<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. 18
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 / /
Amendment No. 20 / X /
Sanford C. Bernstein Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
767 Fifth Avenue, New York, New York 10153-0185
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 486-5800
Jean Margo Reid, Esq.
767 Fifth Avenue
New York, New York 10153-0185
(Name and Address of Agent for Service)
---------------------------------------------
Copies to:
Joel H. Goldberg, Esq.
Swidler Berlin Shereff Friedman 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, 1999 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 its Common Stock $.001 par value under the Securities Act of 1933,
and has filed a Rule 24f-2 Notice for the fiscal year ended September 30, 1997
on December 12, 1997.
<PAGE>
This filing contains three (3) Prospectuses, a regular Prospectus (the "Regular
Prospectus") covering all twelve series of shares of the Sanford C. Bernstein
Fund, Inc. (see Cross-Reference Sheet Part A-1) and two Institutional Services
Prospectuses, one covering the Intermediate Duration and Short Duration Plus
Portfolios of the Sanford C. Bernstein Fund, Inc. (see Cross-Reference Sheet
Part A-2) (the "Fixed-Income Institutional Services Prospectus") and the second
one covering the International Value Portfolio of the Sanford C. Bernstein Fund,
Inc. (See Cross-Reference Sheet Part A-3) (the "International Institutional
Services Prospectus"), and together with the Fixed-Income Institutional Services
Prospectus known as the "Institutional Prospectuses" and one Statement of
Additional Information ("SAI") which is common to all three Prospectuses.
2
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
CROSS-REFERENCE SHEET
(as required by Rule 481(a))
N-1A Item No.
Location in Regular
Part A-1 Prospectus
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
3
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
767 Fifth Avenue
New York, New York 10153
(212) 756-4097
PROSPECTUS
February 1, 1999
Sanford C. Bernstein Fund, Inc. (the "Fund") is an open-end management
investment company, commonly referred to as a mutual fund. This Prospectus
relates to 12 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.
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, 1999, 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>
<TABLE>
<CAPTION>
BERNSTEIN FIXED-INCOME PORTFOLIO OBJECTIVES/POLICIES
The Bernstein Fixed-Income Portfolios aim to generate the highest total return consistent with safety of principal and the
financial objectives of the Portfolios.
SHORT-DURATION PORTFOLIOS INTERMEDIATE-DURATION PORTFOLIOS
<S> <C>
Bernstein Government Short Duration: Page__ Bernstein New York Municipal: Page__
o Limit state and local taxation; and o Maximize total after-tax return for New York State
o Invest largely in U.S. government and agency residents, taking into account the taxable nature of
securities. interest on taxable bonds and capital gains.
Bernstein Short Duration Plus: Page__ Bernstein California Municipal: Page__
o Choose primarily from a broad universe of high-grade o Maximize total after-tax return for California
fixed-income instruments. residents, taking into account the taxable nature of
interest on taxable bonds and capital gains.
Bernstein Short Duration New York Municipal: Page__ Bernstein Diversified Municipal: Page__
o Provide income while limiting federal, state and o Maximize total after-tax return, taking into account
local taxation for New York residents. the taxable nature of interest on taxable bonds and
capital gains.
Bernstein Short Duration California Municipal: Page__ Bernstein Intermediate Duration: Page__
o Provide income while limiting federal and California o Choose primarily from a broad universe of high-grade
personal income taxation for state residents. fixed-income instruments.
Bernstein Short Duration Diversified Municipal: Page__
o Provide income while limiting federal taxation.
</TABLE>
BERNSTEIN INTERNATIONAL EQUITY PORTFOLIO OBJECTIVES
Bernstein International Value: Page___
Bernstein Tax-Managed International Value: Page___
(collectively referred to as the "Bernstein International Value Portfolios")
o Both Portfolios invest primarily in equity securities of established foreign
companies in the countries comprising the EAFE index, plus Canada
o Both seek long-term capital growth on a total-return basis (capital
appreciation or depreciation plus dividends and interest). Investments of
either Portfolio 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.
o The Bernstein Tax-Managed International Value Portfolio also seeks to
minimize the impact of taxes on shareholders' returns.
BERNSTEIN EMERGING MARKETS VALUE PORTFOLIO OBJECTIVES
Bernstein Emerging Markets Value: Page __
o Invest primarily in equity securities of companies in emerging-market
countries.
o Seek long-term capital growth on a total-return basis (capital appreciation
or depreciation plus dividends and interest). Investments of the Portfolio
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.
Investments in emerging-market countries are more volatile and less liquid than
investments in developed countries and involve exposure to a greater degree of
risk due to increased social, political and economic instability. This
Prospectus discusses in more detail these as well as other risks of investing in
emerging-market countries.
<PAGE>
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.
(All of the above must be on cover page)
(front cover - page 1)
<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, and, except in the case of the Bernstein
Emerging Markets Value Portfolio, there are no redemption fees, and there are no
charges for shareholders on monthly payment plans.
The Bernstein Emerging Markets Value Portfolio assesses a portfolio
transaction fee on purchases of Portfolio shares equal to 2% of the dollar
amount invested in the Portfolio (including purchases made by exchanging shares
of other Fund Portfolios for shares of the Bernstein Emerging Markets Value
Portfolio). The portfolio transaction fee on purchases applies to an initial
investment in the Bernstein Emerging Markets Value Portfolio and to all
subsequent purchases, but not to reinvested dividends or capital gains
distributions. The portfolio transaction fee on purchases is deducted
automatically from the amount invested; it cannot be paid separately. The
Bernstein Emerging Markets Value Portfolio also assesses a portfolio transaction
fee on redemptions of Portfolio shares equal to 2% of the dollar amount redeemed
from the Portfolio (including redemptions made by exchanging shares of the
Bernstein Emerging Markets Value Portfolio for shares of other Fund Portfolios).
The portfolio transaction fee on redemptions is deducted from redemption or
exchange proceeds. The portfolio transaction fees on purchases and redemptions
are received by the Bernstein Emerging Markets Value Portfolio, not by
Bernstein, and are neither sales loads nor contingent deferred sales loads.
The purpose of the portfolio transaction fees is to allocate
transaction costs associated with purchases and redemptions to the investors
making those purchases and redemptions, not to other shareholders. The Bernstein
Emerging Markets Value Portfolio, unlike the other Portfolios of the Fund,
imposes transaction fees because transaction costs incurred when purchasing or
selling stocks of companies in emerging-market countries are considerably higher
than those incurred in either the United States or other developed countries.
The portfolio transaction fees reflect Bernstein's estimate of the brokerage and
other transaction costs that the Bernstein Emerging Markets Value Portfolio
incurs as a result of purchases or redemptions. Without the fees, the Bernstein
Emerging Markets Value Portfolio would not be reimbursed for these transaction
costs, resulting in reduced investment performance for all shareholders of the
Portfolio. With the fees, the transaction costs occasioned by purchases or sales
of shares of the Bernstein Emerging Markets Value Portfolio are borne not by
existing shareholders, but by the investors making the purchases and
redemptions.
"Other Expenses" for all Portfolios other than the Bernstein
International Value Portfolio are based on amounts for the fiscal year ended
September 30, 1998; "Other Expenses" for the Bernstein International Value
Portfolio are based on estimated amounts for the current fiscal year as this
will be the initial period of operation for the Portfolio. 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 can
<PAGE>
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 an account at Bernstein
which has assets of less than $400,000, Bernstein (and not the Fund) will charge
an annual maintenance fee of $100. This fee is deducted from cash held in the
account or, if insufficient cash is maintained in that account, by selling
securities. Bernstein does not charge this fee on accounts that are in a group
of related accounts as defined by Bernstein with combined assets of $400,000 or
more or accounts in discretionary relationships commenced after October 1, 1998.
Shares of the Fund purchased or redeemed through broker-dealers, banks and other
financial institutions may be subject to fees imposed by those institutions.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FEE TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Bernstein Bernstein Bernstein Bernstein
Short Duration Short Duration Short Duration Government
California Diversified New York Municipal Short Duration
Municipal Municipal Portfolio Portfolio
Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None None None
(as a percentage of offering price)
Sales Load Imposed on Reinvested Dividends None None None None
(as a percentage of offering price)
Deferred Sales Load (as a percentage of original None None None None
purchase price or redemption proceeds)
Redemption Fees None None None None
(as a percentage of amount redeemed)
Exchange Fees None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees 0.50% 0.50% 0.50% 0.50%
12b-1 Fees None None None None
Other Expenses
Shareholder Servicing and Administrative Fees 0.10% 0.10% 0.10% 0.10%
All Other Expenses 0.13% 0.11% 0.14% 0.10%
Total Portfolio Operating Expenses 0.73% 0.71% 0.74% 0.70%
- ------------------------------------------------------------------------------------------------------------------------------------
Example
A Portfolio would pay the following expenses on a
$1,000 investment, assuming 5% annual return:
1 Yr. $7 $7 $8 $7
3 Yrs. (cum.) $23 $23 $24 $22
5 Yrs. (cum.) $41 $40 $41 $39
10 Yrs. (cum.) $91 $88 $92 $87
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FEE TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Bernstein Bernstein Bernstein Bernstein
Short Duration New York California Diversified
Plus Municipal Municipal Municipal
Portfolio Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None None None
(as a percentage of offering price)
Sales Load Imposed on Reinvested Dividends None None None None
(as a percentage of offering price)
Deferred Sales Load (as a percentage of original None None None None
purchase price or redemption proceeds)
Redemption Fees None None None None
(as a percentage of amount redeemed)
Exchange Fees None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees 0.50% 0.50% 0.50% 0.49%
12b-1 Fees None None None None
Other Expenses
Shareholder Servicing and Administrative Fees 0.10% 0.10% 0.10% 0.10%
All Other Expenses 0.04% 0.04% 0.05% 0.04%
Total Portfolio Operating Expenses 0.64% 0.64% 0.65% 0.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Example
A Portfolio would pay the following expenses on a
$1,000 investment, assuming 5% annual return:
1 Yr. $7 $7 $7 $6
3 Yrs. (cum.) $20 $20 $21 $20
5 Yrs. (cum.) $36 $36 $36 $35
10 Yrs. (cum.) $80 $80 $81 $79
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FEE TABLE
- ----------------------------------------------------------------------------------------------------------------------
Bernstein Bernstein Bernstein
Intermediate Tax-Managed International Value
Duration International Value Portfolio**
Portfolio Portfolio*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None None
(as a percentage of offering price)
Sales Load Imposed on Reinvested Dividends None None None
(as a percentage of offering price)
Deferred Sales Load (as a percentage of original None None None
purchase price or redemption proceeds)
Redemption Fees None None None
(as a percentage of amount redeemed)
Exchange Fees None None None
- ----------------------------------------------------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees 0.47% 0.94% 0.95%
12b-1 Fees None None None
Other Expenses
Shareholder Servicing and Administrative Fees 0.10% 0.25% 0.25%
All Other Expenses 0.03% 0.07% 0.09%
Total Portfolio Operating Expenses 0.60% 1.26% 1.29%
- ----------------------------------------------------------------------------------------------------------------------
Example
A Portfolio would pay the following expenses on
a $1,000 investment, assuming 5% annual return:
1 Yr. $6 $13 13
3 Yrs. (cum.) $19 $40 41
5 Yrs. (cum.) $33 $69 --
10 Yrs. (cum.) $75 $152 --
- ----------------------------------------------------------------------------------------------------------------------
<FN>
* Based on actual amounts for fiscal year ended September 30, 1998; this
Portfolio was formerly known as the Bernstein International Value Portfolio.
The name was changed in connection with the Portfolio Division described on
page ___ of this Prospectus.
** Based on estimates; the Bernstein International Value Portfolio is a new
portfolio established in connection with the Portfolio Division described on
page ___ of this Prospectus
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FEE TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Bernstein
Emerging
Markets
Value
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses Paid to Manager
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases None
(as a percentage of offering price)
Maximum 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, as applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses Paid to Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Transaction Fee upon Purchase of Shares
(as a percentage of amount invested)* 2.00%
Portfolio Transaction Fee upon Redemption of Shares
(as a percentage of amount redeemed)** 2.00%
Portfolio Transaction Fee upon Exchange of Shares ***
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
- ------------------------------------------------------------------------------------------------------------------------------------
Management Fees 1.25%
12b-1 Fees None
Other Expenses
Shareholder Servicing and Administrative Fees 0.25%
All Other Expenses 0.27%
Total Portfolio Operating Expenses 1.77%
- ------------------------------------------------------------------------------------------------------------------------------------
Example
- ------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period+ $58 $96 $137 $251
You would pay the following expenses on the same investment, assuming no
redemption++ $38 $75 $114 $224
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* The portfolio transaction fee on purchases is deducted automatically from the amount invested.
** The Portfolio transaction fee upon redemption is withheld from redemption proceeds by the Portfolio.
*** Exchanges will be treated as purchases or redemptions for purposes of imposing the portfolio transaction fee on purchases or
redemptions.
+ The expenses include the portfolio transaction fee on purchases and redemptions.
++ The expenses include the portfolio transaction fee on purchases.
</FN>
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 indicated. The financial statements, which contain this information
for each year in the five-year period ended September 30, 1998, have been
audited by PricewaterhouseCoopers LLP. The related financial statements and
the reports of independent accountants are incorporated by reference 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, 1998, which is available upon request and without charge.
These financial highlights should be read in conjunction with the financial
statements incorporated by reference in the Fund's SAI.
<TABLE>
<CAPTION>
Bernstein Tax-Managed International Value Portfolio+
----------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92(a)
------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $20.92 $18.14 $16.08 $16.57 $15.39 $11.98 $12.50
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.20 0.26 0.23 0.18 0.19 0.05 0.02
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (1.67) 3.73 2.26 0.07 1.13 3.54 (0.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.47) 3.99 2.49 0.25 1.32 3.59 (0.52)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (1.11) (0.99) (0.10) (0.11) (0.02) (0.05) 0
Dividends from tax-exempt net investment income 0 0 0 0 0 0 0
Distributions from net realized gains (0.71) (0.22) (0.33) (0.63) (0.12) (0.13) 0
Distributions in excess of net investment
income due to timing differences 0 0 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.82) (1.21) (0.43) (0.74) (0.14) (0.18) 0
Portfolio transaction fee 0 0 0 0 0 0 0
Net asset value, end of period $17.63 $20.92 $18.14 $16.08 $16.57 $15.39 $11.98
Total return (7.19)% 23.25% 15.83% 1.84% 8.55% 30.45% (4.16)%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $4,912,583 $4,965,998 $3,131,258 $1,996,112 $1,343,266 $539,936 $75,255
Average net assets (000 omitted) $5,309,076 $3,977,823 $2,569,586 $1,591,703 $948,563 $235,839 $41,234
Ratio of expenses to average net assets 1.26% 1.27% 1.31% 1.35% 1.39% 1.53% 2.00%*
Ratio of net investment income to
average net assets 0.98% 1.37% 1.37% 1.17% 1.13% 1.27% 0.59%*
Portfolio turnover rate 30.34% 26.24% 21.89% 29.53% 23.78% 21.22% 1.12%
<CAPTION>
BERNSTEIN BERNSTEIN
EMERGING MARKETS INTERMEDIATE
VALUE PORTFOLIO DURATION PORTFOLIO
------------------------------------- -----------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/98 9/30/97 9/30/96 (b) 9/30/98 9/30/97 9/30/96
------- ------- ----------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $22.54 $21.82 $20.00 $13.38 $13.08 $13.30
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.20 0.14 0.18 0.73 0.75 0.80
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (12.17) 0.44 0.83 0.37 0.35 (0.14)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (11.97) 0.58 1.01 1.10 1.10 0.66
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.11) (0.08) 0 (0.80) (0.80) (0.80)
Dividends from tax-exempt net investment income 0 0 0 0 0 0
Distributions from net realized gains (0.61) (0.02) 0 (0.17) 0 (0.08)
Distributions in excess of net investment income
due to timing differences 0 0 0 (0.02) 0 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.72) (0.10) 0 (0.99) (0.80) (0.88)
Portfolio transaction fee 0.26 0.24 0.81 0 0 0
Net asset value, end of period $10.11 $22.54 $21.82 $13.49 $13.38 $13.08
Total return (55.09)++ (0.32)%++ 4.80%++ 8.59% 8.66% 5.05%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $362,686 $438,305 $273,924 $2,541,549 $2,058,220 $1,451,776
Average net assets (000 omitted) $417,615 $379,351 $165,362 $2,303,250 $1,745,554 $1,310,208
Ratio of expenses to average net assets 1.77% 1.75% 1.92%* 0.60% 0.62% 0.63%
Ratio of net investment income to
average net assets 1.29% 0.58% 1.01%* 5.41% 5.61% 5.99%
Portfolio turnover rate 19.56% 32.45% 9.81% 233.08% 238.04% 141.04%
<CAPTION>
BERNSTEIN INTERMEDIATE DURATION 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 $12.54 $13.92 $13.82 $13.19 $12.36
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.78 0.68 0.76 0.90 1.00
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.77 (1.15) 0.68 0.79 0.85
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 1.55 (0.47) 1.44 1.69 1.85
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.76) (0.70) (0.76) (0.90) (1.00)
Dividends from tax-exempt net investment income 0 0 0 0 0
Distributions from net realized gains 0 (0.08) (0.58) (0.16) (0.02)
Distributions in excess of net investment income
due to timing differences (0.03) 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 (0.13) 0 0 0
- -----------------------------------------------------------------------------------------------------------------
Total distributions (0.79) (0.91) (1.34) (1.06) (1.02)
Portfolio transaction fee 0 0 0 0 0
Net asset value, end of period $13.30 $12.54 $13.92 $13.82 $13.19
Total return 12.82% (3.54)% 11.30% 13.32% 15.54%
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $1,142,768 $848,529 $693,772 $524,301 $375,345
Average net assets (000 omitted) $957,247 $764,519 $595,273 $444,750 $304,034
Ratio of expenses to average net assets 0.64% 0.65% 0.66% 0.67% 0.68%
Ratio of net investment income to
average net assets 6.11% 5.14% 5.59% 6.64% 7.80%
Portfolio turnover rate 212.40% 203.73% 60.77% 149.71% 81.04%
<FN>
+ This portfolio was formerly known as The Bernstein International Value
Portfolio.
++ This reflects the return to a shareholder who purchased shares of the
Portfolio at the beginning of the period and redeemed them at the end of the
period, paying, in each case, the 2.00% portfolio transaction fee. Total
return to a shareholder for the periods ending September 30, 1998, September
30, 1997 and September 30, 1996 without taking account of these transaction
fees would have been (53.24)%, 3.79% and 9.10%, respectively.
* Annualized
(a) Commenced operations June 22, 1992
(b) Commenced operations December 15, 1995
</FN>
</TABLE>
<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 indicated. The financial statements, which contain this information
for each year in the five-year period ended September 30, 1998, have been
audited by PricewaterhouseCoopers LLP. The related financial statements and
the reports of independent accountants are incorporated by reference 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, 1998, which is available upon request and without charge.
These financial highlights should be read in conjunction with the financial
statements incorporated by reference in the Fund's SAI.
<TABLE>
<CAPTION>
Bernstein Intermediate
Duration Portfolio Bernstein Short Duration Plus Portfolio
------------------------ ----------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/90 9/30/89 (c) 9/30/98 9/30/97 9/30/96 9/30/95
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.82 $12.50 $12.53 $12.48 $12.49 $12.32
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.98 0.69 0.65 0.67 0.69 0.70
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.25) 0.32 0.09 0.08 (0.01) 0.18
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.73 1.01 0.74 0.75 0.68 0.88
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.98) (0.69) (0.72) (0.70) (0.69) (0.69)
Dividends from tax-exempt net investment income 0 0 0 0 0 0
Distributions from net realized gains (0.21) 0 0 0 0 0
Distributions in excess of net investment income
due to timing differences 0 0 (0.02) 0 0 (0.02)
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.19) (0.69) (0.74) (0.70) (0.69) (0.71)
Portfolio transaction fee 0 0 0 0 0 0
Net asset value, end of period $12.36 $12.82 $12.53 $12.53 $12.48 $12.49
Total return 5.90% 8.25% 6.10% 6.21% 5.54% 7.36%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $240,779 $183,480 $595,087 $612,744 $538,248 $534,462
Average net assets (000 omitted) $218,760 $135,549 $591,866 $583,003 $532,094 $536,042
Ratio of expenses to average net assets 0.71% 0.83%* 0.64% 0.65% 0.65% 0.65%
Ratio of net investment income to
average net assets 7.77% 7.74%* 5.24% 5.38% 5.47% 5.69%
Portfolio turnover rate 119.09% 121.11% 71.40% 118.58% 169.96% 61.03%
<CAPTION>
Bernstein Short Duration Plus Portfolio
--------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/89(d)
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.89 $13.14 $12.84 $12.50 $12.62 $12.50
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.55 0.59 0.75 0.94 0.97 0.78
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.40) 0.10 0.44 0.41 (0.01) 0.12
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.15 0.69 1.19 1.35 0.96 0.90
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.56) (0.59) (0.75) (0.94) (0.97) (0.78)
Dividends from tax-exempt net investment income 0 0 0 0 0 0
Distributions from net realized gains 0 (0.35) (0.14) (0.07) (0.11) 0
Distributions in excess of net investment income
due to timing differences 0 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences (0.16) 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.72) (0.94) (0.89) (1.01) (1.08) (0.78)
Portfolio transaction fee 0 0 0 0 0 0
Net asset value, end of period $12.32 $12.89 $13.14 $12.84 $12.50 $12.62
Total return 1.14% 5.49% 9.60% 11.26% 7.88% 7.41%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $550,415 $508,959 $535,980 $435,334 $391,131 $335,310
Average net assets (000 omitted) $529,892 $535,889 $482,467 $405,457 $374,101 $263,899
Ratio of expenses to average net assets 0.65% 0.66% 0.66% 0.67% 0.68% 0.75%*
Ratio of net investment income to
average net assets 4.30% 4.52% 5.75% 7.42% 7.67% 7.91%*
Portfolio turnover rate 285.80% 112.87% 169.60% 140.03% 155.21% 132.82%
<CAPTION>
Bernstein Government Short Duration Portfolio
----------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.53 $12.48 $12.55 $12.34 $12.87 $13.14 $12.93
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.64 0.67 0.65 0.69 0.49 0.44 0.66
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.13 0.05 (0.07) 0.21 (0.38) 0.20 0.41
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.77 0.72 0.58 0.90 0.11 0.64 1.07
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.64) (0.67) (0.65) (0.69) (0.49) (0.44) (0.66)
Dividends from tax-exempt net investment income 0 0 0 0 0 0 0
Distributions from net realized gains 0 0 0 0 0 (0.47) (0.20)
Distributions in excess of net
investment income due to timing differences 0 0 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 (0.15) 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.64) (0.67) (0.65) (0.69) (0.64) (0.91) (0.86)
Portfolio transaction fee 0 0 0 0 0 0 0
Net asset value, end of period $12.66 $12.53 $12.48 $12.55 $12.34 $12.87 $13.14
Total return 6.35% 5.88% 4.76% 7.55% 0.85% 5.11% 8.57%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $138,037 $142,081 $139,802 $143,723 $185,028 $212,531 $254,950
Average net assets (000 omitted) $139,410 $136,888 $145,268 $145,710 $188,013 $239,462 $238,381
Ratio of expenses to average net assets 0.70% 0.69% 0.69% 0.69% 0.68% 0.68% 0.68%
Ratio of net investment income to
average net assets 5.13% 5.32% 5.21% 5.58% 3.85% 3.40% 5.02%
Portfolio turnover rate 56.93% 80.11% 155.29% 49.34% 213.02% 130.40% 220.86%
<FN>
* Annualized
(c) Commenced operations January 17, 1989
(d) Commenced operations December 12, 1988
</FN>
</TABLE>
<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 indicated. The financial statements, which contain this information
for each year in the five-year period ended September 30, 1998, have been
audited by PricewaterhouseCoopers LLP. The related financial statements and
the reports of independent accountants are incorporated by reference 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, 1998, which is available upon request and without charge.
