<PAGE>
Registration No. 33-21844
811-5555
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No.
Post-Effective Amendment No. 13
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 / /
Amendment No. 15 / X /
Sanford C. Bernstein Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
767 Fifth Avenue, New York, New York 10153
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 486-5800
Stuart K. Nelson, Esq.
767 Fifth Avenue
New York, New York 10153
(Name and Address of Agent for Service)
------------------
Copies to:
Joel H. Goldberg, Esq.
Shereff, Friedman, Hoffman & Goodman LLP
919 Third Avenue
New York, New York 10022
------------------
Approximate Date of Proposed Public Offering: Continuous.
------------------
It is proposed that this filing will become effective:
- ---- immediately upon filing pursuant to paragraph (b), or
X on February 1, 1996 pursuant to paragraph (b), or
- ---- 75 days after filing pursuant to paragraph (a), or
- ---- on (date) pursuant to paragraph (a), of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of shares of its Common Stock $.001 par value
under the Securities Act of 1933, and has filed a Rule 24f-2 Notice for the most
recent fiscal year on November 14, 1995.
This filing contains two (2) Prospectuses, a regular Prospectus covering ten of
the eleven series of shares of Sanford C. Bernstein Fund, Inc. (see
Cross-Reference Sheet Part A-1), an Institutional Services Prospectus covering
three of the eleven series of shares of Sanford C. Bernstein Fund, Inc. (see
Cross-Reference Sheet Part A-2) and one Statement of Additional Information
which is common to both Prospectuses. The Prospectus and Statement of Additional
Information with respect to the Emerging Markets Value Portfolio, one of the
eleven series of Sanford C. Bernstein Fund, Inc., filed pursuant to
Post-Effective Amendment No. 12, is still in full force and effect and remains
unaffected by this filing.
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
CROSS-REFERENCE SHEET
(as required by Rule 481(a))
N-1A Item No.
- -------------
<TABLE>
<CAPTION>
Location in Regular
Part A-1 Prospectus
- -------- -------------------
<S> <C>
Item 1. Cover Page ..................................... Cover Page
Item 2. Synopsis ....................................... Fee Table
Item 3. Condensed Financial
Information .................................... Financial Highlights
Item 4. General Description of
Registrant ..................................... The Fund; Investment
Objectives and
Policies of the
Portfolios;
Investments; Special
Investment
Techniques
Item 5. Management of the Fund ......................... Management of the
Portfolios
Item 5A. Management's Discussion
of Fund Performance ............................ Not Applicable
Item 6. Capital Stock and Other
Securities ..................................... The Fund; Dividends,
Distributions and
Taxes; Description
of Shares
Item 7. Purchase of Securities
Being Offered .................................. Purchase of Shares;
Exchanges of Shares
Item 8. Redemption or Repurchase ....................... Redemption of Shares
Item 9. Pending Legal Proceedings ...................... Not Applicable
</TABLE>
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
CROSS-REFERENCE SHEET
(as required by Rule 481(a))
N-1A Item No.
- -------------
<TABLE>
<CAPTION>
Location in Institutional
Part A-2 Services Prospectus
- -------- -------------------------
<S> <C>
Item 1. Cover Page ........................ Cover Page
Item 2. Synopsis .......................... Fee Table
Item 3. Condensed Financial
Information ....................... Financial Highlights
Item 4. General Description of
Registrant ........................ The Fund; Investment
Objectives and
Policies of the
Portfolios;
Investments; Special
Investment
Techniques
Item 5. Management of the Fund ............ Management of the
Portfolios
Item 5A. Management's Discussion
of Fund Performance ............... Not Applicable
Item 6. Capital Stock and Other
Securities ........................ The Fund; Dividends,
Distributions and
Taxes; Description
of Shares
Item 7. Purchase of Securities
Being Offered ..................... Participating in
Your Plan
Item 8. Redemption or Repurchase .......... Participating in
Your Plan
Item 9. Pending Legal Proceedings ......... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Location in Statement
of
Part B Additional Information
- ------ ----------------------
<S> <C>
Item 10. Cover Page ...................... Cover Page
Item 11. Table of Contents ............... Table of Contents
Item 12. General Information
and History ..................... Not Applicable
Item 13. Investment Objectives
and Policies .................... Investment Objectives
and Policies;
Investment
Restrictions
Item 14. Management of the Fund .......... Manager and
Distributor
Item 15. Control Persons and
Principal Holders of
Securities ...................... Directors and
Officers and
Principal Holders
of Securities
Item 16. Investment Advisory and
Other Services .................. Directors and
Officers and
Principal Holders
of Securities and
Manager and
Distributor
Item 17. Brokerage Allocation and
Other Practices ................. Portfolio
Transactions
and Brokerage
Item 18. Capital Stock and Other
Securities ...................... Not Applicable
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered ................... Net Asset Value;
Purchase and
Redemption of Shares
Item 20. Tax Status ...................... Taxes
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Location in Statement
of
Part B Additional Information
- ------ ----------------------
<S> <C>
Item 21. Underwriters ............... Manager and Distributor
Item 22. Calculation of
Performance Data ........... Performance
Item 23. Financial Statements ....... Custodian, Transfer
Agent, Independent
Accountants and
Financial Statements
</TABLE>
<PAGE>
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
767 Fifth Avenue
New York, New York 10153
(212) 756-4097
PROSPECTUS
February 1, 1996
Sanford C. Bernstein Fund, Inc. (the "Fund") is an open-end management
investment company. This type of company is commonly referred to as a mutual
fund. This Prospectus relates to ten of the Fund's series of shares, each
representing a separate portfolio of securities and each having its own
investment objectives. Sanford C. Bernstein & Co., Inc. ("Bernstein," or the
"Manager") serves as Investment Manager to each series.
The Bernstein Fixed-Income Portfolios aim to generate the highest total
return consistent with safety of principal and the financial objectives of the
Portfolios.
The Bernstein International Value Portfolio seeks long-term capital growth
on a total return basis (capital appreciation or depreciation plus dividends and
interest) principally through investment in equity securities of established
non-U.S. companies. Investments may be made solely for capital appreciation,
solely for income or any combination of the two for the purpose of achieving a
higher overall return.
This Prospectus sets forth information you ought to know before investing
in the Fund. You should read it carefully and retain it for future reference.
You can find more information about the Fund in the Statement of Additional
Information (the "SAI") dated February 1, 1996, which has been filed with the
Securities and Exchange Commission (the "Commission") and is incorporated herein
by reference. You may obtain a copy of the SAI without charge by calling or
writing the Fund at the above telephone number or address.
The minimum initial investment in any Portfolio is $25,000. Different minimums
are applicable with respect to subsequent investments. The Fund may change the
provisions concerning minimum investments at any time.
BERNSTEIN FIXED-INCOME PORTFOLIO OBJECTIVES/POLICIES
SHORT-DURATION PORTFOLIOS
Bernstein Government Short Duration: Page__
o Limit state and local taxation; and
o Invest largely in U.S. government and agency securities.
Bernstein Short Duration Plus: Page__
o Choose primarily from a broad universe of high-grade fixed-income
instruments.
Bernstein Short Duration New York Municipal: Page__
o Provide income while limiting federal, state and local taxation for New York
residents.
Bernstein Short Duration California Municipal: Page__
o Provide income while limiting federal and California personal income taxation
for state residents.
Bernstein Short Duration Diversified Municipal: Page__
o Provide income while limiting federal taxation.
INTERMEDIATE-DURATION PORTFOLIOS
Bernstein New York Municipal: Page__
o Maximize total after-tax return for New York State residents, taking into
account the taxable nature of interest on taxable bonds and capital gains.
Bernstein California Municipal: Page__
o Maximize total after-tax return for California residents, taking into account
the taxable nature of interest on taxable bonds and capital gains.
Bernstein Diversified Municipal: Page__
o Maximize total after-tax return, taking into account the taxable nature of
interest on taxable bonds and capital gains.
Bernstein Intermediate Duration: Page__
o Choose primarily from a broad universe of high-grade fixed-income
instruments.
BERNSTEIN INTERNATIONAL EQUITY PORTFOLIO OBJECTIVES
Bernstein International Value: Page __
o Invest primarily in equity securities of established foreign companies in the
countries comprising the EAFE index, plus Canada.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(front cover - page 1)
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
Bernstein Bernstein Bernstein Bernstein Bernstein
Short Duration Short Duration Short Duration Government Short
California Diversified New York Short Duration
Municipal Municipal Municipal Duration Plus
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None None None None
(as a percentage of offering price)
Sales Load Imposed on Reinvested None None None None None
Dividends (as a percentage of offering
price)
Deferred Sales Load (as a percentage of None None None None None
original purchase price or redemption
proceeds)
Redemption Fees None None None None None
(as a percentage of amount redeemed)
Exchange Fees None None None None None
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees .50% .50% .50% .50% .50%
12b-1 Fees None None None None None
Other Expenses
Shareholder Servicing & Administrative Fees .10% .10% .10% .10% .10%
All Other Expenses After Expense .13% .12% .13% .09% .05%
Reimbursement
Total Portfolio Operating Expenses .73% .72% .73% .69% .65%
Example
A Portfolio would pay the following expenses
on a $1,000 investment, assuming 5% annual
return:
1 Yr. $ 7 $ 7 $ 7 $ 7 $ 7
3 Yrs. (cum.) $23 $23 $23 $22 $21
5 Yrs. (cum.) $41 $40 $41 $38 $36
10 Yrs. (cum.) $91 $89 $91 $86 $81
</TABLE>
2
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
Bernstein Bernstein Bernstein Bernstein Bernstein
New York California Diversified Intermediate International
Municipal Municipal Municipal Duration Value
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None None None None
(as a percentage of offering price)
Sales Load Imposed on Reinvested Dividends None None None None None
(as a percentage of offering price)
Deferred Sales Load (as a percentage None None None None None
of original purchase price or redemption
proceeds)
Redemption Fees None None None None None
(as a percentage of amount redeemed)
Exchange Fees None None None None None
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees .50% .50% .50% .50% 1.00%
12b-1 Fees None None None None None
Other Expenses
Shareholder Servicing &
Administrative Fees .10% .10% .10% .10% .25%
All Other Expenses After Expense
Reimbursement .06% .09% .06% .04% .10%
Total Portfolio Operating Expenses .66% .69% .66% .64% 1.35%
Example
A Portfolio would pay the following expenses
on a $1,000 investment, assuming 5% annual
return:
1 Yr. $ 7 $ 7 $ 7 $ 7 $ 14
3 Yrs. (cum.) $21 $22 $21 $20 $ 43
5 Yrs. (cum.) $37 $38 $37 $36 $ 74
10 Yrs. (cum.) $82 $86 $82 $80 $162
</TABLE>
3
The purpose of the fee table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The Fund is no-load, there are no redemption fees, and there are no
charges for shareholders on monthly payment plans. "Other Expenses" for all
Portfolios are based on amounts for the fiscal year ended September 30, 1995.
The example should not be considered a representation of future expenses; actual
expenses may be greater or less than those shown. For the period commencing
October 3, 1994 through and including October 2, 1996, Bernstein has agreed to
assume the expenses of each of the Bernstein Short Duration California Municipal
Portfolio, the Bernstein Short Duration Diversified Municipal Portfolio and the
Bernstein Short Duration New York Municipal Portfolio (collectively, the "Short
Duration Municipal Portfolios"), to the extent aggregate operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary expenses)
exceed 0.79% per annum of the Portfolios' average daily net assets. If Bernstein
had not assumed these expenses during the fiscal year ended September 30, 1995,
the shareholders of the Bernstein Short Duration California Municipal Portfolio
would have incurred total annual operating expenses of .80%, the shareholders of
the Bernstein Short Duration Diversified Municipal Portfolio would have incurred
total annual operating expenses of .81%, and the shareholders of the Bernstein
Short Duration New York Municipal Portfolio would have incurred total annual
operating expenses of .79%. A more complete description of the various costs and
expenses will be found under "Management of the Portfolios" on page ____.
Shareholders of the Fund do not need to open a brokerage account with Bernstein;
shareholders may elect to take delivery of the shares or to make alternate
arrangements for custodying them. If a shareholder holds Fund shares in a
Bernstein brokerage account, Bernstein (not the Fund) will charge an annual
maintenance fee of $100 for accounts with assets of less than $400,000 under the
management of Bernstein's Equity and/or Fixed-Income Investment Policy Groups.
This fee is deducted from cash held in the brokerage account or, if insufficient
cash is maintained in the brokerage account, by selling securities. Bernstein
does not charge this fee on accounts that are included in a group of related
accounts as defined by Bernstein with combined assets of $400,000 or more.
Shares of the Fund purchased or redeemed through broker-dealers, banks and other
financial institutions may be subject to fees imposed by those institutions.
4
<PAGE>
Financial Highlights
Set forth below is a table containing information as to the income and
operating performance of a share of each Portfolio of the Fund for the periods
ended September 30, 1995; September 30, 1994; September 30, 1993; September 30,
1992; September 30, 1991; September 30, 1990; and September 30, 1989, or as
applicable. The financial statements, which contain this information for the
periods ended September 30, 1995; September 30, 1994; September 30, 1993;
September 30, 1992; and September 30, 1991, have been audited by Price
Waterhouse LLP. The related financial statements and the report of independent
accountants for the period ended September 30, 1995 are included in the Fund's
SAI. Additional performance information with respect to all Portfolios is
contained in the Fund's annual report to shareholders dated September 30, 1995,
which is available upon request and without charge. These financial highlights
should be read in conjunction with the financial statements contained in the
Fund's SAI.
<TABLE>
<CAPTION>
Bernstein International Bernstein Government Short
Value Portfolio Duration Portfolio
------------------------------------------------------- -------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/95 9/30/94 9/30/93 9/30/92(a) 9/30/95 9/30/94
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.57 $15.39 $11.98 $12.50 $12.34 $12.87
------ ------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.18 0.19 0.05 0.02 0.69 0.49
Net realized and unrealized gain (loss) on
investments, futures, and foreign
currencies 0.07 1.13 3.54 (0.54) 0.21 (0.38)
------ ------ ------ ------ ------ ------
Total from investment operations 0.25 1.32 3.59 (0.52) 0.90 0.11
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from taxable
net investment income (0.11) (0.02) (0.05) 0 (0.69) (0.49)
Dividends from tax-exempt net
investment income 0 0 0 0 0 0
Distributions from net realized gains (0.63) (0.12) (0.13) 0 0 0
Distributions in excess of net
realized gains due to timing differences 0 0 0 0 0 (0.15)
------ ------ ------ ------ ------ ------
Total distributions (0.74) (0.14) (0.18) 0 (0.69) (0.64)
------ ------ ------ ------ ------ ------
Net asset value, end of period $16.08 $16.57 $15.39 $11.98 $12.55 $12.34
====== ====== ====== ====== ====== ======
Total Return 1.84% 8.55% 30.45% (4.16)% 7.55% 0.85%
Ratios/Supplemental Data
Net assets, end of period (000 omitted) $1,996,112 $1,343,266 $539,936 $75,255 $143,723 $185,028
Average net assets (000 omitted) $1,591,703 $948,563 $235,839 $41,234 $145,710 $188,013
Ratio of expenses to average net assets 1.35% 1.39% 1.53% 2.00%* 0.69% 0.68%
Ratio of net investment income
to average net assets 1.17% 1.13% 1.27% 0.59%* 5.58% 3.85%
Portfolio turnover rate 29.53% 23.78% 21.22% 1.12% 49.34% 213.02%
<CAPTION>
*Annualized
(a) Commenced operations June 22, 1992
5
<PAGE>
(cont.) Bernstein Government Short
Duration Portfolio
----------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/93 9/30/92 9/30/91 9/30/90 9/30/89(b)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.14 $12.93 $12.58 $12.61 $12.50
-------- -------- -------- -------- --------
Income from investment operations:
Investment income, net 0.44 0.66 0.86 0.95 0.72
Net realized and unrealized gain (loss) on
investments, futures, and foreign
currencies 0.20 0.41 0.41 0.05 0.11
-------- -------- -------- -------- --------
Total from investment operations 0.64 1.07 1.27 1.00 0.83
-------- -------- -------- -------- --------
Less distributions:
Dividends from taxable net investment
income (0.44) (0.66) (0.86) (0.95) (0.72)
Dividends from tax-exempt net
investment income 0 0 0 0 0
Distributions from net realized gains (0.47) (0.20) (0.06) (0.08) 0
Distributions in excess of net
realized gains due to timing differences 0 0 0 0 0
-------- -------- -------- -------- --------
Total distributions (0.91) (0.86) (0.92) (1.03) (0.72)
-------- -------- -------- -------- --------
Net asset value, end of period $12.87 $13.14 $12.93 $12.58 $12.61
======== ======== ======== ======== ========
Total Return 5.11% 8.57% 10.47% 8.29% 6.77%
Ratios/Supplemental Data
Net assets, end of period (000 omitted) $212,531 $254,950 $211,566 $159,490 $138,052
Average net assets (000 omitted) $239,462 $238,381 $184,175 $159,170 $107,512
Ratio of expenses to average net assets 0.68% 0.68% 0.70% 0.72% 0.85%*
Ratio of net investment income
to average net assets 3.40% 5.02% 6.67% 7.52% 7.82%*
Portfolio turnover rate 130.40% 220.86% 175.87% 171.41% 141.20%
<CAPTION>
(b) Commenced operations January 3, 1989
Bernstein Short Duration Plus Portfolio
----------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.32 $12.89 $13.14 $12.84 $12.50
-------- -------- -------- -------- --------
Income from investment operations:
Investment income, net 0.70 0.55 0.59 0.75 0.94
Net realized and unrealized gain (loss) on
investments, futures, and foreign
currencies 0.18 (0.40) 0.10 0.44 0.41
-------- -------- -------- -------- --------
Total from investment operations 0.88 0.15 0.69 1.19 1.35
-------- -------- -------- -------- --------
Less distributions:
Dividends from taxable net investment
income (0.71) (0.56) (0.59) (0.75) (0.94)
Dividends from tax-exempt net
investment income 0 0 0 0 0
Distributions from net realized gains 0 0 (0.35) (0.14) (0.07)
Distributions in excess of net
realized gains due to timing differences 0 (0.16) 0 0 0
-------- -------- -------- -------- --------
Total distributions (0.71) (0.72) (0.94) (0.89) (1.01)
-------- -------- -------- -------- --------
Net asset value, end of period $12.49 $12.32 $12.89 $13.14 $12.84
======== ======== ======== ======== ========
Total Return 7.36% 1.14% 5.49% 9.60% 11.26%
Ratios/Supplemental Data
Net assets, end of period (000 omitted) $534,462 $550,415 $508,959 $535,980 $435,334
Average net assets (000 omitted) $536,042 $529,892 $535,889 $482,467 $405,457
Ratio of expenses to average net assets 0.65% 0.65% 0.66% 0.66% 0.67%
Ratio of net investment income
to average net assets 5.69% 4.30% 4.52% 5.75% 7.42%
Portfolio turnover rate 61.03% 285.80% 112.87% 169.60% 140.03%
</TABLE>
6
<PAGE>
Financial Highlights (continued)
Set forth below is a table containing information as to the income and
operating performance of a share of each Portfolio of the Fund for the periods
ended September 30, 1995; September 30, 1994; September 30, 1993; September 30,
1992; September 30, 1991; September 30, 1990; and September 30, 1989, or as
applicable. The financial statements, which contain this information for the
periods ended September 30, 1995; September 30, 1994; September 30, 1993;
September 30, 1992; and September 30, 1991, have been audited by Price
Waterhouse LLP. The related financial statements and the report of independent
accountants for the period ended September 30, 1995 are included in the Fund's
SAI. Additional performance information with respect to all Portfolios is
contained in the Fund's annual report to shareholders dated September 30, 1995,
which is available upon request and without charge. These financial highlights
should be read in conjunction with the financial statements contained in the
Fund's SAI.
<TABLE>
<CAPTION>
(cont.) Bernstein Short
Duration Plus Portfolio Bernstein Intermediate Duration Portfolio
-------------------------- ----------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/90 9/30/89(c) 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91
------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.62 $12.50 $12.54 $13.92 $13.82 $13.19 $12.36
-------- -------- ---------- -------- -------- -------- --------
Income from investment operations:
Investment income, net 0.97 0.78 0.78 0.68 0.76 0.90 1.00
Net realized and unrealized gain (loss)
on investments, futures, and foreign
currencies (0.01) 0.12 0.77 (1.15) 0.68 0.79 0.85
-------- -------- ---------- -------- -------- -------- --------
Total from investment operations 0.96 0.90 1.55 (0.47) 1.44 1.69 1.85
-------- -------- ---------- -------- -------- -------- --------
Less distributions:
Dividends from taxable net
investment income (0.97) (0.78) (0.79) (0.70) (0.76) (0.90) (1.00)
Dividends from tax-exempt
net investment income 0 0 0 0 0 0 0
Distributions from net realized gains (0.11) 0 0 (0.08) (0.58) (0.16) (0.02)
Distributions in excess of net realized
gains due to timing differences 0 0 0 (0.13) 0 0 0
-------- -------- ---------- -------- -------- -------- --------
Total distributions (1.08) (0.78) (0.79) (0.91) (1.34) (1.06) (1.02)
-------- -------- ---------- -------- -------- -------- --------
Net asset value, end of period $12.50 $12.62 $13.30 $12.54 $13.92 $13.82 $13.19
======== ======== ========== ======== ======== ======== ========
Total Return 7.88% 7.41% 12.82% (3.54)% 11.30% 13.32% 15.54%
Ratios/Supplemental Data
Net assets, end of period (000 omitted) $391,131 $335,310 $1,142,768 $848,529 $693,772 $524,301 $375,345
Average net assets (000 omitted) $374,101 $263,899 $ 957,247 $764,519 $595,273 $444,750 $304,034
Ratio of expenses to average net assets 0.68% 0.75%* 0.64% 0.65% 0.66% 0.67% 0.68%
Ratio of net investment income
to average net assets 7.67% 7.91%* 6.11% 5.14% 5.59% 6.64% 7.80%
Portfolio turnover rate 155.21% 132.82% 212.40% 203.73% 60.77% 149.71% 81.04%
<CAPTION>
Annualized
(c) Commenced operations December 12, 1988
7
<PAGE>
<CAPTION>
(cont.) Bernstein Intermediate
Duration Portfolio Bernstein Diversified Municipal Portfolio
----------------------------- ------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/90 9/30/89(d) 9/30/95 9/30/94 9/30/93 9/30/92
---------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.82 $12.50 $12.99 $13.78 $13.40 $13.01
-------- -------- -------- -------- -------- --------
Income from investment operations:
Investment income, net 0.98 0.69 0.65 0.61 0.63 0.71
Net realized and unrealized gain (loss)
on investments, futures, and foreign
currencies (0.25) 0.32 0.51 (0.72) 0.49 0.42
-------- -------- -------- -------- -------- --------
Total from investment operations 0.73 1.01 1.16 (0.11) 1.12 1.13
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from taxable net
investment income (0.98) (0.69) (0.02) (0.01) (0.01) (0.11)
Dividends from tax-exempt
net investment income 0 0 (0.63) (0.60) (0.62) (0.60)
Distributions from net realized gains (0.21) 0 0 (0.03) (0.11) (0.03)
Distributions in excess of net realized
gains due to timing differences 0 0 0 (0.04) 0 0
-------- -------- -------- -------- -------- --------
Total distributions (1.19) (0.69) (0.65) (0.68) (0.74) (0.74)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $12.36 $12.82 $13.50 $12.99 $13.78 $13.40
======== ======== ======== ======== ======== ========
Total Return 5.90% 8.25% 9.16% (0.80)% 8.61% 8.91%
Ratios/Supplemental Data
Net assets, end of period (000 omitted) $240,779 $183,480 $660,814 $522,134 $449,668 $301,746
Average net assets (000 omitted) $218,760 $135,549 $572,769 $509,380 $375,576 $256,850
Ratio of expenses to average net assets 0.71% 0.83%* 0.66% 0.67% 0.69% 0.69%
Ratio of net investment income
to average net assets 7.77% 7.74%* 4.89% 4.57% 4.64% 5.33%
Portfolio turnover rate 119.09% 121.11% 42.55% 34.45% 34.74% 48.22%
<CAPTION>
Bernstein California
(cont.) Bernstein Diversified Municipal Portfolio Municipal Portfolio
------------------------------------------------- ----------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/91 9/30/90 9/30/89(e) 9/30/95 9/30/94
------------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.51 $12.52 $12.50 $13.06 $13.83
-------- -------- -------- -------- --------
Income from investment operations:
Investment income, net 0.73 0.74 0.52 0.64 0.61
Net realized and unrealized gain (loss)
on investments, futures, and foreign
currencies 0.51 0.04 0.02 0.52 (0.74)
-------- -------- -------- -------- --------
Total from investment operations 1.24 0.78 0.54 1.16 (0.13)
-------- -------- -------- -------- --------
Less distributions:
Dividends from taxable net
investment income (0.06) (0.03) (0.03) (0.05) (0.02)
Dividends from tax-exempt
net investment income (0.67) (0.71) (0.49) (0.59) (0.59)
Distributions from net realized gains (0.01) (0.05) 0 0 0
Distributions in excess of net realized
gains due to timing differences 0 0 0 0 (0.03)
-------- -------- -------- -------- --------
Total distributions (0.74) (0.79) (0.52) (0.64) (0.64)
-------- -------- -------- -------- --------
Net asset value, end of period $13.01 $12.51 $12.52 $13.58 $13.06
======== ======== ======== ======== ========
Total Return 10.21% 6.35% 4.41% 9.11% (0.98)%
Ratios/Supplemental Data
Net assets, end of period (000 omitted) $210,417 $157,730 $108,653 $213,951 $192,993
Average net assets (000 omitted) $179,375 $142,712 $ 87,945 $185,990 $168,797
Ratio of expenses to average net assets 0.71% 0.75% 0.91%* 0.69% 0.70%
Ratio of net investment income
to average net assets 5.69% 5.83% 5.75%* 4.78% 4.51%
Portfolio turnover rate 33.91% 47.25% 19.52% 63.89% 24.55%
</TABLE>
*Annualized
(d) Commenced operations January 17, 1989
(e) Commenced operations January 9, 1989
8
<PAGE>
Financial Highlights (continued)
Set forth below is a table containing information as to the income and
operating performance of a share of each Portfolio of the Fund for the periods
ended September 30, 1995; September 30, 1994; September 30, 1993; September 30,
1992; September 30, 1991; September 30, 1990; and September 30, 1989, or as
applicable. The financial statements, which contain this information for the
periods ended September 30, 1995; September 30, 1994; September 30, 1993;
September 30, 1992; and September 30, 1991, have been audited by Price
Waterhouse LLP. The related financial statements and the report of independent
accountants for the period ended September 30, 1995 are included in the Fund's
SAI. Additional performance information with respect to all Portfolios is
contained in the Fund's annual report to shareholders dated September 30, 1995,
which is available upon request and without charge. These financial highlights
should be read in conjunction with the financial statements contained in the
Fund's SAI.
<TABLE>
<CAPTION>
(cont.) Bernstein California Bernstein New York
Municipal Portfolio Municipal Portfolio
------------------------------------------------ --------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/93 9/30/92 9/30/91 9/30/90(f) 9/30/95 9/30/94 9/30/93
------------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.38 $12.94 $12.42 $12.50 $12.98 $13.80 $13.47
-------- ------- ------- ------- -------- -------- --------
Income from investment operations:
Investment income, net 0.60 0.66 0.70 0.13 0.65 0.64 0.67
Net realized and unrealized gain (loss)
on investments, futures, and foreign
currencies 0.52 0.45 0.52 (0.08) 0.50 (0.75) 0.46
-------- ------- ------- ------- -------- -------- --------
Total from investment operations 1.12 1.11 1.22 0.05 1.15 (0.11) 1.13
-------- ------- ------- ------- -------- -------- --------
Less distributions:
Dividends from taxable net
investment income (0.02) (0.07) (0.11) (0.09) (0.02) (0.02) (0.01)
Dividends from tax-exempt
net investment income (0.58) (0.59) (0.59) (0.04) (0.63) (0.62) (0.66)
Distributions from net realized gains (0.07) (0.01) 0 0 0 (0.03) (0.13)
Distributions in excess of net realized
gains due to timing differences 0 0 0 0 0 (0.04) 0
-------- ------- ------- ------- -------- -------- --------
Total distributions (0.67) (0.67) (0.70) (0.13) (0.65) (0.71) (0.80)
-------- ------- ------- ------- -------- -------- --------
Net asset value, end of period $13.83 $13.38 $12.94 $12.42 $13.48 $12.98 $13.80
======== ======= ======= ======= ======== ======== ========
Total Return 8.60% 8.76% 10.06% 0.40% 9.14% (0.81)% 8.68%
Ratios/Supplemental Data
Net assets, end of period (000 omitted) $150,115 $83,043 $50,356 $22,828 $458,543 $408,021 $336,101
Average net assets (000 omitted) $116,301 $65,492 $35,005 $21,481 $413,892 $381,144 $277,930
Ratio of expenses to average net assets 0.73% 0.77% 0.79% 0.79%* 0.66% 0.67% 0.69%
Ratio of net investment income
to average net assets 4.36% 4.96% 5.40% 6.73%* 4.95% 4.78% 4.91%
Portfolio turnover rate 23.79% 53.08% 48.91% 113.25% 44.84% 22.45% 34.58%
<CAPTION>
*Annualized
(f) Commenced operations August 6, 1990
9
<PAGE>
Bernstein Bernstein Bernstein
Short Short Short
Duration Duration Duration
Diversified California New York
Municipal Municipal Municipal
(cont.) Bernstein New York Municipal Portfolio Portfolio Portfolio Portfolio
----------------------------------------------- --------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/92 9/30/91 9/30/90 9/30/89(g) 9/30/95(h,i) 9/30/95(h,i) 9/30/95(h,i)
----------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.05 $12.54 $12.59 $12.50 $12.50 $12.50 $12.50
-------- -------- -------- ------- -------- ------- -------
Income from investment operations:
Investment income, net 0.74 0.74 0.76 0.53 0.55 0.53 0.54
Net realized and unrealized gain (loss)
on investments, futures, and foreign
currencies 0.44 0.52 0 0.09 0.13 0.15 0.10
-------- -------- -------- ------- -------- ------- -------
Total from investment operations 1.18 1.26 0.76 0.62 0.68 0.68 0.64
-------- -------- -------- ------- -------- ------- -------
Less distributions:
Dividends from taxable net
investment income (0.11) (0.09) (0.08) (0.07) (0.04) (0.06) (0.05)
Dividends from tax-exempt
net investment income (0.63) (0.65) (0.68) (0.46) (0.51) (0.47) (0.49)
Distributions from net realized gains (0.02) (0.01) (0.05) 0 0 0 0
Distributions in excess of net realized
gains due to timing differences 0 0 0 0 0 0 0
-------- -------- -------- ------- -------- ------- -------
Total distributions (0.76) (0.75) (0.81) (0.53) (0.55) (0.53) (0.54)
-------- -------- -------- ------- -------- ------- -------
Net asset value, end of period $13.47 $13.05 $12.54 $12.59 $12.63 $12.65 $12.60
======== ======== ======== ======= ======== ======= =======
Total Return 9.31% 10.34% 6.12% 5.04% 5.55% 5.58% 5.24%
Ratios/Supplemental Data
Net assets, end of period (000 omitted) $238,871 $190,776 $158,292 $98,299 $101,325 $63,530 $55,221
Average net assets (000 omitted) $210,474 $172,633 $129,347 $83,529 $85,893 $49,944 $50,642
Ratio of expenses to average net assets 0.69% 0.70% 0.74% 0.89%* 0.72%* 0.73%* 0.73%*
Ratio of net investment income
to average net assets 5.55% 5.79% 5.94% 5.84%* 4.32%* 4.12%* 4.23%*
Portfolio turnover rate 42.53% 29.79% 36.10% 10.12% 73.50% 89.33% 112.15%
</TABLE>
*Annualized
(g) Commenced operations January 9, 1989
(h) Commenced operations October 3, 1994
(i) Reflects a voluntary expense limitation in effect during the period. As a
result of such a limitation, net investment income of the Portfolio for
the year ended September 30, 1995, reflects a benefit of less than $.01
per share.
10
<PAGE>
The Fund
The Fund was incorporated on May 4, 1988, under the laws of Maryland as an
open-end management investment company. This Prospectus relates to ten of the
Fund's series of shares (the "Portfolios"). Shares of each series represent an
interest in a separate portfolio of securities. At September 30, 1995, the
Portfolios of the Fund had net assets totaling $5.370 billion. Bernstein, with
offices at 767 Fifth Avenue, New York, New York 10153; 1999 Avenue of the Stars,
Los Angeles, California 90067; 777 South Flagler Drive, West Palm Beach, Florida
33401; and 227 West Monroe Street, Chicago, Illinois 60606; and 300 Crescent
Court, Suite 950, Dallas, Texas 75201, serves as Investment Manager to each
Portfolio. Each Portfolio has its own investment objectives.
Why Bernstein?
Research Strength:
Bernstein's business is investment research and management. For more than a
quarter-century we have been developing proprietary and innovative means of
improving investment decision making. In the increasingly complex financial
markets, we believe Bernstein's analytic strength is a significant advantage.
Disciplined, Consistent Decision Making:
Bernstein research is applied within a value-oriented framework backed by
extensive research capability. Investment decision making is disciplined,
centralized and highly systematic.
Bernstein Philosophy
We believe opportunity in the fixed-income and international markets is
primarily the result of complexity and emotion. To solve the complex problems of
bond and stock valuation, we devote considerable resources to research. To
minimize the emotional aspects of decision making under uncertainty, we strive
to apply our valuation tools in a consistent and disciplined fashion.
Bernstein Fixed-Income Process
The management of Bernstein Fixed-Income Portfolios reflects three
principal elements:
1. Security and sector evaluation to identify the most attractive
securities in the market at a given time- those offering the highest
expected return in relation to their risks;
11
<PAGE>
2. Interest-rate forecasting to determine the best level of interest-rate
risk at a given time, within specified limits for each Portfolio; and
3. Yield-curve analysis to determine the optimum combination of maturities
for given degrees of interest-rate risk.
To identify attractive bonds, we use proprietary valuation techniques that
seek to quantify the incremental return we should demand to compensate for the
various risks that bonds entail. We perform these analyses on all Treasury
securities; virtually all federal agency securities; representative samples of
municipal, mortgage-related, corporate and foreign bonds; and virtually all
financial futures and options.
We use our forecast of interest rates to set the target level of
interest-rate risk for each of the Fixed-Income Portfolios. When we expect
interest rates to rise, we modestly shorten average maturities; when we expect
rates to fall, we modestly lengthen.
Finally, given our interest-rate risk target, we analyze the yield curve to
determine the best combination of maturities. In some environments it is best to
concentrate a Portfolio's maturities near the interest-rate risk target, while
at other times a higher expected return may be achieved by using a mix of short-
and long-term bonds that have, on average, the same risk as the target.
The Advantage of Short and Intermediate Bonds:
Over the short run, fixed-income returns tend to be dominated by cyclical
swings in interest rates. The longer the maturity, the more the individual
security benefits from a decline, or is hurt by a rise, in interest rates.
Inasmuch as it is difficult to forecast consistently the direction of interest
rates accurately, it is important for an investor to weigh the risks and returns
offered by any specific maturity strategy.
The Normal Yield Curve
[GRAPH]
Maturity Yield
(years) (%)
-------- -----
0.25 4.49
0.96112 4.96
1.87263 5.34
2.73482 5.53
3.54791 5.68
4.3145 5.79
5.03544 5.89
5.71209 5.97
7.37043 6.06
11.3546 6.28
13.5176 6.21
Source: Bernstein estimates.
As the chart above suggests, the yield on bonds normally increases with
maturity.
12
<PAGE>
But notice that the path is not a straight line: nearly 50% of the rise
typically occurs within the first two years; 80% occurs within six years. In our
view, the reason the yield curve is generally so steep at the short maturities
is that investors are willing to forgo considerable return in exchange for the
knowledge that their investments will mature within the next few months. This
preference for liquidity is most striking between three months and two years.
The yield curve is dependent upon the period of time analyzed, and there
may be periods of time during which longer-term maturities provide substantially
higher yields and other times when shorter-term securities offer higher yields.
Because of the characteristic shape of the yield curve, a disproportionate
share of the extra return that normally stems from lengthening the maturity of
fixed-income investments is expected to be earned in the first few years of the
lengthening process.
The relevance of this yield chart for the Bernstein Fixed-Income
Portfolios-both taxable and municipal-is that the Portfolios are relatively
short or intermediate in average duration. We believe the risk/reward tradeoff
at those average durations is more advantageous than at the two extremes-i.e.,
money-market instruments or long-term bonds. *
The table below shows the rates of return of Treasuries of varying
maturities over two time periods: a nearly 26-year period that included both
rising and falling interest-rate cycles, and the most recent 12 3/4 years, which
was a period of generally declining interest rates. Note that in both the
broader and the narrower time periods (1) short-term bonds (i.e., with two-year
maturities) outperformed Treasury bills, and (2) intermediate bonds provided
rates of return competitive with 30-year bonds, despite having a maturity only
one-fifth as long.
Treasury Total Returns
(Annualized)
<TABLE>
<CAPTION>
Treasury Short-term Intermediate- Long-term
Bills bonds term bonds bonds
(3 mos.) (2 yrs.) (6 yrs.) (30 yrs.)
<S> <C> <C> <C> <C>
Jan. 1970-Sept. 1995 7.4% 8.4% 9.2% 9.2%
Jan. 1983-Sept. 1995 6.8 8.4 10.6 11.5
</TABLE>
Note: The returns in this table were calculated by adding monthly income to the
month-end price and dividing this sum by the previous month-end price.
Source: Center for Research in Security Prices, Federal Reserve Board, The Wall
Street Journal, Salomon Brothers, Street Pricing Service and Bernstein.
*
In the examples that follow on pages __ and __ Treasury bills are 90-day bills,
short-term bonds are two-year bonds, intermediate-term bonds are six-year bonds,
and long-term bonds are 30-year bonds. The 90-day maturity has been chosen for
Treasury bills because it is representative of the interest-rate risk offered by
money market instruments. The two-year and six-year maturities have been chosen
for short- and intermediate-term bonds because their interest-rate risk
resembles that of the Bernstein short-duration and intermediate-duration
Portfolios. The 30-year maturity was selected because it is widely used by
market participants to represent the long end of the bond market.
13
<PAGE>
The other side of the investment equation is risk. As our earlier remarks
suggested, the principal source of risk in bond investing is interest-rate
change. The market value of a bond falls when interest rates rise and vice
versa. While maturity is somewhat indicative of interest-rate risk, duration is
a more accurate measure. The duration of a bond is defined to be the effect on
price of a rise (or fall) of 1% in interest rates. The Bernstein short duration
Portfolios generally have durations around 2.0 years and thus will lose about 2%
in principal should interest rates rise 1%. The Bernstein intermediate duration
Portfolios (the municipal Portfolios as well as Intermediate Duration) have
durations of about 5.0 years and would lose about 5% should interest rates rise
1%. In contrast, long-term bonds typically have durations of greater than 10
years and would thus lose more than 10% if interest rates were to rise 1%. As
the table below illustrates, the longer the bond's duration, whether it is a
Treasury, corporate or municipal bond, the greater its vulnerability to these
fluctuations.
Treasury securities always produce a positive return if held to maturity.
However, when interest rates rise sufficiently, the market value of a bond can
drop in a given year by more than the annual interest received. When this
happens, the total return is negative.
As the table below indicates, Treasury bills and short-term bonds have not
experienced a single negative total return over any 12-month period since 1970.
Intermediate-term bonds have been profitable more than 90% of the time, over
both the 1970-95 and 1983-95 periods. But long bonds declined in value by more
than their interest payments 21.8% of the time during the 1983-95 period and
24.2% of the time during the 1970-95 period. During those periods when the
return on these securities was negative, the average loss on intermediate bonds
was 2.7% and the average loss on long-term bonds was 5.0%.
Our goal is to optimize the tradeoff between risk and return. For the
reasons detailed above, we believe that short duration bonds will provide
superior returns to money-market instruments with only a slight increase in
risk. We also believe that intermediate bonds will produce virtually the same
returns as long bonds with less than half the risk. Bernstein's Fixed-Income
Portfolios are, accordingly, targeted to the short and intermediate durations
that maximize reward in relation to risk.
Bond Risk:
Change in Value Due to Interest-Rate Fluctuations
<TABLE>
<CAPTION>
Value of Value of
$100 Bond $100 Bond
If Rates If Rates
Rise 1% Fall 1%
<S> <C> <C>
Short-term bond (duration 1.8 yrs.) $98.16 $101.88
Intermediate-term bond (duration 5.0 yrs.) 95.17 105.13
Long-term bond (duration 13.5 yrs.) 87.53 115.45
</TABLE>
Note: Assumes initial yield and coupon of 6%.
14
<PAGE>
Frequency of Loss:
Percent of 12-Month Periods When Treasuries Had Negative Total Return
(Jan. 1970-Sept. 1995)
<TABLE>
<CAPTION>
Treasury Short-term Intermediate- Long-term
bills bonds term bonds bonds
(3 mos.) (2 yrs.) (6 yrs.) (30 yrs.)
<S> <C> <C> <C> <C>
Jan. 1970-Sept. 1995* 0.0% 0.0% 8.7% 24.2%
Jan. 1983-Sept. 1995** 0.0 0.0 9.9 21.8
</TABLE>
* Based on 298 overlapping 12-month periods.
** Based on 142 overlapping 12-month periods.
Source: Center for Research in Security Prices, Federal Reserve Board, The
Wall Street Journal, Salomon Brothers, Street Pricing Service and Bernstein.
Bernstein Fixed-Income Portfolios
<TABLE>
<CAPTION>
Frequency of
Negative Annual Rate of
Portfolio Principal Holdings* Total Return Income
- --------- ------------------- --------------- -------
<S> <C> <C> <C>
Bernstein High-grade, short-term, Extremely low Moderate
Short Duration tax-exempt, depending on
California Municipal California municipals tax bracket
Bernstein High-grade, short-term, Extremely low Moderate
Short Duration tax-exempt, geographically depending on
Diversified Municipal diversified municipals tax bracket
Bernstein High-grade, short-term, Extremely low Moderate
Short Duration tax-exempt, depending on
New York Municipal New York municipals tax bracket
Bernstein Government Short-term U.S. Extremely low Moderate
Short Duration Treasury and agency
securities
Bernstein Short High-grade, short-term Extremely low Moderate
Duration Plus securities
Bernstein New York High-grade, intermediate Low Moderate to
Municipal tax-exempt high, depending
New York municipals on tax bracket
15
<PAGE>
Bernstein California High-grade, intermediate, Low Moderate to
Municipal tax-exempt high, depending
California municipals on tax bracket
Bernstein Diversified High-grade, intermediate, Low Moderate to high,
Municipal geographically diversified, depending on
tax-exempt municipals tax bracket
Bernstein Intermediate High-grade, Low Moderate/high
Duration intermediate bonds
</TABLE>
*"Short-term" and "intermediate" refer to effective duration of the Portfolios
as described on pages ____ through ____.
Bernstein International Value Process
Why Invest in Foreign Stocks?
Americans' recognition of the opportunities available in foreign stocks has
increased dramatically in recent years for obvious reasons. Whereas 20 years ago
U.S. stocks represented 60% of the value of common stocks around the world,
today that percentage is less than 40% (Display 1). Moreover, the large public
companies with which we're most familiar are no longer American only. Toyota and
Honda loom as large in our consciousness today as Ford or Chrysler; Nestle is as
familiar as Hershey. Investing in the companies we know best-and whose products
fill our lives-now entails a certain commitment to non-U.S. stocks.
But the most important reason to expand one's stock investment horizon, in
Bernstein's judgment, is that a global approach provides genuine benefits of its
own. Foreign stock markets have performed well over meaningful recent periods,
returning even more as a group than the U.S. in the past 20 years (Display 2).
Yet-and this is the key factor-different countries' stock markets don't
necessarily follow the same rhythm. Foreign markets don't move in the same
direction at the same time, nor do foreign stocks as a group mirror U.S.-market
movements. Because the correlations among returns in the various markets are
modest, adding an international component to a domestic stock portfolio has
provided the risk-reduction benefits of diversification without any compromise
in return.
Display 3 illustrates just how unrelated the returns of the world's major
stock markets have been in recent years. Notice that Hong Kong stocks performed
better than the other countries in seven of the years since 1975-yet
underperformed the other countries in four of the years. Japan came in first
four times-and last four times. The U.S. scored highest in 1982-but lowest in
1978 and 1993. German stocks scored highest twice and lowest three times; the
United Kingdom, first three times, worst twice.
Yet observe in Display 4 what happens when all the major stock markets of
the world were combined in a single portfolio over this same period. The
horizontal axis here measures volatility of returns for the period; the vertical
axis here measures return. The better the investment, the higher and farther to
the left it appears on the chart.
16
<PAGE>
Display 1
World Stock-Market Value
[GRAPH]
U.S. Rest Of the World
--- -----------------
1970 60 40
1980 50 50
1994 36.4 63.6
Source: Standard & Poor's, Morgan Stanley Capital International, and Bernstein
16a
<PAGE>
Display 2
Compound Annual Rates of Returns: 1975-94
(in U.S. dollars)
[GRAPH]
Hong Kong 23.4%
U.K. 18.6%
Japan 17.1%
Singapore 17.7%
EAFE* 15.4%
U.S. 12.7%
Switzerland 14.4%
Australia 12.8%
Germany 12.5%
Canada 9.3%
*The Morgan Stanley Capital International EAFE index includes
stock markets in Europe, Australia and the Far East.
Source: Morgan Stanley Capital International and Bernstein
16b
<PAGE>
Display 3
Total Annual Returns (in U.S. Dollars)
[GRAPH]
<TABLE>
<CAPTION>
United Hong Singapore/
Germany Switzerland Kingdom Australia Kong Japan Malaysia Canada U.S. EAFE*
------- ----------- ------- --------- ---- ----- --------- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1975 28.72% 39.92% 111.09%** 48.18% 109.71% 19.36% 63.02% 14.44% 34.19% 29.63%
1976 5.77 9.33 (14.50) (11.37) 40.13** 25.14 13.45 9.10 21.87 (1.50)
1977 24.51 27.51 55.12** 10.30 (11.80) 15.39 5.40 (2.60) (9.30) 11.21
1978 24.25 20.63 12.27 20.23 17.81 52.76** 44.52 19.79 4.24 35.66
1979 (4.92) 11.17 19.63 42.00 82.66** (12.20) 28.09 51.31 12.52 7.64
1980 (11.99) (8.24) 37.17 52.74 71.86** 29.74 62.26 22.05 27.89 15.37
1981 (10.93) (10.54) (12.66) (24.79) (16.51) 15.46 18.02** (11.29) (5.71) (3.64)
1982 9.18 2.30 7.46 (23.72) (44.43) (0.85) (16.72) 1.19 20.00** (1.58)
1983 23.31 18.12 15.66 54.15** (2.83) 24.52 31.75 32.32 20.39 23.83
1984 (5.70) (11.95) 5.31 (13.68) 46.99** 16.84 (26.91) (8.42) 4.47 5.92
1985 135.19** 105.71 52.99 19.55 51.69 43.08 (22.18) 15.05 31.08 73.78
1986 35.28 33.36 26.95 42.29 56.12 99.41** 45.19 9.94 16.28 69.14
1987 (24.76) (9.43) 35.07 9.26 (4.10) 43.02** 2.27 13.90 2.91 10.11
1988 20.58 6.16 5.95 36.39** 28.10 35.40 33.32 17.09 14.62 26.68
1989 46.28** 26.21 21.86 9.32 8.41 1.73 42.27 24.31 30.00 20.62
1990 (9.36) (6.23) 10.28** (17.54) 9.17 (36.10) (11.67) (12.99) (3.14) (17.64)
1991 8.15 15.77 16.03 33.63 49.50** 8.93 24.96 11.09 30.07 10.71
1992 (10.29) 17.25 (3.66) (10.82) 32.30** (21.43) 8.19 (12.16) 6.41 (9.65)
1993 35.60 45.80 24.40 35.20 116.70** 25.50 68.00 17.60 10.10 33.49
1994 4.67 3.54 (1.64) 5.40 (28.91) 21.43** 6.68 (3.04) 1.35 7.63
<CAPTION>
Cumulative Annualized Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1975-94 12.49% 14.35% 18.56% 12.83% 23.36% 17.07% 17.69% 9.32% 12.71% 15.36%
</TABLE>
*Morgan Stanley Capital International EAFE index includes stock markets in
Europe, Australia and the Far East.
