<DOCUMENT>
<TYPE>497
<SEQUENCE>1
<FILENAME>d535154a_497.txt
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This is filed pursuant to Rule 497(c).
File Nos. 333-18505 and 811-09160.
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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 1, 2005
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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 1, 2005, of
AllianceBernstein High Yield Fund, Inc. (the "Fund") that offers
Class A, Class B, Class C and Advisor Class shares of the Fund
and when the Fund begins to offer Class R, Class K and Class I
shares of the Fund, the prospectus for the Fund that offers the
Class A, Class R, Class K and Class I shares of the Fund (each a
"Prospectus" and together, the "Prospectuses"). Financial
statements for the Fund for the year ended September 30, 2004 are
included in the Fund's annual report to shareholders and are
incorporated into this SAI by reference. Copies of the
Prospectuses 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
Registered Public Accounting Firm Independent .............
Appendix A: Options..........................................A-1
Appendix B: Bond Ratings.....................................B-1
Appendix C: Statement for Policies and Procedures
for Voting Proxies..........................................C-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. The Fund is diversified and, under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund may
not change this policy without a shareholder vote. 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
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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 ("NAV"). Any unrealized appreciation or depreciation
reflected in such valuation of a "when, as and if issued"
security would be canceled in the event that the required
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 Currency Exchange Contracts. The Fund may
purchase or sell forward currency exchange contracts to attempt
to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies. A
forward currency exchange 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 currency exchange
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 currency exchange 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 currency exchange
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 currency exchange 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
currency exchange 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 currency exchange 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 Currency
Exchange Contracts and Options on Foreign Currencies. Unlike
transactions entered into by the Fund in futures contracts,
options on foreign currencies and forward currency exchange
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 currency exchange 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 currency exchange contracts and options on
foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely
affected by (i) other complex foreign political and economic
factors, (ii) lesser availability than in the United States of
data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign
markets during nonbusiness hours in the United States, (iv) the
imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and
(v) lesser trading volume.
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 NAV 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 NAV may also be affected by changes in the
rates or methods of taxation applicable to the Fund or to
entities in which the Fund has invested. The Adviser generally
will consider the cost of any taxes in determining whether to
acquire any particular investments, but can provide no assurance
that the tax treatment of investments held by the Fund will not
be subject to change.
Debt Securities. The NAV 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 currency
exchange 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 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.
PORTFOLIOS OTHER
IN FUND DIRECTOR-
PRINCIPAL COMPLEX SHIPS
NAME, ADDRESS and DATE OF OCCUPATION(S) DURING OVERSEEN HELD BY
BIRTH (YEAR ELECTED*) PAST 5 YEARS BY DIRECTOR DIRECTOR
--------------------- ------------ ----------- --------
INTERESTED DIRECTOR
Marc O. Mayer,** 47 Executive Vice 66 None
1345 Avenue of the Americas President of Alliance
New York, NY 10105 Capital Management
10/2/57 Corporation ("ACMC")
(2003) since 2001; prior
thereto, Chief
Executive Officer of
Sanford C. Bernstein &
Co., LLC ("SCB & Co.")
and its predecessor
since prior to 2000.
DISINTERESTED DIRECTORS
Chairman of the Board
William H. Foulk, Jr.,# Investment adviser and 113 None
2 Sound View Drive, Suite 100 an independent
Greenwich, CT 06830 consultant. He was
9/7/32 formerly Senior Manager
(1998) of Barrett Associates,
Inc., a registered
investment adviser,
with which he had been
associated since prior
to 2000. He was
formerly Deputy
Comptroller and Chief
Investment Officer of
the State of New York
and, prior thereto,
Chief Investment
Officer of the New York
Bank for Savings.
Ruth Block,***# Formerly Executive Vice 94 None
500 SE Mizner Blvd. President and Chief
Boca Raton, FL 33432 Insurance Officer of
11/11/30 AXA Equitable Life
(1987) Insurance Company
("Equitable"); 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,# Independent consultant. 98 None
P.O. Box 167 Until December 1994 he
Spring Lake, NJ 07762 was Senior Vice
10/23/29 President of ACMC
(1987) 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,# Consultant. Formerly 96 None
P.O. Box 12 President of Save
Annandale, NY 12504 Venice, Inc.
2/19/42 (preservation
(1998) 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.
Michael J. Downey Consultant since 66 Asia
1345 Avenue of the Americas January 2004. Formerly Pacific
New York, NY 10105 managing partner of Fund,
1/26/44 Lexington Capital, LLC Inc., and
(2005) (investment advisory the
firm) from December Merger
1997 until December Fund
2003. Prior thereto,
Chairman and CEO of
Prudential Mutual Fund
Management from 1987 to
1993.
--------
* 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.
*** Ms. Block is currently a disinterested director. Prior to
October 21, 2004, Ms. Block owned 116 American Depository
Shares of AXA, which is a controlling person of the Fund's
Adviser, with a valuation as of December 31, 2003 of $2,396
(constituting less than 0.01% of the American Depository
Shares). Ms. Block received these shares over ten years ago
as a result of the demutualization of The Equitable Life
Assurance Society of the United States. During the time Ms.
Block owned these shares, she was an "interested person" of
the Adviser under the 1940 Act and would not have been a
"disinterested director."
# Member of the Audit Committee and the Governance and
Nominating Committee.
The Fund's Board of Directors has two standing
committees of the Board -- an Audit Committee and a Governance
and Nominating Committee. The members of the Audit and Governance
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 three times during the Fund's most recently
completed fiscal year. The function of the Governance and
Nominating Committee is to nominate persons to fill any vacancies
or newly created positions on the Board of Directors. The
Governance and Nominating Committee met two times during the
Fund's most recently completed fiscal year.
The Governance and Nominating Committee has a charter
and, pursuant to the charter, the Governance and 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 Governance and
Nominating Committee, the submission, including all required
information, must be submitted in writing to the attention of the
Secretary at the principal executive offices of the Fund not less
than 120 days before the date of the proxy statement for the
previous year's annual meeting of shareholders. If the Fund did
not hold an annual meeting of shareholders in the previous year,
the 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 Governance and
Nominating Committee or the Board to be reasonably calculated to
inform shareholders.
Shareholders submitting a candidate for consideration
by the Governance and Nominating Committee must provide the
following information to the Governance and Nominating Committee:
(i) a statement in writing setting forth (A) the name, date of
birth, business address and residence address of the candidate;
(B) any position or business relationship of the candidate,
currently or within the preceding five years, with the
shareholder or an associated person of the shareholder as defined
below; (C) the class or series and number of all shares of the
Fund owned of record or beneficially by the candidate; (D) any
other information regarding the candidate that is required to be
disclosed about a nominee in a proxy statement or other filing
required to be made in connection with the solicitation of
proxies for election of Directors pursuant to Section 20 of the
1940 Act and the rules and regulations promulgated thereunder;
(E) whether the shareholder believes that the candidate is or
will be an "interested person" of the Fund (as defined in the
1940 Act) and, if believed not to be an "interested person,"
information regarding the candidate that will be sufficient for
the Fund to make such determination; and (F) information as to
the candidate's knowledge of the investment company industry,
experience as a director or senior officer of public companies,
directorships on the boards of other registered investment
companies and educational background; (ii) the written and signed
consent of the candidate to be named as a nominee and to serve as
a Director if elected; (iii) the written and signed agreement of
the candidate to complete a directors' and officers'
questionnaire if elected; (iv) the shareholder's consent to be
named as such by the Fund; (v) the class or series and number of
all shares of the Fund owned beneficially and of record by the
shareholder and any associated person of the shareholder and the
dates on which such shares were acquired, specifying the number
of shares owned beneficially but not of record by each, and
stating the names of each as they appear on the Fund's record
books and the names of any nominee holders for each; and (vi) a
description of all arrangements or understandings between the
shareholder, the candidate and/or any other person or persons
(including their names) pursuant to which the recommendation is
being made by the shareholder. "Associated Person of the
shareholder" means any person who is required to be identified
under clause (vi) of this paragraph and any other person
controlling, controlled by or under common control with, directly
or indirectly, (a) the shareholder or (b) the associated person
of the shareholder.
The Governance and Nominating Committee may require the
shareholder to furnish such other information as it may
reasonably require or deem necessary to verify any information
furnished pursuant to the nominating procedures described above
or to determine the qualifications and eligibility of the
candidate proposed by the shareholder to serve on the Board. If
the shareholder fails to provide such other information in
writing within seven days of receipt of written request from the
Governance and Nominating Committee, the recommendation of such
candidate as a nominee will be deemed not properly submitted for
consideration, and will not be considered, by the Committee.
The Governance and Nominating Committee will consider
only one candidate submitted by such a shareholder or group for
nomination for election at an annual meeting of shareholders. The
Governance and Nominating Committee will not consider
self-nominated candidates. The Governance and Nominating
Committee will consider and evaluate candidates submitted by
shareholders on the basis of the same criteria as those used to
consider and evaluate candidates submitted from other sources.
These criteria include the candidate's relevant knowledge,
experience, and expertise, the candidate's ability to carry out
his or her duties in the best interests of the Fund, the
candidate's ability to qualify as a disinterested Director and
such other criteria as the Governance and 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 registered public
accounting firm 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, 2004 DECEMBER 31, 2004
----------------- -----------------
Marc O. Mayer None Over $100,000
Ruth Block $1 - $10,000 Over $100,000
David H. Dievler None Over $100,000
John H. Dobkin None Over $100,000
Michael J. Downey None None
William H. Foulk, Jr. None $50,001 - $100,000
Officer Information
-------------------
Certain information concerning the Fund's officers is
set forth below.
POSITION(S)
NAME AND ADDRESS,* HELD PRINCIPAL OCCUPATION
AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS
----------------- --------- -------------------
Marc O. Mayer, President See biography above.
10/2/57 and Chief
Executive
Officer
Philip L. Kirstein, Senior Vice Senior Vice President and
5/29/45 President and Independent Compliance
Independent Officer - Mutual Funds of
Compliance ACMC,** with which he has
Officer been associated since
October 2004. Prior
thereto, he was Of Counsel
to Kirkpatrick & Lockhart,
LLP from October 2003 to
October 2004, and General
Counsel and First Vice
President of Merrill Lynch
Investment Managers, L.P.
since prior to 2000.