These financial highlights should be read in conjunction with the financial
statements incorporated by reference in the Fund's SAI.
<TABLE>
<CAPTION>
Bernstein Government Bernstein Government
Short Duration Portfolio Municipal Portfolio
------------------------------------ ---------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/91 9/30/90 9/30/89 (e) 9/30/98 9/30/97 9/30/96
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.58 $12.61 $12.50 $13.74 $13.44 $13.50
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.86 0.95 0.72 0.58 0.60 0.63
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.41 0.05 0.11 0.23 0.31 (0.04)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.27 1.00 0.83 0.81 0.91 0.59
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.86) (0.95) (0.72) (0.02) (0.02) (0.01)
Dividends from tax-exempt net investment income 0 0 0 (0.56) (0.58) (0.62)
Distributions from net realized gains (0.06) (0.08) 0 (0.01) (0.01) (0.02)
Distributions in excess of net investment
income due to timing differences 0 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.92) (1.03) (0.72) (0.59) (0.61) (0.65)
Portfolio transaction fee 0 0 0 0 0 0
Net asset value, end of period $12.93 $12.58 $12.61 $13.96 $13.74 $13.44
Total return 10.47% 8.29% 6.77% 5.98% 6.95% 4.38%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $211,566 $159,490 $138,052 $1,385,785 $1,114,374 $820,395
Average net assets (000 omitted) $184,175 $159,170 $107,512 $1,250,621 $965,455 $744,452
Ratio of expenses to average net assets 0.70% 0.72% 0.85%* 0.63% 0.65% 0.66%
Ratio of net investment income to
average net assets 6.67% 7.52% 7.82%* 4.17% 4.43% 4.61%
Portfolio turnover rate 175.87% 171.41% 141.20% 22.00% 24.65% 25.22%
<CAPTION>
Bernstein Diversified Municipal 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 9/30/91 9/30/90 9/30/89 (f)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.99 $13.78 $13.40 $13.01 $12.51 $12.52 $12.50
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.65 0.61 0.63 0.71 0.73 0.74 0.52
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.51 (0.72) 0.49 0.42 0.51 0.04 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.16 (0.11) 1.12 1.13 1.24 0.78 0.54
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.02) (0.01) (0.01) (0.11) (0.06) (0.03) (0.03)
Dividends from tax-exempt net investment income (0.63) (0.60) (0.62) (0.60) (0.67) (0.71) (0.49)
Distributions from net realized gains 0 (0.03) (0.11) (0.03) (0.01) (0.05) 0
Distributions in excess of net investment
income due to timing differences 0 0 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 (0.04) 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.65) (0.68) (0.74) (0.74) (0.74) (0.79) (0.52)
Portfolio transaction fee 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.50 $12.99 $13.78 $13.40 $13.01 $12.51 $12.52
- ------------------------------------------------------------------------------------------------------------------------------------
Total return 9.16% (0.80)% 8.61% 8.91% 10.21% 6.35% 4.41%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $660,814 $552,134 $449,668 $301,746 $210,417 $157,730 $108,653
Average net assets (000 omitted) $572,769 $509,380 $375,576 $256,850 $179,375 $142,712 $87,945
Ratio of expenses to average net assets 0.66% 0.67% 0.69% 0.69% 0.71% 0.75% 0.91%*
Ratio of net investment income to
average net assets 4.89% 4.57% 4.64% 5.33% 5.69% 5.83% 5.75%*
Portfolio turnover rate 42.55% 34.45% 34.74% 48.22% 33.91% 47.25% 19.52%
<CAPTION>
Bernstein California Municipal Portfolio
---------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94 9/30/93
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.90 $13.58 $13.58 $13.06 $13.83 $13.38
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.57 0.59 0.61 0.64 0.61 0.60
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.30 0.32 0 0.52 (0.74) 0.52
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.87 0.91 0.61 1.16 (0.13) 1.12
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.02) (0.03) (0.03) (0.05) (0.02) (0.02)
Dividends from tax-exempt net investment income (0.55) (0.56) (0.58) (0.59) (0.59) (0.58)
Distributions from net realized gains (0.01) 0 0 0 0 (0.07)
Distributions in excess of net investment
income due to timing differences 0 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 (0.03) 0
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (0.58) (0.59) (0.61) (0.64) (0.64) (0.67)
Portfolio transaction fee 0 0 0 0 0 0
Net asset value, end of period $14.19 $13.90 $13.58 $13.58 $13.06 $13.83
Total return 6.37% 6.82% 4.60% 9.11% (0.98)% 8.60%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $549,757 $411,384 $285,758 $213,951 $192,993 $150,115
Average net assets (000 omitted) $473,077 $339,514 $246,410 $185,990 $168,797 $116,301
Ratio of expenses to average net assets 0.65% 0.67% 0.68% 0.69% 0.70% 0.73%
Ratio of net investment income to
average net assets 4.04% 4.26% 4.48% 4.78% 4.51% 4.36%
Portfolio turnover rate 25.33% 41.32% 23.87% 63.89% 24.55% 23.79%
<FN>
* Annualized
(e) Commenced operations January 3, 1989
(f) Commenced operations January 9, 1989
</FN>
</TABLE>
<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 indicated. The financial statements, which contain this information
for each year in the five-year period ended September 30, 1998, have been
audited by PricewaterhouseCoopers LLP. The related financial statements and
the reports of independent accountants are incorporated by reference 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, 1998, which is available upon request and without charge.
These financial highlights should be read in conjunction with the financial
statements incorporated by reference in the Fund's SAI.
<TABLE>
<CAPTION>
Bernstein
California Municipal Portfolio Bernstein New York Municipal Portfolio
------------------------------------- ---------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/92 9/30/91 9/30/90 (g) 9/30/98 9/30/97 9/30/96
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $12.94 $12.42 $12.50 $13.62 $13.35 $13.48
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.66 0.70 0.13 0.58 0.61 0.64
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.45 0.52 (0.08) 0.26 0.27 (0.07)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.11 1.22 0.05 0.84 0.88 0.57
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.07) (0.11) (0.09) (0.01) (0.01) (0.02)
Dividends from tax-exempt net investment income (0.59) (0.59) (0.04) (0.57) (0.60) (0.62)
Distributions from net realized gains (0.01) 0 0 (0.01) 0 (0.06)
Distributions in excess of net investment
income due to timing differences 0 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.67) (0.70) (0.13) (0.59) (0.61) (0.70)
Portfolio transaction fee 0 0 0 0 0 0
Net asset value, end of period $13.38 $12.94 $12.42 $13.87 $13.62 $13.35
Total return 8.76% 10.06% 0.40% 6.32% 6.73% 4.31%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $83,043 $50,356 $22,828 $816,082 $671,700 $539,217
Average net assets (000 omitted) $65,492 $35,005 $21,481 $746,257 $603,119 $497,391
Ratio of expenses to average net assets 0.77% 0.79% 0.79%* 0.64% 0.65% 0.66%
Ratio of net investment income to
average net assets 4.96% 5.40% 6.73%* 4.25% 4.51% 4.73%
Portfolio turnover rate 53.08% 48.91% 113.25% 27.20% 25.94% 26.19%
<CAPTION>
Bernstein New York Municipal 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 9/30/91 9/30/90 9/30/89 (h)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.98 $13.80 $13.47 $13.05 $12.54 $12.59 $12.50
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.65 0.64 0.67 0.74 0.74 0.76 0.53
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.50 (0.75) 0.46 0.44 0.52 0 0.09
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.15 (0.11) 1.13 1.18 1.26 0.76 0.62
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.02) (0.02) (0.01) (0.11) (0.09) (0.08) (0.07)
Dividends from tax-exempt net investment income (0.63) (0.62) (0.66) (0.63) (0.65) (0.68) (0.46)
Distributions from net realized gains 0 (0.03) (0.13) (0.02) (0.01) (0.05) 0
Distributions in excess of net investment
income due to timing differences 0 0 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 (0.04) 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.65) (0.71) (0.80) (0.76) (0.75) (0.81) (0.53)
Portfolio transaction fee 0 0 0 0 0 0 0
Net asset value, end of period $13.48 $12.98 $13.80 $13.47 $13.05 $12.54 $12.59
Total return 9.14% (0.81)% 8.68% 9.31% 10.34% 6.12% 5.04%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $458,543 $408,021 $336,101 $238,871 $190,776 $158,292 $98,299
Average net assets (000 omitted) $413,892 $381,144 $277,930 $210,474 $172,633 $129,347 $83,529
Ratio of expenses to average net assets 0.66% 0.67% 0.69% 0.69% 0.70% 0.74% 0.89%*
Ratio of net investment income to
average net assets 4.95% 4.78% 4.91% 5.55% 5.79% 5.94% 5.84%*
Portfolio turnover rate 44.84% 22.45% 34.58% 42.53% 29.79% 36.10% 10.12%
<CAPTION>
Bernstein Short
Bernstein Short Duration Duration California
Diversified Municipal Portfolio Municipal Portfolio
--------------------------------------------- ----------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/98 9/30/97 9/30/96 9/30/95(i) 9/30/98 9/30/97
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.56 $12.52 $12.63 $12.50 $12.55 $12.53
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.45 0.46 0.52 0.55 0.42 0.45
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.04 0.05 (0.06) 0.13 0.07 0.03
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.49 0.51 0.46 0.68 0.49 0.48
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.01) (0.02) (0.02) (0.04) (0.02) (0.04)
Dividends from tax-exempt net investment income (0.44) (0.44) (0.50) (0.51) (0.40) (0.41)
Distributions from net realized gains (0.03) (0.01) (0.05) 0 (0.01) (0.01)
Distributions in excess of net investment
income due to timing differences 0 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (0.48) (0.47) (0.57) (0.55) (0.43) (0.46)
Portfolio transaction fee 0 0 0 0 0 0
Net asset value, end of period $12.57 $12.56 $12.52 $12.63 $12.61 $12.55
Total return 4.02% 4.17% 3.68% 5.55% 3.98% 3.89%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $158,553 $151,821 $119,096 $101,325 $99,050 $86,311
Average net assets (000 omitted) $150,699 $135,288 $105,467 $85,893 $88,338 $76,339
Ratio of expenses to average net assets 0.71% 0.72% 0.71% 0.72%* 0.73% 0.74%
Ratio of net investment income to
average net assets 3.58% 3.66% 4.07% 4.32%* 3.34% 3.56%
Portfolio turnover rate 99.93% 68.25% 63.40% 73.50% 77.01% 75.36%
<FN>
* Annualized
(g) Commenced operations August 6, 1990
(h) Commenced operations January 9, 1989
(i) Commenced operations October 3, 1994
</FN>
</TABLE>
<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 indicated. The financial statements, which contain this information
for each year in the five-year period ended September 30, 1998, have been
audited by PricewaterhouseCoopers LLP. The related financial statements and
the reports of independent accountants are incorporated by reference 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, 1998, which is available upon request and without charge.
These financial highlights should be read in conjunction with the financial
statements incorporated by reference in the Fund's SAI.
<TABLE>
<CAPTION>
Bernstein
Short Duration
California
Municipal Bernstein Short Duration
Portfolio New York Municipal Portfolio
------------------------ ----------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/96 9/30/95 (j) 9/30/98 9/30/97 9/30/96 9/30/95 (j)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.65 $12.50 $12.47 $12.52 $12.60 $12.50
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.50 0.53 0.46 0.50 0.51 0.54
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.07) 0.15 0.01 (0.01) (0.07) 0.10
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.43 0.68 0.47 0.49 0.44 0.64
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.05) (0.06) (0.01) (0.08) (0.02) (0.05)
Dividends from tax-exempt net investment income (0.45) (0.47) (0.45) (0.42) (0.49) (0.49)
Distributions from net realized gains (0.05) 0 (0.01) (0.04) (0.01) 0
Distributions in excess of net investment income
due to timing differences 0 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.55) (0.53) (0.47) (0.54) (0.52) (0.54)
Portfolio transaction fee 0 0 0 0 0 0
Net asset value, end of period $12.53 $12.65 $12.47 $12.47 $12.52 $12.60
Total return 3.50% 5.58% 3.86% 3.99% 3.53% 5.24%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $72,925 $63,530 $78,652 $76,142 $58,750 $55,221
Average net assets (000 omitted) $68,060 $49,944 $77,989 $69,567 $54,087 $50,642
Ratio of expenses to average net assets 0.72% 0.73%* 0.74% 0.76% 0.74% 0.73%*
Ratio of net investment income to average
net assets 3.96% 4.12%* 3.66% 3.97% 4.02% 4.23%*
Portfolio turnover rate 60.76% 89.33% 52.93% 98.01% 55.81% 112.15%
<FN>
* Annualized
(j) Commenced operations October 3, 1994
</FN>
</TABLE>
<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 the Fund's
12 series of shares (the "Portfolios"). Shares of each series represent an
interest in a separate portfolio of securities. At September 30, 1998, the
Portfolios of the Fund had net assets totaling $11.6 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; 227 West Monroe Street, Chicago, Illinois 60606; 300 Crescent Court,
Suite 950, Dallas, Texas 75201; 555 California Street, Suite 4300, San
Francisco, California 94104; 800 Connecticut Avenue, N.W., Suite 1001,
Washington, D.C. 20006; and 1 North Lexington Avenue, White Plains, NY 10601,
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;
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.
<PAGE>
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 (years) Yield (%)
0.2400 4.9800
0.9600 5.4500
1.8600 5.8300
2.7100 6.0200
3.5000 6.1700
4.2400 6.2800
4.9400 6.3800
5.5900 6.4600
7.1900 6.5500
10.8700 6.7700
11.9800 6.7600
Source: Bernstein estimates.
As the chart above suggests, the yield on bonds normally increases with
maturity.
But notice that the path is not a straight line: nearly 50% of the rise
typically occurs within the first two years; almost 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. *
- --------
* 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.
8
<PAGE>
The table below shows the rates of return of Treasuries of varying
maturities over two time periods: a nearly 29-year period that included both
rising and falling interest-rate cycles, and the most recent 15 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Treasury Total Returns
(Annualized)
- -------------------------------------------------------------------------------------------------------------------------
Treasury Bills Short-term Intermediate-term Long-term
(3 mos.) bonds (2 yrs.) bonds (6 yrs.) bonds (30 yrs.)
-------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Jan. 1970-Sept. 1998 7.2% 8.2% 9.1% 9.6%
Jan. 1983-Sept. 1998 6.4 8.1 10.2 11.8
- -------------------------------------------------------------------------------------------------------------------------
<FN>
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
Services and Bernstein.
- -------------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
*In the examples that follow on this and the facing page, 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.
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)
generally 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 first 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Bond Risk:
Change in Value Due to Interest-Rate Fluctuations
- -------------------------------------------------------------------------------------------------------------------------
Value of $100 Bond Value of $100 Bond
If Rates Rise 1% If Rates Fall 1%
------------------ ------------------
<S> <C> <C>
Short-term bond (duration 1.8 yrs.) $98.21 $101.82
Intermediate-term bond (duration 5.0 yrs.) 95.11 105.18
Long-term bond (duration 13.8 yrs.) 87.22 115.56
Note: Assumes initial yield and coupon of 5%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 bottom 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 91% of
the time, over both the 1970-98 and 1983-98 periods. But long bonds declined in
value by more than their interest payments 21% of the time during the 1983-98
period and 23% of the time during the 1970-98 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 4.8%.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Frequency of Loss:
Percent of 12-Month Periods When Treasuries Had Negative Total Return
(Jan. 1970-Sept. 1998)
- -------------------------------------------------------------------------------------------------------------------------
Treasury bills Short-term Intermediate-term Long-term
(3 mos.) bonds (2 yrs.) bonds (6 yrs.) bonds (30 yrs.)
-------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Jan. 1970-Sept. 1998* 0.0% 0.0% 8.0% 23.4%
Jan. 1983-Sept. 1998** 0.0 0.0 8.3 20.8
<FN>
* Based on 334 overlapping 12-month periods
** Based on 178 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.
- -------------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
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.
9
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Bernstein Fixed-Income Portfolios
Frequency of
Negative Annual
Portfolio Principal Holdings* Total Return Rate of 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
- -------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------
<FN>
* "Short-term" and "intermediate" refer to effective duration of the Portfolios as described on pages ____ through____.
- -------------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
<PAGE>
Bernstein International Value and Emerging Markets Value Process
Why Invest in Foreign Stocks?
Americans' recognition of the opportunities available in developed and
emerging foreign stock markets has increased dramatically in recent years for
obvious reasons. Whereas in 1982 U.S. stocks represented almost 56% of the value
of common stocks around the world, by 1997 that percentage was about 48%, which,
although up from the immediate prior years due to a strong U. S. market, is down
over the fifteen year period. The foreign markets accounted for over 50% of the
world's stock market value in 1997 with the developed foreign markets making up
approximately 42% and the emerging markets making up almost 10% (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. And important global
companies such as DeBeers, Samsung and Posco are domiciled in emerging nations.
Investing in the companies we know best--and whose products fill our lives--now
entails a certain commitment to non-U.S. stocks.
Display 1
World Stock Capitalization
1982
U.S. 55.7%
Developed Foreign Markets 41.6%
Emerging Markets 2.6%
1997
U.S. 48.0%
Developed Foreign Markets 42.5%
Emerging Markets 9.5%
Source: International Finance Corporation
But the most important reason to expand one's stock investment horizon,
in Bernstein's judgment, is the opportunity to broaden portfolio
diversification. The stock markets of many developed and emerging foreign
countries have outperformed the S&P 500 over the last 13 years, while others
have underperformed (Display 2). Yet--and this is the key point--different
countries' stock markets don't necessarily follow the same rhythm. Developed
foreign markets don't move in the same direction at the same time, nor do
developed foreign stocks as a group mirror U.S.-market movements. Likewise,
emerging foreign markets have followed different performance rhythms from one
another, and as a group, a different performance rhythm from the stock markets
of the industrialized world. This is not to overlook the extraordinary
volatility of emerging markets over the historical record available to us -- or
the brevity of that record. Nonetheless, 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.
Display 2
Compound Annual Rates of Returns: Jan 1985-Sep 1998
(in U.S. dollars)
Argentina 23.7%
Mexico 23.0%
Switzerland 20.9%
Germany 18.2%
U.K. 18.2%
Hong Kong 18.0%
S&P 500* 17.5%
Taiwan 15.9%
Brazil 11.2%
Australia 10.9%
India 8.6%
Canada 7.9%
Japan 6.9%
Singapore 5.1%
Thailand 4.0%
Korea 2.1%
Malaysia -0.9%
* The Standard & Poor's 500 is a widely recognized index of large-cap stocks
traded on U.S. exchanges.
Source: Datastream, International Finance Corporation, Morgan Stanley Capital
International, Standard & Poor's and Bernstein
Although markets of some countries may move together in times of severe
economic stress -- as the markets of the emerging market countries did in 1998
-- we believe that over time returns will vary from market to market. Display 3
illustrates just how unrelated the returns of the world's developed and emerging
foreign stock markets have been in recent years. With respect to developed
foreign markets, notice that since 1987, Japan came in first two times--and last
five times. German stocks scored highest twice and lowest twice; the United
Kingdom, first once, worst once. With respect to emerging foreign markets,
performance in 1997 ranged from 117% in Turkey to minus 79% in Thailand -- and
that was not extreme. The 1991 gap extended from the 397% gain in Argentina to
the 42% loss in Turkey. And in 1989,
Display 3
Total Annual Returns (in U.S. dollars)
x.xx Best Performing Country for Each Year
=====
xx.x Worst Performing Country for Each Year
- -----
<TABLE>
<CAPTION>
1998
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 (through Sep)
....................................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INDICES
S&P 500* 5.3% 16.6% 31.7% (3.1)% 30.5% 7.6% 10.1% 1.3% 37.6% 23.0% 33.4% 6.0%
EAFE Index+ (0.8) 31.3 23.6 (22.2) 8.2 (8.7) 32.0 2.6 11.0 11.8 14.3 3.3
IFCG Index++ 13.5 58.2 54.7 (29.9) 17.6 0.3 67.5 (0.5) (12.3) 7.9 (14.5) (32.2)
DEVELOPED MARKETS
Australia 9.3 36.4 9.3 (17.5) 33.6 (10.8) 35.2 5.4 11.2 16.5 (10.4) (7.3)
====
Canada 13.9 17.1 24.3 (13.0) 11.1 (12.2) 17.6 (3.0) 18.3 28.5 12.8 (18.7)
----
Germany (24.7) 20.6 46.3 (9.4) 8.2 (10.3) 35.6 4.7 16.4 13.6 24.6 15.3
------ ==== ---- =====
Hong Kong (4.1) 28.1 8.4 9.2 49.5 32.3 116.7 (28.9) 22.6 33.1 (23.3) (25.7)
==== ==== ===== ------ ====
Japan 43.0 35.4 1.7 (36.1) 8.9 (21.5) 25.5 21.4 0.7 (15.5) (23.7) (17.2)
==== --- ------ ------ ==== --- ------
Singapore 2.3 33.3 42.3 (11.7) 25.0 6.3 68.0 6.7 6.5 (6.9) (30.0) (37.9)
----- ----
Switzerland (9.5) 6.2 26.2 (6.2) 15.8 17.2 45.8 3.5 44.1 2.3 44.2 (0.4)
==== =====
United
Kingdom 35.1 6.0 21.9 10.3 16.0 (3.7) 24.4 (1.6) 21.3 27.4 22.6 3.0
---- ====
EMERGING MARKETS
Argentina 9.8 38.8 175.9 (36.6) 396.9 (26.5) 72.7 (23.3) 12.7 22.3 19.9 (31.9)
===== ====
Brazil (63.1) 125.6 39.9 (65.7) 170.4 0.3 99.4 69.8 (20.2) 34.4 24.9 (39.9)
------ ===== ------ ====
India (15.6) 37.3 4.3 18.8 18.4 22.9 18.8 7.4 (34.2) (2.1) 7.1 (14.6)
---- ---- ------
Korea 36.5 112.8 7.0 (25.4) (15.9) 3.6 20.9 19.1 (6.9) (38.2) (68.7) (0.5)
------ =====
Malaysia 0.9 27.7 44.0 (11.2) 12.1 27.9 102.9 (21.5) 3.6 24.5 (71.7) (32.8)
Mexico (4.8) 108.3 73.4 29.7 106.8 21.2 49.9 (40.6) (26.0) 17.8 50.4 (43.4)
====
Taiwan 120.8 93.3 100.0 (50.9) (0.6) (26.6) 89.0 22.5 (30.7) 37.4 (7.7) (25.8)
Thailand 37.5 40.7 100.8 (20.7) 19.2 40.3 103.0 (11.3) (1.4) (36.6) (79.3) (18.5)
==== ------
Turkey 262.2 (61.1) 502.4 (2.8) (41.8) (52.8) 234.3 (40.7) (10.6) 49.0 117.1 (53.5)
===== ------ ===== ------ ------ ===== ------ ==== ===== ------
</TABLE>
Note: All countries and indices are net dividend returns, except for the
International Finance Corporation Global (IFCG) Index, which is gross
dividend returns.