**Best performing country for each year.
Source: Morgan Stanley Capital International and Bernstein. Figures are U.S.
dollar-based, GDP-weighted and net dividend.
16c
<PAGE>
Display 4
Risk/Reward Positions: 1975-94
(based on monthly returns)
[GRAPH]
Return(%) Risk(%)
--------- -------
(in U.S. dollars)
Australia 12.83% 26.95%
U.S. 12.71% 14.94%
U.K. 18.57% 24.79%
Singapore 17.59% 28.49%
Japan 17.06% 23.03%
Switzerland 14.35% 18.91%
Canada 9.32% 19.40%
EAFE 15.37% 16.54%
Germany 12.48% 21.12%
Hong Kong 23.36% 34.11%
80% U.S./20% EAFE 13.47% 13.88%
* Return and risk for EAFE based on quarterly data
Note: Returns and standard deviations for EAFE and U.S./EAFE mix are computed
from natural log of observed monthly returns.
Source: Morgan Stanley Capital International, Ibbotson and Bernstein
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Clearly, most foreign markets by themselves were extremely volatile during
this period, while the U.S. market-less volatile than the others-was on the low
side for return. If you invested 20% in a mixed basket of foreign stocks (as the
Portfolio will do) and the remaining 80% in domestic stocks (through other
investments)-the spot marked "80% U.S./20% EAFE" on the chart-your risk/reward
profile was superior to that of any of these countries by themselves, the U.S.
included.
It is important to note that the above discussion of risks reflects the
benefits produced by international diversification over the long run. However,
in any given year, international diversification may result in reduced portfolio
returns and/or higher volatilities.
The displays above on U.S. and foreign stock-market returns
should not be viewed as representations of future returns from U.S. or
international stock markets or the International Value Portfolio. The
illustrated returns represent historical investment performance and relative
volatilities, which may not be representative of future returns and
volatilities. Also, stock- market indexes are based on unmanaged portfolios of
securities before transaction costs and other expenses; managed portfolios will
incur these costs. Finally, the Portfolio is likely to differ in composition
from broad stock- market indexes, and so the Portfolio's performance should not
be expected to mirror the returns provided by any specific index.
The Bernstein Process
The return of an international portfolio to a U.S. investor depends on
three factors: (1) how the various foreign markets perform in a given period,
(2) what happens to foreign currencies in relation to the dollar during the
period and (3) what strategies the investment manager may employ in an attempt
to control risk and increase return. We at Bernstein employ active management in
all three areas, following a value-oriented investment approach backed by
extensive research capability.
Value-Based Stock Selection
The bulk of our efforts are directed to stock selection. Our value-oriented
approach in foreign markets rests on our understanding that:
o The markets are inefficient. Stocks often sell for more or less than
their intrinsic value because of emotional overreactions among investors.
o Investment value depends on price. It's not just what you get when you
invest, but what you pay for it, that determines your return.
o High-quality research is required. It takes rigorous research to
capitalize on market inefficiencies--research focused on estimating
intrinsic value for a broad universe of
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stocks, using the same tools, techniques and economic assumptions in
forecasting for each stock so that comparisons will be sound.
o Value investing is a long-term pursuit. Around the world, as in the
U.S., stock prices are unpredictable in the short term; the benefits of
stock investing arecaptured more reliably over longer periods. As
master investor Benjamin Graham put it, the stock market is a voting
machine in the short run, a weighing machine in the long run.
Research-Backed Decision Making
Our research analyses are fundamental and bottom-up: our decisions are
based largely on our findings on specific companies and industries rather than
on forecasting broad economic scenarios. Our research indicates that undervalued
stocks as a class-those with low price/earnings and price/book-value ratios and
high dividend yields-have outperformed their home markets in major foreign
markets, just as in the United States. On reflection this seems logical:
American investors have no monopoly on emotional overreaction to short-term
difficulties in companies and industries.
In order to attempt to capture the return potential and diversification
benefits of foreign markets, Bernstein's International Value Portfolio
concentrates in the most established companies of the major European and Far
Eastern nations plus Australia-the countries of the Morgan Stanley Capital
International "EAFE" index-and Canada, although this Portfolio may also invest
in less developed countries or emerging equity markets. Investment decision
making for the Portfolio is systematic and centralized, pursued by an investment
policy group working in concert, and guided by the findings of our global equity
research staff.
In addition to specific stock selection, we employ country-allocation and
currency-management techniques:
Country allocation: We monitor the levels of stock prices in relation to
local market conditions in the major foreign markets, seeking out instances when
relationships deviate from normal. When and where stock prices are abnormally
low in relation to local conditions, we may overweight a country's stocks in our
Portfolio relative to our usual system of apportioning investment. When
opportunities appear smaller than usual-when stock prices are abnormally high-we
may underweight a country's stocks.
Currency management: Similarly, we seek to control risk through
currency-management techniques. We monitor factors including the balance of
trade flows and interest-rate differentials in all the nations in which the
Portfolio invests to determine the fair values of the various currencies and
identify under- and overvaluations as they occur. The findings are accounted for
in our investment decisions.
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Investment Objectives and Policies Of the Portfolios
Investment Objectives and Policies
Of the Fixed-Income Portfolios
General Investment Policies
Each Fixed-Income Portfolio evaluates a wide variety of instruments and
issuers, utilizing a variety of internally developed, quantitatively based
valuation techniques. Each of the Fixed-Income Portfolios may invest in any of
the securities detailed on pages ____-____. In addition, each of the
Fixed-Income Portfolios may use any of the special investment techniques, some
of which are commonly called derivatives, described on pages ____-____ to hedge
various market risks (such as interest rates, currency exchange rates, and broad
or security-specific changes in the prices of fixed-income securities), to
manage the effective maturity or duration of fixed-income securities, to exploit
mispricings in the securities markets, or as an alternative to activities in the
underlying cash markets. Except for those policies and objectives of each
Portfolio that are described in the Prospectus or SAI as fundamental, the
investment policies and objectives of each Portfolio may be changed by the
Fund's Board of Directors without shareholder approval. If there is a change in
investment policy or objective, shareholders should consider whether the
Portfolio remains an appropriate investment in light of their then-current
financial position and needs. There is no assurance that any Portfolio will
achieve its investment objective.
None of the Fixed-Income Portfolios will purchase any security if
immediately after that purchase less than 80% of the Portfolio's total assets
would consist of securities or commercial paper rated A or higher by Standard &
Poor's Corporation ("Standard & Poor's"), Fitch Investors Service, Inc.
("Fitch") or Moody's Investors Service, Inc. ("Moody's"), SP-1 by Standard &
Poor's, F-1 by Fitch, or MIG 1 or VMIG 1 by Moody's, A-1 by Standard & Poor's,
or P-1 by Moody's; or of securities and commercial paper that are not rated but
that are determined by the Manager to be of comparable quality. In addition,
none of the Fixed-Income Portfolios will purchase a security or commercial paper
rated less than B by Standard & Poor's, Fitch or Moody's, less than A-2 or SP-2
by Standard & Poor's, less than F-2 by Fitch, or less than P-2, MIG 2 or VMIG 2
by Moody's, or securities and commercial paper that are not rated but that are
determined by the Manager to be of comparably poor quality. In the event of
differing ratings, the higher rating shall apply. The impact of changing
economic conditions, investment risk and changing interest rates is increased by
investing in securities rated below A by Standard & Poor's, Fitch or Moody's,
below SP-1 or A-1 by Standard & Poor's, below F-1 by Fitch, or below MIG 1, VMIG
1 or P-1 by Moody's. In addition, the secondary trading market for lower-rated
bonds may be less liquid than the market for higher-grade bonds. Accordingly,
lower-rated bonds may be difficult to value accurately. Securities rated BBB by
Standard & Poor's and Fitch or Baa by Moody's are investment grade. Securities
that are rated BB or B by Standard & Poor's and Fitch, or Ba or B by Moody's are
considered to be speculative with regard to the payment of interest and
principal. Each Fixed-Income Portfolio, at the time of purchase, may invest as
much as 20%
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of its total assets in securities of foreign issuers, including Eurobonds,
Yankees and obligations of foreign banks that are securities of foreign issuers,
including foreign governments.
No Fixed-Income Portfolio (other than the Short Duration Municipal
Portfolios) will invest in an illiquid security if, at the time of purchase, the
value of such illiquid security together with other securities that are not
readily marketable would exceed 10% of the net assets of the Portfolio. No Short
Duration Municipal Portfolio will invest in an illiquid security if, at the time
of purchase, the value of such illiquid security together with other securities
that are not readily marketable would exceed 15% of the net assets of the
Portfolio.
In addition to these policies, which govern all Fixed-Income Portfolios,
individual Portfolios have individual policies, discussed hereafter, pertaining
to the minimum ratings and types of investments permitted, as well as the
effective duration and average maturity of the Portfolio. Effective duration, a
statistic that is expressed in time periods, is a measure of the exposure of the
Portfolio to changes in interest rates. Unlike maturity, which is the latest
possible date for the final payment to be received from a bond, effective
duration is a measure of the timing of all the expected interest and principal
payments. The actual duration of each of the Fixed-Income Portfolios may vary,
depending on the Manager's interest-rate forecast. When interest rates are
expected to rise, the duration is shortened. When interest rates are expected to
fall, the duration is lengthened.
The maturity composition of each of the Fixed-Income Portfolios may also
vary, depending upon the shape of the yield curve and opportunities in the bond
market, at times being concentrated in the middle part of the targeted range,
while at other times consisting of a greater amount of securities with
maturities that are shorter and others that are longer than the targeted range.
Generally, the value of debt securities changes as the general level of
interest rates fluctuates. During periods of rising interest rates, the values
of fixed-income securities generally decline. Conversely, during periods of
falling interest rates, the values of these securities nearly always increase.
Generally, the longer the maturity or effective duration, the greater the
sensitivity of the price of a fixed-income security to any given change in
interest rates. The value of each Portfolio's shares fluctuates with the value
of its investments.
Individual Portfolios' Policies
The Short Duration Taxable Portfolios
The Bernstein Government Short Duration Portfolio invests in a diversified
portfolio of securities that it believes offer the highest expected returns to
investors consistent with a prudent level of credit risk. This Portfolio intends
to invest, under normal market conditions, at least 65% of its total assets in
U.S. government and agency securities. In addition, the Portfolio intends to
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<PAGE>
invest, under normal market conditions, at least 90% of its total assets in U.S.
government and agency securities and high-quality money-market securities-i.e.,
securities with remaining maturities of one year or less that have been rated AA
or better by Standard & Poor's or Aa by Moody's, or that are not rated but that
are determined by the Manager to be of comparable quality. Shareholders'
investments in this Portfolio are not insured by the U.S. government. To the
extent that this Portfolio is invested in government securities, its income is
generally not subject to state and local income taxation. Certain states allow a
pass-through to the individual shareholders of the tax-exempt character of this
income for purposes of those states' taxes.
The Bernstein Government Short Duration Portfolio will purchase only
securities rated A or better by Standard & Poor's, Fitch or Moody's, commercial
paper rated A-1 by Standard & Poor's, F-2 by Fitch or P-1 by Moody's, or
securities and commercial paper that are not rated but that are determined by
the Manager to be of comparable quality.
Since this Portfolio is invested in securities with longer maturities than
the assets of the type of mutual fund known as a money-market mutual fund, its
expected return is somewhat higher. However, since its effective duration is
longer, and the quality of the portfolio securities may be lower, the risk of a
decline in the market value of the Portfolio is also greater than for a
money-market fund that seeks to maintain a stable net asset value.
Although the actual maturities of the securities in the Portfolio may vary
widely, the Portfolio intends to maintain an effective duration of one to three
years under normal market conditions. The average dollar-weighted maturity of
the Portfolio may range from one to 20 years while maintaining the required
duration. The relatively short-term nature of the Portfolio makes it appropriate
for consideration as a temporary investment.
The pretax returns on the Bernstein Government Short Duration Portfolio are
likely to be lower than those on the Bernstein Short Duration Plus Portfolio.
Since the income earned by the Bernstein Government Short Duration Portfolio is
generally exempt from state and local taxes, it may not be appropriate for
investors, such as pension plans and IRAs, that are not subject to current state
or local income taxation. Shareholders may wish to consult a tax adviser about
the status of distributions from the Portfolios in their individual states or
localities.
The Bernstein Short Duration Plus Portfolio invests in a diversified
portfolio of securities that it believes offer the highest expected returns to
investors consistent with a prudent level of credit risk. The Bernstein Short
Duration Plus Portfolio should produce higher returns than the Bernstein
Government Short Duration Portfolio because it will normally own a much higher
percentage of securities that are not U.S. government securities. Because the
Bernstein Short Duration Plus Portfolio is managed without regard to potential
tax consequences, it may be particularly appropriate for investors, such as
pension plans and IRAs, that are not subject to current income taxation, as well
as individuals who reside in states with low or no state taxes or
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who reside in high-tax states that do not permit a pass-through to the
individual shareholder of the tax-exempt character of this income.
Like the Government Short Duration Portfolio, the Short Duration Plus
Portfolio is invested in securities with longer maturities than the assets of
the type of mutual fund known as a money-market mutual fund, and its expected
return is somewhat higher. Although the actual maturities of the securities in
the Portfolio may vary widely, the effective duration of this Portfolio-which is
expected to be one to three years under normal market conditions-is longer than
the effective duration of money markets. The average dollar-weighted maturity of
the Portfolio may range from one to 25 years while maintaining the required
duration. Since the effective duration of this Portfolio is longer, and the
quality of the portfolio securities may be lower, the risk of a decline in the
market value of the Portfolio is greater than for a money-market fund that seeks
to maintain a stable net asset value. The relatively short-term nature of the
Portfolio makes it appropriate for consideration as a temporary investment.
The Intermediate Duration Taxable Portfolio
**1 The Bernstein Intermediate Duration Portfolio invests in a diversified
portfolio of securities that it believes offers the highest expected return
consistent with a prudent level of risk. While the actual maturities of the
securities in the Portfolio may vary widely, the Portfolio intends to maintain
an effective duration of three to six years under normal market conditions. The
average dollar-weighted maturity of the Portfolio may range from two to 25 years
while maintaining the required duration. The Portfolio will not purchase any
security if immediately after that purchase less than 65% of the Portfolio's
total assets would consist of securities rated AA or higher by Standard & Poor's
or Aa or higher by Moody's or of securities that are not rated but that are
determined by the Manager to be of comparable quality.
**2 Because the Bernstein Intermediate Duration Portfolio is managed
without regard to potential tax consequences to the shareholder, it may be
particularly appropriate for investors, such as pension plans and IRAs, not
subject to current federal income taxation.
The Municipal Portfolios
As a fundamental policy, each of the six municipal Portfolios will invest,
under normal market conditions, at least 80% of its net assets in Municipal
Securities. "Municipal Securities" are securities issued by states and their
various political subdivisions along with agencies and instrumentalities of
states and their various political subdivisions and by possessions and
territories of the United States, such as Puerto Rico, the Virgin Islands and
Guam and their various political subdivisions. The income from these securities
is exempt from federal taxation or, in certain instances, may be includable in
income subject to the alternative minimum tax.
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In addition to Municipal Securities, each municipal Portfolio may invest in
non-municipal securities when, in the opinion of the Manager, the inclusion of
the non-municipal security will enhance the expected after-tax return of the
Portfolio in accordance with the Portfolio's objectives.
The Short Duration Municipal Portfolios. Since the Short Duration Municipal
Portfolios are invested in securities with longer maturities than the assets of
the type of mutual fund known as a municipal money-market mutual fund, their
expected return is somewhat higher. However, since their effective duration is
longer, and the quality of the Portfolio securities may be lower, the risk of a
decline in the market value of the Portfolio is also greater than for a
municipal money-market fund that seeks to maintain a stable net asset value.
While the maturities of the securities in each Short Duration Municipal
Portfolio may vary widely, each Portfolio is designed generally to maintain an
effective duration of from one-half year to two and one-half years under normal
market conditions. The average dollar-weighted maturity of each Short Duration
Municipal Portfolio may range from six months to 20 years while maintaining the
required duration. The relatively short-term nature of the Portfolios makes them
appropriate for consideration as a temporary investment.
The Intermediate Duration Municipal Portfolios. While the maturities of the
securities in each of the Bernstein New York Municipal Portfolio, the Bernstein
California Municipal Portfolio and the Bernstein Diversified Municipal Portfolio
(the "Intermediate Duration Municipal Portfolios") may vary widely, each
Intermediate Duration Municipal Portfolio is designed generally to maintain a
level of risk comparable to that of an intermediate portfolio of securities with
an average effective duration of four to seven years. The average
dollar-weighted maturity of each municipal Portfolio may range from two to 25
years while maintaining the required duration.
The New York Municipal Portfolios
The Bernstein Short Duration New York Municipal Portfolio and the Bernstein
New York Municipal Portfolio. Each of the Bernstein Short Duration New York
Municipal Portfolio and the Bernstein New York Municipal Portfolio (the "New
York Municipal Portfolios") invests in those securities which it believes offer
the highest after-tax returns for New York residents (without regard to any
alternative minimum tax) consistent with a prudent level of credit risk. Each
New York Municipal Portfolio will invest, under normal market conditions, at
least 65% of its total assets in securities issued by New York State and its
various political subdivisions along with agencies and instrumentalities of New
York State and its various political subdivisions ("New York Municipal
Securities"). The income from these securities is exempt from federal, New York
State and local taxes or, in certain instances, may be includable in income
subject to the alternative minimum tax.
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Each New York Municipal Portfolio is a non-diversified portfolio under the
Investment Company Act of 1940 (the "1940 Act"). Nonetheless, the Fund intends
to qualify each New York Municipal Portfolio, like each of the other Portfolios,
as a "regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended. This will require, at the close of each quarter of each fiscal
year, that at least 50% of the market value of each New York Municipal
Portfolio's total assets be represented by cash, cash items, U.S. government
securities and other securities limited, in respect to any one issuer, to an
amount no greater than 5% of such Portfolio's total assets, and that each New
York Municipal Portfolio invest no more than 25% of the value of its total
assets in the securities of any one issuer (other than the U.S. government). If
either New York Municipal Portfolio's assets consist of the securities of a
small number of issuers, any change in the market's assessment, or in the
financial condition, of any one of those issuers could have a significant impact
on the performance of such Portfolio.
Because each New York Municipal Portfolio invests primarily in New York
Municipal Securities, each Portfolio's performance is closely tied to economic
conditions within the State of New York and the financial condition of the State
and its agencies and municipalities. The following information concerning the
State's economic background is contained in the Annual Information Statement of
the State of New York dated June 23, 1995 and the update to the Annual
Information Statement dated October 27, 1995, which is part of an Official
Statement dated December 1, 1995 relating to the sale of $195,060,000 State of
New York Certificates of Participation.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
New York City (the "City") has also had to face greater competition as other
major cities have developed financial and business capabilities that make them
less dependent on the specialized services traditionally available almost
exclusively in the City.
The national economy began to expand in 1991, and has added over 7 million
jobs since early 1992. However, the recession lasted longer in the State and
the State's economic recovery has lagged behind the nation's.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors have created
structural budget gaps for the State. These gaps resulted from a significant
disparity between recurring revenues and the costs of maintaining or increasing
the level of support for State programs.
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The State reported a General Fund operating deficit of $1.426 billion for
the 1994-95 fiscal year, as compared to an operating surplus of $914 million for
the prior fiscal year. In his Executive Budget, the Governor indicated that in
the 1995-96 fiscal year, the State Financial Plan, based on then-current law
governing spending and revenues, would be out of balance by almost $4.7 billion,
as a result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of unfunded
1994-95 initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts, to
spur economic growth and provide relief for low and middle-income taxpayers,
which were larger than those ultimately adopted, and which added $240 million to
the then projected imbalance or budget gap, bringing the total to approximately
$5 billion.
On October 2, 1995, the State Comptroller released a report in which he
identified several risks to the State Financial Plan and reaffirmed his estimate
that the State faces a potential imbalance in receipts and disbursements of at
least $2.7 billion for the State's 1996-97 fiscal year and at least $3.9 billion
for the State's 1997-98 fiscal year.
A significant risk to the 1995-96 State Financial Plan arises from tax
legislation pending in Congress. Changes to federal tax treatment of capital
gains are likely to flow through automatically to the State personal income
tax. Such changes, depending upon their precise character and timing, and upon
taxpayer response, could produce either revenue gains or losses during the
balance of the State's fiscal year.
The major uncertainties in the 1995-96 State Financial Plan continue to be
those related to the economy and tax collections, which could produce either
favorable or unfavorable variances during the balance of the year. While
adjustments to the forecast have been made to reflect recent economic events, it
is possible that poor productivity growth or weak consumer spending could result
in sluggish economic growth and further deterioration in State receipts.
Uncertainties with regard to both the economy and potential decisions at
the federal level add further pressure on future budget balance in New York
State. Specific budget proposals being discussed at the federal level but not
included in the State's current economic forecast would (if enacted) have a
disproportionately negative impact on the longer-term outlook for the State's
economy as compared to other states.
The fiscal health of the State may also be impacted by the fiscal health of
the City, which has required and continues to require significant financial
assistance from the State. The City depends on State aid both to enable the City
to balance its budget and to meet its cash requirements. The City's projections
set forth in the City's Financial Plan are based on
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various assumptions and contingencies, some of which are uncertain and may not
materialize. Unforeseen developments and changes in major assumptions could
significantly affect the City's ability to balance its budget as required by
State law and to meet its annual cash flow and financing requirements. The State
could be affected by the ability of the City and certain Covered Organizations
(i.e., those which receive or may receive moneys from the City directly,
indirectly or contingently) to market their securities successfully in the
public credit markets. Future developments concerning the City or certain of the
Covered Organizations, and public discussion of such developments, as well as
prevailing market conditions and securities credit ratings, may affect the
ability or cost to sell securities issued by the City or such Covered
Organizations and may also affect the market for their outstanding securities.
Further discussion of the risks associated with the purchase of New York
issues is contained in the SAI.
The New York Municipal Portfolios are not appropriate for tax-exempt
investors. Moreover, because the New York Municipal Portfolios seek income
exempt from New York State and local taxes as well as federal income tax, such
Portfolios may not be appropriate for taxable investors, such as non-New York
State residents, who are not subject to New York State income taxes.
Shareholders may wish to consult a tax adviser about the status of distributions
from the Portfolios in their individual states or localities.
The California Municipal Portfolios
The Bernstein Short Duration California Municipal Portfolio and the
Bernstein California Municipal Portfolio. Each of the Bernstein Short Duration
California Municipal Portfolio and the Bernstein California Municipal Portfolio
(the "California Municipal Portfolios") invests in those securities which it
believes offer the highest after-tax returns for California residents (without
regard to any alternative minimum tax) consistent with a prudent level of credit
risk. Each California Municipal Portfolio will invest, under normal market
conditions, at least 65% of its total assets in securities issued by the State
of California and its various political subdivisions, along with agencies and
instrumentalities of the State of California and its various political
subdivisions ("California Municipal Securities"). The income from these
securities is exempt from federal and California personal income taxes but, in
certain instances, may be includable in income subject to the alternative
minimum tax.
Each California Municipal Portfolio is a non-diversified portfolio under
the 1940 Act. Nonetheless, the Fund intends to qualify each California Municipal
Portfolio as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended. This will require, at the close of each
quarter of each fiscal year, that at least 50% of the market value of each
California Municipal Portfolio's total assets be represented by cash, cash
items, U.S. government securities and other securities limited, in respect to
any one issuer, to an amount no
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greater than 5% of such Portfolio's total assets, and that each California
Municipal Portfolio invest no more than 25% of the value of its total assets in
the securities of any one issuer (other than the U.S. government). If either
California Municipal Portfolio's assets consist of the securities of a small
number of issuers, any change in the market's assessment, or in the financial
condition, of any one of those issuers could have a significant impact on the
performance of such Portfolio.
Because each California Municipal Portfolio invests primarily in California
Municipal Securities, each such Portfolio's performance is closely tied to
economic conditions within the State of California and the financial condition
of the State and its agencies and municipalities. The following information
regarding the State is contained in an Official Statement dated October 1, 1995,
issued in connection with the sale of $380 million of California Various Purpose
General Obligation Bonds and $81,095,000 Various Purpose General Obligation
Refunding Bonds.
California's economy is the largest among the 50 states and one of the
largest in the world. Starting in mid-1990, the State entered a sustained
economic recession, somewhat later than the rest of the nation. It was the most
severe recession in the State since the 1930's. Although a steady recovery has
been underway since 1994, pre-recession employment levels are not expected to be
reached until later in the decade. The State's budget problems in recent years
have also been caused by a structural imbalance in that the largest General Fund
Programs -- K-14, education, health, welfare and corrections -- were increasing
faster than the revenue base, driven by the State's rapid population growth. As
a result of these factors and others, from the late 1980's until 1992-93, the
State had a period of budget imbalance. During this period, expenditures
exceeded revenues in four out of the six years, and the State accumulated and
sustained a budget deficit in the Special Fund for Economic Uncertainties
approaching $2.8 billion at its peak at June 30, 1993.
The 1994-95 Fiscal Year represented the fourth consecutive year the
Governor and Legislature were faced with a very difficult budget environment to
produce a balanced budget. The 1994-95 Budget Act was signed by the Governor on
July 8, 1994. The State Controller's "October Trigger Report", a report that
reviewed the estimated cash condition of the General Fund for the 1995-96 Fiscal
Year, while finding no need to impose automatic budget cuts, noted a number of
areas where there was likely to be a divergence from the original budget
estimates. On the positive side, the State Controller noted that improving
economic conditions were leading to improved cash receipts. On the negative
side, the State Controller's Report estimated that federal actions to allow
health and welfare cuts and to reimburse the State for illegal immigrant costs
were not likely to provide as much money as had been planned, and that
Proposition 98 expenditures for K-14 schools had been underestimated. In
addition, the State Controller reported that an annual review of internal
borrowable resources resulted in a $705 million increase of estimated available
internal borrowable resources. In total, therefore, the State Controller
estimated that the
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State's cash position on June 30, 1996 would be about $500 million worse than
the estimate of $1.9 billion of available internal cash resources included in
the original budget, but still large enough to avoid cuts under the Budget
Adjustment Law.
On December 6, 1994, Orange County, California (the "County"), together
with its pooled investment funds (the "Pools") filed for protection under
Chapter 9 of the federal Bankruptcy Code, after reports that the Pools had
suffered significant market losses in their investments, causing a liquidity
crisis for the Pools and the County. More than 180 other public entities, most
of which, but not all, are located in the County, were also depositors in the
Pools. The County has reported the Pools' loss at about $1.69 billion, or about
23 percent of their initial deposits of approximately $7.5 billion. Many of the
entities which deposited moneys in the Pools, including the County, faced
interim and/or extended cash flow difficulties because of the bankruptcy filing
and may be required to reduce programs or capital projects.
Further discussion of the risks associated with the purchase of California
Municipal Securities is contained in the SAI.
The California Municipal Portfolios are not appropriate for tax-exempt
investors. Moreover, because the California Municipal Portfolios seek income
exempt from California personal income taxes as well as federal income tax, the
California Municipal Portfolios may not be appropriate for taxable investors,
such as non-California residents, who are not subject to California personal
income taxes. Shareholders may wish to consult a tax adviser about the status of
distributions from the Portfolio in their individual states or localities.
The Diversified Municipal Portfolios
The Bernstein Short Duration Diversified Municipal Portfolio and the
Bernstein Diversified Municipal Portfolio. Each of the Bernstein Short Duration
Diversified Municipal Portfolio and the Bernstein Diversified Municipal
Portfolio (the "Diversified Municipal Portfolios") invests in a diversified
portfolio of securities which it believes offers the highest after-tax returns
(without regard to any alternative minimum tax) to investors consistent with a
prudent level of credit risk. No Diversified Municipal Portfolio will purchase a
security if such purchase would result in the Portfolio, at the time of such
purchase, having more than 25% of its total assets in Municipal Securities of
issuers located in any one state. Neither Diversified Municipal Portfolio is
appropriate for tax-exempt investors under normal market conditions.
Investment Objectives and Policies
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Of the International Value Portfolio
The Bernstein International Value Portfolio seeks long-term capital growth
on a total-return basis (capital appreciation or depreciation plus dividends and
interest). The Portfolio will invest primarily in equity securities of
established foreign companies, as described on page _____.
The Portfolio will invest in a diversified portfolio of securities that the
Manager considers most undervalued. The Portfolio intends to diversify
investments among many foreign countries; it will generally be invested in
countries that comprise the EAFE Index (Europe, Australia and the Far East) and
Canada. EAFE countries currently include Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the
United Kingdom. The Portfolio may also make investments in less developed or
emerging equity markets. Shareholders should be aware that investing in less
developed or emerging markets involves exposure to economic structures that are
generally less diverse and mature, and to political systems that can be expected
to have less stability than those of developed countries.
Under normal market conditions, at least 65% of the Portfolio's total
assets will be invested in at least three foreign countries. Under exceptional
conditions abroad or when the Manager believes that economic or market
conditions warrant, the Portfolio may temporarily, for defensive purposes,
invest part or all of its portfolio in U.S. government obligations or debt or
equity securities of U.S. issuers. The Portfolio may invest in fixed-income
securities and enter into foreign currency exchange contracts and options on
foreign currencies and it may utilize options on securities and securities
indexes and futures contracts and options on futures. See the sections on
"Investments" and "Special Investment Techniques" on pages _____-_____. The
International Value Portfolio will not invest more than 5% of its total assets
in restricted securities (other than securities eligible for resale under Rule
144A of the Securities Act of 1933). In addition, the International Value
Portfolio will not invest in an illiquid security if, at the time of purchase,
the value of such illiquid security together with other securities that are not
readily marketable would exceed 15% of the net assets of the Portfolio.
The above policies and objectives are not fundamental and may be changed by
the Fund's Board of Directors without shareholder approval. If there is a change
in investment policy or objective, shareholders should consider whether the
Portfolio remains an appropriate investment in light of their then-current
financial position and needs.
The International Value Portfolio has adopted certain fundamental
investment limitations. As a fundamental policy, the International Value
Portfolio will not:
(a) with respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer if, as a result of the
purchase, less than 75% of the
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International Value Portfolio's assets
consists of cash and cash items, Government securities, securities of
other investment companies and other securities, limited, in respect of
any one issuer, to an amount not greater in value than 5% of the value
of the International Value Portfolio's total assets and to not more
than 10% of the outstanding voting securities of such issuer;
(b) invest more than 25% of its total assets in any one industry; or
(c) borrow money except that the International Value Portfolio may
borrow money for temporary or emergency purposes in an amount not
exceeding 33% of its total assets. As an operating (not a fundamental)
policy, the Portfolio will not borrow except from a bank for temporary
or emergency purposes in amounts in excess of 5% of its total assets.
The SAI contains certain investment restrictions pertaining to the
International Value Portfolio and the Fixed-Income Portfolios.
The Portfolio may invest uncommitted cash balances in fixed-income
securities. Fixed-income securities may also be held to maintain liquidity to
meet shareholder redemptions, and, although the situation occurs infrequently,
these securities may be held in place of equities when the Manager believes that
fixed-income securities will provide total returns comparable to or better than
those of equity securities. Fixed-income securities include obligations of the
U.S. or foreign governments and their political subdivisions; obligations of
agencies and instrumentalities of the U.S. government; and bonds, debentures,
notes, commercial paper, bank certificates of deposit, repurchase agreements and
other similar corporate debt instruments of U.S. or foreign issuers that at the
time of purchase are rated BBB, A-2, SP-2 or higher by S&P, or Baa, P-2 or
higher by Moody's, or, if unrated, are in the Manager's opinion comparable in
quality. Securities that are rated BBB, A-2 or SP-2 by S&P or Baa or P-2 by
Moody's are investment grade (for a description of these rating categories, see
the Appendix to the SAI). These securities may have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher-rated securities. Bonds with investment grade ratings at time
of purchase may be retained, in the Manager's discretion, in the event of a
rating reduction. Under exceptional conditions abroad, or when it is believed
that economic or market conditions warrant, the Portfolio may temporarily, for
defensive purposes, invest all of its portfolio in fixed-income obligations of
the U.S. government or fixed-income or equity securities of U.S. issuers.
Investment Risks Of the Bernstein
International Value Portfolio
Market risk: Since it invests primarily in equity securities, the
Portfolio, like any equity portfolio, is vulnerable to market risk: the
possibility that stock prices in general will decline over
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short or even extended periods. Moreover, the Portfolio's composition is likely
to differ from that of broad market indexes, and its performance should not be
expected to mirror the returns provided by a specific index. Stock prices are
volatile from year to year; accordingly, the Portfolio is suited to investors
who are willing to hold their investment over a long horizon.
Foreign currency risk: Returns on foreign securities are influenced by
currency risk as well as equity risk. Foreign securities are denominated in
foreign currencies, which may change in value in relation to the U.S. dollar,
possibly for protracted periods of time. When a foreign currency rises against
the U.S. dollar, the returns on foreign stocks for a U.S. investor will also
rise; when a foreign currency declines in value in relation to the U.S. dollar,
the returns on foreign stocks for a U.S. investor will also fall. In addition,
it is possible that foreign governments will impose currency exchange control
regulations or other restrictions that would prevent cash from being brought
back to the U.S.
Other risks: Other risks and considerations of international investing
include the availability of less public information with respect to issuers of
securities; less governmental supervision of foreign brokers and issuers of
securities; lack of uniform accounting, auditing and financial reporting
standards; a generally lower degree of market volume and liquidity than that
available in U.S. markets, which may result in greater price volatility;
settlement practices that may include delays and otherwise differ from those in
U.S. markets; the possibility of expropriation or confiscatory taxation; the
imposition of foreign taxes; and possible political instability in some
countries, which could affect U.S. investment in these countries. Investments in
foreign securities will also result in generally higher expenses due to the
costs of currency exchange; payment of fixed brokerage commissions on certain
foreign exchanges, which generally are higher than commissions on U.S.
exchanges; and the expense of maintaining securities with foreign custodians.
Investments
The Fixed-Income Portfolios will primarily be invested in debt securities,
including, subject to each Portfolio's general investment policies described on
pages _____-_____, but not limited to: (i) obligations issued or guaranteed as
to principal and interest by the U.S. government or the agencies or
instrumentalities thereof; (ii) obligations of Supranational Agencies; (iii)
straight and convertible corporate bonds and notes, including securities of
foreign and U.S. issuers payable in U.S. dollars and issued outside the U.S.
("Eurobonds") or securities of foreign issuers payable in U.S. dollars issued
inside the U.S. ("Yankees"); (iv) loan participations; (v) commercial paper;
(vi) obligations (including certificates of deposit, time deposits and bankers'
acceptances) of U.S. thrift institutions, U.S. commercial banks (including
foreign branches of such banks), and foreign banks (including U.S. branches of
such banks); (vii) mortgage-related securities; (viii) asset-backed securities;
(ix) Municipal Securities, or other securities issued by state and local
government agencies, the income on which may or may not be tax-exempt; (x)
guaranteed investment contracts; (xi) variable and floating rate securities;
(xii) private placements;
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(xiii) preferred stock; and (xiv) foreign securities. From time to time,
additional fixed-income securities are developed. They will be considered for
purchase by the Portfolios. The International Value Portfolio will invest
primarily in foreign equity securities, but may, under the circumstances
described in the "Investment Objectives and Policies" section, pages ____-____,
invest in fixed-income securities. Of course, the extent to which each of the
Portfolios emphasizes each of the categories of investment described depends
upon the investment objectives and restrictions of that Portfolio.
Obligations Of the U.S. Government,
Its Agencies and Instrumentalities
The types of U.S. government and agency securities in which the Portfolios
may invest include bills, notes and bonds issued by the U.S. Treasury, as well
as securities issued by other U.S. government agencies and instrumentalities,
including bills, notes, bonds, mortgage-backed securities and other fixed-income
securities. However, certain types of mortgage-backed securities, known as
"Interest Only" (or "IO") and "Principal Only" (or "PO") securities, which are
based on government securities but "stripped" by third parties, are not
government securities.
The Portfolios may purchase securities issued or guaranteed by the
Government National Mortgage Association and other agencies and
instrumentalities the securities or guarantees of which are backed by the full
faith and credit of the United States. The Portfolios may also purchase
securities issued by the United States Postal Service and other agencies and
instrumentalities that have the right to borrow from the United States Treasury
to meet their obligations. The Portfolios may also purchase securities issued or
guaranteed by U.S. government agencies and instrumentalities, including the
Federal Farm Credit Banks, the Federal Home Loan Bank, the Financing Corporation
("FICO"), the Tennessee Valley Authority, the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and
the Resolution Funding Corporation ("Refcorp"), the obligations of which are
backed only by the credit of the issuing agency.
Obligations of Supranational Agencies
The Portfolios may invest in the obligations of supranational agencies.
Supranational agencies rely for funds on participating countries, often
including the United States. Some supranationals, such as International Bank for
Reconstruction and Development (the "World Bank"), have the right to borrow from
participating countries, including the United States. Other supranationals must
request funds from participating countries; such requests may not always be
honored. Moreover, the securities of supranational agencies, depending on where
and how they are issued, may be subject to some of the risks discussed on page
_____ with respect to foreign securities.
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Corporate Bonds, Notes and Commercial Paper
The Portfolios may invest in straight and convertible corporate bonds,
notes and commercial paper. The value of the Portfolios' investment in corporate
bonds and notes will change in response to changes in interest rates and the
relative financial strength of each issuer. In general, lower-rated bonds, notes
and commercial paper tend to have higher yields but are subject to greater
market fluctuations and risk of loss than higher-rated bonds, notes and
commercial paper of similar maturity.
Loan Participations
The Portfolios may also invest in participating interests
("participations") in obligations, including variable-rate tax-exempt
obligations, mortgages and other loans, held by financial institutions. A
participation provides the Portfolio with a specified-percentage undivided
interest in the underlying obligation. The Portfolio may have the right to
demand payment of the unpaid principal balance plus accrued interest upon a
specified number of days' notice. The obligation may also be backed by a letter
of credit or guarantee of the institution. The Portfolio participates on the
same basis as the institution in the obligation, except that the institution may
retain a service fee out of the interest paid on the obligation. Loan
participations are considered illiquid securities.
Mortgage-Related Securities
Mortgage loans made by banks, savings and loan institutions and other
lenders are often assembled into pools, and interests in the pools are sold to
investors. Interests in such pools are referred to in this Prospectus as
"mortgage-related securities." Payments of mortgage-related securities are
backed by the property mortgaged. In addition, some mortgage-related securities
are guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government. In the case of mortgage-related and
asset-backed securities that are not backed by the United States government or
one of its agencies, a loss could be incurred if the collateral backing these
securities is insufficient. This may occur even though the collateral is
government-backed.
One type of mortgage-related security is a Government National Mortgage
Association ("GNMA") Certificate. GNMA Certificates are backed as to principal
and interest by the full faith and credit of the U.S. government. Another type
is an FNMA Certificate. Principal and interest payments of FNMA Certificates are
guaranteed only by FNMA itself, not by the full faith and credit of the U.S.
government. A third type of mortgage-related security in which one or more of
the Portfolios might invest is a FHLMC Participation Certificate. This type of
security is backed by FHLMC as to payment of principal
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and interest but, like an FNMA security, it is not backed by the full faith and
credit of the U.S. government.
The Portfolios may also invest in mortgage pools originated by investment
banking firms and builders. Rather than being guaranteed by an agency or
instrumentality of the U.S. government, these pools are usually backed by
mortgage insurance. The Manager of the Portfolios will take such insurance into
account in determining whether to invest in such pools.
Since the borrower is typically obligated to make monthly payments of
principal and interest, most mortgage-related securities pass these payments
through to the holder after deduction of a servicing fee. However, other payment
arrangements are possible. Payments may be made to the holder on a different
schedule than that on which payments are received from the borrower, including,
but not limited to, weekly, biweekly and semiannually.
Furthermore, the monthly principal and interest payments are not always
passed through to the holder on a pro rata basis. In the case of Collateralized
Mortgage Obligations ("CMOs"), the pool is divided into two or more tranches,
and special rules for the disbursement of principal and interest payments are
established. The Fixed-Income Portfolios may invest in debt obligations that are
CMOs; provided that in the case of the Fixed Income Portfolios other than the
Short Duration Municipal Portfolios, the entity issuing the CMO is not a
registered investment company.
In another version of mortgage-related securities, all interest payments go
to one class of holders-"Interest Only" or "IO"-and all of the principal goes to
a second class of holders-"Principal Only" or "PO". The market values of both
IOs and POs are sensitive to prepayment rates; the value of POs varies directly
with prepayment rates, while the value of IOs varies inversely with prepayment
rates. If prepayment rates are high, investors may actually receive less cash
from the IO than was initially invested. IOs and POs issued by the United States
government or its agencies and instrumentalities that are backed by fixed-rate
mortgages may be considered liquid securities under guidelines established by
the Fund's Board of Directors; all other IOs and POs will be considered
illiquid.
Payments to the Portfolios from mortgage-related securities generally
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as 15 or 30 years, borrowers can, and
often do, pay them off sooner. Thus, the Portfolios generally receive
prepayments of principal in addition to the principal that is part of the
regular monthly payments.
A borrower is more likely to prepay a mortgage that bears a relatively high
rate of interest. Thus, the value of the securities may not increase as much as
other debt securities when interest rates fall. However, when interest rates
rise, the rate of prepayments may slow and the value of the mortgage-related and
asset-backed securities may decrease like other debt securities. The
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Portfolios normally do not distribute principal payments (whether regular or
prepaid) to their shareholders. Rather, they invest such payments in additional
securities, which may not be mortgage-related. Interest received by the
Portfolios is, however, reflected in dividends to shareholders.
Asset-Backed Securities
In the case of securities backed by automobile receivables, the issuers of
such securities typically file financing statements, and the servicers of such
obligations take custody of such obligations. Therefore, if the servicers, in
contravention of their duty, were to sell such obligations, the third-party
purchasers would possibly acquire an interest superior to the holder of the
securitized assets. Also, most states require that a security interest in a
vehicle be noted on the certificate of title, and the certificate of title may
not be amended to reflect the assignment of the seller's security interest.
Therefore, the recovery of the collateral in some cases may not be available to
support payments on the securities. Lastly, in the case of credit-card
receivables, both federal and state consumer protection laws may allow setoffs
against certain amounts owed against balances of the credit cards.
Municipal Securities
Municipal Securities are debt obligations issued by or on behalf of states,
territories or possessions of the United States or their political subdivisions,
agencies or instrumentalities, the District of Columbia or Puerto Rico, where
the interest from such securities is, according to information reasonably
available to the Manager, in the opinion of bond counsel at the time of
issuance, exempt from federal income tax. Although the Fund may invest, from
time to time, in securities issued by or on behalf of states, territories or
possessions of the United States or their political subdivisions, agencies or
instrumentalities, the District of Columbia or Puerto Rico, where the interest
from such securities is not exempt from federal income tax, these securities
will not be considered Municipal Securities for the purpose of determining the
portions of the municipal Portfolios' assets that are invested in Municipal
Securities.
Municipal Securities include "private activity bonds," such as industrial
revenue bonds, the interest income from which is subject to the alternative
minimum tax. See "Dividends, Distributions and Taxes" on page _____.
The two principal classifications of Municipal Securities are general
obligation and revenue or special obligation securities. General obligation
securities are secured by the issuer's pledge of its faith, credit and taxing
power for the payment of principal and interest. The term "issuer" means the
agency, authority, instrumentality or other political subdivision, the assets
and revenues of which are available for the payment of the principal of and
interest on the securities. Revenue or special obligation securities are payable
only from the revenue derived from a
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particular facility or class of facilities or, in some cases, from the proceeds
of a special tax or other specific revenue source and generally are not payable
from the unrestricted revenues of the issuer. Some Municipal Securities are
municipal lease obligations. Lease obligations usually do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, although the lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payments due
under the lease obligation. However, certain lease obligations contain
non-appropriation clauses that provide that the municipality has no obligation
to make lease payments in future years unless money is appropriated for such
purpose on a yearly basis. The Fund Board will be responsible for determining
the credit quality of unrated municipal lease obligations on an ongoing basis,
including an assessment of the likelihood that the lease will not be canceled.
Some municipal lease obligations may be illiquid. Municipal Securities include
certain asset-backed certificates representing interests in trusts that include
pools of installment payment agreements, leases, or other debt obligations of
state or local governmental entities. Some Municipal Securities are covered by
insurance or other credit enhancements procured by the issuer or underwriter
guaranteeing timely payment of principal and interest.
Guaranteed Investment Contracts
The Portfolios may purchase guaranteed investment contracts ("GICs"). A GIC
is a contract issued by an insurance company that guarantees payment of interest
and repayment of principal. GICs are considered illiquid securities.
Variable and Floating Rate Securities
Each Portfolio may purchase variable and floating rate securities. The
terms of variable and floating rate instruments provide for the interest rate to
be adjusted according to a formula on certain predetermined dates.
Variable and floating rate instruments that are repayable on demand at a
future date are deemed to have a maturity equal to the time remaining until the
principal will be received on the assumption that the demand feature is
exercised on the earliest possible date. For the purposes of evaluating the
interest-rate sensitivity of the Portfolio, variable and floating rate
instruments are deemed to have a maturity equal to the period remaining until
the next interest-rate readjustment. For the purposes of evaluating the credit
risks of variable and floating rate instruments, these instruments are deemed to
have a maturity equal to the time remaining until the earliest date the
Portfolio is entitled to demand repayment of principal.
Private Placements
The Portfolios may invest in privately placed securities that, in the
absence of an exemption, would be required to be registered under the Securities
Act of 1933 so as to permit
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their sale to the public ("restricted securities"). Restricted securities may be
sold only in privately negotiated transactions. These securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid in the trading
market for the security under procedures adopted by the Board of Directors of
the Fund, are considered to be illiquid. The Board is responsible for monitoring
the implementation of the procedures on the liquidity of Rule 144A securities in
the Portfolio.
Illiquid Securities
Within the limits set forth in the Investment Policies section (pages
____-____), the Portfolios may invest in illiquid securities-securities that are
not readily marketable. The Board of Directors of the Fund has determined that
any or all of the following factors may be relevant to determining the liquidity
of a security: the amount of the issue outstanding; the complexity of the issue;
the bid/ask spread; the number and identity of market makers or dealers in or
other buyers of the security; the existence of put features and other rights;
the term of the security; the visibility of the issuer in the marketplace; the
method of soliciting offers and the mechanics of completing transfers; the
average trading volume for the issue; and with respect to foreign securities,
the amount of such securities that can be owned by investors who are not
residents of the country where such securities were issued and the amount of
such securities owned by the controlling interests. The factors to be considered
in the case of the analysis of unrated municipal lease obligations will include
an analysis of credit factors. Purchased dealer options, private placements
(excluding securities eligible for resale under Rule 144A that have been
determined to be liquid as set forth in the preceding section), guaranteed
investment contracts, repurchase agreements for periods longer than seven days,
time deposits maturing in more than seven days and loan participations are
considered to be illiquid securities for the purposes of this restriction. In
addition, the staff of the Securities and Exchange Commission currently takes
the position that all options traded in the over-the-counter market are
illiquid; if the staff amends its position, the Fund may, in accordance with the
amended position, consider such options to be liquid.
Preferred Stock
The Portfolios 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 more subject to 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.