Mark R. Manley, Secretary Senior Vice President,
10/23/62 Deputy General Counsel
Chief Compliance Officer
of ACMC,** with which he
has been associated since
prior to 2000.
Andrew L. Gangolf, Assistant Senior Vice President and
8/15/54 Secretary Assistant General Counsel
of AllianceBernstein
Investment Research &
Management, Inc.
("ABIRM"),** with which he
has been associated since
prior to 2000.
Mark D. Gersten, Treasurer Senior Vice President of
10/4/50 and Chief AGIS** and Vice President
Financial of ABIRM,** with which he
Officer has been associated since
prior to 2000.
Vincent S. Noto, Controller Vice President of AGIS,**
12/14/64 with which he has been
associated since prior to
2000.
--------
* 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 September
30, 2004, and the aggregate compensation paid to each of the
Directors during calendar year 2004 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 Portfolios
in the within the
Alliance- Alliance-
Bernstein Bernstein
Fund Fund
Total Complex, Complex,
Compensation Including Including
Aggregate from the the Fund, the Fund,
Compensation Alliance- as to as to
from the Fund Bernstein which the which the
for the Fiscal Fund Complex, Director is Director is
Year Ended Including a Director a Director
Name of Director 9/30/04 the Fund or Trustee or Trustee
--------------------- -------------- ------------- ----------- -----------
Marc O. Mayer $0 $0 38 66
Ruth Block $2,200 $223,200 41 94
David H. Dievler $2,179 $268,250 45 98
John H. Dobkin $2,187 $252,900 43 96
William H. Foulk, Jr. $3,483 $465,250 49 113
Michael J. Downey $0 $0 38 66
As of January 12, 2005, 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 an investment advisory agreement (the
"Advisory Agreement") to provide investment advice and, in
general, to conduct the management and investment program of the
Strategies under the supervision of the Fund's Board of Directors
(see "Management of the Funds" in the Prospectuses).
Alliance is a leading global investment management firm
supervising client accounts with assets as of September 30, 2004,
totaling approximately $487 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. As of September 30,
2004, Alliance Capital Management Holding, L.P. ("Holding"), a
Delaware limited partnership, owned approximately 31.6% of the
issued and outstanding units of limited partnership interest in
Alliance ("Alliance Units"). Units representing assignments of
beneficial ownership of limited partnership interests in Holding
("Holding Units") trade publicly on the New York Stock Exchange
("Exchange") under the ticker symbol "AC". Alliance Units do not
trade publicly and are subject to significant restrictions on
transfer. Alliance Capital Management Corporation ("ACMC") is the
general partner of both Alliance and Holding. ACMC owns 100,000
general partnership units in Holding and a 1% general partnership
interest in Alliance. ACMC is an indirect wholly-owned subsidiary
of AXA Financial, Inc. ("AXA Financial"), a Delaware corporation.
As of September 30, 2004, AXA, AXA Financial, AXA
Equitable Life Insurance Company ("Equitable") and certain
subsidiaries of Equitable beneficially owned approximately 57.8%
of the issued and outstanding Alliance Units and approximately
1.8% of the issued and outstanding Holding Units that, including
the general partnership interests in Alliance and Holding,
represent an economic interest of approximately 58.3% in
Alliance. As of September 30, 2004, SCB Partners, Inc., a
wholly-owned subsidiary of SCB, Inc., beneficially owned
approximately 9.7% of the issued and outstanding Alliance Units.
AXA, a French company, is the holding company for an
international group of companies and a worldwide leader in
financial protection and wealth management. AXA operates
primarily in Western Europe, North America and the Asia/Pacific
region and, to a lesser extent, in other regions including the
Middle East, Africa and South America. AXA has five operating
business segments: life and savings, property and casualty
insurance, international insurance (including reinsurance), asset
management and other financial services. AXA Financial is a
wholly-owned subsidiary of AXA. Equitable is an indirect
wholly-owned subsidiary of AXA Financial.
Based on information provided by AXA, as of February 1,
2004, approximately 16.89% of the issued ordinary shares
(representing 27.55% of the voting power) of AXA were owned
directly and indirectly by Finaxa, a French holding company. As
of February 1, 2004, 71.11% of the shares (representing 80.36% of
the voting power) of Finaxa were owned by three French mutual
insurance companies (the "Mutuelles AXA") and 21.32% of the
shares of Finaxa (representing 12.80% of the voting power) were
owned by BNP Paribas, a French bank. As of February 1, 2004, the
Mutuelles AXA owned directly or indirectly through intermediate
holding companies (including Finaxa) approximately 20.17% of the
issued ordinary shares (representing 32.94% 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 paid 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%, 1.90%, 1.65%, 1.40% and
1.40% of the aggregate average daily net assets, respectively,
for Class A, Class B, Class C, Class R, Class K, Class I and
Advisor Class shares. Effective as of January 1, 2004, the
Adviser voluntarily waived a portion of its advisory fee. The
advisory fee waiver reduced 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. Effective
September 7, 2004, the Board of Directors approved an amendment
to the Advisory Agreement to reduce the advisory fees to these
amounts. 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, 2002 and 2003,
the fiscal period ended September 30, 2003 and the fiscal year
ended September 30, 2004, the Adviser received advisory fees of
$3,908,170, $4,038,189, $372,722 (net of $6,145, which was waived
by the Adviser) and $3,322,791 (net of $1,001,716, which was
waived by the Adviser under the agreement with the New York
Attorney General), respectively, from the Fund.
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 September 30, 2004, the Fund paid to the
Adviser $104,000 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 so long as
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 December 14-16, 2004.
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 Cap Fund, Inc., AllianceBernstein Capital
Reserves, AllianceBernstein Emerging Market Debt Fund, Inc.,
AllianceBernstein Exchange Reserves, AllianceBernstein Focused
Growth & Income Fund, Inc., AllianceBernstein Global Health Care
Fund, Inc., AllianceBernstein Global Research Growth Fund, Inc.,
AllianceBernstein Global Small Cap Fund, Inc., AllianceBernstein
Global Strategic Income Trust, Inc., Alliance Bernstein Global
Technology Fund, Inc., AllianceBernstein Government Reserves,
AllianceBernstein Greater China `97 Fund, Inc., AllianceBernstein
Growth and Income Fund, Inc., AllianceBernstein Institutional
Funds, Inc., AllianceBernstein Institutional Reserves, Inc.,
AllianceBernstein International Premier Growth Fund, Inc.,
AllianceBernstein Large Cap 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
Trust, AllianceBernstein Utility Income Fund, Inc.,
AllianceBernstein Variable Products Series Fund, Inc.,
AllianceBernstein Worldwide Privatization Fund, Inc., The
AllianceBernstein Portfolios, Sanford C. Bernstein Fund, Inc.,
and Sanford C. Bernstein Fund II, 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, Class C shares, Class R shares and Class K 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 September 30, 2004,
with respect to Class A shares, the Fund paid distribution
services fees for expenditures under the Agreement, in the
aggregate amount of $301,354, 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 Adviser made
payments from its own resources as described above, aggregating
$843,480. Of the $1,144,834 paid by the Fund and the Adviser
under the Rule 12b-1 Plan with respect to the Class A shares,
$1,901 was spent on advertising, $8,371 on the printing and
mailing of prospectuses for persons other than current
shareholders, $630,487 for compensation to broker-dealers and
other financial intermediaries (including, $269,873 to the Fund's
Principal Underwriter), $248,786 for compensation to sales
personnel and $255,289 was spent on printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses.
During the Fund's fiscal year ended September 30, 2004,
with respect to Class B shares, the Fund paid distribution
services fees for expenditures under the Agreement in the
aggregate amount of $2,546,513, 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. Of the $2,546,513
paid by the Fund under the Rule 12b-1 Plan, with respect to Class
B shares, $551 was spent on advertising, $3,639 on the printing
and mailing of prospectuses for persons other than current
shareholders, $781,977 for compensation to broker-dealers and
other financial intermediaries (including, $59,902 to the Fund's
Principal Underwriter), $36,567 for compensation to sales
personnel, $54,337 was spent on printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses, $210,454 was spent on interest on Class B shares
financing and $1,458,988 was used to offset the distribution
service fees paid in prior years.
During the Fund's fiscal year ended September 30,
2004, with respect to Class C shares, the Fund paid distribution
services fees for expenditures under the Agreement, in the
aggregate amount of $679,815, 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 $44,822. Of the
$724,637 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to Class C shares, $303 was spent on
advertising, $1,536 on the printing and mailing of prospectuses
for persons other than current shareholders, $672,533 for
compensation to broker-dealers and other financial intermediaries
(including, $32,003 to the Fund's Principal Underwriter), $19,301
for compensation to sales personnel, $29,220 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, $1,744 was spent on
interest on Class C shares financing.
The Fund did not pay any distribution services fees for
expenditures under the Agreement to the Principal Underwriter
with respect to Class R shares or Class K shares, because Class R
shares and Class K shares of the Fund were not sold prior to the
end of the Fund's most recently completed fiscal year.
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,
Class C shares, Class R shares and Class K shares are designed to
permit an investor to purchase such shares through broker-dealers
without the assessment of an initial sales charge, and at the
same time to permit 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 fees on the Class C shares, and the
distribution services fee on the Class R shares and the Class K
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, Class C, Class R and Class K shares under the Rule 12b-1
Plan is directly tied to the expenses incurred by ABIRM. Actual
distribution expenses for Class B, Class C, Class R and Class K
shares for any given year, however, will probably exceed the
distribution services fee payable under the Rule 12b-1 Plan with
respect to the class involved and, in the case of Class B and
Class C shares, payments received from CDSCs. The excess will be
carried forward by 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 carried
over for reimbursement in future years in respect of the Class B
and Class C shares of the Fund, were, respectively,
$22,990,189(10.58% of the net assets of Class B) and $1,687,800
(2.54% 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 December 14-16, 2004.