* The Standard & Poor's 500 is a widely recognized index of large-cap stocks
traded on U.S. exchanges.
+ EAFE index, half-hedged, GDP-weighted, includes developed stock markets in
Europe, Australia and the Far East. Prior to July 1992, the EAFE Index was
calculated by Bernstein following MSCI methodology based on data from
Datastream, International Financial Statistics (IFS), Morgan Stanley
Capital International (MSCI), Organization for Economic Cooperation and
Development (OECD) and Bernstein estimates; since July 1992, the EAFE
index was calculated by MSCI.
++ The IFCG Index is an unhedged index of emerging stock markets.
Source: FactSet, International Finance Corporation, IFS, MSCI, OECD, Standard &
Poor's and Bernstein
10
<PAGE>
there were almost 500 percentage points of return between the return of the
Turkish market and that of the Indian market.
Yet observe in Display 4, on the facing page, what happened when the
stocks of the major developed markets of the world were combined into one
portfolio. 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. Clearly, most developed
foreign markets by themselves were extremely volatile during this period. If you
invested 20% in a mixed basket of developed foreign market stocks and the
remaining 80% in domestic stocks--the spot marked "80% U.S./20% EAFE" on the
chart in Display 4--you'd have achieved comparable returns to that of domestic
stocks and reduced your portfolio's risk.
Display 4
Risk/Reward Positions: Jan 1976-Sep 1998
Based on Monthly Returns
[Plotted Points Chart]
Risk Return
---- ------
S&P 500* 14.7% 15.0%
EAFE** 14.1% 12.7%
Australia 25.6% 9.6%
Canada 19.3% 8.6%
Germany 20.5% 12.7%
Japan 22.9% 10.7%
Singapore 27.2% 7.8%
Switzerland 18.2% 14.4%
U.K. 20.4% 15.3%
80% U.S./20% EAFE 13.6% 14.7%
* The Standard & Poor's 500 is a widely recognized index of large-cap stocks
traded on U.S. exchanges.
** EAFE index, half-hedged, GDP-weighted, includes developed stock markets in
Europe, Australia and the Far East. Prior to July 1992, the EAFE index was
calculated by Bernstein following MSCI methodology based on data from
Datastream, International Financial Statistics (IFS), Morgan Stanley Capital
International (MSCI), Organization for Economic Cooperation and Development
(OECD) and Bernstein estimates; since July 1992, and EAFE index was
calculated by MSCI.
Source: Datastream, Ibbotson, IFS, MSCI, OECD and Bernstein
Likewise Display 5 depicts the result of combining the stocks of the
various emerging markets in a single portfolio. If you had invested just 5% of
your equity portfolio in the emerging-market stocks represented in the
International Finance Corporation Global Index (the "IFCG Index") -- a widely
recognized index of emerging-market performance -- and the rest in the stocks of
the U.S. and other major developed nations, you'd have further diversified your
portfolio and, although the returns of your portfolio would have modestly been
reduced, you'd have modestly reduced its risk.
Display 5
Risk/Reward Positions: Dec 1984-Sep 1998
Based on Monthly Returns
[Plotted Points Chart]
Risk Return
---- ------
80% U.S./20% EAFE 14.4% 16.9%
India 32.2% 8.6%
Malaysia 35.1% -0.9%
Mexico 48.8% 23.0%
Korea 36.8% 2.1%
Taiwan 45.9% 15.9%
Thailand 39.5% 4.0%
IFCG Index 23.9% 8.4%
95% Developed Markets/5% Emerging Markets 14.1% 16.4%
Note: EAFE index, half-hedged, GDP-weighted, includes developed stock markets in
Europe, Australia and the Far East. Prior to July 1992, the EAFE index was
calculated by Bernstein following MSCI methodology based on data from
Datastream, Inernational Financial Statistics (IFS), Morgan Stanley Capital
International (MSCI), Organization for Economic Cooperation and Development
(OECD) and Bernstein estimates; since July 1992, the EAFE index was calculated
by MSCI. All countries and indices are net dividend returns, except for the IFCG
Index, which is gross dividend returns.
Source: Datastream, IFC, IFS, MSCI, OECD and Bernstein
Whether correlations among these markets will remain low is impossible
to predict based on so short a history, particularly given the variability of
the market correlations. Furthermore, the effect on smaller stock markets of a
severe downturn in U.S. stocks or a market dislocation elsewhere in the
developed world has not yet been tested. It's also important to understand that
the risk-reducing property of broad diversification is most manifest in the long
run; in any single year, global diversification may result in higher volatility
than a U.S.-only portfolio, and possibly lower return as well. But, over time,
portfolio risk has been reduced by spreading one's eggs among many baskets, and
in accessing a broad universe of opportunity.
The above displays on U.S., developed foreign and emerging stock market
returns should not be viewed as representations of future returns from these
stock markets, the Bernstein International Value Portfolios, or the Bernstein
Emerging Markets Value Portfolio. The illustrated returns represent historical
investment performance and relative volatilities, which may not be
representative of future returns and volatilities. Moreover, stock market
indexes are based on unmanaged portfolios of securities before transaction costs
and other expenses; managed portfolios will incur these costs. Finally, each of
the Bernstein International Value Portfolios and the Bernstein Emerging Markets
Value Portfolio is likely to differ in composition from broad stock market
indexes, and so each Portfolio's performance should not be expected to mirror
the returns provided by any specific index.
The Bernstein Process
11
<PAGE>
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 is directed to stock selection. Our
value-oriented approach in foreign markets rests on our understanding that:
o Stock markets around the world 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 companies, using the same
tools, techniques and economic assumptions in forecasting for each
company so that comparisons within and across markets 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 are captured 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
The research analyses supporting buy and sell decisions are fundamental
and bottom-up, based largely on specific company and industry findings rather
than on broad economic forecasts. Bernstein studies and experience suggest that
underpriced stocks as a class--those with low price/earnings ratios, low
price/book-value ratios and high dividend yields--have outperformed their peers
in the U.S., the developed foreign market countries and the emerging-market
countries. On reflection, this seems logical: American investors have no
monopoly on emotional overreaction to short-term difficulties in companies and
industries --- the overreactions that depress and elevate particular stocks and
create investment value.
In addition to specific stock selection, we employ country-allocation
and currency-management techniques:
12
<PAGE>
Country allocation: In order to attempt to capture the return potential and
diversification benefits of foreign markets, the Bernstein International Value
Portfolios concentrate 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 these Portfolios may
also invest in less developed countries or emerging equity markets. Investment
decision-making for these Portfolios is systematic and centralized, pursued by
an investment policy group working in concert, and guided by the findings of our
global equity research staff.
Under most conditions, the Bernstein Emerging Markets Value Portfolio
intends to have its assets diversified among emerging-market countries, although
this Portfolio may also invest in more developed country markets. In allocating
the Portfolio's assets among emerging-market countries, Bernstein will consider
such factors as the geographical distribution of the Portfolio, the sizes of the
stock markets represented and the various key economic characteristics of the
countries -- factors which, in Bernstein's opinion, have the most impact on
portfolio risk. However, the Portfolio may not necessarily be diversified on a
geographical basis. Bernstein will also consider the transaction costs and
volatility of each individual market.
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 our view in relation to local conditions, we may overweight a country's
stocks in our Portfolios 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: In the case of the Bernstein International Value
Portfolios, 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 these Portfolios invest 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. In
the case of the Bernstein Emerging Markets Value Portfolio, although we will
hedge opportunistically when we believe there is potential to enhance
risk-adjusted returns, the exposures of this Portfolio will generally be
unhedged because currency hedging in emerging market countries is often either
subject to legal and regulatory controls or prohibitively expensive.
Investment Objectives and Policies Of the Portfolios
Investment Objectives and Policies
Of the Fixed-Income Portfolios
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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 IBCA, 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% of its total assets in securities of foreign issuers, including
Eurobonds, Yankees (other than Yankees included in the Lehman Brothers Aggregate
Bond Index which are considered to be issued by domestic issuers for this
purpose) and obligations of foreign banks, including foreign governments.
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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 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
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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. Most 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 an alternative for defensive investments maintained in cash
equivalents.
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 advisor 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 generally 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 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.
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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
The Bernstein Intermediate Duration Portfolio invests in a diversified
portfolio of securities that it believes offer 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.
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.
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
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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 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 seven years while maintaining
the required duration. The relatively short-term nature of the Portfolios makes
them appropriate for consideration as an alternative for defensive investments
maintained in cash equivalents. .
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 three and one-half 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 26, 1998 and the Update to the Annual
Information Statement dated August 3, 1998 issued by the State of New York.
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. In the calendar years 1987 through
1996, the State's rate of economic growth was somewhat slower than that of the
nation. In particular, during the 1990-91 recession and post-recession period,
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 1987. The unemployment rate in the State dipped below the
national rate in the second half of 1981 and remained lower until 1991.
According to data published by the US Bureau of Economic Analysis, total
personal income in the State has risen more slowly than the national average
since 1988.
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The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. The State Financial Plan is based upon
forecasts of national and State economic activity.
The forecast of the State's economy shows continued expansion during
the 1998 calendar year, with employment growth gradually slowing as the year
progresses. The forecast for continued growth, and any resultant impact on the
State's 1998-99 Financial Plan, contains some uncertainties. Net exports could
plunge even more sharply than expected, with adverse impacts on the growth of
both consumer spending and investment. The inflation rate may differ
significantly from expectations due to the upward pressure of a tight labor
market and the downward pressure of price reductions emanating from the economic
weakness in Asia. In addition, the State economic forecast could over- or
underestimate the level of future bonus payments or inflation growth, resulting
in forecasted average wage growth that could differ significantly from actual
growth. Similarly, the State forecast could fail to correctly account for
declines in banking employment and the direction of employment change that is
likely to accompany telecommunications and energy deregulation.
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An additional risk to the State Financial Plan arises from the
potential impact of certain litigation and of federal disallowances now pending
against the State, which could adversely affect the State's projections of
receipts and disbursements. The State Financial Plan assumes no significant
litigation or federal disallowance or other federal actions that could affect
State finances, but has significant reserves in the event of such an action.
Despite recent budgetary surpluses recorded by the State, actions
affecting the level of receipts and disbursements, the relative strength of the
State and regional economy, and actions by the federal government have helped to
create projected structural budget gaps for the State. These gaps result from a
significant disparity between recurring revenues and the costs of maintaining or
increasing the level of support for State programs. To address a potential
imbalance in any given fiscal year, the State would be required to take actions
to increase receipts and/or reduce disbursements as it enacts the budget for
that year, and, under the State Constitution, the Governor is required to
propose a balanced budget each year. There can be no assurance, however, that
the Legislature will enact the Governor's proposals or that the State's actions
will be sufficient to preserve budgetary balance in a given fiscal year or to
align recurring receipts and disbursements in future fiscal years. For example,
the fiscal effects of tax reductions adopted in the last several fiscal years
(including 1998-99) are projected to grow more substantially beyond the 1998-99
fiscal year, with the incremental annual cost of all currently enacted tax
reductions estimated at over $4 billion by the time they are fully effective in
State fiscal year 2002-03. These actions will place pressure on future budget
balance in New York State.
Economic forecasts have frequently failed to predict accurately the
timing and magnitude of changes in the national and the State economies. The
Division of Budget has stated that its projections of receipts and disbursements
relating to the current State Financial Plan, and the assumptions on which they
are based, are reasonable. Actual results, however, could differ materially and
adversely from the projections set forth in the Annual Information Statement,
and those projections may be changed materially and adversely from time to time.
The fiscal health of the State may also be affected by the fiscal
health of New York City (the "City"), which continues to receive significant
financial assistance from the State. State aid contributes to the City's ability
to balance its budget and meet its cash requirements. The City's projections set
forth in the 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. To successfully implement its Financial Plan, the City
and certain entities issuing debt for the benefit of the City must market their
securities successfully. The City issues securities to finance, refinance and
rehabilitate infrastructure and other capital needs, as well as for seasonal
financing needs. In 1997, the State created the New York City Transitional
Finance Authority (TFA)
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to finance a portion of the City's capital program because the City was
approaching its State Constitutional general debt limit. Without the additional
financing capacity of the TFA, projected contracts for City capital projects
would have exceeded the City's debt limit during City fiscal year 1997-98.
Despite this additional financing mechanism, the City currently projects that,
if no further action is taken, it will reach its debt limit in City fiscal year
1999-2000. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the TFA to be unconstitutional.
On November 25, 1997 the State Supreme Court found the legislation establishing
the TFA to be constitutional and granted the defendants' motion for summary
judgment. The plaintiffs have appealed the decision. Future developments
concerning the City or entities issuing debt for the benefit of the City, 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 entities 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 advisor 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
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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 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 7, 1998, issued in connection with the sale of $579,120,000 of
California General Obligation Bonds and $270,880,000 of California General
Obligation Refunding Bonds.
California's economy is the largest among the 50 states and one of the
largest in the world. Pressures on the State's budget in the late 1980's and
early 1990's were caused by a combination of external economic conditions
(including a recession which began in 1990) and growth of the largest General
Fund Programs -- K-14 education, health, welfare and corrections -- at rates
faster than the revenue base. During this period, expenditures exceeded revenues
in four out of six years up to 1992-93, and the State accumulated and sustained
a budget deficit approaching $2.8 billion at its peak at June 30, 1993.
The effects of the recession led to large, unanticipated budget
deficits. For several fiscal years during the recession, the State was forced to
rely on external debt markets to meet its cash needs, as a succession of notes
and revenue anticipation warrants were issued in the period from June 1992 to
July 1994, often needed to pay previously maturing notes or warrants. The last
and largest of these borrowings was $4.0 billion of revenue anticipation
warrants which were issued in July, 1994 and matured on April 25, 1996.
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The State's financial condition improved in the last three fiscal
years, with a combination of better than expected revenues, slowdown in growth
of social welfare programs, and continued spending restraint based on the
actions taken in earlier years.
In the Governor's Budget released on January 9, 1998, and the May
Revision to the 1998-99 Governor's Budget, released May 13, 1998, the Department
of Finance projected that the California economy will continue to show robust
growth through 1998, although at a slightly slower pace than in 1997. The Asian
economic crisis which began in late 1997 was expected to have some dampening
effects on the State's economy, which was included in the May Revision
forecasts. However, during the summer of 1998, the soaring trade deficit,
continuing weakness in Asia, initial signs of economic weakness in Canada and
Latin America, which have been California's largest trading partners, and the
fall in stock prices worldwide all suggest that the May Revision forecasts may
be too optimistic, particularly for 1999.
The 1998-99 Budget Act is based on projected General Fund revenues and
transfers of $57.0 billion (after giving effect to various tax reductions
enacted in 1997 and 1998), a 4.2 percent increase from the revised 1997-98
figures, and expenditures of $57.3 billion from the General Fund (a 7.3 percent
increase from 1997-98), 14.7 billion from Special Funds, and $3.4 billion from
bond funds. The Budget Act assumes the State will carry out its normal
intra-year cash flow borrowing in the amount of $1.7 billion of revenue
anticipation notes, which are expected to be issued by early October.
In 1996, voters approved Proposition 218, entitled the "Right to Vote
on Taxes Act", which limits the ability of local government agencies to impose
or raise various taxes, fees, charges and assessments without voter approval.
Certain "general taxes" imposed after January 1, 1995 must be approved by voters
in order to remain in effect and local voters have the right to reduce taxes,
fees, assessments or charges through local initiatives.
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There are a number of ambiguities concerning the Proposition and its
impact on local governments and their bonded debt which will require
interpretation by the courts or the Legislature.
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 advisor 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 Of the
International Value Portfolio, the
Tax-Managed International Value Portfolio
and the Emerging Markets Value Portfolio
The Bernstein International Value Portfolio, the Bernstein Tax-Managed
International Value Portfolio (collectively referred to as the "Bernstein
International Value Portfolios") and the Bernstein Emerging Markets Value
Portfolio seek long-term capital growth on a total-return basis (capital
appreciation or depreciation plus dividends and interest). The Bernstein
International Value Portfolios will invest primarily in equity securities of
established foreign companies as described on page _____. The Emerging Markets
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Value Portfolio will invest primarily in equity securities of both large and
small companies domiciled, or with primary operations in, emerging-market
countries.
The Bernstein International Value Portfolios will invest in a
diversified portfolio of securities that the Manager considers most undervalued.
Both Portfolios intend to diversify investments among many foreign countries;
both Portfolios 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, the Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Both Portfolios
may also make investments in less-developed or emerging equity markets. Both
Portfolios are for investors who seek to participate in a broadly diversified
portfolio of foreign securities for the long-term.
o Bernstein International Value Portfolio. Because the Bernstein
International Value Portfolio is managed without regard to
potential tax consequences to the shareholder, it is particularly
appropriate for investors, such as pension plans and IRAs, not
subject to current federal income taxation.
o Bernstein Tax-Managed International Value Portfolio. The Bernstein
Tax-Managed International Value Portfolio seeks to minimize the
impact of taxes on returns and is therefore appropriate for taxable
investors. It will utilize the tax-management strategies discussed
below upon the occurrence of the Portfolio Division discussed
below.
o The Bernstein Tax-Managed International Value Portfolio intends to
minimize capital gains distributions by considering the tax impact
that buy and sell investment decisions will have on the
shareholders. For example, the Manager may sell securities in order
to realize capital losses. Realized capital losses can be used to
offset realized capital gains and thus reduce capital gains
distributions. When making sales of specific securities, the
Manager may select the shares on which the Portfolio has the
highest cost basis in order to minimize capital gains
distributions. The Manager may monitor the length of time the
Portfolio has held an investment to evaluate whether the investment
should be sold at a short-term gain or held for a longer period so
that the gain on the investment will be taxed at the lower
long-term rate. In making this decision the Manager will consider
whether, in its judgment, the risk of continued exposure to the
investment is worth the tax savings of a lower capital gains rate.
While the Bernstein Tax-Managed International Value Portfolio seeks
to minimize capital gains distributions, the Portfolio will
nevertheless make such distributions from time to time and will
distribute ordinary income dividends. In addition,
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shareholders may also be required to pay taxes on capital gains
realized, if any, upon redemption of their shares of this
Portfolio.
Portfolio Division. Prior to February 1, 1999, the Bernstein
Tax-Managed International Value Portfolio was known as the Bernstein
International Value Portfolio. The name of the Portfolio was changed to reflect
the new tax management strategies the Portfolio intends to utilize and to
differentiate it from the new International Value Portfolio, which as noted has
been formed for tax-exempt investors. To facilitate the migration of tax-exempt
shareholders to the new International Value Portfolio, the Fund obtained an
order from the SEC that permits tax-exempt shareholders to redeem their shares
of what is now the Bernstein Tax-Managed International Value Portfolio in-kind,
which means that the tax-exempt shareholders will receive assets of the
Bernstein Tax-Managed International Value Portfolio rather than cash, and invest
these assets in the new Bernstein International Value Portfolio (the "Portfolio
Division"). The Manager will provide notice to the tax-exempt shareholders of
their option to effect this migration. The tax-management strategies discussed
above will be implemented with respect to the Bernstein Tax-Managed
International Value Portfolio upon the effective date of the Portfolio Division.
The Bernstein Emerging Markets Value Portfolio will invest in a
diversified portfolio of securities that the Manager considers most undervalued.
As used in this prospectus, emerging-market countries are those countries that,
in the opinion of Bernstein, are considered to be developing countries by the
international financial community, and will include those countries considered
by the International Finance Corporation ("IFC"), a subsidiary of the World
Bank, to have an "emerging stock market." Examples of emerging-market countries
are Argentina, Brazil, Chile, Egypt, Greece, India, Indonesia, Israel, Malaysia,
Mexico, the People's Republic of China, Peru, the Philippines, Poland, Portugal,
South Africa, South Korea, Taiwan, Thailand and Turkey. The Portfolio may also
make investments in developed foreign countries that comprise the EAFE index, as
described in the preceding paragraph.
Shareholders of the Bernstein International Value Portfolios and the
Bernstein Emerging Markets Value Portfolio should be aware that investments in
foreign securities entail significant risks in addition to those customarily
associated with investing in U.S. equities; moreover, certain of the risks
associated with international investing are heightened with respect to
investments in emerging-market countries. Investing in less-developed or
emerging-market countries 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. The Bernstein Emerging
Markets Value Portfolio is intended for long-term investors who can accept the
risks associated with the Portfolio's investments and is not appropriate for
individuals with limited investment resources or who are unable to tolerate
significant fluctuations in the value of their investment. The Portfolio should
be considered as a vehicle for diversification and not as a balanced investment
program. See "Investment Risks of the Bernstein International
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Value Portfolio, the Bernstein Tax-Managed International Value Portfolio, and
the Bernstein Emerging Markets Value Portfolio," on page ______.
Under normal market conditions, at least 65% of the total assets of
each of the Bernstein International Value Portfolios will be invested in at
least three foreign countries and at least 65% of the total assets of the
Bernstein Emerging Markets Value Portfolio will be invested in at least three
emerging-market countries. Under exceptional conditions abroad or when the
Manager believes that economic or market conditions warrant, any of the
Bernstein International Value Portfolios or the Bernstein Emerging Markets Value
Portfolio may temporarily, for defensive purposes, invest part or all of its
portfolio in U.S. government obligations or investment grade debt or equity
securities of U.S. issuers. Any of these Portfolios 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 ___-___. None of
these 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 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 Bernstein International Value Portfolios and the Bernstein Emerging
Markets Value Portfolio have adopted certain fundamental investment limitations.
As a fundamental policy, none of these Portfolios will:
(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 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 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 any Portfolio may borrow money for
temporary or emergency purposes in an amount not exceeding 33 1/3%
of its total assets. As an operating (not a fundamental) policy,
the Portfolios will not borrow except from a bank for temporary or
emergency purposes in amounts in excess of 5% of its total assets.
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The SAI contains certain investment restrictions pertaining to the
Bernstein International Value Portfolios, the Bernstein Emerging Markets Value
Portfolio and the Bernstein Fixed-Income Portfolios.
The Bernstein International Value Portfolios and the Bernstein Emerging
Markets Value 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.
With respect to the Bernstein International Value Portfolios,
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, both Portfolios may temporarily, for defensive purposes,
invest all of their portfolios in fixed-income obligations of the U.S.
government or fixed-income or equity securities of U.S. issuers.
With respect to the Bernstein Emerging Markets Value Portfolio,
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. Most fixed-income instruments of
emerging-market companies and countries are rated below investment grade or are
unrated but equivalent to those rated below investment grade by internationally
recognized rating agencies such as Standard & Poor's and Moody's. 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 ratings categories, see the Appendix to the
SAI). The Portfolio will generally invest less than 35% of its total assets in
fixed-income securities. Securities rated in the medium-to lower-rating
categories of nationally recognized statistical rating organizations and unrated
securities of comparable quality are predominately speculative with respect to
the capacity to pay interest and repay principal in accordance with the
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terms of the security and generally involve a greater volatility of price than
securities in higher rating categories. The Portfolio does not intend to
purchase debt securities that are in default.