Foreign Securities
While the Fixed-Income Portfolios generally invest in domestic securities,
each may also invest up to 20% of its total assets in foreign securities of the
same types and quality as the
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domestic securities in which it invests when the anticipated performance of the
foreign securities is believed by the adviser to offer more potential than
domestic alternatives in keeping with the investment objectives of the
Portfolios. The Portfolios may invest in foreign fixed-income securities that
may involve risks in addition to those normally associated with domestic
securities. These risks include currency risks and other risks described on page
____.
Warrants
The Portfolios may have investments in warrants. Warrants are securities
that give the Portfolio the right to purchase securities from the issuer at a
specific price (the strike price) for a limited period of time. The strike price
of warrants sometimes is much lower than the current market price of the
underlying securities, yet they are subject to similar price fluctuations. As a
result, warrants may be more volatile investments than the underlying securities
and may offer greater potential for capital appreciation as well as capital
loss. Warrants do not entitle a holder to dividends, interest payments or voting
rights with respect to the underlying securities and do not represent any rights
in the assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to the expiration date. These
factors can make warrants more speculative than other types of investments.
Equity Securities
The equity securities in which the Bernstein International Value Portfolio
may invest include common and preferred stocks, warrants and convertible
securities. The Portfolio may invest in foreign securities directly or in the
form of sponsored or unsponsored American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs), or other similar securities convertible into
securities of foreign issuers without limitation. The issuers of unsponsored
ADRs are not obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such information and the
market value of the ADR. ADRs are receipts typically issued by a U.S. bank or
trust company that evidence ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. In some circumstances- e.g.,
when a direct investment in securities in a particular country cannot be
made-the Portfolio, in compliance with provisions of the Investment Company Act
of 1940, as amended (the "1940 Act"), may invest in the securities of investment
companies that invest in foreign securities. As a shareholder in any mutual
fund, the Portfolio will bear its ratable share of the mutual fund's management
fees and other expenses, and will remain subject to payment of the Portfolio's
management and other fees with respect to assets so invested.
Special Investment Techniques
In seeking to achieve its investment objectives, each of the Portfolios may
employ the following special investment techniques, among others. These
techniques may be used to hedge
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various market risks (such as interest rates, currency exchange rates and broad
or security-specific changes in the prices of equity or fixed-income
securities), to manage the effective maturity or duration of fixed-income
securities, to exploit mispricings in the securities markets, or as an
alternative to activities in the underlying cash markets.
Foreign Currency Transactions
A Portfolio may enter into foreign currency exchange contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange market or
through entering into forward contracts, which obligate the contracting parties
to purchase or sell a specific currency at a specified future date at a
specified price. The Portfolios will generally not enter into a forward contract
with a term greater than one year.
The Portfolios will generally enter into forward contracts under two
circumstances. First, a Portfolio 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 price in dollars of the security.
Second, when the Manager believes that the currency of a particular foreign
country may experience an adverse movement against another currency, a Portfolio
may enter into a forward contract to sell an amount of the foreign currency (or
another currency that acts as a proxy for that currency) approximating the value
of some or all of a Portfolio's securities denominated in such foreign currency.
Under certain circumstances, the International Value Portfolio may commit a
substantial portion or the entire value of its portfolio to the consummation of
these contracts. The Manager will consider the effect a substantial commitment
of assets to forward contracts would have on the investment program of the
International Value Portfolio and the flexibility of the Portfolio to purchase
additional securities. Although forward contracts will be used primarily to
protect the Portfolios from adverse currency movements, they involve the risk
that anticipated currency movements will not be accurately predicted and the
Portfolios' total return could be adversely affected as a result.
Futures Contracts and Options
The Portfolios may enter into financial futures contracts, including bond,
bond index, Eurodeposit, stock index or currency futures contracts and options
thereon. In addition, the Portfolios may each purchase and write (i.e., sell)
put and call options on securities, on securities indexes based on securities in
which the Portfolio may invest, on foreign currencies traded on U.S. or foreign
exchanges or over-the- counter and on futures contracts. The securities for
which a Portfolio writes put or call options will be Portfolio securities, and
the Portfolios will write only covered options.
The Portfolios 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,
currencies, futures or other instruments. In addition,
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the Portfolios may write covered straddles. A straddle is a combination of a
call and a put written on the same underlying security.
In accordance with the current rules and regulations of the Commodity
Futures Trading Commission (the "CFTC"), the aggregate initial margins and
premiums required from the Portfolio in connection with commodity futures and
options positions used for purposes other than "bona fide hedging" will not
exceed 5% of the liquidation value of the Portfolio; provided, however, in the
case of an option that is in the money at the time of the purchase, that the
in-the-money portion of the premium is excluded in calculating the 5%
limitation. No Portfolio will write any option if, immediately thereafter, the
aggregate value of the Portfolio's securities subject to outstanding options
would exceed 25% of its net assets.
Futures contracts and options can be highly volatile and could reduce a
Portfolio's total returns, and attempts to use such investments for hedging
purposes may not be successful. Successful futures and options strategies
require the ability to predict future movements in securities prices, interest
rates and other economic factors. Each Portfolio's potential losses from the use
of futures extend beyond its initial investment in such contracts and are
potentially unlimited. Also, losses from futures and options could be
significant if a Portfolio is unable to close out its position due to
disruptions in the market or lack of liquidity.
Swaps and Hybrid Investments
As part of its investment program and to maintain greater flexibility, each
Portfolio may invest in instruments that have the characteristics of futures,
options, currencies and securities. Such instruments may take a variety of
forms, such as debt instruments with interest or principal payments determined
by reference to the value of commodities, currencies, fixed-income instruments,
financial indexes or other financial or economic indicators, data or events; or
the differences between the value of commodities, currencies, fixed-income
instruments, financial indexes or other financial or economic indicators, data
or events; or the rate of change of the value of commodities, currencies,
fixed-income instruments, financial indexes, or other financial or economic
indicators, data or events. The risk of these investments can be substantial;
possibly all of the principal is at risk. No Portfolio will invest more than 20%
of its total assets in these investments.
A Portfolio may enter into interest-rate or foreign currency swaps and
purchase and sell interest-rate caps and floors. The Portfolios expect to enter
into these transactions to exploit mispricings in the bond or currency markets
or to preserve a return or spread on a particular investment or portion of its
portfolio, as a duration management technique, or to protect against any
increase in the price of securities the Portfolios anticipate purchasing at a
later date.
Interest-rate swaps involve the exchange by a Portfolio with another party
of their respective commitments to pay or receive interest, e.g., an exchange of
fixed-rate payments for
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floating-rate payments. Such an exchange would allow the Portfolio to alter its
exposure to interest-rate market risk without changing the composition of the
Portfolio. The purchase of an interest-rate floor or cap entitles the purchaser
to receive payments of interest on a notional principal amount from the seller,
to the extent that the specified index falls below (floor) or exceeds (cap) a
predetermined interest rate. Currency swaps are similar to interest-rate swaps,
except that they involve currencies instead of interest rates. The Portfolios
will enter interest-rate swaps only on a net basis, i.e., the two payment
streams are netted out, with the Portfolios receiving or paying, as the case may
be, only the net amount of the two payments. A Portfolio will maintain in a
segregated account with the Fund's custodian an amount having an aggregate net
asset value at least equal to the net amount of the excess, if any, of the
Portfolio's obligations over its entitlements with respect to each interest-rate
swap.
Repurchase Agreements
In a repurchase transaction, a Portfolio purchases a security from a bank
or a securities dealer and simultaneously agrees to resell that security to the
bank or broker-dealer at an agreed-upon price on an agreed-upon date. The resale
price reflects the purchase price and an agreed-upon rate of interest. In
effect, the obligation of the seller to repay the agreed-upon price is secured
by the value of the underlying security, which must at least equal the
repurchase price. Repurchase agreements could involve certain risks in the event
of default or insolvency of the other party, including possible delays or
restrictions on the Portfolio's ability to dispose of the underlying securities.
The Board of Directors has established guidelines to be used by the Manager in
repurchase transactions and regularly monitors the Portfolios' use of repurchase
agreements.
Reverse Repurchase Agreements
The Portfolios may enter into reverse repurchase agreements with banks and
broker-dealers from time to time. In a reverse repurchase transaction, it is the
Portfolio, rather than the other party to the transaction, that sells the
securities and simultaneously agrees to repurchase them at a price reflecting an
agreed-upon rate of interest. A Portfolio's obligations under reverse repurchase
agreements will not exceed one-third of the Portfolio's total assets, less
liabilities other than obligations under such reverse repurchase agreements.
During the time a reverse repurchase agreement is outstanding, each Portfolio
that has entered into such an agreement maintains a segregated account with its
Custodian containing cash, U.S. government or other liquid high-grade debt
securities having a value at least equal to the repurchase price under the
reverse repurchase agreement. The use of reverse repurchase agreements is
included in the Portfolios' borrowing policy and is subject to the limit of
Section 18(f)(1) of the 1940 Act. Reverse repurchase agreements may create
leverage, increasing a Portfolio's opportunity for gain and risk of loss for a
given fluctuation in the value of the Portfolio's assets. There may also be
risks of delay in recovery and, in some cases, even loss of rights in the
underlying securities, should the opposite party fail financially.
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Lending Portfolio Securities
Each Portfolio may, from time to time, lend portfolio securities having, in
the case of the Fixed-Income Portfolios (other than the Short Duration Municipal
Portfolios), a market value of no more than 30% of its total assets and, in the
case of the International Value Portfolio and in the case of the Short Duration
Municipal Portfolios, having a market value of no more than one-third of its
total assets, to qualified broker-dealers, banks or other financial
institutions. By lending its portfolio securities, a Portfolio attempts to
increase its income through the receipt of interest on the loan. Any such loan
of portfolio securities will be marked to the market daily and secured by
collateral consisting of cash or short-term U.S. government securities in an
amount at least equal to the value of the securities loaned. The Manager
believes that the risk of loss on such a transaction is slight because, if the
borrower were to default, the collateral would be available to satisfy the
obligation. However, as with other extensions of secured credit, loans of
portfolio securities involve some risk of loss of rights in the collateral
should the borrower fail financially. The Manager carefully evaluates the
creditworthiness of any potential borrower of securities. A Portfolio may not
have the right to vote securities on loan, but it will call a loaned security in
anticipation of an important vote.
When-Issued and Delayed-Delivery Transactions
The Portfolios may purchase securities on a "when-issued" or
"delayed-delivery" basis. In a when-issued or delayed-delivery transaction, a
Portfolio purchases a security with delivery to take place at a later date,
usually within three months from the date the transaction is entered into. The
market value of the security at delivery may be more or less than the purchase
price. The Fund's Custodian is to maintain, in segregated accounts, cash, U.S.
government securities or other liquid high-grade debt obligations having a value
equal to or greater than each Portfolio's purchase commitments; likewise, the
Custodian is to segregate securities sold by each Portfolio on a
delayed-delivery basis.
Further information about the Portfolios' use of Special Investment
Techniques and their associated risks is contained in the SAI.
Future Developments
The Portfolios expect to discover additional opportunities in the areas of
options, futures contracts, options on futures contracts and other derivative
instruments. These opportunities will become available as the Manager develops
new strategies, as regulatory authorities broaden the range of transactions that
are permitted and as new options and futures are developed. To the extent such
opportunities are both consistent with the Portfolio's investment objectives and
legally permissible for that Portfolio, the Manager may utilize the strategies
that do not conflict with the
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Portfolio's investment restrictions. These opportunities may involve risks that
differ from those described above.
Management Of the Portfolios
Directors and Officers
The Board of Directors of the Fund is responsible for the overall
supervision of the management of the Fund. The directors also perform various
duties imposed on directors of investment companies by the 1940 Act and by the
State of Maryland. Officers of the Fund conduct and supervise the daily
operations of the Portfolios.
The following table lists the directors and executive officers of the Fund,
their business addresses and their principal occupations during the past five
years.
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<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address the Fund During Past Five Years
- ---------------- ------------- ----------------------
<S> <C> <C>
Roger Hertog* President, 1993-Present: President, Chief Operating
767 Fifth Avenue Treasurer, Officer and Director-Bernstein
New York, NY 10153 Director Previously: Executive Vice President and Director-Bernstein
Stuart K. Nelson* Senior Vice President, Senior Vice President, General Counsel
767 Fifth Avenue Director and Director-Bernstein
New York, NY 10153
Arthur Aeder Director 1987-Present: Consultant;
20 West 55th Street Formerly Senior Partner-Oppenheim, Appel, Dixon & Co.
New York, NY 10019 (subsequently Spicer & Oppenheim) Certified Public
Accountants, and Chairman-Spicer & Oppenheim
International
Peter L. Bernstein** Director President-Peter L. Bernstein, Inc.,
575 Madison Avenue Economic Consultants
Suite 1006
New York, NY 10022
William Kristol Director 6/95-Present: Editor and Publisher, The
1150 17th Street, N.W. Weekly Standard; 11/93-5/95: Chairman
5th Floor -Project for the Republican Future
Washington, D.C. 20036 1/93-11/93: Director-The Bradley Project on the 90's;
5/89-1/93: Chief of Staff to the Vice President,
The White House
Theodore Levitt Director Professor Emeritus of Business
Harvard Business School Administration, Harvard University
Cumnock 300 1985-1989: Editor, Harvard Business
Boston, MA 02163 Review
Francis H. Trainer, Jr. Senior Vice President 1992-Present: Senior Vice President,
767 Fifth Avenue Director-Fixed Income
New York, NY 10153 Investments and Director-Bernstein;
Previously: Manager of Fixed- Income
Investments-Bernstein
Jean Margo Reid Secretary 1992-Present: Vice President and Associate
767 Fifth Avenue General Counsel-Bernstein
New York, NY 10153 Previously: Vice President and
Attorney -Bernstein
</TABLE>
*An "interested person" of the Fund, as defined in the 1940 Act.
**Not related to Zalman C. Bernstein, Chairman of the Executive Committee
- Bernstein
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The Manager
Bernstein is a closely held corporation, organized under the laws of the
State of New York on January 20, 1969, which succeeded to the business of
Sanford C. Bernstein & Co., a partnership, on February 1, 1969. Bernstein is a
registered investment adviser that manages some $34.8 billion, as of September
30, 1995, for individuals, endowments, trusts and estates, charitable
foundations, partnerships, corporations, the Portfolios of the Fund and
tax-exempt funds such as pension and profit-sharing plans. Of that amount, some
$13.3 billion was invested in fixed-income securities and $21.5 billion in
equities as of September 30, 1995. Pursuant to contracts with the Fund,
Bernstein provides the following types of services: Investment Management,
Shareholder Servicing and Administration and Distribution.
Investment Management
Bernstein has entered into Investment Management Agreements (the
"Management Agreements") with the Fund, on behalf of the Portfolios, under which
the Manager, subject to the supervision of the Board of Directors and in
conformity with the stated policies of the Portfolios, manages each Portfolio's
assets. Investment Policy Groups created by the Manager and comprised of the
Manager's employees make all investment decisions for the Portfolios, and no one
person is primarily responsible for making recommendations to these groups.
Each Portfolio pays the Manager for the services performed on behalf of
that Portfolio, as well as for the services performed on behalf of the Fund as a
whole. The fee paid by each Fixed-Income Portfolio (other than the Short
Duration Municipal Portfolios) is at an annual rate of 0.50% of each such
Portfolio's average daily net assets up to and including $1 billion and at an
annual rate of 0.45% of each such Portfolio's average daily net assets in excess
of $1 billion. The fee paid by each of the Short Duration Municipal Portfolios
is at an annual rate of 0.50% of each such Portfolio's average daily net assets,
except that during the first two years of operations of each Short Duration
Municipal Portfolio, no Short Duration Municipal Portfolio will pay any portion
of the fee that, together with the other operating expenses of the Portfolio
(excluding interest, taxes, brokerage commissions and extraordinary expenses,
but including fees payable to Bernstein under the Shareholder Servicing and
Administrative Agreement described below) exceeds the rate of 0.79% per annum of
such Portfolio's average daily net assets. The term "the first two years of
operation" means the period commencing October 3, 1994 through and including
October 2, 1996. Pursuant to the Management Agreement, the Manager has
undertaken that for each of the first two years of operations of each Short
Duration Municipal Portfolio, the Manager will pay any operating expenses of
such Portfolios (excluding interest, taxes, brokerage commissions and
extraordinary expenses) which, together with expenses under the Shareholder
Servicing and Administrative Agreement described below, exceed the rate of 0.79%
per annum of such Portfolio's average daily net assets. The fee paid by the
International Value Portfolio is at an annual rate of 1.00% of that Portfolio's
average daily net assets up to but
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not exceeding $2 billion and at an annual rate of .90 of 1% of that Portfolio's
average daily net assets that exceed $2 billion. Because the investment programs
of international asset management are costly to implement and maintain, this fee
is higher than that paid by most investment companies that invest in U.S. equity
securities. The fee is computed daily and payable monthly. For purposes of
complying with California law, the Manager will reduce its fee to the extent
required to limit each Portfolio's expenses to 2.5% of the Portfolio's first $30
million of average net assets, 2% of the next $70 million, and 1.5% of the
Portfolio's average net assets in excess of $100 million; expenses incurred by
the International Value Portfolio for custodian costs in excess of those that
would have been incurred had the Portfolio's investments been in domestic
securities are excluded from aggregate expenses for the purposes of applying
this limitation.
Shareholder Servicing and Administration
Bernstein has also entered into Shareholder Servicing and Administrative
Agreements with the Fund on behalf of the Portfolios. Pursuant to these
Agreements, Bernstein pays all expenses incurred by it in connection with
administering the ordinary course of the Fund's and each Portfolio's business.
Bernstein also pays the costs of office facilities and of clerical and
administrative services not provided by State Street Bank and Trust Company, the
Fund's Custodian and Transfer Agent. Bernstein serves as Shareholder Servicing
Agent and in such capacity may enter into agreements with other organizations
whereby some or all of Bernstein's duties in this regard may be delegated. The
shareholder servicing that will be provided by Bernstein or other organizations
might include, among other things, proxy solicitations and providing information
to shareholders concerning their mutual fund investments, systematic withdrawal
plans, dividend payments, reinvestments, and other matters. The fee paid by each
Fixed-Income Portfolio for these services is at an annual rate of 0.10% of that
Portfolio's average daily net assets, and the fee paid by the International
Value Portfolio is at an annual rate of 0.25% of the Portfolio's average daily
net assets.
Each Portfolio is responsible for the payment of all of its expenses other
than those expressly stated to be payable by Bernstein under the Management
Agreements and the Shareholder Servicing and Administrative Agreements.
Distribution
Bernstein acts as Distributor of each Portfolio's shares pursuant to
Distribution Agreements with the Fund.
Purchase of Shares
Shares of the Portfolios are sold at a price based on the net asset value
next calculated after receipt of a purchase order in good form. If an order is
placed at or prior to the close of regular trading of the New York Stock
Exchange (the "Exchange") (normally 4:00 p.m., New
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<PAGE>
York time) on any business day, the purchase of shares is executed at the
offering price determined as of the closing time that day. If the order is
placed after that time, it will be effected on the next business day.
The Fund, on behalf of any Fixed-Income Portfolio, may, at its own option,
accept securities in payment for shares. The securities delivered in are valued
by the method described herein under "Net Asset Value" (page _____) as of the
day the Portfolio receives the securities, including such certificates and any
other documentation necessary for the Custodian to transfer the securities to
the Portfolio's account. This is a taxable transaction to the shareholder.
Securities may be accepted in payment for a Portfolio's shares only if they are,
in the judgment of the Manager, appropriate investments for that Portfolio. The
Fund reserves the right to accept or reject at its own option any and all
securities offered in payment for the shares of any Portfolio. If shares of the
Fund are purchased through broker-dealers, banks and other financial
institutions, these entities may impose service fees and conditions on the
shareholders that may be different from those described in this Prospectus. The
Fund has arrangements with certain broker-dealers, banks and other financial
institutions such that orders through these entities are considered received
when the entity receives the order in good form together with the purchase price
of the shares ordered. The entity is responsible for transmitting the order to
the Fund.
In order to purchase shares, an investor must fill out an application form.
All purchases are confirmed to the investor in writing. If no indication is made
on the application form, dividends and distributions payable by each Portfolio
are automatically reinvested in additional shares of that Portfolio at the net
asset value on the reinvestment date.
Shareholders are sent a confirmation of all purchases. The Fund reserves
the right to reject any purchase order. The Fund may at any time stop selling
shares of any of the Portfolios. Except as otherwise provided, the minimum
initial investment in any Portfolio is $25,000 and the minimum subsequent
investment in the same Portfolio is $5,000. The minimum initial investment in
any Portfolio for Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
accounts is $20,000 and the minimum subsequent investment in the same Portfolio
is $5,000. For shareholders who have met the initial minimum investment
requirement in a Fixed-Income Portfolio, the minimum subsequent investment in
any other Fixed-Income Portfolio is also $5,000.
There is no minimum amount for reinvestment of dividends and distributions
declared by a Portfolio in the shares of that Portfolio. Share certificates are
issued only upon written request, but no certificates are issued for fractional
shares. The minimum initial investment in any Portfolio for employees of
Bernstein and their immediate families is $5,000; Bernstein does not charge an
account maintenance fee on these accounts.
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<PAGE>
Bernstein effects a purchase order on behalf of a client who has an
investment advisory account with Bernstein upon confirmation of a verified
credit balance at least equal to the amount of the purchase order (subject to
the minimum investment requirements set forth above).
Bernstein may advise some of the clients of its asset-management services
to invest a certain percentage of their assets in one or more of the Portfolios.
If such a client wishes to invest such assets in one or more of the Portfolios
of the Fund, the client may, on receiving this Prospectus, instruct Bernstein to
maintain a percentage of the client's account assets invested in one or more of
the Portfolios or to vary the percentage based on Bernstein's opinion of the
relative allocation of fixed-income investments versus international investments
or domestic stock. As the asset values of the client's various investments
fluctuate, in order to maintain approximately the same percentage(s) or to vary
the percentage(s) of the account assets invested in the Portfolio(s) or for tax
considerations, Bernstein may, from time to time, without additional
instructions from the client, purchase or redeem shares of any Portfolio in
which such a client had elected to invest. Such purchases may be effected
without regard to the minimum investment requirements, as may purchases for any
participant directed defined contribution plan which is a client of Bernstein's
asset-management services. In January and June of 1996, Bernstein will
automatically, without regard to the minimum investment requirement, invest the
cash balances held in any Bernstein account which is otherwise invested solely
in a single Fund Portfolio in that Portfolio.
Purchase orders must be submitted to Bernstein together with payment for
the purchase price of the shares ordered and, in the case of a new account, a
completed application form. Payment may be made by check or wire transfer.
Checks should be made payable to the particular Portfolio. Checks from persons
who are not advisory clients of Bernstein must be bank or certified checks.
Bernstein, at its option, may accept a check that is not a bank or certified
check. There are restrictions on the redemption of shares purchased by check for
which the funds are being collected. See "Redemption of Shares" on this page.
Shares of the Fund will not be offered in any state where the Fund or a
Portfolio of the Fund is not registered.
Exchanges of Shares
Shares of each Portfolio may be exchanged for shares of each of the other
Portfolios of the Fund. After proper receipt of the exchange request in good
order, exchanges of shares are made at the next determined respective net asset
values of the shares of each Portfolio. Shares purchased through broker-dealers,
banks or other financial institutions may be exchanged through such
broker-dealers, banks and other financial institutions. Exchanges are subject to
the minimum investment requirements of the Portfolio into which the exchange is
being made, and the Fund, on behalf of such Portfolio, at its sole discretion,
may reject any exchange for its shares. The exchange privilege is available only
in states where the exchange may legally be made. The Fund
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<PAGE>
plans to maintain this exchange privilege. However, in the event of a change in
this policy, the Fund will provide 90-day notice to shareholders. For federal
income tax purposes, any such exchange constitutes a taxable transaction for
shareholders subject to taxation upon which a gain or loss may be realized. See
"Dividends, Distributions and Taxes" on pages ____-____.
Redemption of Shares
General
Redemption orders received by Bernstein are effected at the net asset value
next determined after receipt of the order in proper form. If a redemption order
is placed at or prior to the close of regular trading of the Exchange (normally
4:00 p.m., New York time) on any business day, the redemption of shares is
executed at the offering price determined as of the close of trading that day.
If the redemption order is placed after the close of regular trading, it will be
effected on the next business day. Any capital gain or loss realized by a
shareholder upon any redemption of Portfolio shares must be recognized for
federal income tax purposes by shareholders subject to such taxes. See
"Dividends, Distributions and Taxes."
Shareholders may redeem their shares by sending to Bernstein a written
request, accompanied by duly endorsed share certificates, if issued. Orders for
redemption through certain banks, broker-dealers or financial institutions with
whom the Fund has arrangements are considered received when the bank,
broker-dealer or other financial institution receives a written request,
accompanied by duly endorsed share certificates, if issued. The bank,
broker-dealer or other financial institution is responsible for transmitting the
order to the Fund. In this case, all share certificates and all written requests
for redemption must be endorsed by the shareholder(s) with signature(s)
guaranteed by an eligible guarantor institution that meets the Fund's standards
for the acceptance of guarantees (such an institution may be a commercial bank
that is a member of the Federal Deposit Insurance Corporation, a trust company,
a member firm of a domestic securities exchange or other institution).
Guarantees must be signed by an authorized signatory of the eligible guarantor
institution, and "Signature Guaranteed" should appear with the signature.
Signature guarantees by notaries or institutions that do not provide
reimbursement in the case of fraud are not accepted. Signature guarantees may be
waived by the Fund in certain instances. The Fund may waive the requirement that
a redemption request must be in writing. Bernstein may request further
documentation from corporations, executors, administrators, trustees or
guardians. Where the shareholder is an advisory client of Bernstein, proceeds
are retained in the client's account with Bernstein unless other prior
instructions are on file. With respect to redemption orders received through
other dealers, proceeds are sent to the customer's account with the dealer
unless prior instructions are on file. Proceeds of all other redemptions are
sent to the shareholder's address by check unless prior instructions are on
file. The cost of wire transfers will be borne by the shareholder.
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Systematic Withdrawal Plan
A shareholder may set up a plan for redemptions to be made automatically at
regular monthly intervals and payments sent directly to the shareholder or to
persons designated by the shareholder. The use of this service will be at the
Fund's discretion and, in general, a shareholder must own shares worth $25,000
or more, and they must own them as book-entry shares. For further information,
call Bernstein at (212) 756-4097.
Additional Redemption Information
Payment is made by check within seven days after receipt by the
shareholder-servicing agent of share certificates (if issued) and a redemption
request in proper form. Under the 1940 Act, the Fund, on behalf of any
Portfolio, may suspend the right of redemption or postpone the day of payment
for more than seven days (i) for any periods during which the Exchange is closed
(other than for customary weekend or holiday closings); (ii) for any periods
when trading in the markets the Portfolio normally uses is closed or restricted
or an emergency exists as determined by the Commission so that disposal of the
Portfolio's investments or determination of its net asset value is not
reasonably practicable; or (iii) during any other period when the Commission, by
order, so permits, provided that applicable rules and regulations of the
Commission shall govern as to whether the condition described in (ii) exists.
In addition, if the shares being redeemed were purchased by check, payment
may be delayed for up to 15 days in order to verify that the purchase check has
been honored. Any such delay may be avoided if the shares were originally
purchased by certified or bank check or by wire transfer.
Because of the high cost of maintaining smaller shareholder accounts, the
Fund may redeem without shareholder consent, on at least 60 days' written
notice, the account of any shareholder of any Portfolio whose account has a net
asset value of less than $1,000 due to redemptions determined as of the close of
business on the day preceding such notice, unless such shareholder increases the
account balance to $1,000 during such 60-day period.
Portfolio Transactions and Brokerage
The Manager is responsible for decisions to buy and sell securities for
each of the Portfolios and for broker-dealer selection. In general, the
securities in which the Fixed-Income Portfolios invest are traded on a "net"
rather than a transaction-charge basis (as securities in which the International
Value Portfolio invest are generally traded), with dealers acting as principal
for their own accounts without a stated transaction charge. Accordingly, the
price of the security may reflect an increase or decrease from the price paid by
the dealer together with a spread between the bid and asked price, which
provides the opportunity for a profit or loss to the dealer. Portfolio
transactions that are effected on a transaction-charge basis may be effected
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<PAGE>
through Bernstein, acting as agent and not as principal, provided, among other
things, that any transaction charges, fees or other remuneration received by
Bernstein are reasonable and fair compared to the transaction charges, fees or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities during a comparable period of time. In
some cases, a Portfolio might engage in purchase or sale transactions with
another Portfolio of the Fund, subject to conditions specified under the 1940
Act. There might also be occasions when a Portfolio engages in purchase or sale
transactions with another mutual fund.
Although the objectives of the other accounts to which the Manager provides
investment advice may differ from those of each of the Portfolios, it is
possible that, at times, identical securities are acceptable for one or more of
the Portfolios and one or more of such accounts. If the purchase or sale of
securities consistent with the investment policies of one or more of the
Portfolios and one or more of the accounts of the Manager is considered at or
about the same time, transactions in such securities will be allocated among the
accounts and the Portfolios in a manner deemed equitable by the Manager. Where
securities are allocated among Fund Portfolios and private accounts, the Manager
may use the average price at which the securities were purchased or sold.
None of the Fixed-Income Portfolios anticipates a portfolio turnover rate
in excess of 300%. The International Value Portfolio anticipates a portfolio
turnover rate of less than 100%. A turnover rate of 100% would occur, for
example, if all the securities held by a Portfolio were replaced in a period of
one year. A portfolio's turnover rate is the percentage computed by dividing the
lesser of portfolio purchases or sales (excluding all securities whose
maturities at acquisition were one year or less) by the average value of the
portfolio. High portfolio turnover involves correspondingly greater transaction
costs, which are borne directly by the Portfolio, and may also result in the
realization of substantial net short-term capital gains, taxable at ordinary
income tax rates to non-tax-exempt investors.
Net Asset Value
The net asset value of each Portfolio is computed as of the close of
regular trading of the Exchange (normally 4:00 p.m., New York time). Purchase
and redemption orders are accepted by the Fund on each business day, with the
exception of Exchange and national bank holidays, as determined from time to
time. Currently, these holidays are: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas. The net asset value
per share of each Portfolio is the net worth of the Portfolio (assets, including
securities at market value, minus liabilities) divided by the number of shares
outstanding. The value of each security for which readily available market
quotations exist is based on the most recent sale, the most recent available bid
price or the mean between the most recent available bid and asked prices in the
broadest and most representative market for that security as determined by the
Manager. Debt instruments with remaining maturities of 60 days or less may be
valued at amortized cost.
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Securities and other assets for which market quotations are not readily
available are valued by appraisal at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Board of Directors. The Fund may use an independent pricing service to value the
Portfolios' assets at such times and to such extent as the Manager deems
appropriate. All assets and liabilities initially expressed in foreign
currencies will be translated into U.S. dollars. Dividends on foreign securities
are accrued and reflected in net asset value either on the date the security
goes ex-dividend or the date the Manager becomes aware of them, whichever is
later; corporate actions of foreign issuers are reflected in net asset value on
the date on which they become effective, or the date the Manager becomes aware
of them, whichever is later.
Dividends, Distributions and Taxes
The Fund intends each Portfolio to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986 (the "Code").
While so qualified, the Portfolios are not subject to federal income taxes on
net income and capital gains, if any, realized during any fiscal year and
distributed to shareholders. All taxable dividends out of net investment income,
together with distributions of net short-term capital gains and certain foreign
currency gains, are taxable as ordinary income to shareholders who are subject
to federal income taxes, whether or not reinvested. Dividends derived from the
interest earned on municipal securities constitute "tax-exempt interest
dividends" and are not subject to federal income taxes, provided that the
relevant Portfolio meets the requirements of Section 852(b)(5) of the Code. In
general, the International Value Portfolio's dividends will not qualify for the
dividends-received deduction for corporations since they are not derived from
dividends paid by U.S. corporations. Any net long-term capital gains distributed
to shareholders are taxable as such to the shareholders who are subject to
federal income taxes, whether or not reinvested, and regardless of the length of
time shareholders have owned their shares. Share purchases made shortly before a
dividend of the International Value Portfolio or a capital gains distribution of
any of the Portfolios include in the purchase price the amount of the
distribution; on the record date for the distribution, the Portfolio's share
value drops by the amount of the distribution.
Under the Revenue Reconciliation Act of 1993, all or a portion of the
Fund's gain from the sale or redemption of tax-exempt obligations purchased at a
market discount after April 30, 1993 will be treated as ordinary income rather
than capital gain. This rule may increase the amount of ordinary income
dividends received by shareholders.
The Fixed-Income Portfolios intend to declare dividends daily and to pay
them monthly. The International Value Portfolio intends to declare and pay
dividends at least annually, generally in December. Capital-gains distributions
are made at least annually, generally in December. Dividends and distributions
are generally taxable to shareholders in the year in which received, provided
that dividends declared in October, November and December and paid prior to
February 1 of the following year are taxable to shareholders in the year in
which declared. Each Portfolio's
52
<PAGE>
distributions and dividends are paid in additional shares of that Portfolio
based on the Portfolio's net asset value at the close of business on the record
date, unless the shareholder elects in writing not less than five business days
prior to the record date to receive such distributions in cash.
A shareholder's gain or loss upon the redemption, repurchase or exchange of
their shares in a portfolio is generally capital gain or loss and is long-term
capital gain or loss if the shares were held for more than one year. Any loss
realized on a redemption, repurchase or exchange is disallowed to the extent the
shares disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of. However, any loss
incurred by a shareholder who held their shares for six months or less is
treated as long-term capital loss to the extent of any dividends that are
treated as long-term capital gains by the shareholder. In addition, such a loss
is disallowed to the extent of any tax-exempt interest dividends received by the
shareholder.
It is anticipated that the dividends of the New York Municipal Portfolios,
the California Municipal Portfolios and the Diversified Municipal Portfolios
will be generally exempt from federal income taxes. It should be noted, however,
that under the Code, interest on certain "private activity bonds" issued after
August 7, 1986, is an item of tax preference for purposes of the alternative
minimum tax. The Portfolios anticipate that a portion of their investments may
be made in "private activity bonds," with the result that a portion of the
exempt-interest dividends paid by the Portfolios would be an item of tax
preference to shareholders subject to the alternative minimum tax. In addition,
tax-exempt income constitutes "adjusted current earnings" ("ACE") for purposes
of calculating the ACE adjustment for the corporate alternative minimum tax. It
is intended that within 60 days after the end of each year, each Portfolio will
mail information to shareholders on the tax status of dividends and
distributions, except that such mailing will be made within 45 days for the
Bernstein Government Short Duration Portfolio. If any dividends are not exempt
from federal income taxes, the annual tax information will indicate the
percentages of tax-exempt and taxable income.
It is anticipated that each of the New York Municipal Portfolios will
provide income that is generally tax-free for federal and New York State and
local individual income tax purposes to the extent that the income is derived
from New York State Municipal Securities or securities issued by possessions of
the United States, and that each of the California Municipal Portfolios will
provide income that is generally tax-free for federal and California personal
income taxes to the extent that the income is derived from California Municipal
Securities or securities issued by possessions of the United States. A portion
of the income of the other Portfolios may be exempt from state and local income
taxes in certain states to the extent of the Portfolio's income derived from
securities on which the interest is exempt from income taxes in that state.
Dividends and interest received by the International Value Portfolio may be
subject to foreign tax and withholding. However, tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Shareholders
may be entitled to claim foreign tax
53
<PAGE>
credits or deductions on their own federal income tax returns with respect to
such taxes paid by the Portfolio.
If the International Value Portfolio qualifies as a regulated investment
company, if certain asset and distribution requirements are satisfied and if
more than 50% of the Portfolio's total assets at the close of its fiscal year
consist of stock or securities of foreign corporations, the Portfolio may elect
for United States income tax purposes to treat foreign income taxes paid by it
as paid by its shareholders. The Portfolio will make such an election only if it
deems it to be in the best interests of its shareholders. If the election is
made, shareholders of the International Value Portfolio would be required to
include their pro rata portions of such foreign taxes in computing their taxable
incomes and then treat an amount equal to those foreign taxes as a United States
federal income tax deduction or as foreign tax credits against their United
States federal income taxes. Shortly after any year for which it makes such an
election, the Fund will report to the Portfolio's shareholders the amount per
share of such foreign tax that must be included in each shareholder's gross
income and the amount that will be available for the deduction or credit. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Certain limitations will be imposed on the extent to which the
credit and the deduction for foreign taxes may be claimed.
Capital gains on the securities of certain foreign corporations that are
considered to be passive foreign investment companies under the Internal Revenue
Code will be deemed to be ordinary income regardless of how long the
International Value Portfolio holds such an investment. In addition, the
Portfolio may be subject to corporate income tax and an interest charge on
certain dividends and capital gains earned from these investments, regardless of
whether such income and gains are distributed to shareholders.
Statements as to the tax status of dividends and distributions to
shareholders of each Portfolio are mailed annually. Shareholders are urged to
consult their own tax advisers regarding specific questions as to federal,
state, local or foreign taxes. See "Taxes" in the SAI.
Description of Shares
The shares of each Portfolio have no pre-emptive or conversion rights.
Shares are fully paid and nonassessable and redeemable at the option of the
shareholder and have a par value of $0.001. Shares are also redeemable at the
option of the Fund, if the net asset value of a shareholder's account is less
than $1,000, as previously discussed in "Redemption of Shares."
Pursuant to the Articles of Incorporation, the Board of Directors may also
authorize the creation of additional series of shares (the proceeds of which may
be invested in separate, independently managed portfolios) with such
preferences, privileges, limitations and voting and dividend rights as the Board
may determine.
54
<PAGE>
Shareholders have certain rights, including the right to call a meeting of
shareholders for the purpose of voting on the removal of one or more Directors.
Such removal can be effected upon the action of two-thirds of the outstanding
shares of all of the Portfolios of the Fund, voting as a single class. The
shareholders of each Portfolio are entitled to a full vote for each full share
held and to the appropriate fractional vote for each fractional share. A matter
that affects a Portfolio of the Fund will not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
voting securities of that Portfolio. The voting rights of the shareholders are
not cumulative. The Directors have been elected at the initial meeting of the
public shareholders of the Fund, except for Mr. Kristol, who was elected by the
other Directors. In order to avoid unnecessary expenses, the Fund does not
intend to hold annual meetings of shareholders.
Performance
Each of the Portfolios may, from time to time, advertise yield, average
annual total return and unannualized average total return. In addition, the
Bernstein New York Municipal Portfolio, the Bernstein California Municipal
Portfolio, the Bernstein Diversified Municipal Portfolio, the Bernstein
Government Short Duration Portfolio and the Short Duration Municipal Portfolios
may advertise tax-equivalent yield. Yield is a measure of a Portfolio's income;
it does not measure changes in the net asset value of the Portfolio's shares.
Average annual total return reflects all elements of return, including income,
expenses and changes in the value of the principal. Yield and average annual
total return do not reflect any tax consequences to an investor. Tax-equivalent
yield is the taxable yield that would be necessary to produce an equivalent
yield after taxes to a hypothetical investor in the highest applicable tax
bracket. Yield, tax-equivalent yield and average annual total return are based
on historical results and are not intended to indicate future performance.
The yield of a Portfolio is calculated by dividing the Portfolio's net
investment income per share during a specified month by the maximum offering
price per share on the last day of the month and annualizing it. Yield is
calculated in accordance with accounting methods prescribed by the Commission.
Because the yield accounting methods differ from the methods used for tax and
financial accounting purposes, a Portfolio's yield may not be comparable to the
dividends paid to a shareholder or the net investment income reported in the
Portfolio's financial statements. The calculation of yield takes into account
all fees and expenses. The calculation of tax-equivalent yield is based on yield
and, for the New York Municipal Portfolios and the California Municipal
Portfolios, assumes that the hypothetical investor is subject, respectively, to
the highest bracket of New York State and City or California, as well as
federal, taxes. The calculation of tax-equivalent yield for the Diversified
Municipal Portfolios assumes that the hypothetical investor is subject to the
highest bracket of only federal taxes. The calculation of tax-equivalent yield
for the Bernstein Government Short Duration Portfolio assumes the hypothetical
investor is subject to a stated bracket of state and/or state and local taxes.
The average annual total return of a Portfolio is computed by finding the
average annual compounded rate of return since the commencement of
55
<PAGE>
the Portfolio's operations based on an initial investment of $1,000 as compared
to the ending redeemable value, assuming that all dividends and distributions
were reinvested. The calculation of average annual total return takes into
account all fees and expenses. The unannualized average total return of a
Portfolio for a period is calculated by dividing the value of an investment at
the end of the period, assuming all dividends and distributions were reinvested,
by the value of the investment at the beginning of the period. The Fund may use
an independent service to calculate yield and/or performance data of any or all
Portfolios at such times and to such extent as the Manager deems appropriate.
For further information and a description of the method by which yield,
tax-equivalent yield, average annual total return and unannualized average total
return are calculated, see "Performance" in the SAI.
Reports to Shareholders
The Fund sends the shareholders of each Portfolio annual and semiannual
reports. The financial statements appearing in annual reports are audited by
independent accountants, whose report is included thereon. In addition, each
shareholder having an account directly with the Fund is sent a statement
confirming each transaction in the account.
Custodian and Transfer Agent
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as Custodian for the Fund and in that capacity holds
the cash and other assets for each Portfolio in the Fund and maintains certain
financial and accounting books and records pursuant to an agreement with the
Fund. Foreign securities and foreign currency owned by the Fund may be held by
foreign subcustodians of State Street Bank and Trust Company retained for such
purpose in accordance with the 1940 Act. State Street Bank and Trust Company
also serves as Transfer Agent for the Portfolios and in that capacity maintains
certain records pursuant to an agreement with the Fund.
Shareholder Inquiries
All inquiries regarding each Portfolio should be directed to the Fund at
the telephone number or address on the cover page of this Prospectus. Questions
concerning dividends or share ownership, transfer or redemption should be
directed to Bernstein at the same address; at 1999 Avenue of the Stars, Los
Angeles, California 90067; at 777 South Flagler Drive, West Palm Beach, Florida
33401; at 227 West Monroe Street, Chicago, Illinois 60606; or at 300 Crescent
Court, Suite 950, Dallas, Texas 75201.
Independent Accountants and Legal Counsel
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, has been selected as the independent accountants to audit the annual
financial statements of each
56
<PAGE>
Portfolio of the Fund. Price Waterhouse LLP also has been the auditor of the
investment performance statistics of Bernstein's separately managed accounts
since 1978.
Shereff, Friedman, Hoffman & Goodman LLP, 919 Third Avenue, New York, New
York 10022, has been selected as legal counsel to the Fund. Shereff, Friedman,
Hoffman & Goodman LLP and partners of that firm have been legal counsel to
Bernstein since 1967, when Bernstein was organized.
57
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Page
FEE TABLE
FINANCIAL HIGHLIGHTS
THE FUND
BERNSTEIN FIXED-INCOME PROCESS
BERNSTEIN FIXED-INCOME PORTFOLIOS
BERNSTEIN INTERNATIONAL VALUE PROCESS
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Investment Objectives and Policies
of the Fixed-Income Portfolios
The Short-Term Taxable Portfolios
o Bernstein Government Short Duration Portfolio
o Bernstein Short Duration Plus Portfolio
o The Intermediate Duration Taxable Portfolio
o Bernstein Intermediate Duration Portfolio
The Municipal Portfolios
o The Short Duration Municipal Portfolios
o The Intermediate Duration Municipal Portfolios
o The New York Municipal Portfolios:
o Bernstein Short Duration New York Municipal Portfolio
o Bernstein New York Municipal Portfolio
o The California Municipal Portfolios:
o Bernstein Short Duration California Municipal Portfolio
o Bernstein California Municipal Portfolio
o The Diversified Municipal Portfolios:
o Bernstein Short Duration Diversified Municipal Portfolio
o Bernstein Diversified Municipal Portfolio
Investment Objectives and Policies of the
Bernstein International Value Portfolio
INVESTMENTS
Special Investment Techniques
MANAGEMENT OF THE PORTFOLIOS
Directors and Officers
The Manager
Purchase of Shares
Exchanges of Shares
Redemption of Shares
Portfolio Transactions and Brokerage
Net Asset Value
Dividends, Distributions and Taxes
Description of Shares
Performance
Reports to Shareholders
Custodian and Transfer Agent
58
<PAGE>
Shareholder Inquiries
Independent Accountants and Legal Counsel
</TABLE>
59
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
767 Fifth Avenue
New York, New York 10153
(212) 756-4097
/ / BERNSTEIN SHORT DURATION PLUS PORTFOLIO
/ / BERNSTEIN INTERMEDIATE DURATION PORTFOLIO
/ / BERNSTEIN INTERNATIONAL VALUE PORTFOLIO
PROSPECTUS
February 1, 1996
Sanford C. Bernstein Fund, Inc. (the "Fund") is an open-end management
investment company. This type of company is commonly referred to as a mutual
fund. The Fund is currently comprised of 11 series of shares, each
representing a separate portfolio of securities and each having its own
investment objectives. Sanford C. Bernstein & Co., Inc. ("Bernstein," or the
"Manager") serves as Investment Manager to each series.
IMPORTANT NOTE: This prospectus is intended exclusively for participants in
employer-sponsored retirement or savings plans, such as tax-qualified pension
and profit-sharing plans and 401(k) thrift plans, and offers shares of only
three of the Fund's Portfolios-the Bernstein Short Duration Plus Portfolio, the
Bernstein Intermediate Duration Portfolio and the Bernstein International Value
Portfolio. Prospectuses containing information on the 11 Fund Portfolios and
on how to open a personal account are available for individual investors, and
may be obtained by writing to the address or calling the telephone number listed
above.
The Bernstein Short Duration Plus Portfolio and the Bernstein Intermediate
Duration Portfolio (each a "Fixed-Income Portfolio") aim to generate the highest
total return consistent with safety of principal and the financial objectives of
the Portfolios.
The Bernstein International Value Portfolio seeks long-term capital growth
on a total return basis (capital appreciation or depreciation plus dividends and
interest) principally through investment in equity securities of established
non-U.S. companies. Investments may be made solely for capital appreciation,
solely for income or any combination of the two for the purpose of achieving a
higher overall return.
This Prospectus sets forth information you ought to know before investing
in the Bernstein Short Duration Plus Portfolio, the Bernstein Intermediate
Duration Portfolio or the Bernstein International Value Portfolio. You should
read it carefully and retain it for future reference. You can find more
information about the Fund in the Statement of Additional Information (the
"SAI") dated February 1, 1996, which has been filed with the Securities and
Exchange Commission (the "Commission") and is incorporated herein by reference.
You may obtain a copy of the SAI without charge by calling or writing the Fund
at the above telephone number or address.
<PAGE>
BERNSTEIN PORTFOLIO OBJECTIVES
SHORT-DURATION PORTFOLIO: Bernstein Short Duration Plus: Page__
o Choose primarily from a broad universe of high-grade fixed-income
instruments.
INTERMEDIATE-DURATION PORTFOLIO: Bernstein Intermediate Duration: Page__
o Choose primarily from a broad universe of high-grade fixed-income
instruments.
