File No. 33-72460
811-08188
It is proposed that this filing will become effective (check appropriate box)
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
This Post-Effective Amendment No. 37 to the Registration Statement of
AllianceBernstein High Income Fund, Inc. (the "Registrant") on Form N-1A (File
No. 33-72460) (the "Amendment") is being filed pursuant to Rule 485(b)(1)(vii)
to register Class Z shares of the Registrant. This Amendment does not affect the
currently effective prospectus and statement of additional information for other
classes of the Registrant's shares not included herein.
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.
ADDITIONAL INFORMATION ABOUT THE FUNDS' RISKS AND INVESTMENTS
This section of the Prospectus provides additional information about the Funds'
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 Fund's investment practices and
additional information about each Fund's risks and investments can be found in
the Funds' Statement of Additional Information ("SAI").
DERIVATIVES
Each 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. A 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.
A 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 Funds' 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
Funds' investments in forward contracts may include the following:
- Forward Currency Exchange Contracts. A 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". A 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. A 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. A 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. A 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 a Fund were permitted to expire without being sold or
exercised, its premium would represent a loss to the Fund. The Funds'
investments in options include the following:
- Options on Foreign Currencies. A Fund may invest in options on foreign
currencies that are privately negotiated
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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, a Fund may forfeit the entire amount of
the premium plus related transaction costs. A 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. A Fund may purchase or write a put or call option on
securities. A 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 a
Fund receiving or paying, as the case may be, only the net amount of the two
payments). The Funds' 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 a 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 a Fund's portfolio or to protect against an increase in the price
of securities a Fund anticipates purchasing at a later date.
- 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
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. A Fund may be either the buyer or
seller in the transaction. If a 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, a 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
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be less than the full amount it pays to the buyer, resulting in a loss to
the Fund. If a 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.
- Currency Swaps. A 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 a 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. A 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. A 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. A Fund may invest in non-U.S. Dollar-denominated
securities on a currency hedged or un-hedged basis. The Adviser may actively
manage a 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 a 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. A 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).
CONVERTIBLE SECURITIES
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which generally provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they offer investors the potential to benefit from increases in the
market prices of the underlying common stock. Convertible debt securities that
are rated Baa3 or lower by Moody's or BBB- or lower by S&P or Fitch and
comparable unrated securities may share some or all of the risks of debt
securities with those ratings.
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).
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A 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 a Fund to protect against anticipated changes in interest
rates and prices.
ILLIQUID SECURITIES
Under current Securities and Exchange Commission ("Commission") guidelines, the
Funds limit their 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. A Fund 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 ("Rule 144A securities") 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. A 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 a 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. A 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.
INVESTMENT IN EXCHANGE-TRADED FUNDS AND OTHER INVESTMENT COMPANIES
A Fund may invest in shares of exchange-traded funds ("ETFs"), subject to the
restrictions and limitations of the Investment Company Act of 1940 (the "1940
Act"), or any applicable rules, exemptive orders or regulatory guidance
thereunder. ETFs are pooled investment vehicles, which may be managed or
unmanaged, that generally seek to track the performance of a specific index.
ETFs will not track their underlying indices precisely since the ETFs have
expenses and may need to hold a portion of their assets in cash, unlike the
underlying indices, and the ETFs may not invest in all of the securities in the
underlying indices in the same proportion as the indices for varying reasons. A
Fund will incur transaction costs when buying and selling ETF shares, and
indirectly bear the expenses of the ETFs. In addition, the market value of an
ETF's shares, which is based on supply and demand in the market for the ETF's
shares, may differ from its NAV. Accordingly, there may be times when an ETF's
shares trade at a discount to its NAV.
A Fund may also invest in investment companies other than ETFs, as permitted by
the 1940 Act or the rules and regulations thereunder. As with ETF investments,
if the Fund acquires shares in other 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 Fund's expenses.
The Funds intend to invest uninvested cash balances in an affiliated money
market fund as permitted by Rule 12d1-1 under the 1940 Act.
LOAN PARTICIPATIONS
A 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 a Fund and a borrower may
affect the ability of the Fund to receive principal and interest payments.
16
The success of a 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, OTHER ASSET-BACKED SECURITIES AND STRUCTURED SECURITIES
A 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 a 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, a 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.
A 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 Funds may invest in other asset-backed
securities that have been offered to investors.
A Fund may invest in other asset-backed securities. 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.
A 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. A
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 a 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
A 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
17
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
A 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 a 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, a
Fund would suffer a loss to the extent that the proceeds from the sale of the
security were less than the repurchase price.
A Fund may enter into buy/sell back transactions, which are similar to
repurchase agreements. In this type of transaction, a 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
A 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 a 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 a Fund. In
addition, reverse repurchase agreements and dollar rolls involve the risk that
the market value of the securities a Fund is obligated to repurchase may
decline below the purchase price.
Dollar rolls involve sales by a 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, a Fund forgoes principal and interest paid on the securities.
A 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 a 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, a 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.
SHORT SALES
A Fund may make short sales as a part of overall portfolio management or to
offset a potential decline in the value of a security. A short sale involves
the sale of a security that a Fund does not own, or if the Fund owns the
security, is not to be delivered upon consummation of the sale. When the Fund
makes a short sale of a security that it does not own, it must borrow from a
broker-dealer the security sold short and deliver the security to the
broker-dealer upon conclusion of the short sale.
If the price of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a short-term
capital gain. The potential for the price of a fixed-income security sold short
to rise is a function of both the remaining maturity of the obligation, its
creditworthiness and its yield. Unlike short sales of equities or other
instruments, potential for the price of a fixed-income security to rise may be
limited due to the fact that the security will be no more than par at maturity.
However, the short sale of other instruments or securities generally, including
fixed-income securities convertible into equities or other instruments, a
fixed-income security trading at a deep discount from par or that pays a coupon
that is high in relative and/or absolute terms, or that is denominated in a
currency other than the U.S. Dollar, 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.
STANDBY COMMITMENT AGREEMENTS
Standby commitment agreements are similar to put options that commit a Fund,
for a stated period of time, to purchase a stated amount of a security that may
be issued and sold to the Fund at the option of the issuer. The price and
coupon of the security are fixed at the time of the commitment. At the time of
entering into the agreement, the Fund is paid a commitment fee, regardless of
whether the security ultimately is issued. A Fund will enter into such
agreements only for the purpose of investing in the security underlying the
commitment at a yield and price considered advantageous to the Fund and
unavailable on a firm commitment basis.
18
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, a Fund will bear the risk of capital loss in
the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
STRUCTURED PRODUCTS
A 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 a 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.
A 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 a basket of derivative instruments in order to provide
exposure to certain fixed-income markets. For instance, a 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 derivative instruments
or other securities. A 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.
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 a 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 a 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 Funds 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 Funds are 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 Funds' investment objectives.
The Funds 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
19
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.
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.
A 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 RISKS AND OTHER CONSIDERATIONS
Investments in the Funds involve the special risk considerations described
below.
BORROWING AND LEVERAGE
The Funds may use borrowings for investment purposes subject to applicable
statutory or regulatory requirements. Borrowings by a Fund result in leveraging
of the Fund's shares. A 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 a 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 a Fund's shareholders. These include a higher volatility of
the NAV of a Fund's shares and the relatively greater effect on the NAV of the
shares. So long as a 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 a
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, a 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. A Fund that invests in foreign
fixed-income securities may experience greater price volatility and
significantly lower liquidity than a portfolio invested solely in securities of
U.S. companies. These markets may be subject to greater influence by adverse
events generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the United States.
Securities registration, custody, and 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 a Fund. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from certain of the countries is
controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in
a country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances.
A Fund also could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require a Fund to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to a Fund. These factors may affect the liquidity of a Fund's investments
in any country and the Adviser will monitor the effect of any such factor or
factors on a 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.
20
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,
a Fund could lose its entire investment in securities in the country involved.
In addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Funds 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
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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 a 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
a 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
A Fund that invests some portion of its assets in securities denominated in,
and receives revenues in, foreign currencies 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, a Fund may engage in certain currency
hedging transactions, as described above, which involve certain special risks.
A Fund may also invest directly in foreign currencies for non-hedging purposes
directly on a spot basis (i.e., cash) or through derivative 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 a 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
21
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 Fund may experience difficulty in valuing such
securities and, in turn, the Fund's assets.
UNRATED SECURITIES
A 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
A 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.
STATEMENT OF ADDITIONAL INFORMATION
January 31, 2013, as amended Ocotber 15, 2013
This Statement of Additional Information ("SAI") is not a prospectus
but supplements and should be read in conjunction with the current prospectus,
dated January 31, 2013, for the AllianceBernstein Intermediate Bond Portfolio
("Intermediate Bond") and AllianceBernstein Limited Duration High Income
Portfolio ("Limited Duration") of AllianceBernstein Bond Fund, Inc.,
AllianceBernstein Unconstrained Bond Fund, Inc. ("Unconstrained Bond"),
AllianceBernstein Global Bond Fund, Inc. ("Global Bond") and AllianceBernstein
High Income Fund, Inc. ("High Income") (each a "Fund" and collectively, the
"Funds") that offers Class A, Class B, Class C, Advisor Class, Class R, Class K
and Class I shares of the Funds (except Limited Duration, which offers Class A,
Class C and Advisor Class Shares in the Prospectus) and the prospectus dated
October 15, 2013 offering Class Z shares for High Income and Global Bond (the
"Prospectus"). Each of the Funds listed above is hereinafter referred to as a
Fund, and collectively, the Funds. Financial statements for Intermediate Bond,
Unconstrained Bond and High Income for the year ended October 31, 2012, and
financial statements for Global Bond and Limited Duration for the year and
period ended September 30, 2012, and semi-annual report for the six-month period
ended March 31, 2013 for Global Bond and April 30, 2013, with respect to High
Income are included in each Fund's annual report to shareholders and are
incorporated into the SAI by reference. Copies of the Prospectus and each Fund's
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.
TABLE OF CONTENTS
Page
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INFORMATION ABOUT THE FUNDS AND THEIR INVESTMENTS..............................1
INVESTMENT RESTRICTIONS.......................................................45
MANAGEMENT OF THE FUNDS.......................................................47
EXPENSES OF THE FUNDS.........................................................80
PURCHASE OF SHARES............................................................91
REDEMPTION AND REPURCHASE OF SHARES..........................................116
SHAREHOLDER SERVICES.........................................................119
NET ASSET VALUE..............................................................123
DIVIDENDS, DISTRIBUTIONS AND TAXES...........................................127
FUND TRANSACTIONS............................................................135
GENERAL INFORMATION..........................................................140
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM........................................................160
APPENDIX A: STATEMENT OF POLICIES AND PROCEDURES FOR PROXY VOTING ...........A-1
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AllianceBernstein and the AB Logo are registered trademarks and service marks
used by permission of the owner, AllianceBernstein, L.P.
INFORMATION ABOUT THE FUNDS AND THEIR INVESTMENTS
Introduction to the Funds
Except as otherwise noted, each Fund's investment objectives and
policies described below are not "fundamental policies" within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act") and may,
therefore, be changed by the Fund's Board of Directors (the "Board") without
shareholder approval. However, no Fund will change its investment objective
without at least 60 days' prior written notice to shareholders. There is no
guarantee that a Fund will achieve its investment objective. Whenever any
investment policy or restriction states a percentage of a Fund's assets that may
be invested in any security or other asset, it is intended that such percentage
limitation be determined immediately after and as a result of a Fund's
acquisition of such securities or other assets. Accordingly, any later increases
or decreases in percentage beyond the specified limitations resulting from a
change in values or net assets will not be considered a violation of this
percentage limitation.
Additional Investment Policies and Practices
The following information about the Funds' investment policies and
practices supplements the information set forth in the Prospectus.
Derivatives
A Fund may, but is not required to, use derivatives for hedging
or risk management purposes or as part of its investment practices. 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 Fund 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.
The Funds 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.
Forward Contracts. A forward contract is a customized privately-
negotiated agreement for 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 other tangible asset underlying the
forward contract to an agreed-upon location at a future date (rather than
settled by cash) or will be rolled forward into a new forward contract.
Non-deliverable forwards ("NDFs") specify a cash payment upon maturity.
Futures Contracts and Options on Futures Contracts. A futures
contract is an 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 are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or canceled through the acquisition of equal but
opposite positions, which is the primary method in which futures contracts are
liquidated. A cash-settled futures contract does not require physical delivery
of the underlying asset but instead is settled for cash equal to the difference
between the values of the contract on the date it is entered into and its
maturity date.
Options. An option, which may be standardized and exchange-traded,
or customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy (a "call") or sell (a "put") 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.
Likewise, when an option is exercised the writer of the option is obligated to
sell (in the case of a call option) or to purchase (in the case of a put option)
the underlying asset (or settle for cash an amount based on an underlying asset,
rate or index).
Swaps. A swap, which may be standardized and exchange-traded or
customized, and privately negotiated, 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
(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). Most swaps are entered into on a net basis (i.e.,
the two payment streams are netted out, with the Funds receiving or paying, as
the case may be, only the net amount of the two payments). Except for currency
swaps, the notional principal amount is used solely to calculate the payment
streams but is not exchanged. With respect to currency swaps, actual principal
amounts of currencies may be exchanged by the counterparties at the initiation,
and again upon the termination, of the transaction.
Risks of Derivatives. Investment techniques employing such
derivatives involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. Following is a general
discussion of important risk factors and issues concerning the use of
derivatives.
-- 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 Fund'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 Fund'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 Fund 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
Fund 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 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 swaps, may affect a Fund'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 Fund. 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 Fund's use of derivatives may not always be an
effective means of, and sometimes could be counterproductive
to, furthering the Fund's investment objective.
Other. A Fund may purchase and sell derivative instruments only to
the extent that such activities are consistent with the requirements of the
Commodity Exchange Act ("CEA") and the rules adopted by the Commodity Futures
Trading Commission ("CFTC") thereunder. Under CFTC rules, a registered
investment company that conducts more than a minimal amount of trading in
futures, commodity options, swaps and other commodity interests is a commodity
pool and its adviser must register as a commodity pool operator. Under such
rules, registered investment companies are subject to additional disclosure and
reporting requirements. The Adviser and the Funds, except for Unconstrained
Bond, have claimed an exclusion from the definition of commodity pool operator
under CFTC Rule 4.5 and are not currently subject to these registration,
disclosure and reporting requirements. This exclusion is not available to
Unconstrained Bond, and the Adviser has registered as a CPO with respect to this
Fund. As a result, Unconstrained Bond will be subject to additional disclosure
and reporting requirements. The CFTC has not yet adopted final rules for these
additional requirements and, therefore, the scope of these requirements is
currently unclear but could potentially affect the Fund's expenses.
Use of Options, Futures, Forwards and Swaps by a Fund
- Forward Currency Exchange Contracts. 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.
A Fund may, for example, enter into forward currency exchange
contracts to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. Dollar and other currencies. A Fund may
purchase or sell forward currency exchange contracts for hedging purposes
similar to those described below in connection with its transactions in foreign
currency futures contracts. A Fund 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".
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 Fund may be required to forgo
all or a portion of the benefits which otherwise could have been obtained from
favorable movements in exchange rates.
A Fund may also use forward currency exchange contracts to seek to
increase total return when AllianceBernstein L.P., the Fund's adviser (the
"Adviser"), 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. For example, a Fund may
enter into a foreign currency exchange contract to purchase a currency if the
Adviser expects the currency to increase in value. The Fund 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 Fund may enter
into a foreign currency exchange contract to sell a currency if the Adviser
expects the currency to decrease in value. The Fund 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.
- Options on Securities. A Fund may write and purchase call and put
options on securities. In purchasing an option on securities, a Fund 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 Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund 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 Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which
is retained by the Fund whether or not the option is exercised. A Fund may write
covered options or uncovered options. A call option written by a Fund is
"covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security with an
exercise price equal to or less than of the call option it has written. A put
option written by a Fund is covered if the Fund holds a put option on the
underlying securities with an exercise price equal to or greater than of the put
option it has written. Uncovered options or "naked options" are riskier than
covered options. For example, if a Fund wrote a naked call option and the price
of the underlying security increased, the Fund 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 Fund may also purchase call options to hedge against an increase
in the price of securities that the Fund anticipates purchasing in the future.
If such increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund and the Fund will suffer a loss on the transaction to the
extent of the premium paid.
A Fund may purchase put options to hedge against a decline in the
value of portfolio securities. If such decline occurs, the put options will
permit the Fund to sell the securities at the exercise price or to close out the
options at a profit. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized on the underlying security by the amount
of the premium paid for the put option and by transaction costs.
A Fund may 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 Fund undertakes a simultaneous
obligation to sell and purchase the same security in the event that one of the
options is exercised. If the price of the security subsequently rises above the
exercise price, the call will likely be exercised and the Fund will be required
to sell the underlying security at 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.
A Fund may purchase or write options on securities of the types in
which it is permitted to invest in privately-negotiated (i.e., over-the-counter)
transactions. By writing a call option, a Fund limits its opportunity to profit
from any increase in the market value of the underlying security above the
exercise price of the option. By writing a put option, a Fund assumes the risk
that it may be required to purchase the underlying security for an exercise
price above its then current market value, resulting in a capital loss unless
the security subsequently appreciates in value. Where options are written for
hedging purposes, such transactions constitute only a partial hedge against
declines in the value of portfolio securities or against increases in the value
of securities to be acquired, up to the amount of the premium. A Fund will
effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy by the Adviser, and the Adviser has adopted procedures for
monitoring the creditworthiness of such entities. Options purchased or written
in negotiated transactions may be illiquid and it may not be possible for the
Fund to effect a closing transaction at a time when the Adviser believes it
would be advantageous to do so.
-- 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 Fund may write (sell) call and put options and purchase call and
put options on securities indices. If a Fund 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 Fund's investments
does not decline as anticipated, or if the value of the option does not
increase, the Fund's loss will be limited to the premium paid for the option.
The success of this strategy will largely depend on the accuracy of the
correlation between the changes in value of the index and the changes in value
of the Fund's security holdings.
The purchase of call options on securities indices may be used by a
Fund to attempt to reduce the risk of missing a broad market advance, or an
advance in an industry or market segment, at a time when the Fund holds
uninvested cash or short-term debt securities awaiting investment. When
purchasing call options for this purpose, the Fund will also bear the risk of
losing all or a portion of the premium paid if the value of the index does not
rise. The purchase of call options on stock indices when a Fund is substantially
fully invested is a form of leverage, up to the amount of the premium and
related transaction costs, and involves risks of loss and of increased
volatility similar to those involved in purchasing call options on securities
the Fund owns.
-- Options on Foreign Currencies. A Fund may purchase and write
options on foreign currencies for hedging or non-hedging purposes. For example,
a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, the Fund may
purchase put options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell such currency for a fixed amount
in dollars and could thereby offset, in whole or in part, the adverse effect on
its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may purchase call options thereon. The purchase
of such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to the Fund from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options which would require it to forgo a portion or all of the benefits of
advantageous changes in such rates.
A Fund may write options on foreign currencies for hedging purposes
or to increase return. For example, where a Fund anticipates a decline in the
dollar value of non-U.S. Dollar-denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution in value of
portfolio securities could be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a Fund
could write a put option on the relevant currency, which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund will be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Fund also may be required to forgo all or a
portion of the benefits that might otherwise have been obtained from favorable
movements in exchange rates.
In addition to using options for the hedging purposes described
above, a Fund may also invest in options on foreign currencies for non-hedging
purposes as a means of making direct investments in foreign currencies. A Fund
may use options on currency to seek to increase total return when the Adviser
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. For example, the Fund may purchase
call options in anticipation of an increase in the market value of a currency. A
Fund 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, the Fund would realize no gain or a loss on the
purchase of the call option. Put options may be purchased by a Fund for the
purpose of benefiting from a decline in the value of a currency that the Fund
does not own. A Fund 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,
the Fund 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 Currencies. 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
Fund 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 the Fund 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 and Options on Futures Contracts. Futures
contracts that a Fund 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 Fund 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.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Fund's current or intended investments in fixed-income securities. For example,
if a Fund owned long-term bonds and interest rates were expected to increase,
that Fund might sell interest rate futures contracts. Such a sale would have
much the same effect as selling some of the long-term bonds in that Fund's
portfolio. However, since the futures market is more liquid than the cash
market, the use of interest rate futures contracts as a hedging technique allows
a Fund to hedge its interest rate risk without having to sell its portfolio
securities. If interest rates were to increase, the value of the debt securities
in the portfolio would decline, but the value of that Fund's interest rate
futures contracts would be expected to increase at approximately the same rate,
thereby keeping the net asset value ("NAV") of that Fund from declining as much
as it otherwise would have. On the other hand, if interest rates were expected
to decline, interest rate futures contracts could be purchased to hedge in
anticipation of subsequent purchases of long-term bonds at higher prices.
Because the fluctuations in the value of the interest rate futures contracts
should be similar to those of long-term bonds, a Fund could protect itself
against the effects of the anticipated rise in the value of long-term bonds
without actually buying them until the necessary cash becomes available or the
market has stabilized. At that time, the interest rate futures contracts could
be liquidated and that Fund's cash reserves could then be used to buy long-term
bonds on the cash market.
A Fund may purchase and sell foreign currency futures contracts for
hedging purposes in order to protect against fluctuations in currency exchange
rates. Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of 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
Fund may sell futures contracts on a foreign currency, for example, when it
holds securities denominated in such currency and it anticipates a decline in
the value of such currency relative to the dollar. If such a decline were to
occur, the resulting adverse effect on the value of 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 Fund's loss on the foreign currency futures contract may or may
not be offset by an increase in the value of the securities because a decline in
the price of the security stated in terms of the foreign currency may be greater
than the increase in value as a result of the change in exchange rates.
Conversely, a Fund 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 Fund 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 Fund will
sustain losses on its futures position which could reduce or eliminate the
benefits of the reduced cost of portfolio securities to be acquired.
A Fund may also engage in currency "cross hedging" when, in the
opinion of the Adviser, the historical relationship among foreign currencies
suggests that a Fund may achieve protection against fluctuations in currency
exchange rates similar to that described above at a reduced cost through the use
of a futures contract relating to a currency other than the U.S. Dollar or the
currency in which the foreign security is denominated. Such "cross hedging" is
subject to the same risks as those described above with respect to an
unanticipated increase or decline in the value of the subject currency relative
to the U.S. Dollar.
A Fund may also use foreign currency futures contracts and options
on such contracts for non-hedging purposes. Similar to options on currencies
described above, a Fund may use foreign currency futures contracts and options
on such contracts to seek to increase total return when the Adviser 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. 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 Fund's current or intended
investments from broad fluctuations in stock or bond prices. For example, a Fund
may sell stock or bond index futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
portfolio securities that might otherwise result. If such decline occurs, the
loss in value of portfolio securities may be offset, in whole or part, by gains
on the futures position. When a Fund is not fully invested in the securities
market and anticipates a significant market advance, it may purchase stock or
bond index futures contracts in order to gain rapid market exposure that may, in
whole or in part, offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, the corresponding positions in
stock or bond index futures contracts will be closed out.
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 Fund 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 Fund's portfolio.
If the futures price at expiration of the option is below the exercise price, a
Fund will retain the full amount of the option premium, which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the futures contract. If the futures
price at expiration of the put option is higher than the exercise price, a Fund
will retain the full amount of the option premium, which provides a partial
hedge against any increase in the price of securities which the Fund intends to
purchase. If a put or call option a Fund has written is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its options on futures
positions, a Fund's losses from exercised options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
A Fund may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated as
a result of a projected market-wide decline or changes in interest or exchange
rates, a Fund could, in lieu of selling futures contracts, purchase put options
thereon. In the event that such decrease were to occur, it may be offset, in
whole or part, by a profit on the option. If the anticipated market decline were
not to occur, the Fund will suffer a loss equal to the price of the put. Where
it is projected that the value of securities to be acquired by a Fund will
increase prior to acquisition due to a market advance or changes in interest or
exchange rates, a Fund could purchase call options on futures contracts, rather
than purchasing the underlying futures contracts. If the market advances, the
increased cost of securities to be purchased may be offset by a profit on the
call. However, if the market declines, the Fund will suffer a loss equal to the
price of the call, but the securities that the Fund intends to purchase may be
less expensive.
-- 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 Fund may be either the buyer or seller in the
transaction. As 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. The contingent payment
will be either (i) the "par value" (full 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 obligation. The value of the reference obligation received by the
Fund 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 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.
--Currency Swaps. A Fund 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 or for non-hedging purposes as a
means of making direct investments in foreign currencies, as described below
under "Currency Transactions". Currency swaps involve the 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 termination of the transaction. Since currency swaps
are individually negotiated, the Fund 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. With respect to Intermediate Bond, the Fund will not enter into any
currency swap unless the credit quality of the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in the highest rating
category of at least one nationally recognized statistical rating organization
("NRSRO") at the time of entering into the transaction. If there is a default by
the other party to such a transaction, a Fund will have contractual remedies
pursuant to the agreements related to the transactions.
--Swaps: Interest Rate Transactions. A Fund may enter into interest
rate swap, swaption and 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 Fund anticipates
purchasing at a later date. Unless there is a counterparty default, the risk of
loss to a Fund from interest rate 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 transaction defaults, the Fund's risk of loss
consists of the net amount of interest payments that the Fund is contractually
entitled to receive.
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) 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 Fund 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.
- 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.
- Total Return Swaps. A Fund may enter into total return swaps in
order to take a "long" or "short" position with respect to an underlying
referenced asset. The Fund 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 Fund will receive a payment from or make a payment to the
counterparty.
- Variance and Correlation Swaps. A Fund 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 Fund, and/or
the termination value at the end of the contract. Therefore, the Fund 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 Fund and the counterparty and by the posting of
collateral by the counterparty to the Fund to cover the Fund's exposure to the
counterparty. Additionally, risks may arise from unanticipated movements in
interest rates or in the value of the underlying securities. The Fund 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. 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.
- Currency Transactions. A 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 Funds 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 and When-Issued and Delayed Delivery Securities
Forward commitments for the purchase or sale of securities may
include purchases on a "when-issued" basis or purchases or sales on a "delayed
delivery" basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as and if issued"
trade). When forward commitment transactions are negotiated, the price is fixed
at the time the commitment is made. The Fund assumes the rights and risks of
ownership of the security, but does not pay for the securities until they are
received. If a Fund is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
Leveraging the portfolio in this manner may increase the Fund's volatility of
returns.
When-issued securities and forward commitments may be sold prior to
the settlement date. If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or dispose of its right to deliver
or receive against a forward commitment, it may incur a gain or loss. Any
significant commitment of Fund assets to the purchase of securities on a "when,
as and if issued" basis may increase the volatility of the Fund's NAV.
The use of forward commitments enables a Fund to protect against
anticipated changes in exchange rates, interest rates and/or prices. For
instance, a Fund may enter into a forward contract when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. Dollar price of the security
("transaction hedge"). In addition, when a Fund believes that a foreign currency
may suffer a substantial decline against the U.S. Dollar, it may enter into a
forward sale contract to sell an amount of that foreign currency approximating
the value of some or all of that Fund's securities denominated in such foreign
currency, or when the Fund believes that the U.S. Dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
purchase contract to buy that foreign currency for a fixed dollar amount
("position hedge"). If the Adviser were to forecast incorrectly the direction of
exchange rate movements, a Fund might be required to complete such when-issued
or forward transactions at prices inferior to the then current market values.
Forward commitments include "To be announced" ("TBA")
mortgage-backed securities, which are contracts for the purchase or sale of
mortgage-backed securities to be delivered at a future agreed-upon date, whereby
the specific mortgage pool number 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. Subsequent to the time of the trade, a mortgage pool or pools
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, (including fixed-rate or variable-rate mortgages) are
allocated to the TBA mortgage-backed securities transactions.
At the time a Fund intends to enter into a forward commitment, it
will record the transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in determining its NAV.
Any unrealized appreciation or depreciation reflected in such valuation of a
"when, as and if issued" security would be canceled in the event that the
required conditions did not occur and the trade was canceled.
Purchases of securities on a forward commitment or when-issued basis
may involve more risk than other types of purchases. For example, by committing
to purchase securities in the future, a Fund subjects itself to a risk of loss
on such commitments as well as on its portfolio securities. Also, a Fund may
have to sell assets which have been set aside in order to meet redemptions. In
addition, if a Fund determines it is advisable as a matter of investment
strategy to sell the forward commitment or "when-issued" or "delayed delivery"
securities before delivery, that Fund may incur a gain or loss because of market
fluctuations since the time the commitment to purchase such securities was made.
Any such gain or loss would be treated as a capital gain or loss for tax
purposes. When the time comes to pay for the securities to be purchased under a
forward commitment or on a "when-issued" or "delayed delivery" basis, the Fund
will meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale of
the forward commitment or "when-issued" or "delayed delivery" securities
themselves (which may have a value greater or less than the Fund's payment
obligation). No interest or dividends accrue to the purchaser prior to the
settlement date for securities purchased or sold under a forward commitment. In
addition, in the event the other party to the transaction files for bankruptcy,
becomes insolvent, or defaults on its obligation, a Fund may be adversely
affected.
Illiquid Securities
A Fund will not invest in illiquid securities if immediately after
such investment more than 15% or such other amount permitted by guidance
regarding the 1940 Act of the Fund's net assets would be invested in such
securities. For this purpose, illiquid securities include, among others, (a)
direct placements or other securities which are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
trading in the security is suspended or, in the case of unlisted securities,
market makers do not exist or will not entertain bids or offers), (b) options
purchased by a Fund over-the-counter and the cover for options written by the
Fund over-the-counter, and (c) repurchase agreements not terminable within seven
days. Securities that have legal or contractual restrictions on resale but have
a readily available market are not deemed illiquid for purposes of this
limitation.
Mutual funds do not typically hold a significant amount of
restricted securities (securities that are subject to restrictions on resale to
the general public) or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund may also have to take certain steps
or wait a certain amount of time in order to remove the transfer restrictions
for such restricted securities in order to dispose of them, resulting in
additional expense and delay.
Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act") allows a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers. An
insufficient number of qualified institutional buyers interested in purchasing
certain restricted securities held by a Fund, however, could affect adversely
the marketability of such portfolio securities and the Fund might be unable to
dispose of such securities promptly or at reasonable prices.
The Adviser, acting under the oversight of the Board, will monitor
the liquidity of restricted securities in a Fund that are eligible for resale
pursuant to Rule 144A. In reaching liquidity decisions, the Adviser will
consider, among others, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers issuing quotations to
purchase or sell the security; (3) the number of other potential purchasers of
the security; (4) the number of dealers undertaking to make a market in the
security; (5) the nature of the security (including its unregistered nature) and
the nature of the marketplace for the security (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of the
transfer); and (6) any applicable Securities and Exchange Commission ("SEC")
interpretation or position with respect to such type of securities.
Investment in Exchange-Traded Funds and Other Investment Companies
A Fund may invest in shares of exchange-traded funds ("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. ETFs will not track their underlying indices
precisely since the ETFs have expenses and may need to hold a portion of their
assets in cash, unlike the underlying indices, and the ETFs may not invest in
all of the securities in the underlying indices in the same proportion as the
indices for varying reasons. A Fund will incur transaction costs when buying and
selling ETF shares, and indirectly bear the expenses of the ETFs. In addition,
the market value of an ETF's shares, which is based on supply and demand in the
market for the ETF's shares, may differ from its NAV. Accordingly, there may
be times when an ETF's shares trade at a discount to its NAV.
A Fund may also invest in investment companies other than ETFs, as
permitted by the 1940 Act or the rules and regulations thereunder. As with ETF
investments, if the Fund acquires shares in other 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
Fund's expenses. The Funds intend to invest uninvested cash balances in an
affiliated money market fund as permitted by Rule 12d1-1 under the 1940 Act.
Loans of Portfolio Securities
A Fund may seek to increase income by lending portfolio securities
to brokers, dealers, and financial institutions ("borrowers") to the extent
permitted under the 1940 Act or the rules or 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. Under
the securities lending program, all securities loans will be secured continually
by cash collateral. A principal risk in lending portfolio securities is that the
borrower will fail to return the loaned securities upon termination of the loan
and, that the collateral will not be sufficient to replace the loaned securities
upon the borrower's default. In determining whether to lend securities to a
particular borrower, the Adviser (subject to oversight of the Board) will
consider all relevant facts and circumstances, including the creditworthiness of
the borrower. The loans would be made only to firms deemed by the Adviser to be
creditworthy and when, in the judgment of the Adviser, the consideration that
can be earned currently from securities loans of this type justifies the
attendant risk. The Fund will be compensated for the loan from a portion of the
net return from the interest earned on the cash collateral after a rebate paid
to the borrower (which may be a negative amount - i.e., the borrower may pay a
fee to the Fund in connection with the loan) and payments for fees paid to the
securities lending agent and for certain other administrative expenses.
A Fund will have the right to call a loan and obtain the securities
loaned on notice to the borrower within the normal and customary settlement time
for the securities. While securities are on loan, the borrower is obligated to
pay the Fund amounts equal to any income or other distribution from the
securities.
A Fund will invest any cash collateral in a money market fund that
complies with Rule 2a-7 under the 1940 Act, has been approved by the Board and
is expected to be advised by the Adviser. Any such investment of cash collateral
will be subject to the money market fund's investment risk. The Fund may pay
reasonable finders', administrative, and custodial fees in connection with a
loan.
A Fund will not have the right to vote any securities having voting
rights during the existence of the loan. The Fund will have the right to regain
record ownership of loaned securities or equivalent securities in order to
exercise voting or ownership rights. When the Fund lends its securities, its
investment performance will continue to reflect the value of securities on loan.
Loan Participations and Assignments
A Fund may invest in direct debt instruments, which are interests in
amounts owed to lenders or lending syndicates by corporate, governmental, or
other borrowers ("Loans") either by participating as co-lender at the time the
loan is originated ("Participations") or by buying an interest in the loan in
the secondary market from a financial institution or institutional investor
("Assignments"). The financial status of an institution interposed between a
Fund and a borrower may affect the ability of the Fund to receive principal and
interest payments.
A Fund's investment 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.
A Fund's investment in Participations typically will result in the
Fund having a contractual relationship only with the financial institution
arranging the Loan with the borrower (the "Lender") and not with the borrower
directly. A Fund 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 Fund 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 Fund may not directly benefit from any collateral supporting the Loan in
which it has purchased the Participation. As a result, the Fund 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 Fund 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 Fund will acquire Participations
only if the Lender interpositioned between the Fund and the borrower is a Lender
having total assets of more than $25 billion and whose senior unsecured debt is
rated investment grade or higher.
When a Fund purchases Assignments from Lenders it will typically
acquire direct rights against the borrower on a Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund 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 Fund may acquire an interest in a Loan is through a
Participation and not an Assignment.
Loans in which a Fund may invest include participations in "bridge
loans", which are loans taken out by borrowers for a short period (typically
less than six months) pending arrangement of more permanent financing through,
for example, the issuance of bonds, frequently high-yield bonds issued for the
purpose of an acquisition. A Fund may also participate in unfunded loan
commitments, which are contractual obligations for future funding, and receive a
commitment fee based on the amount of the commitment.
A Fund 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 Fund
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 Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund'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 Fund
to assign a value to these securities for purposes of valuing the Fund's
portfolio and calculating its asset value.
Mortgage-Related Securities, Other Asset-Backed Securities and Structured
Securities
The mortgage-related securities in which a Fund may invest typically
are securities representing interests in pools of mortgage loans made by lenders
such as savings and loan associations, mortgage bankers and commercial banks and
are assembled for sale to investors (such as the Funds) by governmental,
government-related or private organizations. Private organizations include
commercial banks, savings associations, mortgage companies, investment banking
firms, finance companies, special purpose finance entities (called special
purpose vehicles or SPVs) and other entities that acquire and package loans for
resales as mortgage-related securities. Specifically, these securities may
include pass-through mortgage-related securities, collateralized mortgage
obligations ("CMOs"), CMO residuals, adjustable-rate mortgage securities
("ARMS"), stripped mortgage-backed securities ("SMBSs"), commercial
mortgage-backed securities, TBA mortgage-backed securities, mortgage dollar
rolls, collateralized obligations and other securities that directly or
indirectly represent a participation in or are secured by and payable from
mortgage loans on real property and other assets.
Pass-Through Mortgage-Related Securities. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment consisting of both interest and principal
payments. In effect, these payments are a "pass-through" of the monthly payments
made by the individual borrowers on their residential mortgage loans, net of any
fees paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Some mortgage-related securities, such as securities issued by
GNMA, are described as "modified pass-through". These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, regardless of whether or not the mortgagor actually makes
the payment.
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate, 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying average life
assumptions. The assumed average life of pools of mortgages having terms of less
than 30 years, is less than 12 years, but typically not less than 5 years.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising
interest rates the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the pool. Historically, actual average life has been
consistent with the 12-year assumption referred to above. Actual prepayment
experience may cause the yield to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of the Fund. The compounding
effect from reinvestment of monthly payments received by the Fund will increase
the yield to shareholders compared with bonds that pay interest semi-annually.
The principal governmental (i.e., backed by the full faith and
credit of the U.S. Government) guarantor of mortgage-related securities is GNMA.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of Federal Housing Administration-insured or U.S. Department of Veterans
Affairs-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and credit of
the U.S. Government) guarantors include FNMA and FHLMC. FNMA and FHLMC are
government-sponsored corporations or corporate instrumentalities of the U.S.
Government respectively (government-sponsored entities or "GSEs"), which were
owned entirely by private stockholders until 2008 when they were placed in
conservatorship by the U.S. Government. After being placed in conservatorship,
the GSEs issued senior preferred stock and common stock to the U.S. Department
of the Treasury ("U.S. Treasury") in an amount equal to 79.9% of each GSE in
return for certain funding and liquidity arrangements. The GSEs continue to
operate as going concerns while in conservatorship and each remains liable for
all of its obligations associated with its mortgage-backed securities. The U.S.
Treasury has provided additional funding to the GSEs and their future is unclear
as Congress is considering whether to adopt legislation that would severely
restrict or even terminate their operations. FNMA purchases residential
mortgages from a list of approved seller/servicers which include state and
federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA and are now, in effect, backed by the full faith and credit of the U.S.
Government. Participation certificates issued by FHLMC, which represent
interests in mortgages from FHLMC's national portfolio, are guaranteed by FHLMC
as to the timely payment of interest and ultimate collection of principal and
are now, in effect, backed by the full faith and credit of the U.S. Government.
Commercial banks, savings and loan associations, private mortgage
insurance companies, mortgage bankers and other secondary market issuers create
pass-through pools of conventional residential mortgage loans. Securities
representing interests in pools created by non-governmental private issuers
generally offer a higher rate of interest than securities representing interests
in pools created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and credit support
and would be adversely affected if the rating of such an enhancer were
downgraded.
The structuring of the pass-through pool may also provide credit
enhancement. 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 a SPV in multiple classes or "tranches", with one or
more classes being senior to other subordinated classes as to 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 exceeds
that required to make payment of the securities and pay any servicing or other
fees). There can be no guarantee the credit enhancements, if any will be
sufficient to prevent losses in the event of defaults on the underlying mortgage
loans.
In addition, mortgage-related securities that are issued by private
issuers are not subject to the underwriting requirements for the underlying
mortgages that are applicable to those mortgage-related securities that have a
government or GSE guarantee. As a result, the mortgage loans underlying private
mortgage-related securities may, and frequently do, have less favorable
collateral, credit risk or other underwriting characteristics than government or
government-sponsored, mortgage-related securities and have wider variances in a
number of terms, including interest rate, term, size, purposes 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,
mortgage-related 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.
Collateralized Mortgage Obligations. Another form of
mortgage-related security is a "pay-through" security, which is a debt
obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. CMOs are the
predominant type of "pay-through" mortgage-related security. In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of a CMO,
often referred to as a "tranche", is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by GNMA,
FNMA or FHLMC, these CMOs represent obligations solely of the private issuer and
are not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental
agency or any other person or entity.
Adjustable-Rate Mortgage Securities. Another type of
mortgage-related security, known as adjustable-rate mortgage securities
("ARMS"), bears interest at a rate determined by reference to a predetermined
interest rate or index. ARMS may be secured by fixed-rate mortgages or
adjustable-rate mortgages. ARMS secured by fixed-rate mortgages generally have
lifetime caps on the coupon rates of the securities. To the extent that general
interest rates increase faster than the interest rates on the ARMS, these ARMS
will decline in value. The adjustable-rate mortgages that secure ARMS will
frequently have caps that limit the maximum amount by which the interest rate or
the monthly principal and interest payments on the mortgages may increase. These
payment caps can result in negative amortization (i.e., an increase in the
balance of the mortgage loan). Furthermore, since many adjustable-rate mortgages
only reset on an annual basis, the values of ARMS tend to fluctuate to the
extent that changes in prevailing interest rates are not immediately reflected
in the interest rates payable on the underlying adjustable-rate mortgages.
Stripped Mortgage-Related Securities. Stripped mortgage-related
securities (SMRS) are mortgage-related securities that are usually structured
with separate classes of securities collateralized by a pool of mortgages or a
pool of mortgage-backed bonds or pass-through securities, with each class
receiving different proportions of the principal and interest payments from the
underlying assets. A common type of SMRS has one class of interest-only
securities (IOs) receiving all of the interest payments from the underlying
assets and one class of principal-only securities (POs) receiving all of the
principal payments from the underlying assets. IOs and POs are extremely
sensitive to interest rate changes and are more volatile than mortgage-related
securities that are not stripped. IOs tend to decrease in value as interest
rates decrease and are extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal prepayments may have a material adverse effect on the yield to
maturity of the IO class. POs generally increase in value as interest rates
decrease. If prepayments of the underlying mortgages are greater than
anticipated, the amount of interest earned on the overall pool will decrease due
to the decreasing principal balance of the assets. Due to their structure and
underlying cash flows, SMRS may be more volatile than mortgage-related
securities that are not stripped. Changes in the values of IOs and POs can be
substantial and occur quickly, such as occurred in the first half of 1994 when
the value of many POs dropped precipitously due to increases in interest rates.
A Fund will only invest in SMRS that are issued by the U.S.
Government, its agencies or instrumentalities and supported by the full faith
and credit of the United States. Although SMRS are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, the complexity of these instruments and the smaller number
of investors in the sector can lend to illiquid markets in the sector.
Commercial Mortgage-Backed Securities. Commercial mortgage-backed
securities are securities that represent an interest in, or are secured by,
mortgage loans secured by multifamily or commercial properties, such as
industrial and warehouse properties, office buildings, retail space and shopping
malls, and cooperative apartments, hotels and motels, nursing homes, hospitals
and senior living centers. Commercial mortgage-backed securities have been
issued in public and private transactions by a variety of public and private
issuers using a variety of structures, some of which were developed in the
residential mortgage context, including multi-class structures featuring senior
and subordinated classes. Commercial mortgage-backed securities may pay fixed or
floating rates of interest. The commercial mortgage loans that underlie
commercial mortgage-related securities have certain distinct risk
characteristics. Commercial mortgage loans generally lack standardized terms,
which may complicate their structure, tend to have shorter maturities than
residential mortgage loans and may not be fully amortizing. Commercial
properties themselves tend to be unique and are more difficult to value than
single-family residential properties. In addition, commercial properties,
particularly industrial and warehouse properties, are subject to environmental
risks and the burdens and costs of compliance with environmental laws and
regulations.
Certain Risks. The value of mortgage-related securities is affected
by a number of factors. Unlike traditional debt securities, which have fixed
maturity dates, mortgage-related securities may be paid earlier than expected as
a result of prepayments of underlying mortgages. Such prepayments generally
occur during periods of falling mortgage interest rates. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will result
in the early payment of the applicable mortgage-related securities. In that
event, the Fund may be unable to invest the proceeds from the early payment of
the mortgage-related securities in investments that provide as high a yield as
the mortgage-related securities. 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. The
level of general interest rates, general economic conditions and other social
and demographic factors affect the occurrence of mortgage prepayments. During
periods of falling interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-related securities.
Conversely, 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.
As with other fixed-income securities, there is also the risk of
nonpayment of mortgage-related securities, particularly for those securities
that are backed by mortgage pools that contain subprime loans. Market factors
adversely affecting mortgage loan repayments include a general economic
downturn, high unemployment, a general slowdown in the real estate market, a
drop in the market prices of real estate, or higher mortgage payments required
to be made by holders of adjustable rate mortgages due to scheduled increases or
increases due to higher interest rates.
Subordinated mortgage-related securities may have additional risks.
The subordinated mortgage-related security may serve as 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
subordinated securities. Therefore, if there are defaults on the underlying
mortgage loans, the holders of subordinated mortgage-related securities will be
less likely to receive payments of principal and interest and will be more
likely to suffer a loss.
Commercial mortgage-related securities, like all fixed-income
securities, generally decline in value as interest rates rise. Moreover,
although generally the value of fixed-income securities increases during periods
of falling interest rates, this inverse relationship is not as marked in the
case of single-family residential mortgage-related securities, due to the
increased likelihood of prepayments during periods of falling interest rates,
and may not be as marked in the case of commercial mortgage-related securities.
The process used to rate commercial mortgage-related securities may focus on,
among other factors, the structure of the security, the quality and adequacy of
collateral and insurance, and the creditworthiness of the originators, servicing
companies and providers of credit support.
Although the market for mortgage-related securities is becoming
increasingly liquid, those issued by certain private organizations may not be
readily marketable there may be a limited market for these securities,
especially when there is a perceived weakness in the mortgage and real estate
market sectors. In particular, the secondary markets for CMOs, IOs and POs may
be more volatile and less liquid than those for other mortgage-related
securities, thereby potentially limiting a Fund's ability to buy or sell those
securities at any particular time. Without an active trading market,
mortgage-related securities held in a Fund's portfolio may be particularly
difficult to value because of the complexities involved in the value of the
underlying mortgages. In addition, the rating agencies may have difficulties in
rating commercial mortgage-related securities through different economic cycles
and in monitoring such ratings on a longer-term basis.
As with fixed-income securities generally, the value of
mortgage-related securities can also be adversely affected by increases in
general interest rates relative to the yield provided by such securities. Such
an adverse effect is especially possible with fixed-rate mortgage securities. If
the yield available on other investments rises above the yield of the fixed-rate
mortgage securities as a result of general increases in interest rate levels,
the value of the mortgage-related securities will decline.
Other Asset-Backed Securities. A Fund may invest in other
asset-backed securities. 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. For
example, 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, which 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. These asset-backed securities are
subject to risks associated with changes in interest rates, prepayment of
underlying obligations and defaults similar to the risks of investment in
mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks
depending on the type of assets involved and the legal structure used. For
example, credit card receivables are generally unsecured obligations of the
credit card holder and the debtors are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There have also been proposals to cap the interest rate that a
credit card issuer may charge. In some transactions, the value of the
asset-backed security is dependent on the performance of a third party acting as
credit enhancer or servicer. Furthermore, in some transactions (such as those
involving the securitization of vehicle loans or leases) it may be
administratively burdensome to perfect the interest of the security issuer in
the underlying collateral and the underlying collateral may become damaged or
stolen.
Structured Securities. A Fund may invest in 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, for example, mortgage-related and other
asset-backed securities. A 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 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) and the issuance by that entity of one or more classes of
securities ("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 on the underlying instruments. Because Structured Securities of the type in
which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
A Fund is permitted to invest in a class of Structured Securities
that is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Securities typically have higher yields and
present greater risks than unsubordinated Structured Securities.
Under the terms of subordinated securities, payments that would 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 holders of more senior securities).
As a result, subordinated or junior securities will be disproportionately
affected by a default or even a perceived decline in the creditworthiness of the
issuer.
Participation in the TALF Program
A Fund may invest a portion of its assets through participation in
the Term Asset-Backed Securities Loan Facility program ("TALF Program"), a
program created by the Board of Governors of the Federal Reserve System (the
"Federal Reserve") and the U.S. Treasury to assist the securitization markets by
supporting the issuance of certain eligible collateral, which are
investment-grade rated, asset-backed securities such as automobile loans,
student loans, and credit card loans, as well as receivables related to
residential mortgage servicing advances or certain commercial mortgage-backed
securities. The types of eligible collateral, among other requirements, must at
issuance be rated in the highest investment-grade rating category by at least
two ratings agencies (without the benefit of a third-party guarantee), and must
not be placed on a watch list or downgraded by any such rating agency. The TALF
Program is operated by the Federal Reserve Bank of New York (the "New York
Fed"). Under the TALF Program, the New York Fed provided non-recourse loans to a
Fund in a minimum size of $10 million. The TALF program ceased making loans on
eligible collateral on June 30, 2010.
In order to obtain a loan under the TALF Program, a Fund is required
to put up a certain percentage of the purchase price or value of the eligible
collateral (called the "haircut"). In addition, it is required to pay an
administrative fee to the New York Fed on the settlement date of each TALF
Program loan received by the Fund. The interest rate under the loan will vary
and will be determined under the terms of the TALF Program. The term of a loan
under the TALF Program depends on the nature of the eligible collateral and are
currently three years or five years.
In connection with a TALF Program loan, a Fund pledged eligible
collateral, which consisted of either certain eligible asset-backed securities
that the Fund currently owns or other asset-backed securities that the Fund
purchased with the loan proceeds. Except in limited circumstances, TALF loans by
the New York Fed to the Fund are non-recourse, and if the Fund does not repay
the loan, the New York Fed may enforce its rights only against the eligible
collateral pledged by the Fund and not against any other assets of the Fund.
TALF loans are prepayable at the option of the Fund without penalty, and the
Fund may satisfy its loan obligation in full at any time by surrendering the
eligible collateral to the New York Fed. If the securities constituting eligible
collateral default and lose all their value, under the current terms of the TALF
Program the New York Fed cannot look to the Fund to cover the principal on the
loan. Generally, under the terms of the TALF Program payment of principal on
eligible collateral must be used immediately to reduce the principal amount of
the TALF loan in proportion to the haircut (for example, if the original haircut
was 10%, 90% of any principal repaid must be immediately paid to the New York
Fed).
The risk of leverage to the Fund under the TALF Program is the same
risk of leverage that applies to other types of borrowings the Fund may engage
in (see "Borrowing and Use of Leverage" below for more details). Loans under the
TALF Program are not subject to the Funds' limitations on borrowings (which are
generally limited to 33 1/3% of the Fund's total assets). However, the Fund must
maintain segregated liquid assets (in addition to any assets pledged as eligible
collateral), marked-to-market daily, in an amount equal to the Fund's
outstanding principal and interest under the TALF loan, treating the loans under
the TALF Program similar to other financial instruments (such as reverse
repurchase agreements) that obligate a fund to "cover" its obligation to
purchase or deliver cash or securities at a future time.
Participations in the TALF Program and other loan programs sponsored
by the United States (and any of its subdivisions, agencies, departments,
commissions, boards, authorities, instrumentalities or bureaus) are not
considered purchasing securities on margin for purposes of the Fund's limits on
margin.
The Federal Reserve may also change the terms of the TALF Program at
its discretion and there is no guarantee that retroactive changes to the TALF
Program will not occur. The Fund cannot predict the form any such changes or
modifications might take and, if the Fund participates in the TALF Program, such
changes may adversely affect the value of the Fund's assets and the ability of
the Fund to achieve its investment objectives.
Participation in the TALF Program requires the Fund to contract with
a primary dealer that is authorized to act as agent for the Fund. A primary
dealer may receive direct or indirect fees for its services. Any such fees
incurred will be borne by the Fund. Under the terms of the TALF Program, any
interest and principal payments from TALF eligible collateral are directed first
to a custodial account in the name of the primary dealer prior to remittance to
the Fund. As a result, the Fund is subject to the counterparty risk of the
primary dealer. Any voting rights held in respect of TALF eligible collateral
under a TALF Program loan currently are subject to the consent of the New York
Fed, whose consent must be obtained via the primary dealer, which may delay the
Fund's voting ability.
Under certain circumstances, loans under the TALF Program may become
recourse to the Fund, which may adversely affect the Fund's ability to achieve
its investment objective. In connection with any borrowing by the Fund under the
TALF Program, a Fund is required to represent, among other things, that at the
time of borrowing the Fund is an eligible borrower and that the collateral is
eligible collateral. A determination that the Fund is, at any time, not an
eligible borrower (based on the criteria that is applicable at the time of
borrowing), or a determination that certain representations made by the Fund
under the TALF Program were untrue when made, will cause the loan to become full
recourse to the Fund, and the Fund must then repay the loan or surrender the
eligible collateral at a time when it may not be advantageous to do so, which
may result in losses to the Fund. Additionally, the loan may become recourse to
the Fund if certain persons acquire more than 25% of the Fund's outstanding
securities or if the Fund fails to make certain timely filings under the TALF
Program. If loans under the TALF Program become recourse against the Fund and
the value of the eligible collateral pledged to the New York Fed does not at
least equal the amount of principal and interest the Fund owes to the New York
Fed under the loan, then the Fund will be required to pay the difference to the
New York Fed. In order to make this payment, the Fund may be required to sell
portfolio securities during adverse market conditions or at other times it would
not otherwise choose to sell such securities. Finally, if the Fund were to
surrender its eligible collateral under the terms of the TALF Program, it would
lose the amount of the haircut.
Under the terms of its agreement with the Fund, the primary dealer
generally disclaims all liability for losses that may occur in connection with
the TALF Program, the risk of which is borne by the Fund. Further, the Fund
indemnifies for any losses that the primary dealer may incur under the terms of
the TALF Program. The primary dealer may terminate its agreement with the Fund
at any time. If the Fund is not able to find a replacement primary dealer within
the requisite period of time, it may be required to either repay the loan, sell
the eligible collateral, or surrender the eligible collateral at a time when it
may not be advantageous to do so, which may result in losses to the Fund.
Agreements with the primary dealer are subject to amendment by the primary
dealer without the Fund's consent, in order to conform to any future amendments
of the TALF Program by the Federal Reserve.
Participation in TALF does not subject the Fund or the Adviser to
restrictions on executive compensation under the U.S. Treasury's Troubled Assets
Relief Program.
Preferred Stock
A Fund may invest in preferred stock. Preferred stock is an equity
security that has features of debt because it generally entitles the holder to
periodic payments at a fixed rate of return. Preferred stock is subordinated to
any debt the issuer has outstanding but has liquidation preference over common
stock. 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 repurchase agreement is an agreement by which a Fund purchases a
security and obtains a simultaneous commitment from the seller to repurchase the
security at an agreed-upon price and date, normally one day or a week 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" that is effective for the period of time the buyer's money is
invested in the security, and which is related to the current market rate of the
purchased security rather than its coupon rate. During the term of a repurchase
agreement, the Fund monitors on a daily basis the market value of the securities
subject to the agreement and, if the market value of the securities falls below
the resale amount provided under the repurchase agreement, the seller under the
repurchase agreement is required to provide additional securities or cash equal
to the amount by which the market value of the securities falls below the resale
amount. Because a repurchase agreement permits a Fund to invest temporarily
available cash on a fully-collateralized basis, repurchase agreements permit the
Fund to earn a return on temporarily available cash while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. Repurchase
agreements may exhibit the characteristics of loans by a Fund.
The obligation of the seller under the repurchase agreement is not
guaranteed, and there is a risk that the seller may fail to repurchase the
underlying security, whether because of the seller's bankruptcy or otherwise. In
such event, the Fund would attempt to exercise its rights with respect to the
underlying security, including possible sale of the securities. A Fund may incur
various expenses in connection with the exercise of its rights and may be
subject to various delays and risks of loss, including (a) possible declines in
the value of the underlying securities, (b) possible reduction in levels of
income and (c) lack of access to the securities (if they are held through a
third-party custodian) and possible inability to enforce the Fund's rights. The
Fund's Board has established procedures, which are periodically reviewed by the
Board, pursuant to which the Adviser monitors the creditworthiness of the
dealers with which the Fund enters into repurchase agreement transactions.
A Fund may enter into repurchase agreements pertaining to U.S.
Government securities with member banks of the Federal Reserve System or
"primary dealers" (as designated by the New York Fed) in such securities. There
is no percentage restriction on a Fund's ability to enter into repurchase
agreements. Currently, each Fund intends to enter into repurchase agreements
only with its custodian and such primary dealers.
A Fund may enter into buy/sell back transactions, which are similar
to repurchase agreements. In this type of transaction, a 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, though done simultaneously, is two separate legal agreements.
A buy/sell back transaction also differs from a repurchase agreement in that the
seller is not required to provide margin payments if the value of the securities
falls below the repurchase price because the transaction is two separate
transactions. Each Fund has the risk of changes in the value of the purchased
security during the term of the buy/sell back agreement although these
agreements typically provide for the repricing of the original transaction at a
new market price if the value of the security changes by a specific amount.
Reverse Repurchase Agreements and Dollar Rolls
Reverse repurchase agreements are identical to repurchase agreements
except that rather than buying securities for cash subject to their repurchase
by the seller, a Fund sells portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price slightly
higher than the sale price. During the reverse repurchase agreement period, the
Fund continues to receive principal and interest payments on these securities.
Generally, the effect of a reverse repurchase agreement is that the Fund 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 Fund of the
reverse repurchase transaction, i.e., the difference between the sale and
repurchase price for the securities, is less than the cost of otherwise
obtaining the cash invested in portfolio securities.
Dollar rolls involve sales by a 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.
In addition, the use of these investments results in leveraging the Fund's
common stocks because the Fund uses the proceeds to make investments in other
securities. See "Borrowing and Use of Leverage" below.
Securities Ratings
The ratings of fixed-income securities by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Ratings Services ("S&P"), and Fitch Ratings
("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.
Securities rated Baa, BBB+, BBB, or BBB- by S&P or Baa1, Baa2 or
Baa3 by Moody's are considered by Moody's 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.
Non-rated securities will also be considered for investment by a
Fund 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 which are consistent with the Fund's objectives and policies.
The Adviser generally uses ratings issued by S&P, Moody's, Fitch and
Dominion Bond Rating Service Ltd. Some securities are rated by more than one of
these ratings agencies, and the ratings assigned to the security by the rating
agencies may differ. In such an event and for purposes of determining compliance
with restrictions on investments for the Fund, if a security is rated by two or
more rating agencies, the Adviser will deem the security to be rated at the
highest rating. For example, if a security is rated by Moody's and S&P only,
with Moody's rating the security as Ba and S&P as BBB, the Adviser will deem the
security to be rated as the equivalent of BBB (i.e., Baa by Moody's and BBB by
S&P). Or, if a security is rated by Moody's, S&P and Fitch, with Moody's rating
the security as Ba, S&P as BBB and Fitch as BB, the Adviser will deem the
security to be rated as the equivalent of BBB (i.e., Ba1 by Moody's, BBB by S&P
and BBB by Fitch).
The Adviser will try to reduce the risk inherent in the Fund's
investment approach through credit analysis, diversification and attention to
current developments and trends in interest rates and economic conditions.
However, there can be no assurance that losses will not occur. In considering
investments for Funds that invest in high-yielding securities, the Adviser will
attempt to identify those high-yielding securities whose financial condition is
adequate to meet future obligations, has improved, or is expected to improve in
the future. The Adviser's analysis focuses on relative values based on such
factors as interest or dividend coverage, asset coverage, earnings prospects,
and the experience and managerial strength of the issuer.
In the event that the credit rating of a security held by the Fund
is downgraded, the credit quality deteriorates after purchase, or the security
defaults, the Fund will not be obligated to dispose of that security and may
continue to hold the security if, in the opinion of the Adviser, such investment
is appropriate in the circumstances.
Unless otherwise indicated, references to securities ratings by one
rating agency in this SAI shall include the equivalent rating by another rating
agency.