Investment Risks Of the Bernstein International Value Portfolio, the Bernstein
Tax-Managed International Value Portfolio and the Bernstein Emerging Markets
Value Portfolio
Market risk: Since the Bernstein International Value Portfolios and the
Bernstein Emerging Markets Value Portfolio invests primarily in equity
securities, each 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, each 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, these Portfolios are suited to
investors who are willing to hold their investment over a long horizon.
The securities markets in many emerging-market countries are
substantially smaller, less developed, less liquid and more volatile than the
securities markets of developed countries. In addition, to take advantage of
potential value opportunities, the Bernstein Emerging Markets Value Portfolio
may invest in relatively small companies. Securities of smaller companies may be
subject to more abrupt or erratic market movements than the securities of
larger, more established companies, both because the securities are typically
traded in lower volume and because the companies are subject to greater business
risk.
In certain emerging-market countries, volatility may be heightened by
actions of a few major investors. For example, substantial increases or
decreases in cash flows of mutual funds investing in these markets could
significantly affect local stock prices and, therefore, share prices of the
Bernstein Emerging Markets Value Portfolio. Moreover, some emerging-market
securities and developed-market securities may be listed on foreign exchanges
that are open on days (such as U.S. holidays and Saturdays) when the Portfolio
does not calculate a net asset value. As a result, the net asset values of the
Bernstein International Value Portfolios and the Bernstein Emerging Markets
Value Portfolio may be significantly affected by trading on days when
shareholders cannot make transactions. In addition, trading in emerging markets
can be more difficult; thus, there is a risk that an investor in the Bernstein
Emerging Markets Value Portfolio may not be able to readily redeem his or her
shares in the Portfolio.
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. Many
emerging-market countries have experienced
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substantial, and in some cases extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had, and may
continue to have, negative effects on the economies and securities markets of
certain emerging-market countries. In addition, it is possible that foreign
governments will impose currency exchange control regulations, such as the
currency controls imposed by Malaysia in 1998, or other restrictions that would
prevent cash from being brought back to the U.S. Emerging-market governments may
also intervene in currency markets or interpose registration/approval processes,
which could adversely affect the Portfolio.
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 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 in certain foreign markets, which
generally are higher than commissions on U.S. exchanges; and the expense of
maintaining securities with foreign custodians.
In addition to the foregoing, other risks and considerations of
investing in companies in emerging markets include:
Social, political and economic instability: Investments in emerging-market
countries involve exposure to a greater degree of risk due to increased
political and economic instability. Instability may result from, among other
factors: (i) authoritarian governments or military involvement in political and
economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; (v) ethnic, religious and
racial disaffection; and (vi) changes in trading status.
Certain emerging-market countries have histories of instability and
upheaval with respect to their internal politics that could cause their
governments to act in a detrimental or hostile manner toward private enterprise
or foreign investment. Such actions--for example, nationalizing a company or
industry, expropriating assets, or imposing punitive taxes--could have a severe
effect on security prices and impair the Bernstein Emerging Markets Value
Portfolio's ability to repatriate capital or income. The possibility exists that
economic development in certain emerging-market countries may be suddenly slowed
or reversed by unanticipated political or social events in those countries, and
that economic, political and social instability could disrupt the
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financial markets in which the Portfolio invests and adversely affect the value
of the Portfolio's assets.
Additional risks: Additional risks and considerations of investing in
emerging-market countries include overburdened infrastructure, obsolete
financial systems and security settlement and clearance procedures that may
result in delays and which may not fully protect the Portfolio against loss or
theft of its assets; national policies which may restrict the Portfolio's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; and less developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property.
Further discussion of the risks relating to the Bernstein International
Value Portfolios, and the Bernstein Emerging Markets Value Portfolio is
contained in the SAI.
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 and bank 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
Bernstein International Value Portfolios and the Bernstein Emerging Markets
Value Portfolio will invest primarily in foreign equity securities, but may,
under the circumstances described in "Investment Objectives and Policies" (page
___), 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 and
Its Agencies and Instrumentalities
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The types of U.S. government and agency securities in which the
Portfolios may invest include bills, notes and bonds, including
inflation-protected securities, 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 the 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, including inflation-protected securities. 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
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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 on residential or commercial property 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 a 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 a
FNMA security, it is not backed by the full faith and credit of the U.S.
government.
The Portfolios may also invest in both residential and commercial
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 subordinated interests or mortgage insurance. The
Manager of the Portfolios will take such insurance into account in determining
whether to invest in such pools.
The Portfolios may invest in Real Estate Mortgage Investment Conduits
("REMICs") and collateralized mortgage obligations ("CMOs"). REMICs include
governmental and/or private entities that issue a fixed pool of mortgages
secured by an interest in real property, and CMOs are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
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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 REMICs and
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 REMICs or CMOs;
provided that in the case of the Fixed-Income Portfolios other than the Short
Duration Municipal Portfolios, the entity issuing the REMIC or 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 U.S. 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. Interest
received by the Portfolios is, however, reflected in dividends to shareholders.
A Portfolio's investments in mortgage derivative securities also
subjects the Portfolio to extension risk. Extension risk is the possibility that
rising interest rates may cause prepayments to occur at a slower-than-expected
rate. This particular risk may effectively change a security which
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was considered short or intermediate-term at the time of purchase into a
long-term security. Long-term securities generally fluctuate more widely in
response to changes in interest rates than short or intermediate-term
securities.
Asset-Backed Securities
Asset-backed securities are debt instruments that are backed by pools
of loans, leases, accounts receivable or other debt obligations of consumers or
commercial entities. Examples of collateral include consumer loans to purchase
automobiles, credit card balances due, and loans to purchase manufactured
housing. The cash flow that is generated by payments on these instruments is
used to pay interest and principal to the asset-backed noteholders, as well as
any fees for the servicing and administration of the assets, and in some
circumstances, may be used to purchase additional collateral. Asset-backed
securities may also be credit enhanced by one or more methods. These include
overcollateralization, subordination, reserve accounts, issuer guarantees and
insurance provided by third party bond insurance companies. Issuer guarantees
and bond insurance may cover part or all of the principal and/or interest owed
to noteholders.
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. 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.
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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 pages
_____.
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. Pursuant to procedures
established by the Fund Board, the Manager 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 and Bank Investment Contracts
The Portfolios may purchase guaranteed investment contracts ("GICs")
and bank investment contracts ("BICs"). A GIC is a contract issued by an
insurance company that guarantees payment of interest and repayment of
principal, and a BIC is a contract issued by a bank that guarantees payment of
interest and repayment of principal. GICs and BICs are considered illiquid
securities.
Variable and Floating Rate Securities and Inflation-Protected 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.
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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.
The terms of inflation-protected securities provide for the coupon
and/or maturity value to be adjusted based on changes in inflation. Decreases in
the inflation rate or in investors' expectations about inflation could cause
these securities to underperform non-inflation-adjusted securities on a total
return basis. In addition, these securities may have limited liquidity in the
secondary market.
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 "Investment Objectives and Policies"
(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, bank investment contracts,
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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 domestic securities in which it
invests when the anticipated performance of the foreign securities is believed
by the advisor to offer more potential than domestic alternatives in keeping
with the investment objectives of the Portfolios. Foreign securities may be
denominated in U.S. dollars or foreign currency. 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
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The equity securities in which the Bernstein International Value
Portfolios and the Bernstein Emerging Markets Value Portfolio may invest include
common and preferred stocks, warrants and convertible securities. These
Portfolios may invest in foreign securities directly or in the form of sponsored
or unsponsored American Depositary Receipts (ADRs), Global Depositary Receipts
(GDRs), or other similar securities convertible into securities of foreign
issuers without limitation. ADRs are receipts typically issued by a U.S. bank or
trust company that evidence ownership of the underlying securities. GDRs are
receipts typically issued by a non-U.S. bank or trust company evidencing a
similar arrangement. 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. In
some circumstances--e.g., when a direct investment in securities in a
particular country cannot be made--the Bernstein International Value Portfolios
and the Bernstein Emerging Markets Value 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, each of these Portfolios 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. They may include
the use of exchange-traded derivatives such as futures and options--financial
products which are standardized by size, maturity, and delivery, and are sold on
organized exchanges. Furthermore, over-the-counter derivatives such as swaps or
other hybrid instruments, which are individually tailored to meet the needs of a
specific client, may also be used.
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
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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 Bernstein International Value Portfolios and the Bernstein Emerging Markets
Value Portfolio may commit a substantial portion or the entire value of their
portfolios to the consummation of these contracts. The Manager will consider the
effect that a substantial commitment of assets to forward contracts would have
on the investment program of these Portfolios and the flexibility of these
Portfolios 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, 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 or
other purposes may not be
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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 hybrid instruments (a type of potentially high risk
derivative) that have the characteristics of futures, options, currencies and
securities. Such instruments may take a variety of forms, such as a security
with the principal amount, redemption or conversion terms related to the market
price of some commodity, currency or securities index; or 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. Hybrids can
have volatile prices and limited liquidity and their use by the Portfolio may
not be successful. 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.
Swap agreements are contracts between parties in which one party agrees
to make payments to the other party based on the change in the market value of a
specified index or asset. In return, the other party agrees to make payments to
the first party based on the return of a different specified index or asset.
Swap agreements entail the risk that a party will default on its payment
obligations thereunder. Swap agreements also bear the risk that the Portfolio
will not be able to meet its obligation to the counterparty.
A Portfolio may enter into interest-rate or foreign currency swaps and
purchase and sell interest-rate caps and floors. No Portfolio will use swaps to
leverage the Portfolio. 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 swap. 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 that 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.
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 liquid assets in a segregated
account with its Custodian 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
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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 Bernstein International Value Portfolios,
Bernstein Emerging Markets Value Portfolio and 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 fees charged in connection with the loan and, when cash
collateral is given to secure the loan, income from investment of the cash
collateral in overnight time deposits and repurchase agreements. Any such loan
of portfolio securities will be marked to the market daily and secured by
collateral consisting of cash or 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 liquid assets in segregated accounts
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 Portfolio's investment restrictions. These
opportunities may involve risks that differ from those described above.
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND POSITION(S) WITH THE PRINCIPAL OCCUPATION
ADDRESS FUND DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Roger Hertog* President, President, Chief Operating Officer and
767 Fifth Avenue Treasurer, Director-Bernstein
New York, NY 10153 Director
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew S. Adelson* Senior Vice President Senior Vice President, Chief Investment Officer- International
767 Fifth Avenue Director Equities and Director-Bernstein
New York, NY 10153
- ------------------------------------------------------------------------------------------------------------------------------------
Arthur Aeder Director 1987-Present: Consultant;
516 Fifth Avenue, Room 701 Formerly Senior Partner of Oppenheim, Appel, Dixon & Co.
New York, NY 10036 (subsequently Spicer & Oppenheim) Certified Public
Accountants, and Chairman of Spicer & Oppenheim International
- ------------------------------------------------------------------------------------------------------------------------------------
Peter L. Bernstein** Director President and Chief Executive Officer of 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 Standard
1150 17th Street, N.W. 7/95 - Present: Consultant, ABC News
5th Floor 11/93-5/95: Chairman, Project for the Republican Future
Washington, D.C. 20036 1/93-11/93: Director, The Bradley Project on the 90s
- ------------------------------------------------------------------------------------------------------------------------------------
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 Senior Vice President, Chief Investment Officer-Fixed Income
767 Fifth Avenue and Director-Bernstein
New York, NY 10153
- ------------------------------------------------------------------------------------------------------------------------------------
Jean Margo Reid Secretary 1999: Senior Vice President, General Counsel and Director -
767 Fifth Avenue Bernstein
New York, NY 10153 1997-1998: Vice President and General Counsel - Bernstein
Previously: Vice President and Associate General
Counsel - Bernstein
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* An "interested person" of the Fund, as defined in the 1940 Act.
** Not related to Zalman C. Bernstein, Chairman of the Executive Committee-Bernstein.
</FN>
</TABLE>
<PAGE>
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.
The Manager
Bernstein is a 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 advisor that manages some $72.2 billion, as of September 30, 1998,
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 $18.8 billion was
invested in fixed-income securities and $53.4 billion in equities as of
September 30, 1998. Pursuant to contracts with the Fund, Bernstein provides the
following types of services: Investment Management, Shareholder Servicing and
Administration and Distribution. Bernstein is wholly-owned by Sanford C.
Bernstein Inc., a closely held Delaware corporation.
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
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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. The fees are
computed daily and payable monthly.
The fee paid by the Bernstein Tax-Managed 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 0.90 of 1% of that
Portfolio's average daily net assets that exceed $2 billion. Effective on the
date of the Portfolio Division, the fee paid by the Bernstein Tax-Managed
International Value Portfolio will be at an annual rate of 1.00% of that
Portfolio's average daily net assets up to but not exceeding $1 billion and at
an annual rate of .90 of 1% of that Portfolio's average daily net assets that
exceed $1 billion. The fee paid by the Bernstein International Value Portfolio
is at an annual rate of 1.00% of that Portfolio's average daily net assets up to
but not exceeding $1 billion and at an annual rate of .90 of 1% of that
Portfolio's average daily net assets that exceed $1 billion. Because the
investment programs of international asset management are costly to implement
and maintain, the fees of the International Value Portfolios are higher than
that paid by most investment companies that invest in U.S. equity securities.
The fee is computed daily and payable monthly.
The fee paid by the Emerging Markets Value Portfolio is at an annual
rate of 1.25% of the Portfolio's average daily net assets. Portfolio transaction
fees on purchases and redemptions are not operating expenses; no portion of
these portfolio transaction fees will be assumed by Bernstein. Because the
investment programs of emerging markets 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.
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 fees paid by the International
Value Portfolios and the Emerging Markets Value Portfolio are at an annual rate
of 0.25% of each Portfolio's average daily net assets.
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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.
Year 2000 Risks
Like other mutual funds and financial and business operations around
the world, the Fund could be adversely affected if the computer software, and to
a lesser extent, hardware used by the Manager and other service providers are
not able to process and calculate date-related information and data before,
during, and after January 1, 2000. This is commonly known as the "Year 2000
Issue". The Manager is taking steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to the computer software and hardware
that it uses and to obtain satisfactory assurances that comparable steps are
being taken by the Fund's other major service providers. However, there can be
no assurance that these steps will be sufficient to avoid any adverse impact on
the Fund. In addition, companies or governmental entities in which the Fund
Portfolios invest could be affected by the Year 2000 Issue, but at this time the
Fund cannot predict the degree of impact. To the extent the impact on a
portfolio holding is negative, a Portfolio's returns could be adversely
affected.
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 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 Emerging Markets Value
Portfolio assesses a portfolio transaction fee of 2% of the amount invested. See
"Fee Table" on page _____ for additional information.
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
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<PAGE>
reject at its own option any and all securities offered in payment for the
shares of any Portfolio. The Fund on behalf of the Bernstein International Value
Portfolio may accept securities in payment for shares in connection with the
Portfolio Division in accordance with the terms of an order issued by the SEC
with respect to the Portfolio Division.
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 order will be priced at the
Fund's net asset value computed after acceptance by these entities. 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.
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
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<PAGE>
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. With respect to purchases or sales of
shares effected by Bernstein pursuant to the foregoing: (i) initial purchases of
shares of the Portfolios (other than the Bernstein Emerging Markets Value
Portfolio) will be subject to the initial minimum investment requirements, but
the subsequent minimum investment requirements may be waived; (ii) initial
purchases of shares of the Bernstein Emerging Markets Value Portfolio will be
subject to a minimum investment requirement of $10,000, but subsequent minimum
investment requirements may be waived; and (iii) any purchases and sales of
shares of the Bernstein Emerging Markets Value Portfolio will incur the
portfolio transaction fees on purchases and redemptions described in the Fee
Table on page ___. The Manager may, in its discretion, waive initial and
subsequent minimum investment requirements for any participant-directed defined
contribution plan. In January and June of each year, Bernstein will
automatically, without regard to the minimum investment requirement, invest the
cash balances held in any Bernstein account that 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 has not made a notice filing required by state law.
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. On any exchanges of other Fund
shares for shares of the Bernstein Emerging Markets Value Portfolio,
shareholders will be charged the portfolio transaction fee of 2% of the dollar
amount exchanged; on any exchanges of shares of the Bernstein Emerging Markets
Value Portfolio for other Fund shares, shareholders will be charged the 2%
redemption fee. See "Fee Table" on page _____ for additional information. 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
49
<PAGE>
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 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." There is a redemption fee of 2% of the
amount redeemed for the Emerging Markets Value Portfolio. See "Fee Table" on
page _____ for additional information.
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 order will be
priced at the Fund's net asset value computed after acceptance by these
entities. 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
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<PAGE>
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. No interest will accumulate on amounts
represented by uncashed distribution or redemption checks. The cost of wire
transfers will be borne by the shareholder.
Systematic Withdrawal Plan
A shareholder may set up a plan for redemptions to be made
automatically at regular monthly intervals with 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 he or she 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. The Fund may suspend redemptions or postpone the day of
payment in accordance with the 1940 Act, as amended from time to time, and the
rules and releases thereunder issued from time to time by the SEC. As permitted
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
that 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
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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 Bernstein
International Value Portfolios and the Bernstein Emerging Markets 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 prices, 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 is 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%. Each of the Bernstein International Value Portfolios and
the Bernstein Emerging Markets 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
52
<PAGE>
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 Day. 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. If quotations are not readily
available, or if the values have been materially affected by events occurring
after the closing of a foreign market, securities or other assets may be 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, as amended (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 dividends of the International Value Portfolios and the Bernstein
Emerging Markets Value Portfolio 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
Bernstein International Value Portfolios or the Bernstein Emerging Markets Value
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<PAGE>
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.
The Fixed-Income Portfolios intend to declare dividends daily and to
pay them monthly. Each of the Bernstein International Value Portfolios and the
Bernstein Emerging Markets 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, except 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 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 his or her shares in a portfolio is generally capital gain or loss
and is a long-term capital gain or loss if the shares were held for more than 12
months. Any loss realized on a redemption, repurchase or exchange is disallowed
to the extent that 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 shareholders 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 such shareholders. In
addition, such a loss is disallowed to the extent of any tax-exempt interest
dividends received by the shareholders.
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.
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<PAGE>
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 Fixed-Income Portfolios that
invest in foreign securities, the Bernstein International Value Portfolios and
the Bernstein Emerging Markets Value Portfolio may be subject to foreign tax and
withholding. In addition, some emerging-market countries may impose taxes on
capital gains earned by a Portfolio in that country. 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 a
Portfolio.
With respect to the Bernstein International Value Portfolios and the
Bernstein Emerging Markets Value Portfolio, if any such 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 stocks 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. Such 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 such 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 U.S. 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
Bernstein International Value Portfolios or the Bernstein Emerging Markets Value
Portfolio holds such investments. In addition, such Portfolios may be subject to
corporate income taxes and interest charges on certain dividends and capital
gains earned from these investments, regardless of whether such income and gains
are distributed to shareholders.
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<PAGE>
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 advisors 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 preemptive 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" on pages_____.
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.
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 and Mr.
Adelson, who were 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
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<PAGE>
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 that 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
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
57
<PAGE>
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; at 300 Crescent
Court, Suite 950, Dallas, Texas 75201; at 555 California Street, San Francisco,
California 94104; at 800 Connecticut Avenue, N. W., Suite 1001, Washington, D.C.
20006; or at 1 North Lexington Avenue, White Plains, NY 10601.
Independent Accountants and Legal Counsel
PricewaterhouseCoopers 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. PricewaterhouseCoopers LLP
also has been the independent accountants of the investment performance
statistics of certain of Bernstein's separately managed accounts since 1978.
Swidler Berlin Shereff Friedman LLP, 919 Third Avenue, New York, New
York 10022, has been selected as legal counsel to the Fund. Swidler Berlin
Shereff Friedman LLP and partners of that firm have been legal counsel to
Bernstein since 1967, when Bernstein was organized.
58
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<TABLE>
<CAPTION>
T A B L E O F C O N T E N T S
Page
<S> <C>
FEE TABLE ............................................................................................
FINANCIAL HIGHLIGHTS .................................................................................
THE FUND .............................................................................................
BERNSTEIN FIXED-INCOME PROCESS .......................................................................
BERNSTEIN FIXED-INCOME PORTFOLIOS ....................................................................
BERNSTEIN INTERNATIONAL VALUE AND EMERGING MARKETS 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 ..............................................
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 International Value Portfolio, the Tax-Managed International
Value Portfolio And the Emerging Markets 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 ..................................................................
Shareholder Inquiries .........................................................................
Independent Accountants and Legal Counsel .....................................................
</TABLE>
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
CROSS-REFERENCE SHEET
(as required by Rule 481(a))
N-1A Item No.
Location in Fixed-Income
Institutional Services
Part A-2 Prospectus
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
4
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
767 Fifth Avenue
New York, New York 10153
(212) 756-4097
|X| BERNSTEIN SHORT DURATION PLUS PORTFOLIO
|X| BERNSTEIN INTERMEDIATE DURATION PORTFOLIO
PROSPECTUS
February 1, 1999
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 12 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 two of the Fund's Portfolios--the Bernstein Short Duration
Plus Portfolio and the Bernstein Intermediate Duration Portfolio. Prospectuses
containing information on the 12 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 "Portfolio") aim to generate the highest
total return consistent with safety of principal and the financial objectives of
the Portfolios.
This Prospectus sets forth information you ought to know before
investing in any 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, 1999, 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.
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.
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.
(All of the above must be on Cover Page.)
<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 Portfolios of the Fund covered by this Prospectus are
no-load, have no redemption fees and have no charges for shareholders on monthly
payment plans. "Other Expenses" for each Portfolio are based on amounts for the
fiscal year ended September 30, 1998. 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 can
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 an account at Bernstein
which has assets of less than $400,000, Bernstein (and not the Fund) will charge
an annual maintenance fee of $100. This fee is deducted from cash held in the
account or, if insufficient cash is maintained in that account, by selling
securities. Bernstein does not charge this fee on accounts that are in a group
of related accounts as defined by Bernstein with combined assets of $400,000 or
more or accounts in discretionary relationships commenced after October 1, 1998.
Shares of the Fund purchased or redeemed through broker-dealers, banks and other
financial institutions may be subject to fees imposed by those institutions.
2
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FEE TABLE
- ------------------------------------------------------------------------------------------------
Bernstein Bernstein
Short Duration Intermediate
Plus Duration
Portfolio Portfolio
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
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 original None None
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 0.50% 0.47%
12b-1 Fees None None
Other Expenses
Shareholder Servicing and Administrative Fees 0.10% 0.10%
All Other Expenses 0.04% 0.03%
Total Portfolio Operating Expenses 0.64% 0.60%
- ------------------------------------------------------------------------------------------------
Example
A Portfolio would pay the following expenses on a
$1,000 investment, assuming 5% annual return:
1 Yr. $7 $6
3 Yrs. (cum.) $20 $19
5 Yrs. (cum.) $36 $33
10 Yrs. (cum.) $80 $75
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
<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
indicated. The financial statements, which contain this information for each
year in the five-year period ended September 30, 1998, have been audited by
PricewaterhouseCoopers LLP. The related financial statements and the report of
independent accountants are incorporated by reference in the Fund's SAI.
Additional performance information is contained in the Fund's annual report to
shareholders dated September 30, 1998, which is available upon request and
without charge. These financial highlights should be read in conjunction with
the financial statements incorporated by reference in the Fund's SAI.