INTERNATIONAL EQUITY PORTFOLIO: Bernstein International Value: Page __
o Invest primarily in equity securities of established foreign companies
in the countries comprising the EAFE index, plus Canada.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(front cover-page 1)
<PAGE>
FEE TABLE
Bernstein
Short Duration
Plus
Portfolio
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
(as a percentage of offering price)
Sales Load Imposed on Reinvested Dividends None
(as a percentage of offering price)
Deferred Sales Load (as a percentage of original None
purchase price or redemption proceeds)
Redemption Fees None
(as a percentage of amount redeemed)
Exchange Fees None
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees .50%
12b-1 Fees None
Other Expenses
Shareholder Servicing & Administrative Fees .10%
All Other Expenses .05%
Total Portfolio Operating Expenses .65%
Example
A Portfolio would pay the following expenses on a
$1,000 investment, assuming 5% annual return:
1 Yr. $ 7
3 Yrs. (cum.) $ 21
5 Yrs. (cum.) $ 36
10 Yrs. (cum.) $ 81
2
<PAGE>
FEE TABLE
Bernstein Bernstein
Intermediate International
Duration Value
Portfolio Portfolio
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None
(as a percentage of offering price)
Sales Load Imposed on Reinvested Dividends None None
(as a percentage of offering price)
Deferred Sales Load (as a percentage of None None
original purchase price or redemption
proceeds)
Redemption Fees None None
(as a percentage of amount redeemed)
Exchange Fees None None
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees .50% 1.00%
12b-1 Fees None None
Other Expenses
Shareholder Servicing & Administrative
Fees .10% .25%
All Other Expenses .04% .10%
Total Portfolio Operating Expenses .64% 1.35%
Example
A Portfolio would pay the following expenses on
a $1,000 investment, assuming 5% annual return:
1 Yr. $ 7 $ 14
3 Yrs. (cum.) $ 20 $ 43
5 Yrs. (cum.) $ 36 $ 74
10 Yrs. (cum.) $ 80 $ 162
3
<PAGE>
The purpose of the fee table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The Fund is no-load, there are no redemption fees, and there are no
charges for shareholders on monthly payment plans. "Other Expenses" for all
Portfolios are based on amounts for the fiscal year ended September 30, 1995.
The example should not be considered a representation of future expenses; actual
expenses may be greater or less than those shown. A more complete description of
the various costs and expenses will be found under "Management of the
Portfolios" on page ____. Shareholders of the Fund do not need to open a
brokerage account with Bernstein; shareholders may elect to take delivery of the
shares or to make alternate arrangements for custodying them. If a shareholder
holds Fund shares in a Bernstein brokerage account, Bernstein (not the Fund)
will charge an annual maintenance fee of $100 for accounts with assets of less
than $400,000 under the management of Bernstein's Equity and/or Fixed-Income
Investment Policy Groups. This fee is deducted from cash held in the brokerage
account or, if insufficient cash is maintained in the brokerage account, by
selling securities. Bernstein does not charge this fee on accounts that are
included in a group of related accounts as defined by Bernstein with combined
assets of $400,000 or more. Shares of the Fund purchased or redeemed through
broker-dealers, banks and other financial institutions may be subject to fees
imposed by those institutions.
4
<PAGE>
Financial Highlights
Set forth below is a table containing information as to the income and operating
performance of a share of each of the Bernstein Short Duration Plus Portfolio,
the Bernstein Intermediate Duration Portfolio and the Bernstein International
Value Portfolio, for the periods ended September 30, 1995; September 30, 1994;
September 30, 1993; September 30, 1992; September 30, 1991; September 30, 1990;
and September 30, 1989, or as applicable. The financial statements, which
contain this information for the periods ended September 30, 1995; September 30,
1994; September 30, 1993; September 30, 1992; and September 30, 1991, have been
audited by Price Waterhouse LLP. The related financial statements for the period
ended September 30, 1995 and the report of independent accountants are included
in the Fund's SAI. Additional performance information is contained in the Fund's
annual report to shareholders dated September 30, 1995, which is available upon
request and without charge. These financial highlights should be read in
conjunction with the financial statements contained in the Fund's SAI.
<TABLE>
<CAPTION>
Bernstein International Value Portfolio Bernstein Short Duration Plus Portfolio
------------------------------------------------- -----------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/95 9/30/94 9/30/93 9/30/92 (a) 9/30/95 9/30/94 9/30/93
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.57 $ 15.39 $ 11.98 $ 12.50 $ 12.32 $ 12.89 $ 13.14
----------- ----------- ----------- ----------- ---------- ----------- -----------
Income from investment operations:
Investment income, net 0.18 0.19 0.05 0.02 0.70 0.55 0.59
Net realized and unrealized gain
(loss) on investments, futures
and foreign currencies 0.07 1.13 3.54 (0.54) 0.18 (0.40) 0.10
----------- ----------- ----------- ----------- ---------- ----------- -----------
Total from investment
operations 0.25 1.32 3.59 (0.52) 0.88 0.15 0.69
----------- ----------- ----------- ----------- ---------- ----------- -----------
Less distributions:
Dividends from taxable net
investment income (0.11) (0.02) (0.05) 0 (0.71) (0.56) (0.59)
Dividends from tax-exempt net
investment income 0 0 0 0 0 0 0
Distributions from net realized
gains (0.63) (0.12) (0.13) 0 0 0 (0.35)
Distributions in excess of net
realized gains due to timing
differences 0 0 0 0 0 (0.16) 0
----------- ----------- ----------- ----------- ---------- ----------- -----------
Total distributions (0.74) (0.14) (0.18) 0 (0.71) (0.72) (0.94)
----------- ----------- ----------- ----------- ---------- ----------- -----------
Net asset value, end of period $ 16.08 $ 16.57 $ 15.39 $ 11.98 $ 12.49 $ 12.32 $ 12.89
=========== =========== =========== =========== ========== =========== ===========
Total Return 1.84% 8.55% 30.45% (4.16)% 7.36% 1.14% 5.49%
Ratios/Supplemental Data
Net assets, end of period
(000 omitted) $1,996,112 $1,343,266 $539,936 $75,255 $534,462 $550,415 $508,959
Average net assets (000 omitted) $1,591,703 $948,563 $235,839 $41,234 $536,042 $529,892 $535,889
Ratio of expenses to average net
assets 1.35% 1.39% 1.53% 2.00%* 0.65% 0.65% 0.66%
Ratio of net investment income to
average net assets 1.17% 1.13% 1.27% 0.59%* 5.69% 4.30% 4.52%
Portfolio turnover rate 29.53% 23.78% 21.22% 1.12% 61.03% 285.80% 112.87%
</TABLE>
*Annualized
(a) Commenced operations June 22, 1992
5
<PAGE>
Financial Highlights (Continued)
Set forth below is a table containing information as to the income and operating
performance of a share of each of the Bernstein Short Duration Plus Portfolio,
the Bernstein Intermediate Duration Portfolio and the Bernstein International
Value Portfolio, for the periods ended September 30, 1995; September 30, 1994;
September 30, 1993; September 30, 1992; September 30, 1991; September 30, 1990;
and September 30, 1989, or as applicable. The financial statements, which
contain this information for the periods ended September 30, 1995; September 30,
1994; September 30, 1993; September 30, 1992; and September 30, 1991, have been
audited by Price Waterhouse LLP. The related financial statements for the period
ended September 30, 1995 and the report of independent accountants are included
in the Fund's SAI. Additional performance information is contained in the Fund's
annual report to shareholders dated September 30, 1995, which is available upon
request and without charge. These financial highlights should be read in
conjunction with the financial statements contained in the Fund's SAI.
<TABLE>
<CAPTION>
(cont.) Bernstein Short Bernstein Intermediate
Duration Plus Portfolio Duration Portfolio
--------------------------------------------------- -----------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/92 9/30/91 9/30/90 9/30/89 (b) 9/30/95 9/30/94
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.84 $ 12.50 $ 12.62 $ 12.50 $ 12.54 $13.92
----------- ----------- ----------- ----------- ---------- ----------
Income from investment operations:
Investment income, net 0.75 0.94 0.97 0.78 0.78 0.68
Net realized and unrealized gain
(loss) on investments, futures
and foreign currencies 0.44 0.41 (0.01) 0.12 0.77 (1.15)
----------- ----------- ----------- ----------- ---------- ----------
Total from investment
operations 1.19 1.35 0.96 0.90 1.55 (0.47)
----------- ----------- ----------- ----------- ---------- ----------
Less distributions:
Dividends from taxable net
investment income (0.75) (0.94) (0.97) (0.78) (0.79) (0.70)
Dividends from tax-exempt net
investment income 0 0 0 0 0 0
Distributions from net realized
gains (0.14) (0.07) (0.11) 0 0 (0.08)
Distributions in excess of net
realized gains due to timing
differences 0 0 0 0 0 (0.13)
----------- ----------- ----------- ----------- ---------- ----------
Total distributions (0.89) (1.01) (1.08) (0.78) (0.79) (0.91)
----------- ----------- ----------- ----------- ---------- ----------
Net asset value, end of period $13.14 $12.84 $12.50 $12.62 $13.30 $12.54
=========== =========== =========== =========== ========== ==========
Total Return 9.60% 11.26% 7.88% 7.41% 12.82% (3.54)%
Ratios/Supplemental Data
Net assets, end of period
(000 omitted) $535,980 $435,334 $391,131 $335,310 $1,142,768 $848,529
Average net assets (000 omitted) $482,467 $405,457 $374,101 $263,899 $957,247 $764,519
Ratio of expenses to average net
assets 0.66% 0.67% 0.68% 0.75%* 0.64% 0.65%
Ratio of net investment income to
average net assets 5.75% 7.42% 7.67% 7.91% 6.11% 5.14%
Portfolio turnover rate 169.60% 140.03% 155.21% 132.82% 212.40% 203.73%
</TABLE>
*Annualized
(b) Commenced operations December 12, 1988
6
<PAGE>
<TABLE>
<CAPTION>
(cont.) Bernstein Intermediate Duration Portfolio
------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/93 9/30/92 9/30/91 9/30/90 9/30/89 (c)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.82 $ 13.19 $ 12.36 $ 12.82 $ 12.50
----------- ----------- ----------- ----------- ----------
Income from investment operations:
Investment income, net 0.76 0.90 1.00 0.98 0.69
Net realized and unrealized gain
(loss) on investments, futures,
and foreign currencies 0.68 0.79 0.85 (0.25) 0.32
----------- ----------- ----------- ----------- ----------
Total from investment
operations 1.44 1.69 1.85 0.73 1.01
----------- ----------- ----------- ----------- ----------
Less distributions:
Dividends from taxable net
investment income (0.76) (0.90) (1.00) (0.98) (0.69)
Dividends from tax-exempt net
investment income 0 0 0 0 0
Distributions from net realized
gains (0.58) (0.16) (0.02) (0.21) 0
Distributions in excess of net
realized gains due to timing
differences 0 0 0 0 0
----------- ----------- ----------- ----------- ----------
Total distributions (1.34) (1.06) (1.02) (1.19) (0.69)
----------- ----------- ----------- ----------- ----------
Net asset value, end of period $13.92 $13.82 $13.19 $12.36 $12.82
=========== =========== =========== =========== ==========
Total Return 11.30% 13.32% 15.54% 5.90% 8.25%
Ratios/Supplemental Data
Net assets, end of period
(000 omitted) $693,772 $524,301 $375,345 $240,779 $183,480
Average net assets (000 omitted) $595,273 $444,750 $304,034 $218,760 $135,549
Ratio of expenses to average net
assets 0.66% 0.67% 0.68% 0.71% 0.83%*
Ratio of net investment income to
average net assets 5.59% 6.64% 7.80% 7.77% 7.74%*
Portfolio turnover rate 60.77% 149.71% 81.04% 119.09% 121.11%
</TABLE>
*Annualized
(c) Commenced operations January 17, 1989
7
<PAGE>
The Fund
The Fund was incorporated on May 4, 1988, under the laws of Maryland as an
open-end management investment company. This Prospectus relates to three of the
Fund's series of shares (the "Portfolios"). Shares of each series represent an
interest in a separate portfolio of securities. At September 30, 1995, the ten
operating portfolios of the Fund (including the Bernstein Short Duration Plus
Portfolio, the Bernstein Intermediate Duration Portfolio and the Bernstein
International Value Portfolio) had net assets totaling $5.370 billion.
Bernstein, with offices at 767 Fifth Avenue, New York, New York 10153; 1999
Avenue of the Stars, Los Angeles, California 90067; 777 South Flagler Drive,
West Palm Beach, Florida 33401; and 227 West Monroe Street, Chicago, Illinois
60606; and 300 Crescent Court, Suite 950, Dallas, Texas 75201, serves as
Investment Manager to each Portfolio. Each Portfolio has its own investment
objectives.
Investment Objectives and Policies Of the Portfolios
Investment Objectives and Policies
Of the Fixed-Income Portfolios
General Investment Policies
Each Fixed-Income Portfolio evaluates a wide variety of instruments and
issuers, utilizing a variety of internally developed, quantitatively based
valuation techniques. Each of the Fixed-Income Portfolios may invest in any of
the securities detailed on pages ____-____. In addition, each of the
Fixed-Income Portfolios may use any of the special investment techniques, some
of which are commonly called derivatives, described on pages ____-____ to hedge
various market risks (such as interest rates, currency exchange rates, and broad
or security-specific changes in the prices of fixed-income securities), to
manage the effective maturity or duration of fixed-income securities, to exploit
mispricings in the securities markets, or as an alternative to activities in the
underlying cash markets. Except for those policies and objectives of each
Portfolio that are described in the Prospectus or SAI as fundamental, the
investment policies and objectives of each Portfolio may be changed by the
Fund's Board of Directors without shareholder approval. If there is a change in
investment policy or objective, shareholders should consider whether the
Portfolio remains an appropriate investment in light of their then-current
financial position and needs. There is no assurance that any Portfolio will
achieve its investment objective.
Neither of the Fixed-Income Portfolios will purchase any security if
immediately after that purchase less than 80% of the Portfolio's total assets
would consist of securities or commercial paper rated A or higher by Standard &
Poor's Corporation ("Standard & Poor's"),
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<PAGE>
Fitch Investors Service, Inc. ("Fitch") or Moody's Investors Service, Inc.
("Moody's"), SP-1 by Standard & Poor's, F-1 by Fitch, or MIG 1 or VMIG 1 by
Moody's, A-1 by Standard & Poor's, or P-1 by Moody's; or of securities and
commercial paper that are not rated but that are determined by the Manager to be
of comparable quality. In addition, neither of the Fixed-Income Portfolios will
purchase a security or commercial paper rated less than B by Standard & Poor's,
Fitch or Moody's, less than A-2 or SP-2 by Standard & Poor's, less than F-2 by
Fitch, or less than P-2, MIG 2 or VMIG 2 by Moody's, or securities and
commercial paper that are not rated but that are determined by the Manager to be
of comparably poor quality. In the event of differing ratings, the higher rating
shall apply. The impact of changing economic conditions, investment risk and
changing interest rates is increased by investing in securities rated below A by
Standard & Poor's, Fitch or Moody's, below SP-1 or A-1 by Standard & Poor's,
below F-1 by Fitch, or below MIG 1, VMIG 1 or P-1 by Moody's. In addition, the
secondary trading market for lower-rated bonds may be less liquid than the
market for higher-grade bonds. Accordingly, lower-rated bonds may be difficult
to value accurately. Securities rated BBB by Standard & Poor's and Fitch or Baa
by Moody's are investment grade. Securities that are rated BB or B by Standard &
Poor's and Fitch, or Ba or B by Moody's are considered to be speculative with
regard to the payment of interest and principal. Each Fixed-Income Portfolio, at
the time of purchase, may invest as much as 20% of its total assets in
securities of foreign issuers, including Eurobonds, Yankees and obligations of
foreign banks that are securities of foreign issuers, including foreign
governments.
Neither Fixed-Income Portfolio will invest in an illiquid security if, at
the time of purchase, the value of such illiquid security together with other
securities that are not readily marketable would exceed 10% of the net assets of
the Portfolio.
In addition to these policies, which govern both Fixed-Income Portfolios,
each individual Portfolio has individual policies, discussed hereafter,
pertaining to the minimum ratings and types of investments permitted, as well as
the effective duration and average maturity of the Portfolio. Effective
duration, a statistic that is expressed in time periods, is a measure of the
exposure of the Portfolio to changes in interest rates. Unlike maturity, which
is the latest possible date for the final payment to be received from a bond,
effective duration is a measure of the timing of all the expected interest and
principal payments. While maturity is somewhat indicative of interest-rate risk,
duration is a more accurate measure. The duration of a bond is defined to be the
effect on price of a rise (or fall) of 1% in interest rates. The Bernstein Short
Duration Plus Portfolio generally has a duration around 2.0 years and thus will
lose about 2% in principal should interest rates rise 1%. The Bernstein
Intermediate Duration Portfolio has a duration of about 5.0 years and would lose
about 5% should interest rates rise 1%. In contrast, long-term bonds typically
have durations of greater than 10 years and would thus lose more than 10% if
interest rates were to rise 1%. The longer the bond's duration, whether it is a
Treasury, corporate, or municipal bond, the greater its vulnerability to these
fluctuations.
9
<PAGE>
The actual duration of each of the Fixed-Income Portfolios may vary,
depending on the Manager's interest-rate forecast. When interest rates are
expected to rise, the duration is shortened. When interest rates are expected to
fall, the duration is lengthened.
The maturity composition of each of the Fixed-Income Portfolios may also
vary, depending upon the shape of the yield curve and opportunities in the bond
market, at times being concentrated in the middle part of the targeted range,
while at other times consisting of a greater amount of securities with
maturities that are shorter and others that are longer than the targeted range.
Generally, the value of debt securities changes as the general level of
interest rates fluctuates. During periods of rising interest rates, the values
of fixed-income securities generally decline. Conversely, during periods of
falling interest rates, the values of these securities nearly always increase.
Generally, the longer the maturity or effective duration, the greater the
sensitivity of the price of a fixed-income security to any given change in
interest rates. The value of each Portfolio's shares fluctuates with the value
of its investments.
Individual Portfolios' Policies
The Bernstein Short Duration Plus Portfolio invests in a diversified
portfolio of securities that it believes offer the highest expected returns to
investors consistent with a prudent level of credit risk. Because the Bernstein
Short Duration Plus Portfolio is managed without regard to potential tax
consequences, it may be particularly appropriate for investors, such as pension
plans and IRAs, that are not subject to current income taxation, as well as
individuals who reside in states with low or no state taxes or who reside in
high-tax states that do not permit a pass-through to the individual shareholder
of the tax-exempt character of this income.
The Short Duration Plus Portfolio is invested in securities with longer
maturities than the assets of the type of mutual fund known as a money-market
mutual fund, and its expected return is somewhat higher. Although the actual
maturities of the securities in the Portfolio may vary widely, the effective
duration of this Portfolio--which is expected to be one to three years under
normal market conditions--is longer than the effective duration of money
markets. The average dollar-weighted maturity of the Portfolio may range from
one to 25 years while maintaining the required duration. Since the effective
duration of this Portfolio is longer, and the quality of the portfolio
securities may be lower, the risk of a decline in the market value of the
Portfolio is greater than for a money-market fund that seeks to maintain a
stable net asset value. The relatively short-term nature of the Portfolio makes
it appropriate for consideration as a temporary investment.
10
<PAGE>
The Bernstein Intermediate Duration Portfolio invests in a diversified
portfolio of securities that it believes offers the highest expected return
consistent with a prudent level of risk. While the actual maturities of the
securities in the Portfolio may vary widely, the Portfolio intends to maintain
an effective duration of three to six years under normal market conditions. The
average dollar-weighted maturity of the Portfolio may range from two to 25 years
while maintaining the required duration. The Portfolio will not purchase any
security if immediately after that purchase less than 65% of the Portfolio's
total assets would consist of securities rated AA or higher by Standard & Poor's
or Aa or higher by Moody's or of securities that are not rated but that are
determined by the Manager to be of comparable quality.
Because the Bernstein Intermediate Duration Portfolio is managed without
regard to potential tax consequences to the shareholder, it may be particularly
appropriate for investors, such as pension plans and IRAs, not subject to
current federal income taxation.
Investment Objectives and Policies
Of the International Value Portfolio
The Bernstein International Value Portfolio seeks long-term capital growth
on a total-return basis (capital appreciation or depreciation plus dividends and
interest). The Portfolio will invest primarily in equity securities of
established foreign companies, as described on page _____.
The Portfolio will invest in a diversified portfolio of securities that the
Manager considers most undervalued. The Portfolio intends to diversify
investments among many foreign countries; it will generally be invested in
countries that comprise the EAFE Index (Europe, Australia and the Far East) and
Canada. EAFE countries currently include Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the
United Kingdom. The Portfolio may also make investments in less developed or
emerging equity markets. Shareholders should be aware that investing in less
developed or emerging markets involves exposure to economic structures that are
generally less diverse and mature, and to political systems that can be expected
to have less stability than those of developed countries.
Under normal market conditions, at least 65% of the Portfolio's total
assets will be invested in at least three foreign countries. Under exceptional
conditions abroad or when the Manager believes that economic or market
conditions warrant, the Portfolio may temporarily, for defensive purposes,
invest part or all of its portfolio in U.S. government obligations or debt or
equity securities of U.S. issuers. The Portfolio may invest in fixed-income
securities and enter into
11
<PAGE>
foreign currency exchange contracts and options on foreign currencies and it may
utilize options on securities and securities indexes and futures contracts and
options on futures. See the sections on "Investments" and "Special Investment
Techniques" on pages _____-_____. The International Value Portfolio will not
invest more than 5% of its total assets in restricted securities (other than
securities eligible for resale under Rule 144A of the Securities Act of 1933).
In addition, the International Value Portfolio will not invest in an illiquid
security if, at the time of purchase, the value of such illiquid security
together with other securities that are not readily marketable would exceed 15%
of the net assets of the Portfolio.
The above policies and objectives are not fundamental and may be changed by
the Fund's Board of Directors without shareholder approval. If there is a change
in investment policy or objective, shareholders should consider whether the
Portfolio remains an appropriate investment in light of their then-current
financial position and needs.
The International Value Portfolio has adopted certain fundamental
investment limitations. As a fundamental policy, the International Value
Portfolio will not:
(a) with respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer if, as a result of
the purchase, less than 75% of the International Value Portfolio's
assets consists of cash and cash items, Government securities,
securities of other investment companies and other securities,
limited, in respect of any one issuer, to an amount not greater
in value than 5% of the value of the International Value
Portfolio's total assets and to not more than 10% of the
outstanding voting securities of such issuer;
(b) invest more than 25% of its total assets in any one industry; or
(c) borrow money except that the International Value Portfolio
may borrow money for temporary or emergency purposes in an amount
not exceeding 33% of its total assets. As an operating (not a
fundamental) policy, the Portfolio will not borrow except from
a bank for temporary or emergency purposes in amounts in excess
of 5% of its total assets.
The SAI contains certain investment restrictions pertaining to the
International Value Portfolio and the Fixed-Income Portfolios.
The Portfolio may invest uncommitted cash balances in fixed-income
securities. Fixed-income securities may also be held to maintain liquidity to
meet shareholder redemptions, and, although the situation occurs infrequently,
these securities may be held in place of equities when the Manager believes that
fixed-income securities will provide total returns comparable to or better than
those of equity securities. Fixed-income securities include obligations of the
U.S. or foreign governments and their political subdivisions; obligations of
agencies and instrumentalities
12
<PAGE>
of the U.S. government; and bonds, debentures, notes, commercial paper, bank
certificates of deposit, repurchase agreements and other similar corporate debt
instruments of U.S. or foreign issuers that at the time of purchase are rated
BBB, A-2, SP-2 or higher by S&P, or Baa, P-2 or higher by Moody's, or, if
unrated, are in the Manager's opinion comparable in quality. Securities that are
rated BBB, A-2 or SP-2 by S&P or Baa or P-2 by Moody's are investment grade (for
a description of these rating categories, see the Appendix to the SAI). These
securities may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher-rated
securities. Bonds with investment grade ratings at time of purchase may be
retained, in the Manager's discretion, in the event of a rating reduction. Under
exceptional conditions abroad, or when it is believed that economic or market
conditions warrant, the Portfolio may temporarily, for defensive purposes,
invest all of its portfolio in fixed-income obligations of the U.S. government
or fixed-income or equity securities of U.S. issuers.
Investment Risks Of the Bernstein
International Value Portfolio
Market risk: Since it invests primarily in equity securities, the
Portfolio, like any equity portfolio, is vulnerable to market risk: the
possibility that stock prices in general will decline over short or even
extended periods. Moreover, the Portfolio's composition is likely to differ from
that of broad market indexes, and its performance should not be expected to
mirror the returns provided by a specific index. Stock prices are volatile from
year to year; accordingly, the Portfolio is suited to investors who are willing
to hold their investment over a long horizon.
Foreign currency risk: Returns on foreign securities are influenced by
currency risk as well as equity risk. Foreign securities are denominated in
foreign currencies, which may change in value in relation to the U.S. dollar,
possibly for protracted periods of time. When a foreign currency rises against
the U.S. dollar, the returns on foreign stocks for a U.S. investor will also
rise; when a foreign currency declines in value in relation to the U.S. dollar,
the returns on foreign stocks for a U.S. investor will also fall. In addition,
it is possible that foreign governments will impose currency exchange control
regulations or other restrictions that would prevent cash from being brought
back to the U.S.
Other risks: Other risks and considerations of international investing
include the availability of less public information with respect to issuers of
securities; less governmental supervision of foreign brokers and issuers of
securities; lack of uniform accounting, auditing and financial reporting
standards; a generally lower degree of market volume and liquidity than that
available in U.S. markets, which may result in greater price volatility;
settlement practices that may include delays and otherwise differ from those in
U.S. markets; the possibility of expropriation or confiscatory taxation; the
imposition of foreign taxes; and possible political instability in some
countries, which could affect U.S. investment in these countries. Investments in
foreign securities will also result in generally higher expenses due to the
costs of currency
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<PAGE>
exchange; payment of fixed brokerage commissions on certain foreign exchanges,
which generally are higher than commissions on U.S. exchanges; and the expense
of maintaining securities with foreign custodians.
Investments
Both Fixed-Income Portfolios will primarily be invested in debt securities,
including, subject to each Portfolio's general investment policies described on
pages _____-_____, but not limited to: (i) obligations issued or guaranteed as
to principal and interest by the U.S. government or the agencies or
instrumentalities thereof; (ii) obligations of Supranational Agencies; (iii)
straight and convertible corporate bonds and notes, including securities of
foreign and U.S. issuers payable in U.S. dollars and issued outside the U.S.
("Eurobonds") or securities of foreign issuers payable in U.S. dollars issued
inside the U.S. ("Yankees"); (iv) loan participations; (v) commercial paper;
(vi) obligations (including certificates of deposit, time deposits and bankers'
acceptances) of U.S. thrift institutions, U.S. commercial banks (including
foreign branches of such banks), and foreign banks (including U.S. branches of
such banks); (vii) mortgage-related securities; (viii) asset-backed securities;
(ix) Municipal Securities, or other securities issued by state and local
government agencies, the income on which may or may not be tax-exempt; (x)
guaranteed investment contracts; (xi) variable and floating rate securities;
(xii) private placements; (xiii) preferred stock; and (xiv) foreign securities.
From time to time, additional fixed-income securities are developed. They will
be considered for purchase by the Portfolios. The International Value Portfolio
will invest primarily in foreign equity securities, but may, under the
circumstances described in the "Investment Objectives and Policies" section,
pages ____-____, invest in fixed-income securities. Of course, the extent to
which each of the Portfolios emphasizes each of the categories of investment
described depends upon the investment objectives and restrictions of that
Portfolio.
Obligations Of the U.S. Government,
Its Agencies and Instrumentalities
The types of U.S. government and agency securities in which the Portfolios
may invest include bills, notes and bonds issued by the U.S. Treasury, as well
as securities issued by other U.S. government agencies and instrumentalities,
including bills, notes, bonds, mortgage-backed securities and other fixed-income
securities. However, certain types of mortgage-backed securities, known as
"Interest Only" (or "IO") and "Principal Only" (or "PO") securities, which are
based on government securities but "stripped" by third parties, are not
government securities.
The Portfolios may purchase securities issued or guaranteed by the
Government National Mortgage Association and other agencies and
instrumentalities the securities or guarantees of which are backed by the full
faith and credit of the United States. The Portfolios may also purchase
securities issued by the United States Postal Service and other agencies and
instrumentalities that have the right to borrow from the United States Treasury
to meet their
14
<PAGE>
obligations. The Portfolios may also purchase securities issued or guaranteed by
U.S. government agencies and instrumentalities, including the Federal Farm
Credit Banks, the Federal Home Loan Bank, the Financing Corporation ("FICO"),
the Tennessee Valley Authority, the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and the
Resolution Funding Corporation ("Refcorp"), the obligations of which are backed
only by the credit of the issuing agency.
Obligations of Supranational Agencies
The Portfolios may invest in the obligations of supranational agencies.
Supranational agencies rely for funds on participating countries, often
including the United States. Some supranationals, such as International Bank for
Reconstruction and Development (the "World Bank"), have the right to borrow from
participating countries, including the United States. Other supranationals must
request funds from participating countries; such requests may not always be
honored. Moreover, the securities of supranational agencies, depending on where
and how they are issued, may be subject to some of the risks discussed on page
_____ with respect to foreign securities.
Corporate Bonds, Notes and Commercial Paper
The Portfolios may invest in straight and convertible corporate bonds,
notes and commercial paper. The value of the Portfolios' investment in corporate
bonds and notes will change in response to changes in interest rates and the
relative financial strength of each issuer. In general, lower-rated bonds, notes
and commercial paper tend to have higher yields but are subject to greater
market fluctuations and risk of loss than higher-rated bonds, notes and
commercial paper of similar maturity.
Loan Participations
The Portfolios may also invest in participating interests
("participations") in obligations, including variable-rate tax-exempt
obligations, mortgages and other loans, held by financial institutions. A
participation provides the Portfolio with a specified-percentage undivided
interest in the underlying obligation. The Portfolio may have the right to
demand payment of the unpaid principal balance plus accrued interest upon a
specified number of days' notice. The obligation may also be backed by a letter
of credit or guarantee of the institution. The Portfolio participates on the
same basis as the institution in the obligation, except that the institution may
retain a service fee out of the interest paid on the obligation. Loan
participations are considered illiquid securities.
Mortgage-Related Securities
15
<PAGE>
Mortgage loans made by banks, savings and loan institutions and other
lenders are often assembled into pools, and interests in the pools are sold to
investors. Interests in such pools are referred to in this Prospectus as
"mortgage-related securities." Payments of mortgage-related securities are
backed by the property mortgaged. In addition, some mortgage-related securities
are guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government. In the case of mortgage-related and
asset-backed securities that are not backed by the United States government or
one of its agencies, a loss could be incurred if the collateral backing these
securities is insufficient. This may occur even though the collateral is
government-backed.
One type of mortgage-related security is a Government National Mortgage
Association ("GNMA") Certificate. GNMA Certificates are backed as to principal
and interest by the full faith and credit of the U.S. government. Another type
is an FNMA Certificate. Principal and interest payments of FNMA Certificates are
guaranteed only by FNMA itself, not by the full faith and credit of the U.S.
government. A third type of mortgage-related security in which one or more of
the Portfolios might invest is a FHLMC Participation Certificate. This type of
security is backed by FHLMC as to payment of principal and interest but, like an
FNMA security, it is not backed by the full faith and credit of the U.S.
government.
The Portfolios may also invest in mortgage pools originated by investment
banking firms and builders. Rather than being guaranteed by an agency or
instrumentality of the U.S. government, these pools are usually backed by
mortgage insurance. The Manager of the Portfolios will take such insurance into
account in determining whether to invest in such pools.
Since the borrower is typically obligated to make monthly payments of
principal and interest, most mortgage-related securities pass these payments
through to the holder after deduction of a servicing fee. However, other payment
arrangements are possible. Payments may be made to the holder on a different
schedule than that on which payments are received from the borrower, including,
but not limited to, weekly, biweekly and semiannually.
Furthermore, the monthly principal and interest payments are not always
passed through to the holder on a pro rata basis. In the case of Collateralized
Mortgage Obligations ("CMOs"), the pool is divided into two or more tranches,
and special rules for the disbursement of principal and interest payments are
established. The Fixed-Income Portfolios may invest in debt obligations that are
CMOs; provided that the entity issuing the CMO is not a registered investment
company.
In another version of mortgage-related securities, all interest payments go
to one class of holders--"Interest Only" or "IO"--and all of the principal goes
to a second class of holders--"Principal Only" or "PO". The market values of
both IOs and POs are sensitive to prepayment rates; the value of POs varies
directly with prepayment rates, while the value of IOs varies
16
<PAGE>
inversely with prepayment rates. If prepayment rates are high, investors
may actually receive less cash from the IO than was initially invested.
IOs and POs issued by the United States government or its agencies and
instrumentalities that are backed by fixed-rate mortgages may be considered
liquid securities under guidelines established by the Fund's Board of
Directors; all other IOs and POs will be considered illiquid.
Payments to the Portfolios from mortgage-related securities generally
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as 15 or 30 years, borrowers can, and
often do, pay them off sooner. Thus, the Portfolios generally receive
prepayments of principal in addition to the principal that is part of the
regular monthly payments.
A borrower is more likely to prepay a mortgage that bears a relatively high
rate of interest. Thus, the value of the securities may not increase as much as
other debt securities when interest rates fall. However, when interest rates
rise, the rate of prepayments may slow and the value of the mortgage-related and
asset-backed securities may decrease like other debt securities. The Portfolios
normally do not distribute principal payments (whether regular or prepaid) to
their shareholders. Rather, they invest such payments in additional securities,
which may not be mortgage-related.
Asset-Backed Securities
In the case of securities backed by automobile receivables, the issuers of
such securities typically file financing statements, and the servicers of such
obligations take custody of such obligations. Therefore, if the servicers, in
contravention of their duty, were to sell such obligations, the third-party
purchasers would possibly acquire an interest superior to the holder of the
securitized assets. Also, most states require that a security interest in a
vehicle be noted on the certificate of title, and the certificate of title may
not be amended to reflect the assignment of the seller's security interest.
Therefore, the recovery of the collateral in some cases may not be available to
support payments on the securities. Lastly, in the case of credit-card
receivables, both federal and state consumer protection laws may allow setoffs
against certain amounts owed against balances of the credit cards.
Municipal Securities
Municipal Securities are debt obligations issued by or on behalf of states,
territories or possessions of the United States or their political subdivisions,
agencies or instrumentalities, the District of Columbia or Puerto Rico, where
the interest from such securities is, according to information reasonably
available to the Manager, in the opinion of bond counsel at the time of
issuance, exempt from federal income tax. The Fund may also invest, from time to
time, in securities issued by or on behalf of states, territories or possessions
of the United States or their
17
<PAGE>
political subdivisions, agencies or instrumentalities, the District of Columbia
or Puerto Rico, where the interest from such securities is not exempt from
federal income tax. Municipal Securities include "private activity bonds," such
as industrial revenue bonds.
The two principal classifications of Municipal Securities are general
obligation and revenue or special obligation securities. General obligation
securities are secured by the issuer's pledge of its faith, credit and taxing
power for the payment of principal and interest. The term "issuer" means the
agency, authority, instrumentality or other political subdivision, the assets
and revenues of which are available for the payment of the principal of and
interest on the securities. Revenue or special obligation securities are payable
only from the revenue derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special tax or other specific revenue
source and generally are not payable from the unrestricted revenues of the
issuer. Some Municipal Securities are municipal lease obligations. Lease
obligations usually do not constitute general obligations of the municipality
for which the municipality's taxing power is pledged, although the lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain non-appropriation clauses that provide that
the municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. The Fund Board will be
responsible for determining the credit quality of unrated municipal lease
obligations on an ongoing basis, including an assessment of the likelihood that
the lease will not be canceled. Some municipal lease obligations may be
illiquid. Municipal Securities include certain asset-backed certificates
representing interests in trusts that include pools of installment payment
agreements, leases, or other debt obligations of state or local governmental
entities. Some Municipal Securities are covered by insurance or other credit
enhancements procured by the issuer or underwriter guaranteeing timely payment
of principal and interest.
Guaranteed Investment Contracts
The Portfolios may purchase guaranteed investment contracts ("GICs"). A GIC
is a contract issued by an insurance company that guarantees payment of interest
and repayment of principal. GICs are considered illiquid securities.
Variable and Floating Rate Securities
Each Portfolio may purchase variable and floating rate securities. The
terms of variable and floating rate instruments provide for the interest rate to
be adjusted according to a formula on certain predetermined dates.
Variable and floating rate instruments that are repayable on demand at a
future date are deemed to have a maturity equal to the time remaining until the
principal will be received on the assumption that the demand feature is
exercised on the earliest possible date. For the purposes of evaluating the
interest-rate sensitivity of the Portfolio, variable and floating rate
instruments are
18
<PAGE>
deemed to have a maturity equal to the period remaining until the next
interest-rate readjustment. For the purposes of evaluating the credit risks of
variable and floating rate instruments, these instruments are deemed to have a
maturity equal to the time remaining until the earliest date the Portfolio is
entitled to demand repayment of principal.
Private Placements
The Portfolios may invest in privately placed securities that, in the
absence of an exemption, would be required to be registered under the Securities
Act of 1933 so as to permit their sale to the public ("restricted securities").
Restricted securities may be sold only in privately negotiated transactions.
These securities, excluding restricted securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933 that have been determined to be
liquid in the trading market for the security under procedures adopted by the
Board of Directors of the Fund, are considered to be illiquid. The Board is
responsible for monitoring the implementation of the procedures on the liquidity
of Rule 144A securities in the Portfolio.
Illiquid Securities
Within the limits set forth in the "Investment Objectives and Policies"
section (pages ____-____), the Portfolios may invest in illiquid
securities--securities that are not readily marketable. The Board of Directors
of the Fund has determined that any or all of the following factors may be
relevant to determining the liquidity of a security: the amount of the issue
outstanding; the complexity of the issue; the bid/ask spread; the number and
identity of market makers or dealers in or other buyers of the security; the
existence of put features and other rights; the term of the security; the
visibility of the issuer in the marketplace; the method of soliciting offers and
the mechanics of completing transfers; the average trading volume for the issue;
and with respect to foreign securities, the amount of such securities that can
be owned by investors who are not residents of the country where such securities
were issued and the amount of such securities owned by the controlling
interests. The factors to be considered in the case of the analysis of unrated
municipal lease obligations will include an analysis of credit factors.
Purchased dealer options, private placements (excluding securities eligible for
resale under Rule 144A that have been determined to be liquid as set forth in
the preceding section), guaranteed investment contracts, repurchase agreements
for periods longer than seven days, time deposits maturing in more than seven
days and loan participations are considered to be illiquid securities for the
purposes of this restriction. In addition, the staff of the Securities and
Exchange Commission currently takes the position that all options traded in the
over-the-counter market are illiquid; if the staff amends its position, the Fund
may, in accordance with the amended position, consider such options to be
liquid.
Preferred Stock
The Portfolios 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
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obligations are first met. Preferred stock may be more subject to 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.
Foreign Securities
While the Fixed-Income Portfolios generally invest in domestic securities,
each may also invest up to 20% of its total assets in foreign securities of the
same types and quality as the domestic securities in which it invests when the
anticipated performance of the foreign securities is believed by the adviser to
offer more potential than domestic alternatives in keeping with the investment
objectives of the Portfolios. The Portfolios may invest in foreign fixed-income
securities that may involve risks in addition to those normally associated with
domestic securities. These risks include currency risks and other risks
described on page ____.
Warrants
The Portfolios may have investments in warrants. Warrants are securities
that give the Portfolio the right to purchase securities from the issuer at a
specific price (the strike price) for a limited period of time. The strike price
of warrants sometimes is much lower than the current market price of the
underlying securities, yet they are subject to similar price fluctuations. As a
result, warrants may be more volatile investments than the underlying securities
and may offer greater potential for capital appreciation as well as capital
loss. Warrants do not entitle a holder to dividends, interest payments or voting
rights with respect to the underlying securities and do not represent any rights
in the assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to the expiration date. These
factors can make warrants more speculative than other types of investments.
Equity Securities
The equity securities in which the Bernstein International Value Portfolio
may invest include common and preferred stocks, warrants and convertible
securities. The Portfolio may invest in foreign securities directly or in the
form of sponsored or unsponsored American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs), or other similar securities convertible into
securities of foreign issuers without limitation. The issuers of unsponsored
ADRs are not obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such information and the
market value of the ADR. ADRs are receipts typically issued by a U.S. bank or
trust company that evidence ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. In some
circumstances--e.g., when a direct investment in securities in a particular
country cannot be made--the Portfolio, in compliance with provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"), may invest
in the securities of investment companies that invest in
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foreign securities. As a shareholder in any mutual fund, the Portfolio will bear
its ratable share of the mutual fund's management fees and other expenses, and
will remain subject to payment of the Portfolio's management and other fees with
respect to assets so invested.
Special Investment Techniques
In seeking to achieve its investment objectives, each of the Portfolios may
employ the following special investment techniques, among others. These
techniques may be used to hedge various market risks (such as interest rates,
currency exchange rates and broad or security-specific changes in the prices of
equity or fixed-income securities), to manage the effective maturity or duration
of fixed-income securities, to exploit mispricings in the securities markets, or
as an alternative to activities in the underlying cash markets.
Foreign Currency Transactions
A Portfolio may enter into foreign currency exchange contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange market or
through entering into forward contracts, which obligate the contracting parties
to purchase or sell a specific currency at a specified future date at a
specified price. The Portfolios will generally not enter into a forward contract
with a term greater than one year.
The Portfolios will generally enter into forward contracts under two
circumstances. First, a Portfolio 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 price in dollars of the security.
Second, when the Manager believes that the currency of a particular foreign
country may experience an adverse movement against another currency, a Portfolio
may enter into a forward contract to sell an amount of the foreign currency (or
another currency that acts as a proxy for that currency) approximating the value
of some or all of a Portfolio's securities denominated in such foreign currency.
Under certain circumstances, the International Value Portfolio may commit a
substantial portion or the entire value of its portfolio to the consummation of
these contracts. The Manager will consider the effect a substantial commitment
of assets to forward contracts would have on the investment program of the
International Value Portfolio and the flexibility of the Portfolio to purchase
additional securities. Although forward contracts will be used primarily to
protect the Portfolios from adverse currency movements, they involve the risk
that anticipated currency movements will not be accurately predicted and the
Portfolios' total return could be adversely affected as a result.
Futures Contracts and Options
The Portfolios may enter into financial futures contracts, including bond,
bond index, Eurodeposit, stock index or currency futures contracts and options
thereon. In addition, the Portfolios may each purchase and write (i.e., sell)
put and call options on securities, on securities
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<PAGE>
indexes based on securities in which the Portfolio may invest, on
foreign currencies traded on U.S. or foreign exchanges or over-the-
counter and on futures contracts. The securities for which a Portfolio
writes put or call options will be Portfolio securities, and the
Portfolios will write only covered options.
The Portfolios 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,
currencies, futures or other instruments. In addition, the Portfolios may write
covered straddles. A straddle is a combination of a call and a put written on
the same underlying security.
In accordance with the current rules and regulations of the Commodity
Futures Trading Commission (the "CFTC"), the aggregate initial margins and
premiums required from the Portfolio in connection with commodity futures and
options positions used for purposes other than "bona fide hedging" will not
exceed 5% of the liquidation value of the Portfolio; provided, however, in the
case of an option that is in the money at the time of the purchase, that the
in-the-money portion of the premium is excluded in calculating the 5%
limitation. No Portfolio will write any option if, immediately thereafter, the
aggregate value of the Portfolio's securities subject to outstanding options
would exceed 25% of its net assets.
Futures contracts and options can be highly volatile and could reduce a
Portfolio's total returns, and attempts to use such investments for hedging
purposes may not be successful. Successful futures and options strategies
require the ability to predict future movements in securities prices, interest
rates and other economic factors. Each Portfolio's potential losses from the use
of futures extend beyond its initial investment in such contracts and are
potentially unlimited. Also, losses from futures and options could be
significant if a Portfolio is unable to close out its position due to
disruptions in the market or lack of liquidity.
Swaps and Hybrid Investments
As part of its investment program and to maintain greater flexibility, each
Portfolio may invest in instruments that have the characteristics of futures,
options, currencies and securities. Such instruments may take a variety of
forms, such as debt instruments with interest or principal payments determined
by reference to the value of commodities, currencies, fixed-income instruments,
financial indexes or other financial or economic indicators, data or events; or
the differences between the value of commodities, currencies, fixed-income
instruments, financial indexes or other financial or economic indicators, data
or events; or the rate of change of the value of commodities, currencies,
fixed-income instruments, financial indexes, or other financial or economic
indicators, data or events. The risk of these investments can be substantial;
possibly all of the principal is at risk. No Portfolio will invest more than 20%
of its total assets in these investments.
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<PAGE>
A Portfolio may enter into interest-rate or foreign currency swaps and
purchase and sell interest-rate caps and floors. The Portfolios expect to enter
into these transactions to exploit mispricings in the bond or currency markets
or to preserve a return or spread on a particular investment or portion of its
portfolio, as a duration management technique, or to protect against any
increase in the price of securities the Portfolios anticipate purchasing at a
later date.
Interest-rate swaps involve the exchange by a Portfolio with another party
of their respective commitments to pay or receive interest, e.g., an exchange of
fixed-rate payments for floating-rate payments. Such an exchange would allow the
Portfolio to alter its exposure to interest-rate market risk without changing
the composition of the Portfolio. The purchase of an interest-rate floor or cap
entitles the purchaser to receive payments of interest on a notional principal
amount from the seller, to the extent that the specified index falls below
(floor) or exceeds (cap) a predetermined interest rate. Currency swaps are
similar to interest-rate swaps, except that they involve currencies instead of
interest rates. The Portfolios will enter interest-rate swaps only on a net
basis, i.e., the two payment streams are netted out, with the Portfolios
receiving or paying, as the case may be, only the net amount of the two
payments. A Portfolio will maintain in a segregated account with the Fund's
custodian an amount having an aggregate net asset value at least equal to the
net amount of the excess, if any, of the Portfolio's obligations over its
entitlements with respect to each interest-rate swap.
Repurchase Agreements
In a repurchase transaction, a Portfolio purchases a security from a bank
or a securities dealer and simultaneously agrees to resell that security to the
bank or broker-dealer at an agreed-upon price on an agreed-upon date. The resale
price reflects the purchase price and an agreed-upon rate of interest. In
effect, the obligation of the seller to repay the agreed-upon price is secured
by the value of the underlying security, which must at least equal the
repurchase price. Repurchase agreements could involve certain risks in the event
of default or insolvency of the other party, including possible delays or
restrictions on the Portfolio's ability to dispose of the underlying securities.
The Board of Directors has established guidelines to be used by the Manager in
repurchase transactions and regularly monitors the Portfolios' use of repurchase
agreements.
Reverse Repurchase Agreements
The Portfolios may enter into reverse repurchase agreements with banks and
broker-dealers from time to time. In a reverse repurchase transaction, it is the
Portfolio, rather than the other party to the transaction, that sells the
securities and simultaneously agrees to repurchase them at a price reflecting an
agreed-upon rate of interest. A Portfolio's obligations under reverse repurchase
agreements will not exceed one-third of the Portfolio's total assets, less
liabilities other than obligations under such reverse repurchase agreements.
During the time a reverse repurchase agreement is outstanding, each Portfolio
that has entered into such an agreement maintains a
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<PAGE>
segregated account with its Custodian containing cash, U.S. government or other
liquid high-grade debt securities having a value at least equal to the
repurchase price under the reverse repurchase agreement. The use of reverse
repurchase agreements is included in the Portfolios' borrowing policy and is
subject to the limit of Section 18(f)(1) of the 1940 Act. Reverse repurchase
agreements may create leverage, increasing a Portfolio's opportunity for gain
and risk of loss for a given fluctuation in the value of the Portfolio's assets.
There may also be risks of delay in recovery and, in some cases, even loss of
rights in the underlying securities, should the opposite party fail financially.
Lending Portfolio Securities
Each Portfolio may, from time to time, lend portfolio securities having, in
the case of the Fixed-Income Portfolios, a market value of no more than 30% of
its total assets and, in the case of the International Value Portfolio, having a
market value of no more than one-third of its total assets, to qualified
broker-dealers, banks or other financial institutions. By lending its portfolio
securities, a Portfolio attempts to increase its income through the receipt of
interest on the loan. Any such loan of portfolio securities will be marked to
the market daily and secured by collateral consisting of cash or short-term U.S.
government securities in an amount at least equal to the value of the securities
loaned. The Manager believes that the risk of loss on such a transaction is
slight because, if the borrower were to default, the collateral would be
available to satisfy the obligation. However, as with other extensions of
secured credit, loans of portfolio securities involve some risk of loss of
rights in the collateral should the borrower fail financially. The Manager
carefully evaluates the creditworthiness of any potential borrower of
securities. A Portfolio may not have the right to vote securities on loan, but
it will call a loaned security in anticipation of an important vote.
