to produce blended portfolios. Investment decision-making for the Emerging Markets Portfolio is systematic and centralized, pursued by an investment policy group working in concert with, and guided by, the findings of the Manager's global growth and value research teams.
The Emerging Markets Portfolio's emerging markets growth stocks are selected using AllianceBernstein's research-driven emerging markets growth investment discipline. In selecting stocks, the emerging markets growth investment team seeks to identify companies with superior earnings growth prospects. This discipline relies heavily upon the fundamental analysis and research of the Manager's large emerging markets growth research staff, which follows over 300 companies. As one of the largest multinational investment firms, AllianceBernstein has access to considerable information concerning these companies, including an in-depth understanding of their products, services, markets and competition, as well as a good knowledge of the management of most of the companies.
The Manager's emerging markets growth analysts prepare their own earnings estimates and financial models for each company followed. Research emphasis is placed on identifying companies whose strong management and superior industry positions can contribute to substantially above-average future earnings growth. The emerging markets growth investment team constructs a portfolio of equity securities of a limited number of carefully selected, high-quality companies that are judged likely to achieve superior earnings growth.
The Emerging Markets Portfolio's value stocks are selected using AllianceBernstein's research-driven emerging markets value investment discipline. This discipline relies heavily upon fundamental analysis and research of the Manager's large emerging markets value research staff. The research staff identifies attractive opportunities among a broad universe of approximately 1,500 companies. In selecting stocks, the Manager's emerging markets value investment team invests in underpriced stocks--those with low price/earnings ratios, low price/book-value ratios and high dividend yields.
The Emerging Markets Portfolio is intended for long-term investors who can accept the risks associated with the Portfolio's investments and is not appropriate for individuals with limited investment resources or who are unable to tolerate significant fluctuations in the value of their investment. The Portfolio should be considered as a vehicle for diversification and not as a balanced investment program.
THE INTERNATIONAL PORTFOLIOS: The research analyses supporting buy and sell decisions for the International Portfolios are fundamental and bottom-up, based largely on specific company and industry findings and taking into account broad economic forecasts. In managing the International Portfolios, the Manager diversifies the investment portfolios using research from its growth, value, stability and other disciplines. Investment decision-making for these Portfolios is made by an investment policy group working in concert with the specific research and investment teams.
As one of the largest multinational investment firms, AllianceBernstein has access to considerable information concerning these companies, including an in-depth understanding of their products, services, markets and competition, as well as a good knowledge of the management of most of the companies.
Each research process includes both fundamental and quantitative inputs to varying degrees. The specific research questions will vary: in some cases it may be focused on the ability of a company to generate strong returns on capital, in others whether cash flows will remain stable and in some whether management can solve specific challenges facing the company. From a risk control perspective, we review position sizes as well as sector weightings. Our analysts prepare their own earnings estimates and financial models for each company that they follow.
Under normal circumstances, each of the International Portfolios will invest in companies in at least three countries other than the United States. The Emerging Markets Portfolio, under normal circumstances, invests at least 80% of its net assets in securities of emerging market companies. For purposes of the policy with respect to Emerging Markets Portfolio, net assets include any borrowings for investment purposes. Shareholders of the Emerging Markets Portfolio will be notified at least 60 days prior to any change to the Portfolio's 80% investment policy. Under exceptional conditions abroad or when the Manager believes that economic or market conditions warrant, any of the International Portfolios or the Emerging Markets Portfolio may temporarily, for defensive purposes, invest part or all of its portfolio in U.S. Government obligations or investment-grade debt or equity securities of U.S. issuers. Any of these Portfolios may invest in fixed-income securities and enter into foreign currency exchange contracts and options on foreign currencies and may utilize options on securities and securities indexes and futures contracts and options on futures.
The International Portfolios and the Emerging Markets Portfolio may invest uncommitted cash balances in fixed-income securities. Fixed-income securities may also be held to maintain liquidity to meet shareholder redemptions, and, although the situation occurs infrequently, these securities may be held in place of equities when the Manager believes that fixed-income securities will provide total returns comparable to or better than those of equity securities.
With respect to the International Portfolios, fixed-income securities include obligations of the U.S. or foreign governments and their political subdivisions; obligations of agencies and instrumentalities of the U.S. Government; and bonds, debentures, notes, commercial paper, bank certificates of deposit, repurchase agreements and other similar corporate debt instruments of U.S. or foreign issuers that at the time of purchase are rated BBB, A-2, SP-2 or higher by S&P, BBB, F-2 or higher by Fitch, or Baa, P-2 or higher by Moody's; or, if unrated, are in the Manager's opinion comparable in quality. Securities that are rated BBB, A-2 or SP-2 by S&P, BBB or F-2 by Fitch or Baa or P-2 by Moody's are investment grade (for a description of these rating categories, see Appendix A). These securities may have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher-rated securities. Bonds with investment grade ratings at time of purchase may be retained, at the Manager's discretion, in the event of a rating reduction.
With respect to the Emerging Markets Portfolio, fixed-income securities include obligations of the U.S. or foreign governments and their political subdivisions; obligations of agencies and instrumentalities of the U.S. Government; and bonds, debentures, notes, commercial paper, bank certificates of deposit, repurchase agreements and other similar corporate debt instruments of U.S. or foreign issuers. Most fixed-income instruments of emerging market companies and countries are rated below investment grade or are unrated but equivalent to those rated below investment grade by internationally recognized rating agencies such as Standard & Poor's, Fitch and Moody's. Securities that are rated BBB, A-2, or SP-2 by S&P, BBB or F-2 by Fitch or Baa or P-2 by Moody's are investment grade (for a description of these ratings categories, see the Appendix). The Portfolio will generally invest less than 35% of its total assets in fixed-income securities. Securities rated in the medium--to lower-rating categories of nationally recognized statistical rating organizations and unrated securities of comparable quality are predominantly speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of the security and generally involve a greater volatility of price than securities in higher rating categories. The Portfolio does not intend to purchase debt securities that are in default.
CURRENCY TRANSACTIONS. The Non-U.S. Stock Portfolios and the Overlay Portfolios may invest in non-U.S. Dollar securities on a currency hedged or un-hedged basis. The Manager may actively manage a Portfolio's currency exposures and may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps and options. The Manager may enter into foreign currency transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by a Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Manager believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolios may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate then prevailing in the currency exchange market for buying and selling currencies). See below for a further discussion of the foreign currency transactions in which the Portfolios may engage.
The Overlay Portfolios may invest in equity securities of established domestic and foreign companies, including securities of both large and small emerging market companies. All Portfolios may obtain equity exposure either by investing directly in equity securities or through derivatives.
Investing in securities of companies in emerging market countries entails greater risks than investing in securities in developed markets. The risks include but are not limited to the following:
Some emerging market countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Non-U.S. Stock Portfolios and Overlay Portfolios. For example, certain emerging market countries may require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in the country, or limit the investment by foreign persons to only specific classes of securities of a company which may have less advantageous terms (including price) than securities of the company available for purchase by nationals. Certain emerging market countries may restrict investment opportunities in issuers or industries deemed important to national interests. The manner in which foreign investors may invest in companies in these emerging market countries, as well as limitations on such investments, may have an adverse impact on the operations of a Portfolio.
Security settlement and clearance procedures in some emerging market countries may not fully protect the Non-U.S. Stock Portfolios and Overlay Portfolios against loss or theft of its assets. By way of example and without limitation, a Portfolio could suffer losses in the event of a fraudulent or otherwise deficient security settlement, or theft or default by a broker, dealer, or other intermediary. The existence of overburdened infrastructure and obsolete financial systems exacerbates the risks in certain emerging market countries.
Brokerage commissions, custodial services, and other costs relating to investment in emerging market countries are generally more expensive than in the United States. For example, one securities broker may represent all or a significant part of the trading volume in a particular country, resulting in higher trading costs and decreased liquidity due to a lack of alternative trading partners. Emerging markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of a Portfolio are uninvested and no return is earned thereon. The inability of the Portfolio to make intended security purchases due to settlement problems could cause the Portfolio to miss attractive investment opportunities. Inability to dispose of Portfolio securities due to settlement problems could result either in losses to the Portfolio due to subsequent declines in value of the Portfolio security or, if the Portfolio has entered into a contract to sell the security, could result in possible liability to the purchaser.
In emerging market countries, there is generally less government supervision and regulation of business and industry practices, stock exchanges, brokers, issuers and listed companies than in the U.S., and capital requirements for brokerage firms are generally lower. There may also be a lower level of monitoring of activities of investors in emerging securities markets, and enforcement of existing regulations may be limited or inconsistent. The prices at which a Portfolio may acquire investments may be affected by trading by persons with material non-public information and by securities transactions by brokers in anticipation of transactions by a Portfolio in particular securities.
The sophisticated legal systems necessary for the proper and efficient functioning of modern capital markets have yet to be developed in most emerging market countries, although many of these countries have made significant strides in this area in the past few years. A high degree of legal uncertainty may therefore exist as to the nature and extent of investors' rights and the ability to enforce those rights in the courts. Many advanced legal concepts which now form significant elements of mature legal systems are not yet in place or, if they are in place, have yet to be tested in the courts. It is difficult to predict with any degree of certainty the outcome of judicial proceedings (often because the judges themselves have little or no experience with complex business transactions), or even the measure of damages which may be awarded following a successful claim.
Many of the foreign securities held by a Portfolio will not be registered with the U.S. Securities and Exchange Commission ("SEC"), nor will the issuers thereof be subject to SEC or other U.S. reporting requirements. Accordingly, there will generally be less publicly available information concerning foreign issuers of securities held by a Portfolio than will be available concerning U.S. companies. Foreign companies, and in particular companies in emerging markets countries, are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory requirements comparable to those applicable to U.S. companies.
Much emerging market debt is rated below investment-grade, or unrated but comparable to that rated below investment-grade by internationally recognized rating agencies such as S&P, Fitch or Moody's. Securities that are rated BBB, A-2 or SP-2 by S&P, BBB or F-2 by Fitch or Baa or P-2 by Moody's are investment grade (for a description of these rating categories, see the Appendix). Lower-quality debt securities, also known as "junk bonds," are often considered to be speculative and involve greater risk of default or price change due to changes in the issuer's creditworthiness. The market prices of these securities may fluctuate more than those of higher quality securities and may decline significantly in periods of general economic difficulty, which may follow periods of rising interest rates. Securities in the lowest quality category may present the risk of default, or may be in default.
While the Manager may refer to ratings issued by internationally recognized rating agencies, when available, the Manager may choose to rely upon, or to supplement such ratings with, its own independent and ongoing review of credit quality. A Portfolio's achievement of its investment objective may, to the extent of its investment in medium- to lower-rated bonds, be more dependent upon the Manager's credit analysis than would be the case if the Portfolio were to invest in higher quality bonds.
The secondary market on which medium- to lower-rated bonds are traded may be less liquid than the market for higher grade bonds. Less liquidity in the secondary trading market could adversely affect the price at which a Portfolio could sell medium- to lower-rated bonds and could cause large fluctuations in the daily NAV of the Portfolio's shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of medium- to lower-rated bonds, especially in a thinly traded market. When secondary markets for medium- to lower-rated securities are less liquid than markets for higher grade securities, it may be more difficult to value the securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation because there is less reliable, objective data available. Furthermore, prices for medium- to lower-rated bonds may be affected by legislative and regulatory developments.
Investments in emerging market countries involve exposure to a greater
degree of risk due to increased political and economic instability. Instability
may result from, among other factors: (i) authoritarian governments or military
involvement in political and economic decision-making, including changes in
government through extra-constitutional means; (ii) popular unrest associated
with demands for improved political, economic and social conditions;
(iii) internal insurgencies; (iv) hostile relations with neighboring countries;
(v) ethnic, religious and racial disaffection; and (vi) changes in trading
status.
Certain emerging market countries have histories of instability and upheaval with respect to their internal policies that could cause their governments to act in a detrimental or hostile manner toward private enterprise or foreign investment. Such actions - for example, nationalizing a company or industry, expropriating assets, or imposing punitive taxes - could have a severe effect on security prices and impair the International Portfolios' or Emerging Markets Portfolio's ability to repatriate capital or income. The possibility exists that economic development in certain emerging market countries may be suddenly slowed or reversed by unanticipated political or social events in those countries, and that economic, political and social instability in some countries could disrupt the financial markets in which the Non-U.S. Stock Portfolios and Overlay Portfolios invest and adversely affect the value of the Portfolios' assets.
The foregoing is not intended to be exhaustive and there may be other risk factors to take into account in relation to a particular investment. In addition, investors should be aware that the Non-U.S. Stock Portfolios and Overlay Portfolios may invest in foreign countries or in companies in which foreign investors, including the Manager, have had no or limited prior experience. Investors should also note that a feature of emerging markets is that they are subject to rapid change and the information set out above may become outdated relatively quickly.
Since the International Portfolios and the Emerging Markets Portfolio invest primarily in equity securities, each Portfolio, like any equity portfolio, is vulnerable to market risk--the possibility that stock prices in general will decline over short or even extended periods. Moreover, each Portfolio's composition is likely to differ from that of broad market indexes, and its performance should not
be expected to mirror the returns provided by a specific index. Equity securities are suited to investors who are willing to hold their investment over a long horizon.
The securities markets in many emerging market countries are substantially smaller, less developed, less liquid and more volatile than the securities markets of developed countries. In addition, to take advantage of potential value opportunities, the International Portfolios and Emerging Markets Portfolio may invest in relatively small companies. Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, both because the securities are typically traded in lower volume and because the companies are subject to greater business risk.
In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of the International Portfolios, Emerging Markets Portfolio and Overlay Portfolios. Moreover, some emerging market securities and developed market securities may be listed on foreign exchanges that are open on days (such as U.S. holidays and Saturdays) when the Portfolios do not calculate net asset value ("NAV"). As a result, the NAV of the Portfolios may be significantly affected by trading on days when shareholders cannot make transactions.
See "Foreign Currency Transactions" below for a description of currency risk.
Other risks and considerations of international investing include the availability of less public information with respect to issuers of securities; less governmental supervision of brokers and issuers of securities; lack of uniform accounting, auditing and financial reporting standards; a generally lower degree of market volume and liquidity than that available in U.S. markets, which may result in greater price volatility; settlement practices that may include delays and otherwise differ from those in U.S. markets; the possibility of expropriation or confiscatory taxation; the imposition of foreign taxes; and possible political instability in some countries, which could affect U.S. investment in these countries. Investments in foreign securities will also result in generally higher expenses due to the costs of currency exchange; payment of fixed brokerage commissions in certain foreign markets, which generally are higher than commissions on U.S. exchanges; and the expense of maintaining securities with foreign custodians.
INVESTMENT RESTRICTIONS
All of the Portfolios are subject to fundamental investment restrictions. The fundamental restrictions applicable to any one of the Portfolios may not be changed without the approval of the holders of at least a majority of the outstanding securities of that Portfolio, voting separately from any other series of the Fund. "A majority of the outstanding securities" of a Portfolio means the lesser of (i) 67% or more of the shares represented at a meeting at which more than 50% of the outstanding shares are present in person or represented by proxy or (ii) more than 50% of the outstanding shares. A vote by the shareholders of a single Portfolio to modify or eliminate one or more of the restrictions has no effect on the restrictions as applied to the other Portfolios. All percentage limitations expressed in the following investment restrictions are measured immediately after the relevant transaction is made.
None of the Short Duration California Municipal Portfolio, the Short Duration Diversified Municipal Portfolio or the Short Duration New York Municipal Portfolio may, except as otherwise provided herein:
1) Purchase securities on margin, but the Portfolio may obtain such short-term credits as may be necessary for the clearance of transactions;
2) Make short sales of securities or maintain a short position, unless at all times when a short position is open the Portfolio owns or has the right to obtain at no added cost securities identical to those sold short;
3) Borrow money including pursuant to reverse repurchase agreements except that the Portfolio may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed 33 1/3% of the Portfolio's total assets by reason of a decline in net assets will be reduced within three days (not including Saturdays, Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation. The Portfolio may not enter into reverse repurchase agreements if the Portfolio's obligations thereunder would be in excess of one-third of the Portfolio's total assets, less liabilities other than obligations under such reverse repurchase agreements;
4) Issue senior securities, except as permitted under the 1940 Act;
5) Purchase or sell commodities or commodity contracts, except financial futures and currency futures and options thereon;
6) Purchase or sell real estate or interests in real estate, although the Portfolio may purchase and sell securities which are secured by real estate, and securities of companies which invest and deal in real estate;
7) Purchase oil, gas or other mineral interests;
8) Make loans although the Portfolio may (i) purchase fixed-income securities and enter into repurchase agreements, or (ii) lend portfolio securities provided that no more than 33 1/3% of the Portfolio's total assets will be lent to other parties;
9) Act as an underwriter, except to the extent that, in connection with the disposition of certain portfolio securities, it may be deemed to be an underwriter under certain federal securities laws;
10)Purchase any security if, as a result, more than 25% of the Portfolio's total assets (taken at current value) would be invested in a single industry. (For purposes of this restriction, assets invested in obligations issued or guaranteed by the U.S. Government and its agencies or instrumentalities or tax-exempt securities issued by governments or political subdivisions of states, possessions or territories of the U.S. are not considered to be invested in any industry);
11)Invest more than 5% of its total assets in the securities of any one issuer if as a result of the purchase less than 75% of the Portfolio's total assets is represented by cash and cash items (including receivables), Government securities, securities of other investment companies, and other securities for the purposes of this calculation limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of the Portfolio determined at the time of investment and to not more than 10% of the outstanding voting securities of such issuer. This restriction does not apply to the Short Duration California Municipal Portfolio and the Short Duration New York Municipal Portfolio;
12)Make investments for the purpose of exercising control or management; or
13)Invest, under normal circumstances, less than 80% of its net assets in Municipal Securities. The Short Duration California Municipal Portfolio and the Short Duration New York Municipal Portfolio may not invest, under normal circumstances, less than 80% of each of its net assets in a portfolio of Municipal Securities issued by the named state or its political subdivisions, or otherwise exempt from the named state's income tax.
The following investment limitations are not fundamental, and may be changed without shareholder approval. None of the Short Duration Municipal Portfolios has or currently intends to:
1) Issue senior securities, borrow money or pledge its assets except to the extent that forward commitments and securities loans may be considered loans and except that the Portfolio may borrow from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its total assets (not including the amount borrowed) and pledge its assets to secure such borrowings. The Portfolio does not intend to purchase a security while borrowings exceed 5% of its total assets;
2) Purchase any security if, as a result, the Portfolio would then have more than 15% of its net assets (at current value) invested in securities restricted as to disposition under federal securities laws (excluding restricted securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended ("144A securities") that have been determined to be liquid under procedures adopted by the Board of Directors based on the trading market for the security) or otherwise illiquid or not readily marketable, including repurchase agreements with maturities of more than 7 days;
3) Invest in securities of other investment companies except in the open market where no commission other than the ordinary broker's commission is paid or except when the purchase is part of a plan of merger, consolidation, reorganization or acquisition; any such purchase will be in compliance with the 1940 Act;
4) Invest in any securities of any issuer if, to the knowledge of the Fund, any officer or director of the Fund or of the Manager owns more than 1/2 of 1% of the securities of the issuer, and such officers or directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer; or
5) Invest in a reverse repurchase agreement if the amount received by the Portfolio through such an agreement, together with all other borrowings, will exceed 5% of the Portfolio's total assets.
None of the U.S. Government Short Duration Portfolio, the Short Duration Plus Portfolio, the New York Municipal Portfolio, the Diversified Municipal Portfolio, the California Municipal Portfolio, or the Intermediate Duration Portfolio, will, except as otherwise provided herein:
1) Purchase securities on margin, but any Portfolio may obtain such short-term credits as may be necessary for the clearance of transactions;
2) Make short sales of securities or maintain a short position;
3) Issue senior securities, borrow money or pledge its assets except to the extent that forward commitments and reverse repurchase agreements may be considered senior securities or loans and except that any Portfolio may borrow from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its total assets (not including the amount borrowed) and pledge its assets to secure such borrowings. A Portfolio may not purchase a security while borrowings (other than forward commitments and reverse repurchase agreements which may be considered loans) exceed 5% of its total assets. A Portfolio may not enter into reverse repurchase agreements if the Portfolio's obligations thereunder would be in excess of one-third of the Portfolio's total assets, less liabilities other than obligations under such reverse repurchase agreements;
4) Purchase or sell commodities or commodity contracts, except financial futures and options thereon;
5) Purchase or sell real estate or interests in real estate, although each Portfolio may purchase and sell securities which are secured by real estate, and securities of companies which invest and deal in real estate;
6) Purchase oil, gas or other mineral interests;
7) Lend money, except to the extent that repurchase agreements or the purchase of fixed-income securities may be considered loans of money or loan participations;
8) Lend securities if, as a result, the total current value of the loaned securities is equal to more than 30% of the Portfolio's total assets;
9) Act as an underwriter, except to the extent that, in connection with the disposition of certain portfolio securities, it may be deemed to be an underwriter under certain federal securities laws;
10)Invest in any securities of any issuer if, to the knowledge of the Fund, any officer or director of the Fund or of the Manager owns more than 1/2 of 1% of the securities of the issuer, and such officers or directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer;
11)Purchase any security if, as a result, more than 25% of the Portfolio's total assets (taken at current value) would be invested in a single industry. (For purposes of this restriction as applied to all Portfolios but the California Municipal Portfolio, assets invested in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities or securities issued by governments or political subdivisions of governments of states, possessions, or territories of the U.S. are not considered to be invested in any industry. For purposes of this restriction as applied to the California Municipal Portfolio, assets invested in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities or tax-exempt securities issued by governments or political subdivisions of governments of states, possessions, or territories of the U.S. are not considered to be invested in any industry);
12)Invest more than 5% of its total assets in the securities of any one issuer other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities if as a result of the purchase less than 75% of the Portfolio's total assets is represented by cash and cash items (including receivables), Government securities, and other securities for the purposes of this calculation limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of such Portfolio determined at the time of investment. (This restriction does not apply to the New York Municipal Portfolio or the California Municipal Portfolio);
13)Purchase any security if, as a result, it would hold more than 10% of the voting securities of any issuer;
14)Make investments for the purpose of exercising control or management;
15)Invest in securities of other registered investment companies;
16)Purchase warrants if as a result the Fund would then have more than 5% of its total assets (determined at the time of investment) invested in warrants; or
17)With respect to the New York Municipal Portfolio, Diversified Municipal Portfolio and the California Municipal Portfolio, invest, under normal circumstances, less than 80% of its net assets in Municipal Securities. The New York Municipal Portfolio and the California Municipal Portfolio may not invest, under normal circumstances, less than 80% of each of its net assets in a portfolio of Municipal Securities issued by the named state or its political subdivisions, or otherwise exempt from the named state's income tax.
The following investment limitations are not fundamental, and may be changed without shareholder approval. None of the Fixed-Income Portfolios has or currently intends to:
1) Purchase any security if, as a result, the Portfolio would then have more than 15% of its net assets (at current value) invested in securities restricted as to disposition under federal securities laws (excluding restricted securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended ("144A securities") that have been determined to be liquid under procedures adopted by the Board of Directors based on the trading market for the security) or otherwise illiquid or not readily marketable, including repurchase agreements with maturities of more than 7 days; or
2) Invest in a reverse repurchase agreement if the amount received by the Portfolio through such an agreement, together with all other borrowings, will exceed 5% of the Portfolio's total assets.
Neither the Tax-Managed International Portfolio nor the International Portfolio may, except as otherwise provided herein:
1) Purchase securities on margin, but the Portfolio may obtain such short-term credits as may be necessary for the clearance of transactions;
2) Make short sales of securities or maintain a short position, unless at all times when a short position is open the Portfolio owns or has the right to obtain at no added cost securities identical to those sold short;
3) Borrow money except that the Portfolio may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed 33 1/3% of the Portfolio's total assets by reason of a decline in net assets will be reduced within three days (not including Saturdays, Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation. The Portfolio may not enter into reverse repurchase agreements if the Portfolio's obligations thereunder would be in excess of one-third of the Portfolio's total assets, less liabilities other than obligations under such reverse repurchase agreements.
4) Issue senior securities, except as permitted under the 1940 Act;
5) Purchase or sell commodities or commodity contracts, except financial futures and currency futures and options thereon;
6) Purchase or sell real estate or interests in real estate, although the Portfolio may purchase and sell securities which are secured by real estate, and securities of companies which invest and deal in real estate;
7) Purchase oil, gas or other mineral interests;
8) Make loans although the Portfolio may (i) purchase fixed-income securities and enter into repurchase agreements, or (ii) lend portfolio securities provided that no more than 33 1/3% of the Portfolio's total assets will be lent to other parties;
9) Act as an underwriter, except to the extent that, in connection with the disposition of certain portfolio securities, it may be deemed to be an underwriter under certain federal securities laws;
10)Purchase any security if, as a result, more than 25% of the Portfolio's total assets (taken at current value) would be invested in a single industry. (For purposes of this restriction, assets invested in obligations issued or guaranteed by the U.S. Government and its agencies or instrumentalities, are not considered to be invested in any industry);
11)Invest more than 5% of its total assets in the securities of any one issuer if as a result of the purchase less than 75% of the Portfolio's total assets is represented by cash and cash items (including receivables), Government securities, securities of other investment companies, and other securities for the purposes of this calculation limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of the Portfolio determined at the time of investment and to not more than 10% of the outstanding voting securities of such issuer; or
12)Make investments for the purpose of exercising control or management.
The following investment limitations are not fundamental, and may be changed without shareholder approval. Each of the Tax-Managed International Portfolio and the International Portfolio has not and currently does not intend to:
1) Issue senior securities, borrow money or pledge its assets except to the extent that forward commitments and securities loans may be considered loans and except that the Portfolio may borrow from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its total assets (not including the amount borrowed) and pledge its assets to secure such borrowings. The Portfolio does not intend to purchase a security while borrowings exceed 5% of its total assets. The Portfolio will not enter into reverse repurchase agreements and
securities loans if the Portfolio's obligations thereunder would be in excess of one-third of the Portfolio's total assets, less liabilities other than obligations under such reverse repurchase agreements and securities loans;
2) Purchase any security if, as a result, the Portfolio would then have more than 15% of its net assets (at current value) invested in securities restricted as to disposition under federal securities laws (excluding restricted securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended ("144A Securities") that have been determined to be liquid under procedures adopted by the Board of Directors based on the trading market for the security) or otherwise illiquid or not readily marketable, including repurchase agreements with maturities of more than 7 days;
3) Invest in securities of other investment companies except in the open market where no commission other than the ordinary broker's commission is paid or except when the purchase is part of a plan of merger, consolidation, reorganization or acquisition; any such purchase will be in compliance with the 1940 Act; or
4) Invest in any securities of any issuer if, to the knowledge of the Fund, any officer or director of the Fund or of the Manager owns more than 1/2 of 1% of the securities of the issuer, and such officers or directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer.
The Emerging Markets Portfolio may not, except as otherwise provided herein:
1) Purchase securities on margin, but the Portfolio may obtain such short-term credits as may be necessary for the clearance of transactions;
2) Make short sales of securities or maintain a short position, unless at all times when a short position is open the Portfolio owns or has the right to obtain at no added cost securities identical to those sold short;
3) Borrow money except that the Portfolio may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed 33 1/3% of the Portfolio's total assets by reason of a decline in net assets will be reduced within three days (not including Saturdays, Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation. Borrowings, including reverse repurchase agreements, will not exceed 33 1/3%;
4) Issue senior securities, except as permitted under the 1940 Act;
5) Purchase or sell commodities or commodity contracts, except financial futures and currency futures and options thereon;
6) Purchase or sell real estate or interests in real estate, although the Portfolio may purchase and sell securities which are secured by real estate, and securities of companies which invest and deal in real estate;
7) Purchase oil, gas or other mineral interests;
8) Make loans although the Portfolio may (i) purchase fixed-income securities and enter into repurchase agreements, or (ii) lend portfolio securities provided that no more than 33 1/3% of the Portfolio's total assets will be lent to other parties;
9) Act as an underwriter, except to the extent that, in connection with the disposition of certain portfolio securities, it may be deemed to be an underwriter under certain federal securities laws;
10)Purchase any security if, as a result, more than 25% of the Portfolio's total assets (taken at current value) would be invested in a single industry. (For purposes of this restriction, assets invested in obligations issued or guaranteed by the U.S. Government and its agencies or instrumentalities, are not considered to be invested in any industry);
11)Invest more than 5% of its total assets in the securities of any one issuer if as a result of the purchase less than 75% of the Portfolio's total assets is represented by cash and cash items (including receivables), Government securities, securities of other investment companies, and other securities for the purposes of this calculation limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of the Portfolio determined at the time of investment and to not more than 10% of the outstanding voting securities of such issuer; or
12)Make investments for the purpose of exercising control or management.
The following investment limitations are not fundamental, and may be changed without shareholder approval. The Emerging Markets Portfolio currently does not intend to:
1) Issue senior securities, borrow money or pledge its assets except to the extent that forward commitments and securities loans may be considered loans and except that the Portfolio may borrow from a bank for temporary or emergency
purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its total assets (not including the amount borrowed) and pledge its assets to secure such borrowings. The Portfolio does not intend to purchase a security while borrowings exceed 5% of its total assets. The Portfolio will not enter into reverse repurchase agreements and securities loans if the Portfolio's obligations thereunder would be in excess of one-third of the Portfolio's total assets, less liabilities other than obligations under such reverse repurchase agreements and securities loans;
2) Purchase any security if, as a result, the Portfolio would then have more than 15% of its net assets (at current value) invested in securities restricted as to disposition under federal securities laws (excluding restricted securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended ("144A Securities") that have been determined to be liquid under procedures adopted by the Board of Directors based on the trading market for the security) or otherwise illiquid or not readily marketable, including repurchase agreements with maturities of more than 7 days;
3) Invest in securities of other investment companies except in the open market where no commission other than the ordinary broker's commission is paid or except when the purchase is part of a plan of merger, consolidation, reorganization or acquisition; any such purchase will be in compliance with the 1940 Act; or
4) Invest in any securities of any issuer if, to the knowledge of the Fund, any officer or director of the Fund or if the Manager owns more than 1/2 of 1% of the securities of the issuer, and such officers or directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer.
As a matter of fundamental policy, each Portfolio may not:
1) concentrate investments in an industry, as concentration may be defined under the 1940 Act or the rules and regulations thereunder (as such statute, rules or regulations may be amended from time to time) or by guidance regarding, interpretations of, or exemptive orders under, the 1940 Act or the rules or regulations thereunder published by appropriate regulatory authorities;
2) issue any senior security (as that term is defined in the 1940 Act) or borrow money, except to the extent permitted by the 1940 Act or the rules and regulations thereunder (as such statute, rules or regulations may be amended from time to time) or by guidance regarding, or interpretations of, or exemptive orders under, the 1940 Act or the rules or regulations. For purposes of this restriction, margin and collateral arrangements, including, for example, with respect to permitted borrowings, options, futures contracts, options on futures contracts and other derivatives such as swaps are not deemed to involve the issuance of a senior security;
3) make loans except through (i) the purchase of debt obligations in
accordance with its investment objective and policies; (ii) the lending
of portfolio securities; (iii) the use of repurchase agreements; or
(iv) the making of loans to affiliated funds as permitted under the 1940
Act, the rules and regulations thereunder (as such statutes, rules or
regulations may be amended from time to time), or by guidance regarding,
and interpretations of, or exemptive orders under, the 1940 Act;
4) purchase or sell real estate except that it may dispose of real estate acquired as a result of the ownership of securities or other instruments. This restriction does not prohibit the Portfolio from investing in securities or other instruments backed by real estate or in securities of companies engaged in the real estate business;
5) purchase or sell commodities regulated by the Commodity Futures Trading Commission under the Commodity Exchange Act or commodities contracts except for futures contracts and options on futures contracts; or
6) act as an underwriter of securities, except that the Portfolio may acquire restricted securities under circumstances in which, if such securities were sold, the Fund might be deemed to be an underwriter for purposes of the Securities Act.
As a fundamental policy, the Portfolios are diversified (as that term is defined in the 1940 Act). This means that at least 75% of the Portfolios' assets consist of:
. Cash or cash items;
. Government securities;
. Securities of other investment companies; and
. Securities of any one issuer that represent not more than 10% of the outstanding voting securities of the issuer of the securities and not more than 5% of the total assets of the Fund.
With respect to any Portfolio of the Fund, for purposes of determining the amount of portfolio securities that may be lent by the Portfolio to other parties in accordance with the investment restrictions set forth above, "total assets" of the Portfolio shall be determined in accordance with SEC interpretations issued from time to time.
INVESTMENTS
Each Overlay Portfolio may invest in a diversified portfolio of securities and other financial instruments, including derivative instruments ("Derivatives"), that provide investment exposure to a variety of asset classes. These asset classes may include: fixed income instruments and equity securities of issuers located within and outside the United States, high yield securities, currencies and commodities. By dynamically allocating investment exposure among various asset classes in the Overlay Portfolios, the Manager will seek to moderate the volatility of diversified client portfolios managed by Bernstein that reflect a significant allocation to municipal securities. The Overlay Portfolios' asset class exposures may be implemented and adjusted either through transactions in individual securities or through Derivatives.
Subject to each Portfolio's investment policies, each Fixed-Income Portfolio
may be primarily invested in, and each Overlay Portfolio may invest in, debt
securities, including, but not limited to: (i) obligations issued or guaranteed
as to principal and interest by the U.S. Government or the agencies or
instrumentalities thereof; (ii) obligations of Supranational Agencies;
(iii) straight and convertible corporate bonds and notes; (iv) loan
participations; (v) commercial paper; (vi) obligations (including certificates
of deposit, time deposits and bankers' acceptances) of thrifts and banks;
(vii) mortgage-related securities; (viii) asset-backed securities;
(ix) Municipal Securities, or other securities issued by state and local
government agencies, the income on which may or may not be tax-exempt;
(x) guaranteed investment contracts and bank investment contracts;
(xi) variable and floating rate securities; (xii) private placements;
(xiii) preferred stock; and (xiv) in the case of the Intermediate Duration,
Short Duration Plus and Overlay Portfolios, foreign securities. From time to
time, additional fixed-income securities are developed. They will be considered
for purchase by the Portfolios. The International Portfolios and the Emerging
Markets Portfolio will invest primarily in foreign equity securities, but may,
under some circumstances invest in fixed-income securities. The Overlay
Portfolios may obtain equity exposure by investing in common stocks, preferred
stocks, warrants and convertible securities of U.S. and foreign issuers,
including sponsored or unsponsored American Depositary Receipts ("ADRs"),
Global Depositary Receipts ("GDRs") and Derivatives. Of course, the extent to
which each of the Portfolios emphasizes each of the categories of investment
described depends upon the investment objectives and restrictions of that
Portfolio. Some information regarding some of these types of investments is
provided below. The following information about the Portfolios' investment
policies and practices supplements the information set forth in the Prospectus.
Mortgage loans made on residential or commercial property by banks, savings and loan institutions and other lenders are often assembled into pools, and interests in the pools are sold to investors. Interests in such pools are referred to in this SAI as "mortgage-related securities." Payments of mortgage-related securities are backed by the property mortgaged. In addition, some mortgage-related securities are guaranteed as to payment of principal and interest by an agency or instrumentality of the U.S. Government. In the case of mortgage-related and asset-backed securities that are not backed by the United States Government or one of its agencies, a loss could be incurred if the collateral backing these securities is insufficient.
One type of mortgage-related security is a Government National Mortgage Association ("GNMA") Certificate. GNMA Certificates are backed as to principal and interest by the full faith and credit of the U.S. Government. Another type is a Federal National Mortgage Association ("FNMA") Certificate. Principal and interest payments of FNMA Certificates are guaranteed only by FNMA itself, not by the full faith and credit of the U.S. Government. A third type of mortgage-related security in which one or more of the Portfolios might invest is a Federal Home Loan Mortgage Corporation ("FHLMC") Participation Certificate. This type of security is backed by FHLMC as to payment of principal and interest but, like a FNMA security, it is not backed by the full faith and credit of the U.S. Government.
On September 7, 2008, due to the value of FHLMC's and FNMA's securities falling sharply and concerns that the firms did not have sufficient capital to offset losses resulting from the mortgage crisis, the Federal Housing Finance Agency placed FHLMC and FNMA into conservatorship. The U.S. Government also took steps to provide additional financial support to FHLMC and FNMA. Although the U.S. Government or its agencies currently provide financial support to such entities, no assurance can be given that they will always do so.
The Portfolios may also invest in both residential and commercial mortgage pools originated by investment banking firms and builders. Rather than being guaranteed by an agency or instrumentality of the U.S. Government, these pools are usually backed by subordinated interests or mortgage insurance. The Manager of the Portfolios will take such insurance into account in determining whether to invest in such pools.
The Portfolios may invest in Real Estate Mortgage Investment Conduits ("REMICs") and collateralized mortgage obligations ("CMOs"). REMICs include governmental and/or private entities that issue a fixed pool of mortgages secured by an interest in real property, and CMOs are debt obligations collateralized by mortgage loans or mortgage pass-through securities.
Since the borrower is typically obligated to make monthly payments of principal and interest, most mortgage-related securities pass these payments through to the holder after deduction of a servicing fee. However, other payment arrangements are possible.
Payments may be made to the holder on a different schedule than that on which payments are received from the borrower, including, but not limited to, weekly, biweekly and semiannually.
Furthermore, the monthly principal and interest payments are not always passed through to the holder on a pro rata basis. In the case of REMICs and CMOs, the pool is divided into two or more tranches, and special rules for the disbursement of principal and interest payments are established. The Fixed-Income Portfolios and Overlay Portfolios may invest in debt obligations that are REMICs or CMOs; provided that in the case of the Fixed-Income Portfolios, other than the Short Duration Municipal Portfolios, and the Overlay Portfolios, the entity issuing the REMIC or CMO is not a registered investment company.
In another version of mortgage-related securities, all interest payments go to one class of holders--"Interest Only" or "IO"--and all of the principal goes to a second class of holders--"Principal Only" or "PO." The market values of both IOs and POs are sensitive to prepayment rates; the value of POs varies directly with prepayment rates, while the value of IOs varies inversely with prepayment rates. If prepayment rates are high, investors may actually receive less cash from the IO than was initially invested. IOs and POs issued by the U.S. Government or its agencies and instrumentalities that are backed by fixed rate mortgages may be considered liquid securities under guidelines established by the Board; all other IOs and POs will be considered illiquid.
Payments to the Portfolios from mortgage-related securities generally represent both principal and interest. Although the underlying mortgage loans are for specified periods of time, such as 15 or 30 years, borrowers can, and often do, pay them off sooner. Thus, the Portfolios generally receive prepayments of principal in addition to the principal that is part of the regular monthly payments.
A borrower is more likely to prepay a mortgage that bears a relatively high rate of interest. Thus, the value of the securities may not increase as much as other debt securities when interest rates fall. However, when interest rates rise, the rate of prepayments may slow and the value of the mortgage-related and asset-backed securities may decrease like other debt securities. The Portfolios normally do not distribute principal payments (whether regular or prepaid) to their shareholders. Rather, they invest such payments in additional securities, which may not be mortgage-related. Interest received by the Portfolios is, however, reflected in dividends to shareholders.
The Portfolios may purchase securities backed by financial assets such as loans or leases for various assets including automobiles, recreational vehicles, computers and receivables on pools of consumer debt, most commonly credit cards. Two examples of such asset-backed securities are CARS and CARDS. CARS are securities, representing either ownership interests in fixed pools of automobile receivables, or debt instruments supported by the cash flows from such a pool. CARDS are participations in revolving pools of credit-card accounts. These securities have varying terms and degrees of liquidity. Asset-backed securities may be pass-through, representing actual equity ownership of the underlying assets, or pay-through, representing debt instruments supported by cash flows from the underlying assets. Pay-through asset-backed securities may pay all interest and principal to the holder, or they may pay a fixed rate of interest, with any excess over that required to pay interest going either into a reserve account or to a subordinate class of securities, which may be retained by the originator. Credit enhancement of asset-backed securities may take a variety of forms, including but not limited to overcollateralizing the securities, subordinating other tranches of an asset-backed issue to the securities, or by maintaining a reserve account for payment of the securities. In addition, part or all of the principal and/or interest payments on the securities may be guaranteed by the originator or a third-party insurer. The Manager takes all relevant credit enhancements into account in making investment decisions on behalf of the Portfolios.
In the case of securities backed by automobile receivables, the issuers of such securities typically file financing statements, and the servicers of such obligations take custody of such obligations. Therefore, if the servicers, in contravention of their duty, were to sell such obligations, the third-party purchasers would possibly acquire an interest superior to the holder of the securitized assets. Also, most states require that a security interest in a vehicle be noted on the certificate of title, and the certificate of title may not be amended to reflect the assignment of the seller's security interest. Therefore, the recovery of the collateral in some cases may not be available to support payments on the securities. In the case of credit-card receivables, both federal and state consumer protection laws may allow setoffs against certain amounts owed against balances of the credit cards.
Municipal Securities are debt obligations issued by or on behalf of the states, territories or possessions of the United States, or their political subdivisions, agencies or instrumentalities, the District of Columbia or Puerto Rico, where the interest from such securities is, according to the information reasonably available to the Manager, in the opinion of bond counsel at the time of issuance, exempt from federal income tax. Although the Portfolios may invest, from time to time, in securities issued by or on behalf of states, territories or possessions of the United States or their political subdivisions, agencies or instrumentalities, the District of Columbia or Puerto Rico, where the interest from such securities is not exempt from federal income tax, these securities will not be considered
Municipal Securities for the purpose of determining the portions of the Municipal Portfolios' and Overlay Portfolios' assets that are invested in Municipal Securities. The credit quality of private activity bonds are tied to the credit standing of related corporate issuers.
Municipal Securities include "private activity bonds" such as industrial revenue bonds, the interest income from which is subject to the alternative minimum tax.
The two principal classifications of Municipal Securities are general obligation and revenue or special obligation securities. General obligation securities are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. The term "issuer" means the agency, authority, instrumentality or other political subdivision, the assets and revenues of which are available for the payment of the principal and interest on the securities. Revenue or special obligation securities are payable only from the revenue derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special tax or other specific revenue source and generally are not payable from the unrestricted revenues of the issuer. Some Municipal Securities are municipal lease obligations. Lease obligations usually do not constitute general obligations of the municipality for which the municipality taxing power is pledged, although the lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make payments in future years unless money is appropriated for such purpose on a yearly basis. Pursuant to procedures established by the Board, the Manager will be responsible for determining the credit quality of unrated municipal lease obligations on an ongoing basis, including assessment of the likelihood that the lease will not be canceled. Some municipal lease obligations may be illiquid. Municipal Securities include certain asset-backed certificates representing interests in trusts that include pools of installment payment agreements, leases, or other debt obligations of state or local governmental entities. Some Municipal Securities are covered by insurance or other credit enhancements procured by the issuer or underwriter guaranteeing timely payment of principal and interest.
Yields on Municipal Securities are dependent on a variety of factors, including the general conditions of the Municipal Securities market, the size of a particular offering, the maturity of the obligation and the rating of the issue. An increase in interest rates generally will reduce the market value of portfolio investments, and a decline in interest rates generally will increase the value of portfolio investments. Municipal Securities with longer maturities tend to produce higher yields and are generally subject to greater price movements than obligations with shorter maturities. The achievement of the Portfolios' investment objectives depends in part on the continuing ability of the issuers of Municipal Securities in which the Portfolios invest to meet their obligations for the payment of principal and interest when due. Municipal Securities historically have not been subject to registration with the SEC, although from time to time there have been proposals which would require registration in the future.
After purchase by a Portfolio, a Municipal Security may cease to be rated or its rating may be reduced below the minimum required for purchase by such Portfolio. Neither event requires sales of such security by such Portfolio, but the Manager will consider such event in its determination of whether such Portfolio should continue to hold the security. To the extent that the ratings given by Moody's, S&P or Fitch may change as a result of changes in such organizations or their rating systems, the Manager will attempt to use such changed ratings in a manner consistent with the Fund's quality criteria as described in the Prospectus for each of its Portfolios.
Obligations of issuers of Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislatures, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the ability of any issuer to pay, when due, the principal or the interest on its municipal bonds may be materially affected.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. It can be expected that similar proposals may be introduced in the future. If such a proposal were enacted, the availability of Municipal Securities for investment by a Portfolio and the value of the Portfolios would be affected. Additionally, the Portfolios' investment objectives and policies would be reevaluated.
The Portfolios may invest in privately placed securities that, in the absence of an exemption, would be required to be registered under the Securities Act of 1933, as amended (the "1933 Act") so as to permit their sale to the public ("restricted securities"). Restricted securities may be sold only in privately negotiated transactions. These securities, excluding restricted securities eligible for resale pursuant to Rule 144A under the 1933 Act that have been determined to be liquid in the trading market for the security under procedures adopted by the Board, are considered to be illiquid. The Board is responsible for monitoring the application of the procedures on the liquidity of Rule 144A securities in the Portfolios.
Where registration of restricted securities is required, the Portfolios may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Portfolio may be permitted to
sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Portfolio might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value pursuant to policies approved by the Board.
The SEC has adopted Rule 144A to facilitate resales of restricted securities in the U.S. by "qualified institutional buyers," including the Portfolios. Provided that a dealer or institutional trading market in such securities exists, these restricted securities are treated as exempt from the Portfolios' limit on investments in illiquid securities. If institutional trading in restricted securities were to decline to limited levels, the liquidity of the Portfolios' securities could be adversely affected.
The Short Duration Plus Portfolio, the Intermediate Duration Portfolio and the Overlay Portfolios may invest in fixed and floating rate loans ("Loans") arranged through private negotiations between borrowers and one or more financial institutions ("Lenders"). Such loans are often referred to as bank loan debt. A Portfolio's investments in Loans are expected in most instances to be in the form of participations in Loans ("Participations") and assignments of all or a portion of Loans ("Assignments") from third parties. A Portfolio's investment in Participations typically will result in the Portfolio having a contractual relationship only with the Lender and not with the borrower. A Portfolio will have the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, a Portfolio generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and the Portfolio may not directly benefit from any collateral supporting the Loan in which it has purchased the Participation. As a result, a Portfolio may be subject to the credit risk of both the borrower and the Lender that is selling the Participation. In the event of the insolvency of the Lender selling a Participation, the Portfolio may be treated as a general creditor of the Lender and may not benefit from any set-off between the Lender and the borrower. Certain Participations may be structured in a manner designed to avoid purchasers of Participations being subject to the credit risk of the Lender with respect to the Participation; but even under such a structure, in the event of the Lender's insolvency, the Lender's servicing of the Participation may be delayed and the assignability of the Participation impaired. A Portfolio will acquire Participations only if the Lender interpositioned between the Portfolio and the borrower is a Lender having total assets of more than $25 billion and whose senior unsecured debt is rated investment grade (i.e., Baa3 or higher by Moody's or BBB--or higher by S&P or Fitch) or higher.
When a Portfolio purchases Assignments from Lenders it will acquire direct rights against the borrower on the Loan. Because Assignments are arranged through private negotiations between potential assignees and potential assignors, however, the rights and obligations acquired by the Portfolio as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning Lender. The assignability of certain obligations is restricted by the governing documentation as to the nature of the assignee such that the only way in which the Portfolio may acquire an interest in a Loan is through a Participation and not an Assignment. The Portfolio may have difficulty disposing of Assignments and Participations because to do so it will have to assign such securities to a third party. Because there is no liquid market for such securities, the Portfolio anticipates that such securities could be sold only to a limited number of institutional investors. The lack of a liquid secondary market may have an adverse impact on the value of such securities and the Portfolio's ability to dispose of particular Assignments or Participations when necessary to meet the Portfolio's liquidity needs in response to a specific economic event such as a deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for Assignments and Participations also may make it more difficult for the Portfolio to assign a value to these securities for purposes of valuing the Portfolio's portfolio and calculating its asset value.
While the Short Duration Plus Portfolio and the Intermediate Duration Portfolio generally invest in domestic securities, each of these Portfolios and the Overlay Portfolios may also invest in foreign-fixed income securities of the same type and quality as the domestic securities in which it invests when the anticipated performance of the foreign debt securities is believed by the Manager to offer more potential than domestic alternatives in keeping with the investment objectives of the Portfolios. Short Duration Plus Portfolio may invest up to 20% of its total assets in foreign securities, which includes both U.S. Dollar denominated and non-U.S. Dollar denominated securities. Intermediate Duration Portfolio may invest up to 25% of its total assets in non-U.S. Dollar denominated securities and may invest without limit in U.S. Dollar denominated foreign securities. The Short Duration Plus Portfolio, the Intermediate Duration Portfolio and the Overlay Portfolios may invest in foreign fixed-income securities that may involve risks in addition to those normally associated with domestic securities. These risks include currency risks and other risks described under the section "Certain Investment Risks of the Non-U.S. Stock Portfolios," above.
The Portfolios may invest in warrants. Warrants are securities that give a Portfolio the right to purchase securities from the issuer at a specific price (the strike price) for a limited period of time. The strike price of warrants sometimes is much lower than the current market price of the underlying securities, yet they are subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities and may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends, interest payments or voting rights with respect to the underlying securities and do not represent any rights in the assets of the issuing company. Also, the value of the warrant does not necessarily change with the value of the underlying securities, and a warrant ceases to have value if it is not exercised prior to the expiration date. These factors can make warrants more speculative than other types of investments.
The Portfolios may invest in fixed-income obligations (including, but not limited to, time deposits, certificates of deposit and bankers' acceptances) of thrift institutions and commercial banks.
Time deposits are non-negotiable obligations of banks or thrift institutions with specified maturities and interest rates. Time deposits with maturities of more than seven days are considered illiquid securities.
Certificates of deposit are negotiable obligations issued by commercial banks or thrift institutions. Certificates of deposit may bear a fixed rate of interest or a variable rate of interest based upon a specified market rate.
A banker's acceptance is a time draft drawn on a commercial bank, often in connection with the movement, sale or storage of goods.
The Portfolios expect to invest no more than 5% of any Portfolio's net assets in fixed-income investments of non-insured U.S. banks and U.S. thrift institutions. The risks of investments in non-insured banks and thrifts are individually evaluated since non-insured banks and thrifts are not subject to supervision and examination by the Federal Deposit Insurance Corporation ("FDIC") or a similar regulatory authority. The Portfolios limit their purchases to fixed-income obligations issued by insured U.S. banks and U.S. thrift institutions which are rated B or higher by Standard & Poor's, Fitch or Moody's or which are not rated but which are determined by the Manager to be of comparable quality. For investments in non-insured foreign banks, the Intermediate Duration, Short Duration Plus Portfolios and Overlay Portfolios limit their purchases to fixed-income obligations issued by foreign banks with a rating of B or higher by Standard & Poor's, Fitch or Moody's or of securities which are not rated but which are determined by the Manager to be of comparable quality. Although insured banks are subject to supervision and examination by the FDIC, investments in the Portfolios are not insured.
The Portfolios may purchase convertible corporate bonds and preferred stock. These securities may be converted at a stated price (the "conversion price") into underlying shares of preferred or common stock. Convertible debt securities are typically subordinated to non-convertible securities of the same issuer and are usually callable. Convertible bonds and preferred stocks have many characteristics of non-convertible fixed-income securities. For example, the price of convertible securities tends to decline as interest rates increase and increase as interest rates decline. In addition, holders of convertibles usually have a claim on the assets of the issuer prior to the holders of common stock in case of liquidation.
The unusual feature of a convertible security is that changes in its price can be closely related to changes in the market price of the underlying stock. As the market price of the underlying stock falls below the conversion price, the convertible security tends to trade increasingly like a non-convertible bond. As the market price of the underlying common stock rises above the conversion price, the price of the convertible security may rise accordingly.
The equity securities in which the Non-U.S. Stock Portfolios and Overlay Portfolios may invest include common and preferred stocks, warrants and convertible securities. These Portfolios may invest in foreign securities directly or in the form of sponsored or unsponsored American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), or other similar securities convertible into securities of foreign issuers without limitation. ADRs are receipts typically issued by a U.S. bank or trust company that evidence ownership of the underlying securities. GDRs are receipts typically issued by a non-U.S. bank or trust company evidencing a similar arrangement. The issuers of unsponsored ADRs 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 ADR. In some circumstances -- e.g., when a direct investment in securities in a particular country cannot be made -- the Non-U.S. Stock Portfolios and Overlay Portfolios, in compliance with provisions of the 1940 Act, may invest in the securities of investment companies that invest in foreign securities. As a shareholder in a mutual fund, each of these Portfolios will bear its ratable share of the mutual fund's management fees and other expenses, and will remain subject to payment of the Portfolio's management and other fees with respect to assets so invested. Equity securities of non-U.S. issuers may have somewhat different features than those of U.S. equities. To illustrate, the Portfolios may purchase "Savings Shares," which are equity securities which have priority rights (compared with preferred or ordinary common shares) to dividends and on any liquidation of the issuer but which carry no voting rights.
It is anticipated that, from time to time, other securities will be developed, and they will be considered as potential investments for the Portfolios, subject to Board guidelines.
Each Overlay Portfolio intends to use derivatives to achieve its investment objective. All other Portfolios may, but are not required to, use derivatives for risk management purposes or as part of its investment practices. At times, a Portfolio's exposure to derivatives may be significant. Derivatives are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index. These assets, rates, and indices may include bonds, stocks, mortgages, commodities, interest rates, currency exchange rates, bond indices and stock indices.
There are four principal types of derivatives - options, futures, forwards
and swaps. These principal types of derivative instruments, as well as the
methods in which they may be used by a Portfolio are described below.
Derivatives may be (i) standardized, exchange-traded contracts or
(ii) customized, privately-negotiated contracts. Exchange-traded derivatives
tend to be more liquid and subject to less credit risk than those that are
privately negotiated. A Portfolio may use derivatives to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets.
When purchasing a futures contract, a Portfolio will maintain with its custodian (and mark-to-market daily) assets determined to be liquid that when added to the amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract. Alternatively, a Portfolio may "cover" it position by purchasing a put option on the same futures contract with a strike price as high or higher than the price of the contract held by the Portfolio.
When a Portfolio sells a futures contract, the Portfolio will maintain with its custodian (and mark-to-market daily) assets determined to be liquid that are equal to the market value of the futures contract. Alternatively, a Portfolio may "cover" its position by owning the instruments underlying the futures contract or, in the case of an index futures contract, a portfolio with estimated volatility substantially similar to that of the index on which the futures contract is based. In addition, a Portfolio may hold a call option permitting the Portfolio to purchase the same futures contract at a price no higher than the price of the contract written by the Portfolio or at a higher price if an amount equal to the difference is earmarked or segregated with the custodian.
For cash-settled futures contracts, a Portfolio may cover the open position by segregating or "earmarking" liquid assets in an amount equal to the Portfolio's daily mark-to-market (net) obligation (or the Portfolio's net liability), if any, rather than the market value of the futures contract. By doing so, a Portfolio will be able to use these contracts to a greater extent than if the Portfolio were required to segregate or "earmark" asset equal to the full market value of the futures contract.
None of the Fixed Income Portfolios and the Non-U.S. Stock Portfolios will write any option if, immediately thereafter, the aggregate value of the Portfolio's securities subject to outstanding options would exceed 25% of its net assets, except for derivative transactions in respect of foreign currencies.
. MARKET RISK. This is the general risk attendant to all investments that the value of a particular investment will change in a way detrimental to a Portfolio's interest.
. MANAGEMENT RISK. Derivative products are highly specialized instruments that require investment techniques and risk analyses different from those associated with stocks and bonds. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. In particular, the use and complexity of derivatives require the maintenance of adequate controls to monitor the transactions entered into, the ability to assess the risk that a derivative adds to a Portfolio's investment portfolio, and the ability to forecast price, interest rate or currency exchange rate movements correctly.
. CREDIT RISK. This is the risk that a loss may be sustained by a Portfolio as a result of the failure of another party to a derivative (usually referred to as a "counterparty") to comply with the terms of the derivative contract. The credit risk for exchange-traded derivatives is generally less than for privately negotiated derivatives, since the clearinghouse, which is the issuer or counterparty to each exchange-traded derivative, provides a guarantee of performance. This guarantee is supported by a daily payment system (i.e., margin requirements) operated by the clearinghouse in order to reduce overall credit risk. For privately negotiated derivatives, there is no similar clearing agency guarantee. Therefore, a Portfolio considers the creditworthiness of each counterparty to a privately negotiated derivative in evaluating potential credit risk.
. LIQUIDITY RISK. Liquidity risk exists when a particular instrument is difficult to purchase or sell. If a derivative transaction is particularly large or if the relevant market is illiquid (as is the case with many privately negotiated derivatives), it may not be possible to initiate a transaction or liquidate a position at an advantageous price.
. LEVERAGE RISK. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate or index can result in a loss substantially greater than the amount invested in the derivative itself. In the case of swaps, the risk of loss generally is related to a notional principal amount, even if the parties have not made any initial investment. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment.
. RISK OF POTENTIAL GOVERNMENTAL REGULATION OF DERIVATIVES. Recent legislation and regulatory developments will eventually require the clearing and exchange trading of most over-the-counter derivatives investments. It is possible that new government regulation of various types of derivative instruments, including futures and swap agreements, may affect a Portfolio's ability to use such instruments as a part of its investment strategy.
. OTHER RISKS. Other risks in using derivatives include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate perfectly with underlying assets, rates and indices. Many derivatives, in particular privately negotiated derivatives, are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a Portfolio. Derivatives do not always perfectly or even highly correlate or track the value of the assets, rates or indices they are designed to closely track. Consequently, a Portfolio's use of derivatives may not always be an effective means of, and sometimes could be counterproductive to, furthering the Portfolio's investment objective.
investment companies and advisers to registered investment companies to regulation by the CFTC if a Portfolio invests more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps ("CFTC Derivatives") for purposes other than "bona fide hedging," as defined in the rules of the CFTC, or if the Portfolio markets itself as providing investment exposure to such instruments. With respect to each Portfolio except the Overlay Portfolios, to the extent a Portfolio uses CFTC-regulated futures, options and swaps, it intends to do so below such prescribed levels and will not market itself as a "commodity pool" or a vehicle for trading such instruments. Accordingly, each Portfolio (except the Overlay Portfolios) has claimed an exclusion from the definition of the term "commodity pool operator" under the CEA pursuant to Rule 4.5 under the CEA. The Manager is not, therefore, subject to registration or regulation as a "commodity pool operator" under the CEA in respect of each Portfolio (except the Overlay Portfolios). Due to the Overlay Portfolios' potential use of CFTC Derivatives above the prescribed levels, however, each of the Overlay Portfolios will be considered a commodity pool subject to CFTC regulation. Accordingly, the Manager will be required to register as a "commodity pool operator" and will be subject to CFTC regulation with respect to the Overlay Portfolios.
A forward currency exchange contract is an obligation by one party to buy, and the other party to sell, a specific amount of a currency for an agreed-upon price at a future date. A forward currency exchange contract may result in the delivery of the underlying asset upon maturity of the contract in return for the agreed-upon payment. NDFs specify a cash payment upon maturity. NDFs are normally used when the market for physical settlement of the currency is underdeveloped, heavily regulated or highly taxed.
The Short Duration Plus Portfolio, Intermediate Duration Portfolio, Non-U.S. Equity Portfolios and Overlay Portfolios may, for example, enter into forward currency exchange contracts to attempt to minimize the risk to the Portfolio from adverse changes in the relationship between the U.S. Dollar and other currencies. The Portfolios may purchase or sell forward currency exchange contracts for hedging purposes similar to those described below in connection with their transactions in foreign currency futures contracts. The International Portfolios and Overlay Portfolios may also purchase or sell forward currency exchange contracts for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Currency Transactions."
Under certain circumstances, each of the Non-U.S. Equity Portfolios and Overlay Portfolios may commit substantial portions or the entire value of its assets to the consummation of these contracts. The Manager will consider the effect a substantial commitment of assets to forward contracts would have on the investment program of the Portfolio and the flexibility of the Portfolio to purchase additional securities.
If a hedging transaction in forward currency exchange contracts is successful, the decline in the value of portfolio securities or the increase in the cost of securities to be acquired may be offset, at least in part, by profits on the forward currency exchange contract. Nevertheless, by entering into such forward currency exchange contracts, a Portfolio may be required to forgo all or a portion of the benefits which otherwise could have been obtained from favorable movements in exchange rates.
Each of the International Portfolios and Overlay Portfolios may also use forward currency exchange contracts to seek to increase total return when the Manager anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. For example, a Portfolio may enter into a foreign currency exchange contract to purchase a currency if the Manager expects the currency to increase in value. The Portfolio would recognize a gain if the market value of the currency is more than the contract value of the currency at the time of settlement of the contract. Similarly, a Portfolio may enter into a foreign currency exchange contract to sell a currency if the Manager expects the currency to decrease in value. The Portfolio would recognize a gain if the market value of the currency is less than the contract value of the currency at the time of settlement of the contract.
The cost of engaging in forward currency exchange contracts varies with such factors as the currencies involved, the length of the contract period and the market conditions then prevailing. Since transactions in foreign currencies are usually conducted on a principal basis, no fees or commissions are involved. The Portfolios will segregate and mark to market liquid assets in an amount at least equal to a Portfolio's obligations under any forward currency exchange contracts.
A Portfolio may write and purchase call and put options on securities. In purchasing an option on securities, a Portfolio would be in a position to realize a gain if, during the option period, the price of the underlying securities 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 Portfolio would experience a loss not greater than the premium paid for the option. Thus, a Portfolio would realize a loss if the price of the underlying security declined or remained the same (in the case of a call) or increased or remained the same (in the case of a put) or otherwise did not increase (in the case of a put) or decrease (in the case of a call) by more than the amount of the premium. If a put or call option purchased by a Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio.
A Portfolio may purchase call options to hedge against an increase in the price of securities that the Portfolio anticipates purchasing in the future. If such increase occurs, the call option will permit the Portfolio to purchase the securities at the exercise price, or to close out the options at a profit. The premium paid for the call option plus any transaction costs will reduce the benefit, if any, realized by the Portfolio upon exercise of the option, and, unless the price of the underlying security rises sufficiently, the option may expire worthless to the Portfolio and the Portfolio will suffer a loss on the transaction to the extent of the premium paid. Options may also be purchased to alter the effective duration of the Fixed-Income Portfolios.
A Portfolio may write a put or call option in return for a premium, which is retained by the Portfolio whether or not the option is exercised. The Overlay Portfolios may write covered options or uncovered options. The Fixed Income Portfolios and Non-U.S. Stock Portfolios may write (i.e., sell) only covered put and call options (except in respect of currency transactions) on its portfolio securities. These options will generally be sold when the Manager perceives the options to be overpriced. They may also be sold to alter the effective duration of the Fixed-Income Portfolios. A call option written by a Portfolio is "covered" if the Portfolio 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 of the call option it has written. A put option written by a Portfolio is covered if the Portfolio holds a put option on the underlying securities with an exercise price equal to or greater than of the put option it has written. Uncovered options or "naked options" are riskier than covered options. For example, if a Portfolio wrote a naked call option and the price of the underlying security increased, the Portfolio would have to purchase the underlying security for delivery to the call buyer and sustain a loss equal to the difference between the option price and the market price of the security.
A Portfolio may also, as an example, write combinations of put and call options on the same security, known as "straddles", with the same exercise and expiration date. By writing a straddle, the Portfolio undertakes a simultaneous obligation to sell and purchase the same security in the event that one of the options is exercised. If the price of the security subsequently rises above the exercise price, the call will likely be exercised and the Portfolio will be required to sell the underlying security at or below market price. This loss may be offset, however, in whole or part, by the premiums received on the writing of the two options. Conversely, if the price of the security declines by a sufficient amount, the put will likely be exercised. The writing of straddles will likely be effective, therefore, only where the price of the security remains stable and neither the call nor the put is exercised. In those instances where one of the options is exercised, the loss on the purchase or sale of the underlying security may exceed the amount of the premiums received.
By writing a call option, a Portfolio limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option. By writing a put option, a Portfolio assumes the risk that it may be required to purchase the underlying security for an exercise price above its then current market value, resulting in a capital loss unless the security subsequently appreciates in value. Where options are written for hedging purposes, such transactions constitute only a partial hedge against declines in the value of portfolio securities or against increases in the value of securities to be acquired, up to the amount of the premium. A Portfolio may purchase put options to hedge against a decline in the value of portfolio securities. If such decline occurs, the put options will permit the Portfolio to sell the securities at the exercise price or to close out the options at a profit. By using put options in this way, the Portfolio will reduce any profit it might otherwise have realized on the underlying security by the amount of the premium paid for the put option and by transaction costs.
A Portfolio may purchase or write options on securities of the types in which it is permitted to invest in privately negotiated (i.e., over-the-counter) transactions. A Portfolio will effect such transactions only with investment dealers and other financial institutions (such as commercial banks or savings and loan institutions) deemed creditworthy by the Manager, and the Manager has adopted procedures for monitoring the creditworthiness of such entities. Options purchased or written in negotiated transactions may be illiquid and it may not be possible for the Portfolio to effect a closing transaction at a time when the Manager believes it would be advantageous to do so.
An option on a securities index is similar to an option on a security except that, rather than taking or making 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.
A Portfolio may write (sell) call and put options and purchase call and put options on securities indices. If a Portfolio purchases put options on securities indices to hedge its investments against a decline in the value of portfolio securities, it will seek to offset a decline in the value of securities it owns through appreciation of the put option. If the value of the Portfolio's investments does not decline as anticipated, or if the value of the option does not increase, the Portfolio's loss will be limited to the premium paid for the option. The success of this strategy will largely depend on the accuracy of the correlation between the changes in value of the index and the changes in value of the Portfolio's security holdings.
The purchase of call options on securities indices may be used by a Portfolio to attempt to reduce the risk of missing a broad market advance, or an advance in an industry or market segment, at a time when the Portfolio holds uninvested cash or short-term debt securities awaiting investment. When purchasing call options for this purpose, the Portfolio will also bear the risk of losing all or a portion of the premium paid if the value of the index does not rise. The purchase of call options on stock indices when a Portfolio is substantially fully invested is a form of leverage, up to the amount of the premium and related transaction costs, and involves risks of loss and of increased volatility similar to those involved in purchasing call options on securities the Portfolio owns.
In an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of its portfolio from a decline in value, sometimes within certain ranges, a Portfolio may use option strategies such as the concurrent purchase of a call or put option, including on individual securities and stock indexes, futures contracts (including on individual securities and stock indexes) or shares of exchange-traded funds ("ETFs") at one strike price and the writing of a call or put option on the same individual security, stock index, futures contract or ETF at a higher strike price in the case of a call option or at a lower strike price in the case of a put option. The maximum profit from this strategy would result for the call options from an increase in the value of the individual security, stock index, futures contract or ETF above the higher strike price or, for the put options, the decline in the value of the individual security, stock index, futures contract or ETF below the lower strike price. If the price of the individual security, stock index, futures contract or ETF declines in the case of the call option, or increases in the case of the put option, the Portfolio has the risk of losing the entire amount paid for the call or put options.
A Portfolio may purchase and write options on foreign currencies for hedging purposes. For example, a decline in the U.S. Dollar value of a foreign currency in which portfolio securities are denominated will reduce the U.S. 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, a Portfolio may purchase put options on the foreign currency. If the value of the currency does decline, a Portfolio will have the right to sell such currency for a fixed amount in U.S. Dollars and could thereby offset, in whole or in part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the U.S. Dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, a Portfolio may purchase call options thereon. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to a Portfolio from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, a Portfolio could sustain losses on transactions in foreign currency options which would require it to forgo a portion or all of the benefits of advantageous changes in such rates.
A Portfolio may write options on foreign currencies, including for hedging purposes. For example, where a Portfolio anticipates a decline in the U.S. 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 could be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated increase in the U.S. Dollar cost of securities to be acquired, a Portfolio could write a put option on the relevant currency, which, if rates move in the manner projected, will expire unexercised and allow the Portfolio 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 a Portfolio will be required to purchase or sell the underlying currency at a loss, which may not be offset by the amount of the premium. Through the writing of options on foreign currencies, a Portfolio also may be required to forgo all or a portion of the benefits which might otherwise have been obtained from favorable movements in exchange rates.
In addition to using options for the hedging purposes described above, the International Portfolios and Overlay Portfolios may also invest in options on foreign currencies for non-hedging purposes as a means of making direct investments in foreign currencies. These Portfolios may use options on currency to seek to increase total return when the Manager anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that security are not held by a Portfolio and do not present attractive investment opportunities. For example, a Portfolio may purchase call options in anticipation of an increase in the market value of a currency. A Portfolio would ordinarily realize a gain if, during the option period, the value of such currency exceeded the sum of the exercise price, the premium paid and transaction costs. Otherwise, a Portfolio would realize no gain or a loss on the purchase of the call option. Put options may be purchased by a Portfolio for the purpose of benefiting from a decline in the value of a currency that a Portfolio does not own. A Portfolio would normally realize a gain if, during the option period, the value of the underlying currency decreased below the exercise price sufficiently to more than cover the premium and transaction costs. Otherwise, a Portfolio would
realize no gain or loss on the purchase of the put option. For additional information on the use of options on foreign currencies for non-hedging purposes, see "Currency Transactions" below.
Special Risks Associated with Options on Currency. An exchange traded options position may be closed out only on an options exchange that provides a secondary market for an option of the same series. Although a Portfolio will generally purchase or sell options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option, or at any particular time. For some options, no secondary market on an exchange may exist. In such event, it might not be possible to effect closing transactions in particular options, with the result that a Portfolio would have to exercise its options in order to realize any profit and would incur transaction costs on the sale of the underlying currency.
Futures contracts that a Portfolio may buy and sell may include futures contracts on fixed-income or other securities, and contracts based on interest rates, foreign currencies or financial indices, including any index of U.S. Government securities. A Portfolio may, for example, purchase or sell futures contracts and options thereon to hedge against changes in interest rates, securities (through index futures or options) or currencies.
The Portfolios purchase and sell futures contracts only on exchanges where there appears to be a market in the futures sufficiently active to accommodate the volume of trading activity. Options on futures contracts written or purchased by a Portfolio will be traded on exchanges or over-the-counter. These investment techniques will be used by the Fixed-Income Municipal Intermediate Duration Portfolios only to hedge against anticipated future changes in interest rates which otherwise might either adversely affect the value of the securities held by a Portfolio or adversely affect the prices of securities which a Portfolio intends to purchase at a later date or to manage the effective maturity or duration of fixed-income securities. Other Portfolios may each purchase or sell options on futures contracts for hedging or other purposes.
Interest rate futures contracts are purchased or sold for hedging purposes to attempt to protect against the effects of interest rate changes on a Portfolio's current or intended investments in fixed-income securities. For example, if a Portfolio owned long-term bonds and interest rates were expected to increase, that Portfolio might sell interest rate futures contracts. Such a sale would have much the same effect as selling some of the long-term bonds in that Portfolio's portfolio. However, since the futures market is more liquid than the cash market, the use of interest rate futures contracts as a hedging technique allows a Portfolio to hedge its interest rate risk without having to sell its portfolio securities. If interest rates were to increase, the value of the debt securities in the portfolio would decline, but the value of that Portfolio's interest rate futures contracts would be expected to increase at approximately the same rate, thereby keeping the net asset value ("NAV") of that Portfolio from declining as much as it otherwise would have. On the other hand, if interest rates were expected to decline, interest rate futures contracts could be purchased to hedge in anticipation of subsequent purchases of long-term bonds at higher prices. Because the fluctuations in the value of the interest rate futures contracts should be similar to those of long-term bonds, a Portfolio could protect itself against the effects of the anticipated rise in the value of long-term bonds without actually buying them until the necessary cash becomes available or the market has stabilized. At that time, the interest rate futures contracts could be liquidated and that Portfolio's cash reserves could then be used to buy long-term bonds on the cash market.
A Portfolio may purchase and sell foreign currency futures contracts for hedging purposes in order to protect against fluctuations in currency exchange rates. Such fluctuations could reduce the dollar value of portfolio securities denominated in foreign currencies, or increase the cost of non-U.S. Dollar-denominated securities to be acquired, even if the value of such securities in the currencies in which they are denominated remains constant. A Portfolio may sell futures contracts on a foreign currency, for example, when it holds securities denominated in such currency and it anticipates a decline in the value of such currency relative to the dollar. If such a decline were to occur, the resulting adverse effect on the value of non-U.S. Dollar-denominated securities may be offset, in whole or in part, by gains on the futures contracts. However, if the value of the foreign currency increases relative to the dollar, a Portfolio's loss on the foreign currency futures contract may or may not be offset by an increase in the value of the securities because a decline in the price of the security stated in terms of the foreign currency may be greater than the increase in value as a result of the change in exchange rates.
Conversely, a Portfolio could protect against a rise in the dollar cost of non-U.S. Dollar-denominated securities to be acquired by purchasing futures contracts on the relevant currency, which could offset, in whole or in part, the increased cost of such securities resulting from a rise in the dollar value of the underlying currencies. When a Portfolio purchases futures contracts under such circumstances, however, and the price in dollars of securities to be acquired instead declines as a result of appreciation of the dollar, the Portfolio will sustain losses on its futures position which could reduce or eliminate the benefits of the reduced cost of portfolio securities to be acquired.
A Portfolio may also engage in currency "cross hedging" when, in the opinion of the Manager, the historical relationship among foreign currencies suggests that a Portfolio may achieve protection against fluctuations in currency exchange rates similar to that described above at a reduced cost through the use of a futures contract relating to a currency other than the U.S. Dollar or the currency
in which the foreign security is denominated. Such "cross hedging" is subject to the same risks as those described above with respect to an unanticipated increase or decline in the value of the subject currency relative to the U.S. Dollar.
A Portfolio may also use foreign currency futures contracts and options on such contracts for non-hedging purposes. Similar to options on currencies described above, a Portfolio may use foreign currency futures contracts and options on such contracts to seek to increase total return when the Manager anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. The risks associated with foreign currency futures contracts and options on futures are similar to those associated with options on foreign currencies, as described above. For additional information on the use of options on foreign currencies for non-hedging purposes, see "Currency Transactions" below.
Purchases or sales of stock or bond index futures contracts may be used for hedging purposes to attempt to protect a Portfolio's current or intended investments from broad fluctuations in stock or bond prices. For example, a Portfolio may sell stock or bond index futures contracts in anticipation of or during a market decline to attempt to offset the decrease in market value of the Portfolio's portfolio securities that might otherwise result. If such decline occurs, the loss in value of portfolio securities may be offset, in whole or part, by gains on the futures position. When a Portfolio is not fully invested in the securities market and anticipates a significant market advance, it may purchase stock or bond index futures contracts in order to gain rapid market exposure that may, in whole or in part, offset increases in the cost of securities that the Portfolio intends to purchase. As such purchases are made, the corresponding positions in stock or bond index futures contracts will be closed out.
Each Portfolio has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and therefore is not subject to registration or regulation as a pool operator under that Act.
Options on futures contracts are options that call for the delivery of futures contracts upon exercise. Options on futures contracts written or purchased by a Portfolio will be traded on U.S. exchanges.
The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities in a Portfolio's portfolio. If the futures price at expiration of the option is below the exercise price, a Portfolio will retain the full amount of the option premium, which provides a partial hedge against any decline that may have occurred in the Portfolio's portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities or other instruments required to be delivered under the terms of the futures contract. If the futures price at expiration of the put option is higher than the exercise price, a Portfolio will retain the full amount of the option premium, which provides a partial hedge against any increase in the price of securities which the Portfolio intends to purchase. If a put or call option a Portfolio has written is exercised, the Portfolio will incur a loss which will be reduced by the amount of the premium it receives. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its options on futures positions, a Portfolio's losses from exercised options on futures may to some extent be reduced or increased by changes in the value of portfolio securities.
The Fixed Income Portfolios and Non-U.S. Stock Portfolios may write (i.e.,
sell) only covered put and call options on futures contracts. A Portfolio is
considered "covered" with respect to a call option it writes on a futures
contract if the Portfolio (i) owns a long position in the underlying futures
contract; (ii) segregates and maintains with its custodian liquid assets equal
in value to the exercise price of the call (less any initial margin deposited);
(iii) owns a security or currency which is deliverable under the futures
contract; or (iv) owns an option to purchase the security, currency or
securities index, which is deliverable under the futures contract or owns a
call option to purchase the underlying futures contract, in each case at a
price no higher than the exercise price of the call option written by the
Portfolio, or if higher, the Portfolio deposits and maintains the differential
between the two exercise prices in liquid assets in a segregated account with
its custodian. A Portfolio is considered "covered" with respect to a put option
it writes on a futures contract if it (i) segregates and maintains with its
custodian liquid assets equal in value to the exercise price of the put (less
any initial and variation margin deposited); (ii) owns a put option on the
security, currency or securities index which is the subject of the futures
contract or owns a put option on the futures contract underlying the option, in
each case at an exercise price as high as or higher than the price of the
contract held by the Portfolio or, if lower, the Portfolio deposits and
maintains the differential between the two exercise prices in liquid assets in
a segregated account with its custodian; or (iii) owns a short position in the
underlying futures contract.
The Portfolios may write covered straddles of options on futures. A straddle is a combination of a call and a put written on the same underlying futures contract. A straddle will be covered when sufficient assets are deposited to meet the requirements, as defined in the preceding paragraph. A Portfolio may use the same liquid assets to cover both the call and put options where the exercise price of the call and put are the same, or the exercise price of the call is higher than that of the put. In such cases, the Portfolios will also segregate liquid assets equivalent to the amount, if any, by which the put is "in the money."
The Overlay Portfolios may purchase options on futures contracts for hedging purposes instead of purchasing or selling the underlying futures contracts. For example, where a decrease in the value of portfolio securities is anticipated as a result of a projected market-wide decline or changes in interest or exchange rates, a Portfolio could, in lieu of selling futures contracts, purchase put
options thereon. In the event that such decrease were to occur, it may be offset, in whole or part, by a profit on the option. If the anticipated market decline were not to occur, the Portfolio will suffer a loss equal to the price of the put. Where it is projected that the value of securities to be acquired by a Portfolio will increase prior to acquisition due to a market advance or changes in interest or exchange rates, a Portfolio could purchase call options on futures contracts, rather than purchasing the underlying futures contracts. If the market advances, the increased cost of securities to be purchased may be offset by a profit on the call. However, if the market declines, the Portfolio will suffer a loss equal to the price of the call, but the securities that the Portfolio intends to purchase may be less expensive.
If the Manager wishes to shorten the effective duration of a Fixed-Income Portfolio, the Manager may sell a futures contract or a call option thereon, or purchase a put option on that futures contract. If the Manager wishes to lengthen the effective duration of a Fixed-Income Portfolio, the Manager may buy a futures contract or a call option thereon, or sell a put option. The Portfolios' use of futures contracts will not result in leverage.
The "buyer" in a credit default swap contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract in return for a contingent payment upon the occurrence of a credit event with respect to an underlying reference obligation. Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or restructuring. A Portfolio may be either the buyer or seller in the transaction. As a seller, the Portfolio receives a fixed rate of income throughout the term of the contract, which typically is between one month and ten years, provided that no credit event occurs. If a credit event occurs, the Portfolio typically must pay the contingent payment to the buyer. The contingent payment will be either (i) the "par value" (full notional value) of the reference obligation in which case the Portfolio will receive the reference obligation in return, or (ii) an amount equal to the difference between the par value and the current market value of the obligation. The value of the reference obligation received by the Portfolio as a seller if a credit event occurs, coupled with the periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Portfolio. If the Portfolio is a buyer and no credit event occurs, the Portfolio will lose its periodic stream of payments over the term of the contract. However, if a credit event occurs, the buyer typically receives full notional value for a reference obligation that may have little or no value.
Credit default swaps may involve greater risks than if the Portfolio had invested in the reference obligation directly. Credit default swaps are subject to general market risk, liquidity risk and credit risk.
A Portfolio may enter into a credit default swap that provides for settlement by physical delivery if, at the time of entering into the swap, such delivery would not result in the Portfolio investing more than 20% of its total assets in securities rated lower than A by Standard & Poor's, Fitch or Moody's. A subsequent deterioration of the credit quality of the underlying obligation of the credit default swap will not require the Portfolio to dispose of the swap.
The Short Duration Plus Portfolio, the Intermediate Duration Portfolio, the Non-U.S. Stock Portfolios and the Overlay Portfolios may enter into currency swaps for hedging purposes in an attempt to protect against adverse changes in exchange rates between the U.S. Dollar and other currencies. The International Portfolios and the Overlay Portfolios may also enter into currency swaps for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under "Currency Transactions." Currency swaps involve the exchange by the Portfolios with another party of a series of payments in specified currencies. Actual principal amounts of currencies may be exchanged by the counterparties at the initiation and again upon termination of the transaction. Since currency swaps are individually negotiated, the Portfolio expects to achieve an acceptable degree of correlation between its portfolio investments and its currency swaps positions. 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 excess, if any, of the Portfolios' obligations over their entitlements with respect to each currency swap will be accrued on a daily basis and an amount of liquid assets having an aggregate NAV at least equal to the accrued excess will be maintained in a segregated account by the Portfolios' custodian. The Portfolios 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 the creditworthiness of the Portfolio's counterparty declines, the value of the swap agreement will likely decline, potentially resulting in losses. If there is a default by the other party to such a transaction, the Portfolios will have contractual remedies pursuant to the agreements related to the transactions.
A Portfolio may enter into interest rate swap, cap or floor transactions, which may include preserving a return or spread on a particular investment or portion of its portfolio or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Unless there is a counterparty default, the risk of loss to a Portfolio from interest rate transactions is limited to the net amount of interest payments that the Portfolio is contractually obligated to make. If the counterparty to an interest rate transaction defaults, the Portfolio's risk of loss consists of the net amount of interest payments that the Portfolio is contractually
entitled to receive. A Portfolio also may invest in interest rate transaction futures. The Portfolio will enter into interest rate swap, cap or floor transactions only with counterparties deemed creditworthy by the Manager.
Interest rate swaps involve the exchange by a Portfolio with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or "notional") amount.
An option on a swap agreement, also called a "swaption", is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based "premium". A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
Interest rate caps and floors are similar to options in that the purchase of an interest rate cap or floor entitles the purchaser, to the extent that a specified index exceeds (in the case of a cap) or falls below (in the case of a floor) a predetermined interest rate, to receive payments of interest on a notional amount from the party selling the interest rate cap or floor.
Caps and floors are less liquid than swaps. These transactions do not involve the delivery of securities or other underlying assets or principal. A Portfolio will enter into interest rate swap, swaption, cap or floor transactions only with counterparties who have credit ratings of at least A- (or the equivalent) from any one NRSRO or counterparties with guarantors with debt securities having such a rating.
A Fixed-Income Municipal Intermediate-Duration Portfolio enters into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio. A Fixed-Income Municipal Intermediate-Duration Portfolio may also enter into these transactions to protect against price increases of securities the Manager anticipates purchasing for the Portfolio at a later date or as a duration management technique. The Fixed-Income Municipal Intermediate-Duration Portfolios do not intend to use these transactions in a speculative manner. All other Portfolios expect to enter into these transactions for a variety of reasons, including for hedging purposes, as a duration management technique or to attempt to exploit mispricings in the bond markets.
Each Portfolio may enter into interest rate swaps, caps and floors on either an asset-based or liability-based basis, depending upon whether the Portfolio is hedging its assets or liabilities, and will usually enter into interest rate swaps on a net basis, i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments. The net amount of the excess, if any, of a Portfolio's obligations over its entitlements with respect to each interest rate swap will be accrued daily, and an amount of liquid assets having an aggregate NAV at least equal to the accrued excess will be maintained in a segregated account with the custodian. If a Portfolio enters into an interest rate swap on other than a net basis, the Portfolio will maintain in a segregated account with the custodian the full amount, accrued daily, of the Portfolio's obligations with respect to the swap. A Portfolio will enter into interest rate swap, cap or floor transactions only with counterparties whose debt securities (or whose guarantors' debt securities) are rated at least A (or the equivalent) by at least one nationally recognized statistical rating organization and are on the Manager's approved list of swap counterparties for the Portfolio. The Manager will monitor the creditworthiness of counterparties on an ongoing basis. If there were a default by such a counterparty, the Portfolios would have contractual remedies. The swap market has grown substantially in recent years, with a large number of banks and investment banking firms acting both as principals and agents utilizing standardized swap documentation. The Manager has determined that, as a result, the swap market has become relatively liquid.
Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swap agreements may be used to protect the NAV of the Portfolio against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases.
A Portfolio may enter into total return swaps in order take a "long" or "short" position with respect to an underlying referenced asset. A Portfolio is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Portfolio will receive a payment from or make a payment to the counterparty.
A Portfolio may enter into variance or correlation swaps in an attempt to hedge equity market risk or adjust exposure to the equity markets. Variance swaps are contracts in which two parties agree to exchange cash payments based on the difference between the stated level of variance and the actual variance realized on an underlying asset or index. Actual "variance" as used here is defined
as the sum of the square of the returns on the reference asset or index (which in effect is a measure of its "volatility") over the length of the contract term. The parties to a variance swap can be said to exchange actual volatility for a contractually stated rate of volatility. Correlation swaps are contracts in which two parties agree to exchange cash payments based on the differences between the stated and the actual correlation realized on the underlying equity securities within a given equity index. "Correlation" as used here is defined as the weighted average of the correlations between the daily returns of each pair of securities within a given equity index. If two assets are said to be closely correlated, it means that their daily returns vary in similar proportions or along similar trajectories.
Special Risks Associated with Swaps. Risks may arise as a result of the failure of the counterparty to the swap contract to comply with the terms of the swap contract. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by a Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. The risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio's exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swap contracts on the statement of assets and liabilities. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swap contracts. Fluctuations in the value of swap contracts are recorded as a component of net change in unrealized appreciation/depreciation of swap contracts on the statement of operations.
Eurodollar instruments are essentially U.S. Dollar-denominated futures contracts or options thereon that are linked to the London Interbank Offered Rate and are subject to the same limitations and risks as other futures contracts and options.
The Non-U.S. Stock Portfolios and Overlay Portfolios may invest in different types of derivatives generally referred to as synthetic foreign equity securities. These securities may include international warrants or local access products. International warrants are financial instruments issued by banks or other financial institutions, which may or may not be traded on a foreign exchange. International warrants are a form of derivative security that may give holders the right to buy or sell an underlying security or a basket of securities representing an index from or to the issuer of the warrant for a particular price or may entitle holders to receive a cash payment relating to the value of the underlying security or index, in each case upon exercise by the Portfolio. Local access products are similar to options in that they are exercisable by the holder for an underlying security or a cash payment based upon the value of that security, but are generally exercisable over a longer term than typical options. These types of instruments may be American style, which means that they can be exercised at any time on or before the expiration date of the international warrant, or European style, which means that they may be exercised only on the expiration date.
Other types of synthetic foreign equity securities in which a Portfolio may invest include covered warrants and low exercise price warrants. Covered warrants entitle the holder to purchase from the issuer, typically a financial institution, upon exercise, common stock of an international company or receive a cash payment (generally in U.S. Dollars). The issuer of the covered warrant usually owns the underlying security or has a mechanism, such as owning equity warrants on the underlying securities, through which they can obtain the securities. The cash payment is calculated according to a predetermined formula, which is generally based on the difference between the value of the underlying security on the date of exercise and the strike price. Low exercise price warrants are warrants with an exercise price that is very low relative to the market price of the underlying instrument at the time of issue (e.g., one cent or less). The buyer of a low exercise price warrant effectively pays the full value of the underlying common stock at the outset. In the case of any exercise of warrants, there may be a time delay between the time a holder of warrants gives instructions to exercise and the time the price of the common stock relating to exercise or the settlement date is determined, during which time the price of the underlying security could change significantly. In addition, the exercise or settlement date of the warrants may be affected by certain market disruption events, such as difficulties relating to the exchange of a local currency into U.S. Dollars, the imposition of capital controls by a local jurisdiction or changes in the laws relating to foreign investments. These events could lead to a change in the exercise date or settlement currency of the warrants, or postponement of the settlement date. In some cases, if the market disruption events continue for a certain period of time, the warrants may become worthless resulting in a total loss of the purchase price of the warrants.
The Portfolio will acquire synthetic foreign equity securities issued by entities deemed to be creditworthy by the Manager, which will monitor the creditworthiness of the issuers on an on-going basis. Investments in these instruments involve the risk that the issuer of the instrument may default on its obligation to deliver the underlying security or cash in lieu thereof. These instruments may also be subject to liquidity risk because there may be a limited secondary market for trading the warrants. They are also subject, like other investments in foreign securities, to foreign risk and currency risk.
International warrants also include equity warrants, index warrants, and interest rate warrants. Equity warrants are generally issued in conjunction with an issue of bonds or shares, although they also may be issued as part of a rights issue or scrip issue. When
issued with bonds or shares, they usually trade separately from the bonds or shares after issuance. Most warrants trade in the same currency as the underlying stock (domestic warrants), but also may be traded in different currency (euro-warrants). Equity warrants are traded on a number of foreign exchanges and in over-the-counter markets. Index warrants and interest rate warrants are rights created by an issuer, typically a financial institution, entitling the holder to purchase, in the case of a call, or sell, in the case of a put, respectively, an equity index or a specific bond issue or interest rate index at a certain level over a fixed period of time. Index warrants transactions settle in cash, while interest rate warrants can typically be exercised in the underlying instrument or settle in cash.
A Portfolio may also invest in long-term options of, or relating to, international issuers. Long-term options operate much like covered warrants. Like covered warrants, long term-options are call options created by an issuer, typically a financial institution, entitling the holder to purchase from the issuer outstanding securities of another issuer. Long-term options have an initial period of one year or more, but generally have terms between three and five years. Unlike U.S. options, long-term European options do not settle through a clearing corporation that guarantees the performance of the counterparty. Instead, they are traded on an exchange and subject to the exchange's trading regulations.
Each Portfolio may invest in structured products. Structured products, including indexed or structured securities, combine the elements of futures contracts or options with those of debt, preferred equity or a depositary instrument. Generally, the principal amount, amount payable upon maturity or redemption, or interest rate of a structured product is tied (either positively or negatively) to prices, changes in prices, or differences between prices, of underlying assets, such as securities, currencies, intangibles, goods, articles or commodities or by reference to an unrelated benchmark related to an objective index, economic factor or other measure, such as interest rates, currency exchange rates, commodity indices, and securities indices. The interest rate or (unlike most fixed-income securities) the principal amount payable at maturity of a structured product may be increased or decreased depending on changes in the value of the underlying asset or benchmark.
Structured products may take a variety of forms. Most commonly, they are in the form of debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, but may also be issued as preferred stock with dividend rates determined by reference to the value of a currency or convertible securities with the conversion terms related to a particular commodity.
Investing in structured products may be more efficient and less expensive for a Portfolio than investing in the underlying assets or benchmarks and the related derivative. These investments can be used as a means of pursuing a variety of investment goals, including currency hedging, duration management and increased total return. In addition, structured products may be a tax-advantaged investment in that they generate income that may be distributed to shareholders as income rather than short-term capital gains that may otherwise result from a derivatives transaction.
Structured products, however, have more risk than traditional types of debt or other securities. These products may not bear interest or pay dividends. The value of a structured product or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the benchmark. Under certain conditions, the redemption value of a structured product could be zero. Structured products are potentially more volatile and carry greater market risks than traditional debt instruments. The prices of the structured instrument and the benchmark or underlying asset may not move in the same direction or at the same time. Structured products may be less liquid and more difficult to price than less complex securities or instruments or more traditional debt securities. The risk of these investments can be substantial with the possibility that the entire principal amount is at risk. The purchase of structured products also exposes a Portfolio to the credit risk of the issuer of the structured product.
Structured Notes and Indexed Securities: Each Portfolio may invest in a particular type of structured instrument sometimes referred to as a "structured note". The terms of these notes may be structured by the issuer and the purchaser of the note. Structured notes are derivative debt instruments, the interest rate or principal of which is determined by an unrelated indicator (for example, a currency, security, commodity or index thereof). Indexed securities may include structured notes as well as securities other than debt securities, the interest rate or principal of which is determined by an unrelated indicator. The terms of structured notes and indexed securities may provide that in certain circumstances no principal is due at maturity, which may result in a total loss of invested capital. Structured notes and indexed securities may be positively or negatively indexed, so that appreciation of the unrelated indicator may produce an increase or a decrease in the interest rate or the value of the structured note or indexed security at maturity may be calculated as a specified multiple of the change in the value of the unrelated indicator. Therefore, the value of such notes and securities may be very volatile. Structured notes and indexed securities may entail a greater degree of market risk than other types of debt securities because the investor bears the risk of the unrelated indicator. Structured notes or indexed securities also may be more volatile, less liquid, and more difficult to accurately price than less complex securities and instruments or more traditional debt securities.
Commodity Index-Linked Notes and Commodity-Linked Notes: Structured products may provide exposure to the commodities markets. These structured notes may include leveraged or unleveraged commodity index-linked notes, which are derivative debt instruments with principal and/or coupon payments linked to the performance of commodity indices. They also include commodity-linked notes with principal and/or coupon payments linked to the value of particular commodities or commodities futures contracts, or
a subset of commodities and commodities future contracts. The value of these notes will rise or fall in response to changes in the underlying commodity, commodity futures contract, subset of commodities or commodities futures contracts or commodity index. These notes expose a Portfolio economically to movements in commodity prices. These notes also are subject to risks, such as credit, market and interest rate risks, that in general affect the values of debt securities. In addition, these notes are often leveraged, increasing the volatility of each note's market value relative to changes in the underlying commodity, commodity futures contract or commodity index. Therefore, a Portfolio might receive interest or principal payments on the note that are determined based upon a specified multiple of the change in value of the underlying commodity, commodity futures contract or index.
Credit-Linked Securities: Credit-linked securities are issued by a limited purpose trust or other vehicle that, in turn, invests in a basket of derivative instruments, such as credit default swaps, interest rate swaps and other securities, in order to provide exposure to certain high-yield or other fixed-income markets. For example, each Portfolio may invest in credit-linked securities as a cash management tool in order to gain exposure to certain high-yield markets and/or to remain fully invested when more traditional income producing securities are not available. Like an investment in a bond, investments in credit-linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the security. However, these payments are conditioned on the trust's receipt of payments from, and the trust's potential obligations to, the counterparties to the derivative instruments and other securities in which the trust invests. For instance, the trust may sell one or more credit default swaps, under which the trust would receive a stream of payments over the term of the swap agreements provided that no event of default has occurred with respect to the referenced debt obligation upon which the swap is based. If a default occurs, the stream of payments may stop and the trust would be obligated to pay the counterparty the par value (or other agreed-upon value) of the referenced debt obligation. This, in turn, would reduce the amount of income and principal that each Portfolio would receive as an investor in the trust. Each Portfolio's investments in these instruments are indirectly subject to the risks associated with derivative instruments, including, among others, credit risk, default or similar event risk, counterparty risk, interest rate risk, and leverage risk and management risk. These securities are generally structured as Rule 144A securities so that they may be freely traded among institutional buyers. However, changes in the market for credit-linked securities or the availability of willing buyers may result in the securities becoming illiquid.
The Fixed-Income Portfolios may seek additional income by investing in repurchase agreements pertaining only to U.S. Government securities. Each Portfolio requires continual maintenance of collateral held by the Fund's custodian in an amount equal to, or in excess of, the market value of the securities which are the subject of the agreement. In the event of a counterparty's bankruptcy, a Portfolio might be delayed in, or prevented from, selling the collateral for its benefit. Repurchase agreements may be entered into with member banks of the Federal Reserve System including the Fund's custodian or "primary dealers" (as designated by the Federal Reserve Bank of New York) in U.S. Government securities.
The Portfolios may enter into reverse repurchase agreements with banks and
broker-dealers from time to time. The use of reverse repurchase agreements is
included in the Portfolios' borrowing policy and is subject to the limit of
Section 18(f)(1) of the 1940 Act.
Reverse repurchase agreements involve sales by a Portfolio of portfolio assets concurrently with an agreement by the Portfolio to repurchase the same assets at a later date at a fixed price. During the reverse repurchase agreement period, a Portfolio continues to receive principal and interest payments on these securities. Generally, the effect of such a transaction is that the Portfolio can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while it will be able to keep the interest income associated with those portfolio securities. Such transactions are advantageous only if the interest cost to the Portfolio of the reverse repurchase transaction is less than the cost of otherwise obtaining the cash.
Reverse repurchase agreements are considered to be a loan to a Portfolio by
the counterparty, collateralized by the assets subject to repurchase because
the incidents of ownership are retained by the Portfolio. By entering into
reverse repurchase agreements, a Portfolio obtains additional cash to invest on
other securities. A Portfolio may use reverse repurchase agreements for
borrowing purposes if it believes that the cost of this form of borrowing will
be lower than the cost of bank borrowing. Reverse repurchase agreements create
leverage and are speculative transactions because they allow a Portfolio to
achieve a return on a larger capital base relative to its NAV. The use of
leverage creates the opportunity for increased income for a Portfolio's
shareholders when the Portfolio achieves a higher rate of return on the
investment of the reverse repurchase agreement proceeds than it pays in
interest on the reverse repurchase transactions. However, there is the risk
that returns could be reduced if the rates of interest on the investment
proceeds do not exceed the interest paid by a Portfolio on the reverse
repurchase transactions. Borrowings through reverse repurchase agreements are
not subject to the requirement applicable to bank borrowings under
Section 18(f)(1) of the 1940 Act to maintain an asset coverage of at least 300%
but are subject to an equivalent requirement to maintain asset coverage by
segregating assets in a segregated account equal in value to proceeds received
in the reverse repurchase agreement.
Reverse repurchase agreements involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a Portfolio's use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Portfolio's obligation to repurchase the securities.
The Short Duration Plus Portfolio, Intermediate Duration Portfolio, Tax-Managed International Portfolio, International Portfolio, Emerging Markets Portfolio and Overlay Portfolios may invest in securities denominated in foreign currencies and a corresponding portion of the Portfolios' revenues will be received in such currencies. In addition, the Portfolios may conduct foreign currency transactions for hedging and, in the case of the International, Tax-Managed International and Overlay Portfolios, non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives transactions, such as forward currency exchange contracts, currency futures and options thereon, and options on currencies as described above. The U.S. Dollar equivalent of the Portfolios' 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 Portfolios' income. Each Portfolio will, however, have the ability to attempt to protect itself against adverse changes in the values of foreign currencies by engaging in certain of the investment practices listed above. While the Portfolios have this ability, there is no certainty as to whether and to what extent the Portfolios will engage in these practices.
Currency exchange rates may fluctuate significantly over short periods of time causing, along with other factors, a Portfolio's NAV to fluctuate. Currency exchange rates generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or anticipated changes in interest rates and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad. To the extent a Portfolio's total assets, adjusted to reflect a Portfolio's net position after giving effect to currency transactions, is denominated or quoted in the currencies of foreign countries, a Portfolio will be more susceptible to the risk of adverse economic and political developments within those countries.
The Portfolios will incur costs in connection with conversions between various currencies. A Portfolio may hold foreign currency received in connection with investments when, in the judgment of the Manager, it would be beneficial to convert such currency into U.S. Dollars at a later date, based on anticipated changes in the relevant exchange rate. If the value of the foreign currencies in which a Portfolio receives its income falls relative to the U.S. Dollar between receipt of the income and the making of Portfolio distributions, a Portfolio may be required to liquidate securities in order to make distributions if a Portfolio has insufficient cash in U.S. Dollars to meet the distribution requirements that the Portfolios must satisfy to qualify as a regulated investment company for federal income tax purposes. Similarly, if the value of a particular foreign currency declines between the time a Portfolio 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, the Portfolios may engage in certain currency hedging transactions, which themselves involve certain special risks.
At the maturity of a forward contract, a Portfolio may either sell the portfolio security and make delivery of the foreign currency, or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an offsetting contract obligating it to purchase, on the same maturity date, the same amount of the foreign currency. Alternatively, a Portfolio may enter into a forward contract which provides for settlement by one party making a single one-way payment to the other party in the amount of the difference between the contracted forward rate and the current spot reference rate. The currency used for settlement may be one of the transaction currencies or a base currency, such as U.S. Dollars.
It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the forward contract. Accordingly, it may be necessary for a Portfolio to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Portfolio is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Portfolio is obligated to deliver.
If a Portfolio retains the portfolio security and engages in an offsetting transaction, the Portfolio will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. If the Portfolio engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the Portfolio's entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign security, the Portfolio will realize a gain to the extent the price at which it has agreed to sell exceeds the price at which it has agreed to purchase. Should forward prices increase, the Portfolio will suffer a loss to the extent of the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell.
The Portfolios reserve the right to enter into forward foreign currency contracts for different purposes and under different circumstances than those described above. Of course, the Portfolios are not required to enter into forward contracts with regard to their foreign currency-denominated securities and will not do so unless deemed appropriate by the Manager. It also should be realized that this method of hedging against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange at a future date. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time, they tend to limit any potential gain which might result from an increase in the value of that currency.
The Portfolios do not intend to convert any holdings of foreign currencies into U.S. Dollars on a daily basis. A Portfolio may do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Portfolio at one rate, while offering a lesser rate of exchange should the Portfolio desire to resell that currency to the dealer.
There is no assurance that a forward contract counterparty will be able to meet its obligations under the forward contract or that, in the event of default by the counterparty a Portfolio will succeed in pursuing contractual remedies. The Portfolios assume the risk that they may be delayed in or prevented from obtaining payments owed to them pursuant to the contractual agreements entered into in connection with a forward contract.
The Fixed-Income Portfolios may enter into dollar rolls. Dollar rolls involve sales by a Portfolio of securities for delivery in the current month and the Portfolio's simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. The Portfolios may also enter into a type of dollar roll known as a "fee roll." In a fee roll, a Portfolio is compensated for entering into the fee roll by "fee income," which is received when the Portfolio enters into the commitment. Such fee income is recorded as deferred income and accrued by the Portfolio over the roll period. Dollar rolls may be considered to be borrowings by a Portfolio. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price.
Each Portfolio may purchase securities offered on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis. When such 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. During the period between a commitment by a Portfolio and settlement, no payment is made for the securities purchased by the purchaser, and, thus, no interest accrues to the purchaser from the transaction. The use of when-issued transactions and forward commitments enables a Portfolio to hedge against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling bond prices, a Portfolio might sell securities which it owned on a forward commitment basis to limit its exposure to falling bond prices. In periods of falling interest rates and rising bond prices, a Portfolio might sell a security held by the 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 the Manager were to forecast incorrectly the direction of interest rate movements, the Portfolio might be required to complete such when-issued or forward transactions at prices less favorable than the current market value.
When-issued securities and forward commitments may be sold prior to the settlement date, but a Portfolio enters into when-issued and forward commitment transactions only with the intention of actually receiving or delivering the securities, as the case may be. At the time a Portfolio makes the commitment to purchase or sell a municipal security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased or, if a sale, the proceeds to be received, in determining its NAV. To facilitate these transactions, the Fund's custodian bank will maintain, in a separate account of the Fund, liquid assets having value equal to, or greater than, any commitments to purchase municipal securities on a when-issued or forward commitment basis and, with respect to forward commitments to sell portfolio securities of a Portfolio, the portfolio securities themselves. If a Portfolio, however, 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 can incur a gain or loss. When-issued municipal securities may include bonds purchased on a "when, as and if issued" basis under which the issuance of the securities depends upon the occurrence of a subsequent event, such as approval of a proposed financing by appropriate municipal authorities.
If a Portfolio is fully or almost fully invested with "when-issued" or "forward commitment" transactions, the transactions may result in a form of leveraging. Leveraging a Portfolio in this manner may increase the volatility of the Portfolio's NAV.
Securities rated Ba by Moody's or BB by S&P or Fitch are considered to have speculative characteristics. Sustained periods of deteriorating economic conditions or 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 below investment grade, i.e., Ba or BB and lower ("lower-rated securities"), are subject to greater risk of loss of principal and interest than higher-rated securities and are considered to be predominately speculative with respect to the issuer's capacity to pay interest and repay principal, which may in any case decline during sustained periods of deteriorating economic conditions or rising interest rates. They are also generally considered to be subject to greater market risk than higher-rated securities in times of deteriorating economic conditions. In addition, lower-rated securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities.
The market for lower-rated securities may be thinner and less active than that for higher-quality 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, the Portfolio may experience difficulty in valuing such securities and, in turn, the Portfolio's assets. In addition, adverse publicity and investor perceptions about lower-rated securities, whether or not based on fundamental analysis, may tend to decrease the market value and liquidity of such lower-rated securities.
The ratings of fixed-income securities by Moody's, S&P, Fitch, Dominion Bond Rating Service Ltd. and A.M. Best Company 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 differences in credit risk of securities within each rating category. See Appendix A for a description of Moody's, S&P and Fitch ratings.
Unless otherwise indicated, references to securities ratings by one rating agency in this SAI shall include the equivalent rating by another rating agency.
The Manager will try to reduce the risk of investment in lower-rated securities through credit analysis, attention to current developments and trends in interest rates and economic conditions. However, there can be no assurance that losses will not occur. Since the risk of default is higher for lower-quality securities, the Manager's research and credit analysis are a correspondingly important aspect of its program for managing the Portfolio's securities. In considering investments for the Portfolios, the Manager will attempt to identify those high-risk, high-yield securities whose financial condition is adequate to meet future obligations, has improved or is expected to improve in the future. The Manager's analysis focuses on relative values based on such factors as interest coverage, financial prospects, and the strength of the issuer.
Non-rated fixed-income securities will also be considered for investment by a Portfolio when the Manager believes that the financial condition of the issuers of such obligations and the protection afforded by the terms of the obligations themselves limit the risk to the Portfolio to a degree comparable to that of rated securities which are consistent with the Portfolio's objective and policies.
In seeking to achieve a Portfolio's objective, there will be times, such as during periods of rising interest rates, when depreciation and realization of capital losses on securities in the 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 NAV of the Portfolio.
Each Overlay Portfolio may invest in securities of other investment companies, including ETFs, to the extent permitted under the 1940 Act or the rules and regulations thereunder (as such statute, rules or regulations may be amended from time to time) or by guidance regarding, interpretations of, or exemptive orders under, the 1940 Act or the rules or regulations thereunder published by appropriate regulatory authorities. Consistent with these requirements, each Portfolio may, under certain circumstances, invest without limit in securities of affiliated investment companies.
As a shareholder of another investment company, a Portfolio would bear, along with other shareholders, its pro rata portion of the other investment company's expenses, including management fees. These expenses would be in addition to the management fees and other expenses that the Portfolio bears directly in connection with its own operations.
Each Overlay Portfolio may invest to a significant extent in shares of ETFs, subject to the restrictions and limitations of the 1940 Act. ETFs are pooled investment vehicles, which may be managed or unmanaged, that generally seek to track the performance of a specific index. The ETFs in which a Portfolio invests will not be able to replicate exactly the performance of the indices they track because the total return generated by the securities will be reduced by transaction costs incurred in adjusting the actual balance of the securities. In addition, the ETFs in which a Portfolio invests will incur expenses not incurred by their applicable indices. Certain securities comprising the indices tracked by the ETFs may, from time to time, temporarily be unavailable, which may further impede the ability of the ETFs to track their applicable indices. The market value of the ETF shares may differ from their NAV. This difference in price may be due to the fact that the supply and demand in the market for ETF shares at any point in time is not always
identical to the supply and demand in the market for the underlying basket of securities. Accordingly, there may be times when an ETF's shares trade at a discount to its NAV.
The Overlay Portfolios intend to invest from time to time in the AllianceBernstein Pooling Portfolios - Multi-Asset Real Return Portfolio. A brief description of the Multi-Asset Real Return Portfolio follows. Additional details are available in the prospectus and SAI for the AllianceBernstein Pooling Portfolios. You may request a free copy of the prospectus and/or SAI of the AllianceBernstein Pooling Portfolios by contacting your Financial Advisor.
AllianceBernstein Pooling Portfolios - AllianceBernstein Multi-Asset Real Return ("Multi-Asset Pooling Portfolio") has an investment objective to maximize real return over inflation. Real return is the rate of total return (including income and capital appreciation) after adjusting for inflation. The Multi-Asset Pooling Portfolio pursues an investment strategy involving a variety of asset classes that the Adviser expects to outperform broad equity indices during periods of rising inflation. Under normal circumstances, the Multi-Asset Pooling Portfolio invests its assets principally in the following instruments that, in the judgment of the Manager, are affected directly or indirectly by the level and change in rate of inflation: inflation-protected fixed-income securities, such as TIPS and similar bonds issued by governments outside of the United States, commodities, equity securities, such as commodity-related stocks, real estate securities, utility securities, infra-structure related securities, securities and derivatives linked to the price of other assets (such as commodities, stock indices and real estate), and currencies.
The Multi-Asset Pooling Portfolio may seek to gain exposure to physical commodities traded in the commodities markets through investments in a variety of derivative instruments, including investments in commodity index-linked notes. The Multi-Asset Pooling Portfolio seeks to gain exposure to commodities and commodities-related instruments and derivatives primarily through investments in AllianceBernstein Cayman Inflation Pooling Subsidiary, Ltd., a wholly-owned subsidiary of the Portfolio organized under the laws of the Cayman Islands. The Multi-Asset Pooling Portfolio limits its investment in the subsidiary to no more than 25% of its net assets.
Each Portfolio may lend Portfolio securities. Each of the Fixed-Income Portfolios (other than the Short Duration Municipal Portfolios) may lend up to 30% of its total assets (including collateral for any security loaned); each of the Short Duration Municipal Portfolios may lend up to one-third of its total assets (including collateral for any security loaned). Each of the Non-U.S. Stock Portfolios and Overlay Portfolios may also lend up to one-third of its total assets. Loans may be made to qualified broker-dealers, banks or other financial institutions, provided that cash, liquid high-grade debt securities or bank letters of credit equal to at least 100% of the market value of the securities loaned are deposited and maintained by the borrower with the Portfolio. A principal risk in lending Portfolio securities, as with other collateral extensions of credit, consists of possible loss of rights in the collateral should the borrower fail financially. In addition, the Portfolio will be exposed to the risk that the sale of any collateral realized upon a borrower's default will not yield proceeds sufficient to replace the loaned securities. In determining whether to lend securities to a particular borrower, AllianceBernstein will consider all relevant facts and circumstances, including the creditworthiness of the borrower. While securities are on loan, the borrower will pay the Portfolio any income earned from the securities. A Portfolio may invest any cash collateral directly or indirectly in short-term, high-quality debt instruments and earn additional income or receive an agreed-upon amount of income from a borrower who has delivered equivalent collateral. Any such investment of cash collateral will be subject to the Portfolio's investment risks. The Portfolio will have the right to regain record ownership of loaned securities to exercise beneficial rights such as voting rights, subscription rights and rights to dividends, interest or distributions. The Portfolio may pay reasonable finders', administrative, and custodial fees in connection with a loan.
DIRECTORS AND OFFICERS AND PRINCIPAL HOLDERS OF SECURITIES
The following table lists the directors and executive officers of the Fund, their business addresses and their principal occupations during the past five years.
NUMBER OF PORTFOLIOS OTHER IN THE FUND PUBLIC COMPANY PRINCIPAL OCCUPATION(S) COMPLEX DIRECTORSHIPS HELD NAME, ADDRESS,* AGE, (YEAR DURING THE PAST FIVE YEARS OR OVERSEEN BY BY THE DIRECTOR ELECTED**) LONGER THE DIRECTOR DURING THE PAST FIVE YEARS -------------------------- --------------------------------------- ------------ ------------------------------- INTERESTED DIRECTOR*** Dianne F. Lob Senior Vice President of the Manager 18 None c/o AllianceBernstein L.P. with which she has been associated 1345 Avenue of the Americas since prior to 2008; Chairman of New York, NY 10105 Bernstein's Private Client Investment 58 Policy Group since 2004; She joined the (2010) firm in 1999 as a senior portfolio manager; Previously, a managing director and an investment banker at J.P. Morgan from 1977 to 1999. INDEPENDENT DIRECTORS Chairman of the Board President of Cedar Lawn Corporation 18 Cedar Lawn Corporation Thomas B. Stiles II #^+ (cemetery); Formerly, Managing 72 Director, Senior Portfolio Manager and (2003) Director of Investment Strategy of Smith Barney Asset Management from 1997 until his retirement in 1999; Prior thereto, Chairman and Chief Executive Officer of Greenwich Street Advisors from 1988 to 1997; Executive Vice President and Director of E.F. Hutton Group from 1982 to 1987. Bart Friedman #+ Senior Partner at Cahill Gordon & 18 The Brookings Institution; 68 Reindel LLP (law firm) since prior to Lincoln Center for the (2005) 2008. Performing Arts; and Allied World Assurance Holdings William Kristol #+ Editor, The Weekly Standard since prior 18 Manhattan Institute; John M. 60 to 2008. He is also a Fox News Ashbrook Center for Public (1994) Contributor. Affairs at Ashland University; The Salvatori Center at Claremont McKenna College; The Shalem Foundation; and The Institute for the Study of War |
NUMBER OF PORTFOLIOS OTHER IN THE FUND PUBLIC COMPANY NAME, ADDRESS,* AGE, PRINCIPAL OCCUPATION(S) COMPLEX DIRECTORSHIPS HELD (YEAR DURING THE PAST FIVE YEARS OR OVERSEEN BY BY THE DIRECTOR ELECTED**) LONGER THE DIRECTOR DURING THE PAST FIVE YEARS -------------------- --------------------------------------- ------------ -------------------------- Debra Perry #+ Formerly, Senior Managing Director of 18 Korn/Ferry 61 Global Ratings and Research, Moody's International; Bank of (2011) Investors Service, Inc. from 2001 to America Funds Series 2004; Chief Administrative Officer and Trust; CNO Financial Chief Credit Officer, Moody's, from Group Inc.; MBIA 1999 to 2001; Group Managing Director Inc. for the Finance, Securities and Insurance Ratings Groups, Moody's Corp., from 1996 to 1999; Earlier she held executive positions with First Boston Corporation and Chemical Bank. Donald K. Peterson #+ Formerly, Chairman and Chief Executive 18 Worcester 63 Officer, Avaya Inc. (communications) Polytechnic Institute; (2007) from 2002 to 2006; President and Chief Overseers of the Executive Officer, Avaya Inc. from 2000 Amos Tuck School of to 2001; President, Enterprise Systems Business Group in 2000; Chief Financial Officer, Administration; Lucent Technologies from 1996 to 2000; TIAA-CREF; Chief Financial Officer, AT&T, Committee for Communications Services Group from 1995 Economic to 1996; President, Nortel Development Communications Systems, Inc. from 1994 to 1995; Prior thereto he was at Nortel from 1976 to 1995. Rosalie J. Wolf #+ Managing Partner, Botanica Capital 18 TIAA-CREF; North 71 Partners LLC since prior to 2008; European Oil Royalty (2000) Member of Brock Capital Group LLC since Trust prior to 2008; Member of the Investment Committee of the Board at the David and Lucile Packard Foundation since prior to 2008; Formerly, she was a Managing Director at Offit Hall Capital Management LLC from 2001 to 2003; Treasurer and Chief Investment Officer of The Rockefeller Foundation from 1994 to 2000; Earlier she held financial executive positions with International Paper Company, Bankers Trust, and Mobil Oil Corporation. |
^ Member of the Fund's Fair Value Pricing Committee.
+ Member of the Fund's Nominating, Governance and Compensation Committee.
The management of the business affairs of the Fund are managed under the direction of the Board. Directors who are not "interested persons" of the Fund, as defined in the 1940 Act, are referred to as "Independent Directors," and Directors who are "interested persons" of the Fund are referred to as "Interested Directors." Certain information concerning the Fund's governance structure and each Director is set forth below.
The Board believes that, collectively, the Directors have balanced and diverse experience, qualifications, attributes, and skills, which allow the Board to operate effectively in governing the Fund and protecting the interests of stockholders. The Board has concluded that, based on each Director's experience, qualifications, attributes or skills on an individual basis and in combination with those of the other Directors, each Director is qualified to serve as such.
In determining that a particular Director was qualified to serve as a Director, the Board considered a variety of criteria, none of which, in isolation, was controlling. In addition, the Board has taken into account the actual service and commitment of each Director during his or her tenure (including the Director's commitment and participation in Board and committee meetings, as well as his or her current and prior leadership of standing and ad hoc committees) in concluding that each should serve as Director. Additional information about the specific experience, skills, attributes and qualifications of each Director, which in each case led to the Board's conclusion that each Director should serve as a Director of the Fund, is provided in the table above and in the next paragraph.
Among other attributes and qualifications common to all Directors are their ability to review critically, evaluate, question and discuss information provided to them (including information requested by the Directors), to interact effectively with the Manager, other service providers, counsel and the Fund's independent registered public accounting firm, and to exercise effective business judgment in the performance of their duties as Directors. While the Board does not have a formal, written diversity policy, the Board believes that an effective board consists of a diverse group of individuals who bring together a variety of complementary skills and perspectives. Ms. Lob has business, finance and investment management experience as chairman of the Manager's Private Client Investment Policy Group and experience as a portfolio manager for the Manager. Further, in addition to his or her service as a Director of the Fund: Mr. Friedman has a legal background and experience as a board member of various organizations; Mr. Kristol has a public and economic policy background and experience as a board member of various organizations; Ms. Perry has business and financial experience as a senior executive of various financial services firms focusing on fixed income research and capital markets and experience as a board member of various organizations; Mr. Peterson has business and finance experience as an executive officer of public companies and experience as a board member of various organizations; Mr. Stiles has investment management experience as a portfolio manager and executive officer and experience as a board member; and Ms. Wolf has business, finance and investment management experience as a senior financial officer of public companies and as chief investment officer of a major foundation as well as experience as a board member of various organizations. The disclosure herein of a Director's experience, qualifications, attributes and skills does not impose on such Director any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such Director as a member of the Board and any committee thereof in the absence of such experience, qualifications, attributes and skills.
Independent Directors have also engaged independent legal counsel, and may from time to time engage consultants and other advisors, to assist them in performing their oversight responsibilities.
An Independent Director serves as Chairman of the Board. The Chairman's duties include setting the agenda for each Board meeting in consultation with management, presiding at each Board meeting, meeting with management between Board meetings, and facilitating communication and coordination between the Independent Directors and management. The Directors have determined that the Board's leadership by an Independent Director and its committees composed exclusively of Independent Directors is appropriate because they believe it sets the proper tone to the relationships between the Fund, on the one hand, and the Manager and other service providers, on the other, and facilitates the exercise of the Board's independent judgment in evaluating and managing the relationships. In addition, the Fund is required to have an Independent Director as Chairman pursuant to certain 2003 regulatory settlements involving the Manager.
Risk oversight forms part of the Board's general oversight of each Portfolio's investment program and operations and is addressed as part of various regular Board and committee activities. Each Portfolio's investment management and business affairs are carried out by or through the Manager and other service providers. Each of these persons has an independent interest in risk management but the policies and the methods by which one or more risk management functions are carried out may differ from the Portfolios' and each other's in the setting of priorities, the resources available or the effectiveness of relevant controls. Oversight of risk management is provided by the Board and the Audit Committee. The Directors regularly receive reports from, among others, management (including the Global Heads of Investment Risk and Trading Risk of the Manager and representatives of various internal committees of the Manager), the Fund's Independent Compliance Officer, the Fund's independent registered public accounting firm, counsel, and internal auditors for the Manager, as appropriate, regarding risks faced by the Portfolios and the Manager's risk management programs.
Not all risks that may affect the Portfolios can be identified, nor can controls be developed to eliminate or mitigate their occurrence or effects. It may not be practical or cost-effective to eliminate or mitigate certain risks, the processes and controls employed to address certain risks may be limited in their effectiveness, and some risks are simply beyond the reasonable control of the Fund or the Manager, its affiliates or other service providers. Moreover, it is necessary to bear certain risks (such as investment-related risks) to achieve the Fund's goals. As a result of the foregoing and other factors the Portfolios' ability to manage risk is subject to substantial limitations.
The Board has four standing committees of the Board - an Audit Committee, a Nominating, Governance and Compensation Committee, a Fair Value Pricing Committee and an Independent Directors Committee. The members of the Audit Committee, the Nominating, Governance and Compensation Committee, the Fair Value Pricing Committee and the Independent Directors Committee are identified above.
The function of the Audit Committee is to assist the Board in its oversight of the Fund's financial reporting process. The Audit Committee met three times during the Fund's most recently completed fiscal year.
The functions of the Nominating, Governance and Compensation Committee are to nominate persons to fill any vacancies or newly created positions on the Board, to monitor and evaluate industry and legal developments with respect to governance matters and to review and make recommendations to the Board regarding the compensation of Directors and the Chief Compliance Officer. The Nominating, Governance and Compensation Committee met four times during the Fund's most recently completed fiscal year.
The Nominating, Governance and Compensation Committee has a charter and, pursuant to the charter, the Nominating, Governance and Compensation Committee will consider candidates for nomination as a director submitted by a shareholder or group of shareholders who have beneficially owned at least 5% of the Fund's common stock or shares of beneficial interest for at least two years prior to the time of submission and who timely provide specified information about the candidates and the nominating shareholder or group. To be timely for consideration by the Nominating, Governance and Compensation Committee, the submission, including all required information, must be submitted in writing to the attention of the Secretary at the principal executive offices of the Fund not less than 120 days before the date of the proxy statement for the previous year's annual meeting of shareholders. If the Fund did not hold any annual meeting of shareholders in the previous year, the Fund will make a public notice specifying the deadline for the submission. The Fund will make the public notice at least 30 days prior to the deadline for the submission, which is expected to
be approximately 120 days prior to the anticipated date of the proxy statement for the annual meeting. The submission must be delivered or mailed and received within a reasonable amount of time before the Fund begins to print and mail its proxy materials. Public notice of such upcoming annual meeting of shareholders may be given in a shareholder report or other mailing to shareholders or by other means deemed by the Nominating, Governance and Compensation Committee or the Board to be reasonably calculated to inform shareholders.
Shareholders submitting a candidate for consideration by the Nominating,
Governance and Compensation Committee must provide the following information to
the Nominating, Governance and Compensation Committee: (i) a statement in
writing setting forth (A) the name, date of birth, business address and
residence address of the candidate; (B) any position or business relationship
of the candidate, currently or within the preceding five years, with the
shareholder or an associated person of the shareholder as defined below;
(C) the class or series and number of all shares of the Fund owned of record or
beneficially by the candidate; (D) any other information regarding the
candidate that is required to be disclosed about a nominee in a proxy statement
or other filing required to be made in connection with the solicitation of
proxies for election of Directors pursuant to Section 20 of the 1940 Act and
the rules and regulations promulgated thereunder; (E) whether the shareholder
believes that the candidate is or will be an "interested person" of the Fund
(as defined in the 1940 Act) and, if believed not to be an "interested person,"
information regarding the candidate that will be sufficient for the Fund to
make such determination; and (F) information as to the candidate's knowledge of
the investment company industry, experience as a director or senior officer of
public companies, directorships on the boards of other registered investment
companies and educational background; (ii) the written and signed consent of
the candidate to be named as a nominee and to serve as a Director if elected;
(iii) the written and signed agreement of the candidate to complete a
directors' and officers' questionnaire if elected; (iv) the shareholder's
consent to be named as such by the Fund; (v) the class or series and number of
all shares of the Fund owned beneficially and of record by the shareholder and
any associated person of the shareholder and the dates on which such shares
were acquired, specifying the number of shares owned beneficially but not of
record by each, and stating the names of each as they appear on the Fund's
record books and the names of any nominee holders for each; and (vi) a
description of all arrangements or understandings between the shareholder, the
candidate and/or any other person or persons (including their names) pursuant
to which the recommendation is being made by the shareholder. "Associated
Person of the shareholder" means any person who is required to be identified
under clause (vi) of this paragraph and any other person controlling,
controlled by or under common control with, directly or indirectly, (a) the
shareholder or (b) the associated person of the shareholder.
The Nominating, Governance and Compensation Committee may require the shareholder to furnish such other information as it may reasonably require or deem necessary to verify any information furnished pursuant to the nominating procedures described above or to determine the qualifications and eligibility of the candidate proposed by the shareholder to serve on the Board. If the shareholder fails to provide such other information in writing within seven days of receipt of written request from the Nominating, Governance and Compensation Committee, the recommendation of such candidate as a nominee will be deemed not properly submitted for consideration, and will not be considered, by the Committee.
The Nominating, Governance and Compensation Committee will consider only one candidate submitted by such a shareholder or group for nomination for election at an annual meeting of shareholders. The Nominating, Governance and Compensation Committee will not consider self-nominated candidates. The Nominating, Governance and Compensation Committee will consider and evaluate candidates submitted by shareholders on the basis of the same criteria as those used to consider and evaluate candidates submitted from other sources. These criteria include the candidate's relevant knowledge, experience, and expertise, the candidate's ability to carry out his or her duties in the best interests of the Fund, the candidate's ability to qualify as an Independent Director. When assessing a candidate for nomination, the Committee considers whether the individual's background, skills, and experience will complement the background, skills, and experience of other nominees and will contribute to the diversity of the Board.
The function of the Fair Value Pricing Committee is to consider, in advance if possible, any fair valuation decision of the Fund's Valuation Committee relating to a security held by the Fund made under unique or highly unusual circumstances not previously addressed by the Valuation Committee that would result in a change in the Fund's NAV by more than $0.01 per share. The Fair Value Pricing Committee did not meet during the Fund's most recently completed fiscal year.
The function of the Independent Directors Committee is to consider and take action on matters that the Board or Committee believes should be addressed in executive session of the Independent Directors, such as review and approval of the Advisory and Distribution Services Agreements. The Independent Directors Committee met one time during the Fund's most recently completed fiscal year.
SHARE OWNERSHIP AND COMPENSATION
The following tables set forth the dollar range of equity securities in each Portfolio beneficially owned by a Director, and on an aggregate basis, in all registered investment companies to which the Manager provides investment management services (collectively, the "AllianceBernstein Fund Complex") owned by each Director, if any, as of January 23, 2013.
DOLLAR RANGE OF EQUITY SECURITIES IN THE ----------------------------------------------------------------------- U.S. SHORT SHORT SHORT GOVERNMENT SHORT DURATION DURATION DURATION SHORT DURATION NEW YORK CALIFORNIA DIVERSIFIED INTERMEDIATE DURATION PLUS MUNICIPAL MUNICIPAL MUNICIPAL DURATION NAME PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ---- ---------- --------- --------- ---------- ---------------- ------------ INTERESTED DIRECTOR: Dianne F. Lob....... $0 $0 $0 $0 $ 0 $0 INDEPENDENT DIRECTORS: Bart Friedman.. $0 $0 $0 $0 $ 0 $0 William Kristol... $0 $0 $0 $0 $50,001-$100,000 $0 Debra Perry. $0 $0 $0 $0 $ 10,001-$50,000 $0 Donald K. Peterson.. $0 $0 $0 $0 $ 0 $0 Thomas B. Stiles II. $0 $0 $0 $0 $ 0 $0 Rosalie J. Wolf...... $0 $0 $0 $0 $ 0 $0 |
DOLLAR RANGE OF EQUITY SECURITIES IN THE ------------------------------------------------------------------------------------------------ TAX NEW YORK CALIFORNIA DIVERSIFIED MANAGED EMERGING MUNICIPAL MUNICIPAL MUNICIPAL INTERNATIONAL INTERNATIONAL MARKETS NAME PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ---- ------------- ---------- ------------- --------------------- ------------- --------------------- INTERESTED DIRECTOR: Dianne F. Lob.... Over $100,000 $0 $ 0 Over $ 100,000 Over $100,000 Over $ 100,000 INDEPENDENT DIRECTORS: Bart Friedman.... $ 0 $0 $ 0 Over $ 100,000 $ 0 Over $ 100,000 William Kristol........ $ 0 $0 Over $100,000 $ 0 $ 0 $ 0 Debra Perry...... $ 0 $0 $ 0 $50,001-$100,000 $ 0 $ 0 Donald K. Peterson....... $ 0 $0 $ 0 $ 0 Over $100,000 $ 0 Thomas B. Stiles II............. $ 0 $0 $ 0 $ 10,001-$50,000 $ 0 $50,001-$100,000 Rosalie J. Wolf........... Over $100,000 $0 $ 0 $50,001-$100,000 $ 0 $50,001-$100,000 |
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT COMPANIES DOLLAR RANGE OF EQUITY SECURITIES IN THE OVERSEEN BY ----------------------------------------------------------------------- DIRECTOR IN OVERLAY A TAX-AWARE OVERLAY B TAX-AWARE TAX-AWARE TAX-AWARE ALLIANCEBERNSTEIN NAME PORTFOLIO A PORTFOLIO PORTFOLIO B PORTFOLIO C PORTFOLIO N PORTFOLIO FUND COMPLEX ---- --------- ------------- --------- ----------- ----------- ------------- ----------------- INTERESTED DIRECTOR: Dianne F. Lob.......... $0 Over $100,000 $0 $0 $0 Over $100,000 Over $100,000 INDEPENDENT DIRECTORS: Bart Friedman.......... $0 $ 0 $0 $0 $0 $ 0 Over $100,000 William Kristol........ $0 $ 0 $0 $0 $0 $ 0 Over $100,000 Debra Perry............ $0 $ 0 $0 $0 $0 $ 0 Over $100,000 Donald K. Peterson..... $0 $ 0 $0 $0 $0 $ 0 Over $100,000 Thomas B. Stiles II.... $0 $ 0 $0 $0 $0 $ 0 Over $100,000 Rosalie J. Wolf........ $0 $ 0 $0 $0 $0 $ 0 Over $100,000 |
As of January 23, 2013, no Independent Director, nor any of their immediate family members, owned beneficially or of record any class of securities in the Manager or the Fund's distributor or a person (other than a registered investment company) directly or indirectly "controlling," "controlled by," or "under common control with" (within the meaning of the 1940 Act) the Manager or the Fund's distributor.
As of January 23, 2013, the Directors and officers of the Fund, as a group, owned less than 1% of the outstanding shares of the Portfolios.
The Fund does not pay any fees to, or reimburse expenses of, its Directors who are considered "interested persons" of the Fund. The aggregate compensation paid to each of the Directors during the fiscal year ended September 30, 2012 by the Fund and by the AllianceBernstein Fund Complex and the total number of registered investment companies (and separate investment portfolios within those companies) in the AllianceBernstein Fund Complex with respect to which each of the Directors serves as a director or trustee, are set forth below. Neither the Fund nor any other fund in the AllianceBernstein 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 AllianceBernstein Fund Complex.
TOTAL TOTAL NUMBER OF NUMBER OF INVESTMENT INVESTMENT COMPANIES PORTFOLIOS IN THE WITHIN THE ALLIANCEBERNSTEIN ALLIANCEBERNSTEIN FUND FUND TOTAL COMPLEX, COMPLEX COMPENSATION INCLUDING INCLUDING FROM THE THE FUND, THE FUND, ALLIANCEBERNSTEIN AS TO WHICH AS TO AGGREGATE FUND THE WHICH THE COMPENSATION COMPLEX, DIRECTOR IS DIRECTOR IS NAME OF FROM THE INCLUDING THE A DIRECTOR A DIRECTOR DIRECTOR FUND FUND OR TRUSTEE OR TRUSTEE -------- ------------ ----------------- ----------------- ----------------- INTERESTED DIRECTOR: Dianne F. Lob....... $ 0 $ 0 1 18 INDEPENDENT DIRECTORS: Bart Friedman.. $180,000 $180,000 1 18 William Kristol... $165,000 $165,000 1 18 Debra Perry. $165,000 $165,000 1 18 Donald K. Peterson.. $180,000 $180,000 1 18 Thomas B. Stiles II. $210,000 $210,000 1 18 Rosalie J. Wolf...... $165,000 $165,000 1 18 |
Certain information concerning the Fund's officers is set forth below.
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND AGE WITH FUND DURING LAST FIVE YEARS OR LONGER -------------- -------------------------------------- ----------------------------------------- Dianne F. Lob, 58........ President See biography above. Philip L. Kirstein, 67 Senior Vice President and Independent Senior Vice President and Independent Compliance Officer Compliance Officer of the AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP (law firm) from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to March 2003. Emilie D. Wrapp, 57 Secretary Senior Vice President, Assistant General Counsel and Assistant Secretary of AllianceBernstein Investments, Inc. ("ABI"),** with which she has been |
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND AGE WITH FUND DURING LAST FIVE YEARS OR LONGER -------------- -------------------------------------- ------------------------------------------ associated since prior to 2008. Joseph J. Mantineo, 53 Treasurer and Chief Financial Officer Senior Vice President of AllianceBernstein Investor Services, Inc. ("ABIS"),** with which he has been associated since prior to 2008. |
MANAGEMENT OF THE FUND
The Manager is a leading global investment management firm supervising client accounts with assets as of September 30, 2012, totaling approximately $419 billion. The Manager provides management services for many of the largest U.S. public and private employee benefit plans, endowments, foundations, public employee retirement funds, banks, insurance companies and high net worth individuals worldwide. The Manager is also one of the largest mutual fund sponsors, with a diverse family of globally distributed mutual fund portfolios. As one of the world's leading global investment management organizations, the Manager is able to compete for virtually any portfolio assignment in any developed capital market in the world.
As of September 30, 2012, the ownership structure of the Manager, expressed as a percentage of general and limited partnership interests, was as follows:
AXA and its subsidiaries....... 61.0% AllianceBernstein Holding L.P.. 37.5% Unaffiliated holders........... 1.5% ----- 100.0% ===== |
AXA is a societe anonyme organized under the laws of France and the holding company for an international group of insurance and related financial services companies through certain of its subsidiaries ("AXA and its subsidiaries"). AllianceBernstein Holding L.P. ("Holding") is a Delaware limited partnership, the units of which, ("Holding Units") are traded publicly on the Exchange under the ticker symbol "AB". As of September 30, 2012, AXA owned approximately 1.4% of the issued and outstanding assignments of beneficial ownership of the Holding Units.
AllianceBernstein Corporation (an indirect wholly-owned subsidiary of AXA) is the general partner of both Holding and the Manager. AllianceBernstein Corporation owns 100,000 general partnership units in Holding and a 1% general partnership interest in the Manager. Including both the general partnership and limited partnership interests in Holding and the Manager, AXA and its subsidiaries had an approximate 64.2% economic interest in the Manager as of September 30, 2012.
AXA is a worldwide leader in financial protection and wealth management. AXA operates primarily in Western Europe, North America and the Asia/Pacific region and, to a lesser extent, in other regions including the Middle East, Africa and South America. AXA has five operating business segments: life and savings; property and casualty insurance; international insurance (including reinsurance); asset management and other financial services. AXA Financial, Inc. ("AXA Financial") is a wholly-owned subsidiary of AXA. AXA Equitable Life Insurance Company ("AXA Equitable") is an indirect wholly-owned subsidiary of AXA Financial.
Subject to the general oversight of the Board, and in conformity with the stated policies of each of the Portfolios, AllianceBernstein manages the investment of each Portfolio's assets. AllianceBernstein makes investment decisions for each Portfolio and places purchase and sale orders. The services of AllianceBernstein are not exclusive under the terms of the Fund's investment management agreement, with respect to each Portfolio ("Management Agreement"); AllianceBernstein is free to render similar services to others.
AllianceBernstein has authorized those of its directors, officers or employees who are elected as directors or officers of the Fund to serve in the capacities in which they are elected. All services furnished by the Manager under the Management Agreement may be furnished through the medium of any such directors, officers or employees of the Manager. In connection with the provision of its
services under the Management Agreement, the Manager bears various expenses, including the salaries and expenses of all personnel, except the fees and expenses of directors not affiliated with the Manager.
Each Portfolio pays the Manager for the services performed on behalf of that Portfolio, as well as for the services performed on behalf of the Fund as a whole. The fee is computed daily and paid monthly at the rates set forth below:
PORTFOLIO ANNUAL PERCENTAGE OF AVERAGE DAILY NET ASSETS OF EACH PORTFOLIO --------- --------------------------------------------------------------- Short 0.45% of the first $750 million; 0.40% of assets in Duration excess of $750 million California Municipal Portfolio Short 0.45% of the first $750 million; 0.40% of assets in Duration excess of $750 million Diversified Municipal Portfolio Short 0.45% of the first $750 million; 0.40% of assets in Duration New excess of $750 million York Municipal Portfolio U.S. 0.45% of the first $750 million; 0.40% of assets in Government excess of $750 million Short Duration Portfolio Short 0.45% of the first $750 million; 0.40% of assets in Duration Plus excess of $750 million Portfolio New York 0.50% of the first $1 billion; 0.45% in excess of $1 Municipal billion up to, but not exceeding $3 billion; 0.40% in Portfolio excess of $3 billion up to, but not exceeding $5 billion; 0.35% of assets in excess of $5 billion California 0.50% of the first $1 billion; 0.45% in excess of $1 Municipal billion up to, but not exceeding $3 billion; 0.40% in Portfolio excess of $3 billion up to, but not exceeding $5 billion; 0.35% of assets in excess of $5 billion Diversified 0.50% of the first $1 billion; 0.45% in excess of $1 Municipal billion up to, but not exceeding $3 billion; 0.40% in Portfolio excess of $3 billion up to, but not exceeding $5 billion; 0.35% of assets in excess of $5 billion, but not exceeding $7 billion; 0.30% of assets in excess of $ $7 billion Intermediate 0.50% of the first $1 billion; 0.45% in excess of $1 Duration billion up to, but not exceeding $3 billion; 0.40% in Portfolio excess of $3 billion up to, but not exceeding $5 billion; 0.35% in excess of $5 billion up to, but not exceeding $7 billion ; 0.30% of assets in excess of $7 billion Tax-Managed 0.925% of the first $1 billion; 0.85% in excess of $1 International billion up to, but not exceeding $4 billion; 0.80% in Portfolio excess of $4 billion up to, but not exceeding $6 billion; 0.75% in excess of $6 billion up to, but not exceeding $8 billion; 0.65% in excess of $8 billion up to, but not exceeding $10 billion; 0.60% of assets in excess of $10 billion International 0.925% of the first $1 billion; 0.85% in excess of $1 Portfolio billion up to, but not exceeding $4 billion; 0.80% in excess of $4 billion up to, but not exceeding $6 billion; 0.75% in excess of $6 billion up to, but not exceeding $8 billion; 0.65% of assets in excess of $8 billion Emerging 1.175% of the first $1 billion; 1.05% in excess of $1 Markets billion up to, but not exceeding $2 billion; 1.00% in Portfolio excess of $2 billion up to, but not exceeding $3 billion; 0.90% in excess of $3 billion up to, but not exceeding $6 billion; 0.85% of assets in excess of $6 billion - 59 - |
PORTFOLIO ANNUAL PERCENTAGE OF AVERAGE DAILY NET ASSETS OF EACH PORTFOLIO --------- --------------------------------------------------------------- Overlay A 0.90% Portfolio Tax-Aware 0.90% Overlay A Portfolio Overlay B 0.65% Portfolio Tax-Aware 0.65% Overlay B Portfolio Tax-Aware 0.65% Overlay C Portfolio Tax-Aware 0.65% Overlay N Portfolio |
The table below indicates the investment management fees accrued or paid by the Portfolios to AllianceBernstein for the fiscal years ended September 30, 2010, September 30, 2011 and September 30, 2012:
MANAGEMENT FEE FOR THE FISCAL YEARS ENDED SEPTEMBER 30, ------------------------------------ PORTFOLIO 2010 2011 2012 --------- ----------- ----------- ----------- U.S. Government Short Duration Portfolio.. $ 788,843 $ 672,998 $ 570,575 Short Duration Plus Portfolio............. $ 2,588,776 $ 3,238,322 $ 2,822,964 Short Duration New York Municipal Portfolio............................... $ 1,180,024 $ 904,290 $ 667,532 Short Duration California Municipal Portfolio............................... $ 575,417 $ 572,966 $ 467,160 Short Duration Diversified Municipal Portfolio............................... $ 2,505,683 $ 2,318,876 $ 1,966,568 Intermediate Duration Portfolio........... $23,069,775 $22,914,440 $21,766,605 New York Municipal Portfolio.............. $ 9,099,731 $ 8,952,015 $ 8,731,782 California Municipal Portfolio............ $ 6,025,615 $ 5,584,430 $ 5,618,276 Diversified Municipal Portfolio........... $23,605,032 $23,667,497 $24,222,641 Tax-Managed International Portfolio....... $42,832,384 $40,498,930 $31,359,218 International Portfolio................... $19,671,435 $18,035,661 $13,985,420 Emerging Markets Portfolio................ $21,499,473 $20,395,303 $14,934,032 Overlay A Portfolio....................... $ 2,513,520* $10,780,466 $13,084,993 Tax-Aware Overlay A Portfolio............. $ 4,798,681* $21,784,320 $25,419,604 Overlay B Portfolio....................... $ 1,343,711* $ 5,456,369 $ 6,624,823 Tax-Aware Overlay B Portfolio............. $ 1,957,371* $ 8,588,173 $10,894,077 Tax-Aware Overlay C Portfolio............. $ 513,585* $ 2,080,847 $ 2,762,031 Tax-Aware Overlay N Portfolio............. $ 459,701* $ 1,899,249 $ 2,391,084 -------- |
* For the period February 8, 2010 to September 30, 2010.
The Management Agreement provides that the Manager shall not be liable to the Fund or the Portfolios for any error of judgment by the Manager or for any loss sustained by the Fund or the Portfolios except in the case of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations and duties under the Management Agreement.
In addition to the Management Agreement, the Fund, on behalf of each of the Portfolios, has entered into Shareholder Servicing Agreements with AllianceBernstein. AllianceBernstein serves as Shareholder Servicing Agent and in such capacity may enter into agreements with other organizations whereby some or all of AllianceBernstein's duties in this regard may be delegated. AllianceBernstein has delegated some of such duties to AllianceBernstein Investor Services, Inc. ("ABIS") and to Sanford C. Bernstein & Co., LLC ("Bernstein LLC"), each a wholly-owned subsidiary of AllianceBernstein. Pursuant to the Shareholder Servicing Agreements, the shareholder servicing that will be provided by AllianceBernstein and its subsidiaries or other organizations might include, among other things, proxy solicitations and providing information to shareholders concerning their mutual fund investments, systematic withdrawal plans, dividend payments, reinvestments, and other matters. The fee paid by each of the Fixed-Income Portfolios for shareholder servicing is 0.10% of each Portfolio's average daily net assets and the fee paid by the Tax-Managed International Portfolio, International Portfolio and the Emerging Markets Portfolio for these services is 0.25% of that Portfolio's average daily net assets. For the Class 1 shares of each Overlay Portfolio, AllianceBernstein charges an annual fee of 0.15% of each such Portfolio's average daily assets in Class 1 shares (0.20% for Overlay A and Tax-Aware Overlay A Portfolios). The table below indicates the shareholder servicing fees accrued or paid by the Portfolios to AllianceBernstein for the fiscal years ended September 30, 2010, September 30, 2011 and September 30, 2012:
SHAREHOLDER SERVICING FEE FOR THE FISCAL YEARS ENDED SEPTEMBER 30, ---------------------------------------------- PORTFOLIO 2010 2011 2012 --------- ----------- ----------- ---------- U.S. Government Short Duration Portfolio....... $ 175,298 $ 149,555 $ 126,795 Short Duration Plus Portfolio.................. $ 481,956 $ 624,052 $ 544,248 Short Duration New York Municipal Portfolio.... $ 262,227 $ 200,954 $ 148,340 Short Duration California Municipal Portfolio.. $ 127,870 $ 127,326 $ 103,813 Short Duration Diversified Municipal Portfolio. $ 556,819 $ 515,306 $ 437,015 Intermediate Duration Portfolio................ $ 5,305,650 $ 5,261,269 $4,944,151 New York Municipal Portfolio................... $ 1,752,608 $ 1,652,024 $1,541,811 California Municipal Portfolio................. $ 1,163,905 $ 1,059,794 $1,026,677 Diversified Municipal Portfolio................ $ 5,176,769 $ 4,991,204 $4,839,804 Tax-Managed International Portfolio............ $12,511,828 $11,785,124 $8,996,087 International Portfolio........................ $ 5,498,544 $ 5,039,884 $3,865,628 Emerging Markets Portfolio..................... $ 4,821,303 $ 4,558,406 $3,258,103 Overlay A Portfolio............................ $ 492,972* $ 2,058,920 $2,430,488 Tax-Aware Overlay A Portfolio.................. $ 860,935* $ 3,777,784 $4,342,583 Overlay B Portfolio............................ $ 268,056* $ 1,067,785 $1,261,582 Tax-Aware Overlay B Portfolio.................. $ 320,657* $ 1,317,311 $1,676,039 Tax-Aware Overlay C Portfolio.................. $ 84,476* $ 329,469 $ 394,094 Tax-Aware Overlay N Portfolio.................. $ 89,804* $ 376,132 $ 464,892 |
Except as indicated above, each Portfolio is responsible for the payment of
its expenses and an allocable share of the common expenses of the Fund,
including: (i) the fees payable to AllianceBernstein under the Management
Agreement and the Shareholder Servicing Agreements; (ii) the fees and expenses
of Directors who are not affiliated with AllianceBernstein; (iii) the fees and
expenses of the Fund's custodian (the "Custodian"); (iv) the fees and expenses
of calculating yield and/or performance pursuant to any independent servicing
agreement; (v) the charges and expenses of legal counsel and independent
auditors; (vi) all taxes and corporate fees payable to governmental agencies;
(vii) the fees of any trade association of which the Fund is a member;
(viii) reimbursement of each Portfolio's share of the organization expenses of
the Fund; (ix) the fees and expenses involved in registering and maintaining
registration of the Fund and the Portfolios' shares with the SEC, registering
the Fund as a broker or dealer and qualifying the shares of the Portfolios
under state securities laws, including the preparation and printing of the
registration statements and prospectuses for such purposes, allocable
communications expenses with respect to investor services, all expenses of
shareholders' and Board meetings and preparing, printing and mailing proxies,
prospectuses and reports to shareholders; (x) brokers' commissions, dealers'
markups, and any issue or transfer taxes chargeable in connection with the
Portfolios' securities transactions; (xi) the cost of stock certificates
representing shares of the Portfolios; (xii) insurance expenses, including but
not limited to, the cost of a fidelity bond, directors' and officers insurance,
and errors and omissions insurance; and (xiii) litigation and indemnification
expenses, expenses incurred in connection with mergers, and other extraordinary
expenses not incurred in the ordinary course of the Portfolios' business.
The Management Agreement provides that if at any time the Manager shall cease to act as investment adviser to any Portfolio or to the Fund, the Fund shall take all steps necessary under corporate law to change its corporate name to delete the reference to Sanford C. Bernstein and shall thereafter refrain from using such name with reference to the Fund.
The Management Agreement provides that it will terminate automatically if assigned and that it may be terminated without penalty by any Portfolio (by vote of the directors or by a vote of a majority of the outstanding voting securities of the Portfolio voting separately from any other Portfolio of the Fund) on not less than 30 days' written notice. The Management Agreement also provides that it will continue for more than the first two years only if such continuance is annually approved in the manner required by the 1940 Act and the Manager shall not have notified the Fund that it does not desire such continuance. Most recently, continuance of the Management Agreement for an additional annual period was approved by a vote, cast in person, of the Board, including a majority of the Directors who are not parties to the Management Agreement or interested persons of any such party, at a meeting held on October 25, 2012.
Certain other clients of the Manager may have investment objectives and policies similar to that of the Portfolios. The Manager may, from time to time, make recommendations which result in the purchase or sale of the particular security by its other clients simultaneously with a purchase or sale thereof by the Portfolios. 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. It is the policy of the Manager to allocate advisory recommendations and the placing of orders in a manner that is deemed equitable by the Manager to the accounts involved, including the Portfolios. When two or more of the Manager's clients (including
the Portfolios) are purchasing or selling the same security on a given day through the same broker or dealer, such transactions may be averaged as to price.
The Manager may act as an investment adviser to other persons, firms or corporations, including investment companies, and is the investment adviser to AllianceBernstein Blended Style Series, Inc., AllianceBernstein Bond Fund, Inc., AllianceBernstein Cap Fund, Inc., AllianceBernstein Core Opportunities Fund, AllianceBernstein Corporate Shares, Inc., AllianceBernstein Discovery Growth Fund, Inc., AllianceBernstein Equity Income Fund, Inc., AllianceBernstein Exchange Reserves, AllianceBernstein Fixed-Income Shares, Inc., AllianceBernstein Global Bond Fund, Inc., AllianceBernstein Global Real Estate Investment Fund, Inc., AllianceBernstein Global Risk Allocation Fund, Inc., AllianceBernstein Global Thematic Growth Fund, Inc., AllianceBernstein Growth and Income Fund, Inc., AllianceBernstein High Income Fund, Inc., AllianceBernstein Institutional Funds, Inc., AllianceBernstein International Growth Fund, Inc., AllianceBernstein Large Cap Growth Fund, Inc., AllianceBernstein Municipal Income Fund, Inc., AllianceBernstein Municipal Income Fund II, AllianceBernstein Trust, AllianceBernstein Unconstrained Bond Fund, Inc., AllianceBernstein Variable Products Series Fund, Inc., Sanford C. Bernstein Fund, Inc., Sanford C. Bernstein Fund II, Inc., The AllianceBernstein Pooling Portfolios and The AllianceBernstein Portfolios, all registered open-end investment companies; and to AllianceBernstein Global High Income Fund, Inc., AllianceBernstein Income Fund, Inc., AllianceBernstein National Municipal Income Fund, Inc., Alliance California Municipal Income Fund, Inc., and Alliance New York Municipal Income Fund, Inc., all registered closed-end investment companies.
As of September 30, 2012, AllianceBernstein employees had approximately $122,113,845.54 in shares of all AllianceBernstein Mutual Funds (excluding AllianceBernstein money market funds) through their interests in certain deferred compensation plans, including the Partners Compensation Plan, including both vested and unvested amounts.
SANFORD C. BERNSTEIN FUND, INC.
. INTERNATIONAL PORTFOLIO
. TAX-MANAGED INTERNATIONAL PORTFOLIO
. EMERGING MARKETS PORTFOLIO
The management of and investment decisions for the International Portfolios' portfolios are made by the International Team. The four investment professionals/1/ with the most significant responsibility for the day-to-day management of the Portfolios' portfolios are: Kent W. Hargis, Patrick J. Rudden, Laurent Saltiel, Karen Sesin and Kevin F. Simms. For additional information about the portfolio management of the Portfolios, see "Management of the Portfolios" in the Prospectus.
The management of and investment decisions for the Emerging Markets Portfolio are made by the Emerging Markets Team. The four investment professionals/1/ with the most significant responsibility for the day-to-day management of the Emerging Markets Portfolio are: Henry D'Auria, Patrick J. Rudden, Laurent Saltiel and Karen Sesin. For additional information about the portfolio management of the Portfolios, see "Management of the Portfolios" in the Prospectus.
EXCEPT AS SET FORTH BELOW, THE AFOREMENTIONED INDIVIDUALS DID NOT OWN SHARES
IN THE PORTFOLIOS' SECURITIES AS OF SEPTEMBER 30, 2012.
INTERNATIONAL PORTFOLIO DOLLAR RANGE OF EQUITY SECURITIES IN THE PORTFOLIO ------------- -------------------------------------------------- Kent W. Hargis. $50,001 - $100,000 |
The following tables provide information regarding other registered investment companies, other pooled investment vehicles and other accounts over which the Portfolios' portfolio managers also have day-to-day management responsibilities. The tables
provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of September 30, 2012.
INTERNATIONAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
NUMBER OF TOTAL ASSETS OF REGISTERED REGISTERED TOTAL ASSETS OF INVESTMENT INVESTMENT TOTAL NUMBER REGISTERED COMPANIES COMPANIES OF REGISTERED INVESTMENT MANAGED WITH MANAGED WITH INVESTMENT COMPANIES PERFORMANCE- PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Kent W. Hargis/*/. 72 $13,133 None None Patrick J. Rudden. 54 $20,206 None None Laurent Saltiel... 26 $ 3,363 None None Karen Sesin....... 2 $ 4,695 None None Kevin F. Simms.... 103 $16,108 None None |
TAX-MANAGED INTERNATIONAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Kent W. Hargis/*/. 72 $12,149 None None Patrick J. Rudden. 54 $18,240 None None Laurent Saltiel... 26 $ 2,380 None None Karen Sesin....... 2 $ 2,728 None None Kevin F. Simms.... 103 $15,124 None None |
* Kent W. Hargis joined the Manager's International Team after the end of the Portfolio's fiscal year and, therefore, this information does not reflect assets of the International Team accounts he currently manages.
EMERGING MARKETS PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Henry D'Auria..... 80 $14,954 None None Patrick J. Rudden. 54 $20,453 None None Laurent Saltiel... 26 $ 3,486 None None Karen Sesin....... 2 $ 4,941 None None |
INTERNATIONAL PORTFOLIO
TAX-MANAGED INTERNATIONAL PORTFOLIO
OTHER POOLED INVESTMENT VEHICLES
TOTAL ASSETS OF POOLED TOTAL TOTAL ASSETS OF INVESTMENT NUMBER OF POOLED NUMBER OF POOLED VEHICLES POOLED INVESTMENT INVESTMENT MANAGED WITH INVESTMENT VEHICLES VEHICLES MANAGED PERFORMANCE- PORTFOLIO VEHICLES MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ---------- --------------- ----------------- --------------- Kent W. Hargis/*/. 167 $ 3,377 2 $ 149 Patrick J. Rudden. 213 $24,141 2 $ 161 Laurent Saltiel... 62 $ 1,964 1 $ 17 Karen Sesin....... None None None None Kevin F. Simms.... 260 $ 8,314 5 $ 650 |
EMERGING MARKETS PORTFOLIO
OTHER POOLED INVESTMENT VEHICLES
TOTAL ASSETS OF POOLED TOTAL TOTAL ASSETS OF INVESTMENT NUMBER OF POOLED NUMBER OF POOLED VEHICLES POOLED INVESTMENT INVESTMENT MANAGED WITH INVESTMENT VEHICLES VEHICLES MANAGED PERFORMANCE- PORTFOLIO VEHICLES MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ---------- --------------- ----------------- --------------- Henry D'Auria..... 184 $ 7,916 5 $ 650 Patrick J. Rudden. 213 $23,141 2 $ 161 Laurent Saltiel... 62 $ 1,964 1 $ 17 Karen Sesin....... None None None None |
INTERNATIONAL PORTFOLIO
TAX-MANAGED INTERNATIONAL PORTFOLIO
OTHER ACCOUNTS
TOTAL ASSETS OF TOTAL OTHER ACCOUNTS NUMBER OF TOTAL ASSETS OF NUMBER OF OTHER WITH OTHER OTHER ACCOUNTS ACCOUNTS MANAGED PERFORMANCE- PORTFOLIO ACCOUNTS MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- --------- --------------- ----------------- --------------- Kent W. Hargis/*/. 52,075 $22,566 7 $1,228 Patrick J. Rudden. 48 $14,307 1 $ 35 Laurent Saltiel... 6 $ 625 1 $ 37 Karen Sesin....... None None None None Kevin F. Simms.... 28,806 $28,561 14 $3,108 |
* Kent W. Hargis joined the Manager's International Team after the end of the Portfolio's fiscal year and, therefore, this information does not reflect assets of the International Team accounts he currently manages.
EMERGING MARKETS PORTFOLIO
OTHER ACCOUNTS
TOTAL ASSETS OF TOTAL OTHER ACCOUNTS NUMBER OF TOTAL ASSETS OF NUMBER OF OTHER WITH OTHER OTHER ACCOUNTS ACCOUNTS MANAGED PERFORMANCE- PORTFOLIO ACCOUNTS MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- --------- --------------- ----------------- --------------- Henry D'Auria..... 28,797 $28,184 14 $3,108 Patrick J. Rudden. 48 $14,307 1 $ 35 Laurent Saltiel... 5 $ 588 1 $ 37 Karen Sesin....... None None None $ None |
SANFORD C. BERNSTEIN FUND, INC.
. SHORT DURATION NEW YORK MUNICIPAL PORTFOLIO
. SHORT DURATION CALIFORNIA MUNICIPAL PORTFOLIO
. SHORT DURATION DIVERSIFIED MUNICIPAL PORTFOLIO
. NEW YORK MUNICIPAL PORTFOLIO
. CALIFORNIA MUNICIPAL PORTFOLIO
. DIVERSIFIED MUNICIPAL PORTFOLIO
The management of and investment decisions for the Portfolios' portfolios are made by the Municipal Bond Investment Team. The five investment professionals with the most significant responsibility for the day-to-day management of the Portfolios' portfolios are: Michael Brooks, Fred S. Cohen, R. B. Davidson III, Wayne Godlin and Terrance T. Hults. For additional information about the portfolio management of each Portfolio, see "Management of the Portfolios" in the Prospectus.
EXCEPT AS SET FORTH BELOW, THE AFOREMENTIONED INDIVIDUALS DID NOT OWN SHARES
IN THE PORTFOLIOS' SECURITIES AS OF SEPTEMBER 30, 2012.
SHORT DURATION NEW YORK MUNICIPAL DOLLAR RANGE OF PORTFOLIO EQUITY SECURITIES IN THE PORTFOLIO ------------------ ---------------------------------- R. B. Davidson III. $100,001 - $500,000 NEW YORK MUNICIPAL DOLLAR RANGE OF PORTFOLIO EQUITY SECURITIES IN THE PORTFOLIO ------------------ ---------------------------------- Michael Brooks..... Over $1,000,000 |
R. B. Davidson III. Over $1,000,000 Terrance T. Hults.. $10,001-$50,000
The following tables provide information regarding other registered investment companies, other pooled investment vehicles and other accounts over which the Portfolios' portfolio managers also have day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of September 30, 2012.
SHORT DURATION NEW YORK MUNICIPAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Michael Brooks..... 29 $18,392 None None Fred S. Cohen...... 29 $18,392 None None R. B. Davidson III. 29 $18,392 None None Wayne Godlin....... 29 $18,392 None None Terrance T. Hults.. 29 $18,392 None None |
SHORT DURATION CALIFORNIA MUNICIPAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
NUMBER OF TOTAL ASSETS OF REGISTERED REGISTERED TOTAL TOTAL ASSETS OF INVESTMENT INVESTMENT NUMBER REGISTERED COMPANIES COMPANIES OF REGISTERED INVESTMENT MANAGED WITH MANAGED WITH INVESTMENT COMPANIES PERFORMANCE- PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Michael Brooks..... 29 $18,426 None None Fred S. Cohen...... 29 $18,426 None None R. B. Davidson III. 29 $18,426 None None Wayne Godlin....... 29 $18,426 None None Terrance T. Hults.. 29 $18,426 None None |
SHORT DURATION DIVERSIFIED MUNICIPAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
NUMBER OF TOTAL ASSETS OF REGISTERED REGISTERED TOTAL TOTAL ASSETS OF INVESTMENT INVESTMENT NUMBER REGISTERED COMPANIES COMPANIES OF REGISTERED INVESTMENT MANAGED WITH MANAGED WITH INVESTMENT COMPANIES PERFORMANCE- PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Michael Brooks..... 29 $18,131 None None Fred S. Cohen...... 29 $18,131 None None R. B. Davidson III. 29 $18,131 None None Wayne Godlin....... 29 $18,131 None None Terrance T. Hults.. 29 $18,131 None None |
NEW YORK MUNICIPAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
NUMBER OF TOTAL ASSETS OF REGISTERED REGISTERED TOTAL TOTAL ASSETS OF INVESTMENT INVESTMENT NUMBER REGISTERED COMPANIES COMPANIES OF REGISTERED INVESTMENT MANAGED WITH MANAGED WITH INVESTMENT COMPANIES PERFORMANCE- PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Michael Brooks..... 29 $17,026 None None Fred S. Cohen...... 29 $17,026 None None R. B. Davidson III. 29 $17,026 None None Wayne Godlin....... 29 $17,026 None None Terrance T. Hults.. 29 $17,026 None None |
CALIFORNIA MUNICIPAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
TOTAL ASSETS NUMBER OF OF REGISTERED REGISTERED INVESTMENT TOTAL TOTAL ASSETS OF INVESTMENT COMPANIES NUMBER REGISTERED COMPANIES MANAGED OF REGISTERED INVESTMENT MANAGED WITH INVESTMENT COMPANIES WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE- BASED FEES MANAGER MANAGED MILLIONS) BASED FEES (IN MILLIONS) --------- ------------- --------------- ------------ ------------- Michael Brooks..... 29 $17,532 None None Fred S. Cohen...... 29 $17,532 None None R. B. Davidson III. 29 $17,532 None None Wayne Godlin....... 29 $17,532 None None Terrance T. Hults.. 29 $17,532 None None |
DIVERSIFIED MUNICIPAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
NUMBER OF TOTAL ASSETS OF REGISTERED REGISTERED TOTAL ASSETS OF INVESTMENT INVESTMENT TOTAL NUMBER REGISTERED COMPANIES COMPANIES OF REGISTERED INVESTMENT MANAGED WITH MANAGED WITH INVESTMENT COMPANIES PERFORMANCE- PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Michael Brooks..... 29 $13,836 None None Fred S. Cohen...... 29 $13,836 None None R. B. Davidson III. 29 $13,836 None None Wayne Godlin....... 29 $13,836 None None Terrance T. Hults.. 29 $13,836 None None |
SHORT DURATION NEW YORK MUNICIPAL PORTFOLIO
SHORT DURATION CALIFORNIA MUNICIPAL PORTFOLIO
SHORT DURATION DIVERSIFIED MUNICIPAL PORTFOLIO
NEW YORK MUNICIPAL PORTFOLIO
CALIFORNIA MUNICIPAL PORTFOLIO
DIVERSIFIED MUNICIPAL PORTFOLIO
OTHER POOLED INVESTMENT VEHICLES
NUMBER OF TOTAL ASSETS OF POOLED POOLED TOTAL TOTAL ASSETS OF INVESTMENT INVESTMENT NUMBER OF POOLED VEHICLES VEHICLES POOLED INVESTMENT MANAGED MANAGED WITH INVESTMENT VEHICLES WITH PERFORMANCE- PORTFOLIO VEHICLES MANAGED (IN PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ---------- --------------- ------------ --------------- Michael Brooks..... 2 $92 None None Fred S. Cohen...... 2 $92 None None R. B. Davidson III. 2 $92 None None Wayne Godlin....... 2 $92 None None Terrance T. Hults.. 2 $92 None None |
SHORT DURATION NEW YORK MUNICIPAL PORTFOLIO
SHORT DURATION CALIFORNIA MUNICIPAL PORTFOLIO
SHORT DURATION DIVERSIFIED MUNICIPAL PORTFOLIO
NEW YORK MUNICIPAL PORTFOLIO
CALIFORNIA MUNICIPAL PORTFOLIO
DIVERSIFIED MUNICIPAL PORTFOLIO
OTHER ACCOUNTS NUMBER OF OTHER TOTAL ASSETS OF TOTAL ACCOUNTS OTHER ACCOUNTS NUMBER OF TOTAL ASSETS OF MANAGED WITH OTHER OTHER ACCOUNTS WITH PERFORMANCE- PORTFOLIO ACCOUNTS MANAGED (IN PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- --------- --------------- ------------ --------------- Michael Brooks..... 1,685 $12,959 3 $408 Fred S. Cohen...... 1,685 $12,959 3 $408 R. B. Davidson III. 1,685 $12,959 3 $408 Wayne Godlin....... 1,685 $12,959 3 $408 Terrance T. Hults.. 1,685 $12,959 3 $408 |
SANFORD C. BERNSTEIN FUND, INC.
. U.S. GOVERNMENT SHORT DURATION PORTFOLIO
. SHORT DURATION PLUS PORTFOLIO
The management of and investment decisions for the Portfolios' portfolios
are made by the U.S. Investment Grade: Liquid Markets Structured Products
Investment Team. The five investment professionals with the most significant
responsibility for the day-to-day management of the Portfolios' portfolios are:
Jon P. Denfeld, Shawn E. Keegan, Alison M. Martier, Douglas J. Peebles and Greg
J. Wilensky. For additional information about the portfolio management of the
Portfolios, see "Management of the Portfolios" in the Prospectus.
THE AFOREMENTIONED INDIVIDUALS DID NOT OWN SHARES IN THE PORTFOLIOS'
SECURITIES AS OF SEPTEMBER 30, 2012.
The following tables provide information regarding other registered investment companies, other pooled investment vehicles and other accounts over which the Portfolios' portfolio managers also have day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of September 30, 2012.
U.S. GOVERNMENT SHORT DURATION PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
NUMBER OF REGISTERED TOTAL ASSETS OF INVESTMENT REGISTERED TOTAL TOTAL ASSETS OF COMPANIES INVESTMENT NUMBER REGISTERED MANAGED COMPANIES OF REGISTERED INVESTMENT WITH MANAGED WITH INVESTMENT COMPANIES PERFORMANCE- PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Jon P. Denfeld..... 15 $ 8,753 None None Shawn E. Keegan.... 16 $ 9,151 None None Alison M. Martier.. 15 $ 8,753 None None Douglas J. Peebles. 57 $27,131 None None Greg J. Wilensky... 39 $10,084 None None |
SHORT DURATION PLUS PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL TOTAL ASSETS OF REGISTERED INVESTMENT NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Jon P. Denfeld..... 15 $ 8,313 None None Shawn E. Keegan.... 16 $ 8,711 None None Alison M. Martier.. 15 $ 8,313 None None Douglas J. Peebles. 57 $26,691 None None Greg J. Wilensky... 39 $ 9,644 None None |
U.S. GOVERNMENT SHORT DURATION PORTFOLIO
SHORT DURATION PLUS PORTFOLIO
OTHER POOLED INVESTMENT VEHICLES
NUMBER OF TOTAL ASSETS OF POOLED POOLED TOTAL TOTAL ASSETS OF INVESTMENT INVESTMENT NUMBER OF POOLED VEHICLES VEHICLES POOLED INVESTMENT MANAGED MANAGED WITH INVESTMENT VEHICLES WITH PERFORMANCE- PORTFOLIO VEHICLES MANAGED (IN PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ---------- --------------- ------------ --------------- Jon P. Denfeld..... 58 $ 822 1 $ 83 Shawn E. Keegan.... 68 $11,536 1 $ 83 Alison M. Martier.. 58 $ 822 1 $305 Douglas J. Peebles. 124 $58,438 1 $ 83 Greg J. Wilensky... 84 $ 1,007 1 $ 83 |
U.S. GOVERNMENT SHORT DURATION PORTFOLIO
SHORT DURATION PLUS PORTFOLIO
OTHER ACCOUNTS TOTAL ASSETS OF TOTAL OTHER ACCOUNTS NUMBER OF TOTAL ASSETS OF NUMBER OF OTHER WITH OTHER OTHER ACCOUNTS ACCOUNTS MANAGED PERFORMANCE- PORTFOLIO ACCOUNTS MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- --------- --------------- ----------------- --------------- Jon P. Denfeld..... 144 $ 12,553 1 $ 391 Shawn E. Keegan.... 270 $ 68,464 3 $3,218 Alison M. Martier.. 144 $ 12,553 1 $ 391 Douglas J. Peebles. 384 $105,913 8 $5,516 Greg J. Wilensky... 149 $ 12,702 1 $ 391 |
SANFORD C. BERNSTEIN FUND, INC.
. INTERMEDIATE DURATION PORTFOLIO
The management of and investment decisions for the Portfolio's portfolio are made by the U.S. Investment Grade: Core Fixed Income Investment Team. The five investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio are: Paul J. DeNoon, Shawn E. Keegan, Alison M. Martier, Douglas J. Peebles, and Greg J. Wilensky. For additional information about the portfolio management of the Portfolios, see "Management of the Portfolios" in the Prospectus.
EXCEPT AS SET FORTH BELOW, THE AFOREMENTIONED INDIVIDUALS DID NOT OWN SHARES
IN THE PORTFOLIOS' SECURITIES AS OF SEPTEMBER 30, 2012.
