File Nos. 2-29901
811-01716
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. 125 relates solely to the Class A, Class C,
Advisor Class, Class R, Class K and Class I shares, as applicable, of the
AllianceBernstein Select US Equity Portfolio. No information in the Registrant's
Registration Statement relating to the Class A, Class B, Class C, Class R, Class
K, Class I and Advisor Class shares, as applicable, of the AllianceBernstein
Small Cap Growth Portfolio, the Class A, Class C, Class R, Class K, Class I and
Advisor Class shares, as applicable, of the AllianceBernstein U.S. Strategic
Research Portfolio, the Class A, Class C, Class R, Class K, Class I and Advisor
Class shares, as applicable, of the AllianceBernstein Market Neutral Strategy -
U.S., the Class A, Class C, Class R, Class K, Class I and Advisor Class shares,
as applicable, of the AllianceBernstein Market Neutral Strategy - Global, the
Class A, Class C, Advisor Class, Class R, Class K and Class I shares, as
applicable, of the AllianceBernstein International Discovery Equity Portfolio,
the Class A, Class C, Advisor Class, Class R, Class K and Class I shares, as
applicable, of the AllianceBernstein International Focus 40 Portfolio, the Class
A, Class C, Advisor Class, Class R, Class K, Class I, Class 1 and Class 2
shares, as applicable, of the AllianceBernstein Dynamic All Market Fund, the
Class A, Class C, Advisor Class, Class R, Class K, Class I, Class 1 and Class 2
shares, as applicable, of the AllianceBernstein Dynamic All Market Plus Fund,
the Class A, Class C, Advisor Class, Class R, Class K and Class I shares, as
applicable, of the AllianceBernstein Emerging Markets Multi-Asset Portfolio, the
Class A, Class C, Advisor Class, Class R, Class K, Class I, Class 1 and Class 2
shares, as applicable, of the AllianceBernstein Emerging Markets Equity
Portfolio and the Class A, Class C, Advisor Class, Class R, Class K, Class I,
Class 1 and Class 2 shares, as applicable, of the AllianceBernstein Select US
Long/Short Portfolio is amended or superseded.
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 FUND'S RISKS AND INVESTMENTS
This section of the Prospectus provides additional information about the Fund's
investment practices and related risks. Most of these investment practices are
discretionary, which means that the Adviser may or may not decide to use them.
This Prospectus does not describe all of the Fund's investment practices and
additional information about the Fund's risks and investments can be found in
the Fund's SAI.
DERIVATIVES
The Fund may, but is not required to, use derivatives for hedging or other risk
management purposes or as part of its investment strategies. Derivatives are
financial contracts whose value depends on, or is derived from, the value of an
underlying asset, reference rate or index. The Fund may use derivatives to earn
income and enhance returns, to hedge or adjust the risk profile of its
investments, to replace more traditional direct investments and to obtain
exposure to otherwise inaccessible markets.
There are four principal types of derivatives--options, futures, forwards and
swaps--each of which is described below. Derivatives may be (i) standardized,
exchange-traded contracts or (ii) customized, privately negotiated contracts.
Exchange-traded derivatives tend to be more liquid and subject to less credit
risk than those that are privately negotiated.
The Fund's use of derivatives may involve risks that are different from, or
possibly greater than, the risks associated with investing directly in
securities or other more traditional instruments. These risks include the risk
that the value of a derivative instrument may not correlate perfectly, or at
all, with the value of the assets, reference rates, or indices that they are
designed to track. Other risks include the possible absence of a liquid
secondary market for a particular instrument and possible exchange-imposed
price fluctuation limits, either of which may make it difficult or impossible
to close out a position when desired, and the risk that the counterparty will
not perform its obligations. Certain derivatives may have a leverage component
and involve leverage risk. Adverse changes in the value or level of the
underlying asset, note or index can result in a loss substantially greater than
the Fund's investment (in some cases, the potential loss is unlimited).
The Fund's investments in derivatives may include, but are not limited to, the
following:
. FORWARD CONTRACTS--A forward contract is an agreement that obligates one
party to buy, and the other party to sell, a specific quantity of an
underlying commodity or other tangible asset for an agreed-upon price at a
future date. A forward contract generally is settled by physical delivery of
the commodity or tangible asset to an agreed-upon location (rather than
settled by cash), or is rolled forward into a new forward contract or, in
the case of a non-deliverable forward, by a cash payment at maturity. The
Fund's investments in forward contracts may include the following:
- Forward Currency Exchange Contracts. The Fund may purchase or sell forward
currency exchange contracts for hedging purposes to minimize the risk from
adverse changes in the relationship between the U.S. Dollar and other
currencies or for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Other
Derivatives and Strategies--Currency Transactions". The Fund, for example,
may enter into a forward contract as a transaction hedge (to "lock in" the
U.S. Dollar price of a non-U.S. Dollar security), as a position hedge (to
protect the value of securities the Fund owns that are denominated in a
foreign currency against substantial changes in the value of the foreign
currency) or as a cross-hedge (to protect the value of securities the Fund
owns that are denominated in a foreign currency against substantial changes
in the value of that foreign currency by entering into a forward contract
for a different foreign currency that is expected to change in the same
direction as the currency in which the securities are denominated).
. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A futures contract is a
standardized, exchange-traded agreement that obligates the buyer to buy and
the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or
index) at a specific price on the contract maturity date. Options on futures
contracts are options that call for the delivery of futures contracts upon
exercise. The Fund may purchase or sell futures contracts and options
thereon to hedge against changes in interest rates, securities (through
index futures or options) or currencies. In addition, the Fund may, for
example, purchase or sell futures contracts for foreign currencies or
options thereon for non-hedging purposes as a means of making investments in
foreign currencies, as described below under "Other Derivatives and
Strategies--Currency Transactions".
. OPTIONS--An option is an agreement that, for a premium payment or fee, gives
the option holder (the buyer) the right but not the obligation to buy (a
"call option") or sell (a "put option") the underlying asset (or settle for
cash an amount based on an underlying asset, rate or index) at a specified
price (the exercise price) during a period of time or on a specified date.
Investments in options are considered speculative. The Fund may lose the
premium paid for them if the price of the underlying security or other asset
decreased or remained the same (in the case of a call option) or increased
or remained the same (in the case of a put option). If a put or call option
purchased by the Fund were permitted to expire without being sold or
exercised, its premium would represent a loss to the Fund. The Fund's
investments in options may include the following:
- Options on Securities. The Fund may purchase or write a put or call option
on securities. The Fund will only exercise an option it purchased if the
price of the security was less (in the case of a put option) or more (in the
case
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of a call option) than the exercise price. If the Fund does not exercise an
option, the premium it paid for the option will be lost. The Fund may write
covered options, which means writing an option for securities the Fund owns,
and uncovered options. The Fund may also enter into options on the yield
"spread" or yield differential between two securities. In contrast to other
types of options, this option is based on the difference between the yields
of designated securities, futures or other instruments. In addition, the
Fund may write covered straddles. A straddle is a combination of a call and
a put written on the same underlying security. In purchasing an option on
securities, the 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, the 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 the Fund were permitted to expire without being sold or
exercised, its premium would represent a loss to the Fund.
If the Fund purchases or writes privately negotiated options on securities,
it will effect such transactions only with investment dealers and other
financial institutions (such as commercial banks or savings and loan
institutions) deemed creditworthy by the Adviser. The Adviser has adopted
procedures for monitoring the creditworthiness of such counterparties.
- 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.
- Options on Foreign Currencies. The Fund may invest in options on foreign
currencies that are privately negotiated or traded on U.S. or foreign
exchanges for hedging purposes to protect against declines in the
U.S. Dollar value of foreign currency denominated securities held by the
Fund and against increases in the U.S. Dollar cost of securities to be
acquired. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates, although if rates
move adversely, the Fund may forfeit the entire amount of the premium plus
related transaction costs. The Fund may also invest in options on foreign
currencies for non-hedging purposes as a means of making investments in
foreign currencies, as described below under "Other Derivatives and
Strategies--Currency Transactions".
- Other Option Strategies. In an effort to earn extra income, to adjust
exposure to individual securities or markets, or to protect all or a portion
of its portfolio from a decline in value, sometimes within certain ranges,
the Fund may use option strategies such as the concurrent purchase of a call
or put option, including on individual securities and stock indices, futures
contracts (including on individual securities and stock indices) or shares
of exchange-traded funds ("ETFs") at one strike price and the writing of a
call or put option on the same individual security, stock index, futures
contract or ETF at a higher strike price in the case of a call option or at
a lower strike price in the case of a put option. The maximum profit from
this strategy would result, for the call options, from an increase in the
value of the individual security, stock index, futures contract or ETF above
the higher strike price or, for the put options, from the decline in the
value of the individual security, stock index, futures contract or ETF below
the lower strike price. If the price of the individual security, stock
index, futures contract or ETF declines, in the case of the call option, or
increases, in the case of the put option, the Fund has the risk of losing
the entire amount paid for the call or put options.
. 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., currency exchange rates in the case of currency swaps) for a
specified amount of an underlying asset (the "notional" principal amount).
Except for currency swaps, as described below, the notional principal amount
is used solely to calculate the payment stream, but is not exchanged.
Rather, most swaps are entered into on a net basis (i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments). The Fund's investments in swap
transactions may include the following:
- Total Return Swaps. The Fund may enter into total return swaps in order to
take a "long" or "short" position with respect to an underlying asset. A
total return swap involves commitments to pay interest in exchange for a
market-linked return based on a notional amount of the underlying asset.
Therefore, when the Fund enters into a total return swap, it is subject to
the market price volatility of the underlying asset. To the extent that the
total return of the security, group of securities or index underlying the
swap exceeds or falls short of the offsetting interest obligation, the Fund
will receive or make a payment to the counterparty.
- Currency Swaps. The Fund may invest in currency swaps for hedging purposes
to protect against adverse changes in exchange rates between the U.S. Dollar
and other currencies or for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Other
Derivatives and Strategies--Currency Transactions". Currency swaps involve
the
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individually negotiated exchange by the Fund with another party of a series
of payments in specified currencies. Actual principal amounts of currencies
may be exchanged by the counterparties at the initiation, and again upon the
termination, of the transaction. Therefore, the entire principal value of a
currency swap is subject to the risk that the swap counterparty will default
on its contractual delivery obligations.
. OTHER DERIVATIVES AND STRATEGIES--
- Currency Transactions. The Fund may invest in non-U.S. Dollar-denominated
securities on a currency hedged or un-hedged basis. The Adviser may actively
manage the Fund's currency exposures and may seek investment opportunities
by taking long or short positions in currencies through the use of
currency-related derivatives, including forward currency exchange contracts,
futures and options on futures, swaps and options. The Adviser may enter
into transactions for investment opportunities when it anticipates that a
foreign currency will appreciate or depreciate in value but securities
denominated in that currency are not held by the Fund and do not present
attractive investment opportunities. Such transactions may also be used when
the Adviser believes that it may be more efficient than a direct investment
in a foreign currency-denominated security. The Fund may also conduct
currency exchange contracts on a spot basis (i.e., for cash at the spot rate
prevailing in the currency exchange market for buying or selling currencies).
- Synthetic Foreign Equity Securities. The Fund may invest in different types
of derivatives generally referred to as synthetic foreign equity securities.
These securities may include international warrants or local access
products. International warrants are financial instruments issued by banks
or other financial institutions, which may or may not be traded on a foreign
exchange. International warrants are a form of derivative security that may
give holders the right to buy or sell an underlying security or a basket of
securities representing an index from or to the issuer of the warrant for a
particular price or may entitle holders to receive a cash payment relating
to the value of the underlying security or index, in each case upon exercise
by the Fund. Local access products are similar to options in that they are
exercisable by the holder for an underlying security or a cash payment based
upon the value of that security, but are generally exercisable over a longer
term than typical options. These types of instruments may be American style,
which means that they can be exercised at any time on or before the
expiration date of the international warrant, or European style, which means
that they may be exercised only on the expiration date.
Other types of synthetic foreign equity securities in which the Fund may
invest include covered warrants and low exercise price warrants. Covered
warrants entitle the holder to purchase from the issuer, typically a
financial institution, upon exercise, common stock of an international
company or receive a cash payment (generally in U.S. Dollars). The issuer of
the covered warrants usually owns the underlying security or has a
mechanism, such as owning equity warrants on the underlying securities,
through which it can obtain the securities. The cash payment is calculated
according to a predetermined formula, which is generally based on the
difference between the value of the underlying security on the date of
exercise and the strike price. Low exercise price warrants are warrants with
an exercise price that is very low relative to the market price of the
underlying instrument at the time of issue (e.g., one cent or less). The
buyer of a low exercise price warrant effectively pays the full value of the
underlying common stock at the outset. In the case of any exercise of
warrants, there may be a time delay between the time a holder of warrants
gives instructions to exercise and the time the price of the common stock
relating to exercise or the settlement date is determined, during which time
the price of the underlying security could change significantly. In
addition, the exercise or settlement date of the warrants may be affected by
certain market disruption events, such as difficulties relating to the
exchange of a local currency into U.S. Dollars, the imposition of capital
controls by a local jurisdiction or changes in the laws relating to foreign
investments. These events could lead to a change in the exercise date or
settlement currency of the warrants, or postponement of the settlement date.
In some cases, if the market disruption events continue for a certain period
of time, the warrants may become worthless, resulting in a total loss of the
purchase price of the warrants.
The Fund will acquire synthetic foreign equity securities issued by entities
deemed to be creditworthy by the Adviser, which will monitor the
creditworthiness of the issuers on an ongoing basis. Investments in these
instruments involve the risk that the issuer of the instrument may default
on its obligation to deliver the underlying security or cash in lieu
thereof. These instruments may also be subject to liquidity risk because
there may be a limited secondary market for trading the warrants. They are
also subject, like other investments in foreign securities, to foreign
(non-U.S.) risk and currency risk.
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.
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Convertible debt securities that are rated Baa3 or lower by Moody's Investor
Service, Inc. or BBB- or lower by Standard & Poor's Rating Services ("S&P") or
Fitch Ratings and comparable unrated securities may share some or all of the
risks of debt securities with those ratings.
DEPOSITARY RECEIPTS AND SECURITIES OF SUPRANATIONAL ENTITIES
The Fund may invest in depositary receipts. American Depositary Receipts, or
ADRs, are depositary receipts typically issued by a U.S. bank or trust company
that evidence ownership of underlying securities issued by a foreign
corporation. Global Depositary Receipts, or GDRs, European Depositary Receipts,
or EDRs, and other types of depositary receipts are typically issued by
non-U.S. banks or trust companies and evidence ownership of underlying
securities issued by either a U.S. or a non-U.S. company. Depositary receipts
may not necessarily be denominated in the same currency as the underlying
securities into which they may be converted. In addition, the issuers of the
stock underlying unsponsored depositary receipts are not obligated to disclose
material information in the United States. Generally, depositary receipts in
registered form are designed for use in the U.S. securities markets, and
depositary receipts in bearer form are designed for use in securities markets
outside of the United States. For purposes of determining the country of
issuance, investments in depositary receipts of either type are deemed to be
investments in the underlying securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include the World Bank
(International Bank for Reconstruction and Development) and the European
Investment Bank. "Semi-governmental securities" are securities issued by
entities owned by either a national, state or equivalent government or are
obligations of one of such government jurisdictions that are not backed by its
full faith and credit and general taxing powers.
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. The Fund may experience greater
price volatility and significantly lower liquidity than U.S. portfolios. These
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States.
Securities registration, custody, and settlement may in some instances be
subject to delays and legal and administrative uncertainties. Foreign
investment in the securities markets of certain foreign countries is restricted
or controlled to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may increase the costs
and expenses of the Fund. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from certain countries is
controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in
a country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances.
The Fund also could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require the Fund to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to the Fund. These factors may affect the liquidity of the Fund's
investments in any country and the Adviser will monitor the effect of any such
factor or factors on the Fund's investments. Transaction costs, including
brokerage commissions for transactions both on and off the securities
exchanges, in many foreign countries are generally higher than in the United
States.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects. Substantially less
information is publicly available about certain non-U.S. issuers than is
available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, revolutions, wars or
diplomatic developments could affect adversely the economy of a foreign
country. In the event of nationalization, expropriation, or other confiscation,
the Fund could lose its entire investment in securities in the country
involved. In addition, laws in foreign countries governing business
organizations, bankruptcy and insolvency may provide less protection to
security holders such as the Fund than that provided by U.S. laws.
Investments in securities of companies in emerging markets involve special
risks. There are approximately 100 countries identified by the World Bank
(International Bank for Reconstruction and Development) 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.
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Argentina Hungary Peru
Belarus India Philippines
Belize Indonesia Poland
Brazil Iraq Russia
Bulgaria Ivory Coast Senegal
Chile Jamaica Serbia
China Jordan South Africa
Colombia Kazakhstan South Korea
Croatia Lebanon Sri Lanka
Dominican Republic Lithuania Taiwan
Ecuador Malaysia Thailand
Egypt Mexico Turkey
El Salvador Mongolia Ukraine
Gabon Nigeria Uruguay
Georgia Pakistan Venezuela
Ghana Panama Vietnam
|
Investing in emerging market securities imposes risks different from, or
greater than, risks of investing in domestic securities or in foreign,
developed countries. These risks include: smaller market capitalization of
securities markets, which may suffer periods of relative illiquidity;
significant price volatility; restrictions on foreign investment; and
repatriation of investment income and capital. In addition, foreign investors
may be required to register the proceeds of sales and future economic or
political crises could lead to price controls, forced mergers, expropriation or
confiscatory taxation, seizure, nationalization or creation of government
monopolies. The currencies of emerging market countries may experience
significant declines against the U.S. Dollar, and devaluation may occur
subsequent to investments in these currencies by the Fund. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, negative
effects on the economies and securities markets of certain emerging market
countries.
Additional risks of emerging market securities may include: greater social,
economic and political uncertainty and instability; more substantial
governmental involvement in the economy; less governmental supervision and
regulation; unavailability of currency hedging techniques; companies that are
newly organized and small; differences in auditing and financial reporting
standards, which may result in unavailability of material information about
issuers; and less developed legal systems. In addition, emerging securities
markets may have different clearance and settlement procedures, which may be
unable to keep pace with the volume of securities transactions or otherwise
make it difficult to engage in such transactions. Settlement problems may cause
the Fund to miss attractive investment opportunities, hold a portion of its
assets in cash pending investment, or be delayed in disposing of a portfolio
security. Such a delay could result in possible liability to a purchaser of the
security.
FOREIGN (NON-U.S.) CURRENCIES
Investing in and exposure to foreign currencies involve special risks and
considerations, in that the Fund will be adversely affected by reductions in
the value of foreign currencies relative to the U.S. Dollar. Foreign currency
exchange rates may fluctuate significantly. They are determined by supply and
demand in the foreign exchange markets, the relative merits of investments in
different countries, actual or perceived changes in interest rates, and other
complex factors. Currency exchange rates also can be affected unpredictably by
intervention (or the failure to intervene) by U.S. or foreign governments or
central banks or by currency controls or political developments. In light of
these risks, the Fund may engage in certain currency hedging transactions, as
described above, which involve certain special risks.
The Fund may also invest directly in foreign currencies for non-hedging
purposes, 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 the Fund's NAV to fluctuate.
ILLIQUID SECURITIES
Under current Securities and Exchange Commission ("Commission") guidelines, the
Fund limits its investments in illiquid securities to 15% of its net assets.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount the Fund has valued the securities. If the Fund
invests in illiquid securities, the Fund may not be able to sell such
securities and may not be able to realize their full value upon sale.
Restricted securities (securities subject to legal or contractual restrictions
on resale) may be illiquid. Some restricted securities (such as securities
issued pursuant to Rule 144A under the Securities Act of 1933 or certain
commercial paper) may be treated as liquid, although they may be less liquid
than registered securities traded on established secondary markets.
INVESTMENT IN EXCHANGE-TRADED FUNDS AND OTHER INVESTMENT COMPANIES
The Fund may invest in shares of 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. 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. The 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 their
NAV. Accordingly, there may be times when an ETF's shares trade at a discount
to its NAV.
