0000919574-09-016087.txt : 20110506
0000919574-09-016087.hdr.sgml : 20110506
20091112155049
ACCESSION NUMBER: 0000919574-09-016087
CONFORMED SUBMISSION TYPE: 485APOS
PUBLIC DOCUMENT COUNT: 2
FILED AS OF DATE: 20091112
DATE AS OF CHANGE: 20100129
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ALLIANCEBERNSTEIN BOND FUND INC
CENTRAL INDEX KEY: 0000003794
IRS NUMBER: 132754393
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 485APOS
SEC ACT: 1933 Act
SEC FILE NUMBER: 002-48227
FILM NUMBER: 091176954
BUSINESS ADDRESS:
STREET 1: ALLIANCEBERNSTEIN LP
STREET 2: 1345 AVENUE OF THE AMERICAS
CITY: NEW YORK
STATE: NY
ZIP: 10105
BUSINESS PHONE: 2129691000
MAIL ADDRESS:
STREET 1: ALLIANCEBERNSTEIN LP
STREET 2: 1345 AVENUE OF THE AMERICAS
CITY: NEW YORK
STATE: NY
ZIP: 10105
FORMER COMPANY:
FORMER CONFORMED NAME: ALLIANCE BOND FUND INC
DATE OF NAME CHANGE: 19920703
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ALLIANCEBERNSTEIN BOND FUND INC
CENTRAL INDEX KEY: 0000003794
IRS NUMBER: 132754393
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 485APOS
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-02383
FILM NUMBER: 091176955
BUSINESS ADDRESS:
STREET 1: ALLIANCEBERNSTEIN LP
STREET 2: 1345 AVENUE OF THE AMERICAS
CITY: NEW YORK
STATE: NY
ZIP: 10105
BUSINESS PHONE: 2129691000
MAIL ADDRESS:
STREET 1: ALLIANCEBERNSTEIN LP
STREET 2: 1345 AVENUE OF THE AMERICAS
CITY: NEW YORK
STATE: NY
ZIP: 10105
FORMER COMPANY:
FORMER CONFORMED NAME: ALLIANCE BOND FUND INC
DATE OF NAME CHANGE: 19920703
0000003794
S000027378
AllianceBernstein Bond Inflation Strategy
C000082621
Class A
C000082622
Class C
C000082623
Advisor Class
S000027379
AllianceBernstein Municipal Bond Inflation Strategy
C000082624
Class A
C000082625
Class C
C000082626
Advisor Class
485APOS
1
d1042680_485-a.txt
As filed with the Securities and Exchange
Commission on November 12, 2009
File Nos. 2-48227
811-2383
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF l933
Pre-Effective Amendment No.
Post-Effective Amendment No. 90 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 68 X
ALLIANCEBERNSTEIN BOND FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(800) 221-5672
EMILIE D. WRAPP
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York l0105
(Name and address of agent for service)
Copies of communications to:
KATHLEEN K. CLARKE
Seward & Kissel LLP
1200 G Street, Suite 350
Washington, DC 20005
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|X| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
_____This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
This Post-Effective Amendment No. 90 relates solely to the Class A, Class C and
Advisor Class shares, as applicable, of the AllianceBernstein Bond Inflation
Strategy and AllianceBernstein Municipal Bond Inflation Strategy. No information
in the Registrant's Registration Statement relating to the Class A, Class B,
Class C, Class R, Class K, Class I and Advisor Class shares of the
AllianceBernstein Intermediate Bond Portfolio is amended or superseded.
[
PROSPECTUS | [______________], 2010
The AllianceBernstein Inflation Strategies
> AllianceBernstein Bond Inflation Strategy
(Class A-[_____]; Class C-[_____]; Advisor Class-[_____])
> AllianceBernstein Municipal Bond Inflation Strategy
(Class A-[_____]; Class C-[_____]; Advisor Class-[_____])
INFLATION STRATEGIES - (A, C AND ADVISOR CLASS SHARES)
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
AB
AllianceBernstein
Investments
Investment Products Offered
-----------------------------
o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
-----------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Page
SUMMARY INFORMATION........................................................ [_]
AllianceBernstein Bond Inflation Strategy............................... [_]
AllianceBernstein Municipal Bond Inflation Strategy..................... [_]
MORE INFORMATION ABOUT THE STRATEGIES' RISKS AND INVESTMENTS............... [_]
INVESTING IN THE STRATEGIES................................................ [_]
How to Buy Shares....................................................... [_]
The Different Share Class Expenses...................................... [_]
Sales Charge Reduction Programs......................................... [_]
CDSC Waivers and Other Programs......................................... [_]
The "Pros" and "Cons" of Different Share Classes........................ [_]
Payments to Financial Advisors and Their Firms.......................... [_]
How to Exchange Shares.................................................. [_]
How to Sell or Redeem Shares............................................ [_]
Frequent Purchases and Redemptions of Strategy Shares................... [_]
How the Strategies Value Their Shares................................... [_]
MANAGEMENT OF THE STRATEGIES............................................... [_]
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... [_]
GENERAL INFORMATION........................................................ [_]
FINANCIAL HIGHLIGHTS....................................................... [_]
APPENDIX A - BOND RATINGS.................................................. [_]
SUMMARY INFORMATION
--------------------------------------------------------------------------------
AllianceBernstein Bond Inflation Strategy
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Strategy's investment objective is to maximize real return without assuming
what the Adviser considers to be undue risk.
FEES AND EXPENSES OF THE STRATEGY
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Strategy. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AllianceBernstein Mutual Funds. More information about these and
other discounts is available from your financial intermediary and in Investing
in the Strategies - Sales Charge Reduction Programs on page [___] of this
Prospectus and in Purchase of Shares - Sales Charge Reduction Programs on page
[___] of the Strategy's Statement of Additional Information ("SAI").
Shareholder Fees (fees paid directly from your investment)
Advisor
Class A Shares Class C Shares Class Shares
-------------- --------------- ------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.25% None None
Maximum Deferred Sales Charge
(Load) (as a percentage of
offering price or redemption
proceeds, whichever is lower) None 1.00%* None
Exchange Fee None None None
Annual Strategy Operating Expenses (expenses that you pay each year as a
percentage of the value of your investment)
Class A Class C Advisor Class
------- ------- -------------
Management Fees [__]% [__]% [__]%
Distribution and/or
Service (12b-1) Fees [__]% [__]% None
Other Expenses:
Transfer Agent [__]% [__]% [__]%
Other Expenses [__]% [__]% [__]%
Total Other Expenses(a) [__]% [__]% [__]%
Total Annual Strategy Operating Expenses [__]% [__]% [__]%
Waiver and/or Expense Reimbursement(b) ([__])% ([__])% ([__])%
Net Expenses [__]% [__]% [__]%
* For Class C shares, the CDSC is 0% after the first year.
(a) Total other expenses are based on estimated amounts for the current fiscal
year.
(b) The Adviser has agreed to waive its management fees and/or to bear expenses
of the Strategy through October 31, 2011 to the extent necessary to prevent
total Strategy operating expenses, on an annualized basis, from exceeding
the net expenses reflected in this table. From that date through October
31, 2012, the fees waived and expenses borne by the Adviser during this
period may be reimbursed by the Strategy. No reimbursement payment will be
made that would cause the Strategy's total annualized operating expenses to
exceed the net expenses reflected in the table or cause the total of the
payments to exceed the Strategy's total initial offering expenses.
Examples
The Examples are intended to help you compare the cost of investing in the
Strategy with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Strategy for the time periods indicated and then
redeem all of your shares at the end of those periods. The Examples also assume
that your investment has a 5% return each year and that the Strategy's operating
expenses stay the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
Class A Class C Advisor Class
------- ------- -------------
After 1 Year [ ] [ ] [ ]
After 3 Years [ ] [ ] [ ]
* The example assumes that the waiver is only in place through the end of the
first fiscal year.
Portfolio Turnover
The Strategy will pay transactions costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Strategy Operating Expenses or in the Examples, affect
the Strategy's performance.
PRINCIPAL STRATEGIES
The Strategy seeks real return. Real return equals total return less the
estimated effect of inflation.
The Strategy pursues its objective by investing principally in Treasury
Inflation Protected Securities ("TIPS") directly or by gaining indirect exposure
to TIPS through derivatives transactions such as total return swaps linked to
TIPS. The Adviser will consider the relative costs and efficiency of gaining
exposure to TIPS directly or indirectly. In addition, in seeking to maximize
real return, the Strategy may also invest in other fixed-income investments such
as U.S. and non- U.S. government securities, corporate fixed-income securities
and mortgage-related securities or derivatives linked to such securities. Under
normal circumstances, the Strategy invests at least of 80% of its net assets in
fixed-income securities. While the Strategy expects to invest principally in
investment grade securities, it may invest up to 15% of its total assets in
fixed-income securities rated BB or B or the equivalent by at least one national
ratings agency (or deemed by the Adviser to be of comparable credit quality),
which are not investment grade.
Inflation-protected securities are fixed-income securities structured to provide
protection against inflation. Their principal value and/or the interest paid on
them are adjusted to reflect changes in an official inflation measure. The
inflation measure for TIPS is the Consumer Price Index for Urban Consumers. The
Strategy may also invest in other inflation-indexed securities, issued by both
U.S. and non-U.S. issuers, and in derivative instruments linked to these
securities.
The Strategy may invest to the extent permitted by applicable law in
derivatives, such as options, futures, forwards, or swap agreements. The
Strategy intends to use leverage for investment purposes. To do this, the
Strategy expects to enter into total return swaps and reverse repurchase
agreement transactions and use the cash made available from these transactions
to make additional investments in fixed-income securities in accordance with the
Strategy's investment policies. In determining when and to what extent to employ
leverage or enter into derivatives transactions, the Adviser will consider
factors such as the relative risks and returns expected of potential investments
and the cost of such transactions. The Adviser will consider the impact of
reverse repurchase agreements, swap agreements and other derivatives in making
its assessments of the Strategy's risks. The resulting exposures to markets,
sectors, issuers or specific securities will be continuously monitored by the
Adviser.
The Strategy may also invest in loan participations, structured securities,
asset-backed securities, variable, floating, and inverse floating rate
instruments, and preferred stock, and may use other investment techniques. The
Strategy may invest in fixed-income securities of any maturity and duration. If
the rating of a fixed-income security falls below investment grade, the Strategy
will not be obligated to sell the security and may continue to hold it if, in
the Adviser's opinion, the investment is appropriate under the circumstances.
PRINCIPAL RISKS
o Market Risk: The value of the Strategy's assets will fluctuate as the
bond market fluctuates. The value of the Strategy's investments may
decline, sometimes rapidly and unpredictably, simply because of
economic changes or other events that affect large portions of the
market.
o Credit Risk: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or
unwilling to make timely payments of interest or principal, or to
otherwise honor its obligations. The issuer or guarantor may default
causing a loss of the full principal amount of a security. The degree
of risk for a particular security may be reflected in its credit
rating. There is the possibility that the credit rating of a
fixed-income security may be downgraded after purchase, which may
adversely affect the value of the security. Investments in
fixed-income securities with lower ratings tend to have a higher
probability that an issuer will default or fail to meet its payment
obligations.
o Interest Rate Risk: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the
value of investments in fixed-income securities tend to fall and this
decrease in value may not be offset by higher income from new
investments. Interest rate risk is generally greater for fixed-income
securities with longer maturities or durations.
o Inflation Risk: This is the risk that the value of assets or income
from investments will be less in the future as inflation decreases the
value of money. As inflation increases, the value of the Strategy's
assets can decline as can the value of the Strategy's distributions.
This risk is significantly greater for those Strategies that invest a
significant portion of their assets in fixed-income securities with
longer maturities. Although the Strategy invests principally in
inflation-protected investments, the value of its securities may be
vulnerable to changes in expectations of inflation or interest rates.
o Leverage Risk: To the extent the Strategy uses leveraging techniques,
its net asset value ("NAV") may be more volatile because leverage
tends to exaggerate the effect of changes in interest rates and any
increase or decrease in the value of the Strategy's investments.
o Liquidity Risk: Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing the Strategy from
selling out of these illiquid securities at an advantageous price.
Derivatives and securities involving substantial market and credit
risk tend to involve greater liquidity risk.
o Foreign (Non-U.S.) Risk: Investments in securities of non-U.S. issuers
may involve more risk than those of U.S. issuers. These securities may
fluctuate more widely in price and may be less liquid due to adverse
market, economic, political, regulatory or other factors.
o Currency Risk: Fluctuations in currency exchange risk may negatively
affect the value of the Strategy's investments or reduce its returns.
o Derivatives Risk: Investments in derivatives may be illiquid,
difficult to price, and leveraged so that small changes may produce
disproportionate losses for the Strategy, and may be subject to
counterparty risk to a greater degree than more traditional
investments.
o Management Risk: The Strategy is subject to management risk because it
is an actively managed investment fund. The Adviser will apply its
investment techniques and risk analyses in making investment
decisions, but there is no guarantee that its techniques will produce
the intended results.
As with all investments, you may lose money by investing in the Strategy.
PERFORMANCE INFORMATION
No performance information is available for the Strategy because it has not yet
been in operation for a full calendar year. In the future, the Strategy will
disclose performance information in a bar chart and performance table. Such
disclosure will give some indication of the risks of an investment in the
Strategy by showing changes in the Strategy's performance from year to year and
by comparing the Strategy's performance with a broad measure of market
performance.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Strategy.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Strategy's portfolio:
Length
Employee of Service Title
-------- ---------- -----
Paul J. DeNoon Since 2010 Senior Vice President of the Adviser
Rajen Jaday Since 2010 [______________] of the Adviser
Shawn E. Keegan Since 2010 Vice President of the Adviser
Douglas J. Peebles Since 2010 Executive Vice President of the Adviser
Greg J. Wilensky Since 2010 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Strategy shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF STRATEGY SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page [__] in this Prospectus.
AllianceBernstein Municipal Bond Inflation Strategy
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Strategy's investment objective is to maximize real after-tax return for
investors subject to federal income taxes, without undue risk to principal.
FEES AND EXPENSES OF THE STRATEGY
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Strategy. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AllianceBernstein Mutual Funds. More information about these and
other discounts is available from your financial intermediary and in Investing
in the Strategies - Sales Charge Reduction Programs on page [___] of this
Prospectus and in Purchase of Shares - Sales Charge Reduction Programs on page
[___] of the Strategy's SAI.
Shareholder Fees (fees paid directly from your investment)
Advisor
Class A Shares Class C Shares Class Shares
-------------- -------------- ------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 3.00% None None
Maximum Deferred Sales Charge
(Load) (as a percentage of
offering price or redemption
proceeds, whichever is lower) None 1.00%* None
Exchange Fee None None None
Annual Strategy Operating Expenses (expenses that you pay each year as a
percentage of the value of your investment)
Class A Class C Advisor Class
------- ------- -------------
Management Fees [__]% [__]% [__]%
Distribution and/or
Service (12b-1) Fees [__]% [__]% None
Other Expenses:
Transfer Agent [__]% [__]% [__]%
Other Expenses [__]% [__]% [__]%
Total Other Expenses(a) [__]% [__]% [__]%
Total Annual Strategy Operating Expenses [__]% [__]% [__]%
Waiver and/or Expense Reimbursement(b) ([__])% ([__])% ([__])%
Net Expenses [__]% [__]% [__]%
* For Class C shares, the CDSC is 0% after the first year.
(a) Total other expenses are based on estimated amounts for the current fiscal
year.
(b) The Adviser has agreed to waive its management fees and/or to bear expenses
of the Strategy through October 31, 2011 to the extent necessary to prevent
total Strategy operating expenses, on an annualized basis, from exceeding
the net expenses reflected in this table. From that date through October
31, 2012, the fees waived and expenses borne by the Adviser during this
period may be reimbursed by the Strategy. No reimbursement payment will be
made that would cause the Strategy's total annualized operating expenses to
exceed the net expenses reflected in the table or cause the total of the
payments to exceed the Strategy's total initial offering expenses.
Examples
The Examples are intended to help you compare the cost of investing in the
Strategy with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Strategy for the time periods indicated and then
redeem all of your shares at the end of those periods. The Examples also assume
that your investment has a 5% return each year and that the Strategy's operating
expenses stay the same. Although your actual costs may be higher or lower, based
on these assumptions your costs would be:
Class A Class C Advisor Class
------- ------- -------------
After 1 Year [ ] [ ] [ ]
After 3 Years* [ ] [ ] [ ]
* The example assumes that the waiver is only in place through the end of the
first fiscal year.
Portfolio Turnover
The Strategy will pay transactions costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Strategy Operating Expenses or in the Examples, affect
the Strategy's performance.
PRINCIPAL STRATEGIES
The Strategy seeks real after-tax return for investors subject to federal income
taxes. Real return equals total return less the estimated effect of inflation.
The Strategy pursues its objective by investing principally in high-quality,
predominantly investment grade, municipal securities, that pay interest exempt
from federal taxation. As a fundamental policy, the Strategy will invest at
least 80% of its net assets in municipal securities. These securities may be
subject to the federal alternative minimum tax ("AMT") for some taxpayers.
The Strategy will invest at least 80% of its total assets in fixed-income
securities rated A or better or the equivalent by one or more national rating
agencies or deemed to be of comparable credit quality by the Adviser. The
Strategy may invest up to 20% of its total assets in fixed-income securities
rated BB or B or the equivalent by one or more national rating agencies (or
deemed to be of comparable credit quality by the Adviser), which are not
investment grade. If the rating of a fixed-income security falls below
investment grade, the Strategy will not be obligated to sell the security and
may continue to hold it if, in the Adviser's opinion, the investment is
appropriate under the circumstances.
To provide inflation protection, the Strategy will typically enter into
inflation swap agreements. The Strategy may use other inflation-protected
instruments. Payments to the Strategy pursuant to swap agreements will result in
taxable income, either ordinary income or capital gains, rather than income
exempt from federal income taxation. It is expected that the Strategy's primary
use of derivatives will be for the purpose of inflation protection.
The Strategy may also invest in:
o forward commitments;
o zero coupon municipal securities and variable, floating and inverse
floating rate municipal securities;
o certain types of mortgage related securities; and
o derivatives, such as options, futures, forwards and swaps.
The Strategy may utilize leverage for investment purposes through the use of
tender option bond ("TOB") transactions. The Adviser will consider the impact of
TOB's, swap agreements and other derivatives in making its assessments of the
Strategy's risks. The resulting exposures to markets, sectors, issuers or
specific securities will be continuously monitored by the Adviser.
PRINCIPAL RISKS
o Market Risk: The value of the Strategy's assets will fluctuate as the
stock or bond market fluctuates. The value of the Strategy's
investments may decline, sometimes rapidly and unpredictably, simply
because of economic changes or other events that affect large portions
of the market.
o Credit Risk: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or
unwilling to make timely payments of interest or principal, or to
otherwise honor its obligations. The issuer or guarantor may default
causing a loss of the full principal amount of a security. The degree
of risk for a particular security may be reflected in its credit
rating. There is the possibility that the credit rating of a
fixed-income security may be downgraded after purchase, which may
adversely affect the value of the security. Investments in
fixed-income securities with lower ratings tend to have a higher
probability that an issuer will default or fail to meet its payment
obligations.
o Municipal Market Risk: This is the risk that special factors may
adversely affect the value of municipal securities and have a
significant effect on the yield or value of the Strategy's investments
in municipal securities. These factors include political or
legislative changes, uncertainties related to the tax status of
municipal securities, or the rights of investors in these securities.
To the extent that the Strategy invests more of its assets in a
particular state's municipal securities, the Strategy is vulnerable to
events adversely affecting that state, including economic, political
and regulatory occurrences, court decisions, terrorism and
catastrophic natural disasters. The Strategy's investments in certain
municipal securities with principal and interest payments that are
made from the revenues of a specific project or facility, and not
general tax revenues, may have increased risks. Factors affecting the
project or facility, such as local business or economic conditions,
could have a significant effect on the project's ability to make
payments of principal and interest on these securities.
o Interest Rate Risk: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the
value of investments in fixed-income securities tend to fall and this
decrease in value may not be offset by higher income from new
investments. Interest rate risk is generally greater for fixed-income
securities with longer maturities or durations.
o Inflation Risk: This is the risk that the value of assets or income
from investments will be less in the future as inflation decreases the
value of money. As inflation increases, the value of the Strategy's
assets can decline as can the value of the Strategy's distributions.
This risk is significantly greater for those Strategies that invest a
significant portion of their assets in fixed-income securities with
longer maturities.
o Leverage Risk: To the extent the Strategy uses leveraging techniques,
its NAV may be more volatile because leverage tends to exaggerate the
effect of changes in interest rates and any increase or decrease in
the value of the Strategy's investments.
o Liquidity Risk: Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing the Strategy from
selling out of these illiquid securities at an advantageous price.
Derivatives and securities involving substantial market and credit
risk tend to involve greater liquidity risk. The Strategy is subject
to liquidity risk because the market for municipal securities is
generally smaller than many other markets.
o Derivatives Risk: Investments in derivatives may be illiquid,
difficult to price, and leveraged so that small changes may produce
disproportionate losses for the Strategy, and may be subject to
counterparty risk to a greater degree than more traditional
investments.
o Management Risk: The Strategy is subject to management risk because it
is an actively managed investment fund. The Adviser will apply its
investment techniques and risk analyses in making investment
decisions, but there is no guarantee that its techniques will produce
the intended results.
As with all investments, you may lose money by investing in the Strategy.
PERFORMANCE INFORMATION
No performance information is available for the Strategy because it has not yet
been in operation for a full calendar year. In the future, the Strategy will
disclose performance information in a bar chart and performance table. Such
disclosure will give some indication of the risks of an investment in the
Strategy by showing changes in the Strategy's performance from year to year and
by comparing the Strategy's performance with a broad measure of market
performance.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Strategy.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Strategy's portfolio:
Length
Employee of Service Title
-------- ---------- -----
Michael Brooks Since 2010 Senior Vice President of the Adviser
Fred S. Cohan Since 2010 Senior Vice President of the Adviser
R. B. (Guy) Davidson III Since 2010 Senior Vice President of the Adviser
Terrance T. Hults Since 2010 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Strategy shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF STRATEGY SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page [__] in this Prospectus.
ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF STRATEGY SHARES, TAXES AND
FINANCIAL INTERMEDIARIES
o PURCHASE AND SALE OF FUND SHARES
Purchase Minimums*
--------------------------------------------------------------------------------
Initial Subsequent
--------------------------------------------------------------------------------
Class A/Class C Shares,
including traditional
IRAs and Roth IRAs $2,500 $50
--------------------------------------------------------------------------------
Automatic Investment Program No minimum $50
If initial minimum
investment is less
than $2,500, then $200
monthly until account
balance reaches $2,500
--------------------------------------------------------------------------------
Advisor Class Shares
(only available to
fee-based programs or through
other limited arrangements) None None
--------------------------------------------------------------------------------
*Note: The Strategies may waive investment minimums for certain types of
retirement accounts or under certain other circumstances.
You may sell (redeem) your shares each day the New York Stock Exchange is open.
You may sell your shares through your financial intermediary or by mail
(AllianceBernstein Investor Services, Inc. P.O. Box 786003, San Antonio, TX
78278-6003) or telephone (800-221-5672).
o TAX INFORMATION
Each Strategy may make capital gains distributions, which may be subject to
federal income taxes and taxable as ordinary income or capital gains, and may
also be subject to state and local taxes. Each Strategy may make income
dividends. For AllianceBernstein Bond Inflation Strategy, these dividends may be
subject to federal income taxes and state and local taxes. For AllianceBernstein
Municipal Bond Inflation Strategy, these dividends may be exempt from federal
income tax, except to the extent the Strategy invests in swaps transactions, and
may be subject to state and local income taxes.
o PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase shares of a Strategy through a broker-dealer or other financial
intermediary (such as a bank), the Strategy and its related companies may pay
the intermediary for the sale of Strategy shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other financial intermediary and your salesperson to recommend the Strategy over
another investment. Ask your salesperson or visit your financial intermediary's
website for more information.
ADDITIONAL INFORMATION ABOUT THE STRATEGIES' RISKS AND INVESTMENTS
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This section of the Prospectus provides additional information about the
investment practices and related risks of AllianceBernstein Bond Inflation
Strategy ("Bond Inflation Strategy") and AllianceBernstein Municipal Bond
Inflation Strategy ("Municipal Bond Inflation Strategy" and together with Bond
Inflation Strategy, the "Strategies"). Most of these investment practices are
discretionary, which means that the Adviser may or may not decide to use them.
This Prospectus does not describe all of a Strategy's investment practices and
additional information about each Strategy's risks and investments can be found
in the Strategies' SAI.
Derivatives
Each Strategy may, but is not required to, use derivatives for risk management
purposes or as part of its investment strategies. Derivatives are financial
contracts whose value depends on, or is derived from, the value of an underlying
asset, reference rate or index. A Strategy may use derivatives to earn income
and enhance returns, to hedge or adjust the risk profile of a portfolio, to
replace more traditional direct investments and to obtain exposure to otherwise
inaccessible markets.
There are four principal types of derivatives, including options, futures,
forwards and swaps, which are described below. Derivatives may be (i)
standardized, exchange-traded contracts or (ii) customized, privately negotiated
contracts. Exchange-traded derivatives tend to be more liquid and subject to
less credit risk than those that are privately negotiated.
A Strategy's use of derivatives may involve risks that are different from, or
possibly greater than, the risks associated with investing directly in
securities or other more traditional instruments. These risks include the risk
that the value of a derivative instrument may not correlate perfectly, or at
all, with the value of the assets, reference rates, or indices that they are
designed to track. Other risks include: the possible absence of a liquid
secondary market for a particular instrument and possible exchange-imposed price
fluctuation limits, either of which may make it difficult or impossible to close
out a position when desired; and the risk that the counterparty will not perform
its obligations. Certain derivatives may have a leverage component and involve
leverage risk. Adverse changes in the value or level of the underlying asset,
note or index can result in a loss substantially greater than the Strategy's
investment (in some cases, the potential loss is unlimited).
The Strategies' investments in derivatives may include, but are not limited to,
the following:
o Forward Contracts-- A forward contract is a customized, privately
negotiated agreement for one party to buy, and the other party to sell, a
specific quantity of an underlying commodity or other tangible asset for an
agreed upon price at a future date. A forward contract is either settled by
physical delivery of the commodity or tangible asset to an agreed-upon
location at a future date, rolled forward into a new forward contract or,
in the case of a non-deliverable forward, by a cash payment at maturity.
The Strategies' investments in forward contracts may include the following:
- Forward Currency Exchange Contracts. The Bond Inflation Strategy may
purchase or sell forward currency exchange contracts for hedging
purposes to minimize the risk from adverse changes in the relationship
between the U.S. Dollar and other currencies or for non-hedging
purposes as a means of making direct investments in foreign
currencies, as described below under "Currency Transactions". The
Strategy, for example, may enter into a forward contract as a
transaction hedge (to "lock in" the U.S. Dollar price of a non-U.S.
Dollar security), as a position hedge (to protect the value of
securities the Strategy owns that are denominated in a foreign
currency against substantial changes in the value of the foreign
currency) or as a cross-hedge (to protect the value of securities the
Strategy owns that are denominated in a foreign currency against
substantial changes in the value of that foreign currency by entering
into a forward contract for a different foreign currency that is
expected to change in the same direction as the currency in which the
securities are denominated).
o Futures Contracts and Options on Futures Contracts-- A futures contract is
an agreement that obligates the buyer to buy and the seller to sell a
specified quantity of an underlying asset (or settle for cash the value of
a contract based on an underlying asset, rate or index) at a specific price
on the contract maturity date. Options on futures contracts are options
that call for the delivery of futures contracts upon exercise. A Strategy
may purchase or sell futures contracts and options thereon to hedge against
changes in interest rates, securities (through index futures or options) or
currencies. A Strategy may also purchase or sell futures contracts for
foreign currencies or options thereon for non-hedging purposes as a means
of making direct investments in foreign currencies, as described below
under "Currency Transactions".
o Options-- An option is an agreement that, for a premium payment or fee,
gives the option holder (the buyer) the right but not the obligation to buy
(a "call option") or sell (a "put option") the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index) at a
specified price (the exercise price) during a period of time or on a
specified date. Investments in options are considered speculative. A
Strategy may lose the premium paid for them if the price of the underlying
security or other asset decreased or remained the same (in the case of a
call option) or increased or remained the same (in the case of a put
option). If a put or call option purchased by a Strategy were permitted to
expire without being sold or exercised, its premium would represent a loss
to the Strategy. The Strategies' investments in options include the
following:
- Options on Municipal and U.S. Government Securities. In an effort to
increase current income and to reduce fluctuations in net asset value,
a Strategy may write covered put and call options and purchase put and
call options on municipal securities, U.S. Government securities and
financial indices or reference rates. A Strategy may also enter into
options on the yield "spread" or yield differential between two
securities. In contrast to other types of options, this option is
based on the difference between the yields of designated securities,
futures or other instruments. In addition, a Strategy may write
covered straddles. A straddle is a combination of a call and a put
written on the same underlying security. In purchasing an option on
securities, a Strategy would be in a position to realize a gain if,
during the option period, the price of the underlying securities
increased (in the case of a call) or decreased (in the case of a put)
by an amount in excess of the premium paid; otherwise the Strategy
would experience a loss not greater than the premium paid for the
option. Thus, a Strategy would realize a loss if the price of the
underlying security declined or remained the same (in the case of a
call) or increased or remained the same (in the case of a put) or
otherwise did not increase (in the case of a put) or decrease (in the
case of a call) by more than the amount of the premium. If a put or
call option purchased by a Strategy were permitted to expire without
being sold or exercised, its premium would represent a loss to the
Strategy.
A Strategy that purchases or writes privately negotiated options on
securities will effect such transactions only with investment dealers
and other financial institutions (such as commercial banks or savings
and loan institutions) deemed creditworthy by the Adviser. The Adviser
has adopted procedures for monitoring the creditworthiness of such
counterparties.
- Options on Foreign Currencies. The Bond Inflation Strategy may invest
in options on foreign currencies that are privately negotiated or
traded on U.S. or foreign exchanges for hedging purposes to protect
against declines in the U.S. Dollar value of foreign currency
denominated securities held by the Strategy and against increases in
the U.S. Dollar cost of securities to be acquired. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates, although if rates move adversely, the
Strategy may forfeit the entire amount of the premium plus related
transaction costs. The Strategy may also invest in options on foreign
currencies for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Currency
Transactions".
- Options on Securities. A Strategy may purchase or write a put or call
option on securities. A Strategy will only exercise an option it
purchased if the price of the security was less (in the case of a put
option) or more (in the case of a call option) than the exercise
price. If the Strategy does not exercise an option, the premium it
paid for the option will be lost. A Strategy may write "covered"
options, which means writing an option for securities the Strategy
owns, and uncovered options.
- Options on Securities Indices. An option on a securities index is
similar to an option on a security except that, rather than taking or
making delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon exercise
of the option, an amount of cash if the closing level of the chosen
index is greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option.
o Swap Transactions-- A swap is a customized, privately negotiated agreement
that obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to changes
in specified prices or rates (interest rates in the case of interest rate
swaps, currency exchange rates in the case of currency swaps) for a
specified amount of an underlying asset (the "notional" principal amount).
Except for currency swaps, the notional principal amount is used solely to
calculate the payment stream, but is not exchanged. Swaps are entered into
on a net basis (i.e., the two payment streams are netted out, with a
Strategy receiving or paying, as the case may be, only the net amount of
the two payments). Payments received by a Strategy from inflation swap
agreements will result in taxable income, either as ordinary income or
capital gains, rather than tax-exempt income, which will increase the
amount of taxable distributions received by shareholders. The Strategy's
investments in swap transactions include the following:
- Interest Rate Swaps, Swaptions, Caps and Floors. Interest rate swaps
involve the exchange by a Strategy with another party of payments
calculated by reference to specified interest rates (e.g., an exchange
of floating rate payments for fixed rate payments). Unless there is a
counterparty default, the risk of loss to the Strategy from interest
rate transactions is limited to the net amount of interest payments
that the Strategy is contractually obligated to make. If the
counterparty to an interest rate transaction defaults, the Strategy's
risk of loss consists of the net amount of interest payments that the
Strategy is contractually is entitled to receive.
An option on a swap agreement, also called a "swaption," is an option
that gives the buyer the right, but not the obligation, to enter into
a swap on a future date in exchange for paying a market-based
"premium." A receiver swaption gives the owner the right to receive
the total return of a specified asset, reference rate, or index. A
payer swaption gives the owner the right to pay the total return of a
specified asset, reference rate, or index. Swaptions also include
options that allow an existing swap to be terminated or extended by
one of the counterparties.
The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate,
to receive payments of interest on a contractually-based principal
amount from the party selling the interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to receive
payments of interest on an agreed principal amount from the party
selling the interest rate floor. Caps and floors may be less liquid
than swaps.
There is no limit on the amount of interest rate transactions that may
be entered into by the Strategy. The value of these transactions will
fluctuate based on changes in interest rates.
Interest rate swap, swaptions, cap and floor transactions may be used
to preserve a return or spread on a particular investment or a portion
of a Strategy's portfolio or to protect against an increase in the
price of securities a Strategy anticipates purchasing at a later date.
- Inflation (CPI) Swaps. Inflation swap agreements are contracts in
which one party agrees to pay the cumulative percentage increase in a
price index (the Consumer Price Index with respect to CPI swaps) over
the term of the swap (with some lag on the inflation index), and the
other pays a compounded fixed rate. Inflation swap agreements may be
used to protect the NAV of the Strategy against an unexpected change
in the rate of inflation measured by an inflation index since the
value of these agreements is expected to increase if unexpected
inflation increases.
- Credit Default Swap Agreements. The "buyer" in a credit default swap
contract is obligated to pay the "seller" a periodic stream of
payments over the term of the contract in return for a contingent
payment upon the occurrence of a credit event with respect to an
underlying reference obligation. Generally, a credit event means
bankruptcy, failure to pay, obligation acceleration or modified
restructuring. A Strategy may be either the buyer or seller in the
transaction. If a Strategy is a seller, the Strategy receives a fixed
rate of income throughout the term of the contract, which typically is
between one month and five years, provided that no credit event
occurs. If a credit event occurs, a Strategy 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 payment or by physical delivery of the reference
obligation in return for payment of the face amount of the obligation.
The value of the reference obligation received by a Strategy 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 Strategy. If a Strategy is a buyer and no credit event occurs,
the Strategy will lose its periodic stream of payments over the term
of the contract. However, if a credit event occurs, the buyer
typically receives full notional value for a reference obligation that
may have little or no value.
Credit default swaps may involve greater risks than if a Strategy had
invested in the reference obligation directly. Credit default swaps
are subject to general market risk, liquidity risk and credit risk.
- Currency Swaps. The Bond Inflation Strategy may invest in currency
swaps for hedging purposes to protect against adverse changes in
exchange rates between the U.S. Dollar and other currencies or for
non-hedging purposes as a means of making direct investments in
foreign currencies, as described below under "Currency Transactions".
Currency swaps involve the individually negotiated exchange by the
Strategy with another party of a series of payments in specified
currencies. Actual principal amounts of currencies may be exchanged by
the counterparties at the initiation, and again upon the termination
of the transaction. Therefore, the entire principal value of a
currency swap is subject to the risk that the swap counterparty will
default on its contractual delivery obligations. If there is a default
by the counterparty to the transaction, the Strategy will have
contractual remedies under the transaction agreements.
o Other Derivatives and Strategies--
- Structured Instruments. As part of its investment program and to
maintain greater flexibility, each Strategy may invest in structured
instruments. Structured instruments, including indexed or structured
securities, combine the elements of futures contracts or options with
those of debt, preferred equity or a depository instrument. Generally,
a structured instrument will be a debt security, preferred stock,
depository share, trust certificate, certificate of deposit or other
evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity,
redemption or retirement, is determined by reference to prices,
changes in prices, or differences between prices, of securities,
currencies, intangibles, goods, articles or commodities (collectively
"Underlying Assets") or by another objective index, economic factor or
other measure, such as interest rates, currency exchange rates,
commodity indices, and securities indices (collectively,
"Benchmarks"). Thus, structured instruments may take a variety of
forms, including, but not limited to, debt instruments with interest
or principal payments or redemption terms determined by reference to
the value of a currency or commodity or securities index at a future
point in time, preferred stock with dividend rates determined by
reference to the value of a currency, or convertible securities with
the conversion terms related to a particular commodity.
Structured instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the
structure of the particular structured instrument, changes in a
Benchmark may be magnified by the terms of the structured instrument
and have an even more dramatic and substantial effect upon the value
of the structured instrument. Also, the prices of the structured
instrument and the Benchmark or Underlying Asset may not move in the
same direction or at the same time.
Structured instruments can have volatile prices and limited liquidity,
and their use by a Strategy may not be successful. The risk of these
investments can be substantial; possibly all of the principal is at
risk. No Strategy will invest more than 20% of its total assets in
these investments.
- Currency Transactions. The Bond Inflation Strategy may invest in
non-U.S. Dollar-denominated securities on a currency hedged or
un-hedged basis. The Adviser may actively manage the Strategy's
currency exposures and may seek investment opportunities by taking
long or short positions in currencies through the use of
currency-related derivatives, including forward currency exchange
contracts, futures and options on futures, swaps and options. The
Adviser may enter into transactions for investment opportunities when
it anticipates that a foreign currency will appreciate or depreciate
in value but securities denominated in that currency are not held by
the Strategy and do not present attractive investment opportunities.
Such transactions may also be used when the Adviser believes that it
may be more efficient than a direct investment in a foreign
currency-denominated security. The Strategy may also conduct currency
exchange contracts on a spot basis (i.e., for cash at the spot rate
prevailing in the currency exchange market for buying or selling
currencies).
Inflation-Protected Securities
Inflation-protected securities, or IPS, are fixed-income securities whose
principal value is periodically adjusted according to the rate of inflation. If
the index measuring inflation falls, the principal value of these securities
will be adjusted downward, and consequently the interest payable on these
securities (calculated with respect to a smaller principal amount) will be
reduced.
Inflation-protected securities tend to react to changes in real interest rates.
In general, the price of an inflation-protected security can fall when real
interest rates rise, and can rise when real interest rates fall. Interest
payments on inflation-protected securities can be unpredictable and will vary as
the principal and/or interest is adjusted for inflation.
Treasury Inflation Protected Securities, or TIPS, which are issued by the U.S
Treasury, use the Consumer Price Index for Urban Consumers, or the CPI, as the
inflation measure. The principal of a TIPS increases with inflation and
decreases with deflation, as measured by the CPI. When a TIPS matures, the
holder is paid the adjusted principal or original principal, whichever is
greater. TIPS pay interest twice a year, at a fixed rate, which is determined by
auction at the time the TIPS are issued. The rate is applied to the adjusted
principal; so, like the principal, interest payments rise with inflation and
fall with deflation. TIPS are issued in terms of 5, 10, and 20 years.
Municipal Securities
The Municipal Bond Inflation Strategy invests in municipal securities. The two
principal classifications of municipal securities are bonds and notes. Municipal
bonds are intended to meet longer-term capital needs while municipal notes are
intended to fulfill short-term capital needs. Municipal notes generally have
original maturities not exceeding one year. Municipal notes include tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
variable rate demand obligations, and tax-exempt commercial paper.
Municipal securities are typically classified as "general obligation" or
"revenue" or "special obligation" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith, credit, and taxing power for the payment
of principal and interest. Revenue or special obligation bonds are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise or other tax, but not from
general tax revenues. The Municipal Bond Inflation Strategy may invest more than
25% of its net assets in revenue bonds, which generally do not have the pledge
of the credit of the issuer. The payment of the principal and interest on
revenue bonds is dependent solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the pledge, if any,
of real and personal property financed as security for such payment. The
Strategy may invest more than 25% of its total assets in securities or
obligations that are related in such a way that business or political
developments or changes affecting one such security could also affect the others
(for example, securities with interest that is paid from projects of a similar
type).
The Strategy may invest in municipal lease obligations. A municipal lease
obligation is not backed by the full faith and credit of the issuing
municipality, but is usually backed by the municipality's pledge to make annual
appropriations for lease payments. Thus, it is possible that a municipality will
not appropriate money for lease payments. Additionally, some municipal lease
obligations may allow for lease cancellation prior to the maturity date of the
security. Municipal lease obligations may be less readily marketable than other
municipal securities and some may be illiquid.
Current federal tax law distinguishes between municipal securities issued to
finance certain private activities ("private activity bonds") and other
municipal securities. Private activity bonds, most of which are AMT-Subject
bonds and are also revenue bonds, include bonds issued to finance such projects
as airports, housing projects, resource recovery programs, solid waste disposal
facilities, and student loan programs.
Tender Option Bond Transactions
The Municipal Bond Inflation Strategy may enter into tender option bond
transactions ("TOBs") in which the Strategy may sell a highly rated municipal
security to a broker, which, in turn deposits the bond into a special purpose
vehicle (the "SPV", which is generally organized as a trust), sponsored by the
broker. The Strategy receives cash and a residual interest security (sometimes
referred to as "inverse floaters") issued by the SPV in return. The SPV
simultaneously issues securities, which pay an interest rate that is reset each
week based on an index of high-grade short-term demand notes. These securities,
sometimes referred to as "floaters", are bought by third parties, including
tax-exempt money market funds, and can be tendered by these holders to a
liquidity provider at par, unless certain events occur. Under certain
circumstances, the SPV may be terminated or collapsed, either by the Strategy or
upon the occurrence of certain events, such as a downgrade in the credit quality
of the underlying bond or in the event holders of the floaters tender their
securities to the liquidity provider. The Strategy continues to earn all the
interest from the transferred bond less the amount of interest paid on the
floaters and the expenses of the SPV, which include payments to the trustee and
the liquidity provider and organizational costs. The Strategy uses the cash
received from the transaction for investment purposes, which involves leverage
risk. See discussion of "Borrowing and Leverage" on page [__].
Investment in Below Investment Grade Fixed-Income Securities
Investments in securities rated below investment grade may be subject to greater
risk of loss of principal and interest than higher-rated securities. These
securities are also generally considered to be subject to greater market risk
than higher-rated securities. The capacity of issuers of these securities to pay
interest and repay principal is more likely to weaken than is that of issuers of
higher-rated securities in times of deteriorating economic conditions or rising
interest rates. In addition, below investment grade securities may be more
susceptible to real or perceived adverse economic conditions than investment
grade securities.
The market for these securities may be thinner and less active than that for
higher-rated securities, which can adversely affect the prices at which these
securities can be sold. To the extent that there is no established secondary
market for these securities, a Strategy may experience difficulty in valuing
such securities and, in turn, the Strategy's assets.
Unrated Securities
A Strategy may invest in unrated securities when the Adviser believes that the
financial condition of the issuers of such securities, or the protection
afforded by the terms of the securities themselves, limits the risk to the
Strategy to a degree comparable to that of rated securities that are consistent
with the Strategy's objective and policies.
Forward Commitments
Forward commitments for the purchase or sale of securities may include purchases
on a when-issued basis or purchases or sales on a delayed delivery basis. In
some cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring or approval of a proposed financing by
appropriate authorities (i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Securities purchased or sold under a forward commitment are
subject to market fluctuation and no interest or dividends accrue to the
purchaser prior to the settlement date. There is the risk of loss if the value
of either a purchased security declines before the settlement date or the
security sold increases before the settlement date. The use of forward
commitments helps a Strategy to protect against anticipated changes in interest
rates and prices.
A Strategy may invest in TBA-mortgage-backed securities. A TBA or "To Be
Announced" trade represents a contract for the purchase or sale of
mortgage-backed securities to be delivered at a future agreed-upon date;
however, the specific mortgage pool numbers or the number of pools that will be
delivered to fulfill the trade obligation or terms of the contract are unknown
at the time of the trade. Mortgage pools (including fixed rate or variable rate
mortgages) guaranteed by the Government National Mortgage Association, or GNMA,
the Federal National Mortgage Association, or FNMA, or the Federal Home Loan
Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA
transactions.
When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Securities purchased or sold under a forward commitment are
subject to market fluctuation and no interest or dividends accrue to the
purchaser prior to the settlement date. The use of forward commitments helps a
Strategy to protect against anticipated changes in interest rates and prices.
Insured Bonds
The Municipal Bond Inflation Strategy may purchase municipal securities that are
insured under policies issued by certain insurance companies. Historically,
insured municipal securities typically received a higher credit rating, which
meant that the issuer of the securities paid a lower interest rate. As a result
of declines in the credit quality and associated downgrades of most fund
insurers, insurance has less value than it did in the past. The market now
values insured municipal securities primarily based on the credit quality of the
issuer of the security with little value given to the insurance feature. In
purchasing such insured securities, the Adviser evaluates the risk and return of
municipal securities through its own research.
Investment in Other Investment Companies
The Strategies may invest in other investment companies as permitted by the
Investment Company Act of 1940 (the "1940 Act") or the rules and regulations
thereunder. The Strategies intend to invest uninvested cash balances in an
affiliated money market fund as permitted by Rule 12d1-1 under the 1940 Act. If
a Strategy acquires shares in investment companies, shareholders would bear,
indirectly, the expenses of such investment companies (which may include
management and advisory fees), which are in addition to the Strategy's expenses.
A Strategy may also invest in exchange traded funds, subject to the restrictions
and limitations of the 1940 Act.
Loan Participations
The Strategies may invest in corporate loans either by participating as
co-lender at the time the loan is originated or by buying an interest in the
loan in the secondary market from a financial institution or institutional
investor. The financial status of an institution interposed between a Strategy
and a borrower may affect the ability of the Strategy to receive principal and
interest payments.
The success of a Strategy may depend on the skill with which an agent bank
administers the terms of the corporate loan agreements, monitors borrower
compliance with covenants, collects principal, interest and fee payments from
borrowers and, where necessary, enforces creditor remedies against borrowers.
Agent banks typically have broad discretion in enforcing loan agreements.
Mortgage-Related and Other Asset-Backed Securities
A Strategy may invest in mortgage-related or other asset-backed securities.
Mortgage-related securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), commercial mortgage-backed
securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed
securities ("SMBSs") and other securities that directly or indirectly represent
a participation in or are secured by and payable from mortgage loans on real
property. These securities may be issued or guaranteed by the U.S. Government or
one of its sponsored entities or may be issued by private organizations.
The value of mortgage-related or asset-backed securities may be particularly
sensitive to changes in prevailing interest rates. Early payments of principal
on some mortgage-related securities may occur during periods of falling mortgage
interest rates and expose a Strategy to a lower rate of return upon reinvestment
of principal. Early payments associated with mortgage-related securities cause
these securities to experience significantly greater price and yield volatility
than is experienced by traditional fixed-income securities. During periods of
rising interest rates, a reduction in prepayments may increase the effective
life of mortgage-related securities, subjecting them to greater risk of decline
in market value in response to rising interest rates. If the life of a
mortgage-related security is inaccurately predicted, a Strategy may not be able
to realize the rate of return it expected.
One type of SMBS has one class receiving all of the interest from the mortgage
assets (the interest-only, or "IO" class), while the other class will receive
all of the principal (the principal-only, or "PO" class). The yield to maturity
on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a Strategy's yield to
maturity from these securities.
Each Strategy may invest in collateralized debt obligations ("CDOs"), which
include collateralized bond obligations ("CBOs"), collateralized loan
obligations ("CLOs"), and other similarly structured securities. CBOs and CLOs
are types of asset-backed securities. A CBO is a trust that is backed by a
diversified pool of high-risk, below investment grade fixed-income securities.A
CLO is a trust typically collateralized by a pool of loans, which may include,
among others, domestic and foreign senior secured loans, senior unsecured loans,
and subordinate corporate loans, including loans that may be rated below
investment grade or equivalent unrated loans. The Strategies may invest in other
asset-backed securities that have been offered to investors.
Other Asset-Backed Securities
A Strategy may invest in other asset-backed securities. The securitization
techniques used to develop mortgage-related securities are being applied to a
broad range of financial assets. Through the use of trusts and special purpose
corporations, various types of assets, including automobile loans and leases,
credit card receivables, home equity loans, equipment leases and trade
receivables, are being securitized in structures similar to the structures used
in mortgage securitizations.
Repurchase Agreements and Buy/Sell Back Transactions
A Strategy may enter into repurchase agreements in which a Strategy purchases a
security from a bank or broker-dealer, which agrees to repurchase the security
from the Strategy at an agreed-upon future date, normally a day or a few days
later. The purchase and repurchase obligations are transacted under one
agreement. The resale price is greater than the purchase price, reflecting an
agreed-upon interest rate for the period the buyer's money is invested in the
security. Such agreements permit a Strategy to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature. If the bank or broker-dealer defaults on its repurchase
obligation, a Strategy would suffer a loss to the extent that the proceeds from
the sale of the security were less than the repurchase price.
A Strategy may enter into buy/sell back transactions, which are similar to
repurchase agreements. In this type of transaction, a Strategy enters a trade to
buy securities at one price and simultaneously enters a trade to sell the same
securities at another price on a specified date. Similar to a repurchase
agreement, the repurchase price is higher than the sale price and reflects
current interest rates. Unlike a repurchase agreement, however, the buy/sell
back transaction is considered two separate transactions.