When-Issued and Delayed-Delivery Transactions
The Portfolios may purchase securities on a "when-issued" or
"delayed-delivery" basis. In a when-issued or delayed-delivery transaction, a
Portfolio purchases a security with delivery to take place at a later date,
usually within three months from the date the transaction is entered into. The
market value of the security at delivery may be more or less than the purchase
price. The Fund's Custodian is to maintain, in segregated accounts, cash, U.S.
government securities or other liquid high-grade debt obligations having a value
equal to or greater than each Portfolio's purchase commitments; likewise, the
Custodian is to segregate securities sold by each Portfolio on a
delayed-delivery basis.
Further information about the Portfolios' use of Special Investment
Techniques and their associated risks is contained in the SAI.
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<PAGE>
Future Developments
The Portfolios expect to discover additional opportunities in the areas of
options, futures contracts, options on futures contracts and other derivative
instruments. These opportunities will become available as the Manager develops
new strategies, as regulatory authorities broaden the range of transactions that
are permitted and as new options and futures are developed. To the extent such
opportunities are both consistent with the Portfolio's investment objectives and
legally permissible for that Portfolio, the Manager may utilize the strategies
that do not conflict with the Portfolio's investment restrictions. These
opportunities may involve risks that differ from those described above.
Management Of the Portfolios
Directors and Officers
The Board of Directors of the Fund is responsible for the overall
supervision of the management of the Fund. The directors also perform various
duties imposed on directors of investment companies by the 1940 Act and by the
State of Maryland. Officers of the Fund conduct and supervise the daily
operations of the Portfolios.
The following table lists the directors and executive officers of the Fund,
their business addresses and their principal occupations during the past five
years.
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<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address the Fund During Past Five Years
<S> <C> <C>
Roger Hertog* President, 1993-Present: President, Chief Operating Officer
767 Fifth Avenue Treasurer, and Director-Bernstein
New York, NY 10153 Director Previously: Executive Vice President and
Director-Bernstein
Stuart K. Nelson* Senior Vice President, Senior Vice President, General Counsel
767 Fifth Avenue Director and Director-Bernstein
New York, NY 10153
Arthur Aeder Director 1987-Present: Consultant;
20 West 55th Street Formerly Senior Partner-Oppenheim, Appel,
New York, NY 10019 Dixon & Co. (subsequently Spicer & Oppenheim)
Certified Public Accountants, and Chairman-
Spicer & Oppenheim International
Peter L. Bernstein** Director President-Peter L. Bernstein, Inc.,
575 Madison Avenue Economic Consultants
Suite 1006
New York, NY 10022
William Kristol Director 6/95-Present: Editor and Publisher, The Weekly
1150 17th Street, N.W. Standard; 11/93-5/95: Chairman-Project for the
5th Floor Republican Future; 1/93-11/93: Director-The Bradley
Washington, D.C. 20036 Project on the 90's; 5/89-1/93: Chief of Staff to the
Vice President, The White House
Theodore Levitt Director Professor Emeritus of Business Administration,
Harvard Business School Harvard University
Cumnock 300 1985-1989: Editor, Harvard Business Review
Boston, MA 02163
Francis H. Trainer, Jr. Senior Vice President 1992-Present: Senior Vice President, Director-Fixed
767 Fifth Avenue Income Investments and Director-Bernstein;
New York, NY 10153 Previously: Manager of Fixed-Income
Investments-Bernstein
Jean Margo Reid Secretary 1992-Present: Vice President and Associate
767 Fifth Avenue General Counsel-Bernstein
New York, NY 10153 Previously: Vice President and
Attorney-Bernstein
* An "interested person" of the Fund, as defined in the 1940 Act.
** Not related to Zalman C. Bernstein, Chairman of the Executive
Committee - Bernstein
</TABLE>
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<PAGE>
The Manager
Bernstein is a closely held corporation, organized under the laws of the
State of New York on January 20, 1969, which succeeded to the business of
Sanford C. Bernstein & Co., a partnership, on February 1, 1969. Bernstein is a
registered investment adviser that manages some $34.8 billion, as of September
30, 1995, for individuals, endowments, trusts and estates, charitable
foundations, partnerships, corporations, the Portfolios of the Fund and
tax-exempt funds such as pension and profit-sharing plans. Of that amount, some
$13.3 billion was invested in fixed-income securities and $21.5 billion in
equities as of September 30, 1995. Pursuant to contracts with the Fund,
Bernstein provides the following types of services: Investment Management,
Shareholder Servicing and Administration and Distribution.
Investment Management
Bernstein has entered into Investment Management Agreements (the
"Management Agreements") with the Fund, on behalf of the Portfolios, under which
the Manager, subject to the supervision of the Board of Directors and in
conformity with the stated policies of the Portfolios, manages each Portfolio's
assets. Investment Policy Groups created by the Manager and comprised of the
Manager's employees make all investment decisions for the Portfolios, and no one
person is primarily responsible for making recommendations to these groups.
Each Portfolio pays the Manager for the services performed on behalf of
that Portfolio, as well as for the services performed on behalf of the Fund as a
whole. The fee paid by each Fixed-Income Portfolio is at an annual rate of 0.50%
of each such Portfolio's average daily net assets up to and including $1 billion
and at an annual rate of 0.45% of each such Portfolio's average daily net assets
in excess of $1 billion. The fee paid by the International Value Portfolio is at
an annual rate of 1.00% of that Portfolio's average daily net assets up to but
not exceeding $2 billion and at an annual rate of .90 of 1% of that Portfolio's
average daily net assets that exceed $2 billion. Because the investment programs
of international asset management are costly to implement and maintain, this fee
is higher than that paid by most investment companies that invest in U.S. equity
securities. The fee is computed daily and payable monthly. For purposes of
complying with California law, the Manager will reduce its fee to the extent
required to limit each Portfolio's expenses to 2.5% of the Portfolio's first $30
million of average net assets, 2% of the next $70 million, and 1.5% of the
Portfolio's average net assets in excess of $100 million; expenses incurred by
the International Value Portfolio for custodian costs in excess of those that
would have been incurred had the Portfolio's investments been in domestic
securities are excluded from aggregate expenses for the purposes of applying
this limitation.
Shareholder Servicing and Administration
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<PAGE>
Bernstein has also entered into Shareholder Servicing and Administrative
Agreements with the Fund on behalf of the Portfolios. Pursuant to these
Agreements, Bernstein pays all expenses incurred by it in connection with
administering the ordinary course of the Fund's and each Portfolio's business.
Bernstein also pays the costs of office facilities and of clerical and
administrative services not provided by State Street Bank and Trust Company, the
Fund's Custodian and Transfer Agent. Bernstein serves as Shareholder Servicing
Agent and in such capacity may enter into agreements with other organizations
whereby some or all of Bernstein's duties in this regard may be delegated. The
shareholder servicing that will be provided by Bernstein or other organizations
might include, among other things, proxy solicitations and providing information
to shareholders concerning their mutual fund investments, systematic withdrawal
plans, dividend payments, reinvestments, and other matters. The fee paid by each
Fixed-Income Portfolio for these services is at an annual rate of 0.10% of that
Portfolio's average daily net assets, and the fee paid by the International
Value Portfolio is at an annual rate of 0.25% of the Portfolio's average daily
net assets.
Each Portfolio is responsible for the payment of all of its expenses other
than those expressly stated to be payable by Bernstein under the Management
Agreements and the Shareholder Servicing and Administrative Agreements.
Distribution
Bernstein acts as Distributor of each Portfolio's shares pursuant to
Distribution Agreements with the Fund.
Participating in your Plan
The Fund is available as an investment option in your retirement or savings
plan. The administrator of your plan or your employee benefits office can
provide you with detailed information on how to participate in your plan and how
to elect the Fund as an investment option.
You may be permitted to elect different investment options, alter the
amounts contributed to your plan, or change how contributions are allocated
among your investment options in accordance with your plan's specific
provisions. See your plan administrator or employee benefits office for more
details.
Contributions, exchanges or distributions of the Fund's shares are
effective when received in "good order" by Bernstein or its agents. "Good
order" means that complete information on the purchase, exchange or redemption
and the appropriate monies have been received by Bernstein or its agents.
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<PAGE>
Your plan may allow you to exchange monies from one investment option to
another. Check with your plan administrator for details on the rules governing
exchanges in your plan. Certain investment options may be subject to unique
restrictions.
Before making an exchange, you should consider the following:
o If you are making an exchange to another Bernstein Fund option, please
read the Fund's prospectus. Write to the address or call
the number which appears on the cover of this Prospectus for a copy.
o Exchanges are accepted by Bernstein only as permitted by your plan.
Your plan administrator can explain how frequently exchanges are allowed.
If your have questions about your account, contact your plan administrator
or the organization that provides record-keeping services for your plan.
Portfolio Transactions and Brokerage
The Manager is responsible for decisions to buy and sell securities for
each of the Portfolios and for broker-dealer selection. In general, the
securities in which the Fixed-Income Portfolios invest are traded on a "net"
rather than a transaction-charge basis (as securities in which the International
Value Portfolio invest are generally traded), with dealers acting as principal
for their own accounts without a stated transaction charge. Accordingly, the
price of the security may reflect an increase or decrease from the price paid by
the dealer together with a spread between the bid and asked price, which
provides the opportunity for a profit or loss to the dealer. Portfolio
transactions that are effected on a transaction-charge basis may be effected
through Bernstein, acting as agent and not as principal, provided, among other
things, that any transaction charges, fees or other remuneration received by
Bernstein are reasonable and fair compared to the transaction charges, fees or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities during a comparable period of time. In
some cases, a Portfolio might engage in purchase or sale transactions with
another Portfolio of the Fund, subject to conditions specified under the 1940
Act. There might also be occasions when a Portfolio engages in purchase or sale
transactions with another mutual fund.
Although the objectives of the other accounts to which the Manager provides
investment advice may differ from those of each of the Portfolios, it is
possible that, at times, identical securities are acceptable for one or more of
the Portfolios and one or more of such accounts. If the purchase or sale of
securities consistent with the investment policies of one or more of the
Portfolios and one or more of the accounts of the Manager is considered at or
about the same time, transactions in such securities will be allocated among the
accounts and the Portfolios in a manner deemed equitable by the Manager. Where
securities are allocated among Fund Portfolios
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<PAGE>
and private accounts, the Manager may use the average price at which the
securities were purchased or sold.
Neither of the Fixed-Income Portfolios anticipates a portfolio turnover
rate in excess of 300%. The International Value Portfolio anticipates a
portfolio turnover rate of less than 100%. A turnover rate of 100% would occur,
for example, if all the securities held by a Portfolio were replaced in a period
of one year. A portfolio's turnover rate is the percentage computed by dividing
the lesser of portfolio purchases or sales (excluding all securities whose
maturities at acquisition were one year or less) by the average value of the
portfolio. High portfolio turnover involves correspondingly greater transaction
costs, which are borne directly by the Portfolio, and may also result in the
realization of substantial net short-term capital gains, taxable at ordinary
income tax rates to non-tax-exempt investors.
Net Asset Value
The net asset value of each Portfolio is computed as of the close of
regular trading of the New York Stock Exchange (the "Exchange") (normally 4:00
p.m., New York time). Purchase and redemption orders are accepted by the Fund on
each business day, with the exception of Exchange and national bank holidays, as
determined from time to time. Currently, these holidays are: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas. The net asset value per share of each Portfolio is the net worth of
the Portfolio (assets, including securities at market value, minus liabilities)
divided by the number of shares outstanding. The value of each security for
which readily available market quotations exist is based on the most recent
sale, the most recent available bid price or the mean between the most recent
available bid and asked prices in the broadest and most representative market
for that security as determined by the Manager. Debt instruments with remaining
maturities of 60 days or less may be valued at amortized cost. Securities and
other assets for which market quotations are not readily available are valued by
appraisal at their fair value as determined in good faith under procedures
established by and under the general supervision of the Board of Directors. The
Fund may use an independent pricing service to value the Portfolios' assets at
such times and to such extent as the Manager deems appropriate. All assets and
liabilities initially expressed in foreign currencies will be translated into
U.S. dollars. Dividends on foreign securities are accrued and reflected in net
asset value either on the date the security goes ex-dividend or the date the
Manager becomes aware of them, whichever is later; corporate actions of foreign
issuers are reflected in net asset value on the date on which they become
effective, or the date the Manager becomes aware of them, whichever is later.
Dividends, Distributions and Taxes
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<PAGE>
The Fixed-Income Portfolios intend to declare dividends daily and to pay
them monthly. The International Value Portfolio intends to declare and pay
dividends at least annually, generally in December. Capital-gains distributions
are made at least annually, generally in December. Each Portfolio's
distributions and dividends are paid in additional shares of that Portfolio
based on the Portfolio's net asset value at the close of business on the record
date.
Each Portfolio intends to continue to qualify for taxation as a "regulated
investment company" under the Internal Revenue Code so that it will not be
subject to federal income tax to the extent that its income is distributed to
shareholders.
If you utilize the Fund as an investment option in an employer-sponsored
retirement or savings plan, dividend and capital gains distributions from the
Fund will generally not be subject to current taxation, but will accumulate on a
tax-deferred basis. In general, employer-sponsored retirement and savings plans
are governed by a complex set of tax rules. If you participate in such a plan,
consult your plan administrator, your plan's Summary Plan Description or a
professional tax adviser regarding the tax consequences of your participation in
the plan and of any plan contributions or withdrawals.
Dividends and interest received by the International Value Portfolio may be
subject to foreign tax and withholding. However, tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Shareholders
may be entitled to claim foreign tax credits or deductions on their own federal
income tax returns with respect to such taxes paid by the Portfolio.
If the International Value Portfolio qualifies as a regulated investment
company, if certain asset and distribution requirements are satisfied and if
more than 50% of the Portfolio's total assets at the close of its fiscal year
consist of stock or securities of foreign corporations, the Portfolio may elect
for United States income tax purposes to treat foreign income taxes paid by it
as paid by its shareholders. The Portfolio will make such an election only if it
deems it to be in the best interests of its shareholders.
Description of Shares
The shares of each Portfolio have no pre-emptive or conversion rights.
Shares are fully paid and nonassessable and redeemable at the option of the
shareholder and have a par value of $0.001. Shares are also redeemable at the
option of the Fund, if the net asset value of a shareholder's account is less
than $1,000.
Pursuant to the Articles of Incorporation, the Board of Directors may also
authorize the creation of additional series of shares (the proceeds of which may
be invested in separate, independently managed portfolios) with such
preferences, privileges, limitations and voting and dividend rights as the Board
may determine.
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<PAGE>
Shareholders have certain rights, including the right to call a meeting of
shareholders for the purpose of voting on the removal of one or more Directors.
Such removal can be effected upon the action of two-thirds of the outstanding
shares of all of the Portfolios of the Fund, voting as a single class. The
shareholders of each Portfolio are entitled to a full vote for each full share
held and to the appropriate fractional vote for each fractional share. A matter
that affects a Portfolio of the Fund will not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
voting securities of that Portfolio. The voting rights of the shareholders are
not cumulative. The Directors have been elected at the initial meeting of the
public shareholders of the Fund, except for Mr. Kristol, who was elected by the
other Directors. In order to avoid unnecessary expenses, the Fund does not
intend to hold annual meetings of shareholders.
Performance
Each of the Portfolios may, from time to time, advertise yield, average
annual total return and unannualized average total return. Yield is a measure of
a Portfolio's income; it does not measure changes in the net asset value of the
Portfolio's shares. Average annual total return reflects all elements of return,
including income, expenses and changes in the value of the principal. Yield and
average annual total return are based on historical results and are not intended
to indicate future performance.
The yield of a Portfolio is calculated by dividing the Portfolio's net
investment income per share during a specified month by the maximum offering
price per share on the last day of the month and annualizing it. Yield is
calculated in accordance with accounting methods prescribed by the Commission.
Because the yield accounting methods differ from the methods used for tax and
financial accounting purposes, a Portfolio's yield may not be comparable to the
dividends paid to a shareholder or the net investment income reported in the
Portfolio's financial statements. The calculation of yield takes into account
all fees and expenses. The average annual total return of a Portfolio is
computed by finding the average annual compounded rate of return since the
commencement of the Portfolio's operations based on an initial investment of
$1,000 as compared to the ending redeemable value, assuming that all dividends
and distributions were reinvested. The calculation of average annual total
return takes into account all fees and expenses. The unannualized average total
return of a Portfolio for a period is calculated by dividing the value of an
investment at the end of the period, assuming all dividends and distributions
were reinvested, by the value of the investment at the beginning of the period.
The Fund may use an independent service to calculate yield and/or performance
data of any or all Portfolios at such times and to such extent as the Manager
deems appropriate. For further information and a description of the method by
which yield average annual total return and unannualized average total return
are calculated, see "Performance" in the SAI.
Custodian and Transfer Agent
32
<PAGE>
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as Custodian for the Fund and in that capacity holds
the cash and other assets for each Portfolio in the Fund and maintains certain
financial and accounting books and records pursuant to an agreement with the
Fund. Foreign securities and foreign currency owned by the Fund may be held by
foreign subcustodians of State Street Bank and Trust Company retained for such
purpose in accordance with the 1940 Act. State Street Bank and Trust Company
also serves as Transfer Agent for the Portfolios and in that capacity maintains
certain records pursuant to an agreement with the Fund.
Independent Accountants and Legal Counsel
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, has been selected as the independent accountants to audit the annual
financial statements of each Portfolio of the Fund. Price Waterhouse LLP also
has been the auditor of the investment performance statistics of Bernstein's
separately managed accounts since 1978.
Shereff, Friedman, Hoffman & Goodman LLP, 919 Third Avenue, New York, New
York 10022, has been selected as legal counsel to the Fund. Shereff, Friedman,
Hoffman & Goodman LLP and partners of that firm have been legal counsel to
Bernstein since 1967, when Bernstein was organized.
33
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
FEE TABLE..................................................
FINANCIAL HIGHLIGHTS ......................................
THE FUND ..................................................
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS ......
Investment Objectives and Policies ................
of the Fixed-Income Portfolios ...................
o Bernstein Short Duration Plus Portfolio ......
o Bernstein Intermediate Duration Portfolio.....
Investment Objectives and Policies of the
Bernstein International Value Portfolio ...........
INVESTMENTS ...............................................
Special Investment Techniques .....................
MANAGEMENT OF THE PORTFOLIOS ..............................
Directors and Officers ............................
The Manager .......................................
Participating in your Plan ........................
Portfolio Transactions and Brokerage ..............
Net Asset Value ...................................
Dividends, Distributions and Taxes ................
Description of Shares .............................
Performance .......................................
Custodian and Transfer Agent ......................
Independent Accountants and Legal Counsel .........
</TABLE>
34
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
767 Fifth Avenue
New York, New York 10153
(212) 756-4097
Statement of Additional Information
February 1, 1996
Sanford C. Bernstein Fund, Inc. (the "Fund") is an open-end management
investment company. This Statement of Additional Information relates to ten of
the Fund's series of shares (the "Portfolios"), each with its own investment
objectives.
This Statement of Additional Information is not a prospectus, and should be
read in conjunction with the Fund's Prospectus, dated February 1, 1996, which
may be obtained by writing to or telephoning the Fund at the above address or
telephone number.
Cross Reference to
Page in
Page Prospectus
---- ------------------
Investment Objectives and Policies B-2
Investment Restrictions B-22
Directors and Officers and B-30
Principal Holders of Securities
Manager and Distributor B-31
Net Asset Value B-34
Portfolio Transactions and Brokerage B-34
Purchase and Redemption of Shares B-37
Taxes B-37
Custodian, Transfer Agent, B-42
Independent Accountants and Financial Statements
Performance B-43
Appendix B-50
<PAGE>
B-2
INVESTMENT OBJECTIVES AND POLICIES
For a description of the objectives and policies of the Portfolios, see
"Investment Objectives and Policies of the Portfolios" in the Fund's Prospectus.
The following information is provided for those investors desiring information
in addition to that contained in the Prospectus. This Statement of Additional
Information relates to the Fund's nine fixed-income Portfolios -- the Bernstein
Short Duration California Municipal Portfolio, Bernstein Short Duration
Diversified Municipal Portfolio, Bernstein Short Duration New York Municipal
Portfolio, Bernstein Government Short Duration Portfolio, Bernstein Short
Duration Plus Portfolio, Bernstein Intermediate Duration Portfolio, Bernstein
Diversified Municipal Portfolio, Bernstein New York Municipal Portfolio and
Bernstein California Municipal Portfolio (the "Fixed-Income Portfolios") -- and
one of the Fund's international equity Portfolios -- the Bernstein International
Value Portfolio.
Bank Obligations
The Portfolios may invest in fixed-income obligations (including, but not
limited to, certificates of deposit, time deposits and bankers' acceptances) of
U.S. thrift institutions, U.S. commercial banks (including foreign branches of
such banks) and foreign banks (including U.S. branches of such banks).
Time deposits are non-negotiable obligations of banks or thrift
institutions with specified maturities and interest rates. Time deposits with
maturities of more than seven days are considered illiquid securities.
Certificates of deposit are negotiable obligations issued by commercial
banks or thrift institutions. Certificates of deposit may bear a fixed rate of
interest or a variable rate of interest based upon a specified market rate.
A banker's acceptance is a time draft drawn on a commercial bank, often in
connection with the movement, sale or storage of goods.
The Portfolios expect to invest no more than 5% of any Portfolio's net
assets in fixed-income investments of non-insured U.S. banks and U.S. thrift
institutions. The risks of investments in non-insured banks and thrifts are
individually evaluated since non-insured banks and thrifts are not subject to
supervision and examination by the FDIC or a similar regulatory authority. The
Portfolios limit their purchases to fixed-income obligations issued by insured
U.S. banks and U.S. thrift institutions which are rated B or higher by Standard
& Poor's or Moody's or which are not rated but which are determined by the
Manager to be of comparable quality. For investments in non-insured foreign
banks, the Fixed-Income Portfolios limit their purchases to fixed-income
obligations issued by foreign banks with a rating of B or higher by Standard &
Poor's or Moody's or of securities which are not rated but which are determined
by Bernstein to be of comparable quality.
<PAGE>
B-3
Zero Coupon Securities
The Portfolios may purchase zero coupon debt securities. A zero coupon
security pays no cash interest during its stated term. Its value lies in the
difference between the principal value to the holder at maturity and the
purchase price. Zero coupon securities are sold at a discount to principal
value, and their market values nearly always fluctuate more widely than do the
market values of similar-maturity debt securities which pay interest.
Asset-Backed Securities
The Portfolios may purchase securities backed by financial assets such as
automobile loans, computer leases and credit card receivables. Two varieties of
such asset-backed securities are CARS and CARDS. CARS are securities,
representing either ownership interests in fixed pools of automobile
receivables, or debt instruments supported by the cash flows from such a pool.
CARDS are participations in fixed pools of credit card accounts. These
securities have varying terms and degrees of liquidity. Asset-backed securities
may be pass-through, representing actual equity ownership of the underlying
assets, or pay-through, representing debt instruments supported by cash flows
from the underlying assets. Pay-through asset-backed securities may pay all
interest and principal to the holder, or they may pay a fixed rate of interest,
with any excess over that required to pay interest going either into a reserve
account or to a subordinate class of securities, which may be retained by the
originator. The originator may guarantee interest and principal payments. These
guarantees often do not extend to the whole amount of the principal, but rather
to an amount equal to a multiple of the historical loss experience of similar
portfolios. The creditworthiness of asset-backed securities may also be enhanced
by letters of credit or by insurance bonds, which may or may not cover the
entire principal and interest of the issue. The Manager takes any relevant
guarantees, letters of credit or insurance into account in making investment
decisions on behalf of the Portfolios.
Convertible Securities
The Portfolios may purchase convertible corporate bonds and preferred
stock. Convertible securities are securities (such as bonds and preferred
stocks) which may be converted at a stated exchange rate into underlying shares
of preferred or common stock. Convertible bonds and convertible preferred
stocks, until converted, have many characteristics similar to those of
fixed-income securities. For example, the price of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. Holders of fixed-income securities generally have a
claim on the assets of the issuer prior to the holders of common stock in case
of liquidation.
Convertible debt securities are typically subordinated to similar
non-convertible securities of the same issuer. The unique feature of a
convertible security is that as the market price of the underlying common stock
declines, a convertible security tends to trade increasingly on the basis of its
yield, so long as it is not close to the conversion price, and so may not
initially experience market-value declines to the same extent as the underlying
common stock. So long as the market price of the convertible security is close
to the
<PAGE>
B-4
conversion price, when the market price of the underlying common stock
increases, the price of a convertible security increasingly reflects the value
of the underlying common stock and may rise accordingly.
Other Securities
It is anticipated that, from time to time, other securities will be
developed, and they will be considered as potential investments for the
Portfolios, subject to Board guidelines.
Special Investment Techniques
Options
The Portfolios may each purchase put and call options on securities. A
Portfolio would normally purchase call options to hedge against an increase in
the market value of the securities in which the Portfolio may invest and put
options to hedge against a decline in market value of its portfolio securities.
Options may also be purchased to alter the effective duration of the
Fixed-Income Portfolios.
If a put is purchased for a Portfolio, the Portfolio may profit from a
decline in the market value of the underlying security. If a call is purchased,
a Portfolio may profit from a rise in the market value of the underlying
security. To realize these profits, the purchased put or call must be sold prior
to expiration or exercised. A Portfolio may also profit from an increase in the
volatility assumption implicit in the market price of the purchased put or call.
To realize this profit, the option must be sold prior to expiration. Any profit
or loss realized from the sale of an option is equal to the sale price less the
purchase cost and any transaction costs. Any profit or loss from the exercise of
a call option is equal to the market value of the underlying security at the
time of exercise less (i) the exercise price, (ii) the purchase cost of the
option, and (iii) any transaction costs. Any profit or loss from the exercise of
a put option is equal to the exercise price less (i) the market value of the
underlying security at the time of exercise, (ii) the purchase cost of the
option, and (iii) any transaction costs.
Each Portfolio may write (i.e., sell short) covered put and call options on
its portfolio securities. These options will generally be sold when the Manager
perceives the options to be overpriced. They may also be sold to alter the
effective duration of the Fixed-Income Portfolios. When a Portfolio writes an
option, it receives a premium which it retains whether or not the option is
exercised. If the option is not exercised, this premium represents a profit on
the transaction (less any transaction costs).
By writing a call option, a Portfolio becomes obligated during the term of
the option to deliver the underlying securities, upon exercise of the option, to
the purchaser of the option at a specified price (the "exercise price"). The
purchaser of a call option has, for a specified period of time, the right, but
not the obligation, to purchase the securities subject to the option at the
exercise price. When a Portfolio writes a call option, the Portfolio loses the
opportunity for gain from an increase in the price of the underlying securities
beyond the exercise price of the option during the period that the option is
open, but retains the risk that the price of the securities may decrease.
<PAGE>
B-5
By writing a put option, a Portfolio becomes obligated during the term of
the option to purchase the underlying securities from the option purchaser, upon
exercise of the option, at the exercise price. The purchaser of a put option
has, for a specified period of time, the right, but not the obligation, to sell
the securities subject to the option to the writer of the put at the exercise
price. A Portfolio might, therefore, be obligated to purchase the underlying
securities for more than the market price prevailing at the time of exercise.
The Portfolios write only "covered" options. This means that so long as a
Portfolio is obligated as the writer of a call option, it will (i) own the
securities subject to the option; (ii) have an absolute and immediate right to
acquire those securities without additional cash consideration upon conversion
or exchange of other securities held in its portfolio; (iii) hold a call option
on the same security with an exercise price no higher than the exercise price of
the call sold or, if higher, deposit and maintain the differential in cash, U.S.
government securities or other liquid high-grade debt obligations ("liquid
assets") in a segregated account with its Custodian; or (iv) deposit and
maintain with its Custodian in a segregated account liquid assets having a value
that, when added to any amounts deposited with, or on behalf of, a broker as
margin, equals the market value of the instruments underlying the call. A
Portfolio is considered "covered" with respect to a put it writes if, so long as
it is obligated as the writer of a put, it (i) deposits and maintains with its
Custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option; (ii) holds a put on the same
security with an exercise price no lower than the exercise price of the put sold
or, if lower, the Portfolio deposits and maintains the differential in liquid
assets in a segregated account with its Custodian; or (iii) owns a short
position in the instrument underlying the put option, (or, if an index, a
portfolio representative of the index) at the same or a higher price than the
strike price of the put or, if lower, the Portfolio deposits and maintains the
differential in liquid assets in a segregated account with its Custodian.
A Portfolio may also write and purchase put and call options on any
securities index based on securities in which the Portfolio may invest for the
same purposes as it may write and purchase options on securities. Options on
securities indexes are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, options are designed to
reflect price fluctuations in a group of securities or segment of the securities
market rather than price fluctuations in a single security. A Portfolio, in
purchasing or selling securities index options, is subject to the risk that the
value of its portfolio securities may not change as much as an index because the
Portfolio's investments generally cannot match the composition of an index.
In addition, a Portfolio may purchase and write put and call options on
foreign currencies for the purpose of protecting against declines in the dollar
value of its portfolio securities and against increases in the U.S. dollar cost
of foreign securities to be acquired. The writing of an option on foreign
currency will constitute only a partial hedge, up to the amount of the premium
received, and the Portfolio could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations. However, in the event of unanticipated rate
movements adverse to the Portfolio's option
<PAGE>
B-6
position, the Portfolio may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be written or
purchased by the Portfolios will be traded on U.S. and foreign exchanges or
over-the-counter. The staff of the Securities and Exchange Commission currently
takes the position that all options on foreign currencies which are traded in
the over-the-counter market are illiquid; if the staff amends its position, the
Fund may, in accordance with the amended position, consider such options to be
liquid.
The Portfolios may write covered straddles. A straddle is a combination of
a call and a put written on the same underlying security. A straddle will be
covered when sufficient assets are deposited to meet the requirements, as
defined in the preceding paragraph. In accordance with the terms of a no-action
position from the staff of the Securities and Exchange Commission, the Fund may
use the same liquid assets to cover both the call and put options where the
exercise price of the call and put are the same, or the exercise price of the
call is higher than that of the put. In such cases, the Portfolios will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
The staff of the Securities and Exchange Commission has taken the position
that, in general, purchased dealer options and the assets used as cover for
written dealer options are illiquid securities. However, a Portfolio may treat
the securities it uses as cover for written dealer options as liquid, provided
it has arrangements with certain qualified dealers who agree that the Portfolio
may repurchase any option it writes for a maximum price to be calculated by a
predetermined formula. In these cases, the dealer option would be considered
illiquid to the extent that the maximum repurchase price under the formula
exceeds the intrinsic value of the option.
Possible Risks Associated with Options Transactions. In considering
the use of options, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things, the
current market price of the underlying security, the time remaining until
expiration, the relationship of the exercise price to the market price, the
expected price volatility of the underlying security and general market
conditions.
(2) A position in an exchange-traded option may be closed out only on an
exchange which provides a market for options of the same series. The ability to
establish and close out positions on the options exchanges is subject to the
maintenance of a liquid market. There can be no assurance that a liquid market
will exist for any option at any specific time. Although the Manager intends to
purchase or write only those exchange-traded options for which there appears to
be an active market, there is no assurance that a liquid market will exist for
any particular option and it is possible that, for some options, no market may
exist. In such event, it might not be possible to effect closing transactions
with respect to certain options, with the result that the Portfolio would have
to exercise those options which it has purchased in order to realize any profit.
With respect to options written by a Portfolio, the inability to enter into
closing transactions may result in losses.
<PAGE>
B-7
(3) Exchange-traded options generally have a continuous liquid market while
dealer options do not. Consequently, the Portfolio will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the issuing dealer. Similarly, when the Portfolio writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
which originally purchased the option. While the Portfolio will enter into
dealer options only with dealers who are expected to be capable of entering into
closing transactions with the Portfolio, there can be no assurance that the
Portfolio will be able to liquidate a dealer option at a favorable price at any
time prior to its expiration. Until the Portfolio, as the writer of a covered
dealer option, is able to effect a closing purchase transaction, it will not be
able to liquidate securities used as cover until the option expires, is
exercised or the Portfolio provides substitute cover. In the event of insolvency
of the dealer, the Portfolio may be unable to liquidate a dealer option and
thereby release the securities used as cover for the option until expiration of
the option.
(4) A Portfolio's activities in the options markets may result in a
higher portfolio turnover rate and additional brokerage costs; however, the
Portfolio may also save on transaction costs by purchasing such contracts rather
than buying or selling individual securities.
(5) All options purchased or sold by the Portfolios will be traded on a
securities exchange or will be purchased or sold by securities dealers ("dealer
options") meeting creditworthiness standards approved by the Fund's Board of
Directors. While exchange-traded options are, in effect, guaranteed by the
Options Clearing Corporation, in the case of dealer options, a Portfolio relies
on the dealer from which it purchases a dealer option to perform if the option
is exercised. Thus, when a Portfolio purchases a dealer option, it relies on the
dealer from which it purchases the option to make or take delivery of the
underlying securities. Failure by the dealer to do so would result in the loss
of the premium paid by the Portfolio as well as loss of the expected benefit of
the transaction.
Futures Contracts and Options on Futures.
The Portfolios may purchase or sell financial futures contracts ("futures
contracts") and options thereon. Financial futures are commodity futures
contracts which obligate the buyer to take and the seller to make delivery at a
future date of a specified quantity of a financial instrument or an amount of
cash based on the value of a securities index or the market value in U.S.
dollars of a foreign currency. Currently, futures contracts are available on
various types of fixed-income securities and indexes, including but not limited
to U.S. Treasury bonds, notes, and bills, foreign government bonds, Eurodollar
certificates of deposit, municipal bonds, foreign exchange, and various domestic
and foreign stock indexes.
In connection with transactions in futures contracts and related short
options, the Portfolio is required to deposit with its Custodian in a segregated
account in the name of its FCM as "initial margin" a specified amount of cash
and/or short-term government securities. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the FCM to reflect
changes in the value of the futures contract or short option positions. In
accordance with the current rules and regulations of the Commodity Futures
Trading Commission (the "CFTC"), the aggregate initial margins and premiums
<PAGE>
B-8
required from a Portfolio in connection with commodity futures and options
positions used for purposes other than "bona fide hedging" will not exceed five
percent of the liquidation value of the Portfolio.
If the Manager wishes to shorten the effective duration of a Fixed-Income
Portfolio, the Manager may sell a futures contract or a call option thereon, or
purchase a put option on that futures contract. If the Manager wishes to
lengthen the effective duration of a Fixed-Income Portfolio, the Manager may buy
a futures contract or a call option thereon, or sell a put option.
The Portfolios' use of futures contracts will not result in leverage. The
Portfolio will segregate liquid assets, such as cash, government securities or
other high grade debt obligations, to cover its performance under such
contracts, or will employ alternative cover (such as owning an offsetting
position). Although the terms of futures contracts specify actual delivery or
receipt of securities or cash, in most instances the contracts are closed out
before the settlement date without the making or taking of delivery. Closing out
of a futures contract is effected by entering into an offsetting purchase or
sale transaction.
Unlike a futures contract, which requires the parties to buy and sell a
security or currency or make a cash settlement based on changes in a securities
index on an agreed date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to exercise its option, the holder may sell the option or may
decide to let the option expire and forfeit the premium thereon. The purchaser
of an option on a futures contract makes no daily payments of cash in the nature
of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract. The
value of the option changes and is thus reflected in the net asset value of the
Portfolio.
Amounts equal to the initial margin and variation margin on any options on
futures contracts sold by the Portfolios are paid by the Portfolio directly to
the FCM or placed in a segregated account, in the name of the FCM, as currently
required by the Investment Company Act and the Securities and Exchange
Commission interpretations thereunder; in the future all such payments may be
made directly to the FCM in accordance with forthcoming Commission
interpretations.
A Portfolio may write (i.e., sell short) only covered put and call options
on futures contracts. A Portfolio is considered "covered" with respect to a call
option it writes on a futures contract if the Portfolio (i) owns a long position
in the underlying futures contract; (ii) segregates and maintains with its
Custodian liquid assets equal in value to the exercise price of the call (less
any initial margin deposited); (iii) owns a security or currency which is
deliverable under the futures contract; or (iv) owns an option to purchase the
security, currency or securities index, which is deliverable under the futures
contract or owns a call option to purchase the underlying futures contract, in
each case at a price no higher than the exercise price of the call option
written by the Portfolio, or if higher, the Portfolio deposits and maintains the
differential between the two exercise prices in liquid assets in a segregated
account with its Custodian. A Portfolio is considered "covered" with respect to
a put option it writes on a futures contract if it (i) segregates and maintains
with its Custodian liquid assets equal in value to the exercise price of the put
(less any initial and variation margin
<PAGE>
B-9
deposited); (ii) owns a put option on the security, currency or securities index
which is the subject of the futures contract or owns a put option on the futures
contract underlying the option, in each case at an exercise price as high as or
higher than the price of the contract held by the Portfolio or, if lower, the
Portfolio deposits and maintains the differential between the two exercise
prices in liquid assets in a segregated account with its Custodian; or (iii)
owns a short position in the underlying futures contract.
The Portfolios may write covered straddles of options on futures. A
straddle is a combination of a call and a put written on the same underlying
futures contract. A straddle will be covered when sufficient assets are
deposited to meet the requirements, as defined in the preceding paragraph. A
Portfolio may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, the Portfolios will
also segregate liquid assets equivalent to the amount, if any, by which the put
is "in the money."
Possible Risks Associated with Futures Transactions. In considering the
proposed use of futures contracts and related options, particular note should be
taken of the following:
(1) Successful use by the Portfolios of futures contracts and related
options will depend in part upon the Manager's ability to assess the market's
valuation of these instruments. There is, in addition, the risk that the
movements in the price of a futures contract will not correlate with the
movement in prices of any securities being hedged. If the price of the futures
contract moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective, but if the price of the
securities being hedged has moved in an unfavorable direction, the Portfolio
would be in a better position than if it had not hedged at all. If the price of
the securities being hedged has moved in a favorable direction, this advantage
may be partially offset by losses in the futures position. If the price of the
futures contract moves more than the price of the underlying securities, the
Portfolio will experience either a loss or a gain on the futures contract which
may or may not be completely offset by movements in the price of the securities
which are the subject of the hedge.
(2) The price of the futures contracts may not correlate perfectly with
movements in the prices of any hedged securities. There may be several reasons
unrelated to the value of the underlying securities which causes this situation
to occur. First, all the participants in the futures market are subject to
initial and variation margin deposit requirements. If, to avoid meeting
additional margin deposit requirements or for other reasons, investors choose to
close a significant number of futures contracts through offsetting transactions,
distortions in the normal price relationship between the securities and the
futures market may occur. Second, because the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market, there may be increased participation by speculators in the futures
market; this speculative activity in the futures market may also cause temporary
price distortions. As a result, a correct evaluation of futures prices and
trends may still not result in successful transactions through the use of
futures contracts and options thereon over the short-term.
(3) The Portfolios purchase and sell futures contracts only on exchanges
where there appears to be a market in the futures sufficiently active to
accommodate the volume of trading activity. There can be no
<PAGE>
B-10
assurance that a liquid market will always exist for any particular contract at
any particular time. Accordingly, there can be no assurance that it will always
be possible to close a futures position when desired. In the event of adverse
price movements, the Portfolios would be required to continue to make daily cash
payments of variation margin, except in the case of purchased options on futures
contracts.
(4) The hours of trading of financial futures contracts may not conform to
the hours during which the Portfolios may trade securities. To the extent that
one market closes before the other market, significant price and rate movements
can take place that cannot be reflected in the correlating market on a
day-to-day basis.
(5) Futures exchanges may establish daily limits in the amount that the
price of a futures contract or related options contract may vary either up or
down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond the limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may prevent the liquidation of unfavorable positions. Futures or options
contract prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidations of
positions and subject some traders to substantial losses. In such event, it may
not be possible for a Portfolio to close a position, and in the event of adverse
price movements, the Portfolio would have to make daily cash payments of
variation margin (except in the case of purchased options).
(6) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount, and the transaction costs, is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
Foreign Currency Transactions
The Portfolios may employ certain risk management techniques to attempt to
protect against some or all effects of adverse changes in foreign currency
exchange rates, including foreign currency exchange contracts ("forward
contracts"). A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are principally traded in the interbank market
conducted directly between currency traders (usually large, commercial banks)
and their customers. A forward contract generally has no deposit requirement and
no commissions are charged at any stage for trades.
Each Portfolio may enter into forward contracts for any lawful and
appropriate purpose in light of its activities, including the following two
circumstances. First, when a Portfolio enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or has been notified of
a dividend or interest payment, it may desire to "lock in" the U.S. dollar price
of the security or the amount of the payment. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of
<PAGE>
B-11
foreign currency involved in the underlying transactions, the Portfolio should
be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received or when the dividend or
interest is actually received.
Second, when the Manager believes that the currency of a particular foreign
country may suffer or enjoy a substantial movement against another currency,
including the U.S. dollar, a Portfolio may enter into a forward contract to sell
or buy the amount of the former foreign currency, approximating the value of
some or all of its portfolio securities denominated in the latter foreign
currency. Alternatively, where appropriate, the Portfolio may hedge all or part
of its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currencies or currency act as an effective proxy for
other currencies. In such a case, the Portfolio may enter into a forward
contract where the amount of the foreign currency to be sold exceeds the value
of the securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Portfolio. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Under certain circumstances, the International
Value Portfolio may commit a substantial portion or the entire value of its
assets to the consummation of these contracts. The Manager will consider the
effect a substantial commitment of its assets to forward contracts would have on
the investment program of the Portfolio and the flexibility of the Portfolio to
purchase additional securities. Other than as set forth above, a Portfolio will
also not enter into such forward contracts or maintain a net exposure to such
contracts where the consummation of the contracts would obligate the Portfolio
to deliver an amount of foreign currency in excess of the value of the
Portfolio's securities and, if applicable, the interest thereon, and other
assets denominated in that currency.
At the maturity of a forward contract, a Portfolio may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an offsetting contract obligating it to purchase, on the
same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute precision
the market value of portfolio securities at the expiration of the forward
contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
<PAGE>
B-12
If a Portfolio retains the portfolio security and engages in an offsetting
transaction, the Portfolio will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. If the
Portfolio engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices decline
during the period between the Portfolio's entering into a forward contract for
the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign security, the Portfolio will realize a
gain to the extent the price at which it has agreed to sell exceeds the price at
which it has agreed to purchase. Should forward prices increase, the Portfolio
will suffer a loss to the extent of the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
The Portfolios reserve the right to enter into forward foreign currency
contracts for different purposes and under different circumstances than those
described above. Of course, the Portfolios are not required to enter into
forward contracts with regard to their foreign currency-denominated securities
and will not do so unless deemed appropriate by the Manager. It also should be
realized that this method of hedging against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange at a future date.
Additionally, although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result from an increase in the value of
that currency.
The Portfolios do not intend to convert any holdings of foreign currencies
into U.S. dollars on a daily basis. A Portfolio may do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer.
Repurchase Agreements. The Portfolios may enter into repurchase agreements
with banks, brokers or securities dealers. In such agreements, the Portfolio
purchases a security, and the seller agrees to repurchase that security from a
Portfolio at a mutually agreed-upon time and price. The period of maturity is
usually quite short, either overnight or a few days, although it may extend over
a number of months. The resale price reflects an agreed-upon rate of interest.
Whenever a Portfolio enters into a repurchase agreement, the Portfolio's
custodian obtains collateral having a value at least equal to the amount of the
repurchase price, which includes accrued interest. The instruments held subject
to repurchase are valued daily, and if the value of the instruments declines,
the Portfolio will be entitled to additional collateral. If the seller defaults
and the value of the collateral securing the repurchase agreements declines, the
Portfolio may incur a loss. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Portfolio may be delayed or limited.
Equities and Warrants. The equity securities in which the International
Value Portfolio may invest include common and preferred stocks, warrants and
convertible securities. The International Value Portfolio may invest in foreign
securities directly or in the form of American Depositary Receipts (ADRs),
European Depositary Receipts (EDRs) or other similar securities convertible into
securities of foreign issuers
<PAGE>
B-13
without limitation. In some circumstances, the International Value Portfolio
may, in compliance with provisions of the Investment Company Act of 1940 ("1940
Act"), invest in the securities of investment companies that invest in foreign
securities. Equity securities of non-U.S. issuers may have somewhat different
features than those of U.S. equities. To illustrate, the Portfolio may purchase
"Savings Shares," which are equity securities which have priority rights
(compared with preferred or ordinary common shares) to dividends and on any
liquidation of the issuer but which carry no voting rights.
Restricted Securities. Restricted securities can generally be sold in the
U.S. in privately negotiated transactions or pursuant to some other exemption
from registration under the Securities Act of 1933 or in a registered public
offering. Where registration is required, the Portfolios may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Portfolio may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Portfolio
might obtain a less favorable price than prevailed when it decided to sell.
Restricted securities will be priced at fair value under policies established by
and under supervision of the Board of Directors.
The SEC has adopted Rule 144A to facilitate resales of restricted
securities in the U.S. by "qualified institutional buyers," including the
Portfolios. Provided that a dealer or institutional trading market in such
securities exists, these restricted securities are treated as exempt from the
Portfolios' limit on investments in illiquid securities. Because institutional
trading in restricted securities is relatively new, it is not possible to
predict how these institutional markets will develop. If institutional trading
in restricted securities were to decline to limited levels, the liquidity of the
Portfolios' securities could be adversely affected.
Industry Classification. In determining industry classifications, the Fund
uses the current Directory of Companies Filing Annual Reports with the
Securities and Exchange Commission, (the "Directory"). Where a company is not
listed in the Directory, the Fund uses (1) the classification of the company's
parent corporation; or (2) the classification the Fund reasonably believes the
parent corporation would have if it were listed in the Directory; or (3) if the
company has no parent, the industry classification the Fund reasonably believes
the company would have if it were listed in the Directory.
Portfolio Turnover. During the one-year period ended September 30, 1995,
the portfolio turnover rates for two of the Fixed-Income Portfolios decreased
significantly as compared to the prior fiscal year. The turnover rate for the
Bernstein Government Short Duration Portfolio decreased from 213.02% for the
year ended September 30, 1994 to 49.34% for the year ended September 30, 1995;
the Bernstein Short Duration Plus Portfolio decreased from 285.80% to 61.03%
over the same period. The high portfolio turnover rate for fiscal year 1994 was
largely attributable to the Manager's strategy change; the Manager sold
longer-term securities and invested in shorter-term securities. In order to take
advantage of a relatively flat yield curve that existed throughout most of
fiscal year 1995, the Manager concentrated the investments in these Portfolios
in securities with maturities of one to three years. Thus, few securities
matured during the year, and as a result there was a significant decrease in the
portfolio turnover rate of each of these Portfolios.
<PAGE>
B-14
During the one-year period ended September 30, 1995, the portfolio turnover
rates for two of the Fixed-Income Portfolios increased significantly as compared
to the prior fiscal year. The turnover rate for the Bernstein California
Municipal Portfolio increased from 24.55% for the year ended September 30, 1994
to 63.89% for the year ended September 30, 1995; the Bernstein New York
Municipal Portfolio increased from 22.45% to 44.84% over the same period. A
portion of the increase in the portfolio turnover rate of these Portfolios was
attributable to sales of securities that had less than one year remaining to
redemption. The Manager sold these securities to invest in securities with
slightly more than one year to redemption. The increase in portfolio turnover
rate was also attributable to sales of securities that, in the opinion of the
Manager, had reached fair value in order to purchase securities that the Manager
considered to be undervalued.