INTERMEDIATE DURATION PORTFOLIO PORTFOLIO DOLLAR RANGE OF EQUITY SECURITIES IN THE PORTFOLIO ------------------------------- -------------------------------------------------- Douglas J. Peebles.............. $100,001 - $500,000 |
The following tables provide information regarding other registered investment companies, other pooled investment vehicles and other accounts over which the Portfolios' portfolio managers also have day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of September 30, 2012.
INTERMEDIATE DURATION PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Paul J. DeNoon..... 85 $27,899 None None Shawn E. Keegan.... 16 $ 4,434 None None Alison M. Martier.. 15 $ 4,036 None None Douglas J. Peebles. 57 $22,414 None None Greg J. Wilensky... 39 $ 5,367 None None |
INTERMEDIATE DURATION PORTFOLIO
OTHER POOLED INVESTMENT VEHICLES
NUMBER OF TOTAL ASSETS OF POOLED POOLED TOTAL TOTAL ASSETS OF INVESTMENT INVESTMENT NUMBER POOLED VEHICLES VEHICLES OF POOLED INVESTMENT MANAGED MANAGED WITH INVESTMENT VEHICLES WITH PERFORMANCE- PORTFOLIO VEHICLES MANAGED (IN PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ---------- --------------- ------------ --------------- Paul J. DeNoon..... 113 $43,834 2 $166 Shawn E. Keegan.... 68 $11,536 1 $ 83 Alison M. Martier.. 58 $ 822 1 $ 83 Douglas J. Peebles. 124 $58,438 3 $305 Greg J. Wilensky... 84 $ 1,007 1 $ 83 |
INTERMEDIATE DURATION PORTFOLIO
OTHER ACCOUNTS TOTAL ASSETS OF TOTAL NUMBER OF OTHER OTHER ACCOUNTS NUMBER OF TOTAL ASSETS OF ACCOUNTS WITH OTHER OTHER ACCOUNTS MANAGED PERFORMANCE- PORTFOLIO ACCOUNTS MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- --------- --------------- ----------------- --------------- Paul J. DeNoon..... 238 $ 49,722 5 $2,465 Shawn E. Keegan.... 270 $ 68,464 3 $3,218 Alison M. Martier.. 144 $ 12,553 1 $ 391 Douglas J. Peebles. 384 $105,913 8 $5,516 Greg J. Wilensky... 149 $ 12,702 1 $ 391 |
OVERLAY A PORTFOLIO
TAX-AWARE OVERLAY A PORTFOLIO
OVERLAY B PORTFOLIO
TAX-AWARE OVERLAY B PORTFOLIO
TAX-AWARE OVERLAY C PORTFOLIO
TAX-AWARE OVERLAY N PORTFOLIO
The management of and investment decisions for the Overlay Portfolios are made by the Asset Allocation Team. The four investment professionals on the Asset Allocation Team with the most significant responsibility for the day-to-day management of the Portfolios' portfolios are: Andrew Y. Chin, Dianne F. Lob, Daniel J. Loewy and Seth J. Masters. For additional information about the portfolio management of the Portfolios, see "Fund Management" in the Portfolios' Prospectus.
EXCEPT AS SET FORTH BELOW, THE AFOREMENTIONED INDIVIDUALS DID NOT OWN SHARES IN THE PORTFOLIOS' SECURITIES BECAUSE THE PORTFOLIOS WERE NOT YET IN OPERATION AS OF SEPTEMBER 30, 2012.
OVERLAY A PORTFOLIO DOLLAR RANGE OF EQUITY SECURITIES IN THE PORTFOLIO ------------------- -------------------------------------------------- Seth J. Masters..... $50,001 - $100,000 TAX-AWARE OVERLAY A PORTFOLIO DOLLAR RANGE OF EQUITY SECURITIES IN THE PORTFOLIO ------------------- -------------------------------------------------- Dianne F. Lob....... $500,001 - $1,000,000 Seth J. Masters..... Over $1,000,000 |
TAX-AWARE OVERLAY N PORTFOLIO DOLLAR RANGE OF EQUITY SECURITIES IN THE PORTFOLIO ------------------- -------------------------------------------------- Diane F. Lob........ $100,001 - $500,000 Daniel J. Loewy..... $10,001 - $50,000 |
The following tables provide information regarding other registered investment companies, other pooled investment vehicles and other accounts over which the Portfolios' portfolio managers also have day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of September 30, 2012.
OVERLAY A PORTFOLIO
REGISTERED INVESTMENT COMPANIES (EXCLUDING THE PORTFOLIO)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Andrew Y. Chin.. 73 $13,664 None None Dianne F. Lob... 36 $ 7,503 None None Daniel J. Loewy. 50 $12,945 None None Seth J. Masters. 54 $20,237 None None |
TAX-AWARE OVERLAY A PORTFOLIO
REGISTERED INVESTMENT COMPANIES (EXCLUDING THE PORTFOLIO)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Andrew Y. Chin.. 73 $12,285 None None Dianne F. Lob... 36 $ 6,124 None None Daniel J. Loewy. 50 $11,366 None None Seth J. Masters. 54 $18,858 None None |
OVERLAY B PORTFOLIO
REGISTERED INVESTMENT COMPANIES (EXCLUDING THE PORTFOLIO)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Andrew Y. Chin. 73 $14,057 None None Dianne F. Lob.. 36 $ 7,897 None None |
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Daniel J. Loewy. 50 $13,339 None None Seth J. Masters. 54 $20,630 None None |
TAX-AWARE OVERLAY B PORTFOLIO
REGISTERED INVESTMENT COMPANIES (EXCLUDING THE PORTFOLIO)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Andrew Y. Chin.. 73 $13,404 None None Dianne F. Lob... 36 $ 7,243 None None Daniel J. Loewy. 50 $12,686 None None Seth J. Masters. 54 $19,977 None None |
TAX-AWARE OVERLAY C PORTFOLIO
REGISTERED INVESTMENT COMPANIES (EXCLUDING THE PORTFOLIO)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Andrew Y. Chin.. 73 $14,687 None None Dianne F. Lob... 36 $ 8,526 None None Daniel J. Loewy. 50 $13,969 None None Seth J. Masters. 54 $21,260 None None |
TAX-AWARE OVERLAY N PORTFOLIO
REGISTERED INVESTMENT COMPANIES (EXCLUDING THE PORTFOLIO)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL ASSETS OF REGISTERED INVESTMENT TOTAL NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Andrew Y. Chin.. 73 $14,744 None None Dianne F. Lob... 36 $ 8,583 None None Daniel J. Loewy. 50 $14,026 None None Seth J. Masters. 54 $21,317 None None |
OVERLAY A PORTFOLIO
TAX-AWARE OVERLAY A PORTFOLIO
OVERLAY B PORTFOLIO
TAX-AWARE OVERLAY B PORTFOLIO
TAX-AWARE OVERLAY C PORTFOLIO
TAX-AWARE OVERLAY N PORTFOLIO
OTHER POOLED INVESTMENT VEHICLES
NUMBER OF TOTAL ASSETS OF POOLED POOLED TOTAL TOTAL ASSETS OF INVESTMENT INVESTMENT NUMBER OF POOLED VEHICLES VEHICLES POOLED INVESTMENT MANAGED MANAGED WITH INVESTMENT VEHICLES WITH PERFORMANCE- PORTFOLIO VEHICLES MANAGED (IN PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ---------- --------------- ------------ --------------- Andrew Y. Chin.. 113 $ 2,785 2 $ 149 Dianne F. Lob... 12 $ 113 None None Daniel J. Loewy. 62 $16,230 None None Seth J. Masters. 213 $23,141 2 $ 161 |
OVERLAY A PORTFOLIO
TAX-AWARE OVERLAY A PORTFOLIO
OVERLAY B PORTFOLIO
TAX-AWARE OVERLAY B PORTFOLIO
TAX-AWARE OVERLAY C PORTFOLIO
TAX-AWARE OVERLAY N PORTFOLIO
OTHER ACCOUNTS NUMBER OF OTHER TOTAL ASSETS OF TOTAL ACCOUNTS OTHER ACCOUNTS NUMBER OF TOTAL ASSETS OF MANAGED WITH OTHER OTHER ACCOUNTS WITH PERFORMANCE- PORTFOLIO ACCOUNTS MANAGED (IN PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- --------- --------------- ------------ --------------- Andrew Y. Chin.. 97 $15,578 6 $1,210 Dianne F. Lob... 21 $ 4,632 None None Daniel J. Loewy. 27 $11,049 None None Seth J. Masters. 48 $14,304 1 $ 35 |
As an investment adviser and fiduciary, the Manager owes its clients and shareholders an undivided duty of loyalty. We recognize that conflicts of interest are inherent in our business and accordingly have developed policies and procedures (including oversight monitoring) reasonably designed to detect, manage and mitigate the effects of actual or potential conflicts of interest in the area of employee personal trading, managing multiple accounts for multiple clients, including AllianceBernstein Mutual Funds, and allocating investment opportunities. Investment professionals, including portfolio managers and research analysts, are subject to the above-mentioned policies and oversight monitoring to ensure that all clients are treated equitably. We place the interests of our clients first and expect all of our employees to meet their fiduciary duties.
Business Conduct and Ethics also requires preclearance of all securities transactions (except transactions in U.S. Treasuries and open-end mutual funds) and imposes a 90-day holding period for securities purchased by employees to discourage short-term trading.
The Manager's procedures are also designed to address potential conflicts of interest that may arise when the Manager has a particular financial incentive, such as a performance-based management fee, relating to an account. An investment professional may perceive that he or she has an incentive to devote more time to developing and analyzing investment strategies and opportunities or allocating securities preferentially to accounts for which the Manager could share in investment gains.
The Manager's compensation program for portfolio managers is designed to align with clients' interests, emphasizing each portfolio manager's ability to generate long-term investment success for the Manager's clients, including the Portfolios. The Manager also strives to ensure that compensation is competitive and effective in attracting and retaining the highest caliber employees.
Portfolio managers receive a base salary, incentive compensation and contributions to AllianceBernstein's 401(k) plan. Part of the annual incentive compensation is generally paid in the form of a cash bonus, and part through an award under the firm's Incentive Compensation Award Plan (ICAP). The ICAP awards vest over a four-year period. Deferred awards are paid in the form of restricted grants of the firm's Master Limited Partnership Units, and award recipients have the ability to receive a portion of their awards in deferred cash. The amount of contributions to the 401(k) plan is determined at the sole discretion of the Manager. On an annual basis, the Manager endeavors to combine all of the foregoing elements into a total compensation package that considers industry compensation trends and is designed to retain its best talent.
The incentive portion of total compensation is determined by quantitative and qualitative factors. Quantitative factors, which are weighted more heavily, are driven by investment performance. Qualitative factors are driven by contributions to the investment process and client success.
The quantitative component includes measures of absolute, relative and risk-adjusted investment performance. Relative and risk-adjusted returns are determined based on the benchmark in the Fund's prospectus and versus peers over one-, three- and five-year calendar periods, with more weight given to longer-time periods. Peer groups are chosen by Chief Investment Officers, who consult with the product management team to identify products most similar to our investment style and most relevant within the asset class. Portfolio managers of the Portfolios do not receive any direct compensation based upon the investment returns of any individual client account, and compensation is not tied directly to the level or change in level of assets under management.
Among the qualitative components considered, the most important include thought leadership, collaboration with other investment colleagues, contributions to risk-adjusted returns of other portfolios in the firm, efforts in mentoring and building a strong talent pool and being a good corporate citizen. Other factors can play a role in determining portfolio managers' compensation, such as the complexity of investment strategies managed, volume of assets managed and experience.
The Manager emphasizes four behavioral competencies--relentlessness, ingenuity, team orientation and accountability--that support its mission to be the most trusted advisor to its clients. Assessments of investment professionals are formalized in a year-end review process that includes 360-degree feedback from other professionals from across the investment teams and the Manager.
NET ASSET VALUE
The per share NAV of each Portfolio is computed at the next close of regular trading on the Exchange (ordinarily 4:00 p.m., Eastern time but sometimes earlier, as in the case of scheduled half-day trading or unscheduled suspensions of trading) following receipt of a purchase or redemption order by a Portfolio on each Fund business day on which such an order is received and on such other days as the Board deems appropriate or necessary in order to comply with Rule 22c-1 under the 1940 Act. A Portfolio's per share NAV is calculated by dividing the value of the Portfolio's total assets, less its liabilities, by the total number of its shares then outstanding. As noted above, a Fund business day is any weekday on which the Exchange is open for trading.
Portfolio securities are valued at current market value or at fair value as determined in accordance with applicable rules under the 1940 Act and the Fund's pricing policies and procedures established by and under the general supervision of the Board. The Board has delegated to the Manager, subject to the Board's continuing oversight, certain of its duties with respect to the Pricing Policies.
Whenever possible, securities are valued based on market information on the business day as of which the value being determined, as follows:
(a) a security listed on the Exchange, or another national or foreign exchange (other than securities listed on the Nasdaq Stock Exchange ("NASDAQ")) is valued at the last sale price reflected on the consolidated tape at the close of the exchange or foreign securities exchange. If there has been no sale on the relevant business day, the security is valued at the last traded price from the previous day. On the following day, the security is valued in good faith at fair value by, or in accordance with procedures approved by, the Board;
(b) a security traded on NASDAQ is valued at the NASDAQ Official Closing Price;
(c) a security traded on more than one exchange is valued in accordance with paragraph (a) above by reference to the principal exchange (as determined by the Manager) on which the security is traded;
(d) a listed or OTC put or call option is valued at the mid level between
the current bid and asked prices (for options or futures contracts, see item
(e)). If neither a current bid nor a current ask price is available, the
Manager will have discretion to determine the best valuation (e.g., last trade
price) and then bring the issue to the Board's Valuation Committee the next day;
(e) an open futures contract and any option thereon is valued at the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the relevant business day, the security is valued at the last available closing settlement price;
(f) a right is valued at the last traded price provided by approved pricing services;
(g) a warrant is valued at the last traded price provided by approved pricing services. If the last traded price is not available, the bid price will be used. Once a warrant passes maturity, it will no longer be valued;
(h) a U.S. Government security and any other debt instrument having 60 days or less remaining until maturity generally is valued at amortized cost if its original maturity was 60 days or less, or by amortizing its fair value as of the 61st day prior to maturity if the original term to maturity exceeded 60 days, unless in either case the Manager determines that this method does not represent fair value);
(i) a fixed-income security is typically valued on the basis of bid prices provided by a pricing service when the Manager believes that such prices reflect the market value of the security. In certain markets, the market convention may be to use the mid price between bid and offer. Fixed income securities may be valued on the basis of mid prices when the pricing service normally provides mid prices, reflecting the conventions of particular markets. The prices provided by a pricing service may take into account many factors, including institutional size, trading in similar groups of securities and any developments related to specific securities. If the Manager determines that an appropriate pricing service does not exist for a security in a market that typically values such securities on the basis of a bid price, the security is valued on the basis of a quoted bid price or spread over the applicable yield curve (a bid spread) by a broker-dealer in such security. The second highest price will be utilized whenever two or more quoted bid prices
are obtained. If an appropriate pricing service does not exist for a security in a market where convention is to use the mid price, the security is valued on the basis of a quoted mid price by a broker-dealer in such security. The second highest price will be utilized whenever two or more quoted mid prices are obtained;
(j) a mortgage-backed or asset-backed security is valued on the basis of bid prices obtained from pricing services or bid prices obtained from multiple major broker-dealers in the security when the Manager believes that these prices reflect the market value of the security. In cases in which broker-dealer quotes are obtained, the Manager has procedures for using changes in market yields or spreads to adjust, on a daily basis, a recently obtained quoted bid price on a security. The second highest price will be utilized whenever two or more quoted bid prices are obtained;
(k) bank loans are valued on the basis of bid prices provided by a pricing service;
(l) bridge loans are valued at par, unless it is determined by the Valuation Committee that any particular bridge loan should be valued at something other than par. This may occur from a significant change in the high yield market and/or a significant change in the state of any particular issuer or issuers of bridge loans;
(m) residential and commercial mortgage whose loans and whose loan pools are fair market priced by a pricing service;
(n) forward and spot currency pricing is provided by pricing services;
(o) a swap is valued by the Manager utilizing various external sources to obtain inputs for variables in pricing models;
(p) interest rate caps and floors are valued at the latest present value of the terms of the agreement, which is provided by a pricing service; and
(q) open end mutual funds are valued at the closing NAV per share and closed end funds are valued at the closing market price per share.
Each Portfolio values its securities at their current market value determined on the basis of market quotations set forth above or, if market quotations are not readily available or are unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Board. When a Portfolio uses fair value pricing, it may take into account any factors it deems appropriate. A Portfolio may determine fair value based upon developments related to a specific security, current valuations of foreign stock indices (as reflected in U.S. futures markets) and/or U.S. sector or broader stock market indices. The prices of securities used by a Portfolio to calculate its NAV may differ from quoted or published prices for the same securities. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security is materially different than the value that could be realized upon the sale of that security.
Each Portfolio expects to use fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the early closing of the exchange on which a security is traded or suspension of trading in the security. A Portfolio may use fair value pricing more frequently for securities primarily traded in non-U.S. markets because, among other things, most foreign markets close well before a Portfolio values its securities at 4:00 p.m., Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. For example, foreign security values may be affected by events that occur after the close of foreign securities markets. To account for this, a Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
Subject to its oversight, the Board has delegated responsibility for valuing the Portfolios' assets to the Manager. The Manager has established a Valuation Committee, which operates under the policies and procedures approved by the Board, to value the Portfolios' assets on behalf of the Portfolios. The Valuation Committee values Portfolio assets as described above.
Each Portfolio's Board may suspend the determination of its NAV (and the offering and sale of shares), subject to the rules of the SEC and other governmental rules and regulations, at a time when: (1) the Exchange is closed, other than customary weekend and holiday closings, (2) an emergency exists as a result of which it is not reasonably practicable for the Portfolio to dispose of securities owned by it or to determine fairly the value of its net assets, or (3) for the protection of shareholders, the SEC by order permits a suspension of the right of redemption or a postponement of the date of payment on redemption.
The net asset value of each Portfolio is calculated by subtracting the liabilities allocated to the Portfolio from the value of the assets belonging to that Portfolio. The NAV of each class of shares of the Portfolio is determined separately by subtracting the liabilities attributable to that class from the assets attributable to that class, and then dividing the result by the number of outstanding shares of that class, all in accordance with a plan adopted by the Fund in accordance with Rule 18f-3 under the 1940 Act.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general oversight of the Board, the Manager is responsible for the investment decisions and the placement of orders for portfolio transactions for each of the Portfolios. In general, securities in which the Fixed-Income and Overlay Portfolios invest are traded on a "net" rather than a transaction-charge basis with dealers acting as principals for their own accounts without a stated transaction charge. Accordingly, the price of the security may reflect an increase or decrease from the price paid by the dealer together with a spread between the bid and asked price, which provides the opportunity for a profit or loss to the dealer. The International Portfolios, the Emerging Markets Portfolio and the Overlay Portfolios generally effect transactions on stock exchanges and markets which involve the payment of brokerage commissions. In transactions on stock exchanges in the United States, these commissions are negotiated. Traditionally, commission rates have generally not been negotiated on stock markets outside the United States. In recent years, however, an increasing number of developed foreign stock markets have adopted a system of negotiated rates, although a few developed foreign markets and most emerging foreign markets continue to be subject to an established schedule of minimum commission rates. The Manager determines the broker or dealer to be used in each specific transaction with the objective of negotiating a combination of the most favorable commission (for transactions on which a commission is payable) and the best price obtainable on each transaction (generally defined as "best execution"). In connection with seeking best price and executions, the Portfolio does not consider sales of shares of the Portfolio or other investment companies managed by the Manager as a factor in the selection of brokers and dealers to effect portfolio transactions and has adopted a policy and procedures reasonably designed to preclude such considerations.
When consistent with the objective of obtaining best execution, brokerage may be directed to persons or firms supplying investment information to the Manager. There may be occasions where the transaction cost charged by a broker may be greater than that which another broker may charge if a Portfolio determines in good faith that the amount of such transaction cost is reasonable in relation to the value of the brokerage, research and statistical services provided by the executing broker.
Neither the Portfolios nor the Manager have entered into agreements or understandings with any brokers regarding the placement of securities transactions because of research services they provide. To the extent that such persons or firms supply investment information to the Manager for use in rendering investment advice to the Portfolios, such information may be supplied at no cost to the Manager, and therefore may have the effect of reducing the expenses of the Manager in rendering advice to the Portfolios. While it is impossible to place an actual dollar value on such investment information, its receipt by the Manager probably does not reduce the overall expenses of the Manager to any material extent.
The investment information provided to the Manager is of the type described in Section 28(e)(3) of the Securities Exchange Act of 1934 and is designed to augment the Manager's own internal research and investment strategy capabilities. Research services furnished by brokers through which the Portfolio effects securities transactions are used by the Manager in carrying out its investment responsibilities with respect to all its client accounts.
The extent to which commissions that will be charged by broker-dealers selected by the Portfolios may reflect an element of value for research cannot presently be determined. To the extent that research services of value are provided by broker-dealers with or through whom a Portfolio places portfolio transactions, the Manager may be relieved of expenses which it might otherwise bear. Research services furnished by broker-dealers could be useful and of value to the Manager in servicing its other clients as well as the Portfolios; but, on the other hand, certain research services obtained by the Manager as a result of the placement of portfolio brokerage of other clients could be useful and of value to it in serving the Portfolios.
Each Portfolio may deal in some instances in securities that are not listed on a national stock exchange but are traded in the over-the-counter market. A Portfolio may also purchase listed securities through the third market, i.e., from a dealer that is not a member of the exchange on which a security is listed. Where transactions are executed in the over-the-counter market or third market, the Portfolios will seek to deal with the primary market makers; but when necessary in order to obtain the best price and execution, it will utilize the services of others. In all cases, the Portfolios will attempt to negotiate best execution.
Investment decisions for the Fund are made independently from those of other investment companies and other advisory accounts managed by the Manager. It may happen, on occasion, that the same security is held in the portfolio of the Fund and one or more of such other companies or accounts. Simultaneous transactions are likely when several funds or accounts are managed by the same Manager, particularly when a security is suitable for the investment objectives of more than one of such companies or accounts. When two or more companies or accounts managed by the Manager are simultaneously engaged in the purchase or sale of the same security, the transactions are allocated to the respective companies or accounts both as to amount and price, in accordance with a method deemed equitable to each company or account. In some cases this system may adversely affect the price paid or received by the Fund or the size of the position obtainable for the Fund.
Allocations are made by the officers of the Fund or of the Manager. Purchases and sales of portfolio securities are determined by the Manager and are placed with broker-dealers by the order department of the Manager.
Each Portfolio may from time to time place orders for the purchase or sale of securities (including listed call options) with SCB & Co. In such instances, the placement of orders with such brokers would be consistent with the Portfolio's objective of obtaining best execution and would not be dependent upon the fact that SCB & Co. is an affiliate of the Manager. With respect to orders placed with SCB & Co. for execution on a national securities exchange, commissions received must conform to Section 17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which permit an affiliated person of a registered investment company (such as the Fund), or any affiliated person of such person, to receive a brokerage commission from such registered investment company provided that such commission is reasonable and fair compared to the commissions received by other brokers in connection with comparable transactions involving similar securities during a comparable period of time.
Information about the brokerage commissions paid by the Portfolios, including to Bernstein LLC, which is an affiliated broker of the Fund and Bernstein Limited, which is also an affiliated broker of the Fund is set forth in the following table:
AGGREGATE BROKERAGE BROKERAGE COMMISSIONS COMMISSIONS PAID TO AFFILIATED PORTFOLIO PAID BROKERS --------- ------------------- --------------------- Tax-Managed International Portfolio Fiscal Year Ended September 30, 2010........................... $7,770,375 $0 Fiscal Year Ended September 30, 2011........................... $6,464,731 $0 Fiscal Year Ended September 30, 2012........................... $5,305,137 $0 International Portfolio Fiscal Year Ended September 30, 2010........................... $3,406,690 $0 Fiscal Year Ended September 30, 2011........................... $2,863,921 $0 Fiscal Year Ended September 30, 2012........................... $2,339,164 $0 Emerging Markets Portfolio Fiscal Year Ended September 30, 2010........................... $4,174,603 $0 Fiscal Year Ended September 30, 2011........................... $3,609,028 $0 Fiscal Year Ended September 30, 2012........................... $2,307,598 $0 U.S. Government Short Duration Portfolio Fiscal Year Ended September 30, 2010........................... $ 0 $0 Fiscal Year Ended September 30, 2011........................... $ 613 $0 Fiscal Year Ended September 30, 2012........................... $ 2,269 $0 Short Duration Plus Portfolio Fiscal Year Ended September 30, 2010........................... $ 0 $0 Fiscal Year Ended September 30, 2011........................... $ 16,297 $0 Fiscal Year Ended September 30, 2012........................... $ 18,743 $0 Short Duration New York Municipal Portfolio Fiscal Year Ended September 30, 2010........................... $ 0 $0 Fiscal Year Ended September 30, 2011........................... $ 0 $0 Fiscal Year Ended September 30, 2012........................... $ 0 $0 Short Duration California Municipal Portfolio Fiscal Year Ended September 30, 2010........................... $ 0 $0 Fiscal Year Ended September 30, 2011........................... $ 0 $0 Fiscal Year Ended September 30, 2012........................... $ 0 $0 Short Duration Diversified Municipal Portfolio Fiscal Year Ended September 30, 2010........................... $ 0 $0 Fiscal Year Ended September 30, 2011........................... $ 0 $0 Fiscal Year Ended September 30, 2012........................... $ 0 $0 Intermediate Duration Portfolio Fiscal Year Ended September 30, 2010........................... $ 0 $0 Fiscal Year Ended September 30, 2011........................... $ 16,956 $0 Fiscal Year Ended September 30, 2012........................... $ 6,339 $0 New York Municipal Portfolio Fiscal Year Ended September 30, 2010........................... $ 0 $0 Fiscal Year Ended September 30, 2011........................... $ 0 $0 Fiscal Year Ended September 30, 2012........................... $ 0 $0 California Municipal Portfolio Fiscal Year Ended September 30, 2010........................... $ 0 $0 Fiscal Year Ended September 30, 2011........................... $ 0 $0 Fiscal Year Ended September 30, 2012........................... $ 0 $0 |
AGGREGATE BROKERAGE BROKERAGE COMMISSIONS COMMISSIONS PAID TO AFFILIATED PORTFOLIO PAID BROKERS --------- ------------------- --------------------- Diversified Municipal Portfolio Fiscal Year Ended September 30, 2010........................... $ 0 $ 0 Fiscal Year Ended September 30, 2011........................... $ 0 $ 0 Fiscal Year Ended September 30, 2012........................... $ 0 $ 0 Overlay A Portfolio Fiscal Year Ended September 30, 2010*.......................... $ 360,916 $138 Fiscal Year Ended September 30, 2011........................... $1,401,652 $ 0 Fiscal Year Ended September 30, 2012........................... $1,902,636 $ 87 Tax-Aware Overlay A Portfolio Fiscal Year Ended September 30, 2010*.......................... $ 775,580 $171 Fiscal Year Ended September 30, 2011........................... $2,837,524 $ 0 Fiscal Year Ended September 30, 2012........................... $3,473,192 $410 Overlay B Portfolio Fiscal Year Ended September 30, 2010*.......................... $ 112,825 $ 0 Fiscal Year Ended September 30, 2011........................... $ 156,419 $ 0 Fiscal Year Ended September 30, 2012........................... $ 246,477 $ 0 Tax-Aware Overlay B Portfolio Fiscal Year Ended September 30, 2010*.......................... $ 0 $ 0 Fiscal Year Ended September 30, 2011........................... $ 150,121 $ 0 Fiscal Year Ended September 30, 2012........................... $ 255,727 $ 0 Tax-Aware Overlay C Portfolio Fiscal Year Ended September 30, 2010*.......................... $ 0 $ 0 Fiscal Year Ended September 30, 2011........................... $ 37,980 $ 0 Fiscal Year Ended September 30, 2012........................... $ 65,431 $ 0 Tax-Aware Overlay N Portfolio Fiscal Year Ended September 30, 2010*.......................... $ 0 $ 0 Fiscal Year Ended September 30, 2011........................... $ 34,004 $ 0 Fiscal Year Ended September 30, 2012........................... $ 56,724 $ 0 |
* For the period February 8, 2010 to September 30, 2010
The following table relates to brokerage commissions paid by the Portfolios to Bernstein LLC for the fiscal year ended September 30, 2012:
% OF AGGREGATE DOLLAR % OF PORTFOLIO'S AMOUNT OF TRANSACTIONS AGGREGATE INVOLVING THE PAYMENT OF BROKERAGE COMMISSIONS COMMISSIONS EFFECTED PORTFOLIO PAID TO AFFILIATED BROKER THROUGH AFFILIATED BROKER --------- ------------------------- ------------------------- U.S. Government Short Duration Portfolio....... 0% 0% Short Duration Plus Portfolio................ 0% 0% Short Duration New York Municipal Portfolio...... 0% 0% Short Duration California Municipal Portfolio...... 0% 0% Short Duration Diversified Municipal Portfolio...... 0% 0% Intermediate Duration Portfolio................ 0% 0% New York Municipal Portfolio................ 0% 0% California Municipal Portfolio................ 0% 0% Diversified Municipal Portfolio................ 0% 0% Tax-Managed International Portfolio................ 0% 0% International Portfolio.... 0% 0% Emerging Markets Portfolio. 0% 0% Overlay A Portfolio........ 0.005% 0.25% Tax-Aware Overlay A Portfolio................ 0.01% 0.59% Overlay B Portfolio........ 0% 0% Tax-Aware Overlay B Portfolio................ 0% 0% - 80 - |
% OF AGGREGATE DOLLAR % OF PORTFOLIO'S AMOUNT OF TRANSACTIONS AGGREGATE INVOLVING THE PAYMENT OF BROKERAGE COMMISSIONS COMMISSIONS EFFECTED PORTFOLIO PAID TO AFFILIATED BROKER THROUGH AFFILIATED BROKER --------- ------------------------- ------------------------- Tax-Aware Overlay C Portfolio................ 0% 0% Tax-Aware Overlay N Portfolio................ 0% 0% |
The following table relates to brokerage commissions paid by the Portfolios to Bernstein Limited for the fiscal year ended September 30, 2012:
% OF AGGREGATE DOLLAR % OF PORTFOLIO'S AMOUNT OF TRANSACTIONS AGGREGATE INVOLVING THE PAYMENT OF BROKERAGE COMMISSIONS COMMISSIONS EFFECTED PORTFOLIO PAID TO AFFILIATED BROKER THROUGH AFFILIATED BROKER --------- ------------------------- ------------------------- U.S. Government Short Duration Portfolio....... 0% 0% Short Duration Plus Portfolio................ 0% 0% Short Duration New York Municipal Portfolio...... 0% 0% Short Duration California Municipal Portfolio...... 0% 0% Short Duration Diversified Municipal Portfolio...... 0% 0% Intermediate Duration Portfolio................ 0% 0% New York Municipal Portfolio................ 0% 0% California Municipal Portfolio................ 0% 0% Diversified Municipal Portfolio................ 0% 0% Tax-Managed International Portfolio................ 0% 0% International Portfolio.... 0% 0% Emerging Markets Portfolio. 0% 0% Overlay A Portfolio........ 0% 0% Tax-Aware Overlay A Portfolio................ 0% 0% Overlay B Portfolio........ 0% 0% Tax-Aware Overlay B Portfolio................ 0% 0% Tax-Aware Overlay C Portfolio................ 0% 0% Tax-Aware Overlay N Portfolio................ 0% 0% |
The Fund believes that the ideas of the Manager's investment staff should benefit the Portfolios and their shareholders, and does not want to afford speculators an opportunity to profit by anticipating Portfolio trading strategies or using Portfolio information for stock picking. However, the Fund also believes that knowledge of each Portfolio's portfolio holdings can assist shareholders in monitoring their investment, making asset allocation decisions, and evaluating portfolio management techniques.
The Manager has adopted, on behalf of the Portfolios, policies and procedures relating to disclosure of the Portfolios' portfolio securities. The policies and procedures relating to disclosure of a Portfolio's portfolio securities are designed to allow disclosure of portfolio holdings information where necessary to the operation of the Portfolios or useful to the Portfolios' shareholders without compromising the integrity or performance of the Portfolios. Except when there are legitimate business purposes for selective disclosure and other conditions (designed to protect the Portfolios and their shareholders) are met, the Portfolios do not provide or permit others to provide information about a Portfolio's portfolio holdings on a selective basis.
Each Portfolio includes portfolio holdings information as required in regulatory filings and shareholder reports, discloses portfolio holdings information as required by federal or state securities laws and may disclose portfolio holdings information in response to requests by governmental authorities. In addition, the Manager may post portfolio holdings information on the Manager's website (www.AllianceBernstein.com). The Manager generally posts on the website a complete schedule of the Portfolios' securities, generally as of the last day of each calendar month, approximately 30 days after the end of that month. This posted information generally remains accessible on the website for three months. For each portfolio security, the posted information includes its name, the number of shares held by a Portfolio, the market value of the Portfolio's holdings, and the percentage of the Portfolio's assets represented by the Portfolios' holdings. In addition to the schedule of portfolio holdings, the Manager may post information about the number of securities the Portfolios hold, a summary of the Portfolios' top ten holdings (including name and the percentage of each Portfolio's assets invested in each holding), and a percentage breakdown of the Portfolios' investments by country, sector and industry, as applicable approximately 10-15 days after the end of the month. The day after portfolio holdings information is publicly available on the website, it may be mailed, e-mailed or otherwise transmitted to any person.
The Manager may distribute or authorize the distribution of information about a Portfolio's portfolio holdings that is not publicly available, on the website or otherwise, to the Manager's employees and affiliates that provide services to the Fund. In addition, the Manager may distribute or authorize distribution of information about a Portfolio's portfolio holdings that is not publicly available, on the website or otherwise, to the Fund's service providers who require access to the information in order to fulfill their contractual duties relating to the Portfolios, to facilitate the review of the Portfolios by rating agencies, for the purpose of due diligence regarding a merger or acquisition, or for the purpose of effecting in-kind redemption of securities to facilitate orderly redemption of portfolio assets and minimal impact on remaining Portfolio shareholders. The Manager does not expect to disclose information about a Portfolio's portfolio holdings that is not publicly available to the Portfolio's individual or institutional investors or to intermediaries that distribute the Portfolios' shares. Information may be disclosed with any frequency and any lag, as appropriate.
Before any non-public disclosure of information about a Portfolio's portfolio holdings is permitted, however, the Manager's Chief Compliance Officer (or his designee) must determine that the Portfolio has a legitimate business purpose for providing the portfolio holdings information, that the disclosure is in the best interests of the Portfolio's shareholders, and that the recipient agrees or has a duty to keep the information confidential and agrees not to trade directly or indirectly based on the information or to use the information to form a specific recommendation about whether to invest in the Portfolio or any other security. Under no circumstances may the Manager or its affiliates receive any consideration or compensation for disclosing the information.
The Manager has established procedures to ensure that each Portfolio's portfolio holdings information is only disclosed in accordance with these policies. Only the Manager's Chief Compliance Officer (or his designee) may approve the disclosure, and then only if he or she and a designated senior officer in the Manager's product management group determines that the disclosure serves a legitimate business purpose of a Portfolio and is in the best interest of the Portfolio's shareholders. The Manager's Chief Compliance Officer (or his designee) approves disclosure only after considering the anticipated benefits and costs to the Portfolio and its shareholders, the purpose of the disclosure, any conflicts of interest between the interests of the Portfolio and its shareholders and the interests of the Manager or any of its affiliates, and whether the disclosure is consistent with the policies and procedures governing disclosure. Only someone approved by the Manager's Chief Compliance Officer (or his designee) may make approved disclosures of portfolio holdings information to authorized recipients. The Manager reserves the right to request certifications from senior officers of authorized recipients that the recipient is using the portfolio holdings information only in a manner consistent with the Manager's policy and any applicable confidentiality agreement. The Manager's Chief Compliance Officer (or his designee) or another member of the compliance team reports all arrangements to disclose portfolio holdings information to the Fund's Board on a quarterly basis. If the Board determines that disclosure was inappropriate, the Manager will promptly terminate the disclosure arrangement.
In accordance with these procedures, each of the following third parties have been approved to receive information concerning each Portfolio's portfolio holdings: (i) the Fund's independent registered public accounting firm, for use in providing audit opinions; (ii) RR Donnelley Financial, Data Communique International and, from time to time, other financial printers, for the purpose of preparing the Portfolio regulatory filings; (iii) the Fund's custodian in connection with its custody of the assets of the Portfolios; (iv) Risk Metrics for proxy voting services; and (v) data aggregators, such as Vestek. Information may be provided to these parties at any time with no time lag. Each of these parties is contractually and ethically prohibited from sharing a Portfolio's portfolio holdings information unless specifically authorized.
The Bernstein Global Wealth Management Unit of AllianceBernstein L.P. ("Bernstein") provides certain tax management services to private clients that invest in the Portfolios through investment programs administered by Bernstein. As part of such services, Bernstein conducts year-end tax trading on behalf of these private clients to offset capital gains taxes where possible, which may result in buying and selling shares in one or more of the Portfolios which could in turn result in a Portfolio experiencing temporary asset inflows or outflows at year end. Bernstein coordinates with the Manager to try to ensure that the implementation of Bernstein's tax management strategies does not compromise the interests of any Portfolio or its investors. However, the implementation of Bernstein's tax management strategies may require a Portfolio to increase asset allocations to cash or cash equivalents in order to meet expected redemption requests. If a significant amount of a Portfolio's assets are allocated to cash or cash equivalents, it may be more difficult for the Portfolio to achieve its investment objective.
PURCHASE AND REDEMPTION OF SHARES
Shares of each Portfolio are sold at the NAV next calculated after receipt of a purchase order. In order to purchase shares, an investor must fill out an application. A confirmation of each capital-share transaction is sent to the shareholder. The methods of purchase and redemption of shares and the methods used to value the Fund's assets are more fully set forth in the Prospectus. The Fund may enter into arrangements with financial intermediaries permitted to accept purchase and redemption orders to allow these entities to designate other intermediaries to accept purchase and redemption orders. The Emerging Markets Portfolio assesses a portfolio transaction fee on purchases of Portfolio shares equal to 1% of the dollar amount invested in the Portfolio (including purchases made by exchanging shares of other Fund portfolios for shares of the Emerging Markets Portfolio) and a portfolio
transaction fee on cash redemptions of 1% of the dollar amount redeemed from the Portfolio (including redemptions made by exchanging shares of the Emerging Markets Portfolio for shares of other Fund portfolios).
The Portfolios, having filed with the SEC a notification of election pursuant to Rule 18f-1 under the 1940 Act, may pay the redemption price in whole or in part by a distribution in kind of securities held by the Portfolio, in lieu of cash. In conformity with applicable rules of the SEC, the Portfolios are each committed to pay in cash all requests for redemption by any shareholder of record, limited in amount with respect to each shareholder during any 90-day period to the lesser of (i) $250,000, or (ii) 1% of the NAV of the Portfolio at the beginning of such period. If shares are redeemed in kind, the redeeming shareholder might incur brokerage costs in converting the assets into cash. The method of valuing portfolio securities is described under "Net Asset Value," and this valuation is made as of the same time the redemption price is determined.
In order to open your account, the Fund or your broker-dealer or other financial intermediary is required to obtain certain information from you for identification purposes. This information may include name, date of birth, permanent residential address and social security/taxpayer identification number. It will not be possible to establish your account without this information. If the Fund or your broker-dealer or other financial intermediary is unable to verify the information provided, your account may be closed and other appropriate action may be taken as permitted by law.
A Portfolio that invests significantly in securities of foreign issuers may be particularly susceptible to short-term trading strategies. This is because securities of foreign issuers are typically traded on markets that close well before the time a Portfolio calculates its NAV at the close of regular trading on the Exchange (normally 4:00 p.m., Eastern time), which gives rise to the possibility that developments may have occurred in the interim that would affect the value of these securities. The time zone differences among international stock markets can allow a shareholder engaging in a short-term trading strategy to exploit differences in Portfolio share prices that are based on closing prices of securities of foreign issuers established some time before a Portfolio calculates its own share price (referred to as "time zone arbitrage"). The Portfolios have procedures, referred to as fair value pricing, designed to adjust closing market prices of foreign securities to reflect what is believed to be the fair value of those securities at the time a Portfolio calculates its NAV. While there is no assurance, the Fund expects that the use of fair value pricing, in addition to the short-term trading policies discussed below, will significantly reduce a shareholder's ability to engage in time zone arbitrage to the detriment of other Portfolio shareholders.
A shareholder engaging in a short-term trading strategy may also target a fund irrespective of its investments in securities of foreign issuers. Any Portfolio that invests in securities that are, among other things, thinly traded, traded infrequently, or relatively illiquid, has the risk that the current market price for the securities may not accurately reflect current market values. A shareholder may seek to engage in short-term trading to take advantage of these pricing differences (referred to as "price arbitrage"). All funds may be adversely affected by price arbitrage.
. TRANSACTION SURVEILLANCE PROCEDURES. The Fund, through its agent, Bernstein LLC, maintains surveillance procedures to detect excessive or short-term trading in Portfolio shares. This surveillance process involves several factors, which include scrutinizing transactions in Portfolio shares that exceed certain monetary thresholds or numerical limits within a specified
period of time. Generally, more than two exchanges of Portfolio shares during any 60-day period or purchases of shares followed by a sale within 60 days will be identified by these surveillance procedures. For purposes of these transaction surveillance procedures, the Fund may consider trading activity in multiple accounts under common ownership, control or influence. Trading activity identified by either, or a combination, of these factors, or as a result of any other information available at the time, will be evaluated to determine whether such activity might constitute excessive or short-term trading. With respect to managed or discretionary accounts for which the account owner gives his/her broker, investment adviser or other third party authority to buy and sell Portfolio shares, the Portfolios may consider trades initiated by the account owner, such as trades initiated in connection with bona fide cash management purposes, separately in their analysis. These surveillance procedures may be modified from time to time, as necessary or appropriate to improve the detection of excessive or short-term trading or to address specific circumstances.
. ACCOUNT BLOCKING PROCEDURES. If the Fund determines, in its sole discretion, that a particular transaction or pattern of transactions identified by the transaction surveillance procedures described above is excessive or short-term trading in nature, the Fund will take remedial action that may include issuing a warning, revoking certain account-related privileges (such as the ability to place purchase, sale and exchange orders over the internet or by phone) or prohibiting or "blocking" future purchase or exchange activity. However, sales of Portfolio shares back to a Portfolio or redemptions will continue to be permitted in accordance with the terms of the Portfolio's current Prospectus. As a result, unless the shareholder redeems his or her shares, which may have consequences if the shares have declined in value or adverse tax consequences may result, the shareholder may be "locked" into an unsuitable investment. A blocked account will generally remain blocked for 90 days. Subsequent detections of excessive or short-term trading may result in an indefinite account block or an account block until the account holder or the associated broker, dealer or other financial intermediary provides evidence or assurance acceptable to the Fund that the account holder did not or will not in the future engage in excessive or short-term trading.
. APPLICATIONS OF SURVEILLANCE PROCEDURES AND RESTRICTIONS TO OMNIBUS ACCOUNTS. Omnibus account arrangements are common forms of holding shares of the Portfolios, particularly among certain brokers, dealers and other financial intermediaries, including sponsors of retirement plans and variable insurance products. The Fund applies its surveillance procedures to these omnibus account arrangements. As required by SEC rules, the Fund has entered into agreements with all of its financial intermediaries that require the financial intermediaries to provide the Fund, upon the request of the Fund or its agents, with individual account level information about their transactions. If the Fund detects excessive trading through its monitoring of omnibus accounts, including trading at the individual account level, the financial intermediaries will also execute instructions from the Fund to take actions to curtail the activity, which may include applying blocks to accounts to prohibit future purchases and exchanges of Portfolio shares. For certain retirement plan accounts, the Fund may request that the retirement plan or other intermediary revoke the relevant participant's privilege to effect transactions in Portfolio shares via the internet or telephone, in which case the relevant participant must submit future transaction orders via the U.S. Postal Service (i.e., regular mail).
. RISKS TO SHAREHOLDER RESULTING FROM IMPOSITION OF ACCOUNT BLOCKS IN RESPONSE TO EXCESSIVE SHORT-TERM TRADING ACTIVITY. A shareholder identified as having engaged in excessive or short-term trading activity whose account is "blocked" and who may not otherwise wish to redeem his or her shares effectively may be "locked" into an investment in a Portfolio that the shareholder did not intend to hold on a long-term basis or that may not be appropriate for the shareholder's risk profile. To rectify this situation, a shareholder with a "blocked" account may be forced to redeem Portfolio shares, which could be costly if, for example, these shares have declined in value or the sale results in adverse tax consequences to the shareholder. To avoid this risk, a shareholder should carefully monitor the purchases, sales, and exchanges of Portfolio shares and avoid frequent trading in Portfolio shares.
CODE OF ETHICS AND PROXY VOTING PROCEDURES
The Fund, the Manager and the Distributor have each adopted Codes of Ethics pursuant to Rule 17j-1 under the 1940 Act. These codes of ethics permit personnel subject to the codes to invest in securities, including securities that may be purchased or held by the Fund.
The Fund has adopted the Manager's proxy voting policies and procedures. The Manager's proxy voting policies and procedures are attached as Appendix B.
Information regarding how the Fund voted proxies related to portfolio
securities during the most recent 12-month period ended June 30 is available
(1) without charge, upon request, by calling (800) 227-4618; or on or through
the Fund's website at www.AllianceBernstein.com; or both; and (2) on the SEC's
website at www.sec.gov.
TAXES
The Fund intends each Portfolio to continue to qualify as a "regulated investment company" under Subchapter M of the Code. Currently, in order to qualify as a regulated investment company, a Portfolio must generally, among other things, (i) derive at least 90% of its gross income from dividends, interest, gains from the sale of securities or foreign currencies, currencies and net income derived from interests in "qualified publicly traded partnerships" (i.e., partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends, capital gains, and other traditionally permitted mutual fund income), and certain other related income (the "90% test"); and (ii) diversify its holdings so that, at the end of each fiscal quarter, (a) at least 50% of the market value of the Portfolio's total assets is represented by cash, securities of other regulated investment companies, U.S. Government securities and other securities limited, in respect of any one issuer, to an amount not greater than 5% of the Portfolio's assets and not greater than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its assets is invested in the securities of any one issuer, other than U.S. Government securities or the securities of other regulated investment companies, or the securities of two or more issuers of which the Portfolio owns 20% or more of the voting stock and which are determined to be engaged in the same or similar trades or businesses or in the securities of one or more qualified publicly traded partnerships (the "diversification requirements"). As a regulated investment company, a Portfolio will not be subject to U.S. federal income tax on the portion of its taxable net investment income and capital gains that it distributes to its shareholders, provided that it satisfies a minimum distribution requirement. To satisfy the minimum distribution requirement, a Portfolio must distribute to its shareholders at least the sum of (i) 90% of its investment company taxable income, plus or minus certain adjustments, and (ii) 90% of its net tax-exempt income for the taxable year. A Portfolio will be subject to income tax at regular corporation rates on any taxable income or gains that it does not distribute to its registered holders of its shares. It is possible that certain partnerships in which a Portfolio may invest could be considered qualified publicly traded partnerships and, therefore, the extent to which a Portfolio may invest in partnerships, including master limited partnerships, is limited by its intention to qualify as a regulated investment company under the Code. In addition, although the passive loss rules of the Code do not generally apply to regulated investment companies, such rules do apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Portfolio investments in partnerships, including in qualified publicly traded partnerships, may result in the Portfolio's being subject to state, local or foreign income, franchise or withholding tax liabilities.
If, in any taxable year, a Portfolio fails to qualify as a regulated investment company under the Code or fails to meet the distribution requirement, it will be taxed in the same manner as an ordinary corporation and distributions to its shareholders will not be deductible by the Portfolio in computing its taxable income. In addition, in the event of a failure to qualify, the Portfolio's distributions, to the extent derived from the Portfolio's current or accumulated earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, will be taxable to shareholders as dividend income. However, such dividends will be eligible (i) to be treated as qualified dividend income in the case of shareholders taxed as individuals and (ii) for the dividends received deduction in the case of corporate shareholders. Moreover, if a Portfolio fails to qualify as a regulated investment company in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a regulated investment company. If a Portfolio fails to qualify as a regulated investment company for a period greater than two taxable years, the Portfolio may be required to recognize any net built-in gains with respect to certain of its assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if the Portfolio had been liquidated) if it qualifies as a regulated investment company in a subsequent year.
In certain situations, a Portfolio may, for a taxable year, defer all or a portion of its capital losses and currency losses realized after October and certain ordinary losses realized after December until the next taxable year in computing its investment company taxable income and net capital gain, which will defer the recognition of such realized losses. Such deferrals and other rules regarding gains and losses realized after October (or December) may affect the tax character of shareholder distributions.
The Portfolios intend to distribute to the registered holders of their shares all of their net investment income, which includes dividends and interest as well as net short-term capital gains, if any, in excess of any net long-term capital losses and any net long-term capital gains, if any, in excess of any net short-term capital losses. The Code requires all regulated investment companies (such as the Portfolios) to pay a nondeductible 4% excise tax to the extent the regulated investment company does not distribute 98% of its ordinary income, determined on a calendar-year basis, and 98.2% of its capital gains, determined, in general, as if a taxable year ends on October 31. For this purpose, however, any ordinary income or capital gain net income retained by a Portfolio that is subject to corporate income tax will be considered to have been distributed by year-end. In addition, the minimum amounts that must be
distributed in any year to avoid the excise tax will be increased or decreased to reflect any underdistribution or overdistribution, as the case may be, from the previous year. Each Portfolio intends to distribute its income and capital gains in the manner necessary to avoid imposition of the 4% excise tax. The current policy of each Fixed-Income Portfolio is to declare investment income dividends daily and pay them monthly and to pay capital-gains distributions annually. The policy for the International Portfolios, the Emerging Markets Portfolio and the Overlay Portfolios is to declare and pay investment income dividends and capital-gains distributions at least annually. In determining amounts of capital gains to be distributed, generally any capital loss carryovers from prior periods are offset against capital gains.
Gains or losses on sales of securities by a Portfolio are long-term capital gains or losses to the Portfolio if the securities have been held for more than one year. Other gains or losses on the sale of securities are short-term capital gains or losses. Special rules applicable to gains and losses on futures and options are discussed below.
Dividends and other distributions by a Portfolio are generally treated under the Code as received by the shareholders at the time the dividend or distribution is made. However, any dividend or distribution declared by a Portfolio in October, November or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on December 31 of such calendar year and to have been paid by the Portfolio not later than such December 31, provided such dividend is actually paid by the Portfolio during January of the following calendar year.
Distributions of investment company taxable income and net capital gains are taxable to shareholders subject to U.S. federal income tax regardless of whether the shareholder receives such distributions in additional shares or in cash. Distributions of net long-term capital gains, if any, are taxable as long-term capital gains (at a maximum rate of 15% for non-corporate shareholders with incomes below $400,000 ($450,000 if married filing jointly) and 20% for individuals with any income above those amounts that is long-term capital gain), regardless of whether the shareholder receives such distributions in additional shares or in cash or how long the investor has held his shares. All other dividends paid by a Portfolio (including dividends from short-term capital gains) from its current and accumulated earnings and profits ("regular dividends") are generally subject to tax as ordinary income. However, any dividends paid by the Municipal Portfolios (as defined below) and properly reported as exempt-interest dividends will not be subject to regular U.S. federal income tax.
Certain dividends received by non-corporate shareholders (including individuals, trusts and estates) may be eligible for the maximum capital gains tax rate applicable in the case of long-term capital gain (0% for individuals, trusts and estates in lower tax brackets) provided that the non-corporate shareholder receiving the dividend satisfies certain holding period and other requirements. Dividends subject to these special rules are not actually treated as capital gains, however, and thus are not included in the computation of an individual's net capital gain and generally cannot be used to offset capital losses. Such rate would not apply to dividends received from Fixed-Income Municipal Portfolios or Overlay Portfolios (which generally will be exempt from U.S. federal income tax to the extent discussed below) and Fixed-Income Taxable Portfolios. However, dividends received from Non-U.S. Stock Portfolios may, to a certain extent, qualify for such rate.
The Short Duration New York Municipal Portfolio and the New York Municipal Portfolio provide, and to a limited extent the Ta-Aware Overlay N Portfolio provides, income which is tax-free (except for alternative minimum tax) for federal and New York state and local individual income tax purposes to the extent of income derived from New York Municipal Securities or securities issued by possessions of the United States. The Short Duration California Municipal Portfolio and the California Municipal Portfolio provide, and to a limited extent the Tax-Aware Overlay C Portfolio provides, income which is tax-free (except for alternative minimum tax) for U.S. federal and California state personal income tax purposes to the extent of income derived from California Municipal Securities or securities issued by possessions of the United States. The Short Duration Diversified Municipal Portfolio, the Diversified Municipal Portfolio and the Tax-Aware Overlay B Portfolio provide income which is tax-free for federal income tax purposes (except for AMT) and which may be partially tax-free for state tax purposes, to the extent of income derived from Municipal Securities. For this purpose, gains from transactions in options, futures contracts and options on futures contracts as well as gains on the sale of Municipal Securities are not tax-exempt. Accordingly, the Short Duration New York Municipal Portfolio, the New York Municipal Portfolio, the Short Duration California Municipal Portfolio, the California Municipal Portfolio, the Short Duration Diversified Municipal Portfolio and the Diversified Municipal Portfolio (the "Municipal Portfolios") and the Tax-Aware Overlay B, Tax-Aware Overlay C and Tax-Aware Overlay N Portfolios (the "Tax-Aware Overlay Portfolios") will expect to comply with the requirement of Code Section 852(b)(5) that on a quarterly basis at least 50% of the value of each such Portfolio's total assets consists of Municipal Securities. This requirement may limit these Portfolios' ability to engage in transactions in options, futures contracts and options on futures contracts or in certain other transactions. A portion of the income of these Portfolios may be exempt from state income taxes in certain states to the extent the Portfolio's income is derived from securities the interest on which is exempt from income taxes in that state. Legislative proposals have been suggested to limit further the federal income tax exemption for municipal securities but such proposals have not been enacted to date. Shareholders may wish to consult a tax advisor about the status of distributions from the Portfolios in their individual states or localities.
We will send you information after the end of each year setting forth the amount of dividends and long-term capital gains distributed to you, during the prior year. Likewise, the amount of tax-exempt income, including any tax-exempt income subject to AMT, that each Portfolio distributes will be reported to you and such income must be reported on your federal income tax return.
If an individual receives a regular dividend qualifying for the long-term capital gains rates and such dividend constitutes an "extraordinary dividend," and the individual subsequently recognizes a loss on the sale or exchange of stock in respect of which the extraordinary dividend was paid, then the loss will be long-term capital loss to the extent of such extraordinary dividend. An "extraordinary dividend" on common stock for this purpose is generally a dividend (i) in an amount greater than or equal to 10% of the taxpayer's tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within an 85-day period or (ii) in an amount greater than 20% of the taxpayer's tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within a 365-day period.
Distributions in excess of a Portfolio's current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of a shareholder's basis in his shares of the Portfolio, and as a capital gain thereafter (if the shareholder holds his shares of the Portfolio as capital assets). Shareholders receiving dividends or distributions in the form of additional shares should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the shareholders receiving cash dividends or distributions will receive, and should have a cost basis in the shares received equal to such amount. Dividends paid by a Portfolio that are attributable to dividends received by the Portfolio from domestic corporations may qualify for the federal dividends-received deduction for corporations.
Investors considering buying shares just prior to a dividend or capital gain distribution should be aware that, although the price of shares just purchased at that time may reflect the amount of the forthcoming distribution, such dividend or distribution may nevertheless be taxable to them. If a Portfolio is the holder of record of any stock on the record date for any dividends payable with respect to such stock, such dividends will be included in the Portfolio's gross income not as of the date received but as of the later of (a) the date such stock became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the stock would not be entitled to receive the declared, but unpaid, dividends) or (b) the date the Portfolio acquired such stock. Accordingly, in order to satisfy its income distribution requirements, the Portfolio may be required to pay dividends based on anticipated earnings, and shareholders may receive dividends in an earlier year than would otherwise be the case.
Interest on indebtedness incurred by a shareholder to purchase or carry shares of a Municipal or Tax-Aware Overlay Portfolio will not be deductible for U.S. federal income tax purposes. If a shareholder receives exempt-interest dividends with respect to any share of a Municipal or Tax-Aware Overlay Portfolio and if the share is held by the shareholder for six months or less, then any loss on the sale or exchange of the share may, to the extent of the exempt-interest dividends, be disallowed. In addition, the Code may require a shareholder that receives exempt-interest dividends to treat as taxable income a portion of certain otherwise non-taxable social security and railroad retirement benefit payments. Furthermore, a portion of any exempt-interest dividend paid by a Municipal or Tax-Aware Overlay Portfolio that represents income derived from certain revenue or private activity bonds held by the Municipal or Tax-Aware Overlay Portfolio may not retain its tax-exempt status in the hands of a shareholder who is a "substantial user" of a facility financed by such bonds, or a "related person" thereof. Moreover, some or all of the exempt-interest dividends distributed by a Municipal or Tax-Aware Overlay Portfolio may be a specific preference item, or a component of an adjustment item, for purposes of the federal individual and corporate alternative minimum taxes. In addition, the receipt of dividends and distributions from a Municipal or Tax-Aware Overlay Portfolio may affect a foreign corporate shareholder's federal "branch profits" tax liability and the federal "excess net passive income" tax liability of a shareholder of an S corporation. Shareholders should consult their own tax advisors as to whether they are (i) "substantial users" with respect to a facility or "related" to such users within the meaning of the Code or (ii) subject to a federal alternative minimum tax, the federal "branch profits" tax, or the federal "excess net passive income" tax.
A Portfolio may invest in debt securities issued at a discount or providing for deferred interest, which may result in income to the Portfolio equal, generally, to a portion of the excess of the face value of the securities over their issue price ("original issue discount") each year that the securities are held, even though the Portfolio receives no actual interest payments thereon. Original issue discount is treated as income earned by a Portfolio and, therefore, is subject to distribution requirements of the Code applicable to regulated investment companies. Since the original issue discount income earned by a Portfolio in a taxable year may not be represented by cash income, the Portfolio may have to dispose of securities, which it might otherwise have continued to hold, or borrow to generate cash in order to satisfy its distribution requirements. In addition, a Portfolio's investments in contingent payment and inflation indexed debt instruments may increase or accelerate the Portfolio's recognition of income, including the recognition of taxable income in excess of cash generated by such investments.
A Portfolio may be required to treat amounts as taxable income or gain, subject to the distribution requirements referred to above, even though no corresponding amounts of cash are received concurrently, as a result of the tax rules applicable to debt obligations acquired with market discount if an election is made with respect to such market discount.
Gain or loss realized by a Portfolio from a closing transaction with respect to options written by the Portfolio, or gain from the lapse of any such option, will be treated as short-term capital gain or loss. Gain or loss realized by a Portfolio from options (other than options that are Section 1256 contracts, as described below) purchased by the Portfolio, as well as loss attributable to the lapse of such options, will be treated as capital gain or loss. Such capital gain or loss will be long-term or short-term depending upon whether the Portfolio held the particular option for more than one year.
The Code includes special rules applicable to certain forward contracts and to certain exchange-listed options, futures contracts and options on futures contracts which the Portfolios may write, purchase or sell. Such forward contracts, options and futures contracts are classified as Section 1256 contracts under the Code. The gain or loss resulting from the sale, disposition, closing out, expiration or other termination of Section 1256 contracts (other than certain foreign currency forward options and futures contracts, as discussed below), generally is treated as long-term capital gain or loss taxable at the lower capital-gains tax rate to the extent of 60% thereof and short-term capital gain or loss to the extent of 40% thereof. These contracts, when held by a Portfolio at the end of a fiscal year (or, for purposes of the excise tax, at the end of a period ending on October 31) generally are required to be treated for U.S. federal income tax purposes as sold at fair market value on the last business day of the fiscal year ("marked to market"). Any net mark-to-market gains may have to be distributed to satisfy the distribution requirements referred to above even though a Portfolio may receive no corresponding cash amounts, possibly requiring the disposition of portfolio securities or borrowing to obtain the necessary cash.
Certain Section 1256 contracts and certain other transactions undertaken by a Portfolio may result in "straddles" for federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Portfolios. In addition, losses realized by the Portfolios on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Further, the Portfolios may be required to capitalize, rather than deduct currently, any interest expense on indebtedness incurred to purchase or carry any positions that are part of a straddle. Because only a few regulations implementing the straddle rules have been promulgated, the tax consequences of straddle transactions to the Portfolios are not entirely clear. The straddle transactions may increase the amount of short-term capital gain recognized by the Portfolios.
The Portfolios may make one or more of the elections available under the Code which are applicable to straddles. If a Portfolio makes any such elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer and/or accelerate the recognition of gains or losses from the affected straddle positions and require the capitalization of interest expense, the amount which must be distributed to shareholders as ordinary income or long-term capital gain by a Portfolio may be increased or decreased substantially as compared to a portfolio that did not engage in such hedging transactions.
The diversification requirements applicable to the Portfolios' assets and other restrictions imposed on the Portfolios by the Code may limit the extent to which the Portfolios will be able to engage in transactions in forward contracts, options, futures contracts or options on futures contracts.
As a result of entering into swap contracts, a Portfolio may make or receive periodic net payments. A Portfolio may also make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute ordinary income or loss, while termination of a swap will generally result in capital gain or loss (which will be a long-term capital gain or loss if a Portfolio has been a party to the swap for more than one year). With respect to certain types of swaps, a Portfolio may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss. Periodic net payments that otherwise constitute ordinary deductions and that are allocable under the Code to exempt-interest dividends would not be allowed as a deduction but will reduce net tax exempt income.
Under Code Section 988, foreign currency gains or losses from certain foreign currency contracts (such as forward, futures and option contracts) that are not Section 1256 contracts will generally be treated as ordinary income or loss; however, any Portfolio may, under certain circumstances, make an election pursuant to Section 988(a)(1)(B) to treat such gain or loss as a capital gain or loss. In general, in the event such election is made, treatment of a gain or loss as long-term or short-term will depend upon the Portfolios' holding period with respect to such contracts. Gains or losses on the disposition of debt securities denominated in a foreign currency attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of disposition are generally treated as ordinary income or loss. Also, gains or losses attributable to fluctuations in foreign currency exchange rates which occur between the time the Portfolio accrues interest or other receivables or accrues expenses or other liabilities denominated or referenced in a foreign currency and the time the Portfolio actually collects such receivables or pays such liabilities generally are treated as ordinary income or loss. The gains or losses described above that are treated as ordinary income or loss may increase or decrease the amount of a Portfolio's investment company taxable income to be distributed to its shareholders as ordinary income. Additionally, if Code Section 988 ordinary losses exceed other investment company taxable income during a taxable year, a
Portfolio would not be able to make any ordinary dividend distributions, and any distributions made before the losses were realized but in the same taxable year would be recharacterized as a return of capital to shareholders, thereby reducing each shareholder's basis in the shares.
In general, gain or loss on a short sale, to the extent permitted, is recognized when a Portfolio closes the sale by delivering the borrowed property to the lender, not when the borrowed property is sold. Gain or loss from a short sale is generally considered as capital gain or loss to the extent that the property used to close the short sale constitutes a capital asset in the Portfolio's hands. Except with respect to certain situations where the property used by a Portfolio to close a short sale has a long-term holding period on the date of the short sale, special rules would generally treat the gains on short sales as short-term capital gains. These rules may also terminate the running of the holding period of "substantially identical property" held by a Portfolio. Moreover, a loss on a short sale will be treated as a long-term capital loss if, on the date of the short sale, "substantially identical property" has been held by the Portfolio for more than one year. In general, a Portfolio will not be permitted to deduct payments made to reimburse the lender of securities for dividends paid on borrowed stock if the short sale is closed on or before the 45th day after the short sale is entered into.
Provided the International Portfolios, the Emerging Markets Portfolio and the Overlay Portfolios each qualify as a regulated investment company and more, as is expected, than 50% of the value of each such Portfolio's total assets at the close of its fiscal year consists of stocks or securities of foreign corporations, such Portfolios may elect for U.S. federal income tax purposes to treat foreign income taxes paid by each such Portfolio as paid by their shareholders. The Portfolios will make such an election only if they deem it to be in the best interests of their shareholders. As a result of making such an election, shareholders of the Portfolios would be required to include their pro rata share of such foreign taxes in computing their taxable incomes and treat an amount equal to their share of such taxes as a U.S. federal income tax deduction or as foreign tax credit against their U.S. federal income taxes. Generally, a foreign tax credit is more advantageous than a deduction. Each of these Portfolios may determine, as it deems appropriate in applying the relevant U.S. federal income tax rules, not to pass through to shareholders certain foreign taxes paid by such Portfolio. Within 60 days after the close of each taxable year of the Portfolios, the Fund will notify shareholders if the foreign taxes paid by the Portfolios will pass through for that year, and, if so, the amount of each shareholder's pro rata share of (i) the foreign taxes paid by the Portfolios and (ii) the Portfolios' gross income from foreign sources. Shareholders who are not liable for federal income tax will not benefit from any such pass through of foreign tax credits. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Certain limitations will be imposed regarding the extent to which the credit or the deduction for foreign taxes may be claimed.
Generally, a credit for foreign taxes may not exceed the amount of the shareholder's U.S. federal income tax liability attributable to its foreign source taxable income. For this purpose, dividends and interest received by such Portfolios in respect of foreign securities generally will give rise to foreign source income to the shareholders. The overall limitation on a foreign tax credit is also applied separately to specific categories of foreign source income, among which is the "passive income" category, which includes foreign source dividends, interest and capital gains. As a result of these rules, certain shareholders may be unable to claim a credit for the full amount of their proportionate share of the foreign taxes paid by such Portfolios.
The International Portfolios, the Emerging Markets Portfolio and the Overlay
Portfolios may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive income or
(2) at least 50% of its assets produce, or are held for the production of,
passive income. To the extent that such Portfolios may hold shares of
corporations which are considered to be PFICs, capital gains from such shares
may be treated as ordinary income and the Portfolios may be subject to
corporate income taxes and interest charges on certain dividends on and capital
gains from such shares. Under the PFIC rules, the Portfolios holding shares of
marketable PFICs may elect to mark those shares to market at the close of the
Fund's taxable year or at the close of a period ending on October 31 for
purposes of the excise tax minimum distribution requirements. For this purpose
all stock in a PFIC that is owned directly or indirectly by a Portfolio is
treated as marketable stock. PFIC mark-to-market gains are treated as ordinary
income, as are any gains realized on the ultimate sale of the marketable PFIC
stock. Mark-to-market losses and losses on the ultimate disposition of such
stock are ordinary losses to the extent of net mark-to-market gains included in
previous tax years with respect to such stock.
If a Portfolio were to invest in a PFIC and elect to treat the PFIC as a "qualified electing fund" under the Code, in lieu of the foregoing requirements, the Portfolio might be required to include in income each year a portion of the ordinary earnings and net capital gains of the qualified electing fund, even if not distributed to the Portfolio, and such amounts would be subject to the 90% and excise tax distribution requirements described above. In order to make this election, the Portfolio would be required to obtain certain annual information from the PFICs in which it invests, which may be difficult or impossible to obtain.
A Portfolio will make the appropriate tax elections, if possible, and take any additional steps that are necessary to mitigate the effect of these rules.
Income received by the Portfolio in respect of foreign securities may be subject to foreign withholding taxes. Tax treaties between certain countries and the United States may reduce or eliminate such taxes.
Certain types of income received by a Portfolio from Real Estate Investment
Trusts ("REITs"), REMICs, taxable mortgage pools or other investments may cause
the Portfolio to designate some or all of its distributions as "excess
inclusion income." To Portfolio shareholders such excess inclusion income may
(1) constitute taxable income, as "unrelated business taxable income" for those
shareholders who would otherwise be tax-exempt such as individual retirement
accounts, 401(k) accounts, Keogh plans, pension plans and certain charitable
entities; (2) not be offset against net operating losses for tax purposes;
(3) not be eligible for reduced U.S. withholding for non-U.S. shareholders even
from tax treaty countries; and (4) cause the Portfolio to be subject to tax if
certain "disqualified organizations" as defined by the Code are Portfolio
shareholders.
Upon the sale or exchange of his shares, a shareholder will realize a taxable gain or loss equal to the difference between the amount realized and his basis in his shares. A redemption of shares by a Portfolio will be treated as a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term capital gain or loss if the shares are held for more than one year and short-term capital gain or loss if the shares are held for one year or less. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced, including replacement through the reinvesting of dividends and capital gains distributions in a Portfolio, within a 61-day period beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of a Portfolio share held by the shareholder for six months or less will be treated for U.S. federal income tax purposes as a long-term capital loss to the extent of any distributions or deemed distributions of long-term capital gains received by the shareholder with respect to such share. If a shareholder incurs a sales charge in acquiring shares of a Portfolio, disposes of those shares within 90 days and then acquires, before January 31 of the following year, shares in a mutual fund for which the otherwise applicable sales charge is reduced by reason of a reinvestment right (e.g., an exchange privilege), the original sales charge will not be taken into account in computing gain/loss on the original shares to the extent the subsequent sales charge is reduced. Instead, the disregarded portion of the original sales charge will be added to the tax basis of the newly acquired shares. Furthermore, the same rule also applies to a disposition of the newly acquired shares made within 90 days of the second acquisition. This provision prevents a shareholder from immediately deducting the sales charge by shifting his or her investment within a family of mutual funds.
Under Treasury Regulations, a Portfolio is currently required to withhold and remit to the U.S. Treasury 28% of dividend and capital-gains income from the accounts of certain U.S. shareholders unless such U.S. shareholders provide their correct taxpayer identification number ("TIN") and otherwise comply with the applicable requirements of the backup withholding rules. A U.S. shareholder who does not provide his correct TIN may be subject to penalties imposed by the Internal Revenue Service (the "IRS"). Certain shareholders are exempt from backup withholding. Backup withholding is not an additional tax and any amount withheld may be credited against a shareholder's U.S. federal income tax liability.
Shareholders will receive, if appropriate, various written notices after the close of a Portfolio's taxable year regarding the U.S. federal income tax status of certain dividends, distributions, passed-through foreign tax credits if applicable, and deemed distributions that were paid (or that are treated as having been paid) by the Portfolio to its shareholders during the preceding taxable year.
Dividends, distributions and redemption proceeds may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation.
Beginning in 2013, a 3.8 percent Medicare contribution tax will be imposed on net investment income, including interest, dividends, and capital gain, of U.S. individuals with income exceeding $200,000 (or $250,000 if married filing jointly), and of estates and trusts.
If a shareholder recognizes a loss with respect to a Portfolio's shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not exempted. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
A foreign shareholder generally is subject to dividend tax withholding at the 30% rate or at a lower applicable treaty rate on certain dividends from a Portfolio. In order to obtain a reduced rate of withholding, a non-U.S. shareholder will be required to provide an IRS Form W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax does not apply to regular dividends paid to a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. shareholder's conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. shareholder were a U.S. shareholder. A non-U.S. corporation receiving effectively connected dividends may also be subject to additional "branch profits tax" imposed at a rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or other applicable form may be subject to backup withholding at the appropriate rate.
A 30% withholding tax will be imposed on dividends paid after December 31, 2013 and redemption proceeds paid after December 31, 2016, to (i) foreign financial institutions including non-U.S. investment funds unless they agree to collect and disclose to the IRS information regarding their direct and indirect U.S. account holders and (ii) certain other foreign entities unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions will need to (i) enter into agreements with the IRS that state that they will provide the IRS information including the names, addresses and TINs of direct and indirect U.S. account holders, comply with due diligence procedures with respect to the identification of U.S. accounts, report to the IRS certain information with respect to U.S. accounts maintained, agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required information, and determine certain other information as to their account holders, or (ii) in the event that an applicable intergovernmental agreement and implementing legislation are adopted, provide local authorities with similar account holder information. Other foreign entities will need to provide the name, address, and TIN of each substantial U.S. owner or certifications of no substantial U.S. ownership unless certain exceptions apply.
In general, U.S. federal withholding tax will not apply to any gain or income realized by a non-U.S. shareholder in respect of any distributions of net long-term capital gains over net short-term capital losses, exempt interest dividends, or upon the sale or other disposition of shares of a Portfolio.
Distributions that a Portfolio reports as "short-term capital gain dividends" or "long-term capital gain dividends" will not be treated as such to a recipient foreign shareholder if the distribution is attributable to a REIT's distribution to a Portfolio of gain from the sale or exchange of U.S. real property or an interest in a U.S. real property holding corporation and the Portfolio's direct or indirect interests in U.S. real property exceeded certain levels. Instead, if the foreign shareholder has not owned more than 5% of the outstanding shares of the Portfolio at any time during the one year period ending on the date of distribution, such distributions will be subject to 30% withholding by the Portfolio and will be treated as ordinary dividends to the foreign shareholder; if the foreign shareholder owned more than 5% of the outstanding shares of the Portfolio at any time during the one year period ending on the date of the distribution, such distribution will be treated as real property gain subject to 35% withholding tax and could subject the foreign shareholder to U.S. filing requirements. Additionally, if a Portfolio's direct or indirect interests in U.S. real property were to exceed certain levels, a foreign shareholder realizing gains upon redemption from the Portfolio could be subject to the 35% withholding tax and U.S. filing requirements unless the foreign person had not held more than 5% of the Portfolio's outstanding shares throughout either such person's holding period for the redeemed shares or, if shorter, the previous five years.
The rules laid out in the previous paragraph, other than the withholding rules, will apply notwithstanding a foreign shareholder's participation or Portfolio's participation in a wash sale transaction or the payment of a substitute dividend.
Shares of a Portfolio held by a non-U.S. shareholder at death will be considered situated within the United States and subject to the U.S. estate tax, if applicable.
The discussion in the Prospectus, together with the foregoing, is a general summary of the tax consequences of investments in the Portfolios. Investors are urged to consult their own tax advisors to determine the effect of investments in the Portfolios upon their individual tax situations.
Your cost basis in your covered shares is permitted to be calculated using any one of three alternative methods: Average Cost, First In-First Out (FIFO) and Specific Share Identification. You may elect which method you want to use by notifying the Portfolios. This election may be revoked or changed by you at any time up to the date of your first redemption of covered shares.
If you hold Portfolio shares through a broker (or other nominee), please contact that broker (nominee) with respect to the reporting of cost basis and available elections for your account.
You are encouraged to consult your tax advisor regarding the application of the new cost basis reporting rules and, in particular, which cost basis calculation method you should elect.
CUSTODIAN, TRANSFER AGENT, COUNSEL, INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM AND FINANCIAL STATEMENTS
State Street Bank and Trust Company ("State Street"), One Lincoln Street, Boston, Massachusetts 02111, is the Custodian and Accounting Agent for the Fund. Foreign securities and currency owned by the Fund may be held by foreign subcustodians of State Street retained for such purpose in accordance with the 1940 Act. State Street also serves as Transfer Agent, and in that capacity maintains certain books and records pursuant to an agreement within the Fund.
The law firm of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, New York 10019-6099, acts as counsel to the Fund.
PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, New York 10017, has been selected as the Fund's independent registered public accounting firm to audit the annual financial statements of each Portfolio. Shareholders are sent audited annual and unaudited semiannual reports that include financial statements, including a schedule of investments. The Fund's September 30, 2012 audited financial statements included in its 2012 annual report are incorporated herein by reference. You may request a copy of the Annual Report by writing to or telephoning (collect) the Fund at 1345 Avenue of the Americas, New York, New York 10105, (212) 756-4097.
DESCRIPTION OF SHARES
The shares of each Portfolio have no preemptive or conversion rights. Shares are fully paid and nonassessable and redeemable at the option of the shareholder and have a par value of $0.001. Shares are also redeemable at the option of the Fund, if the NAV of a shareholder's account is less than $1,000.
Pursuant to the Articles of Incorporation, the Board may also authorize the creation of additional classes of shares of Portfolios or series of shares (the proceeds of which may be invested in separate, independently managed portfolios) with such preferences, privileges, limitations and voting and dividend rights as the Board may determine.
Shareholders have certain rights, including the right to call a meeting of shareholders for the purpose of voting on the removal of one or more Directors. Such removal can be effected upon the action of two-thirds of the outstanding shares of all of the Portfolios of the Fund, voting as a single class. The shareholders of each Portfolio are entitled to a full vote for each full share held and to the appropriate fractional vote for each fractional share. A matter that affects a Portfolio of the Fund will not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding voting securities of that Portfolio. The voting rights of the shareholders are not cumulative. In order to avoid unnecessary expenses, the Fund does not intend to hold annual meetings of shareholders.
To the knowledge of the Fund, the following persons or entities owned of record or beneficially 5% or more of the shares of any Portfolio or Class as of January 4, 2013.
NO. OF SHARES % OF PORTFOLIO NAME AND ADDRESS OF CLASS CLASS --------- ------------------------------------ ------------- ----- Short Duration B. Z. Family Trust 504,618.520 7.70% California c/o Sanford C. Bernstein & Co., LLC Municipal 1345 Avenue of the Americas Portfolio New York, New York 10105 Goldberg Family Trust UTD 459,417.616 7.01% c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, New York 10105 A. A. 385,577.345 5.89% c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, New York 10105 - 92 - |
NO. OF SHARES % OF PORTFOLIO NAME AND ADDRESS OF CLASS CLASS --------- --------------------------------------- -------------- ----- Short Arris Group Inc. 2,001,549.948 7.48% Duration c/o Sanford C. Bernstein & Co., LLC Diversified 1345 Avenue of the Americas Municipal New York, New York 10105 Portfolio Diversified TIAA-CREF Individual and Institutional 15,575,246.873 5.09% Municipal Services, LLC Portfolio c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, New York 10105 U.S. S.H.K. Foundation 796,963.880 9.32% Government c/o Sanford C. Bernstein & Co., LLC Short 1345 Avenue of the Americas Duration New York, New York 10105 Portfolio The Dore Family Foundation 678,303.978 7.93% c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, New York 10105 Broward Bank of Commerce 475,494.599 5.56 c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, New York 10105 J. R. V. 440,916.332 5.16% c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, New York 10105 Short Arris Group Inc. 4,178,177.503 9.86% Duration Plus c/o Sanford C. Bernstein & Co., LLC Portfolio 1345 Avenue of the Americas New York, New York 10105 - 93 - |
NO. OF SHARES % OF PORTFOLIO NAME AND ADDRESS OF CLASS CLASS --------- ------------------------------------- ------------- ------ Overlay A S.G. & U.G. TIC 1,341,411.274 5.76% Portfolio - c/o Sanford C. Bernstein & Co., LLC Class 2 1345 Avenue of the Americas New York, NY 10105 Lakeside Foundation 1,265,654.850 5.44% c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, NY 10105 Retirement Plan for the Employees of 1,177,853.844 5.06% AllianceBernstein L.P. c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, NY 10105 Overlay B Lakeside Foundation 1,040,526.366 6.12% Portfolio - c/o Sanford C. Bernstein & Co., LLC Class 2 1345 Avenue of the Americas New York, NY 10105 The Bolton Family Trust DTD 1,002,965.364 5.90% c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, NY 10105 Tax-Aware J.B.D. Revocable Trust 2,491,970.879 16.28% Overlay C c/o Sanford C. Bernstein & Co., LLC Portfolio - 1345 Avenue of the Americas Class 2 New York, NY 10105 The Hellman Family Trust 1,116,608.228 7.29% c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, NY 10105 Tax-Aware SVYDY, LLC 336,877.187 6.24% Overlay N c/o Sanford C. Bernstein & Co., LLC Portfolio - 1345 Avenue of the Americas Class 2 New York, NY 10105 J.C.F. Revocable Trust 292,874.253 5.43% c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, NY 10105 T. H. 278,660.791 5.17% c/o Sanford C. Bernstein & Co., LLC 1345 Avenue of the Americas New York, NY 10105 |
APPENDIX A
The following descriptions of Standard & Poor's Corporation ("Standard & Poor's"), Fitch Ratings, Inc. ("Fitch") and Moody's Investors Service, Inc. ("Moody's") corporate and municipal bond ratings have been published by Standard & Poor's, Fitch and Moody's, respectively.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories.
BB, B, CCC, CC, C Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, they are outweighed by large uncertainties or major risk exposure to adverse conditions.
CI The rating CI is reserved for income bonds on which no interest is being paid.
D Debt rated D is in default, and payment of interest and/or repayment of principal is in arrears.
PLUS (+) or MINUS (-) The ratings from "AA" to "CCC" may be modified by the additions of a plus or minus sign to show relative standing within the major rating categories.
A Fitch bond rating represents an assessment of the issuer's ability to meet its debt obligations in a timely manner. The rating is not a recommendation to buy, sell or hold any security. It does not comment on the adequacy of market price, investor suitability or the taxability of interest.
Ratings are based on information obtained from issuers or sources believed to be reliable. Fitch does not audit or verify the accuracy of the information. Ratings may be changed, suspended or withdrawn to changes in or unavailability of information.
AAA Highest credit quality, obligor has exceptionally strong ability to pay interest and repay principal.
AA Very high credit quality, obligor's ability to pay interest and repay principal is very strong, although not as strong as AAA.
A High credit quality, obligor's ability to pay interest and repay principal is strong, but more vulnerable to adverse economic conditions than higher rated bonds.
BBB Satisfactory credit quality, obligor's ability to pay interest and repay principal is adequate, adverse economic conditions could impair timely payment.
BB Speculative, obligor's ability to pay interest and repay principal may be affected by adverse economic conditions.
B Highly speculative, obligor has a limited margin of safety to make timely payments of principal and interest.
CC Minimal protection, default in payment of interest and or principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD Bonds are in default on interest and or principal and are extremely speculative.
DD AND D Bonds represent the highest potential for default and the lowest potential for recovery.
PLUS(+) MINUS (-) Plus and minus signs are used to indicate relative position of a credit within the rating category and only apply to AA to CCC categories.
AAA Bonds which are rated Aaa by Moody's are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edged." Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations or protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable attributes and are considered upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but susceptible to impairment some time in the future.
BAA Bonds which are rated Baa are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and have speculative characteristics as well.
BA Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest-rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from "A-1" for the highest quality obligations to "D" for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
B Issues rated "B" are regarded as having only speculative capacity for timely payment.
C This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used when interest payments are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period.
Short term ratings apply to obligations payable on demand or with original maturities of up to three years. The rating emphasizes the existence of liquidity required for timely payment of the obligation.
F-1+ Exceptionally Strong Credit Quality, strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality, assurance of timely payment only slightly less than F-1+.
F-2 Good Credit Quality, satisfactory degree of assurance for timely payment.
F-3 Fair Credit Quality, degree for assurance of timely repayment is adequate, however, near term adverse changes could put rating below investment grade.
F-S Weak Credit Quality, minimal degree of assurance for timely repayment and vulnerable to near adverse changes in economic and financial conditions.
D Default, actual or imminent payment default.
Moody's employs the following three designations, all judged to be investment-grade, to indicate the relative repayment ability of rated issuers:
P-1 Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structures with moderate reliance on debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and high internal cash generation.
. Well-established access to a range of financial markets and assured sources of alternate liquidity.
while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
P-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term debt obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime rating categories.
The following descriptions of municipal bond ratings have been published by Standard & Poor's, Fitch and Moody's, respectively.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
Moody's
MIG 1/VMIG 1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk.
SG This designation denotes speculative quality. Debt instruments in this category lack margins of protection.
Short term ratings apply to obligations payable on demand or with original maturities of up to three years. The rating emphasizes the existence of liquidity required for timely payment of the obligation.
F-1+ Exceptionally Strong Credit Quality, strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality, assurance of timely payment only slightly less than F-1+.
F-2 Good Credit Quality, satisfactory degree of assurance for timely payment.