<TABLE>
<CAPTION>
BERNSTEIN INTERMEDIATE DURATION PORTFOLIO
--------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.38 $13.08 $13.30 $12.54 $13.92
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.73 0.75 0.80 0.78 0.68
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.37 0.35 (0.14) 0.77 (1.15)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.10 1.10 0.66 1.55 (0.47)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.80) (0.80) (0.80) (0.76) (0.70)
Dividends from tax-exempt net investment income 0 0 0 0 0
Distributions from net realized gains (0.17) 0 (0.08) 0 (0.08)
Distributions in excess of net investment income
due to timing differences (0.02) 0 0 (0.03) 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 (0.13)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.99) (0.80) (0.88) (0.79) (0.91)
Portfolio transaction fee 0 0 0 0 0
Net asset value, end of period $13.49 $13.38 $13.08 $13.30 $12.54
Total return 8.59% 8.66% 5.05% 12.82% (3.54)%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $2,541,549 $2,058,220 $1,451,776 $1,142,768 $848,529
Average net assets (000 omitted) $2,303,250 $1,745,554 $1,310,208 $957,247 $764,519
Ratio of expenses to average net assets 0.60% 0.62% 0.63% 0.64% 0.65%
Ratio of net investment income to average net assets 5.41% 5.61% 5.99% 6.11% 5.14%
Portfolio turnover rate 233.08% 238.04% 141.04% 212.40% 203.73%
</TABLE>
<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 indicated. The financial statements, which contain this information
for each year in the five-year period ended September 30, 1998, have been
audited by PricewaterhouseCoopers LLP. The related financial statements and
the reports of independent accountants are incorporated by reference 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, 1998, which is available upon request and without charge.
These financial highlights should be read in conjunction with the financial
statements incorporated by reference in the Fund's SAI.
<TABLE>
<CAPTION>
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 (a)
- -----------------------------------------------------------------------------------------------------------------------------------
<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 investment income
due to timing differences 0 0 0 0 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)
Portfolio transaction fee 0 0 0 0 0
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%
<CAPTION>
BERNSTEIN SHORT DURATION PLUS PORTFOLIO
-----------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.53 $12.48 $12.49 $12.32 $12.89
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.65 0.67 0.69 0.70 0.55
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.09 0.08 (0.01) 0.18 (0.40)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.74 0.75 0.68 0.88 0.15
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.72) (0.70) (0.69) (0.69) (0.56)
Dividends from tax-exempt net investment income 0 0 0 0 0
Distributions from net realized gains 0 0 0 0 0
Distributions in excess of net investment income
due to timing differences (0.02) 0 0 (0.02) 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 (0.16)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.74) (0.70) (0.69) (0.71) (0.72)
Portfolio transaction fee 0 0 0 0 0
Net asset value, end of period $12.53 $12.53 $12.48 $12.49 $12.32
Total return 6.10% 6.21% 5.54% 7.36% 1.14%
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $595,087 $612,744 $538,248 $534,462 $550,415
Average net assets (000 omitted) $591,866 $583,003 $532,094 $536,042 $529,892
Ratio of expenses to average net assets 0.64% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment income to average net assets 5.24% 5.38% 5.47% 5.69% 4.30%
Portfolio turnover rate 71.40% 118.58% 169.96% 61.03% 285.80%
<CAPTION>
BERNSTEIN SHORT DURATION PLUS 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)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.14 $12.84 $12.50 $12.62 $12.50
INCOME FROM INVESTMENT OPERATIONS:
Investment income, net 0.59 0.75 0.94 0.97 0.78
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.10 0.44 0.41 (0.01) 0.12
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.69 1.19 1.35 0.96 0.90
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from taxable net investment income (0.59) (0.75) (0.94) (0.97) (0.78)
Dividends from tax-exempt net investment income 0 0 0 0 0
Distributions from net realized gains (0.35) (0.14) (0.07) (0.11) 0
Distributions in excess of net investment income
due to timing differences 0 0 0 0 0
Distributions in excess of net realized gains
due to timing differences 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.94) (0.89) (1.01) (1.08) (0.78)
Portfolio transaction fee 0 0 0 0 0
Net asset value, end of period $12.89 $13.14 $12.84 $12.50 $12.62
Total return 5.49% 9.60% 11.26% 7.88% 7.41%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $508,959 $535,980 $435,334 $391,131 $335,310
Average net assets (000 omitted) $535,889 $482,467 $405,457 $374,101 $263,899
Ratio of expenses to average net assets 0.66% 0.66% 0.67% 0.68% 0.75%*
Ratio of net investment income to average net assets 4.52% 5.75% 7.42% 7.67% 7.91%*
Portfolio turnover rate 112.87% 169.60% 140.03% 155.21% 132.82%
<FN>
* Annualized
(a) Commenced operations January 17, 1989
(b) Commenced operations December 12, 1988
</FN>
</TABLE>
<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 two of the
Fund's series of shares. Shares of each series represent an interest in a
separate portfolio of securities. At September 30, 1998, the portfolios of the
Fund (including the Bernstein Short Duration Plus Portfolio and the Bernstein
Intermediate Duration Portfolio) had net assets totaling $11.6 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; 227 West Monroe Street, Chicago, Illinois 60606;
300 Crescent Court, Suite 950, Dallas, Texas 75201; and 555 California Street,
Suite 4300, San Francisco, CA 94104; 800 Connecticut Avenue, N.W., Suite 1001,
Washington, D.C. 20006; and 1 North Lexington Avenue, White Plains, NY 10601,
serves as Investment Manager to each Portfolio. Each Portfolio has its own
investment objectives.
Investment Objectives and Policies
Of the Portfolios
General Investment Policies
Each Portfolio evaluates a wide variety of instruments and issuers,
utilizing a variety of internally developed, quantitatively based valuation
techniques. Each Portfolio may invest in any of the securities detailed on pages
____-____. In addition, each Portfolio 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 Portfolio 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 IBCA, 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 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
4
<PAGE>
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; or 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 Portfolio, at the time of
purchase, may invest as much as 20% of its total assets in securities of foreign
issuers, including Eurobonds, Yankees (other than Yankees included in the Lehman
Brothers Aggregate Bond Index which are considered to be issued by domestic
issuers for this purpose) and obligations of foreign banks, including foreign
governments.
Neither 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 Portfolios, each
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 generally 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.
The actual duration of each Portfolio 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 Portfolio may also vary, depending
upon the shape of the yield curve and opportunities in the bond market, at times
being concentrated in the middle
5
<PAGE>
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.
The Bernstein Intermediate Duration Portfolio invests in a diversified
portfolio of securities that it believes offer 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
6
<PAGE>
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.
Investments
The 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 and bank 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. Of
course, the extent to which each Portfolio emphasizes each category of
investment described depends upon the investment objectives and restrictions of
that Portfolio.
Obligations Of the U.S. Government and
Its Agencies and Instrumentalities
The types of U.S. government and agency securities in which the
Portfolios may invest include bills, notes and bonds, including
inflation-protected securities, 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.
7
<PAGE>
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 the 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, including inflation-protected securities. 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
8
<PAGE>
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 on residential or commercial property 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 a 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 a
FNMA security, it is not backed by the full faith and credit of the U.S.
government.
The Portfolios may also invest in both residential and commercial
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 subordinated interests or mortgage insurance. The
Manager of the Portfolios will take such insurance into account in determining
whether to invest in such pools.
The Portfolios may invest in Real Estate Mortgage Investment Conduits
("REMICs") and collateralized mortgage obligations ("CMOs"). REMICs include
governmental and/or private entities that issue a fixed pool of mortgages
secured by an interest in real property, and CMOs are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
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
9
<PAGE>
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 REMICs and
CMOs, the pool is divided into two or more tranches, and special rules for the
disbursement of principal and interest payments are established. The Portfolios
may invest in debt obligations that are REMICs or CMOs; provided that the entity
issuing the REMIC or 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 U.S. 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. Interest
received by the Portfolios is, however, reflected in dividends to shareholders.
A Portfolio's investments in mortgage derivative securities also
subjects the Portfolio to extension risk. Extension risk is the possibility that
rising interest rates may cause prepayments to occur at a slower-than-expected
rate. This particular risk may effectively change a security which was
considered short- or intermediate-term at the time of purchase into a long-term
security. Long-term securities generally fluctuate more widely in response to
changes in interest rates than short- or intermediate-term securities.
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<PAGE>
Asset-Backed Securities
Asset-backed securities are debt instruments that are backed by pools
of loans, leases, accounts receivable or other debt obligations of consumers or
commercial entities. Examples of collateral include consumer loans to purchase
automobiles, credit card balances due, and loans to purchase manufactured
housing. The cash flow that is generated by payments on these instruments is
used to pay interest and principal to the asset-backed noteholders, as well as
any fees for the servicing and administration of the assets, and in some
circumstances, may be used to purchase additional collateral. Asset-backed
securities may also be credit enhanced by one or more methods. These include
overcollateralization, subordination, reserve accounts, issuer guarantees and
insurance provided by third-party bond insurance companies. Issuer guarantees
and bond insurance may cover part or all of the principal and/or interest owed
to noteholders.
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. 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 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.
11
<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 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. Pursuant to procedures
established by the Fund Board, the Manager 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 and Bank Investment Contracts
The Portfolios may purchase guaranteed investment contracts ("GICs")
and bank investment contracts ("BICs"). A GIC is a contract issued by an
insurance company that guarantees payment of interest and repayment of
principal, and a BIC is a contract issued by a bank that guarantees payment of
interest and repayment of principal. GICs and BICs are considered illiquid
securities.
Variable and Floating Rate Securities and Inflation-Protected 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
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<PAGE>
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.
The terms of inflation-protected securities provide for the coupon
and/or maturity value to be adjusted based on changes in inflation. Decreases in
the inflation rate or in investors' expectations about inflation could cause
these securities to underperform non-inflation-adjusted securities on a
total-return basis. In addition, these securities may have limited liquidity in
the secondary market.
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 "Investment Objectives and Policies"
(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, bank investment contracts, repurchase
agreements for periods longer than seven days, time deposits maturing in more
than
13
<PAGE>
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 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 advisor to
offer more potential than domestic alternatives in keeping with the investment
objectives of the Portfolios. Foreign securities may be denominated in U.S.
dollars or foreign currency. 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 below.
Market risk: The securities markets in many emerging-market countries
are substantially smaller, less developed, less liquid and more volatile than
the securities markets of developed countries. In certain emerging-market
countries, volatility may be heightened by actions of a few major investors. For
example, substantial increases or decreases in cash flows of mutual funds
investing in these markets could significantly affect local stock prices and,
therefore, share prices of the Portfolios. Moreover, some emerging-market
securities and developed-market securities may be listed on foreign exchanges
that are open on days (such as U.S. holidays and Saturdays) when the Portfolios
do not calculate a net asset value. As a result, the Portfolios' net asset value
may be significantly affected by trading on days when shareholders cannot make
transactions. In addition, trading in emerging markets can be more difficult.
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 securities for a U.S. investor will
also
14
<PAGE>
rise; when a foreign currency declines in value in relation to the U.S. dollar,
the returns on foreign securities for a U.S. investor will also fall. Many
emerging-market countries have experienced substantial, and in some cases
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, negative
effects on the economies and securities markets of certain emerging-market
countries. In addition, it is possible that foreign governments will impose
currency exchange control regulations, such as the currency controls imposed by
Malaysia in 1998, or other restrictions that would prevent cash from being
brought back to the U.S. Emerging-market governments may also intervene in
currency markets or interpose registration/approval processes, which could
adversely affect a Portfolio.
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 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 in certain foreign markets, which
generally are higher than commissions on U.S. exchanges; and the expense of
maintaining securities with foreign custodians.
In addition to the foregoing, other risks and considerations of
investing in companies in emerging markets include:
Social, political and economic instability: Investments in
emerging-market countries involve exposure to a greater degree of risk due to
increased political and economic instability. Instability may result from, among
other factors: (i) authoritarian governments or military involvement in
political and economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; (v) ethnic, religious and
racial disaffection; and (vi) changes in trading status.
Certain emerging-market countries have histories of instability and
upheaval with respect to their internal politics that could cause their
governments to act in a detrimental or hostile manner toward private enterprise
or foreign investment. Such actions--for example, nationalizing a company or
industry, expropriating assets or imposing punitive taxes--could have a severe
effect on security prices and impair a Portfolio's ability to repatriate capital
or income. The
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<PAGE>
possibility exists that economic development in certain emerging-market
countries may be suddenly slowed or reversed by unanticipated political or
social events in those countries, and that economic, political and social
instability could disrupt the financial markets in which a Portfolio invests and
adversely affect the value of a Portfolio's assets.
Additional risks: Additional risks and considerations of investing in
emerging-market countries include overburdened infrastructure, obsolete
financial systems and security settlement and clearance procedures that may
result in delays and which may not fully protect a Portfolio against loss or
theft of its assets; national policies which may restrict a Portfolio's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; and less developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property.
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.
Special Investment Techniques
In seeking to achieve its investment objectives, each Portfolio 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. They may include
the use of exchange-traded derivatives such as futures and options--financial
products which are standardized by size, maturity, and delivery, and are sold on
organized exchanges. Furthermore, over-the-counter derivatives such as swaps or
other hybrid instruments, which are individually tailored to meet the needs of a
specific client, may also be used.
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<PAGE>
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.
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, 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-
17
<PAGE>
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 or
other 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 hybrid instruments (a type of potentially high-risk
derivative) that have the characteristics of futures, options, currencies and
securities. Such instruments may take a variety of forms, such as a security
with the principal amount, redemption or conversion terms related to the market
price of some commodity, currency or securities index; or 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. Hybrids can
have volatile prices and limited liquidity and their use by a Portfolio may not
be successful. 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.
Swap agreements are contracts between parties in which one party agrees
to make payments to the other party based on the change in the market value of a
specified index or asset. In return, the other party agrees to make payments to
the first party based on the return of a different specified index or asset.
Swap agreements entail the risk that a party will default on its payment
obligations thereunder. Swap agreements also bear the risk that the Portfolio
will not be able to meet its obligation to the counterparty.
A Portfolio may enter into interest-rate or foreign currency swaps and
purchase and sell interest-rate caps and floors. No Portfolio will use swaps to
leverage the Portfolio. 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
18
<PAGE>
over its entitlements with respect to each swap. 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 that 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.
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 liquid assets in a segregated
account with its Custodian having a value at least equal to the repurchase
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<PAGE>
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
a market value of no more than 30% 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
fees charged in connection with the loan and, when cash collateral is given to
secure the loan, income from investment of the cash collateral in overnight time
deposits and repurchase agreements. Any such loan of portfolio securities will
be marked to the market daily and secured by collateral consisting of cash or
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 liquid assets in segregated accounts
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
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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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<TABLE>
<CAPTION>
NAME AND POSITION(S) WITH THE PRINCIPAL OCCUPATION
ADDRESS FUND DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Roger Hertog* President, President, Chief Operating Officer and
767 Fifth Avenue Treasurer, Director-Bernstein
New York, NY 10153 Director
- ----------------------------------------------------------------------------------------------------------------------------
Andrew S. Adelson* Senior Vice President Senior Vice President, Chief Investment Officer- International
767 Fifth Avenue Director Equities and Director-Bernstein
New York, NY 10153
- ----------------------------------------------------------------------------------------------------------------------------
Arthur Aeder Director 1987-Present: Consultant;
516 Fifth Avenue, Room 701 Formerly Senior Partner of Oppenheim, Appel, Dixon & Co.
New York, NY 10036 (subsequently Spicer & Oppenheim) Certified Public
Accountants, and Chairman of Spicer & Oppenheim International
- ----------------------------------------------------------------------------------------------------------------------------
Peter L. Bernstein** Director President and Chief Executive Officer of Peter L. Bernstein,
575 Madison Avenue Inc.,
Suite 1006 Economic Consultants
New York, NY 10022
- ----------------------------------------------------------------------------------------------------------------------------
William Kristol Director 6/95-Present: Editor and Publisher, The Weekly Standard
1150 17th Street, N.W. 7/95 - Present: Consultant, ABC News
5th Floor 11/93-5/95: Chairman, Project for the Republican Future
Washington, D.C. 20036 1/93-11/93: Director, The Bradley Project on the 90s
- ----------------------------------------------------------------------------------------------------------------------------
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 Senior Vice President, Chief Investment Officer-Fixed Income
767 Fifth Avenue and Director-Bernstein
New York, NY 10153
- ----------------------------------------------------------------------------------------------------------------------------
Jean Margo Reid Secretary 1999: Senior Vice President, General Counsel and Director -
767 Fifth Avenue Bernstein
New York, NY 10153 1997-1998: Vice President and General Counsel - Bernstein
Previously: Vice President and Associate General
Counsel - Bernstein
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
* An "interested person" of the Fund, as defined in the 1940 Act.
** Not related to Zalman C. Bernstein, Chairman of the Executive Committee-
Bernstein.
</FN>
</TABLE>
<PAGE>
The Manager
Bernstein is a 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 advisor that manages some $72.2 billion, as of September 30, 1998,
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 $18.8 billion was
invested in fixed-income securities and $53.4 billion in equities as of
September 30, 1998. Pursuant to contracts with the Fund, Bernstein provides the
following types of services: Investment Management, Shareholder Servicing and
Administration and Distribution. Bernstein is wholly-owned by Sanford C.
Bernstein Inc., a closely held Delaware corporation.
Investment Management
22
<PAGE>
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 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 is computed daily and payable monthly.
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
Portfolio for these services is at an annual rate of 0.10% of that 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.
Year 2000 Risks
23
<PAGE>
Like other mutual funds and financial and business operations around
the world, the Fund could be adversely affected if the computer software, and to
a lesser extent, hardware used by the Manager and other service providers are
not able to process and calculate date-related information and data before,
during, and after January 1, 2000. This is commonly known as the "Year 2000
Issue". The Manager is taking steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to the computer software and hardware
that it uses and to obtain satisfactory assurances that comparable steps are
being taken by the Fund's other major service providers. However, there can be
no assurance that these steps will be sufficient to avoid any adverse impact on
the Fund. In addition, companies or governmental entities in which the Fund
Portfolios invest could be affected by the Year 2000 Issue, but at this time the
Fund cannot predict the degree of impact. To the extent the impact on a
portfolio holding is negative, a Portfolio's returns could be adversely
affected.
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.
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.
24
<PAGE>
o Exchanges are accepted by Bernstein only as permitted by your
plan. Your plan administrator can explain how frequently exchanges
are allowed.
If you 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 Portfolios invest are traded on a "net" rather than a
transaction-charge basis, 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 prices, 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 is 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.
Neither Portfolio anticipates a portfolio turnover rate in excess of
300%. 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
25
<PAGE>
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 Day. 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. If quotations are not readily available, or if the values have
been materially affected by events occurring after the closing of a foreign
market, securities or other assets may be 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 Portfolios intend to declare dividends daily and to pay them
monthly. 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.
26
<PAGE>
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 Portfolios 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 a Portfolio.
Description of Shares
The shares of each Portfolio have no preemptive 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.
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 and Mr.
Adelson, who were elected by the other Directors. In order to avoid unnecessary
expenses, the Fund does not intend to hold annual meetings of shareholders.
Performance
27
<PAGE>
Each Portfolio 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
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
28
<PAGE>
PricewaterhouseCoopers 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.
PricewaterhouseCoopers LLP also has been the independent accountants of the
investment performance statistics of Bernstein's separately managed accounts
since 1978.
Swidler Berlin Shereff Friedman LLP, 919 Third Avenue, New York, New
York 10022, has been selected as legal counsel to the Fund. Swidler Berlin
Shereff Friedman LLP and partners of that firm have been legal counsel to
Bernstein since 1967, when Bernstein was organized.
29
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
FEE TABLE ................................................................................................
FINANCIAL HIGHLIGHTS......................................................................................
THE FUND .................................................................................................
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS......................................................
o Bernstein Short Duration Plus Portfolio ......................................................
o Bernstein Intermediate Duration 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>
30
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
CROSS-REFERENCE SHEET
(as required by Rule 481(a))
N-1A Item No.
Location in International
Institutional Services
Part A-3 Prospectus
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
5
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
767 Fifth Avenue
New York, New York 10153
(212) 756-4097
|X| BERNSTEIN INTERNATIONAL VALUE PORTFOLIO
PROSPECTUS
February 1, 1999
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 12 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 one of the Fund's Portfolios--the Bernstein International
Value Portfolio. Prospectuses containing information on the 12 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.
This Prospectus sets forth information you ought to know before
investing in the 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, 1999, 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.
BERNSTEIN PORTFOLIO OBJECTIVES
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.
o Seeks long-term capital growth on a total-return basis (capital
appreciation or depreciation plus dividends and interest). 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.
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.
(All of the above must be on Cover Page.)
<PAGE>
- ----------------------------------------------------------------------------
FEE TABLE
- ----------------------------------------------------------------------------
Bernstein
International
Value
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 0.95%
12b-1 Fees None
Other Expenses
Shareholder Servicing and Administrative Fees 0.25%
All Other Expenses 0.09%
Total Portfolio Operating Expenses 1.29%
- ----------------------------------------------------------------------------
Example
A Portfolio would pay the following expenses on a
$1,000 investment, assuming 5% annual return:
1 Yr. $13
3 Yrs. (cum.) $41
5 Yrs. (cum.) $--
10 Yrs. (cum.) $--
- ----------------------------------------------------------------------------
<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 Portfolio of the Fund covered by this Prospectus is no-load,
has no redemption fees and has no charges for shareholders on monthly payment
plans. "Other Expenses" for this Portfolio are based on estimated amounts for
the current fiscal year as this will be the initial period of operation for the
Portfolio. 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 can be found under
"Management of the Portfolio" 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 an account at Bernstein which has assets of
less than $400,000, Bernstein (and not the Fund) will charge an annual
maintenance fee of $100. This fee is deducted from cash held in the account or,
if insufficient cash is maintained in that account, by selling securities.
Bernstein does not charge this fee on accounts that are in a group of related
accounts as defined by Bernstein with combined assets of $400,000 or more or
accounts in discretionary relationships commenced after October 1, 1998. Shares
of the Fund purchased or redeemed through broker-dealers, banks and other
financial institutions may be subject to fees imposed by those institutions.
2
<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 one of the
Fund's series of shares. Shares of each series represent an interest in a
separate portfolio of securities. At September 30, 1998, the Fund had net assets
totaling $11.6 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; 227 West Monroe Street,
Chicago, Illinois 60606; 300 Crescent Court, Suite 950, Dallas, Texas 75201; and
555 California Street, Suite 4300, San Francisco, CA 94104; 800 Connecticut
Avenue, N.W., Suite 1001, Washington, D.C. 20006; and 1 North Lexington Avenue,
White Plains, NY 10601, serves as Investment Manager to each Portfolio. Each
Portfolio has its own investment objectives.
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, the Netherlands, New
Zealand, Norway, Portugal, 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 investments in foreign
securities entail significant risks in
3
<PAGE>
addition to those customarily associated with investing in U.S. equities;
investing in less developed or emerging-market countries 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 investment
grade 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 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 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 1/3% 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.
4
<PAGE>
The SAI contains certain investment restrictions pertaining to the
International Value Portfolio.
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. Some securities may be listed on
foreign exchanges that are open on days (such as U.S. holidays and Saturdays)
when the Portfolio does not calculate a net asset value. As a result, the net
asset value of the Bernstein International Value Portfolio may be significantly
affected by trading on days when shareholders cannot make transactions.
