<DOCUMENT>
<TYPE>497
<SEQUENCE>1
<FILENAME>d472459_497.txt
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This is filed pursuant to Rule 497(e).
File Nos. 333-18505 and 811-9160.
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(LOGO) ALLIANCEBERNSTEIN HIGH YIELD FUND, INC.
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c/o Alliance Global Investor Services, Inc.
P.O. Box 786003, San Antonio, Texas 78278-6003
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
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STATEMENT OF ADDITIONAL INFORMATION
February 2, 2004
(as amended April 1, 2004)
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This Statement of Additional Information ("SAI") is not
a prospectus but supplements and should be read in conjunction
with the current prospectus, dated February 2, 2004, of
AllianceBernstein High Yield Fund, Inc. (the "Fund") that offers
Class A, Class B, Class C and Advisor Class shares of the Fund
(the "Prospectus"). Financial statements for the Fund for the
year ended August 31, 2003 and the fiscal period ended September
30, 2003 are included in the Fund's annual report to shareholders
and are incorporated into this SAI by reference. Copies of the
Prospectus and the Fund's annual report may be obtained by
contacting Alliance Global Investor Services, Inc. ("AGIS") at
the address or the "For Literature" telephone number shown above.
TABLE OF CONTENTS
PAGE
Description of the Fund
Management of the Fund
Expenses of the Fund
Purchase of Shares
Redemption and Repurchase of Shares
Shareholder Services
Net Asset Value
Dividends, Distributions and Taxes
Portfolio Transactions
General Information
Financial Statements and Report of
Independent Auditors
Appendix A: Options A-1
Appendix B: Bond Ratings B-1
Appendix C: Statement for Policies and Procedures
for Voting Proxies C-1
Appendix D: Commission Schedule D-1
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SM: This service mark is used under license from the owner.
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DESCRIPTION OF THE FUND
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The Fund is a diversified, open-ended investment
company. Except as otherwise indicated, the investment policies
of the Fund are not "fundamental policies" and, therefore, may be
changed by the Board of Directors without a shareholder vote.
However, the Fund will not change its investment policies without
contemporaneous notice to its shareholders. The Fund's investment
objectives may not be changed without shareholder approval. There
can be, of course, no assurance that the Fund will achieve its
investment objectives.
Investment Objective
--------------------
The Fund's fundamental investment objective is to
achieve high total return by maximizing current income and, to
the extent consistent with that objective, capital appreciation.
The Fund will pursue this objective by investing primarily in a
diversified mix of high yield, below investment grade
fixed-income securities involving greater volatility of price and
risk of principal and income than higher quality fixed-income
securities. The below investment grade debt securities in which
the Fund may invest are known as "junk bonds."
Investment Policies
-------------------
The Fund attempts to achieve its objective by investing
primarily in a diversified mix of high yield, below investment
grade fixed-income securities involving greater volatility of
price and risk of principal and income than higher fixed-income
securities. The Fund will be managed to maximize current income
by taking advantage of market developments, yield disparities and
variations in the creditworthiness of issuers. The Fund will use
various strategies in attempting to achieve its objective.
Under normal circumstances, at least 80% of the Fund's
net assets will be invested in high yield debt securities rated
below investment grade by two or more NRSROs (i.e., rated lower
than Baa by Moody's Investors Services, Inc. ("Moody's") or lower
than BBB by Standard & Poor's Ratings Services ("S&P")) or
unrated but deemed by the Alliance Capital Management L.P., the
Fund's investment adviser (the "Adviser" or "Alliance"), to be
equivalent to such lower-rated securities. The Fund's policy of
investing at least 80% of its net assets in high yield debt
securities may not be changed without 60 days' prior written
notice to shareholders. In addition, for purposes of this policy,
net assets include any borrowings for investment purposes. The
Fund will not, however, invest more than 10% of its total assets
in (i) fixed-income securities which are rated lower than B3 or
B- or their equivalents by two or more NRSROs or if unrated are
of equivalent quality as determined by the Adviser, and (ii)
money market instruments of any entity which has an outstanding
issue of unsecured debt that is rated lower than B3 or B- or
their equivalents by two or more NRSROs or if unrated is of
equivalent quality as determined by the Adviser.
Certain of the Fund's investments will be in
fixed-income securities that are providing high current yields
because of risks other than credit. For example, the Fund may
invest in securities which have prepayment risks, and non-U.S.
dollar denominated foreign securities, which may have currency
risks.
See Appendix B, "Bond Ratings," for a description of
each rating category. In the event that any securities held by
the Fund fall below those ratings, the Fund will not be obligated
to dispose of such securities and may continue to hold such
securities if, in the opinion of the Adviser, such investment is
considered appropriate under the circumstances.
Although not to be emphasized, in furtherance of its
investment objective, the Fund may (i) invest in mortgage-backed
and other asset-backed securities, (ii) enter into repurchase
agreements, (iii) invest in loan participations and assignments
of loans to corporate, governmental, or other borrowers
originally made by institutional lenders or lending syndicates,
(iv) enter into forward commitments for the purchase or sale of
securities and purchase and sell securities on a when-issued or
delayed delivery basis, (v) write covered put and call options on
fixed-income securities, securities indices and foreign
currencies and purchase put or call options on fixed-income
securities, securities indices and foreign currencies, (vi)
purchase and sell futures contracts and related options on debt
securities and on indices of debt securities, (vii) enter into
contracts for the purchase or sale of a specific currency for
hedging purposes only, (viii) invest in foreign securities and
buy and sell foreign currencies principally for the purpose of
preserving the value of foreign securities or in anticipation or
purchasing foreign securities provided, however, that the value
of foreign issues denominated in foreign currencies shall not
exceed 20% of the Fund's total assets and the value of foreign
issues denominated in United States currency shall not exceed 25%
of the Fund's total assets, and (ix) lend portfolio securities.
The Fund will have the right to regain record ownership of loaned
securities or equivalent securities in order to exercise
ownership rights such as voting rights, subscription rights and
rights to dividends, interest or distributions. The Fund may pay
reasonable finders', administrative and custodial fees in
connection with a loan. The government that is the borrower on
the loan will be considered by the Fund to be the issuer of a
loan participation or assignment for purposes of its fundamental
investment policy that it may not invest 25% or more of its total
assets in securities of issuers conducting their principal
business activities in the same industry (i.e., foreign
government).
In addition to the foregoing, the Fund may from time to
time make investments in (1) U.S. Government Securities, (2)
certificates of deposit, bankers' acceptances, bank notes, time
deposits and interest bearing savings deposits issued or
guaranteed by certain domestic and foreign banks, (3) commercial
paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if not
rated, issued by domestic or foreign companies having high
quality outstanding debt securities) and participation interests
in loans extended by banks to such companies, (4) corporate debt
obligations with remaining maturities of less than one year rated
at least high quality as well as corporate debt obligations rated
at least high grade provided the corporation also has outstanding
an issue of commercial paper rated at least A-1 by S&P or Prime-1
by Moody's, and (5) floating rate or master demand notes.
Securities Ratings. The ratings of fixed-income
securities by S&P, Moody's, and Fitch Ratings ("Fitch") are a
generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and
does not necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the
time it is updated. In addition, there may be varying degrees of
difference in credit risk of securities within each rating
category.
Additional Investment Policies and Practices
--------------------------------------------
The following additional investment policies supplement
those set forth above.
Options. The Fund may (a) write covered call options on
fixed-income securities or securities indices for the purpose of
increasing its return or to provide a partial hedge against a
decline in the value of its portfolio securities or both, (b)
write covered put options on fixed-income securities or
securities indices in order to earn additional income or (in the
case of put options written on individual securities) to purchase
the underlying securities at a price below the current market
price, (c) purchase put or call options on fixed-income
securities and securities indices in order to hedge against
changes in interest rates or stock prices which may adversely
affect the prices of securities that the Fund wants to purchase
at a later date, to hedge its existing investments against a
decline in value, or to attempt to reduce the risk of missing a
market or industry segment advance, and (d) purchase put and call
options and write covered put and call options against declines
in the dollar value of portfolio securities and against increases
in the dollar cost of securities to be acquired (i.e. as a hedge
and not for speculation).
A put option gives the purchaser of such option, upon
payment of a premium, the right to deliver a specified amount of
a security to the writer of the option on or before a fixed date
at a predetermined price. A call option gives the purchaser of
the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by the
Fund is "covered" if the Fund owns the underlying security
covered by the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or
for additional cash consideration held in a segregated account by
its custodian) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call
held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in liquid
assets in a segregated account with the Custodian. A put option
written by the Fund is "covered" if the Fund maintains liquid
assets with a value equal to the exercise price in a segregated
account with the Custodian, or else holds a put on the same
security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater
than the exercise price of the put written. The premium paid by
the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the
option, supply and demand and interest rates. It would realize a
loss if the price of the underlying security increased or
remained the same or did not decrease during that period 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 be lost by the Fund.
A call option is for cross-hedging purposes if the Fund
does not own the underlying security, and is designed to provide
a hedge against a decline in value in another security which the
Fund owns or has the right to acquire. In such circumstances, the
Fund collateralizes its obligation under the option by
maintaining in a segregated account with the Custodian liquid
assets in an amount not less than the market value of the
underlying security, marked to market daily. The Fund would write
a call option for cross-hedging purposes, instead of writing a
covered call option, when the premium to be received from the
cross-hedge transaction would exceed that which would be received
from writing a covered call option, while at the same time
achieving the desired hedge.
In purchasing a call option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security increased by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period by more than the amount of the
premium. In purchasing a put option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
decrease during that period 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 be lost by the Fund.
If a put option written by the Fund were exercised, the
Fund would be obligated to purchase the underlying security at
the exercise price. If a call option written by the Fund were
exercised, the Fund would be obligated to sell the underlying
security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value
of the underlying security caused by rising interest rates or
other factors. If this occurred, the option could be exercised
and the underlying security would then be sold by the option
holder to the Fund at a higher price than its current market
value. The risk involved in writing a call option is that there
could be an increase in the market value of the underlying
security caused by declining interest rates or other factors. If
this occurred, the option could be exercised and the underlying
security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering
into a closing transaction. The Fund retains the premium received
from writing a put or call option whether or not the option is
exercised. See Appendix A for a discussion of the use, risks and
costs of option trading.
The Fund may purchase or write options on securities of
the types in which it is permitted to invest in privately
negotiated (i.e., over-the-counter) transactions. 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
by the Fund in negotiated transactions are 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.
See "Illiquid Securities."
Options on Securities Indices. The Fund may purchase
and sell exchange-traded options on any securities index composed
of the types of securities in which it may invest. An option on a
securities index is similar to an option on a security except
that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the chosen
index is greater than (in the case of a call) or less than (in
the case of a put) the exercise price of the option. There are no
specific limitations on the Fund's purchasing and selling of
options on securities indices.
Through the purchase of listed index options, the Fund
could achieve many of the same objectives as through the use of
options on individual securities. Price movements in the Fund's
portfolio securities probably will not correlate perfectly with
movements in the level of the index and, therefore, the Fund
would bear a risk of loss on index options purchased by it if
favorable price movements of the hedged portfolio securities do
not equal or exceed losses on the options or if adverse price
movements of the hedged portfolio securities are greater than
gains realized from the options.
Credit Default Swap Agreements. The "buyer" in a credit
default swap contract is obligated to pay the "seller" a periodic
stream of payments over the term of the contract in return for a
contingent payment upon the occurrence of a credit event with
respect to an underlying reference obligation. Generally, a
credit event means bankruptcy, failure to pay, obligation
acceleration or modified restructuring. The Fund may be either
the buyer or seller in the transaction. As a seller, the Fund
receives a fixed rate of income throughout the term of the
contract, which typically is between one month and five years,
provided that no credit event occurs. If a credit event occurs,
the Fund typically must pay the contingent payment to the buyer,
which is typically the "par value" (full notional value) of the
reference obligation. The contingent payment may be a cash
settlement or by physical delivery of the reference obligation in
return for payment of the face amount of the obligation. If the
Fund is a buyer and no credit event occurs, the Fund may lose its
investment and recover nothing. However, if a credit event
occurs, the buyer typically receives full notional value for a
reference obligation that may have little or no value.
Credit default swaps may involve greater risks than if
the Fund had invested in the reference obligation directly.
Credit default swaps are subject to general market risk,
liquidity risk and credit risk. As noted above, if the Fund is a
buyer and no credit event occurs, it will lose its investment. In
addition, the value of the reference obligation received by the
Fund, coupled with the periodic payments previously received, may
be less than the full notional value it pays to the buyer,
resulting in a loss of value to the Fund.
The Fund will not enter into a credit default swap if
the swap provides for settlement by physical delivery and such
delivery would result in the Fund investing less than 80% of its
net assets in high yield debt securities or more than 10% of its
total assets in securities rated lower than B3 or B-.
Forward Commitments. The Fund may enter into forward
commitments for the purchase or sale of securities. Such
transactions may include purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as
and if issued" trade).
When forward commitment transactions are negotiated,
the price, which is generally expressed in yield terms, is fixed
at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the
settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are
subject to market fluctuation, and no interest accrues to the
purchaser prior to the settlement date. At the time the Fund
enters into a forward commitment, it will record the transaction
and thereafter reflect the value of the security purchased or, if
a sale, the proceeds to be received, in determining its net asset
value. Any unrealized appreciation or depreciation reflected in
such valuation of a "when, as and if issued" security would be
canceled in the event that the required condition did not occur
and the trade was canceled.
The use of forward commitments enables the Fund to
protect against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling
bond prices, the Fund might sell securities in its portfolio on a
forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, the
Fund might sell a security in its portfolio and purchase the same
or a similar security on a when-issued or forward commitment
basis, thereby obtaining the benefit of currently higher cash
yields. However, if the Adviser were to forecast incorrectly the
direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices
inferior to the then current market values.
The Fund's right to receive or deliver a security under
a forward commitment may be sold prior to the settlement date,
but the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Custodian
will maintain, in a segregated account of the Fund, liquid assets
having value equal to, or greater than, any commitments to
purchase securities on a forward commitment basis and, with
respect to forward commitments to sell portfolio securities of
the Fund, the portfolio securities themselves. If the Fund,
however, chooses to dispose of the right to receive or deliver a
security subject to a forward commitment prior to the settlement
date of the transaction, it may incur a gain or loss. In the
event the other party to a forward commitment transaction were to
default, the Fund might lose the opportunity to invest money at
favorable rates or to dispose of securities at favorable prices.
Forward Foreign Currency Exchange Contracts. The Fund
may purchase or sell forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund
from adverse changes in the relationship between the U.S. dollar
and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a
future date that is individually negotiated and privately traded
by currency traders and their customers.
The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of the security ("transaction hedge").
The Fund may not engage in transaction hedges with respect to the
currency of a particular country to an extent greater than the
aggregate amount of the Fund's transactions in that currency.
Additionally, for example, 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 portfolio securities denominated in such
foreign currency, or when the Fund believes that the U.S. dollar
may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this
situation the Fund may, in the alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S.
dollar amount where the Fund believes that the U.S. dollar value
of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the
currency in which portfolio securities of the Fund are
denominated ("cross-hedge").
The Fund's Custodian will place cash not available for
investment or liquid assets in a segregated account of the Fund
having a value equal to the aggregate amount of the Fund's
commitments under forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the securities
placed in a segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that
the value of the account will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to
maintaining all or part of the segregated account, the Fund may
purchase a call option permitting the Fund to purchase the amount
of foreign currency being hedged by a forward sale contract at a
price no higher than the forward contract price or the Fund may
purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a
price as high or higher than the forward contract price.
Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into
such contracts.
Futures Contracts and Options on Futures Contracts. The
Fund may invest in futures contracts and options thereon in order
to hedge against anticipated changes in interest rates that might
otherwise have an adverse effect on the value of the Fund's
assets or assets it intends to acquire, sell stock index futures
contracts and related options to hedge the equity portion of the
Fund's assets or equity assets it intends to acquire with regard
to market as distinguished from stock-specific risk, and enter
into futures contracts and related options on foreign currencies
in order to limit its exchange risk.
The Fund has claimed an exclusion from the definition
of the term "commodity pool operator" under the Commodity
Exchange Act and therefore is not subject to registration or
regulation as a pool operator under that Act. In addition, the
Fund will not purchase or sell futures contracts or options on
futures contracts unless the sum of amounts of initial margin
deposits and premiums required to establish non-hedging positions
would not exceed 5% of the Fund's liquidation value.
Mortgage-Related Securities. The mortgage-related
securities in which the Fund principally invests provide funds
for mortgage loans made to residential home buyers. These include
securities which represent interests in pools of mortgage loans
made by lenders such as savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are
assembled for sale to investors (such as the Fund) by various
governmental, government-related and private organizations.
Interests in pools of mortgage-related securities
differ from other forms of debt securities, which normally
provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead,
these securities provide a monthly payment that consists of both
interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs that may be incurred. Some
mortgage-related securities, such as securities issued by the
Government National Mortgage Association ("GNMA"), are described
as "modified pass-through." These securities entitle the holder
to receive all interest and principal payments owed on the
mortgage pool, net of certain fees, regardless of whether or not
the mortgagor actually makes the payment.
The average life of pass-through pools varies with the
maturities of the underlying mortgage instruments. In addition, a
pool's term may be shortened by unscheduled or early payments of
principal and interest on the underlying mortgages. The
occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social
and demographic conditions. As prepayment rates of individual
pools vary widely, it is not possible to accurately predict the
average life of a particular pool. For pools of fixed-rate
30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of
mortgages with other maturities or different characteristics will
have varying average life assumptions. The assumed average life
of pools of mortgages having terms of less than 30 years, is less
than 12 years, but typically not less than 5 years.
Yields on pass-through securities are typically quoted
by investment dealers and vendors based on the maturity of the
underlying instruments and the associated average life
assumption. In periods of falling interest rates the rate of
prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgage-related securities.
Conversely, in periods of rising interest rates the rate of
prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Historically, actual average life has
been consistent with the 12-year assumption referred to above.