Reverse Repurchase Agreements, Dollar Rolls and Other Borrowings
The Bond Inflation Strategy may enter into reverse purchase agreements and
dollar rolls, subject to the Strategy's limitations on borrowings. A reverse
repurchase agreement or dollar roll involves the sale of a security by the
Strategy and its agreement to repurchase the instrument at a specified time and
price, and may be considered a form of borrowing for some purposes. Reverse
repurchase agreements, dollar rolls and other forms of borrowings may create
leveraging risk for the Strategy. In addition, reverse repurchase agreements and
dollar rolls involve the risk that the market value of the securities the
Strategy is obligated to repurchase may decline below the purchase price.
Dollar rolls involve sales by the Strategy of securities for delivery in the
current month and the Strategy's simultaneously contracting to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Strategy forgoes principal and interest paid
on the securities. The Strategy is compensated by the difference between the
current sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities the Strategy is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Strategy's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Strategy's obligation to repurchase
the securities.
Rights and Warrants
Rights and warrants are option securities permitting their holders to subscribe
for other securities. Rights are similar to warrants except that they have a
substantially shorter duration. Rights and warrants do not carry with them
dividend or voting rights with respect to the underlying securities, or any
rights in the assets of the issuer. As a result, an investment in rights and
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not necessarily
change with the value of the underlying securities, and a right or a warrant
ceases to have value if it is not exercised prior to its expiration date.
Illiquid Securities
Under current Commission guidelines, the Strategies limit their investments in
illiquid securities to 15% of their net assets. The term "illiquid securities"
for this purpose means securities that cannot be disposed of within seven days
in the ordinary course of business at approximately the amount a Strategy has
valued the securities. A Strategy that invests in illiquid securities may not be
able to sell such securities and may not be able to realize their full value
upon sale. Restricted securities (securities subject to legal or contractual
restrictions on resale) may be illiquid. Some restricted securities (such as
securities issued pursuant to Rule 144A under the Securities Act of 1933 (the
"Securities Act") or certain commercial paper) may be treated as liquid,
although they may be less liquid than registered securities traded on
established secondary markets.
Short Sales
A Strategy may make short sales as a part of overall portfolio management or to
offset a potential decline in the value of a security. A short sale involves the
sale of a security that a Strategy does not own, or if the Strategy owns the
security, is not to be delivered upon consummation of the sale. When the
Strategy makes a short sale of a security that it does not own, it must borrow
from a broker-dealer the security sold short and deliver the security to the
broker-dealer upon conclusion of the short sale. If the price of the security
sold short increases between the time of the short sale and the time a Strategy
replaces the borrowed security, the Strategy will incur a loss; conversely, if
the price declines, the Strategy will realize a short-term capital gain.
Although a Strategy's gain is limited to the price at which it sold the security
short, its potential loss is theoretically unlimited.
Standby Commitment Agreements
Standby commitment agreements are similar to put options that commit a Strategy,
for a stated period of time, to purchase a stated amount of a security that may
be issued and sold to the Strategy at the option of the issuer. The price and
coupon of the security are fixed at the time of the commitment. At the time of
entering into the agreement, the Strategy is paid a commitment fee, regardless
of whether the security ultimately is issued.
There is no guarantee that a security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Strategy will bear the risk of capital loss in
the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Strategy.
Structured Securities and Basket Securities
The Strategies may invest in various types of structured securities and basket
securities. Structured securities are securities issued in structured financing
transactions, which generally involve aggregating types of debt assets in a pool
or special purpose entity and then issuing new securities. Types of structured
financings include securities described elsewhere in this Prospectus, such as
mortgage-related and other asset-backed securities. The Strategies' investments
include investments in structured securities that represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of particular debt obligations. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans or
high yield bonds) and the issuance by that entity of one or more classes of
structured securities backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured securities to create securities with different
investment characteristics such as varying maturities, payment priorities and
interest rate provisions, and the extent of the payments made with respect to
structured securities is dependent on the extent of the cash flow from the
underlying instruments. Structured securities of a given class may be either
subordinated or unsubordinated to the payment of another class. Subordinated
structured securities typically have higher yields and present greater risks
than unsubordinated structured securities.
Basket securities in which a Strategy may invest may consist of entities
organized and operated for the purpose of holding a basket of other securities.
Baskets involving debt obligations may be designed to represent the
characteristics of some portion of the debt securities market or the entire debt
market.
Variable, Floating and Inverse Floating Rate Instruments
Variable and floating rate securities pay interest at rates that are adjusted
periodically, according to a specified formula. A "variable" interest rate
adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a
"floating" interest rate adjusts whenever a specified benchmark rate (such as
the bank prime lending rate) changes.
The Strategies may also invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floater may have greater volatility in market value, in
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed rate securities.
Zero Coupon and Principal-Only Securities
Zero coupon securities and principal-only (PO) securities are debt securities
that have been issued without interest coupons or stripped of their unmatured
interest coupons, and include receipts or certificates representing interests in
such stripped debt obligations and coupons. Such a security pays no interest to
its holder during its life. Its value to an investor consists of the difference
between its face value at the time of maturity and the price for which it was
acquired, which is generally an amount significantly less than its face value.
Such securities usually trade at a deep discount from their face or par value
and are subject to greater fluctuations in market value in response to changing
interest rates than debt obligations of comparable maturities and credit quality
that make current distributions of interest. On the other hand, because there
are no periodic interest payments to be reinvested prior to maturity, these
securities eliminate reinvestment risk and "lock in" a rate of return to
maturity.
Foreign (Non-U.S.) Securities
Investing in foreign securities involves special risks and considerations not
typically associated with investing in U.S. securities. The securities markets
of many foreign countries are relatively small, with the majority of market
capitalization and trading volume concentrated in a limited number of companies
representing a small number of industries. Investments in foreign securities may
experience greater price volatility and significantly lower liquidity than a
portfolio invested solely in securities of U.S. companies. These markets may be
subject to greater influence by adverse events generally affecting the market,
and by large investors trading significant blocks of securities, than is usual
in the United States.
Securities registration, custody, and settlement may in some instances be
subject to delays and legal and administrative uncertainties. Foreign investment
in the securities markets of certain foreign countries is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude investment in certain securities and may increase the cost and
expenses of the Bond Inflation Strategy. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from certain
of the countries is controlled under regulations, including in some cases the
need for certain advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.
The Strategy also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require the Strategy to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to the Strategy. These factors may affect the liquidity of the Strategy's
investments in any country and the Adviser will monitor the effect of any such
factor or factors on the Strategy's investments. Transaction costs, including
brokerage commissions for transactions both on and off the securities exchanges,
in many foreign countries are generally higher than in the United States.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, revolutions, wars or
diplomatic developments could affect adversely the economy of a foreign country.
In the event of nationalization, expropriation, or other confiscation, the
Strategy could lose its entire investment in securities in the country involved.
In addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Strategy than that provided by U.S. laws.
Investments in securities of companies in emerging markets involve special
risks. There are approximately 100 countries identified by the World Bank as Low
Income, Lower Middle Income and Upper Middle Income countries that are generally
regarded as Emerging Markets. Emerging market countries that the Adviser
currently considers for investment are listed below. Countries may be added to
or removed from this list at any time.
Algeria Hong Kong Poland
Argentina Hungary Qatar
Belize India Romania
Brazil Indonesia Russia
Bulgaria Israel Singapore
Chile Jamaica Slovakia
China Jordan Slovenia
Colombia Kazakhstan South Africa
Costa Rica Lebanon South Korea
Cote D'Ivoire Malaysia Taiwan
Croatia Mexico Thailand
Czech Republic Morocco Trinidad & Tobago
Dominican Republic Nigeria Tunisia
Ecuador Pakistan Turkey
Egypt Panama Ukraine
El Salvador Peru Uruguay
Guatemala Philippines Venezuela
Investing in emerging market securities imposes risks different from, or greater
than, risks of investing in domestic securities or in the securities of
companies in foreign, developed countries. These risks include: smaller market
capitalization of securities markets, which may suffer periods of relative
illiquidity; significant price volatility; restrictions on foreign investment;
and possible repatriation of investment income and capital. In addition, foreign
investors may be required to register the proceeds of sales; future economic or
political crises could lead to price controls, forced mergers, expropriation or
confiscatory taxation, seizure, nationalization or creation of government
monopolies. The currencies of emerging market countries may experience
significant declines against the U.S. Dollar, and devaluation may occur
subsequent to investments in these currencies by the Strategy. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.
Additional risks of emerging market securities may include: greater social,
economic and political uncertainty and instability; more substantial
governmental involvement in the economy; less governmental supervision and
regulation; unavailability of currency hedging techniques; companies that are
newly organized and small; differences in auditing and financial reporting
standards, which may result in unavailability of material information about
issuers; and less developed legal systems. In addition, emerging securities
markets may have different clearance and settlement procedures, which may be
unable to keep pace with the volume of securities transactions or otherwise make
it difficult to engage in such transactions. Settlement problems may cause the
Strategy to miss attractive investment opportunities, hold a portion of its
assets in cash pending investment, or be delayed in disposing of a portfolio
security. Such a delay could result in possible liability to a purchaser of the
security.
Foreign (Non-U.S.) Currencies
The Bond Inflation Strategy may invest a substantial portion of its assets in
securities denominated in, and receiving revenues in, foreign currencies and
will be adversely affected by reductions in the value of those currencies
relative to the U.S. Dollar. Foreign currency exchange rates may fluctuate
significantly. They are determined by supply and demand in the foreign exchange
markets, the relative merits of investments in different countries, actual or
perceived changes in interest rates, and other complex factors. Currency
exchange rates also can be affected unpredictably by intervention (or the
failure to intervene) by U.S. or foreign governments or central banks or by
currency controls or political developments. In light of these risks, the
Strategy may engage in certain currency hedging transactions, as described
above, which involve certain special risks.
The Strategy may also invest directly in foreign currencies for non-hedging
purposes, directly on a spot basis (i.e., cash) or through derivative
transactions, such as forward currency exchange contracts, futures and options
thereon, swaps and options as described above. These investments will be subject
to the same risks. In addition, currency exchange rates may fluctuate
significantly over short periods of time, causing the Strategy's NAV to
fluctuate.
Preferred Stock
A Strategy may invest in preferred stock. Preferred stock is subordinated to any
debt the issuer has outstanding. Accordingly, preferred stock dividends are not
paid until all debt obligations are first met. Preferred stock may be subject to
more fluctuations in market value, due to changes in market participants'
perceptions of the issuer's ability to continue to pay dividends, than debt of
the same issuer.
Borrowing and Leverage
The Strategies may use borrowings or other leverage for investment purposes
subject to the applicable statutory or regulatory requirements. Borrowings by a
Strategy result in leveraging of the Strategy's shares. The Strategies may also
use leverage for investment transactions by entering into transactions such as
reverse repurchase agreements and TOB transactions. This means that a Strategy
uses cash made available during the term of these transactions to make
investments in other fixed-income securities.
Utilization of leverage, which is usually considered speculative, involves
certain risks to a Strategy's shareholders. These include a higher volatility of
the net asset value of a Strategy's shares and the relatively greater effect on
the NAV of the shares. So long as a Strategy is able to realize a net return on
its investment portfolio that is higher than the interest expense paid on
borrowings or the carrying costs of leveraged transactions, the effect of
leverage will be to cause the Strategy's shareholders to realize a higher
current net investment income than if the Strategy were not leveraged. If the
interest expense on borrowings or the carrying costs of leveraged transactions
approaches the net return on a Strategy's investment portfolio, the benefit of
leverage to the Strategy's shareholders will be reduced. If the interest expense
on borrowings or the carrying costs of leveraged transactions were to exceed the
net return to shareholders, a Strategy's use of leverage would result in a lower
rate of return. Similarly, the effect of leverage in a declining market could be
a greater decrease in NAV. In an extreme case, if a Strategy's current
investment income were not sufficient to meet the interest expense on borrowing
or the carrying costs of leveraged transactions, it could be necessary for the
Strategy to liquidate certain of its investments, thereby reducing its NAV
During periods of rising short-term interest rates, the interest paid on
floaters in tender option bond transactions would increase, which may adversely
affect a Strategy's net return. If rising short-term rates coincide with a
period of rising long-term rates, the value of the long-term municipal bonds
purchased with the proceeds of leverage would decline, adversely affecting a
Strategy's NAV.
Future Developments
A Strategy may take advantage of other investment practices that are not
currently contemplated for use by the Strategy, or are not available but may yet
be developed, to the extent such investment practices are consistent with the
Strategy's investment objective and legally permissible for the Strategy. Such
investment practices, if they arise, may involve risks that exceed those
involved in the activities described above.
Changes in Investment Objective and Policies
The Strategies are each a series of AllianceBernstein Bond Fund, Inc. with one
Board of Directors (the "Board"). The Board may change a Strategy's investment
objective without shareholder approval. A Strategy will provide shareholders
with 60 days' prior written notice of any change to the Strategy's investment
objective. The Bond Inflation Strategy, which has a policy to invest at least
80% of its net assets in fixed-income securities, will not change this policy
without 60 days' prior written notice to shareholders. The Municipal Bond
Inflation Strategy has a fundamental policy to invest at least 80% of its net
assets in municipal securities and will not change this policy without
shareholder approval. Unless otherwise noted, all other investment policies of
the Strategies may be changed without shareholder approval.
Temporary Defensive Position
For temporary defensive purposes in an attempt to respond to adverse market,
economic, political or other conditions, the Bond Inflation Strategy may reduce
its position in fixed-income securities and invest in, without limit, certain
types of short-term, liquid, high-grade or high-quality debt securities. The
Municipal Bond Inflation Strategy may invest without limit in other municipal
securities that are in all other respects consistent with its investment
strategies and also may invest without limit in high-quality municipal notes,
variable rate demand obligations, or in taxable cash equivalents. While a
Strategy is investing for temporary defensive purposes, it may not meet its
investment objective.
Portfolio Holdings
A description of each Strategy's policies and procedures with respect to the
disclosure of the Strategy's portfolio securities is available in the
Strategies' SAI.
INVESTING IN THE STRATEGIES
-------------------------------------------------------------------------------
This section discusses how to buy, sell or redeem, or exchange different classes
of shares of the Strategies that are offered in this Prospectus. The Strategies
offer three classes of shares through this Prospectus.
Each share class represents an investment in the same portfolio of securities,
but the classes may have different sales charges and bear different ongoing
distribution expenses. For additional information on the differences between the
different classes of shares and factors to consider when choosing among them,
please see "The Different Share Class Expenses" and "The `Pros' and `Cons' of
Different Share Classes" below. Only Class A shares offer Quantity Discounts on
sales charges, as described under "Sales Charge Reduction Programs" below.
HOW TO BUY SHARES
The purchase of the Strategies' shares is priced at the next determined NAV
after your order is received in proper form.
Class A and Class C Shares
You may purchase a Strategy's Class A or Class C shares through financial
intermediaries, such as broker-dealers or banks. You also may purchase shares
directly from the Strategies' principal underwriter, AllianceBernstein
Investments, Inc., or ABI.
Purchase Minimums and Maximums
Minimums:* Maximum Individual Purchase Amount:
--------------------------------------------------------------------------------
Initial: $ 2,500 Class A shares None
--------------------------------------------------------------------------------
Subsequent: $ 50 Class C shares:
Bond Inflation Strategy $1,000,000
Municipal Bond Inflation Strategy $ 500,000
--------------------------------------------------------------------------------
----------
* Purchase minimums may not apply to some accounts established in connection
with the Automatic Investment Program and to some retirement-related
investment programs. Please see "Automatic Investment Program" and
"Retirement Plans, Tax-Deferred Accounts and Employee Benefit Plans" below.
Additionally, these investment minimums do not apply to persons
participating in a fee-based program sponsored and maintained by a
registered broker-dealer or other financial intermediary and approved by
ABI.
Your broker or financial advisor must receive your purchase request by 4:00
p.m., Eastern time, and submit it to a Strategy by a pre-arranged time for you
to receive the next-determined NAV, less any applicable initial sales charge.
If you are an existing Strategy shareholder and you have completed the
appropriate section of the Mutual Fund Application, you may purchase additional
shares by telephone with payment by electronic funds transfer in amounts not
exceeding $500,000. AllianceBernstein Investor Services, Inc., or ABIS, must
receive and confirm telephone requests before 4:00 p.m., Eastern time, to
receive that day's public offering price. Call 800-221-5672 to arrange a
transfer from your bank account.
Advisor Class Shares
You may purchase Advisor Class shares through your financial advisor at NAV.
Advisor Class shares may be purchased and held solely:
o through accounts established under a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial intermediary
and approved by ABI;
o through a defined contribution employee benefit plan (e.g., a 401(k) plan)
that has at least $10,000,000 in assets and that purchases shares directly
without the involvement of a financial intermediary; and
o by investment advisory clients of, and certain other persons associated
with, the Adviser and its affiliates or the Strategies.
The Strategies' SAI has more detailed information about who may purchase and
hold Advisor Class shares.
Retirement Plans, Tax-Deferred Accounts and Employee Benefit Plans
Special eligibility rules apply to these type of investments. Except as
indicated, there are no investment minimums for the plans listed below. Class A
shares are available to:
o Traditional and Roth IRAs (the minimums listed in the table above apply);
o SEPs, SAR-SEPs, SIMPLE IRAs, and individual 403(b) plans;
o all 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit
sharing and money purchase pension plans, defined benefit plans, and
non-qualified deferred compensation plans where plan level or omnibus
accounts are held on the books of a Strategy ("group retirement plans")
with assets of $1,000,000 or more;
o AllianceBernstein-sponsored Coverdell Education Savings Accounts ($2,000
initial investment minimum, $150 automatic investment program monthly
minimum);
o AllianceBernstein-sponsored group retirement plans;
o AllianceBernstein Link, AllianceBernstein Individual 401(k), and
AllianceBernstein SIMPLE IRA plans with at least $250,000 in plan assets
and 100 employees; and
o certain defined contribution retirement plans that do not have plan level
or omnibus accounts on the books of the Strategies.
Class C shares are available to AllianceBernstein Link, AllianceBernstein
Individual 401(k), and AllianceBernstein SIMPLE IRA plans with less than
$250,000 in plan assets and 100 employees and to group retirement plans with
plan assets of less than $1,000,000.
Required Information
A Strategy is required by law to obtain, verify and record certain personal
information from you or persons on your behalf in order to establish an account.
Required information includes name, date of birth, permanent residential address
and taxpayer identification number (for most investors, your social security
number). A Strategy may also ask to see other identifying documents. If you do
not provide the information, the Strategy will not be able to open your account.
If a Strategy is unable to verify your identity, or that of another person(s)
authorized to act on your behalf, or if the Strategy believes it has identified
potentially criminal activity, the Strategy reserves the right to take action it
deems appropriate or as required by law, which may include closing your account.
If you are not a U.S. citizen or Resident Alien, your account must be affiliated
with a Financial Industry Regulatory Authority, or FINRA, member firm.
A Strategy is required to withhold 28% of taxable dividends, capital gains
distributions, and redemptions paid to any shareholder who has not provided the
Strategy with his or her certified taxpayer identification number. To avoid
this, you must provide your correct tax identification number (social security
number for most investors) on your Mutual Fund Application.
General
ABI may refuse any order to purchase shares. Each Strategy reserves the right to
suspend the sale of its shares to the public in response to conditions in the
securities markets or for other reasons.
THE DIFFERENT SHARE CLASS EXPENSES
This section describes the different expenses of investing in each class and
explains factors to consider when choosing a class of shares. The expenses can
include distribution and/or service (Rule 12b-1) fees, initial sales charges
and/or CDSCs. Only Class A shares offer Quantity Discounts as described below.
--------------------------------------------------------------------------------
WHAT IS A RULE 12b-1 FEE?
A Rule 12b-1 fee is a fee deducted from a Fund's assets that is
used to pay for personal service, maintenance of shareholder
accounts and distribution costs, such as advertising and
compensation of financial intermediaries. The amount of each
share class's Rule 12b-1 fee, if any, is disclosed below and in a
Fund's fee table included in Summary Information section above.
--------------------------------------------------------------------------------
Asset-Based Sales Charges or Distribution and/or Service (Rule 12b-1) Fees
Each Strategy has adopted plans under Securities and Exchange Commission
("Commission") Rule 12b-1 that allows the Strategy to pay asset-based sales
charges or distribution and/or service (Rule 12b-1) fees for the distribution
and sale of its shares. The amount of these fees for each class of the
Strategy's shares is up to:
Distribution and/or Service
(Rule 12b-1) Fee (As a
Percentage of Aggregate
Average Daily Net Assets)
-----------------------------
0.30%
Class A
Class C 1.00%
Advisor Class None
Because these fees are paid out of a Strategy's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales fees. Because higher fees mean a higher expense
ratio, Class C shares pay correspondingly lower dividends and may have a lower
NAV (and returns) than Class A shares. All or some of these fees may be paid to
financial intermediaries, including your financial advisor's firm.
Class A Shares - Initial Sales Charge Alternative
You can purchase Class A shares at their public offering price (or cost), which
is NAV plus an initial sales charge of up to 4.25% of the offering price. Any
applicable sales charge will be deducted directly from your investment. Larger
investments are subject to "breakpoints or quantity discounts" as discussed
below. Purchases of Class A shares in the amount of $1,000,000 or more or by
AllianceBernstein or non-AllianceBernstein sponsored group retirement plans are
not subject to an initial charge, but may be subject to a 1% CDSC if redeemed or
terminated within one year.
Class C Shares - Asset-Based Sales Charge Alternative
You can purchase Class C shares at NAV without an initial sales charge. This
means that the full amount of your purchase is invested in the Strategy. Your
investment is subject to a 1% CDSC if you redeem your shares within 1 year. If
you exchange your shares for the Class C shares of another AllianceBernstein
Mutual Fund, the 1% CDSC also will apply to the Class C shares received. The
1-year period for the CDSC begins with the date of your original purchase, not
the date of the exchange for the other Class C shares.
Class C shares do not convert to any other class of shares of the Strategy.
--------------------------------------------------------------------------------
HOW IS THE CDSC CALCULATED?
The CDSC is applied to the lesser of NAV at the time of
redemption or the original cost of shares being redeemed (or, as
to Fund shares acquired through an exchange, the cost of the
AllianceBernstein mutual fund shares originally purchased for
cash). This means that no sales charge is assessed on increases
in NAV above the initial purchase price. Shares obtained from
dividend or distribution reinvestment are not subject to the
CDSC. In determining the CDSC, it will be assumed that the
redemption is, first, of any shares not subject to a CDSC and,
second, of shares held the longest.
--------------------------------------------------------------------------------
Advisor Class Shares - Fee-Based Program Alternative
You may purchase Advisor Class shares through your financial advisor. Advisor
Class shares are not subject to any initial or contingent sales charges,
although your financial advisor may charge a fee.
SALES CHARGE REDUCTION PROGRAMS
This section includes important information about sales charge reduction
programs available to investors in Class A shares and describes information or
records you may need to provide to a Strategy or your financial intermediary in
order to be eligible for sales charge reduction programs.
Information about sales charge reduction programs also is available free of
charge and in a clear and prominent format on our website at
www.AllianceBernstein.com (click on "US Investors & Financial Advisors" then
"Investment Insights - Investor Education" then "Sales Charge Reduction
Programs"). More information on Breakpoints and other sales charge waivers is
available in the Strategies' SAI.
--------------------------------------------------------------------------------
You Can Reduce Sales Charges When Buying Class A Shares.
--------------------------------------------------------------------------------
Breakpoints or Quantity Discounts Offered by the Strategy
The Strategies offer investors the benefit of discounts on the sales charges
that apply to purchases of Class A shares in certain circumstances. These
discounts, which are also known as Breakpoints, can reduce or, in some cases,
eliminate the initial sales charges that would otherwise apply to your Class A
investment. Mutual funds are not required to offer breakpoints and different
mutual fund groups may offer different types of breakpoints.
Breakpoints or Quantity Discounts allow larger investments in Class A shares to
be charged lower sales charges. A shareholder investing more than $100,000 in
Class A shares of a Strategy is eligible for a reduced sales charge. Initial
sales charges are eliminated completely for purchases of $1,000,000 or more in
the case of Bond Inflation Strategy and $500,000 in the case of Municipal Bond
Inflation Strategy, although a 1%, 1-year CDSC may apply.
The sales charge schedule of Class A share Quantity Discounts is as follows:
Bond Inflation Municipal Bond
Strategy Inflation Strategy
-------------------- ---------------------
Initial Sales Charge Initial Sales Charge
-------------------- --------------------
As % of As % of As % of As % of
Net Amount Offering Net Amount Offering
Amount Purchase Invested Price Invested Price
--------------- -------- ----- -------- -----
Up to $100,000 4.44% 4.25% 3.09% 3.00%
$100,000 up to $250,000 3.36 3.25 2.04 2.00
$250,000 up to $500,000 2.30 2.25 1.01 1.00
$500,000 up to $1,000,000 1.78 1.75 0.00 0.00
$1,000,000 and above 0.00 0.00 0.00 0.00
Rights of Accumulation
To determine if a new investment in Class A shares is eligible for a Quantity
Discount, a shareholder can combine the value of the new investment in a
Strategy with the value of existing investments in the Strategy, any other
AllianceBernstein Mutual Fund, AllianceBernstein Institutional Funds and certain
CollegeBoundfund accounts for which the shareholder, his or her spouse or
domestic partner, or child under the age of 21 is the participant. The
AllianceBernstein Mutual Funds use the current NAV of your existing investments
when combining them with your new investment.
Combined Purchase Privileges
A shareholder may qualify for a Quantity Discount by combining purchases of
shares of a Strategy into a single "purchase." A "purchase" means a single
purchase or concurrent purchases of shares of a Strategy or any other
AllianceBernstein Mutual Fund, including AllianceBernstein Institutional Funds,
by:
o an individual, his or her spouse or domestic partner, or the
individual's children under the age of 21 purchasing shares for his,
her or their own account(s), including certain CollegeBoundfund
accounts;
o a trustee or other fiduciary purchasing shares for a single trust,
estate or single fiduciary account with one or more beneficiaries
involved;
o the employee benefit plans of a single employer; or
o any company that has been in existence for at least six months or has
a purpose other than the purchase of shares of the Strategy.
Letter of Intent
An investor may not immediately invest a sufficient amount to reach a Quantity
Discount, but may plan to make one or more additional investments over a period
of time that, in the end, would qualify for a Quantity Discount. For these
situations, the Strategies offer a Letter of Intent, which permits the investor
to express the intention, in writing, to invest at least $100,000 in Class A
shares of the Strategy or any AllianceBernstein Mutual Fund within 13 months.
The Strategy will then apply the Quantity Discount to each of the investor's
purchases of Class A shares that would apply to the total amount stated in the
Letter of Intent. If an investor fails to invest the total amount stated in the
Letter of Intent, the Strategy will retroactively collect the sales charges
otherwise applicable by redeeming shares in the investor's account at their then
current NAV. Investors qualifying for a Combined Purchase Privilege may purchase
shares under a single Letter of Intent.
Required Shareholder Information and Records
In order for shareholders to take advantage of sales charge reductions, a
shareholder or his or her financial intermediary must notify the Strategy that
the shareholder qualifies for a reduction. Without notification, the Strategy is
unable to ensure that the reduction is applied to the shareholder's account. A
shareholder may have to provide information or records to his or her financial
intermediary or a Strategy to verify eligibility for breakpoint privileges or
other sales charge waivers. This may include information or records, including
account statements, regarding shares of the Strategy or other AllianceBernstein
Mutual Funds held in:
o all of the shareholder's accounts at the Strategies or a financial
intermediary;
o any account of the shareholder at another financial intermediary; and
o accounts of related parties of the shareholder, such as members of the
same family, at any financial intermediary.
Other Programs
Class A shareholders may be able to purchase additional Class A shares with a
reduced or eliminated sales charge through the following AllianceBernstein
programs: Dividend Reinvestment Program, Dividend Direction Plan and
Reinstatement Privilege as described below.
Class A Shares - Purchases Not Subject to Sales Charges
The Strategies may sell their Class A shares at NAV without an initial sales
charge to some categories of investors, including:
o AllianceBernstein Link, AllianceBernstein Individual 401(k), and
AllianceBernstein SIMPLE IRA plans with at least $250,000 in plan
assets or 100 employees;
o persons participating in a fee-based program, sponsored and maintained
by a registered broker-dealer or other financial intermediary and
approved by ABI, under which persons pay an asset-based fee for
services in the nature of investment advisory or administrative
services.
o plan participants who roll over amounts distributed from employer
maintained retirement plans to AllianceBernstein-sponsored IRAs where
the plan is a client of or serviced by AllianceBernstein's
Institutional Investment Management or Bernstein Global Wealth
Management Divisions, including subsequent contributions to those
IRAs; or
o certain other investors, such as investment management clients of the
Adviser or its affiliates, including clients and prospective clients
of the Adviser's AllianceBernstein Institutional Investment Management
Division, employees of selected dealers authorized to sell a
Strategy's shares, and employees of the Adviser.
Please see the Strategies' SAI for more information about purchases of Class A
shares without sales charges.
CDSC WAIVERS AND OTHER PROGRAMS
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Here Are Some Ways To Avoid Or Minimize Charges On Redemption.
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CDSC Waivers
The Strategies will waive the CDSCs on redemptions of shares in the following
circumstances, among others:
o permitted exchanges of shares;
o following the death or disability of a shareholder;
o if the redemption represents a minimum required distribution from an
IRA or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o if the proceeds of the redemption are invested directly in a
CollegeBoundfund account; or
o if the redemption is necessary to meet a plan participant's or
beneficiary's request for a distribution or loan from a group
retirement plan or to accommodate a plan participant's or
beneficiary's direction to reallocate his or her plan account among
other investment alternatives available under a group retirement plan.
Dividend Reinvestment Program
Shareholders may elect to have all income and capital gains distributions from
their account paid to them in the form of additional shares of the same class of
a Strategy under the Strategy's Dividend Reinvestment Program. There is no
initial sales charge or CDSC imposed on shares issued pursuant to the Dividend
Reinvestment Program.
Dividend Direction Plan
A shareholder who already maintains accounts in more than one AllianceBernstein
Mutual Fund may direct the automatic investment of income dividends and/or
capital gains by one Strategy, in any amount, without the payment of any sales
charges, in shares of the same class of one or more other AllianceBernstein
Mutual Fund(s).
Automatic Investment Program
The Automatic Investment Program allows investors to purchase shares of a
Strategy through pre-authorized transfers of funds from the investor's bank
account. Under the Automatic Investment Program, an investor may (i) make an
initial purchase of at least $2,500 and invest at least $50 monthly or (ii) make
an initial purchase of less than $2,500 and commit to a monthly investment of
$200 or more until the investor's account balance is $2,500 or more.
Shareholders who committed to monthly investments of $25 or more through the
Automatic Investment Program by October 15, 2004 will be able to continue their
program despite the $50 monthly minimum discussed above.
Reinstatement Privilege
A shareholder who has redeemed all or any portion of his or her Class A shares
may reinvest all or any portion of the proceeds from the redemption in Class A
shares of any AllianceBernstein Mutual Fund at NAV without any sales charge, if
the reinvestment is made within 120 calendar days after the redemption date.
Systematic Withdrawal Plan
The Strategies offer a systematic withdrawal plan that permits the redemption of
Class A or Class C shares without payment of a CDSC. Under this plan,
redemptions equal to 1% a month, 2% every two months or 3% a quarter of the
value of a Strategy account would be free of a CDSC. For Class A and Class C
shares, shares held the longest would be redeemed first.
THE "PROS" AND "CONS" OF DIFFERENT SHARE CLASSES
The decision as to which class of shares is most beneficial to you depends on
the amount you intend to invest, how long you expect to own shares, and expenses
associated with owning a particular class of shares. If you are making a large
investment that qualifies for a reduced sales charge, you might consider
purchasing Class A shares. Class A shares, with their lower Rule 12b-1 fees, are
designed for investors with a long-term investing time frame.
Class C shares should not be considered as a long-term investment because they
do not convert to Class A shares and are subject to a higher distribution fee
indefinitely. Class C shares do not, however, have an initial sales charge or a
CDSC so long as the shares are held for one year or more. Class C shares are
designed for investors with a short-term investing time frame.
Your financial intermediary may receive differing compensation for selling Class
A or Class C shares. See "Payments to Financial Advisors and their Firms" below.
Other
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent or other financial intermediary, with respect to the
purchase, sale or exchange of Class A, Class C or Advisor Class shares made
through your financial advisor. The financial intermediaries or your fee-based
program also may impose requirements on the purchase, sale or exchange of shares
that are different from, or in addition to, those imposed by the Strategies,
including requirements as to the minimum initial and subsequent investment
amounts.
You should consult your financial advisor for assistance in choosing a class of
Strategy shares.
PAYMENTS TO FINANCIAL ADVISORS AND THEIR FIRMS
Financial intermediaries market and sell shares of the Strategies. These
financial intermediaries employ financial advisors and receive compensation for
selling shares of the Strategies. This compensation is paid from various
sources, including any sales charge, CDSC and/or Rule 12b-1 fee that you or the
Strategies may pay. Your individual financial advisor may receive some or all of
the amounts paid to the financial intermediary that employs him or her.
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WHAT IS A FINANCIAL INTERMEDIARY?
A financial intermediary is a firm that receives compensation for
selling shares of the Funds offered in this Prospectus and/or
provides services to the Funds' shareholders. Financial
intermediaries may include, among others, your broker, your
financial planner or advisor, banks and insurance companies.
Financial intermediaries may employ financial advisors who deal
with you and other investors on an individual basis.
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All or a portion of the initial sales charge that you pay may be paid by ABI to
financial intermediaries selling Class A shares. ABI may also pay these
financial intermediaries a fee of up to 1% on purchases of $1,000,000 or more or
for AllianceBernstein Link, AllianceBernstein SIMPLE IRA plans with more than
$250,000 in assets or for purchases made by certain other retirement plans.
ABI may pay, at the time of your purchase, a commission to financial
intermediaries selling Class C shares in an amount equal to 1% of your
investment for sales of Class C shares.
For Class A and Class C shares, up to 100% of the Rule 12b-1 fees applicable to
these classes of shares each year may be paid to financial intermediaries.
In the case of Advisor Class shares, your financial advisor may charge ongoing
fees or transactional fees.
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Your financial advisor's firm receives compensation from the Strategies,
ABI and/or the Adviser in several ways from various sources, which include
some or all of the following:
- upfront sales commissions;
- Rule 12b-1 fees;
- additional distribution support;
- defrayal of costs for educational seminars and training; and
- payments related to providing shareholder recordkeeping and/or transfer
agency services.
Please read the Prospectus carefully for information on this compensation.
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Other Payments for Distribution Services and Educational Support
In addition to the commissions paid to financial intermediaries at the time of
sale and Rule 12b-1 fees, some or all of which may be paid to financial
intermediaries (and, in turn, to your financial advisor), ABI, at its expense,
currently provides additional payments to firms that sell shares of the
AllianceBernstein Mutual Funds. Although the individual components may be higher
and the total amount of payments made to each qualifying firm in any given year
may vary, the total amount paid to a financial intermediary in connection with
the sale of shares of the AllianceBernstein Mutual Funds will generally not
exceed the sum of (a) 0.25% of the current year's fund sales by that firm and
(b) 0.10% of average daily net assets attributable to that firm over the year.
These sums include payments to reimburse directly or indirectly the costs
incurred by these firms and their employees in connection with educational
seminars and training efforts about the AllianceBernstein Mutual Funds for the
firms' employees and/or their clients and potential clients. The costs and
expenses associated with these efforts may include travel, lodging,
entertainment and meals. ABI may pay a portion of "ticket" or other
transactional charges.
For 2010, ABI's additional payments to these firms for distribution services and
educational support related to the AllianceBernstein Mutual Funds are expected
to be approximately [____]% of the average monthly assets of the
AllianceBernstein Mutual Funds, or approximately $[_______________]. In 2009,
ABI paid approximately 0.04% of the average monthly assets of the
AllianceBernstein Mutual Funds or approximately $15,500,000 for distribution
services and educational support related to the AllianceBernstein Mutual Funds.
A number of factors are considered in determining the additional payments,
including each firm's AllianceBernstein Mutual Fund sales, assets and redemption
rates, and the willingness and ability of the firm to give ABI access to its
financial advisors for educational and marketing purposes. In some cases, firms
will include the AllianceBernstein Mutual Funds on a "preferred list." ABI's
goal is to make the financial advisors who interact with current and prospective
investors and shareholders more knowledgeable about the AllianceBernstein Mutual
Funds so that they can provide suitable information and advice about the funds
and related investor services.
The Strategies and ABI also make payments for recordkeeping and other transfer
agency services to financial intermediaries that sell AllianceBernstein Mutual
Fund shares. Please see "Management of the Strategies--Transfer Agency and
Retirement Plan Services" below. These expenses paid by the Strategies are
included in "Other Expenses" under "Fees and Expenses of the Strategies--Annual
Strategy Operating Expenses" above.
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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 Strategies,
the Adviser, ABI and by sponsors of other mutual funds he or she may
recommend to you. You should also consult disclosures made by your financial
advisor at the time of purchase.
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As of the date of the Prospectus, ABI anticipates that the firms that will
receive additional payments for distribution services and/or educational support
include:
Ameriprise Financial Services
AXA Advisors
Bank of America
Cadaret, Grant & Co.
CCO Investment Services Corp.
Chase Investment Services
Citigroup Global Markets
Commonwealth Financial Network
Donegal Securities
ING Advisors Network
LPL Financial Corporation
Merrill Lynch
Morgan Stanley & Co. Incorporated
Northwestern Mutual Investment Services
Raymond James
RBC Capital Markets Corporation
Robert W. Baird
SagePoint Financial, Inc.
UBS AG
UBS Financial Services
Wachovia Securities
Wells Fargo Investments
Although the Strategies may use brokers and dealers that sell shares of the
Strategies to effect portfolio transactions, the Strategies do not consider the
sale of AllianceBernstein Mutual Fund shares as a factor when selecting brokers
or dealers to effect portfolio transactions.
HOW TO EXCHANGE SHARES
You may exchange your Strategy shares for shares of the same class of other
AllianceBernstein Mutual Funds (including AllianceBernstein Exchange Reserves, a
money market fund managed by the Adviser) provided that the other fund offers
the same class of shares. Exchanges of shares are made at the next-determined
NAV, without sales or service charges. All exchanges are subject to the minimum
investment restrictions set forth in the prospectus for the AllianceBernstein
Mutual Fund whose shares are being acquired. Your exchange of shares is priced
at the next-determined NAV after your order is received in proper form. You may
request an exchange by mail or telephone. In order to receive a day's NAV, ABIS
must receive and confirm your telephone exchange request by 4:00 p.m., Eastern
time, on that day. The Strategies may modify, restrict or terminate the exchange
privilege on 60 days' written notice.
HOW TO SELL OR REDEEM SHARES
You may "redeem" your shares (i.e., sell your shares to a Strategy) on any day
the New York Stock Exchange (the "Exchange") is open, either directly or through
your financial intermediary. Your sale price will be the next-determined NAV,
less any applicable CDSC, after the Strategy receives your redemption request in
proper form. Normally, redemption proceeds are sent to you within 7 days. If you
recently purchased your shares by check or electronic funds transfer, your
redemption payment may be delayed until the Strategy is reasonably satisfied
that the check or electronic funds transfer has been collected (which may take
up to 15 days). For Advisor Class shares, if you are in doubt about what
procedures or documents are required by your fee-based program or employee
benefit plan to sell your shares, you should contact your financial advisor.
Selling Shares Through Your Broker or Other Financial Advisor
Your broker or financial advisor must receive your sales request by 4:00 p.m.,
Eastern time, and submit it to the Strategy by a pre-arranged time for you to
receive the next-determined NAV, less any applicable CDSC. Your broker or
financial advisor is responsible for submitting all necessary documentation to
the Strategy and may charge you a fee for this service.
Selling Shares Directly to the Strategy
By Mail:
o Send a signed letter of instruction or stock power, along with
certificates, to:
AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
o For certified or overnight deliveries, send to:
AllianceBernstein Investor Services, Inc.
8000 IH 10 W, 4th floor
San Antonio, TX 78230
o For your protection, a bank, a member firm of a national stock exchange or
another eligible guarantor institution must guarantee signatures. Stock
power forms are available from your financial intermediary, ABIS and many
commercial banks. Additional documentation is required for the sale of
shares by corporations, intermediaries, fiduciaries and surviving joint
owners. If you have any questions about these procedures, contact ABIS.
By Telephone:
o You may redeem your shares for which no stock certificates have been issued
by telephone request. Call ABIS at 800-221-5672 with instructions on how
you wish to receive your sale proceeds.
o ABIS must receive and confirm a telephone redemption request by 4:00 p.m.,
Eastern time, for you to receive that day's NAV, less any applicable CDSC.
o For your protection, ABIS will request personal or other information from
you to verify your identity and will generally record the calls. Neither
the Strategy nor the Adviser, ABIS, ABI or other Strategy agent will be
liable for any loss, injury, damage or expense as a result of acting upon
telephone instructions purporting to be on your behalf that ABIS reasonably
believes to be genuine.
o If you have selected electronic funds transfer in your Mutual Fund
Application, the redemption proceeds will be sent directly to your bank.
Otherwise, the proceeds will be mailed to you.
o Redemption requests by electronic funds transfer or check may not exceed
$100,000 per Strategy account per day.
o Telephone redemption is not available for shares held in nominee or "street
name" accounts, retirement plan accounts, or shares held by a shareholder
who has changed his or her address of record within the previous 30
calendar days.
FREQUENT PURCHASES AND REDEMPTIONS OF STRATEGY SHARES
The Board of Directors of AllianceBernstein Bond Fund, Inc. (the "Board") has
adopted policies and procedures designed to detect and deter frequent purchases
and redemptions of Strategy shares or excessive or short-term trading that may
disadvantage long-term Strategy shareholders. These policies are described
below. There is no guarantee that the Strategies will be able to detect
excessive or short-term trading and to identify shareholders engaged in such
practices, particularly with respect to transactions in omnibus accounts.
Shareholders should be aware that application of these policies may have adverse
consequences, as described below, and avoid frequent trading in Strategy shares
through purchases, sales and exchanges of shares. Each Strategy 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
Strategies will try to prevent market timing by utilizing the procedures
described below, these procedures may not be successful in identifying or
stopping excessive or short-term trading in all circumstances. By realizing
profits through short-term trading, shareholders that engage in rapid purchases
and sales or exchanges of a Strategy's shares dilute the value of shares held by
long-term shareholders. Volatility resulting from excessive purchases and sales
or exchanges of Strategy shares, especially involving large dollar amounts, may
disrupt efficient portfolio management and cause a Strategy to sell shares at
inopportune times to accommodate redemptions relating to short-term trading. In
particular, a Strategy may have difficulty implementing its long-term investment
strategies if it is forced to maintain a higher level of its assets in cash to
accommodate significant short-term trading activity. In addition, a Strategy may
incur increased administrative and other expenses due to excessive or short-term
trading, including increased brokerage costs and realization of taxable capital
gains.
The Strategies that may invest significantly 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 a Strategy 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 Strategy share prices that are based
on closing prices of foreign securities established some time before the
Strategy calculates its own share price (referred to as "time zone arbitrage").
The Strategies have procedures, referred to as fair value pricing, designed to
adjust closing market prices of foreign securities to reflect what is believed
to be the fair value of those securities at the time a Strategy calculates its
NAV. While there is no assurance, the Strategies expect that the use of fair
value pricing, in addition to the short-term trading policies discussed below,
will significantly reduce a shareholder's ability to engage in time zone
arbitrage to the detriment of other Strategy shareholders.
A shareholder engaging in a short-term trading strategy may also target a
Strategy that does not invest primarily in foreign securities. Any Strategy that
invests in securities that are, among other things, thinly traded, traded
infrequently or relatively illiquid has the risk that the current market price
for the securities may not accurately reflect current market values. A
shareholder may seek to engage in short-term trading to take advantage of these
pricing differences (referred to as "price arbitrage"). All Strategies may be
adversely affected by price arbitrage.
Policy Regarding Short-Term Trading. Purchases and exchanges of shares of the
Strategies should be made for investment purposes only. The Strategies will seek
to prevent patterns of excessive purchases and sales of Strategy shares to the
extent they are detected by the procedures described below. The Strategies
reserve the right to modify this policy, including any surveillance or account
blocking procedures established from time to time to effectuate this policy, at
any time without notice.
o Transaction Surveillance Procedures. The Strategies, through their
agents, ABI and ABIS, maintain surveillance procedures to detect
excessive or short-term trading in Strategy shares. This surveillance
process involves several factors, which include scrutinizing
transactions in Strategy shares that exceed certain monetary
thresholds or numerical limits within a specified period of time.
Generally, more than two exchanges of Strategy 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 Strategies may consider
trading activity in multiple accounts under common ownership, control
or influence. Trading activity identified by either, or a combination,
of these factors, or as a result of any other information available at
the time, will be evaluated to determine whether such activity might
constitute excessive or short-term trading. These surveillance
procedures may be modified from time to time, as necessary or
appropriate to improve the detection of excessive or short-term
trading or to address specific circumstances.
o Account Blocking Procedures. If the Strategies determine, in their
sole discretion, that a particular transaction or pattern of
transactions identified by the transaction surveillance procedures
described above is excessive or short-term trading in nature, the
relevant Strategy account(s) will be immediately "blocked" and no
future purchase or exchange activity will be permitted. However, sales
of Fund shares back to a Strategy or redemptions will continue to be
permitted in accordance with the terms of the Strategy's current
Prospectus. As a result, unless the shareholder redeems his or her
shares, which may have consequences if the shares have declined in
value, a CDSC is applicable or adverse tax consequences may result,
the shareholder may be "locked" into an unsuitable investment. In the
event an account is blocked, certain account-related privileges, such
as the ability to place purchase, sale and exchange orders over the
internet or by phone, may also be suspended. A blocked account will
generally remain blocked unless and until the account holder or the
associated broker, dealer or other financial intermediary provides
evidence or assurance acceptable to the Strategy 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 Strategies, particularly among certain brokers, dealers
and other financial intermediaries, including sponsors of retirement
plans and variable insurance products. The Strategies apply their
surveillance procedures to these omnibus account arrangements. As
required by Commission rules, the Strategies have entered into
agreements with all of their financial intermediaries that require the
financial intermediaries to provide the Strategies, upon the request
of the Strategies or their agents, with individual account level
information about their transactions. If the Strategies detect
excessive trading through their monitoring of omnibus accounts,
including trading at the individual account level, the financial
intermediaries will also execute instructions from the Strategies to
take actions to curtail the activity, which may include applying
blocks to accounts to prohibit future purchases and exchanges of
Strategy shares. For certain retirement plan accounts, the Strategies
may request that the retirement plan or other intermediary revoke the
relevant participant's privilege to effect transactions in Strategy
shares via the internet or telephone, in which case the relevant
participant must submit future transaction orders via the U.S. Postal
Service (i.e., regular mail).
HOW THE STRATEGIES VALUES THEIR SHARES
Each Strategy's NAV is calculated at the close of regular trading on the
Exchange (ordinarily, 4:00 p.m., Eastern time), only on days when the Exchange
is open for business. To calculate NAV, a Strategy's assets are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding. If a Strategy invests in securities
that are primarily traded on foreign exchanges that trade on weekends or other
days when the Strategy does not price its shares, the NAV of the Strategy's
shares may change on days when shareholders will not be able to purchase or
redeem their shares in the Strategy.
The Strategies value their securities at their current market value determined
on the basis of market quotations or, if market quotations are not readily
available or are unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Board. When a
Strategy uses fair value pricing, it may take into account any factors it deems
appropriate. A Strategy 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 Strategy 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.
Strategies expect to use fair value pricing for securities primarily traded on
U.S. exchanges only under very limited circumstances, such as the early closing
of the exchange on which a security is traded or suspension of trading in the
security. Strategies 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 Strategies value their 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 Strategies believe that foreign
security values may be affected by events that occur after the close of foreign
securities markets. To account for this, the Strategies may frequently value
many of their foreign equity securities using fair value prices based on third
party vendor modeling tools to the extent available.
Subject to its oversight, the Board has delegated responsibility for valuing
each Strategy's assets to the Adviser. The Adviser has established a Valuation
Committee, which operates under the policies and procedures approved by the
Board, to value a Strategy's assets on behalf of the Strategy. The Valuation
Committee values Strategy assets as described above.
MANAGEMENT OF THE STRATEGIES
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INVESTMENT ADVISER
The Strategies' Adviser is AllianceBernstein L.P., 1345 Avenue of the Americas,
New York, NY 10105. The Adviser is a leading international investment adviser
supervising client accounts with assets as of [___________], 2009 totaling
approximately $[______] billion (of which approximately $[___] billion
represented assets of investment companies). As of [___________], 2009, the
Adviser managed retirement assets for many of the largest public and private
employee benefit plans (including [___] of the nation's FORTUNE 100 companies),
for public employee retirement funds in [__] states, for investment companies,
and for foundations, endowments, banks and insurance companies worldwide. The
[35] registered investment companies managed by the Adviser, comprising
approximately [__] separate investment portfolios, currently have approximately
[___] million shareholder accounts.