The 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 Fund intends to invest
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uninvested cash balances in an affiliated money market fund as permitted by
Rule 12d1-1 under the 1940 Act.
LEVERAGE
The Fund's investments in certain derivatives may effectively leverage the
Fund's portfolio. In addition, the Fund may use leverage for investment
purposes by entering into transactions such as reverse repurchase agreements.
This means that the Fund uses cash made available during the term of these
transactions to make investments in other securities.
Utilization of leverage, which is usually considered speculative, involves
certain risks to the Fund's shareholders. These include a higher volatility of
the NAV of the Fund's shares and the relatively greater effect on the NAV of
the shares. So long as the Fund is able to realize a return on its investments
made with leveraged cash that is higher than 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 carrying costs of leveraged transactions approach the return
on the Fund's investments made through leverage, the benefit of leverage to the
Fund's shareholders will be reduced. If the carrying costs of leveraged
transactions were to exceed the return to shareholders, the Fund's use of
leverage would result in a lower rate of return. Similarly, the effect of
leverage in a declining market would normally be a greater decrease in NAV. In
an extreme case, if the Fund's current investment income were not sufficient to
meet the carrying costs of leveraged transactions, it could be necessary for
the Fund to liquidate certain of its investments in adverse circumstances,
potentially significantly reducing its NAV.
LOANS OF PORTFOLIO SECURITIES
For the purposes of achieving income, the Fund may make secured loans of
portfolio securities to brokers, dealers and financial institutions
("borrowers") to the extent permitted under the 1940 Act or the rules and
regulations thereunder (as such statute, rules or regulations may be amended
from time to time) or by guidance regarding, interpretations of or exemptive
orders under the 1940 Act. Under the Fund's securities lending program, all
securities loans will be secured continually by cash collateral. The loans will
be made only to borrowers 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 justifies the attendant risk. The Fund will be
compensated for the loan from a portion of the net return from the interest
earned on cash collateral after a rebate paid to the borrower (in some cases
this rebate may be a "negative rebate", or fee paid by the borrower to the Fund
in connection with the loan) and payments for fees of the securities lending
agent and for certain other administrative expenses.
The Fund will have the right to call a loan and obtain the securities loaned at
any time on notice to the borrower within the normal and customary settlement
time for the securities. While the securities are on loan, the borrower is
obligated to pay the Fund amounts equal to any income or other distributions
from the securities. The Fund will not have the right to vote any securities
during the existence of a loan, but will have the right to regain ownership of
loaned securities in order to exercise voting or other ownership rights. When
the Fund lends securities, its investment performance will continue to reflect
changes in the value of the securities loaned.
The Fund will invest cash collateral in a money market fund approved by the
Fund's Board of Directors (the "Board") and expected to be managed by the
Adviser, such as AllianceBernstein Exchange Reserves. Any such investment will
be at the Fund's risk. The Fund may pay reasonable finders', administrative,
and custodial fees in connection with a loan.
A principal risk of 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.
PREFERRED STOCK
The Fund may invest in preferred stock. Preferred stock is subordinated to any
debt the issuer has outstanding. Accordingly, preferred stock dividends are not
paid until all debt obligations are first met. Preferred stock may be subject
to more fluctuations in market value, due to changes in market participants'
perceptions of the issuer's ability to continue to pay dividends, than debt of
the same issuer. These investments include convertible preferred stock, which
includes an option for the holder to convert the preferred stock into the
issuer's common stock under certain conditions, among which may be the
specification of a future date when the conversion must begin, a certain number
of common shares per preferred share, or a certain price per share for the
common stock. Convertible preferred stock tends to be more volatile than
non-convertible preferred stock because its value is related to the price of
the issuer's common stock as well as the dividends payable on the preferred
stock.
REAL ESTATE INVESTMENT TRUSTS
Real Estate Investment Trusts, or REITs, are pooled investment vehicles that
invest primarily in income-producing real estate or real estate related loans
or interests. REITs are generally classified as equity REITs, mortgage REITs or
a combination of equity and mortgage REITs. Equity REITs invest the majority of
their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority
of their assets in real estate mortgages and derive income from the collection
of interest and principal payments. Similar to investment companies such as the
Fund, REITs are not taxed on income distributed to shareholders provided they
comply with several requirements of the United States Internal Revenue Code of
1986, as amended (the "Code"). The Fund will indirectly bear its proportionate
share of expenses incurred by REITs in which the Fund invests in addition to
the expenses incurred directly by the Fund.
REPURCHASE AGREEMENTS AND BUY/SELL BACK TRANSACTIONS
The Fund may enter into repurchase agreements. From a technical perspective, in
a repurchase agreement transaction the Fund
12
buys a security and simultaneously agrees to sell it back to the counterparty
at a specified price in the future. However, a repurchase agreement is
economically similar to a secured loan, in that the Fund lends cash to a
counterparty for a specific term, normally a day or a few days, and is given
acceptable collateral (the purchased securities) to hold in case the
counterparty does not repay the loan. The difference between the purchase price
and the repurchase price of the securities reflects an agreed-upon "interest
rate". Given that the price at which the Fund will sell the collateral back is
specified in advance, the Fund is not exposed to price movements on the
collateral unless the counterparty defaults. If the counterparty defaults on
its obligation to buy back the securities at the maturity date and the
liquidation value of the collateral is less than the outstanding loan amount,
the Fund would suffer a loss. In order to further mitigate any potential credit
exposure to the counterparty, if the value of the securities falls below a
specified level that is linked to the loan amount during the life of the
agreement, the counterparty must provide additional collateral to support the
loan.
The Fund may enter into buy/sell back transactions, which are similar to
repurchase agreements. In this type of transaction, the Fund enters a trade to
buy securities at one price and simultaneously enters a trade to sell the same
securities at another price on a specified date. Similar to a repurchase
agreement, the repurchase price is higher than the sale price and reflects
current interest rates. Unlike a repurchase agreement, however, the buy/sell
back transaction is considered two separate transactions.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. The terms of these
agreements are essentially the reverse of "Repurchase Agreements" described
above; in a reverse repurchase agreement transaction, the Fund sells a security
and simultaneously agrees to repurchase it at a specified time and price. The
economic effect of a reverse repurchase agreement is that of the Fund borrowing
money on a secured basis, and reverse repurchase agreements may be considered
borrowings for some purposes. Even though the Fund posts securities as
collateral, the Fund maintains exposure to price declines on these securities
since it has agreed to repurchase the securities at a fixed price. Accordingly,
reverse repurchase agreements create leverage risk for the Fund because the
Fund maintains exposure to price declines of both the securities it sells in
the reverse repurchase agreement and any securities it purchases with the cash
it receives under the reverse repurchase agreement. If the value of the posted
collateral declines, the counterparty would require the Fund to post additional
collateral. If the value of the collateral increases, the Fund may ask for some
of its collateral back. If the counterparty defaults and fails to sell the
securities back to the Fund at a time when the market purchase price of the
securities exceeds the agreed-upon repurchase price, the Fund would suffer a
loss.
In the event the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent, the Fund's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligation to repurchase the
securities.
RIGHTS AND WARRANTS
Rights and warrants are option securities permitting their holders to subscribe
for other securities. Rights are similar to warrants except that they have a
substantially shorter duration. Rights and warrants do not carry with them
dividend or voting rights with respect to the underlying securities, or any
rights in the assets of the issuer. As a result, an investment in rights and
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not
necessarily change with the value of the underlying securities, and a right or
a warrant ceases to have value if it is not exercised prior to its expiration
date.
SHORT SALES
The 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 the 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 the 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. Although the Fund's gain is limited to the price at which it sold
the security short, its potential loss is theoretically unlimited.
SMALLER, LESS-SEASONED COMPANIES
Investment in smaller, less-seasoned companies involves greater risks than are
customarily associated with securities of more established companies. Companies
in the earlier stages of their development often have products and management
personnel that have not been thoroughly tested by time or the marketplace;
their financial resources may not be as substantial as those of more
established companies. The securities of smaller, less-seasoned companies may
have relatively limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or broad market indices. The revenue flow of such companies may be erratic and
their results of operations may fluctuate widely and may also contribute to
stock price volatility.
STRUCTURED PRODUCTS
The Fund may invest in certain derivatives-type investments that combine a
stock or bond with, for example, a futures contract or an option. These
investments include structured notes and indexed securities and
commodity-linked notes and commodity index-linked notes. The performance of the
structured product, which is generally structured as a note or other
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 or a securities or commodities index. The
structured product may not pay interest or pro-
13
tect 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 or commodities and related derivatives, but
may potentially be more volatile, less liquid and carry greater market risk
than investments in traditional securities. The purchase of a structured
product also exposes the Fund to the credit risk of the issuer 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 index thereof), unlike a typical note
where the borrower agrees to make fixed or floating interest payments and to
pay a fixed sum at maturity. Indexed securities may include structured notes as
well as securities other than debt securities, the interest or principal of
which is determined by an unrelated indicator.
Commodity-linked notes and commodity index-linked notes provide exposure to the
commodities markets. These are derivative securities with one or more
commodity-linked components that have payment features similar to commodities
futures contracts, commodity options, commodity indices or similar instruments.
Commodity-linked products may be 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.
U.S. COMPANIES
For purposes of the Fund's policy to invest at least 80% of its net assets in
equity securities of U.S. companies, a U.S. company is a company (1) that is
organized under the laws of the United States or a political subdivision of the
United States, (2) the equity securities of which are principally traded on a
United States exchange or in a United States market, or (3) that, in its most
recent fiscal year, derived at least 50% of its revenues or profits from goods
produced or sold, investments made, or services performed in the United States
or that has at least 50% of its assets in the United States.
FUTURE DEVELOPMENTS
The Fund may take advantage of other investment practices that are not
currently contemplated for use by the Fund, or are not available but may yet be
developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that exceed those
involved in the activities described above.
STATEMENT OF ADDITIONAL INFORMATION
November 1, 2012
This Statement of Additional Information ("SAI") is not a
prospectus, but supplements and should be read in conjunction with the current
prospectus, dated November 1, 2012, for the AllianceBernstein(R) Select US
Equity Portfolio (the "Fund") of AllianceBernstein Cap Fund, Inc. (the
"Company") that offers Class A, Class C, Class R, Class K, Class I and Advisor
Class shares of the Fund (the "Prospectus"). Financial statements for the period
ended June 30, 2012 are included in the Fund's annual report to shareholders and
are incorporated in this SAI by reference. Copies of the Prospectus 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
INFORMATION ABOUT THE FUND AND ITS INVESTMENTS.............................. 1
INVESTMENT RESTRICTIONS..................................................... 29
MANAGEMENT OF THE FUND...................................................... 31
EXPENSES OF THE FUND........................................................ 50
PURCHASE OF SHARES.......................................................... 54
REDEMPTION AND REPURCHASE OF SHARES......................................... 76
SHAREHOLDER SERVICES........................................................ 78
NET ASSET VALUE............................................................. 81
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................................... 84
PORTFOLIO TRANSACTIONS...................................................... 92
GENERAL INFORMATION......................................................... 96
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM................................................... 101
APPENDIX A: STATEMENT OF POLICIES AND PROCEDURES FOR PROXY VOTING........... A-1
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AllianceBernstein(R) and the AB Logo are registered trademarks and service marks
used by permission of the owner, AllianceBernstein L.P.
INFORMATION ABOUT THE FUND AND ITS INVESTMENTS
Introduction to the Fund
The Company's shares are offered in separate series. The Fund is a
series of the Company, a separate pool of assets constituting, in effect, a
separate open-end management investment company with its own investment
objective and policies. Except as otherwise noted, the Fund's investment
objective 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 Board of Directors of the Company (the "Board"
or the "Directors") without shareholder approval. However, the Fund will not
change its investment objective without at least 60 days' prior written notice
to shareholders. There is no guarantee that the Fund will achieve its investment
objective. Whenever any investment policy or restriction states a percentage of
the 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 the 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 Fund's investment policies and
practices supplements the information set forth in the Prospectus.
Convertible Securities
Convertible securities include bonds, debentures, corporate notes
and preferred stocks that are convertible at a stated exchange rate into shares
of the underlying common stock. Prior to their conversion, convertible
securities have the same general characteristics as non-convertible debt
securities, which provide a stable stream of income with generally higher yields
than those of equity securities of the same or similar issuers. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
While convertible securities generally offer lower interest or dividend yields
than non-convertible debt securities of similar quality, they do enable the
investor to benefit from increases in the market price of the underlying common
stock.
When the market price of the common stock underlying a convertible
security increases, the price of the convertible security increasingly reflects
the value of the underlying common stock and may rise accordingly. As the market
price of the underlying common stock declines, the convertible security tends to
trade increasingly on a yield basis, and thus may not depreciate to the same
extent as the underlying common stock. Convertible securities rank senior to
common stocks on an issuer's capital structure. They consequently entail less
risk than the issuer's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed-income security.
Depositary Receipts
The Fund may invest in depositary receipts. American Depositary
Receipts ("ADRs") are depositary receipts typically issued by a U.S. bank or
trust company that evidence ownership of underlying securities issued by a
foreign corporation. European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") or other types of depositary receipts are typically issued by
non-U.S. banks or trust companies and evidence ownership of underlying
securities issued by either a U.S. or non-U.S. company. Transactions in these
securities may not necessarily be settled in the same currency as transactions
in the securities that they represent. In addition, the issuers of the
securities of unsponsored depositary receipts are not obligated to disclose
material information in the United States. Generally, ADRs, in registered form,
are designed for use in the U.S. securities markets, EDRs, in bearer form, are
designed for use in European securities markets and GDRs, in bearer form, are
designed for use in two or more securities markets, such as those of Europe and
Asia.
Derivatives
The Fund may, but is not required to, use derivatives for hedging or
other risk management purposes or as part of its investment strategies.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. 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 four principal types of derivative instruments, as
well as the methods in which they may be used by the 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 Fund 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, which may be standardized or
customized and privately negotiated, is an 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 is 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 Fund 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 the 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 the 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 the
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, the 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
use of clearinghouses for 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 the 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 the 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, the 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. The 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"), including registration as a "commodity pool
operator". The Fund has claimed an exclusion from the definition of commodity
pool operator under the CEA and is not currently subject to registration,
disclosure and reporting requirements under the CEA. The Commodity Futures
Trading Commission ("CFTC") has recently adopted amendments to this exclusion.
These amendments become effective December 31, 2012 and may necessitate that the
Fund comply with regulatory obligations and restrictions under the CEA. Such
regulation could affect the Fund's expenses or its use of derivative
instruments.
Use of Options, Futures, Forwards and Swaps by the 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.
The 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. The 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. For instance, the 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 the Fund believes that a
foreign currency may suffer a substantial decline against the U.S. Dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's 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, the Fund might be required to complete
such forward transactions at prices inferior to the then current market values.
The Fund may also purchase or sell forward currency exchange contracts for
non-hedging purposes as a means of making 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, the 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.
The 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, the 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, the 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. The Fund may write and purchase call and
put options on securities. In purchasing an option on securities, the 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,
the 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 the Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
The 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. The Fund
may write covered options or uncovered options. A call option written by the
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 the 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 the 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.
The Fund may purchase call options to hedge against an increase in
the price of securities that the Fund anticipates purchasing in the future. If
such increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by 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.
The 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.
The 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 relatively 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.
The Fund may purchase or write options on securities of the types in
which they are permitted to invest in privately negotiated (i.e.,
over-the-counter) transactions. By writing a call option, the 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, the
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.
The 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.
-- Other Option Strategies. In an effort to earn extra income, to
adjust exposure to individual securities or markets, or to protect all or a
portion of its portfolio from a decline in value, sometimes within certain
ranges, the Fund may use option strategies such as the concurrent purchase of a
call or put option, including on individual securities and stock indexes,
futures contracts (including on individual securities and stock indexes) or
shares of exchange-traded funds ("ETFs") at one strike price and the writing of
a call or put option on the same individual security, stock index, futures
contract or ETF at a higher strike price in the case of a call option or at a
lower strike price in the case of a put option. The maximum profit from this
strategy would result for the call options from an increase in the value of the
individual security, stock index, futures contract or ETF above the higher
strike price or for the put options the decline in the value of the individual
security, stock index, futures contract or ETF below the lower strike price. If
the price of the individual security, stock index, futures contract or ETF
declines in the case of the call option or increases in the case of the put
option, the Fund has the risk of losing the entire amount paid for the call or
put 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.
The Fund may write (sell) call and put options and purchase call and
put options on securities indices. If the 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
the 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 the 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. The Fund may purchase and write
options on foreign currencies for hedging and 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, the Fund may purchase call options on the currency. 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.
In addition, where the 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, the Fund
could write a put option on the relevant currency, which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund 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, the Fund may also invest in options on foreign currencies for non-hedging
purposes as a means of making investments in foreign currencies. The 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.
The 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 loss on the
purchase of the call option. Put options may be purchased by the Fund for the
purpose of benefiting from a decline in the value of a currency that the Fund
does not own. The 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 the 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 purchase or sale of the
underlying currency.
--Futures Contracts and Options on Futures Contracts. Futures
contracts that the 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. The 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
the Fund's current or intended investments in fixed-income securities. For
example, if the Fund owned long-term bonds and interest rates were expected to
increase, the 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 the Fund's
portfolio. However, the market for interest rate futures contracts may be more
liquid than the cash market for individual bonds, and the use of interest rate
futures contracts as a hedging technique allows the 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 the Fund's interest rate futures contracts would be
expected to increase at approximately the same rate, thereby keeping the net
asset value, or NAV, of the 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, the 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 the Fund's
cash reserves could then be used to buy long-term bonds on the cash market.
The Fund may purchase and sell foreign currency futures contracts
for hedging or risk management 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. The
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, the Fund's loss on the foreign currency futures contract may or may
not be offset by an increase in the value of the securities because a decline in
the price of the security stated in terms of the foreign currency may be greater
than the increase in its value as a result of the change in exchange rates.
Conversely, the 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 the 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.
The Fund may also engage in currency "cross hedging" when, in the
opinion of the Adviser, the historical relationship among foreign currencies
suggests that the 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.
The Fund may also use foreign currency futures contracts and options
on such contracts for non-hedging purposes. Similar to options on currencies
described above, the 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 futures contracts on foreign currencies and options on such contracts
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 the Fund's current or intended
investments from broad fluctuations in stock or bond prices. For example, the
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 the 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 the 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 the Fund's
portfolio. If the futures price at expiration of the option is below the
exercise price, the Fund will retain the full amount of the option premium,
which provides a partial hedge against any decline that may have occurred in the
Fund's portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the 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, the Fund will retain the full amount of the option premium, which
provides a partial hedge against any increase in the price of securities which
the Fund intends to purchase. If a put or call option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between changes in
the value of its portfolio securities and changes in the value of its options on
futures positions, the Fund's losses from exercised options on futures may to
some extent be reduced or increased by changes in the value of portfolio
securities.
The 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, the 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 the
Fund will increase prior to acquisition due to a market advance or changes in
interest or exchange rates, the 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.
--Total Return Swaps. The 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
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 or make a payment to the counterparty.
--Currency Swaps. The 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. Since
currency swaps are typically individually negotiated, the Fund expects to
achieve an acceptable degree of correlation between its portfolio investments
and its currency swaps positions. Actual principal amounts of currencies may be
exchanged by the counterparties at the initiation and again upon termination of
the transaction. Therefore, the entire principal value of a currency swap is
subject to the risk that the other party to the swap will default on its
contractual delivery obligations. The 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, the Fund will have contractual remedies pursuant to the
agreements related to the transactions.
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. Swaps traded on an exchange may not be exposed to these
risks. The loss incurred by the failure of a counterparty is generally limited
to the net interim payment to be received by the 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.