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, Class C shares, Class R shares or Class K shares,
(i) no distribution services fees (other than current amounts
accrued but not yet paid) would be owed by the Fund to 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, Class R shares, Class K shares, Class I 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,
Class R shares, Class K shares, Class I shares and Advisor Class
shares reflecting the additional costs associated with Class B
and Class C CDSCs. For the fiscal year ended September 30, 2004,
the Fund paid AGIS $722,818 for transfer agency services.
AGIS acts as the transfer agent for the Fund. AGIS
registers the transfer, issuance and redemption of Fund shares
and disburses dividends and other distributions to Fund
shareholders.
Many Fund shares are owned by selected dealers or
selected agents (as defined below), financial intermediaries or
other financial representatives ("financial intermediaries") for
the benefit of their customers. In those cases, the Fund often
does not maintain an account for you. Thus, some or all of the
transfer agency functions for these accounts are performed by the
financial intermediaries. The Fund, ABIRM and/or Alliance pay to
these financial intermediaries, including those that sell shares
of the AllianceBernstein Mutual Funds, fees for sub-transfer
agency and related recordkeeping services in amounts ranging up
to $19 per customer fund account per annum. Retirement plans may
also hold Fund shares in the name of the plan, rather than the
participant. Plan recordkeepers, who may have affiliated
financial intermediaries who sell shares of the Fund, may be paid
for each plan participant fund account in amounts up to $19 per
account per annum and/or up to 0.20% per annum of the average
daily assets held in the plan. To the extent any of these
payments for recordkeeping services, transfer agency services or
retirement plan accounts are made by the Fund, they are included
in your Prospectus in the Fund expense tables under "Fees and
Expenses of the Funds." In addition, financial intermediaries may
be affiliates of entities that receive compensation from Alliance
or ABIRM for maintaining retirement plan "platforms" that
facilitate trading by affiliated and non-affiliated financial
intermediaries and recordkeeping for retirement plans.
Because financial intermediaries and plan recordkeepers
may be paid varying amounts per class for subtransfer agency and
related recordkeeping services, the service requirements of which
may also vary by class, this may create an additional incentive
for financial intermediaries and their financial advisors to
favor one fund complex over another or one class of shares over
another.
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.
Information regarding how the Fund voted proxies
related to portfolio securities during the most recent 12-month
period ended June 30, 2004 is available (1) without charge, upon
request, by calling (800) 227-4618; or on or through the Fund's
website at www.AllianceBernstein.com; or both; and (2) on the
Commission's website at www.sec.gov.
-----------------------------------------------------------------
PURCHASE OF SHARES
-----------------------------------------------------------------
The following information supplements that set forth in
your Prospectus under the heading "Investing in the Funds."
General
-------
Shares of the Fund are offered on a continuous basis at
a price equal to their NAV plus an initial sales charge at the
time of purchase ("Class A shares"), 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"), to group retirement plans, as defined below, eligible
to purchase Class R shares, without any initial sales charge or
CDSC ("Class R shares"), to group retirement plans eligible to
purchase Class K shares, without any initial sales charge or CDSC
("Class K shares"), to group retirement plans and certain
investment advisory clients of, and certain other persons
associated with, Alliance and its affiliates eligible to purchase
Class I shares, without any initial sales charge or CDSC ("Class
I 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. "Group retirement
plans" are defined as 401(k) plans, 457 plans, employer-sponsored
403(b) plans, profit sharing and money purchase pension plans,
defined benefit plans and non-qualified deferred compensation
plans where plan level or omnibus accounts are held on the books
of the Fund. All of the classes of shares of the Fund except
Class I and Advisor Class shares, are subject to Rule 12b-1
asset-based sales charges. Shares of the Fund that are offered
subject to a sales charge are offered through (i) investment
dealers that are members of 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 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.
The Fund's Board of Directors has adopted policies and
procedures designed to detect and deter frequent purchases and
redemptions of Fund shares or excessive or short-term trading
that may disadvantage long-term Fund shareholders. These policies
are described below. The Fund reserves the right to restrict,
reject or cancel, without any prior notice, any purchase or
exchange order for any reason, including any purchase or exchange
order accepted by any shareholder's financial intermediary.
Risks Associated With Excessive Or Short-term Trading
Generally. While the Fund will try to prevent market timing by
utilizing the procedures described below, these procedures may
not be successful in identifying or stopping excessive or
short-term trading in all circumstances. By realizing profits
through short-term trading, shareholders that engage in rapid
purchases and sales or exchanges of the Fund's shares dilute the
value of shares held by long-term shareholders. Volatility
resulting from excessive purchases and sales or exchanges of Fund
shares, especially involving large dollar amounts, may disrupt
efficient portfolio management. In particular, the Fund may have
difficulty implementing its long-term investment strategies if it
is forced to maintain a higher level of its assets in cash to
accommodate significant short-term trading activity. Excessive
purchases and sales or exchanges of the Fund's shares may force
the Fund to sell portfolio securities at inopportune times to
raise cash to accommodate short-term trading activity. In
addition, the Fund may incur increased expenses if one or more
shareholders engage in excessive or short-term trading. For
example, the Fund may be forced to liquidate investments as a
result of short-term trading and incur increased brokerage costs
and realization of taxable capital gains without attaining any
investment advantage. Similarly, the Fund may bear increased
administrative costs due to asset level and investment volatility
that accompanies patterns of short-term trading activity. All of
these factors may adversely affect Fund performance.
Significant investments in foreign securities may be
particularly susceptible to short-term trading strategies. This
is because foreign securities are typically traded on markets
that close well before the time the Fund calculates its NAV at
4:00 p.m. Eastern time, which gives rise to the possibility that
developments may have occurred in the interim that would affect
the value of these securities. The time zone differences among
international stock markets can allow a shareholder engaging in a
short-term trading strategy to exploit differences in Fund share
prices that are based on closing prices of foreign securities
established some time before the Fund calculates its own share
price (referred to as "time zone arbitrage"). The Fund has
procedures, referred to as fair value pricing, designed to adjust
closing market prices of foreign securities to reflect what is
believed to be the fair value of those securities at the time the
Fund calculates its NAV. While there is no assurance, the Fund
expects that the use of fair value pricing, in addition to the
short-term trading policies discussed below, will significantly
reduce a shareholder's ability to engage in time zone arbitrage
to the detriment of other Fund shareholders.
Investments in other types of securities may also be
susceptible to short-term trading strategies. These investments
include securities that are, among other things, thinly traded,
traded infrequently, or relatively illiquid, which have the risk
that the current market price for the securities may not
accurately reflect current market values. A shareholder may seek
to engage in short-term trading to take advantage of these
pricing differences (referred to as "price arbitrage").
Investments in certain fixed-income securities, such as high
yield bonds, asset-backed securities, or municipal bonds may be
adversely affected by price arbitrage trading strategies.
Policy Regarding Short-term Trading. Purchases and
exchanges of shares of the Fund should be made for investment
purposes only. The Fund seeks to prevent patterns of excessive
purchases and sales or exchanges of Fund shares. The Fund will
seek to prevent such practices to the extent they are detected by
the procedures described below. The Fund reserves the right to
modify this policy, including any surveillance or account
blocking procedures established from time to time to effectuate
this policy, at any time without notice.
o Transaction Surveillance Procedures. The Fund, through its
agents, ABIRM and AGIS, maintains surveillance procedures to
detect excessive or short-term trading in Fund shares. This
surveillance process involves several factors, which include
scrutinizing transactions in Fund shares that exceed certain
monetary thresholds or numerical limits within a specified
period of time. Generally, more than two exchanges of Fund
shares during any 90-day period or purchases of shares
followed by a sale within 90 days will be identified by
these surveillance procedures. For purposes of these
transaction surveillance procedures, the Fund may consider
trading activity in multiple accounts under common
ownership, control, or influence. Trading activity
identified by either, or a combination, of these factors, or
as a result of any other information available at the time,
will be evaluated to determine whether such activity might
constitute excessive or short-term trading. These
surveillance procedures may be modified from time to time,
as necessary or appropriate to improve the detection of
excessive or short-term trading or to address specific
circumstances, such as for certain retirement plans, to
conform to plan exchange limits or U.S. Department of Labor
regulations, or for certain automated or pre-established
exchange, asset allocation or dollar cost averaging
programs, or omnibus account arrangements.
o Account Blocking Procedures. If the Fund determines, in its
sole discretion, that a particular transaction or pattern of
transactions identified by the transaction surveillance
procedures described above is excessive or short-term
trading in nature, the relevant Fund account(s) will be
immediately "blocked" and no future purchase or exchange
activity will be permitted. However, sales of Fund shares
back to the Fund or redemptions will continue to be
permitted in accordance with the terms of the Fund's current
Prospectuses. In the event an account is blocked, certain
account-related privileges, such as the ability to place
purchase, sale and exchange orders over the internet or by
phone, may also be suspended. A blocked account will
generally remain blocked unless and until the account holder
or the associated financial intermediary provides evidence
or assurance acceptable to the Fund that the account holder
did not or will not in the future engage in excessive or
short-term trading.
o Applications of Surveillance Procedures and Restrictions to
Omnibus Accounts. Omnibus account arrangements are common
forms of holding shares of the Fund, particularly among
certain financial intermediaries, including sponsors of
retirement plans and variable insurance products. The Fund
seeks to apply its surveillance procedures to these omnibus
account arrangements. If a financial intermediary does not
have the capabilities, or declines, to provide individual
account level detail to the Fund, the Fund will monitor
turnover of assets to purchases and redemptions of the
omnibus account. If excessive turnover, defined as
annualized purchases and redemptions exceeding 50% of assets
is detected, the Fund will notify the financial intermediary
and request that the financial intermediary review
individual account transactions for excessive or short-term
trading activity and confirm to the Fund that appropriate
action has been taken to curtail the activity, which may
include applying blocks to accounts to prohibit future
purchases and exchanges of Fund shares. For certain
retirement plan accounts, the Fund may request that the
retirement plan or other intermediary revoke the relevant
participant's privilege to effect transactions in Fund
shares via the internet or telephone, in which case the
relevant participant must submit future transaction orders
via the U.S. Postal Service (i.e., regular mail). The Fund
will continue to monitor the turnover attributable to a
financial intermediary's omnibus account arrangement and may
consider whether to terminate the relationship if the
intermediary does not demonstrate that appropriate action
has been taken.