Actual prepayment experience may cause the yield to differ from
the assumed average life yield. Reinvestment of prepayments may
occur at higher or lower interest rates than the original
investment, thus affecting the yield of the Fund. The compounding
effect from reinvestment of monthly payments received by the Fund
will increase the yield to shareholders compared with bonds that
pay interest semi-annually.
The principal governmental (i.e., backed by the full
faith and credit of the United States Government) guarantor of
mortgage-related securities is GNMA. GNMA is a wholly-owned
United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government,
the timely payment of principal and interest on securities issued
by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed
by pools of FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith
and credit of the United States Government) guarantors include
the Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation. The Federal National Mortgage
Association ("FNMA") is a government-sponsored corporation owned
entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved
seller/servicers which include state and federally-chartered
savings and loan associations, mutual savings banks, commercial
banks and credit unions and mortgage bankers. Pass-through
securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full
faith and credit of the United States Government. The Federal
Home Loan Mortgage Corporation ("FHLMC") is a corporate
instrumentality of the United States Government whose stock is
owned by the twelve Federal Home Loan Banks. Participation
certificates issued by FHLMC, which represent interests in
mortgages from FHLMC's national portfolio, are guaranteed by
FHLMC as to the timely payment of interest and ultimate
collection of principal but are not backed by the full faith and
credit of the United States Government.
Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other
secondary market issuers also create pass-through pools of
conventional residential mortgage loans. Such issuers may also be
the originators of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because
there are no direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and
principal of these pools is supported by various forms of
insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers.
Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a
mortgage-related security meets the Fund's investment quality
standards. There can be no assurance that the private insurers
can meet their obligations under the policies. The Fund may buy
mortgage-related securities without insurance or guarantees if
through an examination of the loan experience and practices of
the poolers the Adviser determines that the securities meet the
Fund's quality standards. Although the market for such securities
is becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable. The Fund
will not maintain more than 15% of its net assets in illiquid
securities.
Mortgage-related securities in which the Fund may
invest may also include collateralized mortgage obligations
("CMOs"). CMOs are debt obligations issued generally by finance
subsidiaries or trusts that are secured by mortgage-backed
certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC,
together with certain funds and other collateral. Although
payment of the principal of and interest on the mortgage-backed
certificates pledged to secure the CMOs may be guaranteed by
GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FNMA, FHLMC or
any other governmental agency, or by any other person or entity.
The issuers of CMOs typically have no significant assets other
than those pledged as collateral for the obligations.
In a common structure, payments of principal, including
any principal prepayments, on the underlying mortgages are
applied to the classes of the series of a CMO in the order of
their respective stated maturities or final distribution dates,
so that no payment of principal will be made on any class of a
CMO until all other classes having an earlier stated maturity or
final distribution date have been paid in full. One or more
tranches of a CMO may have coupon rates that reset periodically,
or "float," at a specified increment over an index such as the
London Interbank Offered Rate ("LIBOR"). Floating-rate CMOs may
be backed by fixed or adjustable rate mortgages. To date,
fixed-rate mortgages have been more commonly utilized for this
purpose. Floating-rate CMOs are typically issued with lifetime
caps on the coupon rate thereon. These caps, similar to the caps
on adjustable-rate mortgages described below, represent a ceiling
beyond which the coupon rate on a floating-rate CMO may not be
increased regardless of increases in the interest rate index to
which the floating-rate CMO is tied. The collateral securing the
CMOs may consist of a pool of mortgages, but may also consist of
mortgage-backed bonds or pass-through securities. The Fund also
expects that governmental, government-related or private entities
may create mortgage loan pools offering pass-through investments
in addition to those described above. The mortgages underlying
these securities may be alternative mortgage instruments, that
is, mortgage instruments whose principal or interest payments may
vary or whose terms to maturity may differ from customary
long-term fixed rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, the Adviser
will, consistent with the Fund's investment objective, policies
and quality standards, consider making investments in such new
types of securities.
Other Asset-Backed Securities. In general, the
collateral supporting asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience
unexpected levels of prepayments. As with mortgage-related
securities, asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different
parties and use similar credit enhancement techniques.
Repurchase Agreements. The Fund may enter into
repurchase agreements pertaining to the types of securities in
which it invests 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. The Fund may enter into repurchase agreements with
the Custodian and such primary dealers. A repurchase agreement
arises when a buyer purchases a security and simultaneously
agrees to resell it to the vendor at an agreed-upon future date,
normally one day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate
which is effective for the period of time the buyer's money is
invested in the security and which is related to the current
market rate rather than the coupon rate on the purchased
security. The Fund requires continual maintenance by its
custodian for its account in the Federal Reserve/Treasury Book
Entry System of collateral in an amount equal to, or in excess
of, the resale price. In the event a vendor defaulted on its
repurchase obligation, the Fund might suffer a loss to the extent
that the proceeds from the sale of the collateral were less than
the repurchase price. In the event of a vendor's bankruptcy, the
Fund might be delayed in, or prevented from, selling the
collateral for its benefit. The Fund's Board of Directors 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.
Illiquid Securities. The Fund has adopted the following
investment policy, which may be changed by the vote of the Board
of Directors.
The Fund will not maintain more than 15% of its net
assets (taken at market value) in illiquid 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)
over-the-counter options purchased or written by the Fund and all
assets used to cover written over-the-counter options, and (c)
repurchase agreements not terminable within seven days.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended ("Securities Act") and securities which are
otherwise not readily marketable. Securities which have not been
registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted 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 might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
A large institutional market has developed for certain
securities that are not registered under the Securities Act
including repurchase agreements, foreign securities and corporate
bonds. Institutional investors depend on an efficient
institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
The Fund may invest up to 5% of its net assets (taken
at market value) in restricted securities, other than securities
issued under Rule 144A, issued under Section 4(2) of the
Securities Act, which exempts from registration "transactions by
an issuer not involving any public offering." Section 4(2)
instruments are restricted in the sense that they can be resold
only in transactions that are exempt from the registration
requirements of the Securities Act and only to institutional
investors; they cannot be resold to the general public without
registration.
Securities eligible for resale under Rule 144A of the
Securities Act that have legal or contractual restrictions on
resale but have a readily available market are not deemed
illiquid for purposes of this limitation. More specifically, Rule
144A 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 supervision of the Board
of Directors, will monitor the liquidity of restricted securities
in the Fund's portfolio that are eligible for resale pursuant to
Rule 144A. In reaching liquidity decisions, the Adviser will
consider, inter alia, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers
making 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 (the "Commission")
interpretation or position with respect to such type of
securities.
Loans of Portfolio Securities. The Fund may make
secured loans of its portfolio securities to brokers, dealers and
financial institutions provided that liquid assets, or bank
letters of credit equal to at least 100% of the market value of
the securities loaned are deposited and maintained by the
borrower with the Fund. A principal risk in lending portfolio
securities, as with other extensions of credit, consists of
possible loss of rights in the collateral should the borrower
fail financially. In addition, the Fund will be exposed to the
risk that the sale of any collateral realized upon a borrower's
default will not yield proceeds sufficient to replace the loaned
securities. In determining whether to lend securities to a
particular borrower, the Adviser (subject to review by the Board
of Directors) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed-upon amount of income from a borrower who has delivered
equivalent collateral. Any such investment of cash collateral
will be subject to the Fund's investment risks. The Fund will
have the right to regain record ownership of loaned securities or
equivalent securities in order to exercise ownership rights such
as voting rights, subscription rights and rights to dividends,
interest or other distributions. The Fund may pay reasonable
finders, administrative and custodial fees in connection with a
loan. The Fund will not lend its portfolio securities to any
officer, director, employee or affiliate of the Fund or the
Adviser. The Board of Directors will monitor the Fund's lending
of portfolio securities.
U.S. Government Securities. U.S. Government securities
may be backed by the full faith and credit of the United States,
supported only by the right of the issuer to borrow from the U.S.
Treasury or backed only by the credit of the issuing agency
itself. These securities include: (i) the following U.S. Treasury
securities, which are backed by the full faith and credit of the
United States and differ only in their interest rates, maturities
and times of issuance: U.S. Treasury bills (maturities of one
year or less with no interest paid and hence issued at a discount
and repaid at full face value upon maturity), U.S. Treasury notes
(maturities of one to ten years with interest payable every six
months) and U.S. Treasury bonds (generally maturities of greater
than ten years with interest payable every six months); (ii)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit
of the U.S. Government, such as securities issued by GNMA, the
Farmers Home Administration, the Department of Housing and Urban
Development, the Export-Import Bank, the General Services
Administration and the Small Business Administration; and (iii)
obligations issued or guaranteed by U.S. government agencies and
instrumentalities that are not supported by the full faith and
credit of the U.S. Government, such as securities issued by FNMA
and FHLMC, and governmental CMOs. The maturities of the U.S.
Government securities listed in paragraphs (i) and (ii) above
usually range from three months to 30 years. Such securities,
except GNMA certificates, normally provide for periodic payments
of interest in fixed amount with principal payments at maturity
or specified call dates.
Securities issued by GNMA ("GNMA Certificates") differ
in certain respects from other U.S. Government securities, which
normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call
dates. GNMA Certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans. These
loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan-associations -- are either insured by
the Federal Housing Administration or guaranteed by the Veterans
Administration. A "pool" or group of such mortgages is assembled
and, after being approved by GNMA, is offered to investors
through securities dealers. Once approved by GNMA, the timely
payment of interest and principal on each mortgage is guaranteed
by the full faith and credit of the United States. GNMA
Certificates also differ from other U.S. Government securities in
that principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA
Certificates are called "pass-through" securities because both
interest and principal payments (including pre-payments) are
passed through to the holder of the Certificate. Upon receipt,
principal payments are used by the Portfolio to purchase
additional U.S. Government securities.
U.S. Government securities also include zero coupon
securities and principal-only securities and certain SMRS. In
addition, other U.S. Government agencies and instrumentalities
have issued stripped securities that are similar to SMRS. Such
securities include those that are issued with an interest only
("IO") class and a principal only ("PO") class. Although these
stripped securities are purchased and sold by institutional
investors through several investment banking firms acting as
brokers or dealers, these securities were only recently
developed. As a result, established trading markets have not yet
developed and, accordingly, these securities may be illiquid.
Guarantees of securities by the U.S. Government or its
agencies or instrumentalities guarantee only the payment of
principal and interest on the securities, and do not guarantee
the securities' yield or value or the yield or value of the
shares of the Fund that holds the securities.
U.S. Government securities are considered among the
safest of fixed-income investments. As a result, however, their
yields are generally lower than the yields available from other
fixed-income securities.
General. The successful use of the foregoing investment
practices, all of which are highly specialized investment
activities, draws upon the Adviser's special skills and
experience with respect to such instruments and usually depends
on the Adviser's ability to forecast interest rate movements
correctly. Should interest rates move in an unexpected manner,
the Fund may not achieve the anticipated benefits of these
practices or may realize losses and, thus be in an worse position
than if such strategies had not been used. In addition, the
correlation between movements in the prices of such instruments
and movements in the prices of the securities hedged or used for
cover will not be perfect and could produce unanticipated losses.
The Fund's ability to dispose of its position in
options, interest rate transactions and forward commitment
contracts will depend on the availability of liquid markets in
such instruments. Markets for all these vehicles with respect to
a number of fixed-income securities are relatively new and still
developing. If, for example, a secondary market does not exist
with respect to an option purchased or written by the Fund
over-the-counter, it might not be possible to effect a closing
transaction in the option (i.e., dispose of the option) with the
result that (i) an option purchased by the Fund would have to be
exercised in order for the Fund to realize any profit and (ii)
the Fund may not be able to sell portfolio securities covering an
option written by the Fund until the option expires. Therefore,
no assurance can be given that the Fund will be able to utilize
these instruments effectively for the purposes set forth above.
Certain Risk Considerations
---------------------------
Risks of Options on Futures Contracts, Forward
Contracts and Options on Foreign Currencies. Unlike transactions
entered into by the Fund in futures contracts, options on foreign
currencies and forward contracts are not traded on contract
markets regulated by the Commodity Futures Trading Commission
("CFTC") or (with the exception of certain foreign currency
options) by the Commission. To the contrary, such instruments are
traded through financial institutions acting as market-makers,
although foreign currency options are also traded on certain
national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to
Commission regulation. Similarly, options on securities 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. 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
Commission, as are other securities traded on such exchanges. As
a result, many of the protections provided to traders on
organized exchanges will be available with respect to such
transactions. In particular, all foreign currency option
positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation
("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a
national securities exchange may be more readily available than
in the over-the-counter market, potentially permitting the Fund
to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition,
exchange-traded options on foreign currencies involve certain
risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
option exercise, 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
exercise and settlement terms and procedures and margin
requirements than in the United States and (v) lesser trading
volume.
Investments in Lower-Rated and Unrated Instruments.
Substantially all of the Fund's assets will be invested in high
yield, high risk debt securities that are rated in the lower
rating categories (i.e., below investment grade) or which are
unrated but are of comparable quality as determined by the
Adviser. Debt securities rated below investment grade are those
rated Ba or lower by Moody's or BB or lower by S&P and are
considered by those organizations to be subject to greater risk
of loss of principal and interest than higher-rated securities
and are considered to be predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal,
which may in any case decline during sustained periods of
deteriorating economic conditions or rising interest rates. The
Fund may invest in securities having the lowest ratings for
non-subordinated debt instruments assigned by Moody's or S&P
(i.e., rated C by Moody's or CCC or lower by S&P) and in unrated
securities of comparable investment quality. These securities are
considered to have extremely poor prospects of ever attaining any
real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to
pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in
default or not current in the payment of interest or principal.
Lower-rated securities generally are considered to be
subject to greater market risk than higher-rated securities in
times of deteriorating economic conditions. In addition,
lower-rated securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions
than investment grade securities, although the market values of
securities rated below investment grade and comparable unrated
securities tend to react less to fluctuations in interest rate
levels than do those of higher-rated securities. The market for
lower-rated securities may be thinner and less active than that
for higher-quality securities, which can adversely affect the
prices at which these securities can be sold. To the extent that
there is no established secondary market for lower-rated
securities, the Adviser may experience difficulty in valuing such
securities and, in turn, the Fund's assets. In addition, adverse
publicity and investor perceptions about lower-rated securities,
whether or not based on fundamental analysis, may tend to
decrease the market value and liquidity of such lower-rated
securities. Transaction costs with respect to lower-rated
securities may be higher, and in some cases information may be
less available, than is the case with investment grade
securities.
Many fixed income securities, including certain U.S.
corporate fixed income securities in which the Fund may invest,
contain call or buy-back features that permit the issuer of the
security to call or repurchase it. Such securities may present
risks based on payment expectations. If an issuer exercises such
a "call option" and redeems the security, the Fund may have to
replace the called security with a lower yielding security,
resulting in a decreased rate of return for the Fund.
Ratings of fixed-income securities by Moody's and S&P
are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's
standpoint. The rating of a security is heavily weighted by past
developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be
varying degrees of difference in the credit risk of securities
within each rating category.
Non-rated securities will also be considered for
investment by the Fund when the Adviser believes that the
financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves,
limits the risk to the Fund to a degree comparable to that of
rated securities which are consistent with the Fund's objectives
and policies.
The Adviser will try to reduce the risk inherent in its
investment approach through credit analysis, diversification and
attention to current developments and trends in interest rates
and economic and political conditions. However, there can be no
assurance that losses will not occur. Since the risk of default
is higher for lower-quality securities, the Adviser's research
and credit analysis are a correspondingly more important aspect
of its program for managing the Fund's securities than would be
the case if the Fund did not invest in lower-rated securities. In
considering investments for the Fund, the Adviser will attempt to
identify those high-yielding securities whose financial condition
is adequate to meet future obligations, has improved, or is
expected to improve in the future. The Adviser's analysis focuses
on relative values based on such factors as interest or dividend
coverage, asset coverage, earnings prospects, and the experience
and managerial strength of the issuer.
In seeking to achieve the Fund's investment objectives,
there will be times, such as during periods of rising interest
rates, when depreciation and realization of capital losses on
securities in the Fund's portfolio will be unavoidable. Moreover,
medium and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain
market conditions. Such fluctuations after a security is acquired
do not affect the cash income received from that security but are
reflected in the net asset value of the Fund.
Risks of Investments in Foreign Securities. Foreign
issuers are subject to accounting and financial standards and
requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and profits
appearing on the financial statements of a foreign issuer may not
reflect its financial position or results of operations in the
way they would be reflected had the financial statement been
prepared in accordance with U.S. generally accepted accounting
principles. In addition, for an issuer that keeps accounting
records in local currency, inflation accounting rules in some of
the countries in which the Fund will 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.
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 will invest and could adversely
affect the Fund's assets should these conditions or events recur.
Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in
certain foreign securities and increase the costs and expenses of
the Fund. Certain countries in which the Fund will 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 other than those on which the Fund
will focus it investments 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. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the
Fund of any restrictions on investments. Investing in local
markets may require the portfolio to adopt special procedures,
seek local governmental approvals or take other actions, each of
which may involve additional costs to the Fund.
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 net asset value 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.
Debt Securities. The net asset value of the Fund's
shares will change as the general levels of interest rates
fluctuate. When interest rates decline, the value of a portfolio
primarily invested in debt securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio
primarily invest in debt securities can be expected to decline.
Certain debt securities in which the Fund may invest are
floating-rate debt securities. To the extent that the Fund does
not enter into interest rate swaps with respect to such
floating-rate debt securities, the Fund may be subject to greater
risk during periods of declining interest rates.
Future Developments. The Fund may, following written
notice to its shareholders, take advantage of other investment
practices which are not at present contemplated for use by the
Fund or anticipates that the net return on the Fund's investment
portfolio will exceed the interest expense by the Fund on
borrowing.
Certain Fundamental Investment Policies
The Fund has adopted several fundamental investment
policies listed below, which may not be changed without the
approval of its shareholders, which means the affirmative vote of
the holders of (i) 67% or more or the shares represented at a
meeting at which more than 50% of the outstanding shares are
represented, or (ii) more than 50% of the outstanding shares,
whichever is less. Whenever any investment restriction states a
maximum percentage of the Fund's assets which may be invested in
any security or other asset, it is intended that such maximum
percentage limitation be determined immediately after and as a
result of the Fund's acquisition of such securities or other
assets. Accordingly, any later increases or decreases in
percentage beyond the specified limitation resulting from a
change in values or net assets will not be considered a
violation.