The Adviser provides investment advisory services and order placement facilities
for the Strategies. For these advisory services, each Strategy will pay the
Adviser a fee of [___]% of the first $[___] billion of the Strategy's average
daily net assets, [___]% of the excess of $[___] billion up to $[___ billion and
[___]% of the excess over $[___] as a percentage of aggregate daily net assets.
The Adviser may act as an investment adviser to other persons, firms or
corporations, including investment companies, hedge funds, pension funds and
other institutional investors. The Adviser may receive management fees,
including performance fees, that may be higher or lower than the advisory fees
it receives from the Strategies. Certain other clients of the Adviser may have
investment objectives and policies similar to those of a Strategy. The Adviser
may, from time to time, make recommendations that result in the purchase or sale
of a particular security by its other clients simultaneously with a Strategy. If
transactions on behalf of more than one client during the same period increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is the policy of
the Adviser to allocate advisory recommendations and the placing of orders in a
manner that is deemed equitable by the Adviser to the accounts involved,
including the Strategies. When two or more of the clients of the Adviser
(including a Strategy) are purchasing or selling the same security on a given
day from the same broker-dealer, such transactions may be averaged as to price.
PORTFOLIO MANAGERS
The management of, and investment decisions for, the Strategies' portfolios are
made by certain Investment Policy Teams. Each Investment Policy Team relies
heavily on the fundamental analysis and research of the Adviser's large internal
research staff. No one person is principally responsible for coordinating each
Strategy's investments.
The day-to-day management of, and investment decisions for, the Bond Inflation
Strategy are made by the Adviser's U.S. Core Fixed-Income Team. The following
table lists the senior members of the U.S. Core Fixed-Income Team with the
responsibility for day-to-day management of the Strategy's portfolio, the year
that each person assumed joint and primary responsibility for the Strategy, and
each person's principal occupation during the past five years:
Employee; Length Principal Occupation
of Service; Title During the Past Five (5) Years
----------------- ------------------------------
Paul J. DeNoon; since 2010; Senior Vice President of the Adviser,
Senior Vice President of the with which he has been associated in a
Adviser and Director of Emerging substantially similar capacity to his
Market Debt current position as a portfolio manager
since prior to 2005.
Rajen Jaday; since 2010; [____________________________]
Executive Vice President of the
Adviser
Shawn E. Keegan; since Vice President of the Adviser, with which
2010; Vice President of the he has been associated in a substantially
Adviser similar capacity to his current position
as a portfolio manager since prior to
2005.
Douglas J. Peebles; since Executive Vice President of the Adviser,
2010; Executive Vice with which he has been associated in a
President of the Adviser, and substantially similar capacity to his
Chief Investment Officer and current position as a portfolio manager
Head of Fixed-Income since prior to 2005.
Greg J. Wilensky; since Senior Vice President of the Adviser,
2010; Senior Vice President with which he has been associated in a
of the Adviser and Director of substantially similar capacity to his
Stable Value Investments current position as a portfolio manager
since prior to 2005.
The day-to-day management of, and investment decisions for, the Municipal Bond
Inflation Strategy are made by the Adviser's Municipal Bond Investment Team. The
following table lists the senior members of the Municipal Bond Investment Team
with the responsibility for day-to-day management of the Strategy's portfolio,
the year that each person assumed joint and primary responsibility for the
Strategy, and each person's principal occupation during the past five years:
Employee; Length Principal Occupation
of Service; Title During the Past Five (5) Years
----------------- ------------------------------
Michael Brooks; since 2010; Senior Vice President of the Adviser,
Senior Vice President of the with which he has been associated in a
Adviser substantially similar capacity to his
current position as a portfolio manager
since prior to 2005.
Fred S. Cohen; since 2010; Senior Vice President of the Adviser,
Senior Vice President of the with which he has been associated in a
Adviser substantially similar capacity to his
current position as a portfolio manager
since prior to 2005.
R. B. (Guy) Davidson III; since Senior Vice President of the Adviser,
2010; Senior Vice President with which he has been associated in a
of the Adviser substantially similar capacity to his
current position as a portfolio manager
since prior to 2005.
Terrance T. Hults; since Senior Vice President of the Adviser,
2010; Senior Vice President with which he has been associated in a
of the Adviser substantially similar capacity to his
current position as a portfolio manager
since prior to 2005.
Additional information about the portfolio managers may be found in the
Strategies' SAI.
LEGAL PROCEEDINGS
On October 2, 2003, a purported class action complaint entitled Hindo et al. v.
AllianceBernstein Growth & Income Fund et al. (the "Hindo Complaint") was filed
against the Adviser; AllianceBernstein Holding L.P. ("Holding");
AllianceBernstein Corporation; AXA Financial, Inc.; the AllianceBernstein Mutual
Funds, certain officers of the Adviser ("AllianceBernstein defendants"); and
certain other unaffiliated defendants, as well as unnamed Doe defendants. The
Hindo Complaint was filed in the United States District Court for the Southern
District of New York by alleged shareholders of two of the AllianceBernstein
Mutual Funds. The Hindo Complaint alleges that certain of the AllianceBernstein
defendants failed to disclose that they improperly allowed certain hedge funds
and other unidentified parties to engage in "late trading" and "market timing"
of AllianceBernstein Mutual Fund securities, violating Sections 11 and 15 of the
Securities Act, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
and Sections 206 and 215 of the Investment Advisers Act of 1940. Plaintiffs seek
an unspecified amount of compensatory damages and rescission of their contracts
with the Adviser, including recovery of all fees paid to the Adviser pursuant to
such contracts.
Following October 2, 2003, additional lawsuits making factual allegations
generally similar to those in the Hindo Complaint were filed in various federal
and state courts against the Adviser and certain other defendants. On September
29, 2004, plaintiffs filed consolidated amended complaints with respect to four
claim types: mutual fund shareholder claims; mutual fund derivative claims;
derivative claims brought on behalf of Holding; and claims brought under ERISA
by participants in the Profit-Sharing Plan for Employees of the Adviser. All
four complaints include substantially identical factual allegations, which
appear to be based in large part on the Order of the Commission dated December
18, 2003 as amended and restated January 15, 2004 and the New York State
Attorney General Assurance of Discontinuation dated September 1, 2004.
On April 21, 2006, the Adviser and attorneys for the plaintiffs in the mutual
fund shareholder claims, mutual fund derivative claims, and ERISA claims entered
into a confidential memorandum of understanding containing their agreement to
settle these claims. The agreement will be documented by a stipulation of
settlement and will be submitted for court approval at a later date. The
settlement amount ($30 million), which the Adviser previously accrued and
disclosed, has been disbursed. The derivative claims brought on behalf of
Holding, in which plaintiffs seek an unspecified amount of damages, remain
pending.
It is possible that these matters and or other developments resulting from these
matters could result in increased redemptions of the affected funds' shares or
other adverse consequences to those funds. This may require the funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the funds. However, the Adviser believes
that these matters are not likely to have a material adverse effect on its
ability to perform advisory services relating to those funds or the Strategies.
TRANSFER AGENCY AND RETIREMENT PLAN SERVICES
ABIS acts as the transfer agent for the Strategies. ABIS, an indirect
wholly-owned subsidiary of the Adviser, registers the transfer, issuance and
redemption of Strategy shares and disburses dividends and other distributions to
Strategy shareholders.
Many Strategy shares are owned by financial intermediaries for the benefit of
their customers. Retirement plans also may hold Strategy shares in the name of
the plan, rather than the participant. In those cases, the Strategy often does
not maintain an account for you. Thus, some or all of the transfer agency
functions for these and certain other accounts are performed by the financial
intermediaries and plan recordkeepers. The Strategies, ABI and/or the Adviser
pay to these financial intermediaries and recordkeepers, including those that
sell shares of the AllianceBernstein Mutual Funds, fees for sub-accounting or
shareholder servicing in amounts ranging up to $19 per customer fund account per
annum and/or up to 0.25% per annum of the average daily assets held through the
intermediary. To the extent any of these payments for recordkeeping services or
transfer agency services are made by the Strategy, they are included in the
amount appearing opposite the caption "Other Expenses" found in the Strategy
expense tables under "Fees and Expenses of the Strategy." In addition, financial
intermediaries may be affiliates of entities that receive compensation from the
Adviser or ABI for maintaining retirement plan "platforms" that facilitate
trading by affiliated and non-affiliated financial intermediaries and
recordkeeping for retirement plans. Because financial intermediaries and plan
recordkeepers may be paid varying amounts per class for sub-accounting or
shareholder servicing, the service requirements of which may also vary by class,
this may create an additional incentive for financial intermediaries and their
financial advisors to favor one fund complex over another or one class of shares
over another.
DIVIDENDS, DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
Dividends and Distributions
Each Strategy's income dividends and capital gains distributions, if any,
declared by the Strategy on its outstanding shares will, at the election of each
shareholder, be paid in cash or in additional shares of the same class of shares
of that Strategy. If paid in additional shares, the shares will have an
aggregate net asset value as of the close of business on the declaration date of
the dividend or distribution equal to the cash amount of the dividend or
distribution. You may make an election to receive dividends and distributions in
cash or in shares at the time you purchase shares. Your election can be changed
at any time prior to a record date for a dividend. There is no sales or other
charge in connection with the reinvestment of dividends or capital gains
distributions. Cash dividends may be paid by check, or at your election,
electronically via the ACH network.
If you receive an income dividend or capital gains distribution in cash you may,
within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Strategy without charge by returning
to the Adviser, with appropriate instructions, the check representing the
dividend or distribution. Thereafter, unless you otherwise specify, you will be
deemed to have elected to reinvest all subsequent dividends and distributions in
shares of that Strategy.
There is no fixed dividend rate and there can be no assurance that a Strategy
will pay any dividends or realize any capital gains. The amount of any dividend
distribution paid in shares of a Strategy must necessarily depend upon the
realization of income and capital gains from the Strategy's investments.
Taxes
General
If you buy shares just before a Strategy deducts a distribution from its NAV,
you will pay the full price for the shares and then receive a portion of the
price back as a distribution, which may be taxable.
For tax purposes, an exchange is treated as a sale of Strategy shares. The sale
or exchange of Strategy shares is a taxable transaction for federal income tax
purposes.
Each year shortly after December 31, each Strategy will send its shareholders
tax information stating the amount and type of all its distributions for the
year. Consult your tax adviser about the federal, state, and local tax
consequences in your particular circumstances.
Bond Inflation Strategy
You will normally have to pay federal income tax, and any state or local income
taxes, on the distributions you receive from the Strategy, whether you take the
distributions in cash or reinvest them in additional shares. Distributions of
net capital gains from the sale of investments that the Strategy owned for more
than one year and that are properly designated as capital gain dividends are
taxable as long-term capital gains. For taxable years beginning on or before
December 31, 2010, distributions of dividends to the Strategy's non-corporate
shareholders may be treated as "qualified dividend income," which is taxed at
reduced rates, if such distributions are derived from, and designated by the
Strategy as, "qualified dividend income" and provided that holding period and
other requirements are met by both the shareholder and the Strategy. "Qualified
dividend income" generally is income derived from dividends from U.S.
corporations and "qualified foreign corporations." Other distributions by the
Strategy are generally taxable to you as ordinary income. Dividends declared in
October, November, or December and paid in January of the following year are
taxable as if they had been paid the previous December. The Strategy will notify
you as to how much of the Strategy's distributions, if any, qualify for these
reduced tax rates.
Investment income received by the Strategy from sources within foreign countries
may be subject to foreign income taxes withheld at the source. To the extent
that the Strategy is liable for foreign income taxes withheld at the source, the
Strategy intends, if possible, to operate so as to meet the requirements to
"pass through" to the Strategy's shareholders for foreign income taxes paid (or
to permit shareholders to claim a deduction for such foreign taxes), but there
can be no assurance that any Strategy will be able to do so, and Strategies that
invest primarily in U.S. securities will not do so. Furthermore, a shareholder's
ability to claim a foreign tax credit or deduction for foreign taxes paid by the
Strategy may be subject to certain limitations imposed by the Internal Revenue
Code, as a result of which a shareholder may not be permitted to claim a credit
or deduction for all or a portion of the amount of such taxes.
Under certain circumstances, if the Strategy realizes losses (e.g., from
fluctuations in currency exchange rates) after paying a dividend, all or a
portion of the dividend may subsequently be characterized as a return of
capital. Returns of capital are generally nontaxable, but will reduce a
shareholder's basis in shares of the Strategy. If that basis is reduced to zero
(which could happen if the shareholder does not reinvest distributions and
returns of capital are significant), any further returns of capital will be
taxable as a capital gain.
Municipal Bond Inflation Strategy
Distributions to shareholders out of tax-exempt interest income earned by the
Strategy are not subject to federal income tax. Under current tax law, some
individuals and corporations may be subject to the AMT on distributions to
shareholders out of income from the AMT-Subject bonds in which the Strategy
invests. Further, under current tax law, certain corporate taxpayers may be
subject to the AMT based on their "adjusted current earnings." Distributions
from the Strategy that are excluded from gross income will be included in such
corporation's "adjusted current earnings" for purposes of computation of the
AMT. Distributions out of taxable interest, other investment income, and net
realized short-term capital gains, including any income derived from the
Strategy's swap transactions, are taxable to shareholders as ordinary income.
Any distributions of long-term capital gains generally will be taxable to you as
long-term capital gains regardless of how long you have held your shares. Since
the Strategy's investment income is derived from interest rather than dividends,
no portion of its distributions will be eligible for the dividends-received
deduction available to corporations, and for non-corporate shareholders no
portion of such distributions will be treated as "qualified dividend income"
taxable at a maximum rate of 15% (5% for non-corporate shareholders in lower tax
brackets).
Interest on indebtedness incurred by shareholders to purchase or carry shares of
the Strategy is not deductible for federal income tax purposes. Further, persons
who are "substantial users" (or related persons) of facilities financed by
AMT-Subject bonds should consult their tax advisers before purchasing shares of
the Strategy.
Shareholders may be subject to state and local taxes on distributions from the
Strategy, including distributions that are exempt from federal income taxes. The
Strategy will report annually to shareholders the percentage and source of
interest earned by the Strategy that is exempt from federal income tax.
NON-U.S. SHAREHOLDERS
If you are a nonresident alien individual or a foreign corporation for federal
income tax purposes, please see the Strategies' SAIs for information on how you
will be taxed as a result of holding shares in a Strategy.
GENERAL INFORMATION
--------------------------------------------------------------------------------
Under unusual circumstances, the Strategies may suspend redemptions or postpone
payment for up to seven days or longer, as permitted by federal securities law.
The Strategies reserves the right to close an account that has remained below
$500 for 90 days.
During drastic economic or market developments, you might have difficulty in
reaching ABIS by telephone, in which event you should issue written instructions
to ABIS. ABIS is not responsible for the authenticity of telephone requests to
purchase, sell, or exchange shares. ABIS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephone requests. The telephone
service may be suspended or terminated at any time without notice.
Shareholder Services. ABIS offers a variety of shareholder services. For more
information about these services or your account, call ABIS's toll-free number,
800-221-5672. Some services are described in the Mutual Fund Application.
Householding. Many shareholders of the AllianceBernstein Mutual Funds have
family members living in the same home who also own shares of the same Funds. In
order to reduce the amount of duplicative mail that is sent to homes with more
than one Fund account and to reduce expenses of the Funds, all AllianceBernstein
Mutual Funds will, until notified otherwise, send only one copy of each
prospectus, shareholder report and proxy statement to each household address.
This process, known as "householding", does not apply to account statements,
confirmations, or personal tax information. If you do not wish to participate in
householding, or wish to discontinue householding at any time, call ABIS at
800-221-5672. We will resume separate mailings for your account within 30 days
of your request.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Financial highlights information is not available because the Strategies have
not yet commenced operations.
(This page intentionally left blank.)
APPENDIX A
--------------------------------------------------------------------------------
BOND RATINGS
Moody's Investors Service, Inc.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Caa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Standard & Poor's Ratings Services
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent upon
favorable business, financial and economic conditions to pay interest and repay
principal. In the event of adverse business, financial or economic conditions,
there is not likely to be capacity to pay interest or repay principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments are being continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
Fitch Ratings
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category or in categories below
CCC.
NR--Indicates that Fitch does not rate the specific issue.
Dominion Bond Rating Service Limited
Each rating category is denoted by the subcategories "high" and "low". The
absence of either a "high" or "low" designation indicates the rating is in the
"middle" of the category. The AAA and D categories do not utilize "high",
"middle", and "low" as differential grades.
AAA--Long-term debt rated AAA is of the highest credit quality, with
exceptionally strong protection for the timely repayment of principal and
interest. Earnings are considered stable, the structure of the industry in which
the entity operates is strong, and the outlook for future profitability is
favorable. There are few qualifying factors present that would detract from the
performance of the entity. The strength of liquidity and coverage ratios is
unquestioned and the entity has established a credible track record of superior
performance. Given the extremely high standard that Dominion has set for this
category, few entities are able to achieve a AAA rating.
AA--Long-term debt rated AA is of superior credit quality, and protection of
interest and principal is considered high. In many cases they differ from
long-term debt rated AAA only to a small degree. Given the extremely restrictive
definition Dominion has for the AAA category, entities rated AA are also
considered to be strong credits, typically exemplifying above-average strength
in key areas of consideration and unlikely to be significantly affected by
reasonably foreseeable events.
A--Long-term debt rated A is of satisfactory credit quality. Protection of
interest and principal is still substantial, but the degree of strength is less
than that of AA rated entities. While A is a respectable rating, entities in
this category are considered to be more susceptible to adverse economic
conditions and have greater cyclical tendencies than higher-rated securities.
BBB--Long-term debt rated BBB is of adequate credit quality. Protection of
interest and principal is considered acceptable, but the entity is fairly
susceptible to adverse changes in financial and economic conditions, or there
may be other adverse conditions present which reduce the strength of the entity
and its rated securities.
BB--Long-term debt rated BB is defined to be speculative and non-investment
grade, where the degree of protection afforded interest and principal is
uncertain, particularly during periods of economic recession. Entities in the BB
range typically have limited access to capital markets and additional liquidity
support. In many cases, deficiencies in critical mass, diversification, and
competitive strength are additional negative considerations.
B--Long-term debt rated B is considered highly speculative and there is a
reasonably high level of uncertainty as to the ability of the entity to pay
interest and principal on a continuing basis in the future, especially in
periods of economic recession or industry adversity.
CCC, CC and C--Long-term debt rated in any of these categories is very highly
speculative and is in danger of default of interest and principal. The degree of
adverse elements present is more severe than long-term debt rated B. Long-term
debt rated below B often have features which, if not remedied, may lead to
default. In practice, there is little difference between these three categories,
with CC and C normally used for lower ranking debt of companies for which the
senior debt is rated in the CCC to B range.
D--A security rated D implies the issuer has either not met a scheduled payment
of interest or principal or that the issuer has made it clear that it will miss
such a payment in the near future. In some cases, Dominion may not assign a D
rating under a bankruptcy announcement scenario, as allowances for grace periods
may exist in the underlying legal documentation. Once assigned, the D rating
will continue as long as the missed payment continues to be in arrears, and
until such time as the rating is suspended, discontinued, or reinstated by
Dominion.
For more information about the Funds, the following documents are available upon
request:
o Statement of Additional Information (SAI)
The Strategies have an SAI, which contains more detailed information about the
Strategies, including their operations and investment policies. The Strategies'
SAI is incorporated by reference into (and is legally part of) this Prospectus.
You may request a free copy of the SAI, or make inquiries concerning the
Strategies, by contacting your broker or other financial intermediary, or by
contacting the Adviser:
By Mail/Phone: AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
o Call the SEC at 1-202-551-8090 for information on the operation of the
Public Reference Room.
o Reports and other information about the Strategies are available on the
EDGAR Database on the Commission's Internet site at http://www.sec.gov.
o Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at publicinfo@sec.gov, or by writing the Commission's
Public Reference Section, Washington DC 20549-1520.
On the Internet: www.sec.gov
You also may find these documents and more information about the Adviser and the
Strategies on the Internet at: www.AllianceBernstein.com.
AllianceBernstein(R) and the AB Logo are registered trademarks and service marks
used by permission of the owner, AllianceBernstein L.P.
SEC File No. 811-2383
ALLIANCEBERNSTEIN BOND FUND, INC.
--ALLIANCEBERNSTEIN BOND INFLATION STRATEGY PORTFOLIO
--ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
AB
AllianceBernstein
Investments
PRO-0108-1208
ALLIANCEBERNSTEIN INFLATION STRATEGIES
[LOGO] AllianceBernstein Bond Inflation Strategy
AllianceBernstein Municipal Bond Inflation Strategy
------------------------------------------------------------------------------
c/o AllianceBernstein Investor Services, Inc.
P.O. Box 786003, San Antonio, Texas 78278-6003
Toll Free: (800) 221-5672
For Literature: Toll Free (800) 227-4618
------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
[______________], 2010
------------------------------------------------------------------------------
This Statement of Additional Information ("SAI") is not a prospectus,
but supplements and should be read in conjunction with the current prospectus,
dated [_____________], 2010, for the AllianceBernstein(R) Bond Inflation
Strategy ("Bond Inflation Strategy") and the AllianceBernstein(R) Municipal Bond
Inflation Strategy ("Municipal Bond Inflation Strategy" and together with Bond
Inflation Strategy, the "Strategies") that offers Class A, Class C and Advisor
Class shares of the Strategies (the "Prospectus"). Copies of the Prospectus may
be obtained by contacting AllianceBernstein Investor Services, Inc. ("ABIS") at
the address or the "For Literature" telephone number shown above.
TABLE OF CONTENTS
Page
Information About the Strategies and Their Investments.......................
Management of the Strategies.................................................
Expenses of the Strategies...................................................
Purchase of Shares...........................................................
Redemption and Repurchase of Shares..........................................
Shareholder Services.........................................................
Net Asset Value..............................................................
Dividends, Distributions and Taxes...........................................
Portfolio Transactions.......................................................
General Information..........................................................
Financial Statements and Report of Independent
Registered Public Accounting Firm......................................
Appendix A: Statement of Policies and Procedures for Proxy
Voting.................................................................A-1
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INFORMATION ABOUT THE STRATEGIES AND THEIR INVESTMENTS
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Introduction to the Strategies
AllianceBernstein Bond Fund, Inc.'s (the "Fund") shares are offered in
separate series. Each of Bond Inflation Strategy and Municipal Bond Inflation
Strategy is a series of the Fund, a separate pool of assets constituting, in
effect, a separate open-end management investment company with its own
investment objective and policies. Except as otherwise noted, a Strategy's
investment objective and policies described below are not "fundamental policies"
within the meaning of the Investment Company Act of 1940, as amended (the "1940
Act"), and may, therefore, be changed by the Board of Directors of the Fund (the
"Board" or the "Directors") without shareholder approval. However, no Strategy
will change its investment objective without at least 60 days' prior written
notice to shareholders. There is no guarantee that a Strategy will achieve its
investment objective. Whenever any investment policy or restriction states a
percentage of a Strategy's assets that may be invested in any security or other
asset, it is intended that such percentage limitation be determined immediately
after and as a result of the Strategy's acquisition of such securities or other
assets. Accordingly, any later increases or decreases in percentage beyond the
specified limitations resulting from a change in values or net assets will not
be considered a violation of this percentage limitation.
The term "net assets," as used in this SAI, means net assets plus any
borrowings.
Additional Investment Policies and Practices
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The following information about the Strategies' investment policies
and practices supplements the information set forth in the Prospectus.
Derivatives
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A Strategy may, but is not required to, use derivatives for risk
management purposes or as part of its investment strategies. Derivatives are
financial contracts whose value depend on, or are derived from, the value of an
underlying asset, reference rate or index. These assets, rates, and indices may
include bonds, stocks, mortgages, commodities, interest rates, currency exchange
rates, bond indices and stock indices.
There are four principal types of derivatives, which include options,
futures, forwards and swaps. The four principal types of derivative
invstruments, as well as the methods in which they may be used by a Strategy,
are described below. Derivatives may be (i) standardized, exchange-traded
contracts or (ii) customized, privately-negotiated contracts. Exchange-traded
derivatives tend to be more liquid and subject to less credit risk than those
that are privately negotiated. A Strategy may use derivatives to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets.
Forward Contracts. A forward contract is a customized, privately
negotiated agreement for one party to buy, and the other party to sell, a
specific quantity of an underlying commodity or other tangible asset for an
agreed-upon price at a future date. A forward contract generally is settled by
physical delivery of the commodity or other tangible asset underlying the
forward contract to an agreed upon location at a future date (rather than
settled by cash) or will be rolled forward into a new forward contract.
Non-deliverable forward ("NDFs") specify a cash payment upon maturity. NDFs are
normally used when the market for physical settlement of the currency is
underdeveloped, heavily regulated or highly taxed.
Futures Contracts and Options on Futures Contracts. A futures contract
is an agreement that obligates the buyer to buy and the seller to sell a
specified quantity of an underlying asset (or settle for cash the value of a
contract based on an underlying asset, rate or index) at a specific price on the
contract maturity date. Options on futures contracts are options that call for
the delivery of futures contracts upon exercise. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal but
opposite positions, which is the primary method in which futures contracts are
liquidated. A cash-settled futures contract does not require physical delivery
of the underlying asset but instead is settled for cash equal to the difference
between the values of the contract on the date it is entered into and its
maturity date.
Options. An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium payment
or fee, gives the option holder (the buyer) the right but not the obligation to
buy (a "call") or sell (a "put") the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index) at a specified price (the
exercise price) during a period of time or on a specified date. Likewise, when
an option is exercised the writer of the option is obligated to sell (in the
case of a call option) or to purchase (in the case of a put option) the
underlying asset (or settle for cash an amount based on an underlying asset,
rate or index). Investments in options are considered speculative. A Strategy
may lose the premium paid for them if the price of the underlying security or
other asset decreased or remained the same (in the case of a call option) or
increased or remained the same (in the case of a put option). If a put or call
option purchased by a Strategy were permitted to expire without being sold or
exercised, its premium would represent a loss to the Strategy.
Swaps. A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified intervals
(payment dates) based upon, or calculated by, reference to changes in specified
prices or rates (interest rates in the case of interest rate swaps, currency
exchange rates in the case of currency swaps) for a specified amount of an
underlying asset (the "notional" principal amount). Swaps are entered into on a
net basis (i.e., the two payment streams are netted out, with a fund receiving
or paying, as the case may be, only the net amount of the two payments. Payments
received by a Strategy from swap agreements will result in taxable income,
either as ordinary income or capital gains, rather than tax-exempt income, which
will increase the amount of taxable distributions received by shareholders of
the Municipal Bond Inflation Strategy. Except for currency swaps, the notional
principal amount is used solely to calculate the payment streams but is not
exchanged. With respect to currency swaps, actual principal amounts of
currencies may be exchanged by the counterparties at the initiation, and again
upon the termination, of the transaction. The swap market has grown
substantially in recent years, with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become well established and
relatively liquid.
Risks of Derivatives. Investment techniques employing such derivatives
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. Following is a general discussion of
important risk factors and issues concerning the use of derivatives.
-- Market Risk. This is the general risk attendant to all investments
that the value of a particular investment will change in a way
detrimental to a Strategy's interest.
-- Management Risk. Derivative products are highly specialized
instruments that require investment techniques and risk analyses
different from those associated with stocks and bonds. The use of a
derivative requires an understanding not only of the underlying
instrument but also of the derivative itself, without the benefit of
observing the performance of the derivative under all possible market
conditions. In particular, the use and complexity of derivatives
require the maintenance of adequate controls to monitor the
transactions entered into, the ability to assess the risk that a
derivative adds to a Strategy's investment portfolio, and the ability
to forecast price, interest rate or currency exchange rate movements
correctly.
-- Credit Risk. This is the risk that a loss may be sustained by a
Strategy as a result of the failure of another party to a derivative
(usually referred to as a "counterparty") to comply with the terms of
the derivative contract. The credit risk for exchange-traded
derivatives is generally less than for privately negotiated
derivatives, since the clearinghouse, which is the issuer or
counterparty to each exchange-traded derivative, provides a guarantee
of performance. This guarantee is supported by a daily payment system
(i.e., margin requirements) operated by the clearinghouse in order to
reduce overall credit risk. For privately negotiated derivatives,
there is no similar clearing agency guarantee. Therefore, a Strategy
considers the creditworthiness of each counterparty to a privately
negotiated derivative in evaluating potential credit risk.
-- Liquidity Risk. Liquidity risk exists when a particular instrument
is difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
-- Leverage Risk. Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if the
parties have not made any initial investment. Certain derivatives have
the potential for unlimited loss, regardless of the size of the
initial investment.
-- Risk of Potential Governmental Regulation of Derivatives. It is
possible that government regulation of various types of derivative
instruments, including futures and swap agreements, may limit or
prevent a Strategy from using such instruments as a part of its
investment strategy. The U.S. Congress has held hearings and various
legislations have been introduced related to the futures markets and
swap market participants. In addition, the CFTC and the SEC are
considering various regulatory initiatives. It is possible that this
legislative and regulatory activity could potentially limit or
completely restrict the ability of a Strategy to use certain
derivative instruments. Limits or restrictions applicable to
counterparties with whom a Strategy engages in derivative transactions
could also prevent the Strategy from engaging in these transactions.
-- Other Risks. Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately negotiated
derivatives, are complex and often valued subjectively. Improper
valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Strategy. Derivatives do not
always perfectly or even highly correlate or track the value of the
assets, rates or indices they are designed to closely track.
Consequently, a Strategy's use of derivatives may not always be an
effective means of, and sometimes could be counterproductive to,
furthering the Strategy's investment objective.
Use of Options, Futures, Forwards and Swaps by a Strategy.
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- Forward Currency Exchange Contracts. A forward currency exchange
contract is an obligation by one party to buy, and the other party to sell, a
specific amount of a currency for an agreed upon price at a future date. Forward
currency exchange contracts are customized, privately negotiated agreements
designed to satisfy the objectives of each party. A forward currency exchange
contract usually results in the delivery of the underlying asset upon maturity
of the contract in return for the agreed upon payment. NDFs specify a cash
payment upon maturity. NDFs are normally used when the market for physical
settlement of the currency is underdeveloped, heavily regulated or highly taxed.
The Bond Inflation Strategy may, for example, enter into forward
currency exchange contracts to attempt to minimize the risk to the Strategy from
adverse changes in the relationship between the U.S. Dollar and other
currencies. The Strategy may purchase or sell forward currency exchange
contracts for hedging purposes similar to those described below in connection
with its transactions in foreign currency futures contracts. The Strategy may
also purchase or sell forward currency exchange contracts for non-hedging
purposes as a means of making direct investments in foreign currencies, as
described below under "Currency Transactions".
If a hedging transaction in forward currency exchange contracts is
successful, the decline in the value of portfolio securities or the increase in
the cost of securities to be acquired may be offset, at least in part, by
profits on the forward currency exchange contract. Nevertheless, by entering
into such forward currency exchange contracts, the Strategy may be required to
forego all or a portion of the benefits which otherwise could have been obtained
from favorable movements in exchange rates.
The Strategy may also use forward currency exchange contracts to seek
to increase total return when the Adviser anticipates that a foreign currency
will appreciate or depreciate in value but securities denominated in that
currency are not held by the Strategy and do not present attractive investment
opportunities. For example, the Strategy may enter into a foreign currency
exchange contract to purchase a currency if the Adviser expects the currency to
increase in value. The Strategy would recognize a gain if the market value of
the currency is more than the contract value of the currency at the time of
settlement of the contract. Similarly, the Strategy may enter into a foreign
currency exchange contract to sell a currency if the Adviser expects the
currency to decrease in value. The Strategy would recognize a gain if the market
value of the currency is less than the contract value of the currency at the
time of settlement of the contract.
The cost of engaging in forward currency exchange contracts varies
with such factors as the currencies involved, the length of the contract period
and the market conditions then prevailing. Since transactions in foreign
currencies are usually conducted on a principal basis, no fees or commissions
are involved. The Strategy will segregate and mark to market liquid assets in an
amount at least equal to the Strategy's obligations under any forward currency
exchange contracts.
--Options on Securities and Municipal and U.S. Government Securities.
A Strategy may write and purchase call and put options on securities. In an
effort to increase current income and to reduce fluctuations in NAV, a Strategy
may also write put and call options and purchase put and call options on
securities that are traded on U.S. exchanges and municipal securities and U.S.
Government securities. A Strategy may also enter into options on the yield
"spread" or yield differential between two securities. In addition, a Strategy
may write covered straddles. There are no specific limitations on the writing
and purchasing of options by a Strategy.
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 a Strategy is "covered"
if the Strategy 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 Strategy 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 Strategy in liquid assets in a
segregated account with the Strategy's custodian. A put option written by a
Strategy is "covered" if the Strategy maintains liquid assets with a value equal
to the exercise price in a segregated account with the Strategy's 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.
In contrast to other types of options, options on the yield "spread"
or yield differential between two securities are based on the difference between
the yields of designated securities.
A Strategy may also, as an example, write combinations of put and call
options on the same security, known as "straddles," with the same exercise and
expiration date. By writing a straddle, the Strategy undertakes a simultaneous
obligation to sell and purchase the same security in the event that one of the
options is exercised. If the price of the security subsequently rises above the
exercise price, the call will likely be exercised and the Strategy will be
required to sell the underlying security at or below market price. This loss may
be offset, however, in whole or part, by the premiums received on the writing of
the two options. Conversely, if the price of the security declines by a
sufficient amount, the put will likely be exercised. The writing of straddles
will likely be effective, therefore, only where the price of the security
remains stable and neither the call nor the put is exercised. In those instances
where one of the options is exercised, the loss on the purchase or sale of the
underlying security may exceed the amount of the premiums received.
A Strategy may write call options for cross-hedging purposes. A call
option is for cross-hedging purposes if a Strategy does not own the underlying
security, and is designed to provide a hedge against a decline in value in
another security which the Strategy owns or has the right to acquire. In such
circumstances, a Strategy collateralizes its obligation under the option by
maintaining in a segregated account with the Strategy's custodian liquid assets
in an amount not less than the market value of the underlying security, marked
to market daily. A Strategy 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, a Strategy 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 Strategy 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 a Strategy were permitted to expire without being sold or
exercised, its premium would be lost by the Strategy.
If a put option written by a Strategy were exercised the Strategy
would be obligated to purchase the underlying security at the exercise price. If
a call option written by a Strategy were exercised, the Strategy 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 Strategy 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 Strategy at a lower price than its current market value. These risks could
be reduced by entering into a closing transaction. The Strategy retains the
premium received from writing a put or call option whether or not the option is
exercised.
The Strategies may purchase or write options on securities of the
types in which they are permitted to invest in privately negotiated (i.e.,
over-the-counter) transactions. By writing a call option, a Strategy limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option. By writing a put option, a
Strategy assumes the risk that it may be required to purchase the underlying
security for an exercise price above its then current market value, resulting in
a capital loss unless the security subsequently appreciates in value. Where
options are written for hedging purposes, such transactions constitute only a
partial hedge against declines in the value of portfolio securities or against
increases in the value of securities to be acquired, up to the amount of the
premium. A Strategy may purchase put options to hedge against a decline in the
value of portfolio securities. If such decline occurs, the put options will
permit the Strategy to sell the securities at the exercise price or to close out
the options at a profit. By using put options in this way, the Strategy will
reduce any profit it might otherwise have realized on the underlying security by
the amount of the premium paid for the put option and by transaction costs.
A Strategy may purchase call options to hedge against an increase in
the price of securities that the Strategy anticipates purchasing in the future.
If such increase occurs, the call option will permit the Strategy to purchase
the securities at the exercise price, or to close out the options at a profit.
The premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Strategy upon exercise of the option, and,
unless the price of the underlying security rises sufficiently, the option may
expire worthless to the Strategy and the Strategy will suffer a loss on the
transaction to the extent of the premium paid.
The Strategies will effect such transactions only with investment
dealers and other financial institutions (such as commercial banks or savings
and loan institutions) deemed creditworthy by the Adviser, and the Adviser has
adopted procedures for monitoring the creditworthiness of such entities. Options
purchased or written in negotiated transactions may be illiquid and it may not
be possible for the Strategies to effect a closing transaction at a time when
the Adviser believes it would be advantageous to do so.
--Options on Foreign Currencies. Bond Inflation Strategy may purchase
and write options on foreign currencies for hedging purposes. For example, a
decline in the dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Strategy may purchase put
options on the foreign currency. If the value of the currency does decline, the
Strategy will have the right to sell such currency for a fixed amount in dollars
and could thereby offset, in whole or in part, the adverse effect on its
portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Strategy may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Strategy from purchases of foreign currency options
will be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Strategy could sustain losses on transactions in foreign
currency options which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
Bond Inflation Strategy may write options on foreign currencies for
hedging purposes or to increase return. For example, where the Strategy
anticipates a decline in the dollar value of foreign-denominated securities due
to adverse fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the option will most likely not be exercised, and the diminution in
value of portfolio securities could be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Strategy could write a put option on the relevant currency, which, if rates move
in the manner projected, will expire unexercised and allow the Strategy to hedge
such increased cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Strategy will be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Strategy also may be required
to forego all or a portion of the benefits that might otherwise have been
obtained from favorable movements in exchange rates.
In addition to using options for the hedging purposes described above,
Bond Inflation Strategy may also invest in options on foreign currencies for
non-hedging purposes as a means of making direct investments in foreign
currencies. The Strategy may use options on currency to seek to increase total
return when the Adviser anticipates that a foreign currency will appreciate or
depreciate in value but securities denominated in that security are not held by
the Strategy and do not present attractive investment opportunities. For
example, the Strategy may purchase call options in anticipation of an increase
in the market value of a currency. The Strategy would ordinarily realize a gain
if, during the option period, the value of such currency exceeded the sum of the
exercise price, the premium paid and transactions costs. Otherwise, the Strategy
would realize no gain or a loss on the purchase of the call option. Put options
may be purchased by the Strategy for the purpose of benefiting from a decline in
the value of a currency that the Strategy does not own. The Strategy would
normally realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs. Otherwise, the Strategy would realize
no gain or loss on the purchase of the put option. For additional information on
the use of options on foreign currencies for non-hedging purposes, see "Currency
Transactions" below.
Special Risks Associated with Options on Currency. An exchange traded
options position may be closed out only on an options exchange that provides a
secondary marker for an option of the same series. Although Bond Inflation
Strategy will generally purchase or sell options for which there appears to be
an active secondary market, there is no assurance that a liquid secondary market
on an exchange will exist for any particular option, or at any particular time.
For some options, no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that the Strategy would have to exercise its options in order to
realize any profit and would incur transaction costs on the sale of the
underlying currency.
--Options on Securities Indices. An option on a securities index is
similar to an option on a security except that, rather than taking or making
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in the case of a
call) or less than (in the case of a put) the exercise price of the option.
A Strategy may write (sell) call and put options and purchase call and
put options on securities indices. If a Strategy purchases put options on
securities indices to hedge its investments against a decline in the value of
portfolio securities, it will seek to offset a decline in the value of
securities it owns through appreciation of the put option. If the value of the
Strategy's investments does not decline as anticipated, or if the value of the
option does not increase, the Strategy's loss will be limited to the premium
paid for the option. The success of this strategy will largely depend on the
accuracy of the correlation between the changes in value of the index and the
changes in value of the Strategy's security holdings.
The purchase of call options on securities indices may be used by a
Strategy to attempt to reduce the risk of missing a broad market advance, or an
advance in an industry or market segment, at a time when the Strategy holds
uninvested cash or short-term debt securities awaiting investment. When
purchasing call options for this purpose, the Strategy will also bear the risk
of losing all or a portion of the premium paid if the value of the index does
not rise. The purchase of call options on stock indices when a Strategy is
substantially fully invested is a form of leverage, up to the amount of the
premium and related transaction costs, and involves risks of loss and of
increased volatility similar to those involved in purchasing call options on
securities the Strategy owns.
--Futures Contracts and Options on Futures Contracts. Futures
contracts that a Strategy may buy and sell may include futures contracts on
fixed-income or other securities, and contracts based on interest rates, foreign
currencies or financial indices, including any index of U.S. Government
securities. A Strategy may, for example, purchase or sell futures contracts and
options thereon to hedge against changes in interest rates, securities (through
index futures or options) or currencies.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Strategy's current or intended investments in fixed-income securities. For
example, if a Strategy owned long-term bonds and interest rates were expected to
increase, that Strategy might sell interest rate futures contracts. Such a sale
would have much the same effect as selling some of the long-term bonds in that
Strategy's portfolio. However, since the futures market is more liquid than the
cash market, the use of interest rate futures contracts as a hedging technique
allows a Strategy to hedge its interest rate risk without having to sell its
portfolio securities. If interest rates were to increase, the value of the debt
securities in the portfolio would decline, but the value of that Strategy's
interest rate futures contracts would be expected to increase at approximately
the same rate, thereby keeping the net asset value of that Strategy from
declining as much as it otherwise would have. On the other hand, if interest
rates were expected to decline, interest rate futures contracts could be
purchased to hedge in anticipation of subsequent purchases of long-term bonds at
higher prices. Because the fluctuations in the value of the interest rate
futures contracts should be similar to those of long-term bonds, a Strategy
could protect itself against the effects of the anticipated rise in the value of
long-term bonds without actually buying them until the necessary cash becomes
available or the market has stabilized. At that time, the interest rate futures
contracts could be liquidated and that Strategy's cash reserves could then be
used to buy long-term bonds on the cash market.
A Strategy may purchase and sell foreign currency futures contracts
for hedging purposes in order to protect against fluctuations in currency
exchange rates. Such fluctuations could reduce the dollar value of portfolio
securities denominated in foreign currencies, or increase the cost of
foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant. A
Strategy may sell futures contracts on a foreign currency, for example, when it
holds securities denominated in such currency and it anticipates a decline in
the value of such currency relative to the dollar. If such a decline were to
occur, the resulting adverse effect on the value of foreign-denominated
securities may be offset, in whole or in part, by gains on the futures
contracts. However, if the value of the foreign currency increases relative to
the dollar, a Strategy's loss on the foreign currency futures contract may or
may not be offset by an increase in the value of the securities because a
decline in the price of the security stated in terms of the foreign currency may
be greater than the increase in value as a result of the change in exchange
rates.
Conversely, a Strategy could protect against a rise in the dollar cost
of foreign-denominated securities to be acquired by purchasing futures contracts
on the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Strategy purchases futures contracts under such
circumstances, however, and the price in dollars of securities to be acquired
instead declines as a result of appreciation of the dollar, the Strategy will
sustain losses on its futures position which could reduce or eliminate the
benefits of the reduced cost of portfolio securities to be acquired.
A Strategy may also engage in currency "cross hedging" when, in the
opinion of the Adviser, the historical relationship among foreign currencies
suggests that a Strategy may achieve protection against fluctuations in currency
exchange rates similar to that described above at a reduced cost through the use
of a futures contract relating to a currency other than the U.S. Dollar or the
currency in which the foreign security is denominated. Such "cross hedging" is
subject to the same risks as those described above with respect to an
unanticipated increase or decline in the value of the subject currency relative
to the U.S. Dollar.
A Strategy may also use foreign currency futures contracts and options
on such contracts for non-hedging purposes. Similar to options on currencies
described above, a Strategy may use foreign currency futures contracts and
options on such contracts to seek to increase total return when the Adviser
anticipates that a foreign currency will appreciate or depreciate in value but
securities denominated in that security are not held by the Strategy and do not
present attractive investment opportunities. The risks associated with foreign
currency futures contracts and options on futures are similar to those
associated with options on foreign currencies, as described above. For
additional information on the use of options on foreign currencies for
non-hedging purposes, see "Currency Transactions" below.
Purchases or sales of stock or bond index futures contracts are used
for hedging purposes to attempt to protect a Strategy's current or intended
investments from broad fluctuations in stock or bond prices. For example, a
Strategy may sell stock or bond index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Strategy's portfolio securities that might otherwise result. If such decline
occurs, the loss in value of portfolio securities may be offset, in whole or
part, by gains on the futures position. When a Strategy is not fully invested in
the securities market and anticipates a significant market advance, it may
purchase stock or bond index futures contracts in order to gain rapid market
exposure that may, in whole or in part, offset increases in the cost of
securities that the Strategy intends to purchase. As such purchases are made,
the corresponding positions in stock or bond index futures contracts will be
closed out.
Each Strategy has claimed an exclusion from the definition of the term
"commodity pool operator" under the Commodity Exchange Act and therefore is not
subject to registration or regulation as a pool operator under that Act.
Options on futures contracts are options that call for the delivery of
futures contracts upon exercise. Options on futures contracts written or
purchased by a Strategy will be traded on U.S. exchanges.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities in a Strategy's
portfolio. If the futures price at expiration of the option is below the
exercise price, the Strategy will retain the full amount of the option premium,
which provides a partial hedge against any decline that may have occurred in the
Strategy's portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the securities or other
instruments required to be delivered under the terms of the futures contract. If
the futures price at expiration of the put option is higher than the exercise
price, the Strategy will retain the full amount of the option premium, which
provides a partial hedge against any increase in the price of securities which
the Strategy intends to purchase. If a put or call option a Strategy has written
is exercised, the Strategy will incur a loss which will be reduced by the amount
of the premium it receives. Depending on the degree of correlation between
changes in the value of its portfolio securities and changes in the value of its
options on futures positions, a Strategy's losses from exercised options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
A Strategy may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated as
a result of a projected market-wide decline or changes in interest or exchange
rates, a Strategy could, in lieu of selling futures contracts, purchase put
options thereon. In the event that such decrease were to occur, it may be
offset, in whole or part, by a profit on the option. If the anticipated market
decline were not to occur, the Strategy will suffer a loss equal to the price of
the put. Where it is projected that the value of securities to be acquired by a
Strategy will increase prior to acquisition due to a market advance or changes
in interest or exchange rates, a Strategy could purchase call options on futures
contracts, rather than purchasing the underlying futures contracts. If the
market advances, the increased cost of securities to be purchased may be offset
by a profit on the call. However, if the market declines, the Strategy will
suffer a loss equal to the price of the call, but the securities that the
Strategy intends to purchase may be less expensive.
- Credit Default Swap Agreements. The "buyer" in a credit default swap
contract is obligated to pay the "seller" a periodic stream of payments over the
term of the contract in return for a contingent payment upon the occurrence of a
credit event with respect to an underlying reference obligation. Generally, a
credit event means bankruptcy, failure to pay, obligation acceleration or
modified restructuring. A Strategy may be either the buyer or seller in the
transaction. As a seller, the Strategy 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
Strategy 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.
The value of the reference obligation received by the Strategy as a seller if a
credit event occurs, coupled with the periodic payments previously received, may
be less than the full notional value it pays to the buyer, resulting in a loss
of value to the Strategy. If the reference obligation is a defaulted security,
physical delivery of the security will cause the Strategies to hold a defaulted
security. If the Strategy is a buyer and no credit event occurs, the Strategy
will lose its periodic stream of payments over the term of the contract.
However, if a credit event occurs, the buyer typically receives full notional
value for a reference obligation that may have little or no value.
Credit default swaps may involve greater risks than if a Strategy had
invested in the reference obligation directly. Credit default swaps are subject
to general market risk, liquidity risk and credit risk.
- Currency Swaps. Bond Inflation Strategy may enter into currency
swaps for hedging purposes to protect against adverse changes in exchange rates
between the U.S. Dollar and other currencies for non-hedging purposes as a means
of making direct investments in foreign currencies, as described below under
"Currency Transactions". Currency swaps involve the exchange by the Strategy
with another party of a series of payments in specified currencies. Actual
principal amounts of currencies may be exchanged by the counterparties at the
initiation, and again upon the termination of the transaction. Since currency
swaps are individually negotiated, the Strategy expects to achieve an acceptable
degree of correlation between its portfolio investments and its currency swaps
positions. Therefore the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations. The net amount of the excess, if any, of the Strategy's
obligations over its entitlements with respect to each currency swap will be
accrued on a daily basis and an amount of liquid assets having an aggregate net
asset value ("NAV") at least equal to the accrued excess will be maintained in a
segregated account by the Fund's custodian. If there is a default by the other
party to such a transaction, the Strategy will have contractual remedies
pursuant to the agreements related to the transactions.
--Swaps: Interest Rate Transactions. A Strategy may enter into
interest rate swap, swaptions, cap or floor transactions, which may include
preserving a return or spread on a particular investment or portion of its
portfolio or protecting against an increase in the price of securities the
Strategy anticipates purchasing at a later date. Unless there is a counterparty
default, the risk of loss to a Strategy from interest rate transactions is
limited to the net amount of interest payments that the Strategy is
contractually obligated to make. If the counterparty to an interest rate
transaction defaults, the Strategy's risk of loss consists of the net amount of
interest payments that the Strategy is contractually entitled to receive.
Interest rate swaps involve the exchange by a Strategy with another
party of payments calculated by reference to specified interest rates (e.g., an
exchange of floating rate payments for fixed rate payments). Interest rate swaps
are entered into on a net basis (i.e., the two payment streams are netted out,
with the Strategy receiving or paying, as the case may be, only the net amount
of the two payments).