Risks to Shareholders Resulting From Imposition of
Account Blocks in Response to Excessive Short-term Trading
Activity. A shareholder identified as having engaged in excessive
or short-term trading activity whose account is "blocked" and who
may not otherwise wish to redeem his or her shares effectively
may be "locked" into an investment in the 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 a "blocked" account
may be forced to redeem Fund shares, which could be costly if,
for example, these shares have declined in value, the shareholder
recently paid a front-end sales charge or the shares are subject
to a CDSC, or the sale results in adverse tax consequences to the
shareholder. To avoid this risk, a shareholder should carefully
monitor the purchases, sales, and exchanges of Fund shares and
avoid frequent trading in Fund shares.
Limitations on Ability to Detect and Curtail Excessive
Trading Practices. Shareholders seeking to engage in excessive
short-term trading activities may deploy a variety of strategies
to avoid detection and, despite the efforts of the Fund and its
agents to detect excessive or short duration trading in Fund
shares, there is no guarantee that the Fund will be able to
identify these shareholders or curtail their trading practices.
In particular, the Fund may not be able to detect excessive or
short-term trading in Fund shares attributable to a particular
investor who effects purchase and/or exchange activity in Fund
shares through omnibus accounts. Also, multiple tiers of these
entities may exist, each utilizing an omnibus account
arrangement, which may further compound the difficulty of
detecting excessive or short duration trading activity in Fund
shares.
The Fund reserves the right to suspend the sale of 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 NAV, plus, in the case of Class A shares, a sales charge.
On each Fund business day on which a purchase or redemption order
is received by the Fund and trading in the types of securities in
which the Fund invests might materially affect the value of Fund
shares, the NAV is computed as of the next close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) by
dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any day on which the Exchange is open for
trading.
The respective NAVs of the various classes of shares of
the Fund are expected to be substantially the same. However, the
NAVs of the Class B, Class C, and Class R shares will generally
be slightly lower than the NAVs of the Class A, Class K, Class I
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
NAV next determined (plus applicable Class A sales charges), as
described below. Orders received by the Principal Underwriter
prior to the close of regular trading on the Exchange on each day
the Exchange is open for trading are priced at the NAV computed
as of the close of regular trading on the Exchange on that day
(plus applicable Class A sales charges). In the case of orders
for purchase of shares placed through financial intermediaries,
the applicable public offering price will be the NAV as so
determined, but only if the financial intermediary receives the
order prior to the close of regular trading on the Exchange. The
financial intermediary is responsible for transmitting such
orders by a prescribed time to the Fund or its transfer agent. If
the financial intermediary fails to do so, the investor's will
not receive that day's NAV. If the financial intermediary
receives the order after the close of regular trading on the
Exchange, the price received by the investor will be based on the
NAV determined as of the close of regular trading on the Exchange
on the next day it is open for trading.
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 with payment
by electronic funds transfer may not exceed $500,000. Payment for
shares purchased by telephone can be made only by electronic
funds transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). Telephone purchase requests must be
received before 4:00 p.m., Eastern time, on a Fund business day
to receive that day's public offering price. Telephone purchase
requests received after 4:00 p.m., Eastern time, are
automatically placed the following Fund business day, and the
applicable public offering price will be the public offering
price determined as of the close of business on such following
business day.
Full and fractional shares are credited to a
shareholder's account in the amount of his or her subscription.
As a convenience, and to avoid unnecessary expense to the Fund,
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, Class C shares and Class R
shares each bear the expense of a higher distribution services
fee than that borne by Class A shares and Class K shares, and
Class I 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, Class R, Class K, Class I 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, Class C,
Class R and Class K 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 $100,000 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 NAV. 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 NAV
or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
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, 2002
and 2003, the fiscal period ended September 30, 2003 and the
fiscal year ended September 30, 2004, the aggregate amount of
underwriting commission payable with respect to shares of the
Fund was $447,492, $327,690, $25,065 and $805,597, respectively.
Of that amount, the Principal Underwriter received $287,913,
$13,331, $1,435 and $16,186, 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, 2002 and 2003, the fiscal period ended September 30,
2003 and the fiscal year ended September 30, 2004, the Principal
Underwriter received CDSCs of $333, $39,312, $28,005 and
$246,136, respectively, on Class A shares, $847,613, $436,821,
$29,888 and $410,364, respectively, on Class B shares and $14,968,
$5,162, $965 and $8,396, respectively, on Class C shares of the
Fund.
Class A Shares
--------------
The public offering price of Class A shares is the NAV
plus a sales charge, as set forth below.
Sales Charge
------------
Discount or
Commission to
As % of Dealers or
As % of the Public Agents of
Net Amount Offering up to % of
Amount of Purchase Invested Price Offering Price
------------------ -------- ----- --------------
Up to $100,000 4.44% 4.25% 4.00%
$100,000 up to $250,000 3.36 3.25 3.00
$250,000 up to $500,000 2.30 2.25 2.00
$500,000 up to $1,000,000* 1.78 1.75 1.50
--------
* There is no initial sales charge on transactions of
$1,000,000 or more.
All or a portion of the initial sales charge may be
paid to your financial representative. With respect to purchases
of $1,000,000 or more, Class A shares redeemed within one year of
purchase may be subject to a CDSC of up to 1%. The CDSC on Class
A shares will be waived on certain redemptions, as described
below under "--Contingent Deferred Sales Charge."
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 NAV 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 NAV. The Fund may sell its
Class A shares at NAV (i.e., without any initial sales charge) to
certain categories of investors including:
(i) investment management clients of the Adviser or
its affiliate, including clients and prospective
clients of the Adviser's AllianceBernstein
Institutional Investment Management division;
(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, sibling, direct ancestor or direct
descendant (collectively, "relatives") of any such
person; or any trust, individual retirement
account or retirement plan account for the benefit
of any such person;
(iii) the Adviser, 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, under which
such persons pay an asset-based fee 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 NAV per share of the Class B shares
on the date of purchase without the imposition of a sales charge
at the time of purchase. The Class B shares are sold without an
initial sales charge so that the Fund will receive the full
amount of the investor's purchase payment.
Conversion Feature. Eight years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative NAVs of the two classes, without the imposition of any
sales load, fee or other charge. The purpose of the conversion
feature is to reduce the distribution services fee paid by
holders of Class B shares that have been outstanding long enough
for the Principal Underwriter to have been compensated for
distribution expenses incurred in the sale of the 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 NAV per share of the Class C shares
on the date of purchase without the imposition of a sales charge
either at the time of purchase or, as long as the shares are held
for one year or more, upon redemption. Class C shares are sold
without an initial sales charge so that the Fund will receive the
full amount of the investor's purchase payment and, as long as
the shares are held for one year or more, without a CDSC so that
the investor will receive as proceeds upon redemption the entire
NAV of his or her Class C shares. The Class C distribution
services fee enables the Fund to sell Class C shares without
either an initial sales charge or CDSC, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares, and
will thus have a higher expense ratio and pay correspondingly
lower dividends than 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. Class A share purchases of
$1,000,000 or more and Class C shares that are redeemed within
one year of purchase will be subject to a CDSC of 1%. The charge
will be assessed on an amount equal to the lesser of the cost of
the shares being redeemed or their NAV at the time of redemption.
Accordingly, no sales charge will be imposed on increases in NAV
above the initial purchase price. In addition, no charge will be
assessed on shares derived from reinvestment of dividends or
capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the NAV per share is $12 and, during
such time, the investor has acquired 10 additional Class B shares
upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 Class B shares (proceeds of
$600), 10 Class B shares will not be subject to the charge
because of dividend reinvestment. With respect to the remaining
40 Class B shares, the charge is applied only to the original
cost of $10 per share and not to the increase in NAV of $2 per
share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 2.0% (the applicable rate in the second year
after purchase as set forth below).
For Class B shares, the amount of the CDSC, if any,
will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge
for the Fund as a % of Dollar
Year Since Purchase Amount Subject to Charge
------------------- ------------------------
First 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 and Class C shares, it will be assumed that the
redemption is, first, of any shares that are not subject to a
CDSC (for example, because the shares were acquired upon the
reinvestment of dividends or distributions) and, second, of
shares held longest during the time they are subject to the sales
charge. When shares acquired in an exchange are redeemed, the
applicable CDSC and conversion schedules will be the schedules
that applied at the time of the purchase of shares of the
corresponding class of the AllianceBernstein Mutual Fund
originally purchased by the shareholder.
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 Fund shares, such as the payment of compensation to
selected dealers and agents for selling Fund shares. The
combination of the CDSC and the distribution services fee enables
the Fund to sell shares without a sales charge being deducted at
the time of purchase.
The CDSC is waived on redemptions of shares (i)
following the death or disability, as defined in the 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) 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 the investment alternatives available under a
group retirement plan, (vi) for Class C shares, 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 (vii) for permitted exchanges of
shares.
Class R Shares
--------------
Class R shares are offered only to group retirement
plans that have plan assets of up to $10 million. Class R shares
are not available to retail non-retirement accounts, traditional
or Roth IRAs, Coverdell Education Savings Accounts, SEPs,
SAR-SEPs, SIMPLE IRAs, individual 403(b) plans and to
AllianceBernstein sponsored retirement products. Class R shares
incur a .50% distribution services fee and thus have a higher
expense ratio than Class A shares, Class K shares and Class I
shares and pay correspondingly lower dividends than Class A
shares, Class K shares and Class I shares.
Class K Shares
--------------
Class K shares are available at NAV to group retirement
plans that have plan assets of at least $1 million. Class K
shares generally are not available to retail nonretirement
accounts, traditional and ROTH IRAs, Coverdell Education Savings
Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans
and AllianceBernstein sponsored retirement products. Class K
shares do not have an initial sales charge or CDSC but incur a
.25% distribution services fee and thus (i) have a lower expense
ratio than Class R shares and pay correspondingly higher
dividends than Class R shares and (ii) have a higher expense
ratio than Class I shares and pay correspondingly lower dividends
than Class I shares.