The Fund may not:
(1) invest in any one industry if that investment would
make the Fund's holding in that industry exceed 25% of the Fund's
total assets;
(2) make an investment unless, when considering all its
other investments, 75% of the value of its assets would consist
of cash, cash items, U.S. Government Securities, securities of
other investment companies and other securities;
(3) underwrite securities issued by other persons
except to the extent that, in connection with the disposition of
its portfolio investments, it may be deemed to be an underwriter
under certain federal securities laws;
(4) make short sales of securities, except when it has,
by reason of ownership of other securities, the right to obtain
securities of equivalent kind and amount that will be held so
long as it is in a short position;
(5) issue senior securities;
(6) purchase real estate or mortgages; however, the
Fund may, as appropriate and consistent with its investment
policies and other investment restrictions (a) buy securities of
issuers which engage in real estate operations and securities
which are secured by interests in real estate (including
partnership interests and shares of real estate investment
trusts) and (b) may hold and sell real estate acquired as a
result of ownership of such securities;
(7) purchase any security on margin or borrow money,
except that this restriction shall not apply to (a) borrowing
from banks for temporary purposes, (b) the pledging of assets to
banks in order to transfer funds for various purposes as required
without interfering with the orderly liquidation of securities in
the Fund (but not for leveraging purposes), or (c) margin
payments or pledges in connection with options, futures
contracts, options on futures contracts, forward contracts or
options on foreign currencies;
(8) make loans except through (a) the purchase of debt
obligations in accordance with its investment objectives and
policies; (b) the lending of portfolio securities; or (c) the use
of repurchase agreements; or
(9) purchase or sell commodities (except that the Fund
may purchase and sell futures contracts and related options on
debt securities and on indices of debt securities).
Non-Fundamental Restrictions
----------------------------
The following investment restrictions are not
fundamental. They may be changed without a vote of the Fund's
shareholders.
The Fund will not:
(1) invest more than 15% of its assets in securities
restricted as to disposition under federal securities laws, or
securities otherwise considered illiquid or not readily
marketable, including repurchase agreements having a maturity of
more than seven days; however, this restriction will not apply to
securities sold pursuant to Rule 144A under the Securities Act,
so long as such securities meet liquidity guidelines to be
established by the Fund's Board of Directors;
(2) trade in foreign exchange (except transactions
incidental to the settlement of purchases or sales of securities
for the Fund) except in connection with its foreign currency
hedging strategies, provided the amount of foreign exchange
underlying such a currency hedging transactions does not exceed
10% of such Fund's net assets;
(3) acquire securities of any company that is a
securities broker or dealer, a securities underwriter, an
investment adviser of an investment company, or an investment
adviser registered under the Investment Advisers Act of 1940
(other than any such company that derives no more than 15% of its
gross revenues from securities related activities), except the
Fund may purchase bank, trust company, and bank holding company
stock, and except that the Fund may invest in accordance with
Rule 12d3-1 under the Investment Company Act of 1940 (the "1940
Act"), including up to 5% of its total assets in any such company
provided that it owns no more than 5% of the outstanding equity
securities of any class plus 10% of the outstanding debt
securities of such company or as otherwise provided by Rule
12d3-1;
(4) make an investment in order to exercise control or
management over a company; or
(5) borrow for temporary purposes (including the
purposes mentioned in the preceding sentence) in an amount
exceeding 5% of the value of the assets of the Fund.
-----------------------------------------------------------------
MANAGEMENT OF THE FUND
-----------------------------------------------------------------
Board of Directors Information
------------------------------
The business and affairs of the Fund are managed under
the direction of the Board of Directors. Certain information
concerning the Fund's Directors is set forth below.
<TABLE>
<CAPTION>
PORTFOLIOS IN OTHER
NAME, AGE OF DIRECTOR, FUND COMPLEX DIRECTOR-
ADDRESS (YEARS OF PRINCIPAL OCCUPATION(S) OVERSEEN SHIPS HELD
SERVICE*) DURING PAST 5 YEARS BY DIRECTOR BY DIRECTOR
------------------- ------------------- ----------- -----------
<S> <C> <C> <C>
INTERESTED DIRECTOR
Marc O. Mayer,** 46, Executive Vice President of 68 None
1345 Avenue of the Americas, Alliance Capital Management
New York, NY 10105 Corporation ("ACMC") since
(Elected November 18, 2003) 2001; prior thereto, Chief
Executive Officer of Sanford
C. Bernstein & Co., LLC ("SBC
& Co") and its predecessor
since prior to 1999.
DISINTERESTED DIRECTORS
Chairman of the Board
William H. Foulk, Jr.,#+ 71, Investment adviser and an 116 None
2 Sound View Drive, Suite independent consultant. He
100, was formerly Senior Manager of
Greenwich, CT 06830 (6) Barrett Associates, Inc., a
registered investment adviser,
with which he had been
associated since prior to
1999. He was formerly Deputy
Comptroller of the State of
New York and, prior thereto,
Chief Investment Officer of
the New York Bank for Savings.
Ruth Block,#+ 73, Formerly Executive Vice 96 None
500 SE Mizner Blvd. President and Chief Insurance
Boca Raton, FL 33432 Officer of The Equitable Life
(6) Assurance Society of the
United States; Chairman and
Chief Executive Officer of
Evlico; Director of Avon, BP
(oil and gas), Ecolab
Incorporated (specialty
chemicals), Tandem Financial
Group and Donaldson, Lufkin &
Jenrette Securities
Corporation; former Governor
at Large, National Association
of Securities Dealers, Inc.
David H. Dievler,#+ 74, Independent consultant. Until 100 None
P.O. Box 167, December 1994 he was Senior
Spring Lake, NJ 07762 (6) Vice President of ACMC
responsible for mutual fund
administration. Prior to
joining ACMC in 1984, he was
Chief Financial Officer of
Eberstadt Asset Management
since 1968. Prior to that, he
was a Senior Manager at Price
Waterhouse & Co. Member of
American Institute of
Certified Public Accountants
since 1953.
John H. Dobkin,#+ 61, Consultant. Formerly President 98 None
P.O. Box 12, of Save Venice, Inc.
Annandale, NY 12504 (6) (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 and during
1988 - 1992, Director and
Chairman of the Audit
Committee of ACMC.
Clifford L. Michel,#+ 64, Senior Counsel of the law firm 97 Placer
15 St. Bernard's Road, of Cahill Gordon & Reindel Dome,
Gladstone, NJ 07934 (6) since February 2001 and a Inc.
partner of that firm for more
than twenty-five years prior
thereto. He is President and
Chief Executive Officer of
Wenonah Development Company
(investments) and a Director
of Placer Dome, Inc. (mining).
Donald J. Robinson,#+ 69, Senior Counsel to the law firm 96 None
98 Hell's Peak Road, of Orrick, Herrington &
Weston, VT 05161 (6) Sutcliffe LLP since prior to
1999. Formerly a senior
partner and a member of the
Executive Committee of that
firm. He was also a member and
Chairman of the Municipal
Securities Rulemaking Board
and a Trustee of the Museum of
the City of New York.
</TABLE>
--------
* There is no stated term of office for the Fund's Directors.
** Mr. Mayer is an "interested person", as defined in the 1940
Act, due to his position as Executive Vice President of
ACMC.
# Member of the Audit Committee.
+ Member of the Nominating Committee.
The Fund's Board of Directors has two standing
committees of the Board -- an Audit Committee and a Nominating
Committee. The members of the Audit and Nominating Committees are
identified above. The function of the Audit Committee is to
assist the Board of Directors in its oversight of the Fund's
financial reporting process. The Audit Committee met four times
during the Fund's most recently completed fiscal year. The
function of the Nominating Committee is to nominate persons to
fill any vacancies or newly created positions on the Board of
Directors. The Nominating Committee did not meet during the
Fund's most recently completed fiscal year.
The Nominating Committee has a charter and, pursuant to
the charter, the Nominating Committee will consider candidates
for nomination as a director submitted by a shareholder or group
of shareholders who have owned at least 5% of the Fund's common
stock for at least two years at the time of submission and who
timely provide specified information about the candidates and the
nominating shareholder or group. To be timely for consideration
by the Nominating 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 Fund will make a public notice specifying the
deadline for the submission. The Fund will make the public notice
at least 30 days prior to the deadline for the submission, which
is expected to be approximately 120 days prior to the anticipated
date of the proxy statement for the annual meeting. The Fund may
make the public notice in a shareholder report or other mailing
to shareholders or by other means deemed by the Nominating
Committee or the Board to be reasonably calculated to inform
shareholders.
Shareholders submitting a candidate for consideration
by the Nominating Committee must provide the following
information to the 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 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 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 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 Nominating
Committee will not consider self-nominated candidates. The
Nominating Committee will consider and evaluate candidates
submitted by shareholders on the basis of the same criteria as
those used to consider and evaluate candidates submitted from
other sources. These criteria include the candidate's relevant
knowledge, experience, and expertise, the candidate's ability to
carry out his or her duties in the best interests of the Fund,
the candidate's ability to qualify as a disinterested Director
and such other criteria as the Nominating Committee determines to
be relevant in light of the existing composition of the Board and
any anticipated vacancies or other factors.
In approving the most recent annual continuance of the
Fund's investment advisory agreement ("Advisory Agreement"), the
Directors considered all information they deemed reasonably
necessary to evaluate the terms of the Advisory Agreement. The
principal areas of review by the Directors were the nature and
quality of the services provided by the Adviser and the
reasonableness of the fees charged for those services. These
matters were considered by the disinterested directors meeting
separately from the full Board with experienced counsel that is
independent of the Adviser.
The Directors' evaluation of the quality of the
Adviser's services took into account their knowledge and
experience gained through meetings with and reports of the
Adviser's senior management, portfolio managers and
administrative personnel over the course of the preceding year.
Both short-term and long-term investment performance of the Fund,
as well as senior management's attention to any portfolio
management issues, were considered. The Fund's current and
longer-term performance were compared to its performance
benchmark and to that of competitive funds and other funds with
similar investment objectives. The Directors also considered an
expense limitation agreement for the Fund that sets expense caps
on overall Fund expenses and provides for waiver of fees by the
Adviser or reimbursement of expenses if needed to meet such caps,
the scope and quality of the in-house research capability of the
Adviser and other resources dedicated to performing its services.
The quality of administrative and other services, including the
Adviser's role in coordinating the activities of the Fund's other
service providers, were considered in light of on-going reports
by management as to compliance with investment policies and
applicable laws and regulations and of related reports by
management and the Fund's independent auditors in periodic
meetings with the Fund's Audit Committee.
In reviewing the fees payable under the Advisory
Agreement, the Directors compared the fees and overall expense
levels of the Fund to those of competitive funds and other funds
with similar investment objectives. The information on advisory
fees and expense ratios, as well as performance data, included
both information compiled by the Adviser and information compiled
by an independent data service. The Directors also considered the
fees of the Fund as a percentage of assets at different asset
levels and possible economies of scale to the Adviser. The
Directors considered information provided by the Adviser
concerning the Adviser's profitability with respect to the Fund,
including the assumptions and methodology used in preparing the
profitability information, in light of applicable case law
relating to advisory fees. For these purposes, the Directors took
into account not only the fees paid by the Fund, but also
so-called "fallout benefits" to the Adviser, such as the
engagement of affiliates of the Adviser to provide distribution
and transfer agency services to the Fund, and that the Advisory
Agreement provides that the Fund reimburses the Adviser for the
cost of providing certain administrative services. In evaluating
the Fund's advisory fees, the Directors also took into account
the demands, complexity and quality of the investment management
of the Fund.
The Directors also considered the business reputation
of the Adviser and its financial resources. The Directors
evaluated the procedures and systems adopted by the Adviser that
are designed to fulfill the Adviser's fiduciary duty to the Fund
with respect to possible conflicts of interest, including the
Adviser's code of ethics (regulating the personal trading of its
officers and employees) and the allocation of trades among its
various investment advisory clients. The Directors also
considered information concerning policies and procedures of the
Adviser with respect to the execution of portfolio transactions.
No single factor was considered in isolation or to be
determinative to the decision of the Directors to approve
continuance of the Advisory Agreement. Rather, the Directors
concluded in light of a weighing and balancing of all factors
considered that it was in the best interests of the Fund to
continue its Advisory Agreement without modification to its
terms, including the fees charged for services thereunder.
The dollar range of the Fund's securities owned by each
Director and the aggregate dollar range of securities of all of
the registered investment companies to which the Investment
Adviser provides investment advisory services (collectively, the
"AllianceBernstein Fund Complex") owned by each Director are set
forth below.
AGGREGATE DOLLAR
RANGE OF EQUITY
DOLLAR RANGE OF SECURITIES IN THE
EQUITY SECURITIES ALLIANCEBERNSTEIN
IN THE FUND AS OF FUND COMPLEX AS OF
DECEMBER 31, 2003 DECEMBER 31, 2003
----------------- -----------------
Marc O. Mayer $10,001 - $50,000 Over $100,000
Ruth Block $1 - $10,000 Over $100,000
David H. Dievler Over $100,000 Over $100,000
John H. Dobkin None Over $100,000
William H. Foulk, Jr. None Over $100,000
Clifford L. Michel None Over $100,000
Donald J. Robinson 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 THE FUND DURING PAST 5 YEARS
-------------- ---------------- --------------------
Marc O. Mayer, (46) President See biography above.
Kathleen A. Corbet, (43) Senior Vice Executive Vice President
President of ACMC,** with which she
has been associated since
prior to 1999.
Michael A. Snyder, (41) Vice President Senior Vice President of
ACMC,** since May 2001.
Previously, he was
Managing Director in the
high yield asset
management group at
Donaldson, Lufkin &
Jenrette Corporation from
1998 to 2001.
Mark R. Manley (41) Secretary Senior Vice President and
Acting General Counsel of
ACMC,** with which he has
been associated since
prior to 1999.
Andrew L. Gangolf, (49) Assistant Secretary Senior Vice President and
Assistant General Counsel
of AllianceBernstein
Investment Research &
Management, Inc.
("ABIRM"),** with which
he has been associated
since prior to 1999.
Marie Vogel, (50) Assistant Secretary Vice President of ACMC,**
with which she has been
associated since prior to
1999.
Mark D. Gersten, (53) Treasurer and Chief Senior Vice President of
Financial Officer AGIS** and Vice President
of ABIRM,** with which he
has been associated since
prior to 1999.
Vincent S. Noto, (39) Controller Vice President of AGIS,**
with which he has been
associated since prior to
1999.
--------
* The address for each of the Fund's officers is 1345 Avenue
of the Americas, New York, NY 10105.
** ACMC, ABIRM, and AGIS are affiliates of the Fund.
The Fund does not pay any fees to, or reimburse
expenses of, its Directors who are considered "interested
persons" of the Fund. The aggregate compensation paid by the Fund
to each of the Directors during its fiscal year ended August 31,
2003 and the fiscal period ended September 30, 2003, and the
aggregate compensation paid to each of the Directors during
calendar year 2003 by the AllianceBernstein Fund Complex, and the
total number of registered investment companies (and separate
investment portfolios within those companies) in the
AllianceBernstein Fund Complex with respect to which each of the
Directors serves as a director or trustee, are set forth below.
Neither the Fund nor any other fund in the AllianceBernstein Fund
Complex provides compensation in the form of pensions or
retirement benefits to any of its directors or trustees. Each of
the Directors is a director or trustee of one or more other
registered investment companies in the AllianceBernstein Fund
Complex.
Total Total
Number of Number of
Investment Investment
Companies Portfolio
in the within the
Aggregate Alliance- Alliance-
Compensation Total Bernstein Bernstein
from the Compensation Fund Complex, Fund Complex
Fund for the from the Including the Including
Fiscal Year Alliance- Fund, the Fund,
Ended Bernstein as to as to
8/31/03/ Fund which the which the
Fiscal Complex, Director is a Director is
Period Ended Including Director a Director
Name of Director 9/30/03 the Fund or Trustee or Trustee
--------------------- ------------ ------------ --------------- -----------
Marc O. Mayer $-0-/$-0- $-0- 40 68
Ruth Block $3,332/$758 $205,550 43 96
David H. Dievler $3,308/$758 $264,400 47 100
John H. Dobkin $3,323/$758 $234,550 45 98
William H. Foulk, Jr. $3,312/$758 $248,650 50 116
Clifford L. Michel $3,318/$758 $209,550 44 97
Donald J. Robinson $3,323/$758 $205,347 43 96
As of January 6, 2004, the Directors and officers of
the Fund as a group owned less than 1% of the shares of the Fund.
Adviser
-------
Alliance, a Delaware limited partnership with principal
offices at 1345 Avenue of the Americas, New York, New York 10105,
has been retained under the Advisory Agreement to provide
investment advice and, in general, to conduct the management and
investment program of the Fund under the supervision of the
Fund's Board of Directors (see "Management of the Fund" in the
Prospectus).
Alliance is a leading global investment management firm
supervising client accounts with assets as of September 30, 2003,
totaling approximately $438 billion. Alliance 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. Alliance is also one of the largest mutual
fund sponsors, with a diverse family of globally distributed
mutual fund portfolios. As one of the world's leading global
investment management organizations, Alliance is able to compete
for virtually any portfolio assignment in any developed capital
market in the world.
Alliance is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. Alliance Capital
Management Corporation ("ACMC"), an indirect wholly-owned
subsidiary of AXA Financial, Inc. ("AXA Financial"), is the
general partner of both Alliance Capital Management Holding L.P.
("Alliance Holding") and Alliance. AXA Financial is an indirect
wholly-owned subsidiary of AXA, which is a holding company for an
international group of insurance and related financial services
companies. Alliance Holding Units are publicly traded on the New
York Stock Exchange (the "Exchange"). Alliance Units do not trade
publicly and are subject to significant restrictions on transfer.