An option on a swap agreement, also called a "swaption," is an option
that gives the buyer the right, but not the obligation, to enter into a swap on
a future date in exchange for paying a market-based "premium." A receiver
swaption gives the owner the right to receive the total return of a specified
asset, reference rate, or index. A payer swaption gives the owner the right to
pay the total return of a specified asset, reference rate, or index. Swaptions
also include options that allow an existing swap to be terminated or extended by
one of the counterparties.
Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor.
Caps and floors are less liquid than swaps. These transactions do not
involve the delivery of securities or other underlying assets or principal. A
Strategy will enter into interest rate swap, swaptions, cap or floor
transactions only with counterparties who have credit ratings of at least A- (or
the equivalent) from any one NRSRO or counterparties with guarantors with debt
securities having such a rating.
- Inflation (CPI) Swaps. Inflation swap agreements are contracts in
which one party agrees to pay the cumulative percentage increase in a price
index (the Consumer Price Index with respect to CPI swaps) over the term of the
swap (with some lag on the inflation index), and the other pays a compounded
fixed rate. Inflation swap agreements may be used to protect the NAV of the
Strategy against an unexpected change in the rate of inflation measured by an
inflation index since the value of these agreements is expected to increase if
unexpected inflation increases.
- Eurodollar Instruments. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to the
London Interbank Offered Rate and are subject to the same limitations and risks
as other futures contracts and options.
- Currency Transactions. Bond Inflation Strategy may invest in
non-U.S. Dollar-denominated securities on a currency hedged or un-hedged basis.
The Adviser will actively manage the Strategy's currency exposures and may seek
investment opportunities by taking long or short positions in currencies through
the use of currency-related derivatives, including forward currency exchange
contracts, futures and options on futures, swaps and options. The Adviser may
enter into transactions for investment opportunities when it anticipates that a
foreign currency will appreciate or depreciate in value but securities
denominated in that currency are not held by the Strategy and do not present
attractive investment opportunities. Such transactions may also be used when the
Adviser believes that it may be more efficient than a direct investment in a
foreign currency-denominated security. A Strategy may also conduct currency
exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing
in the currency exchange market for buying or selling currencies).
Forward Commitments and When-Issued and Delayed Delivery Securities
-------------------------------------------------------------------
Forward commitments for the purchase or sale of securities may include
purchases on a "when-issued" basis or purchases or sales on a "delayed delivery"
basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as and if issued"
trade). When forward commitment transactions are negotiated, the price is fixed
at the time the commitment is made, the Strategy assumes the rights and risks of
ownership of the security, and a Strategy does not pay for the securities until
they are received. If a Strategy is fully or almost fully invested when forward
commitment purchases are outstanding, such purchases may result in a form of
leverage. Leveraging the portfolio in this manner may increase the Strategy's
volatility of returns. The Strategy will segregate permissible liquid assets in
an amount equal to or greater than, on a daily basis, the amount of the
Strategy's purchase commitments.
Forward commitments include "To be announced" ("TBA") mortgage-backed
securities, which are contracts for the purchase or sale of mortgage-backed
securities to be delivered at a future agreed-upon date, whereby the specific
mortgage pool numbers or the number of pools that will be delivered to fulfill
the trade obligation or terms of the contract are unknown at the time of the
trade. Subsequent to the time of the trade, a mortgage pool or pools guaranteed
by the Government National Mortgage Association, or GNMA, the Federal National
Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or
FHLMC (including fixed rate or variable rate mortgages) are allocated to the TBA
mortgage-backed securities transactions.
The use of forward commitments enables a Strategy to protect against
anticipated changes in exchange rates, interest rates and/or prices. For
instance, a Strategy may enter into a forward contract when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. Dollar price of the security
("transaction hedge"). In addition, when the Strategy believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of that Strategy's securities denominated
in such foreign currency, or when the Strategy believes that the U.S. Dollar may
suffer a substantial decline against a foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
("position hedge"). If the Adviser were to forecast incorrectly the direction of
exchange rate movements, the Strategy might be required to complete such
when-issued or forward transactions at prices inferior to the then current
market values. When-issued securities and forward commitments may be sold prior
to the settlement date. If the Strategy chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or dispose of its right
to deliver or receive against a forward commitment, it may incur a gain or loss.
Any significant commitment of Strategy assets to the purchase of securities on a
"when, as and if issued" basis may increase the volatility of the Strategy's net
asset value.
At the time the Strategy intends to enter into a forward commitment,
it will record the transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in determining its net
asset value. Any unrealized appreciation or depreciation reflected in such
valuation of a "when, as and if issued" security would be canceled in the event
that the required conditions did not occur and the trade was canceled.
Although the Strategies do not intend to enter into forward
commitments for speculative purposes and the Strategies intend to adhere to the
provisions of the Securities and Exchange Commission (the "Commission")
policies, purchases of securities on such bases may involve more risk than other
types of purchases. For example, by committing to purchase securities in the
future, a Strategy subjects itself to a risk of loss on such commitments as well
as on its portfolio securities. Also, a Strategy may have to sell assets which
have been set aside in order to meet redemptions. In addition, if a Strategy
determines it is advisable as a matter of investment strategy to sell the
forward commitment or "when-issued" or "delayed delivery" securities before
delivery, that Strategy may incur a gain or loss because of market fluctuations
since the time the commitment to purchase such securities was made. Any such
gain or loss would be treated as a capital gain or loss for tax purposes. When
the time comes to pay for the securities to be purchased under a forward
commitment or on a "when-issued" or "delayed delivery" basis, the Strategy will
meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale of
the forward commitment or "when-issued" or "delayed delivery" securities
themselves (which may have a value greater or less than the Strategy's payment
obligation). In addition, no interest or dividends accrue to the purchaser prior
to the settlement date for securities purchased or sold under a forward
commitment.
Governmental Obligations
------------------------
The ability of governments to make timely payments on their
obligations is likely to be influenced strongly by the issuer's balance of
payments, including export performance, and its access to international credits
and investments. To the extent that a country receives payment for its exports
in currencies other than U.S. Dollars, its ability to make debt payments
denominated in U.S. Dollars could be adversely affected. To the extent that a
country develops a trade deficit, it will need to depend on continuing loans
from foreign governments, multi-lateral organizations or private commercial
banks, aid payments from foreign governments and on inflows of foreign
investment. The access of a country to these forms of external funding may not
be certain, and a withdrawal of external funding could adversely affect the
capacity of a government to make payments on its obligations. In addition, the
cost of servicing debt obligations can be affected by a change in international
interest rates since the majority of these obligations carry interest rates that
are adjusted periodically based upon international rates.
Illiquid Securities
-------------------
Each Strategy will limit its investments in illiquid securities to no
more than 15% of its net assets or such other amount permitted by guidance
regarding the Investment Company Act of 1940, as amended (the "1940 Act"). For
this purpose, illiquid securities include, among others, (a) direct placements
or other securities which are subject to legal or contractual restrictions on
resale or for which there is no readily available market (e.g., trading in the
security is suspended or, in the case of unlisted securities, market makers do
not exist or will not entertain bids or offers), (b) options purchased by the
Strategy over-the-counter and the cover for options written by the Strategy
over-the-counter, and (c) repurchase agreements not terminable within seven
days. Securities that have legal or contractual restrictions on resale but have
a readily available market are not deemed illiquid for purposes of this
limitation.
Mutual funds do not typically hold a significant amount of restricted
securities (securities that are subject to restrictions on resale to the general
public) or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. A mutual fund may also have to take certain steps or wait a
certain amount of time in order to remove the transfer restrictions for such
restricted securities in order to dispose of them, resulting in additional
expense and delay.
Rule 144A under the Securities Act allows a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted securities held
by a Strategy, however, could affect adversely the marketability of such
portfolio securities and the Strategy 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 a Strategy that are
eligible for resale pursuant to Rule 144A. In reaching liquidity decisions, the
Adviser will consider, among others, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers issuing quotations
to purchase or sell the security; (3) the number of other potential purchasers
of the security; (4) the number of dealers undertaking to make a market in the
security; (5) the nature of the security (including its unregistered nature) and
the nature of the marketplace for the security (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of the
transfer); and (6) any applicable Commission interpretation or position with
respect to such type of securities.
Investments in Other Investment Companies
-----------------------------------------
A Strategy may invest in securities of other investment companies,
including exchange-traded funds, to the extent permitted under the 1940 Act or
the rules and regulations thereunder (as such statute, rules or regulations may
be amended from time to time) or by guidance regarding, interpretations of, or
exemptive orders under, the 1940 Act or the rules or regulations thereunder
published by appropriate regulatory authorities. The Strategies intend to invest
uninvested cash balances in an affiliated money market fund as permitted by Rule
12d1-1 under the 1940 Act.
Lending of Strategy Securities
------------------------------
A Strategy may seek to increase income by lending portfolio
securities. A principal risk in lending portfolio securities, as with other
extensions of credit, consists of the possible loss of rights in the collateral
should the borrower fail financially. In addition, the Strategy may be exposed
to the risk that the sale of any collateral realized upon the 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
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. The loans would be made only to firms deemed
by the Adviser to be of good standing, and when, in the judgment of the Adviser,
the consideration that can be earned currently from securities loans of this
type justifies the attendant risk. A Strategy may lend portfolio securities to
the extent permitted under the 1940 Act or the rules and regulations thereunder
(as such statute, rules or regulations may be amended from time to time) or by
guidance regarding, interpretations of, or exemptive orders under, the 1940 Act.
Under present regulatory policies, including those of the Board of
Governors of the Federal Reserve System and the Commission, such loans may be
made only to member firms of the New York Stock Exchange (the "Exchange") and
will be required to be secured continuously by collateral in cash, cash
equivalents, or U.S. Treasury Bills maintained on a current basis at an amount
at least equal to the market value of the securities loaned. A Strategy will
have the right to call a loan and obtain the securities loaned at any time on
five days' notice. While securities are on loan, the borrower will pay the
Strategy any income from the securities. A Strategy may invest any cash
collateral in portfolio securities and earn additional income or receive an
agreed-upon amount of income from a borrower who has delivered equivalent
collateral. Any such investment of cash collateral will be subject to the
Strategy's investment risks.
A Strategy will not, however, have the right to vote any securities
having voting rights during the existence of the loan. A Strategy 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.
A Strategy may pay reasonable finders', administrative, and custodial
fees in connection with a loan.
Loan Participations and Assignments
-----------------------------------
A Strategy may invest in fixed or floating rate corporate loans
("Loans" and each, a "Loan") either by participating as co-lender at the time
the loan is originated ("Participations") or by buying an interest in the loan
in the secondary market from a financial institution or institutional investor
("Assignments"). The financial status of an institution interposed between a
Strategy and a borrower may affect the ability of the Strategy to receive
principal and interest payments.
The success of a Strategy may depend on the skill with which an agent
bank administers the terms of the corporate loan agreements, monitors borrower
compliance with covenants, collects principal, interest and fee payments from
borrowers and, where necessary, enforces creditor remedies against borrowers.
Agent banks typically have broad discretion in enforcing loan agreements.
A Strategy's investment in Participations typically will result in the
Strategy having a contractual relationship only with the financial institution
arranging the Loan with the borrower (the "Lender") and not with the borrower
directly. A Strategy will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, the Strategy generally
will have no right to enforce compliance by the borrower with the terms of the
loan agreement relating to the Loan, nor any rights of set-off against the
borrower, and the Strategy may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Strategy may be subject to the credit risk of both the borrower and the
Lender that is selling the Participation. In the event of the insolvency of the
Lender selling a Participation, the Strategy may be treated as a general
creditor of the Lender and may not benefit from any set-off between the Lender
and the borrower. Certain Participations may be structured in a manner designed
to avoid purchasers of Participations being subject to the credit risk of the
Lender with respect to the Participation; but even under such a structure, in
the event of the Lender's insolvency, the Lender's servicing of the
Participation may be delayed and the assignability of the Participation
impaired. A Strategy will acquire Participations only if the Lender
interpositioned between the Strategy and the borrower is a Lender having total
assets of more than $25 billion and whose senior unsecured debt is rated
investment grade (i.e., Baa3 or higher by Moody's or BBB- or higher by S&P) or
higher.
When a Strategy purchases Assignments from Lenders it will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Strategy as the
purchaser of an assignment may differ from, and be more limited than, those held
by the assigning Lender. The assignability of certain obligations is restricted
by the governing documentation as to the nature of the assignee such that the
only way in which the Strategy may acquire an interest in a Loan is through a
Participation and not an Assignment. A Strategy may have difficulty disposing of
Assignments and Participations because to do so it will have to assign such
securities to a third party. Because there is no liquid market for such
securities, the Strategy anticipates that such securities could be sold only to
a limited number of institutional investors. The lack of a liquid secondary
market may have an adverse impact on the value of such securities and the
Strategy's ability to dispose of particular Assignments or Participations when
necessary to meet the Strategy's liquidity needs in response to a specific
economic event such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid secondary market for Assignments and Participations also
may make it more difficult for the Strategy to assign a value to these
securities for purposes of valuing the Strategy's portfolio and calculating its
asset value.
Mortgage-Related Securities and Other Asset-Backed Securities
-------------------------------------------------------------
The mortgage-related securities in which a Strategy may invest
typically are securities representing interests in pools of mortgage loans made
by lenders such as savings and loan associations, mortgage bankers and
commercial banks and are assembled for sale to investors (such as the
Strategies) by governmental, government-related or private organizations.
Private organizations include commercial banks, savings associations, mortgage
companies, investment banking firms, finance companies, special purpose finance
entities (called special purpose vehicles or SPVs) and other entities that
acquire and package loans for resales as mortgage-related securities.
Specifically, these securities may include pass-through mortgage-related
securities, collateralized mortgage obligations ("CMOs"), CMO residuals,
adjustable-rate mortgage securities ("ARMS"), stripped mortgage-backed
securities ("SMBSs"), commercial mortgage-backed securities, "to be announced"
("TBA") mortgage-backed securities, mortgage dollar rolls, collateralized
obligations and other securities that directly or indirectly represent a
participation in or are secured by and payable from mortgage loans on real
property and other assets.
Pass-Through Mortgage-Related Securities. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment consisting of both interest and principal
payments. In effect, these payments are a "pass-through" of the monthly payments
made by the individual borrowers on their residential mortgage loans, net of any
fees paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Some mortgage-related securities, such as securities issued by
GNMA, are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, regardless of whether or not the mortgagor actually makes
the payment.
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying average life
assumptions. The assumed average life of pools of mortgages having terms of less
than 30 years, is less than 12 years, but typically not less than 5 years.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising
interest rates the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the pool. Historically, actual average life has been
consistent with the 12-year assumption referred to above. Actual prepayment
experience may cause the yield to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of a Strategy. The compounding
effect from reinvestment of monthly payments received by the Strategy 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 FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation and oversight by the Office of Federal Housing
Enterprise Oversight ("OFHEO"). 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. FHLMC is a corporate
instrumentality of the United States Government whose stock is owned by private
stockholders. 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 associations, private mortgage
insurance companies, mortgage bankers and other secondary market issuers create
pass-through pools of conventional residential mortgage loans. Securities
representing interests in pools created by non-governmental private issuers
generally offer a higher rate of interest than securities representing interests
in pools created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and credit support
and would be adversely affected if the rating of such an enhancer were
downgraded.
The structuring of the pass-through pool may also provide credit
enhancement. Examples of such credit support arising out of the structure of the
transaction include the issue of senior and subordinated securities (e.g., the
issuance of securities by a SPV in multiple classes or "tranches", with one or
more classes being senior to other subordinated classes as to payment of
principal and interest, with the result that defaults on the underlying mortgage
loans are borne first by the holders of the subordinated class); creation of
"reserve funds" ( in which case cash or investments sometimes funded from a
portion of the payments on the underlying mortgage loans, are held in reserve
against future losses); and "overcollateralization" (in which case the scheduled
payments on, or the principal amount of, the underlying mortgage loans exceeds
that required to make payment of the securities and pay any servicing or other
fees). There can be no guarantee the credit enhancements, if any will be
sufficient to prevent losses in the event of defaults on the underlying mortgage
loans.
In addition, mortgage-related securities that are issued by private
issuers are not subject to the underwriting requirements for the underlying
mortgages that are applicable to those mortgage-related securities that have a
government or government-sponsored entity guaranteed. As a result, the mortgage
loans underlying private mortgage-related securities may, and frequently do,
have less favorable collateral, credit risk or other underwriting
characteristics than government or government-sponsored mortgage-related
securities and have wider variances in a number of terms, including interest
rate, term, size, purposes and borrower characteristics. Privately issued pools
more frequently include second mortgages, high loan-to-value mortgages and
manufactured housing loans. The coupon rates and maturities of the underlying
mortgage loans in a private-label mortgage-related pool may vary to a greater
extent than those included in a government guaranteed pool, and the pool may
include subprime mortgage loans. Subprime loans refer to loans made to borrowers
with weakened credit histories or with a lower capacity to make timely payments
on their loans. For these reasons, the loans underlying these securities have
had in many cases higher default rates than those loans that meet government
underwriting requirements.
Collateralized Mortgage Obligations. Another form of mortgage-related
security is a "pay-through" security, which is a debt obligation of the issuer
secured by a pool of mortgage loans pledged as collateral that is legally
required to be paid by the issuer, regardless of whether payments are actually
made on the underlying mortgages. CMOs are the predominant type of "pay-through"
mortgage-related security. In a CMO, a series of bonds or certificates is issued
in multiple classes. Each class of a CMO, often referred to as a "tranche," is
issued at a specific coupon rate and has a stated maturity or final distribution
date. Principal prepayments on collateral underlying a CMO may cause one or more
tranches of the CMO to be retired substantially earlier than the stated
maturities or final distribution dates of the collateral. Although payment of
the principal of, and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
GNMA, FNMA, FHLMC, any other governmental agency or any other person or entity.
Adjustable-Rate Mortgage Securities. Another type of mortgage-related
security, known as adjustable-rate mortgage securities ("ARMS"), bears interest
at a rate determined by reference to a predetermined interest rate or index.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon rates
of the securities. To the extent that general interest rates increase faster
than the interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Furthermore, since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.
Stripped Mortgage-Related Securities. Stripped mortgage-related
securities (SMRS) are mortgage related securities that are usually structured
with separate classes of securities collateralized by a pool of mortgages or a
pool of mortgage backed bonds or pass-through securities, with each class
receiving different proportions of the principal and interest payments from the
underlying assets. A common type of SMRS has one class of interest-only
securities (IOs) receiving all of the interest payments from the underlying
assets and one class of principal-only securities (POs) receiving all of the
principal payments from the underlying assets. IOs and POs are extremely
sensitive to interest rate changes and are more volatile than mortgage-related
securities that are not stripped. IOs tend to decrease in value as interest
rates decrease and are extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal prepayments may have a material adverse effect on the yield to
maturity of the IO class. POs generally increase in value as interest rates
decrease. If prepayments of the underlying mortgages are greater than
anticipated, the amount of interest earned on the overall pool will decrease due
to the decreasing principal balance of the assets. Due to their structure and
underlying cash flows, SMRS may be more volatile than mortgage-related
securities that are not stripped. Changes in the values of IOs and POs can be
substantial and occur quickly, such as occurred in the first half of 1994 when
the value of many POs dropped precipitously due to increases in interest rates.
A Strategy will only invest in SMRS that are issued by the U.S.
Government, its agencies or instrumentalities and supported by the full faith
and credit of the United States. Although SMRS are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, the complexity of these instruments and the smaller number
of investors in the sector can lend to illiquid markets in the sector.
Commercial Mortgage-Backed Securities. Commercial mortgage-backed
securities are securities that represent an interest in, or are secured by,
mortgage loans secured by multifamily or commercial properties, such as
industrial and warehouse properties, office buildings, retail space and shopping
malls, and cooperative apartments, hotels and motels, nursing homes, hospitals
and senior living centers. Commercial mortgage-backed securities have been
issued in public and private transactions by a variety of public and private
issuers using a variety of structures, some of which were developed in the
residential mortgage context, including multi-class structures featuring senior
and subordinated classes. Commercial mortgage-backed securities may pay fixed or
floating-rates of interest. The commercial mortgage loans that underlie
commercial mortgage-related securities have certain distinct risk
characteristics. Commercial mortgage loans generally lack standardized terms,
which may complicate their structure, tend to have shorter maturities than
residential mortgage loans and may not be fully amortizing. Commercial
properties themselves tend to be unique and are more difficult to value than
single-family residential properties. In addition, commercial properties,
particularly industrial and warehouse properties, are subject to environmental
risks and the burdens and costs of compliance with environmental laws and
regulations.
"To Be Announced" Mortgaged-Backed Securities. TBA mortgage-backed
securities are described in "Derivatives--Forward Commitments and When-Issued
and Delayed Delivery Securities" above.
Certain Risks. The value of mortgage-related securities is affected by
a number of factors. Unlike traditional debt securities, which have fixed
maturity dates, mortgage-related securities may be paid earlier than expected as
a result of prepayments of underlying mortgages. Such prepayments generally
occur during periods of falling mortgage interest rates. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will result
in the early payment of the applicable mortgage-related securities. In that
event, a Strategy may be unable to invest the proceeds from the early payment of
the mortgage-related securities in investments that provide as high a yield as
the mortgage-related securities. Early payments associated with mortgage-related
securities cause these securities to experience significantly greater price and
yield volatility than is experienced by traditional fixed-income securities. The
level of general interest rates, general economic conditions and other social
and demographic factors affect the occurrence of mortgage prepayments. During
periods of falling interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-related securities.
Conversely, during periods of rising interest rates, a reduction in prepayments
may increase the effective life of mortgage-related securities, subjecting them
to greater risk of decline in market value in response to rising interest rates.
If the life of a mortgage-related security is inaccurately predicted, a Strategy
may not be able to realize the rate of return it expected.
As with other fixed-income securities, there is also the risk of
nonpayment of mortgage-related securities, particularly for those securities
that are backed by mortgage pools that contain subprime loans. Market factors
adversely affecting mortgage loan repayments include a general economic
downturn, high unemployment, a general slowdown in the real estate market, a
drop in the market prices of real estate, or higher mortgage payments required
to be made by holders of adjustable rate mortgages due to scheduled increases or
increases due to higher interest rates.
Subordinated mortgage-related securities may have additional risks.
The subordinated mortgage-related security may serve as credit support for the
senior securities purchased by other investors. In addition, the payments of
principal and interest on these subordinated securities generally will be made
only after payments are made to the holders of securities senior to the
subordinated securities. Therefore, if there are defaults on the underlying
mortgage loans, the holders of subordinated mortgage-related securities will be
less likely to receive payments of principal and interest and will be more
likely to suffer a loss.
Commercial mortgage-related securities, like all fixed-income
securities, generally decline in value as interest rates rise. Moreover,
although generally the value of fixed-income securities increases during periods
of falling interest rates, this inverse relationship is not as marked in the
case of single-family residential mortgage-related securities, due to the
increased likelihood of prepayments during periods of falling interest rates,
and may not be as marked in the case of commercial mortgage-related securities.
The process used to rate commercial mortgage-related securities may focus on,
among other factors, the structure of the security, the quality and adequacy of
collateral and insurance, and the creditworthiness of the originators, servicing
companies and providers of credit support.
Although the market for mortgage-related securities is becoming
increasingly liquid, those issued by certain private organizations may not be
readily marketable there may be a limited market for these securities,
especially when there is a perceived weakness in the mortgage and real estate
market sectors. In particular, the secondary markets for CMOs, IOs and POs may
be more volatile and less liquid than those for other mortgage-related
securities, thereby potentially limiting a Strategy's ability to buy or sell
those securities at any particular time. Without an active trading market,
mortgage-related securities held in a Strategy's portfolio may be particularly
difficult to value because of the complexities involved in the value of the
underlying mortgages. In addition, the rating agencies may have difficulties in
rating commercial mortgage-related securities through different economic cycles
and in monitoring such ratings on a longer-term basis.
As with fixed-income securities generally, the value of
mortgage-related securities can also be adversely affected by increases in
general interest rates relative to the yield provided by such securities. Such
an adverse effect is especially possible with fixed-rate mortgage securities. If
the yield available on other investments rises above the yield of the fixed-rate
mortgage securities as a result of general increases in interest rate levels,
the value of the mortgage-related securities will decline.
Other Asset-Backed Securities. A Strategy may invest in other
asset-backed securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. For
example, a Strategy may invest in collateralized debt obligations ("CDOs"),
which include collateralized bond obligations ("CBOs"), collateralized loan
obligations ("CLOs"), and other similarly structured securities. CBOs and CLOs
are types of asset-backed securities. A CBO is a trust, which is backed by a
diversified pool of high-risk, below investment grade fixed-income securities. A
CLO is a trust typically collateralized by a pool of loans, which may include,
among others, domestic and foreign senior secured loans, senior unsecured loans,
and subordinate corporate loans, including loans that may be rated below
investment grade or equivalent unrated loans. These asset-backed securities are
subject to risks associated with changes in interest rates, prepayment of
underlying obligations and defaults similar to the risks of investment in
mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending
on the type of assets involved and the legal structure used. For example, credit
card receivables are generally unsecured obligations of the credit card holder
and the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively burdensome
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.
Preferred Stock
---------------
A Strategy may invest in preferred stock. Preferred stock is an equity
security that has features of debt because it generally entitles the holder to
periodic payments at a fixed rate of return. Preferred stock is subordinated to
any debt the issuer has outstanding but has liquidation preference over common
stock. Accordingly, preferred stock dividends are not paid until all debt
obligations are first met. Preferred stock may be subject to more fluctuations
in market value, due to changes in market participants' perceptions of the
issuer's ability to continue to pay dividends, than debt of the same issuer.
Repurchase Agreements and Buy/Sell Back Transactions
----------------------------------------------------
A repurchase agreement is an agreement by which a Strategy purchases a
security and obtains a simultaneous commitment from the seller to repurchase the
security at an agreed upon price and date, normally one day or a few days later.
The purchase and repurchase obligations are transacted under one document. The
resale price is greater than the purchase price, reflecting an agreed-upon
"interest rate" that is effective for the period of time the buyer's money is
invested in the security, and which is related to the current market rate of the
purchased security rather than its coupon rate. During the term of the
repurchase agreement, a Strategy monitors on a daily basis the market value of
the securities subject to the agreement and, if the market value of the
securities falls below the resale amount provided under the repurchase
agreement, the seller under the repurchase agreement is required to provide
additional securities or cash equal to the amount by which the market value of
the securities falls below the resale amount. Because a repurchase agreement
permits a Strategy to invest temporarily available cash on a
fully-collateralized basis, repurchase agreements permit the Strategy to earn a
return on temporarily available cash while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. Repurchase agreements may
exhibit the characteristics of loans by the Strategy.
The obligation of the seller under the repurchase agreement is not
guaranteed, and there is a risk that the seller may fail to repurchase the
underlying security, whether because of the seller's bankruptcy or otherwise. In
such event, a Strategy would attempt to exercise its rights with respect to the
underlying security, including possible sale of the securities. A Strategy may
incur various expenses in the connection with the exercise of its rights and may
be subject to various delays and risks of loss, including (a) possible declines
in the value of the underlying securities, (b) possible reduction in levels of
income and (c) lack of access to the securities (if they are held through a
third-party custodian) and possible inability to enforce the Strategy's rights.
The 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 a Strategy enters into repurchase
agreement transactions.
A Strategy 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 Strategy's
ability to enter into repurchase agreements. Currently, Strategies intend to
enter into repurchase agreements only with their custodian and such primary
dealers.
A Strategy may enter into buy/sell back transactions, which are
similar to repurchase agreements. In this type of transaction, the Strategy
enters a trade to buy securities at one price and simultaneously enters a trade
to sell the same securities at another price on a specified date. Similar to a
repurchase agreement, the repurchase price is higher than the sale price and
reflects current interest rates. Unlike a repurchase agreement, however, the
buy/sell transaction, though done simultaneously, is two separate legal
agreements. A buy/sell transaction also differs from a repurchase agreement in
that the seller is not required to provide margin payments if the value of the
securities falls below the repurchase price because the transaction is two
separate transactions. A Strategy has the risk of changes in the value of the
purchased security during the terms of the buy/sell agreement although these
agreements typically provide for the repricing of the original transaction at a
new market price if the value of the security changes by a specific amount.
Reverse Repurchase Agreements and Dollar Rolls
----------------------------------------------
Reverse repurchase agreements involve sales by the Bond Inflation
Strategy of portfolio assets concurrently with an agreement by the Strategy to
repurchase the same assets at a later date at a fixed price. During the reverse
repurchase agreement period, the Strategy continues to receive principal and
interest payments on these securities. Generally, the effect of such a
transaction is that the Strategy can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous only if the
interest cost to the Strategy of the reverse repurchase transaction is less than
the cost of otherwise obtaining the cash.
Reverse repurchase agreements are considered to be a loan to the
Strategy by the counterparty, collateralized by the assets subject to repurchase
because the incidents of ownership are retained by the Strategy. By entering
into reverse repurchase agreements, the Strategy obtains additional cash to
invest on other securities. The Strategy may use reverse repurchase agreements
for borrowing purposes if it believes that the cost of this form of borrowing
will be lower than the cost of bank borrowing. Reverse repurchase agreements
create leverage and are speculative transactions because they allow the Strategy
to achieve a return on a larger capital base relative to its NAV. The use of
leverage creates the opportunity for increased income for the Strategy's
shareholders when the Strategy achieves a higher rate of return on the
investment of the reverse repurchase agreement proceeds than it pays in interest
on the reverse repurchase transactions. However, there is the risk that returns
could be reduced if the rates of interest on the investment proceeds do not
exceed the interest paid by the Strategy on the reverse repurchase transactions.
Borrowings through reverse repurchase agreements are not subject to the
requirement applicable to bank borrowings under Section 18(f)(1) of the 1940 Act
to maintain an asset coverage of at least 300% but are subject to an equivalent
requirement to maintain asset coverage by segregating assets in a segregated
account equal in value to proceeds received in the reverse repurchase agreement.
Dollar rolls involve sales by the Strategy of securities for delivery
in the current month and the Strategy's simultaneously contracting to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Strategy forgoes principal and interest paid
on the securities. The Strategy is compensated by the difference between the
current sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that
the market value of the securities the Strategy is obligated to repurchase under
the agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Strategy's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Strategy's obligation to repurchase
the securities. In addition, the use of these investments results in leveraging
the Strategy's common stocks because the Strategy uses the proceeds to make
investments in other fixed-income securities. Use of leverage is considered
speculative and has, among other things, the risk that the Strategy's NAV may be
more volatile.
Rights and Warrants
-------------------
A Strategy may invest in rights or warrants which entitle the holder
to buy equity securities at a specific price for a specific period of time, but
will do so only if the equity securities themselves are deemed appropriate by
the Adviser for inclusion in a Strategy's portfolio. Rights and warrants may be
considered more speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with respect to the
securities which may be purchased nor do they represent any rights in the assets
of the issuing company. Also, the value of a right or warrant does not
necessarily change with the value of the underlying securities and a right or
warrant ceases to have value if it is not exercised prior to the expiration
date.
Securities Ratings
------------------
The ratings of fixed-income securities by Moody's, S&P, and Fitch
Ratings ("Fitch"), Dominion Bond Rating Service Ltd. and A.M. Best Company are a
generally accepted barometer of credit risk. They are, however, subject to
certain limitations from an investor's standpoint. The rating of an issuer is
heavily weighted by past developments and does not necessarily reflect probable
future conditions. There is frequently a lag between the time a rating is
assigned and the time it is updated. In addition, there may be varying degrees
of difference in credit risk of securities within each rating category.
Securities rated Baa, BBB+, BBB, or BBB- by S&P or Baa1, Baa2 or Baa3
by Moody's are considered by Moody's to have speculative characteristics.
Sustained periods of deteriorating economic conditions or rising interest rates
are more likely to lead to a weakening in the issuer's capacity to pay interest
and repay principal than in the case of higher-rated securities.
Non-rated securities will also be considered for investment by a
Strategy 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 Strategy to a degree comparable to that of
rated securities which are consistent with the Strategy's objectives and
policies.
The Adviser generally uses ratings issued by S&P, Moody's, Fitch and
Dominion Bond Rating Service Ltd. Some securities are rated by more than one of
these ratings agencies, and the ratings assigned to the security by the rating
agencies may differ. In such an event and for purposes of determining compliance
with restrictions on investments for a Strategy, if a security is rated by two
or more rating agencies, the Adviser will deem the security to be rated at the
highest rating. For example, if a security is rated by Moody's and S&P only,
with Moody's rating the security as Ba and S&P as BBB, the Adviser will deem the
security to be rated as the equivalent of BBB (i.e., Baa by Moody's and BBB by
S&P). Or, if a security is rated by Moody's, S&P and Fitch, with Moody's rating
the security as Ba, S&P as BBB and Fitch as BB, the Adviser will deem the
security to be rated as the equivalent of BBB (i.e., Ba1 by Moody's, BBB by S&P
and BBB by Fitch).
The Adviser will try to reduce the risk inherent in a Strategy's
investment approach through credit analysis, diversification and attention to
current developments and trends in interest rates and economic conditions.
However, there can be no assurance that losses will not occur. In considering
investments for Strategies that invest in high-yielding securities, the Adviser
will attempt to identify those high-yielding securities whose financial
condition is adequate to meet future obligations, has improved, or is expected
to improve in the future. The Adviser's analysis focuses on relative values
based on such factors as interest or dividend coverage, asset coverage, earnings
prospects, and the experience and managerial strength of the issuer.
In the event that the credit rating of a security held by a Strategy
is downgraded, the credit quality deteriorates after purchase, or the security
defaults, the Strategy will not be obligated to dispose of that security and may
continue to hold the security if, in the opinion of the Adviser, such investment
is appropriate in the circumstances.
Unless otherwise indicated, references to securities ratings by one
rating agency in this SAI shall include the equivalent rating by another rating
agency.
Short Sales
-----------
A Strategy may make short sales of securities or maintain a short
position only for the purpose of deferring realization of gain or loss for U.S.
federal income tax purposes, provided that at all times when a short position is
open the Strategy owns an equal amount of such securities of the same issue as,
and equal in amount to, the securities sold short. In addition, a Strategy may
not make a short sale if more than 10% of the Strategy's net assets (taken at
market value) is held as collateral for short sales at any one time. A short
sale of a security involves the risk that, instead of declining, the price of
the security sold short will rise. If the price of the securities sold short
increases between the time of a short sale and the time a Strategy replaces the
borrowed security, the Strategy will incur a loss; conversely, if the price
declines, the Strategy will realize a gain. The potential for the price of a
fixed-income security sold short to rise is a function of both the remaining
maturity of the obligation, its creditworthiness and its yield. Unlike short
sales of equities or other instruments, potential for the price of a
fixed-income security to rise may be limited due to the fact that the security
will be no more than par at maturity. However, the short sale of other
instruments or securities generally, including fixed-income securities
convertible into equities or other instruments, a fixed-income security trading
at a deep discount from par or which pays a coupon that is high in relative or
absolute terms, or which is denominated in a currency other than the U.S.
Dollar, involves the possibility of a theoretically unlimited loss since there
is a theoretically unlimited potential for the market price of the security sold
short to increase. See "Dividends, Distributions and Taxes-Tax Straddles" for a
discussion of certain special federal income tax considerations that may apply
to short sales which are entered into by the Strategy.
Structured Securities
---------------------
A Strategy may invest securities issued in structured financing
transactions, which generally involve aggregating types of debt assets in a pool
or special purpose entity and then issuing new securities. Types of structured
financings include, for example, mortgage-related and other asset-backed
securities. A Strategy's investments include investments in structured
securities that represent interests in entities organized and operated solely
for the purpose of restructuring the investment characteristics of debt
obligations. This type of restructuring involves the deposit with or purchase by
an entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans) and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Securities of the type in
which the Strategy anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
A Strategy is permitted to invest in a class of Structured Securities
that is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Securities typically have higher yields and
present greater risks than unsubordinated Structured Securities.
Under the terms of subordinated securities, payments that would be
made to their holders may be required to be made to the holders of more senior
securities and/or the subordinated or junior securities may have junior liens,
if they have any rights at all, in any collateral (meaning proceeds of the
collateral are required to be paid first to holders of more senior securities).
As a result, subordinated or junior securities will be disproportionately
affected by a default or even a perceived decline in the creditworthiness of the
issuer.
U.S. Government Securities
--------------------------
U.S. Government securities may be backed by the full faith and credit
of the United States, supported only by the right of the issuer to borrow from
the U.S. Treasury or backed only by the credit of the issuing agency itself.
These securities include: (i) the following U.S. Treasury securities, which are
backed by the full faith and credit of the United States and differ only in
their interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less with no interest paid and hence issued at a
discount and repaid at full face value upon maturity), U.S. Treasury notes
(maturities of one to ten years with interest payable every six months) and U.S.
Treasury bonds (generally maturities of greater than ten years with interest
payable every six months); (ii) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities that are supported by the full faith
and credit of the U.S. Government, such as securities issued by GNMA, the
Farmers Home Administration, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and the Small
Business Administration and including obligations that are issued by private
issuers that are guaranteed as to principal or interest by the U.S. Government,
its agencies or institutions; and (iii) obligations issued or guaranteed by U.S.
government agencies and instrumentalities that are not supported by the full
faith and credit of the U.S. Government or a right to borrow from the U.S.
Treasury, such as securities issued by the FNMA and FHLMC, and governmental
collateralized mortgage obligations ("CMOs"). The maturities of the U.S.
Government securities listed in paragraphs (i) and (ii) above usually range from
three months to 30 years. Such securities, except GNMA certificates, normally
provide for periodic payments of interest in fixed amount with principal
payments at maturity or specified call dates.
U.S. Government securities also include zero coupon securities and
principal-only securities and certain stripped mortgage-related securities. Zero
coupon securities are described in more detail in "Zero Coupon Securities"
below, and stripped mortgage-related securities and principal-only securities
are described in more detail in "Mortgage-Related Securities and Other
Asset-Backed Securities -Stripped Mortgage-Related Securities" above. In
addition, other U.S. Government agencies and instrumentalities have issued
stripped securities that are similar to SMRS.
Inflation-protected securities, or IPS, such as Treasury
Inflation-Protected Securities, or TIPS, are fixed income securities whose
principal value is periodically adjusted according to the rate of inflation. If
the index measuring inflation falls, the principal value of these securities
will be adjusted downward, and consequently the interest payable on these
securities (calculated with respect to a smaller principal amount) will be
reduced. Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-protected
securities. For bonds that do not provide a similar guarantee, the adjusted
principal value of the bond repaid at maturity may be less than the original
principal.
Inflation-protected securities tend to react to changes in real
interest rates. In general, the price of an inflation-protected debt security
can fall when real interest rates rise, and can rise when real interest rates
fall. Interest payments on inflation-protected debt securities can be
unpredictable and will vary as the principal and/or interest is adjusted for
inflation.
TIPS, which are issued by the U.S Treasury, use the Consumer Price
Index for Urban Consumers, or the CPI, as the inflation measure. The principal
of a TIPS increases with inflation and decreases with deflation, as measured by
the CPI. When a TIPS matures, the holder is paid the adjusted principal or
original principal, whichever is greater. TIPS pay interest twice a year, at a
fixed rate, which is determined by auction at the time the TIPS are issued. The
rate is applied to the adjusted principal; so, like the principal, interest
payments rise with inflation and fall with deflation. TIPS are issued in terms
of 5, 10, and 20 years.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of the Strategy 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.
Municipal Securities
--------------------
Municipal securities include municipal bonds as well as short-term
(i.e., maturing in under one year to as much as three years) municipal notes,
demand notes and tax-exempt commercial paper. In the event Municipal Bond
Inflation Strategy invests in demand notes, the Adviser will continually monitor
the ability of the obligor under such notes to meet its obligations. Typically,
municipal bonds are issued to obtain funds used to construct a wide range of
public facilities, such as schools, hospitals, housing, mass transportation,
airports, highways and bridges. The funds may also be used for general operating
expenses, refunding of outstanding obligations and loans to other public
institutions and facilities.
Municipal bonds have two principal classifications: general obligation
bonds and revenue or special obligation bonds. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue or special obligation bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source but not from general tax and other unrestricted revenues
of the issuer. The term "issuer" means the agency, authority, instrumentality or
other political subdivision whose assets and revenues are available for the
payment of principal of and interest on the bonds. Certain types of private
activity bonds are also considered municipal bonds if the interest thereon is
exempt from federal income tax.
Private activity bonds are in most cases revenue bonds and do not
generally constitute the pledge of the credit or taxing power of the issuer of
such bonds. The payment of the principal and interest on such private activity
bonds depends solely on the ability of the user of the facilities financed by
the bonds to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
Municipal Bond Inflation Strategy may invest a portion of its assets
in municipal securities that pay interest at a coupon rate equal to a base rate
plus additional interest for a certain period of time if short-term interest
rates rise above a predetermined level or "cap." Although the specific terms of
these municipal securities may differ, the amount of any additional interest
payment typically is calculated pursuant to a formula based upon an applicable
short-term interest rate index multiplied by a designated factor. The additional
interest component of the coupon rate of these municipal securities generally
expires before the maturity of the underlying instrument. These municipal
securities may also contain provisions that provide for conversion at the option
of the issuer to constant interest rates in addition to standard call features.
Municipal Bond Inflation Strategy may invest in zero coupon
securities, which are debt obligations that do not entitle the holder to any
periodic payments prior to maturity and are issued and traded at a discount from
their face amounts. The discount varies depending on the time remaining until
maturity, prevailing interest rates, liquidity of the security and perceived
credit quality of the issuer. The market prices of zero coupon securities are
generally more volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do securities having similar maturities and credit quality that do
pay periodic interest.
Municipal Bond Inflation Strategy may also invest in municipal
securities, the interest rate on which has been divided into two different and
variable components, which together result in a fixed interest rate. Typically,
the first of the components (the "Auction Component") pays an interest rate that
is reset periodically through an auction process, whereas the second of the
components (the "Residual Component") pays a current residual interest rate
based on the difference between the total interest paid by the issuer on the
municipal securities and the auction rate paid on the Auction Component. The
Strategy may purchase both Auction and Residual Components.
Because the interest rate paid to holders of Residual Components is
generally determined by subtracting the interest rate paid to the holders of
Auction Components from a fixed amount, the interest rate paid to Residual
Component holders will decrease the Auction Component's rate increases and
increase as the Auction Component's rate decreases. Moreover, the extent of the
increases and decreases in market value of Residual Components may be larger
than comparable changes in the market value of an equal principal amount of a
fixed rate municipal security having similar credit quality, redemption
provisions and maturity.
Municipal Bond Inflation Strategy may also invest in (i) asset-backed
securities, which are securities issued by special purpose entities whose
primary assets consist of, for the purposes of the Strategy's investment, a pool
of municipal securities, or (ii) partnership and grantor trust-type derivative
securities, whose ownership allows the purchaser to receive principal and
interest payments on underlying municipal securities. The securities may be in
the form of a beneficial interest in a special purpose trust, limited
partnership interest, or other debt securities issued by a special purpose
corporation. Although the securities may have some form of credit or liquidity
enhancement, payments on the securities depend predominately upon the municipal
securities held by the issuer. There are many types of these securities,
including securities in which the tax-exempt interest rate is determined by an
index, a swap agreement, or some other formula, for example, the interest rate
payable on the security may adjust either at pre-designated periodic intervals
or whenever there is a change in the market rate to which the security's
interest rate is tied. Other features may include the right of the Strategy to
tender the security prior to its stated maturity. The Strategy will not purchase
an asset-backed or derivatives security unless it has opinion of counsel in
connection with the purchase that interest earned by the Strategy from the
securities is exempt from, as applicable, Federal and state income taxes.
Municipal notes in which the Strategy may invest include demand notes,
which are tax-exempt obligations that have stated maturities in excess of one
year, but permit the holder to sell back the security (at par) to the issuer
within 1 to 7 days notice. The payment of principal and interest by the issuer
of these obligations will ordinarily be guaranteed by letters of credit offered
by banks. The interest rate on a demand note may be based upon a known lending
rate, such as a bank's prime rate, and may be adjusted when such rate changes,
or the interest rate on a demand note may be a market rate that is adjusted at
specified intervals.
Other short-term obligations constituting municipal notes include tax
anticipation notes, revenue anticipation notes, bond anticipation notes and
tax-exempt commercial paper.
Tax anticipation notes are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal
tax revenues, such as ad valorem, income, sales, use and business taxes. Revenue
anticipation notes are issued in expectation of receipt of other types of
revenues, such as federal revenues available under the Federal Revenue Sharing
Programs. Bond anticipation notes are issued to provide interim financing until
long-term financing can be arranged. In most such cases, the long-term bonds
provide the money for the repayment of the notes.
Tax-exempt commercial paper is a short-term obligation with a stated
maturity of 365 days or less (however, issuers typically do not issue such
obligations with maturities longer than seven days). Such obligations are issued
by state and local municipalities to finance seasonal working capital needs or
as short-term financing in anticipation of longer-term financing.
There are, of course, variations in the terms of, and the security
underlying, municipal securities, both within a particular rating classification
and between such classifications, depending on many factors. The ratings of
Moody's, S&P and Fitch represent their opinions of the quality of the municipal
securities rated by them. It should be emphasized that such ratings are general
and are not absolute standards of quality. Consequently, municipal securities
with the same maturity, coupon and rating may have different yields, while the
municipal securities of the same maturity and coupon, but with different
ratings, may have the same yield. The Adviser appraises independently the
fundamental quality of the securities included in the Strategy's portfolios.
Yields on municipal securities are dependent on a variety of factors,
including the general conditions of the municipal securities market, the size of
a particular offering, the maturity of the obligation and the rating of the
issue. An increase in interest rates generally will reduce the market value of
portfolio investments, and a decline in interest rates generally will increase
the value of portfolio investments. Municipal securities with longer maturities
tend to produce higher yields and are generally subject to greater price
movements than obligations with shorter maturities. Under normal circumstances
the average weighted maturity of the securities in the Strategy will range
between 10 and 30 years. However, the Strategy does not have any restrictions on
the maturity of municipal securities in which it may invest. The Strategy will
seek to invest in municipal securities of such maturities that, in the judgment
of the Adviser, will provide a high level of current income consistent with
liquidity requirements and market conditions. The achievement of the Strategy's
respective investment objectives depends in part on the continuing ability of
the issuers of municipal securities in which the Strategy invests to meet their
obligations for the payment of principal and interest when due. Municipal
securities historically have not been subject to registration with the
Commission, although from time to time there have been proposals which would
require registration in the future.
After purchase by the Strategy, a municipal security may cease to be
rated, its rating may be reduced below the minimum required for purchase by the
Strategy or it may default. These events do not require sales of such securities
by the Strategy, but the Adviser will consider such event in its determination
of whether the Strategy should continue to hold the security. To the extent that
the ratings given by Moody's, S&P or Fitch may change as a result of changes in
such organizations or their rating systems, the Adviser will attempt to use such
changed ratings in a manner consistent with the Strategy's quality criteria as
described in the Prospectus.
Obligations of issuers of municipal securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code. In addition, the
obligations of such issuers may become subject to laws enacted in the future by
Congress, state legislatures, or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of
such obligations or upon the ability of municipalities to levy taxes. There is
also the possibility that, as a result of litigation or other conditions, the
ability of any issuer to pay, when due, the principal or the interest on its
municipal bonds may be materially affected.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. It can be expected that similar proposals may
be introduced in the future. If such a proposal were enacted, the availability
of municipal securities for investment by the Strategy and the value of the
Strategy would be affected. Additionally, the Strategy's investment objectives
and policies would be reevaluated.
Tender Option Bond Transactions
-------------------------------
Municipal Bond Inflation Strategy may enter into tender option bond
transactions ("TOBs") in which the Strategy may sell a highly rated municipal
security to a broker, which, in turn deposits the bond into a special purpose
vehicle (the "SPV", which is generally organized as a trust), sponsored by the
broker. The Strategy receives cash and a residual interest security (sometimes
referred to as "inverse floaters") issued by the SPV in return. The SPV
simultaneously issues securities, which pay an interest rate that is reset each
week based on an index of high-grade short-term demand notes. These securities,
sometimes referred to as "floaters", are bought by third parties, including
tax-exempt money market funds, and can be tendered by these holders to a
liquidity provider at par, unless certain events occur. Under certain
circumstances, the SPV may be terminated or collapsed, either by the Strategy or
upon the occurrence of certain events, such as a downgrade in the credit quality
of the underlying bond or in the event holders of the floaters tender their
securities to the liquidity provider. The Strategy continues to earn all the
interest from the transferred bond less the amount of interest paid on the
floaters and the expenses of the SPV, which include payments to the trustee and
the liquidity provider and organizational costs. The Strategy uses the cash
received from the transaction for investment purposes, which involves leverage
risk.