Short Sales
A Fund may make short sales of securities or maintain a short
position. A short sale is effected by selling a security that a Fund does not
own, or if the Fund does own such security, the security is not to be delivered
upon consummation of the sale. Among other reasons, a Fund may make short sales
of securities or maintain a short position for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. The Fund may
not make a short sale if more than 10% of the Fund's net assets (taken at market
value) is held as collateral for short sales at any one time. 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 securities sold short increases
between the time of a short sale and the time a Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price declines, the
Fund will realize a short-term capital gain. The potential for the price of a
fixed-income security sold short to rise is a function of both the remaining
maturity of the obligation, its creditworthiness and its yield. Unlike short
sales of equities or other instruments, potential for the price of a
fixed-income security to rise may be limited due to the fact that the security
will be no more than par at maturity. However, the short sale of other
instruments or securities generally, including fixed-income securities
convertible into equities or other instruments, a fixed-income security trading
at a deep discount from par or which pays a coupon that is high in relative or
absolute terms, or which is denominated in a currency other than the U.S.
Dollar, 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. See "Dividends, Distributions and Taxes-Tax Straddles" for a
discussion of certain special federal income tax considerations that may apply
to short sales which are entered into by the Fund.
Structured Products
A Fund 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 Fund 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
Fund to the credit risk of the issuer of the structured product.
Structured Notes and Indexed Securities: A Fund 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 the Fund 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, the Fund 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, a Fund 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
a Fund would receive as an investor in the trust. A Fund'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.
U.S. Government Securities
U.S. Government securities may be backed by the full faith and
credit of the United States, supported only by the right of the issuer to borrow
from the U.S. Treasury or backed only by the credit of the issuing agency
itself. These securities include: (i) the following U.S. Treasury securities,
which are backed by the full faith and credit of the United States and differ
only in their interest rates, maturities and times of issuance: U.S. Treasury
bills (maturities of one year or less with no interest paid and hence issued at
a discount and repaid at full face value upon maturity), U.S. Treasury notes
(maturities of one to ten years with interest payable every six months) and U.S.
Treasury bonds (generally maturities of greater than ten years with interest
payable every six months); (ii) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities that are supported by the full faith
and credit of the U.S. Government, such as securities issued by GNMA, the
Farmers Home Administration, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and the Small
Business Administration and including obligations that are issued by private
issuers that are guaranteed as to principal or interest by the U.S. Government,
its agencies or institutions; and (iii) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities that were historically not supported
by the full faith and credit of the U.S. Government or a right to borrow from
the U.S. Treasury, such as securities issued by the FNMA and FHLMC (which are,
as described above, now in effect backed by the full faith and credit of the
U.S. Government due to the conservatorship of the agencies), and governmental
collateralized mortgage obligations ("CMOs"). The maturities of the U.S.
Government securities listed in paragraphs (i) and (ii) above usually range from
three months to 30 years. Such securities, except GNMA certificates, normally
provide for periodic payments of interest in fixed amount with principal
payments at maturity or specified call dates.
U.S. Government securities also include zero-coupon securities and
principal-only securities and certain stripped mortgage-related securities.
Zero-coupon securities are described in more detail in "Zero-Coupon Securities"
below, and stripped mortgage-related securities and principal-only securities
are described in more detail in "Mortgage-Related Securities and Other
Asset-Backed Securities - Stripped Mortgage-Related Securities" above. In
addition, other U.S. Government agencies and instrumentalities have issued
stripped securities that are similar to SMRS.
Inflation-protected securities, or IPS, such as Treasury
Inflation-Protected Securities, or TIPS, 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. Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-protected
securities. For bonds that do not provide a similar guarantee, the adjusted
principal value of the bond repaid at maturity may be less than the original
principal.
Inflation-protected securities tend to react to changes in real
interest rates. In general, the price of an inflation-protected debt security
can fall when real interest rates rise, and can rise when real interest rates
fall. In addition, the value of inflation-protected securities may be vulnerable
to changes in expectations of inflation. Interest payments on
inflation-protected debt securities can be unpredictable and will vary as the
principal and/or interest is adjusted for inflation.
TIPS, which are issued by the U.S Treasury, use the Consumer Price
Index for Urban Consumers, or the CPI, as the inflation measure. The principal
of a TIPS increases with inflation and decreases with deflation, as measured by
the CPI. When a TIPS matures, the holder is paid the adjusted principal or
original principal, whichever is greater. TIPS pay interest twice a year, at a
fixed rate, which is determined by auction at the time the TIPS are issued. The
rate is applied to the adjusted principal; so, like the principal, interest
payments rise with inflation and fall with deflation. TIPS are issued in terms
of 5, 10, and 30 years.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of the Fund that holds the securities.
U.S. Government securities are considered among the safest of
fixed-income investments. As a result, however, their yields are generally lower
than the yields available from other fixed-income securities.
Variable, Floating and Inverse Floating Rate Securities
These securities have interest rates that are reset at periodic
intervals, usually by reference to some interest rate index or market interest
rate. Some of these securities are backed by pools of mortgage loans. Although
the rate adjustment feature may act as a buffer to reduce sharp changes in the
value of these securities, they are still subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
Because the interest rate is reset only periodically, changes in the interest
rate on these securities may lag behind changes in prevailing market interest
rates. Also, some of these securities (or the underlying mortgages) are subject
to caps or floors that limit the maximum change in the interest rate during a
specified period or over the life of the security.
Zero-Coupon Securities
A zero-coupon security pays no interest to its holder during its
life. An investor acquires a zero-coupon security at a discounted price from the
face value of the security, which is generally based upon its present value, and
which, depending upon the time remaining until maturity, may be significantly
less than its face value (sometimes referred to as a "deep discount" price).
Upon maturity of the zero-coupon security, the investor receives the face value
of the security.
A Fund may invest in zero-coupon Treasury securities, which consist
of Treasury bills or the principal components of U.S. Treasury bonds or notes. A
Fund may also invest in zero-coupon securities issued by U.S. Government
agencies or instrumentalities that are supported by the full faith and credit of
the United States, which consist of the principal components of securities of
U.S. Government agencies or instrumentalities.
Currently, the only U.S. Treasury security issued without coupons is
the Treasury bill. The zero-coupon securities purchased by the Funds may consist
of principal components held in STRIPS form issued through the U.S. Treasury's
STRIPS program, which permits the beneficial ownership of the component to be
recorded directly in the Treasury book-entry system. In addition, in the last
few years a number of banks and brokerage firms have separated ("stripped") the
principal portions ("corpus") from the coupon portions of the U.S. Treasury
bonds and notes and sold them separately in the form of receipts or certificates
representing undivided interests in these instruments (which instruments are
generally held by a bank in a custodial or trust account).
Because zero-coupon securities trade at a discount from their face
or par value but pay no periodic interest, they are subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make periodic distributions of
interest.
Current federal tax law requires that a holder (such as the Funds)
of a zero-coupon security accrue a portion of the discount at which the security
was purchased as income each year even though the holder receives no interest
payment in cash on the security during the year (generally referred to as
"original issue discount" or "OID"). As a result, in order to make the
distributions necessary for a Fund not to be subject to federal income or excise
taxes, a Fund may be required to pay out as an income distribution each year an
amount, obtained by liquidation of portfolio securities or borrowings if
necessary, greater than the total amount of cash that the Fund has actually
received as interest during the year. The Funds believe, however, that it is
highly unlikely that it would be necessary to liquidate portfolio securities or
borrow money in order to make such required distributions or to meet their
investment objectives.
Certain Risk and Other Considerations
Borrowing and Use of Leverage. A Fund may use borrowings for
investment purposes subject to the restrictions of the 1940 Act. A Fund may also
use leverage for investment purposes by entering into transactions such as
reverse repurchase agreements, forward contracts and dollar rolls. This means
that the Fund uses the cash proceeds made available during the term of these
transactions to make investments in other securities.
Borrowings by a Fund result in leveraging of the Fund's shares of
common stock. The proceeds of such borrowings will be invested in accordance
with the Fund's investment objective and policies. The Adviser anticipates that
the difference between the interest expense paid by the Fund on borrowings and
the rates received by the Fund from its investment portfolio issuers will
provide the Fund's shareholders with a potentially higher yield.
Utilization of leverage, which is usually considered speculative,
however, involves certain risks to a Fund's shareholders. These include a higher
volatility of the NAV of the Fund's shares of common stock and the relatively
greater effect on the NAV of the shares caused by favorable or adverse changes
in market conditions or interest rates. So long as the Fund is able to realize a
net return on the leveraged portion of 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 higher current net investment income than if the Fund were not
leveraged. However, to the extent that the interest expense on borrowings or the
carrying costs of leveraged transactions approaches the net return on the
leveraged portion of the Fund's investment portfolio, the benefit of leverage to
the Fund's shareholders will be reduced, and 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 than if the Fund were not leveraged. Similarly, the effect of
leverage in a declining market would normally be a greater decrease in NAV per
share than if the Fund were not leveraged. In an extreme case, if the Fund's
current investment income were not sufficient to meet the interest expense on
borrowings or 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.
Certain transactions, such as derivatives transactions, forward
commitments, reverse repurchase agreements and short sales involve leverage and
may expose a Fund to potential losses that, in some cases, may exceed the amount
originally invested by the Fund. When a Fund engages in such transactions, it
will, in accordance with guidance provided by the SEC or its staff in, among
other things, regulations, interpretative releases and no-action letters,
deposit in a segregated account certain liquid assets with a value at least
equal to the Fund's exposure, on a marked-to-market or other relevant basis, to
the transaction. Transactions for which assets have been segregated will not be
considered "senior securities" for purposes of the Fund's investment restriction
concerning senior securities. The segregation of assets is intended to enable
the Fund to have assets available to satisfy its obligations with respect to
these transactions, but will not limit the Fund's exposure to loss.
Investments in Lower-Rated and Unrated Instruments. A Fund may
invest in lower-rated securities, in some cases, substantially (High Income),
which may include securities having the lowest rating for non-subordinated debt
securities (i.e., rated C by Moody's or CCC or lower by S&P & Fitch) and unrated
securities of equivalent investment quality. Debt securities with such a rating
are considered by the rating organizations to be subject to greater risk of loss
of principal and interest than higher-rated securities and are considered to be
predominantly 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. These securities are
considered to have extremely poor prospects of ever attaining any real
investment standing, to have a current identifiable vulnerability to default, to
be unlikely to have the capacity to pay interest and repay principal when due in
the event of adverse business, financial or economic conditions, and/or to be in
default or not current in the payment of interest or principal.
Lower-rated securities generally are 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, although the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated 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 Adviser may experience
difficulty in valuing such securities and, in turn, a Fund'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. Transaction costs
with respect to lower-rated securities may be higher, and in some cases
information may be less available, than is the case with investment grade
securities.
Many fixed-income securities, including certain U.S. corporate
fixed-income securities in which a Fund may invest, contain call or buy-back
features that permit the issuer of the security to call or repurchase it. Such
securities may present risks based on payment expectations. If an issuer
exercises such a "call option" and redeems the security, the Fund may have to
replace the called security with a lower yielding security, resulting in a
decreased rate of return for the Fund.
In seeking to achieve a Fund's investment objectives, there will be
times, such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in the Fund's portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but are reflected in the NAV of the Fund.
U.S. Corporate Fixed-Income Securities. A Fund may invest in U.S.
corporate fixed-income securities that may include securities issued in
connection with corporate restructurings such as takeovers or leveraged buyouts,
which may pose particular risks. Securities issued to finance corporate
restructurings may have special credit risks due to the highly leveraged
conditions of the issuer. In addition, such issuers may lose experienced
management as a result of the restructuring. Finally, the market price of such
securities may be more volatile to the extent that expected benefits from the
restructuring do not materialize. A Fund may also invest in U.S. corporate
fixed-income securities that are not current in the payment of interest or
principal or are in default, so long as the Adviser believes such investment is
consistent with the Fund's investment objectives. A Fund's rights with respect
to defaults on such securities will be subject to applicable U.S. bankruptcy,
moratorium and other similar laws.
Risks of Investments in Foreign Securities. Investors should
understand and consider carefully the risks involved in securities of foreign
companies and governments of foreign nations, some of which are referred to
below, and which are in addition to the usual risks inherent in domestic
investments. Investing in securities of non-U.S. companies which are generally
denominated in foreign currencies, and utilization of derivative investment
products denominated in, or the value of which is dependent upon movements in
the relative value of, a foreign currency, involve certain considerations
comprising both risk and opportunity not typically associated with investing in
U.S. companies. These considerations include changes in exchange rates and
exchange control regulations, political and social instability, expropriation,
imposition of foreign taxes, less liquid markets and less available information
than are generally the case in the United States, higher transaction costs, less
government supervision of exchanges, brokers and issuers, difficulty in
enforcing contractual obligations, lack of uniform accounting and auditing
standards and greater price volatility.
There is generally less publicly available information about foreign
companies comparable to reports and ratings that are published about companies
in the United States. Foreign issuers are subject to accounting and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and profits appearing on
the financial statements of a foreign issuer may not reflect its financial
position or results of operations in the way they would be reflected had the
financial statement been prepared in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules in some of the countries in which
the Fund may invest require, for both tax and accounting purposes, that certain
assets and liabilities be restated on the issuer's balance sheet in order to
express items in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits. Consequently, financial
data may be materially affected by restatements for inflation and may not
accurately reflect the real condition of those issuers and securities markets.
Substantially less information is publicly available about certain non-U.S.
issuers than is available about U.S. issuers.
It is contemplated that foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange (the "Exchange"), and securities of some foreign companies are
less liquid and more volatile than securities of comparable U.S. companies.
Similarly, volume and liquidity in most foreign bond markets is less than in the
United States and, at times, volatility of price can be greater than in the
United States. Fixed commissions on foreign stock exchanges are generally higher
than negotiated commissions on U.S. exchanges, although a Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of stock exchanges, brokers
and listed companies than in the United States.
Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments, such as military
coups, have occurred in the past in countries in which a Fund may invest and
could adversely affect a Fund's assets should these conditions or events recur.
Foreign investment in certain foreign securities is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain foreign securities and increase the
costs and expenses of a Fund. Certain countries in which the Fund may invest
require governmental approval prior to investments by foreign persons, limit the
amount of investment by foreign persons in a particular issuer, limit the
investment by foreign persons only to a specific class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose additional taxes on
foreign investors.
Certain countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances.
Income from certain investments held by a Fund could be reduced by
foreign income taxes, including withholding taxes. It is impossible to determine
the effective rate of foreign tax in advance. A Fund's NAV may also be affected
by changes in the rates or methods of taxation applicable to that Fund or to
entities in which that Fund has invested. The Adviser generally will consider
the cost of any taxes in determining whether to acquire any particular
investments, but can provide no assurance that the tax treatment of investments
held by the Fund will not be subject to change. A shareholder otherwise subject
to U.S. federal income taxes may, subject to certain limitations, be entitled to
claim a credit or deduction for U.S. federal income tax purposes for his or her
proportionate share of such foreign taxes paid by the Fund. See "U.S. Federal
Income Taxes".
Investors should understand that the expense ratio of a fund
investing in foreign securities may be higher than investment companies
investing only in domestic securities since, among other things, the cost of
maintaining the custody of foreign securities is higher and the purchase and
sale of portfolio securities may be subject to higher transaction charges, such
as stamp duties and turnover taxes.
Foreign Currency Transactions. A Fund may invest in securities
denominated in foreign currencies and a corresponding portion of the Fund's
revenues will be received in such currencies. In addition, a Fund may conduct
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 as described above. The dollar equivalent of a Fund's net
assets and distributions will be adversely affected by reductions in the value
of certain foreign currencies relative to the U.S. Dollar. Such changes will
also affect a Fund's income. A Fund 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 a Fund has
this ability, there is no certainty as to whether and to what extent the Fund
will engage in these practices.
Currency exchange rates may fluctuate significantly over short
periods of time causing, along with other factors, a Fund'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 Fund's total assets adjusted to reflect the Fund's net position after giving
effect to currency transactions is denominated or quoted in the currencies of
foreign countries, the Fund will be more susceptible to the risk of adverse
economic and political developments within those countries.
A Fund will incur costs in connection with conversions between
various currencies. A Fund may hold foreign currency received in connection with
investments when, in the judgment of the Adviser, 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 Fund receives its income falls relative to the U.S. Dollar between
receipt of the income and the making of Fund distributions, the Fund may be
required to liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. Dollars to meet, among other things, distribution
requirements that the Fund 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 Fund incurs expenses in U.S.
Dollars and the time cash expenses are paid, the amount of the currency required
to be converted into U.S. Dollars in order to pay expenses in U.S. Dollars could
be greater than the equivalent amount of such expenses in the currency at the
time they were incurred. In light of these risks, a Fund may engage in certain
currency hedging transactions, which themselves, involve certain special risks.
See "Additional Investment Policies and Practices", above.
Additional Risks of Options on Forward Currency Exchange Contracts,
Options on Foreign Currencies, Swaps and Other Options. Unlike transactions
entered into by a Fund in futures contracts and exchange-traded options, options
on foreign currencies and forward currency exchange contracts may not be traded
on contract markets regulated by the CFTC or (with the exception of certain
foreign currency options) by the SEC. Such instruments may instead be traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to SEC regulation. Similarly, options on currencies may be traded
over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward currency exchange contracts
could lose amounts substantially in excess of their initial investments, due to
the margin and collateral requirements associated with such positions.
Over-the-counter transactions can be entered into only with a
financial institution willing to take the opposite side, as principal, of a
Fund's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund. Where
no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contracts, and a Fund could be required to retain options
purchased or written, or forward currency exchange contracts entered into, until
exercise, expiration or maturity. This in turn could limit the Fund's ability to
profit from open positions or to reduce losses experienced, and could result in
greater losses.
Further, over-the-counter transactions are not subject to the
guarantee of an exchange clearinghouse, and a Fund will therefore be subject to
the risk of default by, or the bankruptcy of, the financial institution serving
as its counterparty. A Fund will enter into an over-the-counter transaction only
with parties whose creditworthiness has been reviewed and found to be
satisfactory by the Adviser.
Transactions in over-the-counter options on foreign currencies are
subject to a number of conditions regarding the commercial purpose of the
purchaser of such option. A Fund is not able to determine at this time whether
or to what extent additional restrictions on the trading of over-the-counter
options on foreign currencies may be imposed at some point in the future, or the
effect that any such restrictions may have on the hedging strategies to be
implemented by them.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other securities traded
on such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default. Further,
a liquid secondary market in options traded on a national securities exchange
may be more readily available than in the over-the-counter market, potentially
permitting the Fund to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
Options on U.S. Government securities, futures contracts, options on
futures contracts, forward currency exchange contracts and options on foreign
currencies may be traded on foreign exchanges. Such transactions are subject to
the risk of governmental actions affecting trading in or the prices of foreign
currencies or securities. The value of such positions also could be adversely
affected by (i) other complex foreign political and economic factors, (ii)
lesser availability than in the United States of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the United States, (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States, and (v) lesser trading volume
period.
Sovereign Debt Obligations. No established secondary markets may
exist for many of the Sovereign Debt Obligations in which a Fund may invest.
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 a 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, a 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, among other things, in
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.
Many countries providing investment opportunities for a Fund have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have adverse effects on the economies and securities markets of
certain of these countries. In an attempt to control inflation, wage and price
controls have been imposed in certain countries.
Investing in Sovereign Debt Obligations involves economic and
political risks. The Sovereign Debt Obligations in which a Fund may invest in
most cases pertain to countries that are among the world's largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, obtaining new credit to finance interest payments. Certain governments
have not been able to make payments of interest on or principal of Sovereign
Debt Obligations as those payments have come due. Obligations arising from past
restructuring agreements may affect the economic performance and political and
social stability of those issuers.
Central banks and other governmental authorities which control the
servicing of Sovereign Debt Obligations may not be willing or able to permit the
payment of the principal or interest when due in accordance with the terms of
the obligations. As a result, the issuers of Sovereign Debt Obligations may
default on their obligations. Defaults on certain Sovereign Debt Obligations
have occurred in the past. Holders of certain Sovereign Debt Obligations may be
requested to participate in the restructuring and rescheduling of these
obligations and to extend further loans to the issuers. The interests of holders
of Sovereign Debt Obligations could be adversely affected in the course of
restructuring arrangements or by certain other factors referred to below.
Furthermore, some of the participants in the secondary market for Sovereign Debt
Obligations may also be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.
The ability of governments to make timely payments on their
obligations is likely to be influenced strongly by the issuer's balance of
payments, including export performance, and its access to international credits
and investments. A country whose exports are concentrated in a few commodities
could be vulnerable to a decline in the international prices of one or more of
those commodities. Increased protectionism on the part of a country's trading
partners could also adversely affect the country's exports and diminish its
trade account surplus, if any.
To the extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments denominated in
dollars could be adversely affected. To the extent that a country develops a
trade deficit, it will need to depend on continuing loans from foreign
governments, multilateral organizations or private commercial banks, aid
payments from foreign governments and on inflows of foreign investment. The
access of a country to these forms of external funding may not be certain, and a
withdrawal of external funding could adversely affect the capacity of a
government to make payments on its obligations. In addition, the cost of
servicing debt obligations can be affected by a change in international interest
rates since the majority of these obligations carry interest rates that are
adjusted periodically based upon international rates.
Another factor bearing on the ability of a country to repay
Sovereign Debt Obligations is the level of the country's international reserves.
Fluctuations in the level of these reserves can affect the amount of foreign
exchange readily available for external debt payments and, thus, could have a
bearing on the capacity of the country to make payments in its Sovereign Debt
Obligations.
A 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. A Fund may have limited legal recourse in the event of a default
with respect to certain Sovereign Debt Obligations it holds. 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.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
The following fundamental investment policies may not be changed
without approval by the vote of a majority of a Fund's outstanding voting
securities, which means the affirmative vote of the holders of (i) 67% or more
of the shares of the Fund represented at a meeting at which more than 50% of the
outstanding shares are present in person or by proxy or (ii) more than 50% of
the outstanding shares of the Fund, whichever is less.
As a matter of fundamental policy, a Fund:
(a) may not 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;
(b) may not 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 thereunder published by appropriate regulatory
authorities. For the 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 be the issuance of a senior security;
(c) may not 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, rule or
regulations may be amended from time to time), or by guidance
regarding, and interpretations of, or exemptive orders under,
the 1940 Act;
(d) may not 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 Fund from investing in securities or other
instruments backed by real estate or in securities of
companies engaged in the real estate business;
(e) with respect to High Income and Global Bond, may not purchase
or sell commodities regulated by the CFTC under the Commodity
Exchange Act or commodities contracts except for futures
contracts and options on futures contracts, and, with respect
to Intermediate Bond and Unconstrained Bond, may purchase or
sell commodities or options thereon to the extent permitted by
applicable law; or
(f) may not act as an underwriter of securities, except that the
Fund 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 matter of fundamental policy, each of Intermediate Bond,
Unconstrained Bond and High Income is diversified (as that term is defined in
the 1940 Act). This means that at least 75% of the Fund's assets consist of:
o Cash or cash items;
o Government securities;
o Securities of other investment companies; and
o 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.
As a matter of fundamental policy, Limited Duration and Global Bond
are "non-diversified" investment companies, which means the Funds are not
limited in the proportion of its assets that may be invested in the securities
of a single issuer. This policy may be changed without a shareholder vote.
Because Limited Duration and Global Bond are non-diversified investment
companies, they may invest in a smaller number of individual issuers than a
diversified investment company, and an investment in the Funds may, under
certain circumstances, present greater risk to an investor than an investment in
a diversified investment company.
Non-Fundamental Investment Policies
As a matter of non-fundamental policy, each Fund has adopted a
policy that provides that the Fund may not purchase securities on margin, except
(i) as otherwise provided under rules adopted by the SEC under the 1940 Act or
by guidance regarding the 1940 Act, or interpretations thereof, and (ii) that
the Fund may obtain such short-term credits as are necessary for the clearance
of portfolio transactions, and the Fund may make margin payments in connection
with futures contracts, options, forward contracts, swaps, caps, floors, collars
and other financial instruments.
MANAGEMENT OF THE FUNDS
The Adviser
The Adviser, a Delaware limited partnership with principal offices
at 1345 Avenue of the Americas, New York, New York 10105, has been retained
under an investment advisory agreement (the "Advisory Agreement") to provide
investment advice and, in general, to conduct the management and investment
program of each of the Funds under the supervision of each Fund's Board (see
"Management of the Funds" in the Prospectus). The Adviser is an investment
adviser registered under the Investment Advisers Act of 1940, as amended.
The Adviser is a leading global investment management firm
supervising client accounts with assets as of September 30, 2012, totaling
approximately $419 billion. The Adviser 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.
As of September 30, 2012, the ownership structure of the Adviser,
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%
========
|
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
Holding Units.
AllianceBernstein Corporation (an indirect wholly-owned subsidiary
of AXA) is the general partner of both Holding and the Adviser.
AllianceBernstein Corporation owns 100,000 general partnership units in Holding
and a 1% general partnership interest in the Adviser. Including both the general
partnership and limited partnership interests in Holding and the Adviser, AXA
and its subsidiaries had an approximate 64.2% economic interest in the Adviser
as of September 30, 2012.
Advisory Agreement and Expenses
The Adviser serves as investment manager and adviser of each of the
Funds, continuously furnishes an investment program for each Fund, and manages,
supervises and conducts the affairs of each Fund, subject to supervision of each
Fund's Board.
Under the Advisory Agreements for the Funds, the Adviser furnishes
advice and recommendations with respect to the Funds' portfolio of securities
and investments and provides persons satisfactory to the Board to act as
officers of the Funds. Such officers and employees may be employees of the
Adviser or its affiliates.
The Adviser is, under each Fund's Advisory Agreement, responsible
for certain expenses incurred by the Fund, including, for example, office
facilities and certain administrative services, and any expenses incurred in
promoting the sale of Fund shares (other than the portion of the promotional
expenses borne by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Fund prospectuses and other
reports to shareholders and fees related to registration with the SEC and with
state regulatory authorities).
The Funds have, under the Advisory Agreements, assumed the
obligation for payment of all of their other expenses. As to the obtaining of
services other than those specifically provided to the Funds by the Adviser,
each Fund may employ their own personnel. For such services it may also utilize
personnel employed by the Adviser or its affiliates and, in such event, the
services will be provided to the Funds at cost and the payments therefore must
be specifically approved by the Fund's Board. For the fiscal year ended October
31, 2012, for Intermediate Bond, Unconstrained Bond and High Income, the Funds
paid the Adviser a total of $63,075, $65,274 and $60,536, respectively for these
services. For the fiscal period and fiscal year ended September 30, 2012 for
Limited Duration and Global Bond, the Fund paid the Adviser a total of $59,173
and $58,165, respectively, for these services.
Each Advisory Agreement, except for Limited Duration as discussed
below, continues in effect provided that such continuance is specifically
approved at least annually by a vote of a majority of the Fund's outstanding
voting securities or by the Fund's Board, and in either case, by a majority of
the Directors who are not parties to the Advisory Agreement or interested
persons of any such party. Most recently, continuance of each advisory agreement
was approved for an additional annual term by the Board at meetings held on
November 6-8, 2012.
With respect to Limited Duration, the Advisory Agreement became
effective on December 7, 2011. The Advisory Agreement provides that it will
continue in effect for two years from its effective date and thereafter from
year to year provided that its continuance is specifically approved at least
annually by majority vote of the holders of the outstanding voting securities of
the Fund or by the Directors, and, in either case, by a majority of the
Directors who are not parties to the Advisory Agreement or "interested persons"
of any such party.
Any material amendments to the Advisory Agreements must be approved
by a vote of the outstanding securities of the relevant Fund and by a vote of a
majority of the Directors who are not interested persons of the Fund or the
Adviser. The Advisory Agreements are terminable without penalty by a vote of a
majority of the Funds' outstanding voting securities or by a vote of a majority
of the Directors on 60 days' written notice or by the Adviser on 60 days'
written notice, and will automatically terminate in the event of assignment.
Each Advisory Agreement provides that in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Adviser, or of reckless disregard
of its obligations thereunder, the Adviser shall not be liable for any action or
failure to act in accordance with its duties thereunder.
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 which result in the purchase or sale of the particular
security by its other clients simultaneously with a purchase or sale thereof by
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. 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 Adviser's clients (including the
Fund) 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 Adviser is compensated for its services at the following annual
rates:
Fund Annual Percentage Rate
---- ----------------------
Intermediate Bond .45 of 1% of the first $2.5 billion of average net assets
.40 of 1% of the excess of $2.5 billion up to $5 billion
of average net assets
.35 of 1% of the excess over $5 billion of average net
assets
Limited Duration 0.60% of the first $2.5 billion of average net assets
0.55% of the excess of $2.5 billion up to $5 billion of
average net assets
0.50% of the excess over $5 billion of average net assets
Unconstrained Bond .50 of 1% for the first $2.5 billion of average daily net
assets
.45 of 1% of the excess of $2.5 billion up to $5 billion
of average daily net assets
.40 of 1% of the excess over $5 billion of average daily
net assets
Global Bond .50 of 1% for the first $2.5 billion of average daily net
assets
.45 of 1% of the excess of $2.5 billion up to $5 billion
of average daily net assets
.40 of 1% of the excess over $5 billion of average daily
net assets
High Income .50 of 1% for the first $2.5 billion of average daily net
assets
.45 of 1% of the excess of $2.5 billion up to $5 billion
of average daily net assets
.40 of 1% of the excess over $5 billion of average daily
net assets
|
The fee is accrued daily and paid monthly.
With respect to Limited Duration, the Adviser has agreed to waive
its management fee and/or bear expenses of the Fund through December 7, 2014 to
the extent necessary to prevent total Fund operating expenses, on an annualized
basis from exceeding 1.05%, 1.75%, 1.25%, 1.00%, 0.75%, 0.85%, 0.75% and 0.75%
of average daily net assets, respectively, for Class A, Class C, Class R, Class
K, Class I, Class 1, Class 2 and Advisor Class shares (excluding acquired fund
fees and expenses of any AllianceBernstein Mutual Funds in which the Fund may
invest, interest expense, taxes, extraordinary expenses, and brokerage
commissions and other transaction costs). Fees waived and expenses borne by the
Adviser are subject to reimbursement by the Fund until December 7, 2014,
provided that no reimbursement payment will be made that would cause the Fund's
total annual operating expenses to exceed the expense limitations set forth
above or cause the total of the payments to exceed the Fund's total initial
offering expenses.