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 in certain
foreign markets, which generally are higher than commissions on U.S. exchanges;
and the expense of maintaining securities with foreign custodians.
Further discussion of the risks relating to the Portfolio is contained
in the SAI.
5
<PAGE>
Investments
The Bernstein International Value Portfolio will invest primarily in
foreign equity securities, but may, under the circumstances described below,
invest in fixed-income securities. The equity securities in which the 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), Global
Depositary Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers without limitation. ADRs are receipts typically
issued by a U.S. bank or trust company that evidence ownership of the underlying
securities. GDRs are receipts typically issued by a non-U.S. bank or trust
company evidencing a similar arrangement. 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. 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.
The Portfolio 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.
Within the limits set forth in "Investment Objectives and Policies"
(pages ____-____), the Portfolio 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. 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),
6
<PAGE>
guaranteed investment contracts, bank 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.
The Portfolio 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.
The Portfolio 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.
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
7
<PAGE>
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.
Special Investment Techniques
In seeking to achieve its investment objectives, the Portfolio 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. They may include
the use of exchange-traded derivatives such as futures and options--financial
products which are standardized by size, maturity, and delivery, and are sold on
organized exchanges. Furthermore, over-the-counter derivatives such as swaps or
other hybrid instruments, which are individually tailored to meet the needs of a
specific client, may also be used.
Foreign Currency Transactions
The 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 Portfolio will generally not enter into a
forward contract with a term greater than one year.
The Portfolio will generally enter into forward contracts under two
circumstances. First, the 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, the
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 the Portfolio's securities denominated
in such foreign currency. Under certain circumstances, the 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 that a substantial
commitment of assets to forward contracts would have on the investment program
of the Portfolio and the flexibility of the Portfolio to purchase additional
securities. Although forward contracts will be used primarily to protect the
Portfolio from adverse currency movements, they involve the risk that
anticipated currency movements will not be accurately predicted and the
Portfolio's total return could be adversely affected as a result.
8
<PAGE>
Futures Contracts and Options
The Portfolio may enter into financial futures contracts, including
bond, bond index, Eurodeposit, stock index or currency futures contracts and
options thereon. In addition, the Portfolio may 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 the Portfolio writes put or call options will be Portfolio securities, and
the Portfolio will write only covered options.
The Portfolio 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 Portfolio
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. The Portfolio will not 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
the Portfolio's total returns, and attempts to use such investments for hedging
or other 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. The 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 the 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,
the Portfolio may invest in hybrid instruments (a type of potentially high-risk
derivative) that have the characteristics of futures, options, currencies and
securities. Such instruments may take a variety of forms, such as a security
with the principal amount, redemption or conversion terms related to the market
price of some commodity, currency or securities index; or 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
9
<PAGE>
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. Hybrids can have volatile prices and limited
liquidity and their use by the Portfolio may not be successful. The risk of
these investments can be substantial; possibly all of the principal is at risk.
The Portfolio will not invest more than 20% of its total assets in these
investments.
Swap agreements are contracts between parties in which one party agrees
to make payments to the other party based on the change in the market value of a
specified index or asset. In return, the other party agrees to make payments to
the first party based on the return of a different specified index or asset.
Swap agreements entail the risk that a party will default on its payment
obligations thereunder. Swap agreements also bear the risk that the Portfolio
will not be able to meet its obligation to the counterparty.
The Portfolio may enter into interest-rate or foreign currency swaps
and purchase and sell interest-rate caps and floors. The Portfolio will not use
swaps to leverage the Portfolio. The 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 swap. The Portfolio
expects 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 that the Portfolio anticipates
purchasing at a later date.
Interest-rate swaps involve the exchange by the 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 Portfolio will enter
interest-rate swaps only on a net basis (i.e., the two payment streams are
netted out) with the Portfolio receiving or paying, as the case may be, only the
net amount of the two payments.
Repurchase Agreements
In a repurchase transaction, the 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-
10
<PAGE>
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
Portfolio's use of repurchase agreements.
Reverse Repurchase Agreements
The Portfolio 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. The 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, the
Portfolio maintains liquid assets in a segregated account with its Custodian
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 Portfolio's borrowing policy and is subject to the limit of Section 18(f)(1)
of the 1940 Act. Reverse repurchase agreements may create leverage, increasing
the 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
The Portfolio may, from time to time, lend portfolio securities 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, the Portfolio attempts to increase its income through the receipt of
fees charged in connection with the loan and, when cash collateral is given to
secure the loan, income from investment of the cash collateral in overnight time
deposits and repurchase agreements. Any such loan of portfolio securities will
be marked to the market daily and secured by collateral consisting of cash or
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
11
<PAGE>
potential borrower of securities. The 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 Portfolio may purchase securities on a "when-issued" or
"delayed-delivery" basis. In a when-issued or delayed-delivery transaction, the
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 liquid assets in segregated accounts
having a value equal to or greater than the Portfolio's purchase commitments;
likewise, the Custodian is to segregate securities sold by the Portfolio on a
delayed-delivery basis.
Further information about the Portfolio's use of Special Investment
Techniques and their associated risks is contained in the SAI.
Future Developments
The Portfolio expects 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 the 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.
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<PAGE>
Management Of the Portfolio
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 Portfolio.
The following table lists the directors and executive officers of the
Fund, their business addresses and their principal occupations during the past
five years.
The Manager
Bernstein is a 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 advisor that manages some $72.2 billion, as of September 30, 1998,
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 $18.8 billion was
invested in fixed-income securities and $53.4 billion in equities as of
September 30, 1998. Pursuant to contracts with the Fund, Bernstein provides the
following types of services: Investment Management, Shareholder Servicing and
Administration and Distribution. Bernstein is wholly-owned by Sanford C.
Bernstein Inc., a closely held Delaware corporation.
Investment Management
Bernstein has entered into an Investment Management Agreement (the
"Management Agreement") with the Fund, on behalf of the Portfolio, under which
the Manager, subject to the supervision of the Board of Directors and in
conformity with the stated policies of the Portfolio, manages the Portfolio's
assets. Investment Policy Groups created by the Manager and comprised of the
Manager's employees make all investment decisions for the Portfolio, and no one
person is primarily responsible for making recommendations to these groups.
The fee paid by the Portfolio is at an annual rate of 1.00% of the
Portfolio's average daily net assets up to but not exceeding $1 billion and at
an annual rate of .90 of 1% of the Portfolio's average daily net assets that
exceed $1 billion. Because the investment programs of international asset
management are costly to implement and maintain, this fee is higher than that
13
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NAME AND POSITION(S) WITH THE PRINCIPAL OCCUPATION
ADDRESS FUND DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Roger Hertog* President, President, Chief Operating Officer and
767 Fifth Avenue Treasurer, Director-Bernstein
New York, NY 10153 Director
- ----------------------------------------------------------------------------------------------------------------------------
Andrew S. Adelson* Senior Vice President Senior Vice President, Chief Investment Officer-International
767 Fifth Avenue Director Equities and Director-Bernstein
New York, NY 10153
- ----------------------------------------------------------------------------------------------------------------------------
Arthur Aeder Director 1987-Present: Consultant;
516 Fifth Avenue, Room 701 Formerly Senior Partner of Oppenheim, Appel, Dixon & Co.
New York, NY 10036 (subsequently Spicer & Oppenheim) Certified Public
Accountants, and Chairman of Spicer & Oppenheim International
- ----------------------------------------------------------------------------------------------------------------------------
Peter L. Bernstein** Director President and Chief Executive Officer of Peter L. Bernstein,
575 Madison Avenue Inc., Economic Consultants
Suite 1006
New York, NY 10022
- ----------------------------------------------------------------------------------------------------------------------------
William Kristol Director 6/95-Present: Editor and Publisher, The Weekly Standard
1150 17th Street, N.W. 7/95 - Present: Consultant, ABC News
5th Floor 11/93-5/95: Chairman, Project for the Republican Future
Washington, D.C. 20036 1/93-11/93: Director, The Bradley Project on the 90s
- ----------------------------------------------------------------------------------------------------------------------------
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 Senior Vice President, Chief Investment Officer-Fixed Income
767 Fifth Avenue and Director-Bernstein
New York, NY 10153
- ----------------------------------------------------------------------------------------------------------------------------
Jean Margo Reid Secretary 1999: Senior Vice President, General Counsel and Director -
767 Fifth Avenue Bernstein
New York, NY 10153 1997-1998: Vice President and General Counsel - Bernstein
Previously: Vice President and Associate General
Counsel - Bernstein
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
* An "interested person" of the Fund, as defined in the 1940 Act.
** Not related to Zalman C. Bernstein, Chairman of the Executive
Committee-Bernstein.
</FN>
</TABLE>
<PAGE>
paid by most investment companies that invest in U.S. equity securities. The fee
is computed daily and payable monthly.
Shareholder Servicing and Administration
Bernstein has also entered into a Shareholder Servicing and
Administrative Agreement with the Fund on behalf of the Portfolio. Pursuant to
this Agreement, Bernstein pays all expenses incurred by it in connection with
administering the ordinary course of the Fund's and the 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 the
International Value Portfolio is at an annual rate of 0.25% of the Portfolio's
average daily net assets.
The Portfolio is responsible for the payment of all of its expenses
other than those expressly stated to be payable by Bernstein under the
Management Agreement and the Shareholder Servicing and Administrative Agreement.
Distribution
Bernstein acts as Distributor of the Portfolio's shares pursuant to a
Distribution Agreement with the Fund.
Year 2000 Risks
Like other mutual funds and financial and business operations around
the world, the Fund could be adversely affected if the computer software, and to
a lesser extent, hardware used by the Manager and other service providers are
not able to process and calculate date-related information and data before,
during, and after January 1, 2000. This is commonly known as the "Year 2000
Issue". The Manager is taking steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to the computer software and hardware
that it uses and to obtain satisfactory assurances that comparable steps are
being taken by the Fund's other major service providers. However, there can be
no assurance that these steps will be sufficient to avoid any adverse impact on
the Fund. In addition, companies or governmental entities in which the Portfolio
invests could be affected by the Year 2000 Issue, but at this time the Fund
cannot predict the
14
<PAGE>
degree of impact. To the extent the impact on a portfolio holding is negative,
the Portfolio's returns could be adversely affected.
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.
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 you 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
the Portfolio and for broker-dealer selection. 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
15
<PAGE>
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, the 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 the 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 the Portfolio, it is
possible that, at times, identical securities are acceptable for the Portfolio
and one or more of such accounts. If the purchase or sale of securities is
consistent with the investment policies of the Portfolio 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 Portfolio in a
manner deemed equitable by the Manager. Where securities are allocated among the
Portfolio and private accounts, the Manager may use the average price at which
the securities were purchased or sold.
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 the 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 the 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 Day. The net asset value per share of the 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. If quotations are not readily available, or if the values have
been materially affected by events occurring after the closing of a foreign
market, securities or other assets may be valued by appraisal at their fair
value as determined in good faith under procedures established
16
<PAGE>
by and under the general supervision of the Board of Directors. The Fund may use
an independent pricing service to value the Portfolio's 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 on
either 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 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. The Portfolio's distributions and
dividends are paid in additional shares of the Portfolio based on the
Portfolio's net asset value at the close of business on the record date.
The 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 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 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.
17
<PAGE>
Description of Shares
The shares of the Portfolio have no preemptive 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.
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 the 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 the 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 and Mr.
Adelson, who were elected by the other Directors. In order to avoid unnecessary
expenses, the Fund does not intend to hold annual meetings of shareholders.
Performance
The Portfolio may, from time to time, advertise yield, average annual
total return and unannualized average total return. Yield is a measure of the
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 the 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, the 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 the Portfolio is
computed by finding the average annual compounded rate of return since the
18
<PAGE>
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 the 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 the Portfolio 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
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
PricewaterhouseCoopers 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. PricewaterhouseCoopers LLP
also has been the independent accountants of the investment performance
statistics of Bernstein's separately managed accounts since 1978.
Swidler Berlin Shereff Friedman LLP, 919 Third Avenue, New York, New
York 10022, has been selected as legal counsel to the Fund. Swidler Berlin
Shereff Friedman LLP and partners of that firm have been legal counsel to
Bernstein since 1967, when Bernstein was organized.
19
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
FEE TABLE ................................................................................................
FINANCIAL HIGHLIGHTS......................................................................................
THE FUND .................................................................................................
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO.......................................................
Investment Objectives and Policies of the
Bernstein International Value Portfolio .........................................................
INVESTMENTS
Special Investment Techniques ...................................................................
MANAGEMENT OF THE PORTFOLIO ..............................................................................
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>
20
<PAGE>
Location in Statement of
of Additional Information
Part B
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
6
<PAGE>
Location in Statement of
Additional Information
Part B
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
7
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
767 Fifth Avenue
New York, New York 10153
(212) 756-4097
Statement of Additional Information
February 1, 1999
Sanford C. Bernstein Fund, Inc. (the "Fund") is an open-end management
investment company. This Statement of Additional Information relates to 12 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,
1999, which may be obtained by writing to or telephoning the Fund at the above
address or telephone number.
<TABLE>
<CAPTION>
Cross Reference to Cross Reference to Cross Reference to
Page in Page in International Page in Fixed-Income
Regular Institutional Institutional
Page Prospectus Services Prospectus Services Prospectus
---- ---------- ------------------- -------------------
<S> <C> <C> <C> <C>
Investment Objectives and Policies B-2
Investment Restrictions B-27
Directors and Officers and B-35
Principal Holders of Securities
Manager and Distributor B-37
Net Asset Value B-40
Portfolio Transactions and Brokerage B-41
Purchase and Redemption of Shares B-44
Taxes B-44
Custodian, Transfer Agent, Independent B-49
Accountants and Financial Statements
Performance B-50
Appendix B-58
</TABLE>
<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
the Fund's international equity Portfolios -- the Bernstein International Value
Portfolio, the Bernstein Tax-Managed International Value Portfolio (collectively
referred to as the "Bernstein International Value Portfolios") and the Bernstein
Emerging Markets 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 the Manager 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 loans or leases for various assets including automobiles, recreational
vehicles, computers and receivables on pools of consumer debt, most commonly
credit cards. Two examples 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 revolving 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. Credit enhancement of
asset-backed securities may take a variety of forms, including but not limited
to overcollateralizing the securities, subordinating other tranches of an
asset-backed issue to the securities, or by maintaining a reserve account for
payment of the securities. In addition, part or all of the principal and/or
interest payments on the securities may be guaranteed by the originator or a
third party insurer. The Manager takes all relevant credit enhancements into
account in making investment decisions on behalf of the Portfolios.
Convertible Securities
The Portfolios may purchase convertible corporate bonds and preferred
stock. These securities may be converted at a stated price (the "conversion
price") into underlying shares of preferred or common stock. Convertible debt
securities are typically subordinated to non-convertible securities of the same
issuer and are usually callable. Convertible bonds and preferred stocks have
many characteristics of non-convertible fixed-income securities. For example,
the price of convertible securities tends to decline as interest rates increase
and increase as interest rates decline. In addition, holders of convertibles
usually have a claim on the assets of the issuer prior to the holders of common
stock in case of liquidation.
The unusual feature of a convertible security is that changes in its
price can be closely related to changes in the market price of the underlying
stock. As the market price of the underlying stock falls below the conversion
price, the convertible security tends to trade increasingly like a
non-convertible
<PAGE>
B-4
bond. As the market price of the underlying common stock rises above the
conversion price, the price of the convertible security 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 position, the Portfolio may forfeit
the entire amount of the premium plus related transaction costs.
<PAGE>
B-6
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
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 above with respect to covered options. 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.
(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
<PAGE>
B-7
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 futures commission merchant ("FCM") as "initial
margin" a specified amount of cash and/or short-term U.S. 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 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.
<PAGE>
B-8
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 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; in the
future all such payments may be made directly to the FCM in accordance with
recent 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 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.
<PAGE>
B-9
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 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.
<PAGE>
B-10
(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 purchases or sells 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 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.
<PAGE>
B-11
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 currency approximating the value of some
or all of its portfolio securities denominated in the latter foreign currency or
the U.S. dollar. 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 Bernstein International Value Portfolios and the Bernstein Emerging Markets
Value Portfolio may commit substantial portions 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 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. Alternatively, a
Portfolio may enter into a forward contract which provides for settlement by one
party making a single one-way payment to the other party in the amount of the
difference between the contracted forward rate and the current spot reference
rate. The currency used for settlement may be one of the transaction currencies
or a base currency, such as U.S. dollars.
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.
There is no assurance that a forward contract counterparty will be able
to meet its obligations under the forward contract or that, in the event of
default by the counterparty a Portfolio will succeed in pursuing contractual
remedies. The Portfolios assume the risk that they may be delayed in or
prevented from obtaining payments owed to them pursuant to the contractual
agreements entered into in connection with a forward contract.
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
<PAGE>
B-13
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 Bernstein International Value
Portfolios and the Bernstein Emerging Markets Value Portfolio may invest include
common and preferred stocks, warrants and convertible securities. Each such
Portfolio may also invest in foreign securities directly or in the form of
American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) or other
similar securities convertible into securities of foreign issuers without
limitation. In some circumstances, the Bernstein International Value Portfolios
and the Bernstein Emerging Markets 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 Portfolios 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, for each Portfolio other than
the Bernstein Emerging Markets Value Portfolio, 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
<PAGE>
B-14
Directory, the Fund makes a reasonable determination as to the industry
classification, which determination may be made by using (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) the industry classification the Fund reasonably believes the
company would have if it were listed in the Directory. In the case of the
Bernstein Emerging Markets Value Portfolio, the Portfolio relies primarily on
the Morgan Stanley Capital International ("MSCI") industry classification.
Portfolio Turnover
Portfolio Turnover. During the one-year period ended September 30, 1998
the portfolio turnover rate for the Bernstein Government Short Duration
Portfolio decreased from 80% for the year ended September 30, 1997 to 57% for
the year ended September 30, 1998 and the portfolio turnover rate for the
Bernstein Short Duration Plus Portfolio decreased from 118% to 70% for the same
period. The portfolio turnover ratio for these Fixed-Income Portfolios decreased
during fiscal year 1998 because the Manager had purchased a large position in
U.S. Treasury inflation-protected securities in fiscal year 1997, and this
position remained largely the same in fiscal year 1998. Furthermore, the
Manager's strategy was quite stable throughout the year. For the majority of
1998, these Portfolios were concentrated in one- to two-year securities, just as
they had been at the close of 1997. This was primarily due to this area of the
yield curve remaining attractive throughout the year.
The portfolio turnover rate for the Bernstein California Municipal
Portfolio decreased from 41% for the fiscal year ended September 30, 1997 to 25%
for the fiscal year ended September 30, 1998 primarily due to: 1) consistent
portfolio strategies throughout the year and 2) limited opportunities in the
California municipal market. Furthermore, mounting unrealized capital gains on
securities held by the Portfolio reduced the attractiveness of selling Portfolio
securities.
<PAGE>
B-15
The portfolio turnover rate for the Bernstein Short Duration New York
Municipal Portfolio decreased from 98% for the fiscal year ended September 30,
1997 to 53% for the fiscal year ended September 30, 1998. Over the same periods,
the turnover rate of the Bernstein Short Duration Diversified Municipal
Portfolio increased from 68% to 100%. One of our management strategies for both
of these Portfolios is to take advantage of the typically wide yield difference
between money-market-eligible instruments and bonds maturing in one and one-half
to two years. Consistent with this strategy, our trading over the last two years
has consisted primarily of selling bonds as they become money market instruments
and reinvesting the proceeds in bonds maturing in one and one-half to two years.
Timing is what accounts for the variance in the turnover rates of these
Portfolios - we want to implement this strategy when both the yield difference
between money-market and short-term bonds is large and there is ample supply of
short-term bonds. Accordingly, the decrease in the portfolio turnover ratio of
the Bernstein Short Duration New York Municipal Portfolio was due the decreased
sales of short-term bonds as they became money market instruments and the
increase in the portfolio turnover ratio of the Bernstein Short Duration
Diversified Municipal Portfolio was due to increased sales of short-term bonds
as they became money market instruments.
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
<PAGE>
B-16
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 26, 1998 and the Update to the Annual
Information Statement of the State of New York dated August 3, 1998. The Annual
Information Statement is furnished by the State of New York and includes
official information regarding the State for investors, bondholders and other
market participants.
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse, with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State's location and its excellent air
transport facilities and natural harbors have made it an important link in
international commerce. Travel and tourism constitute an important part of the
economy. Like the rest of the nation, New York has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries.
In the calendar years 1987 through 1997, the State's rate of economic
growth was somewhat slower than that of the nation. In particular, during the
1990-91 recession and post-recession period, 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 1987. The unemployment rate
in the State dipped below the national rate in the second half of 1981 and
remained lower until 1991. According to data published by the US Bureau of
Economic Analysis, total personal income in the State has risen more slowly than
the national average since 1988. Although the State has added approximately
400,000 jobs since late 1992, employment growth in the State has been hindered
during recent years by significant cutbacks in the computer and instrument
manufacturing, utility, defense, and banking industries. Government downsizing
has also moderated these job gains.
Despite recent budgetary surpluses recorded by the State, actions
affecting the level of receipts and disbursements, the relative strength of the
State and regional economy, and actions by the federal government have helped to
create projected 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. To address a potential
imbalance in any given fiscal year, the State would be required to take actions
to increase receipts and/or reduce disbursements as it enacts the budget for
that year, and under the State Constitution, the Governor is required to propose
a balanced budget each year. There can be no assurance, however, that the
Legislature will enact the Governor's proposals or that the State's actions will
be sufficient to preserve budgetary balance in a given fiscal year or to align
recurring receipts and disbursements in future fiscal years.
The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State
<PAGE>
B-17
economies. Many uncertainties exist in forecasts of both the national and State
economies, including consumer attitudes toward spending, the extent of corporate
and governmental restructuring, federal fiscal and monetary policies, the level
of interest rates, and the condition of the world economy, which could have an
adverse effect on the State. There can be no assurance that the State economy
will not experience results in the current fiscal year that are worse than
predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
The Legislature adopted the debt service component of the State budget
for the 1998-99 fiscal year on March 30, 1998 and the remainder of the budget on
April 18, 1998. General Fund disbursements in 1998-99 are now projected to grow
by $2.43 billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions(net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
<PAGE>
B-18
State law requires the Governor to propose a balanced budget each year.
In recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
The forecast for continued growth, and any resultant impact on the
State's 1998-99 Financial Plan, contains some uncertainties. Net exports could
plunge even more sharply than expected, with adverse impacts on the growth of
both consumer spending and investment. The inflation rate may differ
significantly from expectations due to the upward pressure of a tight labor
market and the downward pressure of price reductions emanating from the economic
weakness in Asia. In addition, the State economic forecast could over- or
underestimate the level of future bonus payments or inflation growth, resulting
in forecasted average wage growth that could differ significantly from actual
growth. Similarly, the State forecast could fail to correctly account for
declines in banking employment and the direction of employment change that is
likely to accompany telecommunications and energy deregulation.
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 restrictions set forth in
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 December 31, 1997, there were 17 public
authorities that had outstanding debt of $100 million or more, and the aggregate
outstanding debt, including refunding bonds, of all State public authorities was
$84 billion.