Special Considerations Relating to Investment in New York Municipal Securities
Because the Bernstein Short Duration New York Municipal Portfolio and the
Bernstein New York Municipal Portfolio invest primarily in New York Municipal
Securities, the Portfolios' performance is closely tied to economic conditions
within the State of New York and the financial condition of the State and its
agencies and municipalities. The following information concerning the State's
economic background is contained in an Annual Information Statement of the State
of New York dated June 23, 1995 and the update to the Annual Information
Statement dated October 27, 1995, which is part of an Official Statement dated
December 1, 1995 relating to the sale of $195,060,000 State of New York
Certificates of Participation.
The State has historically been one of the wealthiest states in the nation. For
decades, however, the State has grown more slowly than the nation as a whole,
gradually eroding its relative economic position. Statewide, urban centers have
experienced significant changes involving migration of the more affluent to the
suburbs and an influx of generally less affluent residents. Regionally, the
older Northeast cities have suffered because of the relative success that the
South and the West have had in attracting people and business. The City of New
York (the "City") has also had to face greater competition as other major cities
have developed financial and business capabilities which make them less
dependent on the specialized services traditionally available almost exclusively
in the City.
During the 1982-83 recession, overall economic activity in the State
declined less than that of the nation as a whole. However, in the calendar years
1984 through 1991, the State's rate of economic expansion was somewhat slower
than that of the nation. In the 1990-91 recession, the economy of the State, and
that of the rest of the Northeast, was more heavily damaged than that of the
nation as a whole and has been slower to recover. The total employment growth
rate in the State has been below the national average since 1984. The
unemployment rate in the State dipped below the national rate in the second half
of 1981 and remained lower until 1991; since then, it has been higher. According
to data published by the U.S. Bureau of Economic Analysis, during the past ten
years, total personal income in the State rose slightly faster than the national
average only from 1986 through 1988.
<PAGE>
B-15
The national economy began to expand in 1991 and has added over 7 million
jobs since early 1992. However, the recession lasted longer in the State and
the State's economic recovery has lagged behind the nation's.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors have created
structural budget gaps for the State. These gaps resulted from a significant
disparity between recurring revenues and the costs of maintaining or increasing
the level of support for State programs.
The State reported a General Fund operating deficit of $1.426 billion for
the 1994-95 fiscal year, as compared to an operating surplus of $914 million for
the prior fiscal year. In his Executive Budget, the Governor indicated that in
the 1995-96 fiscal year, the State Financial Plan, based on then-current law
governing spending and revenues, would be out of balance by almost $4.7 billion,
as a result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of unfunded
1994-95 initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts, to
spur economic growth and provide relief for low and middle-income taxpayers,
which were larger than those ultimately adopted, and which added $240 million to
the then projected imbalance or budget gap, bringing the total to approximately
$5 billion.
On October 2, 1995, the State Comptroller released a report in which he
identified several risks to the State Financial Plan and reaffirmed his estimate
that the State faces a potential imbalance in receipts and disbursements of at
least $2.7 billion for the State's 1996-97 fiscal year and at least $3.9 billion
for the State's 1997-98 fiscal year.
A significant risk to the 1995-96 State Financial Plan arises from tax
legislation pending in Congress. Changes to federal tax treatment of capital
gains are likely to flow through automatically to the State personal income
tax. Such changes, depending upon their precise character and timing, and upon
taxpayer response, could produce either revenue gains or losses during the
balance of the State's fiscal year.
Authorities. The fiscal stability of the State is related, in part, to the
fiscal stability of its public authorities. For purposes hereof, public
authorities refer to public benefit corporations, created pursuant to State law,
other than local authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts, and as otherwise
restricted by, their legislative authorization. The State's access to the public
credit markets could be impaired, and the market price of its outstanding debt
may be materially adversely affected, if any of its public authorities were to
default on their respective obligations. As of September 30, 1994, there were
<PAGE>
B-16
18 public authorities that had outstanding debt of $100 million or more, and the
aggregate outstanding debt, including refunding bonds, of these 18 public
authorities was $70.3 billion.
There are numerous public authorities, with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, rentals charged
for housing units, and charges for occupancy at medical care facilities.
In addition, State legislation authorizes several financing techniques for
public authorities and there are statutory arrangements providing for State
local assistance payments otherwise payable to localities to be made under
certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to public authorities under these arrangements if local
assistance payments are so diverted, the affected localities could seek
additional State assistance.
Some authorities also receive moneys from State appropriations to pay for
the operating costs of certain of their programs. The Mass Transit Authority
(the "MTA") receives the bulk of this money in order to carry out mass transit
and commuter services. In 1993, State legislation authorized the funding of a
five-year $9.56 billion MTA capital plan for the five-year period, 1992 through
1996 (the "1992-96 Capital Program"). The MTA has received approval of the
1992-96 Capital Program based on this legislation from the MTA Capital Program
Review Board, as State law requires. This is the third five-year plan since the
Legislature authorized procedures for the adoption, approval and amendment of a
five-year plan in 1981 for a capital program designed to upgrade the performance
of the MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, Triborough Bridge and Tunnel Authority and
the Manhattan and Bronx Surface Transit Operating Authority are collectively
authorized to issue an aggregate of $3.1 billion of bonds (net of certain
statutory exclusions) to finance a portion of the 1992-96 Capital Program. The
1992-96 Capital Program was expected to be financed in significant part through
dedication of the State petroleum business taxes. However, in December 1994 the
proposed bond resolution based on such tax receipts was not approved by the MTA
Capital Program Review Board. Further consideration of the resolution was
deferred until 1995.
There can be no assurance that all the necessary governmental actions for
the 1992-96 Capital Program or future capital programs will be taken, the
funding sources currently identified will not be decreased or eliminated, or
that the 1992-96 Capital Program, or parts thereof, will not be delayed or
reduced. If the Capital Program is delayed or reduced, ridership and fare
revenues may decline, which could, among other things, impair the MTA's ability
to meet its operating expenses without additional State assistance.
The State has never defaulted on any of its general obligation indebtedness
or its obligations under lease-purchase or contractual-obligation financing
arrangements and has never been called upon to make any direct payments pursuant
to its guarantees.
<PAGE>
B-17
The fiscal health of the State may also be impacted by the fiscal health of
the City, which has required and continues to require significant financial
assistance from the State. The City depends on State aid both to enable the City
to balance its budget and to meet its cash requirements. The City's projections
set forth in the City's Financial Plan are based on various assumptions and
contingencies, some of which are uncertain and may not materialize. Unforeseen
developments and changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. The State could be affected by the
ability of the City and certain Covered Organizations (i.e., those which receive
or may receive moneys from the City directly, indirectly or contingently) to
market their securities successfully in the public credit markets. Future
developments concerning the City or certain of the Covered Organizations, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such Covered Organizations and may also affect the market
for their outstanding securities.
In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among these actions, the State
created the Municipal Assistance Corporation for the City of New York ("MAC") to
provide financing assistance to the City; the New York State Financial Control
Board (the "Control Board") to oversee the City's financial affairs; the Office
of the State Deputy Comptroller for New York City ("OSDC") to assist the Control
Board in exercising its powers and responsibilities; and a "Control Period" from
1975 to 1986 during which the City was subject to certain statutorily-prescribed
fiscal-monitoring arrangements. Although the Control Board terminated the
Control Period in 1986 when certain statutory conditions were met, thus
suspending certain Control Board powers, the Control Board, MAC and OSDC
continue to exercise various fiscal-monitoring functions over the City, and upon
the occurrence or "substantial likelihood and imminence" of the occurrence of
certain events, including, but not limited to a City operating budget deficit of
more than $100 million, the Control Board is required by law to reimpose a
Control Period. Currently, the City and its Covered Organizations (i.e., those
which receive or may receive monies from the City directly, indirectly or
contingently) operate under a four-year financial plan which the City prepares
annually and periodically updates.
The staffs of OSDC and the Control Board issue periodic reports on the
City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compliance
with the Financial Plan, as modified, by the City and its Covered Organizations.
OSDC staff reports issued during the mid-1980's noted that the City's budgets
benefited from a rapid rise in the City's economy, which boosted the City's
collection of property, business and income taxes. These resources were used to
increase the City's workforce and the scope of discretionary and mandated City
services. Subsequent OSDC staff reports, including its periodic economic
reports, examined the 1987 stock market crash and the 1989-92 recession, which
affected the New York City region more severely than the nation, and attributed
an erosion of City revenues and increasing strain on City expenditures to that
recession. According to a recent OSDC staff report, the City's economy was slow
to recover from the recession and is expected to experience a weak employment
situation, and moderate wage and income growth, during the 1995-96 period. Also,
Financial Plan reports of OSDC, the Control Board, and the City
<PAGE>
B-18
Comptroller have variously indicated that the City's balanced budgets have been
accomplished, in part, through the use of non-recurring resources, tax and fee
increases, personnel reductions and additional State assistance; that the City
has not yet brought its long-term expenditures in line with recurring revenues;
that the City's proposed gap-closing programs, if implemented, would narrow
future budget gaps; that these programs tend to rely heavily on actions outside
the direct control of the City; and that the City is therefore likely to
continue to face future projected budget gaps requiring the City to reduce
expenditures and/or increase revenues. According to the most recent staff
reports of OSDC, the Control Board, and the City Comptroller during the
four-year period covered by the current Financial Plan, the City is relying on
obtaining substantial resources from initiatives needing approval and
cooperation of its municipal labor unions, Covered Organizations, and City
Council, as well as the State and Federal governments, among others and there
can be no assurance that such approval can be obtained.
Certain localities in addition to the City could also have financial
problems leading to requests for additional State assistance during the State's
1995-96 fiscal year and thereafter.
From time to time, Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities.
If the State, the City or any of the public authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial decisions
and long-range economic trends. Long-range potential problems of declining urban
population, increasing expenditures and other economic trends could adversely
affect localities and require increasing State assistance in the future.
Special Considerations Relating to Investment in California Municipal
Securities
Because the Bernstein Short Duration California Municipal Portfolio and the
Bernstein California Municipal Portfolio invest primarily in California
Municipal Securities, the performance of these Portfolios is closely tied to
economic conditions within the State of California and the financial condition
of the State and its agencies and municipalities. Certain California
constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives could adversely affect the
ability of issuers of California Municipal Securities to pay interest and
principal on municipal securities. The following information concerning the
State's economic background is contained in an official statement dated October
1, 1995, which was issued in connection with the sale of $380,000,000 of
California Various Purpose General Obligation Bonds and $81,095,000 Various
Purpose General Obligation Refunding Bonds.
California's economy is the largest among the 50 states and one of the
largest in the world. The State's July 1, 1994 population of approximately 32
million represents over 12.0 percent of the total United States population, with
total employment at about 14 million.
<PAGE>
B-19
State Appropriations Limit. Article XIII B of the State Constitution
prohibits the State from spending "appropriations subject to limitation" in
excess of the Appropriations Limit. No limit is imposed on appropriations or
funds which are not "proceeds of taxes," such as reasonable user charges or
fees, and certain other non-tax funds. Not included in the Article XIII B
Appropriations Limit are appropriations for the debt service costs of bonds
existing or authorized by January 1, 1979, or subsequently authorized by the
voters, appropriations required to comply with mandates of courts or the federal
government and, pursuant to Proposition 111, appropriations for qualified
capital outlay projects and appropriations of revenues derived from any increase
in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. In
addition, a number of recent initiatives were structured or proposed to create
new tax revenues dedicated to certain specific uses, with such new taxes
expressly exempted from the Article XIII B limits (e.g., increased cigarette and
tobacco taxes enacted by Proposition 99 in 1988). The Appropriations Limit may
also be exceeded in cases of emergency. However, unless the emergency arises
from civil disturbance or natural disaster declared by the Governor, and the
appropriations are approved by two-thirds of the Legislature, the Appropriations
Limit for the next three years must be reduced by the amount of the excess.
The State's Appropriations Limit in each year is based on the limit for the
prior year, adjusted annually for changes in California per capita personal
income and changes in population, and adjusted, when applicable, for any
transfer of financial responsibility of providing services to or from another
unit of government. The measurement of change in population is a blended average
of statewide overall population growth, and change in attendance at local school
and community college ("K-14") districts. As amended by Proposition 111, the
Appropriations Limit is tested over consecutive two-year periods. Any excess of
the aggregate "proceeds of taxes" received over such two-year period above the
combined Appropriations Limits for those two years is divided equally between
transfers to K-14 districts and refunds to taxpayers.
Proposition 98. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act".
Proposition 98 changed State funding of public education below the university
level, and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (as modified by Proposition 111, which was enacted on June 5,
1990), K-14 schools are guaranteed the greater of (a) in general, a fixed
percent of General Fund revenues ("Test 1"), (b) the amount appropriated to K-14
schools in the prior year, adjusted for changes in the cost of living (measured
as in Article XIII B by reference to California per capita personal income) and
enrollment ("Test 2"), or (c) a third test, which would replace the Test 2 in
any year when the percentage growth in per capita General Fund revenues from the
prior year plus one half of one percent is less than the percentage growth in
State per capita personal income ("Test 3"). Under Test 3, schools would receive
the amount appropriated in the prior year adjusted for changes in enrollment and
per capita General Fund revenues, plus an additional small adjustment factor. If
Test 3 is used in any year, the difference between Test 3 and Test 2 would
become a "credit" to schools which would be the basis of payments in future
years when per capita General Fund revenue growth exceeds per capita personal
income growth. Proposition 98 permits the Legislature by two-thirds vote of both
houses, with the Governor's concurrence, to suspend the K-14 schools' minimum
funding formula for a one-year period.
<PAGE>
B-20
Recent Fiscal Year Financial Results
Fiscal Years Prior to 1994-95
In the years following enactment of the federal Tax Reform Act of 1986, and
conforming changes to the State's tax laws, taxpayer behavior became much more
difficult to predict, and the State experienced a series of fiscal years in
which revenue came in significantly higher or lower than original estimates. The
1989-90 Fiscal Year ended with revenues below estimates, so that the State's
budget reserve (the Special Fund for Economic Uncertainties or "SFEU") was fully
depleted by June 30, 1990. This date essentially coincided with the start of the
recent recession which severely affected State General Fund revenues, and
increased expenditures above initial budget appropriations due to greater health
and welfare costs. The State's budget problems in recent years have also been
caused by a structural imbalance in that the largest General Fund Programs --
K-14 education, health, welfare and corrections -- were increasing faster than
the revenue base, driven by the State's rapid population growth. These pressures
will continue as population trends maintain strong demand for health and welfare
services, as the school age population continues to grow, and as the State's
corrections program responds to a "Three Strikes" law enacted in 1994, which
requires mandatory life prison terms for certain third-time felony offenders.
As a result of these factors and others, from the late 1980's until
1992-93, the State had a period of budget imbalance. During this period,
expenditures exceeded revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the SFEU approaching $2.8 billion
at its peak at June 30, 1993. Starting in the 1990-91 Fiscal Year and for each
fiscal year thereafter, each budget required multibillion dollar actions to
bring projected revenues and expenditures into balance and to close large
"budget gaps" which were identified. The Legislature and Governor eventually
agreed on a number of different steps to produce Budget Acts in the years
1991-92 to 1993-94, including:
o significant cuts in health and welfare program expenditures;
o transfers of program responsibilities and funding from the State to local
governments (referred to as "realignment"), coupled with some reduction
in mandates on local government;
o transfer of about $3.6 billion in local property tax revenues from
cities, counties, redevelopment agencies and some other districts to
local school districts, thereby reducing State funding for schools under
Proposition 98;
o reduction in growth of support for higher education programs, coupled
with increases in student fees;
o revenue increases (particularly in the 1991-92 Fiscal Year budget), most
of which were for a short duration;
<PAGE>
B-21
o increased reliance on aid from the federal government to offset the
costs of incarcerating, educating and providing health and welfare
services to illegal immigrants; and
o various one-time adjustments and accounting changes.
Despite these budget actions, as noted, the effects of the recession led to
large, unanticipated deficits in the budget reserve, the SFEU, as compared to
projected positive balances. By the 1993-94 Fiscal Year, the accumulated deficit
was so large that it was impractical to budget to retire it in one year, so a
two-year program was implemented, using the issuance of revenue anticipation
warrants to carry a portion of the deficit over the end of the fiscal year. When
the economy failed to recover sufficiently in 1993-94, a second two-year plan
was implemented in 1994-95.
Another consequence of the accumulated budget deficits, together with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing to replenish its cash reserves,
the State Controller was forced to issue registered warrants to pay a variety of
obligations representing prior years' or continuing appropriations, and mandates
from court orders. Available funds were used to make constitutionally-mandated
payments, such as debt service on bonds and warrants. Between July 1 and
September 4, 1992 the State Controller issued a total of approximately $3.8
billion of registered warrants. After that date, all remaining outstanding
registered warrants (about $2.9 billion) were called for redemption from
proceeds of the issuance of 1992 Interim Notes after the budget was adopted.
The State's cash condition became so serious in late spring of 1992 that
the State Controller was required to issue revenue anticipation warrants
maturing in the following fiscal year in order to pay the State's continuing
obligations. The State was forced to rely increasingly on external debt markets
to meet its cash needs, as a succession of notes and warrants were issued in the
period from June 1992 to July 1994, often needed to pay previously maturing
notes or warrants. These borrowings were used also in part to spread out the
repayment of the accumulated budget deficit over the end of a fiscal year.
1994-95 Fiscal Year
The 1994-95 Fiscal Year represented the fourth consecutive year the
Governor and Legislature were faced with a very difficult budget environment to
produce a balanced budget. The Governor's Budget Proposal, as updated in May and
June 1994, recognized that the accumulated deficit could not be repaid in one
year, and proposed a two-year solution designed to eliminate the accumulated
budget deficit, estimated at about $1.8 billion at June 30, 1994, by June 30,
1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projected
General Fund revenues and transfers of $41.9 billion, $2.1 billion more than
actual revenues received in 1993-94,
<PAGE>
B-22
and expenditures of $40.9 billion, an increase of $1.6 billion from the prior
year. The revenue estimates partly reflected the Administration's forecast of an
improving economy.
The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended for
two years (1993 and 1994). A ballot proposition to permanently restore the
renters' tax credit after this year failed at the June 1994 election. The
Legislature enacted a further one-year suspension of the renters' tax credit for
1995, saving about $390 million in the 1995-96 Fiscal Year.
The 1994-95 Budget Act assumed that the State would use a cash flow
borrowing program in 1994-95 which combined one-year notes and two-year
warrants, which were issued in the summer of 1994. Issuance of the warrants
allowed the State to defer repayment of approximately $1.0 billion of its
accumulated budget deficit into the 1995-96 Fiscal Year. No automatic spending
cuts were required under the Budget Adjustment Law.
Subsequent Developments
The State Controller's "October Trigger Report", a report that reviewed the
estimated cash condition of the General Fund for the 1995-96 fiscal year, while
finding no need to impose automatic budget cuts, noted a number of areas where
there was likely to be a divergence from the original budget estimates. On the
positive side, the State Controller noted that improving economic conditions
were leading to improved cash receipts. On the negative side, the State
Controller's Report estimated that federal actions to allow health and welfare
cuts and to reimburse the State for illegal immigrant costs were not likely to
provide as much money as had been planned, and that Proposition 98 expenditures
for K-14 schools had been underestimated. In addition, the State Controller
reported that an annual review of internal borrowable resources resulted in a
$705 million increase of estimated available internal borrowable resources. In
total, therefore, the State Controller estimated that the State's cash position
on June 30, 1996 would be about $500 million worse than the estimate of $1.9
billion of available internal cash resources included in the original budget,
but still large enough to avoid the Budget Adjustment Law cuts.
INVESTMENT RESTRICTIONS
All of the Portfolios are subject to fundamental investment restrictions.
The restrictions applicable to any one of the Portfolios may not be changed
without the approval of the holders of at least a majority of the outstanding
securities of that Portfolio, voting separately from any other series of the
Fund. "A majority of the outstanding securities" of a Portfolio means the lesser
of (i) 67% or more of the shares represented at a meeting at which more than 50%
of the outstanding shares are present in person or represented by proxy or (ii)
more than 50% of the outstanding shares. A vote by the shareholders of a single
Portfolio to modify or eliminate one or more of the restrictions has no effect
on the restrictions as applied to the other Portfolios.
<PAGE>
B-23
SHORT DURATION MUNICIPAL PORTFOLIOS' INVESTMENT RESTRICTIONS
None of the Bernstein Short Duration California Municipal Portfolio, the
Bernstein Short Duration Diversified Municipal Portfolio or the Bernstein Short
Duration New York Municipal Portfolio may, except as otherwise provided herein:
1) Purchase securities on margin, but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions;
2) Make short sales of securities or maintain a short position, unless
at all times when a short position is open the Portfolio owns or has the
right to obtain at no added cost securities identical to those sold short;
3) Borrow money including pursuant to reverse repurchase agreements except
that the Portfolio may borrow money for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed 33 1/3% of the Portfolio's total assets by reason
of a decline in net assets will be reduced within three days (not including
Saturdays, Sundays and holidays) to the extent necessary to comply with the 33
1/3% limitation. The Portfolio may not enter into reverse repurchase agreements
if the Portfolio's obligations thereunder would be in excess of one-third of the
Portfolio's total assets, less liabilities other than obligations under such
reverse repurchase agreements.
4) Issue senior securities, except as permitted under the 1940 Act;
5) Purchase or sell commodities or commodity contracts, except financial
futures and currency futures and options thereon;
6) Purchase or sell real estate or interests in real estate, although the
Portfolio may purchase and sell securities which are secured by real estate, and
securities of companies which invest and deal in real estate;
7) Purchase oil, gas or other mineral interests;
8) Make loans although the Portfolio may (i) purchase fixed-income
securities and enter into repurchase agreements, or (ii) lend portfolio
securities provided that no more than 33 1/3% of the Portfolio's total assets
will be lent to other parties;
9) Act as an underwriter, except to the extent that, in connection with
the disposition of certain portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
10) Purchase any security if, as a result, more than 25% of the Portfolio's
total assets (taken at current value) would be invested in a single industry.
(For purposes of this restriction, assets invested in obligations issued or
guaranteed by the U.S. Government and its agencies or instrumentalities or
tax-exempt
<PAGE>
B-24
securities issued by governments or political subdivisions of states,
possessions or territories of the U.S. are not considered to be invested in any
industry);
11) Invest more than 5% of its total assets in the securities of any one
issuer if as a result of the purchase less than 75% of the Portfolio's total
assets is represented by cash and cash items (including receivables), Government
securities, securities of other investment companies, and other securities for
the purposes of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of the
Portfolio determined at the time of investment and to not more than 10% of the
outstanding voting securities of such issuer. This restriction does not apply to
the Bernstein Short Duration California Municipal Portfolio and the Bernstein
Short Duration New York Municipal Portfolio;
12) Make investments for the purpose of exercising control or management.
The following investment limitations are not fundamental, and may be
changed without shareholder approval. None of the Short Duration Municipal
Portfolios has or currently intends to:
1) Issue senior securities, borrow money or pledge its assets except to the
extent that forward commitments and securities loans may be considered loans and
except that the Portfolio may borrow from a bank for temporary or emergency
purposes in amounts not exceeding 5% (taken at the lower of cost or current
value) of its total assets (not including the amount borrowed) and pledge its
assets to secure such borrowings. The Portfolio does not intend to purchase a
security while borrowings exceed 5% of its total assets.
2) Purchase any security if, as a result, the Portfolio would then have
more than 15% of its net assets (at current value) invested in securities
restricted as to disposition under federal securities laws (excluding restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 ("144A securities") that have been determined to be liquid under procedures
adopted by the Board of Directors based on the trading market for the security)
or otherwise illiquid or not readily marketable, including repurchase agreements
with maturities of more than 7 days, provided that the Portfolio will not invest
more than 5% of its total assets in restricted equity securities (excluding 144A
securities and determined to be liquid under the foregoing procedures);
3) Purchase any security if, as a result, the Portfolio would then have
more than 5% of its total assets (taken at current value) invested in securities
of companies (including predecessors) less than three years old;
4) Invest in securities of other investment companies except in the open
market where no commission other than the ordinary broker's commission is paid
or except when the purchase is part of a plan of merger, consolidation,
reorganization or acquisition; any such purchase will be in compliance with the
1940 Act and applicable state law in those states where the Portfolio's
securities are registered for sale; and
<PAGE>
B-25
5) Invest in any securities of any issuer if, to the knowledge of the Fund,
any officer or director of the Fund or of the Manager owns more than 1/2 of 1%
of the securities of the issuer, and such officers or directors who own more
than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities
of such issuer.
The Fund has agreed with the state commissioners identified below as
follows:
1) The Fund has agreed with the Arizona Corporation Commission and the
Texas State Securities Board that in the event that the Fund shall invest at
least 5% of its average annual assets in bonds that are rated below investment
grade, the Fund will sticker each prospectus distributed in the State of Arizona
and the State of Texas to include an asset composition table in the prospectus;
and
2) The Fund has agreed with the California Commissioner of Securities that
during the period in which shares are offered and qualified for sale in the
State of California and so long as the California Department of Corporations
requires compliance with the investment restriction described in this paragraph
2, the Fund, on behalf of the Short Duration Municipal Portfolios will purchase
securities of other open-end investment companies only for the purpose of
investing temporary cash reserves in money funds and the adviser will waive its
advisory fee so that the sum of the advisory fee paid to the Fund's investment
adviser and to such other investment companies does not exceed the fee which the
Fund's investment adviser is entitled to receive pursuant to the Fund's
investment advisory agreement.
3) The Fund has agreed with the Ohio Commissioner of Securities that (a)
notwithstanding paragraphs 2 and 3 above on page _____ above, so long as the
Portfolios shall be registered in Ohio and the Ohio Administrative Code defines
restricted securities to include 144A securities, no Portfolio will invest more
than 15% of its total assets in securities restricted as to disposition under
federal securities laws (including 144A securities) or securities of issuers
which, together with any predecessors, have a record of less than three years
continuous operation and (b) in the case of the Bernstein Short Duration
California Municipal Portfolio and the Bernstein Short Duration New York
Municipal Portfolio, and so long as required by the Ohio Administrative Code,
invest in any security if, as a result of the purchase, as to 75% of the assets
of any such Portfolio at the time of the purchase, more than 10% of the voting
securities of any one issuer would be held by such Portfolio.
4) The Fund has agreed with the Texas State Securities Board that the Fund
will not invest more than 5.0% of the value of the Fund's net assets in warrants
valued at the lower of cost or market. Included within that amount, but not to
exceed 2.0% of the value of the Fund's net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the
Fund in units or attached to securities may be deemed to be without value.
<PAGE>
B-26
FIXED-INCOME PORTFOLIOS' (OTHER THAN THE SHORT DURATION MUNICIPAL
PORTFOLIOS') INVESTMENT RESTRICTIONS
None of the Bernstein Government Short Duration Portfolio, the Bernstein
Short Duration Plus Portfolio, the Bernstein New York Municipal Portfolio, the
Bernstein Diversified Municipal Portfolio, the Bernstein California Municipal
Portfolio, or the Bernstein Intermediate Duration Portfolio, will, except as
otherwise provided herein:
1) Purchase securities on margin, but any Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions;
2) Make short sales of securities or maintain a short position;
3) Issue senior securities, borrow money or pledge its assets except to the
extent that forward commitments and reverse repurchase agreements may be
considered senior securities or loans and except that any Portfolio may borrow
from a bank for temporary or emergency purposes in amounts not exceeding 5%
(taken at the lower of cost or current value) of its total assets (not including
the amount borrowed) and pledge its assets to secure such borrowings. A
Portfolio may not purchase a security while borrowings (other than forward
commitments and reverse repurchase agreements which may be considered loans)
exceed 5% of its total assets. A Portfolio may not enter into reverse repurchase
agreements if the Portfolio's obligations thereunder would be in excess of
one-third of the Portfolio's total assets, less liabilities other than
obligations under such reverse repurchase agreements;
4) Purchase or sell commodities or commodity contracts, except financial
futures and options thereon;
5) Purchase or sell real estate or interests in real estate, although each
Portfolio may purchase and sell securities which are secured by real estate, and
securities of companies which invest and deal in real estate;
6) Purchase oil, gas or other mineral interests;
7) Lend money, except to the extent that repurchase agreements or the
purchase of fixed-income securities may be considered loans of money or loan
participations;
8) Lend securities if, as a result, the total current value of the loaned
securities is equal to more than 30% of the Portfolio's total assets;
9) Act as an underwriter, except to the extent that, in connection with
the disposition of certain portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
<PAGE>
B-27
10) Invest in any securities of any issuer if, to the knowledge of the
Fund, any officer or director of the Fund or of the Manager owns more than 1/2
of 1% of the securities of the issuer, and such officers or directors who own
more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer;
11) Purchase any security if, as a result, the Portfolio would then have
more than 10% of its net assets (at current value) invested in securities
restricted as to disposition under federal securities laws or otherwise illiquid
or not readily marketable, including repurchase agreements with maturities of
more than 7 days;
12) Purchase any security if, as a result, the Portfolio would then have
more than 5% of its total assets (taken at current value) invested in securities
of companies (including predecessors) less than three years old;
13) Purchase any security if, as a result, more than 25% of the Portfolio's
total assets (taken at current value) would be invested in a single industry.
(For purposes of this restriction as applied to all Portfolios but the Bernstein
California Municipal Portfolio, assets invested in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
securities issued by governments or political subdivisions of governments of
states, possessions, or territories of the U.S. are not considered to be
invested in any industry. For purposes of this restriction as applied to the
Bernstein California Municipal Portfolio, assets invested in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
tax-exempt securities issued by governments or political subdivisions of
governments of states, possessions, or territories of the U.S. are not
considered to be invested in any industry.);
14) Invest more than 5% of its total assets in the securities of any one
issuer other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities if as a result of the purchase less than 75% of
the Portfolio's total assets is represented by cash and cash items (including
receivables), Government securities, and other securities for the purposes of
this calculation limited in respect of any one issuer to an amount not greater
in value than 5% of the value of the total assets of such Portfolio determined
at the time of investment. (This restriction does not apply to the Bernstein New
York Municipal Portfolio or the Bernstein California Municipal Portfolio.);
15) Purchase any security if, as a result, it would hold more than 10% of
the voting securities of any issuer;
16) Make investments for the purpose of exercising control or management;
17) Invest in securities of other registered investment companies;
18) Purchase warrants if as a result the Fund would then have more than 5%
of its total assets (determined at the time of investment) invested in warrants.
<PAGE>
B-28
Although not a fundamental policy, the Fund has agreed with a state
securities commission that the Fixed-Income Portfolios (other than the Short
Duration Municipal Portfolios) of the Fund will limit their investment in
warrants which are not listed on the New York Stock Exchange or the American
Stock Exchange to no more than 2% of the value of their total assets (determined
at the time of investment).
In addition, as a non-fundamental policy, no Fixed-Income Portfolio (other
than the Short Duration Municipal Portfolios) of the Fund will invest in a
reverse repurchase agreement if the amount received by the Portfolio through
such an agreement, together with all other borrowings, will exceed 5% of the
Portfolio's total assets.
INTERNATIONAL VALUE PORTFOLIO'S INVESTMENT RESTRICTIONS
The International Value Portfolio may not, except as otherwise provided
herein:
1) Purchase securities on margin, but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions;
2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Portfolio owns or has the right to
obtain at no added cost securities identical to those sold short;
3) Borrow money except that the Portfolio may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed 33 1/3% of the
Portfolio's total assets by reason of a decline in net assets will be reduced
within three days (not including Saturdays, Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation. The Portfolio may not enter
into reverse repurchase agreements if the Portfolio's obligations thereunder
would be in excess of one-third of the Portfolio's total assets, less
liabilities other than obligations under such reverse repurchase agreements.
4) Issue senior securities, except as permitted under the 1940 Act;
5) Purchase or sell commodities or commodity contracts, except financial
futures and currency futures and options thereon;
6) Purchase or sell real estate or interests in real estate, although the
Portfolio may purchase and sell securities which are secured by real estate, and
securities of companies which invest and deal in real estate;
7) Purchase oil, gas or other mineral interests;
<PAGE>
B-29
8) Make loans although the Portfolio may (i) purchase fixed-income
securities and enter into repurchase agreements, or (ii) lend portfolio
securities provided that no more than 33 1/3% of the Portfolio's total assets
will be lent to other parties;
9) Act as an underwriter, except to the extent that, in connection with
the disposition of certain portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
10) Purchase any security if, as a result, more than 25% of the
Portfolio's total assets (taken at current value) would be invested in a single
industry. (For purposes of this restriction, assets invested in obligations
issued or guaranteed by the U.S. Government and its agencies or
instrumentalities, are not considered to be invested in any industry);
11) Invest more than 5% of its total assets in the securities of any one
issuer if as a result of the purchase less than 75% of the Portfolio's total
assets is represented by cash and cash items (including receivables), Government
securities, securities of other investment companies, and other securities for
the purposes of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of the
Portfolio determined at the time of investment and to not more than 10% of the
outstanding voting securities of such issuer;
12) Make investments for the purpose of exercising control or management;
The following investment limitations are not fundamental, and may be
changed without shareholder approval. The International Value Portfolio has not
and currently does not intend to:
1) Issue senior securities, borrow money or pledge its assets except to the
extent that forward commitments and securities loans may be considered loans and
except that the Portfolio may borrow from a bank for temporary or emergency
purposes in amounts not exceeding 5% (taken at the lower of cost or current
value) of its total assets (not including the amount borrowed) and pledge its
assets to secure such borrowings. The Portfolio does not intend to purchase a
security while borrowings exceed 5% of its total assets. The Portfolio will not
enter into reverse repurchase agreements and securities loans if the Portfolio's
obligations thereunder would be in excess of one-third of the Portfolio's total
assets, less liabilities other than obligations under such reverse repurchase
agreements and securities loans;
2) Purchase any security if, as a result, the Portfolio would then have
more than 15% of its net assets (at current value) invested in securities
restricted as to disposition under federal securities laws (excluding restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 ("144A Securities") that have been determined to be liquid under procedures
adopted by the Board of Directors based on the trading market for the security)
or otherwise illiquid or not readily marketable, including repurchase agreements
with maturities of more than 7 days, provided that the Portfolio will not invest
more than 5% of its total assets in restricted equity securities (excluding 144A
Securities and determined to be liquid under the foregoing procedures);
<PAGE>
B-30
3) Purchase any security if, as a result, the Portfolio would then have
more than 5% of its total assets (taken at current value) invested in securities
of companies (including predecessors) less than three years old;
4) Invest in securities of other investment companies except in the open
market where no commission other than the ordinary broker's commission is paid
or except when the purchase is part of a plan of merger, consolidation,
reorganization or acquisition; any such purchase will be in compliance with the
1940 Act and applicable state law in those states where the Portfolio's
securities are registered for sale;
5) Invest in any securities of any issuer if, to the knowledge of the Fund,
any officer or director of the Fund or of the Manager owns more than 1/2 of 1%
of the securities of the issuer, and such officers or directors who own more
than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities
of such issuer.
The Fund has agreed with the Texas State Securities Board not to invest
more than 10% of its net assets, valued at the lower of cost or market, in
warrants, none of which need to be listed on domestic stock exchanges.
<PAGE>
B-31
DIRECTORS AND OFFICERS AND
PRINCIPAL HOLDERS OF SECURITIES
The following table lists the directors and executive officers of the Fund,
their business addresses and their principal occupations during the past five
years. Each director who is an "interested person" of the Fund, as defined in
the Act, is indicated by an asterisk.
Position with Principal Occupation
Name and Address the Fund During Past 5 Years
- ---------------- ------------- -------------------
*Roger Hertog President, 1993-Present: President, Chief
767 Fifth Avenue Treasurer, Operating Officer and
New York, NY 10153 Director Director-Bernstein; Previously:
Executive Vice President, and
Director-Bernstein
*Stuart K. Nelson Senior Vice Senior Vice President, General
767 Fifth Avenue President, Counsel and Director-Bernstein
New York, NY 10153 Director
Arthur Aeder Director 1987-Present: Consultant; Formerly
20 West 55th Street senior partner of Oppenheim,
New York, NY 10019 Appel, Dixon & Co. (subsequently
Spicer & Oppenheim), Certified
Public Accountants, and chairman
of Spicer & Oppenheim International
Peter L. Bernstein(1) Director President - Peter L. Bernstein,
575 Madison Avenue, Inc., Economic Consultants
Suite 1006
New York, NY 10022
William Kristol Director 6/95-Present: Editor and Publisher,
1150 17th Street, N.W. The Weekly Standard
5th Floor 11/93-5/95: Chairman, Project for
Washington, D.C. 20036 the Republican Future
1/93-11/93: Director, The Bradley
Project on the 90's
5/89-1/93: Chief of Staff to the
Vice President, The White House
Theodore Levitt Director Professor Emeritus of Business
Harvard Business School Administration-Harvard University;
Cumnock 300 1985-1989: Editor, Harvard
Boston, MA 02163 Business Review
Francis H. Trainer, Jr Senior Vice 1992-Present: Senior Vice President,
767 Fifth Avenue President Director-Fixed Income Investments
New York, NY 10153 and Director-Bernstein; Previously:
Manager of Fixed-Income Investments-
Bernstein
Jean Margo Reid Secretary 1992-Present: Vice President and
767 Fifth Avenue Associate General Counsel-
New York, NY 10153 Bernstein; Previously: Vice
President and Attorney-Bernstein
(1)Not related to Zalman C. Bernstein, Chairman of the Executive
Committee-Bernstein.
<PAGE>
B-32
The officers conduct and supervise the daily business operations of the
Portfolios, while the directors exercise general oversight over these actions
and decide on general policy. The directors have designated Mr. Hertog and Mr.
Nelson to be the Executive Committee of the Fund. Between meetings of the Board
of Directors, the Executive Committee may exercise all the powers of the Board
of Directors except the power to (1) declare dividends or distributions on
stock; (2) issue stock except pursuant to a method specified by the Board of
Directors; (3) recommend to the stockholders any action which requires
stockholder approval; (4) amend the bylaws; (5) approve any merger or share
exchange which does not require stockholder approval; or (6) approve any matter
which, pursuant to the 1940 Act, must be approved by the Board of Directors,
including those matters which must be approved by a majority of the directors
who are not interested persons of the Fund.
The Fund paid each of the four directors who is not an affiliated person of
Bernstein, in addition to reimbursement of out-of-pocket expenses in connection
with attendance at meetings of the Board of Directors, compensation as follows:
Arthur Aeder, Peter L. Bernstein, William Kristol and Theodore Levitt received
annual compensation of $28,750 for the fiscal year ended September 30, 1995.
Officers receive no direct remuneration in such capacity from the Fund. The
directors may also appoint committees of directors. Directors who are not
affiliated persons of Bernstein serving on such committees may receive
additional compensation as well as reimbursement of their out-of-pocket
expenses.
The directors have been elected by the public shareholders of the Fund,
except for Mr. Kristol, who was elected by the other Directors. In order to
avoid unnecessary expenses, the Fund does not normally intend to hold annual
meetings of shareholders. The Board of Directors or the shareholders may call
Special Meetings of Shareholders for the removal of directors or for other
actions for which a shareholder vote may be required by the 1940 Act (such as a
change in fundamental policies or diversified status) or the Fund's Articles of
Incorporation or By-Laws.
On January 2, 1996, directors and officers of the Fund, as a group, owned
beneficially 134,211.536 shares of the Bernstein Government Short Duration
Portfolio, being 1.16% of such Portfolio. On January 2, 1996, directors and
officers of the Fund, as a group, owned less than one percent of the outstanding
shares of Bernstein Short Duration California Municipal Portfolio, Bernstein
Short Duration New York Municipal Portfolio, Bernstein Short Duration
Diversified Municipal Portfolio, Bernstein Short Duration Plus Portfolio,
Bernstein New York Municipal Portfolio, Bernstein California Municipal
Portfolio, Bernstein Diversified Municipal Portfolio, Bernstein Intermediate
Duration Portfolio and Bernstein International Value Portfolio.
MANAGER AND DISTRIBUTOR
Manager. Bernstein, 767 Fifth Avenue, New York, New York 10153, has
entered into Management Agreements with the Fund, on behalf of each of the
Portfolios, under which Bernstein acts as investment adviser for each of the
Portfolios. Bernstein is controlled by its Board of Directors, which consists
of the following individuals: Andrew S. Adelson, Zalman C. Bernstein, Kevin R.
Brine, Charles C. Cahn, Jr.,
<PAGE>
B-33
Marilyn Goldstein Fedak, Michael L. Goldstein, Roger Hertog, Stuart K. Nelson,
Lewis A. Sanders, and Francis H. Trainer, Jr. Subject to the general oversight
of the Board of Directors of the Fund, and in conformity with the stated
policies of each of the Portfolios, Bernstein manages the investment of each
Portfolio's assets. Bernstein makes investment decisions for each Portfolio and
places purchase and sale orders. The services of the Manager are not exclusive
under the terms of the Management Agreements. Bernstein is free to render
similar services to others.
Bernstein has authorized those of its directors, officers or employees who
are elected as directors or officers of the Fund to serve in the capacities in
which they are elected. All services furnished by Bernstein under the Management
Agreements may be furnished through the medium of any such directors, officers
or employees of Bernstein. In connection with the provision of its services
under the Management Agreements, the Manager bears various expenses, including
the salaries and expenses of all personnel, except the fees and expenses of
directors not affiliated with Bernstein.
Each Portfolio pays the Manager for the services performed on behalf of
that Portfolio, as well as for the services performed on behalf of the Fund as a
whole. The fee paid by each of the Fixed-Income Portfolios (other than the Short
Duration Municipal Portfolios) is at an annual rate of 0.50% of each such
Portfolio's average daily net assets up to and including $1 billion and at an
annual rate of 0.45% of each such Portfolio's average daily net assets in excess
of $1 billion. The fee paid by each of the Short Duration Municipal Portfolios
is at an annual rate of 0.50% of each such Portfolio's average daily net assets,
except that, during the first two years of operations of each Short Duration
Municipal Portfolio, no Short Duration Municipal Portfolio will pay any portion
of the fee that, together with the other operating expenses of the Portfolio
(excluding interest, taxes, brokerage commissions, and extraordinary expenses,
but including fees payable to Bernstein under the Shareholder Servicing and
Administrative Agreement described below) exceeds the rate of 0.79% per annum of
the Portfolio's average daily net assets. The term "the first full two years of
operation" is the 24-month period commencing October 3, 1994 through and
including October 2, 1996. The fee paid by the International Value Portfolio is
at an annual rate of 1.00% of that Portfolio's average daily net assets up to
but not exceeding $2 billion and at an annual rate of .90 of 1% of that
Portfolio's average daily net assets that exceed $2 billion. The fee is computed
daily and paid monthly. For the fiscal years ended September 30, 1993, 1994 and
1995, the investment management fees accrued or paid to Bernstein pursuant to
the Management Agreements were, respectively, $13,032,934, $22,165,266 and
$30,738,193. For the purpose of complying with current California law, the
Manager will reduce its fee to the extent required to limit each Portfolio's
expenses to 2.5% of the Portfolio's first $30 million of average net assets, 2%
of the next $70 million and 1.5% of the Portfolio's average net assets in excess
of $100 million; expenses incurred by the International Value Portfolio for
custodian costs in excess of those which would have been incurred had the
Portfolio's investments been in domestic securities are excluded from aggregate
expenses for the purpose of applying this limitation.
The Management Agreements provide that the Manager shall not be liable to
the Fund or the Portfolios for any error of judgment by the Manager or for any
loss sustained by the Fund or the Portfolios
<PAGE>
B-34
except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations and duties under the Management Agreements.
In addition to the Management Agreements, the Fund, on behalf of each of
the Portfolios, has entered into Shareholder Servicing and Administrative
Agreements with Bernstein. Pursuant to these Agreements, Bernstein pays all
expenses incurred by it in connection with administering the ordinary course of
the Fund's and each Portfolio's business. Bernstein also pays the costs of
office facilities and of clerical and administrative services which are not
provided by State Street Bank and Trust Company, the Fund's Custodian and
Transfer Agent. Bernstein serves as Shareholder Servicing Agent and in such
capacity may enter into agreements with other organizations whereby some or all
of Bernstein's duties in this regard may be delegated. The shareholder servicing
that will be provided by Bernstein or other organizations might include, among
other things, proxy solicitations and providing information to shareholders
concerning their mutual fund investments, systematic withdrawal plans, dividend
payments, reinvestments, and other matters. The fee paid by each of the
Fixed-Income Portfolios for shareholder servicing and administration is 0.10% of
each Portfolio's average daily net assets and the fee paid by the International
Value Portfolio for these services is 0.25% of that Portfolio's average daily
net assets. For the fiscal years ended September 30, 1993, 1994 and 1995, the
fees accrued or paid to Bernstein pursuant to the Shareholder Servicing and
Administrative Agreements were $2,725,571, $4,906,167 and $6,964,714,
respectively.
Except as indicated above, each Portfolio is responsible for the payment of
its expenses and an allocable share of the common expenses of the Fund,
including: (i) the fees payable to Bernstein under the Management Agreements and
the Shareholder Servicing and Administrative Agreements; (ii) the fees and
expenses of Directors who are not affiliated with Bernstein; (iii) the fees and
expenses of the Custodian and Transfer Agent, including but not limited to fees
and expenses relating to fund accounting, pricing of fund shares, and
computation of net asset value; (iv) the fees and expenses of calculating yield
and/or performance pursuant to any independent servicing agreement; (v) the
charges and expenses of legal counsel and independent accountants; (vi) all
taxes and corporate fees payable to governmental agencies; (vii) the fees of any
trade association of which the Fund is a member; (viii) reimbursement of each
Portfolio's share of the organization expenses of the Fund; (ix) the fees and
expenses involved in registering and maintaining registration of the Fund and
the Portfolios' shares with the Securities and Exchange Commission, registering
the Fund as a broker or dealer and qualifying the shares of the Portfolios under
state securities laws, including the preparation and printing of the
registration statements and prospectuses for such purposes, allocable
communications expenses with respect to investor services, all expenses of
shareholders' and Board of Directors' meetings and preparing, printing and
mailing proxies, prospectuses and reports to shareholders; (x) brokers'
commissions, dealers' markups, and any issue or transfer taxes chargeable in
connection with the Portfolios' securities transactions; (xi) the cost of stock
certificates representing shares of the Portfolios; (xii) insurance expenses,
including but not limited to, the cost of a fidelity bond, directors' and
officers insurance, and errors and omissions insurance; and (xiii) litigation
and indemnification expenses, expenses incurred in connection with mergers, and
other extraordinary expenses not incurred in the ordinary course of the
Portfolios' business.
<PAGE>
B-35
The Management Agreements provide that if at any time the Manager shall
cease to act as investment adviser to any Portfolio or to the Fund, or if the
Manager shall change its name to delete the reference to Sanford C. Bernstein,
the Fund shall take all steps necessary under corporate law to change its
corporate name to delete the reference to Sanford C. Bernstein or to delete the
reference to Bernstein as to any such Portfolio and shall thereafter refrain
from using such name with reference to any such Portfolio and, if applicable,
the Fund.
The Management Agreements provide that they will terminate automatically if
assigned and that they may be terminated without penalty by any Portfolio (by
vote of the directors or by a vote of a majority of the outstanding voting
securities of the Portfolio voting separately from any other Portfolio of the
Fund) on not less than 30 days' written notice. The Management Agreements also
provide that they will continue for more than two years only if such continuance
is annually approved in the manner required by the 1940 Act and the Manager
shall not have notified the Fund that it does not desire such continuance.
Distributor. Bernstein acts as Distributor of each Portfolio's shares
pursuant to Distribution Agreements.