At March 31, 2003, Alliance Holding owned approximately
76.9 million, or 30.7%, of the issued and outstanding Alliance
Units. ACMC owns 100,000 general partnership units in Alliance
Holding and a 1% general partnership interest in Alliance. At
March 31, 2003, AXA Financial was the beneficial owner of
approximately 1.9% of the outstanding Alliance Holding Units and
approximately 54.7% of the outstanding Alliance Units which,
including the general partnership interests in Alliance and
Alliance Holding, represent an economic interest of approximately
55.7% in Alliance. At March 31, 2003, SCB Partners Inc., a
wholly-owned subsidiary of SCB Inc., was the beneficial owner of
approximately 13.0% of the outstanding Alliance Units.
Based on information provided by AXA, on March 3, 2003,
approximately 17.70% of the issued ordinary shares (representing
28.71% of the voting power) of AXA were owned directly and
indirectly by Finaxa, a French holding company. At January 1,
2003, 70.13% of the shares (representing 79.83% of the voting
power) of Finaxa were owned by three French mutual insurance
companies (the "Mutuelles AXA") and 21.82% of the shares of
Finaxa (representing 13.32% of the voting power) were owned by
BNP Paribas, a French bank. At January 1, 2003, the Mutuelles AXA
owned directly or indirectly through intermediate holding
companies (including Finaxa) approximately 20.48% of the issued
ordinary shares (representing 33.16% of the voting power) of AXA.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnish the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers. For the services rendered by the
Adviser under the Advisory Agreement, the Fund pays the Adviser a
fee at the annual rate of .75 of 1% of the Fund's average daily
net assets. The Adviser has contractually agreed to waive its fee
and bear certain expenses so that total expenses do not exceed on
an annual basis 1.70%, 2.40%, 2.40% and 1.40% of the aggregate
average daily net assets, respectively, for Class A, Class B,
Class C and Advisor Class shares. Effective as of January 1,
2004, the Adviser voluntarily waived a portion of its advisory
fee and this fee reduction is expected to continue for a period
of at least five years. The advisory fee waiver would reduce the
advisory fees to 0.50% of the first $2.5 billion, 0.45% of the
excess over $2.5 billion up to $5 billion and 0.40% of the excess
over $5 billion as a percentage of the Fund's average daily net
assets. The fee is accrued daily and paid monthly. This
contractual agreement automatically extends each year unless the
Adviser provides written notice 60 days prior to the Fund's
fiscal year end. For the fiscal years ended August 31, 2001, 2002
and 2003, and the fiscal period ended September 30, 2003, the
Adviser received advisory fees of $4,002,476, $3,908,170 and
$4,038,189 and $372,722, respectively, from the Fund. During the
period ended September 30, 2003, the Adviser waived $6,145 of the
advisory fee.
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all 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 will be
specifically approved by the Fund's Directors. During the Fund's
fiscal year ended August 31, 2003 and the fiscal period ended
September 30, 2003, the Fund paid to the Adviser $141,000 and
$11,700, respectively, for such services.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
(as defined in the 1940 Act) or by a vote of a majority of the
Fund's Directors on 60 days' written notice, or by the Adviser on
60 days' written notice, 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.
The Advisory Agreement continues in effect provided
that such continuance is specifically approved at least annually
by a vote of a majority of the Fund's outstanding voting
securities or by the Fund's Board of Directors, including in
either case approval by a majority of the Directors who are not
parties to the Advisory Agreement or "interested persons" of any
such party as defined by the 1940 Act. Most recently, continuance
of the Advisory Agreement was approved for an additional annual
term by the Board of Directors, including a majority of the
Directors who are not "interested persons" as defined in the 1940
Act, at their meeting held on November 17-18, 2003.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: AllianceBernstein All-Asia Investment Fund, Inc.,
AllianceBernstein Americas Government Income Trust, Inc.,
AllianceBernstein Balanced Shares, Inc., AllianceBernstein
Blended Style Series, Inc., AllianceBernstein Bond Fund, Inc.,
AllianceBernstein Capital Reserves, AllianceBernstein Disciplined
Growth Fund, Inc., AllianceBernstein Disciplined Value Fund,
Inc., AllianceBernstein Dynamic Growth Fund, Inc.,
AllianceBernstein Emerging Market Debt Fund, Inc.,
AllianceBernstein Exchange Reserves, AllianceBernstein Global
Research Growth Fund, Inc., AllianceBernstein Global Small Cap
Fund, Inc., AllianceBernstein Global Strategic Income Trust,
Inc., AllianceBernstein Government Reserves, AllianceBernstein
Greater China `97 Fund, Inc., AllianceBernstein Growth and Income
Fund, Inc., AllianceBernstein Health Care Fund, Inc.,
AllianceBernstein Institutional Funds, Inc., AllianceBernstein
Institutional Reserves, Inc., AllianceBernstein International
Premier Growth Fund, Inc., AllianceBernstein Mid-Cap Growth Fund,
Inc., AllianceBernstein Multi-Market Strategy Trust, Inc.,
AllianceBernstein Municipal Income Fund, Inc., AllianceBernstein
Municipal Income Fund II, AllianceBernstein Municipal Trust,
AllianceBernstein New Europe Fund, Inc., AllianceBernstein Real
Estate Investment Fund, Inc., AllianceBernstein Select Investor
Series, AllianceBernstein Small Cap Growth Fund, Inc.,
AllianceBernstein Technology Fund, Inc., AllianceBernstein Trust,
AllianceBernstein Utility Income Fund, Inc., AllianceBernstein
Variable Products Series Fund, Inc., AllianceBernstein Worldwide
Privatization Fund, Inc., The AllianceBernstein Portfolios and
Sanford C. Bernstein Fund, Inc., all registered open-end
investment companies; and to ACM Government Opportunity Fund,
Inc., ACM Income Fund, Inc., ACM Managed Income Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Municipal Securities Income
Fund, Inc., Alliance All-Market Advantage Fund, Inc., Alliance
California Municipal Income Fund, Inc., Alliance National
Municipal Income Fund, Inc., Alliance New York Municipal Income
Fund, Inc., Alliance World Dollar Government Fund, Inc., Alliance
World Dollar Government Fund II, Inc. and The Spain Fund, Inc.,
all registered closed-end investment companies.
-----------------------------------------------------------------
EXPENSES OF THE FUND
-----------------------------------------------------------------
Distribution Services Agreement
-------------------------------
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with ABIRM the Fund's principal
underwriter (the "Principal Underwriter"), to permit the
Principal Underwriter to distribute the Fund's shares and to
permit the Fund to pay distribution services fees to defray
expenses associated with the distribution of its Class A shares,
Class B shares and Class C shares in accordance with a plan of
distribution that is included in the Agreement and has been duly
adopted and approved in accordance with Rule 12b-1 adopted by the
Commission under the 1940 Act (the "Rule 12b-1 Plan").
During the Fund's fiscal year ended August 31, 2003 and
the fiscal period ended September 30, 2003, respectively, with
respect to Class A shares, the Fund paid distribution services
fees for expenditures under the Agreement, in the aggregate
amount of $302,402 and $27,120, which constituted .30%,
annualized, of the Fund's aggregate average daily net assets
attributable to the Class A shares during the fiscal year and the
fiscal period, and the Adviser made payments from its own
resources as described above, aggregating $804,345 and $70,199.
Of the $1,106,747 and $97,319 paid by the Fund and the Adviser
under the Rule 12b-1 Plan with respect to the Class A shares,
$8,297 and $796 was spent on advertising, $5,354 and $0 on the
printing and mailing of prospectuses for persons other than
current shareholders, $725,562 and $17,926 for compensation to
broker-dealers and other financial intermediaries (including,
$229,970 and $16,075 to the Fund's Principal Underwriter),
$141,878 and $50,964 for compensation to sales personnel and
$225,656 and $27,633 was spent on printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses.
During the Fund's fiscal year ended August 31, 2003 and
the fiscal period ended September 30, 2003, respectively, with
respect to Class B shares, the Fund paid distribution services
fees for expenditures under the Agreement in the aggregate amount
of $2,622,638 and $229,850, which constituted 1.00%, annualized,
of the Fund's aggregate average daily net assets attributable to
Class B shares during the fiscal year and the fiscal period, and
the Adviser made payments from its own resources, as described
above, aggregating $0 and $0. Of the $2,622,638 and $229,850 paid
by the Fund under the Rule 12b-1 Plan, with respect to Class B
shares, $2,079 and $230 was spent on advertising, $2,764 and $0
on the printing and mailing of prospectuses for persons other
than current shareholders, $1,186,591 and $87,493 for
compensation to broker-dealers and other financial intermediaries
(including, $59,136 and $4,653 to the Fund's Principal
Underwriter), $72,828 and $10,761 for compensation to sales
personnel, $55,313 and $7,955 was spent on printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses, $496,345 and $29,778 was spent on interest
on Class B shares financing and $806,718 and $93,633 was used to
offset the distribution service fees paid in prior years.
During the Fund's fiscal year ended August 31, 2003 and
fiscal period ended September 30, 2003, respectively, with
respect to Class C shares, the Fund paid distribution services
fees for expenditures under the Agreement, in the aggregate
amount of $556,009 and $55,724, which constituted 1.00%,
annualized, of the Fund's aggregate average daily net assets
attributable to Class C shares during the fiscal year and the
fiscal period, and the Adviser made payments from its own
resources, as described above, aggregating $120,367 and $9,119.
Of the $676,376 and $64,843 paid by the Fund and the Adviser
under the Rule 12b-1 Plan with respect to Class C shares, $949
and $124 was spent on advertising, $957 and $0 on the printing
and mailing of prospectuses for persons other than current
shareholders, $610,808 and $55,493 for compensation to
broker-dealers and other financial intermediaries (including,
$26,754 and $2,498 to the Fund's Principal Underwriter), $36,253
and $4,866 for compensation to sales personnel, $25,600 and
$4,231 was spent on printing of sales literature, travel,
entertainment, due diligence and other promotional expenses and
$1,809 and $129 was spent on interest on Class C shares
financing.
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and
function of the combined respective contingent deferred sales
charges ("CDSCs") and respective distribution services fees on
the Class B shares, and the distribution services fee on the
Class C shares are the same as those of the initial sales charge
and/or distribution services fee with respect to the Class A
shares in that in each case the sales charge and distribution
services fee provide for the financing of the distribution of the
relevant class of the Fund's shares.
With respect to Class A shares of the Fund,
distribution expenses accrued by ABIRM in one fiscal year may not
be paid from distribution services fees received from the Fund in
subsequent fiscal years. ABIRM's compensation with respect to
Class B and Class C shares under the Rule 12b-1 Plan is directly
tied to the expenses incurred by ABIRM. Acutal distribution
expenses for Class B and Class C shares for any given year,
however, will probably exceed the distribution services fee
payable under the Rule 12b-1 Plan with respect to the class
involved and payments received from CDSCs. The excess will be
carried forward by ABIRM and reimbursed from distribution
services fees payable under the Rule 12b-1 Plan with respect to
the class involved and, in the case of Class B and Class C
shares, payments subsequently received through CDSCs, so long as
the 12b-1 Plan is in effect.
Unreimbursed distribution expenses incurred as of the
end of the Fund's most recently completed fiscal year and the
fiscal period ended September 30, 2003, and carried over for
reimbursement in future years in respect of the Class B and Class
C shares of the Fund, were, respectively, $24,542,804 and
$24,449,171 (8.85% and 8.74% of the net assets of Class B) and
$1,633,934 and $1,643,053 (2.46% and 2.41% of the net assets of
Class C).
The Rule 12b-1 Plan is in compliance with rules of the
National Association of Securities Dealers, Inc. ("NASD") which
effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets
attributable to that class. The rules also limit the aggregate of
all front-end, deferred and asset-based sales charges imposed
with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per
annum.
In approving the Rule 12b-1 Plan, the Directors of the
Fund determined that there was a reasonable likelihood that the
Rule 12b-1 Plan would benefit the 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
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
The Agreement continues in effect provided that such
continuance is specifically approved at least annually by the
Directors of the Fund or by vote of the holders of a majority of
the outstanding voting securities (as defined in the Act) of that
class, and in either case, by a majority of the Directors of the
Fund who are not parties to this Agreement or interested persons,
as defined in the Act, of any such party (other than as Directors
of the Fund) and who have no direct or indirect financial
interest in the operation of the Rule 12b-1 Plan or any agreement
related thereto. Most recently, the continuance of the Agreement
for an additional annual term was approved by a vote, cast in
person, of Directors, including a majority of the Directors who
are not "interested persons" as defined in the 1940 Act, at their
meeting held on November 17-18, 2003.
All material amendments to the Agreement will become
effective only upon approval as provided in the preceding
paragraph; and the 12b-1 Plan may not be amended in order to
increase materially the costs that the Fund may bear pursuant to
the Agreement without the approval of a majority of the holders
of the outstanding voting shares of the Fund or the class or
classes of the Fund affected. The Agreement may be terminated (a)
by the Fund without penalty at any time by a majority vote of the
holders of the Fund's outstanding voting securities, voting
separately by class, or by a majority vote of the disinterested
Directors or (b) by the Principal Underwriter. To terminate the
Agreement, any party must give the other parties 60 days' written
notice; to terminate the Rule 12b-1 Plan only, the Fund is not
required to give prior notice to the Principal Underwriter. The
Agreement will terminate automatically in the event of its
assignment.
In the event that the Rule 12b-1 Plan is terminated by
either party or not continued with respect to the Class A shares,
Class B shares or Class C shares, (i) no distribution services
fees (other than current amounts accrued but not yet paid) would
be owed by the Fund to the Principal Underwriter with respect to
that class, and (ii) the Fund would not be obligated to pay the
Principal Underwriter for any amounts expended under the
Agreement not previously recovered by the Principal Underwriter
from distribution services fees in respect of shares of such
class or through deferred sales charges.
Registrar, Transfer Agent and Dividend-Disbursing Agent
-------------------------------------------------------
AGIS an indirect wholly-owned subsidiary of the
Adviser, located at 8000 IH 10 W, 4th Floor, San Antonio, Texas
78230, acts as each Fund's registrar, transfer agency and
dividend-disbursing agent for a fee based upon the number of
account holders of each of the Class A shares, Class B shares,
Class C shares and Advisor Class shares of the Fund. The transfer
agency fee with respect to the Class B shares and Class C shares
is higher than the transfer agency fee with respect to the Class
A shares and Advisor Class shares reflecting the additional costs
associated with Class B and Class C CDSCs. For the fiscal year
ended August 31, 2003 and the fiscal period ended September 30,
2003, the Fund paid AGIS $712,692 and $63,097, respectively, for
transfer agency services.
Code of Ethics and Proxy Voting Policies and Procedures
-------------------------------------------------------
The Fund, the Adviser and the Principal Underwriter
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 C.
-----------------------------------------------------------------
PURCHASE OF SHARES
-----------------------------------------------------------------
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Buy Shares."
General
-------
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a CDSC
("Class B 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"), 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 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 the NASD and
have entered into selected dealer agreements with the Principal
Underwriter ("selected dealers"), (ii) depository institutions
and other financial intermediaries, or their affiliates, that
have entered into selected agent agreements with the Principal
Underwriter ("selected agents"), and (iii) the Principal
Underwriter.
Investors may purchase shares of the Fund either
through selected broker-dealers, agents, financial intermediaries
or other financial representatives ("financial intermediaries"),
or directly through the Principal Underwriter. A transaction,
service, administrative or other similar fee may be charged by
your financial intermediary with respect to the purchase, sale or
exchange of shares of the Fund made through the financial
intermediary. Such financial intermediary may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to 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 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 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.
Right to Restrict, Reject or Cancel Purchase and
Exchange Orders. The AllianceBernstein Mutual Funds reserve the
right to restrict, reject or cancel, without any prior notice,
any purchase or exchange order for any reason, including any
purchase or exchange order accepted by any shareholder's
financial intermediary.
Policy Regarding Excessive or Short Duration Trading.
Purchases and exchanges of shares of the AllianceBernstein Mutual
Funds should be made for investment purposes only. The
AllianceBernstein Mutual Funds, as a matter of policy, seek to
prevent patterns of excessive purchases and sales or exchanges of
fund shares. Such practices are commonly referred to as "market
timing" or "short duration trading." The AllianceBernstein Mutual
Funds will seek to prevent such practices to the extent they are
detected by the procedures described below, subject to
AllianceBernstein Mutual Funds' ability to monitor purchase, sale
and exchange activity, as described under "Limitations on Ability
to Detect and Curtail Excessive Trading Practices." The
AllianceBernstein Mutual Funds, the Adviser, ABIRM and AGIS each
reserve the right to modify this policy, including any
surveillance or account blocking procedures established from time
to time to effectuate this policy, at any time without notice.
o Transaction Surveillance Procedures. The
AllianceBernstein Mutual Funds, through their agents,
ABIRM and AGIS, maintain surveillance procedures with
respect to purchase, sale and exchange activity in fund
shares. This surveillance process involves scrutinizing
transactions in fund shares that exceed certain
monetary thresholds or numerical limits within a
specified period of time. Trading activity identified
by either or a combination of these factors, or as a
result of any other information actually available at
the time, will be evaluated to determine whether such
activity might constitute excessive or short duration
trading activity. Generally speaking, when a fund
shareholder makes more than two exchange transactions
in amounts of $25,000 or more involving an
AllianceBernstein Mutual Fund during any 90-day period,
these transactions will be identified by these
surveillance procedures. Additionally, each purchase of
fund shares in excess of $25,000 followed by a sale
within certain periods of time will be similarly
identified. For purposes of these transaction
surveillance procedures, AllianceBernstein Mutual
Funds, ABIRM and AGIS may consider trading activity in
multiple accounts under common ownership, control or
influence. These monetary thresholds, numerical
surveillance limits or surveillance procedures
generally may be modified from time to time, including,
for example, in respect of accounts held by certain
retirement plans to conform to plan exchange limits or
U.S. Department of Labor regulations, as well as for
certain automated or pre-established exchange, asset
allocation or dollar cost averaging programs or omnibus
account arrangements.
o Account Blocking Procedures. When a particular
transaction or pattern of transactions identified by
the transaction surveillance procedures described above
is determined by the AllianceBernstein Mutual Funds,
ABIRM or AGIS, in their sole discretion, to be
excessive or short duration trading in nature, the
relevant fund account(s) will be immediately "blocked"
with respect to any future purchase or exchange
activity. However, sales of fund shares back to a fund
will continue to be permitted in accordance with the
terms of the relevant AllianceBernstein Mutual Fund's
current Prospectus. 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, may be suspended for such account.