The State has numerous public authorities with various
responsibilities, including those which finance, construct and/or operate
revenue producing public facilities. Public authorities generally pay their
operating expenses and debt service costs from revenues generated by the
projects they finance or operate, such as tolls charged for the use of highways,
bridges or tunnels, charges for public power, electric and gas utility services,
rentals charged for housing units, and charges for occupancy at medical care
facilities.
<PAGE>
B-19
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, the
affected localities may seek additional State assistance if local assistance
payments are diverted.
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 provide transit and
commuter services. State legislation accompanying the 1996-97 adopted State
budget authorized the MTA, Triborough Bridge and Tunnel Authority (the "TBTA"),
the New York City Transit Authority and the Manhattan and Bronx Surface Transit
Operating Authority (collectively, the "TA") to issue an aggregate of $6.5
billion in bonds to finance a portion of the $12.17 billion MTA capital plan for
the 1995 through 1999 calendar years (the "1995-99 Capital Program"). In July
1997, the Capital Program Review Board ("CPRB") approved the 1995-99 Capital
Program, which supersedes the overlapping portion of the MTA's 1992-96 Capital
Program. The 1995-99 Capital Program is the fourth capital plan since the
Legislature authorized procedures for the adoption, approval and amendment of
MTA capital programs and is designed to upgrade the performance of the MTA's
transportation systems by investing in new rolling stock, maintaining
replacement schedules for existing assets and bringing the MTA system into a
state of good repair. The 1995-99 Capital Program assumes the issuance of an
estimated $5.2 billion in bonds under this $6.5 billion aggregate bonding
authority. The remainder of the plan is projected to be financed through
assistance from the State, the federal government, and the City of New York, and
from various other revenues generated from actions taken by the MTA.
There can be no assurance that all the necessary governmental actions
for the 1995-99 Capital Program or future capital programs will be taken, that
funding sources currently identified will not be decreased or eliminated, or
that the 1995-99 Capital Program, or parts thereof, will not be delayed or
reduced. Should funding levels fall below current projections, the MTA would
have to revise its 1995-99 Capital Program accordingly. If the 1995-99 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 assistance.
The fiscal health of the State may also be affected by the fiscal
health of New York City (the "City"), which continues to require significant
financial assistance from the State. State aid contributes to the City's ability
to balance its budget and to meet its cash requirements. The State may also be
affected by the ability of the City and certain entities issuing debt for the
benefit of the City to market their securities successfully in the public credit
markets. The City's projections set forth in the 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.
Implementation of the Financial Plan is also
<PAGE>
B-20
dependent upon the ability of the City and certain entities issuing debt for the
benefit of the City to market their securities successfully. The City issues
securities to finance, refinance and rehabilitate infrastructure and other
capital needs, as well as for seasonal financing needs. The State created the
New York City Transitional Finance Authority to finance a portion of the City's
capital program. Despite this additional financing mechanism, the City currently
projects that, if no further action is taken, it will reach its debt limit in
City fiscal year 1999-2000. On June 2, 1997, an action was commenced seeking a
declaratory judgment declaring the legislation establishing the Transitional
Finance Authority to be unconstitutional. If such legislation were voided,
projected contracts for City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, 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 entities 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 those actions, the
State established the Municipal Assistance Corporation for the City of New York
(NYC 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; and the Office of the State Deputy Comptroller for the City of New York
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. A "control period" existed from 1975 to 1986 during which the
City was subject to certain statutorily-prescribed fiscal controls. The Control
Board terminated the control period in 1986 when certain statutory conditions
were met. State law requires the Control Board to reimpose a control period 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 or impaired access to the public credit markets.
Currently, the City and its Covered Organizations (i.e., those which receive or
may receive moneys from the City directly, indirectly or contingently) operate
under a four-year financial plan (the "Financial Plan"). The City's Financial
Plan summarizes its capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps.
The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's Financial Plans. The reports analyze the City's
forecasts of revenues and expenditures, cash flow, and debt service requirements
as well as evaluate compliance by the City and its Covered Organizations with
the Financial Plan. According to recent staff reports, while economic growth in
New York City has been slower than in other regions of the country, a surge in
Wall Street profitability resulted in increased tax revenues and generated a
substantial surplus for the City in fiscal year 1996-97. Although several
sectors of the City's economy have expanded recently, especially tourism and
business and professional services, City tax revenues remain heavily dependent
on the continued profitability of the securities industries and the course of
the national economy. Staff reports have indicated that recent City budgets have
been balanced in part through the use of non-recurring resources and that the
City's Financial Plan tends to rely on actions outside its direct control. These
reports have also indicated that the City has not yet brought its long-
<PAGE>
B-21
term expenditure growth in line with recurring revenue growth and that the City
is therefore likely to continue to face substantial gaps between forecast
revenues and expenditures in future years that must be closed with reduced
expenditures and/or increased revenues.
Certain localities outside New York City have experienced financial
problems and have requested and received additional State assistance during the
last several State fiscal years. The cities of Yonkers and Troy continue to
operate under State-ordered control agencies. The potential impact on the State
of any future requests by localities for additional oversight or financial
assistance is not included in the projections of the State's receipts and
disbursements for the State's 1998-99 fiscal year.
Like the State, local governments must respond to changing political,
economic and financial influences over which they have little or no control.
Such changes may adversely affect the financial condition of certain local
governments. For example, the federal government may reduce (or in some cases
eliminate) federal funding of some local programs which, in turn, may require
local governments to fund these expenditures from their own resources. It is
also possible that the State, New York City, or any of their respective public
authorities may suffer serious financial difficulties that could jeopardize
local access to the public credit markets, which may adversely affect the
marketabilty of notes and bonds issued by localities within the State.
Localities may also face unanticipated problems resulting from certain pending
litigation, judicial decisions and long-range economics trends. Other
large-scale potential problems, such as declining urban populations, increasing
expenditures, and the loss of skilled manufacturing of jobs, may also adversely
affect localities and necessitate State assistance.
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
7, 1998, which was issued in connection with the sale of $579,120,000 of
California General Obligation Bonds and $270,880,000 General Obligation
Refunding Bonds.
<PAGE>
B-22
California's economy is the largest among the 50 states and one of the
largest in the world. The State's July 1, 1997 population of 32.9 million
represented over 12 percent of the total United States population.
STATE FINANCES
The Budget Process. The annual budget is proposed by the Governor by
January 10 of each year for the next fiscal year (the "Governor's Budget").
Under State law, the annual proposed Governor's Budget cannot provide for
projected expenditures in excess of projected revenues and balances available
from prior fiscal years. Following the submission of the Governor's Budget, the
Legislature takes up the proposal. Under the State Constitution, money may be
drawn from the Treasury only through an appropriation made by law. The primary
source of the annual expenditure authorizations is the Budget Act as approved by
the Legislature and signed by the Governor.
The General Fund. The General Fund is the principal operating fund for
the majority of governmental activities and is the depository of most of the
major revenue sources of the State. The General Fund may be expended as a
consequence of appropriation measures enacted by the Legislature and approved by
the Governor, as well as appropriations pursuant to various constitutional
authorizations and initiative statues.
The Special Fund for Economic Uncertainties ("SFEU"). The SFEU is
funded with General Fund revenues and was established to protect the State from
unforeseen revenue reductions and/or unanticipated expenditure increases.
Amounts in the SFEU may be transferred by the State Controller as necessary to
meet cash needs of the General Fund. The State Controller is required to return
moneys so transferred without payment of interest as soon as there are
sufficient moneys in the General Fund.
Inter-Fund Borrowings. Inter-fund borrowing has been used for many
years to meet temporary imbalances of receipts and disbursements in the General
Fund. As of June 30, 1998, the General Fund had no loans from the SFEU, General
Fund Special Accounts or any other Special Funds.
Local Governments. The primary units of local government in California
are the counties, which are responsible for the provision of many basic
services, including indigent health care, welfare, jails and public safety in
unincorporated areas. The fiscal condition of local governments has been
constrained since the enactment of "Proposition 13" in 1978, which reduced and
limited the future growth of property taxes, and limited the ability of local
governments to impose "special taxes" (those devoted to a specific purpose)
without two-thirds voter approval. Counties, in particular, have had fewer
options to raise revenues than many other local government entities, and have
been required to maintain many services.
In the aftermath of Proposition 13, the State provided aid from the
General Fund to make up some of the loss of property tax moneys, including
taking over the principal responsibility for funding local K-12 schools and
community colleges. During the recession, the
<PAGE>
B-23
Legislature eliminated most of the remaining components of post-Proposition 13
aid to local government entities other than K-14 education districts, although
it has also provided additional funding sources (such as sales taxes) and
reduced mandates for local services. Since then the State has also provided
additional funding to counties and cities through such programs as health and
welfare realignment, welfare reform, trial court restructuring, the COPs program
supporting local public safety departments, and various other measures.
In 1996, voters approved Proposition 218, entitled the "Right to Vote
on Taxes Act", which limits the ability of local government agencies to impose
or raise various taxes, fees, charges and assessments without voter approval.
Certain "general taxes" imposed after January 1, 1995 must be approved by voters
in order to remain in effect and local voters have the right to reduce taxes,
fees, assessments or charges through local initiatives. There are a number of
ambiguities concerning the Proposition and its impact on local governments and
their bonded debt which will require interpretation by the courts or the
Legislature.
On December 23, 1997, a consortium of California counties filed a test
claim with the Commission on State Mandates (the "Commission") asking the
Commission to determine whether the property tax shift from counties to the
Educational Revenue Augmentation Fund, which is a funding source for schools, is
a reimbursable state mandated cost. On August 11, 1998, the State Department of
Justice, on behalf of the State Department of Finance, filed a rebuttal in
opposition to the counties' claim. The issue is currently scheduled to be heard
by the Commission on October 22, 1998. The fiscal impact to the State General
fund if the Commission determines that the property tax shifts created a
reimbursable state mandate could total approximately $8 billion for the 1996-97
($2.5 billion), 1997-98 ($2.6 billion) and 1998-99 ($2.7 billion) property tax
shifts. Ongoing costs to the State General Fund would be approximately $2.7
billion annually. Any Commission decision adverse to the State can be appealed
to the courts.
State Appropriations Limit. The State is subject to an annual
appropriations limit imposed by Article XIII B of State Constitution (the
"Appropriations Limit"). Article XIII B prohibits the State from spending
"appropriations subject to limitation" in excess of the Appropriations Limit. No
limit is imposed on appropriations of funds which are not "proceeds of taxes,"
such as reasonable user charges or fees, and certain other non-tax funds. Not
included in the 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, appropriations for qualified capital outlay
projects, appropriations of revenues derived from any increase in
<PAGE>
B-24
gasoline taxes and motor vehicle weight fees above January 1, 1990 levels, and
appropriation of certain special taxes imposed by initiative (e.g., cigarette
and tobacco taxes). The Appropriations Limit may also be exceeded in cases of
emergency.
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.
Recent Fiscal Year Financial Results
Fiscal Years Prior to 1995-96
Pressures on the State's budget in the late 1980's and early 1990's
were caused by a combination of external economic conditions (including a
recession which began in 1990) and growth of the largest General Fund Programs
- -- K-14 education, health, welfare and corrections -- at rates faster than the
revenue base. During this period, expenditures exceeded revenues in four out of
six years up to 1992-93, and the State accumulated and sustained a budget
deficit approaching $2.8 billion at its peak at June 30, 1993. Between the
1991-92 and 1994-95 Fiscal Years, each budget required multibillion dollar
actions to bring projected revenues and expenditures into balance, including
significant cuts in health and welfare program expenditures; transfers
<PAGE>
B-25
of program responsiblities and funding from the State to local governments;
transfer of about $3.6 billion in annual local property tax revenues from other
local governments to local school districts, thereby reducing State funding for
schools under Proposition 98; and revenue increases (particularly in the 1991-92
Fiscal Year budget), most of which were for a short duration.
Despite these budget actions, the effects of the recession led to large
unanticipated budget deficits. 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, again using cross-fiscal year revenue anticipation
warrants to partly finance the deficit into the 1995-96 fiscal year.
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 issued 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, when the budget was adopted, the State Controller issued a total of
approximately $3.8 billion of registered warrants.
For several fiscal years during the recession, the State was forced to
rely on external debt markets to meet its cash needs as a succession of notes
and revenue anticipation 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, as noted earlier. The last and
largest of these borrowings was $4.0 billion of revenue anticipation warrants
which were issued in July, 1994 and matured on April 25, 1996.
1995-96 and 1996-97 Fiscal Years
The State's financial condition improved markedly during the 1995-96,
1996-97 and 1997-98 fiscal years, with a combination of better than expected
revenues, slowdown in growth of social welfare programs, and continued spending
restraint based on the actions taken in earlier years. The State's cash position
also improved, and no external deficit borrowing has occurred over the end of
these three fiscal years.
<PAGE>
B-26
The economy grew strongly during these fiscal years, and as a result,
the General Fund took in substantially greater tax revenues (around $2.2 billion
in 1995-96, $1.6 billion in 1996-97 and $2.2 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid in 1995-96 and
1996-97. The accumulated budget deficit from the recession years was finally
eliminated.
1998-99 Fiscal Year
When the Governor released his proposed 1998-99 Fiscal Year Budget on
January 9, 1998, he projected General Fund revenues for the 1998-99 Fiscal Year
of $55.4 billion, and proposed expenditures in the same amount. By the time the
Governor released the May Revision to the 1998-99 Budget ("May Revision") on May
14, 1998, the Administration projected that revenues for the 1997-98 and 1998-99
Fiscal Years combined would be more than $4.2 billion higher than was projected
in January. The Governor proposed that most of this increased revenue be
dedicated to fund a 75% cut in the Vehicle License Fee ("VLF").
The Legislature passed the 1998-99 Budget Bill on August 11, 1998, and
the Governor signed it on August 21, 1998. Some 33 companion bills necessary to
implement the budget were also signed. In signing the Budget Bill, the Governor
used his line-item veto power to reduce expenditures by $1.360 billion from the
General Fund, and $160 million from Special Funds. Of this total, the Governor
indicated that about $250 million of vetoed funds were "set aside" to fund
programs for education. Vetoed items included education funds, salary increases
and many individual resources and capital projects.
The 1998-99 Budget Act is based on projected General Fund revenues and
transfers of
<PAGE>
B-27
$57.0 billion (after giving effect to various tax reductions enacted in
1997-1998), a 4.2% increase from the revised 1997-98 figures. Special Fund
revenues were estimated at $14.3 billion. The revenue projections were based on
the May Revision. Economic problems overseas since that time may affect the May
Revision projections.
After giving effect to the Governor's vetoes, the Budget Act provides
authority for expenditures of $57.3 billion from the General Fund (a 7.3%
increase from 1997-98), a $14.7 billion from Special Funds, and $3.4 billion
from bond funds. The Budget Act projects a balance in the SFEU at June 30, 1999
(but without including the "set aside" veto amount) of $1.255 billion, a little
more than 2% of General Fund revenues. The Budget Act assumes the State will
carry out its normal intra-year cash flow borrowing in the amount of $1.7
billion of revenue anticipation notes, which are expected to be issued by early
October.
The most significant feature of the 1998-99 budget was agreement on a
total of $1.4 billion of tax cuts. The central element is a bill which provides
for a phased-in reduction of the VLF. Since the VLF is currently transferred to
cities and counties, a bill provides for the General Fund to replace the lost
revenues. Starting on January 1, 1999, the VLF will be reduced by 25%, at a cost
to the General Fund of approximately $500 million in the 1998-99 Fiscal Year and
about $1 billion annually thereafter.
In addition to the cut in VLF, the 1998-99 budget includes both
temporary and permanent increase in the personal income tax dependent credit
($612 million General Fund cost in 1998-99, but less in future years), a
nonrefundable renters tax credit ($133 million), and various targeted business
tax credits ($106 million).
Special Considerations Relating to Risk Factors for the Bernstein
Emerging Markets Value Portfolio
Investing in securities of companies in emerging markets countries
entails greater risks than investing in equity securities in developed markets.
The risks include but are not limited to the following:
Investment restrictions. Some emerging markets countries prohibit or
impose substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as the Portfolio.
For example, certain emerging markets countries may require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in
<PAGE>
B-28
the country, or limit the investment by foreign persons to only specific class
of securities of a company which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals.
Certain emerging markets countries may restrict investment opportunities in
issuers or industries deemed important to national interests. The manner in
which foreign investors may invest in companies in these emerging markets
countries, as well as limitations on such investments, may have an adverse
impact on the operations of the Portfolio.
Theft or loss of assets. Security settlement and clearance procedures
in some emerging markets countries may not fully protect the Portfolio against
loss or theft of its assets. By way of example and without limitation, the
Portfolio could suffer losses in the event of a fraudulent or otherwise
deficient security settlement, or theft or default by a broker, dealer, or other
intermediary. The existence of overburdened infrastructure and obsolete
financial systems exacerbate the risks in certain emerging markets countries.
The Fund's Custodial Agreement provides that the custodian will not be liable to
the Portfolio or its shareholders for such losses incurred by the Portfolio in
connection with any action taken by the Custodian in the performance of its
duties in good faith without negligence. The Management Agreement provides that
the Manager shall not be liable to the Fund or the Portfolio for any error of
judgment by the Manager or for any loss sustained by the Fund or the Portfolio
except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations and duties under the Management Agreement.
Settlement and Brokerage Practices. Brokerage commissions, custodial
services, and other costs relating to investment in emerging markets countries
are generally more expensive than in the United States. For example, one
securities broker may represent all or a significant part of the trading volume
in a particular country, resulting in higher trading costs and decreased
liquidity due to a lack of alternative trading partners. Emerging markets also
have different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the
Portfolio are uninvested and no return is earned thereon. The inability of the
Portfolio to make intended security purchases due to settlement problems could
cause the Portfolio to miss attractive investment opportunities. Inability to
dispose of Portfolio securities due to settlement problems could result either
in losses to the Portfolio due to subsequent declines in value of the Portfolio
security or, if the Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser.
Less sophisticated regulatory and legal framework. In emerging markets
countries, there is generally less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the U.S., and capital requirements for brokerage firms are generally
lower. There may also be a lower level of monitoring of activities of investors
in emerging securities markets, and enforcement of existing regulations may be
limited or inconsistent. The prices at which the Portfolio may acquire
investments may be affected by trading by persons with material non-public
information and by securities transactions by brokers in anticipation of
transactions by the Portfolio in particular securities.
<PAGE>
B-29
The sophisticated legal systems necessary for the proper and efficient
functioning of modern capital markets have yet to be developed in most emerging
markets countries, although many of these countries have made significant
strides in this area in the past few years. A high degree of legal uncertainty
may therefore exist as to the nature and extent of investors' rights and the
ability to enforce those rights in the courts. Many advanced legal concepts
which now form significant elements of mature legal systems are not yet in place
or, if they are in place, have yet to be tested in the courts. It is difficult
to predict with any degree of certainty the outcome of judicial proceedings
(often because the judges themselves have little or no experience with complex
business transactions), or even the measure of damages which may be awarded
following a successful claim.
Less accurate information on companies and markets. Most of the foreign
securities held by the Portfolio will not be registered with the U.S. Securities
and Exchange Commission ("SEC"), nor will the issuers thereof be subject to SEC
or other U.S. reporting requirements. Accordingly, there will generally be less
publicly available information concerning foreign issuers of securities held by
the Portfolio than will be available concerning U.S. companies. Foreign
companies, and in particular companies in emerging markets countries, are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory requirements comparable to those applicable to
U.S. companies.
Below Investment-Grade Bonds. Much emerging markets debt is rated below
investment-grade, or unrated but comparable to that rated below investment-grade
by internationally recognized rating agencies such as Standard & Poor's
Corporation ("S&P") or Moody's Investors Service ("Moody's"). 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 Appendix). Lower-quality debt
securities, also known as "junk bonds," are often considered to be speculative
and involve greater risk of default or price change due to changes in the
issuer's creditworthiness. The market prices of these securities may fluctuate
more than those of higher quality securities and may decline significantly in
periods of general economic difficulty, which may follow periods of rising
interest rates. Securities in the lowest quality category may present the risk
of default, or may be in default.
While Bernstein may refer to ratings issued by internationally
recognized rating agencies, when available, Bernstein may choose to rely upon,
or to supplement such ratings with, its own independent and ongoing review of
credit quality. The Portfolio's achievement of its investment objective may, to
the extent of its investment in medium- to lower-rated bonds, be more dependent
upon Bernstein's credit analysis than would be the case if the Portfolio were to
invest in higher quality bonds.
The secondary market on which medium- to lower-rated bonds are traded
may be less liquid than the market for higher grade bonds. Less liquidity in the
secondary trading market could adversely affect the price at which the Portfolio
could sell medium- to lower-rated bonds and could cause large fluctuations in
the daily net asset value of the Portfolio's shares. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of medium- to lower-rated bonds, especially in a thinly
traded market. When secondary markets for medium- to lower-rated securities are
less liquid than markets for higher grade securities, it may be more difficult
to value the securities because such valuation may require more research, and
elements of
<PAGE>
B-30
judgment may play a greater role in the valuation because there is less
reliable, objective data available. Furthermore, prices for medium- to
lower-rated bonds may be affected by legislative and regulatory developments.
The foregoing is not intended to be exhaustive and there may be other
risk factors to take into account in relation to a particular investment. In
addition, investors should be aware that the Portfolio may invest in foreign
countries or in companies in which foreign investors, including the Manager,
have had no or limited prior experience. Investors should also note that a
feature of emerging markets is that they are subject to rapid change and the
information set out above may become outdated relatively quickly.
INVESTMENT RESTRICTIONS
All of the Portfolios are subject to fundamental investment
restrictions. The fundamental 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.
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.
<PAGE>
B-31
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 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
<PAGE>
B-32
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;
3) 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
4) 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.
5) 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.
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
<PAGE>
B-33
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;
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
<PAGE>
B-34
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.
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.
INVESTMENT RESTRICTIONS OF THE INTERNATIONAL VALUE PORTFOLIO AND THE TAX-MANAGED
INTERNATIONAL VALUE PORTFOLIO
Neither of the International Value Portfolio Tax-Managed or the
International Value 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 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
<PAGE>
B-35
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, 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. Each of the International Value Portfolio
and the Tax-Managed International Value Portfolio has not and currently does not
intend to:
<PAGE>
B-36
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;
3) 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;
4) 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.
BERNSTEIN EMERGING MARKETS VALUE PORTFOLIO'S INVESTMENT RESTRICTIONS
The Bernstein Emerging Markets 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
transaction;
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
<PAGE>
B-37
holidays) to the extent necessary to comply with the 33 1/3 %
limitation. Borrowings, including reverse repurchase agreements,
will not exceed 33 1/3%.
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, 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 Emerging Markets Value portfolio
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%
<PAGE>
B-38
(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;
3) 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;
4) Invest in any securities of any issuer if, to the knowledge of
the Fund, any officer or director of the Fund or if 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.
With respect to any Portfolio of the Fund, for purposes of determining the
amount of portfolio securities that may be lent by the Portfolio to other
parties in accordance with the investment restrictions set forth above, "total
assets" of the Portfolio shall be determined in accordance with SEC
interpretations issued from time to time.
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.
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.