F-3 Fair Credit Quality, degree for assurance of timely repayment is adequate, however, near term adverse changes could put rating below investment grade.
F-S Weak Credit Quality, minimal degree of assurance for timely repayment and vulnerable to near adverse changes in economic and financial conditions.
APPENDIX B
STATEMENT OF POLICIES AND
PROCEDURES FOR PROXY VOTING
1. INTRODUCTION
As a registered investment adviser, AllianceBernstein L.P.
("ALLIANCEBERNSTEIN", "WE" OR "US") has a fiduciary duty to act solely in
the best interests of our clients. We recognize that this duty requires us
to vote client securities in a timely manner and make voting decisions that
are intended to maximize long-term shareholder value. Generally, our
clients' objective is to maximize the financial return of their portfolios
within appropriate risk parameters. We have long recognized that
environmental, social and governance ("ESG") issues can impact the
performance of investment portfolios. Accordingly, we have sought to
integrate ESG factors into our investment process to the extent that the
integration of such factors is consistent with our fiduciary duty to help
our clients achieve their investment objectives and protect their economic
interests. Our Statement of Policy Regarding Responsible Investment ("RI
POLICY") is attached to this Statement as an Exhibit.
We consider ourselves shareholder advocates and take this responsibility very seriously. Consistent with our commitments, we will disclose our clients' voting records only to them and as required by mutual fund vote disclosure regulations. In addition, our proxy committees may, after careful consideration, choose to respond to surveys so long as doing so does not compromise confidential voting.
This statement is intended to comply with Rule 206(4)-6 of the Investment Advisers Act of 1940. It sets forth our policies and procedures for voting proxies for our discretionary investment advisory clients, including investment companies registered under the Investment Company Act of 1940. This statement applies to AllianceBernstein's investment groups investing on behalf of clients in both U.S. and non-U.S. securities.
2. PROXY POLICIES
Our proxy voting policies are principle-based rather than rules-based. We adhere to a core set of principles that are described in this Statement and in our Proxy Voting Manual. We assess each proxy proposal in light of those principles. Our proxy voting "litmus test" will always be what we view as most likely to maximize long-term shareholder value. We believe that authority and accountability for setting and executing corporate policies, goals and compensation should generally rest with the board of directors and senior management. In return, we support strong investor rights that allow shareholders to hold directors and management accountable if they fail to act in the best interests of shareholders. In addition, if we determine that ESG issues that arise with respect to an issuer's past, current or anticipated behaviors are, or are reasonably likely to become, material to its future earnings, we address these concerns in our proxy voting and engagement.
This statement is designed to be responsive to the wide range of proxy voting subjects that can have a significant effect on the investment value of the securities held in our clients' accounts. These policies are not exhaustive due to the variety of proxy voting issues that we may be required to consider. AllianceBernstein reserves the right to depart from these guidelines in order to make voting decisions that are in our clients' best interests. In reviewing proxy issues, we will apply the following general policies:
2.1.Corporate Governance
We recognize the importance of good corporate governance in our proxy voting policies and engagement practices in ensuring that management and the board of directors fulfill their obligations to shareholders. We favor proposals promoting transparency and accountability within a company. We support the appointment of a majority of independent directors on key committees and generally support separating the positions of chairman and chief executive officer, except in cases where a company has sufficient counter-balancing governance in place. Because we believe that good corporate governance requires shareholders to have a meaningful voice in the affairs of the company, we generally will support shareholder proposals which request that companies amend their by-laws to provide that director nominees be elected by an affirmative vote of a majority of the votes cast. Furthermore, we have written to the SEC in support of shareholder access to corporate proxy statements under specified conditions with the goal of serving the best interests of all shareholders.
2.2.Elections of Directors
Unless there is a proxy fight for seats on the Board or we determine that there are other compelling reasons to oppose directors, we will vote in favor of the management proposed slate of directors. That said, we believe that directors have a duty to respond to shareholder actions that have received significant shareholder support. Therefore, we may vote against directors (or withhold votes for directors where plurality voting applies) who fail to act on key issues such as failure to implement proposals to declassify the board, failure to implement a majority vote requirement, failure to submit a rights plan to a shareholder vote or failure to act on tender offers where a majority of shareholders have tendered their shares. In addition, we will vote against directors who fail to attend at least seventy-five percent of board meetings within a given year without a reasonable excuse, and we may abstain or vote against directors of non-U.S. issuers where there is insufficient information about the nominees disclosed in the proxy statement. Also, we will generally not oppose directors who meet the definition of independence promulgated by the primary exchange on which the company's shares are traded or set forth in the code we determine to be best practice in the country where the subject company is domiciled. Finally, because we believe that cumulative voting in single shareholder class structures provides a disproportionately large voice to minority shareholders in the affairs of a company, we will generally vote against such proposals and vote for management proposals seeking to eliminate cumulative voting. However, in dual class structures (such as A&B shares) where the shareholders with a majority
economic interest have a minority voting interest, we will generally vote in favor of cumulative voting.
2.3.Appointment of Auditors
AllianceBernstein believes that the company is in the best position to choose its auditors, so we will generally support management's recommendation. However, we recognize that there are inherent conflicts when a company's independent auditor performs substantial non-audit services for the company. The Sarbanes-Oxley Act of 2002 prohibits certain categories of services by auditors to U.S. issuers, making this issue less prevalent in the U.S. Nevertheless, in reviewing a proposed auditor, we will consider the fees paid for non-audit services relative to total fees and whether there are other reasons for us to question the independence or performance of the auditors.
2.4.Changes in Legal and Capital Structure
Changes in a company's charter, articles of incorporation or by-laws are often technical and administrative in nature. Absent a compelling reason to the contrary, AllianceBernstein will cast its votes in accordance with management's recommendations on such proposals. However, we will review and analyze on a case-by-case basis any non-routine proposals that are likely to affect the structure and operation of the company or have a material economic effect on the company. For example, we will generally support proposals to increase authorized common stock when it is necessary to implement a stock split, aid in a restructuring or acquisition, or provide a sufficient number of shares for an employee savings plan, stock option plan or executive compensation plan. However, a satisfactory explanation of a company's intentions must be disclosed in the proxy statement for proposals requesting an increase of greater than 100% of the shares outstanding. We will oppose increases in authorized common stock where there is evidence that the shares will be used to implement a poison pill or another form of anti-takeover device. We will support shareholder proposals that seek to eliminate dual class voting structures.
2.5.Corporate Restructurings, Mergers and Acquisitions
AllianceBernstein believes proxy votes dealing with corporate reorganizations are an extension of the investment decision. Accordingly, we will analyze such proposals on a case-by-case basis, weighing heavily the views of our research analysts that cover the company and our investment professionals managing the portfolios in which the stock is held.
2.6.Proposals Affecting Shareholder Rights
AllianceBernstein believes that certain fundamental rights of shareholders must be protected. We will generally vote in favor of proposals that give shareholders a greater voice in the affairs of the company and oppose any measure that seeks to limit those rights. However, when analyzing such proposals we will weigh the financial impact of the proposal against the impairment of shareholder rights.
2.7.Anti-Takeover Measures
AllianceBernstein believes that measures that impede corporate transactions (such as takeovers) or entrench management not only infringe on the rights of shareholders but may also have a detrimental effect on the value of the company. Therefore, we will generally oppose proposals, regardless of whether they are advanced by management or shareholders, when their purpose or effect is to entrench management or excessively or inappropriately dilute shareholder ownership. Conversely, we support proposals that would restrict or otherwise eliminate anti-takeover or anti-shareholder measures that have already been adopted by corporate issuers. For example, we will support shareholder proposals that seek to require the company to submit a shareholder rights plan to a shareholder vote. We will evaluate, on a case-by-case basis, proposals to completely redeem or eliminate such plans. Furthermore, we will generally oppose proposals put forward by management (including the authorization of blank check preferred stock, classified boards and supermajority vote requirements) that appear to be anti-shareholder or intended as management entrenchment mechanisms.
2.8.Executive Compensation
AllianceBernstein believes that company management and the compensation committee of the board of directors should, within reason, be given latitude to determine the types and mix of compensation and benefits offered to company employees. Whether proposed by a shareholder or management, we will review proposals relating to executive compensation plans on a case-by-case basis to ensure that the long-term interests of management and shareholders are properly aligned. In general, we will analyze the proposed plan to ensure that shareholder equity will not be excessively diluted taking into account shares available for grant under the proposed plan as well as other existing plans. We generally will oppose plans that allow stock options to be granted with below market value exercise prices on the date of issuance or permit re-pricing of underwater stock options without shareholder approval. Other factors such as the company's performance and industry practice will generally be factored into our analysis. In markets where remuneration reports or advisory votes on executive compensation are not required for all companies, we will generally support shareholder proposals asking the board to adopt a policy (i.e., "say on pay") that the company's shareholders be given the opportunity to vote on an advisory resolution to approve the compensation practices of the company. Although "say on pay" votes are by nature only broad indications of shareholder views, they do lead to more compensation-related dialogue between management and shareholders and help ensure that management and shareholders meet their common objective: maximizing the value of the company. In markets where votes to approve remuneration reports or advisory votes on executive compensation are required, we review the compensation practices on a case-by-case basis. With respect to companies that have received assistance through government programs such as TARP, we will generally oppose shareholder proposals that seek to impose greater executive compensation restrictions on subject companies than are required under the applicable program because such restrictions could create a competitive disadvantage for the subject company. We believe the U.S. Securities and Exchange Commission ("SEC")
took appropriate steps to ensure more complete and transparent disclosure of executive compensation when it issued modified executive compensation and corporate governance disclosure rules in 2006 and February 2010. Therefore, while we will consider them on a case-by-case basis, we generally vote against shareholder proposals seeking additional disclosure of executive and director compensation, including proposals that seek to specify the measurement of performance-based compensation, if the company is subject to SEC rules. We will support requiring a shareholder vote on management proposals to provide severance packages that exceed 2.99 times the sum of an executive officer's base salary plus bonus that are triggered by a change in control. Finally, we will support shareholder proposals requiring a company to expense compensatory employee stock options (to the extent the jurisdiction in which the company operates does not already require it) because we view this form of compensation as a significant corporate expense that should be appropriately accounted for.
2.9.ESG
We are appointed by our clients as an investment manager with a fiduciary responsibility to help them achieve their investment objectives over the long term. Generally, our clients' objective is to maximize the financial return of their portfolios within appropriate risk parameters. We have long recognized that ESG issues can impact the performance of investment portfolios. Accordingly, we have sought to integrate ESG factors into our investment and proxy voting processes to the extent that the integration of such factors is consistent with our fiduciary duty to help our clients achieve their investment objectives and protect their economic interests. For additional information regarding our approach to incorporating ESG issues in our investment and decision-making processes, please refer to our RI Policy, which is attached to this Statement as an Exhibit.
Shareholder proposals relating to environmental, social (including political) and governance issues often raise complex and controversial issues that may have both a financial and non-financial effect on the company. And while we recognize that the effect of certain policies on a company may be difficult to quantify, we believe it is clear that they do affect the company's long-term performance. Our position in evaluating these proposals is founded on the principle that we are a fiduciary. As such, we carefully consider any factors that we believe could affect a company's long-term investment performance (including ESG issues) in the course of our extensive fundamental, company-specific research and engagement, which we rely on in making our investment and proxy voting decisions. Maximizing long-term shareholder value is our overriding concern when evaluating these matters, so we consider the impact of these proposals on the future earnings of the company. In so doing, we will balance the assumed cost to a company of implementing one or more shareholder proposals against the positive effects we believe implementing the proposal may have on long-term shareholder value.
3. PROXY VOTING PROCEDURES
3.1.Proxy Voting Committees
Our growth and value investment groups have formed separate proxy voting committees ("PROXY COMMITTEES") to establish general proxy policies for AllianceBernstein and consider specific proxy voting matters as necessary. These Proxy Committees periodically review these policies and new types of environmental, social and governance issues, and decide how we should vote on proposals not covered by these policies. When a proxy vote cannot be clearly decided by an application of our stated policy, the appropriate Proxy Committee will evaluate the proposal. In addition, the Proxy Committees, in conjunction with the analyst that covers the company, may contact corporate management, interested shareholder groups and others as necessary to discuss proxy issues. Members of the Proxy Committees include senior investment personnel and representatives of the Legal and Compliance Department.
Different investment philosophies may occasionally result in different conclusions being drawn regarding certain proposals and, in turn, may result in the Proxy Committees making different voting decisions on the same proposal for value and growth holdings. Nevertheless, the Proxy Committees always vote proxies with the goal of maximizing the value of the securities in client portfolios.
It is the responsibility of the Proxy Committees to evaluate and maintain proxy voting procedures and guidelines, to evaluate proposals and issues not covered by these guidelines, to evaluate proxies where we face a potential conflict of interest (as discussed below), to consider changes in policy and to review the Proxy Voting Statement and the Proxy Voting Manual no less frequently than annually. In addition, the Proxy Committees meet as necessary to address special situations.
3.2.Engagement
In evaluating proxy issues and determining our votes, we welcome and seek out the points of view of various parties. Internally, the Proxy Committees may consult chief investment officers, directors of research, research analysts across our value and growth equity platforms, portfolio managers in whose managed accounts a stock is held and/or other Investment Policy Group members. Externally, the Proxy Committees may consult company management, company directors, interest groups, shareholder activists and research providers. If we believe an ESG issue is, or is reasonably likely to become, material, we engage a company's management to discuss the relevant issues.
Our engagement with companies and interest groups continues to expand as we have had more such meetings in the past few years.
3.3.Conflicts of Interest
AllianceBernstein recognizes that there may be a potential conflict of interest when we vote a proxy solicited by an issuer whose retirement plan we manage or
administer, who distributes AllianceBernstein-sponsored mutual funds, or
with whom we have, or one of our employees has, a business or personal
relationship that may affect (or may be reasonably viewed as affecting)
how we vote on the issuer's proxy. Similarly, AllianceBernstein may have
a potentially material conflict of interest when deciding how to vote on
a proposal sponsored or supported by a shareholder group that is a
client. We believe that centralized management of proxy voting,
oversight by the proxy voting committees and adherence to these policies
ensures that proxies are voted based solely on our clients' best
interests. Additionally, we have implemented procedures to ensure that
our votes are not the product of a material conflict of interest,
including: (i) on an annual basis, the Proxy Committees taking
reasonable steps to evaluate (A) the nature of AllianceBernstein's and
our employees' material business and personal relationships (and those
of our affiliates) with any company whose equity securities are held in
client accounts and (B) any client that has sponsored or has a material
interest in a proposal upon which we will be eligible to vote;
(ii) requiring anyone involved in the decision making process to
disclose to the chairman of the appropriate Proxy Committee any
potential conflict that he or she is aware of (including personal
relationships) and any contact that he or she has had with any
interested party regarding a proxy vote; (iii) prohibiting employees
involved in the decision making process or vote administration from
revealing how we intend to vote on a proposal in order to reduce any
attempted influence from interested parties; and (iv) where a material
conflict of interests exists, reviewing our proposed vote by applying a
series of objective tests and, where necessary, considering the views of
third party research services to ensure that our voting decision is
consistent with our clients' best interests.
Because under certain circumstances AllianceBernstein considers the recommendation of third party research services, the Proxy Committees takes reasonable steps to verify that any third party research service is, in fact, independent taking into account all of the relevant facts and circumstances. This includes reviewing the third party research service's conflict management procedures and ascertaining, among other things, whether the third party research service (i) has the capacity and competency to adequately analyze proxy issues, and (ii) can make recommendations in an impartial manner and in the best interests of our clients.
3.4.Proxies of Certain Non-U.S. Issuers
Proxy voting in certain countries requires "share blocking." Shareholders wishing to vote their proxies must deposit their shares shortly before the date of the meeting with a designated depositary. During this blocking period, shares that will be voted at the meeting cannot be sold until the meeting has taken place and the shares are returned to the clients' custodian banks. Absent compelling reasons to the contrary, AllianceBernstein believes that the benefit to the client of exercising the vote is outweighed by the cost of voting (i.e., not being able to sell the shares during this period). Accordingly, if share blocking is required we generally choose not to vote those shares.
AllianceBernstein seeks to vote all proxies for securities held in client accounts for which we have proxy voting authority. However, in non-US markets administrative issues beyond our control may at times prevent AllianceBernstein from voting such proxies. For example, AllianceBernstein may receive meeting notices after the cut-off date for voting or without sufficient time to fully consider the proxy. As another example, certain markets require periodic renewals of powers of attorney that local agents must have from our clients prior to implementing AllianceBernstein's voting instructions.
3.5.Loaned Securities
Many clients of AllianceBernstein have entered into securities lending arrangements with agent lenders to generate additional revenue. AllianceBernstein will not be able to vote securities that are on loan under these types of arrangements. However, under rare circumstances, for voting issues that may have a significant impact on the investment, we may request that clients recall securities that are on loan if we determine that the benefit of voting outweighs the costs and lost revenue to the client or fund and the administrative burden of retrieving the securities.
3.6.Proxy Voting Records
Clients may obtain information about how we voted proxies on their behalf by contacting their AllianceBernstein administrative representative. Alternatively, clients may make a written request for proxy voting information to: Mark R. Manley, Senior Vice President & Chief Compliance Officer, AllianceBernstein L.P., 1345 Avenue of the Americas, New York, NY 10105.
[ALTERNATIVE LANGUAGE FOR U.S. MUTUAL FUNDS]
You may obtain information regarding how the Fund voted proxies relating
to portfolio securities during the most recent 12-month period ended
June 30, without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, go to the Securities and Exchange
Commission's web site at www.sec.gov or call AllianceBernstein at
(800) 227-4618.
EXHIBIT
STATEMENT OF POLICY REGARDING
RESPONSIBLE INVESTMENT
PRINCIPLES FOR RESPONSIBLE INVESTMENT,
ESG, AND SOCIALLY RESPONSIBLE INVESTMENT
1. INTRODUCTION
AllianceBernstein L.P. ("ALLIANCEBERNSTEIN" or "WE") is appointed by our clients as an investment manager with a fiduciary responsibility to help them achieve their investment objectives over the long term. Generally, our clients' objective is to maximize the financial return of their portfolios within appropriate risk parameters. AllianceBernstein has long recognized that environmental, social and governance ("ESG") issues can impact the performance of investment portfolios. Accordingly, we have sought to integrate ESG factors into our investment process to the extent that the integration of such factors is consistent with our fiduciary duty to help our clients achieve their investment objectives and protect their economic interests.
Our policy draws a distinction between how the Principles for Responsible Investment ("PRI" or "PRINCIPLES"), and Socially Responsible Investing ("SRI") incorporate ESG factors. PRI is based on the premise that, because ESG issues can affect investment performance, appropriate consideration of ESG issues and engagement regarding them is firmly within the bounds of a mainstream investment manager's fiduciary duties to its clients. Furthermore, PRI is intended to be applied only in ways that are consistent with those mainstream fiduciary duties.
SRI, which refers to a spectrum of investment strategies that seek to integrate ethical, moral, sustainability and other non-financial factors into the investment process, generally involves exclusion and/or divestment, as well as investment guidelines that restrict investments. AllianceBernstein may accept such guideline restrictions upon client request.
2. APPROACH TO ESG
Our long-standing policy has been to include ESG factors in our extensive fundamental research and consider them carefully when we believe they are material to our forecasts and investment decisions. If we determine that these aspects of an issuer's past, current or anticipated behavior are material to its future expected returns, we address these concerns in our forecasts, research reviews, investment decisions and engagement. In addition, we have well-developed proxy voting policies that incorporate ESG issues and engagement.
3. COMMITMENT TO THE PRI
In recent years, we have gained greater clarity on how the PRI initiative, based on information from PRI Advisory Council members and from other signatories, provides a framework for incorporating ESG factors into investment research and decision-making. Furthermore, our industry has become, over time, more aware of the importance of ESG factors. We acknowledge these developments and seek to refine what has been our process in this area.
After careful consideration, we determined that becoming a PRI signatory would enhance our current ESG practices and align with our fiduciary duties to our clients as a mainstream investment manager. Accordingly, we became a signatory, effective November 1, 2011.
In signing the PRI, AllianceBernstein as an investment manager publicly commits to adopt and implement all six Principles, where consistent with our fiduciary responsibilities, and to make progress over time on implementation of the Principles.
The six Principles are:
1. We will incorporate ESG issues into investment research and decision-making processes. AllianceBernstein Examples: ESG issues are included in the research analysis process. In some cases, external service providers of ESG-related tools are utilized; we have conducted proxy voting training and will have continued and expanded training for investment professionals to incorporate ESG issues into investment analysis and decision-making processes across our firm.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will report on our activities and progress towards implementing the Principles.
4. RI COMMITTEE
Our firm's RI Committee provides AllianceBernstein stakeholders, including employees, clients, prospects, consultants and service providers alike, with a resource within our firm on which they can rely for information regarding our approach to ESG issues and how those issues are incorporated in different ways by the PRI and SRI. Additionally, the RI Committee is responsible for assisting AllianceBernstein personnel to further implement our firm's RI policies and practices, and, over time, to make progress on implementing all six Principles.
The RI Committee has a diverse membership, including senior representatives from investments, distribution/sales and legal. The Committee is chaired by Linda Giuliano, Senior Vice President and Chief Administrative Officer-Equities.
If you have questions or desire additional information about this Policy, we encourage you to contact the RI Committee at RIinquiries@alliancebernstein.com or reach out to a Committee member:
Erin Bigley: SVP-Fixed Income, New York
Alex Chaloff: SVP-Private Client, Los Angeles
Nicholas Davidson: SVP-Value, London
Kathy Fisher: SVP-Private Client, New York
Linda Giuliano: SVP-Equities, New York
Christopher Kotowicz: VP-Growth, Chicago
David Lesser: VP-Legal, New York
Mark Manley: SVP-Legal, New York
Takuji Oya: VP-Growth, Japan
Guy Prochilo: SVP-Institutional Investments, New York
Nitish Sharma: VP-Institutional Investments, Australia
Liz Smith: SVP-Institutional Investments, New York
Chris Toub: SVP-Equities, New York
Willem Van Gijzen: VP-Institutional Investments, Netherlands
[LOGO]
ALLIANCEBERNSTEIN
ALLIANCEBERNSTEIN INTERMEDIATE NEW YORK MUNICIPAL PORTFOLIO
ALLIANCEBERNSTEIN INTERMEDIATE CALIFORNIA MUNICIPAL PORTFOLIO
ALLIANCEBERNSTEIN INTERMEDIATE DIVERSIFIED MUNICIPAL PORTFOLIO
ALLIANCEBERNSTEIN SHORT DURATION PORTFOLIO
ALLIANCEBERNSTEIN TAX-MANAGED INTERNATIONAL PORTFOLIO
ALLIANCEBERNSTEIN INTERNATIONAL PORTFOLIO
c/o ALLIANCEBERNSTEIN INVESTOR SERVICES, INC.
P.O. Box 786003
San Antonio, Texas 78278-6003
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
STATEMENT OF ADDITIONAL INFORMATION
January 31, 2013
This Statement of Additional Information ("SAI") relates to the following classes of the AllianceBernstein Intermediate New York Municipal Portfolio (the "New York Municipal Portfolio"), the AllianceBernstein Intermediate California Municipal Portfolio (the "California Municipal Portfolio"), the AllianceBernstein Intermediate Diversified Municipal Portfolio (the "Diversified Municipal Portfolio," together with the New York Municipal Portfolio and the California Municipal Portfolio, the "Municipal Portfolios"), the AllianceBernstein Short Duration Portfolio (the "Short Duration Portfolio," together with the Municipal Portfolios, the "Fixed-Income Portfolios"), the AllianceBernstein Tax-Managed International Portfolio (the "Tax-Managed International Portfolio") and the AllianceBernstein International Portfolio (the "International Portfolio," together with the Tax-Managed International Portfolio, the "International Portfolios," and together with the Municipal Portfolios and Short Duration Portfolio, the "Portfolios," and each a "Portfolio") of the Sanford C. Bernstein Fund, Inc. (the "Fund").
EXCHANGE TICKER PORTFOLIO AND CLASS SYMBOL ------------------- --------------- ALLIANCEBERNSTEIN INTERMEDIATE NEW YORK MUNICIPAL PORTFOLIO Class A ANIAX Class B ANYBX Class C ANMCX ALLIANCEBERNSTEIN INTERMEDIATE CALIFORNIA MUNICIPAL PORTFOLIO Class A AICAX Class B ACLBX Class C ACMCX ALLIANCEBERNSTEIN INTERMEDIATE DIVERSIFIED MUNICIPAL PORTFOLIO Class A AIDAX Class B AIDBX Class C AIMCX ALLIANCEBERNSTEIN SHORT DURATION PORTFOLIO Class A ADPAX Class B ADPBX Class C ADPCX ALLIANCEBERNSTEIN INTERNATIONAL PORTFOLIO Class A AIZAX Class B AIZBX Class C AIZCX ALLIANCEBERNSTEIN TAX-MANAGED INTERNATIONAL PORTFOLIO Class A ABXAX Class B ABXBX Class C ABXCX |
This SAI is not a prospectus, but supplements and should be read in conjunction with the prospectus, dated January 31, 2013, as it may be amended and/or supplemented from time to time, for Class A, Class B and Class C shares of the Portfolios (the "Prospectus"). Copies of the Prospectus and the Portfolios' annual report may be obtained by contacting AllianceBernstein Investor Services, Inc. ("ABIS") at the address or the "For Literature" telephone number shown above or on the Internet at www.AllianceBernstein.com. Certain financial statements from the Fund's annual report dated September 30, 2012 are incorporated by reference into this SAI. Capitalized terms used herein but not defined have the meanings assigned to them in the Prospectus.
TABLE OF CONTENTS
Page ---- FUND HISTORY.............................................................. 3 INVESTMENT STRATEGIES AND RELATED RISKS................................... 3 INVESTMENT RESTRICTIONS................................................... 21 INVESTMENTS............................................................... 24 DIRECTORS AND OFFICERS AND PRINCIPAL HOLDERS OF SECURITIES................ 44 MANAGEMENT OF THE FUND.................................................... 50 EXPENSES OF THE FUND...................................................... 59 CODE OF ETHICS AND PROXY VOTING POLICIES AND PROCEDURES................... 64 PURCHASE OF SHARES........................................................ 64 REDEMPTION AND REPURCHASE OF SHARES....................................... 79 SHAREHOLDER SERVICES...................................................... 80 NET ASSET VALUE........................................................... 82 DIVIDENDS, DISTRIBUTIONS AND TAXES........................................ 84 PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 90 CUSTODIAN, COUNSEL, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS.................................................... 93 GENERAL INFORMATION....................................................... 94 APPENDIX A................................................................ A-1 APPENDIX B................................................................ B-1 |
AllianceBernstein and the AllianceBernstein logo are registered trademarks and service marks used by permission of their owner, AllianceBernstein L.P.
FUND HISTORY
The Fund was incorporated under the laws of the State of Maryland on May 4, 1988 as an open-end management investment company.
The New York Municipal Portfolio, doing business as AllianceBernstein Intermediate New York Municipal Portfolio, commenced offering the New York Municipal Class shares on January 9, 1989; the California Municipal Portfolio, doing business as the AllianceBernstein Intermediate California Municipal Portfolio, commenced offering the California Municipal Class shares on August 6, 1990; the Diversified Municipal Portfolio, doing business as the AllianceBernstein Intermediate Diversified Municipal Portfolio, commenced offering the Diversified Municipal Class shares on January 9, 1989, pursuant to a separate Prospectus. The Short Duration Plus Portfolio, doing business as AllianceBernstein Short Duration Portfolio, commenced offering the Short Duration Plus Class shares on December 12, 1988, pursuant to a separate Prospectus. The Tax-Managed International Portfolio, doing business as AllianceBernstein Tax-Managed International Portfolio, commenced offering the Tax-Managed International Class shares on June 22, 1992 and the International Portfolio, doing business as AllianceBernstein International Portfolio, commenced offering the International Class shares on April 30, 1999, pursuant to a separate Prospectus.
On February 1, 2002, the New York Municipal Portfolio, California Municipal Portfolio and the Diversified Municipal Portfolio commenced offering Class A, Class B and Class C Shares. On May 21, 2003, the Short Duration Portfolio commenced offering Class A shares, Class B shares, and Class C shares. On December 30, 2003, the Tax-Managed International Portfolio commenced offering Class A shares, Class B shares and Class C shares and the International Portfolio commenced offering Class A shares, Class B shares and Class C shares.
INVESTMENT STRATEGIES AND RELATED RISKS
The New York Municipal Portfolio and the California Municipal Portfolio are non-diversified. The Diversified Municipal Portfolio, the Short Duration Portfolio and the International Portfolios are diversified. The following investment policies and restrictions supplement, and should be read in conjunction with, the information regarding the investment objectives, policies and restrictions of each Portfolio set forth in the Portfolios' Prospectus. Except as otherwise noted, each Portfolio's investment policies are not designated "fundamental policies" within the meaning of the Investment Company Act of 1940, as amended ("1940 Act"), and may be changed by the Board of Directors of the Fund (the "Board") with respect to a Portfolio without approval of the shareholders of such Portfolio; however, such shareholders will be notified of a material change in such policies. If there is a change in investment policy or objective, shareholders should consider whether the Portfolio remains an appropriate investment in light of their then current financial position and needs. There is no assurance that any Portfolio will achieve its investment objective.
Each Fixed-Income Portfolio evaluates a wide variety of instruments and issuers, utilizing a variety of internally developed, quantitatively based valuation techniques. Except as otherwise specified, each of the Fixed-Income Portfolios may invest in any of the securities described in the Prospectus and this SAI. In addition, each of the Fixed-Income Portfolios may use any of the special investment techniques, some of which are commonly called derivatives, described in the Prospectus and this SAI to earn income and enhance returns, to hedge or adjust the risk profile of an investment portfolio, to obtain exposure to certain markets or to manage the effective maturity or duration of fixed-income securities.
To identify attractive bonds for the Fixed-Income Portfolios, AllianceBernstein L.P. ("AllianceBernstein" or the "Manager") evaluates securities and sectors to identify the most attractive securities in the market at a given time--those offering the highest expected return in relation to their risks. In addition, the Manager may analyze the yield curve to determine the optimum combination of duration for given degrees of interest rate risk. Finally, the Manager may use interest rate forecasting to determine the best level of interest rate risk at a given time, within specified limits for each Portfolio.
None of the Fixed-Income Portfolios will purchase any security if immediately after that purchase less than 80% of the Portfolio's total assets would consist of securities or commercial paper rated A or higher by Standard & Poor's Corporation ("Standard & Poor's" or "S&P"), Fitch Ratings, Inc. ("Fitch") or Moody's Investors Service, Inc. ("Moody's"); SP-1 by Standard & Poor's, F-1 by Fitch or MIG1 or VMIG1 by Moody's; A-1 by Standard & Poor's, or P-1 by Moody's; or of securities and commercial paper that are rated by other ratings agencies or are not rated but in either case are determined by the Manager to be of comparable quality. In addition, none of the Fixed-Income Portfolios will purchase a security or commercial paper rated less than B by Standard & Poor's, Fitch or Moody's; less than A-2 or SP-2 by Standard & Poor's, less than F-2 by Fitch or less than P-2, MIG-2 or VMIG-2 by Moody's; or securities and commercial paper that are rated by other ratings agencies or not rated but in either case are determined by the Manager to be of comparably poor quality. In the event of differing ratings, the higher rating shall apply. The impact of changing economic conditions, investment risk and changing interest rates is increased by investing in securities rated below A by Standard & Poor's, Fitch or Moody's; below SP-1 or A-1 by Standard & Poor's, below F-1 by Fitch or below MIG-1, VMIG-1 or P-1 by Moody's. In addition, the secondary trading market for lower-rated bonds may be less liquid than the market for higher-grade bonds.
Accordingly, lower-rated bonds may be difficult to value accurately. Securities rated BBB by Standard & Poor's and Fitch or Baa by Moody's are investment grade. Securities that are rated BB, B or CCC by Standard & Poor's and Fitch, or Ba, B or Caa by Moody's are considered to be speculative with regard to the payment of interest and principal.
In addition to these policies, which govern all Fixed-Income Portfolios, individual Portfolios have individual policies, discussed below, pertaining to the minimum ratings and types of investments permitted, as well as the effective duration and average maturity of the Portfolio. Effective duration, a statistic that is expressed in time periods, is a measure of the exposure of the Portfolio to changes in interest rates. Unlike maturity, which is the latest possible date for the final payment to be received from a bond, effective duration is a measure of the timing of all the expected interest and principal payments. Depending on the Manager's interest-rate forecast, the Manager may adjust the actual duration of each of the Fixed-Income Portfolios. When interest rates are expected to rise, the Manager may shorten the Portfolio's duration. When interest rates are expected to fall, the Manager may lengthen the Portfolio's duration.
The maturity composition of each of the Fixed-Income Portfolios may also vary, depending upon the shape of the yield curve and opportunities in the bond market, at times being concentrated in the middle part of the targeted range, while at other times consisting of a greater amount of securities with maturities that are shorter and others that are longer than the targeted range.
Generally, the value of debt securities changes as the general level of interest rates fluctuates. During periods of rising interest rates, the values of fixed-income securities generally decline. Conversely, during periods of falling interest rates, the values of these securities nearly always increase. Generally, the longer the maturity or effective duration, the greater the sensitivity of the price of a fixed-income security to any given change in interest rates. The value of each Portfolio's shares fluctuates with the value of its investments.
As a fundamental policy, each of the Municipal Portfolios, under normal circumstances, invests at least 80% of its net assets in municipal securities. For purposes of this policy, net assets include any borrowings for investment purposes. "Municipal Securities" are securities issued by states and their various political subdivisions along with agencies and instrumentalities of states and their various political subdivisions and by possessions and territories of the United States, such as Puerto Rico, the Virgin Islands and Guam and their various political subdivisions. The income from these securities is exempt from federal taxation but, in certain instances, may be includable in income subject to the alternative minimum tax ("AMT").
In addition to Municipal Securities, each Municipal Portfolio may invest in non Municipal Securities when, in the opinion of the Manager, the inclusion of the non municipal security will enhance the expected after tax return of the Municipal Portfolio in accordance with the Municipal Portfolio's objectives.
The term "net assets," as used in this SAI, means net assets plus any borrowings.
The Portfolios may invest in mortgage-backed securities ("MBS"), including those that are issued by private issuers, and therefore may have some exposure to subprime loans as well as to the mortgage and credit markets generally. Private issuers include commercial banks, savings associations, mortgage companies, investment banking firms, finance companies and special purpose finance entities (called special purpose vehicles or SPVs) and other entities that acquire and package mortgage loans for resale as MBS.
Unlike MBS issued or guaranteed by the U.S. Government or one of its sponsored entities, MBS issued by private issuers do not have a government or government-sponsored entity guarantee, but may have credit enhancement provided by external entities such as banks or financial institutions or achieved through the structuring of the transaction itself. Examples of such credit support arising out of the structure of the transaction include the issue of senior and subordinated securities (e.g., the issuance of securities by an SPV in multiple classes or "tranches," with one or more classes being senior to other subordinated classes as to the payment of principal and interest, with the result that defaults on the underlying mortgage loans are borne first by the holders of the subordinated class); creation of "reserve funds" (in which case cash or investments, sometimes funded from a portion of the payments on the underlying mortgage loans, are held in reserve against future losses); and "overcollateralization" (in which case the scheduled payments on, or the principal amount of, the underlying mortgage loans exceed that required to make payment of the securities and pay any servicing or other fees). However, there can be no guarantee that credit enhancements, if any, will be sufficient to prevent losses in the event of defaults on the underlying mortgage loans.
In addition, MBS that are issued by private issuers are not subject to the underwriting requirements for the underlying mortgages that are applicable to those MBS that have a government or government-sponsored entity guarantee. As a result, the mortgage loans underlying private MBS may, and frequently do, have less favorable collateral, credit risk or other underwriting characteristics than government or government-sponsored MBS and have wider variances in a number of terms including interest rate, term, size, purpose and borrower characteristics. Privately issued pools more frequently include second mortgages, high loan-to-value mortgages and manufactured housing loans. The coupon rates and maturities of the underlying mortgage loans in a private-label MBS pool may vary to a greater extent than those included in a government guaranteed pool, and the pool may include subprime mortgage loans. Subprime loans refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their
loans. For these reasons, the loans underlying these securities have had in many cases higher default rates than those loans that meet government underwriting requirements.
The risk of non-payment is greater for MBS that are backed by mortgage pools that contain subprime loans, but a level of risk exists for all loans. Market factors adversely affecting mortgage loan repayments may include a general economic turndown, high unemployment, a general slowdown in the real estate market, a drop in the market prices of real estate, or an increase in interest rates resulting in higher mortgage payments by holders of adjustable rate mortgages.
If a Portfolio purchases subordinated MBS, the subordinated MBS may serve as a credit support for the senior securities purchased by other investors. In addition, the payments of principal and interest on these subordinated securities generally will be made only after payments are made to the holders of securities senior to the Portfolios' securities. Therefore, if there are defaults on the underlying mortgage loans, the Portfolios will be less likely to receive payments of principal and interest, and will be more likely to suffer a loss.
Privately issued MBS are not traded on an exchange and there may be a limited market for the securities, especially when there is a perceived weakness in the mortgage and real estate market sectors. Without an active trading market, MBS held in a Portfolio's portfolio may be particularly difficult to value because of the complexities involved in assessing the value of the underlying mortgage loans.
The Portfolios may also purchase asset-backed securities ("ABS") that have many of the same characteristics and risks as the MBS described above, except that ABS may be backed by non-real-estate loans, leases or receivables such as auto, credit card or home equity loans.
Each of the Portfolios may purchase commercial paper, including asset-backed commercial paper ("ABCP") that is issued by structured investment vehicles or other conduits. These conduits may be sponsored by mortgage companies, investment banking firms, finance companies, hedge funds, private equity firms and special purpose finance entities. ABCP typically refers to a debt security with an original term to maturity of up to 270 days, the payment of which is supported by cash flows from underlying assets, or one or more liquidity or credit support providers, or both. Assets backing ABCP, which may be included in revolving pools of assets with large numbers of obligors, include credit card, car loan and other consumer receivables and home or commercial mortgages, including subprime mortgages. The repayment of ABCP issued by a conduit depends primarily on the cash collections received from the conduit's underlying asset portfolio and the conduit's ability to issue new ABCP. Therefore, there could be losses to a Portfolio investing in ABCP in the event of credit or market value deterioration in the conduit's underlying portfolio, mismatches in the timing of the cash flows of the underlying asset interests and the repayment obligations of maturing ABCP, or the conduit's inability to issue new ABCP. To protect investors from these risks, ABCP programs may be structured with various protections, such as credit enhancement, liquidity support, and commercial paper stop-issuance and wind-down triggers. However there can be no guarantee that these protections will be sufficient to prevent losses to investors in ABCP.
Some ABCP programs provide for an extension of the maturity date of the ABCP if, on the related maturity date, the conduit is unable to access sufficient liquidity through the issue of additional ABCP. This may delay the sale of the underlying collateral and a Portfolio may incur a loss if the value of the collateral deteriorates during the extension period. Alternatively, if collateral for ABCP commercial paper deteriorates in value, the collateral may be required to be sold at inopportune times or at prices insufficient to repay the principal and interest on the ABCP. ABCP programs may provide for the issuance of subordinated notes as an additional form of credit enhancement. The subordinated notes are typically of a lower credit quality and have a higher risk of default. A Portfolio purchasing these subordinated notes will therefore have a higher likelihood of loss than investors in the senior notes.
The Portfolios may also invest in other types of fixed-income securities which are subordinated or "junior" to more senior securities of the issuer, or which represent interests in pools of such subordinated or junior securities. Such securities may include preferred stock or, in the case of the Short Duration Portfolio, so called "high yield" or "junk" bonds (i.e., bonds that are rated below investment grade by a rating agency or that are of equivalent quality). Under the terms of subordinated securities, payments that would otherwise be made to their holders may be required to be made to the holders of more senior securities, and/or the subordinated or junior securities may have junior liens, if they have any rights at all, in any collateral (meaning proceeds of the collateral are required to be paid first to the holders of more senior securities). As a result, subordinated or junior securities will be disproportionately adversely affected by a default or even a perceived decline in creditworthiness of the issuer.
A Portfolio's compliance with its investment restrictions and limitations is usually determined at the time of investment. If the credit rating on a security is downgraded or the credit quality deteriorates after purchase by a Portfolio, or if the maturity of a security is extended after purchase by a Portfolio, the portfolio managers will decide whether the security should be held or sold. Certain mortgage--or asset-backed securities may provide, upon the occurrence of certain triggering events or defaults, for the investors to become the holders of the underlying assets. In that case a Portfolio may become the holder of securities that it could not otherwise purchase, based on its investment strategies or its investment restrictions and limitations, at a time when such securities may be difficult to dispose of because of adverse market conditions.
Under current federal income tax law, (1) interest on tax-exempt Municipal
Securities issued after August 7, 1986 which are specified "private activity
bonds," and the proportionate share of any exempt-interest dividend paid by a
regulated investment company which receives interest from such specified
private activity bonds, will be treated as an item of tax preference for
purposes of the AMT imposed on individuals and corporations, though for regular
federal income tax purposes such interest will remain fully tax-exempt, and
(2) interest on all tax-exempt obligations will be included in "adjusted
current earnings" of corporations for AMT purposes. Such private activity bonds
("AMT-Subject bonds"), which include industrial development bonds and bonds
issued to finance such projects as airports, housing projects, solid waste
disposal facilities, student loan programs and water and sewage projects, have
provided, and may continue to provide, somewhat higher yields than other
comparable Municipal Securities.
Investors should consider that, in most instances, no state, municipality or other governmental unit with taxing power will be obligated with respect to AMT-Subject bonds. AMT-Subject bonds are in most cases revenue bonds and do not generally have the pledge of the credit or the taxing power, if any, of the issuer of such bonds. AMT-Subject bonds are generally limited obligations of the issuer supported by payments from private business entities and not by the full faith and credit of a state or any governmental subdivision. Typically the obligation of the issuer of AMT-Subject bonds is to make payments to bond holders only out of and to the extent of, payments made by the private business entity for whose benefit the AMT-Subject bonds were issued. Payment of the principal and interest on such revenue bonds depends solely on the ability of the user of the facilities financed by the bonds to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. It is not possible to provide specific detail on each of these obligations in which Portfolio assets may be invested.
The New York Municipal Portfolio invests in those securities which the Manager believes offer the highest after-tax returns for New York residents (without regard to any alternative minimum tax) consistent with a prudent level of credit risk. As a matter of fundamental policy, the New York Municipal Portfolio, under normal circumstances, invests at least 80% of its net assets, at the time of investment, in a portfolio of Municipal Securities issued by the State of New York or its political subdivisions, or otherwise exempt from New York State income tax ("New York Municipal Securities"). For purposes of this policy, net assets include any borrowings for investment purposes. The income from these securities is exempt from federal, New York State and local income taxes but, in certain instances, may be includable in income subject to the alternative minimum tax.
The New York Municipal Portfolio is a non-diversified portfolio under the 1940 Act. Nonetheless, the Fund intends to continue to qualify the New York Municipal Portfolio, like each of the other Portfolios, as a "regulated investment company" for purposes of the Internal Revenue Code of 1986, as amended (the "Code"). This requires, at the close of each quarter of each fiscal year, that at least 50% of the market value of the New York Municipal Portfolio's total assets be represented by cash, cash items, U.S. Government securities and other securities limited, in respect to any one issuer, to an amount no greater than 5% of the Portfolio's total assets, and that the New York Municipal Portfolio invest no more than 25% of the value of its total assets in the securities of any one issuer (other than the U.S. Government). If the New York Municipal Portfolio's assets consist of the securities of a small number of issuers, any change in the market's assessment, or in the financial condition, of any one of those issuers could have a significant impact on the performance of the Portfolio.
Because the New York Municipal Portfolio invests primarily in New York Municipal Securities, the Portfolio's performance is closely tied to economic conditions within the State of New York and the financial condition of the State and its agencies and municipalities.
The New York Municipal Portfolio is not appropriate for tax-exempt investors. Moreover, because the New York Municipal Portfolio seeks income exempt from New York State and local taxes as well as federal income tax, the Portfolio may not be appropriate for taxable investors, such as non-New York State residents, who are not subject to New York State income taxes. Shareholders may wish to consult a tax advisor about the status of distributions from the Portfolio in their individual states or localities.
The California Municipal Portfolio invests in those securities which the Manager believes offer the highest after tax returns for California residents (without regard to any alternative minimum tax) consistent with a prudent level of credit risk. As a matter of fundamental policy, the California Municipal Portfolio, under normal circumstances, invests at least 80% of its net assets, at the time of investment, in a portfolio of Municipal Securities issued by the State of California or its political subdivisions, or otherwise exempt from California State income tax ("California Municipal Securities"). For purposes of this policy, net assets include any borrowings for investment purposes. The income from these securities is exempt from federal and California personal income taxes but, in certain instances, may be includable in income subject to the alternative minimum tax.
The California Municipal Portfolio is a non-diversified portfolio under the 1940 Act. Nonetheless, the Fund intends to continue to qualify the California Municipal Portfolio as a "regulated investment company" for purposes of the Code. This requires, at the close of each quarter of each fiscal year, that at least 50% of the market value of the California Municipal Portfolio's total assets be represented by cash, cash items, U.S. Government securities and other securities limited, in respect to any one issuer, to an amount no greater than 5% of the Portfolio's total assets, and that the California Municipal Portfolio invest no more than 25% of the value of its total assets in the securities of any one issuer (other than the U.S. Government). If the California Municipal Portfolio's assets consist of the securities of a small number of issuers, any change in the market's assessment, or in the financial condition, of any one of those issuers could have a significant impact on the performance of the Portfolio.
Because the California Municipal Portfolio invests primarily in California Municipal Securities, the performance of the Portfolio is closely tied to economic conditions within the State of California and the financial condition of the State and its agencies and municipalities.
The California Municipal Portfolio is not appropriate for tax-exempt investors. Moreover, because the California Municipal Portfolio seeks income exempt from California personal income taxes as well as federal income tax, the California Municipal Portfolio may not be appropriate for taxable investors, such as non-California residents, who are not subject to California personal income taxes. Shareholders may wish to consult a tax advisor about the status of distributions from the Portfolio in their individual states or localities.
The primary purpose of investing in a portfolio of a single state's Municipal Securities is the special tax treatment afforded the state's resident individual investors. However, payment of interest and preservation of principal depends upon the continuing ability of the state's issuers and/or obligors on state, municipal and public authority debt obligations to meet their obligations thereunder. Investors should be aware of certain factors that might affect the financial condition of issuers of Municipal Securities, consider the greater risk of the concentration of a Portfolio versus the relative safety that often comes with a less concentrated investment portfolio and compare yields available in portfolios of the relevant state's issues with those of more diversified portfolios, including out-of-state issues, before making an investment decision.
Municipal Securities in which a Portfolio's assets are invested may include debt obligations of the municipalities and other subdivisions of the relevant state issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, schools, streets and water and sewer works. Other purposes for which Municipal Securities may be issued include the obtaining of funds to lend to public or private institutions for the construction of facilities such as educational, hospital, housing, and solid waste disposal facilities. The latter, including most AMT-Subject bonds, are generally payable from private sources which, in varying degrees, may depend on local economic conditions, but are not necessarily affected by the ability of the state and its political subdivisions to pay their debts. It is not practicable to provide specific detail on each of these obligations in which Portfolio assets may be invested. However, all such securities, the payment of which is not a general obligation of an issuer having general taxing power, must satisfy, at the time of an acquisition by the Portfolio, the minimum rating(s) described above under "All Portfolios." See also Appendix A: "Description of Corporate and Municipal Bond Ratings" for a description of ratings and rating criteria. Some Municipal Securities may be rated based on a "moral obligation" contract which allows the municipality to terminate its obligation by deciding not to make an appropriation. Generally, no legal remedy is available against the municipality that is a party to the "moral obligation" contract in the event of such non-appropriation.
The following brief summaries are included for the purpose of providing certain information regarding the economic climate and financial condition of the states of New York and California, and are based primarily on information from the Annual Information Statement dated May 11, 2012, as updated on August 10, 2012 with respect to New York and an Official Statement dated October 2012 with respect to California in connection with the issuance of certain securities, and other documents and sources, and does not purport to be complete. The Fund has not undertaken to verify independently such information and the Fund assumes no responsibility for the accuracy of such information. These summaries do not provide information regarding many securities in which the Portfolios are permitted to invest and in particular do not provide specific information on the issuers or types of Municipal Securities in which a Portfolio invests or the private business entities whose obligations support the payments on AMT-Subject bonds in which the Portfolios will invest. Therefore, the general risk factors as to the credit of the state or its political subdivisions discussed herein may not be relevant to the Portfolio. Although revenue obligations of a state or its political subdivisions may be payable from a specific project or source, there can be no assurance that future economic difficulties and the resulting impact on state and local government finances will not adversely affect the market value of a Portfolio or the ability of the respective obligors to make timely payments of principal and interest on such obligations. In addition, a number of factors may adversely affect the ability of the issuers of Municipal Securities to repay their borrowings that are unrelated to the financial or economic condition of a state, and that, in some cases, are beyond their control. Furthermore, issuers of Municipal Securities are generally not required to provide ongoing information about
their finances and operations to holders of their debt obligations, although a number of cities, counties and other issuers prepare annual reports.
The following is based on information obtained from the Annual Information Statement of the State of New York, dated May 11, 2012, and the Update to the Annual Information Statement dated August 10, 2012.
The Debt Reform Act of 2000 ("Debt Reform Act") implemented statutory
initiatives intended to improve the borrowing practices of the State of New
York (the "State"). The Debt Reform Act applies to all new State-supported debt
issued on and after April 1, 2000 and includes the following provisions: (a) a
phased-in cap on new State-supported debt outstanding of 4% of personal income;
(b) a phased-in cap on new State-supported debt service costs of 5% of total
governmental funds receipts; (c) a limit on the use of debt to capital works
and purposes only; and (d) a limit on the maximum term of new State-supported
debt to 30 years.
The cap on new State-supported debt outstanding began at 0.75% of personal income in 2000-01 and was fully phased in at 4% of personal income in 2010-11. Similarly, the phased-in cap on new State-supported debt service costs began at 0.75% of total governmental funds receipts and is gradually increasing until it is fully phased in at 5% in 2013-14.
The Debt Reform Act requires the limitations on the issuance of State-supported debt and debt service costs to be calculated by October 31 of each year and reported in the quarterly Financial Plan Update most proximate to October 31 of each year. If the calculations for new State-supported debt outstanding and debt service costs are less than the State-supported debt outstanding and debt service costs permitted under the Debt Reform Act, new State-supported debt may continue to be issued. However, if either the debt outstanding or the debt service cap is met or exceeded, the State, absent a change in law, would be precluded from contracting new State-supported debt until the next annual cap calculation is made and State-supported debt is found to be within the appropriate limitations. The Division of the Budget ("DOB") intends to manage subsequent capital plans and issuance schedules consistent with the limits.
The State was found to be in compliance with the statutory caps for the most recent calculation period (October 2011).
Current projections estimate that debt outstanding and debt service costs will continue to remain below the limits imposed by the Act throughout the next several years. However, the State has entered into a period of relatively limited debt capacity. Available cap room, in regards to debt outstanding, is expected to decline from $3.6 billion in 2011-12 to $752 million in 2013-14. The State is continuing to implement measures to address capital spending priorities and debt financing practices.
New York is one of the largest issuers of municipal debt, ranking second among the states, behind California, in the amount of debt outstanding. As of March 31, 2012, total State-related debt outstanding was $56.8 billion and 5.7% of personal income. New York ranks fifth in debt per capita, behind Connecticut, Massachusetts, Hawaii and New Jersey.
For purposes of analyzing the financial condition of the State, debt may be classified as State-supported debt and State-related debt. State-supported debt includes general obligation debt, to which the full faith and credit of the State has been pledged, and lease-purchase and contractual obligations of public authorities and municipalities, where the State's legal obligation to make payments to those public authorities and municipalities is subject to and paid from annual appropriations made by the Legislature. State-related debt includes State-supported debt, as well as State-guaranteed debt (to which the full faith and credit of the State has been pledged), moral obligation financings and certain contingent-contractual obligation financings, where debt service is expected to be paid from other sources and State appropriations are contingent in that they may be made and used only under certain circumstances.
The State has never defaulted on any of its general obligation indebtedness or its obligations under lease-purchase or contractual obligation financing arrangements and has never been called upon to make any direct payments pursuant to its guarantees.
As of March 31, 2012, the total amount of general obligation debt outstanding was $3.5 billion. The Enacted Budget Capital Plan projects that about $436 million in general obligation bonds will be issued in 2012-13.
Also included in State-supported debt are certain long-term financing mechanisms, lease-purchase and contractual-obligation financings, including certificates of participation ("COPs"), which involve obligations of public authorities or municipalities where debt service is payable by the State, but are not general obligations of the State. Under these financing arrangements, certain public authorities and municipalities have issued obligations to finance certain payments to local governments (see "New York Local Government Assistance Corporation" below), various capital programs, educational and health facilities, prison construction, housing programs and equipment acquisitions, and expect to meet their debt service requirements through the receipt of rental or other contractual payments made by the State.
The State expects to continue to use lease-purchase and contractual-obligation financing arrangements to finance its capital programs, and expects to finance many of these capital programs with State Personal Income Tax ("PIT") Revenue Bonds. Based on current assumptions, DOB anticipates that there will be $25.5 billion of State PIT Revenue Bonds outstanding during fiscal year 2012-13.
In 1990, as part of a State fiscal reform program, legislation was enacted creating the New York Local Government Assistance Corporation (the "LGAC"), a public benefit corporation empowered to issue long-term obligations to fund certain payments to local governments traditionally funded through the State's annual seasonal borrowing. The legislation also dedicated revenues equal to the first one percent of the State sales and use tax to pay debt service on these bonds. The legislation imposed a limitation on the annual seasonal borrowing of the State except in cases where the Governor and the legislative leaders have certified the need for additional borrowing and provided a schedule for eliminating it over time. Any seasonal borrowing is required by law to be eliminated by the fourth fiscal year after the limit was first exceeded. This provision limiting the seasonal borrowing was included as a covenant with LGAC's bondholders in the resolution authorizing such bonds. No such restrictions were placed on the State's ability to issue deficit notes.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of $4.7 billion, completing the program. The impact of LGAC's borrowing is that the State has been able to meet its cash flow needs throughout the fiscal year without relying on short-term seasonal borrowings.
The fiscal stability of the State is related, in part, to the fiscal stability of its public authorities (the "Authorities"). Authorities, which have responsibility for financing, constructing and/or operating revenue producing public facilities, are not subject to the constitutional restrictions on the incurrence of debt which apply to the State itself and may issue bonds and notes within the amounts, and as otherwise restricted by, their legislative authorizations. The State's access to the public credit markets could be impaired, and the market price of its outstanding debt may be materially adversely affected, if any of its Authorities were to default on their respective obligations, particularly those using State-supported or State-related financing techniques. As of December 31, 2011, there were 17 Authorities that had aggregate outstanding debt of $163 billion, only a portion of which constitutes State-supported or State-related debt.
Moral obligation financing generally involves the issuance of debt by an Authority to finance a revenue-producing project or other activity. The debt is secured by project revenues and includes statutory provisions requiring the State, subject to appropriation by the Legislature, to make up any deficiencies that may occur in the issuer's debt service reserve fund. There has never been a default on any moral obligation debt of any Authority. The State does not intend to increase statutory authorizations for moral obligation bond programs. From 1976 through 1987, the State was called upon to appropriate and make payments totaling $162.8 million to make up deficiencies in the debt service reserve funds of the Housing Finance Agency pursuant to moral obligation provisions. In the same period, the State also expended additional funds to assist the Project Finance Agency, the New York State Urban Development Corporation and other Authorities that had moral obligation debt outstanding. The State has not been called upon to make any payments pursuant to any moral obligations since the 1986-87 fiscal year and no such requirements are anticipated during the 2012-13 fiscal year.
Authorities' operating expenses and debt service costs are generally paid by revenues generated by the projects financed or operated, such as tolls charged for the use of highways, bridges or tunnels, charges for public power, electric and gas utility services, rentals charged for housing units, and charges for occupancy at medical care facilities. In addition, State legislation authorizes several financing techniques for Authorities. Also, there are statutory arrangements providing for State local assistance payments, otherwise payable to localities, to be made under certain circumstances to Authorities. Although the State has no obligation to provide additional assistance to localities whose local assistance payments have been paid to Authorities under these arrangements, if local assistance payments are so diverted, the affected localities could seek additional State assistance. Some Authorities also receive moneys from State appropriations to pay for the operating costs of certain of their programs.
The Metropolitan Transportation Authority (the "MTA"), which receives the bulk of State appropriations to the Authorities, oversees New York City's subway and bus lines by its affiliates, the New York City Transit Authority and the Manhattan and Bronx Surface Transit Operating Authority (collectively, the "TA"). The MTA operates certain commuter rail and bus lines in the New York metropolitan area through the MTA's subsidiaries, the Long Island Rail Road Company, the Metro-North Commuter Railroad Company and the Metropolitan Suburban Bus Authority. In addition, the Staten Island Rapid Transit Operating Authority, an MTA subsidiary, operates a rapid transit line on Staten Island. Through its affiliated agency, the Triborough Bridge and Tunnel Authority (the "TBTA"), the MTA operates certain intrastate toll bridges and tunnels. Because fare revenues are not sufficient to finance the mass transit portion of these operations, the MTA has depended and will continue to depend on operating support from the State, local governments and TBTA, including loans, grants and subsidies. If current revenue projections are not realized and/or operating
expenses exceed current projections, the TA or commuter railroads may be required to seek additional State assistance, raise fares or take other actions.
The State ended FY 2012 in balance on a cash basis in the General Fund, and maintained a closing balance of $1.79 billion, consisting of $1.1 billion in the Tax Stabilization Reserve, $175 million in the Rainy Day Reserve, $102 million in the Community Projects Fund, $21 million in the Contingency Reserve, $283 million reserved for potential retroactive labor settlements, and $75 million in an undesignated fund balance. The FY 2012 closing balance was $411 million greater than the FY 2011 closing balance, which largely reflects actions to establish designated resource that can be used to address costs associated with potential retroactive labor agreements, and to build the State's general emergency reserve fund balances. The State made a $100 million deposit to the Tax Stabilization Reserve at the close of FY 2012, the first deposit to the State's "rainy day" reserves since FY 2008.
General Fund receipts, including transfers from other funds, totaled $56.9 billion in FY 2012. Total receipts during FY 2012 were $2.5 billion (4.5%) higher than in the prior fiscal year. Total tax receipts were $3.1 billion higher than the previous fiscal year, mainly due to growth in PIT collections ($2.4 billion) and business tax collections ($481 million). A decrease in the level of excess balances transferred from other funds partly offset the annual increase in tax receipts.
General Fund disbursements, including transfers to other funds, totaled $56.5 billion in FY 2012, $1.1 billion (2.0%) higher than in the prior fiscal year. Excluding the impact of a $2.1 billion school aid deferral from March 2010 to the statutory deadline of June 2010, annual spending grew by $3.2 billion. Spending growth is largely due to the phase-out of extraordinary Federal aid that temporarily reduced State-share spending in FY 2011. Annual General Fund spending for agency operations in FY 2012 was lower than in FY 2011, consistent with management expectations and continued efforts in managing the workforce and controlling costs.
The State ended FY 2011 in balance on a cash basis in the General Fund. The General Fund ended FY 2011 with a closing balance of $1.38 billion, consisting of $1.0 billion in the Tax Stabilization Reserve, $175 million in the Rainy Day Reserve, $136 million in the Community Projects Fund, $21 million in the Contingency Reserve, and $13 million in an undesignated fund balance. The closing balance was $928 million lower than FY 2010. This reflected the planned use of a fund balance to pay for expenses deferred from FY 2010 into FY 2011.
General Fund receipts, including transfers from other funds, totaled $54.4
billion in FY 2011. Total receipts during FY 2011 were $1.9 billion
(3.6%) higher than in the prior fiscal year. Total tax receipts were $2.5
billion higher, mainly due to the growth in PIT collections, sales taxes,
estate taxes, and the real estate transfer tax, resulting from changes to the
law as well as the economic recovery. Non-tax revenue was $631 million below
the prior year. This was primarily due to the following FY 2010 collections
that were not received, or were received in lower amounts, in FY 2011:
temporary utility surcharge; Power Authority resources; Energy Research and
Development Authority; and fine collections. An increase in the level of excess
balances transferred from other funds partly offset the annual decline in
miscellaneous receipts.
General Fund disbursements, including transfers to other funds, totaled $55.4 billion in FY 2011. Disbursements in FY 2011 were $3.2 billion (6.1%) higher than in the prior fiscal year. Spending growth was affected by the deferral of a $2.06 billion payment to schools from March 2010 to the statutory deadline of June 2010. Adjusting for this anomaly, spending would have been approximately $950 million below FY 2010 levels.
Receipts during FY 2010 fell substantially below projections. General Fund receipts, including transfers from other funds, totaled $52.6 billion, or $1.78 billion lower than the State's initial projections for FY 2010. General Fund disbursements, including transfers to other funds, totaled $52.2 billion, a decrease of $2.71 billion from initial projections. However, actual disbursements were affected by $2.1 billion in payment deferrals (described below) taken by the State to end the fiscal year without the use of its rainy day reserves and other designated balances. Without the deferrals, disbursements for the fiscal year would have been approximately $665 million below initial projections.
In the final quarter of the fiscal year, in order to avoid depleting its reserves, the State deferred a planned payment to school districts ($2.1 billion), which reduced spending from planned levels, and certain tax refunds, which increased available receipts from planned levels ($500 million). Both the school aid payment and the tax refunds were scheduled to be paid in FY 2010 but, by statute, were not due until June 1, 2010. The combined value of the deferrals had the effect of increasing the closing balance in the General Fund for FY 2010 to $2.3 billion, or approximately $900 million above the level required to restore the rainy day reserves and other balances to their anticipated levels. The higher closing balance was due exclusively to the cash management actions described above and did not represent an improvement in the State's financial operations. In early April 2010, the State paid the $500 million in tax
refunds that had been deferred from FY 2010 to FY 2011. On June 1, 2010, the State paid the $2.1 billion in school aid deferred from FY 2010.
General Fund receipts, including transfers from other funds were $1.2 billion below FY 2009 results. Tax receipts decreased by $1.2 billion and transfers decreased by $750 million, partly offset by increased miscellaneous receipts of $744 million. The $1.2 billion annual decline in tax receipts included a $541 million decline in personal income taxes and a $302 million decline in sales and use tax receipts.
General Fund disbursements, including transfers to other funds, were $2.4 billion below FY 2009 results. The annual decline reflects the deferral of $2.1 billion in school aid, the impact of mid-year spending reductions, and the use of Federal American Recovery and Reinvestment Act of 2009 ("ARRA") funds in place of General Fund spending.
The General Fund closing balance consisted of $1.2 billion in the State's rainy day reserves, $21 million in the contingency reserve fund (to guard against litigation risks), $96 million in the Community Projects Fund, and $978 million in the Refund Reserve Account, of which approximately $900 million was attributable to the deferrals described above.
New York is the third most populous state in the nation and has a relatively high level of personal wealth. The State's economy is diverse, with a comparatively large share of the nation's financial activities, information, education and health services employment, and a very small share of the nation's farming and mining activity. The State's location and its air transport facilities and natural harbors have made it an important link in international commerce. Travel and tourism constitute an important part of the economy. Like the rest of the nation, the State has a declining proportion of its workforce engaged in manufacturing, and an increasing proportion engaged in service industries.
The services sector, which includes professional and business services, private education and healthcare, leisure and hospitality services, and other services, is the State's leading economic sector. The services sector accounts for more than four of every ten nonagricultural jobs in New York and has a higher proportion of total jobs than does the rest of the nation.
Manufacturing employment continues to decline in importance in New York, as in most other states, and New York's economy is less reliant on this sector than in the past. However, it remains an important sector of the State economy, particularly for the upstate region, as high concentrations of manufacturing industries for transportation equipment, optics and imaging, materials processing, and refrigeration, heating and electrical equipment products are located in the upstate region.
The trade, transportation and utilities sector accounts for the largest component of nonagricultural jobs in New York but is only the fourth largest, when measured by wage share. This sector accounts for slightly less employment and wages for the State than for the nation.
New York City is the nation's leading center of banking and finance and, as a result, this is a far more important sector in the State than in the nation as a whole. Although this sector accounts for under one-tenth of all nonagricultural jobs in the State, it contributes about one-fifth of total wages.
Farming is an important part of the economy in rural areas, although it constitutes a very minor part of total State output. Principal agricultural products of the State include milk and dairy products, greenhouse and nursery products, fruits, and vegetables. New York ranks among the nation's leaders in the production of these commodities.
Federal, State and local government together comprise the second largest sector in terms of nonagricultural jobs, with the bulk of the employment accounted for by local governments. Public education is the source of nearly one-half of total state and local government employment.
The State is likely to be less affected than the nation as a whole during an economic recession that is concentrated in manufacturing and construction, but likely to be more affected during a recession that is concentrated in the services sector.
In the calendar years 1990 through 1998, the State's rate of economic growth was somewhat slower than that of the nation. In particular, during the 1990-91 recession and post-recession period, the economy of the State, and that of the rest of the Northeast, was more heavily damaged than that of the nation as a whole and was slower to recover. However, the situation subsequently improved. In 1999, for the first time in 13 years, the employment growth rate of the State surpassed the national growth rate and, in 2000, the rates were essentially the same. In 2001, the September 11 terrorist attacks resulted in a slowdown in New York that was more serious than in the nation as a whole. In contrast, the State labor market fared better than that of the nation as a whole during the most recent downturn that began in 2008, though New York experienced a historically large wage decline in 2009. The State unemployment rate was higher than the national rate from 1991 to 2000, but the gap between them has since closed, with the State rate
below that of the nation from the start of the national recession through the end of 2011. In 2011, the State unemployment rate was 8.2, compared to 9.0% for the nation as a whole.
State per capita personal income has historically been significantly higher than the national average, although the ratio has varied substantially. Because New York City is a regional employment center for a multi-state region, State personal income measured on a residence basis understates the relative importance of the State to the national economy and the size of the base to which State taxation applies. In 2011, New York per capita personal income was $50,545, compared to $41,663 for the nation as a whole.
The most recent data indicate that the pace of New York employment growth remains healthy. Private sector employment growth of 1.5% is now projected for 2012, following growth of 2.0% for 2011. Total employment growth of 1.1% is projected for this year, following growth of 1.2% for 2011. Consistent with a strong job market, State wage growth of 3.1% is expected for 2012, with growth in total personal income projected at 3.4%. Although these growth rates represent an improving outlook, they remain substantially below historical averages.
All of the risks to the U.S. forecast apply to the State forecast as well, although as the nation's financial capital, the volume of financial market activity and equity market volatility pose a particularly large degree of uncertainty for New York. In addition, with Wall Street firms still adjusting their compensation practices in the wake of the passage of financial reform, both the bonus and non-bonus components of employee pay are becoming increasingly difficult to estimate. A weaker labor market than projected could also result in lower wages, which in turn could result in weaker household consumption. Similarly, should financial and real estate markets be weaker than anticipated, taxable capital gains realizations could be negatively affected. These effects could ripple through the State economy, depressing both employment and wage growth. In contrast, stronger national and world economic growth, or a stronger upturn in stock prices, along with even stronger activity in mergers and acquisitions and other Wall Street activities, could result in higher wage and bonus growth than projected.
The fiscal demands on the State may be affected by the fiscal condition of New York City, which relies in part on State aid to balance its budget and meet its cash requirements. It is also possible that the State's finances may be affected by the ability of New York City to market securities successfully in the public credit markets.
Certain localities outside New York City have experienced financial problems and have requested and received additional State assistance during the last several State fiscal years. While a relatively infrequent practice, deficit financing has become more common in recent years. Between 2004 and January 2012, the State Legislature authorized 21 bond issuances to finance local government operating deficits. There were four new or additional deficit financing authorizations during the 2009 and 2010 legislative sessions.
Like the State, local governments must respond to changing political, economic and financial influences over which they have little or no control. Such changes may adversely affect the financial condition of certain local governments. For example, the federal government may reduce (or in some cases eliminate) federal funding of some local programs which, in turn, may require local governments to fund these expenditures from their own resources. The loss of temporary Federal stimulus funding in 2011 also adversely impacted counties and school districts in New York State. The State's cash flow problems have resulted in delays to the payment of State aid, and in some cases, have necessitated borrowing by the localities. Additionally, recent enactment of legislation that caps most local government and school district property tax levies may affect the amount of property tax revenue available for local government and school district purposes. The legislation does not apply to New York City. Changes to sales tax distributions resulting from the 2010 Federal population census may also have a material impact on certain local governments. Ultimately, localities or any of their respective public authorities may suffer serious financial difficulties that could jeopardize local access to the public credit markets, which may adversely affect the marketability of notes and bonds issued by localities within the State. Localities may also face unanticipated problems resulting from certain pending litigation, judicial decisions and long-range economic trends. Other large scale potential problems, such as declining urban populations, increasing expenditures, and the loss of skilled manufacturing jobs, may also adversely affect localities and necessitate State assistance.
The State is a defendant in legal proceedings involving State finances and programs and miscellaneous civil rights, real property, and contract and other tort claims where the monetary claims against the State are deemed to be material, generally in excess of $100 million or involving significant challenges to or impacts on the State's financial policies or practices. These proceedings could affect adversely the financial condition of the State in FY 2013 or thereafter.
Adverse developments in these proceedings or the initiation of new proceedings could affect the ability of the State to maintain a balanced FY 2013 Financial Plan. The State believes that the FY 2013 Enacted Budget Financial Plan includes sufficient reserves for the payment of judgments that may be required during FY 2013. There can be no assurance, however, that adverse decisions in legal proceedings against the State would not exceed the amount of all potential FY 2013 Enacted Budget Financial Plan resources available for the payment of judgments, and could therefore adversely affect the ability of the State to maintain a balanced FY 2013 Enacted Budget Financial Plan.
The following is based on information obtained from an Official Statement, dated October 23, 2012, relating to State of California $539,245,000 Various Purpose General Obligation Refunding Bonds (the "Official Statement").
Certain California (the "State") constitutional amendments, legislative measures, executive orders, civil actions and voter initiatives could adversely affect the ability of issuers of the State's municipal securities to pay interest and principal on municipal securities.
Article XIII B was modified substantially by Propositions 98 and 111 in 1988 and 1990, respectively. (See "Proposition 98" below.) "Appropriations subject to limitation," with respect to the State, are authorizations to spend "proceeds of taxes," which consist of tax revenues, and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by the entity in providing the regulation, product or service," but "proceeds of taxes" exclude most State subsidies to local governments, tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on appropriations of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non-tax funds.
Not included in the Appropriations Limit are appropriations for the debt service costs of bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, appropriations for tax refunds, appropriations of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels, and appropriation of certain special taxes imposed by initiative (e.g., cigarette and tobacco taxes). The Appropriations Limit may also be exceeded in cases of emergency.
The State's yearly Appropriations Limit is based on the limit for the prior year with annual adjustments for changes in California per capita personal income and population and any transfers of financial responsibility for providing services to or from another unit of government.
The Department of Finance projected the Appropriations Subject to Limit to be $61.796 billion and $70.280 billion under the Appropriations Limit in Fiscal Years 2011-12 and 2012-13, respectively.
Under Proposition 98 (as modified by Proposition 111 which was enacted on June 5, 1990), K-14 schools are guaranteed the greater of (a) in general, a fixed percentage of General Fund revenues (the "first test"), (b) the amount appropriated to K-14 schools in the prior year, adjusted for changes in the cost of living (measured as in Article XIII B by reference to State per capita personal income) and enrollment (the "second test"), or (c) a third test, which would replace the second test in any year when the percentage growth in per capita General Fund revenues from the prior year plus one half of one percent is less than the percentage growth in State per capita personal income. Under the third test, schools would receive the amount appropriated in the prior year adjusted for changes in enrollment and per capita General Fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test would become a "credit" to schools which would be the basis of payments in future years when per capita General Fund revenue growth exceeds per capita personal income growth.
The Proposition 98 guarantee is funded from two sources: local property taxes and the General Fund. Any amount not funded by local property taxes is funded by the General Fund. Thus, local property tax collections represent an offset to General Fund costs in a second test or third test year.
The State Treasurer is responsible for the sale of debt obligations of the State and its various authorities and agencies. The State has always paid the principal of and interest on its general obligation bonds, general obligation commercial paper notes, lease-purchase debt and short-term obligations, including revenue anticipation notes and revenue anticipation warrants, when due.
The State Constitution prohibits the creation of general obligation indebtedness of the State unless a bond measure is approved by a majority of the electorate voting at a general election or a direct primary. General obligation bond acts provide that debt service on general obligation bonds shall be appropriated annually from the General Fund and all debt service on general obligation bonds is paid from the General Fund. Under the State Constitution, debt service on general obligation bonds is the second charge to the General Fund after the application of moneys in the General Fund to the support of the public school system and public institutions of higher education. Certain general obligation bond programs receive revenues from sources other than the sale of bonds or the investment of bond proceeds.
As of September 1, 2012, the State had outstanding $79,148,265,000 aggregate principal amount of long-term general obligation bonds, and unused voter authorizations for the future issuance of $34,380,904,000 of long-term general obligations bonds, some of which may first be issued as commercial paper notes.
The General Obligation Bond Law permits the State to issue as variable rate indebtedness up to 20% of the aggregate amount of long-term general obligation bonds outstanding. The State had outstanding $4,160,635,000 of variable rate general obligation bonds, representing about 5.3% of the State's total outstanding general obligation bonds as of September 1, 2012.
In addition to general obligation bonds, the State builds and acquires capital facilities through the use of lease-purchase borrowing. Under these arrangements, the State Public Works Board, another State or local agency or a joint powers authority issues bonds to pay for the construction of facilities such as office buildings, university buildings or correctional institutions. These facilities are leased to a State agency, the California State University, the University of California or the Judicial Council under a long-term lease which provides the source of payment of the debt service on the lease-purchase bonds. In some cases, there is not a separate bond issue, but a trustee directly creates certificates of participation in the State's lease obligation, which are marketed to investors. The State had $11,300,005,000 General Fund-supported lease-purchase debt outstanding as of September 1, 2012.
As part of its cash management program, the State has regularly issued short-term obligations to meet cash flow needs. The State has issued revenue anticipation notes ("RANs") in all but one fiscal year since the mid-1980s and they have always been paid at maturity. RANs are issued to partially fund timing differences between revenues and expenditures, as the majority of General Fund revenues are received in the last part of the fiscal year. By law, RANs must mature prior to the end of the fiscal year of issuance. If additional external cash flow borrowings are required, the State has issued revenue anticipation warrants ("RAWs"), which can mature in a subsequent fiscal year.
The State entered Fiscal Year 2012-13 in a stronger cash position than it had in some prior years. Timely enactment of the 2012 Budget Act allowed the State to carry out its regular cash management borrowing with RANs early in the year, and without the need for Interim RANs for the first time in three years. The State issued $10 million of RANs on August 23, 2012.
As in previous years, the Legislature has enacted a cash management bill which authorizes deferral of certain payments during Fiscal Year 2012-13, including payments to K-12 schools, reimbursements to the federal government for certain social service costs, certain local government social services, transportation payments and Proposition 63 mental health payments (not to exceed $1 billion in the aggregate at one time) and higher education. The applicable deferrals were made in July 2012.
The State will also benefit from $1.7 billion of additional internal borrowable resources in the SAIF Fund during the first part of the fiscal year. The deposits in the State Agency Investment Fund are scheduled to be returned in late April 2013. The Legislature has created a Voluntary Investment Program Fund, which could provide additional short-term cash management borrowing resources, but there are no current agreements for deposits into this Fund.
State fiscal officials will continue to monitor the State's cash position during the fiscal year, and will take appropriate steps if necessary to manage any projected cash shortfalls which may occur, as they have done in prior years.
The State's fiscal year begins on July 1 and ends on June 30 of the following year. The State's General Fund Budget operates on a legal basis, generally using a modified accrual system of accounting for its General Fund, with revenues credited in the period in which they are measurable and available and expenditures debited in the period in which the corresponding liabilities are incurred.
The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the "Governor's Budget"). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues for the ensuing fiscal year. Following the submission of the Governor's Budget, the Legislature takes up the proposal. As required by the Balanced Budget Amendment ("Proposition 58"), beginning with fiscal year 2004-2005, the Legislature may not pass a budget bill in which General Fund expenditures exceed estimated General Fund revenues and fund balances at the time of the passage and as set forth in the budget bill. Proposition 58 requires the adoption of a balanced budget and restricts future borrowing to cover budget deficits.
Under the State Constitution, money may be drawn from the Treasury only though an appropriation made by law. The primary source of annual expenditure appropriations is the annual Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the Legislature. The governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature.
The economic downturn of the last few years adversely affected the State's budget situation. Despite the economy's gradual recovery, the State faced estimated annual gaps between spending and revenues of roughly $20 billion as of January 2011. The State's fiscal challenges were exacerbated by unprecedented levels of debt, deferrals, and budgetary obligations accumulated over the prior decade. The 2011 Budget Act and the 2012 Budget Act have rejected the past approach of over-relying on one-time solutions. The last two budgets addressed this deficit through three dollars of ongoing spending reductions for every dollar of tax increases. Specifically, 76% of the structural deficit has been addressed through spending cuts in health and human services, corrections, education, and other areas. Under current projections, the Administration projects that the General Fund budget will be balanced in an ongoing manner for at least the next four fiscal years, which would represent the first time in over a decade that future spending is expected to stay within available revenues.
Even with this plan, risks to the budget remain. Potential cost increases associated with actions to reduce the federal deficit, federal government actions, court decisions, the pace of the economic recovery, an aging population, and rising health care and pension costs all threaten the ability of the State to achieve and maintain a balanced budget over the long term. In addition, the exact level of capital gains and income growth for top earners remains uncertain, which will have a major impact on personal income tax receipts.
The 2012-13 budget package closed a projected budget gap of $15.7 billion over the two fiscal years 2011-12 and 2012-13, and projected a $948 million reserve by June 30, 2013, by enacting a total of $16.6 billion in solutions (including a combination of expenditure reductions, additional revenues, and other solutions). General Fund revenues and transfers for Fiscal Year 2012-13 were projected at $95.9 billion, an increase of $9.1 billion compared with Fiscal Year 2011-12. General Fund expenditures for Fiscal Year 2012-13 were projected at $91.3 billion, an increase of $4.3 billion compared to the prior year. General Fund spending outside of Proposition 98 is projected to decline by $1.5 billion, or 2.8%, excluding a required one-time repayment of $2.1 billion the State borrowed from local governments in 2009. In approving the 2012 Budget Act, the Governor exercised his line-item veto power to reduce General Fund expenditures by about $129 million. The 2012 Budget Act also includes special fund expenditures of $39.4 billion and bond fund expenditures of $11.7 billion.
The 2011 Budget Act, enacted on June 30, 2011, projected that the State would end Fiscal Year 2011-12 with a $543 million General Fund reserve. General Fund revenues and transfers for Fiscal Year 2011-12 were projected at $88.5 billion, a reduction of $6.3 billion compared with Fiscal Year 2010-11. General Fund expenditures for Fiscal Year 2011-12 were projected at $85.9 billion - a reduction of $5.5 billion compared to the prior year. These amounts compare to the following figures proposed in the 2011-12 Governor's Budget: revenues and transfers of $89.7 billion, expenditures of $84.6 billion, and an ending reserve of $955 million. In approving the 2011 Budget Act, the Governor exercised his line-item veto power to reduce General Fund expenditures by about $24 million, mostly in the Judicial Branch ($22.9 million related to parole revocation workload). The 2011 Budget Act also includes special fund expenditures of $34.2 billion and bond fund expenditures of $9.4 billion.
The estimated General Fund revenue reflected a combination of factors, including expiration of temporary taxes and surcharges (which totaled approximately $7.1 billion in Fiscal Year 2010-11) and transfer of about one percent of the State sales tax rate to local governments to fund the realignment described further below. Offsetting these reductions were improved revenue estimates for the remaining State tax sources. Expenditures reflected increases needed to offset the termination of federal stimulus funding (ARRA) which supported about $4.2 billion of General Fund programs in Fiscal Year 2010-11.
The 2010 Budget Act enacted on October 8, 2010, projected to end Fiscal Year 2010-11 with a $1.3 billion reserve. General Fund revenues and transfers for Fiscal Year 2010-11 are projected at $94.2 billion, an increase of $7.3 billion compared with Fiscal Year 2009-10. General Fund expenditures for Fiscal Year 2010-11 are projected at $86.6 billion--essentially flat compared to the prior year. These amounts compared to the following, which were proposed in the 2010-11 Governor's Budget: revenues and transfers of $89.3 billion, expenditures of $82.9 billion, and an ending reserve of $1.0 billion. In approving the 2010 Budget Act, the Governor exercised his line-item veto power to reduce General Fund expenditures by about $960 million, mostly in the areas of health care and social services. The 2010 Budget Act also included Special Fund expenditures of $30.9 billion and Bond Fund expenditures of $7.9 billion.
Prior to enactment of the 2010 Budget Act, the Administration had reported a budget gap of $19.3 billion, including a $1.3 billion reserve based on projected General Fund revenues and transfers in Fiscal Year 2010-11 compared against projected expenditures (assuming the workload budget from Fiscal Year 2009-10, adjusted for increases in costs and certain other developments but no changes in law). The 2010 Budget Act planned to close the estimated budget gap by a combination of expenditure reductions, federal funds, and other solutions. The majority of these solutions were one-time or temporary in nature, so that budget gaps would recur in Fiscal Year 2011-12 and beyond. Furthermore, many of the assumed solutions did not come to fruition, and the 2010 Budget Act soon fell out of balance.
The State of California is by far the most populous state in the nation, 50% larger than Texas, the second-ranked state, according to the 2010 U.S. Census. The State's 2011 population of about 37.5 million represented over 12% of the total United States population.
California's economy, the largest among the 50 states and most diverse in the world, has major components in high technology, trade, entertainment, agriculture, manufacturing, government, tourism, construction and services. The relative proportion of the various components of the California economy closely resembles the make-up of the national economy.
In 2011, per capita personal income in California averaged $44,481, compared to $41,663 for the nation. The unemployment rate in 2011 was 11.7%, compared to 8.9% for the nation. The trade, transportation and utilities sector represented the largest component (18.9%) of California's non-farm workforce, followed by federal, state and local government (17.0%), professional and business services (15.1%), educational and health services (13.0%) and leisure and hospitality (10.9%).
The State is a party to numerous legal proceedings. Certain of these proceedings have been identified by the State as having a potentially significant fiscal impact upon the State's expenditures or its revenues.
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The Municipal Portfolios may obtain insurance on their municipal bonds or purchase insured municipal bonds covered by policies issued by monoline insurance companies. Currently, only Assured Guaranty Municipal Corp. ("AGM") is writing policies on newly issued municipal bonds. AGM (formerly, Financial Security Assurance Holdings Ltd.) is an indirect subsidiary of Assured Guaranty Ltd. ("Assured"). Prior to the recent financial crisis, there were several other insurers writing policies on municipal bonds, but the ratings of these insurers have been severely downgraded and, while they are still insuring municipal bonds under policies written prior to the financial crisis, they are no longer writing new policies. These insurers include National Public Finance Guarantee Corporation ("National"), a wholly-owned subsidiary of MBIA Inc. ("MBIA"); Financial Guaranty Insurance Company ("FGIC"); Ambac Assurance Corporation ("Ambac"), a wholly-owned subsidiary of Ambac Financial Group, Inc.; ACA Financial Guaranty Corporation ("ACA"); Radian Asset Assurance, Inc. (formerly, Asset Guaranty Insurance Company) ("Radian"), a wholly-owned subsidiary of Radian Group, Inc.; Syncora Guarantee Inc. ("Syncora") (formerly XL Capital Assurance, Inc.), a wholly-owned subsidiary of Syncora Holdings Ltd. (formerly Security Capital Assurance Ltd.); CIFG Assurance North America, Inc. (formerly, CDC IXIS Financial Guaranty North America, Inc.) ("CIFG NA"); and Berkshire Hathaway Assurance Corporation ("BHAC"), a wholly owned subsidiary of Berkshire Hathaway Inc. As noted above, most of these insurers have been downgraded and it is possible that additional downgrades may occur. Moody's and S&P ratings reflect the respective rating agency's current assessment of the creditworthiness of each insurer and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the ratings may be obtained only from the applicable rating agency. The ratings are not recommendations to buy, sell or hold the municipal bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of either or both ratings may have an adverse effect on the market price of the municipal bonds.