Insured Bonds
-------------
Municipal Bond Inflation Strategy may obtain insurance on their
municipal bonds or purchase insured municipal bonds covered by policies issued
by monoline insurance companies. These insurers include MBIA Insurance
Corporation ("MBIA"); Financial Guaranty Insurance Company ("FGIC"); Ambac
Assurance Corporation ("Ambac"), a wholly-owned subsidiary of Ambac Financial
Group, Inc., Financial Security Assurance Inc. ("FSA"), a wholly-owned
subsidiary of Financial Security Assurance Holdings Ltd. ("FSA Holdings"), a
separately capitalized member of the Dexia Group, a group of European financial
services companies; ACA Financial Guaranty Corporation ("ACA"); Radian Asset
Assurance, Inc. (formerly, Asset Guaranty Insurance Company) ("Radian"), a
wholly-owned subsidiary of Radian Group, Inc.; XL Capital Assurance, Inc.
("XLCA"), a wholly-owned subsidiary of XL Capital Ltd; CIFG Assurance North
America, Inc. (formerly, CDC IXIS Financial Guaranty North America, Inc. ("CIFG
NA"); Assured Guaranty Corp. (formerly, ACE Guaranty Corp.) ("AGC"); and
Berkshire Hathaway Assurance Corporation ("BHAC"), a wholly owned subsidiary of
Berkshire Hathaway Inc. Most of these insurers have been recently downgraded and
it is possible that additional downgrades may occur. Moody's and S&P ratings
reflect the respective rating agency's current assessment of the
creditworthiness of each insurer and its ability to pay claims on its policies
of insurance. Any further explanation as to the significance of the ratings may
be obtained only from the applicable rating agency. The ratings are not
recommendations to buy, sell or hold the Bonds, and such ratings may be subject
to revision or withdrawal at any time by the rating agencies. Any downward
revision or withdrawal of either or both ratings may have an adverse effect on
the market price of the Bonds.
It should be noted that insurance is not a substitute for the basic
credit of an issuer, but supplements the existing credit and provides additional
security therefor. Moreover, while insurance coverage for the municipal
securities held by the Strategy may reduce credit risk, it does not protect
against market fluctuations caused by changes in interest rates and other
factors. As a result of declines in the credit quality and associated downgrades
of most fund insurers, insurance has less value than it did in the past. The
market now values insured municipal securities primarily based on the credit
quality of the issuer of the security with little value given to the insurance
feature. In purchasing insured municipal securities, the Adviser currently
evaluates the risk and return of such securities through its own research.
Variable, Floating and Inverse Floating Rate Securities
-------------------------------------------------------
These securities have interest rates that are reset at periodic
intervals, usually by reference to some interest rate index or market interest
rate. Some of these securities are backed by pools of mortgage loans. Although
the rate adjustment feature may act as a buffer to reduce sharp changes in the
value of these securities, they are still subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
Because the interest rate is reset only periodically, changes in the interest
rate on these securities may lag behind changes in prevailing market interest
rates. Also, some of these securities (or the underlying mortgages) are subject
to caps or floors that limit the maximum change in the interest rate during a
specified period or over the life of the security.
Standby Commitment Agreements
-----------------------------
A Strategy may from time to time enter into standby commitment
agreements. Such agreements commit the Strategy, for a stated period of time, to
purchase a stated amount of a security which may be issued and sold to the
Strategy at the option of the issuer. The price and coupon of the security are
fixed at the time of the commitment. At the time of entering into the agreement
a Strategy is paid a commitment fee, regardless of whether or not the security
ultimately is issued, which is typically approximately 0.5% of the aggregate
purchase price of the security which the Strategy has committed to purchase. The
fee is payable whether or not the security is ultimately issued. A Strategy will
at all times maintain a segregated account with its custodian of liquid assets
in an aggregate amount equal to the purchase price of the securities underlying
the commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, a
Strategy will bear the risk of capital loss in the event the value of the
security declines and may not benefit from an appreciation in the value of the
security during the commitment period if the issuer decides not to issue and
sell the security to the Strategy.
The purchase of a security subject to a standby commitment agreement
and the related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued and the value of the security
will thereafter be reflected in the calculation of a Strategy's NAV. The cost
basis of the security will be adjusted by the amount of the commitment fee. In
the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
Zero Coupon Securities
----------------------
A zero coupon security pays no interest to its holder during its life.
An investor acquires a zero coupon security at a discounted price from the face
value of the security, which is generally based upon its present value, and
which, depending upon the time remaining until maturity, may be significantly
less than its face value (sometimes referred to as a "deep discount" price).
Upon maturity of the zero coupon security, the investor receives the face value
of the security.
A Strategy may invest in zero coupon Treasury securities, which
consist of Treasury bills or the principal components of U.S. Treasury bonds or
notes. A Strategy may also invest in zero coupon securities issued by U.S.
Government agencies or instrumentalities that are supported by the full faith
and credit of the United States, which consist of the principal components of
securities of U.S. Government agencies or instrumentalities.
Currently, the only U.S. Treasury security issued without coupons is
the Treasury bill. The zero coupon securities purchased by a Strategy may
consist of principal components held in STRIPS form issued through the U.S.
Treasury's STRIPS program, which permits the beneficial ownership of the
component to be recorded directly in the Treasury book-entry system. In
addition, in the last few years a number of banks and brokerage firms have
separated ("stripped") the principal portions ("corpus") from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
Because zero coupon securities trade at a discount from their face or
par value but pay no periodic interest, they are subject to greater fluctuations
of market value in response to changing interest rates than debt obligations of
comparable maturities which make periodic distributions of interest.
Current federal tax law requires that a holder (such as the
Strategies) of a zero coupon security accrue a portion of the discount at which
the security was purchased as income each year even though the holder receives
no interest payment in cash on the security during the year (generally referred
to as "original issue discount" or "OID"). As a result, in order to make the
distributions necessary for a Strategy not to be subject to federal income or
excise taxes, the Strategy may be required to pay out as an income distribution
each year an amount, obtained by liquidation of portfolio securities or
borrowings if necessary, greater than the total amount of cash that the Strategy
has actually received as interest during the year. A Strategy believes, however,
that it is highly unlikely that it would be necessary to liquidate portfolio
securities or borrow money in order to make such required distributions or to
meet its investment objective.
Certain Risk Considerations
---------------------------
The value of the Strategies' shares will be influenced by the factors
that generally affect securities, such as the economic and political outlook,
earnings, dividends and the supply and demand for various classes of securities.
There can be, of course, no assurance that a Strategy's investment objective
will be achieved.
Investments in Lower-Rated and Unrated Instruments. Bond Inflation
Strategy may invest in lower-rated securities, which may include securities
having the lowest rating for non-subordinated debt securities (i.e., rated C by
Moody's or CCC or lower by S&P & Fitch) and unrated securities of equivalent
investment quality. Debt securities with such a rating are considered by the
rating organizations to be subject to greater risk of loss of principal and
interest than higher-rated securities and are considered to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal, which may in any case decline during sustained periods of
deteriorating economic conditions or rising interest rates. These securities are
considered to have extremely poor prospects of ever attaining any real
investment standing, to have a current identifiable vulnerability to default, to
be unlikely to have the capacity to pay interest and repay principal when due in
the event of adverse business, financial or economic conditions, and/or to be in
default or not current in the payment of interest or principal.
Lower-rated securities generally are considered to be subject to
greater market risk than higher-rated securities in times of deteriorating
economic conditions. In addition, lower-rated securities may be more susceptible
to real or perceived adverse economic and competitive industry conditions than
investment grade securities, although the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
The market for lower-rated securities may be thinner and less active than that
for higher-quality securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, the Adviser may experience
difficulty in valuing such securities and, in turn, the Strategy'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 Strategy 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 Strategy may
have to replace the called security with a lower yielding security, resulting in
a decreased rate of return for the Strategy.
In seeking to achieve the Strategy'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 Strategy'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 Strategy.
U.S. Corporate Fixed-Income Securities. The U.S. corporate
fixed-income securities in which High Income will invest may include securities
issued in connection with corporate restructurings such as takeovers or
leveraged buyouts, which may pose particular risks. Securities issued to finance
corporate restructurings may have special credit risks due to the highly
leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Finally, the market
price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. A Strategy may also invest
in U.S. corporate fixed-income securities that are not current in the payment of
interest or principal or are in default, so long as the Adviser believes such
investment is consistent with the Strategy's investment objectives. A Strategy's
rights with respect to defaults on such securities will be subject to applicable
U.S. bankruptcy, moratorium and other similar laws.
Risks of Investments in Foreign Securities. 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 Bond Inflation Strategy may invest require, for both
tax and accounting purposes, that certain assets and liabilities be restated on
the issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Substantially less information is publicly
available about certain non-U.S. issuers than is available about U.S. issuers.
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 Bond Inflation Strategy
may invest and could adversely affect the Strategy'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 Bond Inflation Strategy. Certain countries in which the
Strategy may invest require governmental approval prior to investments by
foreign persons, limit the amount of investment by foreign persons in a
particular issuer, limit the investment by foreign persons only to a specific
class of securities of an issuer that may have less advantageous rights than the
classes available for purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors.
Certain countries other than those on which Bond Inflation Strategy
may focus its 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.
Income from certain investments held by Bond Inflation Strategy could
be reduced by foreign income taxes, including withholding taxes. It is
impossible to determine the effective rate of foreign tax in advance. The
Strategy's NAV may also be affected by changes in the rates or methods of
taxation applicable to the Strategy or to entities in which the Strategy 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 Strategy will not be
subject to change.
Risks of Forward Currency Exchange Contracts, Foreign Currency Futures
Contracts and Options thereon, Options on Foreign Currencies and
Over-the-Counter Options on Securities. Bond Inflation Strategy is operated by a
person who has claimed an exclusion from the definition of the term "commodity
pool operator" under the Commodity Exchange Act and, therefore, who is not
subject to registration or regulation as a pool operator under such Act.
Transactions in forward currency exchange contracts, as well as futures and
options on foreign currencies, are subject to all of the correlation, liquidity
and other risks outlined above. In addition, however, such transactions are
subject to the risk of governmental actions affecting trading in or the prices
of currencies underlying such contracts, which could restrict or eliminate
trading and could have a substantial adverse effect on the value of positions
held by Bond Inflation Strategy. In addition, the value of such positions could
be adversely affected by a number of other complex political and economic
factors applicable to the countries issuing the underlying currencies.
Further, unlike trading in most other types of instruments, there is
no systematic reporting of last sale information with respect to the foreign
currencies underlying contracts thereon. As a result, the available information
on which trading decisions will be based may not be as complete as the
comparable data on which Bond Inflation Strategy makes investment and trading
decisions in connection with other transactions. Moreover, because the foreign
currency market is a global, twenty-four hour market, events could occur on that
market but will not be reflected in the forward, futures or options markets
until the following day, thereby preventing the Strategy from responding to such
events in a timely manner.
Settlements of exercises of over-the-counter forward currency exchange
contracts or foreign currency options generally must occur within the country
issuing the underlying currency, which in turn requires traders to accept or
make delivery of such currencies in conformity with any U.S. or foreign
restrictions and regulations regarding the maintenance of foreign banking
relationships and fees, taxes or other charges.
Unlike transactions entered into by Bond Inflation Strategy in futures
contracts and exchange-traded options, options on foreign currencies, forward
currency exchange contracts and over-the-counter options on securities and
securities indexes are not traded on contract markets regulated by the Commodity
Futures Trading Commission or (with the exception of certain foreign currency
options) the Commission. Such instruments are instead 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, that are subject to Commission
regulation. In an over-the-counter trading environment, many of the protections
afforded to exchange participants will not be available. For example, there are
no daily price fluctuation limits, and adverse market movements could therefore
continue to an unlimited extent over a period of time. Although the purchaser of
an option cannot lose more than the amount of the premium plus related
transaction costs, this entire amount could be lost. Moreover, the option writer
could lose amounts substantially in excess of the initial investment due to the
margin and collateral requirements associated with such positions.
In addition, over-the-counter transactions can be entered into only
with a financial institution willing to take the opposite side, as principal, of
a Strategy's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Strategy.
Where no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contracts, and a Strategy could be required to retain
options purchased or written, or forward currency exchange contracts entered
into, until exercise, expiration or maturity. This in turn could limit the
Strategy's ability to profit from open positions or to reduce losses
experienced, and could result in greater losses.
Further, over-the-counter transactions are not subject to the
guarantee of an exchange clearinghouse, and Bond Inflation Strategy will
therefore be subject to the risk of default by, or the bankruptcy of, the
financial institution serving as its counterparty. The Strategy will enter into
an over-the-counter transaction only with parties whose creditworthiness has
been reviewed and found to be satisfactory by the Adviser.
Transactions in over-the-counter options on foreign currencies are
subject to a number of conditions regarding the commercial purpose of the
purchaser of such option. Bond Inflation Strategy is not able to determine at
this time whether or to what extent additional restrictions on the trading of
over-the-counter options on foreign currencies may be imposed at some point in
the future, or the effect that any such restrictions may have on the hedging
strategies to be implemented by the Strategy.
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 Bond Inflation Strategy 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,
the 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, if the OCC determines that
foreign governmental restrictions or taxes would prevent the orderly settlement
of foreign currency option exercises, or would result in undue burdens on the
OCC or its clearing member, the OCC may 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.
Foreign Currency Transactions. Bond Inflation Strategy may invest,
sometimes substantially, in securities denominated in foreign currencies and a
corresponding portion of the Strategy's revenues will be received in such
currencies. In addition, the Strategy may conduct foreign currency transactions
for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the
use of derivatives transactions, such as forward currency exchange contracts,
currency futures and options thereon, and options on currencies as described
above. The dollar equivalent of the Strategy's net assets and distributions will
be adversely affected by reductions in the value of certain foreign currencies
relative to the U.S. Dollar. Such changes will also affect the Strategy's
income. The Strategy will, however, have the ability to attempt to protect
itself against adverse changes in the values of foreign currencies by engaging
in certain of the investment practices listed above. While the Strategy has this
ability, there is no certainty as to whether, and to what extent, the Strategy
will engage in these practices.
Currency exchange rates may fluctuate significantly over short periods
of time causing, along with other factors, Bond Inflation Strategy NAV to
fluctuate. Currency exchange rates generally are determined by the forces of
supply and demand in the foreign exchange markets and the relative merits of
investments in different countries, actual or anticipated changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by the intervention
of U.S. or foreign governments or central banks, or the failure to intervene, or
by currency controls or political developments in the United States or abroad.
To the extent the Strategy's total assets adjusted to reflect the Strategy's net
position after giving effect to currency transactions is denominated or quoted
in the currencies of foreign countries, the Strategy will be more susceptible to
the risk of adverse economic and political developments within those countries.
Bond Inflation Strategy will incur costs in connection with
conversions between various currencies. The Strategy may hold foreign currency
received in connection with investments when, in the judgment of the Adviser, it
would be beneficial to convert such currency into U.S. Dollars at a later date,
based on anticipated changes in the relevant exchange rate. If the value of the
foreign currencies in which the Strategy receives its income falls relative to
the U.S. Dollar between receipt of the income and the making of Strategy
distributions, the Strategy may be required to liquidate securities in order to
make distributions if the Strategy has insufficient cash in U.S. Dollars to meet
distribution requirements. Similarly, if an exchange rate declines between the
time the Strategy incurs expenses in U.S. Dollars and the time cash expenses are
paid, the amount of the currency required to be converted into U.S. Dollars in
order to pay expenses in U.S. Dollars could be greater than the equivalent
amount of such expenses in the currency at the time they were incurred.
If the value of the foreign currencies in which Bond Inflation
Strategy receives income falls relative to the U.S. Dollar between receipt of
the income and the making of Strategy distributions, the Strategy may be
required to liquidate securities in order to make distributions if the Strategy
has insufficient cash in U.S. Dollars to meet the distribution requirements that
the Strategy must satisfy to qualify as a regulated investment company for
federal income tax purposes. Similarly, if the value of a particular foreign
currency declines between the time the Strategy incurs expenses in U.S. Dollars
and the time cash expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S. Dollars could be
greater than the equivalent amount of such expenses in the currency at the time
they were incurred. In light of these risks, the Strategy may engage in certain
currency hedging transactions, which themselves, involve certain special risks.
See "Additional Investment Policies and Practices," above.
Additional Risks of Options on Forward Currency Exchange Contracts and Options
on Foreign Currencies
------------------------------------------------------------------------------
Unlike transactions entered into by Bond Inflation Strategy in futures
contracts, options on foreign currencies and forward currency exchange contracts
are not traded on contract markets regulated by the 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 currencies may
be traded over-the-counter. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward currency exchange contracts
could lose amounts substantially in excess of their initial investments, due to
the margin and collateral requirements associated with such positions.
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 Strategy to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, options on U.S. Government Securities, futures contracts, options
on futures contracts, forward currency exchange contracts and options on foreign
currencies may be traded on foreign exchanges. Such transactions are subject to
the risk of governmental actions affecting trading in or the prices of foreign
currencies or securities. The value of such positions also could be adversely
affected by (i) other complex foreign political and economic factors, (ii)
lesser availability than in the United States of data on which to make trading
decisions, (iii) delays in the Strategy's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the United States, (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States, and (v) lesser trading volume
period.
Effects of Borrowing and Use of Leverage
----------------------------------------
A Strategy may use borrowings for investment purposes. A Strategy may
maintain borrowings from banks or as otherwise permitted under Commission rules
or exemptive orders with the Strategy or the Adviser in an amount of money
representing approximately one-third of the Strategy's total assets less
liabilities (other than the amount borrowed). A Strategy's loan agreements
provide for additional borrowings and for repayments and reborrowings from time
to time, and the Strategy expects to effect borrowings and repayments at such
times and in such amounts as will maintain investment leverage in an amount
approximately equal to its borrowing target. The loan agreements provide for a
selection of interest rates that are based on the bank's short-term funding
costs in the U.S. and London markets.
Borrowings by a Strategy result in leveraging of the Strategy's shares
of common stock. The proceeds of such borrowings will be invested in accordance
with the Strategy's investment objective and policies. The Adviser anticipates
that the difference between the interest expense paid by the Strategy on
borrowings and the rates received by the Strategy from its investment portfolio
issuers will provide the Strategy's shareholders with a potentially higher
yield.
Utilization of leverage, which is usually considered speculative,
however, involves certain risks to the Strategy's shareholders. These include a
higher volatility of the NAV of the Strategy's shares of common stock and the
relatively greater effect on the NAV of the shares caused by favorable or
adverse changes in currency exchange rates. So long as the Strategy is able to
realize a net return on the leveraged portion of its investment portfolio that
is higher than the interest expense paid on borrowings, the effect of leverage
will be to cause the Strategy's shareholders to realize higher current net
investment income than if the Strategy were not leveraged. However, to the
extent that the interest expense on borrowings approaches the net return on the
leveraged portion of the Strategy's investment portfolio, the benefit of
leverage to the Strategy's shareholders will be reduced, and if the interest
expense on borrowings were to exceed the net return to shareholders, the
Strategy's use of leverage would result in a lower rate of return than if the
Strategy were not leveraged. Similarly, the effect of leverage in a declining
market could be a greater decrease in NAV per share than if the Strategy were
not leveraged. In an extreme case, if the Strategy's current investment income
were not sufficient to meet the interest expense on borrowings, it could be
necessary for the Strategy to liquidate certain of its investments, thereby
reducing the NAV of the Strategy's shares.
A Strategy may also use leverage for investment purposes by entering
into transactions such as reverse repurchase agreements, forward contracts and
dollar rolls. This means that the Strategy uses the cash proceeds made available
during the term of these transactions to make investments in other fixed-income
securities. The use of leverage is considered speculative and involves certain
risks to the Strategy's shareholders. These include a higher volatility of the
Strategy's NAV and the relatively greater effect on the NAV caused by favorable
or adverse changes in market conditions or interest rates. So long as the
Strategy is able to realize a net return on its investment portfolio that is
higher than the carrying costs of these transactions, the effect of leverage
will be to cause the Strategy's shareholders to realize higher current net
income than if the Strategy were not leveraged. To the extent that the carrying
costs of these transactions approaches the net return on the Strategy's
investment portfolio, or exceed it, the benefit to the Strategy's shareholders
will be reduced or result in a lower rate of return than if the Strategy were
not leveraged.
Under the 1940 Act, a Strategy is not permitted to borrow unless
immediately after such borrowing there is "asset coverage," as that term is
defined and used in the 1940 Act, of at least 300% for all borrowings of the
Strategy. In addition, under the 1940 Act, in the event asset coverage falls
below 300%, the Strategy must within three days reduce the amount of its
borrowing to such an extent that the asset coverage of its borrowings is at
least 300%. Assuming, for example, outstanding borrowings representing not more
than one-third of the Strategy's total assets less liabilities (other than such
borrowings), the asset coverage of the Strategy's portfolio would be 300%; while
outstanding borrowings representing of the Strategy's portfolio 25% of the
Strategy's total assets less liabilities (other than such borrowings), the asset
coverage of the Strategy's portfolio would be 400%. A Strategy will maintain
asset coverage of outstanding borrowings of at least 300% and if necessary will,
to the extent possible, reduce the amounts borrowed by making repayments from
time to time in order to do so. Such repayments could require the Strategy to
sell portfolio securities at times considered disadvantageous by the Adviser and
such sales could cause the Strategy to incur related transaction costs and to
realize taxable gains.
Fundamental Investment Policies
-------------------------------
The following investment restrictions may not be changed without
approval by the vote of a majority of a Strategy's outstanding voting
securities, which means the affirmative vote of the holders of (i) 67% or more
of the shares of the Strategy represented at a meeting at which more than 50% of
the outstanding shares are present in person or by proxy or (ii) more than 50%
of the outstanding shares of the Strategy, whichever is less.
As a matter of fundamental policy, a Strategy may not:
(a) concentrate investments in an industry, as concentration may
be defined under the 1940 Act or the rules and regulations thereunder (as such
statute, rules or regulations may be amended from time to time) or by guidance
regarding, interpretations of, or exemptive orders under, the 1940 Act or the
rules or regulations thereunder published by appropriate regulatory authorities;
(b) issue any senior security (as that term is defined in the
1940 Act) or borrow money, except to the extent permitted by the 1940 Act or the
rules and regulations thereunder (as such statute, rules or regulations may be
amended from time to time) or by guidance regarding, or interpretations of, or
exemptive orders under, the 1940 Act or the rules or regulations thereunder
published by appropriate regulatory authorities. For purposes of this
restriction, margin and collateral arrangements, including, for example, with
respect to permitted borrowings, options, futures contracts, options on futures
contracts and other derivatives such as swaps are not deemed to involve the
issuance of a senior security;
(c) make loans except through (i) the purchase of debt
obligations in accordance with its investment objective and policies; (ii) the
lending of portfolio securities; (iii) the use of repurchase agreements; or (iv)
the making of loans to affiliated funds as permitted under the 1940 Act, the
rules and regulations thereunder (as such statutes, rules or regulations may be
amended from time to time), or by guidance regarding, and interpretations of, or
exemptive orders under, the 1940 Act;
(d) purchase or sell real estate except that it may dispose of
real estate acquired as a result of the ownership of securities or other
instruments. This restriction does not prohibit the Strategy from investing in
securities or other instruments backed by real estate or in securities of
companies engaged in the real estate business;
(e) purchase or sell commodities regulated by the Commodity
Futures Trading Commission under the Commodity Exchange Act or commodities
contracts except for futures contracts and options on futures contracts; or
(f) act as an underwriter of securities, except that the Strategy
may acquire restricted securities under circumstances in which, if such
securities were sold, the Strategy might be deemed to be an underwriter for
purposes of the Securities Act.
As a fundamental policy, each Strategy is diversified (as that term is
defined in the 1940 Act). This means that at least 75% of the Strategy's assets
consist of:
o Cash or cash items;
o Government securities;
o Securities of other investment companies; and
o Securities of any one issuer that represent not more than 10% of
the outstanding voting securities of the issuer of the securities
and not more than 5% of the total assets of the Strategy.
Non-Fundamental Investment Policy
---------------------------------
The following is a description of an operating policy that the
Strategies have adopted but that is not fundamental and is subject to change
without shareholder approval.
A Strategy may not purchase securities on margin, except (i) as
otherwise provided under rules adopted by the Commission under the 1940 Act or
by guidance regarding the 1940 Act, or interpretations thereof, and (ii) that
the Strategy may obtain such short-term credits as are necessary for the
clearance of portfolio transactions, and the Strategy may make margin payments
in connection with futures contracts, options, forward contracts, swaps, caps,
floors, collars and other financial instruments.
--------------------------------------------------------------------------------
MANAGEMENT OF THE STRATEGIES
--------------------------------------------------------------------------------
Adviser
-------
The Adviser, a Delaware limited partnership with principal offices at
1345 Avenue of the Americas, New York, New York 10105, has been retained under
an investment advisory agreement (the "Advisory Agreement") to provide
investment advice and, in general, to conduct the management and investment
program of the Strategy under the supervision of the Board (see "Management of
the Strategies" in the Prospectus). The Adviser is a registered investment
adviser under the Investment Advisers Act of 1940, as amended.
The Adviser is a leading global investment management firm supervising
client accounts with assets as of [_______________], 2009, totaling
approximately $[________] billion. The Adviser provides management services for
many of the largest U.S. public and private employee benefit plans, endowments,
foundations, public employee retirement funds, banks, insurance companies and
high net worth individuals worldwide. The Adviser is also one of the largest
mutual fund sponsors, with a diverse family of globally distributed mutual fund
portfolios. As one of the world's leading global investment management
organizations, the Adviser is able to compete for virtually any portfolio
assignment in any developed capital market in the world.
As of [___________], 2009, AXA, a societe anonyme organized under the
laws of France and the holding company for an international group of insurance
and related financial services companies, through certain of its subsidiaries
("AXA and its subsidiaries") owned approximately [1.6]% of the issued and
outstanding assignments of beneficial ownership of limited partnership interests
("Holding Units") in AllianceBernstein Holding L.P., a Delaware limited
partnership ("Holding"). Holding Units trade publicly on the New York Stock
Exchange under the ticker symbol "AB".
As of [___________], 2009, the ownership structure of the Adviser,
expressed as a percentage of general and limited partnership interests, was as
follows:
AXA and its subsidiaries [63.6]%
Holding [34.4]
Unaffiliated holders [2.0]
--------------------------
100.0%
==========================
AllianceBernstein Corporation (an indirect wholly-owned subsidiary of
AXA) is the general partner of both Holding and the Adviser. AllianceBernstein
Corporation owns 100,000 general partnership units in Holding and a 1% general
partnership interest in the Adviser. Including both the general partnership and
limited partnership interests in Holding and the Adviser, AXA and its
subsidiaries had an approximate 64.2% economic interest in the Adviser as of
June 30, 2009.
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, Inc. ("AXA Financial") is a wholly-owned subsidiary of AXA. AXA
Equitable Life Insurance Company ("AXA Equitable") is an indirect wholly-owned
subsidiary of AXA Financial.
The Adviser provides office space, investment advisory, administrative
and clerical services, and order placement facilities for the Strategies and
pays all compensation of Directors and officers who are affiliated persons of
the Adviser.
Bond Inflation Strategy has contractually agreed to pay a monthly fee
to the Adviser at an annualized rate of [____] of 1% of the first $2.5 billion,
[____] of 1% of the excess over $2.5 billion up to $5 billion and [____] of 1%
of the excess over $5 billion of the Strategy's average daily net assets.
Municipal Bond Inflation Strategy has contractually agreed to pay a
monthly fee to the Adviser at an annualized rate of [____] of 1% of the first
$2.5 billion, [____] of 1% of the excess over $2.5 billion up to $5 billion and
[____] of 1% of the excess over $5 billion of the Strategy's average daily net
assets.
The Adviser has not received advisory fees from the Strategies because
the Strategies have not yet commenced operations.
The Adviser is, under each Strategy's Advisory Agreement, responsible
for any expenses incurred by a Strategy in promoting the sale of Strategy shares
(other than the portion of the promotional expenses borne by the Strategy in
accordance with an effective plan pursuant to Rule 12b-1 under the 1940 Act, and
the costs of printing and mailing Strategy prospectuses and other reports to
shareholders and all expenses and fees related to proxy solicitations and
registrations and filings with the Commission and with state regulatory
authorities).
Each Strategy has, under its Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the obtaining of
services other than those specifically provided to the Strategies by the
Adviser, each Strategy 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 Strategy at cost and the payments
therefore must be specifically approved by the Board. The Strategies have not
yet paid the Adviser in respect of such services because the Strategies have not
yet commenced operations.
Each Strategy's Advisory Agreement became effective on
[______________]. Each Advisory Agreement was approved by the unanimous vote,
cast in person, of the Directors, including the Directors who are not parties to
the Advisory Agreement or "interested persons" as defined in the 1940 Act of any
such party, at a meeting called for that purpose and held on [________________].
At a meeting held on [____________], a majority of the outstanding voting
securities of each Strategy approved the Advisory Agreement.
Each Strategy's Advisory Agreement continues in effect from year to
year provided that such continuance is specifically approved at least annually
by the Directors or by a majority vote of the holders of the outstanding voting
securities of the Strategy, and, in either case, by a majority of the Directors
who are not parties to the Advisory Agreement or "interested persons" as defined
in the 1940 Act of any such party.
Each Strategy's Advisory Agreement is terminable without penalty on 60
days' written notice by a vote of the majority of the Strategy's outstanding
voting securities or by a vote of a majority of the Directors, or by the Adviser
on 60 days' written notice, and will automatically terminate in the event of
assignment. The Adviser is not liable for any action or inaction in regard to
its obligations under the Advisory Agreement as long as it does not exhibit
willful misfeasance, bad faith, gross negligence, or reckless disregard of its
obligations.
The Adviser may act as an investment adviser to other persons, firms
or corporations, including investment companies, and is the investment adviser
to AllianceBernstein Balanced Shares, Inc., AllianceBernstein Blended Style
Series, Inc., AllianceBernstein Cap Fund, Inc., AllianceBernstein Corporate
Shares, AllianceBernstein Diversified Yield Fund, Inc., AllianceBernstein
Exchange Reserves, AllianceBernstein Fixed-Income Shares, Inc.,
AllianceBernstein Focused Growth & Income Fund, Inc., AllianceBernstein Global
Bond Fund, Inc., AllianceBernstein Global Growth Fund, Inc., AllianceBernstein
Global Real Estate Investment Fund, Inc., AllianceBernstein Global Thematic
Growth Fund, Inc., AllianceBernstein Greater China `97 Fund, Inc.,
AllianceBernstein Growth and Income Fund, Inc., AllianceBernstein High Income
Fund, Inc., AllianceBernstein Institutional Funds, Inc., AllianceBernstein
International Growth Fund, Inc., AllianceBernstein Large Cap Growth Fund, Inc.,
AllianceBernstein Municipal Income Fund, Inc., AllianceBernstein Municipal
Income Fund II, AllianceBernstein Small/Mid Cap Growth Fund, Inc.,
AllianceBernstein Trust, AllianceBernstein Utility Income Fund, Inc.,
AllianceBernstein Variable Products Series Fund, Inc., Sanford C. Bernstein
Fund, Inc., Sanford C. Bernstein Fund II, Inc., The AllianceBernstein Pooling
Portfolios and The AllianceBernstein Portfolios, all registered open-end
investment companies; and to AllianceBernstein Global High Income Fund, Inc.,
AllianceBernstein Income Fund, Inc., AllianceBernstein National Municipal Income
Fund, Inc., Alliance California Municipal Income Fund, Inc., Alliance New York
Municipal Income Fund, Inc., and The Spain Fund, Inc., all registered closed-end
investment companies.
Additional Information About the Strategies' Portfolio Managers
---------------------------------------------------------------
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY
The management of, and investment decisions for, the Strategy's
portfolio are made by the Adviser's U.S. Core Fixed-Income Team. Paul J. DeNoon,
Rajen Jaday, Douglas J. Peebles and Greg J. Wilensky are the investment
professionals(1) primarily responsible for the day-to-day management of the
Strategy's portfolio. For additional information about the portfolio management
of the Strategy, see "Management of the Strategies - Portfolio Managers" in the
Strategy's prospectus.
----------
(1) Investment professionals at the Adviser include portfolio managers and
research analysts. Investment professionals are part of investment groups
(or teams) that service individual fund portfolios. The number of
investment professionals assigned to a particular fund will vary from fund
to fund.
The dollar ranges of the Strategy's equity securities owned directly
or beneficially by the Strategy's portfolio managers as of [____________], 2010
are set forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE
STRATEGY
----------------------------------------
Paul J. DeNoon [____________________]
Rajen Jaday [____________________]
Douglas J. Peebles [____________________]
Greg J. Wilensky [____________________]
As of [_____________], 2010, employees of the Adviser had
approximately $[_____________] invested in shares of the Strategy and
approximately $[________________] in shares of all AllianceBernstein Mutual
Funds (excluding AllianceBernstein money market funds) through their interests
in certain deferred compensation plans, including the Partners Compensation
Plan, including both vested and unvested amounts.
The following tables provide information regarding registered
investment companies other than the Strategy, other pooled investment vehicles
and other accounts over which the Portfolio Mangers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of
[____________], 2010.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Strategy)
--------------------------------------------------------------------------------
Total Assets of
Number of Registered
Total Registered Investment
Number of Investment Companies
Registered Total Assets of Companies Managed
Investment Registered Managed with with
Companies Investment Performance- Performance-
Portfolio Manager Managed Companies Managed based Fees based Fees
--------------------------------------------------------------------------------
Paul J. DeNoon [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Rajen Jaday [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Douglas J. Peebles [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Greg J. Wilensky [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total Assets of
Number of Pooled
Total Pooled Investment
Number of Investment Vehicles
Pooled Vehicles Managed
Investment Total Assets of Managed with with
Vehicles Pooled Investment Performance- Performance-
Portfolio Manager Managed Vehicles Managed based Fees based Fees
--------------------------------------------------------------------------------
Paul J. DeNoon [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Rajen Jaday [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Douglas J. Peebles [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Greg J. Wilensky [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Total Other of
Number of Accounts Other Accounts
Other Total Assets of Managed with with
Accounts Other Performance- Performance-
Portfolio Manager Managed Accounts Managed based Fees based Fees
--------------------------------------------------------------------------------
Paul J. DeNoon [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Rajen Jaday [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Douglas J. Peebles [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Greg J. Wilensky [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY
The management of and investment decisions for the Strategy's
portfolio are made by the Adviser's Municipal Bond Investment Team. Michael
Brooks, Fred S. Cohen, R.B. (Guy) Davidson III and Terrance T. Hults are the
investment professionals(2) primarily responsible for the day-to-day management
of the Strategy's portfolio. For additional information about the portfolio
management of the Strategy, see "Management of the Strategies - Portfolio
Managers" in the Strategy's prospectus.
----------
(2) Investment professionals at the Adviser include portfolio managers and
research analysts. Investment professionals are part of investment groups
(or teams) that service individual fund portfolios. The number of
investment professionals assigned to a particular fund will vary from fund
to fund.
The dollar ranges of the Strategy's equity securities owned directly
or beneficially by the Strategy's portfolio managers as of [____________], 2010
are set forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE STRATEGY
-------------------------------------------------
Michael Brooks [____________________]
Fred S. Cohen [____________________]
R.B. (Guy) Davidson III [____________________]
Terrance T. Hults [____________________]
As of [_____________], 2010, employees of the Adviser had
approximately $[_____________] invested in shares of the Strategy and
approximately $[________________] in shares of all AllianceBernstein Mutual
Funds (excluding AllianceBernstein money market funds) through their interests
in certain deferred compensation plans, including the Partners Compensation
Plan, including both vested and unvested amounts.
The following tables provide information regarding registered
investment companies other than the Strategy, other pooled investment vehicles
and other accounts over which the Portfolio Mangers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of
[____________], 2010.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Strategy)
--------------------------------------------------------------------------------
Total Assets of
Number of Registered
Total Registered Investment
Number of Investment Companies
Registered Total Assets of Companies Managed
Investment Registered Managed with with
Companies Investment Performance- Performance-
Portfolio Manager Managed Companies Managed based Fees based Fees
--------------------------------------------------------------------------------
Michael Brooks [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Fred S. Cohen [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
R.B. (Guy)
Davidson III [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Terrance T. Hults [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total Assets of
Number of Pooled
Total Pooled Investment
Number of Investment Vehicles
Pooled Vehicles Managed
Investment Total Assets of Managed with with
Vehicles Pooled Investment Performance- Performance-
Portfolio Manager Managed Vehicles Managed based Fees based Fees
--------------------------------------------------------------------------------
Michael Brooks [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Fred S. Cohen [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
R.B. (Guy)
Davidson III [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Terrance T. Hults [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Total Other of
Number of Accounts Other Accounts
Other Total Assets of Managed with with
Accounts Other Performance- Performance-
Portfolio Manager Managed Accounts Managed based Fees based Fees
--------------------------------------------------------------------------------
Michael Brooks [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Fred S. Cohen [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
R.B. (Guy)
Davidson III [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Terrance T. Hults [_______] $[_______________] [___________] $[____________]
--------------------------------------------------------------------------------
Investment Professional Conflict of Interest Disclosure
-------------------------------------------------------
As an investment adviser and fiduciary, the Adviser owes its clients
and shareholders an undivided duty of loyalty. We recognize that conflicts of
interest are inherent in our business and accordingly have developed policies
and procedures (including oversight monitoring) reasonably designed to detect,
manage and mitigate the effects of actual or potential conflicts of interest in
the area of employee personal trading, managing multiple accounts for multiple
clients, including AllianceBernstein Mutual Funds, and allocating investment
opportunities. Investment professionals, including portfolio managers and
research analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. We place the
interests of our clients first and expect all of our employees to meet their
fiduciary duties.
Employee Personal Trading. The Adviser has adopted a Code of Business
Conduct and Ethics that is designed to detect and prevent conflicts of interest
when investment professionals and other personnel of the Adviser own, buy or
sell securities which may be owned by, or bought or sold for, clients. Personal
securities transactions by an employee may raise a potential conflict of
interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or sale
by an employee to a client. Subject to the reporting requirements and other
limitations of its Code of Business Conduct and Ethics, the Adviser permits its
employees to engage in personal securities transactions, and also allows them to
acquire investments in the AllianceBernstein Mutual Funds through direct
purchase and/or notionally in connection with deferred incentive compensation
awards. The Adviser's Code of Ethics and Business Conduct requires disclosure of
all personal accounts and maintenance of brokerage accounts with designated
broker-dealers approved by the Adviser. The Code also requires preclearance of
all securities transactions (except transactions in open-end mutual funds) and
imposes a one-year holding period for securities purchased by employees to
discourage short-term trading.
Managing Multiple Accounts for Multiple Clients. The Adviser has
compliance policies and oversight monitoring in place to address conflicts of
interest relating to the management of multiple accounts for multiple clients.
Conflicts of interest may arise when an investment professional has
responsibilities for the investments of more than one account because the
investment professional may be unable to devote equal time and attention to each
account. The investment professional or investment professional teams for each
client may have responsibilities for managing all or a portion of the
investments of multiple accounts with a common investment strategy, including
other registered investment companies, unregistered investment vehicles, such as
hedge funds, pension plans, separate accounts, collective trusts and charitable
foundations. Among other things, the Adviser's policies and procedures provide
for the prompt dissemination to investment professionals of initial or changed
investment recommendations by analysts so that investment professionals are
better able to develop investment strategies for all accounts they manage. In
addition, investment decisions by investment professionals are reviewed for the
purpose of maintaining uniformity among similar accounts and ensuring that
accounts are treated equitably. No investment professional that manages client
accounts carrying performance fees is compensated directly or specifically for
the performance of those accounts. Investment professional compensation reflects
a broad contribution in multiple dimensions to long-term investment success for
our clients and is not tied specifically to the performance of any particular
client's account, nor is it directly tied to the level or change in level of
assets under management.
Allocating Investment Opportunities. The Adviser has policies and
procedures intended to address conflicts of interest relating to the allocation
of investment opportunities. These policies and procedures are designed to
ensure that information relevant to investment decisions is disseminated
promptly within its portfolio management teams and investment opportunities are
allocated equitably among different clients. The investment professionals at the
Adviser routinely are required to select and allocate investment opportunities
among accounts. Portfolio holdings, position sizes, and industry and sector
exposures tend to be similar across similar accounts, which minimizes the
potential for conflicts of interest relating to the allocation of investment
opportunities. Nevertheless, investment opportunities may be allocated
differently among accounts due to the particular characteristics of an account,
such as size of the account, cash position, tax status, risk tolerance and
investment restrictions or for other reasons.
The Adviser's procedures are also designed to prevent potential
conflicts of interest that may arise when the Adviser has a particular financial
incentive, such as a performance-based management fee, relating to an account.
An investment professional may perceive that he or she has an incentive to
devote more time to developing and analyzing investment strategies and
opportunities or allocating securities preferentially to accounts for which the
Adviser could share in investment gains.
To address these conflicts of interest, the Adviser's policies and
procedures require, among other things, the prompt dissemination to investment
professionals of any initial or changed investment recommendations by analysts;
the aggregation of orders to facilitate best execution for all accounts; price
averaging for all aggregated orders; objective allocation for limited investment
opportunities (e.g., on a rotational basis) to ensure fair and equitable
allocation among accounts; and limitations on short sales of securities. These
procedures also require documentation and review of justifications for any
decisions to make investments only for select accounts or in a manner
disproportionate to the size of the account.
Portfolio Manager Compensation
------------------------------
The Adviser's compensation program for investment professionals is
designed to be competitive and effective in order to attract and retain the
highest caliber employees. The compensation program for investment professionals
is designed to reflect their ability to generate long-term investment success
for our clients, including shareholders of the AllianceBernstein Mutual Funds.
Investment professionals' annual compensation is comprised of the following:
(i) Fixed base salary: This is generally the smallest portion of
compensation. The base salary is a relatively low, fixed salary within a similar
range for all investment professionals. The base salary is determined at the
outset of employment based on level of experience, does not change significantly
from year-to-year and hence, is not particularly sensitive to performance.
(ii) Discretionary incentive compensation in the form of an annual
cash bonus: The Adviser's overall profitability determines the total amount of
incentive compensation available to investment professionals. This portion of
compensation is determined subjectively based on qualitative and quantitative
factors. In evaluating this component of an investment professional's
compensation, the Adviser considers the contribution to his/her team or
discipline as it relates to that team's overall contribution to the long-term
investment success, business results and strategy of the Adviser. Quantitative
factors considered include, among other things, relative investment performance
(e.g., by comparison to competitor or peer group funds or similar styles of
investments, and appropriate, broad-based or specific market indices), and
consistency of performance. There are no specific formulas used to determine
this part of an investment professional's compensation and the compensation is
not tied to any pre-determined or specified level of performance. The Adviser
also considers qualitative factors such as the complexity and risk of investment
strategies involved in the style or type of assets managed by the investment
professional; success of marketing/business development efforts and client
servicing; seniority/length of service with the firm; management and supervisory
responsibilities; and fulfillment of the Adviser's leadership criteria.
(iii) Discretionary incentive compensation in the form of awards under
the Adviser's Partners Compensation Plan ("deferred awards"): The Adviser's
overall profitability determines the total amount of deferred awards available
to investment professionals. The deferred awards are allocated among investment
professionals based on criteria similar to those used to determine the annual
cash bonus. There is no fixed formula for determining these amounts. Deferred
awards, for which, prior to 2009, there were various investment options, vest
over a four-year period and are generally forfeited if the employee resigns or
the Adviser terminates his/her employment. Prior to 2009, investment options
under the deferred awards plan included many of the same AllianceBernstein
Mutual Funds offered to mutual fund investors. In 2009, the Adviser expects that
all deferred awards will be in the form of the Adviser's publicly traded equity
securities.(3)
----------
(3) Prior to 2002, investment professional compensation also included
discretionary long-term incentive in the form of restricted grants of the
Adviser's Master Limited Partnership Units.
(iv) Contributions under the Adviser's Profit Sharing/401(k) Plan: The
contributions are based on the Adviser's overall profitability. The amount and
allocation of the contributions are determined at the sole discretion of the
Adviser.
(v) Compensation under the Adviser's Special Option Program: Under
this program, certain investment professionals may be permitted to allocate a
portion of their deferred awards to options to buy the Adviser's publicly traded
equity securities, and to receive a two-for-one match of such allocated amount.
The determination of who may be eligible to participate in the Special Option
Program is made at the sole discretion of the Adviser.
Board of Directors Information
------------------------------
The business and affairs of the Strategies are managed under the
direction of the Directors. Certain information concerning the Directors is set
forth below.
PORTFOLIOS
IN FUND
COMPLEX OTHER
NAME, ADDRESS,* AGE PRINCIPAL OVERSEEN DIRECTORSHIPS
AND OCCUPATION(S) BY HELD
(YEAR ELECTED**) DURING PAST 5 YEARS DIRECTOR BY DIRECTOR
------------------- ---------------------- ------------ ------------
DISINTERESTED DIRECTORS
Chairman of the Board
William H. Foulk, Jr., #+ Investment Adviser 86 None
77 and an Independent
(1998) Consultant.
Previously, he was
Senior Manager of
Barrett Associates,
Inc., a registered
investment adviser,
with which he had
been associated since
prior to 2004. 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.
John H. Dobkin, # Consultant. 84 None
67 Formerly, President
(1998) of Save Venice, Inc.
(preservation
organization) from
2001 - 2002, Senior
Advisor from June
1999 - June 2000 and
President of Historic
Hudson Valley
(historic
preservation) from
December 1989 - May
1999. Previously,
Director of the
National Academy of
Design.
Michael J. Downey, # Private Investor 84 Asia Pacific
65 since January 2004. Fund, Inc., The
(2005) Formerly, managing Merger Fund and
partner of Lexington Prospect
Capital, LLC Acquisition
(investment advisory Corp.
firm) from December (financial
1997 until December services)
2003. From 1987
until 1993, Chairman
and CEO of Prudential
Mutual Fund
Management.
D. James Guzy, # Chairman of the Board 84 Cirrus Logic
73 of PLX Technology Corporation
(2005) (semi-conductors) and (semi-
of SRC Computers conductors)
Inc., with which he
has been associated
since prior to 2004.
He was formerly a
director of the Intel
Corporation
(semi-conductors)
until May 2008.
Nancy P. Jacklin, # Professorial Lecturer 84 None
61 at the Johns Hopkins
(2006) School of Advanced
International Studies
in the 2009-2010
academic year.
Formerly, U.S.
Executive Director of
the International
Monetary Fund
(December 2002-May
2006); Partner,
Clifford Chance
(1992-2002); Sector
Counsel,
International Banking
and Finance, and
Associate General
Counsel, Citicorp
(1985-1992);
Assistant General
Counsel
(International),
Federal Reserve Board
of Governors
(1982-1985); and
Attorney Advisor,
U.S. Department of
the Treasury
(1973-1982). Member
of the Bar of the
District of Columbia
and of New York; and
member of the Council
on Foreign Relations.
Garry L. Moody, # Formerly, Partner, 83 None
57 Deloitte & Touche
(2008) LLP, Vice Chairman,
and U.S. and Global
Managing Partner,
Investment Management
Services Group 1995 -
2008.
Marshall C. Turner, Jr., Interim CEO of MEMC 84 Xilinx, Inc.
68 Electronic Materials, (programmable
(2005) Inc. (semi-conductor logic
and solar cell semi-conductors)
substrates) since and MEMC
November 2008 until Electronic
March 2, 2009. He Materials, Inc.
was Chairman and CEO
of Dupont Photomasks,
Inc. (components of
semi-conductor
manufacturing), 2003
- 2005, and President
and CEO, 2005 - 2006,
after the company was
renamed Toppan
Photomasks, Inc.
Earl D. Weiner, # Of Counsel, and 84 None
70 Partner prior to
(2007) January 2007, of the
law firm Sullivan &
Cromwell LLP; member
of ABA Federal
Regulation of
Securities Committee
Task Force on Fund
Director's Guidebook;
member of Advisory
Board of Sustainable
Forestry Management
Limited.
----------
* The address for each of the Directors is c/o AllianceBernstein L.P., Attn:
Philip L. Kirstein, 1345 Avenue of the Americas, New York, NY 10105.
** There is no stated term of office for the Directors.
+ Member of the Fair Value Pricing Committee.
# Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
The Board has four standing committees -- an Audit Committee, a
Governance and Nominating Committee, a Fair Value Pricing Committee and an
Independent Directors Committee. The members of the Audit, Governance and
Nominating, Fair Value Pricing and Independent Directors Committees are
identified above.
The function of the Audit Committee is to assist the Board in its
oversight of the Strategies' financial reporting process. The Audit Committee
has not yet met.
The function of the Governance and Nominating Committee includes the
nomination of persons to fill any vacancies or newly created positions on the
Board. The Governance and Nominating Committee has not yet met.
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 beneficially owned at least 5% of a Strategy's common stock or shares
of beneficial interest 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 a Strategy not less than 120 days before the date of the
proxy statement for the previous year's annual meeting of shareholders. If a
Strategy did not hold an annual meeting of shareholders in the previous year,
the submission must be delivered or mailed and received within a reasonable
amount of time before the Strategy begins to print and mail its proxy materials.
Public notice of such upcoming annual meeting of shareholders may be given in a
shareholder report or other mailing to shareholders or by other means deemed by
the Governance and Nominating Committee or the Board to be reasonably calculated
to inform shareholders.