--Synthetic Foreign Equity Securities. The Fund may invest in
different types of derivatives generally referred to as synthetic foreign equity
securities. These securities may include international warrants or local access
products. International warrants are financial instruments issued by banks or
other financial institutions, which may or may not be traded on a foreign
exchange. International warrants are a form of derivative security that may give
holders the right to buy or sell an underlying security or a basket of
securities representing an index from or to the issuer of the warrant for a
particular price or may entitle holders to receive a cash payment relating to
the value of the underlying security or index, in each case upon exercise by the
Fund. Local access products are similar to options in that they are exercisable
by the holder for an underlying security or a cash payment based upon the value
of that security, but are generally exercisable over a longer term than typical
options. These types of instruments may be American style, which means that they
can be exercised at any time on or before their expiration date, or European
style, which means that they may be exercised only on the expiration date.
Other types of synthetic foreign equity securities in which the Fund
may invest include covered warrants and low exercise price warrants. Covered
warrants entitle the holder to purchase from the issuer, typically a financial
institution, upon exercise, common stock of an international company or receive
a cash payment (generally in U.S. Dollars). The issuer of the covered warrant
usually owns the underlying security or has a mechanism, such as owning equity
warrants on the underlying securities, through which they can obtain the
securities. The cash payment is calculated according to a predetermined formula,
which is generally based on the difference between the value of the underlying
security on the date of exercise and the strike price. Low exercise price
warrants are warrants with an exercise price that is very low relative to the
market price of the underlying instrument at the time of issue (e.g., one cent
or less). The buyer of a low exercise price warrant effectively pays the full
value of the underlying common stock at the outset. In the case of any exercise
of warrants, there may be a time delay between the time a holder of warrants
gives instructions to exercise and the time the price of the common stock
relating to exercise or the settlement date is determined, during which time the
price of the underlying security could change significantly. In addition, the
exercise or settlement date of the warrants may be affected by certain market
disruption events, such as difficulties relating to the exchange of a local
currency into U.S. Dollars, the imposition of capital controls by a local
jurisdiction or changes in the laws relating to foreign investments. These
events could lead to a change in the exercise date or settlement currency of the
warrants, or postponement of the settlement date. In some cases, if the market
disruption events continue for a certain period of time, the warrants may become
worthless resulting in a total loss of the purchase price of the warrants.
The Fund will acquire synthetic foreign equity securities issued by
entities deemed to be creditworthy by the Adviser, which will monitor the
creditworthiness of the issuers on an ongoing basis. Investments in these
instruments involve the risk that the issuer of the instrument may default on
its obligation to deliver the underlying security or cash in lieu thereof. These
instruments may also be subject to liquidity risk because there may be a limited
secondary market for trading the warrants. They are also subject, like other
investments in foreign securities, to foreign risk and currency risk.
International warrants also include equity warrants, index warrants,
and interest rate warrants. Equity warrants are generally issued in conjunction
with an issue of bonds or shares, although they also may be issued as part of a
rights issue or scrip issue. When issued with bonds or shares, they usually
trade separately from the bonds or shares after issuance. Most warrants trade in
the same currency as the underlying stock (domestic warrants), but also may be
traded in different currency (euro-warrants). Equity warrants are traded on a
number of foreign exchanges and in over-the-counter markets. Index warrants and
interest rate warrants are rights created by an issuer, typically a financial
institution, entitling the holder to purchase, in the case of a call, or sell,
in the case of a put, respectively, an equity index or a specific bond issue or
interest rate index at a certain level over a fixed period of time. Index
warrants transactions settle in cash, while interest rate warrants can typically
be exercised in the underlying instrument or settle in cash.
The Fund also may invest in long-term options of, or relating to,
international issuers. Long-term options operate much like covered warrants.
Like covered warrants, long-term options are call options created by an issuer,
typically a financial institution, entitling the holder to purchase from the
issuer outstanding securities of another issuer. Long-term options have an
initial period of one year or more, but generally have terms between three and
five years. Unlike U.S. options, long-term European options do not settle
through a clearing corporation that guarantees the performance of the
counterparty. Instead, they are traded on an exchange and subject to the
exchange's trading regulations.
--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. The Fund may invest in non-U.S.
Dollar-denominated securities on a currency hedged or un-hedged basis. The
Adviser may actively manage the Fund's currency exposures and may seek
investment opportunities by taking long or short positions in currencies through
the use of currency-related derivatives, including forward currency exchange
contracts, futures and options on futures, swaps and options. The Adviser may
enter into transactions for investment opportunities when it anticipates that a
foreign currency will appreciate or depreciate in value but securities
denominated in that currency are not held by the Fund and do not present
attractive investment opportunities. Such transactions may also be used when the
Adviser believes that it may be more efficient than a direct investment in a
foreign currency-denominated security. The Fund may also conduct currency
exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing
in the currency exchange market for buying or selling currencies).
Forward Commitments 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 the Fund does not pay for the securities until
they are received. If the 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.
The use of forward commitments enables the Fund to protect against
anticipated changes in interest rates and/or prices. 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 issued basis may increase the
volatility of the Fund's NAV.
At the time the 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, the Fund subjects itself to a
risk of loss on such commitments as well as on its portfolio securities. Also,
the Fund may have to sell assets which have been set aside in order to meet
redemptions. In addition, if the 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, the 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 files for bankruptcy, becomes insolvent,
or defaults on its obligation, the Fund may be adversely affected.
Illiquid Securities
The 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 the 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. As discussed in more detail below, 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 the 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 the 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
The Fund may invest in shares of ETFs subject to the restrictions
and limitations of the 1940 Act or any applicable rules, exemptive orders or
regulatory guidance. ETFs are pooled investment vehicles, which may be managed
or unmanaged, that generally seek to track the performance of a specific index.
The ETFs in which the Fund invests will not be able to replicate exactly the
performance of the indices they track because the total return generated by the
securities will be reduced by transaction costs incurred in buying and selling
the ETFs. In addition, the ETFs in which the Fund invests will incur expenses
not incurred by their applicable indices, expenses that will be indirectly borne
by the Fund. Certain securities comprising the indices tracked by the ETFs may,
from time to time, temporarily be unavailable, which may further impede the
ability of the ETFs to track their indices. The market value of an ETF's shares
may differ from their NAV. This difference in price may be due to the fact that
the supply and demand in the market for ETF shares at any point in time is not
always identical to the supply and demand in the market for the underlying
basket of securities. Accordingly, there may be times when an ETF's shares trade
at a discount or premium to its NAV.
The 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 Fund intends 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
The 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 and regulations thereunder (as such
statute, rules and regulations may be amended from time to time). 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 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 by 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 the net return
from the interest earned on the cash collateral after a rebate is 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 fees are paid to the securities
lending agent and for certain other administrative expenses.
The Fund will have the right, by providing notice to the borrower at
any time, to call a loan and obtain the securities loaned 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
distributions from the securities.
The 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 risk. The Fund may pay reasonable
finders', administrative, and custodial fees in connection with a loan.
The Fund will not have the right to vote on 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.
Preferred Stock
The 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. Therefore, 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.
Real Estate Investment Trusts
Real Estate Investment Trusts ("REITs") are pooled investment
vehicles that invest primarily in income-producing real estate or real estate
related loans or interests. REITs are generally classified as equity REITs,
mortgage REITs or a combination of equity and mortgage REITs. Equity REITs
invest the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive income
from the collection of interest and principal payments. Similar to investment
companies such as the Fund, REITs are not taxed on income distributed to
shareholders provided they comply with several requirements of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The Fund will indirectly
bear its proportionate share of expenses incurred by REITs in which the Fund
invests in addition to the expenses incurred directly by the Fund.
Investing in REITs involves certain unique risks in addition to
those risks associated with investing in the real estate industry in general.
Equity REITs may be affected by changes in the value of the underlying property
owned by the REITs, while mortgage REITs may be affected by the quality of any
credit extended. REITs are dependent upon management skills, are not
diversified, and are subject to heavy cash flow dependency, default by borrowers
and self-liquidation.
Because REITs are often smaller capitalization companies, investing
in REITs may involve risks similar to those associated with investing in such
companies. REITs may have limited financial resources, may trade less frequently
and in a limited volume and may be subject to more abrupt or erratic price
movements than larger company securities. Historically, small capitalization
stocks, such as REITs, have had more price volatility than larger capitalization
stocks.
REITs are subject to the possibilities of failing to qualify for
tax-free pass-through of income under the Code and failing to maintain their
exemptions from registration under the 1940 Act. REITs (especially mortgage
REITs) also are subject to interest rate risks. When interest rates decline, the
value of a REIT's investment in fixed-rate obligations can be expected to rise.
Conversely, when interest rates rise, the value of a REIT's investment in
fixed-rate obligations can be expected to decline. In contrast, as interest
rates on adjustable rate mortgage loans are reset periodically, yields on a
REIT's investments in such loans will gradually align themselves to reflect
changes in market interest rates, causing the value of such investments to
fluctuate less dramatically in response to interest rate fluctuations than would
investments in fixed-rate obligations.
Repurchase Agreements and Buy/Sell Back Transactions
From a technical perspective, in a repurchase agreement transaction
the Fund buys a security and simultaneously agrees to sell it back to the
counterparty at a specified price in the future. The purchase and repurchase
obligations are transacted under one document. However, a repurchase agreement
is economically similar to a secured loan, in that the Fund lends cash to a
counterparty for a specific term, normally a day or a few days, and is given
acceptable collateral (the purchased securities) to hold in case the
counterparty does not repay the loan. The difference between the purchase price
and the repurchase price of the securities reflects an agreed-upon "interest
rate". The interest rate is related to the current market rate of the purchased
security rather than its coupon rate. Given that the price at which the Fund
will sell the collateral back is specified in advance, the Fund is not exposed
to price movements on the collateral unless the counterparty defaults. If the
counterparty defaults on its obligation to buy back the securities at the
maturity date and the liquidation value of the collateral is less than the
outstanding loan amount, the Fund would suffer a loss. In order to further
mitigate any potential credit exposure to the counterparty, if the value of the
securities on any day falls below a specified level that is linked to the loan
amount during the life of the agreement, the counterparty must provide
additional collateral to support the loan. Because a repurchase agreement
permits the Fund to invest temporarily available cash on a fully-collateralized
basis, repurchase agreements permit the Fund to earn a return on such cash while
retaining "overnight" flexibility in pursuit of investments of a longer-term
nature.
If the counterparty fails to repurchase the underlying security,
whether because of its bankruptcy or otherwise, the Fund would attempt to
exercise its rights with respect to the underlying security, including possible
sale of the security. The 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 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.
The 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 Federal Reserve Bank of New York) in
such securities. There is no percentage restriction on the Fund's ability to
enter into repurchase agreements. Currently, the Fund intends to enter into
repurchase agreements only with its custodian and such primary dealers.
The Fund may enter into buy/sell back transactions, which are
similar to repurchase agreements. In this type of transaction, the Fund enters a
trade to buy securities at one price and simultaneously enters a trade to sell
the same securities at another price on a specified date. Similar to a
repurchase agreement, the repurchase price is higher than the sale price and
reflects current interest rates. Unlike a repurchase agreement, however, the
buy/sell back transactions, though done simultaneously, are 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. The 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
The terms of reverse repurchase agreements are essentially the
reverse of "Repurchase Agreements" described above; in a reverse repurchase
agreement transaction, the Fund sells a security and simultaneously agrees to
repurchase it at a specified time and price. The economic effect of a reverse
repurchase agreement is that of the Fund borrowing money on a secured basis, and
reverse repurchase agreements may be considered borrowings for some purposes.
Even though the Fund posts securities as collateral, the Fund maintains exposure
to price declines on these securities since it has agreed to repurchase the
securities at a fixed price. In addition, during the reverse repurchase
agreement period, the Fund continues to receive principal and interest payments
on the securities posted as collateral. If the value of the posted collateral
declines, the counterparty would require the Fund to post additional collateral.
If the value of the collateral increases, the Fund may ask for some of its
collateral back.
By entering into reverse repurchase agreements, the Fund obtains
additional cash to invest in other securities. The Fund may use reverse
repurchase agreements for borrowing purposes if it believes that the cost of
this form of borrowing will be lower than the cost of bank borrowing. Reverse
repurchase agreements create leverage risk for the Fund because the Fund
maintains exposure to price declines of both the securities it sells in the
reverse repurchase transaction and any securities it purchases with the cash it
receives under the reverse repurchase agreement. On the other hand, the use of
leverage creates the opportunity for increased income for the Fund's
shareholders when the Fund achieves a higher rate of return on the securities it
sells in the reverse repurchase transaction and the investment of the
transaction proceeds than it effectively pays in interest on the transaction.
Reverse repurchase agreements 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 addition, if the counterparty defaults
and fails to sell the securities back to the Fund at a time when the market
purchase price of the securities exceeds the agreed-upon repurchase price, the
Fund would suffer a loss. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
Rights and Warrants
The Fund may invest in rights or warrants which entitle the holder
to buy equity securities at a specific price for a specific period of time, but
will do so only if the equity securities themselves are deemed appropriate by
the Adviser for inclusion in the Fund's portfolio. Rights and warrants may be
considered more speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with respect to the
securities which may be purchased nor do they represent any rights in the assets
of the issuing company. Also, the value of a right or warrant does not
necessarily change with the value of the underlying securities and a right or
warrant ceases to have value if it is not exercised prior to the expiration
date.
Short Sales
The Fund may make short sales of securities or maintain short
positions. A short sale is effected by selling a security that the Fund does not
own, or if the Fund does own such security, it is not to be delivered upon
consummation of sale. A short sale is against the box to the extent that the
Fund contemporaneously owns or has the right to obtain securities identical to
those sold. 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
the Fund replaces the borrowed security, the Fund will incur a loss; conversely,
if the price declines, the Fund will realize a gain. Although the Fund's gain is
limited to the price at which the security is sold short, its potential loss is
unlimited since there is a theoretically unlimited potential for the market
price of the security sold short to increase. Short sales may be used in some
cases by the Fund to defer the realization of gain or loss for federal income
tax purposes on securities then owned by the Fund. 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.
Special Situations
The Fund may invest in special situations. A special situation
arises when, in the opinion of the Fund's management, the securities of a
particular company will, within a reasonably estimable period of time, be
accorded market recognition at an appreciated value solely by reason of a
development particularly or uniquely applicable to that company and regardless
of general business conditions or movements in the market as a whole.
Developments creating special situations might include, among others, the
following: liquidations, reorganizations, recapitalizations or mergers, material
litigation, technological breakthroughs and new management or management
policies. Although large and well-known companies may be involved, special
situations often involve much greater risk than is inherent in ordinary
investment securities.
Standby Commitment Agreements
The Fund may, from time to time, enter into standby commitment
agreements. Such agreements commit the Fund, for a stated period of time, to
purchase a stated amount of a 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, which is typically approximately 0.5% of the aggregate purchase price of
the security that the Fund has committed to purchase. The Fund will enter into
such agreements only for the purpose of investing in the security underlying the
commitment at a yield and price that are considered advantageous to the Fund and
that are unavailable on a firm commitment basis. The Fund will at all times
maintain a segregated account with its custodian of liquid assets in an
aggregate amount equal to the purchase price of the securities underlying the
commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
will bear the risk of capital loss in the event the value of the security
declines and may not benefit from an appreciation in the value of the security
during the commitment period if the issuer decides not to issue and sell the
security to the Fund.
The purchase of a security subject to a standby commitment agreement
and the related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued and the value of the security
will thereafter be reflected in the calculation of the Fund's NAV. The cost
basis of the security will be adjusted by the amount of the commitment fee. In
the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
Structured Products
The 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/or less
expensive for the 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
the Fund to the credit risk of the issuer of the structured product.
Structured Notes and Indexed Securities: The 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 on a specified multiple of the change in value of
the underlying commodity, futures contract or index.
Certain Risk and Other Considerations
Borrowing and Use of Leverage. The Fund may use borrowings for
investment purposes subject to the restrictions of the 1940 Act. Borrowings by
the 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 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.
Utilization of leverage, which is usually considered speculative,
however, involves certain risks to the 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 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 such return, 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 could 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, thereby reducing the NAV of the
Fund's shares.
Certain transactions, such as derivatives transactions, forward
commitments, reverse repurchase agreements and short sales, involve leverage and
may expose the Fund to potential losses that, in some cases, may exceed the
amount originally invested by the Fund. When the 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.
Additional Risks of Futures Contracts, Swaps, Options on Futures
Contracts, Forward Contracts and Options on Foreign Currencies. Unlike
transactions entered into by the Funds in futures contracts, swaps, options on
foreign currencies and forward 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 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 contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral requirements associated
with such positions.
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.
However, the purchase and sale of exchange-traded foreign currency
options is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, futures contracts, options on futures contracts,
forward contracts and options on foreign currencies may be traded on foreign
exchanges. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
requirements than in the United States, and (v) lesser trading volume.
Risks of Investments in Foreign Securities. Investors should
understand and consider carefully the substantial 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 United States 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.
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. Commissions
on foreign stock exchanges are often higher than negotiated commissions on U.S.
exchanges, although the 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 the Fund may invest and
could adversely affect the Fund's assets should these conditions or events
recur.
Foreign investment in the securities of companies in certain
countries is restricted or controlled to varying degrees. These restrictions or
controls may at times limit or preclude Fund investment in certain foreign
securities and increase the costs and expenses of the 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 the Fund could be reduced by
foreign income taxes, including withholding taxes. It is impossible to determine
the effective rate of foreign tax in advance. The Fund's NAV may also be
affected by changes in the rates or methods of taxation applicable to the Fund
or to entities in which the 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 "United States
Federal Income Taxation of the Fund".
Investors should understand that the expenses 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.
For many foreign securities, there are U.S. Dollar-denominated ADRs
which are traded in the United States on exchanges or over-the-counter and with
readily available market quotations. ADRs do not lessen the foreign exchange
risk inherent in investing in the securities of foreign issuers. However, by
investing in ADRs rather than directly in stock of foreign issuers, the Fund can
avoid currency risks which might occur during the settlement period for either
purchases or sales.
Foreign Currency Transactions. The 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, the 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 the Fund's
net assets and distributions will be adversely affected by reductions in the
value of certain foreign currencies relative to the U.S. Dollar. Such changes
will also affect the Fund's income. The 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 the 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, the 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
the 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.
The Fund will incur costs in connection with conversions between
various currencies. The 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 the Fund receives
income falls relative to the U.S. Dollar between receipt of the income and the
making of Fund distributions, the Fund may be required to liquidate securities
in order to make distributions if the Fund has insufficient cash in U.S. Dollars
to meet the distribution requirements that the Fund must satisfy to qualify as a
regulated investment company for federal income tax purposes. Similarly, if the
value of a particular foreign currency declines between the time the Fund incurs
expenses in U.S. Dollars and the time cash expenses are paid, the amount of the
currency required to be converted into U.S. Dollars in order to pay expenses in
U.S. Dollars could be greater than the equivalent amount of such expenses in the
currency at the time they were incurred. In light of these risks, the Fund may
engage in certain currency hedging transactions, which themselves, involve
certain special risks.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
The following fundamental investment policies may not be changed
without approval by the vote of a majority of the Fund's outstanding voting
securities, which means the affirmative vote 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, the 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
purposes of this restriction, margin and collateral arrangements, including, for
example, with respect to permitted borrowings, options, futures contracts,
options on futures contracts and other derivatives such as swaps are not deemed
to involve the issuance of a senior security;
(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, rules 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) may purchase and sell commodities to the extent allowed
by applicable law; and
(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.
The Fund is a "non-diversified" investment company, which means the
Fund is not limited in the proportion of its assets that may be invested in the
securities of a single issuer. This policy may be changed without a shareholder
vote.
Non-Fundamental Investment Policy
The following is a description of an operating policy that the Fund
has adopted but that is not fundamental and is subject to change without
shareholder approval.