AllianceBernstein Mutual Funds accounts that are so
blocked 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 AllianceBernstein Mutual
Funds, ABIRM or AGIS, that the account holder did not
or will not in the future engage in excessive or short
duration trading.
Limitations on Ability to Detect and Curtail Excessive
Trading Practices. Shareholders seeking to engage in excessive or
short duration trading practices may deploy a variety of
strategies to avoid detection and, despite the efforts of the
AllianceBernstein Mutual Funds, ABIRM and AGIS to detect
excessive or short duration trading in fund shares, there is no
guarantee that the AllianceBernstein Mutual Funds, ABIRM and AGIS
will be able to identify these shareholders or curtail their
trading practices. For example, omnibus account arrangements are
common forms of holding shares of a fund, particularly among
certain brokers, dealers and other financial intermediaries,
including retirement plans and variable insurance products.
Entities utilizing such omnibus account arrangements may not
identify customers' trading activity in shares of a fund on an
individual basis. Consequently, the AllianceBernstein Mutual
Funds, ABIRM and AGIS may not be able to detect excessive or
short duration trading in fund shares attributable to a
particular investor who effects purchase and/or exchange activity
in fund shares through a broker, dealer or other financial
intermediary acting in an omnibus capacity. Also, there may exist
multiple tiers of these entities, each utilizing an omnibus
account arrangement, that may further compound the difficulty to
the AllianceBernstein Mutual Funds, ABIRM and AGIS of detecting
excessive or short duration trading activity in fund shares. It
is common for a substantial portion of AllianceBernstein Mutual
Fund shares to be held through such omnibus account arrangements.
In seeking to prevent excessive or short duration trading in
shares of AllianceBernstein Mutual Funds, including the
maintenance of any transaction surveillance or account blocking
procedures, the AllianceBernstein Mutual Funds, ABIRM and AGIS,
consider the information actually available to them at the time.
Risks Associated with Excessive or Short Duration Trading Generally
-------------------------------------------------------------------
While the AllianceBernstein Mutual Funds, ABIRM and
AGIS will try to prevent market timing by utilizing the
procedures described above, these procedures may not be
successful in identifying or stopping excessive or short duration
trading in all circumstances. Excessive purchases and sales or
exchanges of shares of AllianceBernstein Mutual Funds may
adversely affect fund performance and the interests of long-term
investors. Volatility resulting from excessive purchases and
sales or exchanges of fund shares, especially involving large
dollar amounts, may disrupt efficient portfolio management. In
particular, a fund may have difficulty implementing long-term
investment strategies if it is unable to anticipate what portion
of its assets it should retain in cash to provide liquidity to
its shareholders. Also, excessive purchases and sales or
exchanges of funds shares may force a fund to maintain a
disadvantageously large cash position to accommodate short
duration trading activity. Further, excessive purchases and sales
or exchanges of a fund's shares may force a fund to sell
portfolio securities at inopportune times to raise cash to
accommodate short duration trading activity.
In addition, the AllianceBernstein Mutual Funds may
incur increased expenses if one or more shareholders engage in
excessive purchase and sale or exchange activity. For example, a
fund that is forced to liquidate investments due to short
duration trading activity may incur increased brokerage and tax
costs without attaining any investment advantage. Similarly, a
fund may bear increased administrative costs as a result of the
asset level and investment volatility that accompanies patterns
of short duration trading activity.
The AllianceBernstein Mutual Funds that invest in
foreign securities may be particularly susceptible to short
duration trading strategies. This is because time zone
differences among international stock markets can allow a
shareholder engaging in a short duration strategy to exploit fund
share prices that are based on closing prices of foreign
securities established some time before the fund calculates its
own share price. In addition, a shareholder engaging in a short
duration strategy may target an AllianceBernstein Mutual Fund
that does not invest primarily in foreign securities. For
example, a fund that invests in certain fixed-income securities
such as high yield bonds or certain asset-backed securities may
also constitute an effective vehicle for a shareholder's short
duration trading strategy. Money market funds and closed-end
funds generally are not effective vehicles for short duration
trading activity, and therefore the risks relating to short
duration trading activity are correspondingly lower for
AllianceBernstein Mutual Funds of these types.
Risks Resulting from Imposition of Account Blocks in
Response to Excessive or Short Duration Trading Activity. A
shareholder identified as having engaged in excessive or short
duration trading activity and prevented from purchasing or
exchanging AllianceBernstein Mutual Fund shares and who does not
wish to redeem his or her shares effectively may be "locked" into
an investment in an AllianceBernstein Mutual Fund that the
shareholder did not intend to hold on a long-term basis or that
may not be appropriate for the shareholder's risk profile. To
rectify this situation, a shareholder with an account "blocked"
due to patterns of excessive purchases and sales or exchanges may
be forced to sell fund shares, which could be costly if, for
example, these shares decline in value before sale, are subject
to a CDSC, the shareholder recently paid a front-end sales charge
or the sale results in adverse tax consequences to the
shareholder. To avoid this risk, shareholders should carefully
monitor the nature and frequency of their purchases, sales and
exchanges of fund shares.
The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons. If the Fund suspends the sale of
its shares, shareholders will not be able to acquire its shares,
including through an exchange. In addition, the Fund reserves the
right, on 60 days' written notice to modify, restrict or
terminate the exchange privilege.
The public offering price of shares of the Fund is
their net asset value, plus, in the case of Class A shares, a
sales charge. On each Fund business day on which a purchase or
redemption order is received by the Fund and trading in the types
of securities in which the Fund invests might materially affect
the value of Fund shares, the per share net asset value is
computed 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 respective per share net asset values of the
various classes of shares of the Fund are expected to be
substantially the same. However, the per share net asset values
of the Class B and Class C shares will generally be slightly
lower than the per share net asset values of the Class A and
Advisor Class shares as a result of the differential daily
expense accruals of the higher distribution and, in some cases,
transfer agency fees applicable with respect to those classes of
shares.
The Fund will accept unconditional orders for its
shares to be executed at the public offering price equal to their
net asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
financial intermediaries, the applicable public offering price
will be the net asset value as so determined, but only if the
financial intermediary receives the order prior to the close of
regular trading on the Exchange. The financial intermediary is
responsible for transmitting such orders by a prescribed time to
the Fund or its transfer agent. If the financial intermediary
fails to do so, the investor's will not receive that day's net
asset value. If the financial intermediary receives the order
after the close of regular trading on the Exchange, the price
received by the investor will be based on the net asset value
determined as of the close of regular trading on the Exchange on
the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this SAI. Except with respect to
certain omnibus accounts, telephone purchase orders may not
exceed $500,000. Payment for shares purchased by telephone can be
made only by Electronic Funds Transfer from a bank account
maintained by the shareholder at a bank that is a member of the
National Automated Clearing House Association ("NACHA").
Telephone purchase requests must be received before 3:00 p.m.,
Eastern time, on a Fund business day to receive that day's public
offering price. Telephone purchase requests received after 3:00
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,
stock certificates representing shares of the Fund are not issued
except upon written request to the Fund by the shareholder or his
or her authorized financial intermediary. This facilitates later
redemption and relieves the shareholder of the responsibility for
and inconvenience of lost or stolen certificates. No certificates
are issued for fractional shares, although such shares remain in
the shareholder's account on the books of the Fund.
Each class of shares of 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 B and Class C shares bear the expense
of the CDSC, (ii) Class B shares and Class C shares each bear the
expense of a higher distribution services fee than that borne by
Class A shares, and Advisor Class shares do not bear such a fee,
(iii) Class B and Class C shares bear higher transfer agency
costs than those borne by Class A and Advisor Class shares, (iv)
Class B and Advisor Class shares are subject to a conversion
feature, and will convert to Class A shares under certain
circumstances, and (v) each of Class A, Class B and Class C
shares has exclusive voting rights with respect to provisions of
the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund
submits to a vote of the Class A shareholders, an amendment to
the Rule 12b-1 Plan that would materially increase the amount to
be paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B and Advisor Class
shareholders because the Class B and Advisor Class shares convert
to Class A shares under certain circumstances, and the Class A,
Class B and Advisor Class shareholders will vote separately by
class. Each class has different exchange privileges and certain
different shareholder service options available.
The Directors of the Fund have determined that
currently no conflict of interest exists between or among the
various classes of shares of the Fund. On an ongoing basis, the
Directors of the Fund, pursuant to their fiduciary duties under
the 1940 Act and state law, will seek to ensure that no such
conflict arises.
Alternative Purchase Arrangements
---------------------------------
Classes A, B and C Shares. The alternative purchase
arrangements available with respect to Class A shares, Class B
shares and Class C shares permit an investor to choose the method
of purchasing shares that is most beneficial given the amount of
the purchase, the length of time the investor expects to hold the
shares, and other circumstances. Investors should consider
whether, during the anticipated life of their investment in the
Fund, the accumulated distribution services fee and CDSC on Class
B shares prior to conversion, or the accumulated distribution
services fee and CDSC on Class C shares, would be less than the
initial sales charge and accumulated distribution services fee on
Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher return of Class A
shares. Class A shares will normally be more beneficial than
Class B shares to the investor who qualifies for reduced initial
sales charges on Class A shares, as described below. In this
regard, the Principal Underwriter will reject any order (except
orders from certain retirement plans and certain employee benefit
plans) for more than $250,000 for Class B shares (see
"Alternative Purchase Arrangements--Group Retirement Plans").
Class C shares will normally not be suitable for the investor who
qualifies to purchase Class A shares at net asset value. For this
reason, the Principal Underwriter will reject any order for more
than $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, most investors purchasing Class A shares would not
have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a CDSC for a four-year and one-year period,
respectively. For example, based on current fees and expenses, an
investor subject to the 4.25% initial sales charge would have to
hold his or her investment approximately seven years for the
Class C distribution services fee to exceed the initial sales
charge plus the accumulated distribution services fee of Class A
shares. In this example, an investor intending to maintain his or
her investment for a longer period might consider purchasing
Class A shares. This example does not take into account the time
value of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
four-year period during which Class B shares are subject to a
CDSC may find it more advantageous to purchase Class C shares.
During the Fund's fiscal years ended August 31, 2001,
2002 and 2003, and the fiscal period ended September 30, 2003,
the aggregate amount of underwriting commission payable with
respect to shares of the Fund was $1,168,594, $447,492, $327,690
and $25,065, respectively. Of that amount, the Principal
Underwriter received $72,974, $287,913, $13,331 and $1,435,
respectively, representing that portion of the sales charge paid
on shares of the Fund sold during the fiscal period and fiscal
years which was not reallowed to selected dealers (and was,
accordingly, retained by the Principal Underwriter). During the
Fund's fiscal years ended August 31, 2001, 2002 and 2003, and the
fiscal period ended September 30, 2003, the Principal Underwriter
received CDSCs of $15,297, $333,$39,312 and $28,005,
respectively, on Class A shares, $1,092,552, $847,613, $436,821,
and $29,888, respectively, on Class B shares and $21,306,
$14,968, $5,162 and $965, respectively, on Class C shares of the
Fund.
Class A Shares
--------------
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
Sales Charge
------------
Discount or
Commission
to Dealers
As % of the or Agents of
As % of Net Public up to % of
Amount Offering Offering
Amount of Purchase Invested Price Price
------------------ -------- ----- -----
Less than $100,000 4.44% 4.25% 4.00%
$100,000 but less than
$250,000 3.36 3.25 3.00
$250,000 but less than
$500,000 2.30 2.25 2.00
$500,000 but less than
$1,000,000* 1.78 1.75 1.50
--------
* There is no initial sales charge on transactions of
$1,000,000 or more.
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 will be subject to a CDSC equal to 1% of the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains
distributions. The CDSC on Class A shares will be waived on
certain redemptions, as described below under "--Class C Shares."
In determining the CDSC applicable to a redemption of Class A
shares, it will be assumed that the redemption is, first, of any
shares that are not subject to a CDSC (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends and
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the CDSC
on Class A shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sales of Class A
shares, such as the payment of compensation to selected dealers
or agents for selling Class A shares. With respect to purchases
of $1,000,000 or more made through selected dealers or agents,
the Adviser may, pursuant to the Distribution Services Agreement
described above, pay such dealers or agents from its own
resources a fee of up to 1% of the amount invested to compensate
such dealers or agents for their distribution assistance in
connection with such purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "AllianceBernstein Mutual Funds" (as that
term is defined under "Combined Purchase Privilege" below),
except that an initial sales charge will be imposed on Class A
shares issued in exchange for Class A shares of AllianceBernstein
Exchange Reserves that were purchased for cash without the
payment of an initial sales charge and without being subject to a
CDSC, or (iii) upon the automatic conversion of Class B shares or
Advisor Class shares as described below under "--Class B
Shares--Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." The Fund receives the entire net asset
value of its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown above less any
applicable discount or commission "reallowed" to selected dealers
and agents. The Principal Underwriter will reallow discounts to
selected dealers and agents in the amounts indicated in the table
above. In this regard, the Principal Underwriter may elect to
reallow the entire sales charge to selected dealers and agents
for all sales with respect to which orders are placed with the
Principal Underwriter. A selected dealer who receives reallowance
in excess of 90% of such a sales charge may be deemed to be an
"underwriter" under the Securities Act.
In addition to the circumstances described above,
certain types of investors may be entitled to pay no initial
sales charge in certain circumstances.
Class A shares - Sales at Net Asset Value. The Fund may
sell its Class A shares at net asset value (i.e., without any
initial sales charge) to certain categories of investors
including:
(i) investment management clients of the Adviser or its
affiliates;
(ii) officers and present or former Directors of the Fund 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, the Principal
Underwriter, AGIS and their affiliates; officers,
directors and present and full-time employees of
selected dealers or agents; or the spouse, of any such
person; or any trust, individual retirement account or
retirement plan account for the benefit of any such
person;
(iii) the Adviser, Principal Underwriter, AGIS and their
affiliates; certain employee benefit plans for
employees of the Adviser, the Principal Underwriter,
AGIS and their affiliates;
(iv) persons participating in a fee-based program, sponsored
and maintained by a registered broker-dealer or other
financial intermediary and approved by the Principal
Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or financial
intermediary, or its affiliate or agent, for service in
the nature of investment advisory or administrative
services; and
(v) certain retirement plan accounts as described under
"Alternative Purchase Arrangements - Group Retirement
Plans."
Class B Shares
--------------
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the CDSC on the Class B shares are paid
to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the
payment of compensation to selected dealers and agents for
selling Class B shares. The combination of the CDSC and the
distribution services fee enables the Fund to sell the Class B
shares without a sales charge being deducted at the time of
purchase. The higher distribution services fee incurred by Class
B shares will cause such shares to have a higher expense ratio
and to pay lower dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares that
are redeemed within four years of purchase will be subject to a
CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The charge will be assessed on an
amount equal to the lesser of the cost of the shares being
redeemed or their net asset value at the time of redemption.
Accordingly, no sales charge will be imposed on increases in net
asset value above the initial purchase price. In addition, no
charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to the
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase as set forth
below).
The amount of the CDSC, if any, will vary depending on
the number of years from the time of payment for the purchase of
Class B shares until the time of redemption of such shares.
Contingent Deferred Sales
Charge as a % of Dollar
Year Since Purchase Amount Subject to Charge
-------------------- ------------------------
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and Thereafter None
In determining the CDSC applicable to a redemption of
Class B shares, it will be assumed that the redemption is, first,
of any shares that were acquired upon the reinvestment of
dividends or distributions and, second, of shares held longest
during the time they are subject to the sales charge. When shares
acquired in an exchange are redeemed, the applicable 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.
The CDSC is waived on redemptions of shares (i)
following the death or disability, as defined in the Internal
Revenue Code of 1986, as amended (the "Code"), of a shareholder,
(ii) to the extent that the redemption represents a minimum
required distribution from an individual retirement account or
other retirement plan to a shareholder that has attained the age
of 70-1/2, (iii) that had been purchased by present or former
Directors of the Fund, by the relative of any such person, by any
trust, individual retirement account or retirement plan account
for the benefit of any such person or relative, or by the estate
of any such person or relative, or (iv) pursuant to, and in
accordance with, a systematic withdrawal plan (see "Sales Charge
Reduction Programs - Systematic Withdrawal Plan" below), (v) sold
through programs offered by financial intermediaries and approved
by ABIRM where such programs offer only shares which are not
subject to a CDSC, where the financial intermediary establishes a
single omnibus account for the Fund, and where no advance
commission is paid to any financial intermediary in connection
with the purchase of such shares, or (vi) 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.
Conversion Feature. Eight years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose of
the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long
enough for the Principal Underwriter to have been compensated for
distribution expenses incurred in the sale of such shares.
Class B shares purchased on or before July 10, 1998
will automatically convert to Class A shares in accordance with
the conversion schedule in effect at that time, i.e. six years
after the end of the calendar month in which the shareholder's
purchase order was accepted.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time any
Class B shares in the shareholder's account (other than those in
the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class
A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending eight years after the end of the calendar month in which
the shareholder's purchase order was accepted.
Class C Shares
--------------
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a CDSC so that the investor will receive as proceeds upon
redemption the entire net asset value of his or her Class C
shares. The Class C distribution services fee enables the Fund to
sell Class C shares without either an initial 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 will thus have a higher expense
ratio and pay correspondingly lower dividends than Class A
shares.
Class C shares that are redeemed within one year of
purchase will be subject to a CDSC of 1%, charged as a percentage
of the dollar amount subject thereto. The charge will be assessed
on an amount equal to the lesser of the cost of the shares being
redeemed or their net asset value at the time of redemption.
Accordingly, no sales charge will be imposed on increases in net
asset value above the initial purchase price. In addition, no
charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. The CDSC on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares."