Class I Shares
--------------
Class I shares are available at NAV to all group
retirement plans that have plan assets in excess of $10 million
and to certain investment advisory clients of, and certain other
persons associated with, Alliance and its affiliates. Class I
shares generally are not available to retail non-retirement
accounts, traditional and ROTH IRAs, Coverdell Education Savings
Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans
and AllianceBernstein sponsored retirement products. Class I
shares do not incur any distribution services fees and will thus
have a lower expense ratio and pay correspondingly higher
dividends than Class R and Class K shares.
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 "Class A Shares -- Sales at NAV" (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, Class C,
Class R or Class K 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, 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 your 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 NAVs 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 NAV 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 NAV to
all AllianceBernstein sponsored group retirement plans,
regardless of size, and to the AllianceBernstein Link,
AllianceBernstein Individual 401(k) and AllianceBernstein SIMPLE
IRA plans with at least $250,000 in plan assets or 100 or more
employees. ABIRM measures the asset levels and number of
employees in these plans once monthly. Therefore, if a plan that
is not initially eligible for Class A shares meets the asset
level or number of employees required for Class A eligibility,
ABIRM may not initially fill orders with Class A shares if an
order is received prior to its monthly measurement of assets and
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 NAV to group
retirement plans with plan assets of $1 million or more. The 1%,
1-year CDSC also generally applies. However, the 1%, 1-year CDSC
may be waived if the financial intermediary agrees to waive all
commissions or other compensation paid in connection with the
sale of such shares (typically up to a 1% advance payment for
sales of Class A shares at NAV) other than the service fee paid
pursuant to the Fund's 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. If an AllianceBernstein Link, AllianceBernstein
Individual 401(k) or AllianceBernstein SIMPLE IRA plan holding
Class C shares becomes eligible to purchase Class A shares at
NAV, the plan sponsor or other appropriate fiduciary of such plan
may request ABIRM in writing to liquidate the Class C shares and
purchase Class A shares with the liquidation proceeds. Any such
liquidation and repurchase may not occur before the expiration of
the 1-year period that begins on the date of the plan's last
purchase of Class C shares.
Class R Shares. Class R shares are available to certain
group retirement plans with plan assets of up to $10 million.
Class R shares are not subject to a front-end sales charge or
CDSC, but are subject to a .50% distribution fee.
Class K Shares. Class K shares are available to certain
group retirement plans with plan assets of at least $1 million.
Class K shares are not subject to a front-end sales charge or
CDSC, but are subject to a .25% distribution fee.
Class I Shares. Class I shares are available to certain
group retirement plans with plan assets of at least $10 million.
Class I shares are not subject to a front-end sales charge, CDSC
or a distribution fee.
Choosing a Class of Shares for Group Retirement Plans.
Plan sponsors, plan fiduciaries and other financial
intermediaries may establish requirements as to the purchase,
sale or exchange of shares of the Portfolio, 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 Portfolio's share
class eligibility criteria before determining whether to invest.
It is expected that the Portfolio will eventually offer
only Class R, Class K and Class I shares to group retirement
plans. Currently, the Portfolio also makes its Class A shares
available at NAV to group retirement plans with plan assets of $1
million or more. Unless waived under the circumstances described
above, a 1%, 1-year CDSC applies to the sale of Class A shares by
a plan. Because Class K shares have no CDSC and lower 12b-1
distribution fees, and Class I shares have no CDSC and Rule 12b-1
distribution fees, plans should consider purchasing Class K or
Class I shares, if eligible, rather than Class A shares.
In selecting among the Class A, Class K and Class R
shares, plans purchasing shares through a financial intermediary
that is not willing to waive advance commission payments (and
therefore are not eligible for the waiver of the 1%, 1-year CDSC
applicable to Class A shares) should weigh the following:
o the lower Rule 12b-1 distribution fees (0.30%) and the
1%, 1-year CDSC with respect to Class A shares;
o the higher Rule 12b-1 distribution fees (0.50%) and the
absence of a CDSC with respect to Class R shares; and
o the lower Rule 12b-1 distribution fees (0.25%) and the
absence of a CDSC with respect to Class K shares.
Because Class A and Class K shares have lower Rule
12b-1 distribution fees than Class R shares, plans should
consider purchasing Class A or Class K shares, if eligible,
rather than Class R shares.
As described above, 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. Plans should weigh the
fact that Class B shares will convert to Class A shares after a
period of time against the fact that Class A, Class R, Class K
and Class I 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 or 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
purchase or concurrent purchases of shares of the Fund or any
other AllianceBernstein Mutual Fund, including AllianceBernstein
Institutional Funds, by (i) an individual, his or her spouse or
the individual's children under the age of 21 years purchasing
shares for his, her or their own account(s), including certain
Collegeboundfund acounts; (ii) a trustee or other fiduciary
purchasing shares for a single trust, estate or single fiduciary
account with one or more beneficiaries involved; or (iii) the
employee benefit plans of a single employer. The term "purchase"
also includes purchases by any "company," as the term is defined
in the 1940 Act, but does not include purchases by any such
company 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 Cap Fund, Inc.
-AllianceBernstein Small Cap Growth Portfolio
AllianceBernstein Emerging Market Debt Fund, Inc.
AllianceBernstein Exchange Reserves
AllianceBernstein Focused Growth & Income Fund, Inc.
AllianceBernstein Global Health Care Fund, Inc.
AllianceBernstein Global Research Growth Fund, Inc.
AllianceBernstein Global Small Cap Fund, Inc.
AllianceBernstein Global Strategic Income Trust, Inc.
AllianceBernstein Global Technology Fund, Inc.
AllianceBernstein Greater China `97 Fund, Inc.
AllianceBernstein Growth and Income Fund, Inc.
AllianceBernstein High Yield Fund, Inc.
AllianceBernstein International Premier Growth Fund, Inc.
AllianceBernstein Large Cap 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 Real Estate Investment Fund, Inc.
AllianceBernstein Select Investor Series, Inc.
-Biotechnology Portfolio
-Premier Portfolio
-Technology Portfolio
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 NAV (at the close of business on the previous day)
of (a) all shares of the Fund held by the investor and (b) all
shares held by the investor of any other AllianceBernstein Mutual
Fund, including AllianceBerstein Institutional Funds and certain
Collegeboundfund accounts for which the investor, his or her
spouse, or child under the age of 21 is the participant; and
(iii) the NAV of all shares described in paragraph (ii)
owned by another shareholder eligible to combine his or her
purchase with that of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an
AllianceBernstein Mutual Fund worth $200,000 at their then
current NAV 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.
Letter of Intent. Class A investors may also obtain the
quantity discounts described under "Alternative Purchase
Arrangements - Class A Shares" by means of a written Letter of
Intent, which expresses the investor's intention to invest at
least $100,000 in Class A shares of the Fund or any
AllianceBernstein Mutual Fund within 13 months. Each purchase of
shares under a Letter of Intent will be made at the public
offering price or prices applicable at the time of such purchase
to a single transaction of the dollar amount indicated in the
Letter of Intent. At the investor's option, a Letter of Intent
may include purchases of shares of the Fund or any other
AllianceBernstein Mutual Fund made not more than 90 days prior to
the date that the investor signs a Letter of Intent, in which
case the 13-month period during which the Letter of Intent is in
effect will begin on the date of that earliest purchase. However,
sales charges will not be reduced for purchases made prior to the
date the Letter of Intent is signed.
Investors qualifying for the Combined Purchase
Privilege described above may purchase shares of the
AllianceBernstein Mutual Funds under a single Letter of Intent.
For example, if at the time an investor signs a Letter of Intent
to invest at least $100,000 in Class A shares of the Fund, the
investor and the investor's spouse each purchase shares of the
Fund worth $20,000 (for a total of $40,000), it will only be
necessary to invest a total of $60,000 during the following 13
months in shares of the Fund or any other AllianceBernstein
Mutual Fund, to qualify for the 3.25% sales charge on the total
amount being invested (the sales charge applicable to an
investment of $100,000).
The Letter of Intent is not a binding obligation upon
the investor to purchase the full amount indicated. The minimum
initial investment under a Letter of Intent is 5% of such amount.
Shares purchased with the first 5% of such amount will be held in
escrow (while remaining registered in the name of the investor)
to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not
purchased, and such escrowed shares will be involuntarily
redeemed at their then NAV to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released.
Investors wishing to enter into a Letter of Intent in
conjunction with their initial investment in Class A shares of
the Fund can obtain a form of Letter of Intent by contacting 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 NAV 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 NAV next determined as
described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore,
any gain or loss so realized will be recognized for federal
income tax purposes except that no loss will be recognized to the
extent that the proceeds are reinvested in shares of the Fund
within 30 calendar days after the redemption or repurchase
transaction. Investors may exercise the reinstatement privilege
by written request sent to the Fund at the address shown on the
cover of this SAI.
Dividend Reinvestment Program. Shareholders may elect
to have all income and capital gains distributions from their
account paid to them in the form of additional shares of the same
class of the Fund pursuant to the Fund's Dividend Reinvestment
Program. No initial sales charge or CDSC will be imposed on
shares issued pursuant to the Dividend Reinvestment Program.
Shares issued under this program will have an aggregate NAV as of
the close of business on the declaration date of the dividend or
distribution equal to the cash amount of the distribution.
Investors wishing to participate in the Dividend Reinvestment
Program should complete the appropriate section of the
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 NAV of at least $5,000 may establish
a systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. The $5,000 account minimum does not
apply to a shareholder owning shares through an individual
retirement account or other retirement plan who has attained the
age of 70-1/2 who wishes to establish a systematic withdrawal
plan to help satisfy a required minimum distribution. Systematic
withdrawal plan participants must elect to have their dividends
and distributions from the Fund automatically reinvested in
additional shares of the Fund.
Shares of 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.
Payments to Financial Advisors and Their Firms
----------------------------------------------
Financial intermediaries market and sell shares of the
Fund. These financial intermediaries employ financial advisors
and receive compensation for selling shares of the Fund. This
compensation is paid from various sources, including any sales
charge, CDSC and/or Rule 12b-1 fee that you or the Fund may pay.
Your individual financial advisor may receive some or all of the
amounts paid to the financial intermediary that employs him or
her.