NET ASSET VALUE
The Fund computes the net asset value of each Portfolio once daily as of
the close of regular trading of the New York Stock Exchange (normally 4:00 p.m.,
New York time), each business day, except for New York Stock Exchange and
national bank holidays, as determined from time to time. Currently, these
holidays are: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day, and Christmas Day. Because the International Value Portfolio's
investment securities are traded on foreign markets that may be open when the
New York Stock Exchange is closed, the value of the net assets of the
International Value Portfolio may be significantly affected on days when no net
asset value is calculated. If the primary market in which a portfolio security
is traded is not open for trading on a day which the Fund computes net asset
value, then the security's valuation will be valued as of the last preceding
trading date in its primary market, unless, under procedures established by the
Board of Directors, it is determined that such price does not reflect the
security's fair value.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities for
each of the Portfolios and for broker-dealer selection. In general, securities
in which the Fixed-Income Portfolios invest are traded on a "net" rather than a
transaction-charge basis with dealers acting as principals for their own
accounts without a stated transaction charge. Accordingly, the price of the
security may reflect an increase or decrease from the price paid by the dealer
together with a spread between the bid and asked price, which provides the
opportunity for a profit or loss to the dealer. The International Value
Portfolio generally effects transactions on stock exchanges and markets which
involve the payment of brokerage commissions. In transactions on stock exchanges
in the United States, these commissions are
<PAGE>
B-36
negotiated. Traditionally, commission rates have generally not been negotiated
on stock markets outside the United States. In recent years, however, an
increasing number of overseas stock markets have adopted a system of negotiated
rates, although a few markets continue to be subject to an established schedule
of minimum commission rates. Each Portfolio may purchase securities from
underwriters at prices which include a concession paid by the issuer to the
underwriter. On occasion, certain money market instruments may be purchased
directly from an issuer, in which case no commissions or discounts are paid. In
some cases, the Portfolios might engage in purchase or sale transactions with
another Portfolio of the Fund, subject to conditions specified under the 1940
Act. There might also be occasions where the Portfolios engage in purchase or
sale transactions with another mutual fund.
For the fiscal year ended September 30, 1995, the Fund paid total brokerage
commissions of $3,587,366, none of which was paid to Bernstein for effecting
transactions on which the Fund paid brokerage commissions. The Fund paid
aggregate brokerage commissions of $1,585,415 and $3,155,636 during the fiscal
years ended September 30, 1993 and 1994, respectively. Of the $3,155,636 in
brokerage commissions paid by the Fund in fiscal year 1994, $1,191 or .04% was
paid to Bernstein for effecting .0297% of the aggregate dollar amount of
transactions on which the Fund paid commissions. The increase in transaction
charges in 1994 was primarily attributable to the growth in net assets of the
International Value Portfolio; the net assets for such Portfolio went from
$539,936,000 at the end of fiscal year 1993 to $1,343,266,000 at the end of
fiscal year 1994.
Effecting Transactions for the Fixed-Income Portfolios
The Manager's primary consideration in effecting a security transaction for
the Fixed-Income Portfolios is to obtain the best net price and the most
favorable execution of the order. To the extent that the executions and prices
offered by more than one dealer are comparable, the Manager may, in its
discretion, effect transactions with dealers that furnish statistical, research
or other information or services, which are deemed by the Manger to be
beneficial to one or more of the Fixed-Income Portfolios or any other investment
companies or other accounts managed by the Manager.
Effecting Transactions for the International Value Portfolio
In effecting a security transaction for the International Value Portfolio,
the Manager seeks to obtain best execution at the most favorable prices through
responsible broker-dealers; however, under certain conditions the Fund may pay
higher brokerage commissions in return for brokerage and research services. The
factors that the Manager may consider are: price, rate of commission, the
broker's trading expertise, stature in the industry, execution ability,
facilities, clearing capabilities and financial services offered, long-term
relations with the Manager, reliability and financial responsibility, integrity,
timing and size of order and execution, difficulty of execution, current market
conditions, depth of the market, and the broker's ability and willingness to
commit capital in over-the-counter transactions by taking
<PAGE>
B-37
positions in order to effect executions. While the Manager considers
commissions, which are a component of price, in making broker selections the
Manager does not obligate itself to seek the lowest commissions except to the
extent that it contributes to the overall goal of obtaining the most favorable
execution of the order. In accordance with Section 28(e) of the Securities
Exchange Act of 1934, a higher commission may be determined reasonable in light
of the value of the brokerage and research services provided.
Brokerage and research services provided by brokers and dealers are of the
type described in Section 28(e) of the Securities Exchange Act of 1934. These
services may include pricing data, statistical information and analyses and
reports regarding issuers, industries, securities, economic factors and trends
from both a domestic and international perspective. Research services may be
received in the form of written reports, computer generated services, telephone
contacts and personal meetings with security analysts, conferences and seminars
and meetings arranged with corporate and industry representatives, economists,
academicians and government representatives. Research services may be generated
by the broker itself or by third parties, in which case the research would be
provided to the Manager by or through the broker. Some of the third party
products or research services received by the Manager may have more than one
function; such services may be used to make investment decisions for investment
management clients, to prepare research reports that are provided to
institutional brokerage clients for which Bernstein executes trades and for
non-research purposes. If this is the case, the Manager makes a good faith
determination of the anticipated use of the product or service for its
investment management clients and for its institutional brokerage clients and/or
for non-research purposes, as the case may be, and allocates brokerage only with
respect to the portion of the cost of such research that is attributable to use
for its investment management clients. The Manager pays with its own funds the
portion of the cost of such research attributable to use for its institutional
brokerage clients and for non-research purposes.
The research services described above are designed to augment the Manager's
internal research and investment-strategy capabilities. As a practical matter,
the Manager could not generate all of the information currently provided by
broker-dealers and its expenses would be increased if it attempted to generate
such information through its own efforts. The Manager pays for certain of the
research services that it obtains from external sources but also allocates
brokerage for research services which are available for cash; accordingly, the
Manager may be relieved of expenses that it might otherwise bear.
Annually, the Manager assesses the contribution of the brokerage and
research services provided by broker-dealers, and attempts to allocate a portion
of its brokerage business in response to these assessments. Research analysts,
members of the investment policy groups and the Trading Department each seek to
evaluate the brokerage and research services they receive from broker-dealers
and make judgments as to the level of business which would recognize such
services. The Manager doesn't commit a specific amount of business to any
broker-dealer over any specific time period. Broker-dealers sometimes suggest a
level of business they would like to receive in return for the various brokerage
and research services they provide. However, since the total business is
allocated to a broker-dealer on the
<PAGE>
B-38
basis of all the considerations described above, the actual brokerage received
by a broker-dealer may be more or less than the suggested allocations. Virtually
all of the brokerage is allocated to broker-dealers who provide research
services.
Research services furnished by broker-dealers through whom the Fund effects
securities transactions may be used by the Manager in servicing all of its
accounts and not all such services may be used by the Manager in connection with
the Fund. Similarly, research services furnished by broker-dealers who effect
securities transactions for the Manager's other managed accounts may be used by
the Manager to benefit the Fund.
PURCHASE AND REDEMPTION OF SHARES
Shares of each Portfolio are sold at the net asset value next calculated
after receipt of a purchase order. In order to purchase shares, an investor
must fill out an application. A confirmation of each capital-share transaction
is sent to the shareholder. The methods of purchase and redemption of shares
and the methods used to value the Fund's assets are more fully set forth in the
Prospectus.
The Portfolios, having filed with the SEC a notification of election
pursuant to Rule 18f-1 under the 1940 Act, may pay the redemption price in whole
or in part by a distribution in kind of securities held by the Portfolio, in
lieu of cash. In conformity with applicable rules of the SEC, the Portfolios are
each committed to pay in cash all requests for redemption by any shareholder of
record, limited in amount with respect to each shareholder during any 90-day
period to the lesser of (i) $250,000, or (ii) 1% of the net asset value of the
Portfolio at the beginning of such period. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting the assets into
cash. The method of valuing portfolio securities is described under "Net Asset
Value," and this valuation is made as of the same time the redemption price is
determined.
TAXES
Each Portfolio intends to distribute to the registered holders of its
shares all of its net investment income, which includes dividends and interest
as well as net short-term capital gains, if any, in excess of any net long-term
capital losses and any net long-term capital gains, if any, in excess of any net
short-term capital losses. The Internal Revenue Code of 1986 (the "Code")
requires all regulated investment companies (such as the Portfolios) to pay a
nondeductible 4% excise tax to the extent the registered investment company does
not distribute 98% of its ordinary income, determined on a calendar-year basis,
and 98% of its capital and foreign currency gains, determined, in general, on an
October 31 year-end. Each Portfolio intends to distribute its income and capital
gains in the manner necessary to avoid imposition of the 4% excise tax. The
current policy of each Fixed-Income Portfolio is to declare investment income
dividends daily and pay them monthly and to pay capital gains distributions
annually. The International Value Portfolio's policy is to declare and pay
investment income dividends and capital gains distributions annually. In
determining amounts of capital gains to be distributed, any capital loss
carryovers from prior periods ending October 31 are offset against capital
gains.
<PAGE>
B-39
Gains or losses on sales of securities by a Portfolio are long-term capital
gains or losses to the Portfolio if the securities have been held by it for more
than one year. Other gains or losses on the sale of securities are short-term
capital gains or losses. Special rules applicable to gains and losses on
futures and options are discussed below.
The Portfolios each intend to qualify as a regulated investment company
under the requirements of the Code for each taxable year. Currently, in order to
qualify as a regulated investment company, a Portfolio must generally, among
other things, (i) derive at least 90% of its gross income from dividends,
interest, gains from the sale of securities (excluding losses), or foreign
currencies, and certain other related income (the "90% test"); (ii) derive less
than 30% of its gross income, excluding losses, from the sale or other
disposition of (a) securities; (b) options, futures, forward contracts (other
than options, futures, or forward contracts on foreign securities); or (c)
foreign currencies (or options, futures or forward contracts on foreign
currencies) but only if such currencies (or options, futures, or forward
contracts) are not directly related to the Portfolio's principal business of
investing in stock or securities, held less than three months (the "30% test");
and (iii) diversify its holdings so that, at the end of each fiscal quarter, (a)
50% of the market value of the Portfolio's total assets is represented by cash,
U.S. Government securities and other securities limited, in respect of any one
issuer, to an amount no greater than 5% of the Portfolio's assets and not
greater than 10% of the outstanding voting securities of such issuer, and (b)
not more than 25% of the value of its assets is invested in such securities of
any one issuer other than U.S. Government securities or the securities of other
regulated investment companies (the "diversification requirements").
The 30% test affects the Portfolios' ability to engage in options and
futures transactions. The Portfolios may be deterred from entering into options
or futures transactions which might result in a Portfolio realizing gains of a
term of less than three months.
Currently, distributions of net investment income and net capital gains are
taxable to the shareholder, subject to federal income tax regardless of whether
the shareholder receives such distributions in additional shares or in cash.
Distributions of net long-term capital gains, if any, are taxable as long-term
capital gains, regardless of whether the shareholder receives such distributions
in additional shares or in cash or how long the investor has held his shares.
The Bernstein Short Duration New York Municipal Portfolio and the Bernstein
New York Municipal Portfolio provide income which is tax-free (except for
alternative minimum taxes) for federal and New York State and local individual
income tax purposes to the extent that their income is derived from New York
State Municipal Securities or securities issued by possessions of the United
States. The Bernstein Short Duration California Municipal Portfolio and the
Bernstein California Municipal Portfolio provide income which is tax-free
(except for alternative minimum taxes) for federal and California personal
income tax purposes to the extent that their income is derived from California
Municipal Securities or securities issued by possessions of the United States.
The Bernstein Short Duration Diversified Municipal Portfolio and the Bernstein
Diversified Municipal Portfolio provide income which is tax-free for federal
individual income tax purposes (except for the alternative minimum tax) and
which may be partially tax-free for state
<PAGE>
B-40
tax purposes, to the extent of their income derived from municipal securities.
For this purpose, gains on transactions in options, futures contracts and
options on futures contracts as well as gains on municipal securities are not
tax-exempt. In addition, the Bernstein Short Duration New York Municipal
Portfolio, the Bernstein New York Municipal Portfolio, the Bernstein Short
Duration California Municipal Portfolio, the Bernstein California Municipal
Portfolio, the Bernstein Short Duration Diversified Municipal Portfolio, and the
Bernstein Diversified Municipal Portfolio will comply with the requirement of
Code Section 852(b)(5) that at least 50% of each Portfolio's total assets
consist of municipal securities. This requirement may limit these Portfolios'
ability to engage in transactions in options, futures contracts and options on
futures contracts or in certain other transactions. A portion of the income of
these Portfolios may be exempt from state income taxes in certain states to the
extent the Portfolio's income is derived from securities the interest on which
is exempt from income taxes in that state. Shareholders may wish to consult a
tax adviser about the status of distributions from the Portfolios in their
individual states or localities.
The Code includes special rules applicable to forward contracts and to
certain exchange-listed options, futures contracts and options on futures
contracts which the Portfolios may write, purchase or sell. Such forward
contracts, options and futures contracts are classified as Section 1256
contracts under the Code. The character of gain or loss resulting from the sale,
disposition, closing out, expiration or other termination of Section 1256
contracts, other than certain foreign currency forward contracts, options, or
futures contracts (discussed below), is generally treated as long-term capital
gain or loss to the extent of 60% thereof and short-term capital gain or loss to
the extent of 40% thereof. These contracts, when held by a Portfolio at the end
of a fiscal year (or, for purposes of the excise tax, at the end of a period
ending October 31) generally are required to be treated as sold at market value
on the last day of such fiscal year for federal income tax purposes ("marked to
market").
Certain Section 1256 contracts undertaken by a Portfolio may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Portfolios. In addition, losses
realized by the Portfolios on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Further, the Portfolios may be required to capitalize, rather than
deduct currently, any interest expense on indebtedness incurred to purchase or
carry any positions that are part of a straddle. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to the Portfolios are not entirely clear. The straddle
transactions may increase the amount of short-term capital gain recognized by
the Portfolios.
The Portfolios may make one or more of the elections available under the
Code which are applicable to straddles. If a Portfolio makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections may accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer and/or accelerate the recognition of gains or losses from the
affected straddle positions and require the capitalization
<PAGE>
B-41
of interest expense, the amount which must be distributed to shareholders as
ordinary income or long-term capital gain by a Portfolio, may be increased or
decreased substantially as compared to a portfolio that did not engage in such
hedging transactions.
The Fund, on behalf of the Bernstein Government Short Duration Portfolio,
the Bernstein Short Duration Plus Portfolio, the Bernstein New York Municipal
Portfolio, the Bernstein Diversified Municipal Portfolio and the Bernstein
Intermediate Duration Portfolio requested a private-letter ruling from the
Internal Revenue Service to the effect that (i) gains realized upon the sale or
other disposition of options, futures contracts or options on futures contracts,
on securities or on certain securities indices, including gains which are
recognized as the result of a Section 1256 contract being marked to market, are
treated as gains from the sale or other disposition of securities for purposes
of the 90% test; (ii) gains realized as the result of a Section 1256 contract
being marked to market are not considered gains from the sale or other
disposition of stock or securities held for less than three months for purposes
of the 30% test, and (iii) for purposes of the diversification requirements, (a)
options, futures contracts and options on futures contracts on U.S. Government
securities are treated as issued by the issuer of the securities and (b)
options, futures contracts and options on futures contracts on a securities
index, including a municipal bond index, will be treated as issued
proportionately by the issuers of the securities underlying the securities index
irrespective of whether the index is broadly based or narrowly based. The Fund
received the ruling requested as to (i) above; there can be no assurance that
the requested private-letter ruling as to items (ii) and (iii) will be obtained.
In the event that the Fund does not receive the private-letter ruling, the
Portfolios' ability to engage in the latter described transactions may be
limited.
The Fund, on behalf of the Bernstein Government Short Duration Portfolio,
the Bernstein Short Duration Plus Portfolio, the Bernstein New York Municipal
Portfolio, the Bernstein Diversified Municipal Portfolio and the Bernstein
Intermediate Duration Portfolio, has also requested a private-letter ruling from
the Internal Revenue Service to the effect that certain securities, including
GNMA Certificates and FNMA Certificates are treated as government securities for
purposes of the diversification requirements under Section 851(b)(4) of the
Internal Revenue Code of 1986. The Fund received the requested ruling, except as
to FHLMC Participation Certificates and securities of the Financing Corporation;
there can be no assurance that the requested private-letter ruling will be
obtained as to these securities. In the event the Fund receives an adverse
ruling, the Portfolios' investment in the latter securities may have to be
limited because of the diversification requirements under Section 851 of the
Internal Revenue Code.
The Fund, on behalf of the Bernstein Government Short Duration Portfolio,
the Bernstein Short Duration Plus Portfolio, the Bernstein New York Municipal
Portfolio, the Bernstein Diversified Municipal Portfolio and the Bernstein
Intermediate Duration Portfolio, has also received a private-letter ruling from
the Internal Revenue Service to the effect that a Portfolio which holds a U.S.
government security and enters into certain transactions involving options and
futures contracts is treated as having made a designated hedge, with the result
that the gains and losses on the U.S. government security and the futures
contract or option will be netted for purposes of the 30% test.
<PAGE>
B-42
The diversification requirements applicable to the Portfolio's assets and
other restrictions imposed on the Portfolio by the Code may limit the extent to
which the Portfolio will be able to engage in transactions in forward contracts,
options, futures contracts or options on futures contracts.
Under Code Section 988, foreign currency gains or losses from certain
forward contracts not traded in the interbank market, from futures contracts
that are not "regulated futures contracts", and from unlisted options will
generally be treated as ordinary income or ordinary loss. In addition, gains or
losses on the disposition of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition are generally
treated as ordinary income or loss. Also, gains or losses attributable to
fluctuations in foreign currency exchange rates which occur between the time the
Portfolio accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Portfolio
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. These gains or losses may increase
or decrease the amount of the Portfolio's investment company taxable income to
be distributed to its stockholders as ordinary income, rather than increasing or
decreasing the amount of the Portfolio's capital gains or losses. Additionally,
if Code Section 988 losses exceed other investment company taxable income during
a taxable year, the Portfolio would not be able to make any ordinary dividend
distributions, and any distributions made before the losses were realized but in
the same taxable year would be recharacterized as a return of capital to
shareholders, thereby reducing each shareholder's basis in the shares.
If the International Value Portfolio qualifies as a regulated investment
company, if certain asset and distribution requirements are satisfied and if
more than 50% of the Portfolio's total assets at the close of its fiscal year
consist of stock or securities of foreign corporations, the Portfolio may elect
for United States income tax purposes to treat foreign income taxes paid by it
as paid by its shareholders. The Portfolio will make such an election only if it
deems it to be in the best interests of its shareholders. As a result of making
such an election, shareholders of the Portfolio would be required to include
their pro rata portions of such foreign taxes in computing their taxable incomes
and then treat an amount equal to those foreign taxes as a United States federal
income tax deduction or as foreign tax credits against their United States
federal income taxes. Within 60 days after the close of each taxable year of the
Portfolio, the Fund will notify shareholders if the foreign taxes paid by the
Portfolio will pass through for that year, and, if so, the amount of each
shareholder's pro rata share of (i) the foreign taxes paid and (ii) the
Portfolio's gross income from foreign sources. Shareholders who are not liable
for federal income taxes will not benefit from any such pass through of foreign
tax credits. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions. Certain limitations will be imposed on the extent
to which the credit and the deduction for foreign taxes may be claimed.
Generally, a credit for foreign taxes may not exceed the United States
shareholder's U.S. tax attributable to its foreign source taxable income.
Generally, also, the source of the Portfolio's income flows through to its
holders. Thus, dividends and interest received by the Portfolio in respect of
foreign securities will give rise to foreign source income to the shareholders.
The overall limitation on a foreign tax credit is also applied separately to
specific categories of foreign source income, among which is "passive income,"
<PAGE>
B-43
which includes foreign source dividends, interest and capital gains. As a result
of these rules, certain United States shareholders may be unable to claim a
credit for the full amount of their proportionate share of the foreign taxes
paid by the Portfolio.
The International Value Portfolio may invest in the stock of "passive
foreign investment companies" ("PFICs"). A PFIC is a foreign corporation that,
in general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under the PFIC rules, an "excess
distribution" received with respect to PFIC stock is treated as having been
realized ratably over the period during which the Portfolio held the PFIC stock.
The Portfolio itself will be subject to tax on the portion, if any, of the
excess distribution that is allocated to the Portfolio's holding period in prior
taxable years (and an interest factor will be added to the tax, as if the tax
had actually been payable in such prior taxable years) even though the Portfolio
distributes the corresponding income to shareholders. Excess distributions
include any gain from the sale of PFIC stock as well as certain distributions
from a PFIC. All excess distributions are taxable as ordinary income. The
balance of the PFIC income will be included in the Portfolio's investment
company taxable income and, accordingly, will not be taxable to it to the extent
that income is distributed to its shareholders. The Portfolio may be able to
elect alternative tax treatment with respect to PFIC stock. Under an election
which may be available, the Portfolio would be required to include in income
each year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the
Portfolio; those amounts would be subject to the distribution requirements
described above. In most instances it will be very difficult, if not impossible,
to make this election because of certain requirements thereof. Other elections
may become available that would affect the tax treatment of PFIC stock held by
the Portfolio.
Under Treasury Regulations, the Portfolio is required to withhold and remit
to the U.S. Treasury 31% of dividend and capital gains income from the accounts
of certain shareholders who provide either an incorrect tax identification
number or no number at all or who do not provide certain required
certifications.
A foreign shareholder may be subject to dividend tax withholding at the 30%
rate or at a lower applicable treaty rate on certain dividends from the
Portfolio. Foreign shareholders should consult their tax advisers regarding
application of these withholding rules.
The discussion in the Prospectus, together with the foregoing, is a general
summary of the tax consequences of investments in the Portfolios. Investors are
urged to consult their own tax advisers to determine the effect of investments
in the Portfolios upon their individual tax situations.
CUSTODIAN, TRANSFER AGENT, INDEPENDENT ACCOUNTANTS AND
FINANCIAL STATEMENTS
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Custodian for the Fund. Foreign securities and
currency owned by the Fund may be held by foreign subcustodians of State Street
Bank and Trust Company retained for such purpose in accordance with the
<PAGE>
B-44
1940 Act. State Street Bank and Trust Company also serves as Transfer Agent, and
in that capacity maintains certain books and records pursuant to an agreement
within the Fund.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, has been selected as the Fund's independent accountants to audit the
annual financial statements of each Portfolio. Shareholders are sent audited
annual and unaudited semiannual reports that include financial statements,
including a schedule of investments. A copy of the Annual Report and the
Schedules of Investments with respect to each Portfolio accompany this Statement
of Additional Information. The following financial statements and the report of
the independent accountants with respect to each Portfolio are incorporated by
reference into this Statement of Additional Information:
Annual Report
Page
-------------
Statement of Assets and Liabilities, September 30, 1995 11-12
Statements of Operations, For the Year Ended September 30, 1995 13-14
Statements of Changes in Net Assets, Year Ended September 30, 1995
and Year Ended September 30, 1994 (or as applicable) 15-17
Financial Highlights for the periods ended September 30, 1995;
September 30, 1994; September 30, 1993; September 30, 1992;
and September 30, 1991 (or as applicable) 18-22
Notes to Financial Statements, September 30, 1995 23-28
Schedule of Investments Taxable Bond Portfolios dated Separate
September 30, 1995 and Report of Independent Accountants Insert to
with respect to such Portfolios dated November 17, 1995 Annual Report
Schedule of Investments Municipal Bond Portfolios Separate
dated September 30, 1995 and Auditor's Letter with respect Insert to
to such Portfolio dated November 17, 1995 Annual Report
Schedule of Investments International Value Portfolio dated Separate
September 30, 1995 and Auditor's Letter with respect to such Insert to
Portfolio dated November 17, 1995 Annual Report
PERFORMANCE
Each of the Portfolios may, from time to time, advertise yield, average
annual total return, and aggregate total return. (See "Performance" in the
Prospectus.)
For the thirty-day period ending September 30, 1995, yields for the
Fixed-Income Portfolios were as follows: Government Short Duration Portfolio -
4.98%; Short Duration Plus Portfolio 5.48%; Intermediate Duration Portfolio -
6.26%; New York Municipal Portfolio - 4.15%;
<PAGE>
B-45
California Municipal Portfolio - 4.0%; Diversified Municipal Portfolio - 4.1%;
Short Duration California Municipal - 3.32%; Short Duration Diversified
Portfolio - 3.41%; and Short Duration New York Municipal Portfolio - 3.28%.
Yields are calculated based on a rolling 30-day average. Yield quotations
are based on each Portfolio's income and expenses for a given month. Expenses
are subtracted from the total interest and dividends for the month; the result
is divided by the Portfolio's average daily market capitalization -- the product
of the average daily number of shares outstanding and the net asset value of the
last day of the month, to give the monthly yield, which is compounded over six
months and then multiplied by two so as to compute the "bond-equivalent yield."
The calculation may be expressed in the following formula:
6
Yield = 2 [( a-b + 1) - 1]
---
cd
Where:
a = total interest and dividends earned during the month;
b = total expenses accrued during the month (net of reimbursements);
c = the average daily number of shares outstanding during the month
that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the month.
The total of interest and dividends earned during the month is calculated
by adding together the interest and dividends earned per day on each security
held during the month (30 days). Solely for the purpose of computing yield,
dividend income is recognized by accruing 1/360th of the stated dividend rate of
the security each day that the security is in the Portfolio. For most debt
securities, the interest earned per day is determined by first computing the
security's yield to maturity on each day during the month. The yield to maturity
is divided by 360, and multiplied by the market value (including accrued
interest) of the security position each day. Each interest earned per day
calculation is added to all of the other such applicable calculations during the
month to determine the interest earned during the month. If a bond is callable,
yield to the appropriate call date is substituted for yield to maturity if, in
the opinion of the Manager, the bond is expected to be called. If a bond is
putable, yield to the appropriate put date is substituted for yield to maturity
if, in the opinion of the Manager, the put is expected to be exercised.
For tax-exempt obligations that are selling below $100 and were not issued
at original-issue discounts, the coupon rate is substituted for the yield to
maturity in the calculation described in the paragraph above, and the par value
of the bond is used in place of market value. For tax-exempt obligations that
are selling below $100 and that were issued at original-issue discounts, if the
yield to maturity, based upon the current market price, is higher than the yield
to maturity at the time of issuance, the yield to
<PAGE>
B-46
maturity at the time of issuance is used in the interest-earned
calculation. Otherwise, the yield to maturity based upon the current market
price is used.
For receivable-backed obligations (such as mortgage pass-throughs), which
are expected to be subject to periodic payments of principal as well as
interest, the interest earned is the income based on the coupon rate and
outstanding principal balance. This income is adjusted by adding or subtracting
the gain or loss attributable to actual monthly paydowns based upon the historic
cost. For purposes of the yield calculation, the Portfolios do not amortize
premium or discount on interest-bearing mortgage-backed securities.
Expenses accrued include all expenses and all fees that are charged to all
shareholder accounts. The maximum offering price reflects the subtraction of
any undeclared earned income, which is the net investment income earned by the
Portfolio that is reasonably expected to be declared as a dividend within a
reasonable time from the end of the month.
For the thirty-day period ending September 30, 1995, tax-equivalent yield
for the Government Short Duration Portfolio was 5.5%, assuming a combined state
and local tax of 10% and reflecting that 0.7% of the income was estimated to be
subject to state and local taxes. Tax-equivalent yield for the New York
Municipal Portfolio at September 30, 1995 was 7.7%, assuming an investor was
subject to a combined federal, state and New York City tax rate of 46.88% and
reflecting that 1.6% of the income was estimated to be subject to federal taxes
and 3.1% to be subject to state and local taxes. Tax-equivalent yield for the
California Municipal Portfolio at September 30, 1995 was 7.4%, assuming an
investor was subject to a combined federal and state tax rate of 46.24% and
reflecting that 4.1% of the income was estimated to be subject to federal taxes
and 5.5% to be subject to state taxes. Tax-equivalent yield for the Diversified
Municipal Portfolio at September 30, 1995 was 6.8%, assuming an investor was
subject to federal tax rate of 39.6% and reflecting that 2.9% of the income was
estimated to be subject to federal taxes.
Tax-equivalent yield for the Short Duration New York Municipal Portfolio at
September 30, 1995 was 6.1%, assuming an investor was subject to a combined
federal, state and New York City tax rate of 46.88% and reflecting that 2.5% of
the income was estimated to be subject to federal taxes and 1.0% to be subject
to state and local taxes. Tax-equivalent yield for the Short Duration California
Municipal Portfolio at September 30, 1995 was 6.1%, assuming an investor was
subject to a combined federal and state tax rate of 46.24% and reflecting that
2.2% of the income was estimated to be subject to federal taxes and 1.9% to be
subject to state taxes. Tax-equivalent yield for the Short Duration Diversified
Municipal Portfolio at September 30, 1995 was 5.5%, assuming an investor was
subject to federal tax rate of 39.6% and reflecting that 4.4% of the income was
estimated to be subject to federal taxes.
Tax-equivalent yield for the Bernstein Short Duration New York Municipal
Portfolio and the Bernstein New York Municipal Portfolio is computed by first
determining the portion of the yield (calculated as set forth above) for the
respective Portfolio that is exempt from (i) federal and New York State and
local
<PAGE>
B-47
taxation; (ii) federal taxation only; (iii) New York State and local taxation
only and (iv) neither New York State and local nor federal income taxation;
dividing each portion of the yield by one minus the relevant combined
tax rate, and adding the quotients together as expressed in the following
formula:
Tax-equivalent Yield = a + c + e + g
--- --- ---
1-b 1-d 1-f
Where:
a = the portion of the yield which is exempt from federal and New York
State and local income taxation;
b = the highest combined marginal income tax rate imposed on an
individual's unearned ordinary income subject to federal, state and local income
taxation;
c = the portion of the yield which is exempt from federal, but not New
York State and local income taxation;
d = the highest marginal income tax imposed on an individual's unearned
ordinary income subject to federal income taxation;
e = the portion of the yield which is exempt from New York State and
local, but not federal, income taxation;
f = the highest marginal income tax imposed on an individual's unearned
ordinary income subject to New York State and local, but not federal, income
taxation; and
g = the portion of the yield which is not exempt from federal, New York
State or local income taxation.
Tax-equivalent yield for the Bernstein Short Duration California Municipal
Portfolio and the Bernstein California Municipal Portfolio is computed by first
determining the portion of the yield (calculated as set forth above) for the
respective Portfolio that is exempt from (i) federal and California personal
income taxation; (ii) federal taxation only; (iii) California personal income
taxation only and (iv) neither California personal nor federal income taxation;
dividing each portion of the yield by one minus the relevant combined tax rate,
and adding the quotients together as expressed in the following formula:
Tax-equivalent Yield = a + c + e + g
--- --- ---
1-b 1-d 1-f
Where:
a = the portion of the yield which is exempt from federal and California
personal income taxation;
<PAGE>
B-48
b = the highest combined marginal income tax rate imposed on an
individual's unearned ordinary income subject to federal and California personal
income taxation;
c = the portion of the yield which is exempt from federal, but not
California personal income taxation;
d = the highest marginal income tax imposed on an individual's unearned
ordinary income subject to federal income taxation;
e = the portion of the yield which is exempt from California personal,
but not federal, income taxation;
f = the highest marginal income tax imposed on an individual's unearned
ordinary income subject to California personal, but not federal, income
taxation; and
g = the portion of the yield which is not exempt from federal or California
personal income taxation.
Tax-equivalent yield for the Bernstein Short Duration Diversified Municipal
Portfolio and the Bernstein Diversified Municipal Portfolio is computed by first
determining the fraction of the yield calculated as set forth above for the
respective Portfolio (i) that is exempt from federal taxation and (ii) that is
not exempt from federal taxation, then dividing that portion of the yield which
is exempt from federal taxation by one minus the highest marginal federal
individual income taxation and adding the quotient to that portion, if any, of
the yield which is not exempt from federal income taxation, as expressed in the
following formula:
Tax-equivalent Yield = h + j
---
1-i
Where:
h = the portion of the yield which is exempt from federal taxes;
i = the highest marginal tax rate imposed on individual income subject to
federal income taxation; and
j = the portion of the yield which is not exempt from federal income
taxation.
Tax-equivalent yield for the Bernstein Government Short Duration
Portfolio is computed by first determining the portion of the yield that is (i)
exempt from state and local, but not federal, income taxation and (ii) not
exempt from state and local or federal income taxation; dividing each portion of
the yield by one
<PAGE>
B-49
minus the relevant combined tax rate, and adding the quotients together as
expressed in the following formula:
Tax-equivalent Yield = a + c
---
1-b
Where:
a = the portion of the yield which is exempt from state and local, but
not federal, income taxation;
b = the highest marginal income tax imposed on an individual's unearned
ordinary income subject to state and local, but not federal, income taxation;
and
c = the portion of the yield which is not exempt from federal or state and
local income taxation.
The average annual total returns for (1) the Portfolios from their
inception until September 30, 1995; (2) the Portfolios for the one year period
ended September 30, 1995; and (3) the Fixed-Income Portfolios (other than the
Bernstein California Municipal Portfolio and the Short Duration Municipal
Portfolios) for the five year period ended September 30, 1995, were as follows:
<TABLE>
<CAPTION>
Period Average Annual
Since Total Return One Year Five Year
Portfolio Inception Since Inception Total Return Total Return
- --------- --------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Government Short Duration
Portfolio 6.74 years 7.03 7.55 6.45
Short Duration Plus Portfolio 6.80 years 7.33 7.36 6.91
Intermediate Duration Portfolio 6.70 years 9.33 12.82 9.66
New York Municipal Portfolio 6.72 years 7.05 9.14 7.25
California Municipal Portfolio 5.15 years 6.90 9.11 7.03
Diversified Municipal Portfolio 6.72 years 6.91 9.16 7.14
International Value Portfolio 3.27 years 10.39 1.84 N/A
Short Duration New York
Municipal 1.16 years 5.24 N/A N/A
Short Duration California
Municipal 1.16 years 5.58 N/A N/A
Short Duration Diversified
Municipal 1.16 years 5.55 N/A N/A
</TABLE>
The average annual total return for each Portfolio is calculated by finding
the average annual percentage rate of return that would, compounded and
multiplied by the initial amount invested (less any applicable sales load),
result in the ending redeemable value, as expressed in the following formula:
1/n
Average Annual Total Return = ERV - 1
---
P
Where:
<PAGE>
B-50
P = a hypothetical initial investment of $1,000 on beginning date;
ERV = ending redeemable value of the hypothetical account on the date of
the balance sheet; and
n = number of years (1, 5, 10 or the life of the Fund).
The above calculations reflect all fees and expenses charged to the
Portfolios.
The Portfolios may advertise aggregate total return, also called
unannualized total return, in addition to average annual total return. The
aggregate total return of each Portfolio from its inception until September 30,
1995 was as follows:
Period Aggregate
Since Total
Portfolio Inception Return
- --------- --------- ---------
Government Short Duration Portfolio 6.74 years 58.07
Short Duration Plus Portfolio 6.80 years 61.85
Intermediate Duration Portfolio 6.70 years 81.81
New York Municipal Portfolio 6.72 years 58.17
California Municipal Portfolio 5.15 years 41.01
Diversified Municipal Portfolio 6.72 years 56.75
International Value Portfolio 3.27 years 38.22
Short Duration New York Municipal Portfolio 1.16 years 5.24
Short Duration California Municipal Portfolio 1.16 years 5.58
Short Duration Diversified Municipal Portfolio 1.16 years 5.55
The aggregate total return for each Portfolio is calculated by dividing the
ending value of an investment by the beginning value of this investment, as
expressed in the following formula:
Aggregate Total Return = ERV - P
-------
P
Where:
P = a hypothetical initial investment of $1,000, and
ERV = ending redeemable value of the hypothetical account on the date of the
balance sheet.
From time to time, in reports and promotional literature, the Portfolios'
total return or other performance data may be compared to one or more relevant
market indices, including but not limited to (1) Lehman Brothers Aggregate Bond
Index; (2) Lehman Brothers Government Corporate Bond Index; (3) Merrill Lynch
1-3 Year Treasury Index; (4) Lehman Brothers One Year Municipal Index; (5)
Lehman
<PAGE>
B-51
Brothers 3-5-7 year Laddered G/O Index; (6) Lehman Brothers 1-10 year Municipal
Bond Index Blend; (7) the Standard & Poor's 500 Stock Index so that shareholders
may compare the Portfolio's results with those of a group of unmanaged
securities widely regarded by investors as representative of the U.S. stock
market in general; (8) with other groups of mutual funds tracked by Lipper
Analytical Services, Inc., a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, or by
other financial business publications; and (9) Morgan Stanley Capital
International Indices, including the EAFE index and the EAFE GDP 50%-Hedged
Index, which are widely recognized indices in international market performance.
<PAGE>
B-52
APPENDIX
Description of Corporate and Municipal Bond Ratings
The following descriptions of Standard & Poor's Corporation ("Standard &
Poor's"), Fitch Investors Service, Inc. ("Fitch") and Moody's Investors Service,
Inc. ("Moody's") corporate and municipal bond ratings have been published by
Standard & Poor's, Fitch and Moody's, respectively.
Standard & Poor's(1)
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
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 higher-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 adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, 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 and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
CI The rating CI is reserved for income bonds on which no interest is being
paid.
D Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-) The ratings from "AA" to "CCC" may be modified by the
additions of a plus or minus sign to show relative standing within the major
rating categories.
- ----------
(1) Reprinted from Standard & Poor's Bond Guide
<PAGE>
B-53
Fitch(2)
A Fitch bond rating represents an assessment of the issuer's ability to meet its
debt obligations in a timely manner. The rating is not a recommendation to buy,
sell or hold any security. It does not comment on the adequacy of market price,
investor suitability or the taxability of interest.
Ratings are based on information obtained from issuers or sources believed to be
reliable. Fitch does not audit or verify the accuracy of the information.
Ratings may be changed, suspended or withdrawn to changes in or unavailability
of information.
AAA Highest credit quality, obligor has exceptionally strong ability to pay
interest and repay principal.
AA Very high credit quality, obligor's ability to pay interest and repay
principal is very strong, although not as strong as AAA.
A High credit quality, obligor's ability to pay interest and repay principal
is strong, but more vulnerable to adverse economic conditions than higher rated
bonds.
BBB Satisfactory credit quality, obligor's ability to pay interest and repay
principal is adequate, adverse economic conditions could impair timely payment.
BB Speculative, obligor's ability to pay interest and repay principal may be
affected by adverse economic conditions.
B Highly speculative, obligor has a limited margin of safety to make timely
payments of principal and interest.
CCC Identifiable characteristics which, if not remedied, may lead to default.
CC Minimal protection, 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 Bonds are in default on interest and or principal and are extremely
speculative.
DD represents highest potential for recovery and
D the lowest potential for recovery.
Plus(+) Minus (-) Plus and minus signs are used to indicate relative position of
a credit within the rating category and only apply to AA to CCC categories.
- ----------
(2) As provided by Fitch Investors Service, Inc.
<PAGE>
B-54
Moody's(3)
Aaa Bonds which are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edged." 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 fluctuations or
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable attributes and are
considered upper-medium-grade obligations. Factors giving security to principal
and interest are considered adequate but susceptible to impairment some time in
the future.
Baa Bonds which are rated Baa are considered 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 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.
- ----------
(3) Reprinted from Moody's Bond Record and Short Term Market Record
<PAGE>
B-55
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B 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.
Description of Corporate and Municipal Commercial Paper Ratings.
The following descriptions of commercial paper ratings have been published
by Standard & Poor's, Fitch and Moody's, respectively.
Standard & Poor's(4)
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from "A-1" for
the highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used when
interest payments are not made on the date due even if the applicable grace
period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace period.
- ----------
(4) Reprinted from Standard & Poor's Bond Guide
<PAGE>
B-56
Fitch(5)
Short term ratings apply to obligations payable on demand or with original
maturities of up to three years. The rating emphasizes the existence of
liquidity required for timely payment of the obligation.
F-1+ Exceptionally Strong Credit Quality, strongest degree of assurance for
timely payment.
F-1 Very Strong Credit Quality, assurance of timely payment only slightly less
than F-1+.
F-2 Good Credit Quality, satisfactory degree of assurance for timely payment.
F-3 Fair Credit Quality, degree for assurance of timely repayment is adequate,
however, near term adverse changes could put rating below investment grade.
F-S Weak Credit Quality, minimal degree of assurance for timely repayment and
vulnerable to near adverse changes in economic and financial conditions.
D Default, actual or imminent payment default.
Moody's(6)
Moody's employs the following three designations, all judged to be
investment-grade, to indicate the relative repayment ability of rated issuers:
P-1 Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a
- ----------
(5) As provided by Fitch Investors Service, Inc.
(6) Reprinted from Moody's Bond Record and Short Term Market Record
<PAGE>
B-57
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
P-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Description of Municipal Note Ratings
The following descriptions of municipal bond ratings have been published by
Standard & Poor's, Fitch and Moody's, respectively.
Standard & Poor's(7)
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
Moody's
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
- ----------
(7) Reprinted from Standard & Poor's Bond Guide
<PAGE>
B-58
SG This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.
Fitch(8)
Short term ratings apply to obligations payable on demand or with original
maturities of up to three years. The rating emphasizes the existence of
liquidity required for timely payment of the obligation.
F-1+ Exceptionally Strong Credit Quality, strongest degree of assurance for
timely payment.
F-1 Very Strong Credit Quality, assurance of timely payment only slightly
less than F-1+.
F-2 Good Credit Quality, satisfactory degree of assurance for timely payment.
F-3 Fair Credit Quality, degree for assurance of timely repayment is
adequate, however, near term adverse changes could put rating below investment
grade.
F-S Weak Credit Quality, minimal degree of assurance for timely repayment and
vulnerable to near adverse changes in economic and financial conditions.
D Default, actual or imminent payment default.
- ----------
(8) As provided by Fitch Investors Service, Inc.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements: See "Custodian, Transfer Agent,
Independent Accountants and Financial Statements", Part B, page B-42.
(b) Exhibits:
(1)(a)1 Articles of Incorporation of the Registrant.
(1)(b)2 Articles Supplementary of the Registrant.
(1)(c)3 Articles Supplementary of the Registrant.
(1)(d)4 Articles Supplementary of the Registrant.
(1)(e)5 Articles Supplementary of the Registrant.
(1)(f)6 Articles Supplementary of the Registrant.
(1)(g)7 Articles Supplementary of the Registrant
(2)(a)2 By-Laws of the Registrant as Revised and Restated
October 4, 1988.
(2)(b)4 Amendment to Article I, Section 2 of the By-Laws of Registrant
dated January 30, 1992.
(3) Not Applicable.
(4)(a)2 Specimen Share Certificates - Government
Short Duration; Short Duration Plus; New York Municipal;
Diversified Municipal; Intermediate Duration.
- --------------
1/ Supplied by Pre-Effective Amendment No. 1 to this registration statement.
2/ Supplied by Pre-Effective Amendment No. 2 to this registration statement.
3/ Supplied by Post-Effective Amendment No. 4 to this registration statement.
4/ Supplied by Post-Effective Amendment No. 7 to this registration statement.
5/ Supplied by Post-Effective Amendment No. 10 to this registration statement.
6/ Supplied by Post-Effective Amendment No. 11 to this registration statement.
7/ Supplied by Post-Effective Amendment No. 12 to this registration statement.
1
<PAGE>
(4)(b)2 Specimen Share Certificate - California Municipal Portfolio.
(4)(c)3 Specimen Share Certificate - International Value Portfolio.
(4)(d)4 Specimen Share Certificates - Short Duration California Municipal
Portfolio; Short Duration Diversified Municipal Portfolio; Short
Duration New York Municipal Portfolio.
(4)(e)6 Specimen Share Certificate - Emerging Markets Value Portfolio.
(5)(a)1 Investment Management Agreement between the Registrant on
behalf of Government Short Duration; Short Duration Plus;
New York Municipal; Diversified Municipal; Intermediate
Duration and Sanford C. Bernstein & Co., Inc. ("Bernstein").
(5)(a)(1)2 Investment Management Agreement between the Registrant on
behalf of California Municipal Portfolio and Bernstein.
(5)(a)(2)3 Investment Management Agreement between the Registrant on
behalf of International Value Portfolio and Bernstein.
(5)(a)(3)4 Investment Management Agreement between the Registrant on
behalf of the Short Duration California Municipal Portfolio;
Short Duration Diversified Municipal Portfolio; Short
Duration New York Municipal Portfolio and Bernstein.
(5)(a)(4)5 Amendment to Investment Management Agreement between the
Registrant on behalf of Government Short Duration;
Short Duration Plus; New York Municipal; Diversified
Municipal; and Intermediate Duration Portfolios
and Bernstein.
- ----------
1/ Supplied by Pre-Effective Amendment No. 2 to this registration statement.
2/ Supplied by Post-Effective Amendment No. 4 to this registration statement.
3/ Supplied by Post-Effective Amendment No. 7 to this registration statement.
4/ Supplied by Post-Effective Amendment No. 10 to this registration statement.
5/ Supplied by Post-Effective Amendment No. 11 to this registration statement.
6/ Supplied by Post-Effective Amendment No. 12 to this registration statement.
2
<PAGE>
(5)(a)(5)6 Amendment to Investment Management Agreement between the
Registrant on behalf of the California Municipal Portfolio and
Bernstein.
(5)(a)(6)7 Investment Management Agreement between the Registrant on behalf
of the Emerging Markets Value Portfolio and Bernstein.
(5)(a)(7) Amendment No. 1 to Investment Management Agreement between the
Registrant on behalf of the International Value Portfolio and
Bernstein.
(5)(b)1 Shareholder Servicing and Administrative Agreement Between
the Registrant on behalf of Government Short Duration; Short
Duration Plus; New York Municipal; Diversified Municipal;
Intermediate Duration and Bernstein.
(5)(b)(1)2 Shareholder Servicing and Administrative Agreement Between the
Registrant on behalf of California Municipal Portfolio and Bernstein.
(5)(b)(2)3 Shareholder Servicing and Administrative Agreement Between the
Registrant on behalf of International Value Portfolio and Bernstein.
(5)(b)(3)4 Shareholder Servicing and Administrative Agreement between the
Registrant on behalf of the Short Duration California Municipal
Portfolio; Short Duration Diversified Municipal Portfolio; Short
Duration New York Municipal Portfolio and Bernstein.
(5)(b)(4)7 Shareholder Servicing and Administrative Agreement between the
Registrant on behalf of the Emerging Markets Value Portfolio and
Bernstein.
(6)(a)5 Distribution Agreement between the Registrant on behalf of
Government Short Duration; Short Duration Plus; New York
Municipal; Diversified Municipal; Intermediate Duration and
Bernstein.
- ----------
1/ Supplied by Post-Effective Amendment No. 3 to this registration statement.
2/ Supplied by Post-Effective Amendment No. 4 to this registration statement.
3/ Supplied by Post-Effective Amendment No. 7 to this registration statement.
4/ Supplied by Post-Effective Amendment No. 10 to this registration statement.
5/ Supplied by Pre-Effective Amendment No. 2 to this registration statement.
6/ Supplied by Post-Effective Amendment No. 11 to this registration statement.
7/ Supplied by Post-Effective Amendment No. 12 to this registration statement.
3
<PAGE>
(6)(b)5 Distribution Agreement between the Registrant on behalf of
California Municipal Portfolio and Bernstein.
(6)(c)7 Distribution Agreement between the Registrant on behalf of
International Value Portfolio and Bernstein.
(6)(d)1 Distribution Agreement between the Registrant on behalf of the
Short Duration California Municipal Portfolio; Short Duration
Diversified Municipal Portfolio; Short Duration New York
Municipal Portfolio and Bernstein.
(6)(e)8 Distribution Agreement between the Registrant on behalf of
the Emerging Markets Value Portfolio on Bernstein.
(7) Not applicable.
(8)(a)2 Custodian Contract between the Registrant and State Street Bank
and Trust Company.
(8)(b)3 Custodian Contract Fee Schedule.
(8)(c)3 Fee Information for Automated Securities Pricing.
(8)(d)3 Amendment to the Custodian Contract.
(8)(e)4 Second Amendment to the Custodian Contract.
(8)(f)5 Third Amendment to the Custodian Contract.
(8)(g)6 Custodian Contract Fee Schedule dated October 1, 1991.
- ----------
1/ Supplied by Post-Effective Amendment No. 10 to this registration statement.