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 FUND
The Adviser
The Adviser, a Delaware limited partnership with principal offices
at 1345 Avenue of the Americas, New York, NY 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to provide investment
advice and, in general, to conduct the management and investment program of the
Fund under the supervision of the Board. 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 direct 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
---------------
100.0%
================
|
AXA is a societe anonyme organized under the laws of France and the
holding company for an international group of insurance and related financial
services companies, through certain of its subsidiaries ("AXA and its
subsidiaries"). AllianceBernstein Holding L.P. ("Holding") is a Delaware limited
partnership, the units of which ("Holding Units") are traded publicly on the New
York Stock Exchange under the ticker symbol "AB". As of September 30, 2012, AXA
also owned approximately 1.4% of the issued and outstanding assignments of
beneficial ownership of 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 the Fund,
continuously furnishes an investment program for the Fund, and manages,
supervises and conducts the affairs of the Fund, subject to the Board's
oversight.
Under the Fund's Advisory Agreement, the Adviser furnishes advice
and recommendations with respect to the Fund's portfolio of securities and
investments, and provides persons satisfactory to the Board to act as officers
of the Fund. Such officers or employees may be employees of the Adviser or of
its affiliates.
The Adviser is, under the 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 shares of the Fund (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 prospectuses of the Fund and other
reports to shareholders and fees related to registration with the SEC and with
state regulatory authorities).
The Fund has, under the Advisory Agreement, assumed the obligation
for payment of all of its other expenses. As to the obtaining of services other
than those specifically provided to the Fund by the Adviser, the Fund may employ
its own personnel. For such services, it also may utilize personnel employed by
the Adviser or its affiliates and, in such event, the services will be provided
to the Fund at cost and the payments therefore must be specifically approved by
the Board. For the fiscal period ended June 30, 2012, the Adviser voluntarily
waived $54,565 for such services, and the Fund did not pay any fees.
The Advisory Agreement became effective on December 8, 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 at a meeting in
person called for the purpose of voting on such matter.
Any material amendment to the Advisory Agreement must be approved by
the vote of a majority of the outstanding securities of the Fund and by the vote
of a majority of the Directors who are not interested persons of the Fund or the
Adviser. The Advisory Agreement is terminable without penalty on 60 days'
written notice by a vote of a majority of the outstanding voting securities of
the Fund, by a vote of a majority of the Directors, or by the Adviser, and will
automatically terminate in the event of its assignment. The Advisory Agreement
provides that in the absence of willful misfeasance, bad faith or gross
negligence on the part of the Adviser, or of reckless disregard of its
obligations 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 the 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 purchase 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.
Effective as of December 8, 2011, the Fund has contractually agreed
to pay a monthly fee to the Adviser at an annualized rate of 1.00% of the
average daily net assets of the Fund. For the fiscal period ended June 30, 2012,
the Adviser did not receive fees from the fund. Pursuant to the expense
limitation undertaking, the Adviser waived and/or reimbursed fees of $50,768 for
the fiscal period ended June 30, 2012. The Adviser has contractually agreed to
waive its fee and bear certain expenses so that total expenses (excluding
extraordinary expenses, interest expense, and the fees and expenses of
registered investment companies or series thereof in which the Fund invests
other than advisory fees paid by Affiliated Funds) do not exceed on an annual
basis 1.60%, 2.30%, 1.80%, 1.55%, 1.30%, 1.55%, 1.30% and 1.30% 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. This fee waiver and/or expense
reimbursement agreement may not be terminated before December 8, 2014. Fees
waived and expenses borne by the Adviser are subject to reimbursement by the
Fund until December 8, 2014. No reimbursement payment will be made that would
cause the Fund's total annualized operating expenses to exceed the total expense
amount set forth above for each class or cause the total of the payments to
exceed the Fund's total initial offering expenses.
.
The Adviser may act as an investment adviser to other persons, firms
or corporations, including investment companies, and is the investment adviser
to AllianceBernstein Blended Style Series, Inc., AllianceBernstein Bond Fund,
Inc., AllianceBernstein 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 Bond Fund,
Inc., AllianceBernstein Global Real Estate Investment Fund, Inc.,
AllianceBernstein Global Risk Allocation Fund, Inc., AllianceBernstein Global
Thematic Growth Fund, Inc., AllianceBernstein Growth and Income Fund, Inc.,
AllianceBernstein High Income Fund, Inc., AllianceBernstein Institutional Funds,
Inc., AllianceBernstein International Growth Fund, Inc., AllianceBernstein Large
Cap Growth Fund, Inc., AllianceBernstein Municipal Income Fund, Inc.,
AllianceBernstein Municipal Income Fund II, AllianceBernstein Trust,
AllianceBernstein Unconstrained Bond Fund, Inc., AllianceBernstein Variable
Products Series Fund, Inc., Sanford C. Bernstein Fund, Inc., Sanford C.
Bernstein Fund II, Inc., The AllianceBernstein Pooling Portfolios and The
AllianceBernstein Portfolios, all registered open-end investment companies; and
to AllianceBernstein Global High Income Fund, Inc., AllianceBernstein Income
Fund, Inc., AllianceBernstein National Municipal Income Fund, Inc., Alliance
California Municipal Income Fund, Inc. and Alliance New York Municipal Income
Fund, Inc., all registered closed-end investment companies. 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.,
are referred to collectively below as the "AllianceBernstein Funds".
Board of Directors Information
Certain information concerning the Directors is set forth below.
OTHER
PUBLIC
PORTFOLIOS COMPANY
IN ALLIANCE- DIRECTOR-
PRINCIPAL BERNSTEIN SHIPS HELD
OCCUPATION(S) FUND COMPLEX BY DIRECTOR
NAME, ADDRESS,* AGE AND DURING PAST FIVE OVERSEEN IN THE PAST
(YEAR FIRST ELECTED**) YEARS OR LONGER BY DIRECTOR FIVE YEARS
------------------------ ----------------- ------------ -----------
INDEPENDENT DIRECTORS
Chairman of the Board
William H. Foulk, Jr., #, ## Investment Adviser and 100 None
80 an Independent
(2011) Consultant since prior
to 2007. Previously,
he was Senior Manager
of Barrett Associates,
Inc., a 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 100 None
70 since prior to 2007.
(2011) Formerly, President of
Save Venice, Inc.
(preservation
organization) from
2001-2002, 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 100 Asia Pacific
68 prior to 2007. Fund, Inc.
(2011) Formerly, managing and The
partner of Lexington Merger Fund
Capital, LLC since prior
(investment advisory to 2007 and
firm) from December Prospect
1997 until December Acquisition
2003. From 1987 until Corp.
1993, Chairman and CEO (financial
of Prudential Mutual services)
Fund Management, from 2007
director of the until 2009
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 100 Cirrus Logic
76 of PLX Technology Corporation
(2011) (semi-conductors) and (semi-
of SRC Computers Inc., conductors)
with which he has been and PLX
associated since prior Technology
to 2007. He was a (semi-
director of Intel conductors)
Corporation since prior
(semi-conductors) from to 2007 and
1969 until 2008, and Intel
served as Chairman of Corporation
the Finance Committee (semi-
of such company for conductors)
several years until since prior
May 2008. He has to 2007
served as a director until 2008
or trustee of one or
more of the
AllianceBernstein
Funds since 1982.
Nancy P. Jacklin, # Professorial Lecturer 100 None
64 at the Johns Hopkins
(2011) School of Advanced
International Studies
since 2008. Formerly,
U.S. Executive
Director of the
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 100 None
60 Consultant. Formerly,
(2011) Partner, Deloitte &
Touche LLP (1995-2008)
where he held a number
of senior positions,
including Vice
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 100 Xilinx, Inc.
71 prior to 2007. Interim (programmable
(2011) CEO of MEMC Electronic logic semi-
Materials, Inc. conductors)
(semi-conductor and and MEMC
solar cell substrates) Electronic
from November 2008 Materials,
until March 2009. He Inc. (semi-
was Chairman and CEO conductor
of Dupont Photomasks, and solar
Inc. (components of cell
semi-conductor substrates)
manufacturing), since prior
2003-2005, and to 2007
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 100 None
73 Partner prior to
(2011) January 2007, of the
law firm Sullivan &
Cromwell LLP and
member of ABA Federal
Regulation of
Securities Committee
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 100 None
52 of the Adviser++ and
(2011) 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 Fund's Directors.
# Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
## Member of the Fair Value Pricing Committee.
+ Mr. Keith is an "interested person", as defined in Section 2(a)(19) of the
1940 Act, of the Fund due to his position as a Senior Vice President of
the Adviser.
++ The Adviser and ABI are affiliates of the Fund.
The business and affairs of the Fund are overseen by the direction
of the Board. Directors who are not "interested persons" of the Fund as defined
in the 1940 Act, are referred to as "Independent Directors", and Directors who
are "interested persons" of the Fund are referred to as "Interested Directors".
Certain information concerning the Fund's governance structure and each Director
is set forth below.
Experience, Skills, Attributes, and Qualifications of the Fund's
Directors. The Governance and Nominating Committee of the 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.
The Board believes that, collectively, the Directors have balanced
and diverse experience, qualifications, attributes, and skills, which allow the
Board to operate effectively in governing the Fund and protecting the interests
of stockholders. The Board has concluded that, based on each Director's
experience, qualifications, attributes or skills on an individual basis and in
combination with those of the other Directors, each Director is qualified and
should continue to serve as such.
In determining that a particular Director was and continues to be
qualified to serve as a Director, the Board has considered a variety of
criteria, none of which, in isolation, was controlling. In addition, the Board
has taken into account the actual service and commitment of each Director during
his or her tenure (including the Director's commitment and participation in
Board and committee meetings, as well as his or her current and prior leadership
of standing and ad hoc committees) in concluding that each should 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 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 the AllianceBernstein Funds since 2007. 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. The Board is responsible for
oversight of the Fund. The Fund has engaged the Adviser to manage the Fund on a
day-to-day basis. The Board is responsible for overseeing the Adviser and the
Fund's other service providers in the operations of the 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.
The Board typically 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, the 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 the Board. The
Chairman's duties include setting the agenda for each Board meeting in
consultation with management, presiding at each Board meeting, meeting with
management between Board meetings, and facilitating communication and
coordination between the Independent Directors and management. The Directors
have determined that the Board's leadership by an Independent Director and its
committees composed exclusively of Independent Directors is appropriate because
they believe it sets the proper tone to the relationships between the Fund, on
the one hand, and the 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, the Fund is required to have an
Independent Director as Chairman pursuant to certain 2003 regulatory settlements
involving the Adviser.
Risk Oversight. The Fund is subject to a number of risks, including
investment, compliance and operational risks. Day-to-day risk management with
respect to the Fund resides with the Adviser or other service providers
(depending on the nature of the risk), subject to supervision by the Adviser.
The 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 the Board's general oversight of the
Fund's investment program and operations and is addressed as part of various
regular Board and committee activities. The 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),
the Fund's Senior Officer (who is also the Fund's chief compliance officer), its
independent registered public accounting firm, and 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 the 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
the Fund's goals. As a result of the foregoing and other factors the Fund's
ability to manage risk is subject to substantial limitations.
Board Committees. The 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 Board in its
oversight of the Fund's financial reporting process. The Audit Committee met
once during the Fund's most recently completed fiscal period.
The function of the Governance and Nominating Committee includes the
nomination of persons to fill any vacancies or newly created positions on the
Board. The Governance and Nominating Committee met twice during the Fund's most
recently completed fiscal period.
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 the 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 Director submitted by a shareholder or group of shareholders who
have beneficially owned at least 5% of the Fund's common stock or shares of
beneficial interest for at least two years prior to the time of submission and
who timely provide specified information about the candidates and the nominating
shareholder or group. To be timely for consideration by the 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 Fund not less than 120 days before the date of the
proxy statement for the previous year's annual meeting of shareholders. If the
Fund did not hold 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 Fund begins to print and mail its proxy materials. Public
notice of such upcoming annual meeting of shareholders may be given in a
shareholder report or other mailing to shareholders or by other means deemed by
the 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 the Fund owned of record or beneficially by the candidate; (D) any
other information regarding the candidate that is required to be disclosed about
a nominee in a proxy statement or other filing required to be made in connection
with the solicitation of proxies for election of Directors pursuant to Section
20 of the 1940 Act and the rules and regulations promulgated thereunder; (E)
whether the shareholder believes that the candidate is or will be an "interested
person" of the Fund (as defined in the 1940 Act) and, if believed not to be an
"interested person", information regarding the candidate that will be sufficient
for the Fund to make such determination; and (F) information as to the
candidate's knowledge of the investment company industry, experience as a
director or senior officer of public companies, directorships on the boards of
other registered investment companies and educational background; (ii) the
written and signed consent of the candidate to be named as a nominee and to
serve as a Director if elected; (iii) the written and signed agreement of the
candidate to complete a directors' and officers' questionnaire if elected; (iv)
the shareholder's consent to be named as such by the Fund; (v) the class or
series and number of all shares of the Fund owned beneficially and of record by
the shareholder and any associated person of the shareholder and the dates on
which such shares were acquired, specifying the number of shares owned
beneficially but not of record by each, and stating the names of each as they
appear on the Fund's record books and the names of any nominee holders for each;
and (vi) a description of all arrangements or understandings between the
shareholder, the candidate and/or any other person or persons (including their
names) pursuant to which the recommendation is being made by the shareholder.
"Associated person of the shareholder" means any person who is required to be
identified under clause (vi) of this paragraph and any other person controlling,
controlled by or under common control with, directly or indirectly, (a) the
shareholder or (b) the associated person of the shareholder.
The 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, and the candidate's ability to
qualify as an Independent Director or 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 Fund made under unique or highly
unusual circumstances not previously addressed by the Valuation Committee that
would result in a change in the Fund's NAV by more than $0.01 per share. The
Fair Value Pricing Committee did not meet during the Fund's most recently
completed fiscal period.
The function of the Independent Directors Committee is to consider
and take action on matters that the Board or Committee believes should be
addressed in executive session of the Independent Directors, such as review and
approval of the Advisory and Distribution Services Agreements. The Independent
Directors Committee met four times during the Fund's most recently completed
fiscal period.
The dollar range of the 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.
AGGREGATE DOLLAR
DOLLAR RANGE RANGE OF EQUITY
OF EQUITY SECURITIES IN THE
SECURITIES IN ALLIANCEBERNSTEIN
THE FUND AS OF FUND COMPLEX AS OF
DECEMBER 31, 2011 DECEMBER 31, 2011
------------------ -------------------
John H. Dobkin None Over $100,000
Michael J. Downey None Over $100,000
William H. Foulk, Jr. None Over $100,000
D. James Guzy None Over $100,000
Nancy P. Jacklin None Over $100,000
Robert M. Keith None None
Garry L. Moody None Over $100,000
Marshall C. Turner, Jr. None Over $100,000
Earl D. Weiner None Over $100,000
|
Officer Information
Certain information concerning the Fund's officers is set forth
below.
NAME, ADDRESS,* POSITION(S) HELD PRINCIPAL OCCUPATION
AND AGE WITH FUND DURING PAST 5 YEARS
--------------- ----------------- ---------------------
|
Robert M. Keith, President and Chief See biography above.
52 Executive Officer
Philip L. Kirstein, Senior Vice President Senior Vice President and
67 and Independent Independent Compliance
Compliance Officer Officer of the funds in the
AllianceBernstein Fund
Complex, with which he has
been associated 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.
Kurt A. Feuerman, Vice President Senior Vice President and
56 Chief Investment Officer,
Select Equities Portfolios
of the Adviser,** with which
he has been associated since
June 2011. Prior thereto,
he was a Senior Managing
Director and Senior Trader
of Caxton Associates LP,
beginning prior to 2007.
Emilie D. Wrapp, Secretary Senior Vice President,
56 Assistant General Counsel
and Assistant Secretary of
ABI,** with which she has
been associated since prior
to 2007.
Joseph J. Mantineo, Treasurer and Chief Senior Vice President of
53 Financial Officer ABIS,** with which he has
been associated since prior
to 2007.
Phyllis J. Clarke, Controller Vice President of ABIS,**
51 with which she has been
associated since prior to
2007.
------------------
|
* 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 the Fund.
The Fund does not pay any fees to, or reimburse expenses of, its
Directors who are considered "interested persons" (as defined in Section
2(a)(19) of the 1940 Act) of the Fund. The aggregate compensation paid to the
Directors by the Fund for the fiscal year ending June 30, 2012, the aggregate
compensation paid to each of the Directors during calendar year 2011 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 Fund nor any
other fund in the AllianceBernstein Fund Complex provides compensation in the
form of pension or retirement benefits to any of its directors or trustees. Each
of the Directors is a director or trustee of one or more other registered
investment companies in the AllianceBernstein Fund Complex.
Total
Total Number of
Number of Investment
Registered Portfolios
Investment within the
Companies Alliance-
within the Bernstein
Alliance- Fund
Total Bernstein Complex,
Compensation Fund Complex, Including
from the Including the Fund,
Alliance- the Fund, as to
Aggregate Bernstein as to which which the
Compensation Fund Complex, the Director Director is
Name of Director From Including is a Director a Director
of the Fund the Fund the Fund or Trustee or Trustee
----------------- ------------ ------------ ------------- ----------
John H. Dobkin $342 $252,000 31 100
Michael J. Downey $342 $252,000 31 100
William H. Foulk, Jr. $646 $493,700 31 100
D. James Guzy $342 $252,000 31 100
Nancy P. Jacklin $342 $252,000 31 100
Robert M. Keith $ 0 $ 0 31 100
Garry L. Moody $379 $280,000 31 100
Marshall C. Turner, Jr. $342 $252,000 31 100
Earl D. Weiner $366 $270,000 31 100
|
As of October 5, 2012 the Directors and officers of the Fund as a
group owned less than 1% of the shares of the Fund.
Additional Information About the Fund's Portfolio Manager
The management of and investment decisions for the Fund's portfolio
are made by its senior investment management team. Kurt A. Feuerman is the
investment professional(1) primarily responsible for the day-to-day management
of the Fund's portfolio (the "Portfolio Manager"). For additional information
about the portfolio management of the Fund, see "Management of the Fund -
Portfolio Manager" 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 range of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio manager as of June 30, 2012 are set forth
below.
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
Kurt A. Feuerman None
As of June 30, 2012, employees of the Adviser had approximately
$118,422,119 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 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 June 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
--------------------------------------------------------------------------------
Kurt A. Feuerman None None 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
--------------------------------------------------------------------------------
Kurt A. Feuerman 4 $1,176,000,000 2 $216,000,000
|
OTHER ACCOUNTS
Number Total Assets
Total Total of Other of 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
--------------------------------------------------------------------------------
Kurt A. Feuerman 3 $69,000,000 2 $52,000,000
|
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. As discussed further below under "Portfolio
Manager Compensation", investment professional compensation reflects a broad
contribution in multiple dimensions to long-term investment success for our
clients and is not generally 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.
Investment Professionals Compensation
The Adviser's compensation program for investment professionals is
designed to be competitive and effective in order to attract and retain the
highest caliber employees. The compensation program for investment professionals
is designed to reflect their ability to generate long-term investment success
for our clients, including shareholders of the AllianceBernstein Mutual Funds.
Except as described below, investment professionals 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. Investment professionals' annual compensation is comprised of
the following:
(i) Fixed base salary: The base salary is a fixed cash amount within
a similar range for all senior investment professionals. The base salary does
not change significantly from year-to-year and hence, is not particularly
sensitive to performance.
(ii) Discretionary incentive compensation: The Adviser's overall
profitability determines the total amount of incentive compensation available to
investment professionals. Incentive compensation to a particular investment
professional is determined subjectively based on qualitative and quantitative
factors. Quantitative factors, which are weighted more heavily, are driven by
investment performance, including measures of absolute, relative and
risk-adjusted 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. There are no specific formulas used to determine this part of an
investment professional's compensation and the compensation is not tied to any
pre-determined or specified level of performance.
The qualitative component of incentive compensation incorporates the
investment professional's contributions to the investment process and Fund
success. Among the important assets are: thought leadership, collaboration with
other investment professionals at the Adviser, contributions to risk-adjusted
returns in other portfolios, building a strong talent pool, mentoring newer
investment professionals and being a good corporate citizen. Other factors that
can play a part in determining investment professional compensation include
complexity of investment strategies managed, volume of assets managed and
experience.