In the case of Class A shares, all or a portion of the
initial sales charge that you pay may be paid by ABIRM to
financial intermediaries selling Class A shares. ABIRM may also
pay these financial intermediaries a fee of up to 1% on purchases
of $1 million or more. Additionally, up to 100% of the Rule 12b-1
fees applicable to Class A shares each year may be paid to
financial intermediaries, including your financial intermediary,
that sell Class A shares.
In the case of Class B shares, ABIRM will pay, at the
time of your purchase, a commission to financial intermediaries
selling Class B shares in an amount equal to 4% of your
investment. Additionally, up to 30% of the Rule 12b-1 fees
applicable to Class B shares each year may be paid to financial
intermediaries, including your financial intermediary, that sell
Class B shares.
In the case of Class C shares, ABIRM will pay, at the
time of your purchase, a commission to firms selling Class C
shares in an amount equal to 1% of your investment. Additionally,
up to 100% of the Rule 12b-1 fee applicable to Class C shares
each year may be paid to financial intermediaries, including your
financial intermediary, that sell Class C shares.
In the case of Class R shares, up to 100% of the 12b-1
fee applicable to Class R shares each year may be paid to
financial intermediaries, including your financial intermediary,
that sell Class R shares.
In the case of Class K shares, up to 100% of the Rule
12b-1 fee applicable to Class K shares each year may be paid to
financial intermediaries, including your financial intermediary,
that sell Class K shares.
In the case of Advisor Class shares, your financial
advisor may charge ongoing fees or transactional fees. ABIRM may
pay a portion of "ticket" or other transactional charges.
Your financial advisor's firm receives compensation
from the Fund, ABIRM and/or Alliance in several ways from various
sources, which include some or all of the following:
o upfront sales commissions
o 12b-1 fees
o additional distribution support
o defrayal of costs for educational seminars and training
o payments related to providing shareholder
record-keeping and/or transfer agency services
Please read your Prospectus carefully for information
on this compensation.
Other Payments for Distribution Services and Educational Support
----------------------------------------------------------------
In addition to the commissions paid to financial
intermediaries at the time of sale and the fees described under
"Asset-Based Sales Charges or Distribution and/or Service (Rule
12b-1) Fees," in your Prospectus, some or all of which may be
paid to financial intermediaries (and, in turn, to your financial
advisor), ABIRM, at its expense, currently provides additional
payments to firms that sell shares of the AllianceBernstein
Mutual Funds. Although the individual components may be higher
and the total amount of payments made to each qualifying firm in
any given year may vary, the total amount paid to a financial
intermediary in connection with the sale of shares of the
AllianceBernstein Mutual Funds will generally not exceed the sum
of (a) 0.25% of the current year's fund sales by that firm and
(b) 0.10% of average daily net assets attributable to that firm
over the year. These sums include payments to reimburse directly
or indirectly the costs incurred by these firms and their
employees in connection with educational seminars and training
efforts about the AllianceBernstein Mutual Funds for the firms'
employees and/or their clients and potential clients. The costs
and expenses associated with these efforts may include travel,
lodging, entertainment and meals.
For 2005, ABIRM's additional payments to these firms
for distribution services and educational support related to the
AllianceBernstein Mutual Funds is expected to be approximately
0.04% of the average monthly assets of the AllianceBernstein
Mutual Funds, or approximately $17.5 million. In 2004, ABIRM paid
approximately 0.04% of the average monthly assets of the
AllianceBernstein Mutual Funds or approximately $16 million for
distribution services and educational support related to the
AllianceBernstein Mutual Funds.
A number of factors are considered in determining the
additional payments, including each firm's AllianceBernstein
Mutual Fund sales, assets and redemption rates, and the
willingness and ability of the firm to give ABIRM access to its
financial advisors for educational and marketing purposes. In
some cases, firms will include the AllianceBernstein Mutual Funds
on a "preferred list." ABIRM's goal is to make the financial
advisors who interact with current and prospective investors and
shareholders more knowledgeable about the AllianceBernstein
Mutual Funds so that they can provide suitable information and
advice about the funds and related investor services.
The Fund and ABIRM also make payments for recordkeeping
and other transfer agency services to financial intermediaries
that sell AllianceBernstein Mutual Fund shares. Please see
"Expenses of the Fund - Transfer Agency Agreement" above. These
expenses paid by the Fund are included in "Other Expenses" under
"Fees and Expenses of the Funds - Annual Fund Operating Expenses"
in your Prospectus.
If one mutual fund sponsor makes greater distribution
assistance payments than another, your financial advisor and his
or her firm may have an incentive to recommend one fund complex
over another. Similarly, if your financial advisor or his or her
firm receives more distribution assistance for one share class
versus another, then they may have an incentive to recommend that
class.
Please speak with your financial advisor to learn more
about the total amounts paid to your financial advisor and his or
her firm by the Fund, Alliance, ABIRM and by sponsors of other
mutual funds he or she may recommend to you. You should also
consult disclosures made by your financial advisor at the time of
purchase.
ABIRM anticipates that the firms that will receive
additional payments for distribution services and/or educational
support include:
A.G. Edwards
AIG Advisor Group
American Express Financial Advisors
AXA Advisors
Banc of America
Bank One Securities Corp.
Charles Schwab
Chase Investment Services
Citigroup Global Markets
Commonwealth Financial
IFMG Securities
ING Advisors Network
Legg Mason
Lincoln Financial Advisors
Linsco Private Ledger
Merrill Lynch
Morgan Stanley
Mutual Service Corporation
National Financial
NPH Holdings
PFS Investments
Piper Jaffray
Raymond James
RBC Dain Rauscher
Securities America
SunTrust Bank
UBS Financial
Uvest Financial Services
Wachovia Securities
Wells Fargo
Although the Fund may use brokers and dealers who sell
shares of the Fund to effect portfolio transactions, the Fund
does not consider the sale of AllianceBernstein Mutual Fund
shares as a factor when selecting brokers or dealers to effect
portfolio transactions.
-----------------------------------------------------------------
REDEMPTION AND REPURCHASE OF SHARES
-----------------------------------------------------------------
The following information supplements that set forth in
your Prospectus under the heading "Investing in the Funds." If
you are an Advisor Class shareholder through an account
established under a fee-based program your fee-based program may
impose requirements with respect to the purchase, sale or
exchange of Advisor Class shares of the Fund that are different
from those described herein. A transaction fee may be charged by
your financial intermediary with respect to the purchase, sale or
exchange of Advisor Class shares made through such financial
intermediary. The Fund has authorized one or more brokers to
receive on its behalf purchase and redemption orders. Such
brokers are authorized to designate other intermediaries to
receive purchase and redemption orders on the Fund's behalf. In
such cases, orders will receive the NAV next computed after such
order is properly received by the authorized broker or designee
and accepted by the Fund.
Redemption
----------
Subject only to the limitations described below, the
Fund's Charter requires that the Fund redeem the shares tendered
to it, as described below, at a redemption price equal to their
NAV as next computed following the receipt of shares tendered for
redemption in proper form. Except for any CDSC which may be
applicable to Class A shares, Class B shares or Class C shares,
there is no redemption charge. Payment of the redemption price
normally will be made within seven days after the Fund's receipt
of such tender for redemption. If a shareholder is in doubt about
what documents are required by his or her fee-based program or
employee benefit plan, the shareholder should contact his or her
financial 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 (except
for certain omnibus accounts). A telephone redemption by
electronic funds transfer may not exceed $100,000, and must be
made by 4:00 p.m., Eastern time, on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
Telephone Redemption 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, the Adviser, the Principal Underwriter nor 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 NAV next determined after the Principal
Underwriter receives the request (less the CDSC, if any, with
respect to the Class A, Class B and Class C shares), except that
requests placed through financial intermediaries before the close
of regular trading on the Exchange on any day will be executed at
the NAV determined as of such close of regular trading on that
day if received by the Principal Underwriter prior to its close
of business on that day (normally 5:00 p.m., Eastern time). The
financial intermediary is responsible for transmitting the
request to the Principal Underwriter by 5:00 p.m., Eastern time.
(Certain financial intermediaries may enter into operating
agreements permitting them to transmit purchase information that
was received prior to the close of business to the Principal
Underwriter after 5:00 p.m., Eastern time, and receive that day's
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
with respect to financial intermediaries is a voluntary service
of the Fund and the Fund may suspend or terminate this practice
at any time.
General
-------
The Fund reserves the right to close out an account
that, 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
your Prospectus under the heading "Investing in the Funds." The
shareholder services set forth below are applicable to all
classes of shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program or a shareholder in a group retirement plan,
your fee-based program or retirement plan may impose requirements
with respect to the purchase, sale or exchange of the Fund that
are different from those described herein.
Automatic Investment Program
----------------------------
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount are used to
purchase shares through the 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. The monthly drafts must be in minimum
amounts of either $50 or $200, depending on the investor's
initial purchase. If an investor makes an initial purchase of at
least $2,500, the minimum monthly amount for pre-authorized
drafts is $50. If an investor makes an initial purchase of less
than $2,500, the minimum monthly amount for pre-authorized drafts
is $200 and the investor must commit to a monthly investment of
at least $200 until the investor's account balance is $2,500 or
more. In electronic form, drafts can be made on or about a date
each month selected by the shareholder. Investors wishing to
establish an automatic investment program in connection with
their initial investment should complete the appropriate portion
of the 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.
Shareholders committed to monthly investments of $25 or
more through the Automatic Investment Program by October 15, 2004
are able to continue their program despite the $200 monthly
minimum.
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 NAV next determined and
without sales or service charges. Exchanges may be made by
telephone or written request. In order to receive a day's NAV,
AGIS must receive and confirm a telephone exchange request by
4:00 p.m., Eastern time, on that day.
Shares will continue to age without regard to exchanges
for 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 NAVs as next determined following
receipt by the AllianceBernstein Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the AllianceBernstein Mutual Fund
whose shares have been tendered for exchange is reasonably
assured that the check has cleared, normally up to 15 calendar
days following the purchase date. Exchanges of shares of
AllianceBernstein Mutual Funds will generally result in the
realization of a capital gain or loss for federal income tax
purposes.