Shareholders submitting a candidate for consideration by the
Governance and Nominating Committee must provide the following information to
the Governance and Nominating Committee: (i) a statement in writing setting
forth (A) the name, date of birth, business address and residence address of the
candidate; (B) any position or business relationship of the candidate, currently
or within the preceding five years, with the shareholder or an associated person
of the shareholder as defined below; (C) the class or series and number of all
shares of the Strategy 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 Strategy (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 Strategy 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 Strategy; (v) the class or
series and number of all shares of the Strategy 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 Strategy'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 Strategy, 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.
The function of the Fair Value Pricing Committee is to consider, in
advance if possible, any fair valuation decision of the Adviser's Valuation
Committee relating to a security held by the Strategy made under unique or
highly unusual circumstances not previously addressed by the Valuation Committee
that would result in a change in the Strategy's NAV by more than $0.01 per
share. The Fair Value Pricing Committee has not yet met.
The function of the Independent Directors Committee is to consider and
take action on matters that the Board or Committee believes should be addressed
in executive session of the disinterested Directors, such as review and approval
of the Advisory and Distribution Services Agreements. The Independent Directors
Committee has not yet met.
The dollar range of each Strategy's securities owned by each Director
and the aggregate dollar range of securities owned in all of the registered
investment companies to which the Adviser provides investment advisory services
(collectively, the "AllianceBernstein Fund Complex") owned by each Director are
set forth below.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY
AGGREGATE DOLLAR
DOLLAR RANGE RANGE OF EQUITY
OF EQUITY SECURITIES IN THE
SECURITIES IN ALLIANCEBERNSTEIN
THE STRATEGY AS OF FUND COMPLEX AS OF
DECEMBER 31, 2008 DECEMBER 31, 2008
------------------------ --------------------
John H. Dobkin [__________________] [________________]
Michael J. Downey [__________________] [________________]
William H. Foulk, Jr. [__________________] [________________]
D. James Guzy [__________________] [________________]
Nancy P. Jacklin [__________________] [________________]
Garry L. Moody [__________________] [________________]
Marshall C. Turner, Jr. [__________________] [________________]
Earl D. Weiner [__________________] [________________]
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY
AGGREGATE DOLLAR
DOLLAR RANGE RANGE OF EQUITY
OF EQUITY SECURITIES IN THE
SECURITIES IN ALLIANCEBERNSTEIN
THE STRATEGY AS OF FUND COMPLEX AS OF
DECEMBER 31, 2008 DECEMBER 31, 2008
------------------------ --------------------
John H. Dobkin [__________________] [________________]
Michael J. Downey [__________________] [________________]
William H. Foulk, Jr. [__________________] [________________]
D. James Guzy [__________________] [________________]
Nancy P. Jacklin [__________________] [________________]
Garry L. Moody [__________________] [________________]
Marshall C. Turner, Jr. [__________________] [________________]
Earl D. Weiner [__________________] [________________]
Officer Information
-------------------
Certain information concerning each Strategy's officers is set forth
below.
NAME, ADDRESS,* POSITION(S) HELD PRINCIPAL OCCUPATION
AND AGE WITH FUND DURING PAST 5 YEARS
----------------- ------------------- ---------------------------
Robert M. Keith, President and Executive Vice President of
49 Chief Executive the Adviser** since July
Officer 2008; Executive Managing
Director of AllianceBernstein
Investments, Inc. ("ABI")**
since 2006 and the head of
ABI since July 2008. Prior
to joining ABI in 2006,
Executive Managing Director
of Bernstein Global Wealth
Management, and prior
thereto, Senior Managing
Director and Global Head of
Client Service and Sales of
AllianceBernstein's
institutional investment
management business since
2004. Prior thereto, he was
a Managing Director and Head
of North America Client
Service and Sales in
AllianceBernstein's
institutional investment
management business, with
which he had been associated
since prior to 2005.
Philip L. Kirstein, Senior Vice Senior Vice President and
64 President and Independent Compliance
Independent Officer of the
Compliance AllianceBernstein Funds, with
Officer which he has been associated
since October 2004. Prior
thereto, he was Of Counsel to
Kirkpatrick & Lockhart, LLP
from October 2003 to October
2004, and General Counsel of
Merrill Lynch Investment
Managers, L.P. since prior to
2005.
Emilie D. Wrapp, Secretary Senior Vice President,
53 Assistant General Counsel and
Assistant Secretary of ABI,**
with which she has been
associated since prior to
2005.
Joseph J. Mantineo, Treasurer and Senior Vice President of
50 Chief Financial ABIS,** with which he has
Officer been associated since prior
to 2005.
Phyllis Clarke, Controller Vice President of ABIS,**
48 with which she has been
associated since prior to
2005.
Bond Inflation Strategy
-----------------------
Paul J. DeNoon, Vice President Senior Vice President of the
47 Adviser,** with which he has
been associated since prior
to 2005.
Rajen Jaday, Executive Vice Executive Vice President of
[__] President the Adviser,** with which he
has been associated since
[prior to 2005].
Douglas J. Peebles, Senior Vice Executive Vice President of
44 President the Adviser,** with which he
has been associated since
prior to 2005.
Greg J. Wilensky, Vice President Senior Vice President of the
42 Adviser,** and Director of
Stable Value Investments,
with which he has been
associated since prior to
2005.
Municipal Bond Inflation
Strategy
------------------------
Michael G. Brooks, Vice President Senior Vice President of the
61 Adviser,** with which he has
been associated since prior
to 2005.
Fred S. Cohen, Vice President Senior Vice President of the
51 Adviser,** with which he has
been associated since prior
to 2005.
Robert B. (Guy) Davidson III, Senior Vice Senior Vice President of the
48 President Adviser,** with which he has
been associated since prior
to 2005.
Terrance T. Hults, Vice President Senior Vice President of the
43 Adviser,** with which he has
been associated since prior
to 2005.
---------
* The address for each of the Strategies' Officers is 1345 Avenue of the
Americas, New York, NY 10105.
** The Adviser, ABI, ABIS and SCB & Co. are affiliates of the Strategies.
Each Strategy does not pay any fees to, or reimburse expenses of, its
Directors who are considered "interested persons" (as defined in Section
2(a)(19) of the 1940 Act) of the Strategy. [The estimated aggregate compensation
that will be paid by each Strategy to each of the Directors during its fiscal
year ended [________], 2010, the aggregate compensation paid to each of the
Directors during calendar year 2009 by the AllianceBernstein Fund Complex,] and
the total number of registered investment 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 Strategies nor any other registered
investment company in the AllianceBernstein Fund Complex provides compensation
in the form of pension or retirement benefits to any of its directors or
trustees. Certain of the Directors are directors or trustees of one or more
other registered investment companies in the AllianceBernstein Fund Complex.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY
Total
Number of
Total Investment
Number of Portfolios
Investment within the
Companies Alliance-
in the Bernstein
Alliance- Fund
Total Bernstein Complex,
Compensation Fund Complex, Including
from the Including the Fund,
Alliance- the Fund, as to
Aggregate Bernstein as to which which the
Compensation Fund Complex, the Director Director is
Name of Director from Including is a Director a Director
of the Fund the Fund* the Fund or Trustee or Trustee
------------------ ------------- ------------- ------------- ----------
Robert M. Keith $[_______] $[_______] [_____] [_____]
John H. Dobkin $[_______] $[_______] [_____] [_____]
Michael J. Downey $[_______] $[_______] [_____] [_____]
William H. Foulk, Jr. $[_______] $[_______] [_____] [_____]
D. James Guzy $[_______] $[_______] [_____] [_____]
Nancy P. Jacklin $[_______] $[_______] [_____] [_____]
Garry L. Moody $[_______] $[_______] [_____] [_____]
Marshall C. Turner, Jr. $[_______] $[_______] [_____] [_____]
Earl D. Weiner $[_______] $[_______] [_____] [_____]
----------
* Estimated compensation that will be paid by the Fund during the period
[________________].
As of [____________], 2010 the Directors and Officers as a group owned
less than 1% of the Shares of each Strategy.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY
Total
Number of
Total Investment
Number of Portfolios
Investment within the
Companies Alliance-
in the Bernstein
Alliance- Fund
Total Bernstein Complex,
Compensation Fund Complex, Including
from the Including the Fund,
Alliance- the Fund, as to
Aggregate Bernstein as to which which the
Compensation Fund Complex, the Director Director is
Name of Director from Including is a Director a Director
of the Fund the Fund* the Fund or Trustee or Trustee
------------------ ------------- ------------- ------------- ----------
Robert M. Keith $[_______] $[_______] [_____] [_____]
John H. Dobkin $[_______] $[_______] [_____] [_____]
Michael J. Downey $[_______] $[_______] [_____] [_____]
William H. Foulk, Jr. $[_______] $[_______] [_____] [_____]
D. James Guzy $[_______] $[_______] [_____] [_____]
Nancy P. Jacklin $[_______] $[_______] [_____] [_____]
Garry L. Moody $[_______] $[_______] [_____] [_____]
Marshall C. Turner, Jr. $[_______] $[_______] [_____] [_____]
Earl D. Weiner $[_______] $[_______] [_____] [_____]
----------
* Estimated compensation that will be paid by the Fund during the period
[________________].
As of [____________], 2010 the Directors and Officers as a group owned
less than 1% of the Shares of each Strategy.
------------------------------------------------------------------------------
EXPENSES OF THE STRATEGIES
------------------------------------------------------------------------------
Distribution Services Agreement
The Fund has entered into a Distribution Services Agreement (the
"Agreement") with ABI, the Fund's principal underwriter, to permit ABI to
distribute the Strategies' shares and to permit the Strategies to pay
distribution services fees to defray expenses associated with distribution of
its Class A shares and Class C shares in accordance with a plan of distribution
that is included in the Agreement and that has been duly adopted and approved in
accordance with Rule 12b-1 adopted by the Commission under the 1940 Act (the
"Rule 12b-1 Plan").
Distribution services fees are accrued daily and paid monthly and are
charged as expenses of a Strategy as accrued. The distribution services fees
attributable to the Class C shares are designed to permit an investor to
purchase such shares through broker-dealers without the assessment of an initial
sales charge, and at the same time to permit ABI to compensate broker-dealers in
connection with the sale of such shares. In this regard, the purpose and
function of the combined contingent deferred sales charge ("CDSC") and
distribution services fees on the Class C shares are the same as those of the
initial sales charge and distribution services fee with respect to the Class A
shares in that in each case the sales charge and/or distribution services fee
provide for the financing of the distribution of the relevant class of the
Strategy's shares.
With respect to Class A shares of each Strategy, distribution expenses
accrued by ABI in one fiscal year may not be paid from distribution services
fees received from the Strategy in subsequent fiscal years. ABI's compensation
with respect to Class C shares under the Rule 12b-1 Plan of the Fund is directly
tied to the expenses incurred by ABI. Actual distribution expenses for Class C
shares for any given year, however, will probably exceed the distribution
services fee payable under the Rule 12b-1 Plan with respect to the class
involved and, in the case of Class C shares, payments received from CDSCs. The
excess will be carried forward by ABI and reimbursed from distribution services
fees payable under the Rule 12b-1 Plan with respect to the class involved and,
in the case of Class C shares, payments subsequently received through CDSCs, so
long as the Rule 12b-1 Plan is in effect.
The Rule 12b-1 Plan is in compliance with rules of the Financial
Industry Regulatory Authority ("FINRA") that 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 determined that there
was a reasonable likelihood that the Rule 12b-1 Plan would benefit each Strategy
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 ABI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Agreement will continue in effect provided that such continuance
is specifically approved at least annually by the Directors or by vote of the
holders of a majority of the outstanding voting securities (as defined in the
1940 Act) of that class, and in either case, by a majority of the Directors who
are not parties to the Agreement or "interested persons," as defined in the 1940
Act, of any such party (other than as Directors) 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, each Agreement was approved for
another annual term by a vote, cast in person, of the Directors, including a
majority of the Directors who are not "interested persons," as defined in the
1940 Act, of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related to the Plan, at their
meetings held on [_______________], 2009.
In the event that the Rule 12b-1 Plan is terminated by either party or
not continued with respect to the Class A shares or Class C shares, (i) no
distribution services fees (other than current amounts accrued but not yet paid)
would be owed by a Strategy to ABI with respect to that class, and (ii) a
Strategy would not be obligated to pay ABI for any amounts expended under the
Agreement not previously recovered by ABI from distribution services fees in
respect of shares of such class or through deferred sales charges.
Transfer Agency Agreement
-------------------------
ABIS, an indirect wholly-owned subsidiary of the Adviser located
principally at 8000 IH 10 W, 4th Floor, San Antonio, Texas 78230, receives a
transfer agency fee per account holder of each of the Class A shares, Class C
shares and Advisor Class shares of the Strategies, plus reimbursement for
out-of-pocket expenses. The transfer agency fee with respect to the Class C
shares is higher than the transfer agency fee with respect to the Class A shares
and Advisor Class shares, reflecting the additional costs associated with the
Class C CDSCs. The Strategies have not yet paid ABIS pursuant to the Transfer
Agency Agreement because the Strategies have yet to commence operations.
ABIS acts as the transfer agent for the Strategies. ABIS, an indirect
wholly-owned subsidiary of the Adviser, registers the transfer, issuance and
redemption of Strategy shares and disburses dividends and other distributions to
Strategy shareholders.
Many Strategy 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 Strategies often do not maintain an account for you. Thus, some or all of
the transfer agency functions for these accounts are performed by the financial
intermediaries. The Strategies, ABI and/or the Adviser pays to these financial
intermediaries, including those that sell shares of the AllianceBernstein Mutual
Funds, fees for sub-transfer agency and related recordkeeping services in
amounts ranging up to $19 per customer fund account per annum. Retirement plans
may also hold Strategy shares in the name of the plan, rather than the
participant. Plan recordkeepers, who may have affiliated financial
intermediaries who sell shares of a Strategy, may be paid for each plan
participant fund account in amounts up to $19 per account per annum and/or up to
0.25% per annum of the average daily assets held in the plan. To the extent any
of these payments for recordkeeping services, transfer agency services or
retirement plan accounts are made by a Strategy, they are included in your
Prospectus in the Strategy expense tables under "Fees and Expenses of the
Strategy." In addition, financial intermediaries may be affiliates of entities
that receive compensation from the Adviser or ABI for maintaining retirement
plan "platforms" that facilitate trading by affiliated and non-affiliated
financial intermediaries and recordkeeping for retirement plans.
Because financial intermediaries and plan recordkeepers may be paid
varying amounts per class for sub-transfer agency and related recordkeeping
services, the service requirements of which may also vary by class, this may
create an additional incentive for financial intermediaries and their financial
advisors to favor one fund complex over another or one class of shares over
another.
Code of Ethics and Proxy Voting Policies and Procedures
-------------------------------------------------------
The Strategies, the Adviser and ABI have each adopted codes of ethics
pursuant to Rule 17j-1 of the 1940 Act. These codes of ethics permit personnel
subject to the codes to invest in securities, including securities that may be
purchased or held by a Strategy.
The Strategies have adopted the Adviser's proxy voting policies and
procedures. The Adviser's proxy voting policies and procedures are attached as
Appendix A.
Information regarding how each Strategy voted proxies related to
portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 227-4618; or on or
through the Strategy'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 Strategies."
General
-------
Shares of the Strategies are offered on a continuous basis at a price
equal to their NAV plus an initial sales charge at the time of purchase ("Class
A shares"), without any initial sales charge and, as long as the shares are held
for one year or more, without any CDSC ("Class C shares"), or to investors
eligible to purchase Advisor Class shares, without any initial sales charge or
CDSC ("Advisor Class shares"), in each case as described below. All of the
classes of shares of the Strategies, except Advisor Class shares, are subject to
Rule 12b-1 asset-based sales charges. Shares of the Strategies that are offered
subject to a sales charge are offered through (i) investment dealers that are
members of FINRA and have entered into selected dealer agreements with ABI
("selected dealers"), (ii) depository institutions and other financial
intermediaries or their affiliates, that have entered into selected agent
agreements with ABI ("selected agents") and (iii) ABI.
Investors may purchase shares of the Strategies either through
financial intermediaries or directly through ABI. A transaction, service,
administrative or other similar fee may be charged by your financial
intermediary with respect to the purchase, sale or exchange of shares made
through the financial intermediary. Such financial intermediaries may also
impose requirements with respect to the purchase, sale or exchange of shares
that are different from, or in addition to, those imposed by a Strategy,
including requirements as to the classes of shares available through that
financial intermediary and the minimum initial and subsequent investment
amounts. A Strategy 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 Strategy's shares
may receive differing compensation for selling different classes of shares.
In order to open your account, a Strategy 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 Strategy or your financial intermediary is unable to verify
the information provided, your account may be closed and other appropriate
action may be taken as permitted by law.
The Board has adopted policies and procedures designed to detect and
deter frequent purchases and redemptions of Strategy shares or excessive or
short-term trading that may disadvantage long-term Strategy shareholders. These
policies are described below. There is no guarantee that a Strategy will be able
to detect excessive or short-term trading and to identify shareholders engaged
in such practices, particularly with respect to transactions in omnibus
accounts. Shareholders should be aware that application of these policies may
have adverse consequences, as described below, and avoid frequent trading in
Strategy shares through purchases, sales and exchanges of shares. The Strategies
reserve the right to restrict, reject or cancel, without any prior notice, any
purchase or exchange order for any reason, including any purchase or exchange
order accepted by any shareholder's financial intermediary.
Risks Associated With Excessive Or Short-Term Trading Generally. While
the Strategies will try to prevent market timing by utilizing the procedures
described below, these procedures may not be successful in identifying or
stopping excessive or short-term trading in all circumstances. By realizing
profits through short-term trading, shareholders that engage in rapid purchases
and sales or exchanges of a Strategy's shares dilute the value of shares held by
long-term shareholders. Volatility resulting from excessive purchases and sales
or exchanges of Strategy shares, especially involving large dollar amounts, may
disrupt efficient portfolio management and cause a Strategy to sell shares at
inopportune times to accommodate redemptions relating to short-term trading. In
particular, a Strategy may have difficulty implementing its long-term investment
strategies if it is forced to maintain a higher level of its assets in cash to
accommodate significant short-term trading activity. In addition, a Strategy may
incur increased increased administrative and other due to excessive or
short-term trading, including increased brokerage costs and realization of
taxable capital gains.
A Strategy that may invest significantly 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 each Strategy 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 Strategy share prices that are based
on closing prices of foreign securities established some time before the
Strategy calculates its own share price (referred to as "time zone arbitrage").
A Strategy 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 Strategy calculates its NAV.
While there is no assurance, the Strategies expect that the use of fair value
pricing, in addition to the short-term trading policies discussed below, will
significantly reduce a shareholder's ability to engage in time zone arbitrage to
the detriment of other Strategy shareholders.
A shareholder engaging in a short-term trading strategy may also
target a Strategy that does not invest primarily in foreign securities. Any
Strategy that invests in securities that are, among other things, thinly traded,
traded infrequently or relatively illiquid has the risk that the current market
price for the securities may not accurately reflect current market values. A
shareholder may seek to engage in short-term trading to take advantage of these
pricing differences (referred to as "price arbitrage"). All Strategies may be
adversely affected by price arbitrage trading strategies.
Policy Regarding Short-Term Trading. Purchases and exchanges of shares
of a Strategy should be made for investment purposes only. A Strategy will seek
to prevent patterns of excessive purchases and sales or exchanges of Strategy
shares. A Strategy will seek to prevent such practices to the extent they are
detected by the procedures described below. A Strategy 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. Each Strategy, through its
agents, ABI and ABIS, maintains surveillance procedures to detect
excessive or short-term trading in Strategy shares. This
surveillance process involves several factors, which include
scrutinizing transactions in Strategy shares that exceed certain
monetary thresholds or numerical limits within a specified period
of time. Generally, more than two exchanges of Strategy 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 Strategy may consider trading activity in
multiple accounts under common ownership, control, or influence.
Trading activity identified by either, or a combination, of these
factors, or as a result of any other information available at the
time, will be evaluated to determine whether such activity might
constitute excessive or short-term trading. These surveillance
procedures may be modified from time to time, as necessary or
appropriate to improve the detection of excessive or short-term
trading or to address specific circumstances.
o Account Blocking Procedures. If a Strategy 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 Strategy account(s) will be immediately
"blocked" and no future purchase or exchange activity will be
permitted. However, sales of Strategy shares back to a Strategy
or redemptions will continue to be permitted in accordance with
the terms of the Strategy's current Prospectuses. As a result,
unless the shareholder redeems his or her shares, which may have
consequences if the shares have declined in value, a CDSC is
applicable or adverse tax consequences may result, the
shareholder may be "locked" into an unsuitable investment. In the
event an account is blocked, certain account-related privileges,
such as the ability to place purchase, sale and exchange orders
over the internet or by phone, may also be suspended. A blocked
account will generally remain blocked unless and until the
account holder or the associated broker, dealer or other
financial intermediary provides evidence or assurance acceptable
to the Strategy 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 a Strategy, particularly among certain
brokers, dealers and other financial intermediaries, including
sponsors of retirement plans and variable insurance products. A
Strategy applies it surveillance procedures to these omnibus
account arrangements. As required by Commission rules, the
Strategy has entered into agreements with all of its financial
intermediaries that require the financial intermediaries to
provide the Strategy, upon the request of the Strategy or its
agents, with individual account level information about their
transactions. If the Strategy detects excessive trading through
its monitoring of omnibus accounts, including trading at the
individual account level, the financial intermediaries will also
execute instructions from the Strategy to take actions to curtail
the activity, which may include applying blocks to accounts to
prohibit future purchases and exchanges of Strategy shares. For
certain retirement plan accounts, the Strategy may request that
the retirement plan or other intermediary revoke the relevant
participant's privilege to effect transactions in Strategy shares
via the internet or telephone, in which case the relevant
participant must submit future transaction orders via the U.S.
Postal Service (i.e., regular mail).
Risks to Shareholders Resulting From Imposition of Account Blocks in
Response to Excessive Short-Term Trading Activity. A shareholder identified as
having engaged in excessive or short-term trading activity whose account is
"blocked" and who may not otherwise wish to redeem his or her shares effectively
may be "locked" into an investment in the Strategy 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 Strategy 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
Strategy shares and avoid frequent trading in Strategy 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 a Strategy and its agents to detect excessive or short duration
trading in Strategy shares, there is no guarantee that the Strategy will be able
to identify these shareholders or curtail their trading practices. In
particular, the Strategy may not be able to detect excessive or short-term
trading in Strategy shares attributable to a particular investor who affects
purchase and/or exchange activity in Strategy 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 Strategy shares.
A Strategy 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 a Strategy suspends the sale of its shares, shareholders will not be able to
acquire its shares, including through an exchange.
The public offering price of shares of a Strategy is their NAV, plus,
in the case of Class A shares, a sales charge. On each Strategy business day on
which a purchase or redemption order is received by the Strategy and trading in
the types of securities in which the Strategy invests might materially affect
the value of Strategy 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 Strategy's total assets, less its liabilities, by the total
number of its shares then outstanding. A Strategy business day is any day on
which the Exchange is open for trading.
The respective NAVs of the various classes of shares of a Strategy are
expected to be substantially the same. However, the NAVs of the Class C shares
will generally be slightly lower than the NAVs of the Class A and Advisor Class
shares as a result of the differential daily expense accruals of the higher
distribution and, in some cases, transfer agency fees applicable with respect to
those classes of shares.
A Strategy will accept unconditional orders for 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 ABI prior to the
close of regular trading on the Exchange on each day the Exchange is open for
trading are priced at the NAV computed as of the close of regular trading on the
Exchange on that day (plus applicable Class A sales charges). In the case of
orders for purchase of shares placed through financial intermediaries, the
applicable public offering price will be the NAV so determined, but only if the
financial intermediary receives the order prior to the close of regular trading
on the Exchange. The financial intermediary is responsible for transmitting such
orders by a prescribed time to the Strategy or its transfer agent. If the
financial intermediary fails to do so, the investor will not receive that day's
NAV. If the financial intermediary receives the order after the close of regular
trading on the Exchange, the price received by the investor will be based on the
NAV determined as of the close of regular trading on the Exchange on the next
day it is open for trading.
Following the initial purchase of Strategy shares, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Mutual Fund Application or an "Autobuy"
application obtained by calling the "For Literature" telephone number shown on
the cover of this SAI. Except with respect to certain omnibus accounts,
telephone purchase orders with payment by electronic funds transfer may not
exceed $500,000. Payment for shares purchased by telephone can be made only by
electronic funds transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House Association
("NACHA"). Telephone purchase requests must be received before 4:00 p.m.,
Eastern time, on a Strategy 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 Strategy 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 Strategy, the Strategy will not issue stock
certificates representing shares of the Strategy. Ownership of the Strategy's
shares will be shown on the books of the Fund's transfer agent. Lost
certificates will not be replaced with another certificate, but will be shown on
the books of the Fund's transfer agent. This facilitates later redemption and
relieves the shareholder of the responsibility for and inconvenience of lost or
stolen certificates.
Each class of shares in a Strategy represents an interest in the same
portfolio of investments of the Strategy, has the same rights and is identical
in all respects, except that (i) Class A shares bear the expense of the initial
sales charge (or CDSC, when applicable) and Class C shares bear the expense of
the CDSC, (ii) Class C shares each bear the expense of a higher distribution
services fee than those borne by Class A shares and Advisor Class shares do not
bear such a fee, (iii) Class C shares bear higher transfer agency costs than
that borne by Class A shares and Advisor Class shares, (iv) 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 shares and Class C shares has
exclusive voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services fee is paid and other matters for
which separate class voting is appropriate under applicable law, provided that,
if the Strategy 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 Advisor Class shareholders because the Advisor Class shares
convert to Class A shares under certain circumstances and the Class A shares and
Advisor Class shareholders will vote separately by class. Each class has
different exchange privileges and certain different shareholder service options
available.
The Directors have determined that currently no conflict of interest
exists between or among the classes of shares of the Strategy. On an ongoing
basis, the Directors, pursuant to their fiduciary duties under the 1940 Act and
state law, will seek to ensure that no such conflict arises.
Alternative Purchase Arrangements
---------------------------------
Classes A and C Shares. Class A and Class C shares have the following
alternative purchase arrangements: Class A shares are generally offered with an
initial sales charge and Class C shares are sold to investors choosing the
asset-based sales charge alternative. Special purchase arrangements are
available for group retirement plans. See "Alternative Purchase Arrangements -
Group Retirement Plans and Tax-Deferred Accounts" below. "Group retirement
plans" are defined as 401(k) plans, 457 plans, employer-sponsored 403(b) plans,
profit sharing and money purchase pension plans, defined benefit plans, and
non-qualified deferred compensation plans where plan level or omnibus accounts
are held on the books of a Strategy. See "Alternative Purchase Arrangements -
Group Retirement Plans and Tax-Deferred Accounts" below. These alternative
purchase arrangements permit an investor to choose the method of purchasing
shares that is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their investment in a
Strategy, the accumulated distribution services fee and CDSC on Class C shares
would be less than the initial sales charge and accumulated distribution
services fee on Class A shares purchased at the same time, and to what extent
such differential would be offset by the higher return of Class A shares. Class
C shares will normally not be suitable for the investor who qualifies to
purchase Class A shares at NAV. For this reason, ABI will reject any order for
more than $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends per share than Class C shares.
However, because initial sales charges are deducted at the time of purchase,
most investors purchasing Class A shares would not have all their funds invested
initially and, therefore, would initially own fewer shares. Investors not
qualifying for reduced initial sales charges who expect to maintain their
investment for an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on Class C shares
may exceed the initial sales charge on Class A shares during the life of the
investment. Again, however, such investors must weigh this consideration against
the fact that, because of such initial sales charges, not all their funds will
be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class C shares in order to have all 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 on Class A shares would have to hold
his or her investment approximately seven years for the Class C distribution
services fee to exceed the initial sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an investor
intending to maintain his or her investment for a longer period might consider
purchasing Class A shares. This example does not take into account the time
value of money, which further reduces the impact of the Class C distribution
services fees on the investment, fluctuations in NAV or the effect of different
performance assumptions.
The Strategies have not yet paid underwriting commission with respect
to shares of the Strategies because the Strategies have not yet commenced
operations.
Class A Shares. The public offering price of Class A shares is the NAV
plus a sales charge, as set forth below.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY
Sales Charge
------------
Discount or
Commission to
As % of Dealers or Agents
Amount of As % of Net the Public of up to % of
Purchase Amount Invested Offering Price Offering Price
-------- --------------- -------------- --------------
Up to $100,000 4.44% 4.25% 4.00%
$100,000 up to $250,000 3.36 3.25 3.00
$250,000 up to $500,000 2.30 2.25 2.00
$500,000 up to $1,000,000* 1.78 1.75 1.50
----------
* There is no initial sales charge on transactions of $1,000,000 or more.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY
Sales Charge
------------
Discount or
Commission to
As % of Dealers or Agents
Amount of As % of Net the Public of up to % of
Purchase Amount Invested Offering Price Offering Price
-------- --------------- -------------- --------------
Up to $100,000 3.09% 3.00% [____]%
$100,000 up to $250,000 2.04 2.00 [____]%
$250,000 up to $500,000 1.01 1.00 [____]%
$500,000 up to $1,000,000* 0.00 0.00 [____]%
------------
* 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
Advisor Class shares as described below under " - Conversion of Advisor Class
Shares to Class A Shares." The Strategy receives the entire NAV of its Class A
shares sold to investors. ABI's commission is the sales charge shown above less
any applicable discount or commission "reallowed" to selected dealers and
agents. ABI will reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, ABI may elect to reallow the
entire sales charge to selected dealers and agents for all sales with respect to
which orders are placed with ABI. A selected dealer who receives reallowance in
excess of 90% of such a sales charge may be deemed to be an "underwriter" under
the Securities Act.
In addition to the circumstances described above, certain types of
investors may be entitled to pay no initial sales charge in certain
circumstances described below.
Class A Shares--Sales at NAV. A Strategy may sell its Class A shares
at NAV (i.e., without any initial sales charge) to certain categories of
investors including:
(i) investment management clients of the Adviser or its affiliates,
including clients and prospective clients of the Adviser's
AllianceBernstein Institutional Investment Management Division;
(ii) officers and present or former Directors or other investment
companies managed by the Adviser, officers, directors and
present or retired full-time employees and former employees (for
subsequent investment in accounts established during the course
of their employment) of the Adviser, ABI, ABIS and their
affiliates; officers, directors and present and full-time
employees of selected dealers or agents; or the spouse or
domestic partner, sibling, direct ancestor or direct descendant
(collectively, "relatives") of any such person; or any trust,
individual retirement account or retirement plan account for the
benefit of any such person;
(iii) the Adviser, ABI, ABIS and their affiliates; certain employee
benefit plans for employees of the Adviser, ABI, ABIS and their
affiliates;
(iv) persons participating in a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial
intermediary and approved by ABI, under which such persons pay
an asset-based fee for service in the nature of investment
advisory or administrative services;
(v) certain retirement plan accounts as described under "Alternative
Purchase Arrangements--Group Retirement Plans and Tax-Deferred
Accounts"; and
(vi) current Class A shareholders of AllianceBernstein Mutual Funds
and investors who receive a "Fair Funds Distribution" (a
"Distribution") resulting from a Commission enforcement action
against the Adviser and current Class A shareholders of
AllianceBernstein Mutual Funds who receive a Distribution
resulting from any Commission enforcement action related to
trading in shares of AllianceBernstein Mutual Funds who, in each
case, purchase shares of an AllianceBernstein Mutual Fund from
ABI through deposit with ABI of the Distribution check.
Class C Shares. Investors may purchase Class C shares at the public
offering price equal to the NAV per share of the Class C shares on the date of
purchase without the imposition of a sales charge either at the time of purchase
or, as long as the shares are held for one year or more, upon redemption. Class
C shares are sold without an initial sales charge so that a Strategy 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 a Strategy 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 a Strategy and incur higher distribution services fees and transfer agency
costs than Class A shares and Advisor Class shares, and will thus have a higher
expense ratio and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Contingent Deferred Sales Charge. Class A share purchases of
$1,000,000 or more and Class C shares that are redeemed within one year of
purchase will be subject to a CDSC of 1%, as are Class A share purchases by
certain group retirement plans (see "Alternative Purchase Arrangements - Group
Retirement Plans and Tax-Deferred Accounts" below). The charge will be assessed
on an amount equal to the lesser of the cost of the shares being redeemed or
their NAV at the time of redemption. Accordingly, no sales charge will be
imposed on increases in NAV above the initial purchase price. In addition, no
charge will be assessed on shares derived from reinvestment of dividends or
capital gains distributions.
Contingent Deferred Sales Charge
for the Strategy as a % of Dollar
Year Since Purchase Amount Subject to Charge
------------------- ----------------------------------
First 4.00%
Second 3.00%
Third 2.00%
Fourth 1.00%
Fifth and thereafter None
In determining the CDSC applicable to a redemption of Class C shares,
it will be assumed that the redemption is, first, of any shares that are not
subject to a CDSC (for example, because the shares were acquired upon the
reinvestment of dividends or distributions) and, second, of shares held longest
during the time they are subject to the sales charge. When shares acquired in an
exchange are redeemed, the applicable CDSC and conversion schedules will be the
schedules that applied at the time of the purchase of shares of the
corresponding class of the AllianceBernstein Mutual Fund originally purchased by
the shareholder. If you redeem your shares and directly invest the proceeds in
units of CollegeBoundfund, the CDSC will apply to the units of CollegeBoundfund.
Proceeds from the CDSC are paid to ABI and are used by ABI to defray
the expenses of ABI related to providing distribution-related services to a
Strategy in connection with the sale of Strategy shares, such as the payment of
compensation to selected dealers and agents for selling Strategy shares. The
combination of the CDSC and the distribution services fee enables the Strategy
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 United States Internal Revenue Code of 1986, as
amended (the "Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual retirement account
or other retirement plan to a shareholder that has attained the age of 70 1/2,
(iii) that had been purchased by present or former Directors, by the relative of
any such person, by any trust, individual retirement account or retirement plan
account for the benefit of any such person or relative or by the estate of any
such person or relative, (iv) pursuant to, and in accordance with, a systematic
withdrawal plan (see "Sales Charge Reduction Programs--Systematic Withdrawal
Plan" below), (v) to the extent that the redemption is necessary to meet a plan
participant's or beneficiary's request for a distribution or loan from a group
retirement plan or to accommodate a plan participant's or beneficiary's
direction to reallocate his or her plan account among other investment
alternatives available under a group retirement plan, (vi) for Class C shares,
sold through programs offered by financial intermediaries and approved by ABI
where such programs offer only shares that are not subject to a CDSC, where the
financial intermediary establishes a single omnibus account for each Strategy
or, in the case of a group retirement plan, a single account for each plan, and
where no advance commission is paid to any financial intermediary in connection
with the purchase of such shares, (vii) for permitted exchanges of shares, or
(viii) that had been purchased with proceeds from a Distribution resulting from
any Commission enforcement action related to trading in shares of
AllianceBernstein Mutual Funds through deposit with ABI of the Distribution
check.
Advisor Class Shares. Advisor Class shares of a Strategy may be
purchased and held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers or other
financial intermediaries and approved by ABI, (ii) through self-directed defined
contribution employee benefit plans (e.g., 401(k) plans) that have at least $10
million in assets and are purchased directly by the plan without the involvement
of a financial intermediary, or (iii) 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). 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 a
Strategy in order to be approved by ABI for investment in Advisor Class shares.
A transaction fee may be charged by your financial intermediary with respect to
the purchase, sale or exchange of Advisor Class shares made through such
financial intermediary. Advisor Class shares do not incur any distribution
services fees, and will thus have a lower expense ratio and pay correspondingly
higher dividends than Class A or Class C shares.
Conversion of Advisor Class Shares to Class A Shares. Advisor Class
shares may be held solely through the fee-based program accounts, employee
benefit plans, qualified state tuition programs and registered investment
advisory or other financial intermediary relationships described above under
"Purchase of Shares--Advisor Class Shares," and by investment advisory clients
of, and by certain other persons associated with, the Adviser and its affiliates
or a Strategy. 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
the Prospectuses and this SAI (each, a "Conversion Event"), then all Advisor
Class shares held by the shareholder will convert automatically to Class A
shares of a Strategy during the calendar month following the month in which the
Strategy is informed of the occurrence of the Conversion Event. The Strategy
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 fee. 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 or her Advisor Class shares,
which would constitute a taxable event under federal income tax law.
Alternative Purchase Arrangements--Group Retirement Plans and Tax-Deferred
Accounts
--------------------------------------------------------------------------------
Each Strategy 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 Strategy, 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 Strategy. In
order to enable participants investing through group retirement plans to
purchase shares of the Strategy, 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 CDSC may be waived for investments
made through certain group retirement plans. Therefore, plan sponsors or
fiduciaries may not adhere to these share class eligibility standards as set
forth in the prospectus and this SAI. The Strategy is not responsible for, and
has no control over, the decision of any plan sponsor or fiduciary to impose
such differing requirements.
Class A Shares. Class A shares are available at NAV to all
AllianceBernstein sponsored group retirement plans, regardless of size, and to
the AllianceBernstein Link, AllianceBernstein Individual 401(k) and
AllianceBernstein SIMPLE IRA plans with at least $250,000 in plan assets or 100
or more employees. Effective June 30, 2005, for purposes of determining whether
a SIMPLE IRA plan has at least $250,000 in plan assets, all of the SIMPLE IRAs
of an employer's employees are aggregated. ABI measures the asset levels and
number of employees in these plans once monthly. Therefore, if a plan that is
not initially eligible for Class A shares meets the asset level or number of
employees required for Class A eligibility, ABI 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 a Strategy as an investment option
within one year, then all plan purchases of Class A shares will be subject to a
1%, 1-year CDSC on redemption. Class A shares are also available at NAV to group
retirement plans with plan assets in excess of $10 million. The 1%, 1-year CDSC
also generally applies. However, the 1%, 1-year CDSC may be waived if the
financial intermediary agrees to waive all commissions or other compensation
paid in connection with the sale of such shares (typically up to a 1% advance
payment for sales of Class A shares at NAV) other than the service fee paid
pursuant to the Fund's Rule 12b-1 plan.
Class C Shares. Class C shares are available to AllianceBernstein
Link, AllianceBernstein Individual 401(k) and AllianceBernstein SIMPLE IRA plans
with less than $250,000 in plan assets and less than 100 employees. Class C
shares are also available to group retirement plans with plan assets of less
than $1 million. If an AllianceBernstein Link, AllianceBernstein Individual
401(k) or AllianceBernstein SIMPLE IRA plan holding Class C shares becomes
eligible to purchase Class A shares at NAV, the plan sponsor or other
appropriate fiduciary of such plan may request ABI in writing to liquidate the
Class C shares and purchase Class A shares with the liquidation proceeds. Any
such liquidation and repurchase may not occur before the expiration of the
1-year period that begins on the date of the plan's last purchase of Class C
shares.
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 a Strategy, 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 Strategy's share class eligibility criteria before determining
whether to invest. Currently, each Strategy makes its Class A shares available
at NAV to group retirement plans with plan assets in excess of $10 million.
Unless waived under the circumstances described above, a 1%, 1-year CDSC applies
to the sale of Class A shares by a plan.
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, a Strategy must be notified by the
shareholder or his or her financial intermediary that they qualify for such a
reduction. If a Strategy is not notified that a shareholder is eligible for
these reductions, the Strategy will be unable to ensure that the reduction is
applied to the shareholder's account.
Combined Purchase Privilege. Shareholders may qualify for the sales
charge reductions by combining purchases of shares of a Strategy 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 Strategy or any other AllianceBernstein
Mutual Fund, including AllianceBernstein Institutional Funds, by (i) an
individual, his or her spouse or domestic partner, or the individual's children
under the age of 21 years purchasing shares for his, her or their own
account(s), including certain CollegeBoundfund accounts; (ii) a trustee or other
fiduciary purchasing shares for a single trust, estate or single fiduciary
account with one or more beneficiaries involved; or (iii) the employee benefit
plans of a single employer. The term "purchase" also includes purchases by any
"company," as the term is defined in the 1940 Act, but does not include
purchases by any such company that has not been in existence for at least six
months or that has no purpose other than the purchase of shares of the Strategy
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 Balanced Shares, Inc.
AllianceBernstein Blended Style Series, Inc.
-AllianceBernstein 2000 Retirement Strategy
-AllianceBernstein 2005 Retirement Strategy
-AllianceBernstein 2010 Retirement Strategy
-AllianceBernstein 2015 Retirement Strategy
-AllianceBernstein 2020 Retirement Strategy
-AllianceBernstein 2025 Retirement Strategy
-AllianceBernstein 2030 Retirement Strategy
-AllianceBernstein 2035 Retirement Strategy
-AllianceBernstein 2040 Retirement Strategy
-AllianceBernstein 2045 Retirement Strategy
-AllianceBernstein 2050 Retirement Strategy
-AllianceBernstein 2055 Retirement Strategy
-U.S. Large Cap Portfolio
AllianceBernstein Bond Fund, Inc.
-AllianceBernstein Intermediate Bond Portfolio
AllianceBernstein Cap Fund, Inc.
-AllianceBernstein Small Cap Growth Portfolio
AllianceBernstein Diversified Yield Fund, Inc.
AllianceBernstein Exchange Reserves
AllianceBernstein Focused Growth & Income Fund, Inc.
AllianceBernstein Global Bond Fund, Inc.
AllianceBernstein Global Growth Fund, Inc.
AllianceBernstein Global Real Estate Investment Fund, Inc.
AllianceBernstein Global Thematic Growth Fund, Inc.
AllianceBernstein Greater China '97 Fund, Inc.
AllianceBernstein Growth and Income Fund, Inc.
AllianceBernstein High Income Fund, Inc.
AllianceBernstein International Growth Fund, Inc.
AllianceBernstein Large Cap Growth Fund, Inc.
AllianceBernstein Municipal Income Fund, Inc.
-California Portfolio
-National Portfolio
-New York Portfolio
AllianceBernstein Municipal Income Fund II
-Arizona Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
AllianceBernstein Small/Mid Cap Growth Fund, Inc.
AllianceBernstein Trust
-AllianceBernstein Global Value Fund
-AllianceBernstein International Value Fund
-AllianceBernstein Small/Mid Cap Value Fund
-AllianceBernstein Value Fund
AllianceBernstein Utility Income 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 California Municipal Portfolio
-AllianceBernstein Intermediate Diversified Municipal Portfolio
-AllianceBernstein Intermediate New York Municipal Portfolio
-AllianceBernstein International Portfolio
-AllianceBernstein Short Duration Portfolio
-AllianceBernstein Tax-Managed International Portfolio
Prospectuses for the AllianceBernstein Mutual Funds may be obtained
without charge by contacting ABIS at the address or the "For Literature"
telephone number shown on the front cover of this SAI.
Cumulative Quantity Discount (Right Of Accumulation). An investor's
purchase of additional Class A shares of a Strategy 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 Strategy held by the investor and (b) all
shares held by the investor of any other AllianceBernstein
Mutual Fund, including AllianceBernstein Institutional Funds and
certain CollegeBoundfund accounts for which the investor, his or
her spouse or domestic partner, or child under the age of 21 is
the participant; and
(iii) the 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 Strategy worth an additional $100,000, the
initial sales charge for the $100,000 purchase would be at the 2.25% rate
applicable to a single $300,000 purchase of shares of the Strategy, 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 Strategy 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 Strategy or any other AllianceBernstein
Mutual Fund made not more than 90 days prior to the date that the investor signs
the Letter of Intent, in which case the 13-month period during which the Letter
of Intent is in effect will begin on the date of that earliest purchase.
However, sales charges will not be reduced for purchases made prior to the date
the Letter of Intent is signed.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the AllianceBernstein Mutual Funds under a single
Letter of Intent. For example, if at the time an investor signs a Letter of
Intent to invest at least $100,000 in Class A shares of the Strategy, the
investor and the investor's spouse or domestic partner each purchase shares of
the Strategy 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
Strategy 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 Strategy shares, are not subject to
escrow. When the full amount indicated has been purchased, the escrow will be
released.
Investors wishing to enter into a Letter of Intent in conjunction with
their initial investment in Class A shares of a Strategy can obtain a form of
Letter of Intent by contacting ABIS at the address or telephone numbers shown on
the cover of this SAI.
Reinstatement Privilege. A shareholder who has redeemed any or all of
his or her Class A shares may reinvest all or any portion of the proceeds from
that redemption in Class A shares of any AllianceBernstein Mutual Fund at NAV
without any sales charge, provided that (i) such reinvestment is made within 120
calendar days after the redemption or repurchase date. Shares are sold to a
reinvesting shareholder at the NAV next determined as described above. A
reinstatement pursuant to this privilege will not cancel the redemption or
repurchase transaction; therefore, any gain or loss so realized will be
recognized for federal income tax purposes except that no loss will be
recognized to the extent that the proceeds are reinvested in shares of the
Strategy within 30 calendar days after the redemption or repurchase transaction.
Investors may exercise the reinstatement privilege by written request sent to
the Strategy at the address shown on the cover of this SAI.
Dividend Reinvestment Program. Shareholders may elect to have all
income and capital gains distributions from their account paid to them in the
form of additional shares of the same class of a Strategy pursuant to the
Strategy's Dividend Reinvestment Program. No initial sales charge or CDSC will
be imposed on shares issued pursuant to the Dividend Reinvestment Program.
Shares issued under this program will have an aggregate NAV as of the close of
business on the declaration date of the dividend or distribution equal to the
cash amount of the distribution. Investors wishing to participate in the
Dividend Reinvestment Program should complete the appropriate section of the
Mutual Fund Application. Current shareholders should contact ABIS to participate
in the Dividend Reinvestment Program.
In certain circumstances where a shareholder has elected to receive
dividends and/or capital gain distributions in cash but the account has been
determined to be lost due to mail being returned to us by the Postal Service as
undeliverable, such shareholder'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 ABIS at the address or the
"For Literature" telephone number shown on the cover of this SAI. Investors
wishing to establish a dividend direction plan in connection with their initial
investment should complete the appropriate section of the Mutual Fund
Application. Current shareholders should contact ABIS to establish a dividend
direction plan.
Systematic Withdrawal Plan
--------------------------
General. Any shareholder who owns or purchases shares of a Strategy
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 Strategy automatically reinvested in
additional shares of the Strategy.
Shares of a Strategy owned by a participant in the Strategy's
systematic withdrawal plan will be redeemed as necessary to meet withdrawal
payments and such payments will be subject to any taxes applicable to
redemptions and, except as discussed below with respect to Class A and Class C
shares, any applicable CDSC. Shares acquired with reinvested dividends and
distributions will be liquidated first to provide such withdrawal payments and
thereafter other shares will be liquidated to the extent necessary, and
depending upon the amount withdrawn, the investor's principal may be depleted. A
systematic withdrawal plan may be terminated at any time by the shareholder or
the Strategy.
Withdrawal payments will not automatically end when a shareholder's
account reaches a certain minimum level. Therefore, redemptions of shares under
the plan may reduce or even liquidate a shareholder's account and may subject
the shareholder to a Strategy's involuntary redemption provisions. See
"Redemption and Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales charges
applicable when purchases are made. While an occasional lump-sum investment may
be made by a holder of Class A shares who is maintaining a systematic withdrawal
plan, such investment should normally be an amount equivalent to three times the
annual withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made by check or
electronically via the Automated Clearing House ("ACH") network. Investors
wishing to establish a systematic withdrawal plan in conjunction with their
initial investment in shares of a Strategy should complete the appropriate
portion of the Mutual Fund Application, while current Strategy shareholders
desiring to do so can obtain an application form by contacting ABIS at the
address or the "For Literature" telephone number shown on the cover of this SAI.
CDSC Waiver for Class A Shares and Class C Shares. Under the
systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3% quarterly of
the value at the time of redemption of the Class A or Class C shares in a
shareholder's account may be redeemed free of any CDSC.
With respect to Class A and Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing limitations.
Redemptions in excess of those limitations will be subject to any otherwise
applicable CDSC.
Payments to Financial Advisors and Their Firms
----------------------------------------------
Financial intermediaries market and sell shares of the Strategies.
These financial intermediaries employ financial advisors and receive
compensation for selling shares of the Strategies. This compensation is paid
from various sources, including any sales charge, CDSC and/or Rule 12b-1 fee
that you or the Strategies may pay. Your individual financial advisor may
receive some or all of the amounts paid to the financial intermediary that
employs him or her.
In the case of Class A shares, all or a portion of the initial sales
charge that you pay may be paid by ABI to financial intermediaries selling Class
A shares. ABI may also pay these financial intermediaries a fee of up to 1% on
purchases of $1 million or more. Additionally, up to 100% of the Rule 12b-1 fees
applicable to Class A shares each year may be paid to financial intermediaries,
including your financial intermediary, that sell Class A shares.
In the case of Class C shares, ABI may pay, at the time of your
purchase, a commission to firms selling Class C shares in an amount equal to 1%
of your investment. Additionally, up to 100% of the Rule 12b-1 fee applicable to
Class C shares each year may be paid to financial intermediaries, including your
financial intermediary, that sell Class C shares.
In the case of Advisor Class shares, your financial advisor may charge
ongoing fees or transactional fees. ABI may pay a portion of "ticket" or other
transactional charges.