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 have been held beyond the period during which
the charge applies or were acquired upon the reinvestment of
dividends or distributions) and, second, of shares held longest
during the time they are subject to the sales charge.
Proceeds from the CDSC are paid to the Principal
Underwriter and are used by the Principal Underwriter to defray
the expenses of the Principal Underwriter related to providing
distribution-related services to the Fund in connection with the
sale of the Class C shares, such as the payment of compensation
to selected dealers and agents for selling Class C shares. The
combination of the CDSC and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
The CDSC is waived on redemptions of shares (i)
following the death or disability, as defined in the Code, of a
shareholder, (ii) to the extent that the redemption represents a
minimum required distribution from an individual retirement
account or other retirement plan to a shareholder that has
attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, (iv)
pursuant to, and in accordance with, a systematic withdrawal plan
(see "Sales Charge Reduction Programs - Systematic Withdrawal
Plan" below), (v) sold through programs offered by financial
intermediaries and approved by ABIRM where such programs offer
only shares which are not subject to a CDSC where the financial
intermediary establishes a single omnibus account for the Fund,
and where no advance commission is paid to any financial
intermediary in connection with the purchase of such shares, or
(vi) 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.
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
the Principal Underwriter, (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) by the categories of investors described in clauses (i)
through (iv) under "--Sales at Net Asset Value" (other than
officers, directors and present and full-time employees of
selected dealers or agents, or relatives of such person, or any
trust, individual retirement account or retirement plan account
for the benefit of such relative, none of whom is eligible on the
basis solely of such status to purchase and hold Advisor Class
shares), or (iv) by directors and present or retired full-time
employees of CB Richard Ellis, Inc. Generally, a fee-based
program must charge an asset-based or other similar fee and must
invest at least $250,000 in Advisor Class shares of the Fund in
order to be approved by the Principal Underwriter for investment
in Advisor Class shares. A transaction fee may be charged by your
financial intermediary with respect to the purchase, sale or
exchange of Advisor Class shares made through such financial
intermediary. Advisor Class shares do not incur any distribution
services fees, and will thus have a lower expense ratio and pay
correspondingly higher dividends than Class A, Class B or Class C
shares.
Conversion of Advisor Class Shares to Class A Shares
----------------------------------------------------
Advisor Class shares may be held solely through the
fee-based program accounts, employee benefit plans, qualified
state tuition programs and registered investment advisory or
other financial intermediary relationships described above under
"Purchase of Shares--Advisor Class Shares," and by investment
advisory clients of, and certain other persons associated with,
the Adviser and its affiliates or the Fund. If (i) a holder of
Advisor Class shares ceases to participate in the fee-based
program or plan, or to be associated with the investment adviser
or financial intermediary, in each case, that satisfies the
requirements to purchase shares set forth under "Purchase of
Shares -- Advisor Class Shares" or (ii) the holder is otherwise
no longer eligible to purchase Advisor Class shares as described
in the Prospectus and this SAI (each, a "Conversion Event"), then
all Advisor Class shares held by the shareholder will convert
automatically to Class A shares of the Fund during the calendar
month following the month in which the Fund is informed of the
occurrence of the Conversion Event. The Fund will provide the
shareholder with at least 30 days notice of the conversion. The
failure of a shareholder or a fee-based program to satisfy the
minimum investment requirements to purchase Advisor Class shares
will not constitute a Conversion Event. The conversion would
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class A shares currently bear a .30% distribution
services fee. Advisor Class shares do not have any distribution
services fees. As a result, Class A shares have a higher expense
ratio and may pay correspondingly lower dividends and have a
lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A
shares is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares to
Class A shares may be suspended if such an opinion is no longer
available at the time such conversion is to occur. In that event,
the Advisor Class shareholder would be required to redeem his
Advisor Class shares, which would constitute a taxable event
under federal income tax law.
Alternative Purchase Arrangements - Group Retirement Plans
----------------------------------------------------------
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 order to enable participants investing through group
retirement plans to purchase shares of the Fund, the maximum and
minimum investment amounts may be different for shares purchased
through group retirement plans from those described herein. In
addition, the Class A, Class B and Class C CDSC may be waived for
investments made through certain group retirement plans.
Therefore, plan sponsors or fiduciaries may not adhere to these
share class eligibility standards as set forth in the
Prospectuses 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 net
asset value 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. If the plan terminates the Fund as an investment
option within one year, then plan purchases of Class A shares
will be subject to a 1%, 1-year CDSC on redemption. Class A
shares are also available at net asset value 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 net asset value) other than the
service fee paid pursuant to the Fund's Rule 12b-1 Plan.
Class B Shares. Class B shares are generally not
available for purchase by group retirement plans. However, Class
B shares may continue to be purchased by group retirement plans
that have already selected Class B shares as an investment
alternative under their plan prior to September 2, 2003.
Class C Shares. Class C shares are available to
AllianceBernstein Link, AllianceBernstein Individual 401(k) and
AllianceBernstein Simple IRA plans with less than $250,000 in
plan assets and less than 100 employees. Class C shares are also
available to group retirement plans with plan assets of less than
$1 million.
Choosing a Class of Shares for Group Retirement Plans.
As noted, 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. For example, the
Fund makes its Class A shares available at net asset value to
group retirement plans with plan assets in excess of $10 million.
In addition, under certain circumstances described above, the 1%,
1-year CDSC may be waived. As described above, while Class B
shares are generally not available to group retirement plans,
Class B shares are available for continuing contributions from
plans that have already selected Class B shares as an investment
option under their plans prior to September 2, 2003. Plan
fiduciaries should weigh the fact that Class B shares will
convert to Class A shares after a period of time against the fact
that Class A shares have lower expenses, and therefore higher
returns, than Class B shares, before determining which class to
make available to its plan participants.
Sales Charge Reduction Programs
-------------------------------
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/her financial intermediary
that they qualify for such a reduction. If the Fund is not
notified that 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 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 or
concurrent purchase of shares of the Fund or any other
AllianceBernstein Mutual Fund by (i) an individual, his or her
spouse and their children under the age of 21 years purchasing
shares for his, her or their own account(s); (ii) a trustee or
other fiduciary purchasing shares for a single trust, estate or
single fiduciary account although more than one beneficiary is
involved; or (iii) the employee benefit plans of a single
employer. The term "purchase" also includes purchases by any
"company," as the term is defined in the 1940 Act, but does not
include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser.
Currently, the AllianceBernstein Mutual Funds include:
AllianceBernstein All-Asia Investment Fund, Inc.
AllianceBernstein Americas Government Income Trust, Inc.
AllianceBernstein Balanced Shares, Inc.
AllianceBernstein Blended Style Series, Inc.
-U.S. Large Cap Portfolio
AllianceBernstein Bond Fund, Inc.
-AllianceBernstein Corporate Bond Portfolio
-AllianceBernstein Quality Bond Portfolio
-AllianceBernstein U.S. Government Portfolio
AllianceBernstein Disciplined Value Fund, Inc.
AllianceBernstein Emerging Market Debt Fund, Inc.
AllianceBernstein Exchange Reserves
AllianceBernstein Global Research Growth Fund, Inc.
AllianceBernstein Global Small Cap Fund, Inc.
AllianceBernstein Global Strategic Income Trust, Inc.
AllianceBernstein Greater China `97 Fund, Inc.
AllianceBernstein Growth and Income Fund, Inc.
AllianceBernstein Health Care Fund, Inc.
AllianceBernstein High Yield Fund, Inc.
AllianceBernstein International Premier Growth Fund, Inc.
AllianceBernstein Mid-Cap Growth Fund, Inc.
AllianceBernstein Multi-Market Strategy Trust, Inc.
AllianceBernstein Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
AllianceBernstein Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
AllianceBernstein New Europe Fund, Inc.
AllianceBernstein Premier Growth Fund, Inc.
AllianceBernstein Real Estate Investment Fund, Inc.
AllianceBernstein Select Investor Series, Inc.
-Biotechnology Portfolio
-Premier Portfolio
-Technology Portfolio
AllianceBernstein Small Cap Growth Fund, Inc.
AllianceBernstein Technology Fund, Inc.
AllianceBernstein Trust
-AllianceBernstein Global Value Fund
-AllianceBernstein International Value Fund
-AllianceBernstein Small Cap Value Fund
-AllianceBernstein Value Fund
AllianceBernstein Utility Income Fund, Inc.
AllianceBernstein Worldwide Privatization Fund, Inc.
The AllianceBernstein Portfolios
-AllianceBernstein Balanced Wealth Strategy
-AllianceBernstein Growth Fund
-AllianceBernstein Tax-Managed Balanced Wealth Strategy
-AllianceBernstein Tax-Managed Wealth Appreciation Strategy
-AllianceBernstein Tax-Managed Wealth Preservation Strategy
-AllianceBernstein Wealth Appreciation Strategy
-AllianceBernstein Wealth Preservation Strategy
Sanford C. Bernstein Fund, Inc.
-AllianceBernstein Intermediate Diversified Municipal Portfolio
-AllianceBernstein Intermediate California Municipal Portfolio
-AllianceBernstein Intermediate New York Municipal Portfolio
-AllianceBernstein International Portfolio
-AllianceBernstein Short Duration Portfolio
-AllianceBernstein Tax-Managed International Portfolio
Prospectuses for the AllianceBernstein Mutual Funds may
be obtained without charge by contacting AGIS at the address or
the "For Literature" telephone number shown on the front cover of
this SAI.
Cumulative Quantity Discount (Right of Accumulation).
An investor's purchase of additional Class A shares of 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 net asset value (at the close of business on the
previous day) of (a) all shares of the Fund held by the
investor and (b) all shares of any other
AllianceBernstein Mutual Fund held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder eligible to
combine his or her purchase with that of the investor
into a single "purchase" (see above).
For example, if an investor owned shares of an
AllianceBernstein Mutual Fund worth $200,000 at their then
current net asset value and, subsequently, purchased Class A
shares of the Fund worth an additional $100,000, the sales charge
for the $100,000 purchase would be the 2.25% rate applicable to a
single $300,000 purchase of shares of the Fund, rather than the
3.25% rate.
Statement of Intention. Class A investors may also
obtain the quantity discounts described under "Alternative
Purchase Arrangements - Class A Shares" by means of a written
Statement of Intention, which expresses the investor's intention
to invest not less than $100,000 within a period of 13 months in
shares of any AllianceBernstein Mutual Fund. Each purchase of
shares under a Statement of Intention will be made at the public
offering price or prices applicable at the time of such purchase
to a single transaction of the dollar amount indicated in the
Statement of Intention. At the investor's option, a Statement of
Intention may include purchases of shares of the Fund or any
other AllianceBernstein Mutual Fund made not more than 90 days
prior to the date that the investor signs a Statement of
Intention, in which case the 13-month period during which the
Statement of Intention is in effect will begin on the date of
that earliest purchase to be included. However, sales charges
will not be reduced for purchases made prior to the date the
Statement of Intention is signed.
Investors qualifying for the Combined Purchase
Privilege described above may purchase shares of the
AllianceBernstein Mutual Funds under a single Statement of
Intention. For example, if at the time an investor signs a
Statement of Intention to invest at least $100,000 in Class A
shares of the Fund, the investor and the investor's spouse each
purchase shares of the Fund worth $20,000 (for a total of
$40,000), it will only be necessary to invest a total of $60,000
during the following 13 months in shares of the Fund or any other
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 Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased, and such escrowed shares will be
involuntarily redeemed at their then net asset value 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 Statement of
Intention in conjunction with their initial investment in Class A
shares of the Fund can obtain a form of Statement of Intention by
contacting AGIS 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 or Class B shares may reinvest
all or any portion of the proceeds from that redemption in Class
A shares of the Fund at net asset value without any sales charge,
provided that (i) such reinvestment is made within 120 calendar
days after the redemption or repurchase date, and (ii) for Class
B shares, a CDSC has been paid and the Principal Underwriter has
approved, at its discretion, the reinstatement of such shares.
Shares are sold to a reinvesting shareholder at the net asset
value next determined as described above. A reinstatement
pursuant to this privilege will not cancel the redemption or
repurchase transaction; therefore, any gain or loss so realized
will be recognized for federal income tax purposes except that no
loss will be recognized to the extent that the proceeds are
reinvested in shares of the Fund within 30 calendar days after
the 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 net asset
value 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 Subscription Application. Current shareholders should contact
AGIS 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's distributions option will automatically be placed
within the Dividend Reinvestment Program for future
distributions. No interest will accrue on amounts represented by
uncashed distribution checks.
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 AGIS
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 Subscription Application.
Current shareholders should contact AGIS to establish a dividend
direction plan.
Systematic Withdrawal Plan
--------------------------
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below
with respect to Class B and Class C shares, any applicable CDSC.
Shares acquired with reinvested dividends and distributions will
be liquidated first to provide such withdrawal payments and
thereafter other shares will be liquidated to the extent
necessary, and depending upon the amount withdrawn, the
investor's principal may be depleted. A systematic withdrawal
plan may be terminated at any time by the shareholder or the
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
Subscription Application, while current Fund shareholders
desiring to do so can obtain an application form by contacting
AGIS at the address or the "For Literature" telephone number
shown on the cover of this SAI.
CDSC Waiver for Class B Shares and Class C Shares.
Under the systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B or Class C shares in a shareholder's account may
be redeemed free of any CDSC.
Class B shares that are not subject to a CDSC (such as
shares acquired with reinvested dividends or distributions) will
be redeemed first and will count toward the foregoing
limitations. Remaining Class B shares that are held the longest
will be redeemed next. Redemptions of Class B shares in excess of
the foregoing limitations will be subject to any otherwise
applicable CDSC.
With respect to Class 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.
-----------------------------------------------------------------
REDEMPTION AND REPURCHASE OF SHARES
-----------------------------------------------------------------
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative. 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 net
asset value 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
Fund's Charter requires that the Fund redeem the shares tendered
to it, as described below, at a redemption price equal to their
net asset value as next computed following the receipt of shares
tendered for redemption in proper form. Except for any CDSC which
may be applicable to Class A shares, Class B shares or Class C
shares, there is no redemption charge. Payment of the redemption
price will 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 representative.
The right of redemption may not be suspended or the
date of payment upon redemption postponed for more than seven
days after shares are tendered for redemption, except for any
period during which the Exchange is closed (other than customary
weekend and holiday closings) or during which the Commission
determines that trading thereon is restricted, or for any period
during which an emergency (as determined by the Commission)
exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or as a result of which
it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or for such other periods as the
Commission may by order permit for the protection of security
holders of the Fund.
Payment of the redemption price normally will be made
in cash. 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, Class B and Class C
shares will reflect the deduction of the CDSC, if any. Payment
received by a shareholder upon redemption or repurchase of his or
her shares, assuming the shares constitute capital assets in his
or her hands, will result in long-term or short-term capital gain
(or loss) depending upon the shareholder's holding period and
basis in respect of the shares redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
Medallion Signature Guaranteed.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption by Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer (of shares for which no share certificates have
been issued) by telephone at (800) 221-5672 if the shareholder
has completed the appropriate portion of the Subscription
Application or, if an existing shareholder has not completed such
portion, by an "Autosell" application obtained from AGIS. A
telephone redemption by electronic funds transfer may not exceed
$100,000 (except for certain omnibus accounts), and must be made
by 4:00 p.m., Eastern time, on a Fund business day as defined
above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
Telephone Redemption by Check. Each Fund shareholder is
eligible to request redemption by check, once in any 30-day
period, of Fund shares for which no stock certificates have been
issued by telephone at (800) 221-5672 before 4:00 p.m., Eastern
time, on a Fund business day in an amount not exceeding $50,000.
Proceeds of such redemptions are remitted by check to the
shareholder's address of record. A shareholder otherwise eligible
for telephone redemption by check may cancel the privilege by
written instruction to AGIS, or by checking the appropriate box
on the Subscription 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 AGIS 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 AGIS 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 by check is not available with respect to
shares (i) for which certificates have been issued, (ii) held in
nominee or "street name" accounts, (iii) held by a shareholder
who has changed his or her address of record within the preceding
30 calendar days or (iv) held in any retirement plan account.
Neither the Fund nor the Adviser, the Principal Underwriter or
AGIS 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.
Repurchase
----------
The Fund may repurchase shares through the Principal
Underwriter or selected financial intermediaries. The repurchase
price will be the net asset value next determined after the
Principal Underwriter receives the request (less the CDSC, if
any, with respect to the Class A, Class B and Class C shares),
except that requests placed through financial intermediaries
before the close of regular trading on the Exchange on any day
will be executed at the net asset value determined as of such
close of regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m., Eastern time). The financial intermediary is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m., Eastern time. (Certain financial
intermediaries may enter into operating agreements permitting
them to transmit purchase information that was received prior to
the close of business to the Principal Underwriter after 5:00
p.m., Eastern time, and receive that day's asset value.) 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 the Principal Underwriter either
directly or through a financial intermediary. Neither the Fund
nor the Principal Underwriter charges a fee or commission in
connection with the repurchase of shares (except for the CDSC, if
any, with respect to Class A, Class B and Class C shares).
Normally, if shares of the Fund are offered through a financial
intermediary, the repurchase is settled by the shareholder as an
ordinary transaction with or through the financial intermediary,
who may charge the shareholder for this service. The repurchase
of shares of the Fund as described above is a voluntary service
of the Fund and the Fund may suspend or terminate this practice
at any time.
General
-------
The Fund reserves the right to close out an account
that, through redemption, has remained below $200 for at least 90
days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed. 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
the Fund's Prospectus under the heading "Purchase and Sale of
Shares." 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 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 (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form, drafts
can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application. Current shareholders should contact AGIS 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 Alliance) 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 and (iii) certain employee benefit
plans for employees of the Adviser, the Principal Underwriter,
AGIS and their affiliates may, on a tax-free basis, exchange
Class A shares of the Fund for Advisor Class shares of the Fund.
Exchanges of shares are made at the net asset value next
determined and without sales or service charges. Exchanges may be
made by telephone or written request. Telephone exchange requests
must be received by AGIS by 4:00 p.m., Eastern time, on a Fund
business day in order to receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purposes of determining the CDSC, if any, upon redemption
and, in the case of Class B shares, for the purpose of conversion
to Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
AllianceBernstein Mutual Fund you originally purchased for cash
("original shares"). When redemption occurs, the CDSC applicable
to the original shares is applied.