The Adviser has contractually agreed, with respect to Intermediate
Bond and Unconstrained Bond, for the period from the effective date of each
Fund's Prospectus to the effective date of the subsequent Prospectus
incorporating each Fund's annual financial statements (the "Period") to waive
its fee and bear certain expenses so that total operating expenses, excluding
interest expense, do not, on an annual basis, exceed the amounts noted for the
Funds listed in the table below. These fee waiver and/or expense reimbursement
agreements automatically extend each year unless the Adviser provides notice 60
days prior to the end of the Period.
Fund Expense Caps
---- ------------
Intermediate Bond Class A .90% of average net assets
Class B 1.60% of average net assets
Class C 1.60% of average net assets
Advisor Class .60% of average net assets
Class R 1.10% of average net assets
Class K .85% of average net assets
Class I .60% of average net assets
Unconstrained Bond Class A .90% of aggregate daily net assets
Class B 1.60% of aggregate daily net assets
Class C 1.60% of aggregate daily net assets
Advisor Class .60% of aggregate daily net assets
Class R 1.10% of aggregate daily net assets
Class K .85% of aggregate daily net assets
Class I .60% of aggregate daily net assets
|
For the three most recent fiscal years or since inception of the
Funds, the Funds paid the Adviser advisory fees from the Funds as follows:
Amounts waived or
Reimbursed under
Expense Limitation
Fund Advisory Fees Undertaking
---- ------------- ------------------
Intermediate Bond
2012 $2,457,595 $762,405
2011 2,477,246 829,500
2010 2,592,080 1,181,888
Limited Duration
2012 $205,002 $443,314
Unconstrained Bond
2012 $499,523 $545,026
2011 465,625 506,640
2010 374,781 489,151
Global Bond
2012 $15,757,284 $327,321
2011 14,830,770 1,129,213
2010 12,980,904 1,347,642
High Income
2012 $19,618,738 $11,114
2011 14,510,631 176,086
2010 7,787,382 736,252
|
The Adviser may act as an investment adviser to other persons, firms
or corporations, including investment companies, and is the investment adviser
to the following registered investment companies: AllianceBernstein Blended
Style Series, Inc., AllianceBernstein Cap Fund, Inc., AllianceBernstein Core
Opportunities Fund, Inc., AllianceBernstein Corporate Shares, AllianceBernstein
Discovery Growth Fund, Inc., AllianceBernstein Equity Income Fund, Inc.,
AllianceBernstein Exchange Reserves, AllianceBernstein Fixed-Income Shares,
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 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 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., Alliance New York Municipal Income Fund,
Inc. and AllianceBernstein Multi-Manager Alternative Fund, all registered
closed-end investment companies. The registered investment companies for which
the Adviser serves as investment adviser are referred to collectively below as
the "AllianceBernstein Fund Complex", while all of these investment companies,
except the Sanford C. Bernstein Fund, Inc. and the AllianceBernstein
Multi-Manager Alternative Fund, are referred to collectively below as the
"AllianceBernstein Funds".
Board of Directors Information
Certain information concerning the Funds' Directors is set forth
below.
OTHER PUBLIC
PORTFOLIOS COMPANY
IN DIRECTORSHIPS
PRINCIPAL ALLIANCEBERNSTEIN HELD
NAME, ADDRESS*, OCCUPATION(S) FUND COMPLEX BY DIRECTOR IN
AGE AND DURING PAST OVERSEEN THE PAST FIVE
(YEAR FIRST ELECTED**) FIVE YEARS OR LONGER BY DIRECTOR YEARS
---------------------------- -------------------------- ----------------- --------------
INDEPENDENT DIRECTORS
---------------------
Chairman of the Board
William H. Foulk, Jr., #, ## Investment Adviser and an 101 None
80 Independent Consultant
(1998 - Intermediate Bond) since prior to 2008.
(1992 - Global Bond) Formerly, he was Senior
(1993 - High Income) Manager of Barrett
(1995 - Unconstrained Bond) Associates, Inc., a
(2011 - Limited Duration) registered investment
adviser. He was formerly
Deputy Comptroller and
Chief Investment Officer
of the State of New York
and, prior thereto, Chief
Investment Officer of the
New York Bank for Savings.
He has served as a
director or trustee of
various AllianceBernstein
Funds since 1983 and has
been Chairman of the
AllianceBernstein Funds
and of the Independent
Directors Committee of
such Funds since 2003.
John H. Dobkin, ## Independent Consultant 101 None
70 since prior to 2008.
(1998 - Intermediate Bond) Formerly, President of
(1992 - Global Bond) Save Venice, Inc.
(1993 - High Income) (preservation
(1995 - Unconstrained Bond) organization) from 2001 -
(2011 - Limited Duration) 2002, Senior Advisor from
June 1999 - June 2000 and
President of Historic
Hudson Valley (historic
preservation) from
December 1989 - May 1999.
Previously, Director of
the National Academy of
Design. He has served as a
director or trustee of
various AllianceBernstein
Funds since 1992.
Michael J. Downey, ## Private Investor since 101 Asia Pacific Fund,
69 prior to 2008. Formerly, Inc. and The Merger
(2005 - Intermediate Bond) managing partner of Fund since prior to
(2005 - Global Bond) Lexington Capital, LLC 2008 and Prospect
(2005 - High Income) (investment advisory firm) Acquisition Corp.
(2005 - Unconstrained Bond) from December 1997 until (financial services)
(2011 - Limited Duration) December 2003. From 1987 from 2007 until 2009
until 1993, Chairman and
CEO of Prudential Mutual
Fund Management, director
of the Prudential mutual
funds and member of the
Executive Committee of
Prudential Securities Inc.
He has served as a
director or trustee of the
AllianceBernstein Funds
since 2005.
D. James Guzy, ## Chairman of the Board of 101 Cirrus Logic
76 PLX Technology Corporation
(2005 - Intermediate Bond) (semi-conductors) and of (semi-conductors)
(2005 - Global Bond) SRC Computers Inc., with and PLX Technology
(2005 - High Income) which he has been (semi-conductors)
(2005 - Unconstrained Bond) associated since prior to since prior to 2008
(2011 - Limited Duration) 2008. He was a director of and Intel
Intel Corporation Corporation
(semi-conductors) from (semi-conductors)
1969 until 2008, and until 2008
served as Chairman of the
Finance Committee of such
company for several years
until May 2008. He has
served as a director or
trustee of one or more of
the AllianceBernstein
Funds since 1982.
Nancy P. Jacklin, ## Professorial Lecturer at 101 None
64 the Johns Hopkins School
(2006 - Intermediate Bond) of Advanced International
(2006 - Global Bond) Studies since 2008.
(2006 - High Income) Formerly, U.S. Executive
(2006 - Unconstrained Bond) Director of the
(2011 - Limited Duration) International Monetary
Fund (December 2002-May
2006); Partner, Clifford
Chance (1992-2002); Sector
Counsel, International
Banking and Finance, and
Associate General Counsel,
Citicorp (1985-1992);
Assistant General Counsel
(International), Federal
Reserve Board of Governors
(1982-1985); and Attorney
Advisor, U.S. Department
of the Treasury
(1973-1982). Member of the
Bar of the District of
Columbia and of New York;
and member of the Council
on Foreign Relations. She
has served as a director
or trustee of the
AllianceBernstein Funds
since 2006.
Garry L. Moody, ## Independent Consultant. 101 None
60 Formerly, Partner,
(2008 - Intermediate Bond) Deloitte & Touche LLP
(2008 - Global Bond) (1995-2008) where he held
(2008 - High Income) a number of senior
(2008 - Unconstrained Bond) positions, including Vice
(2011 - Limited Duration) Chairman, and U.S. and
Global Investment
Management Practice
Managing Partner;
President, Fidelity
Accounting and Custody
Services Company
(1993-1995); and Partner,
Ernst & Young LLP
(1975-1993), where he
served as the National
Director of Mutual Fund
Tax Services. He has
served as a director or
trustee, and as Chairman
of the Audit Committee, of
the AllianceBernstein
Funds since 2008.
Marshall C. Turner, Jr., ## Private Investor since 101 Xilinx, Inc.
71 prior to 2008. Interim CEO (programmable logic
(2005 - Intermediate Bond) of MEMC Electronic semi-conductors) and
(2005 - Global Bond) Materials, Inc. MEMC Electronic
(2005 - High Income) (semi-conductor and solar Materials, Inc.
(2005 - Unconstrained Bond) cell substrates) from (semi-conductor and
(2011 - Limited Duration) November 2008 until March solar cell
2009. He was Chairman and substrates) since
CEO of Dupont Photomasks, prior to 2008
Inc. (components of until 2009.
semi-conductor
manufacturing), 2003-2005,
and President and CEO,
2005-2006, after the
company was acquired and
renamed Toppan Photomasks,
Inc. He has served as a
director or trustee of one
or more of the
AllianceBernstein Funds
since 1992.
Earl D. Weiner, ## Of Counsel, and Partner 101 None
73 prior to January 2008, of
(2007 - Intermediate Bond) the law firm Sullivan &
(2007 - Global Bond) Cromwell LLP, and member
(2007 - High Income) of ABA Federal Regulation
(2007 - Unconstrained Bond) of Securities Committee
(2011 - Limited Duration) Task Force to draft
editions of the Fund
Director's Guidebook. He
has served as a director
or trustee of the
AllianceBernstein Funds
since 2007 and is Chairman
of the Governance and
Nominating Committees
of the Funds.
INTERESTED DIRECTOR
Robert M. Keith, +, Senior Vice President of 101 None
52 the Adviser++ and head of
AllianceBernstein
Investments, Inc.
("ABI")++ since July
2008; Director of ABI and
President of the
AllianceBernstein Mutual
Funds. Previously, he
served as Executive
Managing Director of ABI
from December 2006 to June
2008. Prior to joining ABI
in 2006, Executive
Managing Director of
Bernstein Global Wealth
Management, and prior
thereto, Senior Managing
Director and Global Head
of Client Service and
Sales of the Adviser's
institutional investment
management business since
2004. Prior thereto,
Managing Director and Head
of North American Client
Service and Sales in the
Adviser's institutional
investment management
business, with which he
had been associated since
prior to 2004.
|
* The address for each of the Fund's Directors is c/o AllianceBernstein
L.P., Attention: Philip L. Kirstein, 1345 Avenue of the Americas, New
York, NY 10105.
** There is no stated term of office for the Funds' Directors.
# Member of the Fair Value Pricing Committee.
## Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
+ Mr. Keith is an "interested person", as defined in Section 2(a)(19) of the
1940 Act, of the Funds due to his position as a Senior Vice President of
the Adviser.
++ The Adviser and ABI are affiliates of the Funds.
The business and affairs of each Fund are overseen by 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.
Experience, Skills, Attributes and Qualifications of the Funds'
Directors. The Governance and Nominating Committee of each Fund's Board, which
is composed of Independent Directors, reviews the experience, qualifications,
attributes and skills of potential candidates for nomination or election by the
Board, and conducts a similar review in connection with the proposed nomination
of current Directors for re-election by stockholders at any annual or special
meeting of stockholders. In evaluating a candidate for nomination or election as
a Director, the Governance and Nominating Committee takes into account the
contribution that the candidate would be expected to make to the diverse mix of
experience, qualifications, attributes and skills that the Governance and
Nominating Committee believes contributes to good governance for the Fund.
Additional information concerning the Governance and Nominating Committee's
consideration of nominees appears in the description of the Committee below.
Each Fund's 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 of each Fund 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 and should continue to serve as such.
In determining that a particular Director was and continues to be
qualified to serve as a Director, each Board has considered a variety of
criteria, none of which, in isolation, was controlling. In addition, each 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 continue to
serve. Additional information about the specific experience, skills, attributes
and qualifications of each Director, which in each case led to the Board's
conclusion that the Director should serve (or continue to serve) as trustee or
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 Adviser, 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. In
addition to his or her service as a Director of the Fund and other
AllianceBernstein Funds as noted in the table above: Mr. Dobkin has experience
as an executive of a number of organizations and served as Chairman of the Audit
Committee of many of the AllianceBernstein Funds from 2001 to 2008; Mr. Downey
has experience in the investment advisory business including as Chairman and
Chief Executive Officer of a large fund complex and as director of a number of
non-AllianceBernstein funds and as Chairman of a non-AllianceBernstein
closed-end fund; Mr. Foulk has experience in the investment advisory and
securities businesses, including as Deputy Comptroller and Chief Investment
Officer of the State of New York (where his responsibilities included bond
issuances, cash management and oversight of the New York Common Retirement
Fund), has served as Chairman of the AllianceBernstein Funds and of the
Independent Directors Committee since 2003, and is active in a number of mutual
fund related organizations and committees; Mr. Guzy has experience as a
corporate director including as Chairman of a public company and Chairman of the
Finance Committee of a large public technology company; Ms. Jacklin has
experience as a financial services regulator including as U.S. Executive
Director of the International Monetary Fund, which is responsible for ensuring
the stability of the international monetary system, and as a financial services
lawyer in private practice; Mr. Keith has experience as an executive of the
Adviser with responsibility for, among other things, the AllianceBernstein
Funds; Mr. Moody has experience as a certified public accountant including
experience as Vice Chairman and U.S. and Global Investment Management Practice
Partner for a major accounting firm, is a member of the governing council of an
organization of independent directors of mutual funds, and has served as
Chairman of the Audit Committee of most of the AllianceBernstein Funds since
2008; Mr. Turner has experience as a director (including as Chairman and Chief
Executive officer of a number of companies) and as a venture capital investor
including prior service as general partner of three institutional venture
capital partnerships; and Mr. Weiner has experience as a securities lawyer whose
practice includes registered investment companies and as Chairman, director or
trustee of a number of boards, and has served as Chairman of the Governance and
Nominating Committee of most of the AllianceBernstein Funds. 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.
Board Structure and Oversight Function. Each Fund's Board is
responsible for oversight of that Fund. Each Fund has engaged the Adviser to
manage the Fund on a day-to-day basis. Each Board is responsible for overseeing
the Adviser and the Fund's other service providers in the operations of that
Fund in accordance with the Fund's investment objective and policies and
otherwise in accordance with its prospectus, the requirements of the 1940 Act
and other applicable Federal, state and other securities and other laws, and the
Fund's charter and bylaws. Each Board meets in-person at regularly scheduled
meetings eight times throughout the year. In addition, the Directors may meet
in-person or by telephone at special meetings or on an informal basis at other
times. The Independent Directors also regularly meet without the presence of any
representatives of management. As described below, each Board has established
four standing committees - the Audit, Governance and Nominating, Independent
Directors, and Fair Value Pricing Committees - and may establish ad hoc
committees or working groups from time to time, to assist the Board in
fulfilling its oversight responsibilities. Each committee is composed
exclusively of Independent Directors. The responsibilities of each committee,
including its oversight responsibilities, are described further below. The
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 each 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 a 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 Adviser 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, each Fund is required to have an
Independent Director as Chairman pursuant to certain 2003 regulatory settlements
involving the Adviser.
Risk Oversight. Each Fund is subject to a number of risks, including
investment, compliance and operational risks. Day-to-day risk management with
respect to a Fund resides with the Adviser or other service providers (depending
on the nature of the risk), subject to supervision by the Adviser. Each Board
has charged the Adviser and its affiliates with (i) identifying events or
circumstances, the occurrence of which could have demonstrable and material
adverse effects on the Fund; (ii) to the extent appropriate, reasonable or
practicable, implementing processes and controls reasonably designed to lessen
the possibility that such events or circumstances occur or to mitigate the
effects of such events or circumstances if they do occur; and (iii) creating and
maintaining a system designed to evaluate continuously, and to revise as
appropriate, the processes and controls described in (i) and (ii) above.
Risk oversight forms part of a Board's general oversight of a Fund's
investment program and operations and is addressed as part of various regular
Board and committee activities. Each Fund's investment management and business
affairs are carried out by or through the Adviser 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 Fund's 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 Adviser),
a Fund's Senior Officer (who is also a Fund's chief compliance officer), its
independent registered public accounting firm, counsel, and internal auditors
for the Adviser, as appropriate, regarding risks faced by the Fund and the
Adviser's risk management programs.
Not all risks that may affect a Fund 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 Adviser, its affiliates or other service providers. Moreover, it
is necessary to bear certain risks (such as investment-related risks) to achieve
a Fund's goals. As a result of the foregoing and other factors a Fund's ability
to manage risk is subject to substantial limitations.
Board Committees. Each Fund's Board has four standing committees --
an Audit Committee, a Governance and Nominating Committee, a Fair Value Pricing
Committee and an Independent Directors Committee. The members of the Audit,
Governance and Nominating, Fair Value Pricing and Independent Directors
Committees are identified above.
The function of the Audit Committee is to assist the Boards in their
oversight of the Fund's financial reporting process. The Audit Committee of
Intermediate Bond, Limited Duration, Unconstrained Bond, Global Bond and High
Income met twice during the Funds' most recently completed fiscal year.
The function of the Governance and Nominating Committee includes the
nomination of persons to fill any vacancies or newly created positions on the
Boards. The Governance and Nominating Committee of Intermediate Bond, Limited
Duration, Unconstrained Bond, Global Bond and High Income met three times during
the Funds' most recently completed fiscal year.
The Board has adopted a charter for its Governance and Nominating
Committee. Pursuant to the charter, the Committee assists the Board in carrying
out its responsibilities with respect to governance of the Fund and identifies,
evaluates, selects and nominates candidates for the Board. The Committee may
also set standards or qualifications for Directors and reviews at least annually
the performance of each Director, taking into account factors such as attendance
at meetings, adherence to Board policies, preparation for and participation at
meetings, commitment and contribution to overall work of the Board and its
committees, and whether there are health or other reasons that might affect the
Director's ability to perform his or her duties. The Committee may consider
candidates as Directors submitted by the Fund's current Board members, officers,
the Adviser, stockholders and other appropriate sources.
The Governance and Nominating Committee will consider candidates for
nomination as a trustee 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 Governance and
Nominating 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 Funds not less than 120 days before the date of the
proxy statement for the previous year's annual meeting of shareholders. If the
Funds did not hold an annual meeting of shareholders in the previous year, the
submission must be delivered or mailed and received within a reasonable amount
of time before the Funds begin 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 Governance and Nominating Committee or the Board to be reasonably calculated
to inform shareholders.
Shareholders submitting a candidate for consideration by the
Governance and Nominating Committee must provide the following information to
the Governance and Nominating 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 a 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 Funds (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 Funds 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 Funds; (v) the class or
series and number of all shares of a fund of the Funds 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 Funds' 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 Governance and Nominating 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 Governance and Nominating 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 Governance and Nominating Committee will consider only one
candidate submitted by such a shareholder or group for nomination for election
at an annual meeting of shareholders. The Governance and Nominating Committee
will not consider self-nominated candidates. The Governance and Nominating
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 Adviser's Valuation
Committee relating to a security held by the Funds made under unique or highly
unusual circumstances not previously addressed by the Valuation Committee that
would result in a change in the Funds' NAV by more than $0.01 per share. The
Fair Value Pricing Committee did not meet during the Funds' 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 of Intermediate Bond, Limited Duration, Unconstrained Bond,
Global Bond and High Income met seven times during the Fund's most recently
completed fiscal year.
The dollar range of each Fund's securities owned by each Director
and the aggregate dollar range of securities of funds in the AllianceBernstein
Fund Complex owned by each Director are set forth below.
Dollar Range of Equity Securities in the Funds
As of December 31, 2012
-----------------------
Name of Trustee Intermediate Unconstrained Global High Limited
--------------- Bond Bond Bond Income Duration
----- ----- ----- ------ --------
John H. Dobkin None None None None None
Michael J. Downey None None None None None
William H. Foulk, Jr. None None None None None
D. James Guzy None None None None None
Nancy P. Jacklin None None None None None
Robert M. Keith* None None None None None
Garry L. Moody None None None None None
Marshall C. Turner, Jr. None None None None None
Earl D. Weiner None None None $10,001- None
$50,000
Aggregate Dollar Range of Equity
SSecurities in the AllianceBernstein
Fund Complex
Name of Trustee as of December 31, 2012
--------------- -----------------------
John H. Dobkin Over $100,000
Michael J. Downey Over $100,000
William H. Foulk, Jr. Over $100,000
D. James Guzy Over $100,000
Nancy P. Jacklin Over $100,000
Robert M. Keith* None
Garry L. Moody Over $100,000
Marshall C. Turner, Jr. Over $100,000
Earl D. Weiner Over $100,000
|
*For information presented as of December 31, 2012 with respect to Mr. Keith,
unvested interests in certain deferred compensation plans, including the Partner
Compensation Plan, are not included.
Officer Information
Certain information concerning each Fund's officers is set forth below.
POSITION(S)
NAME, ADDRESS,* HELD WITH PRINCIPAL OCCUPATION
AND AGE FUND DURING PAST FIVE YEARS
--------------- ----------- ----------------------
Robert M. Keith, President and See biography above.
52 Chief Executive
Officer
Philip L. Kirstein, Senior Vice Senior Vice President and Independent
67 President and Compliance Officer of the Funds in
Independent the AllianceBernstein Fund Complex,
Compliance with which he has been associated
Officer since October 2004. Prior thereto, he
was Of Counsel to Kirkpatrick &
Lockhart, LLP from October 2003 to
October 2004, and General Counsel of
Merrill Lynch Investment Managers,
L.P. since prior to March 2003.
Emilie D. Wrapp, Secretary Senior Vice President, Assistant
57 General Counsel and Assistant
Secretary of ABI,** with which she
has been associated since prior to
2008.
Joseph J. Mantineo, Treasurer Senior Vice President of ABIS,** with
53 and Chief which he has been associated since
Financial prior to 2008.
Officer
Stephen M. Woetzel, Controller Vice President of ABIS,** with which
41 he has been associated since prior to
2008.
Intermediate Bond
-----------------
Paul J. DeNoon, Vice President Senior Vice President of the
50 Adviser,** with which he has been
associated since prior to 2008.
Shawn E. Keegan, Vice President Vice President of the Adviser,** with
41 which he has been associated since
prior to 2008.
Alison M. Martier, Vice President Senior Vice President of the
56 Adviser,** with which she has been
associated since prior to 2008.
Douglas J. Peebles, Vice President Senior Vice President of the
47 Adviser,** with which he has been
associated since prior to 2008.
Greg J. Wilensky, Vice President Senior Vice President of the
45 Adviser,** with which he has been
associated since prior to 2008.
Limited Duration
----------------
Gershon M. Distenfeld, Vice President Senior Vice President of the
37 Adviser,** with which he has been
associated since prior to 2008.
Ashish C. Shah, Vice President Senior Vice President of the
42 Adviser,** with which he has been
associated since May 2010. From
September 2008 until May 2010, he was
a Managing Director and Head of
Global Credit Strategy at Barclays
Capital. Prior thereto, he was Head
of Credit Strategy at Lehman
Brothers, since prior to 2008.
Michael E. Sohr, Vice President Senior Vice President of the
47 Adviser,** with which he has been
associated since prior to 2008.
Amy Strugazow, Vice President Vice President of the Adviser,** with
36 which she has been associated since
prior to 2008.
Unconstrained Bond
------------------
Paul J. DeNoon, Vice President See above.
50
Michael L. Mon, Vice President Vice President of the Adviser,** with
43 which he has been associated since
prior to 2008.
Douglas J. Peebles, Vice President See above.
47
Matthew S. Sheridan, Vice President Senior Vice President of the
37 Adviser,** with which he has been
associated since prior to 2008.
Global Bond
-----------
Paul J. DeNoon, Vice President See above.
50
Scott A. DiMaggio, Vice President Senior Vice President of the
41 Adviser,** with which he has been
associated since prior to 2008.
Michael L. Mon, Vice President See above.
43
Douglas J. Peebles, Senior Vice See above.
47 President
Matthew S. Sheridan, Vice President See above.
37
High Income
-----------
Paul J. DeNoon, Vice President See above.
50
Gershon M. Distenfeld, Vice President See above.
37
Douglas J. Peebles, Senior Vice See above.
47 President
Marco G. Santamaria, Vice President Vice President of the Adviser,** with
47 which he has been associated since
June 2010. Prior thereto, he was a
founding partner at Global Securities
Advisors, an emerging-market-oriented
fixed-income hedge fund since prior
to 2008.
Matthew S. Sheridan, Vice President See above.
37
--------
|
* The address for each of the Fund's Officers is 1345 Avenue of the
Americas, New York, NY 10105.
** The Adviser, ABI and ABIS are affiliates of each Fund.
The Funds do not pay any fees to, or reimburse expenses of, their
Directors who are considered "interested persons" of the Funds. The aggregate
compensation paid by a Fund to each of the Directors during its fiscal year, the
aggregate compensation paid to each of the Directors during calendar year 2012
by the AllianceBernstein Fund Complex, and the total number of registered
investment companies (and separate investment portfolios within the 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 Funds
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.
Aggregate Aggregate Aggregate
Compensation Compensation Compensation
Name of Trustee or from Intermediate from Limited from Unconstrained
Director Bond Duration Bond
----------------------- ----------------- ------------ ------------------
John H. Dobkin $1,312 $ 928 $ 6,185
Michael J. Downey $1,312 $ 928 $ 6,185
William H. Foulk, Jr. $2,485 $1,758 $11,708
D. James Guzy $1,312 $ 928 $ 6,185
Nancy P. Jacklin $1,312 $ 928 $ 6,185
Robert M. Keith $ 0 $ 0 $ 0
Garry L. Moody $1,458 $1,032 $ 6,873
Marshall C. Turner, Jr. $1,312 $ 928 $ 6,185
Earl D. Weiner $1,405 $ 994 $ 6,627
Aggregate Aggregate
Name of Trustee or Compensation Compensation
Director from Global Bond from High Income
----------------------- ----------------- ----------------
John H. Dobkin $ 6,185 $ 6,185
Michael J. Downey $ 6,185 $ 6,185
William H. Foulk, Jr. $11,708 $11,708
D. James Guzy $ 6,185 $ 6,185
Nancy P. Jacklin $ 6,185 $ 6,185
Robert M. Keith $ 0 $ 0
Garry L. Moody $ 6,873 $ 6,873
Marshall C. Turner, Jr. $ 6,185 $ 6,185
Earl D. Weiner $ 6,627 $ 6,627
|
Total Number
of Registered
Investment
Companies in the Total Number
AllianceBernstein of Investment
Fund Complex, Portfolios within the
Total Compensation including the AllianceBernstein Fund
from the Fund, as to which Complex, including the
AllianceBernstein the Trustee Fund, as to which the
Name of Trustee or Fund Complex, or Director is a Trustee or Director is a
Director including the Funds Director or Trustee Director or Trustee
----------------------- ------------------- ------------------- ------------------------
John H. Dobkin $252,000 31 101
Michael J. Downey $252,000 31 101
William H. Foulk, Jr. $477,000 31 101
D. James Guzy $252,000 31 101
Nancy P. Jacklin $252,000 31 101
Robert M. Keith $ 0 31 101
Garry L. Moody $280,000 31 101
Marshall C. Turner, Jr. $252,000 31 101
Earl D. Weiner $270,000 31 101
|
Additional Information About the Funds' Portfolio Managers
INTERMEDIATE BOND
The management of, and investment decisions for, the Fund's
portfolio are made by the U.S. Investment Grade: Core Fixed Income Investment
Team. Mr. Paul J. DeNoon, Mr. Shawn E. Keegan, Ms. Alison M. Martier, Mr.
Douglas J. Peebles and Mr. Greg J. Wilensky are the investment professionals(1)
with the most significant responsibility for the day-to-day management of the
Fund's portfolio. For additional information about the portfolio management of
the Fund, see "Management of the Fund - Fund Managers" in the Fund's Prospectus.
(1) Investment professionals at the Adviser include portfolio managers and
research analysts. Investment professionals are part of investment groups
(or teams) that service individual fund portfolios. The number of
investment professionals assigned to a particular fund will vary from fund
to fund.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of October 31, 2012 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(2)
Mr. Paul J. DeNoon None
Mr. Shawn E. Keegan $1-$10,000(3)
Ms. Alison M. Martier None
Mr. Douglas J. Peebles None
Mr. Greg J. Wilensky None
--------
|
(2) The dollar range presented above include any vested shares awarded under
the Adviser's Partners Compensation Plan (the "Plan").
(3) For information presented as of the fiscal year ended October 31, 2012,
with respect to Mr. Keegan, if the unvested shares awarded for calendar
year 2010 and previous years under the Plan were included, the range would
be $1 - $10,000.
As of October 31, 2012, employees of the Adviser had approximately
$1,877,821 invested in shares of the Fund and approximately $120,509,561
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.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's 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 October
31, 2012.
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Total Total Registered Registered
Number of Assets of Investment Investment
Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 87 $ 32,286,000,000 None None
Mr. Shawn E. Keegan 17 $ 7,902,000,000 None None
Ms. Alison M. Martier 7 $ 7,378,000,000 None None
Mr. Douglas J. Peebles 57 $ 26,849,000,000 None None
Mr. Greg J. Wilensky 39 $ 9,670,000,000 None None
|
OTHER POOLED INVESTMENT VEHICLES
Number of Total Assets
Total Other of Other
Number of Total Assets Pooled Pooled
Other of Other Investment Investment
Pooled Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 113 $ 46,361,000,000 2 $ 154,000,000
Mr. Shawn E. Keegan 12 $ 11,946,000,000 None None
Ms. Alison M. Martier 40 $ 200,000,000 None None
Mr. Douglas J. Peebles 123 $ 61,111,000,000 3 $ 294,000,000
Mr. Greg J. Wilensky 84 $ 1,004,000,000 1 $ 82,000,000
|
OTHER ACCOUNTS
Total
Number of Assets of
Total Total Other Other
Number Assets of Accounts Accounts
of Other Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
------------------------------------------------------------------------------
Mr. Paul J. DeNoon 241 $ 49,896,000,000 5 $2,489,000,000
Mr. Shawn E. Keegan 149 $ 61,629,000,000 2 $2,862,000,000
Ms. Alison M. Martier 49 $ 5,686,000,000 None None
Mr. Douglas J. Peebles 383 $ 106,637,000,000 8 $5,578,000,000
Mr. Greg J. Wilensky 146 $ 12,500,000,000 1 $ 391,000,000
|
LIMITED DURATION
The management of, and investment decisions for, the Fund's
portfolio are made by its senior investment management team. Mr. Gershon M.