It should be noted that insurance is not a substitute for the basic credit of an issuer, but supplements the existing credit and provides additional security therefore. Moreover, while insurance coverage for the municipal securities held by the Municipal Portfolios may reduce credit risk, it does not protect against market fluctuations caused by changes in interest rates and other factors. As a result of declines in the credit quality and associated downgrades of most fund insurers, insurance has less value than it did in the past. The market now values insured municipal securities primarily based on the credit quality of the issuer of the security with little value given to the insurance feature. In purchasing insured municipal securities, the Manager currently evaluates the risk and return of such securities through its own research.
The information relating to MBIA, FGIC, Ambac, AGM, ACA, Radian, Syncora, CIFG NA and BHAC contained below has been furnished by such companies, respectively. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information.
licensed to transact financial guaranty business in 49 states. BHAC's office is located at the Marine Air Terminal, LaGuardia Airport, New York, New York 11371.
DIVERSIFIED MUNICIPAL PORTFOLIO
The Diversified Municipal Portfolio will not purchase a security if such purchase would result in the Portfolio, at the time of such purchase, having more than 25% of its total assets in Municipal Securities of issuers located in any one state. The Diversified Municipal Portfolio is not appropriate for tax-exempt investors under normal market conditions.
INTERNATIONAL PORTFOLIOS
The Tax-Managed International Portfolio and the International Portfolio seek long-term capital growth. The Portfolios will invest in equity securities of issuers in countries that comprise the Morgan Stanley(R) Capital International Europe, Australasia, Far East (MSCI EAFE) index. The Portfolios will also invest in equity securities of companies in less developed or emerging market countries.
As used in this SAI, emerging-market countries are those countries that, in the opinion of AllianceBernstein L.P. ("AllianceBernstein" or the "Manager"), are considered to be developing countries by the international financial community, and will include those countries considered by the International Finance Corporation ("IFC"), a subsidiary of the World Bank, to have an "emerging stock market."
The research analyses supporting buy and sell decisions for the Portfolios are fundamental and bottom-up, based largely on specific company and industry findings and taking into account broad economic forecasts. In managing the Portfolios, the Manager diversifies the investment portfolios using research from its growth, value, stability and other disciplines. Investment decision-making for the Portfolios is made by an investment policy group working in concert with the specific research and investment teams.
As one of the largest multinational investment firms, AllianceBernstein has access to considerable information concerning these companies, including an in-depth understanding of their products, services, markets and competition, as well as a good knowledge of the management of most of the companies.
Each research process includes both fundamental and quantitative inputs to varying degrees. The specific research questions will vary: in some cases it may be focused on the ability of a company to generate strong returns on capital, in others whether cash flows will remain stable and in some whether management can solve specific challenges facing the company. From a risk control perspective, we review position sizes as well as sector weightings. Our analysts prepare their own earnings estimates and financial models for each company that they follow.
Under normal circumstances, each of the Portfolios will invest in companies in at least three countries other than the United States. Under exceptional conditions abroad or when the Manager believes that economic or market conditions warrant, the Portfolios may temporarily, for defensive purposes, invest part or all of their portfolios in U.S. Government obligations or investment-grade debt or equity securities of U.S. issuers. The Portfolios may invest in fixed-income securities and enter into foreign currency exchange contracts and options on foreign currencies and may utilize options on securities and securities indexes and futures contracts and options on futures.
The Portfolios may invest uncommitted cash balances in fixed-income securities. Fixed-income securities may also be held to maintain liquidity to meet shareholder redemptions, and, although the situation occurs infrequently, these securities may be held in place of equities when the Manager believes that fixed-income securities will provide total returns comparable to or better than those of equity securities.
Fixed-income securities include obligations of the U.S. or foreign governments and their political subdivisions; obligations of agencies and instrumentalities of the U.S. Government; and bonds, debentures, notes, commercial paper, bank certificates of deposit, repurchase agreements and other similar corporate debt instruments of U.S. or foreign issuers that at the time of purchase are rated BBB, A-2, SP-2 or higher by S&P, BBB, F-2 or higher by Fitch or Baa, P-2 or higher by Moody's; or, if unrated, are in the Manager's opinion comparable in quality. Securities that are rated BBB, A-2 or SP-2 by S&P, BBB or F-2 by Fitch or Baa or P-2 by Moody's are investment grade (for a description of these rating categories, see Appendix A). These securities may have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher-rated securities. Bonds with investment grade ratings at time of purchase may be retained, at the Manager's discretion, in the event of a rating reduction.
The term "net assets," as used in this SAI, means net assets plus any borrowings.
The Portfolios may invest in non-U.S. Dollar securities on a currency hedged or un-hedged basis. The Manager may actively manage a Portfolio's currency exposures and may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps and options. The Manager may enter into foreign currency transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by a Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Manager believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolios may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate then prevailing in the currency exchange market for buying and selling currencies). See below for a further discussion of the foreign currency transactions in which the Portfolios may engage.
Since the Portfolios invest primarily in equity securities, each Portfolio, like any equity portfolio, is vulnerable to market risk--the possibility that stock prices in general will decline over short or even extended periods. Moreover, each Portfolio's composition is likely to differ from that of broad market indexes, and its performance should not be expected to mirror the returns provided by a specific index. Equity securities are suited to investors who are willing to hold their investment over a long horizon.
The securities markets in many emerging market countries are substantially smaller, less developed, less liquid and more volatile than the securities markets of developed countries. In addition, to take advantage of potential value opportunities, the Portfolios may invest in relatively small companies. Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, both because the securities are typically traded in lower volume and because the companies are subject to greater business risk.
In certain countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, share prices of a Portfolio. Moreover, some emerging market securities and developed market securities may be listed on foreign exchanges that are open on days (such as U.S. holidays and Saturdays) when the Portfolio does not calculate net asset value ("NAV"). As a result, the NAV of the Portfolio may be significantly affected by trading on days when shareholders cannot make transactions.
See "Foreign Currency Transactions" below for a description of currency risk.
Other risks and considerations of international investing include the availability of less public information with respect to issuers of securities; less governmental supervision of brokers and issuers of securities; lack of uniform accounting, auditing and financial reporting standards; a generally lower degree of market volume and liquidity than that available in U.S. markets, which may result in greater price volatility; settlement practices that may include delays and otherwise differ from those in U.S. markets; the possibility of expropriation or confiscatory taxation; the imposition of foreign taxes; and possible political instability in some countries, which could affect U.S. investment in these countries. Investments in foreign securities will also result in generally higher expenses due to the costs of currency exchange; payment of fixed brokerage commissions in certain foreign markets, which generally are higher than commissions on U.S. exchanges; and the expense of maintaining securities with foreign custodians.
Investing in securities of companies in emerging-market countries entails greater risks than investing in equity securities in developed markets. The risks include but are not limited to the following:
Some emerging-market countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the International Portfolios. For example, certain emerging-market countries may require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in the country, or limit the investment by foreign persons to only specific classes of securities of a company which may have less advantageous terms (including price) than securities of the company available for purchase by nationals. Certain emerging-market countries may restrict investment opportunities in issuers or industries deemed important to national interests. The manner in which foreign investors may invest in companies in these emerging-market countries, as well as limitations on such investments, may have an adverse impact on the operations of a Portfolio.
Security settlement and clearance procedures in some emerging-market countries may not fully protect a Portfolio against loss or theft of its assets. By way of example and without limitation, the Portfolio could suffer losses in the event of a fraudulent or otherwise deficient security settlement, or theft or default by a broker, dealer, or other intermediary. The existence of overburdened infrastructure and obsolete financial systems exacerbates the risks in certain emerging-market countries.
Brokerage commissions, custodial services, and other costs relating to investment in emerging-market countries are generally more expensive than in the United States. For example, one securities broker may represent all or a significant part of the trading volume in a particular country, resulting in higher trading costs and decreased liquidity due to a lack of alternative trading partners. Emerging markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of a Portfolio are uninvested and no return is earned thereon. The inability of a Portfolio to make intended security purchases due to settlement problems could cause the Portfolio to miss attractive investment opportunities. Inability to dispose of Portfolio securities due to settlement problems could result either in losses to the Portfolio due to subsequent declines in value of the Portfolio security or, if the Portfolio has entered into a contract to sell the security, could result in possible liability to the purchaser.
In emerging-market countries, there is generally less government supervision and regulation of business and industry practices, stock exchanges, brokers, issuers and listed companies than in the U.S., and capital requirements for brokerage firms are generally lower. There may also be a lower level of monitoring of activities of investors in emerging securities markets, and enforcement of existing regulations may be limited or inconsistent. The prices at which a Portfolio may acquire investments may be affected by trading by persons with material non-public information and by securities transactions by brokers in anticipation of transactions by the Portfolio in particular securities.
The sophisticated legal systems necessary for the proper and efficient functioning of modern capital markets have yet to be developed in most emerging-market countries, although many of these countries have made significant strides in this area in the past few years. A high degree of legal uncertainty may therefore exist as to the nature and extent of investors' rights and the ability to enforce those rights in the courts. Many advanced legal concepts which now form significant elements of mature legal systems are not yet in place or, if they are in place, have yet to be tested in the courts. It is difficult to predict with any degree of certainty the outcome of judicial proceedings (often because the judges themselves have little or no experience with complex business transactions), or even the measure of damages which may be awarded following a successful claim.
Many of the foreign securities held by a Portfolio will not be registered with the U.S. Securities and Exchange Commission ("SEC"), nor will the issuers thereof be subject to SEC or other U.S. reporting requirements. Accordingly, there will generally be less publicly available information concerning foreign issuers of securities held by a Portfolio than will be available concerning U.S. companies. Foreign companies, and in particular companies in emerging markets countries, are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory requirements comparable to those applicable to U.S. companies.
Much emerging-market debt is rated below investment-grade, or unrated but comparable to that rated below investment-grade by internationally recognized rating agencies such as S&P, Fitch or Moody's. Securities that are rated BBB, A-2 or SP-2 by S&P, BBB or F-2 by Fitch or Baa or P-2 by Moody's are investment grade (for a description of these rating categories, see the Appendix). Lower-quality debt securities, also known as "junk bonds," are often considered to be speculative and involve greater risk of default or price change due to changes in the issuer's creditworthiness. The market prices of these securities may fluctuate more than those of higher quality securities and may decline significantly in periods of general economic difficulty, which may follow periods of rising interest rates. Securities in the lowest quality category may present the risk of default, or may be in default.
While the Manager may refer to ratings issued by internationally recognized rating agencies, when available, the Manager may choose to rely upon, or to supplement such ratings with, its own independent and ongoing review of credit quality. The Portfolio's achievement of its investment objective may, to the extent of its investment in medium- to lower-rated bonds, be more dependent upon the Manager's credit analysis than would be the case if the Portfolio were to invest in higher quality bonds.
The secondary market on which medium- to lower-rated bonds are traded may be less liquid than the market for higher grade bonds. Less liquidity in the secondary trading market could adversely affect the price at which a Portfolio could sell medium- to lower-rated bonds and could cause large fluctuations in the daily NAV of the Portfolio's shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of medium- to lower-rated bonds, especially in a thinly traded market. When secondary markets for medium- to lower-rated securities are less liquid than markets for higher grade securities, it may be more difficult to value the securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation because there is less reliable, objective data available. Furthermore, prices for medium- to lower-rated bonds may be affected by legislative and regulatory developments.
Investments in emerging-market countries involve exposure to a greater
degree of risk due to increased political and economic instability. Instability
may result from, among other factors: (i) authoritarian governments or military
involvement in political and economic decision-making, including changes in
government through extra-constitutional means; (ii) popular unrest associated
with demands for improved political, economic and social conditions;
(iii) internal insurgencies; (iv) hostile relations with neighboring countries;
(v) ethnic, religious and racial disaffection; and (vi) changes in trading
status.
Certain emerging-market countries have histories of instability and upheaval with respect to their internal policies that could cause their governments to act in a detrimental or hostile manner toward private enterprise or foreign investment. Such actions - for example, nationalizing a company or industry, expropriating assets, or imposing punitive taxes - could have a severe effect on security prices and impair the Portfolios' ability to repatriate capital or income. The possibility exists that economic development in certain emerging-market countries may be suddenly slowed or reversed by unanticipated political or social events in those countries, and that economic, political and social instability in some countries could disrupt the financial markets in which the Portfolios invest and adversely affect the value of the Portfolios' assets.
The foregoing is not intended to be exhaustive and there may be other risk factors to take into account in relation to a particular investment. In addition, investors should be aware that the Portfolios may invest in foreign countries or in companies in which foreign investors, including the Manager, have had no or limited prior experience. Investors should also note that a feature of emerging markets is that they are subject to rapid change and the information set out above may become outdated relatively quickly.
INVESTMENT RESTRICTIONS
All of the Portfolios are subject to fundamental investment restrictions. The fundamental restrictions applicable to any one of the Portfolios may not be changed without the approval of the holders of at least a majority of the outstanding securities of that Portfolio, voting separately from any other series of the Fund. "A majority of the outstanding securities" of a Portfolio means the lesser of (i) 67% or more of the shares represented at a meeting at which more than 50% of the outstanding shares are present in person or represented by proxy or (ii) more than 50% of the outstanding shares. A vote by the shareholders of a single Portfolio to modify or eliminate one or more of the restrictions has no effect on the restrictions as applied to the other Portfolios. All percentage limitations expressed in the following investment restrictions are measured immediately after the relevant transaction is made.
None of the New York Municipal Portfolio, California Municipal Portfolio, the Diversified Municipal Portfolio or the Short Duration Portfolio will, except as otherwise provided herein:
1) Purchase securities on margin, but any Portfolio may obtain such short-term credits as may be necessary for the clearance of transactions;
2) Make short sales of securities or maintain a short position;
3) Issue senior securities, borrow money or pledge its assets except to the extent that forward commitments and reverse repurchase agreements may be considered senior securities or loans and except that any Portfolio may borrow from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its total assets (not including the amount borrowed) and pledge its assets to secure such borrowings. A Portfolio may not purchase a security while borrowings (other than forward commitments and reverse repurchase agreements which may be considered loans) exceed 5% of its total assets. A Portfolio may not enter into reverse repurchase agreements if the Portfolio's obligations thereunder would be in excess of one-third of the Portfolio's total assets, less liabilities other than obligations under such reverse repurchase agreements;
4) Purchase or sell commodities or commodity contracts, except financial futures and options thereon;
5) Purchase or sell real estate or interests in real estate, although each Portfolio may purchase and sell securities which are secured by real estate, and securities of companies which invest and deal in real estate;
6) Purchase oil, gas or other mineral interests;
7) Lend money, except to the extent that repurchase agreements or the purchase of fixed-income securities may be considered loans of money or loan participations;
8) Lend securities if, as a result, the total current value of the loaned securities is equal to more than 30% of the Portfolio's total assets;
9) Act as an underwriter, except to the extent that, in connection with the disposition of certain portfolio securities, it may be deemed to be an underwriter under certain federal securities laws;
10)Invest in any securities of any issuer if, to the knowledge of the Fund, any officer or director of the Fund or of the Manager owns more than 1/2 of 1% of the securities of the issuer, and such officers or directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer;
11)Purchase any security if, as a result, more than 25% of the Portfolio's total assets (taken at current value) would be invested in a single industry. (For purposes of this restriction as applied to all Portfolios but the California Municipal Portfolio, assets invested in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities or securities issued by governments or political subdivisions of governments of states, possessions, or territories of the U.S. are not considered to be invested in any industry. For purposes of this restriction as applied to the California Municipal Portfolio, assets invested in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities or tax-exempt securities issued by governments or political subdivisions of governments of states, possessions, or territories of the U.S. are not considered to be invested in any industry);
12)Invest more than 5% of its total assets in the securities of any one issuer other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities if as a result of the purchase less than 75% of the Portfolio's total assets is represented by cash and cash items (including receivables), Government securities, and other securities for the purposes of this calculation limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of such Portfolio determined at the time of investment. (This restriction does not apply to the New York Municipal Portfolio or the California Municipal Portfolio);
13)Purchase any security if, as a result, it would hold more than 10% of the voting securities of any issuer;
14)Make investments for the purpose of exercising control or management;
15)Invest in securities of other registered investment companies;
16)Purchase warrants if as a result the Fund would then have more than 5% of its total assets (determined at the time of investment) invested in warrants; or
17)In the case of the Municipal Portfolios, invest, under normal circumstances, less than 80% of its net assets in Municipal Securities. The New York Municipal Portfolio and the California Municipal Portfolio may not invest, under normal circumstances, less than 80% of each of its net assets in a portfolio of Municipal Securities issued by the named state or its political subdivisions, or otherwise exempt from the named state's income tax.
The following investment limitations are not fundamental, and may be changed without shareholder approval. None of the Fixed-Income Portfolios has or currently intends to:
1) Purchase any security if, as a result, the Portfolio would then have more than 15% of its net assets (at current value) invested in securities restricted as to disposition under federal securities laws (excluding restricted securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended ("144A securities") that have been determined to be liquid under procedures adopted by the Board of Directors based on the trading market for the security) or otherwise illiquid or not readily marketable, including repurchase agreements with maturities of more than 7 days; or
2) Invest in a reverse repurchase agreement if the amount received by the Portfolio through such an agreement, together with all other borrowings, will exceed 5% of the Portfolio's total assets.
Neither the Tax-Managed International Portfolio nor the International Portfolio may, except as otherwise provided herein:
1) Purchase securities on margin, but the Portfolio may obtain such short-term credits as may be necessary for the clearance of transactions;
2) Make short sales of securities or maintain a short position, unless at all times when a short position is open the Portfolio owns or has the right to obtain at no added cost securities identical to those sold short;
3) Borrow money except that the Portfolio may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed 33 1/3% of the Portfolio's total assets by reason of a decline in net assets will be reduced within three days (not including Saturdays, Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation. The Portfolio may not enter into reverse repurchase agreements if the Portfolio's obligations thereunder would be in excess of one-third of the Portfolio's total assets, less liabilities other than obligations under such reverse repurchase agreements;
4) Issue senior securities, except as permitted under the 1940 Act;
5) Purchase or sell commodities or commodity contracts, except financial futures and currency futures and options thereon;
6) Purchase or sell real estate or interests in real estate, although the Portfolio may purchase and sell securities which are secured by real estate, and securities of companies which invest and deal in real estate;
7) Purchase oil, gas or other mineral interests;
8) Make loans although the Portfolio may (i) purchase fixed-income securities and enter into repurchase agreements, or (ii) lend portfolio securities provided that no more than 33 1/3% of the Portfolio's total assets will be lent to other parties;
9) Act as an underwriter, except to the extent that, in connection with the disposition of certain portfolio securities, it may be deemed to be an underwriter under certain federal securities laws;
10)Purchase any security if, as a result, more than 25% of the Portfolio's total assets (taken at current value) would be invested in a single industry. (For purposes of this restriction, assets invested in obligations issued or guaranteed by the U.S. Government and its agencies or instrumentalities, are not considered to be invested in any industry);
11)Invest more than 5% of its total assets in the securities of any one issuer if as a result of the purchase less than 75% of the Portfolio's total assets is represented by cash and cash items (including receivables), Government securities, securities of other investment companies, and other securities for the purposes of this calculation limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of the Portfolio determined at the time of investment and to not more than 10% of the outstanding voting securities of such issuer; or
12)Make investments for the purpose of exercising control or management.
The following investment limitations are not fundamental, and may be changed without shareholder approval. Each of the International Portfolios has not and currently does not intend to:
1) Issue senior securities, borrow money or pledge its assets except to the extent that forward commitments and securities loans may be considered loans and except that the Portfolio may borrow from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its total assets (not including the amount borrowed) and pledge its assets to secure such borrowings. The Portfolio does not intend to purchase a security while borrowings exceed 5% of its total assets. The Portfolio will not enter into reverse repurchase agreements and securities loans if the Portfolio's obligations thereunder would be in excess of one-third of the Portfolio's total assets, less liabilities other than obligations under such reverse repurchase agreements and securities loans;
2) Purchase any security if, as a result, the Portfolio would then have more than 15% of its net assets (at current value) invested in securities restricted as to disposition under federal securities laws (excluding restricted securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended ("144A securities") that have been determined to be liquid under procedures adopted by the Board of Directors based on the trading market for the security) or otherwise illiquid or not readily marketable, including repurchase agreements with maturities of more than 7 days;
3) Invest in securities of other investment companies except in the open market where no commission other than the ordinary broker's commission is paid or except when the purchase is part of a plan of merger, consolidation, reorganization or acquisition; any such purchase will be in compliance with the 1940 Act; or
4) Invest in any securities of any issuer if, to the knowledge of the Fund, any officer or director of the Fund or of the Manager owns more than 1/2 of 1% of the securities of the issuer, and such officers or directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer.
With respect to any Portfolio of the Fund, for purposes of determining the amount of portfolio securities that may be lent by the Portfolio to other parties in accordance with the investment restrictions set forth above, "total assets" of the Portfolio shall be determined in accordance with Securities and Exchange Commission ("SEC") interpretations issued from time to time.
INVESTMENTS
Subject to each Fixed-Income Portfolio's investment policies, each
Fixed-Income Portfolio will primarily be invested in debt securities,
including, but not limited to: (i) obligations issued or guaranteed as to
principal and interest by the U.S. Government or the agencies or
instrumentalities thereof; (ii) straight and convertible corporate bonds and
notes; (iii) loan participations; (iv) commercial paper; (v) obligations
(including certificates of deposit, time deposits and bankers' acceptances) of
thrifts and banks; (vi) mortgage related securities; (vii) asset-backed
securities; (viii) Municipal Securities, or other securities issued by state
and local government agencies, the income on which may or may not be tax
exempt; (ix) guaranteed investment contracts and bank investment contracts;
(x) variable and floating rate securities; and (xi) private placements. The
Short Duration Portfolio may also invest in obligations of Supranational
Agencies, preferred stock and foreign securities. From time to time, additional
fixed-income securities are developed. They will be considered for purchase by
the Portfolios. Of course, the extent to which each of the Portfolios
emphasizes each of the categories of investment described depends upon the
investment objectives and restrictions of that Portfolio. Some information
regarding some of these types of investments is provided below.
The International Portfolios will invest primarily in foreign equity securities, but may, under some circumstances invest in fixed-income securities. Of course, the extent to which the Portfolios emphasize each of the categories of investment described depends upon the investment objectives and restrictions of the Portfolios. Some information regarding some of these types of investments is provided below.
Municipal Securities are debt obligations issued by or on behalf of the states, territories or possessions of the United States, or their political subdivisions, agencies or instrumentalities, the District of Columbia or Puerto Rico, where the interest from such securities is, according to the information reasonably available to the Manager, in the opinion of bond counsel at the time of issuance, exempt from federal income tax. Although the Municipal Portfolios may invest, from time to time, in securities issued by or on behalf of states, territories or possessions of the United States or their political subdivisions, agencies or instrumentalities, the District of Columbia or Puerto Rico, where the interest from such securities is not exempt from federal income tax, these securities will not be considered Municipal Securities for the purpose of determining the portions of the Municipal Portfolios' assets that are invested in Municipal Securities.
Municipal Securities include "private activity bonds" such as industrial revenue bonds, the interest income from which is subject to the alternative minimum tax. The credit quality of private activity bonds are tied to the credit standing of related corporate issuers.
The two principal classifications of Municipal Securities are general obligation and revenue or special obligation securities. General obligation securities are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. The term "issuer" means the agency, authority, instrumentality or other political subdivision, the assets and revenues of which are available for the payment of the principal and interest on the securities. Revenue or special obligation securities are payable only from the revenue derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special tax or other specific revenue source and generally are not payable from the unrestricted revenues of the issuer. Some Municipal Securities are municipal lease obligations. Lease obligations usually do not constitute general obligations of the municipality for which the municipality taxing power is pledged, although the lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make payments in future years unless money is appropriated for such purpose on a yearly basis. Pursuant to procedures established by the Board, the Manager will be responsible for determining the credit quality of unrated municipal lease obligations on an ongoing basis, including assessment of the likelihood that the lease will not be canceled. Some municipal lease obligations may be illiquid. Municipal Securities include certain asset-backed certificates representing interests in trusts that include pools of installment payment agreements, leases, or other debt obligations of state or local governmental entities. Some Municipal Securities are covered by insurance or other credit enhancements procured by the issuer or underwriter guaranteeing timely payment of principal and interest.
Yields on Municipal Securities are dependent on a variety of factors, including the general conditions of the Municipal Securities market, the size of a particular offering, the maturity of the obligation and the rating of the issue. An increase in interest rates generally will reduce the market value of portfolio investments, and a decline in interest rates generally will increase the value of portfolio investments. Municipal Securities with longer maturities tend to produce higher yields and are generally subject to greater price movements than obligations with shorter maturities. The achievement of the Portfolios' investment objectives depends in part on the continuing ability of the issuers of Municipal Securities in which the Portfolios invest to meet their obligations for the payment of
principal and interest when due. Municipal Securities historically have not been subject to registration with the SEC, although from time to time there have been proposals which would require registration in the future.
After purchase by a Portfolio, a Municipal Security may cease to be rated or its rating may be reduced below the minimum required for purchase by such Portfolio. Neither event requires sales of such security by such Portfolio, but the Manager will consider such event in its determination of whether such Portfolio should continue to hold the security. To the extent that the ratings given by Moody's, S&P or Fitch may change as a result of changes in such organizations or their rating systems, the Manager will attempt to use such changed ratings in a manner consistent with a Portfolio's quality criteria as described in the Prospectus.
Obligations of issuers of Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislatures, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the ability of any issuer to pay, when due, the principal or the interest on its municipal bonds may be materially affected.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. It can be expected that similar proposals may be introduced in the future. If such a proposal were enacted, the availability of Municipal Securities for investment by a Portfolio and the value of the Portfolios would be affected. Additionally, the Portfolios' investment objectives and policies would be reevaluated.
Mortgage loans made on residential or commercial property by banks, savings and loan institutions and other lenders are often assembled into pools, and interests in the pools are sold to investors. Interests in such pools are referred to in this SAI as "mortgage-related securities." Payments of mortgage-related securities are backed by the property mortgaged. In addition, some mortgage-related securities are guaranteed as to payment of principal and interest by an agency or instrumentality of the U.S. Government. In the case of mortgage-related and asset-backed securities that are not backed by the United States Government or one of its agencies, a loss could be incurred if the collateral backing these securities is insufficient.
One type of mortgage-related security is a Government National Mortgage Association ("GNMA") Certificate. GNMA Certificates are backed as to principal and interest by the full faith and credit of the U.S. Government. Another type is a Federal National Mortgage Association ("FNMA") Certificate. Principal and interest payments of FNMA Certificates are guaranteed only by FNMA itself, not by the full faith and credit of the U.S. Government. A third type of mortgage-related security in which one or more of the Portfolios might invest is a Federal Home Loan Mortgage Corporation ("FHLMC") Participation Certificate. This type of security is backed by FHLMC as to payment of principal and interest but, like a FNMA security, it is not backed by the full faith and credit of the U.S. Government.
On September 7, 2008, due to the value of FHLMC's and FNMA's securities falling sharply and concerns that the firms did not have sufficient capital to offset losses resulting from the mortgage crisis, the Federal Housing Finance Agency placed FHLMC and FNMA into conservatorship. The U.S. Government also took steps to provide additional financial support to FHLMC and FNMA. Although the U.S. Government or its agencies currently provide financial support to such entities, no assurance can be given that they will always do so.
The Portfolios may also invest in both residential and commercial mortgage pools originated by investment banking firms and builders. Rather than being guaranteed by an agency or instrumentality of the U.S. Government, these pools are usually backed by subordinated interests or mortgage insurance. The Manager of the Portfolios will take such insurance into account in determining whether to invest in such pools.
The Portfolios may invest in Real Estate Mortgage Investment Conduits ("REMICs") and collateralized mortgage obligations ("CMOs"). REMICs include governmental and/or private entities that issue a fixed pool of mortgages secured by an interest in real property, and CMOs are debt obligations collateralized by mortgage loans or mortgage pass-through securities.
Since the borrower is typically obligated to make monthly payments of principal and interest, most mortgage-related securities pass these payments through to the holder after deduction of a servicing fee. However, other payment arrangements are possible. Payments may be made to the holder on a different schedule than that on which payments are received from the borrower, including, but not limited to, weekly, biweekly and semiannually.
Furthermore, the monthly principal and interest payments are not always passed through to the holder on a pro rata basis. In the case of REMICs and CMOs, the pool is divided into two or more tranches, and special rules for the disbursement of principal and interest payments are established. The Portfolios may invest in debt obligations that are REMICs or CMOs; provided that the entity issuing the REMIC or CMO is not a registered investment company.
In another version of mortgage-related securities, all interest payments go to one class of holders--"Interest Only" or "IO"--and all of the principal goes to a second class of holders--"Principal Only" or "PO." The market values of both IOs and POs are sensitive to prepayment rates; the value of POs varies directly with prepayment rates, while the value of IOs varies inversely with prepayment rates. If prepayment rates are high, investors may actually receive less cash from the IO than was initially invested. IOs and POs issued by the U.S. Government or its agencies and instrumentalities that are backed by fixed rate mortgages may be considered liquid securities under guidelines established by the Board; all other IOs and POs will be considered illiquid.
Payments to the Portfolios from mortgage-related securities generally represent both principal and interest. Although the underlying mortgage loans are for specified periods of time, such as 15 or 30 years, borrowers can, and often do, pay them off sooner. Thus, the Portfolios generally receive prepayments of principal in addition to the principal that is part of the regular monthly payments.
A borrower is more likely to prepay a mortgage that bears a relatively high rate of interest. Thus, the value of the securities may not increase as much as other debt securities when interest rates fall. However, when interest rates rise, the rate of prepayments may slow and the value of the mortgage-related and asset-backed securities may decrease like other debt securities. The Portfolios normally do not distribute principal payments (whether regular or prepaid) to their shareholders. Rather, they invest such payments in additional securities, which may not be mortgage-related. Interest received by the Portfolios is, however, reflected in dividends to shareholders.
The Portfolios may purchase securities backed by financial assets such as loans or leases for various assets including automobiles, recreational vehicles, computers and receivables on pools of consumer debt, most commonly credit cards. Two examples of such asset-backed securities are CARS and CARDS. CARS are securities, representing either ownership interests in fixed pools of automobile receivables, or debt instruments supported by the cash flows from such a pool. CARDS are participations in revolving pools of credit-card accounts. These securities have varying terms and degrees of liquidity. Asset-backed securities may be pass-through, representing actual equity ownership of the underlying assets, or pay-through, representing debt instruments supported by cash flows from the underlying assets. Pay-through asset-backed securities may pay all interest and principal to the holder, or they may pay a fixed rate of interest, with any excess over that required to pay interest going either into a reserve account or to a subordinate class of securities, which may be retained by the originator. Credit enhancement of asset-backed securities may take a variety of forms, including but not limited to overcollateralizing the securities, subordinating other tranches of an asset-backed issue to the securities, or by maintaining a reserve account for payment of the securities. In addition, part or all of the principal and/or interest payments on the securities may be guaranteed by the originator or a third-party insurer. The Manager takes all relevant credit enhancements into account in making investment decisions on behalf of the Portfolios.
In the case of securities backed by automobile receivables, the issuers of such securities typically file financing statements, and the servicers of such obligations take custody of such obligations. Therefore, if the servicers, in contravention of their duty, were to sell such obligations, the third-party purchasers would possibly acquire an interest superior to the holder of the securitized assets. Also, most states require that a security interest in a vehicle be noted on the certificate of title, and the certificate of title may not be amended to reflect the assignment of the seller's security interest. Therefore, the recovery of the collateral in some cases may not be available to support payments on the securities. In the case of credit card receivables, both federal and state consumer protection laws may allow setoffs against certain amounts owed against balances of the credit cards.
The equity securities in which the International Portfolios may invest include common and preferred stocks, warrants and convertible securities. The International Portfolios may invest in foreign securities directly or in the form of sponsored or unsponsored American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), or other similar securities convertible into securities of foreign issuers without limitation. ADRs are receipts typically issued by a U.S. bank or trust company that evidence ownership of the underlying securities. GDRs are receipts typically issued by a non-U.S. bank or trust company evidencing a similar arrangement. The issuers of unsponsored ADRs 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 ADR. In some circumstances -- e.g., when a direct investment in securities in a particular country cannot be made -- the International Portfolios, in compliance with provisions of the Investment Company Act of 1940, as amended (the "1940 Act"), may invest in the securities of investment companies that invest in foreign securities. As a shareholder in a mutual fund, each of the International Portfolios will bear its ratable share of the mutual fund's management fees and other expenses, and will remain subject to payment of the International Portfolios' management and other fees with respect to assets so invested. Equity securities of non-U.S. issuers may have somewhat different features than those of U.S. equities. To illustrate, the International Portfolios may purchase "Savings Shares," which are equity securities which have priority rights (compared with preferred or ordinary common shares) to dividends and on any liquidation of the issuer but which carry no voting rights.
The Portfolios may invest in privately placed securities that, in the absence of an exemption, would be required to be registered under the Securities Act of 1933, as amended (the "1933 Act") so as to permit their sale to the public ("restricted securities"). Restricted securities may be sold only in privately negotiated transactions. These securities, excluding restricted securities eligible for resale pursuant to Rule 144A under the 1933 Act that have been determined to be liquid in the trading market for the security under procedures adopted by the Board, are considered to be illiquid. The Board is responsible for monitoring the application of the procedures on the liquidity of Rule 144A securities in the Portfolios.
Where registration of restricted securities is required, the Portfolios may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Portfolio may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Portfolio might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value pursuant to policies approved by the Board.
The SEC has adopted Rule 144A to facilitate resales of restricted securities in the U.S. by "qualified institutional buyers," including the Portfolios. Provided that a dealer or institutional trading market in such securities exists, these restricted securities are treated as exempt from the Portfolios' limit on investments in illiquid securities. If institutional trading in restricted securities were to decline to limited levels, the liquidity of the Portfolios' securities could be adversely affected.
The Short Duration Portfolio may invest in fixed and floating rate loans ("Loans") arranged through private negotiations between borrowers and one or more financial institutions ("Lenders"). Such loans are often referred to as bank loan debt. The Portfolio's investments in Loans are expected in most instances to be in the form of participations in Loans ("Participations") and assignments of all or a portion of Loans ("Assignments") from third parties. The Portfolio's investment in Participations typically will result in the Portfolio having a contractual relationship only with the Lender and not with the borrower. The Portfolio will have the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Portfolio generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and the Portfolio may not directly benefit from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Portfolio may be subject to the credit risk of both the borrower and the Lender that is selling the Participation. In the event of the insolvency of the Lender selling a Participation, the Portfolio may be treated as a general creditor of the Lender and may not benefit from any set-off between the Lender and the borrower. Certain Participations may be structured in a manner designed to avoid purchasers of Participations being subject to the credit risk of the Lender with respect to the Participation; but even under such a structure, in the event of the Lender's insolvency, the Lender's servicing of the Participation may be delayed and the assignability of the Participation impaired. The Portfolio will acquire Participations only if the Lender interpositioned between the Portfolio and the borrower is a Lender having total assets of more than $25 billion and whose senior unsecured debt is rated investment grade (i.e., Baa3 or higher by Moody's or BBB--or higher by S&P or Fitch) or higher.
When the Portfolio purchases Assignments from Lenders it will acquire direct rights against the borrower on the Loan. Because Assignments are arranged through private negotiations between potential assignees and potential assignors, however, the rights and obligations acquired by the Portfolio as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning Lender. The assignability of certain obligations is restricted by the governing documentation as to the nature of the assignee such that the only way in which the Portfolio may acquire an interest in a Loan is through a Participation and not an Assignment. The Portfolio may have difficulty disposing of Assignments and Participations because to do so it will have to assign such securities to a third party. Because there is no liquid market for such securities, the Portfolio anticipates that such securities could be sold only to a limited number of institutional investors. The lack of a liquid secondary market may have an adverse impact on the value of such securities and the Portfolio's ability to dispose of particular Assignments or Participations when necessary to meet the Portfolio's liquidity needs in response to a specific economic event such as a deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for Assignments and Participations also may make it more difficult for the Portfolio to assign a value to these securities for purposes of valuing the Portfolio's portfolio and calculating its asset value.
While the Short Duration Portfolio generally invests in domestic securities, the Short Duration Portfolio may also invest in foreign fixed-income securities of the same type and quality as the domestic securities in which it invests when the anticipated performance of the foreign securities is believed by the Manager to offer more potential than domestic alternatives in keeping with the investment objective of the Portfolio. The Short Duration Portfolio may invest up to 20% of its total assets in foreign securities, which includes both U.S. Dollar denominated and non-U.S. Dollar denominated securities. The Short Duration Portfolio may invest in foreign fixed-income securities that may involve risks in addition to those normally associated with domestic securities. These risks include:
The Portfolios may invest in warrants. Warrants are securities that give a Portfolio the right to purchase securities from the issuer at a specific price (the strike price) for a limited period of time. The strike price of warrants sometimes is much lower than the current market price of the underlying securities, yet they are subject to similar price fluctuations. As a result, warrants may be more volatile investments than the underlying securities and may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends, interest payments or voting rights with respect to the underlying securities and do not represent any rights in the assets of the issuing company. Also, the value of the warrant does not necessarily change with the value of the underlying securities, and a warrant ceases to have value if it is not exercised prior to the expiration date. These factors can make warrants more speculative than other types of investments.
The Portfolios may invest in fixed-income obligations (including, but not limited to, time deposits, certificates of deposit and bankers' acceptances) of thrift institutions and commercial banks.
Time deposits are non-negotiable obligations of banks or thrift institutions with specified maturities and interest rates. Time deposits with maturities of more than seven days are considered illiquid securities.
Certificates of deposit are negotiable obligations issued by commercial banks or thrift institutions. Certificates of deposit may bear a fixed rate of interest or a variable rate of interest based upon a specified market rate.
A banker's acceptance is a time draft drawn on a commercial bank, often in connection with the movement, sale or storage of goods.
The Portfolios expect to invest no more than 5% of any Portfolio's net assets in fixed-income investments of non-insured U.S. banks and U.S. thrift institutions. The risks of investments in non-insured banks and thrifts are individually evaluated since non-insured banks and thrifts are not subject to supervision and examination by the Federal Deposit Insurance Corporation ("FDIC") or a similar regulatory authority. The Portfolios limit their purchases to fixed-income obligations issued by insured U.S. banks and U.S. thrift institutions which are rated B or higher by Standard & Poor's, Fitch or Moody's or which are not rated but which are determined by the Manager to be of comparable quality. For investments in non-insured foreign banks, the Municipal Portfolios and the Short Duration Portfolio limit their purchases to fixed-income obligations issued by foreign banks with a rating of B or higher by Standard & Poor's, Fitch or Moody's or of securities which are not rated but which are determined by the Manager to be of comparable quality. Although insured banks are subject to supervision and examination by the FDIC, investments in the Portfolios are not insured.
The Portfolios may purchase convertible corporate bonds and preferred stock. These securities may be converted at a stated price (the "conversion price") into underlying shares of preferred or common stock. Convertible debt securities are typically subordinated to non-convertible securities of the same issuer and are usually callable. Convertible bonds and preferred stocks have many characteristics of non-convertible fixed-income securities. For example, the price of convertible securities tends to decline as interest rates increase and increase as interest rates decline. In addition, holders of convertibles usually have a claim on the assets of the issuer prior to the holders of common stock in case of liquidation.
The unusual feature of a convertible security is that changes in its price can be closely related to changes in the market price of the underlying stock. As the market price of the underlying stock falls below the conversion price, the convertible security tends to trade increasingly like a non-convertible bond. As the market price of the underlying common stock rises above the conversion price, the price of the convertible security may rise accordingly.
It is anticipated that, from time to time, other securities will be developed, and they will be considered as potential investments for the Portfolios, subject to Board guidelines.
A Portfolio may, but is not required to, use derivatives for hedging or risk management purposes or as part of its investment practices. At times, a Portfolio's exposure to derivatives may be significant. Derivatives are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index. These assets, rates, and indices may include bonds, stocks, mortgages, commodities, interest rates, currency exchange rates, bond indices and stock indices.
There are four principal types of derivatives - options, futures, forwards
and swaps. These principal types of derivative instruments, as well as the
methods in which they may be used by a Portfolio are described below.
Derivatives may be (i) standardized, exchange-traded contracts or
(ii) customized, privately-negotiated contracts. Exchange-traded derivatives
tend to be more liquid and subject to less credit risk than those that are
privately negotiated. A Portfolio may use derivatives to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets.
When purchasing a futures contract, a Portfolio will maintain with its custodian (and mark-to-market daily) assets determined to be liquid that when added to the amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract. Alternatively, a Portfolio may "cover" it position by purchasing a put option on the same futures contract with a strike price as high or higher than the price of the contract held by the Portfolio.
When a Portfolio sells a futures contract, the Portfolio will maintain with its custodian (and mark-to-market daily) assets determined to be liquid that are equal to the market value of the futures contract. Alternatively, a Portfolio may "cover" its position by owning the instruments underlying the futures contract or, in the case of an index futures contract, a portfolio with estimated volatility substantially similar to that of the index on which the futures contract is based. In addition, a Portfolio may hold a call option permitting the Portfolio to purchase the same futures contract at a price no higher than the price of the contract written by the Portfolio or at a higher price if an amount equal to the difference is earmarked or segregated with the custodian.
For cash-settled futures contracts, a Portfolio may cover the open position by segregating or "earmarking" liquid assets in an amount equal to the Portfolio's daily mark-to-market (net) obligation (or the Portfolio's net liability), if any, rather than the market value of the futures contract. By doing so, a Portfolio will be able to use these contracts to a greater extent than if the Portfolio were required to segregate or "earmark" asset equal to the full market value of the futures contract.
None of the Portfolios will write any option if, immediately thereafter, the aggregate value of the Portfolio's securities subject to outstanding options would exceed 25% of its net assets, except for derivative transactions in respect of foreign currencies.
. MARKET RISK. This is the general risk attendant to all investments that the value of a particular investment will change in a way detrimental to a Portfolio's interest.
. MANAGEMENT RISK. Derivative products are highly specialized instruments that require investment techniques and risk analyses different from those associated with stocks and bonds. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. In particular, the use and complexity of derivatives require the maintenance of adequate controls to monitor the transactions entered into, the ability to assess the risk that a derivative adds to a Portfolio's investment portfolio, and the ability to forecast price, interest rate or currency exchange rate movements correctly.
. CREDIT RISK. This is the risk that a loss may be sustained by a Portfolio as a result of the failure of another party to a derivative (usually referred to as a "counterparty") to comply with the terms of the derivative contract. The credit risk for exchange-traded derivatives is generally less than for privately negotiated derivatives, since the clearinghouse, which is the issuer or counterparty to each exchange-traded derivative, provides a guarantee of performance. This guarantee is supported by a daily payment system (i.e., margin requirements) operated by the clearinghouse in order to reduce overall credit risk. For privately negotiated derivatives, there is no similar clearing agency guarantee. Therefore, a Portfolio considers the creditworthiness of each counterparty to a privately negotiated derivative in evaluating potential credit risk.
. LIQUIDITY RISK. Liquidity risk exists when a particular instrument is difficult to purchase or sell. If a derivative transaction is particularly large or if the relevant market is illiquid (as is the case with many privately negotiated derivatives), it may not be possible to initiate a transaction or liquidate a position at an advantageous price.
. LEVERAGE RISK. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate or index can result in a loss substantially greater than the amount invested in the derivative itself. In the case of swaps, the risk of loss generally is related to a notional principal amount, even if the parties have not made any initial investment. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment.
. RISK OF POTENTIAL GOVERNMENTAL REGULATION OF DERIVATIVES. Recent legislation and regulatory developments will eventually require the clearing and exchange trading of most over-the-counter derivatives investments. It is possible that new government regulation of various types of derivative instruments, including futures and swap agreements, may affect a Portfolio's ability to use such instruments as a part of its investment strategy.
. OTHER RISKS. Other risks in using derivatives include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate perfectly with underlying assets, rates and indices. Many derivatives, in particular privately negotiated derivatives, are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a Portfolio. Derivatives do not always perfectly or even highly correlate or track the value of the assets, rates or indices they are designed to closely track. Consequently, a Portfolio's use of derivatives may not always be an effective means of, and sometimes could be counterproductive to, furthering the Portfolio's investment objective.
the extent that such activities are consistent with the requirements of the Commodity Exchange Act ("CEA"), including registration as a "commodity pool operator". Effective December 31, 2012, the Commodity Futures Trading Commission ("CFTC") adopted certain regulatory changes that subject registered investment companies and advisers to registered investment companies to regulation by the CFTC if a Portfolio invests more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps ("CFTC Derivatives") for purposes other than "bona fide hedging," as defined in the rules of the CFTC, or if the Portfolio markets itself as providing investment exposure to such instruments. To the extent a Portfolio uses CFTC-regulated futures, options and swaps, it intends to do so below such prescribed levels and will not market itself as a "commodity pool" or a vehicle for trading such instruments. Accordingly, each Portfolio has claimed an exclusion from the definition of the term "commodity pool operator" under the CEA pursuant to Rule 4.5 under the CEA. The Manager is not, therefore, subject to registration or regulation as a "commodity pool operator" under the CEA in respect of each Portfolio.
A forward currency exchange contract is an obligation by one party to buy, and the other party to sell, a specific amount of a currency for an agreed-upon price at a future date. A forward currency exchange contract may result in the delivery of the underlying asset upon maturity of the contract in return for the agreed-upon payment. NDFs specify a cash payment upon maturity. NDFs are normally used when the market for physical settlement of the currency is underdeveloped, heavily regulated or highly taxed.
The Short Duration Portfolio and the International Portfolios may, for example, enter into forward currency exchange contracts to attempt to minimize the risk to the Portfolio from adverse changes in the relationship between the U.S. Dollar and other currencies. The Portfolios may purchase or sell forward currency exchange contracts for hedging purposes similar to those described below in connection with their transactions in foreign currency futures contracts. The International Portfolios may also purchase or sell forward currency exchange contracts for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Currency Transactions."
Under certain circumstances, each of the International Portfolios may commit substantial portions or the entire value of its assets to the consummation of these contracts. The Manager will consider the effect a substantial commitment of assets to forward contracts would have on the investment program of the Portfolio and the flexibility of the Portfolio to purchase additional securities.
If a hedging transaction in forward currency exchange contracts is successful, the decline in the value of portfolio securities or the increase in the cost of securities to be acquired may be offset, at least in part, by profits on the forward currency exchange contract. Nevertheless, by entering into such forward currency exchange contracts, a Portfolio may be required to forgo all or a portion of the benefits which otherwise could have been obtained from favorable movements in exchange rates.
Each of the International Portfolios may also use forward currency exchange contracts to seek to increase total return when the Manager anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. For example, a Portfolio may enter into a foreign currency exchange contract to purchase a currency if the Manager expects the currency to increase in value. The Portfolio would recognize a gain if the market value of the currency is more than the contract value of the currency at the time of settlement of the contract. Similarly, a Portfolio may enter into a foreign currency exchange contract to sell a currency if the Manager expects the currency to decrease in value. The Portfolio would recognize a gain if the market value of the currency is less than the contract value of the currency at the time of settlement of the contract.
The cost of engaging in forward currency exchange contracts varies with such factors as the currencies involved, the length of the contract period and the market conditions then prevailing. Since transactions in foreign currencies are usually conducted on a principal basis, no fees or commissions are involved. The Portfolios will segregate and mark to market liquid assets in an amount at least equal to a Portfolio's obligations under any forward currency exchange contracts.
A Portfolio may write and purchase call and put options on securities. In purchasing an option on securities, a Portfolio would be in a position to realize a gain if, during the option period, the price of the underlying securities 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 Portfolio would experience a loss not greater than the premium paid for the option. Thus, a Portfolio would realize a loss if the price of the underlying security declined or remained the same (in the case of a call) or increased or remained the same (in the case of a put) or otherwise did not increase (in the case of a put) or decrease (in the case of a call) by more than the amount of the premium. If a put or call option purchased by a Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio.
A Portfolio may purchase call options to hedge against an increase in the price of securities that the Portfolio anticipates purchasing in the future. If such increase occurs, the call option will permit the Portfolio to purchase the securities at the exercise price, or to close out the options at a profit. The premium paid for the call option plus any transaction costs will reduce the benefit, if any, realized by the Portfolio upon exercise of the option, and, unless the price of the underlying security rises sufficiently, the option may expire worthless to the Portfolio and the Portfolio will suffer a loss on the transaction to the extent of the premium paid. Options may also be purchased to alter the effective duration of the Fixed-Income Portfolios.
A Portfolio may write a put or call option in return for a premium, which is retained by the Portfolio whether or not the option is exercised. The Portfolios may write (i.e., sell) only covered put and call options (except in respect of currency transactions) on its portfolio securities. These options will generally be sold when the Manager perceives the options to be overpriced. They may also be sold to alter the effective duration of the Fixed-Income Portfolios. A call option written by a Portfolio is "covered" if the Portfolio 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 of the call option it has written. A put option written by a Portfolio is covered if the Portfolio holds a put option on the underlying securities with an exercise price equal to or greater than of the put option it has written. Uncovered options or "naked options" are riskier than covered options. For example, if a Portfolio wrote a naked call option and the price of the underlying security increased, the Portfolio would have to purchase the underlying security for delivery to the call buyer and sustain a loss equal to the difference between the option price and the market price of the security.
A Portfolio may also, as an example, write combinations of put and call options on the same security, known as "straddles", with the same exercise and expiration date. By writing a straddle, the Portfolio undertakes a simultaneous obligation to sell and
purchase the same security in the event that one of the options is exercised. If the price of the security subsequently rises above the exercise price, the call will likely be exercised and the Portfolio will be required to sell the underlying security at or below market price. This loss may be offset, however, in whole or part, by the premiums received on the writing of the two options. Conversely, if the price of the security declines by a sufficient amount, the put will likely be exercised. The writing of straddles will likely be effective, therefore, only where the price of the security remains stable and neither the call nor the put is exercised. In those instances where one of the options is exercised, the loss on the purchase or sale of the underlying security may exceed the amount of the premiums received.
By writing a call option, a Portfolio limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option. By writing a put option, a Portfolio assumes the risk that it may be required to purchase the underlying security for an exercise price above its then current market value, resulting in a capital loss unless the security subsequently appreciates in value. Where options are written for hedging purposes, such transactions constitute only a partial hedge against declines in the value of portfolio securities or against increases in the value of securities to be acquired, up to the amount of the premium. A Portfolio may purchase put options to hedge against a decline in the value of portfolio securities. If such decline occurs, the put options will permit the Portfolio to sell the securities at the exercise price or to close out the options at a profit. By using put options in this way, the Portfolio will reduce any profit it might otherwise have realized on the underlying security by the amount of the premium paid for the put option and by transaction costs.
A Portfolio may purchase or write options on securities of the types in which it is permitted to invest in privately negotiated (i.e., over-the-counter) transactions. A Portfolio will effect such transactions only with investment dealers and other financial institutions (such as commercial banks or savings and loan institutions) deemed creditworthy by the Manager, and the Manager has adopted procedures for monitoring the creditworthiness of such entities. Options purchased or written in negotiated transactions may be illiquid and it may not be possible for the Portfolio to effect a closing transaction at a time when the Manager believes it would be advantageous to do so.
An option on a securities index is similar to an option on a security except that, rather than taking or making 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.
A Portfolio may write (sell) call and put options and purchase call and put options on securities indices. If a Portfolio purchases put options on securities indices to hedge its investments against a decline in the value of portfolio securities, it will seek to offset a decline in the value of securities it owns through appreciation of the put option. If the value of the Portfolio's investments does not decline as anticipated, or if the value of the option does not increase, the Portfolio's loss will be limited to the premium paid for the option. The success of this strategy will largely depend on the accuracy of the correlation between the changes in value of the index and the changes in value of the Portfolio's security holdings.
The purchase of call options on securities indices may be used by a Portfolio to attempt to reduce the risk of missing a broad market advance, or an advance in an industry or market segment, at a time when the Portfolio holds uninvested cash or short-term debt securities awaiting investment. When purchasing call options for this purpose, the Portfolio will also bear the risk of losing all or a portion of the premium paid if the value of the index does not rise. The purchase of call options on stock indices when a Portfolio is substantially fully invested is a form of leverage, up to the amount of the premium and related transaction costs, and involves risks of loss and of increased volatility similar to those involved in purchasing call options on securities the Portfolio owns.
In an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of its portfolio from a decline in value, sometimes within certain ranges, a Portfolio may use option strategies such as the concurrent purchase of a call or put option, including on individual securities and stock indexes, futures contracts (including on individual securities and stock indexes) or shares of exchange-traded funds ("ETFs") at one strike price and the writing of a call or put option on the same individual security, stock index, futures contract or ETF at a higher strike price in the case of a call option or at a lower strike price in the case of a put option. The maximum profit from this strategy would result for the call options from an increase in the value of the individual security, stock index, futures contract or ETF above the higher strike price or, for the put options, the decline in the value of the individual security, stock index, futures contract or ETF below the lower strike price. If the price of the individual security, stock index, futures contract or ETF declines in the case of the call option, or increases in the case of the put option, the Portfolio has the risk of losing the entire amount paid for the call or put options.
A Portfolio may purchase and write options on foreign currencies for hedging purposes. For example, a decline in the U.S. Dollar value of a foreign currency in which portfolio securities are denominated will reduce the U.S. 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, a Portfolio may purchase put options on the foreign currency. If the value of the currency does decline, a Portfolio will have the right to sell such currency for a fixed amount in U.S. Dollars and could thereby offset, in whole or in part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the U.S. Dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, a Portfolio may purchase call options thereon. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to a Portfolio from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, a Portfolio could sustain losses on transactions in foreign currency options which would require it to forgo a portion or all of the benefits of advantageous changes in such rates.
A Portfolio may write options on foreign currencies, including for hedging purposes. For example, where a Portfolio anticipates a decline in the U.S. 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 could be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated increase in the U.S. Dollar cost of securities to be acquired, a Portfolio could write a put option on the relevant currency, which, if rates move in the manner projected, will expire unexercised and allow the Portfolio 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 a Portfolio will be required to purchase or sell the underlying currency at a loss, which may not be offset by the amount of the premium. Through the writing of options on foreign currencies, a Portfolio also may be required to forgo all or a portion of the benefits which might otherwise have been obtained from favorable movements in exchange rates.
In addition to using options for the hedging purposes described above, the International Portfolios may also invest in options on foreign currencies for non-hedging purposes as a means of making direct investments in foreign currencies. These Portfolios may use options on currency to seek to increase total return when the Manager anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that security are not held by a Portfolio and do not present attractive investment opportunities. For example, a Portfolio may purchase call options in anticipation of an increase in the market value of a currency. A Portfolio would ordinarily realize a gain if, during the option period, the value of such currency exceeded the sum of the exercise price, the premium paid and transaction costs. Otherwise, a Portfolio would realize no gain or a loss on the purchase of the call option. Put options may be purchased by a Portfolio for the purpose of benefiting from a decline in the value of a currency that a Portfolio does not own. A Portfolio would normally realize a gain if, during the option period, the value of the underlying currency decreased below the exercise price sufficiently to more than cover the premium and transaction costs. Otherwise, a Portfolio would realize no gain or loss on the purchase of the put option. For additional information on the use of options on foreign currencies for non-hedging purposes, see "Currency Transactions" below.
Special Risks Associated with Options on Currency. An exchange traded options position may be closed out only on an options exchange that provides a secondary market for an option of the same series. Although a Portfolio will generally purchase or sell options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option, or at any particular time. For some options, no secondary market on an exchange may exist. In such event, it might not be possible to effect closing transactions in particular options, with the result that a Portfolio would have to exercise its options in order to realize any profit and would incur transaction costs on the sale of the underlying currency.
Futures contracts that a Portfolio may buy and sell may include futures contracts on fixed-income or other securities, and contracts based on interest rates, foreign currencies or financial indices, including any index of U.S. Government securities. A Portfolio may, for example, purchase or sell futures contracts and options thereon to hedge against changes in interest rates, securities (through index futures or options) or currencies.
The Portfolios purchase and sell futures contracts only on exchanges where there appears to be a market in the futures sufficiently active to accommodate the volume of trading activity. Options on futures contracts written or purchased by a Portfolio will be traded on exchanges or over-the-counter. These investment techniques will be used by the Municipal Portfolios only to hedge against anticipated future changes in interest rates which otherwise might either adversely affect the value of the securities held by a Portfolio or adversely affect the prices of securities which a Portfolio intends to purchase at a later date or to manage the effective
maturity or duration of fixed-income securities. Other Portfolios may each purchase or sell options on futures contracts for hedging or other purposes.
Interest rate futures contracts are purchased or sold for hedging purposes to attempt to protect against the effects of interest rate changes on a Portfolio's current or intended investments in fixed-income securities. For example, if a Portfolio owned long-term bonds and interest rates were expected to increase, that Portfolio might sell interest rate futures contracts. Such a sale would have much the same effect as selling some of the long-term bonds in that Portfolio's portfolio. However, since the futures market is more liquid than the cash market, the use of interest rate futures contracts as a hedging technique allows a Portfolio to hedge its interest rate risk without having to sell its portfolio securities. If interest rates were to increase, the value of the debt securities in the portfolio would decline, but the value of that Portfolio's interest rate futures contracts would be expected to increase at approximately the same rate, thereby keeping the net asset value ("NAV") of that Portfolio from declining as much as it otherwise would have. On the other hand, if interest rates were expected to decline, interest rate futures contracts could be purchased to hedge in anticipation of subsequent purchases of long-term bonds at higher prices. Because the fluctuations in the value of the interest rate futures contracts should be similar to those of long-term bonds, a Portfolio could protect itself against the effects of the anticipated rise in the value of long-term bonds without actually buying them until the necessary cash becomes available or the market has stabilized. At that time, the interest rate futures contracts could be liquidated and that Portfolio's cash reserves could then be used to buy long-term bonds on the cash market.
A Portfolio may purchase and sell foreign currency futures contracts for hedging purposes in order to protect against fluctuations in currency exchange rates. Such fluctuations could reduce the dollar value of portfolio securities denominated in foreign currencies, or increase the cost of non-U.S. Dollar-denominated securities to be acquired, even if the value of such securities in the currencies in which they are denominated remains constant. A Portfolio may sell futures contracts on a foreign currency, for example, when it holds securities denominated in such currency and it anticipates a decline in the value of such currency relative to the dollar. If such a decline were to occur, the resulting adverse effect on the value of non-U.S. Dollar-denominated securities may be offset, in whole or in part, by gains on the futures contracts. However, if the value of the foreign currency increases relative to the dollar, a Portfolio's loss on the foreign currency futures contract may or may not be offset by an increase in the value of the securities because a decline in the price of the security stated in terms of the foreign currency may be greater than the increase in value as a result of the change in exchange rates.
Conversely, a Portfolio could protect against a rise in the dollar cost of non-U.S. Dollar-denominated securities to be acquired by purchasing futures contracts on the relevant currency, which could offset, in whole or in part, the increased cost of such securities resulting from a rise in the dollar value of the underlying currencies. When a Portfolio purchases futures contracts under such circumstances, however, and the price in dollars of securities to be acquired instead declines as a result of appreciation of the dollar, the Portfolio will sustain losses on its futures position which could reduce or eliminate the benefits of the reduced cost of portfolio securities to be acquired.
A Portfolio may also engage in currency "cross hedging" when, in the opinion of the Manager, the historical relationship among foreign currencies suggests that a Portfolio may achieve protection against fluctuations in currency exchange rates similar to that described above at a reduced cost through the use of a futures contract relating to a currency other than the U.S. Dollar or the currency in which the foreign security is denominated. Such "cross hedging" is subject to the same risks as those described above with respect to an unanticipated increase or decline in the value of the subject currency relative to the U.S. Dollar.
A Portfolio may also use foreign currency futures contracts and options on such contracts for non-hedging purposes. Similar to options on currencies described above, a Portfolio may use foreign currency futures contracts and options on such contracts to seek to increase total return when the Manager anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. The risks associated with foreign currency futures contracts and options on futures are similar to those associated with options on foreign currencies, as described above. For additional information on the use of options on foreign currencies for non-hedging purposes, see "Currency Transactions" below.
Purchases or sales of stock or bond index futures contracts may be used for hedging purposes to attempt to protect a Portfolio's current or intended investments from broad fluctuations in stock or bond prices. For example, a Portfolio may sell stock or bond index futures contracts in anticipation of or during a market decline to attempt to offset the decrease in market value of the Portfolio's portfolio securities that might otherwise result. If such decline occurs, the loss in value of portfolio securities may be offset, in whole or part, by gains on the futures position. When a Portfolio is not fully invested in the securities market and anticipates a significant market advance, it may purchase stock or bond index futures contracts in order to gain rapid market exposure that may, in whole or in part, offset increases in the cost of securities that the Portfolio intends to purchase. As such purchases are made, the corresponding positions in stock or bond index futures contracts will be closed out.
Each Portfolio has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and therefore is not subject to registration or regulation as a pool operator under that Act.
Options on futures contracts are options that call for the delivery of futures contracts upon exercise. Options on futures contracts written or purchased by a Portfolio will be traded on U.S. exchanges.
The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities in a Portfolio's portfolio. If the futures price at expiration of the option is below the exercise price, a Portfolio will retain the full amount of the option premium, which provides a partial hedge against any decline that may have occurred in the Portfolio's portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities or other instruments required to be delivered under the terms of the futures contract. If the futures price at expiration of the put option is higher than the exercise price, a Portfolio will retain the full amount of the option premium, which provides a partial hedge against any increase in the price of securities which the Portfolio intends to purchase. If a put or call option a Portfolio has written is exercised, the Portfolio will incur a loss which will be reduced by the amount of the premium it receives. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its options on futures positions, a Portfolio's losses from exercised options on futures may to some extent be reduced or increased by changes in the value of portfolio securities.
The Portfolios may write (i.e., sell) only covered put and call options on futures contracts. A Portfolio is considered "covered" with respect to a call option it writes on a futures contract if the Portfolio (i) owns a long position in the underlying futures contract; (ii) segregates and maintains with its custodian liquid assets equal in value to the exercise price of the call (less any initial margin deposited); (iii) owns a security or currency which is deliverable under the futures contract; or (iv) owns an option to purchase the security, currency or securities index, which is deliverable under the futures contract or owns a call option to purchase the underlying futures contract, in each case at a price no higher than the exercise price of the call option written by the Portfolio, or if higher, the Portfolio deposits and maintains the differential between the two exercise prices in liquid assets in a segregated account with its custodian. A Portfolio is considered "covered" with respect to a put option it writes on a futures contract if it (i) segregates and maintains with its custodian liquid assets equal in value to the exercise price of the put (less any initial and variation margin deposited); (ii) owns a put option on the security, currency or securities index which is the subject of the futures contract or owns a put option on the futures contract underlying the option, in each case at an exercise price as high as or higher than the price of the contract held by the Portfolio or, if lower, the Portfolio deposits and maintains the differential between the two exercise prices in liquid assets in a segregated account with its custodian; or (iii) owns a short position in the underlying futures contract.
The Portfolios may write covered straddles of options on futures. A straddle is a combination of a call and a put written on the same underlying futures contract. A straddle will be covered when sufficient assets are deposited to meet the requirements, as defined in the preceding paragraph. A Portfolio may use the same liquid assets to cover both the call and put options where the exercise price of the call and put are the same, or the exercise price of the call is higher than that of the put. In such cases, the Portfolios will also segregate liquid assets equivalent to the amount, if any, by which the put is "in the money."
If the Manager wishes to shorten the effective duration of a Fixed-Income Portfolio, the Manager may sell a futures contract or a call option thereon, or purchase a put option on that futures contract. If the Manager wishes to lengthen the effective duration of a Fixed-Income Portfolio, the Manager may buy a futures contract or a call option thereon, or sell a put option. The Portfolios' use of futures contracts will not result in leverage.
The "buyer" in a credit default swap contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract in return for a contingent payment upon the occurrence of a credit event with respect to an underlying reference obligation. Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or restructuring. A Portfolio may be either the buyer or seller in the transaction. As a seller, the Portfolio receives a fixed rate of income throughout the term of the contract, which typically is between one month and ten years, provided that no credit event occurs. If a credit event occurs, the Portfolio typically must pay the contingent payment to the buyer. The contingent payment will be either (i) the "par value" (full notional value) of the reference obligation in which case the Portfolio will receive the reference obligation in return, or (ii) an amount equal to the difference between the par value and the current market value of the obligation. The value of the reference obligation received by the Portfolio as a seller if a credit event occurs, coupled with the periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Portfolio. If the Portfolio is a buyer and no credit event occurs, the Portfolio will lose its periodic stream of payments over the term of the contract. However, if a credit event occurs, the buyer typically receives full notional value for a reference obligation that may have little or no value.
Credit default swaps may involve greater risks than if the Portfolio had invested in the reference obligation directly. Credit default swaps are subject to general market risk, liquidity risk and credit risk.
A Portfolio may enter into a credit default swap that provides for settlement by physical delivery if, at the time of entering into the swap, such delivery would not result in the Portfolio investing more than 20% of its total assets in securities rated lower than A by Standard & Poor's, Fitch or Moody's. A subsequent deterioration of the credit quality of the underlying obligation of the credit default swap will not require the Portfolio to dispose of the swap.
The Short Duration Portfolio and the International Portfolios may enter into currency swaps for hedging purposes in an attempt to protect against adverse changes in exchange rates between the U.S. Dollar and other currencies. The International Portfolios may also enter into currency swaps for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under "Currency Transactions." Currency swaps involve the exchange by the Portfolios with another party of a series of payments in specified currencies. Actual principal amounts of currencies may be exchanged by the counterparties at the initiation and again upon termination of the transaction. Since currency swaps are individually negotiated, the Portfolio expects to achieve an acceptable degree of correlation between its portfolio investments and its currency swaps positions. 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 excess, if any, of the Portfolios' obligations over their entitlements with respect to each currency swap will be accrued on a daily basis and an amount of liquid assets having an aggregate NAV at least equal to the accrued excess will be maintained in a segregated account by the Portfolios' custodian. The Portfolios 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 the creditworthiness of the Portfolio's counterparty declines, the value of the swap agreement will likely decline, potentially resulting in losses. If there is a default by the other party to such a transaction, the Portfolios will have contractual remedies pursuant to the agreements related to the transactions.
A Portfolio may enter into interest rate swap, cap or floor transactions, which may include preserving a return or spread on a particular investment or portion of its portfolio or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Unless there is a counterparty default, the risk of loss to a Portfolio from interest rate transactions is limited to the net amount of interest payments that the Portfolio is contractually obligated to make. If the counterparty to an interest rate transaction defaults, the Portfolio's risk of loss consists of the net amount of interest payments that the Portfolio is contractually entitled to receive. A Portfolio also may invest in interest rate transaction futures. The Portfolio will enter into interest rate swap, cap or floor transactions only with counterparties deemed creditworthy by the Manager.
Interest rate swaps involve the exchange by a Portfolio with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or "notional") amount.
An option on a swap agreement, also called a "swaption", is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based "premium". A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
Interest rate caps and floors are similar to options in that the purchase of an interest rate cap or floor entitles the purchaser, to the extent that a specified index exceeds (in the case of a cap) or falls below (in the case of a floor) a predetermined interest rate, to receive payments of interest on a notional amount from the party selling the interest rate cap or floor.
Caps and floors are less liquid than swaps. These transactions do not involve the delivery of securities or other underlying assets or principal. A Portfolio will enter into interest rate swap, swaption, cap or floor transactions only with counterparties who have credit ratings of at least A- (or the equivalent) from any one NRSRO or counterparties with guarantors with debt securities having such a rating.
A Municipal Portfolio enters into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio. A Municipal Portfolio may also enter into these transactions to protect against price increases of securities the Manager anticipates purchasing for the Portfolio at a later date or as a duration management technique. The Municipal Portfolios do not intend to use these transactions in a speculative manner. All other Portfolios expect to enter into these transactions for a variety of reasons, including for hedging purposes, as a duration management technique or to attempt to exploit mispricings in the bond markets.
Each Portfolio may enter into interest rate swaps, caps and floors on either an asset-based or liability-based basis, depending upon whether the Portfolio is hedging its assets or liabilities, and will usually enter into interest rate swaps on a net basis, i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments. The net amount of the excess, if any, of a Portfolio's obligations over its entitlements with respect to each interest rate swap will be accrued daily, and an amount of liquid assets having an aggregate NAV at least equal to the accrued excess will be maintained in a segregated account with the custodian. If a Portfolio enters into an interest rate swap on other than a net basis, the Portfolio will maintain in a segregated account with the custodian the full amount, accrued daily, of the Portfolio's obligations with respect to the swap. A Portfolio will enter into interest rate swap, cap or floor transactions only with counterparties whose debt securities (or whose guarantors' debt securities) are rated at least A (or the equivalent) by at least one nationally recognized statistical rating organization and are on the Manager's approved list of swap counterparties for the Portfolio. The Manager will monitor the creditworthiness of counterparties on an ongoing basis. If there were a default by such a counterparty, the Portfolios would have contractual remedies. The
swap market has grown substantially in recent years, with a large number of banks and investment banking firms acting both as principals and agents utilizing standardized swap documentation. The Manager has determined that, as a result, the swap market has become relatively liquid.
Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swap agreements may be used to protect the NAV of the Portfolio against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases.
A Portfolio may enter into total return swaps in order take a "long" or "short" position with respect to an underlying referenced asset. A Portfolio is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Portfolio will receive a payment from or make a payment to the counterparty.
A Portfolio may enter into variance or correlation swaps in an attempt to hedge equity market risk or adjust exposure to the equity markets. Variance swaps are contracts in which two parties agree to exchange cash payments based on the difference between the stated level of variance and the actual variance realized on an underlying asset or index. Actual "variance" as used here is defined as the sum of the square of the returns on the reference asset or index (which in effect is a measure of its "volatility") over the length of the contract term. The parties to a variance swap can be said to exchange actual volatility for a contractually stated rate of volatility. Correlation swaps are contracts in which two parties agree to exchange cash payments based on the differences between the stated and the actual correlation realized on the underlying equity securities within a given equity index. "Correlation" as used here is defined as the weighted average of the correlations between the daily returns of each pair of securities within a given equity index. If two assets are said to be closely correlated, it means that their daily returns vary in similar proportions or along similar trajectories.
Special Risks Associated with Swaps. Risks may arise as a result of the failure of the counterparty to the swap contract to comply with the terms of the swap contract. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by a Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. The risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio's exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swap contracts on the statement of assets and liabilities. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swap contracts. Fluctuations in the value of swap contracts are recorded as a component of net change in unrealized appreciation/depreciation of swap contracts on the statement of operations.
Eurodollar instruments are essentially U.S. Dollar-denominated futures contracts or options thereon that are linked to the London Interbank Offered Rate and are subject to the same limitations and risks as other futures contracts and options.
Each Portfolio may invest in structured products. Structured products, including indexed or structured securities, combine the elements of futures contracts or options with those of debt, preferred equity or a depositary instrument. Generally, the principal amount, amount payable upon maturity or redemption, or interest rate of a structured product is tied (either positively or negatively) to prices, changes in prices, or differences between prices, of underlying assets, such as securities, currencies, intangibles, goods, articles or commodities or by reference to an unrelated benchmark related to an objective index, economic factor or other measure, such as interest rates, currency exchange rates, commodity indices, and securities indices. The interest rate or (unlike most fixed-income securities) the principal amount payable at maturity of a structured product may be increased or decreased depending on changes in the value of the underlying asset or benchmark.
Structured products may take a variety of forms. Most commonly, they are in the form of debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, but may also be issued as preferred stock with dividend rates determined by reference to the value of a currency or convertible securities with the conversion terms related to a particular commodity.
Investing in structured products may be more efficient and less expensive for a Portfolio than investing in the underlying assets or benchmarks and the related derivative. These investments can be used as a means of pursuing a variety of investment goals, including currency hedging, duration management and increased total return. In addition, structured products may be a tax-advantaged investment in that they generate income that may be distributed to shareholders as income rather than short-term capital gains that may otherwise result from a derivatives transaction.
Structured products, however, have more risk than traditional types of debt or other securities. These products may not bear interest or pay dividends. The value of a structured product or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the benchmark. Under certain conditions, the redemption value of a structured product could be zero. Structured products are potentially more volatile and carry greater market risks than traditional debt instruments. The prices of the structured instrument and the benchmark or underlying asset may not move in the same direction or at the same time. Structured products may be less liquid and more difficult to price than less complex securities or instruments or more traditional debt securities. The risk of these investments can be substantial with the possibility that the entire principal amount is at risk. The purchase of structured products also exposes a Portfolio to the credit risk of the issuer of the structured product.
Structured Notes and Indexed Securities: Each Portfolio may invest in a particular type of structured instrument sometimes referred to as a "structured note". The terms of these notes may be structured by the issuer and the purchaser of the note. Structured notes are derivative debt instruments, the interest rate or principal of which is determined by an unrelated indicator (for example, a currency, security, commodity or index thereof). Indexed securities may include structured notes as well as securities other than debt securities, the interest rate or principal of which is determined by an unrelated indicator. The terms of structured notes and indexed securities may provide that in certain circumstances no principal is due at maturity, which may result in a total loss of invested capital. Structured notes and indexed securities may be positively or negatively indexed, so that appreciation of the unrelated indicator may produce an increase or a decrease in the interest rate or the value of the structured note or indexed security at maturity may be calculated as a specified multiple of the change in the value of the unrelated indicator. Therefore, the value of such notes and securities may be very volatile. Structured notes and indexed securities may entail a greater degree of market risk than other types of debt securities because the investor bears the risk of the unrelated indicator. Structured notes or indexed securities also may be more volatile, less liquid, and more difficult to accurately price than less complex securities and instruments or more traditional debt securities.
Commodity Index-Linked Notes and Commodity-Linked Notes: Structured products may provide exposure to the commodities markets. These structured notes may include leveraged or unleveraged commodity index-linked notes, which are derivative debt instruments with principal and/or coupon payments linked to the performance of commodity indices. They also include commodity-linked notes with principal and/or coupon payments linked to the value of particular commodities or commodities futures contracts, or a subset of commodities and commodities future contracts. The value of these notes will rise or fall in response to changes in the underlying commodity, commodity futures contract, subset of commodities or commodities futures contracts or commodity index. These notes expose a Portfolio economically to movements in commodity prices. These notes also are subject to risks, such as credit, market and interest rate risks, that in general affect the values of debt securities. In addition, these notes are often leveraged, increasing the volatility of each note's market value relative to changes in the underlying commodity, commodity futures contract or commodity index. Therefore, a Portfolio might receive interest or principal payments on the note that are determined based upon a specified multiple of the change in value of the underlying commodity, commodity futures contract or index.
Credit-Linked Securities: Credit-linked securities are issued by a limited purpose trust or other vehicle that, in turn, invests in a basket of derivative instruments, such as credit default swaps, interest rate swaps and other securities, in order to provide exposure to certain high-yield or other fixed-income markets. For example, each Portfolio may invest in credit-linked securities as a cash management tool in order to gain exposure to certain high-yield markets and/or to remain fully invested when more traditional income producing securities are not available. Like an investment in a bond, investments in credit-linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the security. However, these payments are conditioned on the trust's receipt of payments from, and the trust's potential obligations to, the counterparties to the derivative instruments and other securities in which the trust invests. For instance, the trust may sell one or more credit default swaps, under which the trust would receive a stream of payments over the term of the swap agreements provided that no event of default has occurred with respect to the referenced debt obligation upon which the swap is based. If a default occurs, the stream of payments may stop and the trust would be obligated to pay the counterparty the par value (or other agreed-upon value) of the referenced debt obligation. This, in turn, would reduce the amount of income and principal that each Portfolio would receive as an investor in the trust. Each Portfolio's investments in these instruments are indirectly subject to the risks associated with derivative instruments, including, among others, credit risk, default or similar event risk, counterparty risk, interest rate risk, and leverage risk and management risk. These securities are generally structured as Rule 144A securities so that they may be freely traded among institutional buyers. However, changes in the market for credit-linked securities or the availability of willing buyers may result in the securities becoming illiquid.
The International Portfolios may invest in different types of derivatives generally referred to as synthetic foreign equity securities. These securities may include international warrants or local access products. International warrants are financial instruments issued by banks or other financial institutions, which may or may not be traded on a foreign exchange. International warrants are a form of derivative security that may give holders the right to buy or sell an underlying security or a basket of securities representing an index from or to the issuer of the warrant for a particular price or may entitle holders to receive a cash payment relating to the value of the underlying security or index, in each case upon exercise by the Portfolio. Local access products are similar to options in that they are exercisable by the holder for an underlying security or a cash payment based upon the value of that security, but are generally exercisable over a longer term than typical options. These types of instruments may be American style, which means that they can be exercised at any time on or before the expiration date of the international warrant, or European style, which means that they may be exercised only on the expiration date.
Other types of synthetic foreign equity securities in which a Portfolio may invest include covered warrants and low exercise price warrants. Covered warrants entitle the holder to purchase from the issuer, typically a financial institution, upon exercise, common stock of an international company or receive a cash payment (generally in U.S. Dollars). The issuer of the covered warrant usually owns the underlying security or has a mechanism, such as owning equity warrants on the underlying securities, through which they can obtain the securities. The cash payment is calculated according to a predetermined formula, which is generally based on the difference between the value of the underlying security on the date of exercise and the strike price. Low exercise price warrants are warrants with an exercise price that is very low relative to the market price of the underlying instrument at the time of issue (e.g., one cent or less). The buyer of a low exercise price warrant effectively pays the full value of the underlying common stock at the outset. In the case of any exercise of warrants, there may be a time delay between the time a holder of warrants gives instructions to exercise and the time the price of the common stock relating to exercise or the settlement date is determined, during which time the price of the underlying security could change significantly. In addition, the exercise or settlement date of the warrants may be affected by certain market disruption events, such as difficulties relating to the exchange of a local currency into U.S. Dollars, the imposition of capital controls by a local jurisdiction or changes in the laws relating to foreign investments. These events could lead to a change in the exercise date or settlement currency of the warrants, or postponement of the settlement date. In some cases, if the market disruption events continue for a certain period of time, the warrants may become worthless resulting in a total loss of the purchase price of the warrants.
The Portfolio will acquire synthetic foreign equity securities issued by entities deemed to be creditworthy by the Manager, which will monitor the creditworthiness of the issuers on an on-going basis. Investments in these instruments involve the risk that the issuer of the instrument may default on its obligation to deliver the underlying security or cash in lieu thereof. These instruments may also be subject to liquidity risk because there may be a limited secondary market for trading the warrants. They are also subject, like other investments in foreign securities, to foreign risk and currency risk.
International warrants also include equity warrants, index warrants, and interest rate warrants. Equity warrants are generally issued in conjunction with an issue of bonds or shares, although they also may be issued as part of a rights issue or scrip issue. When issued with bonds or shares, they usually trade separately from the bonds or shares after issuance. Most warrants trade in the same currency as the underlying stock (domestic warrants), but also may be traded in different currency (euro-warrants). Equity warrants are traded on a number of foreign exchanges and in over-the-counter markets. Index warrants and interest rate warrants are rights created by an issuer, typically a financial institution, entitling the holder to purchase, in the case of a call, or sell, in the case of a put, respectively, an equity index or a specific bond issue or interest rate index at a certain level over a fixed period of time. Index warrants transactions settle in cash, while interest rate warrants can typically be exercised in the underlying instrument or settle in cash.
A Portfolio may also invest in long-term options of, or relating to, international issuers. Long-term options operate much like covered warrants. Like covered warrants, long term-options are call options created by an issuer, typically a financial institution, entitling the holder to purchase from the issuer outstanding securities of another issuer. Long-term options have an initial period of one year or more, but generally have terms between three and five years. Unlike U.S. options, long-term European options do not settle through a clearing corporation that guarantees the performance of the counterparty. Instead, they are traded on an exchange and subject to the exchange's trading regulations.
The Fixed-Income Portfolios may seek additional income by investing in repurchase agreements pertaining only to U.S. Government securities. Each Portfolio requires continual maintenance of collateral held by the Fund's custodian in an amount equal to, or in excess of, the market value of the securities which are the subject of the agreement. In the event of a counterparty's bankruptcy, a Portfolio might be delayed in, or prevented from, selling the collateral for its benefit. Repurchase agreements may be entered into with member banks of the Federal Reserve System including the Fund's custodian or "primary dealers" (as designated by the Federal Reserve Bank of New York) in U.S. Government securities.
The Portfolios may enter into reverse repurchase agreements with banks and
broker-dealers from time to time. The use of reverse repurchase agreements is
included in the Portfolios' borrowing policy and is subject to the limit of
Section 18(f)(1) of the 1940 Act.
Reverse repurchase agreements involve sales by a Portfolio of portfolio assets concurrently with an agreement by the Portfolio to repurchase the same assets at a later date at a fixed price. During the reverse repurchase agreement period, a Portfolio continues to receive principal and interest payments on these securities. Generally, the effect of such a transaction is that the Portfolio can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while it will be able to keep the interest income associated with those portfolio securities. Such transactions are advantageous only if the interest cost to the Portfolio of the reverse repurchase transaction is less than the cost of otherwise obtaining the cash.
Reverse repurchase agreements are considered to be a loan to a Portfolio by
the counterparty, collateralized by the assets subject to repurchase because
the incidents of ownership are retained by the Portfolio. By entering into
reverse repurchase agreements, a Portfolio obtains additional cash to invest on
other securities. A Portfolio may use reverse repurchase agreements for
borrowing purposes if it believes that the cost of this form of borrowing will
be lower than the cost of bank borrowing. Reverse repurchase agreements create
leverage and are speculative transactions because they allow a Portfolio to
achieve a return on a larger capital base relative to its NAV. The use of
leverage creates the opportunity for increased income for a Portfolio's
shareholders when the Portfolio achieves a higher rate of return on the
investment of the reverse repurchase agreement proceeds than it pays in
interest on the reverse repurchase transactions. However, there is the risk
that returns could be reduced if the rates of interest on the investment
proceeds do not exceed the interest paid by a Portfolio on the reverse
repurchase transactions. Borrowings through reverse repurchase agreements are
not subject to the requirement applicable to bank borrowings under
Section 18(f)(1) of the 1940 Act to maintain an asset coverage of at least 300%
but are subject to an equivalent requirement to maintain asset coverage by
segregating assets in a segregated account equal in value to proceeds received
in the reverse repurchase agreement.
Reverse repurchase agreements involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a Portfolio's use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Portfolio's obligation to repurchase the securities.
The Short Duration Portfolio and International Portfolios may invest in securities denominated in foreign currencies and a corresponding portion of the Portfolios' revenues will be received in such currencies. In addition, the Portfolios may conduct foreign currency transactions for hedging and, in the case of the International Portfolios, non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives transactions, such as forward currency exchange contracts, currency futures and options thereon, and options on currencies as described above. The U.S. Dollar equivalent of the Portfolios' 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 Portfolios' income. Each Portfolio will, however, have the ability to attempt to protect itself against adverse changes in the values of foreign currencies by engaging in certain of the investment practices listed above. While the Portfolios have this ability, there is no certainty as to whether and to what extent the Portfolios will engage in these practices.
Currency exchange rates may fluctuate significantly over short periods of time causing, along with other factors, a Portfolio's NAV to fluctuate. Currency exchange rates generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or anticipated changes in interest rates and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad. To the extent a Portfolio's total assets, adjusted to reflect a Portfolio's net position after giving effect to currency transactions, is denominated or quoted in the currencies of foreign countries, a Portfolio will be more susceptible to the risk of adverse economic and political developments within those countries.