Each Fund shareholder and the shareholder's financial
intermediary are authorized to make telephone requests for
exchanges unless 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 registered public accounting firm, Ernst &
Young LLP, as well as a confirmation of each purchase and
redemption. By contacting his or her financial intermediary or
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 NAV of the Class A or
Class C shares in the investor's account (excluding for this
purpose the current month's accumulated dividends and shares for
which certificates have been issued). A Class A or Class C
shareholder wishing to establish this checkwriting service
subsequent to the opening of his or her Fund account should
contact the Fund by telephone or mail. Corporations, fiduciaries
and institutional investors are required to furnish a certified
resolution or other evidence of authorization. This checkwriting
service will be subject to the Bank's customary rules and
regulations governing checking accounts, and the Fund and the
Bank each reserve the right to change or suspend the checkwriting
service. There is no charge to the shareholder for the initiation
and maintenance of this service or for the clearance of any
checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the NAV next determined, a sufficient number of full and
fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service enables
the shareholder to receive the daily dividends declared on the
shares to be redeemed until the day that the check is presented
to the Bank for payment.
-----------------------------------------------------------------
NET ASSET VALUE
-----------------------------------------------------------------
The NAV 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 NAV is calculated by dividing the value of the Fund's
total assets, less its liabilities, by the total number of its
shares then outstanding. A 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.
The Fund values its securities at their current market
value determined on the basis of market quotations or, if market
quotations are not readily available or are unreliable, at "fair
value" as determined in accordance with procedures established by
and under the general supervision of the Fund's Board of
Directors. When the Fund uses fair value pricing, it may take
into account any factors it deems appropriate. The Fund may
determine fair value based upon developments related to a
specific security, current valuations of foreign stock indices
(as reflected in U.S. futures markets) and/or U.S. sector or
broader stock market indices. The prices of securities used by
the Fund to calculate its NAV may differ from quoted or published
prices for the same securities. Fair value pricing involves
subjective judgments and it is possible that the fair value
determined for a security is materially different than the value
that could be realized upon the sale of that security.
The Fund expects to use fair value pricing for
securities primarily traded on U.S. exchanges only under very
limited circumstances, such as the early closing of the exchange
on which a security is traded or suspension of trading in the
security. The Fund may use fair value pricing more frequently for
securities primarily traded in non-U.S. markets because, among
other things, most foreign markets close well before the Fund
values its securities at 4:00 p.m., Eastern Time. The earlier
close of these foreign markets gives rise to the possibility that
significant events, including broad market moves, may have
occurred in the interim. For example, the Fund believes that
foreign security values may be affected by events that occur
after the close of foreign securities markets. To account for
this, the Fund may frequently value many of its foreign equity
securities using fair value prices based on third party vendor
modeling tools to the extent available.
Subject to the Board's oversight, the Fund's Board has
delegated responsibility for valuing the Fund's assets to
Alliance. Alliance has established a Valuation Committee, which
operates under the policies and procedures approved by the Board,
to value the Fund's assets on behalf of the Fund. The Valuation
Committee values Fund assets as described above.
The Fund may suspend the determination of its NAV (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 NAV per share,
all assets and liabilities initially expressed in a foreign
currency will be converted into U.S. dollars at the mean of the
current bid and asked prices of such currency against the U.S.
dollar last quoted by a major bank that is a regular participant
in the relevant foreign exchange market or on the basis of a
pricing service that takes into account the quotes provided by a
number of such major banks. If such quotations are not available
as of the close of the Exchange, the rate of exchange will be
determined in good faith by, or under the direction of, the Board
of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares, Class R shares, Class K shares, Class I
shares and Advisor Class shares will be invested together in a
single portfolio. The NAV of each class will be determined
separately by subtracting the liabilities allocated to that class
from the assets belonging to that class in conformance with the
provisions of a plan adopted by the Fund in accordance with Rule
18f-3 under the 1940 Act.
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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, certain other income (including, but not
limited to, gains from options, futures or forward currency
exchange contracts) derived with respect to its business of
investing in stock, securities or currency, or net income derived
from interests in certain qualified publicly traded partnerships;
and (ii) diversify its holdings so that, at the end of each
quarter of its taxable year, the following two conditions are
met: (a) at least 50% of the value of the Fund's assets is
represented by cash, cash items, U.S. Government Securities,
securities of other regulated investment companies and other
securities with respect to which the Fund's investment is
limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the Fund's assets and to not more than
10% of the outstanding voting securities of such issuer and (b)
not more than 25% of the value of the Fund's assets is invested
in securities of any one issuer (other than U.S. Government
Securities or securities of other regulated investment
companies).
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, 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, trusts and estates at the reduced maximum rate of
15% if paid on or before December 31, 2008 (5% for individuals,
trusts and estates in lower tax brackets), provided that both the
fund and the shareholder 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 NAV of such shares by the amount of such dividend or
distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular
shareholder, would be taxable to him or her as described above.
Dividends are taxable in the manner discussed regardless of
whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund. 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 is so 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 Currency
Exchange Contracts. Certain listed options, regulated futures
contracts and forward currency exchange contracts are considered
"section 1256 contracts" for federal income tax purposes. Section
1256 contracts held by 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 currency
exchange contracts will be considered 60% long-term and 40%
short-term capital gain or loss, although the Fund may elect to
have the gain or loss it realizes on certain contracts taxed as
"section 988" gain or loss. Gain or loss realized by the Fund on
forward currency exchange contracts generally will be treated as
section 988 gain or loss and will therefore be characterized as
ordinary income or loss and will increase or decrease the amount
of the Fund's net investment income available to be distributed
to shareholders as ordinary income, as described above. 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 currency exchange 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 oversight 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 Adviser determines the broker or
dealer to be used in each specific transaction with the objective
of negotiating a combination of the most favorable commission
(for transactions on which a commission is payable) and the best
price obtainable on each transaction (generally defined as best
execution). In connection with seeking best price and execution,
the Fund does not consider sales of shares of the Fund or other
investment companies managed by the Adviser as a factor in the
selection of brokers and dealers to effect portfolio transactions
and has adopted a policy and procedures reasonably designed to
preclude such considerations.
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. 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. During
the fiscal years ended September 30, 2002, 2003 and 2004, the
Fund incurred no brokerage commissions.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with SCB & Co. or Advest Inc. ("Advest"), each 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. or Advest is an affiliate of the Adviser. With
respect to orders placed with SCB & Co. or Advest 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.
Disclosure of Portfolio Holdings
--------------------------------
The Fund believes that the ideas of Alliance's
investment staff should benefit the Fund and its shareholders,
and does not want to afford speculators an opportunity to profit
by anticipating Fund trading strategies or using Fund information
for stock picking. However, the Fund also believes that knowledge
of the Fund's portfolio holdings can assist shareholders in
monitoring their investment, making asset allocation decisions,
and evaluating portfolio management techniques.
Alliance has adopted, on behalf of the Fund, policies
and procedures relating to disclosure of the Fund's portfolio
securities. The policies and procedures relating to disclosure of
the Fund's portfolio securities are designed to allow disclosure
of portfolio holdings information where necessary to the Fund's
operation or useful to the Fund's shareholders without
compromising the integrity or performance of the Fund. Except
when there are legitimate business purposes for selective
disclosure and other conditions (designed to protect the Fund and
its shareholders) are met, the Fund does not provide or permit
others to provide information about the Fund's portfolio holdings
on a selective basis.
The Fund includes portfolio holdings information as
required in regulatory filings and shareholder reports, discloses
portfolio holdings information as required by federal or state
securities laws and may disclose portfolio holdings information
in response to requests by governmental authorities. In addition,
Alliance posts portfolio holdings information on Alliance's
website (www.AllianceBernstein.com). Alliance posts on the
website a complete schedule of the Fund's portfolio securities,
as of the last day of each calendar month, approximately 30 days
after the end of that month. This posted information generally
remains accessible on the website for three months. For each
portfolio security, the posted information includes its name, the
number of shares held by the Fund, the market value of the Fund's
holdings, and the percentage of the Fund's assets represented by
the portfolio security. In addition to the schedule of portfolio
holdings, Alliance may post information about the number of
securities the Fund holds, a summary of the Fund's top ten
holdings (including name and the percentage of the Fund's assets
invested in each holding), and a percentage breakdown of the
Fund's investments by credit rating or security type, as
applicable approximately 20 days after the end of the month. The
day after portfolio holdings information is publicly available on
the website, it may be mailed, e-mailed or otherwise transmitted
to any person.
Alliance may distribute or authorize the distribution
of information about the Fund's portfolio holdings that is not
publicly available, on the website or otherwise, to Alliance's
employees and affiliates that provide services to the Fund. In
addition, Alliance may distribute or authorize distribution of
information about the Fund's portfolio holdings that is not
publicly available, on the website or otherwise, to the Fund's
service providers who require access to the information in order
to fulfill their contractual duties relating to the Fund, to
facilitate the review of the Fund by rating agencies, for the
purpose of due diligence regarding a merger or acquisition, or
for the purpose of effecting in-kind redemption of securities to
facilitate orderly redemption of portfolio assets and minimal
impact on remaining Fund shareholders. Alliance does not expect
to disclose information about the Fund's portfolio holdings that
is not publicly available to the Fund's individual or
institutional investors or to intermediaries that distribute the
Fund's shares. Information may be disclosed with any frequency
and any lag, as appropriate.
Before any non-public disclosure of information about
the Fund's portfolio holdings is permitted, however, Alliance's
Mutual Fund Compliance Director must determine that the Fund has
a legitimate business purpose for providing the portfolio
holdings information, that the disclosure is in the best
interests of the Fund's shareholders, and that the recipient
agrees or has a duty to keep the information confidential and
agrees not to trade directly or indirectly based on the
information or to use the information to form a specific
recommendation about whether to invest in the Fund or any other
security. Under no circumstances may Alliance or its affiliates
receive any consideration or compensation for disclosing the
information.