Distenfeld, Mr. Ashish C. Shah, Mr. Michael E. Sohr and Ms. Amy Strugazow are
the investment professionals primarily responsible for the day-to-day management
of the Fund's portfolio (the "Portfolio Managers"). For additional information
about the portfolio management of the Fund, see "Management of the Fund -
Portfolio Managers" in the Fund's Prospectus.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of September 30, 2012 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(4)
Mr. Gershon M. Distenfeld $ 50-001-$100,000
Mr. Ashish C. Shah $ 100,001-$500,000
Mr. Michael E. Sohr $ 100,001-$500,000
Ms. Amy Strugazow None
--------
|
(4) The dollar range presented above include any vested shares awarded under
the Adviser's Partners Compensation Plan (the "Plan").
As of September 30, 2012, employees of the Adviser had approximately
$122,113,846 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.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which each Portfolio Manager also has 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.
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Total Total Registered Registered
Number of Assets of Investment Investment
Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Gershon M. Distenfeld 7 $11,738,000,000 None None
Mr. Ashish C. Shah 2 $ 530,000,000 None None
Mr. Michael E. Sohr 3 $ 9,131,000,000 None None
Ms. Amy Strugazow 1 $ 403,000,000 None None
|
OTHER POOLED INVESTMENT VEHICLES
Number of Total Assets
Total Other of Other
Number of Total Assets Pooled Pooled
Other of Other Investment Investment
Pooled Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Gershon M. Distenfeld 21 $52,285,000,000 1 $140,000,000
Mr. Ashish C. Shah 16 $12,259,000,000 1 $140,000,000
Mr. Michael E. Sohr 11 $50,049,000,000 None None
Ms. Amy Strugazow 9 $10,984,000,000 None None
|
OTHER ACCOUNTS
Total
Number of Assets of
Total Other Other
Number of Accounts Accounts
Other Total Assets of Managed with Managed with
Accounts Other Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
-------------------------------------------------------------------------------
Mr. Gershon M. Distenfeld 144 $59,199,000,000 2 $2,862,000,000
Mr. Ashish C. Shah 132 $56,377,000,000 2 $2,862,000,000
Mr. Michael E. Sohr 127 $56,154,000,000 2 $2,862,000,000
Ms. Amy Strugazow 145 $57,682,000,000 2 $2,862,000,000
|
UNCONSTRAINED BOND
The management of, and investment decisions for, the Fund's
portfolio are made by the Global Fixed Income Investment Team and the Global
Credit Investment Team. Mr. Paul J. DeNoon, Mr. Michael L. Mon, Mr. Douglas
J. Peebles and Mr. Matthew S. Sheridan are the investment professionals with the
most significant responsibility for the day-to-day management of the Fund's
portfolio. For additional information about the portfolio management of the
Fund, see "Management of the Fund - Portfolio Managers" in the Fund's
Prospectus.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of October 31, 2012 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(5)
Mr. Paul J. DeNoon None
Mr. Michael L. Mon None
Mr. Douglas J. Peebles $100,001-$500,000
Mr. Matthew S. Sheridan None
--------
|
(5) The dollar range presented above include any vested shares awarded under
the Adviser's Partners Compensation Plan (the "Plan").
As of October 31, 2012, employees had approximately $120,509,561
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.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's 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 October
31, 2012.
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Total Total Registered Registered
Number of Assets of Investment Investment
Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 87 $32,702,000,000 None None
Mr. Michael L. Mon 47 $22,271,000,000 None None
Mr. Douglas J. Peebles 57 $27,265,000,000 None None
Mr. Matthew S. Sheridan 32 $14,975,000,000 None None
|
OTHER POOLED INVESTMENT VEHICLES
Number Total Assets
Total Total of Other of Other
Number Assets Pooled Pooled
of Other of Other Investment Investment
Pooled Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 113 $46,361,000,000 2 $154,000,000
Mr. Michael L. Mon 215 $16,800,000,000 2 $212,000,000
Mr. Douglas J. Peebles 123 $61,111,000,000 3 $294,000,000
Mr. Matthew S. Sheridan 43 $45,436,000,000 1 $ 72,000,000
|
OTHER ACCOUNTS
Total
Number Assets of
Total Total of Other Other
Number Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 241 $ 49,896,000,000 5 $2,489,000,000
Mr. Michael L. Mon 149 $ 58,861,000,000 4 $2,098,000,000
Mr. Douglas J. Peebles 383 $106,637,000,000 8 $5,578,000,000
Mr. Matthew S. Sheridan 76 $ 33,278,000,000 4 $2,098,000,000
|
GLOBAL BOND
The management of, and investment decisions for, the Fund's portfolio
are made by the Global Fixed Income Investment Team. Mr. Paul J. DeNoon, Mr.
Scott A. DiMaggio, Mr. Michael L. Mon, Mr. Douglas J. Peebles and Mr. Matthew S.
Sheridan are the investment professionals with the most significant
responsibility for the day-to-day management of the Fund's portfolio. For
additional information about the portfolio management of the Fund, see
"Management of the Fund - Portfolio Managers" in the Fund's Prospectus.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of September 30, 2012 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(6)
Mr. Paul J. DeNoon $100,001-$500,000
Mr. Scott A. DiMaggio None
Mr. Michael L. Mon None
Mr. Douglas J. Peebles None
Mr. Matthew S. Sheridan None
--------
|
(6) The dollar range presented above include any vested shares awarded under
the Adviser's Partners Compensation Plan (the "Plan").
As of September 30, 2012, employees of the Adviser had approximately
$122,113,846 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.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's 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.
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Total Total Registered Registered
Number of Assets of Investment Investment
Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 85 $ 29,344,000,000 None None
Mr. Scott A. DiMaggio 31 $ 5,395,000,000 None None
Mr. Michael L. Mon 48 $ 20,311,000,000 None None
Mr. Douglas J. Peebles 57 $ 23,858,000,000 None None
Mr. Matthew S. Sheridan 32 $ 11,522,000,000 None None
|
OTHER POOLED INVESTMENT VEHICLES
Number Total Assets
Total Total of Other of Other
Number Assets Pooled Pooled
of Other of Other Investment Investment
Pooled Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 113 $ 43,834,000,000 2 $166,000,000
Mr. Scott A. DiMaggio 35 $ 4,598,000,000 1 $139,000,000
Mr. Michael L. Mon 215 $ 16,638,000,000 2 $222,000,000
Mr. Douglas J. Peebles 124 $ 58,438,000,000 3 $305,000,000
Mr. Matthew S. Sheridan 43 $ 42,899,000,000 1 $ 83,000,000
|
OTHER ACCOUNTS
Total
Number Assets of
Total Total of Other Other
Number Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 238 $ 49,722,000,000 5 $2,465,000,000
Mr. Scott A. DiMaggio 72 $ 27,609,000,000 4 $2,074,000,000
Mr. Michael L. Mon 142 $ 56,012,000,000 4 $2,074,000,000
Mr. Douglas J. Peebles 384 $ 105,913,000,000 8 $5,516,000,000
Mr. Matthew S. Sheridan 73 $ 32,537,000,000 4 $2,074,000,000
|
HIGH INCOME
The management of, and investment decisions for, the Fund's
portfolio are made by the Global Fixed Income Team and Global Credit Investment
Team. Mr. Paul DeNoon, Mr. Gershon Distenfeld, Mr. Douglas Peebles, Mr. Marco G.
Santamaria and Mr. Matthew Sheridan are the investment professionals with the
most significant responsibility for the day-to-day management of the Fund's
portfolio. For additional information about the portfolio management of the
Fund, see "Management of the Fund - Portfolio Managers" in the Fund's
Prospectus.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of October 31, 2012 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(7)
Mr. Paul J. DeNoon $100,001-$500,000(8)
Mr. Gershon Distenfeld $500,001-$1,000,000(9)
Mr. Douglas J. Peebles None
Mr. Marco G. Santamaria None
Mr. Matthew S. Sheridan None
--------
|
(7) The dollar range presented above include any vested shares awarded under
the Adviser's Partners Compensation Plan (the "Plan").
(8) For information presented as of the fiscal year ended October 31, 2012,
with respect to Mr. DeNoon, if the unvested shares awarded for calendar
year 2010 and previous years under the Plan were included, the range would
be over Mr. Paul J. DeNoon $1,000,001.
(9) For information presented as of the fiscal year ended October 31, 2012,
with respect to Mr. Distenfeld, if the unvested shares awarded for
calendar year 2011 and previous years under the Plan were included, the
range would be over $1,000,001.
As of October 31, 2012, employees of the Adviser had approximately
$8,036,991 invested in shares of the Fund and approximately $120,509,561
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.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's portfolio managers also has 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 October
31, 2012.
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Total Total Registered Registered
Number of Assets of Investment Investment
Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 87 $ 27,657,000,000 None None
Mr. Gershon Distenfeld 7 $ 6,630,000,000 None None
Mr. Douglas J. Peebles 57 $ 22,221,000,000 None None
Mr. Marco G. Santamaria 4 $ 3,802,000,000 None None
Mr. Matthew S. Sheridan 32 $ 9,930,000,000 None None
|
OTHER POOLED INVESTMENT VEHICLES
Number Total Assets
Total Total of Other of Other
Number Assets Pooled Pooled
of Other of Other Investment Investment
Pooled Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 113 $46,361,000,000 2 $154,000,000
Mr. Gershon Distenfeld 21 $52,285,000,000 1 $140,000,000
Mr. Douglas J. Peebles 123 $61,111,000,000 3 $294,000,000
Mr. Marco G. Santamaria 18 $43,222,000,000 1 $ 72,000,000
Mr. Matthew S. Sheridan 43 $45,436,000,000 1 $ 72,000,000
|
OTHER ACCOUNTS
Total
Number Assets of
Total Total of Other Other
Number Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
--------------------------------------------------------------------------------
Mr. Paul J. DeNoon 241 $ 49,896,000,000 5 $2,489,000,000
Mr. Gershon Distenfeld 144 $ 59,199,000,000 2 $2,862,000,000
Mr. Douglas J. Peebles 383 $106,637,000,000 8 $5,578,000,000
Mr. Marco G. Santamaria 21 $ 8,546,000,000 None None
Mr. Matthew S. Sheridan 76 $ 33,278,000,000 4 $2,098,000,000
|
Investment Professional Conflict of Interest Disclosure
As an investment adviser and fiduciary, the Adviser 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.
Employee Personal Trading. The Adviser has adopted a Code of
Business Conduct and Ethics that is designed to detect and prevent conflicts of
interest when investment professionals and other personnel of the Adviser own,
buy or sell securities which may be owned by, or bought or sold for, clients.
Personal securities transactions by an employee may raise a potential conflict
of interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or sale
by an employee to a client. Subject to the reporting requirements and other
limitations of its Code of Business Conduct and Ethics, the Adviser permits its
employees to engage in personal securities transactions, and also allows them to
acquire investments in certain Funds managed by the Adviser. The Adviser's Code
of Business Conduct and Ethics requires disclosure of all personal accounts and
maintenance of brokerage accounts with designated broker-dealers approved by the
Adviser. The Code of 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.
Managing Multiple Accounts for Multiple Clients. The Adviser has
compliance policies and oversight monitoring in place to address conflicts of
interest relating to the management of multiple accounts for multiple clients.
Conflicts of interest may arise when an investment professional has
responsibilities for the investments of more than one account because the
investment professional may be unable to devote equal time and attention to each
account. The investment professional or investment professional teams for each
client may have responsibilities for managing all or a portion of the
investments of multiple accounts with a common investment strategy, including
other registered investment companies, unregistered investment vehicles, such as
hedge funds, pension plans, separate accounts, collective trusts and charitable
foundations. Among other things, the Adviser's policies and procedures provide
for the prompt dissemination to investment professionals of initial or changed
investment recommendations by analysts so that investment professionals are
better able to develop investment strategies for all accounts they manage. In
addition, investment decisions by investment professionals are reviewed for the
purpose of maintaining uniformity among similar accounts and ensuring that
accounts are treated equitably. Investment professional compensation reflects a
broad contribution in multiple dimensions to long-term investment success for
our clients and is generally not tied specifically to the performance of any
particular client's account, nor is it generally tied directly to the level or
change in level of assets under management.
Allocating Investment Opportunities. The investment professionals at
the Adviser routinely are required to select and allocate investment
opportunities among accounts. The Adviser has adopted policies and procedures
intended to address conflicts of interest relating to the allocation of
investment opportunities. These policies and procedures are designed to ensure
that information relevant to investment decisions is disseminated promptly
within its portfolio management teams and investment opportunities are allocated
equitably among different clients. The policies and procedures require, among
other things, objective allocation for limited investment opportunities (e.g.,
on a rotational basis), and documentation and review of justifications for any
decisions to make investments only for select accounts or in a manner
disproportionate to the size of the account. Portfolio holdings, position sizes,
and 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 Adviser's procedures are also designed to address potential
conflicts of interest that may arise when the Adviser 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
Adviser could share in investment gains.
Portfolio Manager Compensation
The Adviser'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 Adviser's clients,
including the Fund. The Adviser 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
Adviser. On an annual basis, the Adviser 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 Funds 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 Adviser 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 Adviser.
EXPENSES OF THE FUNDS
Distribution Services Agreement
Each Fund has entered into a Distribution Services Agreement (the
"Agreement") with ABI, the Fund's principal underwriter, to permit ABI to
distribute the Fund's shares and to permit the Fund to pay distribution services
fees to defray expenses associated with distribution of its Class A shares,
Class B shares, Class C shares, Class R shares and Class K shares in accordance
with a plan of distribution that is included in the Agreement and that has been
duly adopted and approved in accordance with Rule 12b-1 adopted by the SEC under
the 1940 Act (the "Plan").
In approving the Plan, the Directors of each Fund determined that
there was a reasonable likelihood that the Plan would benefit the Funds and its
shareholders. The distribution services fee of a particular class will not be
used to subsidize the provision of distribution services with respect to any
other class.
The Adviser 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 ABI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
The Plan will continue in effect with respect to each Fund and each
class of shares thereof for successive one-year periods provided that each such
continuance is specifically approved at least annually by a majority of the
Independent Directors of the Funds who have no direct or indirect financial
interest in the operation of the Plan or any agreement related thereto (the
"Qualified Directors") and by a vote of a majority of the entire Board cast in
person at a meeting called for that purpose. Most recently, the Directors
approved the continuance of the Plan at their meetings held on November 6-8,
2012.
All material amendments to the Agreement will become effective only
upon approval as provided in the preceding paragraph, and the Plan may not be
amended in order to increase materially the costs that the Fund may bear
pursuant to the Agreement without the approval of a majority of the holders of
the outstanding voting shares of the Fund or the class or classes of the Fund
affected. The Agreement may be terminated (a) by the Fund without penalty at any
time by a majority vote of the holders of the Fund's outstanding voting
securities, voting separately by class, or by a majority vote of the Qualified
Directors or (b) by ABI. To terminate the Agreement, any party must give the
other parties 60 days' written notice; to terminate the Plan only, the Fund is
not required to give prior notice to ABI. The Agreement will terminate
automatically in the event of its assignment. The Plan is of a type known as a
"reimbursement plan", which means that it reimburses the distributor for the
actual costs of services rendered.
In the event that the Plan is terminated by either party or not
continued with respect to the Class A, Class B, Class C, Class R or Class K
shares, (i) no distribution services fees (other than current amounts accrued
but not yet paid) would be owed by the Fund to ABI with respect to that class
and (ii) the Fund would not be obligated to pay ABI for any amounts expended
under the Agreement not previously recovered by ABI from distribution services
fees in respect of shares of such class or through deferred sales charges.
During the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year or period ended
September 30, 2012 for Limited Duration and Global Bond, with respect to Class A
shares, the distribution services fees for expenditures payable to ABI were as
follows:
Distribution Percentage per annum of
services fees for the aggregate average
expenditures daily net assets
Fund payable to ABI attributable to Class A shares
---- --------------- ------------------------------
Intermediate Bond $ 1,125,114 .30%
Limited Duration $ 4,614 .30%
Unconstrained Bond $ 125,323 .30%
High Income $ 6,055,532 .30%
Global Bond $ 4,669,094 .30%
|
For the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year or period ended
September 30, 2012 for Limited Duration and Global Bond, expenses incurred by
each Fund and costs allocated to each Fund in connection with activities
primarily intended to result in the sale of Class A shares were as follows:
Category of Expense Intermediate Bond Limited Duration Unconstrained Bond High Income Global Bond
------------------- ------------------ ----------------- ------------------- ------------ ------------
Advertising $ 4,969 $ 583 $ 2,951 $ 18,277 $ 11,152
Printing and Mailing of
Prospectuses to Persons
Other Than Current
Shareholders $ 885 $ 0 $ 108 $ 6,118 $ 1,679
Compensation to
Broker-Dealers and Other
Financial Intermediaries
(excluding ABI) $ 1,162,558 $ 1,882 $ 130,145 $7,017,064 $ 4,954,933
Compensation to ABI $ 189,817 $ 6,681 $ 49,447 $ 676,662 $ 434,819
Compensation to Sales
Personnel $ 30,342 $ 3,997 $ 16,267 $1,024,196 $ 294,766
Other (includes printing
of sales literature,
travel, entertainment,
due diligence and other
promotional expenses) $ 158,818 $ 8,622 $ 53,842 $ 569,142 $ 363,244
Totals $ 1,547,389 $21,765 $ 252,760 $9,311,459 $ 6,060,593
|
During the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year ended September
30, 2012 for Global Bond, with respect to Class B shares, the distribution
services fees for expenditures payable to ABI were as follows:
Distribution Percentage per annum of
services fees for the aggregate average
expenditures daily net assets
Fund payable to ABI attributable to Class B shares
---- --------------- ------------------------------
Intermediate Bond $ 101,251 1.00%
Unconstrained Bond $ 22,538 1.00%
High Income $ 229,531 1.00%
Global Bond $ 457,003 1.00%
|
For the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year ended September
30, 2012 for Global Bond, expenses incurred by each Fund and costs allocated to
each Fund in connection with activities primarily intended to result in the sale
of Class B shares were as follows:
Category of Expense Intermediate Bond Unconstrained Bond High Income Global Bond
------------------- ------------------ ------------------- ------------ ------------
Advertising $ 55 $ 4 $ 39 $ 20
Printing and Mailing of
Prospectuses to Persons
Other Than Current
Shareholders $ 16 $ 5 $ 19 $ 2
Compensation to
Broker-Dealers and Other
Financial Intermediaries
(excluding ABI) $ 33,210 $ 6,292 $73,935 $ 145,055
Compensation to ABI $ 1,627 $ 291 $ 914 $ 813
Compensation to Sales
Personnel $ 233 $ 9 $ 334 $ 642
Interest on Financing $ 0 $ 0 $ 0 $ 0
Other (includes printing of
sales literature, travel,
entertainment, due
diligence and other
promotional expenses) $ 1,485 $ 201 $ 920 $ 674
Totals $ 36,626 $ 6,802 $76,161 $ 147,206
|
During the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year or period ended
September 30, 2012 for Limited Duration and Global Bond, with respect to Class C
shares, the distribution services fees for expenditures payable to ABI were as
follows:
Distribution Percentage per annum of
services fees for the aggregate average
expenditures daily net assets
Fund payable to ABI attributable to Class C shares
---- --------------- ------------------------------
Intermediate Bond $ 620,290 1.00%
Limited Duration $ 7,657 1.00%
Unconstrained Bond $ 114,166 1.00%
High Income $9,586,974 1.00%
Global Bond $6,100,742 1.00%
|
For the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year or period ended
September 30, 2012 for Limited Duration and Global Bond, expenses incurred by
each Fund and costs allocated to each Fund in connection with activities
primarily intended to result in the sale of Class C shares were as follows:
Category of Expense Intermediate Bond Limited Duration Unconstrained Bond High Income Global Bond
------------------- ------------------ ----------------- ------------------- ------------ ------------
Advertising $ 970 $ 184 $ 395 $ 8,064 $ 2,130
Printing and Mailing of
Prospectuses to Persons
Other Than Current
Shareholders $ 322 $ 0 $ 80 $ 2,177 $ 438
Compensation to
Broker-Dealers and Other
Financial Intermediaries
(excluding ABI) $ 616,940 $ 37,407 $124,472 $ 10,950,772 $ 6,333,518
Compensation to ABI $ 38,919 $ 3,593 $ 11,154 $ 245,956 $ 93,479
Compensation to Sales
Personnel $ 5,289 $ 2,728 $ 3,007 $ 408,797 $ 63,503
Interest on Financing $ 0 $ 0 $ 0 $ 0 $ 0
Other (includes printing
of sales literature,
travel, entertainment,
due diligence and other
promotional expenses) $ 31,582 $ 4,278 $ 10,298 $ 222,705 $ 75,907
Totals $ 694,022 $ 48,190 $149,406 $ 11,838,471 $ 6,568,975
|
During the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year ended September
30, 2012 for Global Bond, with respect to Class R shares, the distribution
services fees for expenditures payable to ABI were as follows:
Distribution Percentage per annum of
services fees for the aggregate average
expenditures daily net assets
Fund payable to ABI attributable to Class R shares
---- --------------- ------------------------------
Intermediate Bond $ 7,795 .50%
Unconstrained Bond $ 5,199 .50%
High Income $ 170,424 .50%
Global Bond $ 149,918 .50%
|
For the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year ended September
30, 2012 for Global Bond, expenses incurred by each Fund and costs allocated to
each Fund in connection with activities primarily intended to result in the sale
of Class R shares were as follows:
Category of Expense Intermediate Bond Unconstrained Bond High Income Global Bond
------------------- ----------------- ------------------ ----------- -----------
Advertising $ 571 $ 79 $ 513 $ 705
Printing and Mailing of
Prospectuses to Persons
Other Than Current
Shareholders $ 29 $ 30 $ 139 $ 98
Compensation to
Broker-Dealers and Other
Financial Intermediaries
(excluding ABI) $ 8,257 $ 5,810 $187,683 $166,875
Compensation to ABI $ 9,122 $ 3,748 $ 19,009 $ 23,872
Compensation to Sales
Personnel $ 1,517 $ 265 $ 28,650 $ 17,806
Interest on Financing $ 0 $ 0 $ 0 $ 0
Other (includes printing
of sales literature,
travel, entertainment,
due diligence and other
promotional expenses) $ 9,883 $ 2,845 $ 15,831 $ 21,022
Totals $29,379 $12,777 $251,825 $230,378
|
During the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year ended September
30, 2012 for Global Bond, with respect to Class K shares, the distribution
services fees for expenditures payable to ABI were as follows:
Distribution Percentage per annum of
services fees for the aggregate average
expenditures daily net assets
Fund payable to ABI attributable to Class K shares
---- --------------- ------------------------------
Intermediate Bond $8,370 .25%
Unconstrained Bond $187 .25%
High Income $19,040 .25%
Global Bond* $8,386 .25%
--------
|
* (net of waiver in the amount of $6,487)
For the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year ended September
30, 2012 for Global Bond, expenses incurred by each Fund and costs allocated to
each Fund in connection with activities primarily intended to result in the sale
of Class K shares were as follows:
Category of Expense Intermediate Bond Unconstrained Bond High Income Global Bond
------------------- ----------------- ------------------ ------------ -----------
Advertising $116 $0 $117 $415
Printing and Mailing of
Prospectuses to Persons
Other Than Current
Shareholders $17 $0 $37 $13
Compensation to
Broker-Dealers and Other
Financial Intermediaries
(excluding ABI) $8,590 $180 $22,806 $16,856
Compensation to ABI $2,907 $0 $4,445 $8,164
Compensation to Sales
Personnel $406 $14 $12,445 $6,273
Interest on Financing $0 $0 $0 $0
Other (includes printing
of sales literature,
travel, entertainment,
due diligence and other
promotional expenses) $2,802 $12 $3,780 $9,074
Totals $14,838 $206 $43,630 $40,795
|
Distribution services fees are accrued daily and paid monthly and
charged as expenses of each Fund as accrued. The distribution services fees
attributable to the Class B, Class C, Class R and Class K shares are designed to
permit an investor to purchase such shares through broker-dealers without the
assessment of an initial sales charge and at the same time to permit ABI 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 respective distribution services fee on the Class B shares and
Class C shares and distribution services fees on the Class R shares and the
Class K shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in that in each
case the sales charge and/or distribution services fee provide for the financing
of the distribution of the relevant class of the Fund's shares.
With respect to Class A shares of each Fund, distribution expenses
accrued by ABI in one fiscal year may not be paid from distribution services
fees received from the Fund in subsequent fiscal years. ABI's compensation with
respect to Class B, Class C, Class R and Class K shares under the Plan is
directly tied to the expenses incurred by ABI. Actual distribution expenses for
Class B, Class C, Class R and Class K shares for any given year, however, will
probably exceed the distribution services fees payable under the Plan with
respect to the class involved and, in the case of Class B and Class C shares,
payments received from CDSCs. The excess will be carried forward by ABI and
reimbursed from distribution services fees payable under the Plan with respect
to the class involved and, in the case of Class B and Class C shares, payments
subsequently received through CDSCs, so long as the Plan is in effect.
For the fiscal year ended October 31, 2012 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year or period ended
September 30, 2012 for Global Bond, unreimbursed distribution expenses incurred
and carried over of reimbursement in future years in respect of the Class B,
Class C, Class R and Class K shares of each Fund were as follows:
Class Intermediate Bond Limited Duration Unconstrained Bond High Income Global Bond
----- ------------------ ----------------- ------------------- ------------ ------------
Class B $0 N/A $8,353,638 $5,929,686 $25,520,744
(% of the net
assets of Class B) 0% N/A 470.90% 30.27% 66.62%
Class C $913,235 $40,533 $2,019,013 $8,601,459 $12,488,357
(% of the net
assets of Class C) 1.49% 1.03% 15.38% .71% 2.05%
Class R $111,574 N/A $35,491 $163,225 $178,948
(% of the net
assets of Class R) 7.12% N/A 3.07% .35% .47%
Class K $41,358 N/A $12,987 $42,106 $38,505
(% of the net
assets of Class K) 1.08% N/A 28.04% .22% .39%
|
Transfer Agency Agreement
ABIS, an indirect wholly-owned subsidiary of the Adviser, located
principally at 8000 IH 10 W, 4th Floor, San Antonio, Texas 78230, acts as the
Fund's registrar, transfer agent and dividend-disbursing agent for a fee based
upon the number of account holders for each of the Class A, Class B, Class C,
Class R, Class K, Class I, Class Z and Advisor Class shares of the Funds plus
reimbursement for out-of-pocket expenses. The transfer agency fee with respect
to the Class B shares and Class C shares is higher than the transfer agency fee
with respect to the Class A, Class R, Class K, Class I and Advisor Class shares.
For the fiscal year ended October 31, 2012 for Intermediate Bond, Unconstrained
Bond and High Income and for the fiscal year or period ended September 30, 2012
for Limited Duration and Global Bond, the Fund paid ABIS $468,377, $34,652,
$1,197,916, $384,141 and $1,105,517, respectively, for transfer agency services.
ABIS acts as the transfer agent for each Fund. ABIS registers the
transfer, issuance and redemption of Fund shares and disburses dividends and
other distributions to Fund shareholders.
Many Fund shares are owned by selected dealers or selected agents
(as defined below), financial intermediaries or other financial representatives
("financial intermediaries") for the benefit of their customers. In those cases,
the Funds 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. Each Fund, ABI and/or the Adviser 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 Fund
shares in the name of the plan, rather than the participant. Plan recordkeepers,
who may have affiliated financial intermediaries who sell shares of the Fund,
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 sub-accounting or
shareholder servicing or retirement plan accounts are made by the Fund, they are
included in your Prospectus in the Fund expense tables under "Fees and Expenses
of the Funds". 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-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.
PURCHASE OF SHARES
The following information supplements that set forth in your
Prospectus under the heading "Investing in the Funds".
Effective January 31, 2009, sales of Class B shares of the Funds 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 the Funds' Automatic Investment
Program for accounts that established the Program prior to January 31, 2009, and
(iv) for purchase 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.
General
Shares of the Funds are offered on a continuous basis at a price
equal to its NAV plus an initial sales charge at the time of purchase (the
"Class A shares"), with a CDSC (the "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 (the "Class C shares"), to group retirement plans, as defined below,
eligible to purchase Class R shares, without any initial sales charge or CDSC
(the "Class R shares"), to group retirement plans eligible to purchase Class K
shares, without any initial sales charge or CDSC (the "Class K shares"), to
group retirement plans and certain investment advisory clients of, and certain
other persons associated with, the Adviser and its affiliates eligible to
purchase Class I shares, without any initial sales charge or CDSC (the "Class I
shares"), with respect to High Income and Global Bond to group retirement plans,
as defined below, eligible to purchase Class Z shares, without any initial sales
charge or CDSC ("Class Z shares"), or to investors eligible to purchase Advisor
Class shares, without any initial sales charge or CDSC (the "Advisor Class
shares"), in each case as described below. "Group retirement plans" are defined
as 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. All of the classes of shares of the Funds, except the Class I, Class Z
and Advisor Class shares, are subject to Rule 12b-1 asset-based sales charges.