The Portfolios will incur costs in connection with conversions between various currencies. A Portfolio may hold foreign currency received in connection with investments when, in the judgment of the Manager, it would be beneficial to convert such currency into U.S. Dollars at a later date, based on anticipated changes in the relevant exchange rate. If the value of the foreign currencies in which a Portfolio receives its income falls relative to the U.S. Dollar between receipt of the income and the making of Portfolio distributions, a Portfolio may be required to liquidate securities in order to make distributions if a Portfolio has insufficient cash in U.S. Dollars to meet the distribution requirements that the Portfolios must satisfy to qualify as a regulated investment company for federal income tax purposes. Similarly, if the value of a particular foreign currency declines between the time a Portfolio 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, the Portfolios may engage in certain currency hedging transactions, which themselves involve certain special risks.
At the maturity of a forward contract, a Portfolio may either sell the portfolio security and make delivery of the foreign currency, or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an offsetting contract obligating it to purchase, on the same maturity date, the same amount of the foreign currency. Alternatively, a Portfolio may enter into a forward contract which provides for settlement by one party making a single one-way payment to the other party in the amount of the difference between the contracted forward rate and the current spot reference rate. The currency used for settlement may be one of the transaction currencies or a base currency, such as U.S. Dollars.
It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the forward contract. Accordingly, it may be necessary for a Portfolio to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Portfolio is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Portfolio is obligated to deliver.
If a Portfolio retains the portfolio security and engages in an offsetting transaction, the Portfolio will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. If the Portfolio engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the Portfolio's entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign security, the Portfolio will realize a gain to the extent the price at which it has agreed to sell exceeds the price at which it has agreed to purchase. Should forward prices increase, the Portfolio will suffer a loss to the extent of the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell.
The Portfolios reserve the right to enter into forward foreign currency contracts for different purposes and under different circumstances than those described above. Of course, the Portfolios are not required to enter into forward contracts with regard to their foreign currency-denominated securities and will not do so unless deemed appropriate by the Manager. It also should be realized that this method of hedging against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange at a future date. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time, they tend to limit any potential gain which might result from an increase in the value of that currency.
The Portfolios do not intend to convert any holdings of foreign currencies into U.S. Dollars on a daily basis. A Portfolio may do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Portfolio at one rate, while offering a lesser rate of exchange should the Portfolio desire to resell that currency to the dealer.
There is no assurance that a forward contract counterparty will be able to meet its obligations under the forward contract or that, in the event of default by the counterparty a Portfolio will succeed in pursuing contractual remedies. The Portfolios assume the risk that they may be delayed in or prevented from obtaining payments owed to them pursuant to the contractual agreements entered into in connection with a forward contract.
The Fixed-Income Portfolios may enter into dollar rolls. Dollar rolls involve sales by a Portfolio of securities for delivery in the current month and the Portfolio's simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. The Portfolios may also enter into a type of dollar roll known as a "fee roll." In a fee roll, a Portfolio is compensated for entering into the fee roll by "fee income," which is received when the Portfolio enters into the commitment. Such fee income is recorded as deferred income and accrued by the Portfolio over the roll period. Dollar rolls may be considered to be borrowings by a Portfolio. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price.
Each Portfolio may purchase securities offered on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis. When such 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. During the period between a
commitment by a Portfolio and settlement, no payment is made for the securities purchased by the purchaser, and, thus, no interest accrues to the purchaser from the transaction. The use of when-issued transactions and forward commitments enables a Portfolio to hedge against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling bond prices, a Portfolio might sell securities which it owned on a forward commitment basis to limit its exposure to falling bond prices. In periods of falling interest rates and rising bond prices, a Portfolio might sell a security held by the 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 the Manager were to forecast incorrectly the direction of interest rate movements, the Portfolio might be required to complete such when-issued or forward transactions at prices less favorable than the current market value.
When-issued securities and forward commitments may be sold prior to the settlement date, but a Portfolio enters into when-issued and forward commitment transactions only with the intention of actually receiving or delivering the securities, as the case may be. At the time a Portfolio makes the commitment to purchase or sell a municipal security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased or, if a sale, the proceeds to be received, in determining its NAV. To facilitate these transactions, the Fund's custodian bank will maintain, in a separate account of the Fund, liquid assets having value equal to, or greater than, any commitments to purchase municipal securities on a when-issued or forward commitment basis and, with respect to forward commitments to sell portfolio securities of a Portfolio, the portfolio securities themselves. If a Portfolio, however, 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 can incur a gain or loss. When-issued municipal securities may include bonds purchased on a "when, as and if issued" basis under which the issuance of the securities depends upon the occurrence of a subsequent event, such as approval of a proposed financing by appropriate municipal authorities.
If a Portfolio is fully or almost fully invested with "when-issued" or "forward commitment" transactions, the transactions may result in a form of leveraging. Leveraging a Portfolio in this manner may increase the volatility of the Portfolio's NAV.
The ratings of fixed-income securities by nationally recognized statistical rating organizations including S&P, Moody's, Fitch, Dominion Bond Rating Service Ltd. and A.M. Best Company 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. See Appendix A for a description of S&P, Moody's and Fitch ratings.
Unless otherwise indicated, references to securities ratings by one rating agency in this SAI shall include the equivalent rating by another rating agency.
Securities rated Ba by Moody's or BB by S&P or Fitch are considered to have speculative characteristics. Sustained periods of deteriorating economic conditions or 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 below investment grade, i.e., Ba or BB and lower ("lower-rated securities"), are subject to greater risk of loss of principal and interest than higher-rated securities and are considered to be predominately speculative with respect to the issuer's capacity to pay interest and repay principal, which may in any case decline during sustained periods of deteriorating economic conditions or rising interest rates. They are also generally considered to be subject to greater market risk than higher-rated securities in times of deteriorating economic conditions. In addition, lower-rated securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities.
The market for lower-rated securities may be thinner and less active than that for higher-quality 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, the Portfolio may experience difficulty in valuing such securities and, in turn, the Portfolio's assets. In addition, adverse publicity and investor perceptions about lower-rated securities, whether or not based on fundamental analysis, may tend to decrease the market value and liquidity of such lower-rated securities.
The Manager will try to reduce the risk of investment in lower-rated securities through credit analysis, attention to current developments and trends in interest rates and economic conditions. However, there can be no assurance that losses will not occur. Since the risk of default is higher for lower-quality securities, the Manager's research and credit analysis are a correspondingly important aspect of its program for managing the Portfolio's securities. In considering investments for the Portfolios, the Manager will attempt to identify those high-risk, high-yield securities whose financial condition is adequate to meet future obligations, has improved or is expected to improve in the future. The Manager's analysis focuses on relative values based on such factors as interest coverage, financial prospects, and the strength of the issuer.
Non-rated fixed-income securities will also be considered for investment by a Portfolio when the Manager believes that the financial condition of the issuers of such obligations and the protection afforded by the terms of the obligations themselves limit the risk to the Portfolio to a degree comparable to that of rated securities which are consistent with the Portfolio's objective and policies.
In seeking to achieve a Portfolio's objective, there will be times, such as during periods of rising interest rates, when depreciation and realization of capital losses on securities in the 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 NAV of the Portfolio.
Each Portfolio may lend Portfolio securities. Each of the Fixed-Income Portfolios may lend up to 30% of its total assets (including collateral for any security loaned). Each of the International Portfolios may lend up to one-third of its total assets. Loans may be made to qualified broker-dealers, banks or other financial institutions, provided that cash, liquid high-grade debt securities or bank letters of credit equal to at least 100% of the market value of the securities loaned are deposited and maintained by the borrower with the Portfolio. A principal risk in lending Portfolio securities, as with other collateral extensions of credit, consists of possible loss of rights in the collateral should the borrower fail financially. In addition, the Portfolio will be exposed to the risk that the sale of any collateral realized upon a borrower's default will not yield proceeds sufficient to replace the loaned securities. In determining whether to lend securities to a particular borrower, AllianceBernstein will consider all relevant facts and circumstances, including the creditworthiness of the borrower. While securities are on loan, the borrower will pay the Portfolio any income earned from the securities. A Portfolio may invest any cash collateral directly or indirectly in short-term, high-quality debt instruments and earn additional income or receive an agreed-upon amount of income from a borrower who has delivered equivalent collateral. Any such investment of cash collateral will be subject to the Portfolio's investment risks. The Portfolio will have the right to regain record ownership of loaned securities to exercise beneficial rights such as voting rights, subscription rights and rights to dividends, interest or distributions. The Portfolio may pay reasonable finders', administrative, and custodial fees in connection with a loan.
DIRECTORS AND OFFICERS AND PRINCIPAL HOLDERS OF SECURITIES
The following table lists the directors and executive officers of the Fund, their business addresses and their principal occupations during the past five years.
NUMBER OF PORTFOLIOS OTHER IN THE FUND PUBLIC COMPANY PRINCIPAL OCCUPATION(S) COMPLEX DIRECTORSHIPS HELD NAME, ADDRESS,* AGE, (YEAR DURING THE PAST FIVE YEARS OR OVERSEEN BY BY THE DIRECTOR ELECTED**) LONGER THE DIRECTOR DURING THE PAST FIVE YEARS -------------------------- ----------------------------------------- ------------ ------------------------------- INTERESTED DIRECTOR*** Dianne F. Lob Senior Vice President of the Manager 18 None c/o AllianceBernstein L.P. with which she has been associated 1345 Avenue of the Americas since prior to 2008; Chairman of New York, NY 10105 Bernstein's Private Client Investment 58 Policy Group since 2004; She joined (2010) the firm in 1999 as a senior portfolio manager; Previously, a managing director and an investment banker at J.P. Morgan from 1977 to 1999. INDEPENDENT DIRECTORS Chairman of the Board President of Cedar Lawn Corporation 18 Cedar Lawn Corporation Thomas B. Stiles II #^+ (cemetery); Formerly, Managing 72 Director, Senior Portfolio Manager and (2003) Director of Investment Strategy of Smith Barney Asset Management from 1997 until his retirement in 1999; Prior thereto, Chairman and Chief Executive Officer of Greenwich Street Advisors from 1988 to 1997; Executive Vice President and Director of E.F. Hutton Group from 1982 to 1987. Bart Friedman #+ Senior Partner at Cahill Gordon & 18 The Brookings Institution; 68 Reindel LLP (law firm) since prior to Lincoln Center for the (2005) 2008. Performing Arts; and Allied World Assurance Holdings William Kristol #+ Editor, The Weekly Standard since 18 Manhattan Institute; John M. 60 prior to 2008. He is also a Fox News Ashbrook Center for Public (1994) Contributor. Affairs at Ashland University; The Salvatori Center at Claremont McKenna College; The Shalem Foundation; and The Institute for the Study of War |
NUMBER OF PORTFOLIOS OTHER IN THE FUND PUBLIC COMPANY NAME, ADDRESS,* AGE, PRINCIPAL OCCUPATION(S) COMPLEX DIRECTORSHIPS HELD (YEAR DURING THE PAST FIVE YEARS OR OVERSEEN BY BY THE DIRECTOR ELECTED**) LONGER THE DIRECTOR DURING THE PAST FIVE YEARS -------------------- ----------------------------------------- ------------ ---------------------------- Debra Perry #+ Formerly, Senior Managing Director of 18 Korn/Ferry International; 61 Global Ratings and Research, Moody's Bank of America Funds (2011) Investors Service, Inc. from 2001 to Series Trust; CNO Financial 2004; Chief Administrative Officer and Group Inc.; MBIA Inc. Chief Credit Officer, Moody's, from 1999 to 2001; Group Managing Director for the Finance, Securities and Insurance Ratings Groups, Moody's Corp., from 1996 to 1999; Earlier she held executive positions with First Boston Corporation and Chemical Bank. Donald K. Peterson #+ Formerly, Chairman and Chief 18 Worcester Polytechnic 63 Executive Officer, Avaya Inc. Institute; Overseers of the (2007) (communications) from 2002 to 2006; Amos Tuck School of President and Chief Executive Officer, Business Administration; Avaya Inc. from 2000 to 2001; TIAA-CREF; Committee for President, Enterprise Systems Group in Economic Development 2000; Chief Financial Officer, Lucent Technologies from 1996 to 2000; Chief Financial Officer, AT&T, Communications Services Group from 1995 to 1996; President, Nortel Communications Systems, Inc. from 1994 to 1995; Prior thereto he was at Nortel from 1976 to 1995. Rosalie J. Wolf #+ Managing Partner, Botanica Capital 18 TIAA-CREF; North 71 Partners LLC since prior to 2008; European Oil Royalty Trust (2000) Member of Brock Capital Group LLC since prior to 2008; Member of the Investment Committee of the Board at the David and Lucile Packard Foundation since prior to 2008; Formerly, she was a Managing Director at Offit Hall Capital Management LLC from 2001 to 2003; Treasurer and Chief Investment Officer of The Rockefeller Foundation from 1994 to 2000; Earlier she held financial executive positions with International Paper Company, Bankers Trust, and Mobil Oil Corporation. |
The management of the business affairs of the Fund are managed under the direction of the Board. Directors who are not "interested persons" of the Fund, as defined in the 1940 Act, are referred to as "Independent Directors," and Directors who are "interested persons" of the Fund are referred to as "Interested Directors." Certain information concerning the Fund's governance structure and each Director is set forth below.
The Board believes that, collectively, the Directors have balanced and diverse experience, qualifications, attributes, and skills, which allow the Board to operate effectively in governing the Fund and protecting the interests of stockholders. The Board has concluded that, based on each Director's experience, qualifications, attributes or skills on an individual basis and in combination with those of the other Directors, each Director is qualified to serve as such.
In determining that a particular Director was qualified to serve as a Director, the Board considered a variety of criteria, none of which, in isolation, was controlling. In addition, the Board has taken into account the actual service and commitment of each Director during his or her tenure (including the Director's commitment and participation in Board and committee meetings, as well as his or her current and prior leadership of standing and ad hoc committees) in concluding that each should serve as Director. Additional information about the specific experience, skills, attributes and qualifications of each Director, which in each case led to the Board's conclusion that each Director should serve as a Director of the Fund, is provided in the table above and in the next paragraph.
Among other attributes and qualifications common to all Directors are their ability to review critically, evaluate, question and discuss information provided to them (including information requested by the Directors), to interact effectively with the Manager, other service providers, counsel and the Fund's independent registered public accounting firm, and to exercise effective business judgment in the performance of their duties as Directors. While the Board does not have a formal, written diversity policy, the Board believes that an effective board consists of a diverse group of individuals who bring together a variety of complementary skills and perspectives. Ms. Lob has business, finance and investment management experience as chairman of the Manager's Private Client Investment Policy Group and experience as a portfolio manager for the Manager. Further, in addition to his or her service as a Director of the Fund: Mr. Friedman has a legal background and experience as a board member of various organizations; Mr. Kristol has a public and economic policy background and experience as a board member of various organizations; Ms. Perry has business and financial experience as a senior executive of various financial services firms focusing on fixed income research and capital markets and experience as a board member of various organizations; Mr. Peterson has business and finance experience as an executive officer of public companies and experience as a board member of various organizations; Mr. Stiles has investment management experience as a portfolio manager and executive officer and experience as a board member; and Ms. Wolf has business, finance and investment management experience as a senior financial officer of public companies and as chief investment officer of a major foundation as well as experience as a board member of various organizations. The disclosure herein of a Director's experience, qualifications, attributes and skills does not impose on such Director any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such Director as a member of the Board and any committee thereof in the absence of such experience, qualifications, attributes and skills.
An Independent Director serves as Chairman of the Board. The Chairman's duties include setting the agenda for each Board meeting in consultation with management, presiding at each Board meeting, meeting with management between Board meetings, and facilitating communication and coordination between the Independent Directors and management. The Directors have determined that the Board's leadership by an Independent Director and its committees composed exclusively of Independent Directors is appropriate because they believe it sets the proper tone to the relationships between the Fund, on the one hand, and the Manager and other service providers, on the other, and facilitates the exercise of the Board's independent judgment in evaluating and managing the relationships. In addition, the Fund is required to have an Independent Director as Chairman pursuant to certain 2003 regulatory settlements involving the Manager.
Risk oversight forms part of the Board's general oversight of each Portfolio's investment program and operations and is addressed as part of various regular Board and committee activities. Each Portfolio's investment management and business affairs are carried out by or through the Manager and other service providers. Each of these persons has an independent interest in risk management but the policies and the methods by which one or more risk management functions are carried out may differ from the Portfolios' and each other's in the setting of priorities, the resources available or the effectiveness of relevant controls. Oversight of risk management is provided by the Board and the Audit Committee. The Directors regularly receive reports from, among others, management (including the Global Heads of Investment Risk and Trading Risk of the Manager and representatives of various internal committees of the Manager), the Fund's Independent Compliance Officer, the Fund's independent registered public accounting firm, counsel, and internal auditors for the Manager, as appropriate, regarding risks faced by the Portfolios and the Manager's risk management programs.
Not all risks that may affect the Portfolios can be identified, nor can controls be developed to eliminate or mitigate their occurrence or effects. It may not be practical or cost-effective to eliminate or mitigate certain risks, the processes and controls employed to address certain risks may be limited in their effectiveness, and some risks are simply beyond the reasonable control of the Fund or the Manager, its affiliates or other service providers. Moreover, it is necessary to bear certain risks (such as investment-related risks) to achieve the Fund's goals. As a result of the foregoing and other factors the Portfolios' ability to manage risk is subject to substantial limitations.
The Board has four standing committees of the Board - an Audit Committee, a Nominating, Governance and Compensation Committee, a Fair Value Pricing Committee and an Independent Directors Committee. The members of the Audit Committee, the Nominating, Governance and Compensation Committee, the Fair Value Pricing Committee and the Independent Directors Committee are identified above.
The function of the Audit Committee is to assist the Board in its oversight of the Fund's financial reporting process. The Audit Committee met three times during the Fund's most recently completed fiscal year.
The functions of the Nominating, Governance and Compensation Committee are to nominate persons to fill any vacancies or newly created positions on the Board, to monitor and evaluate industry and legal developments with respect to governance matters and to review and make recommendations to the Board regarding the compensation of Directors and the Chief Compliance Officer. The Nominating, Governance and Compensation Committee met four times during the Fund's most recently completed fiscal year.
The Nominating, Governance and Compensation Committee has a charter and, pursuant to the charter, the Nominating, Governance and Compensation Committee will consider candidates for nomination as a director submitted by a shareholder or group of shareholders who have beneficially owned at least 5% of the Fund's common stock or shares of beneficial interest for at least two years prior to the time of submission and who timely provide specified information about the candidates and the nominating shareholder or group. To be timely for consideration by the Nominating, Governance and Compensation Committee, the submission, including all required information, must be submitted in writing to the attention of the Secretary at the principal executive offices of the Fund not less than 120 days before the date of the proxy statement for the previous year's annual meeting of shareholders. If the Fund did not hold any annual meeting of shareholders in the previous year, the Fund will make a public notice specifying the deadline for the submission. The Fund will make the public notice at least 30 days prior to the deadline for the submission, which is expected to be approximately 120 days prior to the anticipated date of the proxy statement for the annual meeting. The submission must be delivered or mailed and received within a reasonable amount of time before the Fund begins to print and mail its proxy materials. Public notice of such upcoming annual meeting of shareholders may be given in a shareholder report or other mailing to shareholders
or by other means deemed by the Nominating, Governance and Compensation Committee or the Board to be reasonably calculated to inform shareholders.
Shareholders submitting a candidate for consideration by the Nominating,
Governance and Compensation Committee must provide the following information to
the Nominating, Governance and Compensation Committee: (i) a statement in
writing setting forth (A) the name, date of birth, business address and
residence address of the candidate; (B) any position or business relationship
of the candidate, currently or within the preceding five years, with the
shareholder or an associated person of the shareholder as defined below;
(C) the class or series and number of all shares of the Fund owned of record or
beneficially by the candidate; (D) any other information regarding the
candidate that is required to be disclosed about a nominee in a proxy statement
or other filing required to be made in connection with the solicitation of
proxies for election of Directors pursuant to Section 20 of the 1940 Act and
the rules and regulations promulgated thereunder; (E) whether the shareholder
believes that the candidate is or will be an "interested person" of the Fund
(as defined in the 1940 Act) and, if believed not to be an "interested person,"
information regarding the candidate that will be sufficient for the Fund to
make such determination; and (F) information as to the candidate's knowledge of
the investment company industry, experience as a director or senior officer of
public companies, directorships on the boards of other registered investment
companies and educational background; (ii) the written and signed consent of
the candidate to be named as a nominee and to serve as a Director if elected;
(iii) the written and signed agreement of the candidate to complete a
directors' and officers' questionnaire if elected; (iv) the shareholder's
consent to be named as such by the Fund; (v) the class or series and number of
all shares of the Fund owned beneficially and of record by the shareholder and
any associated person of the shareholder and the dates on which such shares
were acquired, specifying the number of shares owned beneficially but not of
record by each, and stating the names of each as they appear on the Fund's
record books and the names of any nominee holders for each; and (vi) a
description of all arrangements or understandings between the shareholder, the
candidate and/or any other person or persons (including their names) pursuant
to which the recommendation is being made by the shareholder. "Associated
Person of the shareholder" means any person who is required to be identified
under clause (vi) of this paragraph and any other person controlling,
controlled by or under common control with, directly or indirectly, (a) the
shareholder or (b) the associated person of the shareholder.
The Nominating, Governance and Compensation Committee may require the shareholder to furnish such other information as it may reasonably require or deem necessary to verify any information furnished pursuant to the nominating procedures described above or to determine the qualifications and eligibility of the candidate proposed by the shareholder to serve on the Board. If the shareholder fails to provide such other information in writing within seven days of receipt of written request from the Nominating, Governance and Compensation Committee, the recommendation of such candidate as a nominee will be deemed not properly submitted for consideration, and will not be considered, by the Committee.
The Nominating, Governance and Compensation Committee will consider only one candidate submitted by such a shareholder or group for nomination for election at an annual meeting of shareholders. The Nominating, Governance and Compensation Committee will not consider self-nominated candidates. The Nominating, Governance and Compensation Committee will consider and evaluate candidates submitted by shareholders on the basis of the same criteria as those used to consider and evaluate candidates submitted from other sources. These criteria include the candidate's relevant knowledge, experience, and expertise, the candidate's ability to carry out his or her duties in the best interests of the Fund, the candidate's ability to qualify as an Independent Director. When assessing a candidate for nomination, the Committee considers whether the individual's background, skills, and experience will complement the background, skills, and experience of other nominees and will contribute to the diversity of the Board.
The function of the Fair Value Pricing Committee is to consider, in advance if possible, any fair valuation decision of the Fund's Valuation Committee relating to a security held by the Fund made under unique or highly unusual circumstances not previously addressed by the Valuation Committee that would result in a change in the Fund's NAV by more than $0.01 per share. The Fair Value Pricing Committee did not meet during the Fund's most recently completed fiscal year.
The function of the Independent Directors Committee is to consider and take action on matters that the Board or Committee believes should be addressed in executive session of the Independent Directors, such as review and approval of the Advisory and Distribution Services Agreements. The Independent Directors Committee met one time during the Fund's most recently completed fiscal year.
SHARE OWNERSHIP AND COMPENSATION
The following table sets forth the dollar range of equity securities in each Portfolio beneficially owned by a Director, and on an aggregate basis, in all registered investment companies to which the Manager provides investment management services (collectively, the "AllianceBernstein Fund Complex") owned by each Director, if any, as of January 23, 2013.
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED DOLLAR RANGE OF EQUITY SECURITIES IN THE INVESTMENT ----------------------------------------------------------------------------------- COMPANIES TAX OVERSEEN BY NEW YORK CALIFORNIA DIVERSIFIED SHORT MANAGED DIRECTOR IN THE MUNICIPAL MUNICIPAL MUNICIPAL DURATION INTERNATIONAL INTERNATIONAL ALLIANCEBERNSTEIN NAME PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND COMPLEX ---- ------------- ---------- ------------- --------- -------------------- ------------- ----------------- INTERESTED DIRECTOR: Dianne F. Lob....... Over $100,000 $0 $ 0 $0 Over $ 100,000 Over $100,000 Over $100,000 INDEPENDENT DIRECTORS: Bart Friedman.. $ 0 $0 $ 0 $0 Over $ 100,000 $ 0 Over $100,000 William Kristol... $ 0 $0 Over $100,000 $0 $ 0 $ 0 Over $100,000 Debra Perry. $ 0 $0 $ 0 $0 $50,001-100,000 $ 0 Over $100,000 Donald K. Peterson.. $ 0 $0 $ 0 $0 $ 0 Over $100,000 Over $100,000 Thomas B. Stiles II. $ 0 $0 $ 0 $0 $10,001-$50,000 $ 0 Over $100,000 Rosalie J. Wolf...... Over $100,000 $0 $ 0 $0 $50,001-100,000 $ 0 Over $100,000 |
As of January 23, 2013, no Independent Director, nor any of their immediate family members, owned beneficially or of record any class of securities in the Manager or the Fund's distributor or a person (other than a registered investment company) directly or indirectly "controlling," "controlled by," or "under common control with" (within the meaning of the 1940 Act) the Manager or the Fund's distributor.
As of January 23, 2013, the Directors and officers of the Fund, as a group, owned less than one percent of the outstanding shares of the Portfolios.
The Fund does not pay any fees to, or reimburse expenses of, its Directors who are considered "interested persons" of the Fund. The aggregate compensation paid to each of the Directors during the fiscal year ended September 30, 2012 by the Fund and by the AllianceBernstein Fund Complex and the total number of registered investment companies (and separate investment portfolios within those companies) in the AllianceBernstein Fund Complex with respect to which each of the Directors serves as a director or trustee, are set forth below. Neither the Fund nor any other fund in the AllianceBernstein 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 AllianceBernstein Fund Complex.
TOTAL TOTAL NUMBER OF NUMBER OF INVESTMENT INVESTMENT COMPANIES PORTFOLIOS IN THE WITHIN THE ALLIANCEBERNSTEIN ALLIANCEBERNSTEIN FUND FUND TOTAL COMPLEX, COMPLEX COMPENSATION INCLUDING INCLUDING FROM THE THE FUND, THE FUND, ALLIANCEBERNSTEIN AS TO WHICH AS TO AGGREGATE FUND THE WHICH THE COMPENSATION COMPLEX, DIRECTOR IS DIRECTOR IS NAME OF FROM THE INCLUDING THE A DIRECTOR A DIRECTOR DIRECTOR FUND FUND OR TRUSTEE OR TRUSTEE -------- ------------ ----------------- ----------------- ----------------- INTERESTED DIRECTOR: Dianne F. Lob....... $ 0 $ 0 1 18 INDEPENDENT DIRECTORS: Bart Friedman.. $180,000 $180,000 1 18 William Kristol... $165,000 $165,000 1 18 Debra Perry. $165,000 $165,000 1 18 Donald K. Peterson.. $180,000 $180,000 1 18 Thomas B. Stiles II. $210,000 $210,000 1 18 Rosalie J. Wolf...... $165,000 $165,000 1 18 |
Certain information concerning the Fund's officers is set forth below.
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND AGE WITH FUND DURING LAST FIVE YEARS OR LONGER -------------- -------------------------------------- ------------------------------------------ Dianne F. Lob, 58 President See biography above. Philip L. Kirstein, 67 Senior Vice President and Independent Senior Vice President and Independent Compliance Officer Compliance Officer of the AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP (law firm) from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to March 2003. Emilie D. Wrapp, 57 Secretary Senior Vice President, Assistant General Counsel and Assistant Secretary of AllianceBernstein Investments, Inc. ("ABI"),** with which she has been associated since prior to 2008. Joseph J. Mantineo, 53 Treasurer and Chief Financial Officer Senior Vice President of AllianceBernstein Investor Services, Inc. ("ABIS"),** with which he has been associated since prior to 2008. |
MANAGEMENT OF THE FUND
The Manager is a leading global investment management firm supervising client accounts with assets as of September 30, 2012, totaling approximately $419 billion. The Manager provides management services for many of the largest U.S. public and private employee benefit plans, endowments, foundations, public employee retirement funds, banks, insurance companies and high net worth individuals worldwide. The Manager is also one of the largest mutual fund sponsors, with a diverse family of globally distributed mutual fund portfolios. As one of the world's leading global investment management organizations, the Manager is able to compete for virtually any portfolio assignment in any developed capital market in the world.
As of September 30, 2012, the ownership structure of the Manager, expressed as a percentage of general and limited partnership interests, was as follows:
AXA and its subsidiaries....... 61.0% AllianceBernstein Holding L.P.. 37.5% Unaffiliated holders........... 1.5% ----- 100.0% ===== |
AXA is a societe anonyme organized under the laws of France and the holding company for an international group of insurance and related financial services companies, through certain of its subsidiaries ("AXA and its subsidiaries"). AllianceBernstein Holding L.P. ("Holding") is a Delaware limited partnership, the units of which, ("Holding Units") are traded publicly on the Exchange under the ticker symbol "AB". As of September 30, 2012, AXA owned approximately 1.4% of the issued and outstanding assignments of beneficial ownership of the Holding Units.
AllianceBernstein Corporation (an indirect wholly-owned subsidiary of AXA) is the general partner of both Holding and the Manager. AllianceBernstein Corporation owns 100,000 general partnership units in Holding and a 1% general partnership interest in the Manager. Including both the general partnership and limited partnership interests in Holding and the Manager, AXA and its subsidiaries had an approximate 64.2% economic interest in the Manager as of September 30, 2012.
AXA is a worldwide leader in financial protection and wealth management. AXA operates primarily in Western Europe, North America and the Asia/Pacific region and, to a lesser extent, in other regions including the Middle East, Africa and South America. AXA has five operating business segments: life and savings; property and casualty insurance; international insurance (including reinsurance); asset management and other financial services. AXA Financial, Inc. ("AXA Financial") is a wholly-owned subsidiary of AXA. AXA Equitable Life Insurance Company ("AXA Equitable") is an indirect wholly-owned subsidiary of AXA Financial.
Subject to the general oversight of the Board, and in conformity with the stated policies of each of the Portfolios, AllianceBernstein manages the investment of each Portfolio's assets. AllianceBernstein makes investment decisions for each Portfolio and places purchase and sale orders. The services of AllianceBernstein are not exclusive under the terms of the Fund's investment management agreement, with respect to each Portfolio ("Management Agreement"); AllianceBernstein is free to render similar services to others.
AllianceBernstein has authorized those of its directors, officers or employees who are elected as directors or officers of the Fund to serve in the capacities in which they are elected. All services furnished by the Manager under the Management Agreement may be furnished through the medium of any such directors, officers or employees of the Manager. In connection with the provision of its services under the Management Agreement, the Manager bears various expenses, including the salaries and expenses of all personnel, except the fees and expenses of directors not affiliated with the Manager.
Each Portfolio pays the Manager for the services performed on behalf of that Portfolio, as well as for the services performed on behalf of the Fund as a whole. The fee is computed daily and paid monthly at the rates set forth below:
PORTFOLIO ANNUAL PERCENTAGE OF AVERAGE DAILY NET ASSETS OF EACH PORTFOLIO --------- --------------------------------------------------------------- New York 0.50% of the first $1 billion; 0.45% in excess of $1 Municipal billion up to, but not exceeding $3 billion; 0.40% in Portfolio excess of $3 billion up to, but not exceeding $5 billion; 0.35% of assets in excess of $5 billion California 0.50% of the first $1 billion; 0.45% in excess of $1 Municipal billion up to, but not exceeding $3 billion; 0.40% in Portfolio excess of $3 billion up to, but not exceeding $5 billion; 0.35% of assets in excess of $5 billion Diversified 0.50% of the first $1 billion; 0.45% in excess of $1 Municipal billion up to, but not exceeding $3 billion; 0.40% in Portfolio excess of $3 billion up to, but not exceeding $5 billion; 0.35% of assets in excess of $5 billion, but not exceeding $7 billion; 0.30% of assets in excess of $ $7 billion Short 0.45% of the first $750 million, 0.40% of assets in Duration excess of $750 million Portfolio Tax-Managed 0.925% of the first $1 billion; 0.85% in excess of $1 International billion up to, but not exceeding $4 billion; 0.80% in Portfolio excess of $4 billion up to, but not exceeding $6 billion; 0.75% in excess of $6 billion up to, but not exceeding $8 billion; 0.65% in excess of $8 billion up to, but not exceeding $10 billion; 0.60% of assets in excess of $10 billion International 0.925% of the first $1 billion; 0.85% in excess of $1 Portfolio billion up to, but not exceeding $4 billion; 0.80% in excess of $4 billion up to, but not exceeding $6 billion; 0.75% in excess of $6 billion up to, but not exceeding $8 billion; 0.65% of assets in excess of $8 billion |
The table below indicates the investment management fees accrued or paid by the Portfolios to AllianceBernstein for the fiscal years ended September 30, 2010, September 30, 2011 and September 30, 2012:
MANAGEMENT FEE FOR THE FISCAL YEARS ENDED SEPTEMBER 30, ----------------------------------- PORTFOLIO 2010 2011 2012 --------- ----------- ----------- ----------- New York Municipal Portfolio.............. $ 9,099,731 $ 8,952,015 $ 8,731,782 California Municipal Portfolio............ $ 6,025,615 $ 5,584,430 $ 5,618,276 Diversified Municipal Portfolio........... $23,605,032 $23,667,497 $24,222,641 Short Duration Portfolio.................. $ 2,588,776 $ 3,238,322 $ 2,822,964 Tax-Managed International Portfolio....... $42,832,384 $40,498,930 $31,359,218 International Portfolio................... $19,671,435 $18,035,661 $13,985,420 |
The Management Agreement provides that the Manager shall not be liable to the Fund or the Portfolios for any error of judgment by the Manager or for any loss sustained by the Fund or the Portfolios except in the case of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations and duties under the Management Agreement.
Except as indicated above, each Portfolio is responsible for the payment of its expenses and an allocable share of the common expenses of the Fund, including: (i) the fees payable to AllianceBernstein under the Management Agreement; (ii) the fees and expenses of Directors who are not affiliated with AllianceBernstein; (iii) the fees and expenses of the Fund's custodian (the "Custodian"); (iv) the fees and expenses of calculating yield and/or performance pursuant to any independent servicing agreement; (v) the charges and expenses of legal counsel and independent auditors; (vi) all taxes and corporate fees payable to governmental agencies; (vii) the fees of any trade association of which the Fund is a member; (viii) reimbursement of each Portfolio's share of the organization expenses of the Fund; (ix) the fees and expenses involved in registering and maintaining registration of the Fund and the Portfolios' shares with the SEC, registering the Fund as a broker or dealer and qualifying the shares of the Portfolios under state securities laws, including the preparation and printing of the registration statements and prospectuses for such purposes, allocable communications expenses with respect to investor services, all expenses of shareholders' and Board meetings and preparing, printing and mailing proxies, prospectuses and reports to shareholders; (x) brokers' commissions, dealers' markups, and any issue or transfer taxes chargeable in connection with the Portfolios' securities transactions; (xi) the cost of stock certificates representing shares of the Portfolios; (xii) insurance expenses, including but not limited to, the cost of a fidelity bond, directors' and officers insurance, and errors and omissions insurance; and (xiii) litigation and indemnification expenses, expenses incurred in connection with mergers, and other extraordinary expenses not incurred in the ordinary course of the Portfolios' business.
The Management Agreement provides that if at any time the Manager shall cease to act as investment adviser to any Portfolio or to the Fund, the Fund shall take all steps necessary under corporate law to change its corporate name to delete the reference to Sanford C. Bernstein and shall thereafter refrain from using such name with reference to the Fund.
The Management Agreement provides that it will terminate automatically if assigned and that it may be terminated without penalty by any Portfolio (by vote of the directors or by a vote of a majority of the outstanding voting securities of the Portfolio voting separately from any other Portfolio of the Fund) on not less than 30 days' written notice. The Management Agreement also provides that it will continue for more than the first two years only if such continuance is annually approved in the manner required by the 1940 Act and the Manager shall not have notified the Fund that it does not desire such continuance. Most recently, continuance of the Management Agreement for an additional annual period was approved by a vote, cast in person, of the Board, including a majority of the Directors who are not parties to the Management Agreement or interested persons of any such party, at a meeting held on October 25, 2012.
Certain other clients of the Manager may have investment objectives and policies similar to that of the Portfolios. The Manager may, from time to time, make recommendations which result in the purchase or sale of the particular security by its other clients simultaneously with a purchase or sale thereof by the Portfolios. 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. It is the policy of the Manager to allocate advisory recommendations and the placing of orders in a manner that is deemed equitable by the Manager to the accounts involved, including the Portfolios. When two or more of the Manager's clients (including the Portfolios) are purchasing or selling the same security on a given day through the same broker or dealer, such transactions may be averaged as to price.
The Manager may act as an investment adviser to other persons, firms or corporations, including investment companies, and is the investment adviser to AllianceBernstein Blended Style Series, Inc., AllianceBernstein Bond Fund, Inc., AllianceBernstein Cap Fund, Inc., AllianceBernstein Core Opportunities Fund, AllianceBernstein Corporate Shares, Inc., AllianceBernstein Discovery Growth Fund, Inc., AllianceBernstein Equity Income Fund, Inc., AllianceBernstein Exchange Reserves, AllianceBernstein Fixed-Income Shares, Inc., AllianceBernstein Global Bond Fund, Inc., AllianceBernstein Global Real Estate Investment Fund, Inc., AllianceBernstein Global Risk Allocation Fund, Inc., AllianceBernstein Global Thematic Growth Fund, Inc., AllianceBernstein Growth and Income Fund, Inc., AllianceBernstein High Income Fund, Inc., AllianceBernstein Institutional Funds, Inc.,
AllianceBernstein International Growth Fund, Inc., AllianceBernstein Large Cap Growth Fund, Inc., AllianceBernstein Municipal Income Fund, Inc., AllianceBernstein Municipal Income Fund II, AllianceBernstein Trust, AllianceBernstein Unconstrained Bond Fund, Inc., AllianceBernstein Variable Products Series Fund, Inc., Sanford C. Bernstein Fund, Inc., Sanford C. Bernstein Fund II, Inc., The AllianceBernstein Pooling Portfolios and The AllianceBernstein Portfolios, all registered open-end investment companies; and to AllianceBernstein Global High Income Fund, Inc., AllianceBernstein Income Fund, Inc., AllianceBernstein National Municipal Income Fund, Inc., Alliance California Municipal Income Fund, Inc., and Alliance New York Municipal Income Fund, Inc., all registered closed-end investment companies.
As of September 30, 2012, AllianceBernstein employees had approximately $4,232,538.54 invested in shares of the Fund and $122,113,845.54 invested in shares of all AllianceBernstein Mutual Funds (excluding AllianceBernstein money market funds) through their interests in certain deferred compensation plans, including the Partners Compensation Plan, including both vested and unvested amounts.
INTERNATIONAL PORTFOLIO
TAX-MANAGED INTERNATIONAL PORTFOLIO
The management of and investment decisions for the International Portfolios' portfolios are made by the International Team. The four investment professionals/1/ with the most significant responsibility for the day-to-day management of the Portfolios' portfolios are: Kent W. Hargis, Patrick J. Rudden, Laurent Saltiel, Karen Sesin and Kevin F. Simms. For additional information about the portfolio management of the Portfolios, see "Management of the Portfolios" in the Prospectus.
EXCEPT AS SET FORTH BELOW, THE AFOREMENTIONED INDIVIDUALS DID NOT OWN SHARES
IN THE PORTFOLIOS' SECURITIES AS OF SEPTEMBER 30, 2012.
INTERNATIONAL PORTFOLIO DOLLAR RANGE OF EQUITY SECURITIES IN THE PORTFOLIO ------------- -------------------------------------------------- Kent W. Hargis $50,001 - $100,000 |
The following tables provide information regarding other registered investment companies, other pooled investment vehicles and other accounts over which the Portfolios' portfolio managers also have day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of September 30, 2012.
INTERNATIONAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
NUMBER OF TOTAL ASSETS OF REGISTERED REGISTERED TOTAL ASSETS OF INVESTMENT INVESTMENT TOTAL NUMBER REGISTERED COMPANIES COMPANIES OF REGISTERED INVESTMENT MANAGED WITH MANAGED WITH INVESTMENT COMPANIES PERFORMANCE- PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Kent W. Hargis*... 72 $13,133 None None Patrick J. Rudden. 54 $20,206 None None Laurent Saltiel... 26 $ 3,363 None None Karen Sesin....... 2 $ 4,695 None None Kevin F. Simms.... 103 $16,108 None None |
TAX-MANAGED INTERNATIONAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
NUMBER OF TOTAL ASSETS OF REGISTERED REGISTERED TOTAL ASSETS OF INVESTMENT INVESTMENT TOTAL NUMBER REGISTERED COMPANIES COMPANIES OF REGISTERED INVESTMENT MANAGED WITH MANAGED WITH INVESTMENT COMPANIES PERFORMANCE- PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Kent W. Hargis*... 72 $12,149 None None Patrick J. Rudden. 54 $18,240 None None Laurent Saltiel... 26 $ 2,380 None None Karen Sesin....... 2 $ 2,728 None None Kevin F. Simms.... 103 $15,124 None None |
INTERNATIONAL PORTFOLIO
TAX-MANAGED INTERNATIONAL PORTFOLIO
OTHER POOLED INVESTMENT VEHICLES
TOTAL ASSETS OF POOLED TOTAL TOTAL ASSETS OF INVESTMENT NUMBER OF POOLED NUMBER OF POOLED VEHICLES POOLED INVESTMENT INVESTMENT MANAGED WITH INVESTMENT VEHICLES VEHICLES MANAGED PERFORMANCE- PORTFOLIO VEHICLES MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ---------- --------------- ----------------- --------------- Kent W. Hargis*... 167 $ 3,377 2 $ 149 Patrick J. Rudden. 213 $23,141 2 $ 161 Laurent Saltiel... 62 $ 1,964 1 $ 17 Karen Sesin....... None $ None None None Kevin F. Simms.... 260 $ 8,314 5 $ 650 |
INTERNATIONAL PORTFOLIO
TAX-MANAGED INTERNATIONAL PORTFOLIO
OTHER ACCOUNTS
TOTAL ASSETS OF TOTAL OTHER ACCOUNTS NUMBER OF TOTAL ASSETS OF NUMBER OF OTHER WITH OTHER OTHER ACCOUNTS ACCOUNTS MANAGED PERFORMANCE- PORTFOLIO ACCOUNTS MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- --------- --------------- ----------------- --------------- Kent W. Hargis*... 52,075 $22,566 7 $1,228 Patrick J. Rudden. 48 $14,307 1 $ 35 Laurent Saltiel... 6 $ 625 1 $ 37 Karen Sesin....... None None None None Kevin F. Simms.... 28,806 $28,561 14 $3,108 |
* Kent W. Hargis joined the Manager's International Team after the end of the Portfolio's fiscal year and, therefore, this information does not reflect assets of the International Team accounts he currently manages.
NEW YORK MUNICIPAL PORTFOLIO
CALIFORNIA MUNICIPAL PORTFOLIO
DIVERSIFIED MUNICIPAL PORTFOLIO
The management of and investment decisions for the Portfolios' portfolios are made by the Municipal Bond Investment Team. The five investment professionals with the most significant responsibility for the day-to-day management of the Portfolios' portfolios are: Michael Brooks, Fred S. Cohen, R. B. Davidson III, Wayne Godlin and Terrance T. Hults. For additional information about the portfolio management of each Portfolio, see "Management of the Portfolios" in the Prospectus.
EXCEPT AS SET FORTH BELOW, THE AFOREMENTIONED INDIVIDUALS DID NOT OWN SHARES
IN THE PORTFOLIOS' SECURITIES AS OF SEPTEMBER 30, 2012.
NEW YORK MUNICIPAL DOLLAR RANGE OF PORTFOLIO EQUITY SECURITIES IN THE PORTFOLIO ------------------ ---------------------------------- Michael Brooks..... Over $1,000,000 R. B. Davidson III. Over $1,000,000 Terrance T. Hults.. $10,001-$50,000 |
The following tables provide information regarding other registered investment companies, other pooled investment vehicles and other accounts over which the Portfolios' portfolio managers also have day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of September 30, 2012.
NEW YORK MUNICIPAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL TOTAL ASSETS OF REGISTERED INVESTMENT NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE-BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ----------------- --------------- Michael Brooks..... 29 $ 17,026 None None Fred S. Cohen...... 29 $ 17,026 None None R. B. Davidson III. 29 $ 17,026 None None Wayne Godlin....... 29 $ 17,026 None None Terrance T. Hults.. 29 $ 17,026 None None |
CALIFORNIA MUNICIPAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
TOTAL ASSETS OF NUMBER OF REGISTERED TOTAL TOTAL ASSETS OF REGISTERED INVESTMENT NUMBER REGISTERED INVESTMENT COMPANIES OF REGISTERED INVESTMENT COMPANIES MANAGED WITH INVESTMENT COMPANIES MANAGED WITH PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN PERFORMANCE- BASED FEES(IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Michael Brooks..... 29 $ 17,532 None None Fred S. Cohen...... 29 $ 17,532 None None R. B. Davidson III. 29 $ 17,532 None None Wayne Godlin....... 29 $ 17,532 None None Terrance T. Hults.. 29 $ 17,532 None None |
DIVERSIFIED MUNICIPAL PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
NUMBER OF TOTAL ASSETS OF REGISTERED REGISTERED TOTAL ASSETS OF INVESTMENT INVESTMENT TOTAL NUMBER REGISTERED COMPANIES COMPANIES OF REGISTERED INVESTMENT MANAGED WITH MANAGED WITH INVESTMENT COMPANIES PERFORMANCE- PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Michael Brooks..... 29 $13,836 None None Fred S. Cohen...... 29 $13,836 None None R. B. Davidson III. 29 $13,836 None None Wayne Godlin....... 29 $13,836 None None Terrance T. Hults.. 29 $13,836 None None |
NEW YORK MUNICIPAL PORTFOLIO
CALIFORNIA MUNICIPAL PORTFOLIO
DIVERSIFIED MUNICIPAL PORTFOLIO
OTHER POOLED INVESTMENT VEHICLES
TOTAL ASSETS OF POOLED TOTAL TOTAL ASSETS OF INVESTMENT NUMBER OF POOLED NUMBER OF POOLED VEHICLES POOLED INVESTMENT INVESTMENT MANAGED WITH INVESTMENT VEHICLES VEHICLES MANAGED PERFORMANCE- PORTFOLIO VEHICLES MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ---------- --------------- ----------------- --------------- Michael Brooks..... 2 $92 None None Fred S. Cohen...... 2 $92 None None R. B. Davidson III. 2 $92 None None Wayne Godlin....... 2 $92 None None Terrance T. Hults.. 2 $92 None None |
NEW YORK MUNICIPAL PORTFOLIO
CALIFORNIA MUNICIPAL PORTFOLIO
DIVERSIFIED MUNICIPAL PORTFOLIO
OTHER ACCOUNTS TOTAL ASSETS OF TOTAL OTHER ACCOUNTS NUMBER OF TOTAL ASSETS OF NUMBER OF OTHER WITH OTHER OTHER ACCOUNTS ACCOUNTS MANAGED PERFORMANCE- PORTFOLIO ACCOUNTS MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- --------- --------------- ----------------- --------------- Michael Brooks..... 1,685 $12,959 3 $408 Fred S. Cohen...... 1,685 $12,959 3 $408 R. B. Davidson III. 1,685 $12,959 3 $408 Wayne Godlin....... 1,685 $12,959 3 $408 Terrance T. Hults.. 1,685 $12,959 3 $408 |
SHORT DURATION PORTFOLIO
The management of and investment decisions for the Portfolio's portfolios
are made by the U.S. Investment Grade: Liquid Markets Structured Products
Investment Team. The five investment professionals with the most significant
responsibility for the day-to-day management of the Portfolio's portfolios are:
Jon P. Denfeld, Shawn E. Keegan, Alison M. Martier, Douglas J. Peebles and Greg
J. Wilensky. For additional information about the portfolio management of the
Portfolios, see "Management of the Portfolios" in the Prospectus.
THE AFOREMENTIONED INDIVIDUALS DID NOT OWN SHARES IN THE PORTFOLIO'S
SECURITIES AS OF SEPTEMBER 30, 2012.
The following tables provide information regarding other registered investment companies, other pooled investment vehicles and other accounts over which the Portfolios' portfolio managers also have day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of September 30, 2012.
SHORT DURATION PORTFOLIO
REGISTERED INVESTMENT COMPANIES (excluding the Portfolio)
NUMBER OF TOTAL ASSETS OF REGISTERED REGISTERED INVESTMENT INVESTMENT TOTAL ASSETS OF COMPANIES COMPANIES TOTAL NUMBER REGISTERED MANAGED MANAGED OF REGISTERED INVESTMENT WITH WITH INVESTMENT COMPANIES PERFORMANCE- PERFORMANCE- PORTFOLIO COMPANIES MANAGED (IN BASED BASED FEES (IN MANAGER MANAGED MILLIONS) FEES MILLIONS) --------- ------------- --------------- ------------ --------------- Jon P. Denfeld..... 15 $ 8,313 None None Shawn E. Keegan.... 16 $ 8,711 None None Alison M. Martier.. 15 $ 8,313 None None Douglas J. Peebles. 57 $26,691 None None Greg J. Wilensky... 39 $ 9,644 None None |
SHORT DURATION PORTFOLIO
OTHER POOLED INVESTMENT VEHICLES
TOTAL ASSETS OF POOLED INVESTMENT TOTAL TOTAL ASSETS OF VEHICLES NUMBER OF POOLED NUMBER OF POOLED MANAGED POOLED INVESTMENT INVESTMENT WITH INVESTMENT VEHICLES VEHICLES MANAGED PERFORMANCE- PORTFOLIO VEHICLES MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- ---------- --------------- ----------------- --------------- Jon P. Denfeld..... 58 $ 822 1 $ 83 Shawn E. Keegan.... 68 $11,536 1 $ 83 Alison M. Martier.. 58 $ 822 1 $305 Douglas J. Peebles. 124 $58,438 1 $ 83 Greg J. Wilensky... 84 $ 1,007 1 $ 83 |
SHORT DURATION PORTFOLIO
OTHER ACCOUNTS TOTAL ASSETS OF TOTAL OTHER ACCOUNTS NUMBER OF TOTAL ASSETS OF NUMBER OF OTHER WITH OTHER OTHER ACCOUNTS ACCOUNTS MANAGED PERFORMANCE- PORTFOLIO ACCOUNTS MANAGED (IN WITH PERFORMANCE- BASED FEES (IN MANAGER MANAGED MILLIONS) BASED FEES MILLIONS) --------- --------- --------------- ----------------- --------------- Jon P. Denfeld..... 144 $ 12,553 1 $ 391 Shawn E. Keegan.... 270 $ 68,464 3 $3,218 Alison M. Martier.. 144 $ 12,553 1 $ 391 Douglas J. Peebles. 384 $105,913 8 $5,516 Greg J. Wilensky... 149 $ 12,702 1 $ 391 |
As an investment adviser and fiduciary, the Manager owes its clients and shareholders an undivided duty of loyalty. We recognize that conflicts of interest are inherent in our business and accordingly have developed policies and procedures (including oversight monitoring) reasonably designed to detect, manage and mitigate the effects of actual or potential conflicts of interest in the area of employee personal trading, managing multiple accounts for multiple clients, including AllianceBernstein Mutual Funds, and allocating investment opportunities. Investment professionals, including portfolio managers and research analysts, are subject to the above-mentioned policies and oversight monitoring to ensure that all clients are treated equitably. We place the interests of our clients first and expect all of our employees to meet their fiduciary duties.
industry and sector exposures tend to be similar across similar accounts, which minimizes the potential for conflicts of interest relating to the allocation of investment opportunities. Nevertheless, access to portfolio funds or other investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons.
The Manager's procedures are also designed to address potential conflicts of interest that may arise when the Manager has a particular financial incentive, such as a performance-based management fee, relating to an account. An investment professional may perceive that he or she has an incentive to devote more time to developing and analyzing investment strategies and opportunities or allocating securities preferentially to accounts for which the Manager could share in investment gains.
The Manager's compensation program for portfolio managers is designed to align with clients' interests, emphasizing each portfolio manager's ability to generate long-term investment success for the Manager's clients, including the Portfolios. The Manager also strives to ensure that compensation is competitive and effective in attracting and retaining the highest caliber employees.
Portfolio managers receive a base salary, incentive compensation and contributions to AllianceBernstein's 401(k) plan. Part of the annual incentive compensation is generally paid in the form of a cash bonus, and part through an award under the firm's Incentive Compensation Award Plan (ICAP). The ICAP awards vest over a four-year period. Deferred awards are paid in the form of restricted grants of the firm's Master Limited Partnership Units, and award recipients have the ability to receive a portion of their awards in deferred cash. The amount of contributions to the 401(k) plan is determined at the sole discretion of the Manager. On an annual basis, the Manager endeavors to combine all of the foregoing elements into a total compensation package that considers industry compensation trends and is designed to retain its best talent.
The incentive portion of total compensation is determined by quantitative and qualitative factors. Quantitative factors, which are weighted more heavily, are driven by investment performance. Qualitative factors are driven by contributions to the investment process and client success.
The quantitative component includes measures of absolute, relative and risk-adjusted investment performance. Relative and risk-adjusted returns are determined based on the benchmark in the Fund's prospectus and versus peers over one-, three--and five-year calendar periods, with more weight given to longer-time periods. Peer groups are chosen by Chief Investment Officers, who consult with the product management team to identify products most similar to our investment style and most relevant within the asset class. Portfolio managers of the Portfolios do not receive any direct compensation based upon the investment returns of any individual client account, and compensation is not tied directly to the level or change in level of assets under management.
Among the qualitative components considered, the most important include thought leadership, collaboration with other investment colleagues, contributions to risk-adjusted returns of other portfolios in the firm, efforts in mentoring and building a strong talent pool and being a good corporate citizen. Other factors can play a role in determining portfolio managers' compensation, such as the complexity of investment strategies managed, volume of assets managed and experience.
The Manager emphasizes four behavioral competencies--relentlessness, ingenuity, team orientation and accountability--that support its mission to be the most trusted advisor to its clients. Assessments of investment professionals are formalized in a year-end review process that includes 360-degree feedback from other professionals from across the investment teams and the Manager.
EXPENSES OF THE FUND
The Fund has entered into a Distribution Services Agreement (the "Agreement") with ABI, the Fund's principal underwriter (the "Principal Underwriter"), to permit the Principal Underwriter to distribute the Portfolios' Class A, Class B and Class C shares and to permit the Fund to pay distribution services fees to defray expenses associated with the distribution of the Portfolios' Class A, Class B and Class C shares in accordance with a plan of distribution which is included in the Agreement and which has been duly adopted and approved in accordance with Rule 12b-1 under the 1940 Act (the "Rule 12b-1 Plan").
During the fiscal year ended September 30, 2012, the New York Municipal Portfolio, California Municipal Portfolio and Diversified Municipal Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class A shares, in amounts aggregating $631,071, $264,099 and $1,965,548, respectively, which constituted approximately 0.30%, 0.30% and 0.30% of each Portfolio's aggregate average daily net assets attributable to Class A shares during the period. The Manager made payments from its own resources aggregating $818,825, $728,928 and $2,342,489, respectively.
For the fiscal year ended September 30, 2012, the Short Duration Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class A shares, in amounts aggregating $170,683, which constituted approximately 0.30% of the Portfolio's aggregate average daily net assets attributable to Class A shares during the period. The Manager made payments from its own resources as described above aggregating $329,875.
During the fiscal year ended September 30, 2012, the Tax-Managed International Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class A shares, in amounts aggregating $5,223, which constituted approximately 0.30% of the Portfolio's aggregate average daily net assets attributable to Class A shares during the period, and the Manager made payments from its own resources as described above aggregating $284,629.
During the fiscal year ended September 30, 2012, the International Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class A shares, in amounts aggregating $20,153, which constituted approximately 0.30% of the Portfolio's aggregate average daily net assets attributable to Class A shares during the period, and the Manager made payments from its own resources as described above aggregating $208,933.
For the fiscal year ended September 30, 2012, expenses incurred by each Portfolio and costs allocated to each Portfolio in connection with activities primarily intended to result in the sale of Class A shares were as follows:
Tax- New York California Diversified Short Managed Municipal Municipal Municipal Duration International International Category of Expense Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------------- ---------- ---------- ----------- --------- ------------- ------------- Advertising........................................... $ 4,279 $ 4,136 $ 8,292 $ 3,457 $ 3,603 $ 2,323 Printing and Mailing of Prospectuses to Persons Other than Current Shareholders........................... $ 1,090 $ 924 $ 2,023 $ 1,361 $ 910 $ 665 Compensation to Broker-Dealers and Other Financial Intermediaries (excluding ABI)...................... $1,005,997 $618,663 $3,240,075 $181,952 $ 4,568 $ 20,670 Compensation to ABI................................... $ 178,568 $161,368 $ 340,657 $162,984 $150,691 $110,236 Compensation to Sales Personnel....................... $ 107,625 $ 66,827 $ 425,496 $ 14,803 $ 106 $ 743 Interest, Carrying or Other Financing Charges......... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other (includes printing of sales literature, travel, entertainment, due diligence and other promotional expenses)........................................... $ 152,338 $141,108 $ 291,494 $136,001 $129,974 $ 94,449 Totals................................................ $1,449,897 $993,026 $4,308,037 $500,558 $289,852 $229,086 |
During the fiscal year ended September 30, 2012, the New York Municipal Portfolio, California Municipal Portfolio and Diversified Municipal Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class B shares, in amounts aggregating $6,920, $1,122 and $7,241, respectively, which constituted approximately 1.00%, 1.00% and 1.00% of each Municipal Portfolio's aggregate average daily net assets attributable to Class B shares during the period. For the New York Municipal Portfolio, California Municipal Portfolio and Diversified Municipal Portfolio, $4,582, $865 and $5,174, respectively, were used to offset the distribution services fees paid in prior years.
For the fiscal year ended September 30, 2012, the Short Duration Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class B shares, in amounts aggregating $25,585 (net of $11,818, which was waived by the distributor), which constituted approximately 1.00% of the Portfolio's aggregate average daily net assets attributable to Class B shares during the period, and $13,819 was used to offset the distribution service fees paid in prior years.
During the fiscal year ended September 30, 2012, the Tax-Managed International Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class B shares, in amounts aggregating $1,435, which constituted approximately 1.00% of the Portfolio's aggregate average daily net assets attributable to Class B shares during the period, and the Manager made payments from its own resources as described above aggregating $0. $1,000 was used to offset the distribution services fees paid in prior years.
During the fiscal year ended September 30, 2012, the International Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class B shares, in amounts aggregating $6,797, which constituted approximately 1.00% of the Portfolio's aggregate average daily net assets attributable to Class B shares during the period, and the Manager made payments from its own resources as described above aggregating $2,879.
For the fiscal year ended September 30, 2012, expenses incurred by each Portfolio and costs allocated to each Portfolio in connection with activities primarily intended to result in the sale of Class B shares were as follows:
New York California Diversified Short Tax-Managed Municipal Municipal Municipal Duration International International Category of Expense Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------------- --------- ---------- ----------- --------- ------------- ------------- Advertising................................... $ 0 $ 0 $ 0 $ 9 $ 0 $ 96 Printing and Mailing of Prospectuses to Persons Other than Current Shareholders..... $ 0 $ 0 $ 0 $ 1 $ 0 $ 17 Compensation to Broker-Dealers and Other Financial Intermediaries (excluding ABI).... $2,316 $257 $ 0 $11,199 $435 $1,610 Compensation to ABI........................... $ 11 $ 0 $2,065 $ 271 $ 0 $4,219 Compensation to Sales Personnel............... $ 5 $ 0 $ 2 $ 24 $ 0 $ 33 Interest, Carrying or Other Financing Charges..................................... $ 0 $ 0 $ 2 $ 0 $ 0 $ 0 Other (includes printing of sales literature, travel, entertainment, due diligence and other promotional expenses)................. $ 5 $ 0 $ 0 $ 262 $ 0 $3,701 Totals........................................ $2,337 $257 $2,069 $11,766 $435 $9,676 |
During the fiscal year ended September 30, 2012, the New York Municipal Portfolio, California Municipal Portfolio and Diversified Municipal Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class C shares, in amounts aggregating $764,245, $225,723 and $1,393,296, respectively, which constituted approximately 1.00%, 1.00% and 1.00% of each Portfolio's aggregate average daily net assets attributable to Class C shares during the period. The Manager made payments from its own resources aggregating $271,856, $81,937 and $455,334 for the New York Municipal Portfolio, California Municipal Portfolio and Diversified Municipal Portfolio, respectively.
For the fiscal year ended September 30, 2012, the Short Duration Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class C shares, in amounts aggregating $157,883 (net of $78,487, which was waived by the
distributor), which constituted approximately 1.00% of the Portfolio's aggregate average daily net assets attributable to Class C shares during the period, and the Manager made payments from its own resources as described above aggregating $67,438.
During the fiscal year ended September 30, 2012, the Tax-Managed International Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class C shares, in amounts aggregating $7,652, which constituted approximately 1.00% of the Portfolio's aggregate average daily net assets attributable to Class C shares during the period, and the Manager made payments from its own resources as described above aggregating $827.
During the fiscal year ended September 30, 2012, the International Portfolio paid distribution services fees for expenditures under the Agreement, with respect to Class C shares, in amounts aggregating $34,599, which constituted approximately 1.00% of the Portfolio's aggregate average daily net assets attributable to Class C shares during the period, and the Manager made payments from its own resources as described above aggregating $76,962.
For the fiscal year ended September 30, 2012, expenses incurred by each Portfolio and costs allocated to each Portfolio in connection with activities primarily intended to result in the sale of Class C shares were as follows:
New York California Diversified Short Tax-Managed Municipal Municipal Municipal Duration International International Category of Expense Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------------- ---------- ---------- ----------- --------- ------------- ------------- Advertising........................................... $ 1,571 $ 368 $ 1,606 $ 694 $ 0 $ 1,235 Printing and Mailing of Prospectuses to Persons Other than Current Shareholders........................... $ 305 $ 146 $ 159 $ 41 $ 0 $ 242 Compensation to Broker-Dealers and Other Financial Intermediaries (excluding ABI)...................... $ 884,091 $262,205 $1,690,360 $193,763 $7,918 $ 36,495 Compensation to ABI................................... $ 57,459 $ 20,660 $ 43,417 $ 13,753 $ 241 $ 39,087 Compensation to Sales Personnel....................... $ 40,964 $ 7,411 $ 70,117 $ 1,599 $ 1 $ 207 Interest, Carrying or Other Financing Charges......... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other (includes printing of sales literature, travel, entertainment, due diligence and other promotional expenses)........................................... $ 51,711 $ 16,870 $ 42,970 $ 15,471 $ 319 $ 34,295 Totals................................................ $1,036,101 $307,660 $1,848,629 $225,321 $8,479 $111,561 |
Distribution services fees are accrued daily and paid monthly and are charged as expenses of the Portfolios 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 or other financial intermediaries 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 ("CDSC") and distribution services fee on the Class B 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 distribution services fee provide for the financing of the distribution of the relevant class of the Portfolios' shares.
With respect to Class A shares of the Portfolios, distribution expenses accrued by ABI in one fiscal year may not be paid from distribution services fees received from the Portfolios in subsequent fiscal years. ABI's compensation with respect to Class B and Class C shares under the Rule 12b-1 Plan is directly tied to the expenses incurred by ABI. Actual distribution expenses for Class B and Class C shares for any given year, however, will probably exceed the distribution services fee payable under the Rule 12b-1 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 ABI and reimbursed from distribution services fees payable under the Rule 12b-1 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 Rule 12b-1 Plan is in effect.
Unreimbursed distribution expenses incurred as of September 30, 2012, and carried over for reimbursement in future years in respect of the Class B and Class C shares for the Portfolios were, as of that time, as follows:
Amount of Unreimbursed Distribution Expenses Carried Over (as a percentage of the Class's net assets)
CLASS B CLASS C ------------------ -------------------- New York Municipal Portfolio........ $749,079 (125.96%) $ 2,096,245 (2.30%) California Municipal Portfolio...... $507,426 (777.08%) $ 1,201,943 (4.69%) Diversified Municipal Portfolio..... $ 461,374 (86.03%) $ 2,724,658 (1.58%) Short Duration Portfolio............ $ 24,802 (0.96%) $ 919,334 (4.46%) |
Tax-Managed International Portfolio. $226,388 (172.67%) $1,234,000 (221.03%) International Portfolio............. $ 200,556 (37.13%) $ 1,440,599 (49.75%)
The Rule 12b-1 Plan is in compliance with rules of the Financial Industry Regulatory Authority ("FINRA"), 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.
In approving the Rule 12b-1 Plan, the Directors of the Fund determined that there was a reasonable likelihood that the Rule 12b-1 Plan would benefit the Portfolios and their shareholders. The distribution services fee of a particular class will not be used to subsidize the provision of distribution services with respect to any other class.
The Manager may from time to time and from its own funds or such other resources as may be permitted by rules of the SEC 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.
The Rule 12b-1 Plan continues in effect from year to year with respect to each class of shares of a Portfolio provided 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 Rule 12b-1 Plan 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 Directors approved the continuance of the Rule 12b-1 Plan for another annual term at a meeting held on October 25, 2012.
In the event that the Rule 12b-1 Plan is terminated by either party 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 any of the Portfolios to the Principal Underwriter
with respect to that class and (ii) the Portfolios would not be obligated to
pay the Principal Underwriter for any amounts expended under the Rule 12b-1
Plan not previously recovered by the Principal Underwriter from distribution
services fees in respect of shares of such class or through deferred sales
charges.
ABIS, an indirect wholly-owned subsidiary of the Manager located at 8000 IH 10 W, 4th Floor, San Antonio, Texas 78230, receives a transfer agency fee per account holder of each of the Class A shares, Class B shares and Class C shares of each of the Portfolios, plus reimbursement for out-of-pocket expenses. The transfer agency fee with respect to the Class B and Class C shares is higher than the transfer agency fee with respect to the Class A shares, reflecting the additional costs associated with the Class B and Class C CDSCs. For the fiscal year ended September 30, 2012, the New York Municipal Portfolio, the California Municipal Portfolio and the Diversified Municipal Portfolio paid ABIS $92,533, $35,667 and $180,501, respectively, pursuant to the Transfer Agency Agreement. The Short Duration Portfolio paid ABIS $33,848 pursuant to the Transfer Agency Agreement. The Tax-Managed International Portfolio and the International Portfolio paid ABIS $17,981 and $17,707, respectively, pursuant to the Transfer Agency Agreement.
ABIS acts as the transfer agent for the Fund. ABIS registers the transfer, issuance and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders.
Many Portfolio shares are owned by selected broker-dealers, agents, financial intermediaries or other financial representatives ("financial intermediaries") for the benefit of their customers. In those cases, the Fund often does not maintain an account for you. Thus, some or all of the transfer agency functions for these accounts are performed by the financial intermediaries. The Fund, ABI and/or AllianceBernstein pay to these financial intermediaries, including those that sell shares of the AllianceBernstein Mutual Funds, fees for sub-accounting or shareholder servicing in amounts ranging up to $19 per customer fund account per annum. Retirement plans may also hold Portfolio shares in the name of the plan, rather than the participant. Plan recordkeepers, who may have affiliated financial intermediaries who sell shares of the Portfolios, may be paid for each plan participant fund account in amounts up to $19 per account per annum and/or up to 0.25% per annum of the average daily assets held in the plan. To the extent any of these payments for recordkeeping services, transfer agency services or retirement plan accounts are made by the Fund, they are included in the Prospectus in the Portfolio expense tables under "Fees and Expenses of the Portfolio." In addition, financial intermediaries may be affiliates of entities that receive compensation from AllianceBernstein or ABI for maintaining retirement plan "platforms" that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans.
Because financial intermediaries and plan recordkeepers may be paid varying amounts per class for sub-accounting or shareholder servicing, the service requirements of which may also vary by class, this may create an additional incentive for financial intermediaries and their financial advisors to favor one fund complex over another or one class of shares over another.
CODE OF ETHICS AND PROXY VOTING POLICIES AND PROCEDURES
The Fund, the Manager and the Principal Underwriter have each adopted codes of ethics pursuant to Rule 17j-1 under the 1940 Act. These codes of ethics permit personnel subject to the codes to invest in securities, including securities that may be purchased or held by the Fund.
The Fund has adopted the Manager's proxy voting policies and procedures. The Manager's proxy voting policies and procedures are attached as Appendix B.
Information regarding how the Fund voted proxies related to portfolio
securities during the most recent 12-month period ended June 30 is available
(1) without charge, upon request, by calling (800) 227-4618; or on or through
the Fund's website at www.AllianceBernstein.com; or both; and (2) on the SEC's
website at www.sec.gov.
PURCHASE OF SHARES
The following information supplements that set forth in the Portfolios' Prospectus under the heading "Investing in the Portfolios."
Shares of each Portfolio are offered on a continuous basis at a price equal
to their NAV plus an initial sales charge at the time of purchase ("Class A
shares"), with a CDSC ("Class B shares"), or without any initial sales charge
and, as long as the shares are held for one year or more, without any CDSC
("Class C shares"), in each case as described below. All of the classes of
shares of each Portfolio are subject to Rule 12b-1 asset-based sales charges.
Shares of each Portfolio that are offered subject to a sales charge are offered
through (i) investment dealers that are members of FINRA and have entered into
selected dealer agreements with the Principal Underwriter ("selected dealers"),
(ii) depository institutions and other financial intermediaries, or their
affiliates, that have entered into selected agent agreements with the Principal
Underwriter ("selected agents") and (iii) the Principal Underwriter.
Investors may purchase shares of a Portfolio either through financial intermediaries or directly through the Principal Underwriter. A transaction, service, administrative or other similar fee may be charged by your financial intermediary with respect to the purchase, sale or exchange of shares made through such financial intermediary. Such financial intermediary 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 Portfolios, including requirements as to classes of shares available through that financial intermediary and the minimum initial and subsequent investment amounts. The Fund is not responsible for, and has no control over, the decision of any financial intermediary to impose such differing requirements. Sales personnel of financial intermediaries distributing the Portfolios' shares may receive differing compensation for selling different classes of shares.
In order to open your account, the Fund or your financial intermediary is required to obtain certain information from you for identification purposes. This information may include name, date of birth, permanent residential address and social security/taxpayer identification number. It will not be possible to establish your account without this information. If the Fund or your financial intermediary is unable to verify the information provided, your account may be closed and other appropriate action may be taken as permitted by law.
The Directors of the AllianceBernstein Mutual Funds have adopted policies and procedures designed to detect and deter frequent purchases and redemptions of Portfolio shares or excessive or short-term trading that may disadvantage long-term Fund shareholders. These policies are described below. The AllianceBernstein Mutual Funds reserve the right to restrict, reject or cancel, without any prior notice, any purchase or exchange order for any reason, including any purchase or exchange order accepted by any shareholder's financial intermediary. In the event that any AllianceBernstein Mutual Fund rejects or cancels an exchange request, neither the redemption nor the purchase side of the exchange will be processed.
While the AllianceBernstein Mutual Funds will try to prevent market timing by utilizing the procedures described below, these procedures may not be successful in identifying or stopping excessive or short-term trading in all circumstances. By realizing profits through short-term trading, shareholders that engage in rapid purchases and sales or exchanges of a Portfolio's shares dilute the value of shares held by long-term shareholders. Volatility resulting from excessive purchases and sales or exchanges of Portfolio shares, especially involving large dollar amounts, may disrupt efficient portfolio management and cause the AllianceBernstein Mutual Funds to sell shares at inopportune times to raise cash to accommodate redemptions relating to short-term trading activity. In particular, a Portfolio may have difficulty implementing its long-term investment strategies if it is forced to maintain a higher level of its assets in cash to accommodate significant short-term trading activity. In addition, the AllianceBernstein Mutual Funds may incur increased administrative and other expenses due to excessive or short-term trading, including increased brokerage costs and realization of taxable capital gains.
A Portfolio that invests significantly in securities of foreign issuers may be particularly susceptible to short-term trading strategies. This is because securities of foreign issuers are typically traded on markets that close well before the time a Portfolio calculates its NAV at the close of regular trading on the Exchange (normally 4:00 p.m., Eastern time), which gives rise to the possibility that developments may have occurred in the interim that would affect the value of these securities. The time zone differences among international stock markets can allow a shareholder engaging in a short-term trading strategy to exploit differences in Portfolio share prices that are based on closing prices of securities of foreign issuers established some time before a Portfolio calculates its own share price (referred to as "time zone arbitrage"). The AllianceBernstein Mutual Funds have procedures, referred to as fair value pricing, designed to adjust closing market prices of foreign securities to reflect what is believed to be the fair value of those securities at the time a Portfolio calculates its NAV. While there is no assurance, the Fund expects that the use of fair value pricing, in addition to the short-term trading policies discussed below, will significantly reduce a shareholder's ability to engage in time zone arbitrage to the detriment of other Portfolio shareholders.
A shareholder engaging in a short-term trading strategy may also target a fund irrespective of its investments in securities of foreign issuers. Any Portfolio that invests in securities that are, among other things, thinly traded, traded infrequently, or relatively illiquid, has the risk that the current market price for the securities may not accurately reflect current market values. A shareholder may seek to engage in short-term trading to take advantage of these pricing differences (referred to as "price arbitrage"). All funds may be adversely affected by price arbitrage.
Purchases and exchanges of shares of the AllianceBernstein Mutual Funds should be made for investment purposes only. The AllianceBernstein Mutual Funds seek to prevent patterns of excessive purchases and sales or exchanges of fund shares. The AllianceBernstein Mutual Funds will seek to prevent such practices to the extent they are detected by the procedures described below. The AllianceBernstein Mutual Funds, AllianceBernstein, ABI and ABIS each reserve the right to modify this policy, including any surveillance or account blocking procedures established from time to time to effectuate this policy, at any time without notice.
Shareholders seeking to engage in excessive or short-term trading activities may deploy a variety of strategies to avoid detection and, despite the efforts of the AllianceBernstein Mutual Funds, ABI and ABIS to detect excessive or short duration trading in Portfolio shares, there is no guarantee that the AllianceBernstein Mutual Funds, ABI or ABIS will be able to identify these shareholders or curtail their trading practices. In particular, AllianceBernstein Mutual Funds, ABI and ABIS may not be able to detect excessive or short-term trading in fund shares attributable to a particular investor who effects purchase and/or exchange activity in fund shares through omnibus accounts. Also, multiple tiers of these entities may exist, each utilizing an omnibus account arrangement, which may further compound the difficulty of detecting excessive or short duration trading activity in fund shares.
The Fund reserves the right to suspend the sale of a Portfolio's shares to the public in response to conditions in the securities markets or for other reasons. If the Fund suspends the sale of Portfolio shares, shareholders will not be able to acquire those shares, including through an exchange.
The public offering price of shares of each Portfolio is their NAV, plus, in the case of Class A shares, a sales charge. 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 a Portfolio invests might materially affect the value of Portfolio shares, the NAV is computed as of the next close of regular trading on the Exchange (normally 4:00 p.m., Eastern time) by dividing the value of the Portfolio'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 NAVs of the various classes of shares of each Portfolio are expected to be substantially the same. However, the NAVs of the Class B and Class C shares will generally be slightly lower than the NAVs of the Class A shares as a result of the differential daily expense accruals of the higher distribution and, in some cases, transfer agency fees applicable with respect to those classes of shares.
The Fund will accept unconditional orders for shares of each Portfolio to be executed at the public offering price equal to their NAV 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 on each day the Exchange is open for trading are priced at the NAV 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 financial intermediaries, the applicable public offering price will be the NAV as so determined, but only if the financial intermediary receives the order prior to the close of regular trading on the Exchange. The financial intermediary is responsible for transmitting such orders by a prescribed time to the Fund or its transfer agent. If the financial intermediary fails to do so, the investor will not receive that day's NAV. If the financial intermediary receives the order after the close of regular trading on the Exchange, the price received by the investor will be based on the NAV determined as of the close of regular trading on the Exchange on the next day it is open for trading.
The Fund may, at its sole option, accept securities as payment for shares of a Portfolio if the Manager believes that the securities are appropriate investments for the Portfolio. The securities are valued by the method described under "Net Asset Value" below as of the date the Fund receives the securities and corresponding documentation necessary to transfer the securities to the Portfolio. This is a taxable transaction to the shareholder.
Following the initial purchase of Portfolio shares, a shareholder may place orders to purchase additional shares by telephone if the shareholder has completed the appropriate portion of the Mutual Fund Application or an "Autobuy" application obtained by calling the "For Literature" telephone number shown on the cover of this SAI. 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"). Telephone purchase requests must be received before 4:00 p.m., Eastern time, on a Fund business day to receive that day's public offering price. Telephone purchase requests received after 4:00 p.m., Eastern time, are 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 shareholder's account in the amount of his or her subscription. As a convenience, and to avoid unnecessary expense to a Portfolio, stock certificates representing shares of a Portfolio are not issued except upon written request to the Fund by the shareholder or his or her financial intermediary. 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.
Each class of shares of a Portfolio represents an interest in the same
portfolio of investments of the Portfolio, has the same rights and is identical
in all respects, except that (i) Class A shares bear the expense of the initial
sales charge (or CDSC, when applicable) and Class B and Class C shares bear the
expense of the CDSC, (ii) Class B shares and Class C shares each bear the
expense of a higher distribution services fee than do Class A shares,
(iii) Class B and Class C shares bear higher transfer agency costs than do
Class A shares, (iv) Class B shares are subject to a conversion feature, and
will convert to Class A shares under certain circumstances, and (v) 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 a Portfolio 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 because
the Class B shares convert to Class A shares under certain circumstances, and
the Class A and Class B shareholders will vote separately by class. 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 classes of shares of each Portfolio. On an ongoing basis, the Directors of the Fund, pursuant to their fiduciary duties under the 1940 Act and state law, will seek to ensure that no such conflict arises.
Arrangements--Group Retirement Plans"). Class C shares will normally not be suitable for the investor who qualifies to purchase Class A shares at NAV. For this reason, the Principal Underwriter will reject any order for more than $500,000 for Class C shares of the Municipal Portfolios or $1,000,000 for Class C shares of the Short Duration Portfolio and International Portfolios.
Class A shares are subject to a lower distribution services fee and, accordingly, pay correspondingly higher dividends per share than Class B shares or Class C shares. However, because initial sales charges are deducted at the time of purchase, investors purchasing Class A shares would not have all their funds invested initially and, therefore, would initially own fewer shares. Investors not qualifying for reduced initial sales charges who expect to maintain their investment for an extended period of time might consider purchasing Class A shares because the accumulated continuing distribution charges on Class B shares or Class C shares may exceed the initial sales charge on Class A shares during the life of the investment. Again, however, such investors must weigh this consideration against the fact that, because of such initial sales charges, not all their funds will be invested initially.
Other investors might determine, however, that it would be more advantageous to purchase Class B shares or Class C shares in order to have all their funds invested initially, although remaining subject to higher continuing distribution charges and being subject to a CDSC for a three-year (or four-year period, for Class B shares of the International Portfolios) 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 NAV 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 Portfolio shares for the three-year period (or four-year, for the International Portfolios) during which Class B shares are subject to a CDSC may find it more advantageous to purchase Class C shares.
For the fiscal years ended September 30, 2012, September 30, 2011 and September 30, 2010, the aggregate amount of underwriting commission payable with respect to shares of the New York Municipal Portfolio was $952,510, $783,557 and $1,123,448, respectively; the California Municipal Portfolio was $490,110, $111,174 and $231,674, respectively; the Diversified Municipal Portfolio was $2,424,969, $1,126,490 and $2,028,319, respectively; the Short Duration Portfolio was $73,612, 62, 578 and $159,947, respectively; of that amount, the Principal Underwriter received $1,257, $619 and $327, respectively, for the New York Municipal Portfolio, $0, $79 and $29, respectively, for the California Municipal Portfolio, $0, $409 and $3,208, respectively, for the Diversified Municipal Portfolio; the Principal Underwriter received $3,881, $3,509 and $8,219, respectively, for the Short Duration Portfolio, representing that portion of the sales charges paid on shares of that Portfolio sold during the year which was not reallowed to selected dealers (and was, accordingly, retained by the Principal Underwriter).
During the fiscal years ended September 30, 2012, September 30, 2011 and September 30, 2010, the aggregate amount of underwriting commission payable with respect to shares of the Tax-Managed International Portfolio was $2,004, $3,474 and $5,116, respectively, and with respect to the International Portfolio was $4,379, $6,734 and $11,335, respectively. Of those amounts, during the fiscal years ended September 30, 2012, September 30, 2011 and September 30, 2010, the Principal Underwriters received the amounts of $139, $331 and $348, respectively, for the Tax-Managed International Portfolio and $238, $208 and $665, respectively, for the International Portfolio, representing that portion of the sales charges paid on shares of the Portfolio sold during the periods that was not reallowed selected dealers (and was, accordingly, retained by the Principal Underwriter).
During the fiscal years ended September 30, 2012, September 30, 2011 and September 30, 2010, the Principal Underwriter received in contingent deferred sales charges with respect to Class A redemptions $9,837, $37,258 and $2,888, respectively, for the New York Municipal Portfolio, $321, $13,678 and $15,000, respectively, for the California Municipal Portfolio, $77,597, $118,828 and $26,799, respectively, for the Diversified Municipal Portfolio, $1,116, $14,142 and $12,125, respectively, for the Short Duration Portfolio. During the fiscal years ended September 30, 2012, September 30, 2011 and September 30, 2010, the Principal Underwriter received CDSCs with respect to Class A redemptions of $0, $0 and $0, respectively, for the Tax-Managed International Portfolio, and $34, $223 and $67, respectively, for the International Portfolio.
During the fiscal years ended September 30, 2012, September 30, 2011 and September 30, 2010, the Principal Underwriter received in contingent deferred sales charges with respect to Class B redemptions $4, $382 and $2,143, respectively, for the New York Municipal Portfolio, $85, $262 and $1,284, respectively, for the California Municipal Portfolio, $303, $1,217 and $712, respectively, for the Diversified Municipal Portfolio, and $219, $3,503 and $9,265, respectively, for the Short Duration Portfolio. During the fiscal years ended September 30, 2012, September 30, 2011 and September 30, 2010, the Principal Underwriter received CDSCs with respect to Class B redemptions of $0, $262 and $102, respectively, for the Tax-Managed International Portfolio, and $1,078, $444 and $1,152, respectively, for the International Portfolio.
During the fiscal years ended September 30, 2012, September 30, 2011 and September 30, 2010, the Principal Underwriter received in contingent deferred sales charges with respect to Class C redemptions $16,905, $26,359 and $18,929, respectively, for the New York Municipal Portfolio, $453, $4,478 and $2,927, respectively, for the California Municipal Portfolio, $32,893, $31,778 and $14,658, respectively, for the Diversified Municipal Portfolio, and $2,817, $1,509 and $3,015, respectively, for the Short Duration Portfolio. During the fiscal years ended September 30, 2012, September 30, 2011 and September 30, 2010, the Principal Underwriter received CDSCs with respect to Class C redemptions of $0, $25 and $0, respectively, for the Tax-Managed International Portfolio, and $395, $342 and $129, respectively, for the International Portfolio.
The public offering price of Class A shares is the NAV plus a sales charge, as set forth below.