2/ Supplied by Pre-Effective Amendment No. 2 to this registration statement.
3/ Supplied by Post-Effective Amendment No. 2 to this registration statement.
4/ Supplied by Post-Effective Amendment No. 3 to this registration statement.
5/ Supplied by Post-Effective Amendment No. 4 to this registration statement.
6/ Supplied by Post-Effective Amendment No. 6 to this registration statement.
7/ Supplied by Post-Effective Amendment No. 7 to this registration statement.
8/ Supplied by Post-Effective Amendment No. 12 to this registration statement.
4
<PAGE>
(8)(h)5 Fourth Amendment to the Custodian Contract.
(8)(i)3 Custodian Fee Schedule dated August 20, 1993 - International Value
Portfolio.
(8)(j)1 Fifth Amendment to the Custodian Contract.
(8)(k)1 Custodian Fee Schedule dated May 20, 1994 - Short Duration
California Municipal Portfolio; Short Duration Diversified
Municipal Portfolio and Short Duration New York Municipal
Portfolio.
(8)(l)6 Sixth Amendment to the Custodian Contract.
(8)(m) Custodian Fee Schedule dated July 27, 1995 - International Value
Portfolio.
(8)(n) Custodian Fee Schedule dated August 21, 1995 - Emerging Markets Value
Portfolio.
(8)(o) Custodian Fee Schedule Amendment dated December 8, 1995 -
International Value Portfolio.
(8)(p) Custodian Fee Schedule Amendment dated December 8, 1995 -
Government Short Duration, Short Duration Plus, New York Municipal,
Diversified Municipal, Intermediate Duration, California Municipal,
Short Duration New York Municipal, Short Duration California Municipal
and Short Duration Diversified Municipal Portfolios.
(9)(a)2 Transfer Agency Agreement between the Registrant and State Street
Bank and Trust Company.
(9)(b)3 Fee Schedule for Services under Transfer Agency Agreement, dated
December 22, 1992.
(9)(c)4 Amendment to the Transfer Agency Agreement.
(9)(d)5 Second Amendment to the Transfer Agency Agreement.
(9)(e)1 Third Amendment to the Transfer Agency Agreement.
(9)(f)1 Fee Schedule for Services under Transfer Agency Agreement,
dated May 20, 1994.
(9)(g)6 Fourth Amendment to Transfer Agency Agreement.
- ----------
1/ Supplied by Post-Effective Amendment No. 10 to this registration statement.
2/ Supplied by Pre-Effective Amendment No. 2 to this registration statement.
3/ Supplied by Post-Effective Amendment No. 9 to this registration statement.
4/ Supplied by Post-Effective Amendment No. 4 to this registration statement.
5/ Supplied by Post-Effective Amendment No. 7 to this registration statement.
6/ Supplied by Post-Effective Amendment No. 12 to this registration statement.
5
<PAGE>
(10)(a)1 Opinion of Counsel.
(10)(b)2 Opinion of Counsel - California Municipal Portfolio.
(10)(c)3 Opinion of Counsel - International Value Portfolio.
(10)(d)4 Opinion of Counsel - Short Duration California Municipal Portfolio;
Short Duration Diversified Municipal Portfolio; Short Duration
New York Municipal Portfolio.
(10)(e)5 Opinion of Counsel - Emerging Markets Value Portfolio.
(11) Consent of Independent Accountants.
(12) Not applicable.
(13)1 Purchase Agreement.
(14) Not applicable.
(15) Not applicable.
(16)(a)7 Schedules of Computation of Performance Quotations -
Government Short Duration Portfolio; Short Duration Plus
Portfolio; New York Municipal Portfolio; Diversified Municipal
Portfolio; Intermediate Duration Portfolio.
(16)(b)8 Schedule of Computation of Performance Quotations - California
Municipal Portfolio.
(16)(c)9 Schedule of Computation of Performance Quotations - Government
Short Duration Portfolio; New York Municipal Portfolio,
Diversified Municipal Portfolio; California Municipal Portfolio.
- -------------
1/ Supplied by Pre-Effective Amendment No. 2 to this registration statement.
2/ Supplied by Post-Effective Amendment No. 4 to this registration statement.
3/ Supplied by Post-Effective Amendment No. 7 to this registration statement.
4/ Supplied by Post-Effective Amendment No. 10 to this registration statement.
5/ Supplied by Post-Effective Amendment No. 12 to this registration statement.
6/ Supplied by Post-Effective Amendment No. 2 to this registration statement.
7/ Supplied by Post-Effective Amendment No. 5 to this registration statement.
8/ Supplied by Post-Effective Amendment No. 6 to this registration statement.
6
<PAGE>
(16)(d)1 Schedule of Computation of Performance Quotations -
International Value Portfolio.
(16)(e)2 Schedules of Computation of Performance Quotations - Short Duration
California Municipal Portfolio; Short Duration Diversified
Municipal Portfolio; Short Duration New York Municipal Portfolio.
Item 25. Persons Controlled By or Under Common Control with
Registrant.
None.
Item 26. Number of Holders of Securities.
Title of Class Number of Record Holders
Bernstein Government
Short Duration Portfolio 815 (As of December 20, 1995)
(Par value .001 per share)
Bernstein Short Duration
Plus Portfolio 2,412 (As of December 20, 1995)
(Par value .001 per share)
Bernstein New York
Municipal Portfolio 1,730 (As of December 20, 1995)
(Par value .001 per share)
Bernstein Diversified
Municipal Portfolio 2,384 (As of December 20, 1995)
(Par value .001 per share)
Bernstein Intermediate
Duration Portfolio 3,956 (As of December 20, 1995)
(Par value .001 per share)
Bernstein California
Municipal Portfolio 656 (As of December 20, 1995)
(Par Value .001 per share)
Bernstein International 12,448 (As of December 20, 1995)
Value Portfolio
(Par Value .001 per share)
Bernstein Short Duration
California Municipal Portfolio 304 (As of December 20, 1995)
(Par Value .001 per share)
- -----------
1/ Supplied by Post-Effective Amendment No. 8 to this registration statement.
2/ Supplied by Post-Effective Amendment No. 11 to this registration statement.
7
<PAGE>
Bernstein Short Duration
Diversified Municipal Portfolio 458 (As of December 20, 1995)
(Par Value .001 per share)
Bernstein Short Duration
New York Municipal Portfolio 221 (As of December 20, 1995)
(Par Value .001 per share)
Bernstein Emerging Markets 17 (As of December 20, 1995)
Value Portfolio
(Par Value .001 per share)
Item 27. Indemnification.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the "1940 Act") and pursuant to Article VII of the Fund's By-Laws (Exhibit 2 to
this Registration Statement), directors, officers and employees of the Fund will
be indemnified to the maximum extent permitted by Maryland General Corporation
Law. Article VII provides that nothing therein contained protects any director
or officer of the Fund against any liability to the Fund or its stockholders to
which the director or officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Maryland General Corporation Law permits
a corporation to indemnify any director, officer, employee or agent made a party
to any threatened, pending or completed action, suit or proceeding by reason of
service in that capacity, against, judgments, penalties, fines, settlements and
reasonable expenses actually incurred in connection with the proceeding, unless
it is proved that: (i) an act or omission by the director, officer, employee or
agent that was material to the cause of action adjudicated in the proceeding was
committed in bad faith or the result of active and deliberate dishonesty; (ii)
the director, employee, or agent actually received an improper personal benefit
in money, property, or services; or (iii) in the case of any criminal
proceeding, the director, employee or agent had reasonable cause to believe that
the act or omission was unlawful. Maryland law does not permit indemnification
in respect of any proceeding by or in the right of the corporation in which the
director shall have been held liable to the corporation.
As permitted by Section 17(i) of the 1940 Act, pursuant to Section 3 of the
respective Investment Management Agreements, Section 3 of the respective
Shareholder Servicing and Administrative Agreements, and Section 8 of the
respective Distribution Agreements between the Registrant on behalf of its
various Portfolios and Bernstein, Bernstein may be indemnified against certain
liabilities which it may incur.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the
8
<PAGE>
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 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 or controlling
person, 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 whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
As permitted by Article VII, Section 2 of the Bylaws, the Registrant has
purchased an insurance policy insuring its officers and directors against
certain liabilities, and certain costs of defending claims against such officers
and directors, to the extent such officers and directors are not found to have
omitted conduct constituting conflict of interest, intentional non-compliance
with statutes or regulations or dishonest, fraudulent or criminal acts or
omissions. The insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain circumstances.
Insurance will not be purchased that protects, or purports to protect, any
officer or director from liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of duty.
Section 2 of the respective Investment Management Agreements limits the
liability of Bernstein to loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for service (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act) or loss resulting from willful misfeasance, bad faith
or gross negligence in the performance of its duties or from reckless disregard
by Bernstein of its obligations and duties under the Management Agreements.
Section 2 of the respective Shareholder Servicing and Administrative
Agreements and Section 9 of the respective Distribution Agreements limit the
liability of Bernstein to loss resulting from willful misfeasance, bad faith or
gross negligence in the performance of its duties or from reckless disregard by
Bernstein of its obligations and duties under those Agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws, and the respective Investment Management Agreements,
Shareholder Servicing and Administrative Agreements, and Distribution Agreements
in a manner consistent with Release No. 11330 of the Securities and Exchange
Commission under the 1940 Act so long as the interpretation of Sections 17(h)
and 17(i) of such Act remain in effect and are consistently applied.
9
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
See "Manager and Distributor" in the Statement of Additional Information
constituting Part B of this Registration Statement and "Management of the
Portfolios" in the Prospectus constituting Part A of this Registration
Statement.
Item 29. Principal Underwriters
(a) Sanford C. Bernstein & Co., Inc. is the Distributor
for no investment company other than the Registrant.
(b)
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Underwriter Registrant
Zalman C. Bernstein* Chairman of the
Executive Committee
Lewis A. Sanders* Chairman of the
Board, Chief Executive
Officer and Chief
Financial Officer
Roger Hertog* President and Chief President,
Operating Officer Treasurer and
Director
Andrew S. Adelson* Senior Vice President
Kevin R. Brine* Senior Vice President
Charles C. Cahn, Jr.* Senior Vice President
Marilyn Goldstein Fedak* Chief Investment
Officer - Large
Capitalization Equities
Michael L. Goldstein* Investment Strategist -
Institutional Services
Stuart K. Nelson* Senior Vice President Senior Vice
and General Counsel President
and Director
Francis H. Trainer, Jr.* Senior Vice President Senior Vice
President
(c) Registrant has no principal underwriter who is not an
affiliated person of the Registrant.
- -------------------
* Business Address is 767 Fifth Avenue
New York, New York 10153
10
<PAGE>
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by Rules
31a-1 through 31a-3 pursuant to the Investment Company Act are maintained at the
offices of Bernstein, One State Street Plaza, New York, NY 10004 and 767 Fifth
Avenue, New York, New York 10153, except that some records pursuant to Rule
31a-1(b) are maintained at the offices of State Street Bank and Trust Company,
1776 Heritage Drive and 2 Heritage Drive, North Quincy, Massachusetts 02171, the
Registrant's Transfer Agent, and some records pursuant to Rule 31a-1(b)(4) are
maintained at the offices of Shereff, Friedman, Hoffman & Goodman LLP, 919 Third
Avenue, New York, New York 10022, counsel to the Registrant.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
11
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this amended registration statement pursuant
to rule 485(b) under the Securities Act of 1933 and has duly caused this
registration statement to be signed on its behalf by the undersigned, hereto
duly authorized in the City and State of New York on the 22nd day of January,
1996.
Sanford C. Bernstein Fund, Inc.
By: Roger Hertog, President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following in the capacity and on the date
indicated.
Signature Title Date
Roger Hertog President January 22, 1996
(Principal
Executive
Officer),
Treasurer,
(Principal
Financial and
Accounting
Officer) and
Director
Stuart K. Nelson Senior Vice January 22, 1996
President
and Director
Arthur Aeder Director January 22, 1996
Peter L. Bernstein Director January 22, 1996
Theodore Levitt Director January 22, 1996
William Kristol Director January 22, 1996
12
<PAGE>
Index to Exhibits
Sequentially
Exhibit Number Description Numbered Pages
(5)(a)(7) Amendment No. 1 to Investment
Management Agreement between
Registrant and Bernstein on
behalf of International Value 197
Portfolio __________
(8)(m) Custodian Fee Schedule dated
July 27, 1995 - International 199
Value Portfolio __________
(8)(n) Custodian Fee Schedule dated
August 21, 1995 - Emerging 204
Markets Value Portfolio __________
(8)(o) Custodian Fee Schedule Amendment
dated December 8, 1995 -
International Value 210
Portfolio __________
(8)(p) Custodian Fee Schedule Amendment
dated December 8, 1995 -
Government Short Duration,
Short Duration Plus, New York
Municipal, Diversified Municipal,
Intermediate Duration, California
Municipal, Short Duration New York
Municipal, Short Duration California
Municipal and Short Duration
Diversified Municipal 212
Portfolios __________
(11) Consent of Independent 214
Accountants __________
<PAGE>
EXHIBIT (5)(a)(7)
SANFORD C. BERNSTEIN FUND, INC.
AMENDMENT NO. 1 TO INVESTMENT MANAGEMENT AGREEMENT
AMENDMENT NO. 1, dated as of October 11, 1995, between SANFORD C. BERNSTEIN
FUND, INC., a Maryland Corporation (the "Fund"), on behalf of the Bernstein
International Value Portfolio (the "Portfolio"); and SANFORD C. BERNSTEIN & CO.,
INC., a New York Corporation (the "Adviser" or "Bernstein").
Pursuant to the Investment Management Agreement dated as of March 18, 1992 (the
"Investment Management Agreement") between the Fund, on behalf of the Portfolio,
and the Adviser, the Fund, on behalf of the Portfolio, has agreed to compensate
the Adviser for the services it performs for, and the facilities and personnel
it provides to, the Portfolio. The Adviser and the Fund, on behalf of the
Portfolio, wish to amend the Investment Management Agreement to modify such
compensation. Accordingly, the parties hereto hereby agree as follows:
1. Section 5 of the Investment Management Agreement is hereby amended to
read in its entirety to read as follows:
"5. Compensation. As compensation for the services performed and the facilities
and personnel provided by the Adviser pursuant to Section 1 of this Agreement,
the Fund, on behalf of the Portfolio, will pay the Adviser, promptly after the
end of each month:
(a) A fee assessed at annual rate of 1% of the Portfolio's average daily net
assets that is up to but not exceeding $2,000,000,000; and
(b) A fee assessed at an annual rate of .90 of 1% of the amount of the
Portfolio's average daily net assets that exceeds $2,000,000,000.
If the Adviser shall serve hereunder for less than the whole of any month, the
fee hereunder shall be prorated."
2. Except as herein provided, the Investment Management Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the Fund, on behalf of the Portfolio, and the Adviser have
caused this Amendment No. 1 to be executed by their duly authorized officers as
of the date first above written.
SANFORD C. BERNSTEIN & CO., INC.
By: Lewis A. Sanders
Title: Chairman
SANFORD C. BERNSTEIN FUND, INC.
By: Stuart K. Nelson
Title: Senior Vice President
<PAGE>
EXHIBIT (8)(m)
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE
SANFORD BERNSTEIN INTERNATIONAL VALUE FUND
I. GLOBAL CUSTODY
Includes: Maintaining custody of assets. Settling portfolio purchases and sales.
Reporting buy and sell fails. Determining and collecting portfolio income.
Making cash disbursements and reporting cash transactions. Monitoring corporate
actions. Withholding foreign taxes. Filing foreign tax reclaims.
A. Holding Fees (basis points per portfolio per annum):
Group I Group II Group III Group IV Group V Group VI Group VII
Denmark Australia Austria Belgium Hong Kong Argentina Bangladesh
Euroclear Canada Ireland Finland Thailand Brazil China
Germany France Malaysia Indonesia Philippines Chile Columbia
Japan Norway Netherlands Italy S. Africa Greece India
New Zealand U.K. Singapore Mexico S. Korea Poland Israel
Sweden Spain Turkey Portugal Pakistan
Switzerland Sri Lanka Peru
Taiwan Uruguay
Venezuela
Group I Group I Group III Group IV Group V Group VI Group VII
First $100 Million 3.0 7.0 9.0 10.0 15.0 30.0 40.0
Over $100 Million 2.0 6.0 8.0 8.0 15.0 30.0 40.0
Monthly Minimum Fee: $2,000
B. Transactions Charges (U.S. Dollars):*
Group I Group II Group III Group IV Group V Group VI
$30 $60 $75 $100 $125 $150
Canada Austria Argentina Belgium Hungary Bangladesh
Euroclear Chile Australia China Jordan Uruguay
Germany Hong Kong Brazil Columbia Pakistan
Japan Italy Indonesia Denmark Peru
Mexico Ireland Finland
Netherlands Israel France
Switzerland Malaysia Greece
Thailand Philippines India
U.K. Poland New Zealand
Portugal Norway
S. Africa Singapore
S. Korea Zimbabwe
Spain
Sri Lanka
Sweden
Taiwan
Turkey
Venezuela
*Electronic delivered trade transactions will be lowered by $3.00
Settlement of Third Party Foreign Exchange (per Transaction) $50.00
<PAGE>
II. DOMESTIC CUSTODY CHARGES
Transactions
Holding Fees Annual Fee in Basis Points
First 50 million 3
Next 50 million 2
Over 100 million 1
State Street Bank Repos $7.00
DTC or Fed Book Entry Buy/Sell $12.00
New York Physical Buy/Sell $25.00
PTC Buy/Sell $12.00
All other trades $16.00
Option charge for each option written or closing contract,
per issue, per broker $25.00
Option expiration/Option exercised $15.00
Deliver loaned securities versus cash collateral $20.00
Deliver loaned securities versus securities collateral $30.00
Receive/deliver additional cash collateral $6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of loaned securities $15.00
Deliver securities collateral versus receipt of loaned securities $25.00
Loan administration - mark-to-market per day, per loan $3.00
Interest Rate Futures - no security movement $8.00
Monitoring for calls and processing coupons - for each coupon
issue held - monthly charge $5.00
Principal reduction payments per paydown $10.00
Dividend charges (for items held at the request of traders over
record date in street form) $50.00
III. PORTFOLIO AND FUND ACCOUNTING
Maintain investment ledgers selected portfolio transactions, position and income
reports. Maintain general ledger and capital stock accounts. Prepare daily trial
balance. Calculate net asset value. Provide selected general ledger reports.
Securities yield or market value quotations will be provided to State Street by
the fund or via State Street's pricing service (see schedule IV).
<PAGE>
$3,750 per month
IV. PRICING SERVICE
Monthly Quote Charge: (Based on the average number of positions in portfolio)
Municipal Bonds via Muller Data $21.00
Municipal Bonds via Kenny Information System $16.00
Government, Corporate and Convertible Bonds via Merrill Lynch $12.00
Corporate and Government Bonds via Muller Data $11.00
Options, Futures and Private Placements $6.00
Foreign Equities and Bonds via Extel Ltd. $5.00
Listed Equities, OTC Equities, and Bonds $6.00
Corporate, Municipal, Convertible and Government Bonds, Adjustable
Rate Preferred Stocks via IDSI $6.00
V. SPECIAL SERVICES
Fees for activities of non-recurring nature such as consolidations or
reorganizations, extraordinary security shipments and the preparation of special
reports will be subject to negotiation. Fees for tax accounting/recordkeeping
for options, financial futures and other special items will be negotiated
separately.
VI. OUT-OF-POCKET EXPENSES
A billing for the recovery of applicable out-of-pocket expenses will be made as
of the end of each month. Out-of-Pocket expenses include, but are not limited to
the following
Telephone
Wire Charges $5.25 per wire in and $5.00 out)
Postage and Insurance
Courier Service
Duplicating
Legal Fees
Supplies Related to Fund Records
Rush Transfer - $8.00 each
Transfer Fees
Sub-Custodian Out-of-Pocket Charges (e.g. stamp duties, registration, etc.)
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check Items Over $2,500 - $4.25
GNMA Transfer - $15.00 Each
VII. BALANCE CREDITS
A balance credit equal to 90% of the 90-day Treasury Bill rate, in effect the
last business day of each month, will be applied to the Custodian Demand Deposit
Account (U.S.) balance, net of check redemption service overdrafts, on a
pro-rated basis against the fund's Custodian Fees, excluding out-of-pocket
expenses. The balance credit will be cumulative and carried forward each month.
Any excess credit remaining at year-end (December 3 1st) will not be carried
forward.
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
By: Jean Margo Reid
Title: Secretary
Date: July 20, 1995
STATE STREET BANK AND TRUST CO.
By: Timothy Panaro
Title: Vice President
Date: July 27, 1995
<PAGE>
EXHIBIT (8)(n)
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE
SANFORD BERNSTEIN EMERGING MARKET FUND
I. GLOBAL CUSTODY Includes: Maintaining custody of assets. Settling portfolio
purchases and sales. Reporting buy and sell fails. Determining and collecting
portfolio income. Making cash disbursements and reporting cash transactions.
Monitoring corporate actions. Withholding foreign taxes. Filing foreign tax
reclaims.
A. Holding Fees (basis points per portfolio Per annum):
<TABLE>
<CAPTION>
Group I Group II Group III Group IV Group V Group VI Group VII
<S> <C> <C> <C> <C> <C> <C>
Denmark Australia Austria Belgium Hong Kong Argentina Bangladesh
Euroclear Canada Ireland Finland Thailand Brazil China
Germany France Malaysia Indonesia Philippines Chile Columbia
Japan Norway Netherlands Italy S. Africa Greece India
New Zealand U.K. Singapore Mexico S. Korea Poland Israel
Sweden Spain Turkey Portugal Pakistan
Switzerland Sri Lanka Peru
Taiwan Uruguay
Venezuela
</TABLE>
<TABLE>
<CAPTION>
Group I Group II Group III Group IV Group V Group VI Group VII
<S> <C> <C> <C> <C> <C> <C> <C>
First $100 Million 3.0 7.0 9.0 10.0 15.0 30.0 40.0
Over $100 Million 2.0 6.0 8.0 8.0 15.0 30.0 40.0
</TABLE>
Monthly Minimum Fee: $2,000
B. Transactions Charges (U.S. Dollars):*
<TABLE>
<CAPTION>
Group I Group II Group III Group IV Group V Group VI
<S> <C> <C> <C> <C> <C>
$30 $60 $75 $100 $125 $150
Canada Austria Argentina Belgium Hungary Bangladesh
Euroclear Chile Australia China Jordan Uruguay
Germany Hong Kong Brazil Columbia Pakistan
Japan Italy Indonesia Denmark Peru
Mexico Ireland Finland
Netherlands Israel France
Switzerland Malaysia Greece
Thailand Philippines India
U.K. Poland New Zealand
Portugal Norway
S. Africa Singapore
S. Korea Zimbabwe
Spain
Sri Lanka
Sweden
Taiwan
Turkey
Venezuela
</TABLE>
* Electronic delivered trade transactions will be lowered by $3.00
<PAGE>
Settlement of Third Party Foreign Exchange (per Transaction) $50.00
II. DOMESTIC CUSTODY CHARGES
Transactions
Holding Fees Annual Fee in Basis Points
First 50 million 3
Next 50 million 2
Over 100 million 1
State Street Bank Repos $7.00
DTC or Fed Book Entry Buy/Sell $12.00
New York Physical Buy/Sell $25.00
PTC Buy/Sell $12.00
All other trades $16.00
Option charge for each option written or closing
contract, per issue, per broker $25.00
Option expiration/Option exercised $15.00
Deliver loaned securities versus cash collateral $20.00
Deliver loaned securities versus securities collateral $30.00
Receive/deliver additional cash collateral $6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of loaned securities $15.00
Deliver securities collateral versus receipt of loaned securities $25.00
Loan administration - mark-to-market per day, per loan $3.00
Interest Rate Futures - no security movement $8.00
Monitoring for calls and processing coupons -
for each coupon issue held - monthly charge $5.00
Principal reduction payments per paydown $10.00
Dividend charges (for items held at the request of
traders over record date in street form) $50.00
III. PORTFOLIO AND FUND ACCOUNTING
Maintain investment ledgers selected portfolio transactions, position and income
reports. Maintain general ledger and capital stock accounts. Prepare daily trial
balance. Calculate net asset value. Provide selected general ledger reports.
Securities yield or market value quotations will be provided to State Street by
the fund or via State Street's pricing service (see schedule IV).
<PAGE>
$3,750 per month
IV. PRICING SERVICE
Monthly Quote Charge: (Based on the average number of positions in portfolio)
Municipal Bonds via Muller Data $21.00
Municipal Bonds via Kenny Information System $16.00
Government, Corporate and Convertible Bonds via Merrill Lynch $12.00
Corporate and Government Bonds via Muller Data $11.00
Options, Futures and Private Placements $6.00
Foreign Equities and Bonds via Extel Ltd. $5.00
Listed Equities, OTC Equities, and Bonds $6.00
Corporate, Municipal, Convertible and Government Bonds,
Adjustable Rate Preferred Stocks via IDSI $6.00
V. SPECIAL SERVICES
Fees for activities of non-recurring nature such as consolidations or
reorganizations, extraordinary security shipments and the preparation of special
reports will be subject to negotiation. Fees for tax accounting/recordkeeping
for options, financial futures and other special items will be negotiated
separately.
Vl. OUT-OF-POCKET EXPENSES
A billing for the recovery of applicable out-of-pocket expenses will be made as
of the end of each month. Out-of-pocket expenses include, but are not limited to
the following:
Telephone
Wire Charges $5.25 per wire in and $5.00 out)
Postage and Insurance
Courier Service
Duplicating
Legal Fees
Supplies Related to Fund Records
Rush Transfer - $8.00 each
Transfer Fees
Sub-Custodian Out-of-Pocket Charges (e.g. stamp duties, registration, etc.)
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check Items Over $2,500 - $4.25
GNMA Transfer - $15.00 Each
VII BALANCE CREDITS
A balance credit equal to 90% of the 90-day Treasury Bill rate, in effect the
last business day of each month, will be applied to the Custodian Demand Deposit
Account (U.S.) balance, net of check redemption service overdrafts, on a
pro-rated basis against the fund's Custodian Fees, excluding out-of-pocket
expenses. The balance credit will be cumulative and carried forward each month.
Any excess credit remaining at year-end (December 3 1st) will not be carried
forward.
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
By: Jean Margo Reid
Title: Secretary
Date: August 21, 1995
STATE STREET BANK AND TRUST CO.
By: Ronald E. Logue
Title: Executive Vice President
Date: August 21, 1995
<PAGE>
EXHIBIT (8)(o)
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule - Amendment
SANFORD C. BERNSTEIN FUND, INC.
- - Bernstein International Value Portfolio
VII. BALANCE CREDIT
A balance credit equal to 90% of the 90-day Treasury Bill rate, in effect the
last business day of each month, will be applied to the Custodian Demand
Deposit Account (U.S.) balance, net of check redemption service overdrafts, on
a pro-rated basis against the fund's Custodian Fees, excluding out-of-pocket
expenses. The balance credit will be cumulative and carried forward each month.
Any excess credit remaining at year-end (December 31) will not be carried
forward.
The credit becomes effective on June 1, 1995.
SANFORD C. BERNSTEIN FUND, INC.
By: Jean Margo Reid
Title: Secretary
Date: December 8, 1995
STATE STREET BANK & TRUST CO.
By: Timothy Panaro
Title: Vice President
Date: October 30, 1995
<PAGE>
EXHIBIT (8)(p)
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule - Amendment
SANFORD C. BERNSTEIN FUND, INC.
- - Bernstein Government Short Duration Portfolio
- - Bernstein Short Duration Plus Portfolio
- - Bernstein New York Municipal Portfolio
- - Bernstein Diversified Municipal Portfolio
- - Bernstein Intermediate Duration Portfolio
- - Bernstein California Municipal Portfolio
- - Bernstein Short Duration New York Municipal Portfolio
- - Bernstein Short Duration California Municipal Portfolio
- - Bernstein Short Duration Diversified Municipal Portfolio
XIV. BALANCE CREDIT
A balance credit equal to 90% of the 90-day Treasury Bill rate, in
effect the last business day of each month, will be applied to the
Custodian Demand Deposit Account (U.S.) balance, net of check redemption
service overdrafts, on a pro-rated basis against the fund's Custodian
Fees, excluding out-of-pocket expenses. The balance credit will be
cumulative and carried forward each month. Any excess credit remaining
at year-end (December 31) will not be carried forward.
The credit becomes effective on June 1, 1995.
SANFORD C. BERNSTEIN FUND, INC.
By: Jean Margo Reid
Title: Secretary
Date: December 8, 1995
STATE STREET BANK & TRUST CO.
By: Timothy Panaro
Title: Vice President
Date: October 30, 1995
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Regular and
Institutional Prospectuses and the Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 13 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
November 17, 1995, relating to the financial statements and financial highlights
of Bernstein International Value Portfolio, Bernstein Intermediate Duration
Portfolio, Bernstein Short Duration Plus Portfolio, Bernstein Government Short
Duration Portfolio, Bernstein Diversified Municipal Portfolio, Bernstein
California Municipal Portfolio, Bernstein New York Municipal Portfolio,
Bernstein Short Duration Diversified Municipal Portfolio, Bernstein Short
Duration California Municipal Portfolio, Bernstein Short Duration New York
Municipal Portfolio, constituting portfolios of Sanford C. Bernstein Fund, Inc.,
appearing in the September 30, 1995 Annual Reports to Shareholders of Sanford C.
Bernstein Fund, Inc., which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Independent Accountants and Legal Counsel"
in such Prospectuses and under the heading "Custodian, Transfer Agent,
Independent Accountants and Financial Statements" in the Statement of Additional
Information.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
January 8, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for fiscal year ending 9/30/95 and is qualified in
its entirety by reference to the Fund's Annual Report to Shareholders for fiscal
year ending 9/30/95 for the Bernstein Government Short Duration Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> BERNSTEIN GOVERNMENT SHORT DURATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 139,899,644
<INVESTMENTS-AT-VALUE> 141,117,971
<RECEIVABLES> 3,118,470
<ASSETS-OTHER> 3,261
<OTHER-ITEMS-ASSETS> 744<F1>
<TOTAL-ASSETS> 144,240,446
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 517,878
<TOTAL-LIABILITIES> 517,878
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 144,584,743
<SHARES-COMMON-STOCK> 11,447,945
<SHARES-COMMON-PRIOR> 14,993,112
<ACCUMULATED-NII-CURRENT> 55,344
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,147,294)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,218,327
<NET-ASSETS> 143,722,568
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,137,791
<OTHER-INCOME> 0
<EXPENSES-NET> 1,004,857
<NET-INVESTMENT-INCOME> 8,132,934
<REALIZED-GAINS-CURRENT> 115,175
<APPREC-INCREASE-CURRENT> 2,160,710
<NET-CHANGE-FROM-OPS> 10,408,819
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,132,934
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,035,966
<NUMBER-OF-SHARES-REDEEMED> 7,908,658
<SHARES-REINVESTED> 327,525
<NET-CHANGE-IN-ASSETS> (41,305,719)
<ACCUMULATED-NII-PRIOR> 55,344
<ACCUMULATED-GAINS-PRIOR> (2,262,469)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,218,312
<GROSS-ADVISORY-FEES> 729,140
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,004,857
<AVERAGE-NET-ASSETS> 148,374,386
<PER-SHARE-NAV-BEGIN> 12.34
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 0.21
<PER-SHARE-DIVIDEND> 0.69
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.55
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Other Items - Assets is Cash.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for fiscal year ending 9/30/95 and is qualified in
its entirety by reference to the Fund's Annual Report to Shareholders for fiscal
year ending 9/30/95 for the Bernstein Short Duration Plus Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> BERNSTEIN SHORT DURATION PLUS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 524,107,772
<INVESTMENTS-AT-VALUE> 529,209,203
<RECEIVABLES> 8,972,918
<ASSETS-OTHER> 12,241
<OTHER-ITEMS-ASSETS> 868<F1>
<TOTAL-ASSETS> 538,195,230
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,733,438
<TOTAL-LIABILITIES> 3,733,438
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 538,402,529
<SHARES-COMMON-STOCK> 42,780,571
<SHARES-COMMON-PRIOR> 44,675,741
<ACCUMULATED-NII-CURRENT> (842,312)
<OVERDISTRIBUTION-NII> 1,041,447
<ACCUMULATED-NET-GAINS> (8,374,153)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,232,947
<NET-ASSETS> 534,461,792
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 33,953,777
<OTHER-INCOME> 0
<EXPENSES-NET> 3,465,496
<NET-INVESTMENT-INCOME> 30,488,281
<REALIZED-GAINS-CURRENT> 1,046,456
<APPREC-INCREASE-CURRENT> 6,784,374
<NET-CHANGE-FROM-OPS> 38,319,111
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 30,716,766
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,149,703
<NUMBER-OF-SHARES-REDEEMED> 20,124,155
<SHARES-REINVESTED> 1,079,281
<NET-CHANGE-IN-ASSETS> (15,953,030)
<ACCUMULATED-NII-PRIOR> (812,962)
<ACCUMULATED-GAINS-PRIOR> (9,420,609)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,161,969
<GROSS-ADVISORY-FEES> 2,680,375
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,465,496
<AVERAGE-NET-ASSETS> 537,300,423
<PER-SHARE-NAV-BEGIN> 12.32
<PER-SHARE-NII> 0.70
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> 0.71
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.49
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Other Items - Assets is Cash.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial inforamtion extracted from the Fund's
Annual Report to Shareholders for fiscal year ending 9/30/95 and is qualified in
its entirety by reference to the Fund's Annual Report to Shareholders for fiscal
year ending 9/30/95 for the Bernstein New York Municipal Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> BERNSTEIN NEW YORK MUNICIPAL
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 437,014,473
<INVESTMENTS-AT-VALUE> 449,081,339
<RECEIVABLES> 12,277,773
<ASSETS-OTHER> 10,022
<OTHER-ITEMS-ASSETS> 225<F1>
<TOTAL-ASSETS> 461,369,359
<PAYABLE-FOR-SECURITIES> 1,874,965
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 951,590
<TOTAL-LIABILITIES> 2,826,555
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 445,616,216
<SHARES-COMMON-STOCK> 34,014,866
<SHARES-COMMON-PRIOR> 31,429,142
<ACCUMULATED-NII-CURRENT> 16,632
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 809,075
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,066,866
<NET-ASSETS> 458,542,804
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,220,683
<OTHER-INCOME> 0
<EXPENSES-NET> 2,724,902
<NET-INVESTMENT-INCOME> 20,495,781
<REALIZED-GAINS-CURRENT> 1,732,257
<APPREC-INCREASE-CURRENT> 13,926,688
<NET-CHANGE-FROM-OPS> 36,154,726
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 20,495,781
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,135,649
<NUMBER-OF-SHARES-REDEEMED> 8,152,089
<SHARES-REINVESTED> 602,164
<NET-CHANGE-IN-ASSETS> 50,521,956
<ACCUMULATED-NII-PRIOR> 13,215
<ACCUMULATED-GAINS-PRIOR> (919,765)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 919,768
<GROSS-ADVISORY-FEES> 2,068,765
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,724,902
<AVERAGE-NET-ASSETS> 414,818,500
<PER-SHARE-NAV-BEGIN> 12.98
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> 0.65
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.48
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Other Items - Assets is Cash.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for fiscal year ending 9/30/95 and is qualified in
its entirety by reference to the Fund's Annual Report to Shareholders for fiscal
year ending 9/30/95 for the Bernstein Diversified Municipal Portfolio
</LEGEND>
<SERIES>
<NUMBER> 04
<NAME> BERNSTEIN DIVERSIFIED MUNICIPAL
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 649,695,754
<INVESTMENTS-AT-VALUE> 668,288,901
<RECEIVABLES> 16,100,359
<ASSETS-OTHER> 14,196
<OTHER-ITEMS-ASSETS> 631<F1>
<TOTAL-ASSETS> 684,404,087
<PAYABLE-FOR-SECURITIES> 21,546,829
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,042,795
<TOTAL-LIABILITIES> 23,589,624
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 643,563,850
<SHARES-COMMON-STOCK> 48,937,336
<SHARES-COMMON-PRIOR> 42,510,708
<ACCUMULATED-NII-CURRENT> 52,427
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,443,899)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,593,147
<NET-ASSETS> 660,814,463
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31,809,114
<OTHER-INCOME> 0
<EXPENSES-NET> 3,789,943
<NET-INVESTMENT-INCOME> 28,019,171
<REALIZED-GAINS-CURRENT> (166,267)
<APPREC-INCREASE-CURRENT> 22,097,699
<NET-CHANGE-FROM-OPS> 49,950,603
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 28,019,171
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,481,041
<NUMBER-OF-SHARES-REDEEMED> 11,653,156
<SHARES-REINVESTED> 598,743
<NET-CHANGE-IN-ASSETS> 108,680,467
<ACCUMULATED-NII-PRIOR> 6,530
<ACCUMULATED-GAINS-PRIOR> (1,231,958)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,231,959
<GROSS-ADVISORY-FEES> 2,862,455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,789,943
<AVERAGE-NET-ASSETS> 574,336,497
<PER-SHARE-NAV-BEGIN> 12.99
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> 0.51
<PER-SHARE-DIVIDEND> 0.65
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.50
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Other Items - Assets is Cash.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for fiscal year ending 9/30/95 and is qualified in
its entirety by reference to the Fund's Annual Report to Shareholders for fiscal
year ending 9/30/95 for the Bernstein Intermediate Duration Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 05
<NAME> BERNSTEIN INTERMEDIATE DURATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 1,157,748,980
<INVESTMENTS-AT-VALUE> 1,190,974,514
<RECEIVABLES> 33,057,419
<ASSETS-OTHER> 24,425
<OTHER-ITEMS-ASSETS> 356<F1>
<TOTAL-ASSETS> 1,224,056,714
<PAYABLE-FOR-SECURITIES> 73,253,270
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,035,114
<TOTAL-LIABILITIES> 81,288,384
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,116,497,174
<SHARES-COMMON-STOCK> 85,912,620
<SHARES-COMMON-PRIOR> 67,677,186
<ACCUMULATED-NII-CURRENT> (1,968,896)
<OVERDISTRIBUTION-NII> 2,020,410
<ACCUMULATED-NET-GAINS> (6,102,515)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,256,654
<NET-ASSETS> 1,142,768,330
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 64,586,637
<OTHER-INCOME> 0
<EXPENSES-NET> 6,134,528
<NET-INVESTMENT-INCOME> 58,452,109
<REALIZED-GAINS-CURRENT> (2,237,213)
<APPREC-INCREASE-CURRENT> 61,327,738
<NET-CHANGE-FROM-OPS> 117,542,634
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 59,111,192
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,922,950
<NUMBER-OF-SHARES-REDEEMED> 16,255,325
<SHARES-REINVESTED> 1,567,809
<NET-CHANGE-IN-ASSETS> 294,239,155
<ACCUMULATED-NII-PRIOR> (1,361,327)
<ACCUMULATED-GAINS-PRIOR> (3,813,789)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,854,782
<GROSS-ADVISORY-FEES> 4,768,519
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,134,528
<AVERAGE-NET-ASSETS> 960,723,721
<PER-SHARE-NAV-BEGIN> 12.54
<PER-SHARE-NII> 0.78
<PER-SHARE-GAIN-APPREC> 0.77
<PER-SHARE-DIVIDEND> 0.79
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.30
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<FN>
<F1>Other Items - Assets is Cash.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for fiscal year ending 9/30/95 and is qualified in
its entirety by reference to the Fund's Annual Report to Shareholders for fiscal
year ending 9/30/95 for the Bernstein California Municipal Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 06
<NAME> BERNSTEIN CALIFORNIA MUNICIPAL
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 204,915,353
<INVESTMENTS-AT-VALUE> 210,142,197
<RECEIVABLES> 4,252,554
<ASSETS-OTHER> 4,617
<OTHER-ITEMS-ASSETS> 999<F1>
<TOTAL-ASSETS> 214,400,367
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 449,458
<TOTAL-LIABILITIES> 449,458
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 209,582,817
<SHARES-COMMON-STOCK> 15,757,372
<SHARES-COMMON-PRIOR> 14,775,769
<ACCUMULATED-NII-CURRENT> (31,860)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (842,650)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,226,844
<NET-ASSETS> 213,950,909
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,162,368
<OTHER-INCOME> 0
<EXPENSES-NET> 1,276,743
<NET-INVESTMENT-INCOME> 8,885,625
<REALIZED-GAINS-CURRENT> 54,923
<APPREC-INCREASE-CURRENT> 6,501,972
<NET-CHANGE-FROM-OPS> 15,442,520
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,885,625
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,543,550
<NUMBER-OF-SHARES-REDEEMED> 5,752,212
<SHARES-REINVESTED> 190,265
<NET-CHANGE-IN-ASSETS> 20,957,812
<ACCUMULATED-NII-PRIOR> (32,544)
<ACCUMULATED-GAINS-PRIOR> (897,574)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 307,406
<GROSS-ADVISORY-FEES> 929,660
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,276,743
<AVERAGE-NET-ASSETS> 187,263,152
<PER-SHARE-NAV-BEGIN> 13.06
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 0.52
<PER-SHARE-DIVIDEND> 0.64
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.58
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<FN>
<F1>Other Items - Assets is Cash.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for fiscal year ending 9/30/95 and is qualified in
its entirety by reference to the Fund's Annual Report to Shareholders for fiscal
year ending 9/30/95 for the Bernstein International Value Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 07
<NAME> BERNSTEIN INTERNATIONAL VALUE
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 1,859,738,705
<INVESTMENTS-AT-VALUE> 1,928,839,982
<RECEIVABLES> 19,751,441
<ASSETS-OTHER> 42,674
<OTHER-ITEMS-ASSETS> 94,698,140<F1>
<TOTAL-ASSETS> 2,043,332,237
<PAYABLE-FOR-SECURITIES> 31,060,026
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,160,306
<TOTAL-LIABILITIES> 47,220,332
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,894,396,837
<SHARES-COMMON-STOCK> 124,120,488
<SHARES-COMMON-PRIOR> 81,051,994
<ACCUMULATED-NII-CURRENT> (13,279,827)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 32,505,551
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 82,365,223
<NET-ASSETS> 1,996,111,905
<DIVIDEND-INCOME> 38,063,991
<INTEREST-INCOME> 1,963,684
<OTHER-INCOME> 0
<EXPENSES-NET> 21,472,141
<NET-INVESTMENT-INCOME> 18,555,534
<REALIZED-GAINS-CURRENT> 39,682,573
<APPREC-INCREASE-CURRENT> (6,384,233)
<NET-CHANGE-FROM-OPS> 51,853,874
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,467,457
<DISTRIBUTIONS-OF-GAINS> 54,094,780
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48,703,157
<NUMBER-OF-SHARES-REDEEMED> 9,816,472
<SHARES-REINVESTED> 4,181,809
<NET-CHANGE-IN-ASSETS> 652,846,026
<ACCUMULATED-NII-PRIOR> (38,202,294)
<ACCUMULATED-GAINS-PRIOR> 54,084,147
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15,897,868
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21,472,141
<AVERAGE-NET-ASSETS> 1,597,744,333
<PER-SHARE-NAV-BEGIN> 16.57
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 0.07
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0.63
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.08
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<FN>
<F1>Other Items - Assets includes cash, foreign currency value, unamortized
organizational expenses and appreciation on foreign currency contracts.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for fiscal year ending 9/30/95 and is qualified in
its entirety by reference to the Fund's Annual Report to Shareholders for fiscal
year ending 9/30/95 for the Bernstein Short Duration New York Municipal
Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 08
<NAME> BERNSTEIN SHORT DURATION NEW YORK MUNICIPAL
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 53,584,819
<INVESTMENTS-AT-VALUE> 54,259,375
<RECEIVABLES> 1,138,446
<ASSETS-OTHER> 5,347
<OTHER-ITEMS-ASSETS> 7,505<F1>
<TOTAL-ASSETS> 55,410,673
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 189,339
<TOTAL-LIABILITIES> 189,339
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,506,036
<SHARES-COMMON-STOCK> 4,383,038
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 172
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 36,187
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 674,556
<NET-ASSETS> 55,221,334
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,507,227
<OTHER-INCOME> 0
<EXPENSES-NET> 367,324
<NET-INVESTMENT-INCOME> 2,139,903
<REALIZED-GAINS-CURRENT> 36,187
<APPREC-INCREASE-CURRENT> 674,556
<NET-CHANGE-FROM-OPS> 2,850,646
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,139,903
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,143,738
<NUMBER-OF-SHARES-REDEEMED> 2,840,518
<SHARES-REINVESTED> 79,818
<NET-CHANGE-IN-ASSETS> 55,221,334
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 226,270
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 371,366
<AVERAGE-NET-ASSETS> 48,421,719
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.10
<PER-SHARE-DIVIDEND> 0.54
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.60
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<FN>
<F1>Other Items - Assets includes cash and unamortized organizational expenses.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for fiscal year ending 9/30/95 and is qualified in
its entirety by reference to the Fund's Annual Report to Shareholders for fiscal
year ending 9/30/95 for the Bernstein Short Duration Diversified Municipal
Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 09
<NAME> BERNSTEIN SHORT DURATION DIVERSIFIED MUNICIPAL
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 99,056,409
<INVESTMENTS-AT-VALUE> 100,080,640
<RECEIVABLES> 2,476,488
<ASSETS-OTHER> 8,218
<OTHER-ITEMS-ASSETS> 53,694<F1>
<TOTAL-ASSETS> 102,619,040
<PAYABLE-FOR-SECURITIES> 960,678
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 333,010
<TOTAL-LIABILITIES> 1,293,688
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,914,583
<SHARES-COMMON-STOCK> 8,020,666
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 378,517
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,024,231
<NET-ASSETS> 101,325,352
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,325,163
<OTHER-INCOME> 0
<EXPENSES-NET> 611,350
<NET-INVESTMENT-INCOME> 3,713,813
<REALIZED-GAINS-CURRENT> 378,517
<APPREC-INCREASE-CURRENT> 1,024,231
<NET-CHANGE-FROM-OPS> 5,116,561
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,713,813
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,677,253
<NUMBER-OF-SHARES-REDEEMED> 4,743,724
<SHARES-REINVESTED> 87,137
<NET-CHANGE-IN-ASSETS> 101,325,352
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 358,822
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 619,519
<AVERAGE-NET-ASSETS> 81,979,483
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> 0.55
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.63
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<FN>
<F1>Other Items - Assets includes cash and unamortized organizational expenses.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for fiscal year ending 9/30/95 and is qualified in
its entirety by reference to the Fund's Annual Report to Shareholders for fiscal
year end 9/30/95 for the Bernstein Short Duration California Municipal
Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> BERNSTEIN SHORT DURATION CALIFORNIA MUNICIPAL
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 61,973,116
<INVESTMENTS-AT-VALUE> 62,586,980
<RECEIVABLES> 1,150,172
<ASSETS-OTHER> 6,715
<OTHER-ITEMS-ASSETS> 6,461<F1>
<TOTAL-ASSETS> 63,750,328
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 220,606
<TOTAL-LIABILITIES> 220,606
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,685,807
<SHARES-COMMON-STOCK> 5,022,977
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 454
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 224,574
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 613,864
<NET-ASSETS> 63,529,722
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,416,591
<OTHER-INCOME> 0
<EXPENSES-NET> 360,870
<NET-INVESTMENT-INCOME> 2,055,721
<REALIZED-GAINS-CURRENT> 224,574
<APPREC-INCREASE-CURRENT> 613,864
<NET-CHANGE-FROM-OPS> 2,894,159
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,055,721
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,005,347
<NUMBER-OF-SHARES-REDEEMED> 2,041,346
<SHARES-REINVESTED> 58,975
<NET-CHANGE-IN-ASSETS> 63,529,722
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 216,319
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 362,640
<AVERAGE-NET-ASSETS> 47,557,684
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0.53
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.65
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<FN>
<F1>Other Items - Assets includes cash and unamortized organizational expenses.
</FN>
</TABLE>