Shares of the Funds that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the Financial Industry
Regulatory Authority and have entered into selected dealer agreements with ABI
("selected dealers"), (ii) depository institutions and other financial
intermediaries or their affiliates, that have entered into selected agent
agreements with ABI ("selected agents") and (iii) ABI.
Investors may purchase shares of the Funds either through financial
intermediaries or directly through ABI. 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 the 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 Fund, including requirements as to the
classes of shares available through that financial intermediary and the minimum
initial and subsequent investment amounts. A 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 Fund's Fund shares may receive differing compensation for selling different
classes of shares.
In order to open your account, a 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.
Frequent Purchases and Sales of Fund Shares
Each 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 Funds 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 should avoid frequent trading in Fund
shares through purchases, sales and exchanges of shares. Each 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 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 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 a Fund to sell shares at
inopportune times to raise cash to accommodate redemptions relating to
short-term trading. In particular, a 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, a 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.
Funds that may invest 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 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
Funds 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 Fund calculates
its NAV. While there is no assurance, the Funds 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 Fund 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 Fund 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.
Policy Regarding Short-Term Trading. Purchases and exchanges of
shares of the Fund should be made for investment purposes only. The Funds seek
to prevent patterns of excessive purchases and sales or exchanges of Fund shares
to the extent they are detected by the procedures described below, subject to
the Funds' ability to monitor purchase, sale and exchange activity. The Funds
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.
o Transaction Surveillance Procedures. The Funds, through their
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 Funds 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 Funds 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.
o Account Blocking Procedures. If the Funds 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 Funds 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 Fund shares back to a 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.
o Applications of Surveillance Procedures and Restrictions to
Omnibus Accounts. Omnibus account arrangements are common
forms of holding shares of the Funds, particularly among
certain brokers, dealers and other financial intermediaries,
including sponsors of retirement plans and variable insurance
products. The Funds apply their surveillance procedures to
these omnibus account arrangements. As required by SEC rules,
the Funds have entered into agreements with all of their
financial intermediaries that require the financial
intermediaries to provide the Funds, upon the request of the
Funds or their agents, with individual account level
information about their transactions. If the Funds 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 Funds 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 Funds 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).
Purchase of Shares
A 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.
If the Fund suspends the sale of its shares, shareholders will not be able to
acquire its shares, including through an exchange.
The public offering price of shares of a Fund is its NAV, plus, in
the case of Class A shares of the Fund, 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 the Fund invests might materially affect the
value of the Fund's shares, the NAV per share is computed as of the close of
regular trading on each 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) by dividing the value of the total assets
attributable to a class, less its liabilities, by the total number of its shares
then outstanding. A Fund business day is any day on which the Exchange is open
for trading.
The respective NAVs of the various classes of shares of the Fund are
expected to be substantially the same. However, the NAVs of the Class B, Class C
and Class R shares of the Fund will generally be slightly lower than the NAVs of
the Class A, Class K, Class I, Class Z and Advisor Class shares of the Fund, 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.
A Fund will accept unconditional orders for its shares to be
executed at the public offering price equal to its NAV next determined (plus
applicable Class A sales charges), as described below. Orders received by ABI
prior to the Fund Closing Time, which is the close of regular trading on each
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) are priced at the NAV next computed 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 Fund Closing Time. 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 Fund Closing Time, the price received by the investor will be based on the
NAV determined as of the Fund Closing Time on the next business day.
A Fund may, at its sole option, accept securities as payment for
shares of the Fund if the Adviser believes that the securities are appropriate
investments for the Fund. 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 the Fund's 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, both of which may be 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 with payment by
electronic funds transfer 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 the Fund Closing Time to receive that day's public offering
price. Telephone purchase requests received after the Fund Closing 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 Fund
Closing Time on the following 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 the Fund, the Fund will not issue share certificates
representing shares of the Fund. Ownership of the Fund's shares will be shown on
the books of the Fund's transfer agent. Lost certificates will not be replaced
with another certificate, but will be shown on the books of the Fund's transfer
agent. This facilitates later redemption and relieves the shareholder of the
responsibility for and inconvenience of lost or stolen certificates.
Each class of shares of a Fund represents an interest in the same
portfolio of investments of the Fund, has the same rights and are 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 shares and Class C shares
bear the expense of the CDSC, (ii) Class B shares, Class C shares and Class R
shares each bear the expense of a higher distribution services fee than that
borne by Class A shares and Class K shares, and Class I shares, Class Z and
Advisor Class shares do not bear such a fee, (iii) Class B shares and Class C
shares bear higher transfer agency costs than those borne by Class A, Class R,
Class K, Class I , Class Z and Advisor Class 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, Class C, Class R and Class K
shares has exclusive voting rights with respect to provisions of the Plan
pursuant to which its distribution services fee is paid and other matters for
which separate class voting is appropriate under applicable law, provided that,
if the Fund submits to a vote of the Class A shareholders, an amendment to the
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 and Advisor Class shareholders because the Class B shares convert to
Class A shares under certain circumstances, and the Class A shareholders and the
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 Funds have determined that currently no
conflict of interest exists between or among the classes of shares of the Funds.
On an ongoing basis, the Directors of the Funds, pursuant to their fiduciary
duties under the 1940 Act and state law, will seek to ensure that no such
conflict arises.
Alternative Purchase Arrangements
Classes A, B and C Shares. Class A, Class B and Class C shares have
the following alternative purchase arrangements: Class A shares are generally
offered with an initial sales charge, Class B shares are generally offered with
a CDSC and Class C shares are sold to investors choosing the asset-based sales
charge alternative. Special purchase arrangements are available for group
retirement plans. See "Alternative Purchase Arrangements - Group Retirement
Plans and Tax-Deferred Accounts" below. These alternative purchase arrangements
permit an investor to choose the method of purchasing shares that is most
beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other circumstances. Investors should consider
whether, during the anticipated life of their investment in the Fund, the
accumulated distribution services fee and CDSC on Class B shares prior to
conversion, or the accumulated distribution services fee and CDSC on Class C
shares, would be less than the initial sales charge and accumulated distribution
services fee on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher return of Class A shares. Class
A shares will normally be more beneficial than Class B shares to the investor
who qualifies for reduced initial sales charges on Class A shares, as described
below. In this regard, ABI will reject any order (except orders from certain
group retirement plans) for more than $100,000 for Class B shares (see
"Alternative Purchase Arrangements - Group Retirement Plans and Tax-Deferred
Accounts" below). Class C shares will normally not be suitable for the investor
who qualifies to purchase Class A shares at NAV. For this reason, ABI will
reject any order for more than $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends per share than Class B shares
or Class C shares. However, because initial sales charges are deducted at the
time of purchase, most investors purchasing Class A shares would not have all of
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 of 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
of their funds invested initially, although remaining subject to higher
continuing distribution charges and being subject to a CDSC for a three-year
(four-year for Unconstrained Bond) 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 Fund shares for the three-year (four-year
for Intermediate Bond) period during which Class B shares are subject to a CDSC
may find it more advantageous to purchase Class C shares.
The following table shows the aggregate amount of underwriting
commissions payable with respect to the Funds' shares and the amounts ABI
received from such commissions payable over the Funds' last three fiscal years
or since inception.
Amounts
ABI Received
Fiscal Year Aggregate From Aggregate
Ended Amount of Amount of
October 31/ Underwriting Underwriting
September 30 Fund Commissions Payable Commissions Payable*
------------ ----- -------------------- --------------------
2012 Intermediate Bond $292,531 $19,439
2011 203,718 10,684
2010 312,191 18,946
2012 Limited Duration $83,087 $4,140
2012 Unconstrained Bond $67,205 $5,044
2011 49,570 2,428
2010 49,922 3,898
2012 Global Bond $1,571,300 $81,171
2011 1,630,355 92,009
2010 4,024,179 227,199
2012 High Income $9,331,112 $556,490
2011 7,797,226 470,165
2010 6,746,608 389,705
--------
|
* The amount received by ABI represents that portion of the sales charges
paid on shares of the Fund sold during the year which was not re-allowed
to selected dealers (and was, accordingly, retained by ABI).
The following table shows the CDSCs received by ABI from each share
class during the Funds' last three fiscal years or since inception.
Fiscal
Year/Period Amounts Amounts Amounts
Ended ABI Received ABI Received ABI Received
October 31/ In CDSCs From In CDSCs From In CDSCs From
September 30 Fund Class A Shares Class B Shares Class C Shares
------------ ----- --------------- --------------- ---------------
2012 Intermediate Bond $ 4,766 $ 2,764 $ 2,805
2011 4,601 9,180 5,329
2010 5,611 14,090 2,650
2012 Limited Duration $ 0 N/A $ 0
2012 Unconstrained Bond $ 319 $ 788 $ 555
2011 3,656 2,796 720
2010 335 7,148 2,830
2012 Global Bond $ 9,187 $ 7,547 $ 40,816
2011 57,990 34,771 103,978
2010 19,953 85,630 93,676
2012 High Income $56,165 $ 5,589 $158,095
2011 18,671 9,750 203,452
2010 4,164 33,146 26,574
|
Class A Shares
The public offering price of Class A shares is the NAV plus a sales
charge, as set forth below.
Sales Charge
-------------
Discount or
Commission to
As % of Dealers or Agents
Amount of As % of Net the Public of up to % of
Purchase Amount Invested Offering Price Offering 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
--------
|
* There is no initial sales charge on transactions of $1,000,000 or more.
All or a portion of the initial sales charge may be paid to your
financial representative. With respect to purchases of $1,000,000 or more, 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".
A Fund receives the entire NAV of its Class A shares sold to
investors. 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 reallowance 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 $1,000,000 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.
Class A Shares - Sales at NAV. A Fund may sell its Class A shares at
NAV (i.e., without any initial sales charge) to certain categories of investors
including:
(i) investment management clients of the Adviser or its
affiliates, including clients and prospective clients of the
Adviser'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) the Adviser, ABI, ABIS and their affiliates; certain employee
benefit plans for employees of the Adviser, ABI, ABIS and
their affiliates;
(iv) 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, or clients of
broker-dealers or other financial intermediaries approved by
ABI who purchase Class A shares for their own account through
an omnibus account with the broker-dealers or financial
intermediaries;
(v) certain retirement plan accounts as described under
"Alternative Purchase Arrangements - Group Retirement Plans
and Tax-Deferred Accounts"; and
(vi) current Class A shareholders of AllianceBernstein Mutual Funds
and investors who receive a "Fair Funds Distribution" (a
"Distribution") resulting from a SEC enforcement action
against the Adviser 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.
Class B Shares
Effective January 31, 2009, sales of Class B shares of the Funds 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 the Fund'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.
Investors may purchase Class B shares 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.
Conversion Feature. For Intermediate Bond, Global Bond and High
Income, six years after the end of the calendar month in which the shareholder's
purchase order was accepted, Class B shares will automatically convert to Class
A shares and will no longer be subject to a higher distribution services fee.
For Unconstrained Bond, eight years after the end of the calendar month in which
the shareholder's purchase order was accepted, Class B shares will automatically
convert to Class A shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the relative NAVs of
the two classes, without the imposition of any sales load, fee or other charge.
The purpose of the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long enough for ABI
to have been compensated for distribution expenses incurred in the sale of the
shares.
For purposes of conversion to Class A shares, Class B shares
purchased through the reinvestment of dividends and distributions paid in
respect of Class B shares in a shareholder's account will be considered to be
held in a separate sub-account. Each time any Class B shares in the
shareholder's account (other than those in the sub-account) convert to Class A
shares, an equal pro-rata portion of the Class B shares in the sub-account will
also convert to Class A 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 years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public offering price
equal to the 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 the Fund will receive the full
amount of the investor's purchase payment and, as long as the shares are held
for one year or more, without a 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 the Fund 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
Fund and incur higher distribution services fees and transfer agency costs than
Class A shares and Advisor Class shares, and will thus have a higher expense
ratio and pay correspondingly lower dividends than Class A shares and Advisor
Class shares.
Contingent Deferred Sales Charge. Class B shares that are redeemed
within four years 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 $1,000,000 or more 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 group retirement plans (see "Alternative
Purchase Arrangements -- Group Retirement Plans and Tax-Deferred Accounts"
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 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 3.0% (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.
Contingent Deferred Sales Charge
for the Fund as a % of Dollar
Year Since Purchase Amount Subject to Charge
------------------- ------------------------
First 3.0%
Second 2.0%
Third 1.0%
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 the other Class B shares or Class C
shares, as applicable, or purchase of CollegeBoundfund units. The CDSC period
begins with the date of your original purchase, not the date of exchange for the
other Class C shares, if applicable, or purchase of CollegeBoundfund units.
Proceeds from the CDSC are paid to ABI and are used by ABI to defray
the expenses of ABI related to providing distribution-related services to the
Fund in connection with the sale of Fund shares, such as the payment of
compensation to selected dealers and agents for selling Fund shares. The
combination of the CDSC and the distribution services fee enables the Fund to
sell 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 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 Funds, 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, (vi) due to the complete termination of a trust upon the death
of the trustor/grantor, beneficiary or trustee, but only if the trust
termination is specifically provided for in the trust document, or (vii) that
had been purchased with proceeds from a Distribution resulting from any SEC
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 $1,000,000 or more of Class A shares 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 the Fund 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.
Class R Shares
Class R shares are offered only to group retirement plans that have
plan assets of up to $10 million. Class R shares are not available to retail
non-retirement accounts, traditional or Roth IRAs, Coverdell Education Savings
Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans and to
AllianceBernstein sponsored retirement products. Class R shares incur a .50%
distribution services fee and thus have a higher expense ratio than Class A
shares and pay correspondingly lower dividends than Class A shares.
Class K Shares
Class K shares are available at NAV to group retirement plans that
have plan assets of at least $1 million. Class K shares generally are not
available to retail non-retirement accounts, traditional and Roth IRAs,
Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual
403(b) plans and AllianceBernstein sponsored retirement products. Class K shares
do not have an initial sales charge or CDSC but incur a .25% distribution
services fee and thus (i) have a lower expense ratio than Class R shares and pay
correspondingly higher dividends than Class R shares and (ii) have a higher
expense ratio than Class I shares and pay correspondingly lower dividends than
Class I shares.
Class I Shares
Class I shares are available at NAV to all group retirement plans
that have plan assets in excess of $10 million, to certain related group
retirement plans with plan assets of less than $10 million in assets if the
sponsor of such plans has at least one group retirement plan with plan assets in
excess of $10 million that invests in Class I shares and to certain investment
advisory clients of, and certain other persons associated with, the Adviser and
its affiliates. Class I shares generally are not available to retail
non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings
Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans and
AllianceBernstein sponsored retirement products. Class I shares do not incur any
distribution services fees and will thus have a lower expense ratio and pay
correspondingly higher dividends than Class R and Class K shares.
Class Z Shares
Class Z 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").
Class Z shares are also available to certain
AllianceBernstein-sponsored group retirement plans. Class Z shares generally are
not available to retail non-retirement accounts, traditional and Roth IRAs,
Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs and individual
403(b) plans. Class Z shares are not currently available to group retirement
plans in the AllianceBernstein-sponsored programs known as the "Informed Choice"
programs.
Class Z shares do not incur any distribution services fees and will
thus have a lower expense ratio and pay correspondingly higher dividends than
Class R and Class K shares.
Advisor Class Shares
Advisor Class shares may be purchased and held solely (i) through
accounts established under fee-based programs, sponsored and maintained by
registered broker-dealers or other financial intermediaries and approved by ABI,
(ii) through self-directed defined contribution employee benefit plans (e.g.,
401(k) plans) that have at least $10 million in assets and are purchased
directly by the plan without the involvement of a financial intermediary or
(iii) officers and present or former Directors of the Funds or other investment
companies managed by the Adviser, officers, directors and present or retired
full-time employees and former employees (for subsequent investments in accounts
established during the course of their employment) of the Adviser, ABI, ABIS and
their affiliates, Relatives of any such person, or any trust, individual
retirement account or retirement plan for the benefit of any such person or (iv)
by the categories of investors described in clauses (i) (iii) and (iv) under
"Class A Shares -- Sales at NAV". Generally, a fee-based program must charge an
asset-based or other similar fee and must invest at least $250,000 in Advisor
Class shares of the Fund in order to be approved by ABI for investment in
Advisor Class shares. A transaction fee may be charged by your financial
intermediary with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial intermediary. Advisor Class shares do not
incur any distribution services fees, and will thus have a lower expense ratio
and pay correspondingly higher dividends than Class A, Class B, Class C, Class
R, or Class K shares.
Alternative Purchase Arrangements - Group Retirement Plans and Tax-Deferred
Accounts
Each 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 Fund, 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 the Fund. In
addition, the Class A and Class B 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. A Fund is not responsible for, and has no control over,
the decision of any plan sponsor or fiduciary to impose such differing
requirements.
Class A Shares. Class A shares are available at NAV to all
AllianceBernstein sponsored group retirement plans, regardless of size, and to
the AllianceBernstein Link, AllianceBernstein Individual 401(k) and
AllianceBernstein SIMPLE IRA plans with at least $250,000 in plan assets or 100
or more employees. Effective June 30, 2005, for purposes of determining whether
a SIMPLE IRA plan has at least $250,000 in plan assets, all of the SIMPLE IRAs
of an employer's employees are aggregated. ABI measures the asset levels and
number of employees in these plans once monthly. Therefore, if a plan that is
not eligible at the beginning of a month for purchases of Class A shares at NAV
meets the asset level or number of employees required for such eligibility,
later in that month, all purchases by the plan will be subject to a sales charge
until the monthly measurement of assets and employees. If the plan terminates
the Fund as an investment option within one year, then all plan purchases of
Class A shares will be subject to a 1%, 1-year CDSC on redemption.
Class A shares are also available at NAV to group retirement plans
with plan assets in excess of $10 million. The 1%, 1-year CDSC also generally
applies. However, the 1%, 1-year CDSC may be waived if the financial
intermediary agrees to waive all commissions or other compensation paid in
connection with the sale of such shares (typically up to a 1% advance payment
for sales of Class A shares at NAV) other than the service fee paid pursuant to
the Fund's distribution service plan.
Class B Shares. Class B shares are generally not available for
purchase by group retirement plans. However, Class B shares may continue to be
purchased by group retirement plans that have already selected Class B shares as
an investment alternative under their plan prior to September 2, 2003.
Class C 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 less than 100 employees. Class C
shares are also available to group retirement plans with plan assets of less
than $1 million. If an AllianceBernstein Link, AllianceBernstein Individual
401(k) or AllianceBernstein SIMPLE IRA plan holding Class C shares becomes
eligible to purchase Class A shares at NAV, the plan sponsor or other
appropriate fiduciary of such plan may request ABI in writing to liquidate the
Class C shares and purchase Class A shares with the liquidation proceeds. Any
such liquidation and repurchase may not occur before the expiration of the
1-year period that begins on the date of the plan's last purchase of Class C
shares.
Class R Shares. Class R shares are available to certain group
retirement plans with plan assets of up to $10 million. Class R shares are not
subject to a front-end sales charge or CDSC, but are subject to a .50%
distribution fee.
Class K Shares. Class K shares are available to certain group
retirement plans with plan assets of at least $1 million. Class K shares are not
subject to a front-end sales charge or CDSC, but are subject to a .25%
distribution fee.
Class I Shares. Class I shares are available to certain group
retirement plans with plan assets of at least $10 million and certain
institutional clients of the Adviser who invest at least $2 million in a Fund.
Class I shares are not subject to a front-end sales charge, CDSC or a
distribution fee.
Class Z Shares. Class Z shares are available to certain group
retirement plans. Class Z shares are not subject to front-end sales charges or
CDSCs or distribution fees.
Choosing a Class of Shares for Group Retirement Plans. Plan
sponsors, plan fiduciaries and other financial intermediaries may establish
requirements as to the purchase, sale or exchange of shares of the Fund,
including maximum and minimum initial investment requirements, that are
different from those described in this SAI. Plan fiduciaries should consider how
these requirements differ from the Fund's share class eligibility criteria
before determining whether to invest.
Currently, the Funds also make their Class A shares available at NAV
to group retirement plans with plan assets in excess of $10 million. Unless
waived under the circumstances described above, a 1%, 1-year CDSC applies to the
sale of Class A shares by a plan. Because Class K shares have no CDSC and lower
12b-1 distribution fees and Class I and Class Z shares have no CDSC and Rule
12b-1 distribution fees, plans should consider purchasing Class K, Class I or
Class Z shares, if eligible, rather than Class A shares.
In selecting among the Class A, Class K and Class R shares, plans
purchasing shares through a financial intermediary that is not willing to waive
advance commission payments (and therefore are not eligible for the waiver of
the 1%, 1-year CDSC applicable to Class A shares) should weigh the following:
o the lower Rule 12b-1 distribution fees (0.30%) and the 1%,
1-year CDSC with respect to Class A shares;
o the higher Rule 12b-1 distribution fees (0.50%) and the
absence of a CDSC with respect to Class R shares; and
o the lower Rule 12b-1 distribution fees (0.25%) and the absence
of a CDSC with respect to Class K shares.
Because Class A and Class K shares have lower Rule 12b-1
distribution fees than Class R shares, plans should consider purchasing Class A
or Class K shares, if eligible, rather than Class R shares.
As described above, effective January 31, 2009, sales of Class B
shares to new investors were suspended. While Class B shares were generally not
available to group retirement plans, Class B shares are available for continuing
contributions from plans that have already selected Class B shares as an
investment option under their plans prior to September 2, 2003. Plans should
weigh the fact that Class B shares will convert to Class A shares after a period
of time against the fact that Class A, Class R, Class K, Class I and Class Z
shares have lower expenses, and therefore may have higher returns, than Class B
shares, before determining which class to make available to its plan
participants.
Sales Charge Reduction Programs for Class A Shares
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, the Fund must
be notified by the shareholder or his or her financial intermediary that they
qualify for such a reduction. If the Fund is not notified that a shareholder is
eligible for these reductions, the Fund will be unable to ensure that the
reduction is applied to the shareholder's account.
Combined Purchase Privilege. Shareholders may qualify for the sales
charge reductions by combining purchases of shares of a Fund (and/or any other
AllianceBernstein Mutual Fund) into a single "purchase". By combining such
purchases, shareholders may be able to take advantage of the quantity discounts
described under "Alternative Purchase Arrangements - Class A Shares". A
"purchase" means a single purchase or concurrent purchases of shares of a Fund
or any other AllianceBernstein Mutual Fund, including AllianceBernstein
Institutional Funds, by (i) an individual, his or her spouse or domestic partner
or the individual's children under the age of 21 years purchasing shares for
his, her or their own account(s), including certain CollegeBoundfund accounts;
(ii) a trustee or other fiduciary purchasing shares for a single trust, estate
or single fiduciary account with one or more beneficiaries involved; or (iii)
the employee benefit plans of a single employer. The term "purchase" also
includes purchases by any "company", as the term is defined in the 1940 Act, but
does not include purchases by any such company that has not been in existence
for at least six months or that has no purpose other than the purchase of shares
of the Fund or shares of other registered investment companies at a discount.
The term "purchase" does not include purchases by any group of individuals whose
sole organizational nexus is that the participants therein are credit card
holders of a company, policy holders of an insurance company, customers of
either a bank or broker-dealer or clients of an investment adviser.
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 Emerging Markets Equity Portfolio
-AllianceBernstein Emerging Markets Multi-Asset Portfolio
-AllianceBernstein International Discovery Equity Portfolio
-AllianceBernstein Market Neutral Strategy - Global
-AllianceBernstein Market Neutral Strategy - U.S.
-AllianceBernstein Select US Equity Portfolio
-AllianceBernstein Select US Long/Short Portfolio
-AllianceBernstein Small Cap Growth 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.
-California Portfolio
-National Portfolio
-New York Portfolio
- AllianceBernstein High Income Municipal 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 Fund, 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.
-Intermediate California Municipal Portfolio
-Intermediate Diversified Municipal Portfolio
-Intermediate New York Municipal Portfolio
-International Portfolio
-Overlay A Portfolio
-Overlay B Portfolio
-Short Duration Portfolio
-Tax-Aware Overlay A Portfolio
-Tax-Aware Overlay B Portfolio
-Tax-Aware Overlay C Portfolio
-Tax-Aware Overlay N Portfolio
-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.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may be combined with the value
of the shareholder's existing accounts, thereby enabling the shareholder to take
advantage of the quantity discounts described under "Alternative Purchase
Arrangements - Class A Shares". In such cases, the applicable sales charge on
the newly purchased shares will be based on the total of:
(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 the Fund held by the
investor and (b) all shares held by the investor 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 sales 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 a Fund worth an
additional $100,000, the initial sales charge for the $100,000 purchase would be
at the 2.25% rate applicable to a single $300,000 purchase of shares of the
Fund, rather than the 3.25% rate.
Letter of Intent. Class A investors may also obtain the quantity
discounts described under "Alternative Purchase Arrangements - Class A Shares"
by means of a written Letter of Intent, which expresses the investor's intention
to invest at least $100,000 in Class A shares of a Fund or any AllianceBernstein
Mutual Fund within 13 months. Each purchase of shares under a Letter of Intent
will be made at the public offering price or prices applicable at the time of
such purchase to a single transaction of the dollar amount indicated in the
Letter of Intent.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the AllianceBernstein Mutual Funds under a single
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 at the time an investor
signs a Letter of Intent to invest at least $100,000 in Class A shares of the
Fund, the investor and the investor's spouse or domestic partner each purchase
shares of the Fund worth $20,000 (for a total of $40,000), but the current NAV
of all applicable accounts is $45,000 at the time a $100,000 Letter of Intent is
initiated, it will only be necessary to invest a total of $55,000 during the
following 13 months in shares of the Fund or any other AllianceBernstein Mutual
Fund, to qualify for the 3.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000).
The 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 Fund 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 Fund can obtain a form of
Letter of Intent by contacting ABIS at the address or telephone numbers shown on
the cover of this SAI.
Reinstatement Privilege. A shareholder who has redeemed any or all
of his or her Class A shares may reinvest all or any portion of the proceeds
from that redemption in Class A shares of any AllianceBernstein Mutual Fund at
NAV without any sales charge, provided that such reinvestment is made within 120
calendar days after the redemption or repurchase date. Shares are sold to a
reinvesting shareholder at the NAV next determined as described above. A
reinstatement pursuant to this privilege will not cancel the redemption or
repurchase transaction; therefore, any gain or loss so realized will be
recognized for federal income tax purposes except that no loss will be
recognized to the extent that the proceeds are reinvested in shares of the Fund
within 30 calendar days after the redemption or repurchase transaction.
Investors may exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this SAI.
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 Fund pursuant to the Fund's
Dividend Reinvestment Program. No initial sales charge or CDSC will be imposed
on shares issued pursuant to the Dividend Reinvestment Program. Shares issued
under this program 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
distribution. Investors wishing to participate in the Dividend Reinvestment
Program should complete the appropriate section of the Mutual Fund Application
found in your Prospectus. Current shareholders should contact ABIS to
participate in the Dividend Reinvestment Program.
In certain circumstances where a shareholder has elected to receive
dividends and/or capital gain distributions in cash but the account has been
determined to be lost due to mail being returned to us by the Postal Service as
undeliverable, such shareholder will automatically be placed within the Dividend
Reinvestment Program for future distributions. No interest will accrue on
amounts represented by uncashed distribution checks.
Dividend Direction Plan. A shareholder who already maintains
accounts in more than one AllianceBernstein Mutual Fund may direct that income
dividends and/or capital gains paid by one AllianceBernstein Mutual Fund be
automatically reinvested, in any amount, without the payment of any sales or
service charges, in shares of the same class of the other AllianceBernstein
Mutual Fund(s). Further information can be obtained by contacting ABIS at the
address or the "For Literature" telephone number shown on the cover of this SAI.
Investors wishing to establish a dividend direction plan in connection with
their initial investment should complete the appropriate section of the Mutual
Fund Application. Current shareholders should contact ABIS to establish a
dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares of a Fund
having a current NAV of at least $5,000 may establish a systematic withdrawal
plan under which the shareholder will periodically receive a payment in a stated
amount of not less than $50 on a selected date. The $5,000 account minimum does
not apply to a shareholder owning shares through an individual retirement
account or other retirement plan who has attained the age of 70- 1/2 who wishes
to establish a systematic withdrawal plan to help satisfy a required minimum
distribution. Systematic withdrawal plan participants must elect to have their
dividends and distributions from the Fund automatically reinvested in additional
shares of the Fund.
Shares of a Fund owned by a participant in the Fund's systematic
withdrawal plan will be redeemed as necessary to meet withdrawal payments and
such payments will be subject to any taxes applicable to redemptions and, except
as discussed below with respect to Class A, 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 Fund.
Withdrawal payments will not automatically end when a shareholder's
account reaches a certain minimum level. Therefore, redemptions of shares under
the plan may reduce or even liquidate a shareholder's account and may subject
the shareholder to the Fund's involuntary redemption provisions. See "Redemption
and Repurchase of Shares -- General". Purchases of additional shares
concurrently with withdrawals are undesirable because of sales charges
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 Fund should complete the appropriate portion
of the Mutual Fund Application, while current Fund 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.
CDSC Waiver for Class A Shares, Class B Shares and Class C Shares.
Under the systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3%
quarterly of the value at the time of redemption of the Class A, Class B or
Class C shares in a shareholder's account may be redeemed free of any CDSC.
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.
Payments to Financial Advisors and Their Firms
Financial intermediaries market and sell shares of a 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.
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.
In the case of Class R and Class K shares up to 100% of the Rule
12b-1 fee applicable to Class R and Class K shares each year may be paid to
financial intermediaries, including your financial intermediary, that sell Class
R and Class K shares.
In the case of Advisor Class shares, your financial advisor may
charge ongoing fees or transactional fees. ABI may pay a portion of "ticket" or
other transactional charges.
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:
o upfront sales commissions;
o Rule 12b-1 fees;
o additional distribution support;
o defrayal of costs for educational seminars and training; and
o payments related to providing shareholder recordkeeping
and/or transfer agency services.
Please read your 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 the fees described under "Asset-Based Sales Charges or
Distribution and/or Service (Rule 12b-1) Fees", in your 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.