Please read carefully the prospectus of the
AllianceBernstein Mutual Fund into which you are exchanging
before submitting the request. Call AGIS at (800) 221-5672 to
exchange uncertificated shares. Except with respect to exchanges
of Class A shares of the Fund for Advisor Class shares of the
Fund, exchanges of shares as described above in this section are
taxable transactions for federal 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 net asset values 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 is authorized to make telephone requests for
exchanges unless AGIS receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application. Such telephone requests cannot be accepted with
respect to shares then represented by stock certificates. Shares
acquired pursuant to a telephone request for exchange will be
held under the same account registration as the shares redeemed
through such exchange.
Eligible shareholders desiring to make an exchange
should telephone AGIS 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 AGIS 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 AGIS 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. Auto Exchange
transactions normally occur on the 12th day of each month, or the
Fund business day prior thereto.
None of the AllianceBernstein Mutual Funds, the
Adviser, the Principal Underwriter or AGIS 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' written notice to its
shareholders, to modify, restrict or terminate the exchange
privilege.
Statements and Reports
----------------------
Each shareholder of the Fund receives semi-annual and
annual reports that include a portfolio of investments, financial
statements and, in the case of the annual report, the report of
the Fund's independent auditors, Ernst & Young LLP, as well as a
confirmation of each purchase and redemption. By contacting his
or her broker or AGIS a shareholder can arrange for copies of his
or her account statements to be sent to another person.
Checkwriting
------------
A new Class A or Class C investor may fill out the
Signature Card to authorize the Fund to arrange for a
checkwriting service through State Street Bank and Trust Company
(the "Bank") to draw against Class A or Class C shares of the
Fund redeemed from the investor's account. Under this service,
checks may be made payable to any payee in any amount not less
than $500 and not more than 90% of the net asset value of the
Class A or Class C shares in the investor's account (excluding
for this purpose the current month's accumulated dividends and
shares for which certificates have been issued). A Class A or
Class C shareholder wishing to establish this checkwriting
service subsequent to the opening of his or her Fund account
should contact the Fund by telephone or mail. Corporations,
fiduciaries and institutional investors are required to furnish a
certified resolution or other evidence of authorization. This
checkwriting service will be subject to the Bank's customary
rules and regulations governing checking accounts, and the Fund
and the Bank each reserve the right to change or suspend the
checkwriting service. There is no charge to the shareholder for
the initiation and maintenance of this service or for the
clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service enables
the shareholder to receive the daily dividends declared on the
shares to be redeemed until the day that the check is presented
to the Bank for payment.
-----------------------------------------------------------------
NET ASSET VALUE
-----------------------------------------------------------------
The per share net asset value 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 of Directors deems
appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Fund's per share net asset value is calculated
by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday on which the Exchange is open
for trading.
In accordance with applicable rules under the 1940 Act
and the Fund's pricing policies and procedures adopted by the
Board of Directors ("Pricing Policies"), portfolio securities are
valued at current market value or at fair value. The Board of
Directors has delegated to the Adviser, subject to the Board's
continuing oversight, certain of its duties with respect to the
Pricing Policies.
With respect to securities for which market quotations
are readily available, the market value of a security will be
determined as follows:
(a) securities listed on the Exchange or on a foreign
securities exchange are valued at the last sale price reflected
on the consolidated tape at the close of the Exchange or foreign
securities exchange on the business day as of which such value is
being determined. If there has been no sale on such day, the
securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such
day, then the security is valued in good faith at fair value by,
or in accordance with procedures established by, the Board of
Directors;
(b) securities not listed on the Exchange or on a
foreign securities exchange but listed on other national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
("NASDAQ") are valued in accordance with the NASDAQ Official
Closing Price;
(c) securities traded on the Exchange or on a foreign
securities exchange and on one or more other national or foreign
securities exchanges, and securities not traded on the Exchange
but traded on one or more other national or foreign securities
exchanges, are valued in accordance with paragraph (a) above, by
reference to the principal exchange on which the securities are
traded;
(d) listed put or call options purchased by the Fund
are valued at the last sale price. If there has been no sale on
that day, such securities will be valued at the closing bid
prices on that day;
(e) open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used;
(f) securities traded in the over-the-counter market,
including securities listed on a national securities exchange
whose primary market is believed to be over-the-counter (but
excluding securities traded on NASDAQ) are valued at the mean of
the current bid and asked prices as reported by the National
Quotation Bureau or other comparable sources;
(g) U.S. Government securities and other debt
instruments having 60 days or less remaining until maturity are
valued at amortized cost if their original maturity was 60 days
or less, or by amortizing their fair value as of the 61st day
prior to maturity if their original term to maturity exceeded 60
days (unless in either case it is determined, in accordance with
procedures established by the Board of Directors, that this
method does not represent fair value);
(h) fixed-income securities may be valued on the basis
of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The
prices provided by a pricing service take into account many
factors, including institutional size, trading in similar groups
of securities and any developments related to specific
securities. For securities where the Adviser has determined that
an appropriate pricing service does not exist, such securities
may be valued on the basis of a quoted bid price or spread from a
major broker/dealer in such security;
(i) mortgage-backed and asset-backed securities may be
valued at prices obtained from a bond pricing service or at a
price obtained from one or more of the major broker/dealers in
such securities when such prices are believed to reflect the fair
market value of such securities. In cases where broker/dealer
quotes are obtained, the Adviser may establish procedures whereby
changes in market yields or spreads are used to adjust, on a
daily basis, a recently obtained quoted bid price on a security;
(j) OTC and other derivatives are valued on the basis
of a quoted bid price or spread from a major broker/dealer in
such security; and
(k) all other securities will be valued in accordance
with readily available market quotations as determined in
accordance with procedures established by the Board of Directors.
With respect to securities for which market quotations
are not readily available, the security will be valued at fair
value in accordance with policies and procedures adopted by the
Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place in
various foreign markets on days that are not Fund business days.
The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Fund may suspend the determination of its net asset
value (and the offering and sale of shares), subject to the rules
of the Commission 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
Commission by order permits a suspension of the right of
redemption or a postponement of the date of payment on
redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. dollars at the mean
of the current bid and asked prices of such currency against the
U.S. dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each class
will be determined separately by subtracting the 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
-----------------------------------------------------------------
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, or 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; 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).
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.
It is the present policy of the Fund to distribute to
shareholders all net investment income quarterly and to
distribute net realized capital gains, if any, annually. The
amount of any such distributions must necessarily depend upon the
realization by the Fund of income and capital gains from
investments.
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 shareholders
equal to the sum of (i) 98% of its ordinary income for such year,
(ii) 98% of its capital gain net income and foreign currency
gains for the twelve-month period ending on October 31 of such
year (or November 30 if elected by the Fund), and (iii) any
ordinary income or capital gain net income from the preceding
calendar year that was not distributed during such year. For this
purpose, income or gain retained by the Fund that is subject to
corporate income tax will be considered to have been distributed
by the Fund during such year. For federal income and excise tax
purposes, dividends declared and payable to shareholders of
record as of a date in October, November or December but actually
paid during the following January will be treated as if paid by
the Fund on December 31 of such earlier calendar year, and will
be taxable to these shareholders in the year declared, and not in
the year in which the shareholders actually receive the dividend.
The information set forth in the Prospectus and the
following discussion relate solely to the significant United
States federal income taxes on dividends and distributions by the
Fund and assumes 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. Dividends of the Fund's net ordinary
income and distributions of any net realized short-term capital
gain are taxable to shareholders as ordinary income.
Some or all of the distributions from a mutual fund may
be treated as "qualified dividend income," taxable to individuals
at the reduced maximum rate of 15% (5% for individuals in lower
tax brackets), provided that both the fund and the individual
satisfy certain holding period and other requirements. Based upon
the investment policies of the Fund, it is expected that only a
small portion, if any, of the Fund's distributions would be
treated as "qualified dividend income."
Distributions of net capital gain are taxable as
long-term capital gain, regardless of how long a shareholder has
held shares in the Fund. Any dividend or distribution received by
a shareholder on shares of the Fund will have the effect of
reducing the net asset value of such shares by the amount of such
dividend or distribution. Furthermore, a dividend or distribution
made shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular
shareholder, would be taxable to him or her as described above.
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. 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.
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 disallowed, then such loss will
be reflected in an upward adjustment to the basis of the shares
acquired.
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%) if such shareholder
fails to provide the Fund with his or her correct taxpayer
identification number, fails to make certain required
certifications, or is notified by the Internal Revenue Service
(the "IRS") that he or she is subject to backup withholding.
Certain categories of shareholders, including all corporations,
are exempt from such backup withholding. Backup withholding is
not an additional tax; rather, a shareholder generally may obtain
a refund of any amounts withheld under backup withholding rules
that exceed such shareholder's income tax liability by filing a
refund claim with the IRS, provided that the required information
is furnished to the IRS.
Foreign 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
that 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.
United States Federal Income Taxation of the Fund
-------------------------------------------------
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
Discount Obligations. Under current federal tax law,
the Fund will include in income as interest each year, in
addition to stated interest received on obligations held by the
Fund, amounts attributable to the Fund from holding (i) Discount
Obligations and (ii) securities (including many Brady Bonds)
purchased by the Fund at a price less than their stated face
amount or, in the case of Discount Obligations, at a price less
than their issue price plus the portion of "original issue
discount" previously accrued thereon, i.e., purchased at a
"market discount." Current federal tax law requires a holder
(such as the Fund) of a Discount Obligation to accrue and include
in income each year a portion of the discount at which the
obligation was purchased even though the Fund does not receive
interest payments in cash during the year which reflect such
accrued discount. The Fund will elect to likewise accrue and
include in income each year a portion of the market discount with
respect to a Discount Obligation or other obligation even though
the Fund does not receive interest payments in cash which reflect
such accrued discount.
As a result of the applicable rules, in order to make
the distributions necessary for the Fund not to be subject to
federal income or excise taxes, the Fund may be required to pay
out as an income distribution each year an amount significantly
greater than the total amount of cash which the Fund has actually
received as interest during the year. Such distributions will be
made from the cash assets of the Fund, from borrowings or by
liquidation of portfolio securities, if necessary. If a
distribution of cash necessitates the liquidation of portfolio
securities, the Adviser will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such sales, shareholders may
receive a larger capital gain distribution than they would have
in the absence of such sales.
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, although the Fund may elect to
have the gain or loss it realizes on certain contracts taxed as
"section 988" gain or loss. Gain or loss realized by the Fund on
forward foreign currency contracts generally will be treated as
section 988 gain or loss and will therefore be characterized as
ordinary income or loss and will increase or decrease the amount
of the Fund's net investment income available to be distributed
to shareholders as ordinary income, as described above. The Fund
can elect to exempt its section 1256 contracts which are part of
a "mixed straddle" (as described below) from the application of
section 1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. It is
anticipated that any regulations issued under this authority will
not apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to over-the-counter put and call options,
gain or loss realized by the Fund upon the lapse or sale of such
options held by the Fund will be either long-term or short-term
capital gain or loss depending upon the Fund's holding period
with respect to such option. However, gain or loss realized upon
the lapse or closing out of such options that are written by the
Fund will be treated as short-term capital gain or loss. In
general, if the Fund exercises an option, or if an option that
the Fund has written is exercised, gain or loss on the option
will not be separately recognized but the premium received or
paid will be included in the calculation of gain or loss upon
disposition of the property underlying the option.
Gain or loss realized by 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, currency
swap, forward foreign currency contract, or other position
entered into or held by the Fund in conjunction with any other
position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts may constitute a
"mixed straddle." In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's
gains and losses with respect to straddle positions by requiring,
among other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather
than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position is ordinary and at least one
position is capital. No such regulations have yet been issued.
Various elections are available to the Fund, which may mitigate
the effects of the straddle rules, particularly with respect to
mixed straddles. In general, the straddle rules described above
do not apply to any straddles held by the Fund all of the
offsetting positions of which consist of section 1256 contracts.
Other Taxation
--------------
The Fund may be subject to other state and local taxes.
Taxation of Foreign Shareholders
--------------------------------
The foregoing discussion relates only to United States
federal income tax law as it affects shareholders that are United
States citizens or residents or United States corporations. The
effects of federal income tax law on a shareholder that is a
non-resident alien individual or foreign corporation may be
substantially different. A foreign investor should therefore
consult his or her own tax adviser for further information as to
the United States federal income tax consequences of being a
shareholder in the Fund.
-----------------------------------------------------------------
PORTFOLIO TRANSACTIONS
-----------------------------------------------------------------
Subject to the general supervision of the Board of
Directors of the Fund, the Adviser is responsible for the
investment decisions and the placing of the orders for portfolio
transactions of the Fund. The Fund's portfolio transactions occur
primarily with the issuers, underwriters or major dealers acting
as principals. Such transactions are normally on a net basis
which do not involve payment of brokerage commissions. The cost
of securities purchased from an underwriter usually includes a
commission paid by the issuer to the underwriters; transactions
with dealers normally reflect the spread between bid and ask
prices. Premiums are paid with respect to options purchased by
the Fund and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions
in portfolio securities with any dealer, issuer, underwriter or
other entity. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Where
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. The Fund does not
consider sales of its shares as a factor in the selection at
dealers to enter into portfolio transactions with the Fund.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Sanford C. Bernstein & Co., LLC ("SCB & Co."), an affiliate
of the Adviser. In such instances, the placement of orders with
such brokers would be consistent with the Fund's objective of
obtaining best execution and would not be dependent upon the fact
that SCB & Co. is an affiliate of the Adviser. With respect to
orders placed with SCB & Co. for execution on a national
securities exchange, commissions received must conform to Section
17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which
permit an affiliated person of a registered investment company
(such as the Fund), or any affiliated person of such person, to
receive a brokerage commission from such registered investment
company provided that such commission is reasonable and fair
compared to the commissions received by other brokers in
connection with comparable transactions involving similar
securities during a comparable period of time.
-----------------------------------------------------------------
GENERAL INFORMATION
-----------------------------------------------------------------
Capitalization
--------------
The Fund is a Maryland corporation organized in 1986
under the name of "Alliance High Yield Fund, Inc." The name
became "AllianceBernstein High Yield Fund, Inc." on March 31,
2003.
The authorized capital stock of the Fund consists of
3,000,000,000 shares of Class A Common Stock, $.001 par value,
3,000,000,000 shares of Class B Common Stock, $.001 par value,
3,000,000,000 shares of Class C Common Stock, $.001 par value and
3,000,000,000 shares of Advisor Class Common Stock, $.001 par
value. All shares of the Fund, when issued, are fully paid and
non-assessable. Any issuance of shares of another class or series
would be governed by the 1940 Act and the law of the State of
Maryland. A shareholder will be entitled to share pro rata with
other holders of the same class of shares all dividends and
distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund
represented by the redeemed shares less any applicable CDSC. The
Fund is empowered to establish, without shareholder approval,
additional portfolios, which may have different investment
objectives and policies than those of the Fund, and additional
classes of shares within the Fund. If an additional portfolio or
class were established in the Fund, each share of the portfolio
or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together
as a single class on matters, such as the election of 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 a separate series.
Class A, Class B, Class C and Advisor Class shares of the Fund
have identical voting, dividend, liquidation and other rights,
except that each class bears its own distribution 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. Certain additional matters relating to the Fund's
organization are discussed in this SAI.
It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required
by federal or state law.
A shareholder will be entitled to share pro rata with
other holders of the same class of shares all dividends and
distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund
represented by the redeemed shares less any applicable CDSC. The
Fund is empowered to establish, without shareholder approval,
additional portfolios, which may have different investment
objectives and policies than those of the Fund, and additional
classes of shares within the Fund. If an additional portfolio or
class were established in the Fund, each share of the portfolio
or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together
as a single class on matters, such as the election of Directors,
that affect each portfolio and class in substantially the same
manner. Each class of shares of the Fund has the same rights and
is identical in all respects except that each of Class A, Class B
and Class C shares of the Fund bears its own distribution
expenses and Class B shares and Advisor Class shares convert to
Class A shares under certain circumstances. Each class of shares
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.
As of the close of business on January 6, 2004 there
were 98,204,887 shares of common stock of the Fund outstanding,
including 15,692,132 Class A shares, 45,015,712 Class B shares,
11,291,228 Class C shares and 26,205,815 Advisor Class shares. To
the knowledge of the Fund, the following persons owned of record
or beneficially 5% or more of the outstanding shares of the Fund
as of January 6, 2004:
No. of % of
Name and Address Shares Class
---------------- ------ -----
Class A Shares
--------------
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Administration (97B13)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 1,652,389 10.53%
Prudential Securities, Inc.
Special Custody Account
for Exclusive Benefits of Customers
Attn: Surpas Omnibus Dept.
1 New York Plaza
New York, NY 10292 1,134,919 7.23%
Class B Shares
--------------
Citigroup Global Markets
House Account
Attn: Cindy Tempesta
333 W. 34th St. - FL. 3
New York, NY 10001-2483 3,317,594 7.37%
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Administration (97B14)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 7,774,319 17.27%
Prudential Securities, Inc.
Special Custody Account
for Exclusive Benefits of Customers
Attn: Surpas Omnibus Dept.