Your financial advisor's firm receives compensation from the
Strategies, ABI and/or the Adviser in several ways from various sources, which
include some or all of the following:
o upfront sales commissions;
o Rule 12b-1 fees;
o additional distribution support;
o defrayal of costs for educational seminars and training; and
o payments related to providing sub-accounting or shareholder
servicing.
Please read your Prospectus carefully for information on this
compensation.
Other Payments for Distribution Services and Educational Support
----------------------------------------------------------------
In addition to the commissions paid to financial intermediaries at the
time of sale and the fees described under "Asset-Based Sales Charges or
Distribution and/or Service (Rule 12b-1) Fees," in your Prospectus, some or all
of which may be paid to financial intermediaries (and, in turn, to your
financial advisor), ABI, at its expense, currently provides additional payments
to firms that sell shares of the AllianceBernstein Mutual Funds. Although the
individual components may be higher and the total amount of payments made to
each qualifying firm in any given year may vary, the total amount paid to a
financial intermediary in connection with the sale of shares of the
AllianceBernstein Mutual Funds will generally not exceed the sum of (a) 0.25% of
the current year's fund sales by that firm and (b) 0.10% of average daily net
assets attributable to that firm over the year. These sums include payments to
reimburse directly or indirectly the costs incurred by these firms and their
employees in connection with educational seminars and training efforts about the
AllianceBernstein Mutual Funds for the firms' employees and/or their clients and
potential clients. The costs and expenses associated with these efforts may
include travel, lodging, entertainment and meals.
For 2010, ABI's additional payments to these firms for distribution
services and educational support related to the AllianceBernstein Mutual Funds
is expected to be approximately [_____]% of the average monthly assets of the
AllianceBernstein Mutual Funds, or approximately $[____] million. In 2009, ABI
paid approximately 0.04% of the average monthly assets of the AllianceBernstein
Mutual Funds or approximately $15.5 million for distribution services and
educational support related to the AllianceBernstein Mutual Funds.
A number of factors are considered in determining the additional
payments, including each firm's AllianceBernstein Mutual Fund sales, assets and
redemption rates, and the willingness and ability of the firm to give ABI access
to its financial advisors for educational and marketing purposes. In some cases,
firms will include the AllianceBernstein Mutual Funds on a "preferred list."
ABI's goal is to make the financial advisors who interact with current and
prospective investors and shareholders more knowledgeable about the
AllianceBernstein Mutual Funds so that they can provide suitable information and
advice about the funds and related investor services.
The Strategies and ABI also make payments for sub-accounting or
shareholder servicing to financial intermediaries that sell AllianceBernstein
Mutual Fund shares. Please see "Expenses of the Strategies - Transfer Agency
Agreement" above. These expenses paid by a Strategy are included in "Other
Expenses" under "Fees and Expenses of the Strategy - Annual Strategy 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 Strategy, the
Adviser, ABI and by sponsors of other mutual funds he or she may recommend to
you. You should also consult disclosures made by your financial advisor at the
time of purchase.
ABI anticipates that the firms that will receive additional payments
for distribution services and/or educational support include:
Ameriprise Financial Services
AXA Advisors
Bank of America
Cadaret, Grant & Co.
CCO Investment Services Corp.
Chase Investment Services
Citigroup Global Markets
Commonwealth Financial Network
Donegal Securities
ING Advisors Network
LPL Financial Corporation
Merrill Lynch
Morgan Stanley & Co. Incorporated
Northwestern Mutual Investment Services
Raymond James
RBC Capital Markets Corporation
Robert W. Baird
SagePoint Financial, Inc.
UBS AG
UBS Financial Services
Wachovia Securities
Wells Fargo Investments
Although a Strategy may use brokers and dealers who sell shares of the
Strategy to effect portfolio transactions, the Strategy does not consider the
sale of AllianceBernstein Mutual Fund shares as a factor when selecting brokers
or dealers to effect portfolio transactions.
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REDEMPTION AND REPURCHASE OF SHARES
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The following information supplements that set forth in your
Prospectus under the heading "Investing in the Strategies." 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 a Strategy 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. Each Strategy 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 Strategy'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 Strategy.
Redemption
----------
Subject only to the limitations described below, the Charter of The
AllianceBernstein Bond Fund, Inc. requires that a Strategy redeem the shares
tendered to it, as described below, at a redemption price equal to their NAV as
next computed following the receipt of shares tendered for redemption in proper
form. Except for any CDSC which may be applicable to Class A or Class C shares,
there is no redemption charge. Payment of the redemption price normally will be
made within seven days after the Strategy's receipt of such tender for
redemption. If a shareholder is in doubt about what documents are required by
his or her fee-based program or employee benefit plan, the shareholder should
contact his or her financial intermediary.
The right of redemption may not be suspended or the date of payment
upon redemption postponed for more than seven days after shares are tendered for
redemption, except for any period during which the Exchange is closed (other
than customary weekend and holiday closings) or during which the 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 a Strategy of securities owned by it is not reasonably practicable or as a
result of which it is not reasonably practicable for the Strategy 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
Strategy.
Payment of the redemption price normally will be made in cash but may
be made, at the option of a Strategy, in kind. No interest will accrue on
uncashed redemption checks. The value of a shareholder's shares on redemption or
repurchase may be more or less than the cost of such shares to the shareholder,
depending upon the market value of the Strategy's portfolio securities at the
time of such redemption or repurchase. Redemption proceeds on Class A and Class
C shares will reflect the deduction of the CDSC, if any. Payment received by a
shareholder upon redemption or repurchase of his or her shares, assuming the
shares constitute capital assets in his or her hands, will result in long-term
or short-term capital gain (or loss) depending upon the shareholder's holding
period and basis in respect of the shares redeemed.
To redeem shares of a Strategy for which no stock certificates have
been issued, the registered owner or owners should forward a letter to the
Strategy containing a request for redemption. The Strategy may require the
signature or signatures on the letter to be Medallion Signature Guaranteed.
Please contact ABIS to confirm whether a Medallion Signature Guarantee is
needed.
To redeem shares of a Strategy 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 Strategy 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 Strategy 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 Strategy. The signature or signatures on the
assignment form must be guaranteed in the manner described above.
Telephone Redemption by Electronic Funds Transfer. Each Strategy
shareholder is entitled to request redemption by electronic funds transfer (of
shares for which no stock certificates have been issued) by telephone at (800)
221-5672 if the shareholder has completed the appropriate portion of the Mutual
Fund Application or, if an existing shareholder has not completed this portion,
by an "Autosell" application obtained from ABIS (except for certain omnibus
accounts). A telephone redemption request by electronic funds transfer may not
exceed $100,000, and must be made by 4:00 p.m., Eastern time on a Strategy
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 Strategy shareholder is eligible
to request redemption by check of Strategy shares for which no stock
certificates have been issued by telephone at (800) 221-5672 before 4:00 p.m.,
Eastern time on a Strategy business day in an amount not exceeding $100,000.
Proceeds of such redemptions are remitted by check to the shareholder's address
of record. A shareholder otherwise eligible for telephone redemption by check
may cancel the privilege by written instruction to ABIS, or by checking the
appropriate box on the Mutual Fund Application.
Telephone Redemptions--General. During periods of drastic economic,
market or other developments, such as the terrorist attacks on September 11,
2001, it is possible that shareholders would have difficulty in reaching ABIS by
telephone (although no such difficulty was apparent at any time in connection
with the attacks). If a shareholder were to experience such difficulty, the
shareholder should issue written instructions to ABIS at the address shown on
the cover of this SAI. The Strategy reserves the right to suspend or terminate
its telephone redemption service at any time without notice. Telephone
redemption is not available with respect to shares (i) for which certificates
have been issued, (ii) held in nominee or "street name" accounts, (iii) held by
a shareholder who has changed his or her address of record within the preceding
30 calendar days or (iv) held in any retirement plan account. Neither the
Strategies, the Adviser, ABI nor ABIS will be responsible for the authenticity
of telephone requests for redemptions that a Strategy reasonably believes to be
genuine. A Strategy 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 a Strategy 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
----------
A Strategy may repurchase shares through ABI or financial
intermediaries. The repurchase price will be the NAV next determined after ABI
receives the request (less the CDSC, if any, with respect to the Class A and
Class C shares), except that requests placed through financial intermediaries
before the close of regular trading on the Exchange on any day will be executed
at the NAV determined as of such close of regular trading on that day if
received by ABI prior to its close of business on that day (normally 5:00 p.m.,
Eastern time). The financial intermediary is responsible for transmitting the
request to ABI by 5:00 p.m., Eastern time (certain financial intermediaries may
enter into operating agreements permitting them to transmit purchase information
that was received prior to the close of business to ABI after 5:00 p.m., Eastern
time and receive that day's NAV.). If the financial intermediary fails to do so,
the shareholder's right to receive that day's closing price must be settled
between the shareholder and that financial intermediary. A shareholder may offer
shares of a Strategy to ABI either directly or through a financial intermediary.
Neither the Strategies nor ABI charges a fee or commission in connection with
the repurchase of shares (except for the CDSC, if any, with respect to Class A
and Class C shares). Normally, if shares of a Strategy are offered through a
financial intermediary, the repurchase is settled by the shareholder as an
ordinary transaction with or through that financial intermediary, who may charge
the shareholder for this service. The repurchase of shares of a Strategy as
described above with respect to financial intermediaries is a voluntary service
of the Strategy and the Strategy may suspend or terminate this practice at any
time.
General
-------
A Strategy reserves the right to close out an account that has
remained below $500 for 90 days. No CDSC will be deducted from the proceeds of
this redemption. In the case of a redemption or repurchase of shares of a
Strategy recently purchased by check, redemption proceeds will not be made
available until the Strategy is reasonably assured that the check has cleared,
normally up to 15 calendar days following the purchase date.
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SHAREHOLDER SERVICES
------------------------------------------------------------------------------
The following information supplements that set forth in your
Prospectus under the heading "Investing in the Strategies." The shareholder
services set forth below are applicable to all classes of shares unless
otherwise indicated. If you are an Advisor Class shareholder through an account
established under a fee-based program or a shareholder in a group retirement
plan, your fee-based program or retirement plan may impose requirements with
respect to the purchase, sale or exchange of shares of a Strategy that are
different from those described herein.
Automatic Investment Program
----------------------------
Investors may purchase shares of a Strategy through an automatic
investment program utilizing electronic funds transfer drawn on the investor's
own bank account. Under such a program, pre-authorized monthly drafts for a
fixed amount are used to purchase shares through the financial intermediary
designated by the investor at the public offering price next determined after
ABI receives the proceeds from the investor's bank. The monthly drafts must be
in minimum amounts of either $50 or $[800], depending on the investor's initial
purchase. If an investor makes an initial purchase of at least $[10,000], the
minimum monthly amount for pre-authorized drafts is $50. If an investor makes an
initial purchase of less than $[10,000], the minimum monthly amount for
pre-authorized drafts is $[800] and the investor must commit to a monthly
investment of at least $[800] until the investor's account balance is $[10,000]
or more. In electronic form, drafts can be made on or about a date each month
selected by the shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment should complete
the appropriate portion of the Mutual Fund Application. Current shareholders
should contact ABIS at the address or telephone numbers shown on the cover of
this SAI to establish an automatic investment program.
Exchange Privilege
------------------
You may exchange your investment in a Strategy for shares of the same
class of other AllianceBernstein Mutual Funds (including AllianceBernstein
Exchange Reserves, a money market fund managed by the Adviser) if the other
AllianceBernstein Mutual Fund in which you wish to invest offers shares of the
same class. In addition, (i) present officers and full-time employees of the
Adviser, (ii) present directors or trustees of any AllianceBernstein Mutual
Fund, (iii) certain employee benefit plans for employees of the Adviser, ABI,
ABIS and their affiliates and (iv) persons participating in a fee-based program,
sponsored and maintained by a registered broker-dealer or other financial
intermediary and approved by ABI, under which such persons pay an asset-based
fee for a service in the nature of investment advisory or administrative service
may, on a tax-free basis, exchange Class A shares of the Strategy for Advisor
Class shares of the Strategy. Exchanges of shares are made at the NAV next
determined and without sales or service charges. Exchanges may be made by
telephone or written request. In order to receive a day's NAV, ABIS must receive
and confirm a telephone exchange request by 4:00 p.m., Eastern time, on that
day.
Shares will continue to age without regard to exchanges for purpose of
determining the CDSC, if any, upon redemption. When redemption occurs, the CDSC
applicable to the shares of the AllianceBernstein Mutual Fund you originally
purchased for cash is applied.
Please read carefully the prospectus of the AllianceBernstein Mutual
Fund into which you are exchanging before submitting the request. Call ABIS at
(800) 221-5672 to exchange uncertificated shares. Except with respect to
exchanges of Class A shares of a Strategy for Advisor Class shares of the
Strategy, 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 Strategy shareholder and the shareholder's financial intermediary
are authorized to make telephone requests for exchanges unless ABIS receives
written instruction to the contrary from the shareholder, or the shareholder
declines the privilege by checking the appropriate box on the Mutual Fund
Application. Such telephone requests cannot be accepted with respect to shares
then represented by 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
ABIS with their account number and other details of the exchange, at (800)
221-5672 before 4:00 p.m., Eastern time on a Strategy business day as defined
above. Telephone requests for exchange received before 4:00 p.m., Eastern time
on a Strategy business day will be processed as of the close of business on that
day. During periods of drastic economic, market or other developments, such as
the terrorist attacks on September 11, 2001, it is possible that shareholders
would have difficulty in reaching ABIS by telephone (although no such difficulty
was apparent at any time in connection with the attacks). If a shareholder were
to experience such difficulty, the shareholder should issue written instructions
to ABIS at the address shown on the cover of this SAI.
A shareholder may elect to initiate a monthly "Auto Exchange" whereby
a specified dollar amount's worth of his or her Strategy shares (minimum $25) is
automatically exchanged for shares of another AllianceBernstein Mutual Fund.
None of the AllianceBernstein Mutual Funds, the Adviser, ABI or ABIS
will be responsible for the authenticity of telephone requests for exchanges
that a Strategy reasonably believes to be genuine. Each Strategy 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 a Strategy did not employ such procedures, it could be liable
for losses arising from unauthorized or fraudulent telephone instructions.
Financial intermediaries may charge a commission for handling telephone requests
for exchanges.
The exchange privilege is available only in states where shares of the
AllianceBernstein Mutual Fund being acquired may be legally sold. Each
AllianceBernstein Mutual Fund reserves the right, at any time on 60 days' notice
to its shareholders to reject any order to acquire its shares through exchange
or otherwise, to modify, restrict or terminate the exchange privilege.
Statements and Reports
----------------------
Each shareholder of a Strategy receives semi-annual and annual reports
which include a portfolio of investments, financial statements and, in the case
of the annual report, the report of the Strategies' independent registered
public accounting firm, [_______________], as well as a confirmation of each
purchase and redemption. By contacting his or her financial intermediary or
ABIS, a shareholder can arrange for copies of his or her account statements to
be sent to another person.
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NET ASSET VALUE
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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 a Strategy on each Strategy 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.
A Strategy's per share NAV is calculated by dividing the value of the Strategy's
total assets, less its liabilities, by the total number of its shares then
outstanding. A Strategy business day is any weekday on which the Exchange is
open for trading.
In accordance with applicable rules under the 1940 Act and each
Strategy's pricing policies and procedures adopted by the Board (the "Pricing
Policies"), portfolio securities are valued at current market value or at fair
value as determined in good faith by the Board. The Board 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, on other national securities
exchanges (other than securities listed on The NASDAQ Stock Market, Inc.
("NASDAQ")) 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;
(b) securities traded on 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 Strategy 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, 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, 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;
(k) credit default swaps may be valued on the basis of a mid price. A
broker-dealer will provide a bid and offer spread, where a mean is calculated
and thereafter used to calculate a mid price; and
(l) all other securities will be valued in accordance with readily
available market quotations as determined in accordance with procedures
established by the Board.
Each Strategy values its securities at their current market value
determined on the basis of market quotations or, if market quotations are not
readily available or are unreliable, at "fair value" as determined in accordance
with procedures established by and under the general supervision of the Board.
When a Strategy uses fair value pricing, it may take into account any factors it
deems appropriate. A Strategy 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 Strategy 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 Strategies expect to use fair value pricing for securities
primarily traded on U.S. exchanges only under very limited circumstances, such
as the early closing of the exchange on which a security is traded or suspension
of trading in the security. A Strategy 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 Strategy 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 Strategy
believes that foreign security values may be affected by events that occur after
the close of foreign securities markets. To account for this, the Strategy 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 Board has delegated
responsibility for valuing the Strategy's assets to the Adviser. The Adviser has
established a Valuation Committee, which operates under the policies and
procedures approved by the Board, to value the Strategy's assets on behalf of
the Strategy. The Valuation Committee values Strategy assets as described above.
A Strategy 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 Strategy 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 a Strategy's per share NAV, all assets and
liabilities initially expressed in a foreign currency will be converted into
U.S. Dollars at the mean of the current bid and asked prices of such currency
against the U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number of such major
banks. If such quotations are not available as of the close of the Exchange, the
rate of exchange will be determined in good faith by, or under the direction of,
the Board.
The assets attributable to the Class A shares, Class C 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 a Strategy in accordance with Rule
18f-3 under the 1940 Act.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
------------------------------------------------------------------------------
Until the Directors otherwise determine, each income dividend and
capital gains distribution, if any, declared by a Strategy on the outstanding
shares of the Strategy will, at the election of each shareholder of the
Strategy, be paid in cash or reinvested in additional full and fractional shares
of the Strategy. An election to receive dividends and distributions in cash or
shares is made at the time the shares are initially purchased and may be changed
by written notification to the Strategy at least 30 days prior to the record
date for a particular dividend or distribution. Cash dividends can be paid by
check or, if the shareholder so elects, electronically via the ACH network.
There is no sales or other charge in connection with the reinvestment of
dividends and capital gains distributions.
Capital gains realized by a Strategy during the Strategy's taxable
year will be distributed; however, the Strategy may retain any long-term capital
gains realized by the Strategy if this is determined by the Directors to be in
the best interests of the Strategy. Dividends paid by a Strategy, if any, with
respect to Class A and Class C shares will be calculated in the same manner at
the same time on the same day and will be in the same amount, except that the
higher distribution services fees applicable to Class C shares will be borne
exclusively by the class to which they relate.
The following summary addresses only the principal United States
federal income tax considerations pertinent to the Strategies and to
shareholders of the Strategies. This summary does not address the United States
federal income tax consequences of owning shares to all categories of investors,
some of which may be subject to special rules. This summary is based upon the
advice of counsel for the Strategies and upon current law and interpretations
thereof. No confirmation has been obtained from the relevant tax authorities.
There is no assurance that the applicable laws and interpretations will not
change.
In view of the individual nature of tax consequences, each shareholder
is advised to consult the shareholder's own tax adviser with respect to the
specific tax consequences of being a shareholder of the Strategies, including
the effect and applicability of federal, state, local, foreign and other tax
laws and the effects of changes therein.
General
-------
Each Strategy intends for each taxable year to qualify to be taxed as
a "regulated investment company" under the Code. To so qualify, a Strategy must,
among other things, (i) derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of stock, securities or foreign currency,
certain other income (including, but not limited to, gains from options, futures
or forward contracts) derived with respect to its business of investing in
stock, securities or currency or net income derived from interests in certain
qualified publicly traded partnerships; and (ii) diversify its holdings so that,
at the end of each quarter of its taxable year, the following two conditions are
met: (a) at least 50% of the value of the Strategy'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 Strategy's
investment is limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the Strategy'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 Strategy's assets is invested in securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies), securities (other than securities of other regulated
investment companies) of any two or more issuers which the Strategy controls and
which are engaged in the same or similar trades or businesses or related trades
or businesses, or securities of one or more qualified publicly traded
partnerships.
If a Strategy 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.
A Strategy will also avoid the 4% federal excise tax that would
otherwise apply to certain undistributed income for a given calendar year if it
makes timely distributions to the shareholders equal to at least the sum of (i)
98% of its ordinary income for that year, (ii) 98% of its capital gain net
income and foreign currency gains for the twelve-month period ending on October
31 that year or later, if the Strategy is permitted to so elect and so elects,
and (iii) any ordinary income or capital gain net income from the preceding
calendar year that was not distributed during that year. For this purpose,
income or gain retained by the Strategy that is subject to corporate income tax
will be considered to have been distributed by the Strategy during such year.
For federal income and excise tax purposes, dividends declared and payable to
shareholders of record as of a date in October, November or December of a given
year but actually paid during the immediately following January will be treated
as if paid by the Strategy on December 31 of such earlier calendar year, and
will be taxable to these shareholders in the year declared, and not in the year
in which the shareholders actually receive the dividend.
The information set forth in the Prospectus and the following
discussion relate solely to the significant United States federal income taxes
on dividends and distributions by a Strategy and assume that the Strategy
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 Strategy, including the effect and applicability
of federal, state, local and foreign tax laws to his or her own particular
situation and the possible effects of changes therein.
Dividends and Distributions
---------------------------
Each Strategy intends to make timely distributions of the Strategy's
taxable income (including any net capital gain) so that the Strategy will not be
subject to federal income and excise taxes. Dividends of the Strategy's net
ordinary income and distributions of any net realized short-term capital gain
are taxable to shareholders as ordinary income. The investment objective of the
Strategy is such that only a small portion, if any, of the Strategy's
distributions is expected to qualify for the dividends-received deduction for
corporate shareholders.
Some or all of the distributions from a Strategy may be treated as
"qualified dividend income," taxable to individuals, trusts and estates at a
maximum rate of 15% (5% for individuals, trusts and estates in lower tax
brackets), if paid on or before December 31, 2011. A distribution from a
Strategy will be treated as qualified dividend income to the extent that it is
comprised of dividend income received by the Strategy from taxable domestic
corporations and certain qualified foreign corporations, and provided that the
Strategy meets certain holding period and other requirements with respect to the
security paying the dividend. In addition, the shareholder must meet certain
holding period requirements with respect to the shares of the Strategy in order
to take advantage of this preferential tax rate. To the extent distributions
from the Strategy are attributable to other sources, such as taxable interest or
short-term capital gains, dividends paid by the Strategy will not be eligible
for the lower rates. The Strategy will notify shareholders as to how much of the
Strategy's distributions, if any, would qualify for the reduced tax rate,
assuming that the shareholder also satisfies the holding period requirements.
Distributions of net capital gain are taxable as long-term capital
gain, regardless of how long a shareholder has held shares in a Strategy. Any
dividend or distribution received by a shareholder on shares of the Strategy
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 Strategy.
After the end of the calendar year, a Strategy will notify
shareholders of the federal income tax status of any distributions made by the
Strategy to shareholders during such year.
Sales and Redemptions. Any gain or loss arising from a sale or
redemption of Strategy shares generally will be capital gain or loss if the
Strategy 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 a Strategy for six months or less and
during that period has received a distribution of net capital gain, any loss
recognized by the shareholder on the sale of those shares during the six-month
period will be treated as a long-term capital loss to the extent of the
distribution. In determining the holding period of such shares for this purpose,
any period during which a shareholder's risk of loss is offset by means of
options, short sales or similar transactions is not counted.
Any loss realized by a shareholder on a sale or exchange of shares of
a Strategy will be disallowed to the extent the shares disposed of are
reacquired within a period of 61 days beginning 30 days before and ending 30
days after the shares are sold or exchanged. For this purpose, acquisitions
pursuant to the Dividend Reinvestment Plan would constitute a reacquisition if
made within the period. If a loss is disallowed, then such loss will be
reflected in an upward adjustment to the basis of the shares acquired.
Qualified Plans. A dividend or capital gains distribution with respect
to shares of a Strategy 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 if such shareholder
fails to provide a Strategy with his or her correct taxpayer identification
number, fails to make required certifications, or is notified by the Internal
Revenue Service (the "IRS") that he or she is subject to backup withholding.
Corporate shareholders and certain other shareholders specified in the Code are
exempt from such backup withholding. Backup withholding is not an additional
tax; any amounts so withheld may be credited against a shareholder's U.S.
federal income tax liability or refunded by filing a refund claim with the IRS,
provided that the required information is furnished to the IRS.
The backup withholding tax rate will be 28% for amounts paid through
December 31, 2010. The backup withholding rate will be 31% for amounts paid
after December 31, 2010.
Foreign Income Taxes. Investment income received by the Bond Inflation
Strategy from sources within foreign countries may be subject to foreign income
taxes, including taxes withheld at the source. The United States has entered
into tax treaties with many foreign countries which entitle the Strategy 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 Strategy's assets to be invested within various countries is not
known.
If more than 50% of the value of the Strategy's total assets at the
close of its taxable year consists of the stock or securities of foreign
corporations, the Strategy may elect to "pass through" to the Strategy's
shareholders the amount of foreign income taxes paid by the Strategy. Pursuant
to such election, shareholders would be required: (i) to include in gross income
(in addition to taxable dividends actually received), their respective pro-rata
shares of foreign taxes paid by the Strategy; (ii) treat their pro rata share of
such foreign taxes as having been paid by them; and (iii) either to deduct their
pro rata share of foreign taxes in computing their taxable income, or to use it
as a foreign tax credit against federal income taxes (but not both). No
deduction for foreign taxes could be claimed by a shareholder who does not
itemize deductions. In addition, certain shareholders may be subject to rules
which limit their ability to fully deduct, or claim a credit for, their pro rata
share of the foreign taxes paid by the Strategy. A shareholder's foreign tax
credit with respect to a dividend received from the Strategy will be disallowed
unless the shareholder holds shares in the Strategy on the ex-dividend date and
for at least 15 other days during the 30-day period beginning 15 days prior to
the ex-dividend date.
Each Strategy intends to meet for each fiscal year the requirements of
the Code to "pass through" to its shareholders foreign income taxes paid, but
there can be no assurance that the Strategy will be able to do so. Each
shareholder will be notified within 60 days after the close of each taxable year
of the Strategy whether the foreign taxes paid by the Strategy will "pass
through" for that year, and, if so, the amount of each shareholder's pro-rata
share (by country) of (i) the foreign taxes paid, and (ii) the Strategy's gross
income from foreign sources. Shareholders who are not liable for federal income
taxes, such as retirement plans qualified under section 401 of the Code, will
not be affected by any such "pass through" of foreign taxes.
The federal income tax status of each year's distributions by the
Strategy will be reported to shareholders and to the IRS. The foregoing is only
a general description of the treatment of foreign taxes under the United States
federal income tax laws. Because the availability of a foreign tax credit or
deduction will depend on the particular circumstances of each shareholder,
potential investors are advised to consult their own tax advisers.
Taxes
-----
Bond Inflation Strategy
-----------------------
You will normally have to pay federal income tax, and any state or
local income taxes, on the distributions you receive from the Strategy, whether
you take the distributions in cash or reinvest them in additional shares.
Distributions of net capital gains from the sale of investments that the
Strategy owned for more than one year and that are properly designated as
capital gain dividends are taxable as long-term capital gains. For taxable years
beginning on or before December 31, 2010, distributions of dividends to the
Strategy's non-corporate shareholders may be treated as "qualified dividend
income," which is taxed at reduced rates, if such distributions are derived
from, and designated by the Strategy as, "qualified dividend income" and
provided that holding period and other requirements are met by both the
shareholder and the Strategy. "Qualified dividend income" generally is income
derived from dividends from U.S. corporations and "qualified foreign
corporations." Other distributions by the Strategy are generally taxable to you
as ordinary income. Dividends declared in October, November, or December and
paid in January of the following year are taxable as if they had been paid the
previous December. The Strategy will notify you as to how much of the Strategy's
distributions, if any, qualify for these reduced tax rates.
Investment income received by the Strategy from sources within foreign
countries may be subject to foreign income taxes withheld at the source. To the
extent that the Strategy is liable for foreign income taxes withheld at the
source, the Strategy intends, if possible, to operate so as to meet the
requirements to "pass through" to the Strategy's shareholders for foreign income
taxes paid (or to permit shareholders to claim a deduction for such foreign
taxes), but there can be no assurance that any Strategy will be able to do so,
and Strategies that invest primarily in U.S. securities will not do so.
Furthermore, a shareholder's ability to claim a foreign tax credit or deduction
for foreign taxes paid by the Strategy may be subject to certain limitations
imposed by the Internal Revenue Code, as a result of which a shareholder may not
be permitted to claim a credit or deduction for all or a portion of the amount
of such taxes.
Under certain circumstances, if the Strategy realizes losses (e.g.,
from fluctuations in currency exchange rates) after paying a dividend, all or a
portion of the dividend may subsequently be characterized as a return of
capital. Returns of capital are generally nontaxable, but will reduce a
shareholder's basis in shares of the Strategy. If that basis is reduced to zero
(which could happen if the shareholder does not reinvest distributions and
returns of capital are significant), any further returns of capital will be
taxable as a capital gain.
Municipal Bond Inflation Strategy
---------------------------------
For shareholders' federal income tax purposes, distributions to
shareholders out of tax-exempt interest income earned by the Strategy is not
subject to federal income tax if, at the close of each quarter of such
Strategy's taxable year, at least 50% of the value of such Strategy's total
assets consists of tax-exempt obligations. The Strategy intends to meet this
requirement. Insurance proceeds received by the Strategy under any insurance
policies in respect of scheduled interest payments on defaulted municipal
securities, as described herein, will be excludable from gross income in the
same manner as interest payments from the insured municipal securities, and
consequently such insurance proceeds may be included in exempt-interest
dividends which are designated and paid by the Strategy.
Substantially all of the dividends paid by the Strategy are
anticipated to be exempt from federal income taxes. See, however, "Investment
Policies and Restrictions--Alternative Minimum Tax" above. Shortly after the
close of each calendar year, a notice is sent to each shareholder advising him
of the total dividends paid into his account for the year and the portion of
such total that is exempt from federal income taxes. This portion is determined
by the ratio of the tax-exempt income to total income for the entire year and,
thus, is an annual average rather than a day-by-day determination for each
shareholder.
Distributions out of taxable interest income, other investment income,
and short-term capital gains are taxable to shareholders as ordinary income.
Since the Strategy's investment income is derived from interest rather than
dividends, no portion of such distributions is eligible for the
dividends-received deduction available to corporations. Furthermore, since the
Strategy's investment income is derived from interest rather than dividends, it
is expected that for non-corporate shareholders no portion of such distributions
will be treated as "qualified dividend income" taxable at a maximum rate of 15%
(5% for non-corporate shareholders in lower tax brackets). Long-term capital
gains, if any, distributed by the Strategy to a shareholder are taxable to the
shareholder as long-term capital gain, irrespective such shareholder's holding
period in his or her shares.
If the Strategy's distributions exceed its income and capital gains
realized in any year and the Strategy has current and accumulated earnings and
profits for federal income tax purposes, then all or a portion of those
distributions may be treated as ordinary income to shareholders for federal
income tax purposes.
If a shareholder holds shares for six months or less and during that
time receives a distribution of long-term capital gains, any loss realized on
the sale of the shares during such six-month period would be a long-term capital
loss to the extent of such distribution. If a shareholder holds shares for six
months or less and during that time receives a distribution of tax-exempt
interest income, any loss realized on the sale of the shares would be disallowed
to the extent of the distribution.
United States Federal Income Taxation of the Bond Inflation Strategy
--------------------------------------------------------------------
The following discussion relates to certain significant United States
federal income tax consequences to the Bond Inflation Strategy with respect to
the determination of its "investment company taxable income" each year. This
discussion assumes that a Strategy will be taxed as a regulated investment
company for each of its taxable years.
Passive Foreign Investment Companies. If a Strategy owns shares in a
foreign corporation that constitutes a "passive foreign investment company" (a
"PFIC") for federal income tax purposes and the Strategy does not elect or is
unable to elect to either treat such foreign corporation as a "qualified
electing fund" within the meaning of the Code or "mark-to-market" the stock of
such foreign corporation, the Strategy may be subject to United States federal
income taxation on a portion of any "excess distribution" it receives from the
PFIC or any gain it derives from the disposition of such shares, even if such
income is distributed as a taxable dividend by the Strategy to its shareholders.
The Strategy may also be subject to additional interest charges in respect of
deferred taxes arising from such distributions or gains. Any tax paid by the
Strategy as a result of its ownership of shares in a PFIC will not give rise to
a deduction or credit to the Strategy or to any shareholder. A foreign
corporation will be treated as a PFIC if, for the taxable year involved, either
(i) such foreign corporation derives at least 75% of its gross income from
"passive income" (including, but not limited to, interest, dividends, royalties,
rents and annuities), or (ii) on average, at least 50% of the value (or adjusted
tax basis, if elected) of the assets held by the corporation produce or are held
for production of "passive income." In some cases, the Strategy may be able to
elect to "mark-to-market" stock in a PFIC. If the Strategy makes such an
election, the Strategy would include in its taxable income each year an amount
equal to the excess, if any, of the fair market value of the PFIC stock as of
the close of the taxable year over the Strategy's adjusted basis in the PFIC
stock. The Strategy would be allowed a deduction for the excess, if any, of the
adjusted basis of the PFIC stock over the fair market value of the PFIC stock as
of the close of the taxable year, but only to the extent of any net
mark-to-market gains included in the Strategy's taxable income for prior taxable
years. The Strategy's adjusted basis in the PFIC stock would be adjusted to
reflect the amounts included in, or deducted from, income under this election.
Amounts included in income pursuant to this election, as well as gain realized
on the sale or other disposition of the PFIC stock, would be treated as ordinary
income. The deductible portion of any mark-to-market loss, as well as loss
realized on the sale or other disposition of the PFIC stock to the extent that
such loss does not exceed the net mark-to-market gains previously included by
the Strategy, would be treated as ordinary loss. The Strategy generally would
not be subject to the deferred tax and interest charge provisions discussed
above with respect to PFIC stock for which a mark-to-market election has been
made. If the Strategy purchases shares in a PFIC and the Strategy elects to
treat the foreign corporation as a "qualified electing fund" under the Code, the
Strategy may be required to include in its income each year a portion of the
ordinary income and net capital gains of such foreign corporation, even if this
income is not distributed to the Strategy. Any such income would be subject to
the 90% and calendar year distribution requirements described above.
Options, Futures Contracts, and Forward Foreign Currency Contracts.
Certain listed options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for federal income
tax purposes. Section 1256 contracts held by a Strategy 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 Strategy on section 1256 contracts
other than forward foreign currency contracts will be considered 60% long-term
and 40% short-term capital gain or loss. Gain or loss realized by the Strategy
on forward foreign currency contracts will be treated as section 988 gain or
loss and will therefore be characterized as ordinary income or loss and will
increase or decrease the amount of the Strategy's net investment income
available to be distributed to shareholders as ordinary income, as described
above. The Strategy can elect to exempt its section 1256 contracts which are
part of a "mixed straddle" (as described below) from the application of section
1256.
Gain or loss realized by a Strategy 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 Strategy'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 Strategy
upon termination of an option written by the Strategy) from the amount received,
if any, for or with respect to the option (including any amount received by the
Strategy upon termination of an option held by the Strategy). In general, if the
Strategy exercises such an option on a foreign currency, or if such an option
that the Strategy has written is exercised, gain or loss on the option will be
recognized in the same manner as if the Strategy had sold the option (or paid
another person to assume the Strategy's obligation to make delivery under the
option) on the date on which the option is exercised, for the fair market value
of the option. The foregoing rules will also apply to other put and call options
which have as their underlying property foreign currency and which are traded
over-the-counter or on certain foreign exchanges to the extent gain or loss with
respect to such options is attributable to fluctuations in foreign currency
exchange rates.
Tax Straddles. Any option, futures contract or other position entered
into or held by a Strategy in conjunction with any other position held by the
Strategy 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 Strategy'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 Strategy has unrealized gains with respect to the other
position in such straddle; (ii) the Strategy's holding period in straddle
positions be suspended while the straddle exists (possibly resulting in gain
being treated as short-term capital gain rather than long-term capital gain);
(iii) losses recognized with respect to certain straddle positions which are
part of a mixed straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses recognized with
respect to certain straddle positions which would otherwise constitute
short-term capital losses be treated as long-term capital losses; and (v) the
deduction of interest and carrying charges attributable to certain straddle
positions may be deferred. Various elections are available to the Strategy 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 Strategy all of the offsetting positions of which
consist of section 1256 contracts.
Currency Fluctuations -- "Section 988" Gains or Losses. Under the
Code, gains or losses attributable to fluctuations in exchange rates which occur
between the time a Strategy accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Strategy actually collects such receivables or pays such liabilities are treated
as ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies, from the disposition of debt securities
denominated in a foreign currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to fluctuations in the
value of the foreign currency between the date of acquisition of the asset and
the date of disposition also are treated as ordinary income or loss. These gains
or losses, referred to under the Code as "section 988" gains or losses, increase
or decrease the amount of the Strategy's investment company taxable income
available to be distributed to its shareholders as ordinary income, rather than
increasing or decreasing the amount of the Strategy's net capital gain. Because
section 988 losses reduce the amount of ordinary dividends the Strategy will be
allowed to distribute for a taxable year, such section 988 losses may result in
all or a portion of prior dividend distributions for such year being
recharacterized as a non-taxable return of capital to shareholders, rather than
as an ordinary dividend, reducing each shareholder's basis in his or her
Strategy shares. To the extent that such distributions exceed such shareholder's
basis, each will be treated as a gain from the sale of shares.
United States Federal Income Taxation of the Municipal Bond Inflation Strategy
------------------------------------------------------------------------------
The following discussion relates to certain significant United States
federal income tax consequences to the Strategy with respect to the
determination of their "investment company taxable income" each year. This
discussion assumes that the Strategy will be taxed as a regulated investment
company for each of its taxable years.
Options and Futures Contracts. Certain listed options and regulated
futures contracts are considered "section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by the Strategy 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 Strategy on section 1256 contracts will generally
be considered 60% long-term and 40% short-term capital gain or loss. The
Strategy can elect to exempt its section 1256 contracts which are part of a
"mixed straddle" (as described below) from the application of section 1256.
With respect to over-the-counter options, gain or loss realized by the
Strategy upon the lapse or sale of such options held by the Strategy will be
either long-term or short-term capital gain or loss depending upon the
Strategy'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
Strategy will be treated as short-term capital gain or loss. In general, if the
Strategy exercises an option, or an option that the Strategy 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.
Tax Straddles. Any option, futures contract, interest rate swap, cap
or floor, or other position entered into or held by the Strategy in conjunction
with any other position held by such Strategy 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 Strategy'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 such Strategy has
unrealized gains with respect to the other position in such straddle; (ii) such
Strategy's holding period in straddle positions be suspended while the straddle
exists (possibly resulting in gain being treated as short-term capital gain
rather than long-term capital gain); (iii) losses recognized with respect to
certain straddle positions which are part of a mixed straddle and which are
non-section 1256 positions be treated as 60% long-term and 40% short-term
capital loss; (iv) losses recognized with respect to certain straddle positions
which would otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and carrying charges
attributable to certain straddle positions may be deferred. Various elections
are available to the Strategy 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 Strategy all of
the offsetting positions of which consist of section 1256 contracts.
Zero Coupon Municipal Securities. Under current federal income tax
law, the Strategy will include in its net investment income as interest each
year, in addition to stated interest received on obligations held by the
Strategy, tax-exempt interest income attributable to the Strategy from holding
zero coupon municipal securities. Current federal income tax law requires that a
holder (such as the Strategy) of a zero coupon municipal security accrue as
income each year a portion of the original issue discount (i.e., the amount
equal to the excess of the stated redemption price of the security at maturity
over its issue price) attributable to such obligation even though the Strategy
does not receive interest payments in cash on the security during the year which
reflect the accrued discount. As a result of the above rules, in order to make
the distributions necessary for the Strategy not to be subject to federal income
or excise taxes, the Strategy may be required to pay out as an income
distribution each year an amount greater than the total amount of cash which the
Strategy has actually received as interest during the year. Such distributions
will be made from the cash assets of the Strategy, 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 Strategy may realize a gain or loss from such
sales. In the event the Strategy realizes capital gains from such sales, its
shareholders may receive larger distributions than they would receive in the
absence of such sales.
Other Taxes
-----------
Each Strategy may be subject to other state and local taxes.
Taxation of Foreign Stockholders
--------------------------------
Taxation of a shareholder who, under the Code, is a nonresident alien
individual, foreign trust or estate, foreign corporation or foreign partnership
("foreign shareholder"), depends on whether the income from the Strategy is
"effectively connected" with a U.S. trade or business carried on by the foreign
shareholder.
If the income from a Strategy is not effectively connected with the
foreign shareholder's U.S. trade or business, then, except as discussed below,
distributions of the Strategy attributable to ordinary income and short-term
capital gain paid to a foreign shareholder by the Strategy will be subject to
U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross
amount of the distribution. However, distributions of the Strategy attributable
to short-term capital gains and U.S. source portfolio interest income paid
during taxable years of the Strategy beginning before January 1, 2008 will not
be subject to this withholding tax.
A foreign shareholder generally would be exempt from Federal income
tax on distributions of a Strategy attributable to net long-term capital gain
and on gain realized from the sale or redemption of shares of the Strategy.
Special rules apply in the case of a shareholder that is a foreign trust or
foreign partnership.
If the income from a Strategy is effectively connected with a foreign
shareholder's U.S. trade or business, then ordinary income distributions,
capital gain distributions, and any gain realized upon the sale of shares of the
Strategy will be subject to Federal income tax at the rates applicable to U.S.
citizens or U.S. corporations.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein.
The tax rules of other countries with respect to an investment in a
Strategy can differ from the Federal income taxation rules described above.
These foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisors as to the consequences of foreign tax rules with
respect to an investment in the Strategy.
------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
------------------------------------------------------------------------------
Subject to the general oversight of the Board, the Adviser is
responsible for the investment decisions and the placing of orders for portfolio
transactions for the Strategies. The Adviser determines the broker or dealer to
be used in each specific transaction with the objective of negotiating a
combination of the most favorable commission (for transactions on which a
commission is payable) and the best price obtainable on each transaction
(generally defined as "best execution"). In connection with seeking best price
and execution, a Strategy does not consider sales of shares of the Strategy or
other investment companies managed by the Adviser as a factor in the selection
of brokers and dealers to effect portfolio transactions and has adopted a policy
and procedures reasonably designed to preclude such consideration.
When consistent with the objective of obtaining best execution,
brokerage may be directed to persons or firms supplying investment information
to the Adviser. There may be occasions where the transaction cost charged by a
broker may be greater than that which another broker may charge if a Strategy
determines in good faith that the amount of such transaction cost is reasonable
in relation to the value of the brokerage, research and statistical services
provided by the executing broker.
Neither the Strategies nor the Adviser has entered into agreements or
understandings with any brokers regarding the placement of securities
transactions because of research services they provide. To the extent that such
persons or firms supply investment information to the Adviser for use in
rendering investment advice to a Strategy, such information may be supplied at
no cost to the Adviser and, therefore, may have the effect of reducing the
expenses of the Adviser in rendering advice to the Strategy. While it is
impracticable to place an actual dollar value on such investment information,
its receipt by the Adviser probably does not reduce the overall expenses of the
Adviser to any material extent.
The investment information provided to the Adviser is of the type
described in Section 28(e)(3) of the Securities Exchange Act of 1934 and is
designed to augment the Adviser's own internal research and investment strategy
capabilities. Research services furnished by brokers through which a Strategy
effects securities transactions are used by the Adviser in carrying out its
investment management responsibilities with respect to all its client accounts.
The extent to which commissions that will be charged by broker-dealers
selected by a Strategy may reflect an element of value for research cannot
presently be determined. To the extent that research services of value are
provided by broker-dealers with or through whom a Strategy places portfolio
transactions, the Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be useful and of value
to the Adviser in servicing its other clients as well as the Strategy; but, on
the other hand, certain research services obtained by the Adviser as a result of
the placement of portfolio brokerage of other clients could be useful and of
value to it in servicing the Strategy.
A Strategy may deal in some instances in securities that are not
listed on a national stock exchange but are traded in the over-the-counter
market. A Strategy may also purchase listed securities through the third market,
i.e., from a dealer that is not a member of the exchange on which a security is
listed. Where transactions are executed in the over-the-counter market or third
market, the Strategy will seek to deal with the primary market makers; but when
necessary in order to obtain the best price and execution, it will utilize the
services of others. In all cases, the Strategy will attempt to negotiate best
execution.
Investment decisions for a Strategy are made independently from those
for other investment companies and other advisory accounts managed by the
Adviser. It may happen, on occasion, that the same security is held in the
portfolio of the Strategy and one or more of such other companies or accounts.
Simultaneous transactions are likely when several funds or accounts are managed
by the same Adviser, particularly when a security is suitable for the investment
objectives of more than one of such companies or accounts. When two or more
companies or accounts managed by the Adviser are simultaneously engaged in the
purchase or sale of the same security, the transactions are allocated to the
respective companies or accounts both as to amount and price, in accordance with
a method deemed equitable to each company or account. In some cases this system
may adversely affect the price paid or received by the Strategy or the size of
the position obtainable for the Strategy.
Allocations are made by the officers of a Strategy or of the Adviser.
Purchases and sales of portfolio securities are determined by the Adviser and
are placed with broker-dealers by the order department of the Adviser.
A Strategy may from time to time place orders for the purchase or sale
of securities (including listed call options) with SCB & Co., an affiliate of
the Adviser. In such instances the placement of orders with such broker would be
consistent with the Strategy's objective of obtaining best execution and would
not be dependent upon the fact that SCB & Co. is an affiliate of the Adviser.
With respect to orders placed with SCB & Co. for execution on a national
securities exchange, commissions received must conform to Section 17(e)(2)(A) of
the 1940 Act and Rule 17e-1 thereunder, which permit an affiliated person of a
registered investment company (such as the Strategy), 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.
Many of a Strategy's portfolio transactions in equity securities will
occur on foreign stock exchanges. Transactions on stock exchanges involve the
payment of brokerage commissions. On many foreign stock exchanges these
commissions are fixed. Securities traded in foreign over-the-counter markets
(including most fixed-income securities) are purchased from and sold to dealers
acting as principal. Over-the-counter transactions generally do not involve the
payment of a stated commission, but the price usually includes an undisclosed
commission or markup. The prices of underwritten offerings, however, generally
include a stated underwriter's discount. The Adviser expects to effect the bulk
of its transactions in securities of companies based in foreign countries
through brokers, dealers or underwriters located in such countries. U.S.
Government or other U.S. securities constituting permissible investments will be
purchased and sold through U.S. brokers, dealers or underwriters.
Disclosure of Strategy Holdings
-------------------------------
A Strategy believes that the ideas of the Adviser's investment staff
should benefit the Strategy and its shareholders, and does not want to afford
speculators an opportunity to profit by anticipating Strategy trading strategies
or using Strategy information for stock picking. However, the Strategy also
believes that knowledge of the Strategy's portfolio holdings can assist
shareholders in monitoring their investment, making asset allocation decisions,
and evaluating portfolio management techniques.
The Adviser has adopted, on behalf of each Strategy, policies and
procedures relating to disclosure of the Strategy's portfolio securities. The
policies and procedures relating to disclosure of the Strategy's portfolio
securities are designed to allow disclosure of portfolio holdings information
where necessary to the Strategy's operation or useful to the Strategy's
shareholders without compromising the integrity or performance of the Strategy.
Except when there are legitimate business purposes for selective disclosure and
other conditions (designed to protect the Strategy and its shareholders) are
met, the Strategy does not provide or permit others to provide information about
the Strategy's portfolio holdings on a selective basis.
A Strategy includes portfolio holdings information as required in
regulatory filings and shareholder reports, discloses portfolio holdings
information as required by federal or state securities laws and may disclose
portfolio holdings information in response to requests by governmental
authorities. In addition, the Adviser posts portfolio holdings information on
the Adviser's website (www.AllianceBernstein.com). The Adviser posts on the
website a complete schedule of the Strategy's portfolio securities, as of the
last day of each fiscal 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 Strategy, the market value of the
Strategy's holdings, and the percentage of the Strategy's assets represented by
the portfolio security. In addition to the schedule of portfolio holdings, the
Adviser posts information about the number of securities the Strategy holds, a
summary of the Strategy's top ten holdings (including name and the percentage of
the Strategy's assets invested in each holding), and a percentage breakdown of
the Strategy's investments by credit risk or securities type, as applicable,
approximately [_____] days after the end of the month. The day after portfolio
holdings information is publicly available on the website, it may be mailed,
e-mailed or otherwise transmitted to any person.
The Adviser may distribute or authorize the distribution of
information about a Strategy's portfolio holdings that is not publicly
available, on the website or otherwise, to the Adviser's employees and
affiliates that provide services to the Strategy. In addition, the Adviser may
distribute or authorize distribution of information about the Strategy's
portfolio holdings that is not publicly available, on the website or otherwise,
to the Strategy's service providers who require access to the information in
order to fulfill their contractual duties relating to the Strategy (including,
without limitation, pricing services and proxy voting services), and to
facilitate the review of the Strategy 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 Strategy shareholders. The Adviser does
not expect to disclose information about the Strategy's portfolio holdings that
is not publicly available to the Strategy's individual or institutional
investors or to intermediaries that distribute the Strategy's shares.
Information may be disclosed with any frequency and any lag, as appropriate.