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
education 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 or 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.
Each 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 Fund - Annual Fund Operating Expenses"
in your 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 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.
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
ABI expects that additional firms may be added to this list from
time to time.
Although the Funds may use brokers and dealers who sell shares of
the Funds to effect portfolio transactions, the Funds do not consider the sale
of AllianceBernstein Mutual Fund shares as a factor when selecting brokers or
dealers to effect portfolio transactions.
REDEMPTION AND REPURCHASE OF SHARES
The following information supplements that set forth in your
Prospectus under the heading "Investing in the Funds". If you are an Advisor
Class shareholder through an account established under a fee-based program your
fee-based program may impose requirements with respect to the purchase, sale or
exchange of Advisor Class shares of the Fund that are different from those
described herein. A transaction fee may be charged by your financial
intermediary with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial intermediary. Similarly, if you are a
shareholder through a group retirement plan, your plan may impose requirements
with respect to the purchase, sale or exchange of shares of a Fund that are
different from those imposed below. Each 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.
Redemption
Subject only to the limitations described below, each Fund will
redeem the shares tendered to them, 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 which may be applicable to Class
A, Class B or Class C shares, there is no redemption charge. Payment of the
redemption price normally will 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 the Fund of
securities owned by it is not reasonably practicable or as a result of which it
is not reasonably practicable for the Fund fairly to determine the value of its
net assets, or for such other periods as the SEC may by order permit for the
protection of security holders of the Fund.
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 Fund's 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 or her shares, assuming
the shares constitute capital assets in his or her hands, will result in
long-term or short-term capital gain (or loss) depending upon the shareholder's
holding period and basis in respect of the shares redeemed.
To redeem shares of a Fund for which no share certificates have been
issued, the registered owner or owners should forward a letter to the Fund
containing a request for redemption. The Fund may require the signature or
signatures on the letter to be Medallion Signature Guaranteed. Please contact
ABIS to confirm whether a Medallion Signature Guarantee is needed.
To redeem shares of a Fund 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 Fund. The signature or signatures on the
assignment form must be guaranteed in the manner described above.
Telephone Redemption by Electronic Funds Transfer. Each Fund
shareholder is entitled to request redemption by electronic funds transfer (of
shares for which no share certificates have been issued) by telephone at (800)
221-5672 if the shareholder has completed the appropriate portion of the Mutual
Fund Application or, if an existing shareholder has not completed this portion,
by an "Autosell" application obtained from ABIS (except for certain omnibus
accounts). A telephone redemption request by electronic funds transfer may not
exceed $100,000, and must be made by the Fund Closing Time, on a Fund business
day. Proceeds of telephone redemptions will be sent by electronic funds transfer
to a shareholder's designated bank account at a bank selected by the shareholder
that is a member of the NACHA.
Telephone Redemption by Check. Each Fund shareholder is eligible to
request redemption by check of Fund shares for which no share certificates have
been issued by telephone at (800) 221-5672 before the Fund Closing Time, on a
Fund business day in an amount not exceeding $100,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of record. A
shareholder otherwise eligible for telephone redemption by check may cancel the
privilege by written instruction to ABIS, or by checking the appropriate box on
the Mutual Fund Application.
Telephone Redemptions - General. 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. The Fund reserves the right to suspend or terminate its
telephone redemption service at any time without notice. Telephone redemption is
not available with respect to shares (i) for which certificates have been
issued, (ii) held in nominee or "street name" accounts, (iii) held by a
shareholder who has changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account. Neither the Fund, the
Adviser, ABI nor ABIS will be responsible for the authenticity of telephone
requests for redemptions that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that telephone
requests for redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the resulting
transactions to be sent to shareholders. If the Fund did not employ such
procedures, it could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Financial intermediaries may charge a
commission for handling telephone requests for redemptions.
A Fund may redeem shares through ABI or financial intermediaries.
The repurchase price will be the NAV next determined after ABI 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
Fund Closing Time will be executed at the NAV determined as of that day if
received by ABI 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 ABI 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 ABI 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 the Fund to ABI either directly or through a financial intermediary.
Neither the Funds nor ABI charges a fee or commission in connection with the
redemption of shares (except for the CDSC, if any, with respect to Class A,
Class B and Class C shares). Normally, if shares of the Fund are offered through
a financial intermediary, the redemption is settled by the shareholder as an
ordinary transaction with or through that financial intermediary, who may charge
the shareholder for this service. The redemption of shares of a Fund 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.
General
Each Fund reserves the right to close out an account that has
remained below $1,000 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 the Fund
recently purchased by check, redemption proceeds will not be made available
until the relevant Fund is reasonably assured that the check has cleared,
normally up to 15 calendar days following the purchase date.
SHAREHOLDER SERVICES
The following information supplements that set forth in your
Prospectus under the heading "Investing in the Funds". The shareholder services
set forth below are applicable to all classes of shares unless otherwise
indicated.
If you are an Advisor Class shareholder through an account
established under a fee-based program or a shareholder in a group retirement
plan, your fee-based program or retirement plan may impose requirements with
respect to the purchase, sale or exchange of shares of the Fund that are
different from those described herein. A transaction fee may be charged by your
financial intermediary with respect to the purchase, sale or exchange of Advisor
Class shares made through such intermediary.
Automatic Investment Program
Investors may purchase shares of a Fund through an automatic
investment program utilizing electronic funds transfer drawn on the investor's
own bank account. Under such a program, pre-authorized monthly drafts for a
fixed amount are used to purchase shares through the financial intermediary
designated by the investor at the public offering price next determined after
ABI receives the proceeds from the investor's bank. The monthly drafts must be
in minimum amounts of either $50 or $200, depending on the investor's initial
purchase. If an investor makes an initial purchase of at least $2,500, the
minimum monthly amount for pre-authorized drafts is $50. If an investor makes an
initial purchase of less than $2,500, the minimum monthly amount for
pre-authorized drafts is $200 and the investor must commit to a monthly
investment of at least $200 until the investor's account balance is $2,500 or
more. 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. 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.
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.
Exchange Privilege
You may exchange your investment in a Fund for shares of the same
class of other AllianceBernstein Mutual Funds (including AllianceBernstein
Exchange Reserves, a money market fund managed by the Adviser) 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
Adviser, (ii) present Directors or Trustees of any AllianceBernstein Mutual
Fund, (iii) certain employee benefit plans for employees of the Adviser, 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 A or Class C
shares of the Fund for Advisor Class shares of the Fund or Class C shares of the
Fund for Class A shares of the Fund. 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 the Fund Closing Time.
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 A or Class C shares of a Fund for Advisor Class shares or
Class C shares for Class A shares of the same Fund, 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 Fund 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 the Fund Closing Time on the Fund business day. Telephone
requests for exchanges received before the Fund Closing Time, which is the close
of regular trading on 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) 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 Fund shares (minimum
$25) is automatically exchanged for shares of another AllianceBernstein Mutual
Fund.
None of the AllianceBernstein Mutual Funds, the Adviser, ABI 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 Funds 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 to modify, restrict or terminate the exchange privilege.
Statements and Reports
Each shareholder receives semi-annual and annual reports which
include a portfolio of investments, financial statements and, in the case of the
annual report, the report of the Funds' independent registered public accounting
firm, Ernst & Young LLP, as well as 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.
Shareholder Services Applicable to Class A and Class C Shareholders Only
Checkwriting
A new Class A or Class C investor may fill out the Signature Card to
authorize the Fund to arrange for a checkwriting service through State Street
Bank and Trust Company (the "Bank") to draw against Class A or Class C shares of
the Fund redeemed from the investor's account. Under this service, checks may be
made payable to any payee in any amount not less than $500 and not more than 90%
of the NAV of the Class A or Class C shares in the investor's account (excluding
for this purpose the current month's accumulated dividends and shares for which
certificates have been issued). A Class A or Class C shareholder wishing to
establish this checkwriting service subsequent to the opening of his or her Fund
account should contact the Fund by telephone or mail. Corporations, fiduciaries
and institutional investors are required to furnish a certified resolution or
other evidence of authorization. This checkwriting service will be subject to
the Bank's customary rules and regulations governing checking accounts, and the
Fund and the Bank each reserve the right to change or suspend the checkwriting
service. There is no charge to the shareholder for the initiation and
maintenance of this service or for the clearance of any checks.
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 the Fund 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 NAV of each Fund is computed at the close of regular trading on
each day the Exchange is open (ordinarily, 4:00 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 Fund 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 Fund's NAV is calculated by dividing the value of the
Fund's total assets, less its liabilities, by the total number of its shares
then outstanding.
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 Adviser, subject to the Board's continuing oversight, certain of the Board's
duties with respect to the Pricing Policies. The Adviser has established a
Valuation Committee, which operates under policies and procedures approved by
the Boards, to value a Fund's assets on behalf of the Fund.
Whenever possible, securities are valued based on market information
on the business day as of which the value is being determined, as follows:
(a) a security listed on the Exchange, or on other 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. 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 Adviser) 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
Adviser 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 listed right is valued at the last traded price provided by
approved pricing vendors. If there has been no sale on the relevant business
day, the right 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. For an
unlisted right, the calculation used in determining a value is the price of the
reference security minus the subscription price multiplied by the terms of the
right. There may be some instances when the subscription price is greater than
the referenced security right. In such instances, the right would be valued as
worthless;
(g) a listed warrant is valued at the last traded price provided by
approved vendors. If there is no sale on the relevant business day, the warrant
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. All unlisted warrants are
valued in good faith at fair value. Once a warrant has expired, it will no
longer be valued;
(h) preferred securities are valued based on prices received from
approved vendors that use last trade data for listed preferreds and evaluated
bid prices for non-listed preferreds, as well as for listed preferreds when
there is no trade activity;
(i) 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 Adviser determines, in accordance with
procedures established by the Board, that this method does not represent fair
value. The Adviser is responsible for monitoring whether any circumstances have
incurred that indicate that the use of amortized cost method for any security is
not appropriate due to such factors as, but not limited to, an impairment of the
creditworthiness of the issuer or material changes in interest rates;
(j) a fixed-income security is typically valued on the basis of bid
prices provided by a pricing vendor when the Adviser 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 either the approved
pricing vendor normally provides mid prices, reflecting the conventions of the
particular markets. The prices provided by a pricing vendor may take into
account many factors, including institutional size, trading in similar groups of
securities and any developments related to specific securities. If the Adviser
determines that an appropriate pricing vendor 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 vendor 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;
(k) a mortgage-backed or asset-backed security is valued on the
basis of bid prices obtained from pricing vendors or bid prices obtained from
multiple major broker-dealers in the security when the Adviser believes that
these prices reflect the market value of the security. In cases in which
broker-dealer quotes are obtained, the Adviser 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;
(l) bank loans are valued on the basis of bid prices provided by a
pricing vendor;
(m) bridge loans are valued at value, which equates to the
outstanding loan amount, unless it is determined by the Valuation Committee that
any particular bridge loan should be valued at something other than outstanding
loan amount. 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;
(n) whole loans: residential and commercial mortgage whole loans and
whole loan pools are fair market priced by Clayton IPS (Independent Pricing
Service);
(o) forward and spot currency pricing is provided by WM Reuters. The
rate provide by WM Reuters is a mid price for forward and spot rates. In most
instances whenever both an "onshore" rate and an "offshore" (i.e., non
deliverable forward "NDF") rate is available, the Adviser will use the offshore
(NDF) rate. NDF contracts are used for currencies where it is difficult (and
sometimes impossible) to take actual delivery of the currency;
(p) swap pricing: Various external sources (Super Derivatives,
Bloomberg, Barclays, Markit Partners, etc.) are used to obtain pricing
information and analysis. This information is placed into various pricing models
(depending on the type of derivative) to devise a price for each investment.
These pricing models are monitored/reviewed on an ongoing basis by the Adviser;
(q) interest rate caps and floors are valued at the latest present
value of the terms of the agreement, which is provided by approved vendors; and
(r) 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.
A Fund values its securities at their current market value
determined on the basis of market quotations as 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 Fund's Board. When the Fund uses fair value pricing, it may
take into account any factors it deems appropriate. A 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.
Each 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
its foreign equity securities using fair value prices based on third party
vendor modeling tools to the extent available.
Subject to their oversight, the Boards have 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.
Each Fund'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 Fund to dispose of
securities owned by it or to determine fairly the value of its net assets, or
(3) for the protection of shareholders, the SEC by order permits a suspension of
the right of redemption or a postponement of the date of payment on redemption.
For purposes of determining a Fund's NAV per share, all assets and
liabilities initially expressed in a foreign currency will be converted into
U.S. Dollars at the mean of the current bid and asked prices of such currency
against the U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number of such major
banks. If such quotations are not available as of the close of the Exchange, the
rate of exchange will be determined in good faith by, or under the direction of,
the Board.
The assets attributable to the Class A shares, Class B shares, Class
C shares, Class R shares, Class K shares, Class I shares and Advisor Class
shares will be invested together in a single portfolio. The NAV of each class
will be determined separately by subtracting the liabilities allocated to that
class from the assets belonging to that class in conformance with the provisions
of a plan adopted by the Fund in accordance with Rule 18f-3 under the 1940 Act.
DIVIDENDS, DISTRIBUTIONS AND TAXES
U.S. Federal Income Taxation of Dividends and Distributions
General. Each Fund intends for each taxable year to qualify to be
taxed as a "regulated investment company" under the Code. To so qualify, a Fund
must, among other things, (i) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currency, certain other income (including, but not limited to, gains from
options, futures or forward currency exchange contracts) derived with respect to
its business of investing in stock, securities or currency or net income derived
from interests in certain "qualified publicly traded partnerships"; and (ii)
diversify its holdings so that, at the end of each quarter of its taxable year,
the following two conditions are met: (a) at least 50% of the value of the
Fund's assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other securities with
respect to which the Fund's investment is limited, in respect of any one issuer,
to an amount not greater than 5% of the value of the Fund's assets and to not
more than 10% of the outstanding voting securities of such issuer and (b) not
more than 25% of the value of the Fund's assets is invested in securities of any
one issuer (other than U.S. Government securities or securities of other
regulated investment companies), securities (other than securities of other
regulated investment companies) of any two or more issuers which the Fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses, or securities of one or more "qualified publicly
traded partnerships".
If a Fund qualifies as a regulated investment company for any
taxable year and makes timely distributions to its shareholders of 90% or more
of its investment company taxable income for that year (calculated without
regard to its net capital gain, i.e., the excess of its net long-term capital
gain over its net short-term capital loss) it will not be subject to federal
income tax on the portion of its taxable income for the year (including any net
capital gain) that it distributes to shareholders.
It is the present policy of each Fund to distribute to shareholders
all net investment income quarterly and to distribute net realized capital
gains, if any, annually. The amount of any such distributions must necessarily
depend upon the realization by the Fund of income and capital gains from
investments.
Each Fund will also avoid the 4% federal excise tax that would
otherwise apply to certain undistributed income for a given calendar year if it
makes timely distributions to the shareholders equal to at least the sum of (i)
98.2% of its ordinary income for that year, (ii) 98% of its capital gain net
income and foreign currency gains for the twelve-month period ending on October
31 of that year or later, if the Fund is permitted to so elect and so elects,
and (iii) any ordinary income or capital gain net income from the preceding
calendar year that was not distributed during such year. For this purpose,
income or gain retained by the Fund that is subject to corporate income tax will
be considered to have been distributed by the Fund during such year. For federal
income and excise tax purposes, dividends declared and payable to shareholders
of record as of a date in October, November or December of a given year but
actually paid during the immediately following January will be treated as if
paid by the Fund on December 31 of such earlier calendar year, and will be
taxable to these shareholders in the year declared, and not in the year in which
the shareholders actually receive the dividend.
The information set forth in the Prospectus and the following
discussion relate solely to the significant United States federal income taxes
on dividends and distributions by a Fund and assume that the Fund qualifies to
be taxed as a regulated investment company. An investor should consult his or
her own tax advisor with respect to the specific tax consequences of being a
shareholder in a Fund, including the effect and applicability of federal, state,
local and foreign tax laws to his or her own particular situation and the
possible effects of changes therein.
Dividends and Distributions. Each Fund intends to make timely
distributions of the Fund's taxable income (including any net capital gain) so
that the Fund will not be subject to federal income and excise taxes. Dividends
of the Fund's net ordinary income and distributions of any net realized
short-term capital gain are taxable to shareholders as ordinary income.
Some or all of the distributions from a Fund may be treated as
"qualified dividend income", taxable to individuals, trusts and estates at the
reduced tax rates applicable to long-term capital gains, provided that both the
fund and the shareholder satisfy certain holding period and other requirements.
Based upon the investment policies of the Funds, it is expected that only a
small portion, if any, of the Funds' distributions would be treated as
"qualified dividend income".
Distributions of net capital gain are taxable as long-term capital
gain, regardless of how long a shareholder has held shares in the Funds. Any
dividend or distribution received by a shareholder on shares of a Fund will have
the effect of reducing the NAV of such shares by the amount of such dividend or
distribution. Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a return of capital
to that particular shareholder, would be taxable to him or her as described
above. Dividends are taxable in the manner discussed regardless of whether they
are paid to the shareholder in cash or are reinvested in additional shares of a
Fund. The investment objectives of the Funds is such that only a small portion,
if any, of the Funds' distributions is expected to qualify for the
dividends-received deduction for corporate shareholders.
After the end of the calendar year, a Fund will notify shareholders
of the federal income tax status of any distributions made by the Fund to
shareholders during such year.
Sales and Redemptions. Any gain or loss arising from a sale or
redemption of Fund shares generally will be capital gain or loss if Fund shares
are held as a capital asset, and will be long-term capital gain or loss if the
shareholder has held such shares for more than one year at the time of the sale
or redemption; otherwise it will be short-term capital gain or loss. If a
shareholder has held shares in the Fund for six months or less and during that
period has received a distribution of net capital gain, any loss recognized by
the shareholder on the sale of those shares during the six-month period will be
treated as a long-term capital loss to the extent of the distribution. In
determining the holding period of such shares for this purpose, any period
during which a shareholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted.
Any loss realized by a shareholder on a sale or exchange of shares
of a Fund will be disallowed to the extent the shares disposed of are reacquired
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are sold or exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a reacquisition if made within the
period. If a loss is so disallowed, then such loss will be reflected in an
upward adjustment to the basis of the shares acquired.
Cost Basis Reporting. As part of the Energy Improvement and
Extension Act of 2008, mutual funds are required to report to the Internal
Revenue Service (the "IRS") the "cost basis" of shares acquired by a shareholder
on or after January 1, 2012 ("covered shares") and subsequently redeemed. These
requirements do not apply to investments through a tax-deferred arrangement,
such as a 401(k) plan or an individual retirement plan. The "cost basis" of a
share is generally its purchase price adjusted for dividends, return of capital,
and other corporate actions. Cost basis is used to determine whether a sale of
the shares results in a gain or loss. The amount of gain or loss recognized by a
shareholder on the sale or redemption of shares is generally the difference
between the cost basis of such shares and their sale price. If you redeem
covered shares during any year, then the Funds 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 of 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 Funds. 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 Fund'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 Fund shares through a broker (or another 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.
Qualified Plans. A dividend or capital gains distribution with
respect to shares of a Fund held by a tax-deferred or qualified plan, such as an
individual retirement account, section 403(b)(7) retirement plan or corporate
pension or profit-sharing plan, generally will not be taxable to the plan.
Distributions from such plans will be taxable to individual participants under
applicable tax rules without regard to the character of the income earned by the
qualified plan.
Backup Withholding. Any distributions and redemption proceeds
payable to a shareholder may be subject to "backup withholding" tax (at a rate
of 28%) if such shareholder fails to provide a Fund with his or her correct
taxpayer identification number, fails to make certain required certifications or
is notified by the IRS that he or she is subject to backup withholding.
Corporate shareholders and certain other shareholders specified in the Code are
exempt from such backup withholding. Backup withholding is not an additional
tax; rather, a shareholder generally may obtain a refund of any amounts withheld
under backup withholding rules that exceed such shareholder's U.S. federal
income tax liability by filing a refund claim with the IRS, provided that the
required information is furnished to the IRS.
Foreign Taxes. Income received by a Fund also may be subject to
foreign income taxes, including taxes withheld at the source. The United States
has entered into tax treaties with many foreign countries which entitle a Fund
to a reduced rate of such taxes or exemption from taxes on such income. It is
impossible to determine the effective rate of foreign tax in advance since the
amount of a Fund's assets to be invested within various countries is not known.
If more than 50% of the value of a Fund's assets at the close of its
taxable year consists of stocks or securities of foreign corporations (which for
this purpose should include obligations issued by foreign governments), the Fund
will be eligible and intends to file an election with the IRS to pass through to
its shareholders the amount of foreign taxes paid by the Fund. However, there
can be no assurance that a Fund will be able to do so. If a Fund makes this
election, a shareholder will be required to (i) include in gross income (in
addition to taxable dividends actually received), his or her pro rata share of
foreign taxes paid by the Fund, (ii) treat his or her pro rata share of such
foreign taxes as having been paid by him and (iii) either deduct such pro rata
share of foreign taxes in computing his or her taxable income or treat such
foreign taxes as a credit against U.S. federal income taxes. Shareholders who
are not liable for federal income taxes, such as retirement plans qualified
under section 401 of the Code, will not be affected by any such pass-through of
taxes by a Fund. No deduction for foreign taxes may be claimed by an individual
shareholder who does not itemize deductions. In addition, certain shareholders
may be subject to rules which limit or reduce their ability to fully deduct, or
claim a credit for, their pro rata share of the foreign taxes paid by the Fund.
A shareholder's foreign tax credit with respect to a dividend received from a
Fund will be disallowed unless the shareholder holds shares in the Fund on the
ex-dividend date and for at least 15 other days during the 30-day period
beginning 15 days prior to the ex-dividend date. Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will pass through for that year and, if so, such
notification will designate (i) the shareholder's portion of the foreign taxes
paid, to each such country and (ii) the portion of dividends that represents
income derived from sources within each such country.
The federal income tax status of each year's distributions by the
Fund will be reported to shareholders and to the IRS. The foregoing is only a
general description of the treatment of foreign taxes under the U.S. federal
income tax laws. Because the availability of a foreign tax credit or deduction
will depend on the particular circumstances of each shareholder, potential
investors are advised to consult their own tax advisers.
U.S. Federal Income Taxation of the Funds
The following discussion relates to certain significant U.S. federal
income tax consequences to a Fund with respect to the determination of its
"investment company taxable income" each year. This discussion assumes that each
Fund will be taxed as a regulated investment company for each of its taxable
years.
Zero-Coupon Treasury Securities. Under current federal tax law, a
Fund will receive net investment income in the form of interest by virtue of
holding Treasury bills, notes and bonds, and will recognize interest
attributable to it under the original issue discount rules of the Code from
holding zero-coupon Treasury securities. Current federal tax law requires that a
holder (such as a Fund) of a zero-coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payment in cash on the security during the year.
Accordingly, a Fund may be required to pay out as an income distribution each
year an amount that is greater than the total amount of cash interest the Fund
actually received. Such distributions will be made from the cash assets of the
Fund or by liquidation of portfolio securities, if necessary. If a distribution
of cash necessitates the liquidation of portfolio securities, the Adviser will
select which securities to sell. A Fund may realize a gain or loss from such
sales. In the event a Fund realizes net capital gains from such transactions,
its shareholders may receive a larger capital gain distribution, if any, than
they would have in the absence of such transactions.
Options, Futures Contracts, and Forward Currency Exchange Contracts.
Certain listed options, regulated futures contracts, and forward currency
exchange contracts are considered "section 1256 contracts" for federal income
tax purposes. Section 1256 contracts held by a Fund at the end of each taxable
year will be "marked to market" and treated for federal income tax purposes as
though sold for fair market value on the last business day of such taxable year.
Gain or loss realized by a Fund on section 1256 contracts other than forward
currency exchange contracts will be considered 60% long-term and 40% short-term
capital gain or loss, although the Fund may elect to have the gain or loss it
realizes on certain contracts taxed as "section 988" gain or loss. Gain or loss
realized by a Fund on forward currency exchange contracts generally will be
treated as section 988 gain or loss and will therefore be characterized as
ordinary income or loss and will increase or decrease the amount of the Fund's
net investment income available to be distributed to shareholders as ordinary
income, as described above. A Fund can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described below) from the
application of section 1256.
With respect to over-the-counter put and call options, gain or loss
realized by a Fund upon the lapse or sale of such options held by the Fund will
be either long-term or short-term capital gain or loss depending upon the Fund's
holding period with respect to such option. However, gain or loss realized upon
the lapse or closing out of such options that are written by a Fund will be
treated as short-term capital gain or loss. In general, if a Fund exercises an
option, or if an option that the Fund has written is exercised, gain or loss on
the option will not be separately recognized but the premium received or paid
will be included in the calculation of gain or loss upon disposition of the
property underlying the option.
Gain or loss realized by a Fund on the lapse or sale of put and call
options on foreign currencies which are traded over-the-counter or on certain
foreign exchanges will be treated as section 988 gain or loss and will therefore
be characterized as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be distributed to
shareholders as ordinary income, as described above. The amount of such gain or
loss shall be determined by subtracting the amount paid, if any, for or with
respect to the option (including any amount paid by a Fund upon termination of
an option written by the Fund) from the amount received, if any, for or with
respect to the option (including any amount received by the Fund upon
termination of an option held by the Fund). In general, if a Fund exercises such
an option on a foreign currency, or if such an option that the Fund has written
is exercised, gain or loss on the option will be recognized in the same manner
as if the Fund had sold the option (or paid another person to assume the Fund's
obligation to make delivery under the option) on the date on which the option is
exercised, for the fair market value of the option. The foregoing rules will
also apply to other put and call options which have as their underlying property
foreign currency and which are traded over-the-counter or on certain foreign
exchanges to the extent gain or loss with respect to such options is
attributable to fluctuations in foreign currency exchange rates.
Stripped-Mortgage Related Securities. Certain classes of SMRS which
are issued at a discount, the payments of which are subject to acceleration by
reason of prepayments of the underlying mortgage assets securing such classes,
are subject to special rules for determining the portion of the discount at
which the class was issued which must be accrued as income each year. Under Code
section 1272(a)(6), a principal-only class or a class which receives a portion
of the interest and a portion of the principal from the underlying mortgage
assets is subject to rules which require accrual of interest to be calculated
and included in the income of a holder (such as a Fund) based on the increase in
the present value of the payments remaining on the class, taking into account
payments includable in the class's stated redemption price at maturity which are
received during the accrual period. For this purpose, the present value
calculation is made at the beginning of each accrual period (i) using the yield
to maturity determined for the class at the time of its issuance (determined on
the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period), calculated on the assumption
that certain prepayments will occur, and (ii) taking into account any
prepayments that have occurred before the close of the accrual period. Since
interest included in a Fund's income as a result of these rules will have been
accrued and not actually paid, the Fund may be required to pay out as an income
distribution each year an amount which is greater than the total amount of cash
interest it actually received, with possible results as described above.
Tax Straddles. Any option, futures contract or other position
entered into or held by a Fund in conjunction with any other position held by
the Fund may constitute a "straddle" for federal income tax purposes. A straddle
of which at least one, but not all, the positions are section 1256 contracts may
constitute a "mixed straddle". In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's gains and losses
with respect to straddle positions by requiring, among other things, that (i)
loss realized on disposition of one position of a straddle not be recognized to
the extent that the Fund has unrealized gains with respect to the other position
in such straddle; (ii) the Fund's holding period in straddle positions be
suspended while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (iii) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (iv) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to the Fund which may mitigate the effects of
the straddle rules, particularly with respect to mixed straddles. In general,
the straddle rules described above do not apply to any straddles held by the
Fund, all of the offsetting positions of which consist of section 1256
contracts.
Currency Fluctuations -- "Section 988" Gains and Losses. Under the
Code, gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies, from the disposition of debt securities
denominated in a foreign currency, or from the disposition of a forward currency
exchange contract denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the asset and the date of disposition also are treated as
ordinary income or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, increase or decrease the amount of a Fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses reduce the amount of
ordinary dividends a Fund will be allowed to distribute for a taxable year, such
section 988 losses may result in all or a portion of prior dividend
distributions for such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Fund shares. To the extent that such
distributions exceed such shareholder's basis, each will be treated as a gain
from the sale of shares.
Other Taxation
A Fund may be subject to other state and local taxes.
Taxation of Foreign Stockholders
Taxation of a shareholder who, under the Code, is a nonresident
alien individual, foreign trust or estate, foreign corporation or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by the
foreign shareholder.
If the income from a Fund is not effectively connected with the
foreign shareholder's U.S. trade or business, then, except as discussed below,
distributions of the Fund attributable to ordinary income and short-term capital
gain paid to a foreign shareholder by the Fund will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount
of the distribution. However, distributions of a Fund attributable to short-term
capital gains and U.S. source portfolio interest income paid during taxable
years of the Fund beginning before January 1, 2014 will not be subject to this
withholding tax.
A foreign shareholder generally would be exempt from Federal income
tax on distributions of a Fund attributable to net long-term capital gain and on
gain realized from the sale or redemption of shares of the Fund. Special rules
apply in the case of a shareholder that is a foreign trust or foreign
partnership.
If the income from a Fund is effectively connected with a foreign
shareholder's U.S. trade or business, then ordinary income distributions,
capital gain distributions, and any gain realized upon the sale of shares of the
Fund will be subject to Federal income tax at the rates applicable to U.S.
citizens or U.S. corporations.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein.
The tax rules of other countries with respect to an investment in a
Fund can differ from the Federal income taxation rules described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisors as to the consequences of foreign tax rules with
respect to an investment in the Fund.
FUND TRANSACTIONS
Subject to the general oversight of each Fund's Board, the Adviser
is responsible for the investment decisions and the placing of orders for
portfolio transactions of the Funds. The Adviser 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, a Fund does not consider sales of shares of the Fund or other
investment companies managed by the Adviser 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 consideration.