Incentive compensation is in the form of an annual cash bonus and
awards under the Adviser's Incentive Compensation Award Plan ("deferred
awards"). Deferred awards vest over a four-year period and are forfeited if the
employee resigns and then competes with the Adviser. Deferred awards are in the
form of restricted grants of the Adviser's Master Limited Partnership Units and
award recipients have the ability to receive a portion of their awards (no more
than half up to a certain cap) in deferred cash.
(iii) Contributions under the Adviser's Profit Sharing/401(k) Plan:
The contributions are based on the Adviser's overall profitability. The amount
and allocation of the contributions are determined at the sole discretion of the
Adviser.
(iv) Asset-Based and Performance-Based Compensation: Mr. Feuerman
and members of the investment team he leads (the "Investment Team") were hired
by the Adviser in 2011. At that time, the Adviser entered into an employment
agreement with Mr. Feuerman under which a compensation pool for Mr. Feuerman and
members of the Investment Team is created based on specified percentages of the
fees (both asset-based and performance-based fees) received by the Adviser from
the accounts managed by the Investment Team. Performance fees are not assessed
on the Portfolio or the assets of the Portfolio. In general, a larger percentage
of the fees received by the Adviser is allocated to the compensation pool with
respect to assets that were managed by Mr. Feuerman at his prior employer and
that followed Mr. Feuerman to the Adviser than with respect to assets, such as
the Portfolio, that were obtained or created after Mr. Feuerman joined the
Adviser. The compensation pool is allocated among the members of the Investment
Team based on the recommendations of Mr. Feuerman subject to approval by the
Adviser's Compensation Committee. This compensation represents a portion of the
overall compensation received by members of the Investment Team.
EXPENSES OF THE FUND
Distribution Services Agreement
The 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 C shares, Class R shares, Class K shares and Class 1 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 determined that there was a
reasonable likelihood that the Plan would benefit the Fund and its shareholders.
The distribution services fee of a particular class will not be used to
subsidize the provision of distribution services with respect to any other
class.
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 the Fund and each
class of shares thereof for successive one-year periods provided that such
continuance is specifically approved at least annually by a majority of the
Independent Directors 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 at a meeting called
for that purpose.
All material amendments to the Plan 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
Plan 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.
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 Plan or the Agreement, any party must
give the other parties 60 days' written notice; except that the Fund may
terminate the Plan without giving 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 C, Class R, Class K or Class 1
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 or through deferred sales charges in respect of shares of such class.
Distribution services fees are accrued daily and paid monthly and
are charged as expenses of the Fund as accrued. The distribution services fees
attributable to the Class C, Class R, Class K and Class 1 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 distribution services fees on the Class C shares and the
distribution services fees on the Class R, Class K and Class 1 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 the 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 C, Class R, Class K and Class 1 shares under the Plan of the
Fund is directly tied to the expenses incurred by ABI. Actual distribution
expenses for Class C shares, Class R shares, Class K shares and Class 1 shares
for any given year, however, will probably exceed the distribution services fee
payable under the Plan with respect to the class involved and, in the case of
Class C shares, payments received from CDSCs. The excess will be carried forward
by ABI and reimbursed from distribution services fees subsequently payable under
the Plan with respect to the class involved and, in the case of Class C shares,
payments subsequently received through CDSCs, so long as the Plan is in effect.
During the fiscal period ended June 30, 2012, the distribution
services fees for expenditures payable to ABI were as follows:
Distribution services Percentage per annum of the
fees for expenditures aggregate average daily net
Share Class payable to ABI assets attributable to shares
----------- --------------------- -----------------------------
A $115 .30%
C $ 81 1.00%
R $ 30 .50%
K $246 .25%
|
For the fiscal period ended June 30, 2012, expenses incurred by the
Fund and costs allocated to the Fund in connection with activities primarily
intended to result in the sale of certain share classes were as follows:
Category of
Expense Class A Class C Class R Class K
----------- ------- ------- ------- -------
Advertising/
Marketing $25 $2 $0 $1
Printing and Mailing of
Prospectuses and
Semi-Annual and Annual
Reports to Other than
Current Shareholders $0 $0 $0 $0
Compensation to
Underwriters $450 $278 $256 $259
Compensation to Dealers $33 $79 $1 $54
Compensation to Sales
Personnel $98 $32 $27 $29
Interest, Carrying or
Other Financing Charges $0 $0 $0 $0
Other (Includes
Personnel costs of
those home office
employees involved in
the distribution effort
and the travel-related
expenses incurred by
the marketing personnel
conducting seminars) $439 $149 $123 $129
Totals $1,045 $540 $407 $472
|
During the fiscal period ended June 30, 2012, unreimbursed
distribution expenses incurred and carried over for reimbursement in future
years in respect of the Class C, Class R and Class K shares of the Fund were
$459, $377 and $226, respectively, representing 2.49%, 3.39% and .05% of the net
assets of each class, respectively.
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, receives a
transfer agency fee per account holder of each of the Class A, Class C, Class R,
Class K, Class I, Class 1, Class 2 shares and Advisor Class shares of the Fund,
plus reimbursement for out-of-pocket expenses. The transfer agency fee with
respect to the Class C shares is higher than the transfer agency fee with
respect to the other classes of shares, reflecting the additional costs
associated with the Class C CDSCs. For the fiscal period ended June 30, 2012,
the Fund paid ABIS $6,324 for transfer agency services.
ABIS acts as the transfer agent for the Fund. ABIS, an indirect
wholly-owned subsidiary of the Adviser, registers the transfer, issuance and
redemption of Fund shares and disburses dividends and other distributions to
Fund shareholders.
Many Fund shares are owned by 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 Fund often does not maintain an account for you. Thus, some or all of the
transfer agency functions for these accounts are performed by the financial
intermediaries. The Fund, ABI and/or the Adviser pays to these financial
intermediaries, including those that sell shares of the AllianceBernstein Mutual
Funds, fees for sub-transfer agency and related recordkeeping services 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
recordkeeping services, transfer agency services 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 Fund". In addition, financial
intermediaries may be affiliates of entities that receive compensation from the
Adviser or ABI for maintaining retirement plan "platforms" that facilitate
trading by affiliated and non-affiliated financial intermediaries and
recordkeeping for retirement plans.
Because financial intermediaries and plan recordkeepers may be paid
varying amounts per class for sub-transfer agency and related recordkeeping
services, the service requirements of which may also vary by class, this may
create an additional incentive for financial intermediaries and their financial
advisors to favor one fund complex over another or one class of shares over
another.
PURCHASE OF SHARES
The following information supplements that set forth in your
Prospectus under the heading "Investing in the Fund".
General
Shares of the Fund are offered on a continuous basis at a price
equal to their NAV plus an initial sales charge at the time of purchase ("Class
A shares"), without any initial sales charge and, as long as the shares are held
for one year or more, without any CDSC ("Class C shares"), to group retirement
plans, as defined below, eligible to purchase Class R shares, without any
initial sales charge or CDSC ("Class R shares"), to group retirement plans
eligible to purchase Class K shares, without any initial sales charge or CDSC
("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 ("Class I shares"), to private clients ("Clients") of Sanford C.
Bernstein & Co. LLC ("Bernstein") without any initial sales charge or CDSC (the
"Class 1 shares"), to institutional clients of the Adviser and Bernstein Clients
who have at least $3 million in fixed-income assets under management with
Bernstein without any initial sales charge or CDSC (the "Class 2 shares"), or to
investors eligible to purchase Advisor Class shares, without any initial sales
charge or CDSC ("Advisor Class shares"), in each case as described below. All of
the classes of shares of the Fund, except Class I and Advisor Class shares, are
subject to Rule 12b-1 asset-based sales charges. Shares of the Fund that are
offered subject to a sales charge are offered through (i) investment dealers
that are members of 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 Fund 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 intermediaries may also impose requirements with
respect to the purchase, sale or exchange of shares that are different from, or
in addition to, those imposed by the Fund, including requirements as to the
classes of shares available through that financial intermediary and the minimum
initial and subsequent investment amounts. The Fund is not responsible for, and
has no control over, the decision of any financial intermediary to impose such
differing requirements. Sales personnel of financial intermediaries distributing
the Fund's shares may receive differing compensation for selling different
classes of shares.
In order to open your account, the Fund or your financial
intermediary is required to obtain certain information from you for
identification purposes. This information may include name, date of birth,
permanent residential address and social security/taxpayer identification
number. It will not be possible to establish your account without this
information. If the Fund or your financial intermediary is unable to verify the
information provided, your account may be closed and other appropriate action
may be taken as permitted by law.
The public offering price of shares of the Fund is its NAV, plus, in
the case of Class A shares, a sales charge. On each Fund business day on which a
purchase or redemption order is received by the Fund and trading in the types of
securities in which the Fund invests might materially affect the value of Fund
shares, the NAV is computed as of the next close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) by dividing the value of the Fund's
total assets, less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any day on which the Exchange is open for
trading.
The 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 respective NAVs of the various classes of shares of the Fund are
expected to be substantially the same. However, the NAVs of the Class C and
Class R shares will generally be slightly lower than the NAVs of the Class A,
Class K, Class I, Class 1, Class 2 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.
The Fund will accept unconditional orders for its shares to be
executed at the public offering price equal to their NAV next determined (plus
applicable Class A sales charges), as described below. Orders received by ABIS
prior to the close of regular trading on the Exchange on each day the Exchange
is open for trading are priced at the NAV computed as of the close of regular
trading on the Exchange on that day (plus applicable Class A sales charges). In
the case of orders for purchase of shares placed through financial
intermediaries the applicable public offering price will be the NAV so
determined, but only if the financial intermediary receives the order prior to
the close of regular trading on the Exchange. The financial intermediary is
responsible for transmitting such orders by a prescribed time to the Fund or its
transfer agent. If the financial intermediary fails to do so, the investor will
not receive that day's NAV. If a financial intermediary or ABIS receives an
order after the close of regular trading on the Exchange, the price received by
the investor will be based on the NAV determined as of the close of regular
trading on the Exchange on the next day it is open for trading.
The Fund may, at its sole option, accept securities as payment for
shares of 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
Fund. This is a taxable transaction to the shareholder.
Following the initial purchase of Fund shares, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Mutual Fund Application or an "Autobuy"
application obtained by calling the "For Literature" telephone number shown on
the cover of this SAI. Except with respect to certain omnibus accounts,
telephone purchase orders 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 4:00 p.m.,
Eastern time, on a Fund business day to receive that day's public offering
price. Telephone purchase requests received after 4:00 p.m., Eastern time, are
automatically placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of the close of
business on such following business day.
Full and fractional shares are credited to a shareholder's account
in the amount of his or her subscription. As a convenience, and to avoid
unnecessary expense to the Fund, the Fund will not issue stock certificates
representing shares of the Fund. Ownership of the Fund's shares will be shown on
the books of the Fund's transfer agent.
Each class of shares in the Fund represents an interest in the same
portfolio of investments of the Fund, has the same rights and is identical in
all respects, except that (i) Class A shares bear the expense of the initial
sales charge (or CDSC, when applicable) and Class C shares bear the expense of
the CDSC, (ii) Class C and Class R shares each bear the expense of a higher
distribution services fee than those borne by Class A, Class K and Class 1
shares, and Class I shares, Class 2 shares and Advisor Class shares do not bear
such a fee, (iii) Class C shares bear higher transfer agency costs than that
borne by the other classes of shares, and (iv) each of Class A, Class C, Class
R, Class K and Class 1 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. Each class has different exchange privileges and certain
different shareholder service options available.
The Directors have determined that currently no conflict of interest
exists between or among the classes of shares of the Fund. On an ongoing basis,
the Directors, pursuant to their fiduciary duties under the 1940 Act and state
law, will seek to ensure that no such conflict arises.
Frequent Purchases and Redemptions
The Board has adopted policies and procedures designed to detect and
deter frequent purchases and redemptions of Fund shares or excessive or
short-term trading that may disadvantage long-term Fund shareholders. These
policies are described below. There is no guarantee that the Fund will be able
to detect excessive or short-term trading or to identify shareholders engaged in
such practices, particularly with respect to transactions in omnibus accounts.
Shareholders should be aware that application of these policies may have adverse
consequences, as described below, and should avoid frequent trading in Fund
shares through purchases, sales and exchanges of shares. The Fund reserves the
right to restrict, reject or cancel, without any prior notice, any purchase or
exchange order for any reason, including any purchase or exchange order accepted
by any shareholder's financial intermediary.
Risks Associated With Excessive Or Short-Term Trading Generally.
While the Fund will try to prevent market timing by utilizing the procedures
described below, these procedures may not be successful in identifying or
stopping excessive or short-term trading in all circumstances. By realizing
profits through short-term trading, shareholders that engage in rapid purchases
and sales or exchanges of the Fund's shares dilute the value of shares held by
long-term shareholders. Volatility resulting from excessive purchases and sales
or exchanges of Fund shares, especially involving large dollar amounts, may
disrupt efficient portfolio management and cause the Fund to sell shares at
inopportune times to raise cash to accommodate redemptions relating to
short-term trading activity. In particular, the Fund may have difficulty
implementing its long-term investment strategies if it is forced to maintain a
higher level of its assets in cash to accommodate significant short-term trading
activity. In addition, the Fund may incur increased administrative and other
expenses due to excessive or short-term trading, including increased brokerage
costs and realization of taxable capital gains.
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 the Fund calculates its NAV at 4:00 p.m., Eastern time,
which gives rise to the possibility that developments may have occurred in the
interim that would affect the value of these securities. The time zone
differences among international stock markets can allow a shareholder engaging
in a short-term trading strategy to exploit differences in Fund share prices
that are based on closing prices of securities of foreign issuers established
some time before the Fund calculates its own share price (referred to as "time
zone arbitrage"). The Fund has procedures, referred to as fair value pricing,
designed to adjust closing market prices of securities of foreign issuers to
reflect what is believed to be the fair value of those securities at the time
the Fund calculates its NAV. While there is no assurance, the Fund expects that
the use of fair value pricing, in addition to the short-term trading policies
discussed below, will significantly reduce a shareholder's ability to engage in
time zone arbitrage to the detriment of other Fund shareholders.
A shareholder engaging in a short-term trading strategy may also
target 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"). The Fund may be
adversely affected by price arbitrage trading strategies.
Policy Regarding Short-Term Trading. Purchases and exchanges of
shares of the Fund should be made for investment purposes only. The Fund seeks
to prevent patterns of excessive purchases and sales or exchanges of Fund shares
to the extent they are detected by the procedures described below, subject to
the Fund's ability to monitor purchase, sale and exchange activity. The Fund
reserves the right to modify this policy, including any surveillance or account
blocking procedures established from time to time to effectuate this policy, at
any time without notice.
o Transaction Surveillance Procedures. The Fund, through its agents,
ABI and ABIS, maintains 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 90-day period or purchases of
shares followed by a sale within 90 days will be identified by these
surveillance procedures. For purposes of these transaction
surveillance procedures, the Fund may consider trading activity in
multiple accounts under common ownership, control, or influence.
Trading activity identified by either, or a combination, of these
factors, or as a result of any other information available at the
time, will be evaluated to determine whether such activity might
constitute excessive or short-term trading. 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 Fund determines, in its sole
discretion, that a particular transaction or pattern of transactions
identified by the transaction surveillance procedures described
above is excessive or short-term trading in nature, the relevant
Fund account(s) will be immediately "blocked" and no future purchase
or exchange activity will be permitted. However, sales of Fund
shares back to the Fund or redemptions will continue to be permitted
in accordance with the terms of the Fund's current Prospectus. As a
result, unless the shareholder redeems his or her shares, which may
have consequences if the shares have declined in value, a CDSC is
applicable or adverse tax consequences may result, the shareholder
may be "locked" into an unsuitable investment. In the event an
account is blocked, certain account-related privileges, such as the
ability to place purchase, sale and exchange orders over the
internet or by phone, may also be suspended. A blocked account will
generally remain blocked unless and 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 Fund, particularly among certain brokers, dealers and
other financial intermediaries, including sponsors of retirement
plans and variable insurance products. The Fund applies its
surveillance procedures to these omnibus account arrangements. As
required by SEC rules, the Fund has entered into agreements with all
of its financial intermediaries that require the financial
intermediaries to provide the Fund, upon the request of the Fund or
its agents, with individual account level information about their
transactions. If the Fund detects excessive trading through its
monitoring of omnibus accounts, including trading at the individual
account level, the financial intermediaries will also execute
instructions from the Fund to take actions to curtail the activity,
which may include applying blocks to accounts to prohibit future
purchases and exchanges of Fund shares. For certain retirement plan
accounts, the Fund may request that the retirement plan or other
intermediary revoke the relevant participant's privilege to effect
transactions in Fund shares via the internet or telephone, in which
case the relevant participant must submit future transaction orders
via the U.S. Postal Service (i.e., regular mail).
Alternative Purchase Arrangements
Classes A and C Shares. Class A and Class C shares have the
following alternative purchase arrangements: Class A shares are generally
offered with an initial sales charge 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. "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. 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 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 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 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 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 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 one-year period. 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.
Compensation Paid to Principal Underwriter
During the fiscal period ended June 30, 2012 the aggregate amounts
of underwriting commissions payable with respect to shares of the Fund were
$1,389. Of that amount, ABI retained $96, representing that portion of the sales
charges paid on Class A shares which was not reallocated to selected dealers.
During the Fund's fiscal period ended June 30, 2012, ABI did not receive CDSCs
on Class A shares or on Class C shares.
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". The 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 a re-allowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities Act.
No initial sales charge is imposed on Class A shares issued (i)
pursuant to the automatic reinvestment of income dividends or capital gains
distributions or (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.
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. The 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 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 investment in accounts
established during the course of their employment) of the
Adviser, ABI, ABIS and their affiliates; 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 broker-dealer or other financial intermediary
and approved by ABI, under which persons pay an asset-based
fee for services in the nature of investment advisory or
administrative services; or clients of broker-dealers or other
financial intermediaries approved by ABI who purchase Class A
shares for their own accounts through an omnibus account with
the broker-dealers or other financial intermediaries;
(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 an 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 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 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.
In determining the CDSC applicable to a redemption of Class C
shares, it will be assumed that the redemption is, first, of any shares that are
not subject to a 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 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 who 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 each 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 and pay
correspondingly lower dividends than Class A, Class K and Class I 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 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 (i)
thus 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 (and to certain related group
retirement plans with plan assets of less than $10 million in assets if the
sponsor of such a plan 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 1 Shares
Class 1 shares are offered only to Bernstein Clients. Class 1 shares
incur a .25% distribution services fee and thus have a lower expense ratio and
pay correspondingly higher dividends than Class A share and Class C shares.
Class 2 Shares
Class 2 shares are offered only to institutional clients of the
Adviser and Bernstein Clients who meet certain minimum requirements for assets
under management with Bernstein after giving effect to their investment in the
Fund. Class 2 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 C and Class 1 shares.
Advisor Class Shares
Advisor Class shares of the Fund may be purchased and held solely
(i) through accounts established under fee-based programs, sponsored and
maintained by registered broker-dealers or other financial intermediaries and
approved by 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, (iii) officers and present or former Directors or other investment
companies managed by the Adviser, officers, directors and present or retired
full-time employees and former employees (for subsequent investment in accounts
established during the course of their employment) of the Adviser, ABI, ABIS and
their affiliates; or the Relatives of any such person; or any trust, individual
retirement account or retirement plan account 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 C, Class R,
Class K or Class 1 shares.
Alternative Purchase Arrangements--Group Retirement Plans and Tax-Deferred
Accounts
The Fund offers special distribution arrangements for group
retirement plans. However, plan sponsors, plan fiduciaries and other financial
intermediaries may establish requirements as to the purchase, sale or exchange
of shares of the 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 CDSC may be waived for investments made through certain
group retirement plans. Therefore, plan sponsors or fiduciaries may not adhere
to these share class eligibility standards as set forth in the Prospectus and
this SAI. The Fund is not responsible for, and has no control over, the decision
of any plan sponsor or fiduciary to impose such differing requirements.
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 next monthly measurement of assets and employees. If a 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 plan.
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 the Fund.