1 New York Plaza
New York, NY 10292 4,096,993 9.10%
Dean Witter Reynolds
Attn: Mutual Fund Operations
2 Harborside Plaza, 2nd Fl.
Jersey City, NJ 07311 2,325,819 5.17%
Class C Shares
--------------
Citigroup Global Markets
House Account
Attn: Cindy Tempesta
333 W. 34th St. - FL. 3
New York, NY 10001-2402 1,322,777 11.72%
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Administration (97B15)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 2,113,690 18.72%
Advisor Class Shares
--------------------
Collegebound Fund
CBF-Balanced Portfolio
529 Plan
500 Plaza Dr.
Secaucus, NJ 07094-3619 2,691,291 10.27%
Collegebound Fund
Aggressive Growth Emphasis
Age Based Portfolio 1987-1989
500 Plaza Dr.
Secaucus, NJ 07094-3619 2,201,777 8.40%
Collegebound Fund
Aggressive Growth Emphasis
Age Based Portfolio 1990-1992
500 Plaza Dr.
Secaucus, NJ 07094-3619 1,489,742 5.68%
Collegebound Fund
Aggressive Growth Emphasis
Age Based Portfolio 1993-1995
500 Plaza Dr.
Secaucus, NJ 07094-3619 1,452,911 5.54%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1984-1986
500 Plaza Dr.
Secaucus, NJ 07094-3619 2,379,921 9.08%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1987-1989
500 Plaza Dr.
Secaucus, NJ 07094-3619 5,070,873 19.35%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1990-1992
500 Plaza Dr.
Secaucus, NJ 07094-3619 5,535,685 21.12%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1993-1995
500 Plaza Dr.
Secaucus, NJ 07094-3619 2,356,132 8.99%
Custodian
---------
The Bank of New York, One Wall Street, New York, NY
10005 ("BNY"), acts as custodian for the assets of the Fund but
plays no part in deciding the purchase or sale of portfolio
securities. Subject to the supervision of the Fund's Directors,
BNY may enter into sub-custodial agreement for the holding of the
Fund's foreign securities.
Principal Underwriter
---------------------
ABIRM, 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 the Principal Underwriter, in the absence
of its willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations thereunder, against certain
civil liabilities, including liabilities under the Securities
Act.
Counsel
-------
Legal matters in connection with the issuance of the
shares of Common Stock offered hereby are passed upon by Seward &
Kissel LLP, New York, New York.
Independent Auditors
--------------------
Ernst & Young LLP, 5 Times Square, New York, New York
10036, has been appointed as independent auditors for the Fund.
Additional Information
----------------------
Shareholder inquiries may be directed to the
shareholder's financial intermediary or to AGIS 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 Commission
under the Securities Act. Copies of the Registration Statement
may be obtained at a reasonable charge from the Commission or may
be examined, without charge, at the offices of the Commission in
Washington, D.C.
<PAGE>
-----------------------------------------------------------------
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS
-----------------------------------------------------------------
The financial statements of AllianceBernstein High
Yield Fund, Inc. for the fiscal year ended August 31, 2003 and
the fiscal period ended September 30, 2003 and the report of
Ernst & Young LLP, independent auditors, are incorporated herein
by reference to the Fund's annual report. The annual report was
filed on Form N-CSR with the Commission on November 12, 2003. The
annual report is available without charge upon request by calling
AGIS at (800) 227-4618.
<PAGE>
-----------------------------------------------------------------
APPENDIX A: OPTIONS
-----------------------------------------------------------------
Options
-------
The Fund will only write "covered" put and call
options, unless such options are written for cross-hedging
purposes. The manner in which such options will be deemed
"covered" is described in the Prospectus under the heading
"Investment Objective and Policies -- Investment Practices --
Options."
The writer of an option may have no control over when
the underlying securities must be sold, in the case of a call
option, or purchased, in the case of a put option, since with
regard to certain options, the writer may be assigned an exercise
notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount, of course, may, in the
case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period.
If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to purchase the
underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of a listed option that wishes to terminate
its obligation may effect a "closing purchase transaction." This
is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that the
writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an
investor who is the holder of a listed option may liquidate its
position by effecting a "closing sale transaction". This is
accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that either a
closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a
written call option will permit the Fund to write another call
option on the underlying security with either a different
exercise price or expiration date or both, or in the case of a
written put option will permit the Fund to write another put
option to the extent that the exercise price thereof is secured
by deposited cash or short-term securities. Also, effecting a
closing transaction will permit the cash or proceeds from the
concurrent sale of any securities subject to the option to be
used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a
call option, it will effect a closing transaction prior to or
concurrent with the sale of the security.
The Fund will realize a profit from a closing
transaction if the price of the transaction is less than the
premium received from writing the option or is more than the
premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is
more than the premium received from writing the option or is less
than the premium paid to purchase the option. Because increases
in the market price of a call option will generally reflect
increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
An option position may be closed out only where there
exists a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market include the following: (i)
there may be insufficient trading interest in certain options,
(ii) restrictions may be imposed by a national securities
exchange ("Exchange") on opening transactions or closing
transactions or both, (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
Exchange, (v) the facilities of an Exchange or the Options
Clearing Corporation may not at all times be adequate to handle
current trading volume, or (vi) one or more Exchanges could, for
economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on
that Exchange (or in that class or series of options) would cease
to exist, although outstanding options on that Exchange that had
been issued by the Options Clearing Corporation as a result of
trades on that Exchange would continue to be exercisable in
accordance with their terms.
The Fund may write options in connection with
buy-and-write transactions; that is, the Fund may purchase a
security and then write a call option against that security. The
exercise price of the call the Fund determines to write will
depend upon the expected price movement of the underlying
security. The exercise price of a call option may be below
("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current value of the underlying security
at the time the option is written. Buy-and-write transactions
using in-the-money call options may be used when it is expected
that the price of the underlying security will remain flat or
decline moderately during the option period. Buy-and-write
transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain
fixed or advance moderately during the option period.
Buy-and-write transactions using out-of-the-money call options
may be used when it is expected that the premiums received from
writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such
transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upwards or
downwards by the difference between the Fund's purchase price of
the security and the exercise price. If the options are not
exercised and the price of the underlying security declines, the
amount of such decline will be offset in part, or entirely, by
the premium received.
The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and the Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the
position or take delivery of the security at the exercise price
and the Fund's return will be the premium received from the put
option minus the amount by which the market price of the security
is below the exercise price. Out-of-the-money, at-the-money, and
in-the-money put options may be used by the Fund in the same
market environments that call options are used in equivalent
buy-and-write transactions.
The Fund may purchase put options to hedge against a
decline in the value of its portfolio. By using put options in
this way, the Fund will reduce any profit it might otherwise have
realized in the underlying security by the amount of the premium
paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund anticipates
purchasing in the future. 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.
<PAGE>
-----------------------------------------------------------------
APPENDIX B:
BOND RATINGS
-----------------------------------------------------------------
STANDARD & POOR'S
A Standard & Poor's corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to
a specific obligation. Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong. Debt rated "AA" has a very strong
capacity to pay interest and to repay principal and differs from
the highest rated issues only in small degree. Debt rated "A" has
a strong capacity to pay interest and repay principal although it
is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than a debt of a higher
rated category.
The ratings from "AA" and "A" may be modified by the
addition of a plus or minus sign to show relative standing within
the major rating categories.
MOODY'S
Excerpts from Moody's description of its corporate bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations; Baa
- considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured.
FITCH
AAA. Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
Directors and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of earnings
several times or many times interest requirements with such
stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may
enter in, such as a wide margin of protection through collateral
security or direct lien on specific property as in the case of
high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary
reduction of the debt by call or purchase are often factors,
while guarantee or assumption by parties other than the original
debtor may also influence the rating.
AA. Securities in this group are of safety virtually
beyond question, and as a class are readily salable while many
are highly active. Their merits are not greatly unlike those of
the AAA class, but a security so rated may be of junior through
strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be
the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the
enterprise and more local type of market.
A. A securities are strong investments and in many
cases of highly active market, but are not so heavily protected
as the two upper classes or possibly are of similar security but
less quickly salable. As a class they are more sensitive in
standing and market to material changes in current earnings of
the company. With favoring conditions such securities are likely
to work into a high rating, but in occasional instances changes
cause the rating to be lowered.
<PAGE>
-----------------------------------------------------------------
APPENDIX C:
STATEMENT OF POLICIES AND
PROCEDURES FOR VOTING PROXIES
-----------------------------------------------------------------
Introduction
------------
As a registered investment adviser, Alliance Capital
Management L.P. ("Alliance Capital", "we" or "us") has a
fiduciary duty to act solely in the best interests of our
clients. As part of this duty, we recognize that we must vote
client securities in a timely manner and make voting decisions
that are in the best interests of our clients.
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 is applicable to Alliance Capital's growth and value
investment groups investing on behalf of clients in both U.S. and
global securities.
Proxy Policies
--------------
This statement is designed to be responsive to the wide
range of 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. Alliance
Capital reserves the right to depart from these guidelines in
order to avoid voting decisions that we believe may be contrary
to our clients' best interests. In reviewing proxy issues, we
will apply the following general policies:
Elections of Directors: Unless there is a proxy fight for seats
on the Board or we determine that there are other compelling
reasons for withholding votes for 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. We
may withhold votes for directors that fail to act on key issues
such as failure to implement proposals to declassify boards,
failure to implement a majority vote requirement, failure to
submit a rights plan to a shareholder vote and failure to act on
tender offers where a majority of shareholders have tendered
their shares. In addition, we will withhold votes for directors
who fail to attend at least seventy-five percent of board
meetings within a given year without a reasonable excuse.
Finally, we may withhold votes for directors of non-U.S. issuers
where there is insufficient information about the nominees
disclosed in the proxy statement.
Appointment of Auditors: Alliance Capital believes that the
company remains in the best position to choose the auditors and
will generally support management's recommendation. However, we
recognize that there may be inherent conflicts when a company's
independent auditor performs substantial non-audit related
services for the company. Therefore, we may vote against the
appointment of auditors if the fees for non-audit related
services are disproportionate to the total audit fees paid by the
company or there are other reasons to question the independence
of the company's auditors.
Changes in 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, Alliance Capital will cast its votes in accordance with
the company's management 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 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 one hundred percent 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, or if the issuance of
new shares could excessively dilute the value of the outstanding
shares upon issuance.
Corporate Restructurings, Mergers and Acquisitions: Alliance
Capital 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 the research analysts that
cover the company and the investment professionals managing the
portfolios in which the stock is held.
Proposals Affecting Shareholder Rights: Alliance Capital 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.
Corporate Governance: Alliance Capital recognizes the importance
of good corporate governance in ensuring that management and the
board of directors fulfill their obligations to the shareholders.
We favor proposals promoting transparency and accountability
within a company. For example, we will vote for proposals
providing for equal access to proxies, a majority of independent
directors on key committees, and separating the positions of
chairman and chief executive officer.
Anti-Takeover Measures: Alliance Capital believes that measures
that impede 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. We will generally oppose proposals,
regardless of whether they are advanced by management or
shareholders, the purpose or effect of which is to entrench
management or dilute shareholder ownership. Conversely, we
support proposals that would restrict or otherwise eliminate
anti-takeover 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 blank check
preferred stock, classified boards and supermajority vote
requirements) that appear to be intended as management
entrenchment mechanisms.
Executive Compensation: Alliance Capital 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 benefit awards offered.
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. We will analyze
the proposed plans to ensure that shareholder equity will not be
excessively diluted, the option exercise price is not below
market price on the date of grant and an acceptable number of
employees are eligible to participate in such programs. We will
generally oppose plans that permit repricing 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. We will support proposals to submit
severance packages triggered by a change in control to a
shareholder vote and proposals that seek additional disclosure of
executive compensation. Finally, we will support shareholder
proposals requiring companies to expense stock options because we
view them as a large corporate expense.
Social and Corporate Responsibility: Alliance Capital will review
and analyze on a case-by-case basis proposals relating to social,
political and environmental issues to determine whether they will
have a financial impact on shareholder value. We will vote
against proposals that are unduly burdensome or result in
unnecessary and excessive costs to the company. We may abstain
from voting on social proposals that do not have a readily
determinable financial impact on shareholder value.
Proxy Voting Committees
-----------------------
Our growth and value investment groups have formed
separate proxy voting committees to establish general proxy
policies for Alliance Capital and consider specific proxy voting
matters as necessary. These committees periodically review new
types of corporate governance issues, evaluate proposals not
covered by these policies and recommend how we should generally
vote on such issues. In addition, the committees, in conjunction
with the analyst that covers the company, contact management and
interested shareholder groups as necessary to discuss proxy
issues. Members of the committees include senior investment
personnel and representatives of the Corporate Legal Department.
The committees may also evaluate proxies where we face a
potential conflict of interest (as discussed below). Finally, the
committees monitor adherence to guidelines, industry trends and
review the policies contained in this statement from time to
time.
Conflicts of Interest
---------------------
Alliance Capital recognizes that there may be a
potential conflict of interest when we vote a proxy solicited by
an issuer whose retirement plan we manage, whose retirement plan
we administer, or with whom we have another business or personal
relationship that may affect how we vote on the issuer's proxy.
We believe that centralized management of proxy voting, oversight
by the proxy voting committees and adherence to these policies
ensures that proxies are voted with only our clients' best
interests in mind. That said, we have implemented additional
procedures to ensure that our votes are not the product of a
conflict of interests, including: (i) requiring anyone involved
in the decision making process to disclose to the chairman of the
appropriate proxy committee any potential conflict that they are
aware of and any contact that they have had with any interested
party regarding a proxy vote; (ii) 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 (iii) 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 a third party research
service to ensure that our voting decision is consistent with our
clients' best interests. For example, if our proposed vote is
consistent with our stated proxy voting policy, no further review
is necessary. If our proposed vote is contrary to our stated
proxy voting policy but is also contrary to management's
recommendation, no further review is necessary. If our proposed
vote is contrary to our stated proxy voting policy or is not
covered by our policy, is consistent with management's
recommendation, and is also consistent with the views of an
independent source, no further review is necessary. If our
proposed vote is contrary to our stated proxy voting policy or is
not covered by our policy, is consistent with management's
recommendation and is contrary to the views of an independent
source, the proposal is reviewed by the appropriate proxy
committee for final determination.
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
(usually one-week) 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. Alliance Capital may
determine that the value of exercising the vote does not outweigh
the detriment of not being able to transact in the shares during
this period. Accordingly, if share blocking is required we may
abstain from voting those shares. In such a situation we would
have determined that the cost of voting exceeds the expected
benefit to the client.
Proxy Voting Records
--------------------
Clients may obtain information about how we voted
proxies on their behalf by contacting their Alliance Capital
administrative representative. Alternatively, clients may make a
written request for proxy voting information to: Mark R. Manley,
Senior Vice President & Acting General Counsel, Alliance Capital
Management L.P., 1345 Avenue of the Americas, New York, NY 10105.
<PAGE>
<TABLE>
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APPENDIX D:
COMMISSION SCHEDULE
-------------------------------------------------------------------------------------
AllianceBernstein Equity and Fixed-Income Funds
<CAPTION>
Annual Trail(1)
Share Class Purchase Amount Charges Concessions (paid quarterly)
----------- --------------- ------- ----------- ----------------
<S> <C> <C> <C> <C>
Class A Shares $0 to $99,999(2) 4.25% 4.00% 0.25%
$100,000 to $249,999 3.25% 3.00% 0.25%
$250,000 to $499,999 2.25% 2.00% 0.25%
$500,000 to $999,999 1.75% 1.50% 0.25%
$1,000,000 or more(3) 0.00% tiered(4) 0.25%
Class B Shares,
Equity Funds,
AllianceBernstein
Global Strategic
Income Trust and
AllianceBernstein
High Yield Fund $0 to $250,000(2, 5) 0.00% 4.00% 0.25%
Class B Shares,
Fixed-Income Funds $0 to $250,000(2, 5) 0.00% 3.00% 0.25%
Class C Shares $0 to $1,000,000(2) 0.00% 1.00% 1.00%
Class R Shares Any(6) 0.00% 0.00% 0.50%
</TABLE>
AllianceBernstein Exchange Reserves
Annual Trail(7)
Share Class Purchase Amount Charges Concessions (paid quarterly)
----------- --------------- ------- ----------- ----------------
Class A Shares Any None None 0.25%
Class B Shares $0 to $250,000 None 4.00% 0.00%
Class C Shares $0 to $1,000,000 None 1.00% 0.25%
CDSC Schedule
Class B Shares(5) Class C Shares
Equity(8) & Equity, Exchange
Years Owned Exchange Reserves Fixed-Income(7, 8) Reserves & Fixed-Income
----------- ----------------- ------------------ -----------------------
Year 1 4.00% 3.00% 1.00%
Year 2 3.00% 2.00% 0.00%
Year 3 2.00% 1.00% 0.00%
Year 4 1.00% 0.00% 0.00%
Year 5 0.00% 0.00% 0.00%
--------
(1) For purchases under $1 million, the .25% trail is effective
immediately, payable quarterly. For purchases of $1 million
or more on Class A shares, a 1% CDSC will apply for the
first year. The .25% annual trail, payable quarterly, will
begin in the 13th month. Class C shares 1% annual trail
begins in the 13th month. Class R shares .50% trail is
effective immediately.
(2) The minimum initial investment amount is $1,000 and the
minimum subsequent investment amount is $50.
(3) Class A shares that are received in exchange for
AllianceBernstein Fund Class A shares that were not subject
to an initial sales charge when originally purchased because
the amount purchase was $1,000,000 or more are also subject
to a 1% deferred sales charge on redemptions within one year
of purchase.
(4) Concessions for purchases of $1 million or more: 1.00% on
amounts over $1,000,000 but less than $3,000,000 plus .75%
on amounts over $3,000,000 but less than $5,000,000 plus
.50% on amounts over $5,000,000.
(5) Class B Shares for fixed-income funds, except
AllianceBernstein Global Strategic Income Trust and
AllianceBernstein High Yield Fund, convert to Class A shares
after 6 years. Class B Shares for equity funds and
AllianceBernstein Global Strategic Income Trust,
AllianceBernstein High Yield Fund and AllianceBernstein
Exchange Reserves convert to Class A shares after 8 years.
(6) Class R shares are available only to group retirement plans
with plan level assets of at least $1 million but no more
than $10 million.
(7) For Class A and B shares of AllianceBernstein Exchange
Reserves, the .25% trail is effective immediately. For Class
C shares the, .25% trail begins in the 13th month. All trail
payments on Class B shares of AllianceBernstein Exchange
Reserves, normally .25%, have been indefinitely suspended.
In addition, trail payments to accounts that have been
identified as engaging in a market timing strategy have also
been indefinitely suspended.
(8) For AllianceBernstein Global Strategic Income Trust and
AllianceBernstein High Yield Fund, the Equity fund CDSC
applies.
00250.0233 #472459
</TEXT>
</DOCUMENT>