Alliance has established procedures to ensure that the
Fund's portfolio holdings information is only disclosed in
accordance with these policies. Only Alliance's Mutual Fund
Compliance Director (or his designee) may approve the disclosure,
and then only if he or she and a designated senior officer in
Alliance's product management group determines that the
disclosure serves a legitimate business purpose of the Fund and
is in the best interest of the Fund's shareholders. Alliance's
Mutual Fund Compliance Director (or his designee) approves
disclosure only after considering the anticipated benefits and
costs to the Fund and its shareholders, the purpose of the
disclosure, any conflicts of interest between the interests of
the Fund and its shareholders and the interests of Alliance or
any of its affiliates, and whether the disclosure is consistent
with the policies and procedures governing disclosure. Only
someone approved by Alliance's Mutual Fund Compliance Director
(or his designee) may make approved disclosures of portfolio
holdings information to authorized recipients. Alliance reserves
the right to request certifications from senior officers of
authorized recipients that the recipient is using the portfolio
holdings information only in a manner consistent with Alliance's
policy and any applicable confidentiality agreement. Alliance's
Mutual Fund Compliance Director or another member of the
compliance team reports all arrangements to disclose portfolio
holdings information to the Fund's Board of Directors on a
quarterly basis. If the Board determines that disclosure was
inappropriate, Alliance will promptly terminate the disclosure
arrangement.
In accordance with these procedures, each of the
following third parties have been approved to receive information
concerning the Fund's portfolio holdings: (i) the Fund's
independent registered public accounting firm, for use in
providing audit opinions; (ii) Data Communique International and,
from time to time, other financial printers, for the purpose of
preparing Fund regulatory filings; (iii) the Fund's custodian in
connection with its custody of the Fund's assets; (iv)
Institutional Shareholder Services, Inc. for proxy voting
services; and (v) data aggregators, such as Vestek. Information
may be provided to these parties at any time with no time lag.
Each of these parties is contractually and ethically prohibited
from sharing the Fund's portfolio holdings information unless
specifically authorized.
-----------------------------------------------------------------
GENERAL INFORMATION
-----------------------------------------------------------------
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,
3,000,000,000 shares of Class R Common Stock, $.001 par value,
3,000,000,000 shares of Class K Common Stock, $.001 par value,
3,000,000,000 shares of Class I 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 NAV 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, Class R, Class K, Class I 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 NAV 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, Class C, Class R and Class K 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 7, 2005 there
were 101,872,674 shares of common stock of the Fund outstanding,
including 20,480,920 Class A shares, 34,132,954 Class B shares,
10,472,907 Class C shares and 36,785,893 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 7, 2005:
No. of % of
Name and Address Shares Class
---------------- ------ -----
Class A Shares
--------------
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 1,357,108 6.63%
First Clearing LLC
A/C #1699-0135
Special Custody Acct for the
Exclusive Benefit of Customer
10750 Wheat First Dr
Glen Allen, VA 23060-9245 1,269,038 6.20%
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Administration (97B13)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 2,417,611 11.80%
NFSC FEBO # RDD-000027
CMG Capital Master
CMG Capital Master
150 nW Radnorchester Road
Suite A150
Radnor, PA 19087-5252 1,233,922 6.02%
Class B Shares
--------------
Citigroup Global Markets
House Account
Attn: Cindy Tempesta
333 W. 34th St. - FL. 3
New York, NY 10001-2483 2,486,945 7.29%
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Administration (97B14)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 4,373,175 12.82%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052 2,837,285 8.32%
First Clearing LLC
A/C #1699-0135
Special Custody Acct for the
Exclusive Benefit of Customer
10750 Wheat First Dr
Glen Allen, VA 23060-9245 4,228,405 12.39%
Class C Shares
--------------
Citigroup Global Markets
House Account
Attn: Cindy Tempesta
333 W. 34th St. - FL. 3
New York, NY 10001-2402 945,167 9.03%
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Administration (97B15)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 1,810,261 17.30%
First Clearing LLC
A/C #1699-0135
Special Custody Acct for the
Exclusive Benefit of Customer
10750 Wheat First Drive
Glen Allen, VA 23060-9245 977,208 9.34%
Advisor Class Shares
--------------------
Collegebound Fund
CBF-Balanced Portfolio
529 Plan
500 Plaza Dr.
Secaucus, NJ 07094-3619 3,041,905 8.27%
Collegebound Fund
Aggressive Growth Emphasis
Age Based Portfolio 1987-1989
500 Plaza Dr.
Secaucus, NJ 07094-3619 2,287,124 6.22%
Collegebound Fund
Aggressive Growth Emphasis
Age Based Portfolio 1990-1992
500 Plaza Dr.
Secaucus, NJ 07094-3619 3,340,506 9.08%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 19963-1998
500 Plaza Dr.
Secaucus, NJ 07094-3619 2,656,645 7.22%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1987-1989
500 Plaza Dr.
Secaucus, NJ 07094-3619 5,335,664 14.50%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1990-1992
500 Plaza Dr.
Secaucus, NJ 07094-3619 6,426,280 17.47%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1993-1995
500 Plaza Dr.
Secaucus, NJ 07094-3619 5,740,827 15.61%
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 Registered Public Accounting Firm
---------------------------------------------
Ernst & Young LLP, 5 Times Square, New York, New York,
10036 has been appointed as the independent registered public
accounting firm 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 REGISTERED
PUBLIC ACCOUNTING FIRM
-----------------------------------------------------------------
The financial statements of AllianceBernstein High
Yield Fund, Inc. for the fiscal year ended September 30, 2004 and
the report of Ernst & Young LLP, independent registered public
accounting firm, are incorporated herein by reference to the
Fund's annual report. The annual report was filed on Form N-CSR
with the Commission on December 9, 2004. 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. We recognize that this duty requires us to vote client
securities in a timely manner and make voting decisions that are
in the best interests of our clients. Consistent with these
obligations, we will disclose our clients' voting records only to
them and as required by mutual fund vote disclosure regulations.
In addition, the proxy committees may, after careful
consideration, choose to respond to surveys regarding past votes.
This statement is intended to comply with Rule 206(4)-6
of the Investment Advisers Act of 1940. It sets forth our
policies and procedures for voting proxies for our discretionary
investment advisory clients, including investment companies
registered under the Investment Company Act of 1940. This
statement applies to Alliance Capital's growth and value
investment groups investing on behalf of clients in both US and
non-US securities.
Proxy Policies
This statement is designed to be responsive to the wide
range of proxy voting subjects that can have a significant effect
on the investment value of the securities held in our clients'
accounts. These policies are not exhaustive due to the variety of
proxy voting issues that we may be required to consider. 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:
Corporate Governance: Alliance Capital's proxy voting
policies recognize 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. We will vote
for proposals providing for equal access to the proxy materials
so that shareholders can express their views on various proxy
issues. We also support the appointment of a majority of
independent directors on key committees and separating the
positions of chairman and chief executive officer.
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 or 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. While we will recognize that
there may be special circumstances that could lead to high
non-audit fees in some years, we would normally consider
non-audit fees in excess of 70% to be disproportionate.
Therefore, we may vote against the appointment of auditors if the
fees for non-audit related services exceed 70% of the total audit
fees paid by the company or there are other reasons to question
the independence of the company's auditors.
Changes in Legal and Capital Structure: Changes in a
company's charter, articles of incorporation or by-laws are often
technical and administrative in nature. Absent a compelling
reason to the contrary, 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.
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 that do not exceed 2.99 times the sum of an
executive officer's base salary plus bonus that are triggered by
a change in control to a shareholder vote. 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 Procedures
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 these
policies and new types of corporate governance issues, and decide
how we should vote on proposals not covered by these policies.
When a proxy vote cannot be clearly decided by an application of
our stated policy, the proxy committee will evaluate the
proposal. In addition, the committees, in conjunction with the
analyst that covers the company, may contact corporate management
and interested shareholder groups and others as necessary to
discuss proxy issues. Members of the committee include senior
investment personnel and representatives of the Legal and
Compliance Department. The committees may also evaluate proxies
where we face a potential conflict of interest (as discussed
below). Finally, the committees monitor adherence to these
policies.
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, or we administer, who
distributes Alliance Capital sponsored mutual funds, or with whom
we or an employee has another business or personal relationship
that may affect how we vote on the issuer's proxy. Similarly,
Alliance may have a potential material conflict of interest when
deciding how to vote on a proposal sponsored or supported by a
shareholder group that is a client. We believe that centralized
management of proxy voting, oversight by the proxy voting
committees and adherence to these policies ensures that proxies
are voted 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 material conflict of
interests, including: (i) on an annual basis, the proxy
committees will take reasonable steps to evaluate the nature of
Alliance Capital's and our employees' material business and
personal relationships (and those of our affiliates) with any
company whose equity securities are held in client accounts and
any client that has sponsored or has material interest in a
proposal upon which we will be eligible to vote; (ii) requiring
anyone involved in the decision making process to disclose to the
chairman of the appropriate proxy committee any potential
conflict that they are aware of (including personal
relationships) and any contact that they have had with any
interested party regarding a proxy vote; (iii) prohibiting
employees involved in the decision making process or vote
administration from revealing how we intend to vote on a proposal
in order to reduce any attempted influence from interested
parties; and (iv) where a material conflict of interests exists,
reviewing our proposed vote by applying a series of objective
tests and, where necessary, considering the views of a third
party research service to ensure that our voting decision is
consistent with our clients' best interests.
Because under certain circumstances Alliance Capital
considers the recommendation of third party research services,
the proxy committees will take reasonable steps to verify that
any third party research service is in fact independent based on
all of the relevant facts and circumstances. This includes
reviewing the third party research service's conflict management
procedures and ascertaining, among other things, whether the
third party research service (i) has the capacity and competency
to adequately analyze proxy issues; and (ii) can make such
recommendations in an impartial manner and in the best interests
of our clients.
Proxies of Certain Non-US 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 benefit to the client of exercising the vote
does not outweigh the cost of voting, which is 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 addition, voting proxies of issuers in non-US
markets may give rise to a number of administrative issues that
may prevent Alliance Capital from voting such proxies. For
example, Alliance Capital may receive meeting notices without
enough time to fully consider the proxy or after the cut-off date
for voting. Other markets require Alliance Capital to provide
local agents with power of attorney prior to implementing
Alliance Capital's voting instructions. Although it is Alliance
Capital's policy to seek to vote all proxies for securities held
in client accounts for which we have proxy voting authority, in
the case of non-US issuers, we vote proxies on a best efforts
basis.
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 & Chief Compliance Officer, Alliance
Capital Management L.P., 1345 Avenue of the Americas, New York,
NY 10105.
00250.0442 #531793
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