Class I shares are not subject to a front-end sales charge, CDSC or distribution
fee.
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 Fund makes its 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 Rule
12b-1 distribution fees and Class I shares have no CDSC or Rule 12b-1
distribution fees, plans should consider purchasing Class K or Class I 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 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.
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 the 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 the 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 International Focus 40 Portfolio
-AllianceBernstein Market Neutral Strategy-U.S.
-AllianceBernstein Market Neutral Strategy-Global
-AllianceBernstein Select US Equity Portfolio
-AllianceBernstein Small Cap Growth Portfolio
-AllianceBernstein U.S. Strategic Research Portfolio
AllianceBernstein Core Opportunities Fund, Inc.
AllianceBernstein Discovery Growth Fund, Inc.
AllianceBernstein Equity Income Fund, Inc.
AllianceBernstein Exchange Reserves
AllianceBernstein Global Bond Fund, Inc.
AllianceBernstein Global Real Estate Investment Fund, Inc.
AllianceBernstein Global Risk Allocation Fund, Inc.
AllianceBernstein Global Thematic Growth Fund, Inc.
AllianceBernstein Growth and Income Fund, Inc.
AllianceBernstein High Income Fund, Inc.
AllianceBernstein International Growth Fund, Inc.
AllianceBernstein Large Cap Growth Fund, Inc.
AllianceBernstein Municipal Income Fund, Inc.
-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 Wealth Appreciation Strategy
-AllianceBernstein Tax-Managed Conservative Wealth Strategy
-AllianceBernstein Wealth Appreciation Strategy
Sanford C. Bernstein Fund, Inc.
-AllianceBernstein Intermediate California Municipal Portfolio
-AllianceBernstein Intermediate Diversified Municipal Portfolio
-AllianceBernstein Intermediate New York Municipal Portfolio
-AllianceBernstein International Portfolio
-Overlay A Portfolio
-Overlay B Portfolio
-AllianceBernstein Short Duration Portfolio
-Tax-Aware Overlay A Portfolio
-Tax-Aware Overlay B Portfolio
-Tax-Aware Overlay C Portfolio
-Tax-Aware Overlay N Portfolio
-AllianceBernstein Tax-Managed International Portfolio
Prospectuses for the AllianceBernstein Mutual Funds may be obtained
without charge by contacting ABIS at the address or the "For Literature"
telephone number shown on the front cover of this SAI or on the Internet at
www.AllianceBernstein.com.
Cumulative Quantity Discount (Right Of Accumulation). An investor's
purchase of additional Class A shares of the 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 invested, including reinvested dividends but
excluding appreciation and less any amount of withdrawals, whichever is higher.
For example, if an investor owned shares of an AllianceBernstein
Mutual Fund that were purchased for $200,000 and were worth $190,000 at their
then current NAV and, subsequently, purchased Class A shares of the 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 the 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. At the investor's option, a Letter of Intent may include
purchases of shares of the Fund or any other AllianceBernstein Mutual Fund made
not more than 90 days prior to the date that the investor signs the Letter of
Intent, in which case the 13-month period during which the Letter of Intent is
in effect will begin on the date of that earliest purchase. However, sales
charges will not be reduced for purchases made prior to the date the Letter of
Intent is signed.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the AllianceBernstein Mutual Funds under a single
Letter of Intent. For example, if at the time an investor signs a Letter of
Intent to invest at least $100,000 in Class A shares of 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), it will only be necessary to invest a
total of $60,000 during the following 13 months in shares of the Fund or any
other AllianceBernstein Mutual Fund, to qualify for the 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 the 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 (i) 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 the 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.
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 the 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. For Class 1 and Class 2 shares, a systematic withdrawal plan is
available only to shareholders who own book-entry shares worth $25,000 or more.
Systematic withdrawal plan participants must elect to have their dividends and
distributions from the Fund automatically reinvested in additional shares of the
Fund.
Shares of the Fund owned by a participant in the Fund's systematic
withdrawal plan will be redeemed as necessary to meet withdrawal payments and
such payments will be subject to any taxes applicable to redemptions and, except
as discussed below with respect to Class A 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 the 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 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 or Class C shares in a
shareholder's account may be redeemed free of any 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.
Automatic Sale
Class 1 Shares. Under certain circumstances, Bernstein may redeem
your Class 1 shares of the Fund without your consent. Maintaining small
shareholder accounts is costly. Accordingly, if you make a sale that reduces the
value of your account to less than $1,000, we may, on at least 60 days' prior
written notice, sell your remaining Class 1 shares in the Fund and close your
account. We will not close your account if you increase your account balance to
$1,000 during the 60 day notice period.
Class 2 Shares. Under certain circumstances, Bernstein may redeem
your Class 2 shares of the Fund without your consent. Maintaining small
shareholder accounts is costly. Accordingly, if you make a sale that reduces the
value of your account to less than $250,000, we may, on at least 60 days' prior
written notice, sell your remaining Class 2 shares in the Fund and close your
account. We will not close your account if you increase your account balance to
$250,000 during the 60 day notice period.
Payments to Financial Advisors and Their Firms
Financial intermediaries market and sell shares of the Fund. These
financial intermediaries employ financial advisors and receive compensation for
selling shares of the Fund. This compensation is paid from various sources,
including any sales charge, CDSC and/or Rule 12b-1 fee that you or the Fund may
pay. Your individual financial advisor may receive some or all of the amounts
paid to the financial intermediary that employs him or her.
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 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, Class K and Class 1 shares, up to 100% of
the Rule 12b-1 fee applicable to Class R, Class K and Class 1 shares each year
may be paid to financial intermediaries, including your financial intermediary,
that sell Class R, Class K and Class 1 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 sub-accounting or shareholder
servicing.
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 2012, 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 $19 million. In 2011, ABI paid
approximately 0.04% of the average monthly assets of the AllianceBernstein
Mutual Funds or approximately $17 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 and marketing purposes. In some cases,
firms will include the AllianceBernstein Mutual Funds on a "preferred list".
ABI's goal is to make the financial advisors who interact with current and
prospective investors and shareholders more knowledgeable about the
AllianceBernstein Mutual Funds so that they can provide suitable information and
advice about the funds and related investor services.
The Fund and ABI also make payments for sub-accounting or
shareholder servicing to financial intermediaries that sell AllianceBernstein
Mutual Fund shares. Please see "Expenses of the Fund - Transfer Agency
Agreement" above. To the extent that these expenses are paid by the Fund, they
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 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
Commonwealth Financial Network
Donegal Securities
Financial Network Investment Company
LPL Financial
Merrill Lynch
Morgan Stanley Wealth Management
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 Fund may use brokers and dealers who sell shares of the
Fund to effect portfolio transactions, the Fund does not consider the sale of
AllianceBernstein Mutual Fund shares as a factor when selecting brokers or
dealers to effect portfolio transactions.
REDEMPTION AND REPURCHASE OF SHARES
The following information supplements that set forth in your
Prospectus under the heading "Investing in the Fund". 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. 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 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. The Fund has authorized one or more brokers to receive
on its behalf purchase and redemption orders. Such brokers are authorized to
designate other intermediaries to receive purchase and redemption orders on the
Fund's behalf. In such cases, orders will receive the NAV next computed after
such order is properly received by the authorized broker or designee and
accepted by the Fund.
Redemption
Subject only to the limitations described below, the Charter of the
Company requires that the Fund redeem the shares tendered to it, as described
below, at a redemption price equal to their NAV as next computed following the
receipt of shares tendered for redemption in proper form. Except for any CDSC
which may be applicable to Class A 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 on Class A 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 the Fund by mail, 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.
Telephone Redemption - Payment by Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption with payment by electronic
funds transfer 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 for payment by electronic funds transfer may not exceed $100,000, and
must be made by 4:00 p.m., Eastern time on a Fund business day as defined above.
Proceeds of telephone redemptions will be sent by electronic funds transfer to a
shareholder's designated bank account at a bank selected by the shareholder that
is a member of the NACHA.
Telephone Redemption - Payment by Check. Each Fund shareholder is
eligible to request redemption with payment by check of Fund shares by telephone
at (800) 221-5672 before 4:00 p.m., Eastern 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) held in nominee or "street name"
accounts, (ii) held by a shareholder who has changed his or her address of
record within the preceding 30 calendar days or (iii) 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.
The Fund may redeem shares through ABI or financial intermediaries.
The redemption price will be the NAV next determined after ABI receives the
request (less the CDSC, if any, with respect to the Class A and Class C shares),
except that requests placed through financial intermediaries before the close of
regular trading on the Exchange on any day will be executed at the NAV
determined as of such close of regular trading on that day if received by 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 and redemption
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 Fund 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 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 the 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
The 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 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 Fund". 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.
Automatic Investment Program
Investors may purchase shares of the Fund through an automatic
investment program utilizing electronic funds transfer drawn on the investor's
own bank account. Under such a program, pre-authorized monthly drafts for a
fixed amount 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. Current shareholders
should contact ABIS at the address or telephone numbers shown on the cover of
this SAI to establish an automatic investment program.
Exchange Privilege
You may exchange your investment in the 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) 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 a service in the nature of investment advisory or administrative service
may, on a tax-free basis, exchange Class A or Class C shares of the Fund for
Advisor Class 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 4:00 p.m., Eastern time, on that
day.
Shares will continue to age without regard to exchanges for purpose
of determining the CDSC, if any, upon redemption. When redemption occurs, the
CDSC applicable to the shares of the AllianceBernstein Mutual Fund you
originally purchased for cash 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 shares. Except with respect to exchanges of Class A
or Class C shares of the Fund for Advisor Class shares of the Fund, exchanges of
shares as described above in this section are taxable transactions for federal
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. Shares acquired pursuant to a telephone request for exchange will
be held under the same account registration as the shares redeemed through such
exchange.
Eligible shareholders desiring to make an exchange should telephone
ABIS with their account number and other details of the exchange, at (800)
221-5672 before 4:00 p.m., Eastern time on a Fund business day as defined above.
Telephone requests for exchange received before 4:00 p.m., Eastern time on a
Fund business day will be processed as of the close of business on that day.
During periods of drastic economic, market or other developments, such as the
terrorist attacks on September 11, 2001, it is possible that shareholders would
have difficulty in reaching ABIS by telephone (although no such difficulty was
apparent at any time in connection with the attacks). If a shareholder were to
experience such difficulty, the shareholder should issue written instructions to
ABIS at the address shown on the cover of this SAI.
A shareholder may elect to initiate a monthly "Auto Exchange"
whereby a specified dollar amount's worth of his or her 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 Fund being acquired may be legally 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 of the Fund receives semi-annual and annual reports
which include a portfolio of investments, financial statements and, in the case
of the annual report, the report of the Fund's independent 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.
NET ASSET VALUE
The NAV of the Fund is computed at the next close of regular trading
on the Exchange (ordinarily 4:00 p.m., Eastern time) following receipt of a
purchase or redemption order by the 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. The 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. A business day
is any weekday on which the Exchange is open for trading.
Portfolio securities are valued at current market value or at fair
value as determined in accordance with applicable rules under the 1940 Act and
the Fund's pricing policies and procedures (the "Pricing Policies") established
by and under the general supervision of the Board. The Board has delegated to
the Adviser, subject to the Board's continuing oversight, certain of the Board's
duties with respect to the Pricing Policies.
Whenever possible, securities are valued based on market information
on the business day as of which the value is being determined as follows:
(a) a security listed on the Exchange, or on another national or
foreign exchange (other than securities listed on the NASDAQ Stock Exchange
("NASDAQ")), is valued at the last sale price reflected on the consolidated tape
at the close of the exchange. 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 on
which the securities are 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 or 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 right is valued at the last traded price provided by approved
pricing services;
(g) a warrant is valued at the last traded price provided by
approved pricing services. If the last traded price is not available, the bid
price will be used. Once a warrant passes maturity, it will no longer be valued;
(h) a U.S. Government security and any other debt instrument having
60 days or less remaining until maturity generally is valued at amortized cost
if its original maturity was 60 days or less, or by amortizing its fair value as
of the 61st day prior to maturity if the original term to maturity exceeded 60
days, unless in either case the Adviser determines that this method does not
represent fair value;
(i) a fixed-income security is typically valued on the basis of bid
prices provided by a pricing service when the Adviser believes that such prices
reflect the fair market value of the security. In certain markets, the market
convention may be to use the mid price between bid and offer. Fixed-income
securities may be valued on the basis of mid prices when the pricing service
normally provides mid prices, reflecting the conventions of the particular
markets. The prices provided by a pricing service may take into account many
factors, including institutional size trading in similar groups of securities
and any developments related to specific securities. If the Adviser determines
that an appropriate pricing service does not exist for a security in a market
that typically values such securities on the basis of a bid price or prices for
a security are not available from a pricing source, the security is valued on
the basis of a quoted bid price or spread over the applicable yield curve (a bid
spread) by a broker/dealer in such security. The second highest price will be
utilized whenever two or more quoted bid prices are obtained. If an appropriate
pricing service does not exist for a security in a market where convention is to
use the mid price, the security is valued on the basis of a quoted mid price by
a broker-dealer in such security. The second highest price will be utilized
whenever two or more quoted mid prices are obtained;
(j) a mortgage-backed or asset-backed security is valued on the
basis of bid prices obtained from pricing services or bid prices obtained from
multiple major broker-dealers in the security when the 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;
(k) bank loans are valued on the basis of bid prices provided by a
pricing service;
(l) bridge loans are valued at par, unless it is determined by the
Valuation Committee that any particular bridge loan should be valued at
something other than par. This may occur from a significant change in the high
yield market and/or a significant change in the states of any particular issuer
or issuers of bridge loans;
(m) residential and commercial mortgage whose loans and whose loan
pools are fair market priced by a pricing service;
(n) forward and spot currency pricing is provided by pricing
services;
(o) a swap is valued by the Adviser utilizing various external
sources to obtain inputs for variables in pricing models;
(p) interest rate caps and floors are valued at the latest present
value of the terms of the agreement, which is provided by a pricing service; and
(q) open-end mutual funds are valued at the closing NAV per share
and closed-end funds and ETFs are valued at the closing market price per share.
The 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 Board. When the Fund uses fair value pricing, it may take
into account any factors it deems appropriate. The Fund may determine fair value
based upon developments related to a specific security, current valuations of
foreign stock indices (as reflected in U.S. futures markets) and/or U.S. sector
or broader stock market indices. The prices of securities used by the Fund to
calculate its NAV may differ from quoted or published prices for the same
securities. Fair value pricing involves subjective judgments and it is possible
that the fair value determined for a security is materially different than the
value that could be realized upon the sale of that security.
The Fund expects to use fair value pricing for securities primarily
traded on U.S. exchanges only under very limited circumstances, such as the
early closing of the exchange on which a security is traded or suspension of
trading in the security. The Fund may use fair value pricing more frequently for
securities primarily traded in non-U.S. markets because, among other things,
most foreign markets close well before the Fund values its securities at 4:00
p.m., Eastern time. The earlier close of these foreign markets gives rise to the
possibility that significant events, including broad market moves, may have
occurred in the interim. 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 Directors 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 Directors, to value the Fund's assets on behalf of
the Fund. The Valuation Committee values Fund assets as described above.
The Board may suspend the determination of the Fund's NAV (and the
offering and sales of shares), subject to the rules of the SEC and other
governmental rules and regulations, at a time when: (1) the Exchange is closed,
other than customary weekend and holiday closings, (2) an emergency exists as a
result of which it is not reasonably practicable for the Fund to dispose of
securities owned by it or to determine fairly the value of its net assets, or
(3) for the protection of shareholders, the SEC by order permits a suspension of
the right of redemption or a postponement of the date of payment on redemption.
For purposes of determining the Fund's 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 each class of shares will be invested
together in a single portfolio for the Fund. 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
Dividends paid by the Fund, if any, with respect to Class A, Class
C, Class R, Class K, Class I and Advisor Class shares will be calculated in the
same manner at the same time on the same day and will be in the same amount,
except that the distribution services fee applicable to a class of shares (if
any), and the transfer agency costs relating to a class of shares, will be borne
exclusively by the class to which they relate.
The following summary addresses only the principal U.S. federal
income tax considerations pertinent to the Fund and to shareholders of the Fund.
This summary does not address the U.S. federal income tax consequences of owning
shares to all categories of investors, some of which may be subject to special
rules. This summary is based upon the advice of counsel for the Fund and upon
current law and interpretations thereof. No confirmation has been obtained from
the relevant tax authorities. There is no assurance that the applicable laws and
interpretations will not change.
In view of the individual nature of tax consequences, each
shareholder is advised to consult the shareholder's own tax adviser with respect
to the specific tax consequences of being a shareholder of the Fund, including
the effect and applicability of federal, state, local, foreign and other tax
laws and the effects of changes therein.
United States Federal Income Taxation of Dividends and Distributions
General
The Fund intends for each taxable year to qualify to be taxed as a
"regulated investment company" under the Code. To so qualify, the 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 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 the 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.
The 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% of its ordinary income for that year, (ii) 98.2% of its capital gain net
income for the twelve-month period ending on October 31 that year or, if later
during the calendar year, the last day of the Fund's taxable year (i.e.,
November 30 or December 31) if the Fund so elects, and (iii) any ordinary income
or capital gain net income from the preceding calendar year that was not
distributed during that year. Special rules apply to foreign currency gains and
certain income derived from passive foreign investment companies for which the
Fund has made a "mark-to-market" election. 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 U.S. federal income taxes on
dividends and distributions by the 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 the 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
The 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. Income dividends generally are distributed
semi-annually; capital gains distributions generally occur annually in December.
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.
The investment objective of the Fund is such that only a small portion, if any,
of the Fund's distributions is expected to qualify for the dividends-received
deduction for corporate shareholders.
Some or all of the distributions from the Fund may be treated as
"qualified dividend income", taxable to individuals, trusts and estates at a
maximum rate of 15% (5% for individuals, trusts and estates in lower tax
brackets), if paid on or before December 31, 2012. A distribution from the Fund
will be treated as qualified dividend income to the extent that it is comprised
of dividend income received by the Fund from taxable domestic corporations and
certain qualified foreign corporations, and provided that the Fund meets certain
holding period and other requirements with respect to the security paying the
dividend. In addition, the shareholder must meet certain holding period
requirements with respect to the shares of the Fund in order to take advantage
of this preferential tax rate. To the extent distributions from the Fund are
attributable to other sources, such as taxable interest or short-term capital
gains, dividends paid by the Fund will not be eligible for the lower rates. The
Fund will notify shareholders as to how much of the Fund's distributions, if
any, would qualify for the reduced tax rate, assuming that the shareholder also
satisfies the holding period requirements.
Distributions of net capital gain are taxable as long-term capital
gain, regardless of how long a shareholder has held shares in the Fund. Any
dividend or distribution received by a shareholder on shares of the 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 the Fund.
After the end of the calendar year, the 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 the 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 the 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 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 Fund 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 Fund. 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 the 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 the 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 (currently
at a rate of 28% through 2012) if such shareholder fails to provide the Fund
with his or her correct taxpayer identification number, fails to make 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; any amounts so withheld may be credited against a shareholder's
U.S. federal income tax liability or refunded by filing a refund claim with the
IRS, provided that the required information is furnished to the IRS.
The backup withholding tax rate will be 28% for amounts paid through
December 31, 2012. The backup withholding rate is currently scheduled to
increase to 31% for amounts paid after December 31, 2012.
Foreign Income Taxes. Investment income received by the Fund from
sources within foreign countries 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 the Fund to a reduced rate of
such taxes or exemption from taxes on such income. It is impossible to determine
the effective rate of foreign tax in advance since the amount of the Fund's
assets to be invested within various countries is not known.
If more than 50% of the value of the Fund's total assets at the
close of its taxable year consists of the stock or securities of foreign
corporations, the Fund may elect to "pass through" to the Fund's shareholders
the amount of foreign income taxes paid by the Fund. Pursuant to such election,
shareholders would be required: (i) to include in gross income (in addition to
taxable dividends actually received), their respective pro-rata shares of
foreign taxes paid by the Fund; (ii) treat their pro rata share of such foreign
taxes as having been paid by them; and (iii) either to deduct their pro rata
share of foreign taxes in computing their taxable income, or to use it as a
foreign tax credit against federal income taxes (but not both). No deduction for
foreign taxes could be claimed by a shareholder who does not itemize deductions.