MUNICIPAL PORTFOLIOS
DISCOUNT OR COMMISSION AS % OF TO DEALERS AS % OF THE OR AGENTS OF NET PUBLIC UP TO % OF AMOUNT OFFERING OFFERING AMOUNT OF PURCHASE INVESTED PRICE PRICE ------------------ -------- -------- ------------ Up to $100,000 3.09% 3.00% 3.00% $100,000 up to $250,000 2.04% 2.00% 2.00% $250,000 up to $500,000* 1.01% 1.00% 1.00% |
SHORT DURATION PORTFOLIO AND INTERNATIONAL PORTFOLIOS
DISCOUNT OR COMMISSION TO DEALERS OR AGENTS AS % OF THE OF UP TO % AS % OF NET PUBLIC OF AMOUNT OFFERING OFFERING AMOUNT OF PURCHASE INVESTED PRICE PRICE ------------------ ----------- ----------- ----------- Up to $100,000 4.44% 4.25% 4.00% $100,000 up to $250,000 3.36% 3.25% 3.00% $250,000 up to $500,000 2.30% 2.25% 2.00% $500,000 up to $1,000,000* 1.78% 1.75% 1.50% |
All or a portion of the initial sales charge may be paid to your financial representative. With respect to purchases of $500,000 or more for the Municipal Portfolios, or $1,000,000 or more for the Short Duration Portfolio and International Portfolios, Class A shares redeemed within one year of purchase may be subject to a CDSC of up to 1%. The CDSC on Class A shares will be waived on certain redemptions, as described below under "Contingent Deferred Sales Charge." ABI's commission is the sales charge shown in the Prospectus less any applicable discount or commission "re-allowed" to selected dealers and agents. ABI will re-allow discounts to selected dealers and agents in the amounts indicated in the table above. In this regard, ABI may elect to re-allow the entire sales charge to selected dealers and agents for all sales with respect to which orders are placed with ABI. A selected dealer who receives re-allowance in excess of 90% of such a sales charge may be deemed to be an "underwriter" under the Securities Act.
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 "AllianceBernstein 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 AllianceBernstein Exchange Reserves that were
purchased for cash without the payment of an initial sales charge and without
being subject to a CDSC or (iii) upon the automatic conversion of Class B
shares as described below under "Class B Shares--Conversion Feature."
Commissions may be paid to selected dealers or agents who initiate or are responsible for Class A share purchases by a single shareholder in excess of $500,000 that are not subject to an initial sales charge at up to the following rates: 1.00% on purchases up to $3,000,000; 0.75% on purchases over $3,000,000 to $5,000,000; and 0.50% on purchases over $5,000,000. Commissions are paid based on cumulative purchases by a shareholder over the life of an account with no adjustments for redemptions, transfers or market declines.
In addition to the circumstances described above, certain types of investors may be entitled to pay no initial sales charge in certain circumstances described below.
(i) investment management clients of the Manager or its affiliates, including clients and prospective clients of the Manager's AllianceBernstein Institutional Investment Management division;
(ii) officers, directors and present and full-time employees of selected dealers or agents; or the spouse or domestic partner, sibling, direct ancestor or direct descendant (collectively, "Relatives") of any such person; or any trust, individual retirement account or retirement plan account for the benefit of any such person;
(iii) (a) persons participating in a fee-based program, sponsored and maintained by a broker-dealer or other financial intermediary and approved by ABI, under which persons pay an asset-based fee for services in the nature of investment advisory or administrative services or (b) clients of broker-dealers or other financial intermediaries approved by ABI who purchase Class A shares for their own accounts through an omnibus account with the broker-dealers or other financial intermediaries;
(iv) certain retirement plan accounts as described under "Alternative Purchase Arrangements--Group Retirement Plans;" and
(v) current Class A shareholders of AllianceBernstein Mutual Funds and investors who receive a "Fair Funds Distribution" (a "Distribution") resulting from an SEC enforcement action against the Manager and current Class A shareholders of AllianceBernstein Mutual Funds who receive a Distribution resulting from any SEC enforcement action related to trading in shares of AllianceBernstein Mutual Funds who, in each case, purchase shares of an AllianceBernstein mutual fund from ABI through deposit with ABI of the Distribution check.
Investors may purchase Class B shares of a Portfolio at the public offering price equal to the NAV per share of the Class B shares on the date of purchase without the imposition of a sales charge at the time of purchase. The Class B shares are sold without an initial sales charge so that the Fund will receive the full amount of the investor's purchase payment.
Effective January 31, 2009, sales of Class B shares of each Portfolio to new
investors were suspended. Class B shares are only issued (i) upon the exchange
of Class B shares from another AllianceBernstein Fund, (ii) for purposes of
dividend reinvestment, (iii) through a Portfolio's Automatic Investment Program
for accounts that established the Program prior to January 31, 2009, and
(iv) for purchases of additional Class B shares by Class B shareholders as of
January 31, 2009. The ability to establish a new Automatic Investment Program
for accounts containing Class B shares was suspended as of January 31, 2009.
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 shares, an equal pro rata portion of the Class B shares in the sub-account will also convert to Class A shares.
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 six (or eight years for the International Portfolios) years after the end of the calendar month in which the shareholder's purchase order was accepted.
Investors may purchase Class C shares of a Portfolio at the public offering price equal to the NAV 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 each Portfolio 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 CDSC so that the investor will receive as proceeds upon redemption the entire NAV of his or her Class C shares. The Class C distribution services fee enables each Portfolio to sell Class C shares without either an initial sales charge or CDSC, 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 Portfolio 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.
three years (or for years for the International Portfolios) of purchase will be subject to a CDSC at the rates set forth below charged as a percentage of the dollar amount subject thereto. Class A share purchases of $500,000 or more for the Municipal Portfolios, or $1,000,000 or more for the Short Duration and International Portfolios, and Class C shares that in either case are redeemed within one year of purchase will be subject to a CDSC of 1% as are Class A share purchases by certain retirement plans (see "Alternative Purchase Arrangements - Group Retirement Plans" below). The charge will be assessed on an amount equal to the lesser of the cost of the shares being redeemed or their NAV at the time of the redemption. Accordingly, no sales charge will be imposed on increases in NAV above the initial purchase price. In addition, no charge will be assessed on shares derived from reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100 Class B shares at $10 per share (at a cost of $1,000) and in the second year after purchase, the NAV 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 the 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 NAV of $2 per share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 2.0% for the Municipal Portfolios or 3.0% for the Short Duration Portfolio and International Portfolios (the applicable rate in the second year after purchase as set forth below).
For Class B shares, the amount of the CDSC, 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.
MUNICIPAL PORTFOLIOS AND SHORT DURATION PORTFOLIO
CONTINGENT DEFERRED SALES CHARGE AS A % OF DOLLAR AMOUNT YEAR SINCE PURCHASE SUBJECT TO CHARGE ------------------- ------------------- First 3.00% Second 2.00% Third 1.00% Fourth and thereafter None |
INTERNATIONAL PORTFOLIOS
CONTINGENT DEFERRED SALES CHARGE AS A % OF DOLLAR YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHARGE ------------------- ------------------------- First 4.00% Second 3.00% Third 2.00% Fourth 1.00% Fifth and thereafter None |
In determining the CDSC applicable to a redemption of Class B and Class C shares, it will be assumed that the redemption is, first, of any shares that are not subject to a CDSC (for example, because the shares were acquired upon the reinvestment of dividends or distributions) and, second, of shares held longest during the time they are subject to the sales charge. When shares acquired in an exchange are redeemed, the applicable CDSC and conversion schedules will be the schedules that applied at the time of the purchase of shares of the corresponding class of the AllianceBernstein Mutual Fund originally purchased by the shareholder. If you redeem your shares and directly invest the proceeds in units of Collegeboundfund, the CDSC will apply to the units of Collegeboundfund. The CDSC period begins with the date of your original purchase, not the date of exchange for other Class B shares or purchase of Collegeboundfund units.
Proceeds from the CDSC 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 a Portfolio in connection with the sale of its Class C
shares, such as the payment of compensation to selected dealers and agents for selling Class C shares. The combination of the CDSC 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 CDSC is waived on redemptions of shares (i) following the death or disability, as defined in the United States Internal Revenue Code of 1986, as amended, (the "Code"), of a shareholder, (ii) to the extent that the redemption represents a minimum required distribution from an individual retirement account or other retirement plan to a shareholder that 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, (iv) pursuant to, and in accordance with, a systematic withdrawal plan (see "Sales Charge Reduction Programs--Systematic Withdrawal Plan" below), (v) to the extent that the redemption is necessary to meet a plan participant's or beneficiary's request for a distribution or loan from a group retirement plan or to accommodate a plan participant's or beneficiary's direction to reallocate his or her plan account among other investment alternatives available under a group retirement plan, and (vi) that had been purchased with proceeds from a Distribution resulting from any Commission enforcement action related to trading in shares of AllianceBernstein Mutual Funds through deposit with ABI of the Distribution check. The CDSC is also waived for (i) permitted exchanges of shares, (ii) holders of Class A shares who purchased $500,000 or more of Class A shares of the Municipal Portfolios or $1,000,000 or more of Class A shares of the Short Duration Portfolio or International Portfolios, where the participating broker or dealer involved in the sale of such shares waived the commission it would normally receive from ABI or (iii) Class C shares sold through programs offered by financial intermediaries and approved by ABI where such programs offer only shares that are not subject to a CDSC, where the financial intermediary establishes a single omnibus account for a Portfolio or in the case of a group retirement plan, a single account for each plan, and where no advance commission is paid to any financial intermediary in connection with the purchase of such shares.
The Fund offers special distribution arrangements for group retirement plans. However, plan sponsors, plan fiduciaries and other financial intermediaries may establish requirements as to the purchase, sale or exchange of shares of the Portfolio, including maximum and minimum initial investment requirements, that are different from those described in this SAI. Group retirement plans also may not offer all classes of shares of a Portfolio. In addition, the Class A, Class B and Class C CDSC may be waived for investments made through certain group retirement plans. Therefore, plan sponsors or fiduciaries may not adhere to these share class eligibility standards as set forth in the Prospectus and this SAI. The Fund is not responsible for, and has no control over, the decision of any plan sponsor or fiduciary to impose such differing requirements.
period of time against the fact that Class A shares have lower expenses, and therefore higher returns, than Class B shares, before determining which class to make available to its plan participants.
The AllianceBernstein Mutual Funds offer shareholders various programs through which shareholders may obtain reduced sales charges or reductions in CDSC through participation in such programs. In order for shareholders to take advantage of the reductions available through the combined purchase privilege, rights of accumulation and letters of intent, a Portfolio must be notified by the shareholder or his or her financial intermediary that they qualify for such a reduction. If the Portfolio is not notified that a shareholder is eligible for these reductions, the Portfolio will be unable to ensure that the reduction is applied to the shareholder's account.
Currently, the AllianceBernstein Mutual Funds include:
AllianceBernstein Blended Style Series, Inc.
. AllianceBernstein 2000 Retirement Strategy
. AllianceBernstein 2005 Retirement Strategy
. AllianceBernstein 2010 Retirement Strategy
. AllianceBernstein 2015 Retirement Strategy
. AllianceBernstein 2020 Retirement Strategy
. AllianceBernstein 2025 Retirement Strategy
. AllianceBernstein 2030 Retirement Strategy
. AllianceBernstein 2035 Retirement Strategy
. AllianceBernstein 2040 Retirement Strategy
. AllianceBernstein 2045 Retirement Strategy
. AllianceBernstein 2050 Retirement Strategy
. AllianceBernstein 2055 Retirement Strategy
AllianceBernstein Bond Fund, Inc.
. AllianceBernstein Bond Inflation Strategy
. AllianceBernstein Intermediate Bond Portfolio
. AllianceBernstein Limited Duration High Income Portfolio
. AllianceBernstein Municipal Bond Inflation Strategy
. AllianceBernstein Real Asset Strategy
AllianceBernstein Cap Fund, Inc.
. AllianceBernstein Dynamic All Market Fund
. AllianceBernstein Dynamic All Market Plus Fund
. AllianceBernstein Emerging Markets Multi-Asset Portfolio
. AllianceBernstein International Discovery Equity Portfolio
. AllianceBernstein International Focus 40 Portfolio
. AllianceBernstein Market Neutral Strategy - U.S.
. AllianceBernstein Market Neutral Strategy - Global
. AllianceBernstein Select US Equity Portfolio
. AllianceBernstein Select US Long/Short Portfolio
. AllianceBernstein Small Cap Growth Portfolio
. AllianceBernstein U.S. Strategic Research Portfolio
AllianceBernstein Core Opportunities Fund, Inc.
AllianceBernstein Discovery Growth Fund, Inc.
AllianceBernstein Equity Income Fund, Inc.
AllianceBernstein Exchange Reserves
AllianceBernstein Global Bond Fund, Inc.
AllianceBernstein Global Real Estate Investment Fund, Inc.
AllianceBernstein Global Risk Allocation Fund, Inc.
AllianceBernstein Global Thematic Growth Fund, Inc.
AllianceBernstein Growth and Income Fund, Inc.
AllianceBernstein High Income Fund, Inc.
AllianceBernstein International Growth Fund, Inc.
AllianceBernstein Large Cap Growth Fund, Inc.
AllianceBernstein Municipal Income Fund, Inc.
. AllianceBernstein High Income Municipal Portfolio
. California Portfolio
. National Portfolio
. New York Portfolio
AllianceBernstein Municipal Income Fund II
. Arizona Portfolio
. Massachusetts Portfolio
. Michigan Portfolio
. Minnesota Portfolio
. New Jersey Portfolio
. Ohio Portfolio
. Pennsylvania Portfolio
. Virginia Portfolio
AllianceBernstein Trust
. AllianceBernstein Discovery Value Fund
. AllianceBernstein Global Value Fund
. AllianceBernstein International Value Fund
. AllianceBernstein Value Fund
AllianceBernstein Unconstrained Bond, Inc.
The AllianceBernstein Portfolios
. AllianceBernstein Balanced Wealth Strategy
. AllianceBernstein Conservative Wealth Strategy
. AllianceBernstein Growth Fund
. AllianceBernstein Tax-Managed Balanced Wealth Strategy
. AllianceBernstein Tax-Managed Conservative Wealth Strategy
. AllianceBernstein Tax-Managed Wealth Appreciation Strategy
. AllianceBernstein Wealth Appreciation Strategy
Sanford C. Bernstein Fund, Inc.
. AllianceBernstein Intermediate California Municipal Portfolio
. AllianceBernstein Intermediate Diversified Municipal Portfolio
. AllianceBernstein Intermediate New York Municipal Portfolio
. AllianceBernstein International Portfolio
. AllianceBernstein Short Duration Portfolio
. AllianceBernstein Tax-Managed International Portfolio
Prospectuses for the AllianceBernstein Mutual Funds may be obtained without charge by contacting ABIS at the address or the "For Literature" telephone number shown on the front cover of this SAI.
(i) the investor's current purchase;
(ii) the higher of cost or NAV (at the close of business on the previous
day) of (a) all shares of a Portfolio held by the investor and
(b) all shares of any other AllianceBernstein Mutual Fund, including
AllianceBernstein Institutional Funds and certain CollegeBoundfund
accounts for which the investor, his or her spouse or domestic
partner, or child under the age of 21 is the participant; and
(iii) the higher of cost or NAV 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).
The initial charge you pay on each purchase of Class A shares will take into
account your accumulated holdings in all classes of shares of AllianceBernstein
Mutual Funds. Your accumulated holdings will be calculated as (a) the value of
your existing holdings as of the day prior to your additional investment or
(b) the amount you have invested including reinvested distributions but
excluding appreciation less the amount of any withdrawals, whichever is higher.
For example, if an investor owned shares of an AllianceBernstein Mutual Fund that were purchased for $200,000 and were worth $190,000 at their then current NAV and, subsequently, purchased Class A shares of the Portfolio worth an additional $100,000, the initial sales charge for the $100,000 purchase would be at the 2% rate applicable to a single $300,000 purchase of shares of the Portfolio, rather than the 3% rate.
Investors qualifying for the Combined Purchase Privilege described above may purchase shares of the AllianceBernstein Mutual Funds under a single Letter of Intent. For example, if at the time an investor signs a Letter of Intent to invest at least $100,000 in Class A shares of a Portfolio, the investor and the investor's spouse or domestic partner each purchase shares of a Portfolio 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 AllianceBernstein Mutual Fund, to qualify for the 2.00% (for the Municipal Portfolios) or 3.25% (for the Short Duration Portfolio and International Portfolios) sales charge on the total amount being invested (the sales charge applicable to an investment of $100,000).
The Letter of Intent is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Letter of Intent 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 at their then NAV to pay the additional sales charge, if necessary. Dividends on escrowed shares, whether paid in cash or reinvested in additional Portfolio shares, are not subject to escrow. When the full amount indicated has been purchased, the escrow will be released.
Investors wishing to enter into a Letter of Intent in conjunction with their initial investment in Class A shares of a Portfolio can obtain a form of Letter of Intent by contacting ABIS at the address or telephone numbers shown on the cover of this SAI.
In certain circumstances where a shareholder has elected to receive dividends and/or capital gain distributions in cash but the amount has been determined to be lost due to mail being returned to us by the Postal Service as undeliverable, such shareholder's distributions option will automatically be placed within the Dividend Reinvestment Program for future distributions. No interest will accrue on amounts represented by uncashed distribution checks.
Shares of a Portfolio owned by a participant in the Portfolio'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 with respect to Class B and Class C shares, any applicable CDSC. 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 Portfolio.
Withdrawal payments will not automatically end when a shareholder's account reaches a certain minimum level. Therefore, redemptions of shares under the plan may reduce or even liquidate a shareholder's account and may subject the shareholder to a Portfolio's involuntary redemption provisions. See "Redemption and Repurchase of Shares -- General." Purchases of additional shares concurrently with withdrawals are undesirable because of sales charges applicable 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 a Portfolio should complete the appropriate portion of the Mutual Fund Application, while current Portfolio shareholders desiring to do so can obtain an application form by contacting ABIS at the address or the "For Literature" telephone number shown on the cover of this SAI.
Class B shares that are not subject to a CDSC (such as shares acquired with reinvested dividends or distributions) will be redeemed first and will count toward the foregoing limitations. Remaining Class B shares that are held the longest will be redeemed next. Redemptions of Class B shares in excess of the foregoing limitations will be subject to any otherwise applicable CDSC.
With respect to Class A and 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 CDSC.
The CDSC is waived on redemptions of shares following the death or disability, as defined in the Code, of a shareholder.
Financial intermediaries market and sell shares of the Portfolios. These financial intermediaries employ financial advisors and receive compensation for selling shares of the Fund. This compensation is paid from various sources, including any sales charge, CDSC and/or Rule 12b-1 fee that you or the Fund may pay. Your individual financial advisor may receive some or all of the amounts paid to the financial intermediary that employs him or her.
In the case of Class A shares, all or a portion of the initial sales charge that you pay may be paid by ABI to financial intermediaries selling Class A shares. ABI may also pay these financial intermediaries a fee of up to 1% on purchases of $1 million or more. Additionally, up to 100% of the Rule 12b-1 fees applicable to Class A shares each year may be paid to financial intermediaries, including your financial intermediary, that sell Class A shares.
In the case of Class B shares, ABI may pay, at the time of your purchase, a commission to financial intermediaries selling Class B Shares in an amount equal to 4% of your investment. Additionally, up to 30% of the Rule 12b-1 fees applicable to Class B shares each year may be paid to financial intermediaries, including your financial intermediary, that sell Class B shares.
In the case of Class C shares, ABI may pay, at the time of your purchase, a commission to firms selling Class C shares in an amount equal to 1% of your investment. Additionally, up to 100% of the Rule 12b-1 fee applicable to Class C shares each year may be paid to financial intermediaries, including your financial intermediary, that sell Class C shares.
Your financial advisor's firm receives compensation from the Fund, ABI and/or AllianceBernstein in several ways from various sources, which include some or all of the following:
. upfront sales commissions
. Rule 12b-1 fees
. additional distribution support
. defrayal of costs for educational seminars and training
. payments related to providing shareholder recordkeeping and/or transfer agency services
Please read the Prospectus carefully for information on this compensation.
In addition to the commissions paid to financial intermediaries at the time of sale and the fees described under "Investing in the Portfolios--The Different Share Class Expenses--Asset-Based Sales Charges or Distribution and/or Service (Rule 12b-1) Fees," in
the Prospectus, some or all of which may be paid to financial intermediaries (and, in turn, to your financial advisor), ABI, at its expense, currently provides additional payments to firms that sell shares of the AllianceBernstein Mutual Funds. Although the individual components may be higher and the total amount of payments made to each qualifying firm in any given year may vary, the total amount paid to a financial intermediary in connection with the sale of shares of the AllianceBernstein Mutual Funds will generally not exceed the sum of (a) 0.25% of the current year's fund sales by that firm and (b) 0.10% of average daily net assets attributable to that firm over the year. These sums include payments to reimburse directly or indirectly the costs incurred by these firms and their employees in connection with educational seminars and training efforts about the AllianceBernstein Mutual Funds for the firms' employees and/or their clients and potential clients. The costs and expenses associated with these efforts may include travel, lodging, entertainment and meals. ABI may pay a portion of "ticket" or other transactional charges.
For 2013, ABI's additional payments to these firms for distribution services and educational support related to the AllianceBernstein Mutual Funds are expected to be approximately 0.05% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $21 million. In 2012, ABI paid approximately 0.05% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $19 million for distribution services and educational support related to the AllianceBernstein Mutual Funds.
A number of factors are considered in determining the additional payments, including each firm's AllianceBernstein Mutual Fund sales, assets and redemption rates, and the willingness and ability of the firm to give ABI access to its financial advisors for educational and marketing purposes. In some cases, firms will include the AllianceBernstein Mutual Funds on a "preferred list." ABI's goal is to make the financial advisors who interact with current and prospective investors and shareholders more knowledgeable about the AllianceBernstein Mutual Funds so that they can provide suitable information and advice about the funds and related investor services.
The Fund and ABI also make payments for recordkeeping and other transfer agency services to financial intermediaries that sell AllianceBernstein Mutual Fund shares. Please see "Expenses of the Fund - Transfer Agency Agreement" above. These expenses paid by the Fund are included in "Other Expenses" under "Fees and Expenses of the Portfolio - Annual Portfolio Operating Expenses" in the Prospectus.
If one mutual fund sponsor makes greater distribution assistance payments than another, your financial advisor and his or her firm may have an incentive to recommend one fund complex over another. Similarly, if your financial advisor or his or her firm receives more distribution assistance for one share class versus another, then they may have an incentive to recommend that class.
Please speak with your financial advisor to learn more about the total amounts paid to your financial advisor and his or her firm by the Fund, AllianceBernstein, ABI and by sponsors of other mutual funds he or she may recommend to you. You should also consult disclosures made by your financial advisor at the time of your purchase.
ABI anticipates that the firms that will receive additional payments for distribution services and/or educational support include:
Advisor Group, Inc.
Ameriprise Financial Services
AXA Advisors
Cadaret, Grant & Co.
CCO Investment Services Corp.
Citigroup Global Markets, Inc.
Chase Investment Services
Commonwealth Financial Network
Donegal Securities
Financial Network Investment Company
LPL Financial
Merrill Lynch
Morgan Stanley
Multi-Financial Securities Corporation
Northwestern Mutual Investment Services
PrimeVest Financial Services
Raymond James
RBC Wealth Management
Robert W. Baird
UBS Financial Services
Wells Fargo Advisors
Although the Fund may use brokers and dealers who sell shares of the Portfolios to effect portfolio transactions, the Fund does not consider the sale of AllianceBernstein Mutual Fund shares as a factor when selecting brokers and dealers to effect portfolio transactions.
REDEMPTION AND REPURCHASE OF SHARES
The following information supplements that set forth in the Portfolios' Prospectus under the heading "Investing in the Funds." The Fund has authorized one or more brokers to receive on its behalf purchase and redemption orders. Such brokers are authorized to designate other intermediaries to receive purchase and redemption orders on the Fund's behalf. In such cases, orders will receive the NAV next computed after such order is properly received by the authorized broker or designee and accepted by the Fund.
Subject only to the limitations described below, the Fund's Articles of Incorporation require that the Fund redeem the shares of each Portfolio tendered to it, as described below, at a redemption price equal to their NAV as next computed following the receipt of shares tendered for redemption in proper form. Except for any CDSC that may be applicable to Class A shares, Class B shares or Class C shares, there is no redemption charge. Payment of the redemption price will normally be made within seven days after the Fund's receipt of such tender for 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 intermediary.
The right of redemption may not be suspended or the date of payment upon redemption postponed for more than seven days after shares are tendered for redemption, except for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which the SEC determines that trading thereon is restricted, or for any period during which an emergency (as determined by the SEC) exists as a result of which disposal by a Portfolio of securities owned by it is not reasonably practicable or as a result of which it is not reasonably practicable for a Portfolio fairly to determine the value of its net assets, or for such other periods as the SEC may by order permit for the protection of security holders of the Portfolio.
Payment of the redemption price normally will be made in cash but may be made, at the option of the Fund, in kind. No interest will accrue on uncashed redemption checks. 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 Portfolio' portfolio securities at the time of such redemption or repurchase. Redemption proceeds from Class A, Class B and Class C shares will reflect the deduction of the CDSC, 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 a Portfolio 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 Medallion Signature Guaranteed.
To redeem shares of a Portfolio represented by share certificates, the investor should forward the appropriate share certificate or certificates, endorsed in blank or with blank stock powers attached, to the Fund with the request that the shares represented thereby, or a specified portion thereof, be redeemed. The stock assignment form on the reverse side of each share certificate surrendered to the Fund for redemption must be signed by the registered owner or owners exactly as the registered name appears on the face of the certificate or, alternatively, a stock power signed in the same manner may be attached to the share certificate or certificates or, where tender is made by mail, separately mailed to the relevant Portfolio. The signature or signatures on the assignment form must be guaranteed in the manner described above.
The Fund may repurchase shares through the Principal Underwriter or financial intermediaries. The repurchase price will be the NAV next determined after the Principal Underwriter receives the request (less the CDSC, if any, with respect to the Class A, Class B and Class C shares), except that requests placed through financial intermediaries before the close of regular trading on the Exchange on any day will be executed at the NAV 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 is responsible for transmitting the request to the Principal Underwriter by 5:00 p.m., Eastern time, (certain financial intermediaries may enter into operating agreements permitting them to transmit purchase information that was received prior to the close of business to the Principal Underwriter after 5:00 p.m., Eastern time, and receive that day's NAV). If the financial intermediary fails to do so, the shareholder's right to receive that day's closing price must be settled between the shareholder and that financial intermediary. A shareholder may offer shares of a Portfolio to the Principal Underwriter either directly or through a financial intermediary. Neither the Fund nor the Principal Underwriter charges a fee or commission in connection with the repurchase of shares (except for the CDSC, if any, with respect to Class A, Class B and Class C shares). Normally, if shares of a Portfolio are offered through a financial intermediary, the repurchase is settled by the shareholder as an ordinary transaction with or through the financial intermediary, who may charge the shareholder for this service. The repurchase of shares of a Portfolio as described above with respect to financial intermediaries is a voluntary service of the Fund and the Fund may suspend or terminate this practice at any time.
The Fund reserves the right to close out an account that has remained below $500 for 90 days. No CDSC will be deducted from the proceeds of this redemption. In the case of a redemption or repurchase of shares of a Portfolio 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 Portfolios' Prospectus under the heading "Investing in the Portfolios." The shareholder services set forth below are applicable to all classes of shares of each Portfolio unless otherwise indicated.
Investors may purchase shares of a Portfolio 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 $50) are used to purchase shares through the financial intermediary 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 Mutual Fund Application. Current shareholders should contact ABIS at the address or telephone numbers shown on the cover of this SAI to establish an automatic investment program.
Shareholders committed to monthly investments of $25 or more through the Automatic Investment Program by October 15, 2004 are able to continue their program despite the $50 monthly minimum. As of January 31, 2009, the Automatic Investment Program will be available for purchase of Class B shares only if a shareholder was enrolled in the Program prior to January 31, 2009.
You may exchange your investment in a Portfolio for shares of the same class of other AllianceBernstein Mutual Funds (including AllianceBernstein Exchange Reserves, a money market fund managed by the Manager) if the other AllianceBernstein
Mutual Fund in which you wish to invest offers shares of the same class. In
addition, (i) present officers and full-time employees of the Manager,
(ii) present Directors or Trustees of any AllianceBernstein Mutual Fund,
(iii) certain employee benefit plans for employees of the Manager, ABI, ABIS
and their affiliates and (iv) certain persons participating in a fee-based
program, sponsored and maintained by a registered broker-dealer or other
financial intermediary and approved by ABI, under which such persons pay an
asset-based fee for service in the nature of investment advisory or
administrative services may, on a tax-free basis, exchange Class C shares of
the Portfolio for Class A shares of the Portfolios. Exchanges of shares are
made at the NAV next determined and without sales or service charges. Exchanges
may be made by telephone or written request. In order to receive a day's NAV,
ABIS must receive and confirm a telephone exchange request by 4:00 p.m.,
Eastern time on that day.
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 AllianceBernstein 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 AllianceBernstein Mutual Fund
into which you are exchanging before submitting the request. Call ABIS at
(800) 221-5672 to exchange uncertificated shares. Except with respect to
exchanges of Class C shares for Class A shares of the same Portfolio, exchanges
of shares as described above in this section are taxable transactions for
federal income tax purposes. The exchange service may be modified, restricted
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 AllianceBernstein
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 NAVs as next determined following receipt by
the AllianceBernstein 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 AllianceBernstein 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 AllianceBernstein Mutual Funds will generally result in the
realization of a capital gain or loss for federal income tax purposes.
Each Portfolio shareholder and the shareholder's financial intermediary are authorized to make telephone requests for exchanges unless ABIS receives written instruction to the contrary from the shareholder, or the shareholder declines the privilege by checking the appropriate box on the Mutual Fund Application. Such telephone requests cannot be accepted with respect to shares then represented by share certificates. Shares acquired pursuant to a telephone request for exchange will be held under the same account registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange should telephone ABIS 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, market or other developments, such as the terrorist attacks on September 11, 2001, it is possible that shareholders would have difficulty in reaching ABIS by telephone (although no such difficulty was apparent at any time in connection with the attacks). If a shareholder were to experience such difficulty, the shareholder should issue written instructions to ABIS at the address shown on the cover of this SAI.
A shareholder may elect to initiate a monthly "Auto Exchange" whereby a specified dollar amount's worth of his or her Portfolio shares (minimum $25) is automatically exchanged for shares of another AllianceBernstein Mutual Fund. Auto Exchange transactions normally occur on the 12th day of each month, or the Fund business day prior thereto.
None of the AllianceBernstein Mutual Funds, the Manager, the Principal Underwriter or ABIS 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. Financial intermediaries may charge a commission for handling telephone requests for exchanges.
The exchange privilege is available only in states where shares of the AllianceBernstein Mutual Fund being acquired may legally be sold. Each AllianceBernstein Mutual Fund reserves the right, at any time on 60 days' notice to its shareholders, to reject any order to acquire its shares through exchange or otherwise modify, restrict or terminate the exchange privilege.
Each shareholder of a Portfolio 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 registered public accounting firm, PricewaterhouseCoopers LLP, as well as a cumulative dividend statement and a confirmation of each purchase and redemption. By contacting his or her financial intermediary or ABIS, a shareholder can arrange for copies of his or her account statements to be sent to another person.
When a check is presented to the Bank for payment, the Bank, as the shareholder's agent, causes the Fund to redeem, at the NAV next determined, a sufficient number of full and fractional shares of a Portfolio in the shareholder's account to cover the check. Because the level of net assets in a shareholder's account constantly changes due, among various factors, to market fluctuations, a shareholder should not attempt to close his or her account by use of a check. In this regard, the Bank has the right to return checks (marked "insufficient funds") unpaid to the presenting bank if the amount of the check exceeds 90% of the assets in the account. Canceled (paid) checks are returned to the shareholder. The checkwriting service enables the shareholder to receive the daily dividends declared on the shares to be redeemed until the day that the check is presented to the Bank for payment.
NET ASSET VALUE
The per share NAV of each Portfolio is computed at the next close of regular trading on the Exchange (ordinarily 4:00 p.m., Eastern time but sometimes earlier, as in the case of scheduled half-day trading or unscheduled suspensions of trading) following receipt of a purchase or redemption order by a Portfolio on each Fund business day on which such an order is received and on such other days as the Board deems appropriate or necessary in order to comply with Rule 22c-1 under the 1940 Act. A Portfolio's per share NAV is calculated by dividing the value of the Portfolio's total assets, less its liabilities, by the total number of its shares then outstanding. As noted above, a Fund business day is any weekday on which the Exchange is open for trading.
Portfolio securities are valued at current market value or at fair value as determined in accordance with applicable rules under the 1940 Act and the Fund's pricing policies and procedures (the "Pricing Policies") established by and under the general supervision of the Board. The Board has delegated to the Manager, subject to the Board's continuing oversight, certain of its duties with respect to the Pricing Policies.
Whenever possible, securities are valued based on market information on the business day as of which the value being determined, as follows:
(a) a security listed on the Exchange, or another national or foreign exchange (other than securities listed on the Nasdaq Stock Exchange ("NASDAQ")) is valued at the last sale price reflected on the consolidated tape at the close of the exchange or foreign securities exchange. If there has been no sale on the relevant business day, the security is valued at the last traded price from the previous day. On the following day, the security is valued in good faith at fair value by, or in accordance with procedures approved by, the Board;
(b) a security traded on NASDAQ is valued at the NASDAQ Official Closing Price;
(c) a security traded on more than one exchange is valued in accordance with paragraph (a) above by reference to the principal exchange (as determined by the Manager) on which the security is traded;
(d) a listed or OTC put or call option is valued at the mid level between
the current bid and asked prices (for options or futures contracts, see item
(e)). If neither a current bid nor a current ask price is available, the
Manager will have discretion to determine the best valuation (e.g., last trade
price) and then bring the issue to the Board's Valuation Committee the next day;
(e) an open futures contract and any option thereon is valued at the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the relevant business day, the security is valued at the last available closing settlement price;
(f) a right is valued at the last traded price provided by approved pricing services;
(g) a warrant is valued at the last traded price provided by approved pricing services. If the last traded price is not available, the bid price will be used. Once a warrant passes maturity, it will no longer be valued;
(h) a U.S. Government security and any other debt instrument having 60 days or less remaining until maturity generally is valued at amortized cost if its original maturity was 60 days or less, or by amortizing its fair value as of the 61st day prior to maturity if the original term to maturity exceeded 60 days, unless in either case the Manager determines that this method does not represent fair value);
(i) a fixed-income security is typically valued on the basis of bid prices provided by a pricing service when the Manager believes that such prices reflect the market value of the security. In certain markets, the market convention may be to use the mid price between bid and offer. Fixed income securities may be valued on the basis of mid prices when the pricing service normally provides mid prices, reflecting the conventions of particular markets. The prices provided by a pricing service may take into account many factors, including institutional size, trading in similar groups of securities and any developments related to specific securities. If the Manager determines that an appropriate pricing service does not exist for a security in a market that typically values such securities on the basis of a bid price, the security is valued on the basis of a quoted bid price or spread over the applicable yield curve (a bid spread) by a broker-dealer in such security. The second highest price will be utilized whenever two or more quoted bid prices are obtained. If an appropriate pricing service does not exist for a security in a market where convention is to use the mid price, the security is valued on the basis of a quoted mid price by a broker-dealer in such security. The second highest price will be utilized wherever two or more quoted mid prices are obtained;
(j) a mortgage-backed or asset-backed security is valued on the basis of bid prices obtained from pricing services or bid prices obtained from multiple major broker-dealers in the security when the Manager believes that these prices reflect the market value of the security. In cases in which broker-dealer quotes are obtained, the Manager has procedures for using changes in market yields or spreads to adjust, on a daily basis, a recently obtained quoted bid price on a security. The second highest price will be utilized whenever two or more quoted bid prices are obtained;
(k) bank loans are valued on the basis of bid prices provided by a pricing service;
(l) bridge loans are valued at par, unless it is determined by the Valuation Committee that any particular bridge loan should be valued at something other than par. This may occur from a significant change in the high yield market and/or a significant change in the states of any particular issuer or issuers of bridge loans;
(m) residential and commercial mortgage whose loans and whose loan pools are fair market priced by a pricing service;
(n) forward and spot currency pricing is provided by pricing services;
(o) a swap is valued by the Manager utilizing various external sources to obtain inputs for variables in pricing models;
(p) interest rate caps and floors are valued at the latest present value of the terms of the agreement, which is provided by a pricing service; and
(q) open end mutual funds are valued at the closing NAV per share and closed end funds are valued at the closing market price per share.
Each Portfolio values its securities at their current market value determined on the basis of market quotations set forth above or, if market quotations are not readily available or are unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Board. When a Portfolio uses fair value pricing, it may take into account any factors it deems appropriate. A Portfolio may determine fair value based upon developments related to a specific security, current valuations of foreign stock indices (as reflected in U.S. futures markets) and/or U.S. sector or broader stock market indices. The prices of securities used by a Portfolio to calculate its NAV may differ from quoted or published prices for the same securities. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security is materially different than the value that could be realized upon the sale of that security.
Each Portfolio expects to use fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the early closing of the exchange on which a security is traded or suspension of trading in the security. A Portfolio may use fair value pricing more frequently for securities primarily traded in non-U.S. markets because, among other things, most foreign markets close well before a Portfolio values its securities at 4:00 p.m., Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. For example, foreign security values may be affected by events that occur after the close of foreign securities markets. To account for
this, a Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
Subject to its oversight, the Board has delegated responsibility for valuing the Portfolios' assets to the Manager. The Manager has established a Valuation Committee, which operates under the policies and procedures approved by the Board, to value the Portfolios' assets on behalf of the Portfolios. The Valuation Committee values Portfolio assets as described above.
A Portfolio's Board may suspend the determination of its NAV (and the offering and sale of shares), subject to the rules of the SEC and other governmental rules and regulations, at a time when: (1) the Exchange is closed, other than customary weekend and holiday closings, (2) an emergency exists as a result of which it is not reasonably practicable for the Portfolio to dispose of securities owned by it or to determine fairly the value of its net assets, or (3) for the protection of shareholders, the SEC by order permits a suspension of the right of redemption or a postponement of the date of payment on redemption.
The net asset value of each Portfolio is calculated by subtracting the liabilities allocated to the Portfolio from the value of the assets belonging to that Portfolio. The NAV of each class of shares of the Portfolio is determined separately by subtracting the liabilities attributable to that class from the assets attributable to that class, and then dividing the result by the number of outstanding shares of that class, all in accordance with a plan adopted by the Fund in accordance with Rule 18f-3 under the 1940 Act.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends each Portfolio to continue to qualify as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Portfolio will not be subject to U.S. federal income tax on the
portion of its taxable net investment income and capital gains that it
distributes to its shareholders, provided that it satisfies a minimum
distribution requirement. To satisfy the minimum distribution requirement, a
Portfolio must distribute to its shareholders at least the sum of (i) 90% of
its investment company taxable income, plus or minus certain adjustments, and
(ii) 90% of its net tax-exempt income for the taxable year. A Portfolio will be
subject to income tax at regular corporation rates on any taxable income or
gains that it does not distribute to its registered holders of its shares.
The Portfolios intend to distribute to the registered holders of their shares all of their net investment income, which includes dividends and interest as well as net short-term capital gains, if any, in excess of any net long-term capital losses and any net long-term capital gains, if any, in excess of any net short-term capital losses. The Code requires all regulated investment companies (such as the Portfolios) to pay a nondeductible 4% excise tax to the extent the regulated investment company does not distribute 98% of its ordinary income, determined on a calendar-year basis, and 98.2% of its capital gains, determined, in general, as if a taxable year ends on October 31. For this purpose, however, any ordinary income or capital gain net income retained by a Portfolio that is subject to corporate income tax will be considered to have been distributed by year-end. In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any underdistribution or overdistribution, as the case may be, from the previous year. Each Portfolio intends to distribute its income and capital gains in the manner necessary to avoid imposition of the 4% excise tax. The current policy of each Portfolio is to declare ordinary income dividends daily and pay them monthly and to pay capital-gains distributions annually. In determining amounts of capital gains to be distributed, generally any capital loss carryovers from prior periods are offset against capital gains.
Gains or losses on sales of securities by a Portfolio are long-term capital gains or losses to the Portfolio if the securities have been held for more than one year. Other gains or losses on the sale of securities are short-term capital gains or losses. Special rules applicable to gains and losses on futures and options are discussed below.
Dividends paid by a Portfolio, if any, with respect to Class A, Class B and Class C shares will be calculated in the same manner at the same time on the same day and will be in the same amount, except that the higher distribution services fees applicable to Class B and Class C shares, and any incremental transfer agency costs relating to Class B shares, will be borne exclusively by the class to which they relate.
The Portfolios each intend to continue to qualify as a regulated investment company under the requirements of the Code for each taxable year. Currently, in order to qualify as a regulated investment company, a Portfolio must generally, among other things, (i) derive at least 90% of its gross income from dividends, interest, gains from the sale of securities or foreign currencies, currencies and net income derived from interests in "qualified publicly traded partnerships" (i.e., partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends, capital gains, and other traditionally permitted mutual fund income), and certain other related income (the "90% test"); and (ii) diversify its holdings so that, at the end of each fiscal quarter, (a) at least 50% of the market value of the Portfolio's total assets is represented by cash, securities of other regulated investment companies, U.S. Government securities and other securities limited, in respect of any one issuer, to an amount not greater than 5% of the Portfolio's assets and not greater than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its assets is invested in the securities of any one issuer, other than U.S. Government securities or the securities of other regulated investment companies, or the securities of two or more issuers of which
the Portfolio owns 20% or more of the voting stock and that are determined to be engaged in the same or similar trades or businesses or in the securities of one or more qualified publicly traded partnerships (the "diversification requirements"). It is possible that certain partnerships in which a Portfolio may invest could be considered qualified publicly traded partnerships and, therefore, the extent to which a Portfolio may invest in partnerships, including master limited partnerships, is limited by its intention to qualify as a regulated investment company under the Code. In addition, although the passive loss rules of the Code do not generally apply to regulated investment companies, such rules do apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Portfolio investments in partnerships, including in qualified publicly traded partnerships, may result in the Portfolio's being subject to state, local or foreign income, franchise or withholding tax liabilities.
If, in any taxable year, a Portfolio fails to qualify as a regulated investment company under the Code or fails to meet the distribution requirement, it will be taxed in the same manner as an ordinary corporation and distributions to its shareholders will not be deductible by the Portfolio in computing its taxable income. In addition, in the event of a failure to qualify, the Portfolio's distributions, to the extent derived from the Portfolio's current or accumulated earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, will be taxable to shareholders as dividend income. However, such dividends will be eligible (i) to be treated as qualified dividend income in the case of shareholders taxed as individuals and (ii) for the dividends received deduction in the case of corporate shareholders. Moreover, if a Portfolio fails to qualify as a regulated investment company in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a regulated investment company. If a Portfolio fails to qualify as a regulated investment company for a period greater than two taxable years, the Portfolio may be required to recognize any net built-in gains with respect to certain of its assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if the Portfolio had been liquidated) if it qualifies as a regulated investment company in a subsequent year.
In certain situations, a Portfolio may, for a taxable year, defer all or a portion of its capital losses and currency losses realized after October and certain ordinary losses realized after December until the next taxable year in computing its investment company taxable income and net capital gain, which will defer the recognition of such realized losses. Such deferrals and other rules regarding gains and losses realized after October (or December) may affect the tax character of shareholder distributions.
Dividends and other distributions by a Portfolio are generally treated under the Code as received by the shareholders at the time the dividend or distribution is made. However, any dividend or distribution declared by a Portfolio in October, November or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on December 31 of such calendar year and to have been paid by the Portfolio not later than such December 31, provided such dividend is actually paid by the Portfolio during January of the following calendar year.
Distributions of investment company taxable income and net capital gains are taxable to shareholders subject to federal income tax regardless of whether the shareholder receives such distributions in additional shares or in cash. Distributions of net long-term capital gains, if any, are taxable as long-term capital gains, regardless of whether the shareholder receives such distributions in additional shares or in cash or how long the investor has held his shares. All other dividends paid by a Portfolio (including dividends from short-term capital gains) from its current and accumulated earnings and profits ("regular dividends") are generally subject to tax as ordinary income. However, any dividends paid by the Municipal Portfolios and properly reported as exempt-interest dividends will not be subject to regular federal income tax.
The New York Municipal Portfolio provides income which is (in large part) tax-free (except for alternative minimum tax) for federal and New York state and local individual income tax purposes to the extent of income derived from New York Municipal Securities or securities issued by possessions of the United States. The California Municipal Portfolio provides in large part income which is tax-free (except for alternative minimum tax) for federal and California state personal income tax purposes to the extent of income derived from California Municipal Securities or securities issued by possessions of the United States. The Diversified Municipal Portfolio provides in large part income which is tax-free for federal income tax purposes (except for alternative minimum tax) and which may be partially tax-free for state tax purposes, to the extent of income derived from Municipal Securities. For this purpose, gains of income on transactions in swap contracts, options, futures contracts and options on futures contracts as well as gains on the sale of Municipal Securities are not tax-exempt. Accordingly, the Portfolios will expect to comply with the requirement of Code Section 852(b)(5) that on a quarterly basis at least 50% of the value of each such Portfolio's total assets consists of Municipal Securities. This requirement may limit these Portfolios' ability to engage in transactions in options, futures contracts and options on futures contracts or in certain other transactions. A portion of the income of the Diversified Municipal Portfolio may be exempt from state income taxes in certain states to the extent the Portfolio's income is derived from securities the interest on which is exempt from income taxes in that state. Shareholders may wish to consult a tax advisor about the status of distributions from the Portfolios in their individual states or localities.
With respect to the Short Duration Portfolio, certain dividends received by non-corporate shareholders (including individuals, trusts and estates) may be eligible for the tax rates applicable in the case of long-term capital gain (15% for individuals with incomes below $400,000 ($450,000 if married filing jointly), 20% for individuals with any income above those amounts that is long-term capital gain and 0% at certain income levels) provided that the non-corporate shareholder receiving the dividend satisfies certain
holding period and other requirements. Dividends subject to these special rules are not actually treated as capital gains, however, and thus are not included in the computation of an individual's net capital gain and generally cannot be used to offset capital losses. However, such rate generally will not apply to dividends received from the Short Duration Portfolio.
As a result of entering into swap contracts, a Portfolio may make or receive periodic net payments. A Portfolio may also make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute taxable ordinary income or loss, while termination of a swap will generally result in capital gain or loss (which will be a long-term capital gain or loss if a Portfolio has been a party to the swap for more than one year). With respect to certain types of swaps, a Portfolio may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss. Periodic net payments that would otherwise constitute ordinary deductions but are allocable under the Code to exempt-interest dividends will not be allowed as a deduction but instead will reduce net tax exempt income.
We will send you information after the end of each year setting forth the amount of dividends and long-term capital gains distributed to you during the prior year. Likewise, the amount of tax exempt income, including any tax exempt income subject to AMT, that each Portfolio distributes will be reported to you and such income must be reported on your federal income tax return.
If an individual receives a regular dividend qualifying for the long-term capital gains rates and such dividend constitutes an "extraordinary dividend," and the individual subsequently recognizes a loss on the sale or exchange of stock in respect of which the extraordinary dividend was paid, then the loss will be long-term capital loss to the extent of such extraordinary dividend. An "extraordinary dividend" on common stock for this purpose is generally a dividend (i) in an amount greater than or equal to 10% of the taxpayer's tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within an 85-day period or (ii) in an amount greater than 20% of the taxpayer's tax basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within a 365-day period.
Distributions in excess of a Portfolio's current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of a shareholder's basis in his shares of the Portfolio, and as a capital gain thereafter (if the shareholder holds his shares of the Portfolio as capital assets). Shareholders receiving dividends or distributions in the form of additional shares should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the shareholders receiving cash dividends or distributions will receive, and should have a cost basis in the shares received equal to such amount. Dividends paid by a Portfolio that are attributable to dividends received by the Portfolio from domestic corporations may qualify for the federal dividends-received deduction for corporations.
Investors considering buying shares just prior to a dividend or capital gain distribution should be aware that, although the price of shares just purchased at that time may reflect the amount of the forthcoming distribution, such dividend or distribution may nevertheless be taxable to them. If a Portfolio is the holder of record of any stock on the record date for any dividends payable with respect to such stock, such dividends will be included in the Portfolio's gross income not as of the date received but as of the later of (a) the date such stock became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the stock would not be entitled to receive the declared, but unpaid, dividends) or (b) the date the Portfolio acquired such stock. Accordingly, in order to satisfy its income distribution requirements, the Portfolio may be required to pay dividends based on anticipated earnings, and shareholders may receive dividends in an earlier year than would otherwise be the case.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of a Municipal Portfolio will not be deductible for U.S. federal income
tax purposes. If a shareholder receives exempt-interest dividends with respect
to any share of a Municipal Portfolio and if the share is held by the
shareholder for six months or less, then any loss on the sale or exchange of
the share may, to the extent of the exempt-interest dividends, be disallowed.
In addition, the Code may require a shareholder that receives exempt-interest
dividends to treat as taxable income a portion of certain otherwise non-taxable
social security and railroad retirement benefit payments. Furthermore, a
portion of any exempt-interest dividend paid by a Municipal Portfolio that
represents income derived from certain revenue or private activity bonds held
by the Municipal Portfolio may not retain its tax-exempt status in the hands of
a shareholder who is a "substantial user" of a facility financed by such bonds,
or a "related person" thereof. Moreover, some or all of the exempt-interest
dividends distributed by a Portfolio may be a specific preference item, or a
component of an adjustment item, for purposes of the federal individual and
corporate alternative minimum taxes. In addition, the receipt of dividends and
distributions from a Municipal Portfolio may affect a foreign corporate
shareholder's federal "branch profits" tax liability and the federal "excess
net passive income" tax liability of a shareholder of an S corporation.
Shareholders should consult their own tax advisors as to whether they are
(i) "substantial users" with respect to a facility or "related" to such users
within the meaning of the Code or (ii) subject to a federal alternative minimum
tax, the federal "branch profits" tax, or the federal "excess net passive
income" tax.
A Portfolio may invest in debt securities issued at a discount or providing for deferred interest, which may result in income to the Portfolio equal, generally, to a portion of the excess of the face value of the securities over their issue price ("original issue discount") each year that the securities are held, even though the Portfolio receives no actual interest payments thereon. Original issue discount is treated as income earned by a Portfolio and, therefore, is subject to distribution requirements of the Code applicable to
regulated investment companies. Since the original issue discount income earned by a Portfolio in a taxable year may not be represented by cash income, the Portfolio may have to dispose of securities, which it might otherwise have continued to hold, or for the Short Duration Portfolio, borrow, to generate cash in order to satisfy its distribution requirements. In addition, the Short Duration Portfolio's investments in contingent payment and inflation indexed debt instruments may increase or accelerate the Short Duration Portfolio's recognition of income, including the recognition of income in excess of cash generated by such investments.
A Portfolio may be required to treat amounts as taxable income or gain, subject to the distribution requirements referred to above, even though no corresponding amounts of cash are received concurrently, as a result of the tax rules applicable to debt obligations acquired with market discount if an election is made with respect to such market discount.
Gain or loss realized by a Portfolio from a closing transaction with respect to options written by the Portfolio, or gain from the lapse of any such option, will be treated as short-term capital gain or loss. Gain or loss realized by a Portfolio from options (other than options that are Section 1256 contracts, as described below) purchased by the Portfolio, as well as loss attributable to the lapse of such options, will be treated as capital gain or loss. Such capital gain or loss will be long-term or short-term depending upon whether the Portfolio held the particular option for more than one year.
The Code includes special rules applicable to certain forward contracts and to certain exchange-listed options, futures contracts and options on futures contracts which the Portfolios may write, purchase or sell. Such forward contracts, options and futures contracts are classified as Section 1256 contracts under the Code. The gain or loss resulting from the sale, disposition, closing out, expiration or other termination of Section 1256 contracts (other than certain foreign currency forward options and futures contracts, as discussed below), generally is treated as long-term capital gain or loss taxable at the lower capital-gains tax rate to the extent of 60% thereof and short-term capital gain or loss to the extent of 40% thereof. These contracts, when held by a Portfolio at the end of a fiscal year (or, for purposes of the excise tax, at the end of a period ending on October 31) generally are required to be treated for federal income tax purposes as sold at fair market value on the last business day of the fiscal year ("marked to market"). Any net mark-to-market gains may have to be distributed to satisfy the distribution requirements referred to above even though a Portfolio may receive no corresponding cash amounts, possibly requiring the disposition of portfolio securities or borrowing to obtain the necessary cash.
Certain Section 1256 contracts and certain other transactions undertaken by a Portfolio may result in "straddles" for federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Portfolios. In addition, losses realized by the Portfolios on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Further, the Portfolios may be required to capitalize, rather than deduct currently, any interest expense on indebtedness incurred to purchase or carry any positions that are part of a straddle. Because only a few regulations implementing the straddle rules have been promulgated, the tax consequences of straddle transactions to the Portfolios are not entirely clear. The straddle transactions may increase the amount of short-term capital gain recognized by the Portfolios. The Portfolios may make one or more of the elections available under the Code which are applicable to straddles. If a Portfolio makes any such elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer and/or accelerate the recognition of gains or losses from the affected straddle positions and require the capitalization of interest expense, the amount which must be distributed to shareholders as ordinary income or long-term capital gain by a Portfolio may be increased or decreased substantially as compared to a portfolio that did not engage in such hedging transactions.
The diversification requirements applicable to the Portfolios' assets and other restrictions imposed on the Portfolios by the Code may limit the extent to which the Portfolios will be able to engage in transactions in forward contracts, options, futures contracts or options on futures contracts.
Under Code Section 988, foreign currency gains or losses from certain foreign currency contracts (such as forward futures and option contracts) that are not Section 1256 contracts will generally be treated as ordinary income or loss; however, any Portfolio of the Fund may, under certain circumstances, make an election pursuant to Section 988(a)(1)(B) to treat such gain or loss as a capital gain or loss. In general, in the event such election is made, treatment of a gain or loss as long-term or short-term will depend upon the Portfolio's holding period with respect to such contracts. Gains or losses on the disposition of debt securities denominated in a foreign currency attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of disposition are generally treated as ordinary income or loss. Also, gains or losses attributable to fluctuations in foreign currency exchange rates which occur between the time the Portfolio accrues interest or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Portfolio actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. The gains or losses described above that are treated as ordinary income or loss may increase or decrease the amount of a Portfolio's investment company taxable income to be distributed to its shareholders as ordinary income. Additionally, if Code Section 988 ordinary losses exceed other investment company taxable income during a taxable year, a Portfolio would not be able to make any ordinary dividend distributions, and any distributions made before the losses were realized
but in the same taxable year would be recharacterized as a return of capital to shareholders, thereby reducing each shareholder's basis in the shares.
Income received by the Short Duration Portfolio in respect of foreign securities may be subject to foreign withholding taxes. Tax treaties between certain countries and the United States may reduce or eliminate such taxes.
Certain types of income received by the Short Duration Portfolio from real estate investment trusts ("REITs"), REMICs, taxable mortgage pools or other investments may cause the Portfolio to report some or all of its distributions as "excess inclusion income." To Portfolio shareholders such excess inclusion income may (1) constitute taxable income, as "unrelated business taxable income" for those shareholders who would otherwise be tax-exempt such as individual retirement accounts, 401(k) accounts, Keogh plans, pension plans and certain charitable entities; (2) not be offset against net operating losses for tax purposes; (3) not be eligible for reduced U.S. withholding for non-U.S. shareholders even from tax treaty countries; and (4) cause the Portfolio to be subject to tax if certain "disqualified organizations" as defined by the Code are Short Duration Portfolio shareholders.
Upon the sale or exchange of his shares, a shareholder will realize a taxable gain or loss equal to the difference between the amount realized and his basis in his shares. A redemption of shares by a Portfolio will be treated as a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term capital gain or loss if the shares are held for more than one year and short-term capital gain or loss if the shares are held for one year or less. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced, including replacement through the reinvesting of dividends and capital gains distributions in a Portfolio, within a 61-day period beginning 30 days before and ending 30 days after the disposition of the shares. In such a case, the basis of the shares acquired will be increased to reflect the disallowed loss. Any loss realized by a shareholder on the sale of a Portfolio share held by the shareholder for six months or less will be treated for U.S. federal income tax purposes as a long-term capital loss to the extent of any distributions or deemed distributions of long-term capital gains received by the shareholder with respect to such share. If a shareholder incurs a sales charge in acquiring shares of a Portfolio, disposes of those shares within 90 days and then acquires, before January 31 of the following year, shares in a mutual fund for which the otherwise applicable sales charge is reduced by reason of a reinvestment right (e.g., an exchange privilege), the original sales charge will not be taken into account in computing gain/loss on the original shares to the extent the subsequent sales charge is reduced. Instead, the disregarded portion of the original sales charge will be added to the tax basis of the newly acquired shares. Furthermore, the same rule also applies to a disposition of the newly acquired shares made within 90 days of the second acquisition. This provision prevents a shareholder from immediately deducting the sales charge by shifting his or her investment within a family of mutual funds.
Under Treasury Regulations, a Portfolio is currently required to withhold and remit to the U.S. Treasury 28% of dividend and capital-gains income from the accounts of certain U.S. shareholders unless such U.S. shareholders provide their correct taxpayer identification number ("TIN") and otherwise comply with the applicable requirements of the backup withholding rules. A U.S. shareholder who does not provide his correct TIN may be subject to penalties imposed by the Internal Revenue Service (the "IRS"). Certain shareholders are exempt from backup withholding. Backup withholding is not an additional tax and any amount withheld may be credited against a shareholder's U.S. federal income tax liability.
If the Short Duration Portfolio were to invest in a PFIC and elect to treat the PFIC as a "qualified electing fund" under the Code, in lieu of the foregoing requirements, the Short Duration Portfolio might be required to include in income each year a portion of the ordinary earnings and net capital gains of the qualified electing fund, even if not distributed to the Short Duration Portfolio, and such amounts would be subject to the 90% and excise tax distribution requirements described above. In order to make this election, the Short Duration Portfolio would be required to obtain certain annual information from the PFICs in which it invests, which may be difficult or impossible to obtain.
Shareholders will receive, if appropriate, various written notices after the close of a Portfolio's taxable year regarding the U.S. federal income tax status of certain dividends, distributions and deemed distributions that were paid (or that are treated as having been paid) by the Portfolio to its shareholders during the preceding taxable year.
Dividends, distributions and redemption proceeds may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation.
If a shareholder recognizes a loss with respect to a Portfolio's shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases exempted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not exempted. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Beginning in 2013, a 3.8 percent Medicare contribution tax will be imposed on net investment income, including interest, dividends, and capital gain, of U.S. individuals with income exceeding $200,000 (or $250,000 if married filing jointly), and of estates and trusts.
A foreign shareholder generally is subject to dividend tax withholding at the 30% rate or at a lower applicable treaty rate on ordinary income dividends from a Portfolio. In order to obtain a reduced rate of withholding, a non-U.S. shareholder will be required to provide an IRS Form W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax does not apply to regular dividends paid to a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. shareholder's conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. shareholder were a U.S. shareholder. A non-U.S. corporation receiving effectively connected dividends may also be subject to additional "branch profits tax" imposed at a rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or other applicable form may be subject to backup withholding at the appropriate rate.
A 30% withholding tax will be imposed on dividends paid after December 31, 2013 and redemption proceeds paid after December 31, 2016, to (i) foreign financial institutions including non-U.S. investment funds unless they agree to collect and disclose to the IRS information regarding their direct and indirect U.S. account holders and (ii) certain other foreign entities unless they certify certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions will need to (i) enter into agreements with the IRS that state that they will provide the IRS information including the names, addresses and TINs of direct and indirect U.S. account holders, comply with due diligence procedures with respect to the identification of U.S. accounts, report to the IRS certain information with respect to U.S. accounts maintained, agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required information, and determine certain other information as to their account holders, or (ii) in the event that an applicable intergovernmental agreement and implement legislation are adopted, provide local revenue authorities with similar account holder information. Other foreign entities will need to provide the name, address, and TIN of each substantial U.S. owner or certifications of no substantial U.S. ownership unless certain exceptions apply.
In general, U.S. federal withholding tax will not apply to any gain or income realized by a non-U.S. shareholder in respect of any distributions of net long-term capital gains over net short-term capital losses, exempt-interest dividends, or upon the sale or other disposition of shares of a Portfolio.
Distributions that a Portfolio reports as "short-term capital gain dividends" or "long-term capital gain dividends" will not be treated as such to a recipient foreign shareholder if the distribution is attributable to a REIT's distribution to a Portfolio of gain from the sale or exchange of U.S. real property or an interest in a U.S. real property holding corporation and the Portfolio's direct or indirect interests in U.S. real property exceeded certain levels. Instead, if the foreign shareholder has not owned more than 5% of the outstanding shares of the Portfolio at any time during the one year period ending on the date of distribution, such distributions will be subject to 30% withholding by the Portfolio and will be treated as ordinary dividends to the foreign shareholder; if the foreign shareholder owned more than 5% of the outstanding shares of the Portfolio at any time during the one year period ending on the date of the distribution, such distribution will be treated as real property gain subject to 35% withholding tax and could subject the foreign shareholder to U.S. filing requirements. Additionally, if a Portfolio's direct or indirect interests in U.S. real property were to exceed certain levels, a foreign shareholder realizing gains upon redemption from the Portfolio could be subject to the 35% withholding tax and U.S. filing requirements unless the foreign person had not held more than 5% of the Portfolio's outstanding shares throughout either such person's holding period for the redeemed shares or, if shorter, the previous five years.
The rules laid out in the previous paragraph, other than the withholding rules, will apply notwithstanding a foreign shareholder's participation or a Portfolio's participation in a wash sale transaction or the payment of a substitute dividend.
Shares of a Portfolio held by a non-U.S. shareholder at death will be considered situated within the United States and subject to the U.S. estate tax, if applicable.
The discussion in the Prospectus, together with the foregoing, is a general summary of the tax consequences of investments in the Portfolios. Investors are urged to consult their own tax advisors to determine the effect of investments in the Portfolios upon their individual tax situations.
any year, then the Portfolios will report the cost basis of such covered shares to the IRS and you on Form 1099-B along with the gross proceeds received on the redemption, the gain or loss realized on such redemption and the holding period on the redeemed shares.
Your cost basis in your covered shares is permitted to be calculated using any one of three alternative methods: Average Cost, First In-First Out (FIFO) and Specific Share Identification. You may elect which method you want to use by notifying the Portfolios. This election may be revoked or changed by you at any time up to the date of your first redemption of covered shares. If you do not affirmatively elect a cost basis method then a Portfolio's default cost basis calculation method, which is currently the Average Cost method - will be applied to your account(s). The default method will also be applied to all new accounts established unless otherwise requested.
If you hold Portfolio shares through a broker (or other nominee), please contact that broker (nominee) with respect to the reporting of cost basis and available elections for your account.
You are encouraged to consult your tax advisor regarding the application of the new cost basis reporting rules and, in particular, which cost basis calculation method you should elect.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general oversight of the Board, the Manager is responsible for the investment decisions and of placing of orders for portfolio securities for each of the Portfolios. The International Portfolios generally effect transactions on stock exchanges and markets which involve the payment of brokerage commissions. In transactions on stock exchanges in the United States, these commissions are negotiated. Traditionally, commission rates have generally not been negotiated on stock markets outside the United States. In recent years, however, an increasing number of developed foreign stock markets have adopted a system of negotiated rates, although a few developed foreign markets and most emerging foreign markets continue to be subject to an established schedule of minimum commission rates. Each of the International Portfolios may purchase securities from underwriters at prices which include a concession paid by the issuer to the underwriter. The Manager determines the broker or dealer to be used in each specific transaction with the objective of negotiating a combination of the most favorable commission (for transactions on which a commission is payable) and the best price obtainable on each transaction (generally defined as "best execution"). In connection with seeking best price and execution, the Fund does not consider sales of shares of the Portfolios or other investment companies managed by the Manager as a factor in the selection of brokers and dealers to effect portfolio transactions and has adopted a policy and procedures reasonably designed to preclude such considerations.
International Portfolios
When consistent with the objective of obtaining best execution, brokerage may be directed to persons or firms supplying investment information to the Manager. There may be occasions where the transaction cost charged by a broker may be greater than that which another broker may charge if a Portfolio determines in good faith that the amount of such transaction cost is reasonable in relation to the value of the brokerage, research and statistical services provided by the executing broker.
Neither the Portfolios nor the Manager have entered into agreements or understandings with any brokers regarding the placement of securities transactions because of research services they provide. To the extent that such persons or firms supply investment information to the Manager for use in rendering investment advice to the Portfolios, such information may be supplied at no cost to the Manager, and therefore may have the effect of reducing the expenses of the Manager in rendering advice to the Portfolios. While it is impossible to place an actual dollar value on such investment information, its receipt by the Manager probably does not reduce the overall expenses of the Manager to any material extent.
The investment information provided to the Manager is of the type described in Section 28(e)(3) of the Securities Exchange Act of 1934 and is designed to augment the Manager's own internal research and investment strategy capabilities. Research services furnished by brokers through which the Portfolio effects securities transactions are used by the Manager in carrying out its investment responsibilities with respect to all its client accounts.
The Portfolios may deal in some instances in securities that are not listed on a national stock exchange but are traded in the over-the-counter market. The Portfolios may also purchase listed securities through the third market, i.e., from a dealer that is not a member of the exchange on which a security is listed. Where transactions are executed in the over-the-counter market or third market, the Portfolios will seek to deal with the primary market makers; but when necessary in order to obtain the best price and execution, it will utilize the services of others. In all cases, the Portfolios will attempt to negotiate best execution.
The extent to which commissions that will be charged by broker-dealers selected by the Portfolios may reflect an element of value for research cannot presently be determined. To the extent that research services of value are provided by broker-dealers with or through whom the Portfolios place portfolio transactions, the Manager may be relieved of expenses which it might otherwise bear. Research services furnished by broker-dealers could be useful and of value to the Manager in servicing its other clients as well as the
Portfolios; but, on the other hand, certain research services obtained by the Manager as a result of the placement of portfolio brokerage of other clients could be useful and of value to it in serving the Portfolios.
Municipal Portfolios and Short Duration Portfolio
Most transactions for the Portfolios, including transactions in listed securities, are executed in the over-the-counter market by approximately fifteen principal market maker dealers with whom the Manager maintains regular contact. Most transactions made by the Portfolios will be principal transactions at net prices and the Portfolios will incur little or no brokerage costs. Where possible, securities will be purchased directly from the issuer or from an underwriter or market maker for the securities unless the Manager believes a better price and execution is available elsewhere. Purchases from underwriters of newly-issued securities for inclusion in a Portfolio usually will include a concession paid to the underwriter by the issuer and purchases from dealers serving as market makers will include the spread between the bid and asked price.
The Portfolios have no obligation to enter into transactions in portfolio securities with any broker, dealer, issuer, underwriter or other entity. In placing orders, it is the policy of the Portfolios to obtain the best price and execution for its transactions. Where best price and execution may be obtained from more than one broker or dealer, the Manager may, in its discretion, purchase and sell securities through brokers and dealers who provide research, statistical and other information to the Manager. Such services may be used by the Manager for all of its investment advisory accounts and, accordingly, not all such services may be used by the Manager in connection with the Portfolios. The supplemental information received from a dealer is in addition to the services required to be performed by the Manager under the Management Agreement, and the expenses of the Manager will not necessarily be reduced as a result of the receipt of such information.
When consistent with the objective of obtaining best execution, brokerage may be directed to persons or firms supplying investment information to the Manager. There may be occasions where the transaction cost charged by a broker may be greater than that which another broker may charge if the Short Duration Portfolio determines in good faith that the amount of such transaction cost is reasonable in relation to the value of the brokerage, research and statistical services provided by the executing broker.
Neither the Short Duration Portfolio nor the Manager have entered into agreements or understandings with any brokers regarding the placement of securities transactions because of research services they provide. To the extent that such persons or firms supply investment information to the Manager for use in rendering investment advice to the Short Duration Portfolio, such information may be supplied at no cost to the Manager, and therefore may have the effect of reducing the expenses of the Manager in rendering advice to the Short Duration Portfolio. While it is impossible to place an actual dollar value on such investment information, its receipt by the Manager probably does not reduce the overall expenses of the Manager to any material extent.
The investment information provided to the Manager is of the type described in Section 28(e)(3) of the Securities Exchange Act of 1934 and is designed to augment the Manager's own internal research and investment strategy capabilities. Research services furnished by brokers through which the Short Duration Portfolio effects securities transactions are used by the Manager in carrying out its investment responsibilities with respect to all its client accounts.
The Short Duration Portfolio may deal in some instances in securities that are not listed on a national stock exchange but are traded in the over-the-counter market. The Short Duration Portfolio may also purchase listed securities through the third market, i.e., from a dealer that is not a member of the exchange on which a security is listed. Where transactions are executed in the over-the-counter market or third market, the Short Duration Portfolio will seek to deal with the primary market makers; but when necessary in order to obtain the best price and execution, it will utilize the services of others. In all cases, the Short Duration Portfolio will attempt to negotiate best execution.
The extent to which commissions that will be charged by broker-dealers selected by the Short Duration Portfolio may reflect an element of value for research cannot presently be determined. To the extent that research services of value are provided by broker-dealers with or through whom the Short Duration Portfolio places portfolio transactions, the Manager may be relieved of expenses which it might otherwise bear. Research services furnished by broker-dealers could be useful and of value to the Manager in servicing its other clients as well as the Portfolio; but, on the other hand, certain research services obtained by the Manager as a result of the placement of portfolio brokerage of other clients could be useful and of value to it in serving the Short Duration Portfolio.
General
The Portfolios may from time to time place orders for the purchase or sale of securities with SCB & Co., an affiliate of the Manager. In such instances the placement of orders with such broker would be consistent with the Portfolios' objective of obtaining best execution and would not be dependent upon the fact that SCB & Co. is an affiliate of the Manager. With respect to orders placed with SCB & Co. for execution on a national securities exchange, commissions received must conform to Section 17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which permit an affiliated person of a registered investment company (such as the Fund), or any affiliated person of such person, to receive a brokerage commission from such registered investment company provided that such
commission is reasonable and fair compared to the commissions received by other brokers in connection with comparable transactions involving similar securities during a comparable period of time.
The Municipal Portfolios and Short Duration Portfolio did not pay any brokerage commissions for the past three fiscal years. Information about the brokerage commissions paid by the Tax-Managed International Portfolio and the International Portfolio, including to Bernstein LLC, which is an affiliated broker of the Fund, and its predecessor, and to Bernstein Limited, which is also an affiliated broker of the Fund, is set forth in the following table:
AGGREGATE BROKERAGE BROKERAGE COMMISSIONS COMMISSIONS PAID TO AFFILIATED PORTFOLIO PAID BROKER --------- ------------------- --------------------- Tax-Managed International Portfolio Fiscal Year Ended September 30, 2010........................... $7,700,375 $0 Fiscal Year Ended September 30, 2011........................... $6,464,731 $0 Fiscal Year Ended September 30, 2012........................... $5,305,137 $0 International Portfolio Fiscal Year Ended September 30, 2010........................... $3,406,690 $0 Fiscal Year Ended September 30, 2011........................... $2,863,921 $0 Fiscal Year Ended September 30, 2012........................... $2,339,164 $0 |
The Fund believes that the ideas of the Manager's investment staff should benefit the Portfolios and its shareholders, and does not want to afford speculators an opportunity to profit by anticipating Portfolio trading strategies or using Portfolio information for stock picking. However, the Fund also believes that knowledge of each Portfolio's portfolio holdings can assist shareholders in monitoring their investment, making asset allocation decisions, and evaluating portfolio management techniques.
The Manager has adopted, on behalf of the Portfolios, policies and procedures relating to disclosure of the Portfolios' portfolio securities. The policies and procedures relating to disclosure of a Portfolio's portfolio securities are designed to allow disclosure of portfolio holdings information where necessary to the operation of the Portfolios or useful to the Portfolios' shareholders without compromising the integrity or performance of the Portfolios. Except when there are legitimate business purposes for selective disclosure and other conditions (designed to protect the Portfolios and their shareholders) are met, the Portfolios do not provide or permit others to provide information about a Portfolio's portfolio holdings on a selective basis.
Each Portfolio includes portfolio holdings information as required in regulatory filings and shareholder reports, discloses portfolio holdings information as required by federal or state securities laws and may disclose portfolio holdings information in response to requests by governmental authorities. In addition, the Manager may post portfolio holdings information on the Manager's website (www.AllianceBernstein.com). The Manager generally posts on the website a complete schedule of the Portfolios' portfolio securities, generally as of the last day of each calendar month, approximately 30 days after the end of that month. This posted information generally remains accessible on the website for three months. For each portfolio security, the posted information includes its name, the number of shares held by a Portfolio, the market value of the Portfolio's holdings, and the percentage of the Portfolio's assets represented by the Portfolio's holdings. In addition to the schedule of portfolio holdings, the Manager may post information about the number of securities the Fund holds, a summary of the Portfolios' top ten holdings (including name and the percentage of the Portfolios' assets invested in each holding), and a percentage breakdown of the Portfolios' investments by country, sector and industry, as applicable approximately 10-15 days after the end of the month. The day after portfolio holdings information is publicly available on the website, it may be mailed, e-mailed or otherwise transmitted to any person.
The Manager may distribute or authorize the distribution of information about a Portfolio's portfolio holdings that is not publicly available, on the website or otherwise, to the Manager's employees and affiliates that provide services to the Fund. In addition, the Manager may distribute or authorize distribution of information about a Portfolio's portfolio holdings that is not publicly available, on the website or otherwise, to the Fund's service providers who require access to the information in order to fulfill their contractual duties relating to the Portfolios, to facilitate the review of the Portfolios by rating agencies, for the purpose of due diligence regarding a merger or acquisition, or for the purpose of effecting in-kind redemption of securities to facilitate orderly redemption of portfolio assets and minimal impact on remaining Portfolio shareholders. The Manager does not expect to disclose information about the Portfolios' portfolio holdings that is not publicly available to the Portfolios' individual or institutional investors or to intermediaries that distribute the Portfolios' shares. Information may be disclosed with any frequency and any lag, as appropriate.
Before any non-public disclosure of information about a Portfolio's portfolio holdings is permitted, however, the Manager's Chief Compliance Officer (or his designee) must determine that the Portfolio has a legitimate business purpose for providing the
portfolio holdings information, that the disclosure is in the best interests of the Portfolios' shareholders, and that the recipient agrees or has a duty to keep the information confidential and agrees not to trade directly or indirectly based on the information or to use the information to form a specific recommendation about whether to invest in the Portfolios or any other security. Under no circumstances may the Manager or its affiliates receive any consideration or compensation for disclosing the information.
The Manager has established procedures to ensure that each Portfolio's portfolio holdings information is only disclosed in accordance with these policies. Only the Manager's Chief Compliance Officer (or his designee) may approve the disclosure, and then only if he or she and a designated senior officer in the Manager's product management group determines that the disclosure serves a legitimate business purpose of a Portfolio and is in the best interest of the Portfolio's shareholders. The Manager's Chief Compliance Officer (or his designee) approves disclosure only after considering the anticipated benefits and costs to the Portfolio and its shareholders, the purpose of the disclosure, any conflicts of interest between the interests of the Portfolios and their shareholders and the interests of the Manager or any of its affiliates, and whether the disclosure is consistent with the policies and procedures governing disclosure. Only someone approved by the Manager's Chief Compliance Officer (or his designee) may make approved disclosures of portfolio holdings information to authorized recipients. The Manager reserves the right to request certifications from senior officers of authorized recipients that the recipient is using the portfolio holdings information only in a manner consistent with the Manager's policy and any applicable confidentiality agreement. The Manager's Chief Compliance Officer (or his designee) or another member of the compliance team reports all arrangements to disclose portfolio holdings information to the Board on a quarterly basis. If the Board determines that disclosure was inappropriate, the Manager will promptly terminate the disclosure arrangement.
In accordance with these procedures, each of the following third parties have been approved to receive information concerning the Portfolios' portfolio holdings: (i) the Fund's independent registered public accounting firm, for use in providing audit opinions; (ii) RR Donnelley Financial, Data Communique International and, from time to time, other financial printers, for the purpose of preparing Portfolio regulatory filings; (iii) the Fund's custodian in connection with its custody of a Portfolio's assets; (iv) Risk Metrics for proxy voting services; and (v) data aggregators, such as Vestek. Information may be provided to these parties at any time with no time lag. Each of these parties is contractually and ethically prohibited from sharing the Portfolios' portfolio holdings information unless specifically authorized.
The Bernstein Global Wealth Management Unit of AllianceBernstein L.P. ("Bernstein") provides certain tax management services to private clients that invest in the Portfolios through investment programs administered by Bernstein. As part of such services, Bernstein conducts year-end tax trading on behalf of these private clients to offset capital gains taxes where possible, which may result in buying and selling shares in one or more of the Portfolios which could in turn result in a Portfolio experiencing temporary asset inflows or outflows at year end. Bernstein coordinates with the Manager to try to ensure that that the implementation of Bernstein's tax management strategies does not compromise the interests of any Portfolio or its investors. However, the implementation of Bernstein's tax management strategies may require a Portfolio to increase asset allocations to cash or cash equivalents in order to meet expected redemption requests. If a significant amount of a Portfolio's assets are allocated to cash or cash equivalents, it may be more difficult for the Portfolio to achieve its investment objective.
CUSTODIAN, COUNSEL, INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM AND FINANCIAL STATEMENTS
State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111, acts as custodian for the securities and cash of the Fund but plays no part in deciding the purchase or sale of portfolio securities.
ABI, an indirect wholly owned subsidiary of AllianceBernstein, located at 1345 Avenue of the Americas, New York, New York 10105, is the principal underwriter of the Class A, Class B and Class C shares of the Portfolios. Under the Distribution Services Agreement between the Fund and the Principal Underwriter, 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 1933 Act.
The law firm of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, New York 10019-6099, acts as counsel to the Fund.
PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, New York 10017, has been selected as the Fund's independent registered public accounting firm to audit the annual financial statements of the Portfolios.
Any shareholder inquiries may be directed to the shareholder's financial intermediary or to ABIS at the address or telephone numbers shown on the front cover of this SAI. This SAI does not contain all the information set forth in the Registration Statement filed by the Fund with the SEC under the 1933 Act. Copies of the Registration Statement may be obtained at a reasonable charge from the SEC or may be examined, without charge, at the offices of the SEC in Washington, D.C.
The Report of the Independent Registered Public Accounting Firm and financial statements of the Portfolios are incorporated herein by reference to its annual report filing made with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. The annual report is dated September 30, 2012 and was filed on December 6, 2012. It is available without charge upon request by calling ABIS at (800) 227-4618.
GENERAL INFORMATION
The shares of each Portfolio have no preemptive or conversion rights. Shares are fully paid and nonassessable and redeemable at the option of the shareholder and have a par value per share of $0.001. Pursuant to the Articles of Incorporation, the Board may also authorize the creation of additional classes of shares of Portfolios or series of shares (the proceeds of which may be invested in separate, independently managed portfolios) with such preferences, privileges, limitations and voting and dividend rights as the Board may determine.
Shareholders have certain rights, including the right to call a meeting of shareholders for the purpose of voting on the removal of one or more Directors. Such removal can be effected upon the action of two thirds of the outstanding shares of all of the Portfolios of the Fund, voting as a single class. The shareholders of each Portfolio are entitled to a full vote for each full share held and to the appropriate fractional vote for each fractional share. A matter that affects a Portfolio of the Fund will not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding voting securities of that Portfolio. The voting rights of the shareholders are not cumulative. In order to avoid unnecessary expenses, the Fund does not intend to hold annual meetings of shareholders.
A shareholder will be entitled to share pro rata with other holders of the same class of shares all dividends and distributions arising from a Portfolio's assets and, upon redeeming shares, will receive the then current NAV of the Portfolio represented by the redeemed shares less any applicable CDSC. 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. Each class of shares of the Portfolios has the same rights and is identical in all respects, except that each class bears its own transfer agency expenses, each of Class A, Class B and Class C shares of a Portfolio bears its own distribution expenses and Class B shares convert to Class A shares under certain circumstances. Each class of shares of a Portfolio votes separately with respect to the Fund's Rule 12b-1 distribution plan and other matters for which separate class voting is appropriate under applicable law. Shares are freely transferable, are entitled to dividends as determined by the Directors and, in liquidation of a Portfolio, are entitled to receive the net assets of the Portfolio.