When consistent with the objective of obtaining best execution,
brokerage may be directed to persons or firms supplying investment information
to the Adviser. There may be occasions where the transaction cost charged by a
broker may be greater than that which another broker may charge if it is
determined in good faith that the amount of such transaction cost is reasonable
in relation to the value of brokerage, research and statistical services
provided by the executing broker.
Neither the Funds nor the Adviser has entered into agreements or
understandings with any brokers regarding the placement of securities
transactions because of research services they provide. To the extent that such
persons or firms supply investment information to the Adviser for use in
rendering investment advice to the Funds, such information may be supplied at no
cost to the Adviser and, therefore, may have the effect of reducing the expenses
of the Adviser in rendering advice to the Funds. While it is impracticable to
place an actual dollar value on such investment information, its receipt by the
Adviser probably does not reduce the overall expenses of the Adviser to any
material extent.
The investment information provided to the Adviser is of the type
described in Section 28(e) of the Securities Exchange Act of 1934, as amended,
and is designed to augment the Adviser's own internal research and investment
strategy capabilities. Research services furnished by brokers through which the
Fund effects securities transactions are used by the Adviser in carrying out its
investment management responsibilities with respect to all its clients'
accounts.
The extent to which commissions that will be charged by
broker-dealers selected by a Fund 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 Fund places portfolio
transactions, the Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers as a result of the placement
of portfolio brokerage could be useful and of value to the Adviser in servicing
its other clients as well as the Fund; on the other hand, certain research
services obtained by the Adviser as a result of the placement of portfolio
brokerage of other clients could be useful and of value to it in servicing the
Fund.
A Fund may deal in some instances in securities that are not listed
on a national securities exchange but are traded in the over-the-counter market.
It 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,
a Fund will seek to deal with the primary market makers; but when necessary in
order to obtain the best price and execution, they will utilize the services of
others. In all cases, a Fund will attempt to negotiate best execution.
Investment decisions for a Fund are made independently from those
for other investment companies and other advisory accounts managed by the
Adviser. It may happen, on occasion, that the same security is held in the
portfolio of a 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 Adviser, 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 Adviser 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 Adviser.
Purchases and sales of portfolio securities are determined by the Adviser and
are placed with broker-dealers by the order department of the Adviser.
A Fund's portfolio transactions occur primarily with issuers,
underwriters or major dealers acting as principals. Such transactions are
normally on a net basis which do not involve payment of brokerage commissions.
The cost of securities purchased from an underwriter usually includes a
commission paid by the issuer to the underwriter; transactions with dealers
normally reflect the spread between bid and asked prices. Premiums are paid with
respect to options purchased by the Fund, and brokerage commissions are payable
with respect to transactions in exchange-traded interest rate futures contracts.
Most transactions for the Fund, including transactions in listed
securities, are executed in the over-the-counter market by approximately fifteen
(15) principal market maker dealers with whom the Adviser maintains regular
contact. Most transactions made by the Fund will be principal transactions at
net prices and the Fund 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 Adviser believes a better price and
execution is available elsewhere. Purchases from underwriters of newly-issued
securities for inclusion in the Fund 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.
A Fund has no obligation to enter into transactions in securities
with any broker, dealer, issuer, underwriter or other entity. Where best price
and execution may be obtained from more than one broker or dealer, the Adviser
may, in its discretion, purchase and sell securities through brokers and dealers
who provide research, statistical and other information to the Adviser. Such
services may be used by the Adviser for all of its investment advisory accounts
and, accordingly, not all such services may be used by the Adviser in connection
with a Fund. During the fiscal years ended October 31, 2010, 2011 and 2012 for
Intermediate Bond, Unconstrained Bond and High Income and for the fiscal years
ended September 30, 2010, 2011 and 2012 for Global Bond, the Funds incurred no
brokerage commissions.
A Fund may, from time to time, place orders for the purchase or sale
of securities (including listed call options) with SCB & Co., an affiliate of
the Adviser (the "Affiliated Broker"). In such instances, the placement of
orders with such broker would be consistent with the Fund's objective of
obtaining the best execution and would not be dependent upon the fact that the
Affiliated Broker is an affiliate of the Adviser. With respect to orders placed
with the Affiliated Broker 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 Funds), 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 Funds paid no
brokerage commissions to the Affiliated Broker during the three most recent
fiscal years.
Disclosure of Portfolio Holdings
Each Fund believes that the ideas of the Adviser's investment staff
should benefit the Fund and its shareholders, and does not want to afford
speculators an opportunity to profit by anticipating Fund trading strategies or
using Fund information for stock picking. However, each Fund also believes that
knowledge of the Fund's portfolio holdings can assist shareholders in monitoring
their investment, making asset allocation decisions, and evaluating portfolio
management techniques.
The Adviser has adopted, on behalf of each Fund, policies and
procedures relating to disclosure of the Fund's portfolio securities. The
policies and procedures relating to disclosure of the Fund's portfolio
securities are designed to allow disclosure of portfolio holdings information
where necessary to the Fund's operation or useful to the Fund's shareholders
without compromising the integrity or performance of the Fund. Except when there
are legitimate business purposes for selective disclosure and other conditions
(designed to protect the Fund and its shareholders) are met, the Fund does not
provide or permit others to provide information about the Fund's portfolio
holdings on a selective basis.
The Fund 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 Adviser may post portfolio holdings information on
the Adviser's website (www.AllianceBernstein.com). The Adviser generally posts
on the website a complete schedule of the Fund's 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 the Fund, the market value of
the Fund's holdings, and the percentage of the Fund's assets represented by the
Fund's holdings. In addition to the schedule of portfolio holdings, the Adviser
may post information about the number of securities the Fund holds, a summary of
the Fund's top ten holdings (including name and the percentage of the Fund's
assets invested in each holding), and a percentage breakdown of the Fund's
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 Adviser may distribute or authorize the distribution of
information about the Fund's portfolio holdings that is not publicly available,
on the website or otherwise, to the Adviser's employees and affiliates that
provide services to the Fund. In addition, the Adviser may distribute or
authorize distribution of information about the Fund'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 Fund, and to facilitate the review of the
Fund by ratings 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 Fund shareholders. The Adviser does not expect to disclose information
about the Fund's portfolio holdings that is not publicly available to the Fund's
individual or institutional investors or to intermediaries that distribute the
Fund's shares. Information may be disclosed with any frequency and any lag, as
appropriate.
Before any non-public disclosure of information about the Fund's
portfolio holdings is permitted, however, the Adviser's Chief Compliance Officer
(or his designee) must determine that the Fund has a legitimate business purpose
for providing the portfolio holdings information, that the disclosure is in the
best interests of the Fund'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 Fund or any other security. Under
no circumstances may the Adviser or its affiliates receive any consideration or
compensation for disclosing the information.
The Adviser has established procedures to ensure that each Fund's
portfolio holdings information is only disclosed in accordance with these
policies. Only the Adviser'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 Adviser's product management group determines that the disclosure
serves a legitimate business purpose of the Fund and is in the best interest of
the Fund's shareholders. The Adviser's Chief Compliance Officer (or his
designee) approves disclosure only after considering the anticipated benefits
and costs to the Fund and its shareholders, the purpose of the disclosure, any
conflicts of interest between the interests of the Fund and its shareholders and
the interests of the Adviser or any of its affiliates, and whether the
disclosure is consistent with the policies and procedures governing disclosure.
Only someone approved by the Adviser's Chief Compliance Officer (or his
designee) may make approved disclosures of portfolio holdings information to
authorized recipients. The Adviser 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 Adviser's
policy and any applicable confidentiality agreement. The Adviser'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 Adviser 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 Fund'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 Fund regulatory filings; (iii) the Fund's custodian in
connection with its custody of the Fund'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 Fund's portfolio
holdings information unless specifically authorized.
GENERAL INFORMATION
Description of the Funds
Funds
Intermediate Bond
Intermediate Bond is a series of AllianceBernstein Bond Fund, Inc.,
a Maryland corporation organized in 1973 under the name "Alliance Bond Fund,
Inc." The Fund's name became "AllianceBernstein Bond Fund, Inc." on March 31,
2003.
Limited Duration
The Fund is a series of AllianceBernstein Bond Fund, Inc., a
Maryland corporation. The Fund was organized in 2011 under the name
"AllianceBernstein Limited Duration High Income Fund".
Unconstrained Bond
The Fund is a Maryland corporation organized in 1995 under the name
of "Alliance Global Strategic Income Trust, Inc." The name became
"AllianceBernstein Global Strategic Income Trust, Inc. on March 31, 2003, became
AllianceBernstein Diversified Yield Fund, Inc. on November 5, 2007 and became
AllianceBernstein Unconstrained Bond Fund, Inc. on February 3, 2011.
Global Bond
The Fund is a Maryland corporation organized in 1992 under the name
of "Alliance North American Government Income Fund, Inc." The name became
"Alliance Americas Government Income Trust, Inc." on March 1, 2002,
"AllianceBernstein Americas Government Income Trust, Inc." on March 31, 2003,
"AllianceBernstein Global Government Income Trust, Inc." on February 1, 2006,
and "AllianceBernstein Global Bond Fund, Inc." on November 5, 2007.
High Income
The Fund is a Maryland corporation organized in 1993 under the name
of "Alliance Global Dollar Government Fund, Inc." The name became "Alliance
Emerging Market Debt Fund, Inc." on March 1, 2002, "AllianceBernstein Emerging
Market Debt Fund, Inc." on March 31, 2003, and "AllianceBernstein High Income
Fund, Inc." on January 28, 2008.
General - All Funds
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
Fund's assets and, upon redeeming shares, will receive the then current NAV of
the Fund represented by the redeemed shares less any applicable CDSC. A Fund is
empowered to establish, without shareholder approval, additional portfolios,
which may have different investment objectives and policies than those of the
Fund, and additional classes of shares within the Fund. If an additional
portfolio or class were established in the Fund, each share of the portfolio or
class would normally be entitled to one vote for all purposes. Generally, shares
of each portfolio and class would vote together as a single class on matters,
such as the election of Directors, that affect each portfolio and class in
substantially the same manner. Each class of shares of a Fund has the same
rights and is identical in all respects except that each class bears its own
distribution and transfer agency expenses. Each class of shares of a Fund votes
separately with respect to the Fund's Plan and other matters for which separate
class voting is appropriate under applicable law. Shares are, when issued, fully
paid and non-assessable, freely transferable, entitled to dividends as
determined by the Directors and, in liquidation of a Fund, are entitled to
receive the net assets of the Fund.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of directors.
Each class of shares of a Fund represents an interest in the same
portfolio of investments, and has the same rights and is identical in all
respects, except that expenses related to the distribution of each class are
borne solely by each class and each class of shares has exclusive voting rights
with respect to provisions of the Plan which pertain to a particular class and
other matters for which separate class voting is appropriate under applicable
law, provided that, if the Fund submits to a vote of the Class A shareholders an
amendment to the Plan that would materially increase the amount to be paid
thereunder with respect to the Class A shares, then such amendment will also be
submitted to the Class B shareholders, and the Class A shareholders and the
Class B shareholders shareholders will vote separately by class.
A Fund's Board may, without shareholder approval, increase or
decrease the number of authorized but unissued shares of the Fund's Class A,
Class B, Class C, Class R, Class K, Class I, Class Z and Advisor Class Common
Stock.
Principal holders
To the knowledge of each Fund, the following persons owned of record
or beneficially, 5% or more of a class of outstanding shares of the Fund as of
January 4, 2013:
Number of % of
Class A Class A Class A
Shares Fund Name and Address Shares Shares
----------- ----------------- ---------- -------
Intermediate Bond Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905 1,661,986 5.23%
First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit Of Customer
2801 Market St.
Saint Louis, MO 63103-2523 2,322,813 7.31%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 4,256,516 13.40%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 2,130,498 6.71%
Limited Duration LPL Financial
FBO Customer Accounts
Attn: Mutual Fund Operations
P.O. Box 509046
San Diego, CA 92150-9046 41,462 6.88%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 275,850 45.80%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 58,159 9.66%
RBC Capital Markets LLC
Mutual Fund Omnibus Processing
Omnibus
Attn: Mutual Fund OPS Manager
510 Marquette Ave. S.
Minneapolis, MN 55402-1110 43,115 7.16%
C/O Zenith Administrators
Oppenheimer & Co. Inc.
FBO Pipe Fitters Local 211 Welfare
9555 W. Sam Houston Pkwy.
Suite 400
Houston, TX 77099-2145 107,995 17.93%
Unconstrained Bond Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905 779,609 12.38%
First Clearing, LLC
Special Custody Acct For
The Exclusive Benefit Of
Customer
2801 Market St.
Saint Louis, MO 63103-2523 321,766 5.11%
MLPF&S
For The Sole Benefit of
Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484 597,757 9.49%
National Financial Services LLC
For the Exclusive Benefit of
Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310 575,176 9.13%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 636,526 10.11%
UBS WM USA
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761 1,158,929 18.40%
Global Bond Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905 10,571,663 5.76%
First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit Of Customer
2801 Market St.
Saint Louis, MO 63103-2523 9,441,174 5.15%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 11,980,315 6.53%
National Financial Services LLC
For the Exclusive Benefit
of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310 19,696,115 10.74%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 20,674,008 11.27%
UBS WM USA
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761 24,996,027 13.63%
High Income First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523 18,575,768 6.81%
MLPF&S
For The Sole Benefit Of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 26,896,949 9.86%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 19,063,823 6.99%
National Financial Services LLC
For the Exclusive Benefit
of Our Customer
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310 35,204,978 12.91%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 26,297,076 9.64%
UBS WM USA
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761 34,638,801 12.70%
Number of % of
Class B Class B Class B
Shares Fund Name and Address Shares Shares
----------- ----------------- ---------- -------
Intermediate Bond Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905 90,213 11.80%
First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523 65,617 8.59%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 208,023 27.22%
Unconstrained Bond Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
101 Montgomery Street
San Francisco, CA 94105-1905 9,770 5.17%
First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit Of Customer
2801 Market St.
Saint Louis, MO 63103-2523 13,813 7.31%
LPL Financial
FBO Customer Accounts
Attn: Mutual Fund Operations
P.O. Box 509046
San Diego, CA 92150-9046 16,448 8.71%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 43,982 23.29%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 29,564 15.66%
Global Bond Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905 301,042 7.43%
First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit Of Customer
2801 Market St.
Saint Louis, MO 63103-2523 397,724 9.81%
LPL Financial
FBO Customer Accounts
Attn: Mutual Fund Operations
P.O. Box 509046
San Diego, CA 92150-9046 251,637 6.21%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 724,639 17.88%
National Financial Services LLC
For the Exclusive Benefit
of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310 529,565 13.07%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 511,028 12.61%
High Income First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit Of Customer
2801 Market St.
Saint Louis, MO 63103-2523 251,779 13.21%
LPL Financial
FBO Customer Accounts
Attn: Mutual Fund Operations
P.O. Box 509046
San Diego, CA 92150-9046 124,325 6.52%
MLPF&S
For The Sole Benefit Of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 258,568 13.57%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 105,345 5.53%
National Financial Services LLC
For the Exclusive Benefit of Our
Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310 137,487 7.21%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 146,358 7.68%
Number of % of
Class C Class C Class C
Shares Fund Name and Address Shares Shares
----------- ----------------- ---------- -------
Intermediate Bond Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905 282,801 5.40%
First Clearing, LLC
Special Custody Acct For
The Exclusive Benefit Of Customer
2801 Market St.
Saint Louis, MO 63103-2523 475,519 9.07%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 1,269,719 24.23%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 342,862 6.54%
National Financial Services LLC
For the Exclusive Benefit of Our
Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310 302,369 5.77%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 923,167 17.62%
Limited Duration Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 304,395 52.50%
National Financial Services LLC
For the Exclusive Benefit of Our
Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310 50,728 8.75%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 72,204 12.45%
RBC Capital Markets LLC
Mutual Fund Omnibus Processing
Omnibus
Attn: Mutual Fund OPS Manager
510 Marquette Ave. S.
Minneapolis, MN 55402-1110 40,023 6.90%
Unconstrained Bond Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905 91,804 5.80%
First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit Of Customer
2801 Market St.
Saint Louis, MO 63103-2523 184,257 11.64%
LPL Financial
FBO Customer Accounts
Attn: Mutual Fund Operations
P.O. Box 509046
San Diego, CA 92150-9046 96,633 6.11%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 163,479 10.33%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 281,206 17.77%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 227,488 14.37%
Raymond James
Omnibus For Mutual Funds
House Acct Firm
Attn: Courtney Waller
880 Carillon Parkway
St. Petersburg, FL 33716-1102 162,742 10.28%
Global Bond First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit Of Customer
2801 Market St.
Saint Louis, MO 63103-2523 7,109,628 10.30%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East 2nd Floor
Jacksonville, FL 32246-6484 15,235,901 22.07%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 9,316,792 13.49%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 5,324,264 7.71%
Raymond James
Omnibus For Mutual Funds
House Acct Firm
Attn: Courtney Waller
880 Carillon Parkway
St. Petersburg, FL 33716-1102 5,233,800 7.58%
UBS WM USA
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761 6,733,653 9.75%
High Income First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit Of Customer
2801 Market St.
Saint Louis, MO 63103-2523 19,053,577 14.23%
MLPF&S
For The Sole Benefit Of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 30,965,003 23.13%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 24,992,248 18.67%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 12,435,618 9.29%
Raymond James
Omnibus For Mutual Funds
House Acct Firm
Attn: Courtney Waller
880 Carillon Parkway
St. Petersburg, FL 33716-1102 6,940,322 5.18%
UBS WM USA
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761 8,675,351 6.48%
Number of % of
Advisor Advisor Advisor
Class Class Class
Shares Fund Name and Address Shares Shares
------------ ----------------- ---------- -------
Intermediate Bond CollegeBound Fund
CBF- Quality Bond Fund
Customized Allocation 529 Plan
1345 Avenue of the Americas
New York, NY 10105-0302 6,484,624 77.21%
First Clearing, LLC
Special Custody Acct For The
Exclusive Benefit Of Customer
2801 Market St.
Saint Louis, MO 63103-2523 447,351 5.33%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 693,034 8.25%
Limited Duration MAC & Co.
Mutual Fund Operations
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230-3198 304,493 9.53%
NFS LLC FEBO
State Street Bank Trust Co.
1200 Crown Colony Drive
Quincy, MA 02169-0938 190,761 5.97%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 208,750 6.53%
Sanford Bernstein & Co. LLC
1 N. Lexington Ave., Fl. 17
White Plains, NY 10601-1785 223,152 6.98%
Sanford Bernstein & Co. LLC
1 N. Lexington Ave.
White Plains, NY 10601-1785 430,101 13.46%
Sanford Bernstein & Co. LLC
1 N. Lexington Ave., Fl. 17
White Plains, NY 10601-1785 207,156 6.48%
Unconstrained Bond Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905 1,019,350 16.71%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 307,190 5.04%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 578,653 9.49%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 452,493 7.42%
Sanford Bernstein & Co. LLC
1 N. Lexington Ave.
White Plains, NY 10601-1785 481,551 7.89%
Global Bond Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905 5,789,860 5.07%
First Clearing LLC
Special Custody Acct for the
Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523 15,544,770 13.60%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 19,310,331 16.90%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 25,789,369 22.57%
RBC Capital Markets LLC
Mutual Fund Omnibus Processing
Omnibus
Attn: Mutual Fund OPS Manager
510 Marquette Ave. South
Minneapolis, MN 55402-1110 16,453,208 14.40%
High Income First Clearing, LLC
Special Custody Acct for the
Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523 23,797,625 15.42%
LPL Financial
FBO Customer Accounts
Attn: Mutual Fund Operations
P.O. Box 509046
San Diego, CA 92150-9046 7,803,257 5.06%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 38,412,081 24.90%
Morgan Stanley Smith Barney
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311 26,452,797 17.15%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 10,341,985 6.70%
Number of % of
Class R Class R Class R
Shares Fund Name and Address Shares Shares
----------- ----------------- ---------- -------
Intermediate Bond DWS Trust CO TTEE
Wentworth Property Management Corp.
401K Savings Plan
P.O. Box 1757
Salem, NH 03079-1143 16,081 6.40%
First Colonial Family Practice TTEE
First Colonial Family Practice 401K
C/O Fascore LLC
8515 E. Orchard Road, 2T2
Greenwood Village, CO 80111-5002 113,703 45.24%
Frontier Trust Company FBO
Northeast Communications
Group Inc.
P.O. Box 10758
Fargo, ND 58106-0758 17,302 6.88%
MG Trust Company Cust FBO
MRF'S 401(K) Plan
700 17th St., Suite 300
Denver, CO 80202-3531 20,291 8.07%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 19,277 7.67%
State Street Bank & Trust
FBO ADP/MSDW Alliance
Attn: Ralph Campbell
105 Rosemont Rd.
Westwood, MA 02090-2318 30,400 12.10%
Unconstrained Bond Health Care Technology TTEE FBO
Health Care Technology 401K PSP
C/O Fascore LLC
8515 E. Orchard Road, 2T2
Greenwood Village, CO 80111-5002 8,914 7.71%
ING
Enhanced K-Choice
Trustee: Reliance Trust Company
400 Atrium Drive
Somerset, NJ 08873-4162 22,833 19.75%
MG Trust Company Trustee
Sanger & Eby Design
PS & 401K Pl
700 17th St., Suite 300
Denver, CO 80202-3531 8,888 7.69%
MG Trust CO Custodian FBO
Miscor Group LTD
401K Plan & TR
700 17th St., Suite 300
Denver, CO 80202-3531 15,328 13.26%
State Street Bank & Trust
FBO ADP/MSDW Alliance
Attn: Ralph Campbell
105 Rosemont Rd.
Westwood, MA 02090-2318 31,584 27.32%
State Street Corporation TTEE
C/F ADP Access
1 Lincoln Street
Boston, MA 02111-2901 19,282 16.68%
Global Bond ING Life Insurance and Annuity
Company Qualified Plan
1 Orange Way, #B3N
Windsor, CT 06095-4773 582,161 11.46%
Hartford Life Insurance Company
Separate Account 401
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 728,240 14.34%
State Street Corporation TTEE
C/F ADP Access
1 Lincoln St.
Boston, MA 02111-2901 2,435,432 47.96%
High Income Hartford Life Insurance Company
Separate Account 401
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 1,559,194 29.01%
ING Life Insurance
And Annuity Qualified Plan
1 Orange Way, #B3N
Windsor, CT 06095-4773 534,904 9.95%
MLPF&S
For The Sole Benefit of Its
Customers
Attn: Fund Admin
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246-6484 407,031 7.57%
NFS LLC FEBO
Reliance Trust CO Trustee Custodian
For TRS FBO Various Ret Plans
1150 S. Olive St., Suite 2700
Los Angeles, CA 90015-2211 844,292 15.71%
Number of % of
Class K Class K Class K
Shares Fund Name and Address Shares Shares
----------- ----------------- ---------- -------
Intermediate Bond Great-West Trust Co. LLC TTEE C
Crystal Steel 401K Savings Plan
8515 E. Orchard Rd., 2T2
Greenwood Village, CO 80111-5002 17,677 5.19%
Great-West Trust Co. LLC TTEE C
Minnesota Surgical Associates
8515 E. Orchard Rd., 2T2
Greenwood Village, CO 80111-5002 149,917 43.99%
Great-West Trust Co. LLC TTEE C
Shore Heart Group PA 401 K
8515 E. Orchard Rd., 2T2
Greenwood Village, CO 80111-5002 24,980 7.33%
Great-West Trust Co. LLC TTEE C
Varitronics Inc. Employees PSP
8515 E. Orchard Rd., 2T2
Greenwood Village, CO 80111-5002 18,092 5.31%
Great-West Trust Co. LLC TTEE C
TAP & Affiliates 401K
8515 E. Orchard Rd., 2T2
Greenwood Village, CO 80111-5002 59,359 17.42%
Unconstrained Bond AllianceBernstein L.P.
Attn: Brent Mather-Seed Acct.
1 N. Lexington Ave.
White Plains, NY 10601-1712 1,130 21.38%
Frontier Trust Co. C/F
Chelus Herdzik Speyer & Monte PC
P.O. Box 10758
Fargo, ND 58106-0758 2,966 56.13%
Great-West Trust Co. LLC TTEE C
Stoner, Albright & Company
Retirement Plan
8515 E. Orchard Rd., 2T2
Greenwood Village, CO 80111-5002 1,151 21.77%
Global Bond Capital Bank & Trust Company TTEE F
Avail Technologies INC 401K PSP
C/O Fascore
8515 E. Orchard Rd., 2T2
Greenwood Village, CO 80111-5002 75,352 5.34%
MG Trust Company Cust FBO
Ortho Arkansas P A Profit Sharing
700 17th Street, Suite 300
Denver, CO 80202-3531 122,698 8.69%
New York Life Trust Company
Amtrust Retirement Plan
51 Madison Ave., Room 117A
New York, NY 10010-1655 110,708 7.84%
NFS LLC FEBO
Alliance Capital Management LP
1345 Avenue of the Americas
New York, NY 10105-0302 547,836 38.80%
High Income New York Life Trust Company
FBO Local 37 Retirement Plan
51 Madison Avenue, Room 117A
New York, NY 10010-1655 249,374 9.06%
NFS LLC FEBO
Transamerica Life Insurance Co.
1150 S. Olive Street
Los Angeles, CA 90015-2211 1,871,566 68.02%
Number of % of
Class I Class I Class I
Shares Fund Name and Address Shares Shares
----------- ----------------- ---------- -------
Intermediate Bond AllianceBernstein L.P.
Attn: Brent Mather-Seed Acct.
1 N. Lexington Ave.
White Plains, NY 10601-1712 876 99.97%
Unconstrained Bond Sanford Bernstein & Co. LLC
1 N. Lexington Ave.
White Plains, NY 10601-1785 813,288 99.86%
Global Bond NFS LLC FEBO
Northern Trust Co
P.O. Box 92956
Chicago, IL 60675-2956 1,626,731 5.60%
New York Life Trust Company
Southern California IBEW-NECA
DC Plan
51 Madison Ave., Room 117A
New York, NY 10010-1655 8,903,460 30.67%
Sanford Bernstein & Co. LLC
1 N. Lexington Ave., Fl. 17
White Plains, NY 10601-1785 10,719,104 36.92%
High Income Charles Schwab & Co.
For the Exclusive Benefit
Of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905 663,398 8.79%
MAC & Co
Attn: Mutual Fund Operations
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230-3198 1,928,496 25.55%
MAC & Co
Attn: Mutual Fund Operations
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230-3198 1,783,005 23.62%
NFS LLC FEBO
Huntington National Bank
7 Easton Oval #EA4E70
Columbus, OH 43219-6010 625,184 8.28%
Sanford Bernstein & Co. LLC
1 N. Lexington Ave., Fl. 17
White Plains, NY 10601-1785 731,782 9.69%
|
Custodians and Accounting Agents
State Street Bank and Trust Company ("State Street"), One Lincoln
Street, Boston, MA 02110, acts as the custodian for the assets of Intermediate
Bond and Limited Duration but plays no part in deciding on the purchase or sale
of portfolio securities. Subject to the supervision of each Fund's Directors,
State Street may enter into subcustodial agreements for the holding of the
Fund's foreign securities.
Brown Brothers Harriman & Co. ("Brown Brothers"), 40 Water Street,
Boston, MA 02109, acts as the custodian for the assets of Unconstrained Bond,
Global Bond and High Income but plays no part in deciding the purchase or sale
of portfolio securities. Subject to the supervision of each Fund's Directors,
Brown Brothers may enter into subcustodial agreements for the holding of the
Fund's foreign securities.
Principal Underwriter
ABI, an indirect wholly-owned subsidiary of the Adviser, located at
1345 Avenue of the Americas, New York, NY 10105, is the Principal Underwriter of
shares of the Funds, and as such may solicit orders from the public to purchase
shares of the Funds. Under the Distribution Services Agreement, each Fund has
agreed to indemnify ABI, in the absence of its willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations thereunder, against
certain civil liabilities, including liabilities under the Securities Act.
Counsel
Legal matters in connection with the issuance of the shares of a
Fund offered hereby are passed upon by Seward & Kissel LLP, New York, NY 10004.
Independent Registered Public Accounting Firm
Ernst & Young LLP, 5 Times Square, New York, NY 10036, has been
appointed as the independent registered public accounting firm for the Funds.
Code of Ethics and Proxy Voting and Procedures
The Funds, the Adviser and ABI have each adopted codes of ethics
pursuant to Rule 17j-1 of 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 Funds have adopted the Adviser's proxy voting policies and
procedures. The Adviser's proxy voting policies and procedures are attached to
this SAI as Appendix A.
Information regarding how each 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) 277-4618; or
through the Fund's website at www.AllianceBernstein.com; or both; and (2) on the
SEC's website at www.sec.gov.
Additional Information
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 a Fund with the SEC under the Securities
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., or on the Internet at www.AllianceBernstein.com.
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The financial statements of each of Intermediate Bond, Unconstrained
Bond and High Income for the fiscal year ended October 31, 2012 and semi-annual
report for the six-month period ended April 30, 2013 with respect to High Income
and the report of Ernst & Young LLP, the independent registered public
accounting firm, are incorporated herein by reference to the each Fund's annual
report. The annual reports were filed on Form N-CSR with the SEC on January 7,
2013; the semi-annual report of High Income was filed on July 3, 2013. It is
available without charge upon request by calling ABIS at (800) 227-4618 or on
the Internet at www.AllianceBernstein.com.
The financial statements of Limited Duration and Global Bond for the
fiscal year ended September 30, 2012 and semi-annual report for the six-month
period ended March 31, 2013 for Global Bond and the report of Ernst & Young LLP,
independent registered public accounting firm, are incorporated herein by
reference to the Fund's annual report. The Funds' annual reports were filed on
Form N-CSR with the SEC on December 5, 2012; the semi-annual report of Global
Bond was filed on June 3, 2013. The annual reports are available without charge
upon request by calling ABIS at (800) 227-4618 or on the Internet at
www.AllianceBernstein.com.