In addition, certain shareholders may be subject to rules which limit their
ability to fully deduct, or claim a credit for, their pro rata share of the
foreign taxes paid by the Fund. A shareholder's foreign tax credit with respect
to a dividend received from the Fund will be disallowed unless the shareholder
holds shares in the Fund on the ex-dividend date and for at least 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
each taxable year of the Fund whether the foreign taxes paid by the Fund will
"pass through" for that year, and, if so, the amount of each shareholder's
pro-rata share (by country) of (i) the foreign taxes paid, and (ii) the Fund's
gross income from foreign sources. Shareholders who are not liable for federal
income taxes, such as retirement plans qualified under section 401 of the Code,
will not be affected by any such "pass through" of foreign taxes.
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 United States
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.
United States Federal Income Taxation of the Fund
The following discussion relates to certain significant U.S. federal
income tax consequences to the Fund with respect to the determination of its
"investment company taxable income" each year. This discussion assumes that the
Fund will be taxed as a regulated investment company for each of its taxable
years.
Passive Foreign Investment Companies. If the Fund owns shares in a
foreign corporation that constitutes a "passive foreign investment company" (a
"PFIC") for federal income tax purposes and the Fund does not elect or is unable
to elect to either treat such foreign corporation as a "qualified electing fund"
within the meaning of the Code or "mark-to-market" the stock of such foreign
corporation, the Fund may be subject to United States federal income taxation on
a portion of any "excess distribution" it receives from the PFIC or any gain it
derives from the disposition of such shares, even if such income is distributed
as a taxable dividend by the Fund to its shareholders. The Fund may also be
subject to additional interest charges in respect of deferred taxes arising from
such distributions or gains. Any tax paid by the Fund as a result of its
ownership of shares in a PFIC will not give rise to a deduction or credit to the
Fund or to any shareholder. A foreign corporation will be treated as a PFIC if,
for the taxable year involved, either (i) such foreign corporation derives at
least 75% of its gross income from "passive income" (including, but not limited
to, interest, dividends, royalties, rents and annuities), or (ii) on average, at
least 50% of the value (or adjusted tax basis, if elected) of the assets held by
the corporation produce or are held for production of "passive income". In some
cases, the Fund may be able to elect to "mark-to-market" stock in a PFIC. If the
Fund makes such an election, the Fund would include in its taxable income each
year an amount equal to the excess, if any, of the fair market value of the PFIC
stock as of the close of the taxable year over the Fund's adjusted basis in the
PFIC stock. The Fund would be allowed a deduction for the excess, if any, of the
adjusted basis of the PFIC stock over the fair market value of the PFIC stock as
of the close of the taxable year, but only to the extent of any net
mark-to-market gains included in the Fund's taxable income for prior taxable
years. The Fund's adjusted basis in the PFIC stock would be adjusted to reflect
the amounts included in, or deducted from, income under this election. Amounts
included in income pursuant to this election, as well as gain realized on the
sale or other disposition of the PFIC stock, would be treated as ordinary
income. The deductible portion of any mark-to-market loss, as well as loss
realized on the sale or other disposition of the PFIC stock to the extent that
such loss does not exceed the net mark-to-market gains previously included by
the Fund, would be treated as ordinary loss. The Fund generally would not be
subject to the deferred tax and interest charge provisions discussed above with
respect to PFIC stock for which a mark-to-market election has been made. If the
Fund purchases shares in a PFIC and the Fund elects to treat the foreign
corporation as a "qualified electing fund" under the Code, the Fund may be
required to include in its income each year a portion of the ordinary income and
net capital gains of such foreign corporation, even if this income is not
distributed to the Fund. Any such income would be subject to the 90% and
calendar year distribution requirements described above.
Options, Futures Contracts, and Forward Foreign Currency Contracts.
Certain listed options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for federal income
tax purposes. Section 1256 contracts held by the Fund at the end of each taxable
year will be "marked to market" and treated for federal income tax purposes as
though sold for fair market value on the last business day of such taxable year.
Gain or loss realized by the Fund on section 1256 contracts other than forward
foreign currency contracts will be considered 60% long-term and 40% short-term
capital gain or loss. Gain or loss realized by the Fund on forward foreign
currency contracts will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will increase or
decrease the amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described above. The Fund can
elect to exempt its section 1256 contracts which are part of a "mixed straddle"
(as described below) from the application of section 1256.
Gain or loss realized by the Fund on the lapse or sale of put and
call options on foreign currencies which are traded over-the-counter or on
certain foreign exchanges will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will increase or
decrease the amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described above. The amount
of such gain or loss shall be determined by subtracting the amount paid, if any,
for or with respect to the option (including any amount paid by the Fund upon
termination of an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received by the Fund
upon termination of an option held by the Fund). In general, if the Fund
exercises such an option on a foreign currency, or if such an option that the
Fund has written is exercised, gain or loss on the option will be recognized in
the same manner as if the Fund had sold the option (or paid another person to
assume the Fund's obligation to make delivery under the option) on the date on
which the option is exercised, for the fair market value of the option. The
foregoing rules will also apply to other put and call options which have as
their underlying property foreign currency and which are traded over-the-counter
or on certain foreign exchanges to the extent gain or loss with respect to such
options is attributable to fluctuations in foreign currency exchange rates.
Tax Straddles. Any option, futures contract or other position
entered into or held by the Fund in conjunction with any other position held by
the Fund may constitute a "straddle" for federal income tax purposes. A straddle
of which at least one, but not all, the positions are section 1256 contracts may
constitute a "mixed straddle". In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's gains and losses
with respect to straddle positions by requiring, among other things, that (i)
loss realized on disposition of one position of a straddle not be recognized to
the extent that the Fund has unrealized gains with respect to the other position
in such straddle; (ii) the Fund's holding period in straddle positions be
suspended while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (iii) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (iv) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
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 or Losses. Under the
Code, gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies, from the disposition of debt securities
denominated in a foreign currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to fluctuations in the
value of the foreign currency between the date of acquisition of the asset and
the date of disposition also are treated as ordinary income or loss. These gains
or losses, referred to under the Code as "section 988" gains or losses, increase
or decrease the amount of the Fund's investment company taxable income available
to be distributed to its shareholders as ordinary income, rather than increasing
or decreasing the amount of the Fund's net capital gain. Because section 988
losses reduce the amount of ordinary dividends the Fund will be allowed to
distribute for a taxable year, such section 988 losses may result in all or a
portion of prior dividend distributions for such year being recharacterized as a
non-taxable return of capital to shareholders, rather than as an ordinary
dividend, reducing each shareholder's basis in his 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 Taxes
The 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 the 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 the 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, 2012 will not be subject
to this withholding tax if so designated.
A foreign shareholder generally would be exempt from federal income
tax on distributions of the 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 the 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
the 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.
PORTFOLIO TRANSACTIONS
Subject to the general oversight of the Board, the Adviser is
responsible for the investment decisions and the placing of orders for portfolio
transactions for the Fund. 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"). The 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. In these cases, the transaction cost charged by the executing
broker may be greater than that which another broker may charge if the Fund
determines in good faith that the amount of such transaction cost is reasonable
in relation to the value of the brokerage, research and statistical services
provided by the executing broker.
Neither the Fund 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 Fund, 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 Fund. 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)(3) of the Securities Exchange Act of 1934 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 client accounts.
Research services furnished by broker-dealers as a result of the placement of
Fund brokerage could be useful and of value to the Adviser in servicing its
other clients as well as the Fund; but, 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.
The Fund may deal in some instances in securities that are not
listed on a national stock exchange but are traded in the over-the-counter
market. The Fund may also purchase listed securities through the third market,
i.e., from a dealer that is not a member of the exchange on which a security is
listed. Where transactions are executed in the over-the-counter market or third
market, the Fund will seek to deal with the primary market makers; but when
necessary in order to obtain the best price and execution, it will utilize the
services of others. In all cases, the Fund will attempt to negotiate best
execution.
Investment decisions for the 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 the Fund and one or more of such other companies or accounts.
Simultaneous transactions are likely when several funds or accounts are managed
by the same 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.
The amount of aggregate brokerage commissions paid by the Fund
during the most recent fiscal period was $32,150. The aggregate amount of
brokerage transactions and related commissions allocated to persons or firms
supplying research services to the Fund or the Adviser was $67,000,551 and
$18,838, respectively.
The Fund's portfolio transactions in equity securities may occur on
foreign stock exchanges. Transactions on stock exchanges involve the payment of
brokerage commissions. On many foreign stock exchanges these commissions are
fixed. Securities traded in foreign over-the-counter markets (including most
fixed-income securities) are purchased from and sold to dealers acting as
principal. Over-the-counter transactions generally do not involve the payment of
a stated commission, but the price usually includes an undisclosed commission or
markup. The prices of underwritten offerings, however, generally include a
stated underwriter's discount. The Adviser expects to effect the bulk of its
transactions in securities of companies based in foreign countries through
brokers, dealers or underwriters located in such countries. U.S. Government or
other U.S. securities constituting permissible investments will be purchased and
sold through U.S. brokers, dealers or underwriters.
The 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 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 Fund), or any affiliated person of such person,
to receive a brokerage commission from such registered investment company
provided that such commission is reasonable and fair compared to the commissions
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time.
During the most recent fiscal period, no aggregate brokerage
commissions were paid to the Affiliated Broker.
Disclosure of Portfolio Holdings
The 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, the 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 the 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
portfolio security. In addition to the schedule of portfolio holdings, the
Adviser posts 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 credit risk or securities type, as applicable,
approximately 45 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, (i) to the Fund's
service providers who require access to the information in order to fulfill
their contractual duties relating to the Fund (including, without limitation,
pricing services and proxy voting services), (ii) to facilitate the review of
the Fund by rating agencies, (iii) for the purpose of due diligence regarding a
merger or acquisition, or (iv) 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 to individual or institutional
investors in the Fund or to intermediaries that distribute the Fund's shares
without making such information public as described herein. 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 the 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 another member of the compliance team reports all
arrangements to disclose portfolio holdings information to the Board on a
quarterly basis. If the Board determines that disclosure was inappropriate, the
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 the 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
The Fund is a series of AllianceBernstein Cap Fund, Inc., a Maryland
corporation. The Fund was organized in 2011 under the name "AllianceBernstein
Select US Equity Portfolio".
The Board is authorized to reclassify and issue any unissued shares
to any number of additional series and classes without shareholder approval.
Accordingly, the Board may create additional series of shares in the future, for
reasons such as the desire to establish one or more additional portfolios of the
Fund with different investment objectives, policies or restrictions. Any
issuance of shares of another series would be governed by the 1940 Act and the
laws of the State of Maryland.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of Directors.
A shareholder will be entitled to share pro rata with other holders
of the same class of shares all dividends and distributions arising from the
Fund's assets and, upon redeeming shares, will receive the then current NAV of
the Fund represented by the redeemed shares less any applicable CDSC. The Fund
is empowered to establish, without shareholder approval, additional portfolios
and additional classes of shares within the Fund. If an additional portfolio or
an additional class within the Fund were established, 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. As to matters affecting each
portfolio differently, such as approval of the Advisory Agreement and changes in
investment policy, shares of each portfolio would vote as separate series.
Each class of shares of the Fund represents an interest in the same
portfolio of investments and has the same rights and is identical in all
respects, except that each class of shares bears its own Rule 12b-1 fees (if
any) and transfer agency expenses. Each class of shares of the Fund votes
separately with respect to the Fund's Rule 12b-1 distribution plan and other
matters for which separate class voting is appropriate under applicable law.
Shares are freely transferable, are entitled to dividends as determined by the
Directors and, in liquidation of the Fund, are entitled to receive the net
assets of the Fund.
Principal Holders
To the knowledge of the Fund, the following persons owned of record
or beneficially, 5% or more of a class of outstanding shares of the Fund as of
October 5, 2012:
Class Name and Address Number of Shares % of Class
----- ----------------- ----------------- ----------
Class A National Financial Services LLC
for the Exclusive Benefit of
our Customers
Attn: Mutual Funds Dept.
200 Liberty St.
One World Financial Center
5th Floor
New York, NY 10281-5503 11,648 52.91%
Charles Schwab & Co.
For the Exclusive Benefit
of our Customers
Mutual Funds Operations
211 Main Street
San Francisco, CA 94105-1905 3,847 17.47%
Frontier Trust Company
C/F Kimberly Carhart IRA
18 Lynmar Dr.
Pittsburgh, PA 15209-1020 1,598 7.26%
Class C National Financial Services for
the Exclusive Benefit of
our Customers
Attn: Mutual Funds Dept.
200 Liberty St., 5th Floor
One World Financial Center
New York, NY 10281-5503 441 17.46%
AllianceBernstein L.P.
Attn: Brent Mather-Seed Acct
1 N. Lexington Ave.
White Plains, NY 10601-1712 1,000 39.61%
Frontier Trust Company
C/F David K. Engbert SB
IRA R/O
5978 Trillium TRL
Ontario, NY 14519-8626 862 34.12%
Ameritrade Inc. FBO
P.O. Box 226
Omaha, NE 68103-2226 222 8.79%
Advisor Sanford Bernstein & Co. LLC
Class 1 N. Lexington Ave., FL 17
White Plains, NY 10601-1785 560,290 55.56%
Sanford Bernstein & Co. LLC
1 N. Lexington Ave., FL 17
White Plains, NY 10601-1785 91,493 9.07%
Sanford Bernstein & Co. LLC
1 N. Lexington Ave., FL 17
White Plains, NY 10601-1785 86,655 8.59%
Sanford Bernstein & Co. LLC
1 N. Lexington Ave., FL 17
White Plains, NY 10601-1785 126,037 12.50%
Class R AllianceBernstein L.P.
Attn: Brent Mather-Seed Acct
1 N. Lexington Ave.
White Plains, NY 10601-1712 1,006 99.98%
Class K Great-West Trust Company LLC
TTEE C
Digestive Healthcare
of Georgia PC
8515 E. Orchard Rd., 2T2
Greenwood Village, CO 80111-5002 48,467 83.29%
Great-West Trust Company LLC
TTEE C
Pediatric Care of Rockville PSP
8515 E. Orchard Rd., 2T2
Greenwood Village, CO 80111-5002 8,192 14.08%
Class I AllianceBernstein L.P.
Attn: Brent Mather-Seed Acct
1 N. Lexington Ave.
White Plains, NY 10601-1712 196,155 23.02%
NFS LLC FEBO
State Street Bank Trust CO
1200 Crown Colony Dr.
Quincy, MA 02169-0938 651,927 76.49%
|
Custodian and Accounting Agent
Brown Brothers Harriman & Co. ("Brown Brothers"), 40 Water Street,
Boston, MA 02109, acts as the custodian for the assets of the Fund but plays no
part in deciding on the purchase or sale of portfolio securities. Subject to the
supervision of the 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, New York 10105, is the principal
underwriter of shares of the Fund, and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution Services
Agreement, the Fund has agreed to indemnify 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 the
Fund offered hereby will be passed upon by Seward & Kissel LLP, New York, NY.
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 Fund.
Code of Ethics and Proxy Voting Policies and Procedures
The Fund, 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 Fund has adopted the Adviser's proxy voting policies and
procedures. The Adviser's proxy voting policies and procedures are attached as
Appendix A.
Information regarding how the Fund voted proxies related to
portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 227-4618; or on or
through the Fund's website at www.AllianceBernstein.com; or both; and (2) on the
SEC's website at www.sec.gov.
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 the 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.
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The financial statements of the Fund for the fiscal period ended June 30, 2012
and the report of Ernst & Young LLP, independent registered public accounting
firm, are incorporated herein by reference to the Fund's annual report. The
annual report for the Fund was filed on Form N-CSR with the SEC on September 7,
2012. The Fund's annual report is available without charge upon request by
calling ABIS at (800) 227-4618 or on the Internet at www.AllianceBernstein.com.
APPENDIX A:
STATEMENT OF POLICIES AND
PROCEDURES FOR PROXY VOTING
1. Introduction
As a registered investment adviser, AllianceBernstein L.P.
("AllianceBernstein", "we" or "us") has a fiduciary duty to act solely in
the best interests of our clients. We recognize that this duty requires us
to vote client securities in a timely manner and make voting decisions
that are intended to maximize long-term shareholder value. Generally, our
clients' objective is to maximize the financial return of their portfolios
within appropriate risk parameters. We have long recognized that
environmental, social and governance ("ESG") issues can impact the
performance of investment portfolios. Accordingly, we have sought to
integrate ESG factors into our investment process to the extent that the
integration of such factors is consistent with our fiduciary duty to help
our clients achieve their investment objectives and protect their economic
interests. Our Statement of Policy Regarding Responsible Investment ("RI
Policy") is attached to this Statement as an Exhibit.
We consider ourselves shareholder advocates and take this responsibility
very seriously. Consistent with our commitments, we will disclose our
clients' voting records only to them and as required by mutual fund vote
disclosure regulations. In addition, our proxy committees may, after
careful consideration, choose to respond to surveys so long as doing so
does not compromise confidential voting.
This statement is intended to comply with Rule 206(4)-6 of the Investment
Advisers Act of 1940. It sets forth our policies and procedures for voting
proxies for our discretionary investment advisory clients, including
investment companies registered under the Investment Company Act of 1940.
This statement applies to AllianceBernstein's investment groups investing
on behalf of clients in both U.S. and non-U.S. securities.
2. Proxy Policies
Our proxy voting policies are principle-based rather than rules-based. We
adhere to a core set of principles that are described in this Statement
and in our Proxy Voting Manual. We assess each proxy proposal in light of
those principles. Our proxy voting "litmus test" will always be what we
view as most likely to maximize long-term shareholder value. We believe
that authority and accountability for setting and executing corporate
policies, goals and compensation should generally rest with the board of
directors and senior management. In return, we support strong investor
rights that allow shareholders to hold directors and management
accountable if they fail to act in the best interests of shareholders. In
addition, if we determine that ESG issues that arise with respect to an
issuer's past, current or anticipated behaviors are, or are reasonably
likely to become, material to its future earnings, we address these
concerns in our proxy voting and engagement.
This statement is designed to be responsive to the wide range of proxy
voting subjects that can have a significant effect on the investment value
of the securities held in our clients' accounts. These policies are not
exhaustive due to the variety of proxy voting issues that we may be
required to consider. AllianceBernstein reserves the right to depart from
these guidelines in order to make voting decisions that are in our
clients' best interests. In reviewing proxy issues, we will apply the
following general policies:
2.1. Corporate Governance
We recognize the importance of good corporate governance in our
proxy voting policies and engagement practices in ensuring that
management and the board of directors fulfill their obligations to
shareholders. We favor proposals promoting transparency and
accountability within a company. We support the appointment of a
majority of independent directors on key committees and generally
support separating the positions of chairman and chief executive
officer, except in cases where a company has sufficient
counter-balancing governance in place. Because we believe that good
corporate governance requires shareholders to have a meaningful
voice in the affairs of the company, we generally will support
shareholder proposals which request that companies amend their
by-laws to provide that director nominees be elected by an
affirmative vote of a majority of the votes cast. Furthermore, we
have written to the SEC in support of shareholder access to
corporate proxy statements under specified conditions with the goal
of serving the best interests of all shareholders.
2.2. Elections of Directors
Unless there is a proxy fight for seats on the Board or we determine
that there are other compelling reasons to oppose directors, we will
vote in favor of the management proposed slate of directors. That
said, we believe that directors have a duty to respond to
shareholder actions that have received significant shareholder
support. Therefore, we may vote against directors (or withhold votes
for directors where plurality voting applies) who fail to act on key
issues such as failure to implement proposals to declassify the
board, failure to implement a majority vote requirement, failure to
submit a rights plan to a shareholder vote or failure to act on
tender offers where a majority of shareholders have tendered their
shares. In addition, we will vote against for directors who fail to
attend at least seventy-five percent of board meetings within a
given year without a reasonable excuse, and we may abstain or vote
against directors of non-U.S. issuers where there is insufficient
information about the nominees disclosed in the proxy statement.