As of January 4, 2013, to the knowledge of the Fund the following persons or entities owned beneficially or of record 5% or more of the New York Municipal Portfolio, California Municipal Portfolio, Diversified Municipal Portfolio, Short Duration Portfolio, Tax-Managed International Portfolio or the International Portfolio or any class of the Portfolios:
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- NEW YORK MUNICIPAL PORTFOLIO ---------------------------- CLASS A SHARES: --------------- CHARLES SCHWAB & CO. 4,628,016.074 26.55% FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS MUTUAL FUND OPERATIONS 211 MAIN STREET SAN FRANCISCO CA 94105-1905 PERSHING LLC 3,259,720.675 18.70% PO BOX 2052 JERSEY CITY NJ 07303-2052 LPL FINANCIAL FBO CUSTOMER ACCOUNTS/ATTN MUTUAL 2,248,694.286 12.90% FUND OPERATIONS P.O. BOX 509046 SAN DIEGO CA 92150-9043 MLPF&S FOR THE BENEFIT OF ITS CUSTOMERS 1,152,057.840 9.02% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 NATIONAL FINANCIAL SERVICES LLC 1,462,967.563 8.39% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 499 WASHINGTON BLVD., FL. 4 JERSEY CITY, NJ 07310 UBS WM USA 10,078,671.551 6.19% OMNI ACCOUNT M/F ATTN: DEPARTMENT MANAGER 1000 HARBOR BLVD 5/TH/ FLOOR WEEHAWKEN NJ 07086-6761 CLASS B SHARES: -------------- PERSHING LLC 12,949.674 33.47% PO BOX 2052 JERSEY CITY NJ 07303-2052 LPL FINANCIAL FBO CUSTOMER ACCOUNTS/ATTN MUTUAL 7,914.755 21.07% FUND OPERATIONS P.O. BOX 509046 SAN DIEGO CA 92150-9043 MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 4,823.271 12.84% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 MORGAN STANLEY SMITH BARNEY 3,980.446 10.59% HARBORSIDE FINANCIAL CENTER PLAZA II, FL. 3 JERSEY CITY NJ 07311 95 |
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- NATIONAL FINANCIAL SERVICES LLC 3,333.282 8.87% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 499 WASHINGTON BLVD., FL. 4 JERSEY CITY NJ 07310 CLASS C SHARES: --------------- PERSHING LLC 1,457,514.637 22.17% PO BOX 2052 JERSEY CITY NJ 07303-2052 CHARLES SCHWAB & CO. 1,306,664.004 19.87% FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS MUTUAL FUND OPERATIONS 211 MAIN STREET SAN FRANCISCO CA 94105-1905 MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 785,788.408 11.95% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 LPL FINANCIAL FBO CUSTOMER ACCOUNTS/ATTN MUTUAL 646,242.570 9.83% FUND OPERATIONS P.O. BOX 509046 SAN DIEGO CA 92150-9043 MORGAN STANLEY SMITH BARNEY 445,524,900 6.78% HARBORSIDE FINANCIAL CENTER PLAZA II, FL. 3 JERSEY CITY NJ 07311 NATIONAL FINANCIAL SERVICES LLC 391,160.754 5.95% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 499 WASHINGTON BLVD., FL. 4 JERSEY CITY NJ 07310 FIRST CLEARING, LLC 380,169.812 5.78% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 UBS WM USA 363,038.948 5.52% OMNI ACCOUNT M/F ATTN: DEPARTMENT MANAGER 1000 HARBOR BLVD 5/TH/ FLOOR WEEHAWKEN NJ 07086-6761 CALIFORNIA MUNICIPAL PORTFOLIO ------------------------------ CLASS A SHARES: --------------- FIRST CLEARING, LLC 2,153,521.485 24.98% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 96 |
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 1,450,144.035 16.82% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 PERSHING LLC 1,339,595.413 15.54% PO BOX 2052 JERSEY CITY NJ 07303-2052 MORGAN STANLEY SMITH BARNEY 1,329,531.034 15.42% HARBORSIDE FINANCIAL CENTER PLAZA II 3/RD/ FLOOR JERSEY CITY, NJ 07311 UBS WM USA 1,031,253.302 11.96% OMNI ACCOUNT M/F ATTN: DEPARTMENT MANAGER 1000 HARBOR BLVD 5/TH/ FLOOR WEEHAWKEN NJ 07086-6761 CLASS B SHARES: --------------- MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 2,001.687 50.08% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 JEANNE VILLEGAS & SAUL 1,178.742 29.49% VILLEGAS JTWROS TOD/DE 1135 SEVILLE DR PACIFICA CA 94044-3553 NATIONAL FINANCIAL SERVICES LLC 408.278 10.21% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 200 LIBERTY ST 5/TH/ FLOOR ONE WORLD FIN CTR NEW YORK NY 10281-5503 PERSHING LLC 407.148 10.19% PO BOX 2052 JERSEY CITY NJ 07303-2052 CLASS C SHARES: -------------- MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 528,513.622 27.23% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 FIRST CLEARING, LLC 332,946.175 17.15% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 MORGAN STANLEY SMITH BARNEY 301,824.539 15.55% HARBORSIDE FINANCIAL CENTER PLAZA II 3/RD/ FLOOR JERSEY CITY, NJ 07311 97 |
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- PERSHING LLC 162,077.955 8.35% PO BOX 2052 JERSEY CITY NJ 07303-2052 UBS WM USA 127,348.879 6.56% OMNI ACCOUNT M/F ATTN: DEPARTMENT MANAGER 1000 HARBOR BLVD 5/TH/ FLOOR WEEHAWKEN NJ 07086-6761 CHARLES SCHWAB & CO. 102,073.748 5.26% FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS MUTUAL FUND OPERATIONS 211 MAIN STREET SAN FRANCISCO CA 94105-1905 DIVERSIFIED MUNICIPAL PORTFOLIO ------------------------------- CLASS A SHARES: --------------- MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 7,599,073.398 14.97% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 MORGAN STANLEY SMITH BARNEY 7,331,307.856 14.44% HARBORSIDE FINANCIAL CENTER PLAZA II 3/RD/ FLOOR JERSEY CITY, NJ 07311 FIRST CLEARING, LLC 6,725,655.085 13.25% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 UBS WM USA 6,351,697.412 12.51% OMNI ACCOUNT M/F ATTN: DEPARTMENT MANAGER 1000 HARBOR BLVD 5/TH/ FLOOR WEEHAWKEN NJ 07086-6761 PERSHING LLC 4,013,768.338 7.91% PO BOX 2052 JERSEY CITY NJ 07303-2052 NATIONAL FINANCIAL SERVICES LLC 3,887,209.344 7.66% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 200 LIBERTY ST 5/TH/ FLOOR ONE WORLD FIN CTR NEW YORK NY 10281-5503 98 |
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- CLASS B SHARES: -------------- LPL FINANCIAL FBO CUSTOMER ACCOUNTS/ATTN MUTUAL FUND 6,908.259 20.16% OPERATIONS P.O. BOX 509046 SAN DIEGO CA 92150-9043 NATIONAL FINANCIAL SERVICES LLC 6,498.304 18.96% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 499 WASHINGTON BLVD., FL. 4 JERSEY CITY NJ 07310 CHARLES SCHWAB & CO. 4,273.647 12.47% FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS MUTUAL FUND OPERATIONS 211 MAIN STREET SAN FRANCISCO CA 94105-1905 FIRST CLEARING, LLC 3,693.688 10.78% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 3,200.595 9.34% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 RAYMOND JAMES 2,354.768 6.87% OMNIBUS FOR MUTUAL FUNDS HOUSE ACCT FIRM ATTN COURTNEY WALLER 880 CARILLON PARKWAY ST PETERSBURG FL 33716-1102 CLASS C SHARES: -------------- FIRST CLEARING, LLC 2,063,518.479 16.45% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 1,844,131.428 14.70% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 PERSHING LLC 1,428,947.186 11.39% PO BOX 2052 JERSEY CITY NJ 07303-2052 MORGAN STANLEY SMITH BARNEY 1,321,943.043 10.54% HARBORSIDE FINANCIAL CENTER PLAZA II 3/RD/ FLOOR JERSEY CITY, NJ 07311 99 |
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- NATIONAL FINANCIAL SERVICES LLC 1,125,574.322 8.97% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 499 WASHINGTON BLVD., FL. 4 JERSEY CITY NJ 07310 RAYMOND JAMES 936,637.408 7.47% OMNIBUS FOR MUTUAL FUNDS HOUSE ACCT FIRM ATTN COURTNEY WALLER 880 CARILLON PARKWAY ST PETERSBURG FL 33716-1102 CHARLES SCHWAB & CO. 907,535.825 7.23% FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS MUTUAL FUND OPERATIONS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104-4151 LPL FINANCIAL FBO CUSTOMER ACCOUNTS/ATTN MUTUAL FUND 782,904.870 6.24% OPERATIONS P.O. BOX 509046 SAN DIEGO CA 92150-9043 SHORT DURATION PORTFOLIO ------------------------ CLASS A SHARES: --------------- LPL FINANCIAL FBO CUSTOMER ACCOUNTS/ATTN MUTUAL FUND 577,891.070 13.35% OPERATIONS P.O. BOX 509046 SAN DIEGO CA 92150-9043 NATIONAL FINANCIAL SERVICES LLC 531,795.074 12.28% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 499 WASHINGTON BLVD., FL. 4 JERSEY CITY NJ 07310 PERSHING LLC 464,038.957 10.72% PO BOX 2052 JERSEY CITY NJ 07303-2052 MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 433,789.090 10.02% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 UBS WM USA 350,680.475 8.10% OMNI ACCOUNT M/F ATTN: DEPARTMENT MANAGER 1000 HARBOR BLVD 5TH FLOOR WEEHAWKEN NJ 07086-6761 FIRST CLEARING, LLC 242,103.164 5.59% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 100 |
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- CHARLES SCHWAB & CO. 240,834.668 5.56% FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS MUTUAL FUND OPERATIONS 211 MAIN STREET SAN FRANCISCO CA 94105-1905 CLASS B SHARES: --------------- MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 36,329.375 17.94% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 FIRST CLEARING, LLC 20,806.978 10.27% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 CHARLES SCHWAB & CO. 16,193.862 8.00% FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS MUTUAL FUND OPERATIONS 211 MAIN STREET SAN FRANCISCO CA 94105-1905 NATIONAL FINANCIAL SERVICES LLC 13,723.860 6.78% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 499 WASHINGTON BLVD., FL. 4 JERSEY CITY NJ 07310 LPL FINANCIAL FBO CUSTOMER ACCOUNTS/ATTN MUTUAL FUND 11,794.533 5.82% OPERATIONS P.O. BOX 509046 SAN DIEGO CA 92150-9043 CLASS C SHARES: --------------- UBS WM USA 437,422.143 24.53% OMNI ACCOUNT M/F ATTN: DEPARTMENT MANAGER 1000 HARBOR BLVD 5TH FLOOR WEEHAWKEN NJ 07086-6761 MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 427,658.226 23.98% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 MORGAN STANLEY SMITH BARNEY 179,697.187 10.08% HARBORSIDE FINANCIAL CENTER PLAZA II 3/RD/ FLOOR JERSEY CITY, NJ 07311 FIRST CLEARING, LLC 134,654.769 7.55% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 101 |
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- PERSHING LLC 109,187.525 6.12% PO BOX 2052 JERSEY CITY NJ 07303-2052 TAX-MANAGED INTERNATIONAL PORTFOLIO ----------------------------------- CLASS A SHARES: --------------- LPL FINANCIAL 31,528.615 30.73% FBO CUSTOMER ACCOUNTS ATTN MUTUAL FUND OPERATIONS PO BOX 509046 SAN DIEGO CA 92150-9046 PERSHING LLC 23,956.110 23.35% PO BOX 2052 JERSEY CITY NJ 07303-2052 NATIONAL FINANCIAL SERVICES LLC 9,940.107 9.69% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 200 LIBERTY ST 5/TH/ FLOOR 499 WASHINGTON BLVD., FL. 4 JERSEY CITY NJ 07310 MARILYN D. KAZ-PEK TTEE 6,840.887 6.67% MARILYN D. KAZ-PEK TRUST UA DTD 05/18/1992 2504 GEDDES AVE ANN ARBOR MI 48104-2715 SUMER B PEK TTEE 6,840.887 6.67% SUMER B PEK TRUST UA DTD 05/18/1992 2504 GEDDES AVE ANN ARBOR MI 48104-2715 CLASS B SHARES: -------------- MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 2,006.138 63.55% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 PERSHING LLC 663.559 21.02% PO BOX 2052 JERSEY CITY NJ 07303-2052 OLGA CHAVAKRIA 279.715 8.86% 4111 FRANKFORT AVE EL PASO, TX 79903-1101 CLASS C SHARES: -------------- UBS WM USA 9,303.596 25.75% OMNI ACCOUNT M/F ATTN: DEPARTMENT MANAGER 1000 HARBOR BLVD, 5/TH/ FLOOR WEEHAWKEN NJ 07086-6761 102 |
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- MORGAN STANLEY SMITH BARNEY 7,828.321 21.67% HARBORSIDE FINANCIAL CENTER PLAZA II 3/RD/ FLOOR JERSEY CITY, NJ 07311 ROBERT W BAIRD & CO INC 6,983.249 19.33% 777 E WISCONSIN AVE MILWAUKEE WI 53202-5300 MLPF&S FOR THE SOLE BENEFIT OF THE CUSTOMERS 5,372.614 14.87% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 PERSHING LLC 3,877.671 10.73% PO BOX 2052 JERSEY CITY NJ 07303-2052 INTERNATIONAL PORTFOLIO ----------------------- CLASS A SHARES: --------------- UBM WM USA 61,545.268 15.48% OMNI ACCOUNT M/F ATTN: DEPARTMENT MANAGER 1000 HARBOR BLVD, 5/TH/ FLOOR WEEHAWKEN NJ 07086-6761 NATIONAL FINANCIAL SERVICES 32,706.302 8.23% FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS/ATTN MUTUAL FUNDS DEPT 499 WASHINGTON BLVD., FL. 4 JERSEY CITY NJ 07310 LPL FINANCIAL 31,528.615 30.73% FBO CUSTOMER ACCOUNTS ATTN MUTUAL FUND OPERATIONS PO BOX 509046 SAN DIEGO CA 92150-9046 MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 31,448.270 7.91% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 RBC CAPITAL MARKETS LLC 28,864.714 7.26% MUTUAL FUND OMNIBUS PROCESSING OMNIBUS ATTN MUTUAL FUND OPS MANAGER 60 S. 6/TH/ ST, SUITE 700 MINNEAPOLIS MN 55402-4413 PERSHING LLC 26,290.525 6.61% PO BOX 2052 JERSEY CITY NJ 07303-2052 103 |
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- MORGAN STANLEY SMITH BARNEY 20,974.590 5.28% HARBORSIDE FINANCIAL CENTER PLAZA II 3/RD/ FLOOR JERSEY CITY, NJ 07311 CLASS B SHARES: -------------- MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 10,460.712 26.90% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 3224606484 PERSHING LLC 6,219.088 15.99% PO BOX 2052 JERSEY CITY NJ 07303-2052 LPL FINANCIAL 3,362.999 8.65% FBO CUSTOMER ACCOUNTS ATTN MUTUAL FUND OPERATIONS PO BOX 509046 SAN DIEGO CA 92150-9046 FIRST CLEARING, LLC 3,088.673 7.94% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 CHARLES SCHWAB & CO. FOR THE EXCLUSIVE BENEFIT OF 2,144.294 5.51% CUSTOMERS MUTUAL FUND OPERATIONS 211 MAIN STREET SAN FRANCISCO CA 94105-1905 CLASS C SHARES: --------------- MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS 54,785.359 26.67% ATTN FUND ADMIN 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 3224606484 UBM WM USA 26,244.623 12.78% OMNI ACCOUNT M/F ATTN: DEPARTMENT MANAGER 1000 HARBOR BLVD, 5/TH/ FLOOR WEEHAWKEN NJ 07086-6761 PERSHING LLC 19,361.767 9.43% PO BOX 2052 JERSEY CITY NJ 07303-2052 MORGAN STANLEY SMITH BARNEY 17,935.686 8.73% HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 104 |
NO. OF SHARES % OF NAME AND ADDRESS OF CLASS CLASS ---------------- --------------- ----- CHARLES SCHWAB & CO. FOR THE EXCLUSIVE BENEFIT OF 12,322.091 6.00% CUSTOMERS MUTUAL FUND OPERATIONS 211 MAIN STREET SAN FRANCISCO CA 94105-1905 FIRST CLEARING, LLC 10,846.667 5.28% SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO 63103-2523 |
APPENDIX A:
The following descriptions of Standard & Poor's Corporation ("Standard & Poor's"), Fitch Ratings, Inc. ("Fitch") and Moody's Investors Service, Inc. ("Moody's") corporate and municipal bond ratings have been published by Standard & Poor's, Fitch and Moody's, respectively.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories.
BB, B, CCC, CC, C Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, they are outweighed by large uncertainties or major risk exposure to adverse conditions.
CI The rating CI is reserved for income bonds on which no interest is being paid.
D Debt rated D is in default, and payment of interest and/or repayment of principal is in arrears.
PLUS (+) or MINUS (-) The ratings from "AA" to "CCC" may be modified by the additions of a plus or minus sign to show relative standing within the major rating categories.
A Fitch bond rating represents an assessment of the issuer's ability to meet its debt obligations in a timely manner. The rating is not a recommendation to buy, sell or hold any security. It does not comment on the adequacy of market price, investor suitability or the taxability of interest.
Ratings are based on information obtained from issuers or sources believed to be reliable. Fitch does not audit or verify the accuracy of the information. Ratings may be changed, suspended or withdrawn to changes in or unavailability of information.
AAA Highest credit quality, obligor has exceptionally strong ability to pay interest and repay principal.
AA Very high credit quality, obligor's ability to pay interest and repay principal is very strong, although not as strong as AAA.
BBB Satisfactory credit quality, obligor's ability to pay interest and repay principal is adequate, adverse economic conditions could impair timely payment.
BB Speculative, obligor's ability to pay interest and repay principal may be affected by adverse economic conditions.
B Highly speculative, obligor has a limited margin of safety to make timely payments of principal and interest.
CCC Identifiable characteristics which, if not remedied, may lead to default.
CC Minimal protection, default in payment of interest and or principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD Bonds are in default on interest and or principal and are extremely speculative.
DD AND D Bonds represent the highest potential for default and the lowest potential for recovery.
PLUS(+) MINUS (-) Plus and minus signs are used to indicate relative position of a credit within the rating category and only apply to AA to CCC categories.
AAA Bonds which are rated Aaa by Moody's are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edged." Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations or protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable attributes and are considered upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but susceptible to impairment some time in the future.
BAA Bonds which are rated Baa are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and have speculative characteristics as well.
BA Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
C Bonds which are rated C are the lowest-rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
The following descriptions of commercial paper ratings have been published by Standard & Poor's, Fitch and Moody's, respectively.
A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from "A-1" for the highest quality obligations to "D" for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
B Issues rated "B" are regarded as having only speculative capacity for timely payment.
C This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used when interest payments are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period.
Short term ratings apply to obligations payable on demand or with original maturities of up to three years. The rating emphasizes the existence of liquidity required for timely payment of the obligation.
F-1+ Exceptionally Strong Credit Quality, strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality, assurance of timely payment only slightly less than F-1+.
F-2 Good Credit Quality, satisfactory degree of assurance for timely payment.
F-3 Fair Credit Quality, degree for assurance of timely repayment is adequate, however, near term adverse changes could put rating below investment grade.
F-S Weak Credit Quality, minimal degree of assurance for timely repayment and vulnerable to near adverse changes in economic and financial conditions.
D Default, actual or imminent payment default.
Moody's employs the following three designations, all judged to be investment-grade, to indicate the relative repayment ability of rated issuers:
P-1 Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structures with moderate reliance on debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and high internal cash generation.
. Well-established access to a range of financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
P-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term debt obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime rating categories.
The following descriptions of municipal bond ratings have been published by Standard & Poor's, Fitch and Moody's, respectively.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
Moody's
MIG 1/VMIG 1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk.
Short term ratings apply to obligations payable on demand or with original maturities of up to three years. The rating emphasizes the existence of liquidity required for timely payment of the obligation.
F-1+ Exceptionally Strong Credit Quality, strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality, assurance of timely payment only slightly less than F-1+.
F-2 Good Credit Quality, satisfactory degree of assurance for timely payment.
F-3 Fair Credit Quality, degree for assurance of timely repayment is adequate, however, near term adverse changes could put rating below investment grade.
F-S Weak Credit Quality, minimal degree of assurance for timely repayment and vulnerable to near adverse changes in economic and financial conditions.
APPENDIX B:
STATEMENT OF POLICIES AND
PROCEDURES FOR PROXY VOTING
1. INTRODUCTION
As a registered investment adviser, AllianceBernstein L.P.
("ALLIANCEBERNSTEIN", "WE" OR "US") has a fiduciary duty to act solely in
the best interests of our clients. We recognize that this duty requires us
to vote client securities in a timely manner and make voting decisions that
are intended to maximize long-term shareholder value. Generally, our
clients' objective is to maximize the financial return of their portfolios
within appropriate risk parameters. We have long recognized that
environmental, social and governance ("ESG") issues can impact the
performance of investment portfolios. Accordingly, we have sought to
integrate ESG factors into our investment process to the extent that the
integration of such factors is consistent with our fiduciary duty to help
our clients achieve their investment objectives and protect their economic
interests. Our Statement of Policy Regarding Responsible Investment ("RI
POLICY") is attached to this Statement as an Exhibit.
We consider ourselves shareholder advocates and take this responsibility very seriously. Consistent with our commitments, we will disclose our clients' voting records only to them and as required by mutual fund vote disclosure regulations. In addition, our proxy committees may, after careful consideration, choose to respond to surveys so long as doing so does not compromise confidential voting.
This statement is intended to comply with Rule 206(4)-6 of the Investment Advisers Act of 1940. It sets forth our policies and procedures for voting proxies for our discretionary investment advisory clients, including investment companies registered under the Investment Company Act of 1940. This statement applies to AllianceBernstein's investment groups investing on behalf of clients in both U.S. and non-U.S. securities.
2. PROXY POLICIES
Our proxy voting policies are principle-based rather than rules-based. We adhere to a core set of principles that are described in this Statement and in our Proxy Voting Manual. We assess each proxy proposal in light of those principles. Our proxy voting "litmus test" will always be what we view as most likely to maximize long-term shareholder value. We believe that authority and accountability for setting and executing corporate policies, goals and compensation should generally rest with the board of directors and senior management. In return, we support strong investor rights that allow shareholders to hold directors and management accountable if they fail to act in the best interests of shareholders. In addition, if we determine that ESG issues that arise with respect to an issuer's past, current or anticipated behaviors are, or are reasonably likely to become, material to its future earnings, we address these concerns in our proxy voting and engagement.
This statement is designed to be responsive to the wide range of proxy voting subjects that can have a significant effect on the investment value of the securities held in our clients'
accounts. These policies are not exhaustive due to the variety of proxy voting issues that we may be required to consider. AllianceBernstein reserves the right to depart from these guidelines in order to make voting decisions that are in our clients' best interests. In reviewing proxy issues, we will apply the following general policies:
2.1.Corporate Governance
We recognize the importance of good corporate governance in our proxy voting policies and engagement practices in ensuring that management and the board of directors fulfill their obligations to shareholders. We favor proposals promoting transparency and accountability within a company. We support the appointment of a majority of independent directors on key committees and generally support separating the positions of chairman and chief executive officer, except in cases where a company has sufficient counter-balancing governance in place. Because we believe that good corporate governance requires shareholders to have a meaningful voice in the affairs of the company, we generally will support shareholder proposals which request that companies amend their by-laws to provide that director nominees be elected by an affirmative vote of a majority of the votes cast. Furthermore, we have written to the SEC in support of shareholder access to corporate proxy statements under specified conditions with the goal of serving the best interests of all shareholders.
2.2.Elections of Directors
Unless there is a proxy fight for seats on the Board or we determine that there are other compelling reasons to oppose directors, we will vote in favor of the management proposed slate of directors. That said, we believe that directors have a duty to respond to shareholder actions that have received significant shareholder support. Therefore, we may vote against directors (or withhold votes for directors where plurality voting applies) who fail to act on key issues such as failure to implement proposals to declassify the board, failure to implement a majority vote requirement, failure to submit a rights plan to a shareholder vote or failure to act on tender offers where a majority of shareholders have tendered their shares. In addition, we will vote against directors who fail to attend at least seventy-five percent of board meetings within a given year without a reasonable excuse, and we may abstain or vote against directors of non-U.S. issuers where there is insufficient information about the nominees disclosed in the proxy statement. Also, we will generally not oppose directors who meet the definition of independence promulgated by the primary exchange on which the company's shares are traded or set forth in the code we determine to be best practice in the country where the subject company is domiciled. Finally, because we believe that cumulative voting in single shareholder class structures provides a disproportionately large voice to minority shareholders in the affairs of a company, we will generally vote against such proposals and vote for management proposals seeking to eliminate cumulative voting. However, in dual class structures (such as A&B shares) where the shareholders with a majority economic interest have a minority voting interest, we will generally vote in favor of cumulative voting.
2.3.Appointment of Auditors
AllianceBernstein believes that the company is in the best position to choose its auditors, so we will generally support management's recommendation. However, we recognize that there are inherent conflicts when a company's independent auditor performs substantial non-audit services for the company. The Sarbanes-Oxley Act of 2002 prohibits certain categories of services by auditors to U.S. issuers, making this issue less prevalent in the U.S. Nevertheless, in reviewing a proposed auditor, we will consider the fees paid for non-audit services relative to total fees and whether there are other reasons for us to question the independence or performance of the auditors.
2.4.Changes in Legal and Capital Structure
Changes in a company's charter, articles of incorporation or by-laws are often technical and administrative in nature. Absent a compelling reason to the contrary, AllianceBernstein will cast its votes in accordance with management's recommendations on such proposals. However, we will review and analyze on a case-by-case basis any non-routine proposals that are likely to affect the structure and operation of the company or have a material economic effect on the company. For example, we will generally support proposals to increase authorized common stock when it is necessary to implement a stock split, aid in a restructuring or acquisition, or provide a sufficient number of shares for an employee savings plan, stock option plan or executive compensation plan. However, a satisfactory explanation of a company's intentions must be disclosed in the proxy statement for proposals requesting an increase of greater than 100% of the shares outstanding. We will oppose increases in authorized common stock where there is evidence that the shares will be used to implement a poison pill or another form of anti-takeover device. We will support shareholder proposals that seek to eliminate dual class voting structures.
2.5.Corporate Restructurings, Mergers and Acquisitions
AllianceBernstein believes proxy votes dealing with corporate reorganizations are an extension of the investment decision. Accordingly, we will analyze such proposals on a case-by-case basis, weighing heavily the views of our research analysts that cover the company and our investment professionals managing the portfolios in which the stock is held.
2.6.Proposals Affecting Shareholder Rights
AllianceBernstein believes that certain fundamental rights of shareholders must be protected. We will generally vote in favor of proposals that give shareholders a greater voice in the affairs of the company and oppose any measure that seeks to limit those rights. However, when analyzing such proposals we will weigh the financial impact of the proposal against the impairment of shareholder rights.
2.7.Anti-Takeover Measures
AllianceBernstein believes that measures that impede corporate transactions (such as takeovers) or entrench management not only infringe on the rights of shareholders but
may also have a detrimental effect on the value of the company. Therefore, we will generally oppose proposals, regardless of whether they are advanced by management or shareholders, when their purpose or effect is to entrench management or excessively or inappropriately dilute shareholder ownership. Conversely, we support proposals that would restrict or otherwise eliminate anti-takeover or anti-shareholder measures that have already been adopted by corporate issuers. For example, we will support shareholder proposals that seek to require the company to submit a shareholder rights plan to a shareholder vote. We will evaluate, on a case-by-case basis, proposals to completely redeem or eliminate such plans. Furthermore, we will generally oppose proposals put forward by management (including the authorization of blank check preferred stock, classified boards and supermajority vote requirements) that appear to be anti-shareholder or intended as management entrenchment mechanisms.
2.8.Executive Compensation
AllianceBernstein believes that company management and the compensation committee of the board of directors should, within reason, be given latitude to determine the types and mix of compensation and benefits offered to company employees. Whether proposed by a shareholder or management, we will review proposals relating to executive compensation plans on a case-by-case basis to ensure that the long-term interests of management and shareholders are properly aligned. In general, we will analyze the proposed plan to ensure that shareholder equity will not be excessively diluted taking into account shares available for grant under the proposed plan as well as other existing plans. We generally will oppose plans that allow stock options to be granted with below market value exercise prices on the date of issuance or permit re-pricing of underwater stock options without shareholder approval. Other factors such as the company's performance and industry practice will generally be factored into our analysis. In markets where remuneration reports or advisory votes on executive compensation are not required for all companies, we will generally support shareholder proposals asking the board to adopt a policy (i.e., "say on pay") that the company's shareholders be given the opportunity to vote on an advisory resolution to approve the compensation practices of the company. Although "say on pay" votes are by nature only broad indications of shareholder views, they do lead to more compensation-related dialogue between management and shareholders and help ensure that management and shareholders meet their common objective: maximizing the value of the company. In markets where votes to approve remuneration reports or advisory votes on executive compensation are required, we review the compensation practices on a case-by-case basis. With respect to companies that have received assistance through government programs such as TARP, we will generally oppose shareholder proposals that seek to impose greater executive compensation restrictions on subject companies than are required under the applicable program because such restrictions could create a competitive disadvantage for the subject company. We believe the U.S. Securities and Exchange Commission ("SEC") took appropriate steps to ensure more complete and transparent disclosure of executive compensation when it issued modified executive compensation and corporate governance disclosure rules in 2006 and February 2010. Therefore, while
we will consider them on a case-by-case basis, we generally vote against shareholder proposals seeking additional disclosure of executive and director compensation, including proposals that seek to specify the measurement of performance-based compensation, if the company is subject to SEC rules. We will support requiring a shareholder vote on management proposals to provide severance packages that exceed 2.99 times the sum of an executive officer's base salary plus bonus that are triggered by a change in control. Finally, we will support shareholder proposals requiring a company to expense compensatory employee stock options (to the extent the jurisdiction in which the company operates does not already require it) because we view this form of compensation as a significant corporate expense that should be appropriately accounted for.
2.9.ESG
We are appointed by our clients as an investment manager with a fiduciary responsibility to help them achieve their investment objectives over the long term. Generally, our clients' objective is to maximize the financial return of their portfolios within appropriate risk parameters. We have long recognized that ESG issues can impact the performance of investment portfolios. Accordingly, we have sought to integrate ESG factors into our investment and proxy voting processes to the extent that the integration of such factors is consistent with our fiduciary duty to help our clients achieve their investment objectives and protect their economic interests. For additional information regarding our approach to incorporating ESG issues in our investment and decision-making processes, please refer to our RI Policy, which is attached to this Statement as an Exhibit.
Shareholder proposals relating to environmental, social (including political) and governance issues often raise complex and controversial issues that may have both a financial and non-financial effect on the company. And while we recognize that the effect of certain policies on a company may be difficult to quantify, we believe it is clear that they do affect the company's long-term performance. Our position in evaluating these proposals is founded on the principle that we are a fiduciary. As such, we carefully consider any factors that we believe could affect a company's long-term investment performance (including ESG issues) in the course of our extensive fundamental, company-specific research and engagement, which we rely on in making our investment and proxy voting decisions. Maximizing long-term shareholder value is our overriding concern when evaluating these matters, so we consider the impact of these proposals on the future earnings of the company. In so doing, we will balance the assumed cost to a company of implementing one or more shareholder proposals against the positive effects we believe implementing the proposal may have on long-term shareholder value.
3. PROXY VOTING PROCEDURES
3.1.Proxy Voting Committees
Our growth and value investment groups have formed separate proxy voting committees ("PROXY COMMITTEES") to establish general proxy policies for
AllianceBernstein and consider specific proxy voting matters as necessary. These Proxy Committees periodically review these policies and new types of environmental, social and governance issues, and decide how we should vote on proposals not covered by these policies. When a proxy vote cannot be clearly decided by an application of our stated policy, the appropriate Proxy Committee will evaluate the proposal. In addition, the Proxy Committees, in conjunction with the analyst that covers the company, may contact corporate management, interested shareholder groups and others as necessary to discuss proxy issues. Members of the Proxy Committees include senior investment personnel and representatives of the Legal and Compliance Department.
Different investment philosophies may occasionally result in different conclusions being drawn regarding certain proposals and, in turn, may result in the Proxy Committees making different voting decisions on the same proposal for value and growth holdings. Nevertheless, the Proxy Committees always vote proxies with the goal of maximizing the value of the securities in client portfolios.
It is the responsibility of the Proxy Committees to evaluate and maintain proxy voting procedures and guidelines, to evaluate proposals and issues not covered by these guidelines, to evaluate proxies where we face a potential conflict of interest (as discussed below), to consider changes in policy and to review the Proxy Voting Statement and the Proxy Voting Manual no less frequently than annually. In addition, the Proxy Committees meet as necessary to address special situations.
3.2.Engagement
In evaluating proxy issues and determining our votes, we welcome and seek out the points of view of various parties. Internally, the Proxy Committees may consult chief investment officers, directors of research, research analysts across our value and growth equity platforms, portfolio managers in whose managed accounts a stock is held and/or other Investment Policy Group members. Externally, the Proxy Committees may consult company management, company directors, interest groups, shareholder activists and research providers. If we believe an ESG issue is, or is reasonably likely to become, material, we engage a company's management to discuss the relevant issues.
Our engagement with companies and interest groups continues to expand as we have had more such meetings in the past few years.
3.3.Conflicts of Interest
AllianceBernstein recognizes that there may be a potential conflict of interest when we vote a proxy solicited by an issuer whose retirement plan we manage or administer, who distributes AllianceBernstein-sponsored mutual funds, or with whom we have, or one of our employees has, a business or personal relationship that may affect (or may be reasonably viewed as affecting) how we vote on the issuer's proxy. Similarly, AllianceBernstein may have a potentially material conflict of interest when deciding how to vote on a proposal sponsored or supported by a shareholder group
that is a client. We believe that centralized management of proxy
voting, oversight by the proxy voting committees and adherence to these
policies ensures that proxies are voted based solely on our clients'
best interests. Additionally, we have implemented procedures to ensure
that our votes are not the product of a material conflict of interest,
including: (i) on an annual basis, the Proxy Committees taking
reasonable steps to evaluate (A) the nature of AllianceBernstein's and
our employees' material business and personal relationships (and those
of our affiliates) with any company whose equity securities are held in
client accounts and (B) any client that has sponsored or has a material
interest in a proposal upon which we will be eligible to vote;
(ii) requiring anyone involved in the decision making process to
disclose to the chairman of the appropriate Proxy Committee any
potential conflict that he or she is aware of (including personal
relationships) and any contact that he or she has had with any
interested party regarding a proxy vote; (iii) prohibiting employees
involved in the decision making process or vote administration from
revealing how we intend to vote on a proposal in order to reduce any
attempted influence from interested parties; and (iv) where a material
conflict of interests exists, reviewing our proposed vote by applying a
series of objective tests and, where necessary, considering the views of
third party research services to ensure that our voting decision is
consistent with our clients' best interests.
Because under certain circumstances AllianceBernstein considers the recommendation of third party research services, the Proxy Committees takes reasonable steps to verify that any third party research service is, in fact, independent taking into account all of the relevant facts and circumstances. This includes reviewing the third party research service's conflict management procedures and ascertaining, among other things, whether the third party research service (i) has the capacity and competency to adequately analyze proxy issues, and (ii) can make recommendations in an impartial manner and in the best interests of our clients.
3.4.Proxies of Certain Non-U.S. Issuers
Proxy voting in certain countries requires "share blocking." Shareholders wishing to vote their proxies must deposit their shares shortly before the date of the meeting with a designated depositary. During this blocking period, shares that will be voted at the meeting cannot be sold until the meeting has taken place and the shares are returned to the clients' custodian banks. Absent compelling reasons to the contrary, AllianceBernstein believes that the benefit to the client of exercising the vote is outweighed by the cost of voting (i.e., not being able to sell the shares during this period). Accordingly, if share blocking is required we generally choose not to vote those shares.
AllianceBernstein seeks to vote all proxies for securities held in client accounts for which we have proxy voting authority. However, in non-US markets administrative issues beyond our control may at times prevent AllianceBernstein from voting such proxies. For example, AllianceBernstein may receive meeting notices after the cut-off date for voting or without sufficient time to fully consider the proxy. As another example, certain markets require periodic renewals of powers of attorney that local
agents must have from our clients prior to implementing AllianceBernstein's voting instructions.
3.5.Loaned Securities
Many clients of AllianceBernstein have entered into securities lending arrangements with agent lenders to generate additional revenue. AllianceBernstein will not be able to vote securities that are on loan under these types of arrangements. However, under rare circumstances, for voting issues that may have a significant impact on the investment, we may request that clients recall securities that are on loan if we determine that the benefit of voting outweighs the costs and lost revenue to the client or fund and the administrative burden of retrieving the securities.
3.6.Proxy Voting Records
Clients may obtain information about how we voted proxies on their behalf by contacting their AllianceBernstein administrative representative. Alternatively, clients may make a written request for proxy voting information to: Mark R. Manley, Senior Vice President & Chief Compliance Officer, AllianceBernstein L.P., 1345 Avenue of the Americas, New York, NY 10105.
[ALTERNATIVE LANGUAGE FOR U.S. MUTUAL FUNDS]
You may obtain information regarding how the Fund voted proxies relating
to portfolio securities during the most recent 12-month period ended
June 30, without charge. Simply visit AllianceBernstein's web site at
www.alliancebernstein.com, go to the Securities and Exchange
Commission's web site at www.sec.gov or call AllianceBernstein at
(800) 227-4618.
EXHIBIT
STATEMENT OF POLICY REGARDING
RESPONSIBLE INVESTMENT
PRINCIPLES FOR RESPONSIBLE INVESTMENT,
ESG, AND SOCIALLY RESPONSIBLE INVESTMENT
1. INTRODUCTION
AllianceBernstein L.P. ("ALLIANCEBERNSTEIN" or "WE") is appointed by our clients as an investment manager with a fiduciary responsibility to help them achieve their investment objectives over the long term. Generally, our clients' objective is to maximize the financial return of their portfolios within appropriate risk parameters. AllianceBernstein has long recognized that environmental, social and governance ("ESG") issues can impact the performance of investment portfolios. Accordingly, we have sought to integrate ESG factors into our investment process to the extent that the integration of such factors is consistent with our fiduciary duty to help our clients achieve their investment objectives and protect their economic interests.
Our policy draws a distinction between how the Principles for Responsible Investment ("PRI" or "PRINCIPLES"), and Socially Responsible Investing ("SRI") incorporate ESG factors. PRI is based on the premise that, because ESG issues can affect investment performance, appropriate consideration of ESG issues and engagement regarding them is firmly within the bounds of a mainstream investment manager's fiduciary duties to its clients. Furthermore, PRI is intended to be applied only in ways that are consistent with those mainstream fiduciary duties.
SRI, which refers to a spectrum of investment strategies that seek to integrate ethical, moral, sustainability and other non-financial factors into the investment process, generally involves exclusion and/or divestment, as well as investment guidelines that restrict investments. AllianceBernstein may accept such guideline restrictions upon client request.
2. APPROACH TO ESG
Our long-standing policy has been to include ESG factors in our extensive fundamental research and consider them carefully when we believe they are material to our forecasts and investment decisions. If we determine that these aspects of an issuer's past, current or anticipated behavior are material to its future expected returns, we address these concerns in our forecasts, research reviews, investment decisions and engagement. In addition, we have well-developed proxy voting policies that incorporate ESG issues and engagement.
3. COMMITMENT TO THE PRI
In recent years, we have gained greater clarity on how the PRI initiative, based on information from PRI Advisory Council members and from other signatories, provides a framework for incorporating ESG factors into investment research and decision-making. Furthermore, our industry has become, over time, more aware of the importance of ESG factors. We acknowledge these developments and seek to refine what has been our process in this area.
After careful consideration, we determined that becoming a PRI signatory would enhance our current ESG practices and align with our fiduciary duties to our clients as a mainstream investment manager. Accordingly, we became a signatory, effective November 1, 2011.
In signing the PRI, AllianceBernstein as an investment manager publicly commits to adopt and implement all six Principles, where consistent with our fiduciary responsibilities, and to make progress over time on implementation of the Principles.
The six Principles are:
1. We will incorporate ESG issues into investment research and decision-making processes. AllianceBernstein Examples: ESG issues are included in the research analysis process. In some cases, external service providers of ESG-related tools are utilized; we have conducted proxy voting training and will have continued and expanded training for investment professionals to incorporate ESG issues into investment analysis and decision-making processes across our firm.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will report on our activities and progress towards implementing the Principles.
4. RI COMMITTEE
Our firm's RI Committee provides AllianceBernstein stakeholders, including employees, clients, prospects, consultants and service providers alike, with a resource within our firm on which they can rely for information regarding our approach to ESG issues and how those issues are incorporated in different ways by the PRI and SRI. Additionally, the RI Committee is responsible for assisting AllianceBernstein personnel to further implement our firm's RI policies and practices, and, over time, to make progress on implementing all six Principles.
The RI Committee has a diverse membership, including senior representatives from investments, distribution/sales and legal. The Committee is chaired by Linda Giuliano, Senior Vice President and Chief Administrative Officer-Equities.
If you have questions or desire additional information about this Policy, we encourage you to contact the RI Committee at RIinquiries@alliancebernstein.com or reach out to a Committee member:
Erin Bigley: SVP-Fixed Income, New York
Alex Chaloff: SVP-Private Client, Los Angeles
Nicholas Davidson: SVP-Value, London
Kathy Fisher: SVP-Private Client, New York
Linda Giuliano: SVP-Equities, New York
Christopher Kotowicz: VP-Growth, Chicago
David Lesser: VP-Legal, New York
Mark Manley: SVP-Legal, New York
Takuji Oya: VP-Growth, Japan
Guy Prochilo: SVP-Institutional Investments, New York
Nitish Sharma: VP-Institutional Investments, Australia
Liz Smith: SVP-Institutional Investments, New York
Chris Toub: SVP-Equities, New York
Willem Van Gijzen: VP-Institutional Investments, Netherlands
PART C
OTHER INFORMATION
ITEM 28. EXHIBITS.
(a)(1) Articles of Incorporation of the Fund dated May 3, 1988 (supplied by Pre-Effective Amendment No. 1 and submitted electronically by Post-Effective Amendment No. 15).
(a)(2) Articles Supplementary of the Fund dated October 14, 1988 (supplied by Pre-Effective Amendment No. 2 and submitted electronically by Post-Effective Amendment No. 15).
(a)(3) Articles Supplementary of the Fund dated April 25, 1990 (supplied by Post-Effective Amendment No. 4 and submitted electronically by Post-Effective Amendment No. 15).
(a)(4) Articles Supplementary of the Fund dated March 16, 1992 (supplied by Post-Effective Amendment No. 7 and submitted electronically by Post-Effective Amendment No. 15).
(a)(5) Articles Supplementary of the Fund undated, filed with State of Maryland May 11, 1994 (supplied by Post-Effective Amendment No. 10 and submitted electronically by Post-Effective Amendment No. 15).
(a)(6) Articles Supplementary of the Fund dated October 10, 1994 (supplied by Post-Effective Amendment No. 11 and submitted electronically by Post-Effective Amendment No. 15).
(a)(7) Articles Supplementary of the Fund dated August 29, 1995 (supplied by Post-Effective Amendment No. 12 and submitted electronically by Post-Effective Amendment No. 15).
(a)(8) Articles Supplementary of the Fund dated February 26, 1996 (submitted electronically by Post-Effective Amendment No. 15).
(a)(9) Articles Supplementary of the Fund dated March 9, 1998 (submitted electronically by Post-Effective Amendment No. 17).
(a)(10) Articles Supplementary of the Fund dated November 5, 1998 (submitted electronically by Post-Effective Amendment No. 17).
(a)(11) Articles of Amendment of the Fund dated April 20, 1999 (submitted electronically by Post-Effective Amendment No. 20).
(a)(12) Articles Supplementary of the Fund dated May 24, 1999 (submitted electronically by Post-Effective Amendment No. 20).
(a)(13) Articles Supplementary of the Fund dated February 11, 2000 (submitted electronically by Post-Effective Amendment No. 22).
(a)(14) Articles Supplementary of the Fund dated October 25, 2001 (submitted electronically by Post-Effective Amendment No. 25).
(a)(15) Articles of Amendment of the Fund dated January 24, 2002 (submitted electronically by Post-Effective Amendment No. 25).
(a)(16) Articles of Amendment of the Fund dated January 24, 2002 (submitted electronically by Post-Effective Amendment No. 25).
(a)(17) Articles Supplementary of the Fund dated April 29, 2003 (submitted electronically by Post-Effective Amendment No. 28).
(a)(18) Articles of Amendment of the Fund dated April 29, 2003 (submitted electronically by Post-Effective Amendment No. 28).
(a)(19) Articles Supplementary of the Fund dated August 21, 2003 (submitted electronically by Post-Effective Amendment No. 30).
(a)(20) Articles of Amendment of the Fund dated August 21, 2003 (submitted electronically by Post-Effective Amendment No. 30).
(a)(21) Articles Supplementary of the Fund dated December 1, 2003 (submitted electronically by Post-Effective Amendment No. 35).
(a)(22) Certificate of Correction of the Fund dated December 14, 2001 (submitted electronically by Post-Effective Amendment No. 25).
(a)(23) Articles Supplementary of the Fund dated April 18, 2007 (submitted electronically by Post-Effective Amendment No. 45).
(a)(24) Articles Supplementary of the Fund dated April 24, 2008 (submitted electronically by Post-Effective Amendment No. 47).
(a)(25) Articles Supplementary of the Fund dated November 24, 2009 (submitted electronically by Post-Effective Amendment No. 47).
(b)(1) By-Laws of the Fund as Revised and Restated October 4, 1988 (supplied by Pre-Effective Amendment No. 2 and submitted electronically by Post-Effective Amendment No. 16).
(b)(2) Amendment to Article I, Section 2 of the By-Laws of Fund dated January 30, 1992 (supplied by Post-Effective Amendment No. 7 and submitted electronically by Post-Effective Amendment No. 16).
(b)(3) Amendment to Article II, Section 9 of the By-Laws of Fund dated July 28, 2004 (submitted electronically by Post-Effective Amendment No. 38).
(b)(4) Amendment to Article I, Section 2 of the By-Laws of Fund dated July 21, 2009 (submitted electronically by Post-Effective Amendment No. 47).
(c) Instruments Defining Rights of Security Holders - supplied by
Exhibit (a)(1) (see Article V - Common Stock; Sections 1(b), 2(c),
(2)(d), (2)(e), (2)(g), 4 and 5; Article VII - Miscellaneous;
Sections 1(d), 2, 3, 5 and 6; Article VIII - Voting; Article IX -
Amendments; and supplied by Exhibit (b)(1) (see Article I -
Stockholders and Article IV - Capital Stock).
(d)(1) Investment Management Agreement dated October 2, 2000 between the Fund and AllianceBernstein L.P. ("AB") (submitted electronically by Post-Effective Amendment No. 22).
(d)(1)(i) Form of Amendment No. 2 to Investment Management Agreement (submitted electronically by Post-Effective Amendment No. 38).
(d)(1)(ii) Form of Amendment No. 3 to Investment Management Agreement (submitted electronically by Post-Effective Amendment No. 42).
(d)(1)(iii) Form of Amendment No. 4 to Investment Management Agreement (submitted electronically by Post-Effective Amendment No. 43).
(d)(1)(iv) Form of Amendment No. 5 to Investment Management Agreement (submitted electronically by Post-Effective Amendment No. 45).
(d)(1)(v) Amendment No. 6 to Investment Management Agreement (submitted electronically by Post-Effective Amendment No. 50).
(d)(1)(vi) Form of Amendment No. 7 to Investment Management Agreement (submitted electronically by Post-Effective Amendment No. 51).
(d)(2) Amended and Restated Shareholder Servicing Agreement between the Fund and ACMLP dated February 26, 2003 (submitted electronically by Post-Effective Amendment No. 28).(1)
(d)(3) Amendment No. 1 to Amended and Restated Shareholder Servicing
Agreement between the Fund and AB dated December 16, 2003
(submitted electronically by Post-Effective Amendment No. 35).(1)
(d)(4) Amendment No. 2 to Amended and Restated Shareholder Servicing Agreement between the Fund and AB (submitted electronically by Post-Effective Amendment No. 50).
(e)(1)(a) Distribution Agreement dated October 2, 2000 between the Fund and Sanford C. Bernstein & Co., LLC ("Bernstein LLC") (submitted electronically by Post-Effective Amendment No. 22). Exhibit (m)(3) incorporated by reference.(1)
(e)(1)(b) Amendment to the Distribution Agreement dated February 1, 2001 between the Fund and Bernstein LLC (submitted electronically by Post-Effective Amendment No. 25).(1)
(e)(1)(c) Amendment No. 2 to Distribution Agreement dated February 26, 2003 between the Fund and Bernstein LLC (submitted electronically by Post-Effective Amendment No. 28).(1)
(e)(1)(d) Amendment No. 3 to Distribution Agreement dated December 16, 2003 between the Fund and Bernstein LLC (submitted electronically by Post-Effective Amendment No. 35).(1)
(e)(1)(e) Amendment No. 4 to Amended Distribution Agreement between the Fund and Bernstein LLC (submitted electronically by Post-Effective Amendment No. 50).
(e)(2)(a) Distribution Services Agreement (including a plan pursuant to Rule
12b-1 dated February 1, 2002 between the Fund and Alliance
Bernstein Investment Research and Management, Inc. ("ABIRM")
(submitted electronically by Post-Effective Amendment No. 25).(2)
(e)(2)(b) Amendment No. 1 to Distribution Services Agreement dated February 26, 2003 between the Fund and ABIRM (submitted electronically by Post-Effective Amendment No. 28).(2)
(e)(2)(c) Amendment No. 2 to Distribution Services Agreement dated December 16, 2003 between the Fund and ABIRM (submitted electronically by Post-Effective Amendment No. 35).
(e)(2)(d) Amendment No. 3 to Distribution Services Agreement dated December 17, 2003 between the Fund and BIRM (submitted electronically by Post-Effective Amendment No. 35).
(e)(3)(a) Form of Selected Dealer Agreement between AllianceBernstein Investments, Inc. ("ABI") and selected dealers offering shares of Fund (incorporated by reference to Exhibit (e)(6) to Post-Effective Amendment No. 39 of the Registration Statement on Form N-1A of AllianceBernstein Large Cap Growth Fund, Inc. (File Nos. 33-49530 and 811-6730), filed with the Securities and Exchange Commission on October 14, 2009).
(e)(3)(b) Selected Dealer Agreement between ABI and Merrill Lynch, Pierce, Fenner & Smith Inc. making available shares of the Fund effective April 30, 2009 (incorporated by reference to Exhibit (e)(8) to Post-Effective Amendment No. 39 of the Registration Statement on Form N-1A of AllianceBernstein Large Cap Growth Fund, Inc. (File Nos. 33-49530 and 811-6730), filed with the Securities and Exchange Commission on October 14, 2009).
(e)(4)(a) Load Fund Operating Agreement between ABI and Charles Schwab & Co., Inc. making available shares of the Fund, dated as of June 1, 2007 (incorporated by reference to Exhibit (e)(9) to Post-Effective Amendment No. 39 of the Registration Statement on Form N-1A of AllianceBernstein Large Cap Growth Fund, Inc. (File Nos. 33-49530 and 811-6730), filed with the Securities and Exchange Commission on October 14, 2009).
(e)(5) Cooperation Agreement between ABI and UBS AG, dated November 1, 2005 (incorporated by reference to Exhibit (e)(10) to Post-Effective Amendment No. 39 of the Registration Statement on Form N-1A of AllianceBernstein Large Cap Growth Fund, Inc. (File Nos. 33-49530 and 811-6730), filed with the Securities and Exchange Commission on October 14, 2009).
(f) Bonus or Profit Sharing Contracts - Not applicable.
(g)(1) Custodian Contract dated October 12, 1988 between the Fund and State Street Bank and Trust Company (supplied by Pre-Effective Amendment No. 2 and submitted electronically by Post-Effective Amendment No. 16).
(g)(2) Amendment to the Custodian Contract dated May 8, 1989 (supplied by Post-Effective Amendment No. 2 and submitted electronically by Post-Effective Amendment No. 16).
(g)(3) Second Amendment to the Custodian Contract dated July 24, 1989 (supplied by Post-Effective Amendment No. 3 and submitted electronically by Post-Effective Amendment No. 16).
(g)(4) Third Amendment to the Custodian Contract dated April 30, 1990 (supplied by Post-Effective Amendment No. 4 and submitted electronically by Post-Effective Amendment No. 16).
(g)(5) Fourth Amendment to the Custodian Contract dated March 18, 1992 (supplied by Post-Effective Amendment No. 7 and submitted electronically by Post-Effective Amendment No. 16).
(g)(6) Fifth Amendment to the Custodian Contract dated April 19, 1994 (supplied by Post-Effective Amendment No. 10 and submitted electronically by Post-Effective Amendment No. 16).
(g)(7) Sixth Amendment to the Custodian Contract dated August 21, 1995 (supplied by Post-Effective Amendment No. 12 and submitted electronically by Post-Effective Amendment No. 16).
(g)(8) Seventh Amendment to the Custodian Contract dated May 6, 1996 (submitted electronically by Post-Effective Amendment No. 15).
(g)(9) Eighth Amendment to the Custodian Contract dated September 25, 1996 (submitted electronically by Post-Effective Amendment No. 15).
(g)(10) Custodian Fee Schedule dated June 12, 1998 - Government Short Duration, Short Duration Plus, New York Municipal, Diversified Municipal, Intermediate Duration, California Municipal; Short Duration California Municipal, Short Duration Diversified Municipal, and Short Duration New York Municipal Portfolios (submitted electronically by Post-Effective Amendment No. 17).
(g)(11) Ninth Amendment to the Custodian Contract dated February 22, 1999 (submitted electronically by Post-Effective Amendment No. 20).
(g)(12) Tenth Amendment to the Custodian Contract dated May 3, 1999 (submitted electronically by Post-Effective Amendment No. 20).
(g)(13) Custodian Fee Schedule dated October 27, 1999 - Tax-Managed International Value, International Value II and Emerging Markets Value Portfolios (submitted electronically by Post-Effective Amendment No. 20).
(g)(14) Eleventh Amendment to the Custodian Contract dated December 28, 2006 (submitted electronically by Post-Effective Amendment No. 43).
(g)(15) Twelfth Amendment to the Custodian Contract (submitted electronically by Post-Effective Amendment No. 50).
(h)(1)(a) Transfer Agency Agreement dated October 12, 1988 between the Fund and State Street Bank and Trust Company ("State Street") (supplied by Pre-Effective Amendment No. 2 and submitted electronically by Post-Effective Amendment No. 16).(1)
(h)(1)(b) Amendment to the Transfer Agency Agreement dated April 30, 1990 between the Fund and State Street (supplied by Post-Effective Amendment No. 4 and submitted electronically by Post-Effective Amendment No. 16).1 (h)(3) Second Amendment to the Transfer Agency Agreement dated March 18, 1992 between the Fund and State Street (supplied by Post-Effective Amendment No. 7 and submitted electronically by Post-Effective Amendment No. 16).(1)
(h)(1)(c) Third Amendment to the Transfer Agency Agreement dated April 19, 1994 between the Fund and State Street (supplied by Post-Effective Amendment No. 10 and submitted electronically by Post-Effective Amendment No. 16).(1)
(h)(1)(d) Fourth Amendment to Transfer Agency Agreement dated August 21, 1995 between the Fund and State Street (supplied by Post-Effective Amendment No. 12 and submitted electronically by Post-Effective Amendment No. 16).(1)
(h)(1)(e) Fifth Amendment to Transfer Agency Agreement dated July 18, 1996 between the Fund and State Street (submitted electronically by Post-Effective Amendment No. 15).(1)
(h)(1)(f) Sixth Amendment to Transfer Agency Agreement dated February 22, 1999 between the Fund and State Street (submitted electronically by Post-Effective Amendment No. 20).(1)
(h)(1)(g) Seventh Amendment to Transfer Agency Agreement dated May 3, 1999 between the Fund and State Street (submitted electronically by Post-Effective Amendment No. 20).(1)
(h)(1)(h) Eighth Amendment to Transfer Agency Agreement dated February 1, 2002 between the Fund and State Street (submitted electronically by Post-Effective Amendment No. 25).(1)
(h)(1)(i) Ninth Amendment to Transfer Agency Agreement dated February 26th, 2003 between the Fund and State Street (submitted electronically by Post-Effective Amendment No. 28).(1)
(h)(1)(j) Tenth Amendment to Transfer Agency Agreement dated December 16, 2003 between the Fund and State Street (submitted electronically by Post-Effective Amendment No. 35).(1)
(h)(1)(k) Transfer Agency Fee Schedule dated July 21, 1999 - Government Short
Duration, Short Duration Plus, Diversified Municipal, Intermediate
Duration, New York Municipal, California Municipal, Tax-Managed
International Value, Short Duration California Municipal, Short
Duration Diversified Municipal, Short Duration New York Municipal,
Emerging Markets Value and International Value II Portfolios
(submitted electronically by Post-Effective Amendment No. 20).(1)
(h)(1)(l) Transfer Agency Agreement dated February 1, 2002 between the Fund and Alliance Global Investor Services, Inc. ("AGIS") (submitted electronically by Post-Effective Amendment No. 25).(2)
(h)(1)(m) Amendment No. 1 to the Transfer Agency Agreement dated February 26, 2003 between the Fund and AGIS (submitted electronically by Post-Effective Amendment No. 28).(2)
(h)(1)(n) Amendment No. 2 to the Transfer Agency Agreement dated December 16, 2003 between the Fund and AGIS (submitted electronically by Post-Effective Amendment No. 35).(2)
(h)(1)(o) Eleventh Amendment to Transfer Agency Agreement between the Fund and State Street (submitted electronically by Post-Effective Amendment No. 50).
(h)(2)(a) Securities Lending Agreement dated July 17, 1996 between the Fund, on behalf of the International Value Portfolio and State Street Bank and Trust Company and Amendment dated September 30, 1996 (submitted electronically by Post-Effective Amendment No. 15).
(h)(2)(b) Second Amendment to Securities Lending Agreement dated May 29, 1997 (submitted electronically by Post-Effective Amendment No. 16).
(h)(2)(c) Third Amendment to Securities Lending Agreement dated May 1, 1998 (submitted electronically by Post-Effective Amendment No. 17).
(h)(2)(d) Fourth Amendment to Securities Lending Agreement dated August 10, 1998 (submitted electronically by Post-Effective Amendment No. 17).
(h)(2)(e) Fifth Amendment to Securities Lending Agreement dated April 21, 1999 (submitted electronically by Post-Effective Amendment No. 20).
(h)(2)(f) Securities Lending Agreement dated April 30, 1999 between the Fund, on behalf of the International Value Portfolio II and State Street Bank and Trust Company (submitted electronically by Post-Effective Amendment No. 20).
(h)(2)(g) First Amendment dated September 26, 2000 to Securities Lending Authorization Agreement between the Fund, on behalf of the International Value Portfolio II, and State Street Bank and Trust Company (submitted electronically by Post-Effective Amendment No. 22).
(h)(2)(h) Sixth Amendment dated September 26, 2000 to Securities Lending Authorization Agreement between the Fund, on behalf of the Tax-Managed International Value Portfolio, and State Street Bank and Trust Company (submitted electronically by Post-Effective Amendment No. 22).
(h)(3) Expense Limitation Agreement by and between the Fund and AllianceBernstein L.P. (submitted electronically by Post-Effective Amendment No. 50).
(i)(1) Opinion of Counsel with respect to Non-U.S. Stock Portfolios and Fixed-Income Portfolios (submitted electronically by Post- Effective Amendment No. 43).
(i)(2) Opinion of Counsel with respect to Overlay Portfolios (submitted electronically by Post-Effective Amendment No. 50).
(j)(1) Consent of Independent Registered Public Accounting Firm.*
(j)(2) Consent of Counsel.*
(j)(3) Powers of Attorney for Bart Friedman, William Kristol, Donald K. Peterson, Thomas B. Stiles II and Rosalie J. Wolf (submitted electronically by Post-Effective Amendment No. 45).
(j)(4) Power of Attorney for Dianne F. Lob (submitted electronically by Post-Effective Amendment No. 51).
(j)(5) Power of Attorney for Debra Perry (submitted electronically by Post-Effective Amendment No. 53).
(k) Omitted Financial Statements - Not applicable.
(l) Purchase Agreement dated October 12, 1988 (supplied by Pre-Effective Amendment No. 2 and submitted electronically by Post-Effective Amendment No. 16).
(m)(1) Rule 12b-1 Plan. See exhibit (e)(2).(2)
(n)(1)(a) Amended and Restated Plan Pursuant to Rule 18f-3 (submitted electronically by Post-Effective Amendment No. 57).(2)
(o) Not applicable.
(p) Code of Ethics for the AllianceBernstein L.P. and ABI (submitted electronically by Post-Effective Amendment No. 53).
/(2)/Item only relates to Class A, Class B and Class C shares of the New York Municipal, California Municipal, Diversified Municipal Portfolios, Short Duration Plus Portfolio, Tax-Managed International Portfolio and International Portfolio.
* Filed herewith.
Item 29. Persons Controlled By or Under Common Control with Fund. None.
Item 30. Indemnification.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940, as amended (the "1940 Act") and pursuant to Article VII of the Fund's By-Laws (Exhibit (b) to this Registration Statement), directors, officers and employees of the Fund will be indemnified to the maximum extent permitted by Maryland General Corporation Law. Article VII provides that nothing therein contained protects any director or officer of the Fund against any liability to the Fund or its stockholders to which the director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Maryland General Corporation Law permits a corporation to indemnify any director, officer, employee or agent made a party to any threatened, pending or completed action, suit or proceeding by reason of service in that capacity, against, judgments, penalties, fines, settlements and reasonable expenses actually incurred in connection with the proceeding, unless it is proved that: (i) an act or omission by the director, officer, employee or agent that was material to the cause of action adjudicated in the proceeding was committed in bad faith or the result of active and deliberate dishonesty; (ii) the director, employee, or agent actually received an improper personal benefit in money, property, or services; or (iii) in the case of any criminal proceeding, the director, employee or agent had reasonable cause to believe that the act or omission was unlawful. Maryland law does not permit indemnification in respect of any proceeding by or in the right of the corporation in which the director shall have been held liable to the corporation.
As permitted by Section 17(i) of the 1940 Act, pursuant to Section 3 of the respective Investment Management Agreement, Section 3 of the respective Amended and Restated Shareholder Servicing Agreement between the Fund, on behalf of its various Portfolios, and AB, Section 8 of the Distribution Agreement between the Fund, on behalf of its various Portfolios, and Bernstein LLC, and Section 10 of the Distribution Services Agreement between the Fund, on behalf of Class A, B and C shares of the New York Municipal Portfolio, California Municipal Portfolio, Diversified Municipal Portfolio, Short Duration Plus Portfolio, Tax-Managed International Portfolio and International Portfolio and ABIRM, AB, Bernstein LLC and ABIRM may be indemnified against certain liabilities which it may incur.
Insofar as indemnification for liability arising under the Securities Act of 1933, as amended may be permitted to directors, officers and controlling persons of the Fund pursuant to the foregoing provisions, or otherwise, the Fund has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Fund of expenses incurred or paid by a director, officer or controlling person of the Fund in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person, the Fund will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
As permitted by Article VII, Section 2 of the Bylaws, the Fund has purchased an insurance policy insuring its officers and directors against certain liabilities, and certain costs of defending claims against such officers and directors, to the extent such officers and directors are not found to have committed conduct constituting conflict of interest, intentional non-compliance with statutes or regulations or dishonest, fraudulent or criminal acts or omissions. The insurance policy also insures the Fund against the cost of indemnification payments to officers and directors under certain circumstances. Insurance will not be purchased that protects, or purports to protect, any officer or director from liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of duty.
Section 2 of the respective Investment Management Agreement limits the liability of AB to loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for service (in which case any award of damages shall be limited to the period and the amount set forth in Section 36(b)(3) of the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross negligence in the performance of its duties or from reckless disregard by AB of its obligations and duties under the Management Agreement. Section 2 of the Amended and Restated Shareholder Servicing Agreement limits the liability of AB and Section 9 of the Distribution Agreement limits the liability of Bernstein LLC to loss resulting from willful misfeasance, bad faith or gross negligence in the performance of its duties or from reckless disregard by Bernstein of its obligations and duties under those Agreements.
The Fund hereby undertakes that it will apply the indemnification provisions of its By-Laws, and the Investment Management Agreement, Amended and Restated Shareholder Servicing Agreement, and Distribution Agreement in a manner consistent with Release No. 11330 of the Securities and Exchange Commission under the 1940 Act so long as the interpretation of Sections 17(h) and 17(i) of such Act remains in effect and is consistently applied.
Item 31. Business and Other Connections of Investment Adviser.
See "Management of the Fund" in the Statement of Additional Information constituting Part B of this Registration Statement and incorporated herein by reference and "Fund Management" and "Management of the Fund" in the Regular and Institutional Services Prospectuses, respectively, constituting Parts A-1, A-2 and A-3 of this Registration Statement, respectively, and incorporated herein by reference.
Item 32. Principal Underwriters
(a) Sanford C. Bernstein & Co., LLC is the Distributor for each Portfolio of the Fund except for Class A, Class B and Class C shares of the New York Municipal Portfolio California Municipal Portfolio Diversified Municipal Portfolio, Short Duration Plus Portfolio
Tax-Managed International Portfolio and International Portfolio and Class R shares of the Short Duration and International Portfolios. It also serves as Distributor for Sanford C. Bernstein Fund II, Inc.
AllianceBernstein Investments, Inc. ("ABI") is the Registrant's Principal Underwriter in connection with the sale of Class A, Class B and Class C shares of the New York Municipal Portfolio, California Municipal Portfolio, Diversified Municipal Portfolio, Short Duration Plus Portfolio, Tax-Managed International Portfolio and International Portfolio. AllianceBernstein Investments, Inc. also acts as Principal Underwriter or Distributor for the following investment companies:
AllianceBernstein Blended Style Series, Inc.*
AllianceBernstein Bond Fund, Inc.*
AllianceBernstein Cap Fund, Inc.*
AllianceBernstein Core Opportunities Fund, Inc.
AllianceBernstein Discovery Growth Fund
AllianceBernstein Corporate Shares
AllianceBernstein Equity Income Fund, Inc.*
AllianceBernstein Exchange Reserves*
AllianceBernstein Fixed-Income Shares. Inc.
AllianceBernstein Global Bond Fund, Inc.*
AllianceBernstein Global Real Estate Investment Fund, Inc.*
AllianceBernstein Global Risk Allocation Fund, Inc.
AllianceBernstein Global Thematic Growth Fund, Inc.*
AllianceBernstein Growth and Income Fund, Inc.*
AllianceBernstein High Income Fund, Inc.*
AllianceBernstein Institutional Funds, Inc.
AllianceBernstein Intermediate California Municipal Portfolio(1)
AllianceBernstein Intermediate Diversified Municipal Portfolio(1)
AllianceBernstein Intermediate New York Municipal Portfolio(1)
AllianceBernstein International Portfolio(1)
AllianceBernstein International Growth Fund, Inc.*
AllianceBernstein Large Cap Growth Fund, Inc.*
AllianceBernstein Municipal Income Fund, Inc.
AllianceBernstein Municipal Income Fund II
AllianceBernstein Short Duration Portfolio(1)
AllianceBernstein Tax-Managed International Portfolio(1)
AllianceBernstein Trust*
AllianceBernstein Unconstrained Bond Fund, Inc.
AllianceBernstein Variable Products Series Fund, Inc.
Sanford C. Bernstein Fund II, Inc.
The AllianceBernstein Pooling Portfolios
The AllianceBernstein Portfolios**
* This Fund also offers Class R, K and I Shares.
** The AllianceBernstein Portfolios funds that also offer Class R, K and I Shares are AllianceBernstein Growth Fund, AllianceBernstein Balanced Wealth Strategy; AllianceBernstein Wealth Appreciation Strategy; and AllianceBernstein Wealth Preservation Strategy.
(b) The following are the Directors and Officers of Sanford C. Bernstein & Co., LLC, the principal place of business of which is 1345 Avenue of the Americas, New York, New York, 10105.
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ------------------------------ --------------------- van Brugge, Robert P. Chairman and Chief Executive Officer Farrell, Edward J. Director and Chief Financial Officer Patrizio, Lawrence Director Cohen, Lawrence H. Chief Technology Officer and Head of Operations Bertan, Laurence Co-Director of Compliance Lamke, James Co-Director of Compliance Bhalla, Mona Corporate Secretary Mangan, Louis T. Assistant Secretary Manley, Mark R. Assistant Secretary Nelson, Mark Assistant Secretary Lesser, David M. Assistant Secretary Mahon, Christopher J. Assistant Secretary Park, Eugene Assistant Secretary Tucci, Peter Associate Director of Operations Weisenseel, John C. Senior Vice President and Assistant Controller Anderson, Timothy A. Senior Vice President Barnard, David S. Senior Vice President Bourgeois, Roderick M. Senior Vice President Burke, Catherine C. Senior Vice President Chen, Xinzhong Senior Vice President Cook, Robert W. Senior Vice President Day, Beth Ann Senior Vice President De Sa, Paul Senior Vice President Dibadj, Ali M. Senior Vice President Dowd, Daniel V. Senior Vice President Fanelli, Steven A. Senior Vice President Franco, Eric Senior Vice President Guinan III, William L. Senior Vice President Hagemeier, Jan Senior Vice President Harned, Douglas S. Senior Vice President Hintz, Charles B. Senior Vice President Howard, Alexia Senior Vice President Larson, Ann-Marie Senior Vice President Liles, David A. Senior Vice President Loughlin, Frank Senior Vice President Marsalise, William Senior Vice President McDonald, John E. Senior Vice President McGranahan, Colin A. Senior Vice President Moffet, Craig E. Senior Vice President O'Connell, Patrick M. Senior Vice President Porges, Geoffrey C. Senior Vice President Rinaldi, Carl L. Senior Vice President Shapero, Thomas Senior Vice President Scarperi, Robert M. Senior Vice President Singer, Rhonda K. Senior Vice President Sommer, Michael Senior Vice President -9- |
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ----------------------------- --------------------- St. Pierre, Kevin J. Senior Vice President Van Tassel, James C. Senior Vice President Vincent, James B. Senior Vice President Wood, Andrew D. Senior Vice President Wynne, Hugh D. Senior Vice President Zlotnikov, Vadim Senior Vice President Carli, Raymond Vice President and Treasurer Abramson, Richard S. Vice President Aronow, Bruce K. Vice President Artiglere, Joseph J. Vice President Aspesi, Claudio V. Vice President Azzariti, Paul R. Vice President Baumann Jr., Robert E. Vice President Benjamin, Eric V. Vice President Beirne, Paul R. Vice President Bienenstock, Robin Vice President Broquin, Francois D. Vice President Browning, Robert Vice President Burg, Laura I. Vice President Cardillo, Paul J. Vice President Carrella, Carmine Vice President Caruso, Frank Vice President Cheng, Ping Vice President Choi, Peter H. Vice President Cobuzzi, Paul Vice President Cooney, Timothy G. Vice President Cofsky, Jonathan D. Vice President Coyle, Malachy E. W. Vice President Juenger, Todd M. Vice President Davison, Gary M. Vice President De Charentenay, Ghislain Vice President Del Deo, Nicholas R. Vice President Demakis, Drew W. Vice President DiMaggio, Scott A. Vice President Doyle, Brennan S. Vice President Doyle, Jason N. Vice President Edwards, Matthew Vice President Farren, Daniel J. Vice President Fay, Sharon E. Vice President Fedak, Marilyn Vice President Fernandez, Andrew W. Vice President Ferragu, Pierre C.L.H.M. Vice President Friedrich, Louis A. Vice President Garfunkel, Eric C. Vice President Giordano, Craig A. Vice President Gupte, Anagha A. Vice President Haddad, Kenneth C. Vice President Hampton, Tracy D. Vice President Hanley, John Vice President -10- |
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- -------------------------- --------------------- Hanlon, Mai Y. Vice President Hecht, Robert D. Vice President Henkel, David C. Vice President Hildebrandt, James P. Vice President Hochman, Ronald Vice President Hodorov, Vladislav Vice President Hogbin, Christopher E. Vice President Hudson, Matthew J. Vice President Hurkala, John C. Vice President Hyland, William S. Vice President Kass, Michele Vice President Kelman, Jeremy E. Vice President Keyes-Grevelis, Stephen N. Vice President Laursen, Jamie E. Vice President Montgomery, Lucas G. Vice President Powers, Stephen R. Vice President Scher, Eric L. Vice President Sheehy, Finbar R. Vice President Steckenborn, Bjoern Vice President Sylvester-Evans, James Vice President Xiao, David D. Vice President Altunkopru, Zehra C. Vice President Apoian, Zachary A. Vice President Bales, Kendrick K. Vice President Brackett, Robert A. Vice President Brancati, Michael J. Vice President Cochrane, Geoffrey M. Vice President Dolan, Michael P. Vice President Gruber, Scott A. Vice President Hourigan, Frank C. Vice President Lorch, Jordan J. Vice President Lyden, John M. Vice President Malachowicz, Andrzej Vice President Moerdler, Mark L. Vice President Norris, Blair D. Vice President Steffek, Amy M. Vice President Thurer, Stephen M. Vice President Khambadkone, Sameer R. Vice President Kirjner Neto, Carlos Vice President Kelly, Patrick Vice President Klein, Jordon M. Vice President Klose-Ostrovsky, Cornelia K. Vice President Lane, Kenneth H. Vice President Le Guyader, Celine Vice President Lewin, Lori Vice President Lewis, Sebastian H. C. Vice President Lipman, Rebecca Vice President Liptrot, James Vice President Lundergan, Nicole Vice President -11- |
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ------------------------------ --------------------- Mack, Alyssa Vice President Magoun, Lisa Vice President Malandrino, Joanne Vice President Martier, Allison Vice President Masters, Seth Vice President Maurandy, Jean-Pierre Vice President McCarthy, Thomas F. Vice President McFarland, Sean P. Vice President Miller, Wesley P. Vice President Morgan, Scott Vice President Nissar, Jahanara Vice President Ocena, Doni Vice President Parizer, David Vice President Pitarresi, John C. Vice President Ponomarev, Paul C. Vice President Prozesky, Paul M. Vice President Radic, Joseph Vice President Rampogna, Alessandra Vice President Rasgon, Stacey A. Vice President Reilly, Alison O. Vice President Ritter, Peter Vice President Rubenstein, Jeffrey P. Vice President Sabat, Michael H. Vice President Sacconaghi, Antonio Vice President Salomon, Martin Vice President Scudero, Louis Vice President Shen, Carla P. Vice President Singer, Rhonda Vice President Smith, Randy S. Vice President Sofocleous, Dominic Vice President Soler, Orlando Vice President St. Pierre, Kevin J. Vice President Steinberg, Ethan S. Vice President Stirling, Trevor J. Vice President Su, Yongjun Vice President Sung, Derrick Vice President Susi, Mark Vice President Sweeney, Nicholas N. Vice President Tedesco, Michael I. Vice President Thomas, Kwane H. Vice President Tomar, Aditya Vice President Trantolo, Vincent A. Vice President Turner, Peter C. Vice President Van Antwerp, Thomas B. Vice President Van Eeten, Piet Vice President Vernon, David S. Vice President Weinberg, Matthew Vice President Weinberger, Michael Vice President Wheeler, Jason S. Vice President -12- |
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ------------------------------ --------------------- Wiesenfeld, Jeffery S. Vice President Winoker, Steven E. Vice President Wood, Catherine Vice President Wynne, Hugh D. Vice President Yadgaroff, Mark E. Vice President Young, Zachary Vice President Zhu, Xiaoliang Vice President Chan, Emily K. Assistant Vice President Cheng, Jocelyn C. Assistant Vice President Chuang, Joshua Assistant Vice President de Krei, Cheryl R. Assistant Vice President Downey, Brian K. Assistant Vice President Dravants, John Assistant Vice President Goodwin, Joel Assistant Vice President Hoyt, Julia Assistant Vice President Keane, Teresa Assistant Vice President Lorch, Jordan J. Assistant Vice President Panwar, Jay Assistant Vice President Acquista, Diane M. Assistant Vice President Badner, Bruce M. Assistant Vice President Beckel, David J. Assistant Vice President Chan, Amelia Z. Assistant Vice President Clavel, Charles Assistant Vice President Das, Ira Assistant Vice President Findlay, Matthew J. Assistant Vice President Guo, Gretchen J. Assistant Vice President Gupta, Gaurav Assistant Vice President Handy, Peter G. Assistant Vice President Huang, Yang Assistant Vice President Keller, Edward B. Assistant Vice President Kovac, Michael E. Assistant Vice President Latchman, Maria H. Assistant Vice President Li, Min Assistant Vice President Lin, Lin Assistant Vice President Liu, David X. Assistant Vice President Miner, Charles Assistant Vice President O'Connor, Melissa Assistant Vice President Parameswaran, Rajaraman Assistant Vice President Paskhaver, Peter Assistant Vice President Ramachandran, Ranjit Assistant Vice President Rudick, Brian B. Assistant Vice President Ryan, Hilary E. Assistant Vice President Singh, Saurabh Assistant Vice President Sonnenfeld, Alan M. Assistant Vice President Weber, Ian G. Assistant Vice President Wing, Jonathan R. Assistant Vice President Wislo, Steven D. Assistant Vice President Carron, Emma R. Associate Officer Chen, Yiling Associate Officer -13- |
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ------------------------------ --------------------- Chernansky, Jacob J. Associate Officer Farajollah, Gabe Associate Officer Fisher, Charles T. Associate Officer Gardell, Bryan G. Associate Officer Garnett, Sofia J. Associate Officer Harsono-Cloney, Tania A. Associate Officer Heath, Thomas Associate Officer Ho, Anna S.G. Associate Officer Johnson, Kevin M. Associate Officer Levitt, David Associate Officer Marks, Garrett T. Associate Officer Piccolo, Ashley G. Associate Officer Renz, Carey Associate Officer Rodriguez Esperanza, Elyn A. Associate Officer Scanlon, Christopher Associate Officer Srimal, Rubin Associate Officer Winfrey, Wells M. Associate Officer Winik, Martin S. Associate Officer Xiang, Yidong Associate Officer Zapasnik, Veronica Associate Officer |
The following are the Directors and Officers of ABI, the principal place of business of which is 1345 Avenue of the Americas, New York, New York, 10105.
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ------------------------------ --------------------- DIRECTORS --------- Robert M. Keith Director and President President and Chief Executive Officer Mark R. Manley Director and Secretary OFFICERS -------- Emilie D. Wrapp Senior Vice President, Assistant General Counsel and Assistant Secretary Secretary/Clerk Laurence H. Bertan Senior Vice President and Assistant Secretary Peter G. Callahan Senior Vice President Kevin T. Cannon Senior Vice President Russell R. Corby Senior Vice President John W. Cronin Senior Vice President John C. Endahl Senior Vice President Adam E. Engelhardt Senior Vice President John Edward English Senior Vice President Daniel Ennis Senior Vice President Edward J. Farrell Senior Vice President and Controller Mark A. Gessner Senior Vice President Kenneth L. Haman Senior Vice President Michael S. Hart Senior Vice President Joseph P. Healy Senior Vice President Harold Hughes Senior Vice President Scott Hutton Senior Vice President -14- |
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ------------------------- --------------------- Ajai M. Kaul Senior Vice President Hiroshi Kimura Senior Vice President Georg Kyd-Rebenburg Senior Vice President Eric L. Levinson Senior Vice President James M. Liptrot Senior Vice President and Assistant Controller William Marsalise Senior Vice President Joanna D. Murray Senior Vice President Daniel A. Notto Senior Vice President, Counsel and Assistant Secretary John J. O'Connor Senior Vice President Suchet Padhye (Pandurang) Senior Vice President Guy Prochilo Senior Vice President John D. Prosperi Senior Vice President Miguel A. Rozensztroch Senior Vice President Stephen C. Scanlon Senior Vice President John P. Schmidt Senior Vice President Elizabeth M. Smith Senior Vice President Peter J. Szabo Senior Vice President Joseph T. Tocyloski Senior Vice President Christian G. Wilson Senior Vice President Derek Yung Senior Vice President Aimee K. Alati Vice President Constantin L. Andreae Vice President DeAnna D. Beedy Vice President Christopher M. Berenbroick Vice President Chris Boeker Vice President Brandon W. Born Vice President James J. Bracken Vice President Robert A. Brazofsky Vice President Richard A. Brink Vice President Shaun D. Bromley Vice President Brian Buehring Vice President Michael A. Capella Vice President Laura A. Channell Vice President Mikhail Cheskis Vice President Nelson Kin Hung Chow Vice President Flora Chuang Vice President Peter T. Collins Vice President Dwight P. Cornell Vice President Robert A. Craft Vice President Silvio Cruz Vice President Kevin M. Dausch Vice President Giuliano De Marchi Vice President Christine M. Dehil Vice President Marc J. Della Pia Vice President Patrick R. Denis Vice President Ralph A. DiMeglio Vice President |
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- -------------------------- ------------------------- Joseph T. Dominguez Vice President Barbara Anne Donovan Vice President Robert Dryzgula Vice President Arend J. Elston Vice President Gregory M. Erwinski Vice President Michael J. Ferraro Vice President Andrew H. Fischer Vice President Susan A. Flanagan Vice President Robert K. Forrester Vice President Yuko Funato Vice President Kevin T. Gang Vice President Mark C. Glatley Vice President Stefanie M. Gonzalez Vice President Kimberly A. Collins Gorab Vice President N/C Tetsuya Hada Vice President Brian P. Hanna Vice President Kenneth Handler Vice President Terry L. Harris Vice President Olivier Herson Vice President Lia A. Horii Vice President Eric S. Indovina Vice President Tina Kao Vice President Jang Joong Kim Vice President Scott M. Krauthamer Vice President Stephen J. Laffey Vice President and Counsel Assistant Secretary/Assistant Clerk Edward G. Lamsback Vice President Christopher J. Larkin Vice President Chang Hyun Lee Vice President Ginnie Li Vice President Jonathan M. Liang Vice President Karen (Yeow Ping) Lim Vice President Darren L. Luckfield Vice President Robert Mancini Vice President Todd Mann Vice President Silvia Manz Vice President Russell B. Martin Vice President Nicola Meotti Vice President Yuji Mihashi Vice President David Mitchell Vice President Thomas F. Monnerat Vice President Paul S. Moyer Vice President Juan Mujica Vice President Jennifer A. Mulhall Vice President John F. Multhauf Vice President Robert D. Nelms Vice President Jamie A. Nieradka Vice President Alex E. Pady Vice President |
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ------------------------------ --------------------- David D. Paich Vice President Kimchu Perrington Vice President Jared M. Piche Vice President Jeffrey Pietragallo Vice President Joseph J. Proscia Vice President Damien Ramondo Vice President Carol H. Rappa Vice President Jessie A. Reich Vice President Lauryn A. Rivello Vice President Patricia A. Roberts Vice President Jennifer R. Rolf Vice President Claudio Rondolini Vice President Gregory M. Rosta Vice President and Assistant Secretary Kristin M. Seabold Vice President Karen Sirett Vice President John F. Skahan Vice President Orlando Soler Vice President Chang Min Song Vice President Daniel L. Stack Vice President Jason P. Stevens Vice President Peter Stiefel Vice President Sharon Su Vice President Atsuko Takeuchi Vice President Scott M. Tatum Vice President Laura L. Tocchet Vice President Louis L. Tousignant Vice President Ming (Ming Kai) Tung Vice President Christian B. Verlingo Vice President Wendy Weng Vice President Stephen M. Woetzel Vice President Chapman Tsan Man Wong Vice President Joanna Wong (Chun-Yen) Vice President Yoshinari Yagi Vice President Isabelle (Hsin-I) Yen Vice President Oscar Zarazua Vice President Martin J. Zayac Vice President Corey S. Beckerman Assistant Vice President Claudio Roberto Bello Assistant Vice President Roy C. Bentzen Assistant Vice President James M. Broderick Assistant Vice President Christopher J. Carrelha Assistant Vice President Daisy (Sze Kie) Chung Assistant Vice President Francesca Dattola Assistant Vice President Robert A. Fiorentino Assistant Vice President Friederike Grote Assistant Vice President Joseph Haag Assistant Vice President Brian M. Horvath Assistant Vice President -17- |
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ------------------------------- --------------------- Sylvia Hsu Assistant Vice President Isabelle Husson Assistant Vice President Joseph D. Kearney Assistant Vice President Charlie Kim Assistant Vice President Junko Kimura Assistant Vice President Aaron S. Kravitz Assistant Vice President Jim Liu Assistant Vice President Mark J. Maier Assistant Vice President Matthew J. Malvey Assistant Vice President Rachel A. Moon Assistant Vice President Nora E. Murphy Assistant Vice President Charissa A. Pal Vice President Julie A. Parker Assistant Vice President Brian W. Paulson Assistant Vice President Pablo Perez Assistant Vice President Anthony W. Piccola Assistant Vice President Tricia L. Psychas Assistant Vice President Mark A. Quarno Assistant Vice President Jennifer B. Robinson Assistant Vice President Richard A. Schwam Assistant Vice President Nicholas A. Semko Assistant Vice President Michael J. Shavel Assistant Vice President Chizu Soga Assistant Vice President Michiyo Tanaka Assistant Vice President Miyako Taniguchi Assistant Vice President Laurence Vandecasteele Assistant Vice President Annabelle C. Watson Assistant Vice President Jeffrey Western Assistant Vice President William Wielgolewski Assistant Vice President Colin T. Burke Assistant Secretary |
Item 33. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by Rules 31a-1 through 31a-3 pursuant to the 1940 Act are maintained at the offices of AllianceBernstein L.P., One North Lexington Avenue, White Plains, NY 10601 and 1345 Avenue of the Americas, New York, NY 10105, except that some records pursuant to Rule 31a-1(b) are maintained at the offices of State Street Bank and Trust Company, 1776 Heritage Drive and 2 Heritage Drive, North Quincy, Massachusetts 02171 or AllianceBernstein Investor Services, Inc., 500 Plaza Drive, Secaucus, New Jersey 07094, the Fund's Transfer Agents.
Item 34. Management Services-Not applicable.
Item 35. Undertakings-Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement under rule 485(b) under the Securities Act of 1933, as amended, and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and State of New York, on the 31st day of January, 2013.
SANFORD C. BERNSTEIN FUND, INC.
By: * -------------------------- Dianne F. Lob President |
Pursuant to the requirements of the Securities Act of 1933, as amended, this Post-Effective Amendment No. 58 to the Registrant's Registration Statement on Form N-1A has been signed below by the following persons, in the capacities and on the dates indicated.
Signature Title Date ---------- ----- ----- * President and Director ----------------------- --------------------------- Dianne F. Lob * Director ----------------------- --------------------------- Bart Friedman * Director ----------------------- --------------------------- William Kristol * Director ----------------------- --------------------------- Debra Perry * Director ----------------------- --------------------------- Donald K. Peterson * Director ----------------------- --------------------------- Thomas B. Stiles II * Director ----------------------- --------------------------- Rosalie J. Wolf /s/ Joseph J. Mantineo Treasurer and Chief January 31, 2013 ----------------------- Financial Officer Joseph J. Mantineo |
* This Registration Statement has been signed by each of the persons so indicated by the undersigned as Attorney-in-Fact.
By: /s/ Nancy E. Hay January 31, 2013 ------------------------------------ Nancy E. Hay, Attorney-in-Fact |
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