Before any non-public disclosure of information about a Strategy's
portfolio holdings is permitted, however, the Adviser's Chief Compliance Officer
(or his designee) must determine that the Strategy has a legitimate business
purpose for providing the portfolio holdings information, that the disclosure is
in the best interests of the Strategy'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 Strategy or any
other security. Under no circumstances may the Adviser or its affiliates receive
any consideration or compensation for disclosing the information.
The Adviser has established procedures to ensure that a Strategy's
portfolio holdings information is only disclosed in accordance with these
policies. Only the Adviser's Chief Compliance Officer (or his designee) may
approve the disclosure, and then only if he or she and a designated senior
officer in the Adviser's product management group determines that the disclosure
serves a legitimate business purpose of the Strategy and is in the best interest
of the Strategy's shareholders. The Adviser's Chief Compliance Officer (or his
designee) approves disclosure only after considering the anticipated benefits
and costs to the Strategy and its shareholders, the purpose of the disclosure,
any conflicts of interest between the interests of the Strategy and its
shareholders and the interests of the Adviser or any of its affiliates, and
whether the disclosure is consistent with the policies and procedures governing
disclosure. Only someone approved by the Adviser's Chief Compliance Officer (or
his designee) may make approved disclosures of portfolio holdings information to
authorized recipients. The Adviser reserves the right to request certifications
from senior officers of authorized recipients that the recipient is using the
portfolio holdings information only in a manner consistent with the Adviser's
policy and any applicable confidentiality agreement. The Adviser's Chief
Compliance Officer or another member of the compliance team reports all
arrangements to disclose portfolio holdings information to the Board of
Directors on a quarterly basis. If the Board determines that disclosure was
inappropriate, the Adviser will promptly terminate the disclosure arrangement.
In accordance with these procedures, each of the following third
parties have been approved to receive information concerning a Strategy's
portfolio holdings: (i) the Strategy's independent registered public accounting
firm, for use in providing audit opinions; (ii) RR Donnelley Financial, Data
Communique International and, from time to time, other financial printers, for
the purpose of preparing Strategy regulatory filings; (iii) the Strategy's
custodian in connection with its custody of the Strategy'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 Strategy's portfolio holdings information unless
specifically authorized.
------------------------------------------------------------------------------
GENERAL INFORMATION
------------------------------------------------------------------------------
Capitalization
--------------
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY
The Strategy is a Maryland corporation organized in 2010 under the
name "AllianceBernstein Bond Inflation Strategy."
The authorized capital stock of the Strategy currently consists of
[___________________] shares of Class A Common Stock, [___________________]
shares of Class C Common Stock and [___________________] shares of Advisor Class
Common Stock, each having a par value of $.01 per share. All shares of the
Strategy when duly issued will be fully paid and non-assessable.
The Board of Directors is authorized to reclassify and issue any
unissued shares to any number of additional series and classes without
shareholder approval. Accordingly, the Board may create additional series of
shares in the future, for reasons such as the desire to establish one or more
additional portfolios of the Fund with different investment objectives, policies
or restrictions. Any issuance of shares of another series would be governed by
the 1940 Act and the laws of the State of Maryland. If shares of another series
were issued in connection with the creation of a second portfolio, each share of
either portfolio would normally be entitled to one vote for all purposes.
Generally, shares of both portfolios would vote as a single series for the
election of directors and on any other matter that affected both portfolios in
substantially the same manner. As to matters affecting each portfolio
differently, such as approval of the Advisory Agreement and changes in
investment policy, shares of each portfolio would vote as separate series.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of Directors.
A shareholder will be entitled to share pro rata with other holders of
the same class of shares all dividends and distributions arising from the
Strategy's assets and, upon redeeming shares, will receive the then current NAV
of the Strategy 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 Strategy, and additional classes of shares within a Strategy. 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 Strategy
represents an interest in the same portfolio of investments and has the same
rights and is identical in all respects, except that each of Class A and Class C
shares of the Strategy bears its own distribution expenses and Advisor Class
shares convert to Class A shares under certain circumstances. Each class of
shares of the Strategy 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 Strategy,
are entitled to receive the net assets of the Strategy.
At the close of business on [____________], 2010, there were
[____________] shares of common stock of the Strategy outstanding, including
[______________] Class A shares, [_______________] Class C shares and
[_________________] Advisor Class shares. To the knowledge of the Strategy the
following persons owned of record or beneficially 5% or more of a class of the
outstanding shares of the Strategy as of [________________], 2010:
No. of Shares
Name and Address of Class % of Class
---------------- ------------- ----------
Class A [___________] [_________]%
-------
Class C [___________] [_________]%
-------
Advisor Class [___________] [_________]%
-------------
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY
The Strategy is a Maryland corporation organized in 2009 under the
name "AllianceBernstein Municipal Bond Inflation Strategy."
The authorized capital stock of the Strategy currently consists of
[___________________] shares of Class A Common Stock, [___________________]
shares of Class C Common Stock and [___________________] shares of Advisor Class
Common Stock, each having a par value of $.01 per share. All shares of the
Strategy when duly issued will be fully paid and non-assessable.
The Board of Directors is authorized to reclassify and issue any
unissued shares to any number of additional series and classes without
shareholder approval. Accordingly, the Board may create additional series of
shares in the future, for reasons such as the desire to establish one or more
additional portfolios of the Fund with different investment objectives, policies
or restrictions. Any issuance of shares of another series would be governed by
the 1940 Act and the laws of the State of Maryland. If shares of another series
were issued in connection with the creation of a second portfolio, each share of
either portfolio would normally be entitled to one vote for all purposes.
Generally, shares of both portfolios would vote as a single series for the
election of directors and on any other matter that affected both portfolios in
substantially the same manner. As to matters affecting each portfolio
differently, such as approval of the Advisory Agreement and changes in
investment policy, shares of each portfolio would vote as separate series.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of Directors.
A shareholder will be entitled to share pro rata with other holders of
the same class of shares all dividends and distributions arising from the
Strategy's assets and, upon redeeming shares, will receive the then current NAV
of the Strategy represented by the redeemed shares less any applicable CDSC. The
Strategy is empowered to establish, without shareholder approval, additional
portfolios, which may have different investment objectives and policies than
those of the Strategy, and additional classes of shares within the Strategy. 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 Strategy
represents an interest in the same portfolio of investments and has the same
rights and is identical in all respects, except that each of Class A and Class C
shares of the Strategy bears its own distribution expenses and Advisor Class
shares convert to Class A shares under certain circumstances. Each class of
shares of the Strategy 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 Strategy,
are entitled to receive the net assets of the Strategy.
At the close of business on [____________], 2010, there were
[____________] shares of common stock of the Strategy outstanding, including
[______________] Class A shares, [_______________] Class C shares and
[_________________] Advisor Class shares. To the knowledge of the Strategy the
following persons owned of record or beneficially 5% or more of a class of the
outstanding shares of the Strategy as of [________________], 2010:
No. of Shares
Name and Address of Class % of Class
---------------- ------------- ----------
Class A [___________] [_________]%
-------
Class C [___________] [_________]%
-------
Advisor Class [___________] [_________]%
-------------
Custodian and Accounting Agent
------------------------------
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, acts as the Strategies' custodian for the
assets of the Strategies but plays no part in deciding on the purchase or sale
of portfolio securities. Subject to the supervision of the Directors, State
Street may enter into subcustodial agreements for the holding of the Strategies'
foreign securities.
Principal Underwriter
---------------------
AllianceBernstein Investments, Inc. ("ABI"), an indirect wholly-owned
subsidiary of the Adviser, located at 1345 Avenue of the Americas, New York, New
York 10105, is the principal underwriter of shares of the Strategies, and as
such may solicit orders from the public to purchase shares of the Strategies.
Under the Distribution Services Agreement, each Strategy has agreed to indemnify
ABI, in the absence of its willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations thereunder, against certain civil
liabilities, including liabilities under the Securities Act.
Counsel
-------
Legal matters in connection with the issuance of the shares of the
Strategies offered hereby will be passed upon by Seward & Kissel LLP, New York,
New York.
Independent Registered Public Accounting Firm
---------------------------------------------
[_______________________], has been selected as the independent
registered public accounting firm for the Strategies.
Additional Information
----------------------
Shareholder inquiries may be directed to the shareholder's financial
intermediary or to ABIS at the address or telephone numbers shown on the front
cover of this SAI. This SAI does not contain all the information set forth in
the Registration Statement filed by the Fund with the 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.
------------------------------------------------------------------------------
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
------------------------------------------------------------------------------
The financial statements of the Strategies for the fiscal year end is not
available because the Strategies have not yet commenced operations.
------------------------------------------------------------------------------
APPENDIX A:
STATEMENT OF POLICIES AND
PROCEDURES FOR PROXY VOTING
------------------------------------------------------------------------------
1. Introduction
As a registered investment adviser, AllianceBernstein L.P.
("AllianceBernstein", "we" or "us") has a fiduciary duty to act solely
in the best interests of our clients. We recognize that this duty
requires us to vote client securities in a timely manner and make voting
decisions that are 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 AllianceBernstein's
growth, value and blend investment groups investing on behalf of clients
in both US and non-US securities.
2. 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. AllianceBernstein 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:
2.1. Corporate Governance
AllianceBernstein'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 support the appointment
of a majority of independent directors on key committees and
generally support separating the positions of chairman and chief
executive officer, except in cases where a company has
sufficient counter-balancing governance in place. Because we
believe that good corporate governance requires shareholders to
have a meaningful voice in the affairs of the company, we
generally will support shareholder proposals that request that
companies amend their by-laws to provide that director nominees
be elected by an affirmative vote of a majority of the votes
cast. Furthermore, we have written to the SEC in support of
shareholder access to corporate proxy statements under specified
conditions with the goal of serving the best interests of all
shareholders.
2.2. Elections of Directors
Unless there is a proxy fight for seats on the Board or we
determine that there are other compelling reasons 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. Therefore,
we may withhold votes for directors (or vote against directors
in non-U.S. markets) who 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. (We may vote against directors under these circumstances
if the company has adopted a majority voting policy because, if
a company has adopted such a policy, withholding votes from
directors is not possible.) 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, and we may abstain or vote against directors of non-U.S.
issuers where there is insufficient information about the
nominees disclosed in the proxy statement. Also, we will
generally not withhold votes for directors who meet the
definition of independence promulgated by the exchange on which
the company's shares are traded. Finally, because we believe
that cumulative voting provides a disproportionate voice to
minority shareholders in the affairs of a company, we will
generally vote against such proposals and vote for management
proposals seeking to eliminate cumulative voting.
2.3. Appointment of Auditors
AllianceBernstein 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.
The Sarbanes-Oxley Act of 2002 prohibited certain categories of
services by auditors to U.S. issuers, making this issue less
prevalent in the U.S. Nevertheless, in reviewing a proposed
auditor, we will consider the fees paid for non-audit services
relative to total fees as well as if there are other reasons to
question the independence or performance of the auditors.
2.4. Changes in Legal and Capital Structure
Changes in a company's charter, articles of incorporation or
by-laws are often technical and administrative in nature. Absent
a compelling reason to the contrary, AllianceBernstein will cast
its votes in accordance with 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 100% of the
shares outstanding. We will oppose increases in authorized
common stock where there is evidence that the shares will be
used to implement a poison pill or another form of anti-takeover
device. We will support shareholder proposals that seek to
eliminate dual class voting structures.
2.5. Corporate Restructurings, Mergers and Acquisitions
AllianceBernstein believes proxy votes dealing with corporate
reorganizations are an extension of the investment decision.
Accordingly, we will analyze such proposals on a case-by-case
basis, weighing heavily the views of our research analysts that
cover the company and our investment professionals managing the
portfolios in which the stock is held.
2.6. Proposals Affecting Shareholder Rights
AllianceBernstein believes that certain fundamental rights of
shareholders must be protected. We will generally vote in favor
of proposals that give shareholders a greater voice in the
affairs of the company and oppose any measure that seeks to
limit those rights. However, when analyzing such proposals we
will weigh the financial impact of the proposal against the
impairment of shareholder rights.
2.7. Anti-Takeover Measures
AllianceBernstein believes that measures that impede corporate
transactions (such as takeovers) or entrench management not only
infringe on the rights of shareholders but may also have a
detrimental effect on the value of the company. Therefore, we
will generally oppose proposals, regardless of whether they are
advanced by management or shareholders, the purpose or effect of
which is to entrench management or excessively or
inappropriately dilute shareholder ownership. Conversely, we
support proposals that would restrict or otherwise eliminate
anti-takeover or anti-shareholder measures that have already
been adopted by corporate issuers. For example, we will support
shareholder proposals that seek to require the company to submit
a shareholder rights plan to a shareholder vote. We will
evaluate, on a case-by-case basis, proposals to completely
redeem or eliminate such plans. Furthermore, we will generally
oppose proposals put forward by management (including the
authorization of blank check preferred stock, classified boards
and supermajority vote requirements) that appear to be
anti-shareholder or intended as management entrenchment
mechanisms.
2.8. Executive Compensation
AllianceBernstein believes that company management and the
compensation committee of the board of directors should, within
reason, be given latitude to determine the types and mix of
compensation and benefit awards offered to company employees.
Whether proposed by a shareholder or management, we will review
proposals relating to executive compensation plans on a
case-by-case basis to ensure that the long-term interests of
management and shareholders are properly aligned. In general, we
will analyze the proposed plan to ensure that shareholder equity
will not be excessively diluted taking into account shares
available for grant under the proposed plan as well as other
existing plans. We generally will oppose shareholder proposals
to amend a company's by-laws to give shareholders the right to
vote on executive compensation. We believe this by-law amendment
is likely to put the company at a competitive disadvantage
which, in turn, is likely to adversely affect the value of the
company and our clients' interests. We generally will oppose
plans that have below market value exercise prices on the date
of issuance or permit re-pricing of underwater stock options
without shareholder approval. Other factors such as the
company's performance and industry practice will generally be
factored into our analysis. We believe the U.S. Securities and
Exchange Commission ("SEC") took appropriate steps to ensure
more complete and transparent disclosure of executive
compensation when it issued its modified executive compensation
disclosure rules in 2006. Therefore, while we will consider them
on a case-by-case basis, we generally vote against shareholder
proposals seeking additional disclosure of executive and
director compensation, including proposals that seek to specify
the measurement of performance-based compensation, if the
company is subject to SEC rules. Finally, we will support
requiring a shareholder vote on management proposals to provide
severance packages that exceed 2.99 times the sum of an
executive officer's base salary plus bonus that are triggered by
a change in control. Finally, we will support shareholder
proposals requiring a company to expense compensatory employee
stock options (to the extent the jurisdiction in which the
company operates does not already require it) because we view
this form of compensation as a significant corporate expense
that should be appropriately accounted for.
2.9. Social and Corporate Responsibility
AllianceBernstein 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.
3. Proxy Voting Procedures
3.1. Proxy Voting Committees
Our growth and value investment groups have formed separate
proxy voting committees to establish general proxy policies for
AllianceBernstein 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.
3.2. Conflicts of Interest
AllianceBernstein recognizes that there may be a potential
conflict of interest when we vote a proxy solicited by an issuer
whose retirement plan we manage, or administer, who distributes
AllianceBernstein sponsored mutual funds, or with whom we have,
or one of our employees has, a business or personal relationship
that may affect (or may reasonably be viewed as affecting) how
we vote on the issuer's proxy. Similarly, AllianceBernstein 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 based
solely on our clients' best interests. Additionally, we have
implemented procedures to ensure that our votes are not the
product of a material conflict of interest, including: (i) on an
annual basis, the proxy committees will take reasonable steps to
evaluate (A) the nature of AllianceBernstein's and our
employees' material business and personal relationships (and
those of our affiliates) with any company whose equity
securities are held in client accounts and (B) any client that
has sponsored or has 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 third party research services to ensure that our voting
decision is consistent with our clients' best interests.
Because under certain circumstances AllianceBernstein considers
the recommendation of third party research services, the proxy
committees 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.
3.3. 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 with a designated
depositary. During this blocking period, shares that will be
voted at the meeting cannot be sold until the meeting has taken
place and the shares are returned to the clients' custodian
banks. Absent compelling reasons to the contrary,
AllianceBernstein believes that the benefit to the client of
exercising the vote does not outweigh the cost of voting (i.e.
not being able to sell the shares during this period).
Accordingly, if share blocking is required we generally choose
not to vote those shares.
In addition, voting proxies of issuers in non-US markets may
give rise to a number of administrative issues that may prevent
AllianceBernstein from voting such proxies. For example,
AllianceBernstein may receive meeting notices without enough
time to fully consider the proxy or after the cut-off date for
voting. Other markets require AllianceBernstein to provide local
agents with power of attorney prior to implementing
AllianceBernstein's voting instructions. Although it is
AllianceBernstein'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.
3.4. Loaned Securities
Many clients of AllianceBernstein have entered into securities
lending arrangements with agent lenders to generate additional
revenue. AllianceBernstein will not be able to vote securities
that are on loan under these types of arrangements. However,
under rare circumstances, for voting issues that may have a
significant impact on the investment, we may request that
clients recall securities that are on loan if we determine that
the benefit of voting outweighs the costs and lost revenue to
the client or fund and the administrative burden of retrieving
the securities.
3.5. Proxy Voting Records
You may obtain information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month
period ended June 30, without charge. Simply visit
AllianceBernstein's web site at www.alliancebernstein.com, go to
the Securities and Exchange Commission's web site at www.sec.gov
or call AllianceBernstein at (800) 227-4618.
SK 00250 0461 1042640 v3
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS:
(a) (1) Articles of Amendment and Restatement to Articles of
Incorporation dated February 1, 2006 and filed February 23, 2006
- Incorporated by reference to Exhibit (a) to Post-Effective
Amendment No. 87 of the Registrant's Registration Statement on
Form N-1A (File Nos. 2-48227 and 811-2383), filed with the
Securities and Exchange Commission on January 31, 2007.
(2) Articles of Amendment to the Articles of Incorporation of the
Registrant, dated November 2, 2007 and filed June 18, 2008 -
Incorporated by reference to Exhibit (a)(2) to Post-Effective
Amendment No. 89 of the Registrant's Registration Statement on
Form N-1A (File Nos. 2-48227 and 811-2383), filed with the
Securities and Exchange Commission on January 28, 2009.
(b) Amended and Restated By-Laws of the Registrant - Incorporated by
reference to Exhibit 99.77Q1 - Other Exhibits of the Registrant's
Semi-Annual Report on Form NSAR-A (File No. 811-2383), filed with the
Securities and Exchange Commission on May 30, 2006.
(c) Not applicable.
(d) Form of Amended Investment Advisory Contract between the Registrant
and AllianceBernstein L.P. - Incorporated by reference to Exhibit (d)
to Post-Effective Amendment No. 87 of the Registrant's Registration
Statement on Form N-1A (File Nos. 2-48227 and 811-2383), filed with
the Securities and Exchange Commission on January 31, 2007.
(e) (1) Distribution Services Agreement between the Registrant and
AllianceBernstein Investments, Inc. (formerly known as Alliance
Fund Distributors, Inc.) - Incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 65 of the Registrant's
Registration Statement on Form N-1A (File Nos. 2-48227 and
811-2383), filed with the Securities and Exchange Commission on
October 31, 1997.
(2) Amendment to the Distribution Services Agreement between the
Registrant and AllianceBernstein Investments, Inc. (formerly
known as Alliance Fund Distributors, Inc.) - Incorporated by
reference to Exhibit 6(e) to Post-Effective Amendment No. 64 of
the Registrant's Registration Statement on Form N-1A (File Nos.
2-48227 and 811-2383), filed with the Securities and Exchange
Commission on October 31, 1996.
(3) Form of Amendment to the Distribution Services Agreement between
the Registrant and AllianceBernstein Investments, Inc. (formerly
known as Alliance Fund Distributors, Inc.) - Incorporated by
reference to Exhibit (e)(3) to Post-Effective Amendment No. 81 of
the Registrant's Registration Statement on Form N-1A (File Nos.
2-48227 and 811-2383), filed with the Securities and Exchange
Commission on October 29, 2003.
(4) Form of Amendment to the Distribution Services Agreement between
the Registrant and AllianceBernstein Investments, Inc. (formerly
known as Alliance Fund Distributors, Inc.) - Incorporated by
reference to Exhibit (e)(4) to the Post-Effective Amendment No.
84 of the Registrant's Registration Statement on Form N-1A (File
Nos. 2-48227 and 811-2383), filed with the Securities and
Exchange Commission on January 31, 2005.
(5) Form of Amendment to Distribution Services Agreement between the
Registrant and AllianceBernstein Investments, Inc. - Incorporated
by reference to Exhibit (e)(5) to Post-Effective Amendment No. 87
of the Registrant's Registration Statement on Form N-1A (File
Nos. 2-48227 and 811-2383), filed with the Securities and
Exchange Commission on January 31, 2007.
(6) Form of Selected Dealer Agreement between AllianceBernstein
Investments, Inc. and selected dealers offering shares of
Registrant - Incorporated by reference to Exhibit (e)(6) to
Post-Effective Amendment No. 39 of the Registration Statement on
Form N-1A of AllianceBernstein Large Cap Growth Fund, Inc. (File
Nos. 33-49530 and 811-6730), filed with the Securities and
Exchange Commission on October 15, 2009.
(7) Form of Selected Agent Agreement between AllianceBernstein
Investments, Inc. (formerly known as Alliance Fund Distributors,
Inc.) and selected agents making available shares of Registrant -
Incorporated by reference to Exhibit (e)(6) to the Post-Effective
Amendment No. 84 of the Registrant's Registration Statement on
Form N-1A (File Nos. 2-48227 and 811-2383), filed with the
Securities and Exchange Commission on January 31, 2005.
(8) Selected Dealer Agreement between AllianceBernstein Investments,
Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated
making available shares of the Registrant effective April 30,
2009 - Incorporated by reference to Exhibit (e)(8) to
Post-Effective Amendment No. 39 of the Registration Statement on
Form N-1A of AllianceBernstein Large Cap Growth Fund, Inc. (File
Nos. 33-49530 and 811-6730), filed with the Securities and
Exchange Commission on October 15, 2009.
(9) Load Fund Operating Agreement between AllianceBernstein
Investments, Inc. and Charles Schwab & Co., Inc. making available
shares of the Registrant, dated as of June 1, 2007 - Incorporated
by reference to Exhibit (e)(9) to Post-Effective Amendment No. 39
of the Registration Statement on Form N-1A of AllianceBernstein
Large Cap Growth Fund, Inc. (File Nos. 33-49530 and 811-6730),
filed with the Securities and Exchange Commission on October 15,
2009.
(10) Cooperation Agreement between AllianceBernstein Investments, Inc.
(formerly known as AllianceBernstein Research Management, Inc.)
and UBS AG, dated November 1, 2005 - Incorporated by reference to
Exhibit (e)(10) to Post- Effective Amendment No. 39 of the
Registration Statement on Form N-1A of AllianceBernstein Large
Cap Growth Fund, Inc. (File Nos. 33-49530 and 811- 6730), filed
with the Securities and Exchange Commission on October 15, 2009.
(f) Not applicable.
(g) (1) Custodian Contract between the Registrant and State Street Bank
and Trust Company - Incorporated by reference to Exhibit 8(a) to
Post-Effective Amendment No. 65 of the Registrant's Registration
Statement on Form N-1A (File Nos. 2-48227 and 811-2383), filed
with the Securities and Exchange Commission with the Securities
and Exchange Commission on October 31, 1997.
(2) Amendment to the Custodian Contract between the Registrant and
State Street Bank and Trust Company - Incorporated by reference
to Exhibit 8(a) to Post-Effective Amendment No. 64 of the
Registrant's Registration Statement on Form N-1A (File Nos.
2-48227 and 811-2383), filed with the Securities and Exchange
Commission on October 31, 1996.
(h) (1) Transfer Agency Agreement between Registrant and
AllianceBernstein Investor Services, Inc. - Incorporated by
reference to Exhibit 9 to Post-Effective Amendment No. 65 of the
Registrant's Registration Statement on Form N-1A (File Nos.
2-48227 and 811-2383), filed with the Securities and Exchange
Commission on October 31, 1997.
(2) Form of Amendment to Transfer Agency Agreement between Registrant
and AllianceBernstein Investor Services, Inc. - Incorporated by
reference to Exhibit (h)(2) to Post-Effective Amendment No. 87 of
the Registrant's Registration Statement on Form N-1A (File Nos.
2-48227 and 811-2383), filed with the Securities and Exchange
Commission on January 31, 2007.
(3) Form of Expense Limitation Undertaking by AllianceBernstein L.P.
with respect to Quality Bond Portfolio - Incorporated by
reference to Exhibit (h)(2) to the Post-Effective Amendment No.
84 of the Registrant's Registration Statement on Form N-1A (File
Nos. 2-48227 and 811-2383), filed with the Securities and
Exchange Commission on January 31, 2005.
(i) Opinion and Consent of Seward & Kissel LLP - To be filed by amendment.
(j) Consent of Independent Registered Public Accounting Firm - To be
filed by amendment.
(k) Not applicable.
(l) Not applicable.
(m) Rule 12b-1 Plan - See Exhibit (e)(1) above.
(n) Form of Amended and Restated Rule 18f-3 Plan - Incorporated by
reference to Exhibit (n)(3) to the Post-Effective Amendment No. 84 of
the Registrant's Registration Statement on Form N-1A (File Nos.
2-48227 and 811-2383), filed with the Securities and Exchange
Commission on January 31, 2005.
(p) (1) Code of Ethics for the Fund - Incorporated by reference to
Exhibit (p)(1) to Post-Effective Amendment No. 74 of the
Registration Statement on Form N-1A of the Registrant (File Nos.
2-48227 and 811-2383), filed with the Securities and Exchange
Commission on October 6, 2000.
(2) Code of Ethics for AllianceBernstein L.P. and AllianceBernstein
Investments, Inc. - Incorporated by reference to Exhibit (p)(2)
to Post-Effective Amendment No. 39 of the Registration Statement
on Form N-1A of AllianceBernstein Large Cap Growth Fund, Inc.
(File Nos. 33-49530 and 811-6730), filed with the Securities and
Exchange Commission on October 15, 2009.
Other Exhibits:
Powers of Attorney for: John H. Dobkin, Michael J. Downey, William H.
Foulk, Jr., D. James Guzy, Nancy P. Jacklin, Robert M. Keith, Garry L.
Moody, Marshall C. Turner, Jr. and Earl D. Weiner - Incorporated by
reference to Other Exhibits to Post-Effective Amendment No. 89 of the
Registrant's Registration Statement on Form N-1A (File Nos. 2-48227
and 811-2383), filed with the Securities and Exchange Commission on
January 28, 2009.
ITEM 24. Persons Controlled by or under Common Control with the Fund.
None.
ITEM 25. Indemnification.
It is the Registrant's policy to indemnify its directors and officers,
employees and other agents to the maximum extent permitted by Section
2-418 of the General Corporation Law of the State of Maryland, which
is incorporated by reference herein, and as set forth in Article
EIGHTH of Registrant's Articles of Amendment and Restatement of
Articles of Incorporation, Article IX of the Registrant's Amended and
Restated By-laws filed as Exhibit (b) and Section 10(a) of the
Distribution Services Agreement filed as Exhibit (e)(1), all as set
forth below.
The liability of the Registrant's directors and officers is dealt with
in Article EIGHTH of Registrant's Articles of Amendment and
Restatement of Articles of Incorporation, as set forth below. The
Investment Adviser's liability for any loss suffered by the Registrant
or its shareholders is set forth in Section 4 of the Investment
Advisory Contract filed as Exhibit (d) as set forth below.
ARTICLE EIGHTH OF THE REGISTRANT'S ARTICLES OF AMENDMENT AND RESTATEMENT OF
ARTICLES OF INCORPORATION READS AS FOLLOWS:
(1) To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of directors and officers of a corporation,
no present or former director or officer of the Corporation shall be liable to
the Corporation or its stockholders for money damages.
(2) The Corporation shall have the power, to the maximum extent permitted
by Maryland law in effect from time to time, to obligate itself to indemnify,
and to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to, (a) any individual who is a present or former director or officer
of the Corporation or (b) any individual who, while a director or officer of the
Corporation and at the request of the Corporation, serves or has served as a
director, officer, partner or trustee of another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former director or officer of the Corporation. The Corporation
shall have the power, with the approval of the Board of Directors, to provide
such indemnification and advancement of expenses to a person who served a
predecessor of the Corporation in any of the capacities described in (a) or (b)
above and to any employee or agent of the Corporation or a predecessor of the
Corporation.
(3) The provisions of this Article EIGHTH shall be subject to the
limitations of the Investment Company Act.
(4) Neither the amendment nor repeal of this Article EIGHTH, nor the
adoption or amendment of any other provision of the Charter or Bylaws
inconsistent with this Article EIGHTH, shall apply to or affect in any respect
the applicability of the preceding sections of this Article EIGHTH with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption.
ARTICLE IX OF THE REGISTRANT'S AMENDED AND RESTATED BYLAWS READS AS FOLLOWS:
To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation shall indemnify and, without requiring a preliminary
determination of the ultimate entitlement to indemnification, shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any individual who is a present or former director or officer of the
Corporation and who is made or threatened to be made a party to the proceeding
by reason of his or her service in any such capacity or (b) any individual who,
while a director or officer of the Corporation and at the request of the
Corporation, serves or has served as a director, officer, partner or trustee of
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or other enterprise and who is made or threatened
to be made a party to the proceeding by reason of his or her service in any such
capacity. The Corporation may, with the approval of its Board of Directors or
any duly authorized committee thereof, provide such indemnification and advance
for expenses to a person who served a predecessor of the Corporation in any of
the capacities described in (a) or (b) above and to any employee or agent of the
Corporation or a predecessor of the Corporation. The termination of any claim,
action, suit or other proceeding involving any person, by judgment, settlement
(whether with or without court approval) or conviction or upon a plea of guilty
or nolo contendere, or its equivalent, shall not create a presumption that such
person did not meet the standards of conduct required for indemnification or
payment of expenses to be required or permitted under Maryland law, these Bylaws
or the Charter. Any indemnification or advance of expenses made pursuant to this
Article shall be subject to applicable requirements of the 1940 Act. The
indemnification and payment of expenses provided in these Bylaws shall not be
deemed exclusive of or limit in any way other rights to which any person seeking
indemnification or payment of expenses may be or may become entitled under any
bylaw, regulation, insurance, agreement or otherwise.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or Charter inconsistent with this
Article, shall apply to or affect in any respect the applicability of the
preceding paragraph with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.
Section 10(a) of the Distribution Services Agreement reads as follows:
Section 10. Indemnification.
(a) The Fund agrees to indemnify, defend and hold the
Underwriter, and any person who controls the Underwriter within the
meaning of Section 15 of the Securities Act of 1933, as amended (the
"Securities Act"), free and harmless form and against any and all
claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Underwriter
or any such controlling person may incur, under the Securities Act, or
under common law or otherwise, arising out of or based upon any
alleged untrue statements of a material fact contained in the Fund's
Registration Statement or Prospectus or Statement of Additional
Information in effect from time to time under the Securities Act or
arising out of or based upon any alleged omission to state a material
fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading; provided, however, that
in no event shall anything therein contained by so construed as to
protect the Underwriter against any liability to the Fund or its
security holders to which the Underwriter would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of the Underwriter's reckless
disregard of its obligations and duties under this agreement. The
Fund's agreement to indemnify the Underwriter or any such controlling
person, such notification to be given by letter or by telegram
addressed to the Fund at its principal office in New York, New York,
and sent to the Fund by the person against whom such action is brought
within ten days after the summons or other first legal process shall
have been served. The failure so to notify the Fund of the
commencement of any such action shall not relieve the Fund from any
liability which it may have to the person against whom such action is
brought by reason of any such alleged untrue statement or omission
otherwise than on account of the indemnity agreement contained in this
Section 10. The Fund will be entitled to assume the defense of any
such suit brought to enforce any such claim, and to retain counsel of
good standing chosen by the Fund and approved by the Underwriter. In
the event the Fund does elect to assume the defense of any such suit
and retain counsel of good standing approved by the Underwriter, the
defendant or defendants in such suit shall bear the fees and expenses
of any additional counsel retained by any of them; but in case the
Fund does not elect to assume the defense of any such suit, or in case
the Underwriter does not approve of counsel chosen by the Fund, the
Fund will reimburse the Underwriter or the controlling person or
persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by the Underwriter or such
persons. The indemnification agreement contained in this Section 10
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Underwriter or any
controlling person and shall survive the sale of any of the Fund's
shares made pursuant to subscriptions obtained by the Underwriter.
This agreement of indemnity will inure exclusively to the benefit of
the Underwriter, to the benefit of its successors and assigns, and to
the benefit of any controlling persons and their successors and
assigns. The Fund agrees promptly to notify the Underwriter of the
commencement of any litigation or proceeding against the Fund in
connection with the issue and sale of any of its shares.
Section 4 of the Investment Advisory Contract reads as follows:
4. We shall expect of you, and you will give us the benefit of,
your best judgment and efforts in rendering these services to us, and
we agree as an inducement to your undertaking these services that you
shall not be liable hereunder for any mistake of judgment or in any
event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, you against
any liability to us or to our security holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder.
The foregoing summaries are qualified by the entire text of
Registrant's Articles of Amendment and Restatement of Articles of
Incorporation, Amended and Restated By-laws, the Investment Advisory
Contract between Registrant and AllianceBernstein L.P. and the
Distribution Services Agreement between Registrant and
AllianceBernstein Investments, Inc. ("ABI").
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer of controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
In accordance with Release No. IC-11330 (September 2, 1980), the
Registrant will indemnify its directors, officers, investment manager
and principal underwriters only if (1) a final decision on the merits
was issued by the court or other body before whom the proceeding was
brought that the person to be indemnified (the "indemnitee") was not
liable by reason or willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable determination is
made, based upon a review of the facts, that the indemnitee was not
liable by reason of disabling conduct, by (a) the vote of a majority
of a quorum of the directors who are neither "interested persons" of
the Registrant as defined in section 2(a)(19) of the Investment
Company Act of 1940 nor parties to the proceeding ("disinterested,
non-party directors"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys fees or other
expenses incurred by its directors, officers, investment adviser or
principal underwriters in defending a proceeding, upon the undertaking
by or on behalf of the indemnitee to repay the advance unless it is
ultimately determined that he is entitled to indemnification and, as a
condition to the advance, (1) the indemnitee shall provide a security
for his undertaking, (2) the Registrant shall be insured against
losses arising by reason of any lawful advances, or (3) a majority of
a quorum of disinterested, non-party directors of the Registrant, or
an independent legal counsel in a written opinion, shall determine,
based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
The Registrant participates in a joint directors and officers
liability insurance policy issued by the ICI Mutual Insurance Company.
Coverage under this policy has been extended to directors, trustees
and officers of the investment companies managed by AllianceBernstein
L.P. Under this policy, outside trustees and directors would be
covered up to the limits specified for any claim against them for acts
committed in their capacities as trustee or director. A pro rata share
of the premium for this coverage is charged to each investment company
and to the Investment Adviser.
ITEM 26. Business and Other Connections of Investment Adviser.
The descriptions of AllianceBernstein L.P. under the captions
"Management of the Fund" in the Prospectuses and in the Statements of
Additional Information constituting Parts A and B, respectively, of
this Registration Statement are incorporated by reference herein.
The information as to the directors and executive officers of
AllianceBernstein Corporation, the general partner of
AllianceBernstein L.P., set forth in AllianceBernstein L.P.'s Form ADV
filed with the Securities and Exchange Commission on April 21, 1988
(File No. 801-32361) and amended through the date hereof, is
incorporated by reference.
ITEM 27. Principal Underwriters
(a) ABI is the Registrant's Principal Underwriter in connection with
the sale of shares of the Registrant. ABI also acts as Principal
Underwriter or Distributor for the following investment
companies:
AllianceBernstein Balanced Shares, Inc.
AllianceBernstein Blended Style Series, Inc.
AllianceBernstein Cap Fund, Inc.
AllianceBernstein Corporate Shares
AllianceBernstein Diversified Yield Fund, Inc.
AllianceBernstein Exchange Reserves
AllianceBernstein Fixed-Income Shares, Inc.
AllianceBernstein Focused Growth & Income Fund, Inc.
AllianceBernstein Global Bond Fund, Inc.
AllianceBernstein Global Growth Fund, Inc.
AllianceBernstein Global Real Estate Investment Fund, Inc.
AllianceBernstein Global Thematic Growth Fund, Inc.
AllianceBernstein Greater China `97 Fund, Inc.
AllianceBernstein Growth and Income Fund, Inc.
AllianceBernstein High Income Fund, Inc.
AllianceBernstein Institutional Funds, Inc.
AllianceBernstein Intermediate California Municipal Portfolio(1)
AllianceBernstein Intermediate Diversified Portfolio(1)
AllianceBernstein Intermediate New York Municipal Portfolio(1)
AllianceBernstein International Portfolio(1)
AllianceBernstein International Growth Fund, Inc.
AllianceBernstein Large Cap Growth Fund, Inc.
AllianceBernstein Municipal Income Fund, Inc.
AllianceBernstein Municipal Income Fund II
AllianceBernstein Short Duration Portfolio
AllianceBernstein Small/Mid Cap Growth Fund, Inc.
AllianceBernstein Tax-Managed International Portfolio(1)
AllianceBernstein Trust
AllianceBernstein Utility Income Fund, Inc.
AllianceBernstein Variable Products Series Fund, Inc.
Sanford C. Bernstein Fund II, Inc.
The AllianceBernstein Pooling Portfolios
The AllianceBernstein Portfolios
______________
(1) This is a retail Portfolio of Sanford C. Bernstein Fund, Inc.
(b) The following are the Directors and Officers of ABI, the
principal place of business of which is 1345 Avenue of the
Americas, New York, New York, 10105.
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
---- ---------------- ----------
Directors
Mark R. Manley Director
Robert M. Keith Director
Officers
Robert M. Keith Executive Managing President and Chief
Director and President Executive Officer
Richard A. Davies Executive Vice President
Frank Speno Executive Vice President
Andrew L. Gangolf Senior Vice President Assistant Secretary
and Assistant General
Counsel
Emilie D. Wrapp Senior Vice President, Secretary
Assistant General Counsel
and Assistant Secretary
Daniel A. Notto Senior Vice President,
Counsel and Assistant
Secretary
Christopher S. Alpaugh Senior Vice President
Audie G. Apple Senior Vice President
Steven R. Barr Senior Vice President
and Assistant Secretary
Amy I. Belew Senior Vice President
Peter G. Callahan Senior Vice President
Russell R. Corby Senior Vice President
John W. Cronin Senior Vice President
Robert J. Cruz Senior Vice President
Jennifer M. DeLong Senior Vice President
John C. Endahl Senior Vice President
Adam E. Engelhardt Senior Vice President
John Edward English Senior Vice President
Edward J. Farrell Senior Vice President
and Controller
Mark D. Gersten Senior Vice President
and Treasurer
Kenneth L. Haman Senior Vice President
Joseph P. Healy Senior Vice President
Mary V. Kralis Hoppe Senior Vice President
Scott Hutton Senior Vice President
Robert H. Joseph, Jr. Senior Vice President and
Assistant Treasurer
Eric L. Levinson Senior Vice President
Matthew P. Mintzer Senior Vice President
Thomas F. Monnerat Senior Vice President
Joanna D. Murray Senior Vice President
Jeffrey A. Nye Senior Vice President
John J. O'Connor Senior Vice President
Catherine N. Peterson Senior Vice President
Mark A. Pletts Senior Vice President
Stephen C. Scanlon Senior Vice President
John P. Schmidt Senior Vice President
Gregory K. Shannahan Senior Vice President
Peter J. Szabo Senior Vice President
Joseph T. Tocyloski Senior Vice President
Craig E. Welch Senior Vice President
Patrick E. Ryan Vice President and
Chief Financial Officer
Albert J. Angelus Vice President
Kenneth F. Barkoff Vice President
Peter J. Barron Vice President
William G. Beagle Vice President
Christopher M. Berenbroick Vice President
Chris Boeker Vice President
Brandon W. Born Vice President
Richard A. Brink Vice President
Shaun D. Bromley Vice President
Brian Buehring Vice President
Kevin T. Cannon Vice President
Daniel W. Carey Vice President
Tobin W. Chakeen Vice President
Alice L. Chan Vice President
Laura A. Channell Vice President
Flora Chuang Vice President
Peter T. Collins Vice President
Joseph D. Connell, Jr. Vice President
Michael C. Conrath Vice President
Dwight P. Cornell Vice President
Robert A. Craft Vice President
John D. Curry Vice President
Walter F. Czaicki Vice President
John M. D'Agostino Vice President
Christine M. Dehil Vice President
Darren K. DeSimone Vice President
Ronald G. Dietrich Vice President
Carmela Di Meo Vice President
Joseph T. Dominguez Vice President
Bradford P. Doninger Vice President
Bernard J. Eng Vice President
Daniel Ennis Vice President
Michael J. Eustic Vice President
Hollie G. Fagan Vice President
Matthew G. Fetchko Vice President
Michael F. Foy Vice President
Kevin T. Gang Vice President
Mark A. Gessner Vice President
Mark C. Glatley Vice President
Kimberly A. Collins Gorab Vice President
Joseph T. Haag Vice President
Brian P. Hanna Vice President
John G. Hansen Vice President
Shannon R. Harkins Vice President
Terry L. Harris Vice President
Michael S. Hart Vice President
Daniel R. Hemberger Vice President
Anthony D. Ialeggio Vice President
Eric S. Indovina Vice President
Oscar J. Isoba Vice President
Kumar Jagdeo II Vice President
Matthew L. Joki Vice President
Jung M. Kim Vice President
Joseph B. Kolman Vice President
Scott M. Krauthamer Vice President
Jeffrey J. Lamb Vice President
Christopher J. Larkin Vice President
Laurel E. Lindner Vice President
James M. Liptrot Vice President and
Assistant Controller
Colleen S. Lorence Vice President
Edward R. Lupo Vice President
Jennifer L. Magill Vice President
Silvia Manz Vice President
Osama Mari Vice President
Jay G. McAndrew Vice President
Joseph R. McLean Vice President
Craig S. McKenna Vice President
Bart D. Miller Vice President
Troy E. Mosconi Vice President
Paul S. Moyer Vice President
Juan Mujica Vice President
John F. Multhauf Vice President
Robert D. Nelms Vice President
Jamie A. Nieradka Vice President
Suzanne E. Norman Vice President
John J. Onofrio Vice President and
Assistant Treasurer
Ian J. O'Brien-Rupert Vice President
Alex E. Pady Vice President
David D. Paich Vice President
Kimchu Perrington Vice President
Leo J. Peters IV Vice President
Thomas C. Pfeifer Vice President
Joseph J. Proscia Vice President
John D. Prosperi Vice President
Carol H. Rappa Vice President
Jessie A. Reich Vice President
Heidi A. Richardson Vice President
James A. Rie Vice President
Lauryn A. Rivello Vice President
Patricia A. Roberts Vice President
Miguel A. Rozensztroch Vice President
Kristin M. Seabold Vice President
William D. Shockley Vice President
John F. Skahan Vice President
Praveen K. Singh Vice President
Karen Sirett Vice President
Elizabeth M. Smith Vice President
Laurie L. Snively Vice President
Daniel L. Stack Vice President
Ben H. Stairs Vice President
Jason P. Stevens Vice President
Kelly P. Sudafer Vice President
(aka Kelly Sudovar)
Scott M. Tatum Vice President
Jay D. Tini Vice President
Ellen Tobin Vice President
Keri-Ann S. Toritto Vice President
Laura L. Tocchet Vice President
Louis L. Tousignant Vice President
Christian G. Wilson Vice President
Stephen M. Woetzel Vice President
Joanna Wong Vice President
Tao T. Wu Vice President
Constantin L. Andreae Assistant Vice President
Steven D. Barbesh Assistant Vice President
DeAnna D. Beedy Assistant Vice President
Roy C. Bentzen Assistant Vice President
Michael A. Bosi Assistant Vice President
James M. Broderick Assistant Vice President
Scott A. Brown Assistant Vice President
Judith A. Chin Assistant Vice President
Christine M. Crowley Assistant Vice President
Jamila Dalia Assistant Vice President
Daniel A. Dean Assistant Vice President
Ralph A. DiMeglio Assistant Vice President
Kilie A. Donahue Assistant Vice President
Michael J. Ferraro Assistant Vice President
Robert A. Fiorentino Assistant Vice President
Jose R. Garcia Assistant Vice President
Michele J. Giangrande Assistant Vice President
Cecilia N. Gomes Assistant Vice President
Stefanie M. Gonzalez Assistant Vice President
Friederike Grote Assistant Vice President
Junko Hisamatsu (Cox) Assistant Vice President
Lia A. Horii Assistant Vice President
Julie E. (Gerstmayr) Kelly Assistant Vice President
Aaron S. Kravitz Assistant Vice President
Junko Kimura Assistant Vice President
Stephen J. Laffey Assistant Vice President
and Counsel Assistant Secretary
Jayson W. Leisenring Assistant Vice President
Jonathan M. Liang Assistant Vice President
Mark J. Maier Assistant Vice President
Matthew J. Malvey Assistant Vice President
Francesco Martello Assistant Vice President
Russell B. Martin Assistant Vice President
David G. Mitchell Assistant Vice President
Jennifer A. Mulhall Assistant Vice President
Brian W. Paulson Assistant Vice President
Steven Pavlovic Assistant Vice President
Jared M. Piche Assistant Vice President
Vinod B. Pittampalli Assistant Vice President
Cameron V. Polek Assistant Vice President
Damien J. Porras Assistant Vice President
Mark A. Quarno Assistant Vice President
Marc S. Reed Assistant Vice President
Jennifer R. Rolf Assistant Vice President
Matthew M. Stebner Assistant Vice President
Christopher R. Thabet Assistant Vice President
William Tohme Assistant Vice President
Damaris Torres Assistant Vice President
Laurence Vandecasteele Assistant Vice President
Kellie L. Weil Assistant Vice President
Martin J. Zayac Assistant Vice President
Mark R. Manley Secretary
Colin T. Burke Assistant Secretary
(c) Not applicable.
ITEM 28. Location of Accounts and Records.
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder are maintained as follows: journals, ledgers,
securities records and other original records are maintained
principally at the offices of AllianceBernstein Investor Services,
Inc., P.O. Box 786003, San Antonio, Texas 78278-6003, and at the
offices of State Street Bank and Trust Company, the Registrants
Custodian, One Lincoln Street, Boston, Massachusetts 02111. All other
records so required to be maintained are maintained at the offices of
AllianceBernstein L.P., 1345 Avenue of the Americas, New York, New
York 10105.
ITEM 29. Management Services.
Not applicable.
ITEM 30. Undertakings.
Not applicable.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Post-Effective Amendment No. 90 to its Registration Statement to be signed
on its behalf by the undersigned, duly authorized, in the City and State of New
York, on the 12th day of November, 2009.
ALLIANCEBERNSTEIN BOND FUND, INC.
By: /s/ Robert M. Keith*
-------------------------
Robert M. Keith
President
Pursuant to the requirements of the Securities Act of 1933, as amended this
Post-Effective Amendment No. 90 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
1) Principal
Executive Officer
/s/ Robert M. Keith* President and November 12, 2009
-------------------- Chief Executive
Robert M. Keith Officer
2) Principal Financial
and Accounting Officer
/s/ Joseph J. Mantineo Treasurer and November 12, 2009
---------------------- Chief Financial
Joseph J. Mantineo Officer
3) Directors:
John H. Dobkin*
Michael J. Downey*
William H. Foulk, Jr.*
D. James Guzy*
Nancy P. Jacklin*
Garry L. Moody*
Marshall C. Turner, Jr.*
Earl D. Weiner*
*By: /s/ Andrew L. Gangolf November 12, 2009
---------------------
Andrew L. Gangolf
(Attorney-in-fact)
Index to Exhibits
Exhibit No. Description of Exhibits
----------- -----------------------
SK 00250 0157 1042680
COVER
2
filename2.txt
SEWARD & KISSEL LLP
1200 G Street, N.W.
Washington, DC 20005
Telephone: (202) 737-8833
Facsimile: (202) 737-5184
www.sewkis.com
November 12, 2009
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: AllianceBernstein Bond Fund, Inc. - AllianceBernstein Bond Inflation
Strategy and AllianceBernstein Municipal Bond Inflation Strategy
File Nos. 2-48227 and 811-2383
------------------------------
Dear Sir or Madam:
Attached herewith please find Post-Effective Amendment No. 90 under the
Securities Act of 1933 (the "1933 Act") and Amendment No. 68 under the
Investment Company Act of 1940 to the Registration Statement on Form N-1A of
AllianceBernstein Bond Fund, Inc. We are making this filing for the purpose of
registering two (2) new portfolios, the AllianceBernstein Bond Inflation
Strategy and AllianceBernstein Municipal Bond Inflation Strategy and to comply
with the amendments to Form N-1A adopted in Release No. IC-28584 (January 13,
2009).
Please call me at the above-referenced number if you have any questions
regarding the attached.
Sincerely,
/s/ Young Seo
--------------------
Young Seo
Attachment
SK 00250 0157 1046826