Also, we will generally not oppose directors who meet the definition
of independence promulgated by the primary exchange on which the
company's shares are traded or set forth in the code we determine to
be best practice in the country where the subject company is
domiciled. Finally, because we believe that cumulative voting in
single shareholder class structures provides a disproportionately
large voice to minority shareholders in the affairs of a company, we
will generally vote against such proposals and vote for management
proposals seeking to eliminate cumulative voting. However, in dual
class structures (such as A&B shares) where the shareholders with a
majority economic interest have a minority voting interest, we will
generally vote in favor of cumulative voting.
2.3. Appointment of Auditors
AllianceBernstein believes that the company is in the best position
to choose its auditors, so we will generally support management's
recommendation. However, we recognize that there are inherent
conflicts when a company's independent auditor performs substantial
non-audit services for the company. The Sarbanes-Oxley Act of 2002
prohibits certain categories of services by auditors to U.S.
issuers, making this issue less prevalent in the U.S. Nevertheless,
in reviewing a proposed auditor, we will consider the fees paid for
non-audit services relative to total fees and whether there are
other reasons for us to question the independence or performance of
the auditors.
2.4. Changes in Legal and Capital Structure
Changes in a company's charter, articles of incorporation or by-laws
are often technical and administrative in nature. Absent a
compelling reason to the contrary, AllianceBernstein will cast its
votes in accordance with management's recommendations on such
proposals. However, we will review and analyze on a case-by-case
basis any non-routine proposals that are likely to affect the
structure and operation of the company or have a material economic
effect on the company. For example, we will generally support
proposals to increase authorized common stock when it is necessary
to implement a stock split, aid in a restructuring or acquisition,
or provide a sufficient number of shares for an employee savings
plan, stock option plan or executive compensation plan. However, a
satisfactory explanation of a company's intentions must be disclosed
in the proxy statement for proposals requesting an increase of
greater than 100% of the shares outstanding. We will oppose
increases in authorized common stock where there is evidence that
the shares will be used to implement a poison pill or another form
of anti-takeover device. We will support shareholder proposals that
seek to eliminate dual class voting structures.
2.5. Corporate Restructurings, Mergers and Acquisitions
AllianceBernstein believes proxy votes dealing with corporate
reorganizations are an extension of the investment decision.
Accordingly, we will analyze such proposals on a case-by-case basis,
weighing heavily the views of our research analysts that cover the
company and our investment professionals managing the portfolios in
which the stock is held.
2.6. Proposals Affecting Shareholder Rights
AllianceBernstein believes that certain fundamental rights of
shareholders must be protected. We will generally vote in favor of
proposals that give shareholders a greater voice in the affairs of
the company and oppose any measure that seeks to limit those rights.
However, when analyzing such proposals we will weigh the financial
impact of the proposal against the impairment of shareholder rights.
2.7. Anti-Takeover Measures
AllianceBernstein believes that measures that impede corporate
transactions (such as takeovers) or entrench management not only
infringe on the rights of shareholders but may also have a
detrimental effect on the value of the company. Therefore, we will
generally oppose proposals, regardless of whether they are advanced
by management or shareholders, when their purpose or effect is to
entrench management or excessively or inappropriately dilute
shareholder ownership. Conversely, we support proposals that would
restrict or otherwise eliminate anti-takeover or anti-shareholder
measures that have already been adopted by corporate issuers. For
example, we will support shareholder proposals that seek to require
the company to submit a shareholder rights plan to a shareholder
vote. We will evaluate, on a case-by-case basis, proposals to
completely redeem or eliminate such plans. Furthermore, we will
generally oppose proposals put forward by management (including the
authorization of blank check preferred stock, classified boards and
supermajority vote requirements) that appear to be anti-shareholder
or intended as management entrenchment mechanisms.
2.8. Executive Compensation
AllianceBernstein believes that company management and the
compensation committee of the board of directors should, within
reason, be given latitude to determine the types and mix of
compensation and benefits offered to company employees. Whether
proposed by a shareholder or management, we will review proposals
relating to executive compensation plans on a case-by-case basis to
ensure that the long-term interests of management and shareholders
are properly aligned. In general, we will analyze the proposed plan
to ensure that shareholder equity will not be excessively diluted
taking into account shares available for grant under the proposed
plan as well as other existing plans. We generally will oppose plans
that allow stock options to be granted with below market value
exercise prices on the date of issuance or permit re-pricing of
underwater stock options without shareholder approval. Other factors
such as the company's performance and industry practice will
generally be factored into our analysis. In markets where
remuneration reports or advisory votes on executive compensation are
not required for all companies, we will generally support
shareholder proposals asking the board to adopt a policy (i.e., "say
on pay") that the company's shareholders be given the opportunity to
vote on an advisory resolution to approve the compensation practices
of the company. Although "say on pay" votes are by nature only broad
indications of shareholder views, they do lead to more
compensation-related dialogue between management and shareholders
and help ensure that management and shareholders meet their common
objective: maximizing the value of the company. In markets where
votes to approve remuneration reports or advisory votes on executive
compensation are required, we review the compensation practices on a
case-by-case basis. With respect to companies that have received
assistance through government programs such as TARP, we will
generally oppose shareholder proposals that seek to impose greater
executive compensation restrictions on subject companies than are
required under the applicable program because such restrictions
could create a competitive disadvantage for the subject company. We
believe the U.S. Securities and Exchange Commission ("SEC") took
appropriate steps to ensure more complete and transparent disclosure
of executive compensation when it issued modified executive
compensation and corporate governance disclosure rules in 2006 and
February 2010. Therefore, while we will consider them on a
case-by-case basis, we generally vote against shareholder proposals
seeking additional disclosure of executive and director
compensation, including proposals that seek to specify the
measurement of performance-based compensation, if the company is
subject to SEC rules. We will support requiring a shareholder vote
on management proposals to provide severance packages that exceed
2.99 times the sum of an executive officer's base salary plus bonus
that are triggered by a change in control. Finally, we will support
shareholder proposals requiring a company to expense compensatory
employee stock options (to the extent the jurisdiction in which the
company operates does not already require it) because we view this
form of compensation as a significant corporate expense that should
be appropriately accounted for.
2.9. ESG
We are appointed by our clients as an investment manager with a
fiduciary responsibility to help them achieve their investment
objectives over the long term. Generally, our clients' objective is
to maximize the financial return of their portfolios within
appropriate risk parameters. We have long recognized that ESG issues
can impact the performance of investment portfolios. Accordingly, we
have sought to integrate ESG factors into our investment and proxy
voting processes to the extent that the integration of such factors
is consistent with our fiduciary duty to help our clients achieve
their investment objectives and protect their economic interests.
For additional information regarding our approach to incorporating
ESG issues in our investment and decision-making processes, please
refer to our RI Policy, which is attached to this Statement as an
Exhibit.
Shareholder proposals relating to environmental, social (including
political) and governance issues often raise complex and
controversial issues that may have both a financial and
non-financial effect on the company. And while we recognize that the
effect of certain policies on a company may be difficult to
quantify, we believe it is clear that they do affect the company's
long-term performance. Our position in evaluating these proposals is
founded on the principle that we are a fiduciary. As such, we
carefully consider any factors that we believe could affect a
company's long-term investment performance (including ESG issues) in
the course of our extensive fundamental, company-specific research
and engagement, which we rely on in making our investment and proxy
voting decisions. Maximizing long-term shareholder value is our
overriding concern when evaluating these matters, so we consider the
impact of these proposals on the future earnings of the company. In
so doing, we will balance the assumed cost to a company of
implementing one or more shareholder proposals against the positive
effects we believe implementing the proposal may have on long-term
shareholder value.
3. Proxy Voting Procedures
3.1. Proxy Voting Committees
Our growth and value investment groups have formed separate proxy
voting committees ("Proxy Committees") to establish general proxy
policies for AllianceBernstein and consider specific proxy voting
matters as necessary. These Proxy Committees periodically review
these policies and new types of environmental, social and governance
issues, and decide how we should vote on proposals not covered by
these policies. When a proxy vote cannot be clearly decided by an
application of our stated policy, the appropriate Proxy Committee
will evaluate the proposal. In addition, the Proxy Committees, in
conjunction with the analyst that covers the company, may contact
corporate management, interested shareholder groups and others as
necessary to discuss proxy issues. Members of the Proxy Committees
include senior investment personnel and representatives of the Legal
and Compliance Department.
Different investment philosophies may occasionally result in
different conclusions being drawn regarding certain proposals and,
in turn, may result in the Proxy Committees making different voting
decisions on the same proposal for value and growth holdings.
Nevertheless, the Proxy Committees always vote proxies with the goal
of maximizing the value of the securities in client portfolios.
It is the responsibility of the Proxy Committees to evaluate and
maintain proxy voting procedures and guidelines, to evaluate
proposals and issues not covered by these guidelines, to evaluate
proxies where we face a potential conflict of interest (as discussed
below), to consider changes in policy and to review the Proxy Voting
Statement and the Proxy Voting Manual no less frequently than
annually. In addition, the Proxy Committees meet as necessary to
address special situations.
3.2. Engagement
In evaluating proxy issues and determining our votes, we welcome and
seek out the points of view of various parties. Internally, the
Proxy Committees may consult chief investment officers, directors of
research, research analysts across our value and growth equity
platforms, portfolio managers in whose managed accounts a stock is
held and/or other Investment Policy Group members. Externally, the
Proxy Committees may consult company management, company directors,
interest groups, shareholder activists and research providers. If we
believe an ESG issue is, or is reasonably likely to become,
material, we engage a company's management to discuss the relevant
issues.
Our engagement with companies and interest groups continues to
expand as we have had more such meetings in the past few years.
3.3. Conflicts of Interest
AllianceBernstein recognizes that there may be a potential conflict
of interest when we vote a proxy solicited by an issuer whose
retirement plan we manage or administer, who distributes
AllianceBernstein-sponsored mutual funds, or with whom we have, or
one of our employees has, a business or personal relationship that
may affect (or may be reasonably viewed as affecting) how we vote on
the issuer's proxy. Similarly, AllianceBernstein may have a
potentially material conflict of interest when deciding how to vote
on a proposal sponsored or supported by a shareholder group that is
a client. We believe that centralized management of proxy voting,
oversight by the proxy voting committees and adherence to these
policies ensures that proxies are voted based solely on our clients'
best interests. Additionally, we have implemented procedures to
ensure that our votes are not the product of a material conflict of
interest, including: (i) on an annual basis, the Proxy Committees
taking reasonable steps to evaluate (A) the nature of
AllianceBernstein's and our employees' material business and
personal relationships (and those of our affiliates) with any
company whose equity securities are held in client accounts and (B)
any client that has sponsored or has a material interest in a
proposal upon which we will be eligible to vote; (ii) requiring
anyone involved in the decision making process to disclose to the
chairman of the appropriate Proxy Committee any potential conflict
that he or she is aware of (including personal relationships) and
any contact that he or she has had with any interested party
regarding a proxy vote; (iii) prohibiting employees involved in the
decision making process or vote administration from revealing how we
intend to vote on a proposal in order to reduce any attempted
influence from interested parties; and (iv) where a material
conflict of interests exists, reviewing our proposed vote by
applying a series of objective tests and, where necessary,
considering the views of third party research services to ensure
that our voting decision is consistent with our clients' best
interests.
Because under certain circumstances AllianceBernstein considers the
recommendation of third party research services, the Proxy
Committees takes reasonable steps to verify that any third party
research service is, in fact, independent taking into account all of
the relevant facts and circumstances. This includes reviewing the
third party research service's conflict management procedures and
ascertaining, among other things, whether the third party research
service (i) has the capacity and competency to adequately analyze
proxy issues, and (ii) can make recommendations in an impartial
manner and in the best interests of our clients.
3.4. Proxies of Certain Non-U.S. Issuers
Proxy voting in certain countries requires "share blocking."
Shareholders wishing to vote their proxies must deposit their shares
shortly before the date of the meeting with a designated depositary.
During this blocking period, shares that will be voted at the
meeting cannot be sold until the meeting has taken place and the
shares are returned to the clients' custodian banks. Absent
compelling reasons to the contrary, AllianceBernstein believes that
the benefit to the client of exercising the vote is outweighed by
the cost of voting (i.e., not being able to sell the shares during
this period). Accordingly, if share blocking is required we
generally choose not to vote those shares.
AllianceBernstein seeks to vote all proxies for securities held in
client accounts for which we have proxy voting authority. However,
in non-US markets administrative issues beyond our control may at
times prevent AllianceBernstein from voting such proxies. For
example, AllianceBernstein may receive meeting notices after the
cut-off date for voting or without sufficient time to fully consider
the proxy. As another example, certain markets require periodic
renewals of powers of attorney that local agents must have from our
clients prior to implementing AllianceBernstein's voting
instructions.
3.5. Loaned Securities
Many clients of AllianceBernstein have entered into securities
lending arrangements with agent lenders to generate additional
revenue. AllianceBernstein will not be able to vote securities that
are on loan under these types of arrangements. However, under rare
circumstances, for voting issues that may have a significant impact
on the investment, we may request that clients recall securities
that are on loan if we determine that the benefit of voting
outweighs the costs and lost revenue to the client or fund and the
administrative burden of retrieving the securities.
3.6. Proxy Voting Records
Clients may obtain information about how we voted proxies on their
behalf by contacting their AllianceBernstein administrative
representative. Alternatively, clients may make a written request
for proxy voting information to: Mark R. Manley, Senior Vice
President & Chief Compliance Officer, AllianceBernstein L.P., 1345
Avenue of the Americas, New York, NY 10105.
[ALTERNATIVE LANGUAGE FOR U.S. MUTUAL FUNDS]
You may obtain information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month
period ended June 30, without charge. Simply visit
AllianceBernstein's web site at www.alliancebernstein.com, go to the
Securities and Exchange Commission's web site at www.sec.gov or call
AllianceBernstein at (800) 227-4618.
Exhibit
Statement of Policy Regarding
Responsible Investment
Principles for Responsible Investment,
ESG, and Socially Responsible Investment
1. Introduction
AllianceBernstein L.P. ("AllianceBernstein" or "we") is appointed by our clients
as an investment manager with a fiduciary responsibility to help them achieve
their investment objectives over the long term. Generally, our clients'
objective is to maximize the financial return of their portfolios within
appropriate risk parameters. AllianceBernstein has long recognized that
environmental, social and governance ("ESG") issues can impact the performance
of investment portfolios. Accordingly, we have sought to integrate ESG factors
into our investment process to the extent that the integration of such factors
is consistent with our fiduciary duty to help our clients achieve their
investment objectives and protect their economic interests.
Our policy draws a distinction between how the Principles for Responsible
Investment ("PRI" or "Principles"), and Socially Responsible Investing ("SRI")
incorporate ESG factors. PRI is based on the premise that, because ESG issues
can affect investment performance, appropriate consideration of ESG issues and
engagement regarding them is firmly within the bounds of a mainstream investment
manager's fiduciary duties to its clients. Furthermore, PRI is intended to be
applied only in ways that are consistent with those mainstream fiduciary duties.
SRI, which refers to a spectrum of investment strategies that seek to integrate
ethical, moral, sustainability and other non-financial factors into the
investment process, generally involves exclusion and/or divestment, as well as
investment guidelines that restrict investments. AllianceBernstein may accept
such guideline restrictions upon client request.
2. Approach to ESG
Our long-standing policy has been to include ESG factors in our extensive
fundamental research and consider them carefully when we believe they are
material to our forecasts and investment decisions. If we determine that these
aspects of an issuer's past, current or anticipated behavior are material to its
future expected returns, we address these concerns in our forecasts, research
reviews, investment decisions and engagement. In addition, we have
well-developed proxy voting policies that incorporate ESG issues and engagement.
3. Commitment to the PRI
In recent years, we have gained greater clarity on how the PRI initiative, based
on information from PRI Advisory Council members and from other signatories,
provides a framework for incorporating ESG factors into investment research and
decision-making. Furthermore, our industry has become, over time, more aware of
the importance of ESG factors. We acknowledge these developments and seek to
refine what has been our process in this area.
After careful consideration, we determined that becoming a PRI signatory would
enhance our current ESG practices and align with our fiduciary duties to our
clients as a mainstream investment manager. Accordingly, we became a signatory,
effective November 1, 2011.
In signing the PRI, AllianceBernstein as an investment manager publicly commits
to adopt and implement all six Principles, where consistent with our fiduciary
responsibilities, and to make progress over time on implementation of the
Principles.
The six Principles are:
1. We will incorporate ESG issues into investment research and decision-making
processes. AllianceBernstein Examples: ESG issues are included in the research
analysis process. In some cases, external service providers of ESG-related tools
are utilized; we have conducted proxy voting training and will have continued
and expanded training for investment professionals to incorporate ESG issues
into investment analysis and decision-making processes across our firm.
2. We will be active owners and incorporate ESG issues into our ownership
policies and practices.
AllianceBernstein Examples: We are active owners through our proxy voting
process (for additional information, please refer to our Statement of Policies
and Procedures for Proxy Voting Manual); we engage issuers on ESG matters in our
investment research process (we define "engagement" as discussions with
management about ESG issues when they are, or we believe they are reasonably
likely to become, material).
3. We will seek appropriate disclosure on ESG issues by the entities in which we
invest.
AllianceBernstein Examples: Generally, we support transparency regarding ESG
issues when we conclude the disclosure is reasonable. Similarly, in proxy
voting, we will support shareholder initiatives and resolutions promoting ESG
disclosure when we conclude the disclosure is reasonable.
4. We will promote acceptance and implementation of the Principles within the
investment industry.
AllianceBernstein Examples: By signing the PRI, we have taken an important first
step in promoting acceptance and implementation of the six Principles within our
industry.
5. We will work together to enhance our effectiveness in implementing the
Principles.
AllianceBernstein Examples: We will engage with clients and participate in
forums with other PRI signatories to better understand how the PRI are applied
in our respective businesses. As a PRI signatory, we have access to information,
tools and other signatories to help ensure that we are effective in our
endeavors to implement the PRI.
6. We will report on our activities and progress towards implementing the
Principles. AllianceBernstein Examples: We will respond to the 2012 PRI
questionnaire and disclose PRI scores from the questionnaire in response to
inquiries from clients and in requests for proposals; we will provide examples
as requested concerning active ownership activities (voting, engagement or
policy dialogue).
4. RI Committee
Our firm's RI Committee provides AllianceBernstein stakeholders, including
employees, clients, prospects, consultants and service providers alike, with a
resource within our firm on which they can rely for information regarding our
approach to ESG issues and how those issues are incorporated in different ways
by the PRI and SRI. Additionally, the RI Committee is responsible for assisting
AllianceBernstein personnel to further implement our firm's RI policies and
practices, and, over time, to make progress on implementing all six Principles.
The RI Committee has a diverse membership, including senior representatives from
investments, distribution/sales and legal. The Committee is chaired by Linda
Giuliano, Senior Vice President and Chief Administrative Officer-Equities.
If you have questions or desire additional information about this Policy, we
encourage you to contact the RI Committee at RIinquiries@alliancebernstein.com
or reach out to a Committee member:
Erin Bigley: SVP-Fixed Income, New York
Alex Chaloff: SVP-Private Client, Los Angeles
Nicholas Davidson: SVP-Value, London
Kathy Fisher: SVP-Private Client, New York
Linda Giuliano: SVP-Equities, New York
Christopher Kotowicz: VP-Growth, Chicago
David Lesser: VP-Legal, New York
Mark Manley: SVP-Legal, New York
Takuji Oya: VP-Growth, Japan
Guy Prochilo: SVP-Institutional Investments, New York
Nitish Sharma: VP-Institutional Investments, Australia
Liz Smith: SVP-Institutional Investments, New York
Chris Toub: SVP-Equities, New York
Willem Van Gijzen: VP-Institutional Investments, Netherlands
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