Adelson 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
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NAME AND POSITION(S) WITH THE PRINCIPAL OCCUPATION
ADDRESS FUND DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Roger Hertog* President, President, Chief Operating Officer and
767 Fifth Avenue Treasurer, Director-Bernstein
New York, NY 10153 Director
- ----------------------------------------------------------------------------------------------------------------------------
Andrew S. Adelson* Senior Vice President Senior Vice President, Chief Investment Officer- International
767 Fifth Avenue Director Equities and Director-Bernstein
New York, NY 10153
- ----------------------------------------------------------------------------------------------------------------------------
Arthur Aeder Director 1987-Present: Consultant;
516 Fifth Avenue, Room 701 Formerly Senior Partner of Oppenheim, Appel, Dixon & Co.
New York, NY 10036 (subsequently Spicer & Oppenheim) Certified Public
Accountants, and Chairman of Spicer & Oppenheim International
- ----------------------------------------------------------------------------------------------------------------------------
Peter L. Bernstein** Director President and Chief Executive Officer of Peter L. Bernstein,
575 Madison Avenue Inc.,
Suite 1006 Economic Consultants
New York, NY 10022
- ----------------------------------------------------------------------------------------------------------------------------
William Kristol Director 6/95-Present: Editor and Publisher, The Weekly Standard
1150 17th Street, N.W. 7/95 - Present: Consultant, ABC News
5th Floor 11/93-5/95: Chairman, Project for the Republican Future
Washington, D.C. 20036 1/93-11/93: Director, The Bradley Project on the 90s
- ----------------------------------------------------------------------------------------------------------------------------
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 Senior Vice President, Chief Investment Officer-Fixed Income
767 Fifth Avenue and Director-Bernstein
New York, NY 10153
- ----------------------------------------------------------------------------------------------------------------------------
Jean Margo Reid Secretary 1999: Senior Vice President, General Counsel and Director -
767 Fifth Avenue Bernstein
New York, NY 10153 1997-1998: Vice President and General Counsel - Bernstein
Previously: Vice President and Associate General
Counsel - Bernstein
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
* An "interested person" of the Fund, as defined in the 1940 Act.
** Not related to Zalman C. Bernstein, Chairman of the Executive Committee-
Bernstein.
</FN>
</TABLE>
<PAGE>
B-39
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, annual
compensation of $35,000 for the fiscal year ended September 30, 1998. 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 and Mr. Adelson, who were 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 October 19, 1998, directors and officers of the Fund, as a group,
owned beneficially 150,939 shares of the Bernstein Government Short Duration
Portfolio, being 1.34% of such Portfolio. On October 19, 1998, directors and
officers of the Fund, as a group, owned less than one percent of the outstanding
shares of Bernstein Intermediate Duration Portfolio, 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 International Value Portfolios and Bernstein Emerging Markets Value
Portfolio.
On November 4, 1998, the William M. Mow and Nai-Li Mow Trust of Simi
Valley, CA owned 5% of the Bernstein Short Duration California Municipal
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 wholly-owned by Sanford C. Bernstein Inc., a closely
held Delaware corporation. Sanford C. Bernstein Inc. 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., Marilyn Goldstein
Fedak, Michael L. Goldstein, Roger Hertog, Thomas S. Hexner, Gerald M.
Lieberman, Jean Margo Reid, Lewis A. Sanders, and Francis H. Trainer, Jr. The
Board of Directors of Bernstein is comprised of these same individuals. 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
<PAGE>
B-40
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.
The fee paid by the Tax-Managed 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. Effective on the date of the
Portfolio Division (as defined in the Prospectus), the fee paid by the Bernstein
Tax-Managed International Value Portfolio will be at an annual rate of 1.00% of
that Portfolio's average daily net assets up to but not exceeding $1 billion and
at an annual rate of .90 of 1% of that Portfolio's average daily net assets that
exceed $1 billion. The fee is computed daily and paid monthly. 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 $1 billion and at
an annual rate of .90 of 1% of that Portfolio's average daily net assets that
exceed $1 billion. The fee is computed daily and payable monthly. The fee paid
by the Bernstein Emerging Markets Value Portfolio is at an annual rate of 1.25%
of the Portfolio's average daily net assets. The fee is computed daily and paid
monthly. For the fiscal years ended September 30, 1996, 1997 and 1998, the
investment management fees accrued or paid to Bernstein pursuant to the
Management Agreements were, respectively, $44,743,986, $65,345,690 and
$83,314,803.
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 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
<PAGE>
B-41
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 Bernstein
International Value Portfolios and the Bernstein Emerging Markets Value
Portfolio for these services is 0.25% of that Portfolio's average daily net
assets. For the fiscal years ended September 30, 1996, 1997 and 1998, the fees
accrued or paid to Bernstein pursuant to the Shareholder Servicing and
Administrative Agreements were $10,438,251, $15,530,342 and $20,136,349,
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.
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
<PAGE>
B-42
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.
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Fixed-income securities and
other assets for which market quotations are readily available may be valued at
market values determined by such securities' most recent bid prices 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 (market
value will be determined by sales prices if the principal market is an exchange)
in the broadest and most representative market for that security as determined
by the Manager.
Fixed-income securities and convertible securities may also be valued
on the basis of information furnished by a pricing service that uses a valuation
matrix which incorporates both dealer-supplied valuations and electronic data
processing techniques. Use of pricing services has been approved by the Board of
Directors of the Fund. A number of pricing services are available, and the Fund
may use various pricing services or discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Most equity securities for which the primary market is outside the
United States are valued using the official closing price or the last sale price
in the principal market in which they are traded. If the last sale price (on the
local exchange) is unavailable, the last evaluated quote or last bid price
normally is used.
Because the investment securities of the Bernstein International Value
Portfolios, the Bernstein Emerging Markets Value Portfolio and certain
Fixed-Income Portfolios are traded on foreign markets that may be open when the
New York Stock Exchange is closed, the value of the net assets of these
Portfolios may be significantly affected on days when no net asset values are
<PAGE>
B-43
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.
Foreign securities are valued based on prices furnished by independent brokers
or quotation services which express the value of securities in their local
currency.
If an extraordinary event that is expected to materially affect the
value of a portfolio security occurs after the close of an exchange on which
that security is traded, then that security may be valued as determined in good
faith under procedures adopted by the Board of Directors of the Fund.
Securities and other assets for which there is no readily available
market value may be valued in good faith pursuant to procedures adopted by the
Board of Directors of the Fund. The procedures set forth above need not be used
to determine the value of the securities owned by the Fund if, under procedures
adopted by the Board of Directors of the Fund, some other method would more
accurately reflect the fair market value of such securities.
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 Bernstein International
Value Portfolios and the Bernstein Emerging Markets Value Portfolio generally
effect 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 negotiated. Traditionally, commission rates have generally
not been negotiated on stock markets outside the United States. In recent years,
however, an increasing number of developed foreign stock markets have adopted a
system of negotiated rates, although a few developed foreign markets and most
emerging foreign 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, 1998, the Fund paid total
brokerage commissions of $10,040,103, of which $127,161 or 1.27% was
paid to Bernstein for effecting .9527% of the aggregate dollar amount of
transactions on which the Fund paid brokerage commissions. The increase in
transaction charges in 1997 was primarily attributable to the growth in net
assets of the Bernstein Tax-Managed International Value Portfolio and the
Bernstein Emerging Markets Value Portfolio; the net assets for the Bernstein
Tax-Managed International Value Portfolio went from $3,131,258,261 at the end of
fiscal year 1996 to $4,965,997,868 at the end of fiscal year 1997 and the net
assets for the Bernstein Emerging Markets Value Portfolio went up from
$273,924,132 at the end of fiscal year 1996 to $438,305,048 at the end of fiscal
year 1997. The increase in transaction charges in 1998 was attributable to a
modest increase in the portfolio turnover ratio of the Bernstein Tax-Managed
International Value Portfolio, a positive net cash flow into this Portfolio and
the change in the mix of securities purchased by this Portfolio to securities in
countries that have commission rates that are relatively higher.
<PAGE>
B-44
The Fund paid aggregate brokerage commissions of $6,044,134 and $7,778,946
during the fiscal years ended September 30, 1996 and 1997, respectively. Of the
$6,044,134 in brokerage commissions paid by the Fund in fiscal year 1996,
$56,956 or .9423% was paid to Bernstein for effecting transactions. Of the
$7,778,946 in brokerage commissions paid by the Fund in fiscal year 1997,
$83,553 or 1.0741% was paid to Bernstein for effecting transactions.
On September 30, 1998, Bernstein Short Duration Plus Portfolio owned
$22,385,000 of securities issued by Merrill Lynch; $13, 657,000 of securities
issued by Morgan Stanley; $3,887,000 of securities issued by Goldman, Sachs &
Co.; $7,419,000 of securities issued by Lehman Brothers; $3,162,000 of
securities issued by C.S. First Boston; and $2,838,000 of securities issued by
Salomon Brothers, Inc. The Bernstein Intermediate Duration Portfolio owned
$18,659,000 of securities issued by Goldman, Sachs & Co.; $34,318,000 of
securities issued by Lehman Brothers; $7,710,000 of securities issued by Salomon
Brothers, Inc.; $21,388,000 of securities issued by C.S. First Boston;
$15,023,000 of securities issued by Nomura Securities; $9,658,000 of securities
issued by Merrill, Lynch; and $33,927,000 of securities issued by Morgan
Stanley. Lehman Brothers, Inc. is a parent corporation of Lehman Government
Securities, Inc. Merrill, Lynch, Pierce, Fenner & Smith, Merrill Lynch & Co.,
Inc., Morgan Stanley, Goldman, Sachs & Co., Lehman Government Securities, Inc.,
C.S. First Boston, Salomon Brothers, Inc. and Nomura Securities, Inc. are
regular brokers or dealers of the Fund as defined in Rule 10b-1 under the
1940 Act.
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 Manager to be
beneficial to one or more of the Fixed-Income Portfolios or any other investment
companies or other accounts managed by the Manager. From time to time, dealers
with whom the Fund conducts principal transactions may provide the Manager with
research at no cost.
Effecting Transactions for the Bernstein Tax-Managed International Value
Portfolio, the Bernstein International Value Portfolio and the
<PAGE>
B-45
Bernstein Emerging Markets Value Portfolio
In effecting a security transaction for the Bernstein International
Value Portfolios and the Bernstein Emerging Markets 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, the value of the research
provided, 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 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, financial news, historical and current
financial data, information regarding trading, proxy-voting information,
statistical information and analyses and reports regarding issuers, industries,
securities, economic factors and trends, with respect to a variety of financial
instruments including equity and fixed-income securities and currencies from
both a domestic and international perspective. Research services may be received
in the form of written reports, computer terminals on which we receive databases
and software, 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 any or all 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
<PAGE>
B-46
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. Brokerage allocations are reviewed on an ongoing basis and reevaluated
in light of services provided. 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 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. The
Manager continuously monitors and evaluates the performance and execution
capabilities of the brokers who transact orders to ensure consistently
satisfactory service.
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 Fund may enter into arrangements with the
broker-dealers, banks and other financial institutions permitted to accept
purchase and redemption orders to allow these entities to designate other
intermediaries to accept purchase and redemption orders. The Bernstein Emerging
Markets Value Portfolio assesses a portfolio transaction fee on purchases of
Portfolio shares equal to 2% of the dollar amount invested in the Portfolio
(including purchases made by exchanging shares of other Fund portfolios for
shares of the Bernstein Emerging Markets Value Portfolio) and a portfolio
transaction fee on redemptions of 2% of the dollar amount redeemed from the
Portfolio (including redemptions made by exchanging shares of the Bernstein
Emerging Markets Value Portfolio for shares of other Fund portfolios).
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
<PAGE>
B-47
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, as amended (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 policy for the Bernstein
International Value Portfolios and the Bernstein Emerging Markets Value
Portfolio is to declare and pay investment income dividends and capital gains
distributions at least annually. In determining amounts of capital gains to be
distributed, any capital loss carryovers from prior periods are offset against
capital gains.
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 for
more than 12 months. 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"); and (ii)
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").
<PAGE>
B-48
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 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 (at the lower long-term capital gains tax rate) 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
<PAGE>
B-49
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 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 which provided, among other things, 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) 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 item (ii)
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
<PAGE>
B-50
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 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 forward
contracts and 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 Bernstein International Value Portfolios and the Bernstein
Emerging Markets Value Portfolio qualify as a regulated investment company, if
certain asset and distribution requirements are satisfied and if more than 50%
of each of the Portfolio's total assets at the close of its fiscal year consist
of stocks or securities of foreign corporations, the Portfolios may elect for
United States income tax purposes to treat foreign income taxes paid by each as
paid by their shareholders. The Portfolios will make such an election only if
they deem it to be in the best interests of their shareholders. As a result of
making such an election, shareholders of the Portfolios 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 Portfolios, the Fund will notify shareholders if the foreign taxes paid
by the Portfolios 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
Portfolios' gross
<PAGE>
B-51
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,"
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 Bernstein International Value Portfolios and the Bernstein Emerging
Markets 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, the Portfolios holding
shares of marketable PFICs can elect to mark those shares to market at the close
of the Fund's taxable year and at October 31 for purposes of the excise tax
minimum distribution requirements. PFIC mark-to-market gains are treated as
ordinary income, as are any gains realized on the ultimate sale of the PFIC
stock. Mark-to-market losses and losses on the ultimate disposition of the stock
are ordinary losses to the extent of net mark-to-market gains included in
previous tax years with respect to that stock (but not other stocks).
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.
<PAGE>
B-52
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 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.
PricewaterhouseCoopers 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, 1998 10
Statements of Operations for the Year Ended September
30, 1998 12
Statements of Changes in Net Assets, Year Ended
September 30, 1998 and Year Ended September 30, 1997 15
Financial Highlights for the periods ended September
30, 1998; September 30, 1997; September 30, 1996;
September 30, 1995; and September 30, 1994(or as
applicable) 18
Notes to Financial Statements, September 30, 1998 26
<PAGE>
B-53
Schedule of Investments-Taxable Bond Portfolios, dated Separate Insert
September 30, 1998 and Report of Independent to Annual Report
Accountants with respect to such
Portfolios dated November ____, 1998
Schedule of Investments-Municipal Bond Portfolios, Separate Insert
dated September 30, 1998 and Report of to Annual Report
Independent Accountants with respect to such
Portfolios dated November ____, 1998
Schedule of Investments - Stock Portfolios, dated Separate Insert
September 30, 1998 and Report of Independent to Annual Report
Accountants with respect to such
Portfolios dated November ____, 1998
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, 1998, yields for the
Fixed-Income Portfolios were as follows: Government Short Duration Portfolio -
4.24%; Short Duration Plus Portfolio - 5.01%; Intermediate Duration Portfolio -
5.48%; New York Municipal Portfolio - 3.44%; California Municipal Portfolio -
3.34%; Diversified Municipal Portfolio - 3.49%; Short Duration California
Municipal - 2.85%; Short Duration Diversified Municipal Portfolio - 3.15%; Short
Duration New York Municipal Portfolio - 2.97 %.
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:
Yield = 2 [( a-b + 1)6 - 1]
--
cd
Where:
a = total interest and dividends earned during the month;
b = total expenses accrued during the month (net of reimbursements);
<PAGE>
B-54
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 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, 1998, tax-equivalent
yield for the Government Short Duration Portfolio was 4.6%, assuming a combined
state and local tax of 10% and reflecting that 13.4% 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, 1998 was 6.4%, assuming an investor was
subject to a combined federal, state and New York City tax rate of 46.4% and
reflecting that 1.7% of the income was estimated to be subject to federal taxes
and 1.4% to be
<PAGE>
B-55
subject to state and local taxes. Tax-equivalent yield for the
California Municipal Portfolio at September 30, 1998 was 6.0%, assuming an
investor was subject to a combined federal and state tax rate of 45.2% and
reflecting that 2.0% of the income was estimated to be subject to federal taxes
and 1.6% to be subject to state taxes. Tax-equivalent yield for the Diversified
Municipal Portfolio at September 30, 1998 was 5.7%, assuming an investor was
subject to a combined federal and state tax rate of 39.6% and reflecting that
2.6% 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, 1998 was 5.5%, assuming an investor was subject to a
combined federal, state and New York City tax rate of 46.4% and reflecting that
0% of the income was estimated to be subject to federal taxes and 0% to be
subject to state and local taxes. Tax-equivalent yield for the Short Duration
California Municipal Portfolio at September 30, 1998 was 5.2%, assuming an
investor was subject to a combined federal and state tax rate of 45.2% and
reflecting that 0% of the income was estimated to be subject to federal taxes
and 1.0% to be subject to state taxes. Tax-equivalent yield for the Short
Duration Diversified Municipal Portfolio at September 30, 1998 was 5.2%,
assuming an investor was subject to federal tax rate of 39.6% and reflecting
that 0% 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 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;
<PAGE>
B-56
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;
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)
<PAGE>
B-57
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 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, 1998; (2) the Portfolios for the one year period
ended September 30, 1998; and (3) the International Value Portfolio and the
Fixed-Income Portfolios (other than the Short Duration Municipal Portfolios) for
the five year period ended September 30, 1998, 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>
</TABLE>
<PAGE>
B-58
<TABLE>
<S> <C> <C> <C> <C>
Government Short Duration Portfolio 9.74 years 6.60 6.35 5.05
Short Duration Plus Portfolio 9.80 years 6.91 6.10 5.25
Intermediate Duration Portfolio 9.70 years 8.73 8.59 6.17
New York Municipal Portfolio 9.72 years 6.66 6.32 5.08
California Municipal Portfolio 8.15 years 6.54 6.37 5.13
Diversified Municipal Portfolio 9.72 years 6.56 5.98 5.08
Tax-Managed International Value Portfolio 6.27 years 10.12 (7.19) 7.93
Short Duration New York Municipal 4.16 years 4.16 3.86 N/A
Short Duration California Municipal 4.16 years 4.24 3.98 N/A
Short Duration Diversified Municipal 4.16 years 4.36 4.02 N/A
Emerging Markets Value Portfolio 2.79 years (21.49) (55.09) 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:
Average Annual Total Return = ERV 1/n - 1
---
P
Where:
P = a hypothetical initial investment of $1,000 on beginning date
less any charges deducted from the amount invested;
ERV = ending redeemable value of the hypothetical account on the date
of the balance sheet assuming a complete redemption and
deduction of all nonrecurring charges deducted at the end of the
period; 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,
1998 was as follows:
<PAGE>
B-59
<TABLE>
<CAPTION>
Period Aggregate
Since Total
Portfolio Inception Return
- --------- --------- ------------
<S> <C> <C>
Government Short Duration Portfolio 9.74 years 86.47
Short Duration Plus Portfolio 9.80 years 92.48
Intermediate Duration Portfolio 9.70 years 125.37
New York Municipal Portfolio 9.72 years 87.23
California Municipal Portfolio 8.15 years 67.59
Diversified Municipal Portfolio 9.72 years 85.47
Tax-Managed International Value Portfolio 6.27 years 83.09
Short Duration New York Municipal Portfolio 4.16 years 17.68
Short Duration California Municipal Portfolio 4.16 years 18.05
Short Duration Diversified Municipal Portfolio 4.16 years 18.58
Emerging Markets Value Portfolio 2.79 years (49.15)
</TABLE>
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 on beginning date,
less any charges deducted from the amount invested; and
ERV = ending redeemable value of the hypothetical account on the date
of the balance sheet assuming a complete redemption and the
deduction of all non-recurring charges deducted at the end of
the period.
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 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
(A) Lipper Analytical Services, Inc., a widely used independent research firm
which ranks mutual funds by overall performance, investment objectives, and
assets; or (B) Morningstar, Inc., another widely used independent research firm
which rates mutual funds; or (C) by other financial business publications,
including, but not limited to, Business Week, Money Magazine, Forbes and
Barron's, which provide similar information; (9) Morgan Stanley Capital
International ("MSCI") Indices, including the EAFE index, the EAFE GDP
50%-Hedged Index,
<PAGE>
B-60
the MSCI Emerging Markets Global Index and the MSCI Emerging Markets Free Index,
which are widely recognized indices in international market performance; (10)
the International Finance Corporation (an affiliate of the World Bank
established to encourage economic development in less developed countries),
World Bank, Organization for Economic Co-Operation and Development and
International Monetary Fund as a source of economic statistics; and (11) the
International Finance Corporation Global Index ("IFCG Index") and International
Finance Corporation Investable Index ("IFCI Index"), which are widely recognized
indices of emerging markets performance.
<PAGE>
B-61
APPENDIX
Description of Corporate and Municipal Bond Ratings
The following descriptions of Standard & Poor's Corporation ("Standard
& Poor's"), Fitch IBCA, 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, they 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-62
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 IBCA, Inc.
<PAGE>
B-63
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.
- --------
(3) Reprinted from Moody's Bond Record and Short Term Market Record
<PAGE>
B-64
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.
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-65
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.
- --------
(5) As provided by Fitch IBCA, Inc.
(6) Reprinted from Moody's Bond Record and Short Term Market Record
<PAGE>
B-66
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 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.
- --------
(7) Reprinted from Standard & Poor's Bond Guide
<PAGE>
B-67
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.
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 IBCA, Inc.
<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.
8
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements: See "Custodian, Transfer Agent, Independent
Accountants and Financial Statements", Regular and Institutional Services
Statement of Additional Information, Part B pages B-52 - B-53.
(b) Exhibits:
(1)(a) Articles of Incorporation of the Registrant dated May
3, 1988 (supplied by Pre-Effective Amendment No. 1
and submitted electronically by Post-Effective
Amendment No. 15).
(1)(b) Articles Supplementary of the Registrant dated
October 14, 1988 (supplied by Pre-Effective Amendment
No. 2 and submitted electronically by Post-Effective
Amendment No. 15).
(1)(c) Articles Supplementary of the Registrant dated April
25, 1990 (supplied by Post-Effective Amendment No. 4
and submitted electronically by Post-Effective
Amendment No. 15).
(1)(d) Articles Supplementary of the Registrant dated March
16, 1992 (supplied by Post-Effective Amendment No. 7
and submitted electronically by Post-Effective
Amendment No. 15).
(1)(e) Articles Supplementary of the Registrant undated,
filed with State of Maryland May 11, 1994 (supplied
by Post-Effective Amendment No. 10 and submitted
electronically by Post-Effective Amendment No. 15).
(1)(f) Articles Supplementary of the Registrant dated
October 10, 1994 (supplied by Post-Effective
Amendment No. 11 and submitted electronically by
Post-Effective Amendment No. 15).
(1)(g) Articles Supplementary of the Registrant dated August
29, 1995 (supplied by Post-Effective Amendment No. 12
and submitted electronically by Post-Effective
Amendment No. 15).
(1)(h) Articles Supplementary of the Registrant dated
February 26, 1996 (submitted electronically by Post-
Effective Amendment No. 15).
9
<PAGE>
(1)(i) Articles Supplementary of the Registrant dated March
9, 1998 (submitted electronically by Post-Effective
Amendment No. 17).
(1)(j) Articles Supplementary of the Registrant dated
November 5, 1998 (submitted electronically by
Post-Effective Amendment No. 17).
(2)(a) By-Laws of the Registrant as Revised and Restated
October 4, 1988 (supplied by Pre-Effective Amendment
No. 2 and submitted electronically by Post-Effective
Amendment No. 16).
(2)(b) Amendment to Article I, Section 2 of the By-Laws of
Registrant dated January 30, 1992 (supplied by
Post-Effective Amendment No. 7 and submitted
electronically by Post-Effective Amendment No.
16).
(3) Not Applicable.
(4)(a) Specimen Share Certificates - Government Short
Duration; Short Duration Plus; New York Municipal;
Diversified Municipal; Intermediate Duration
(supplied by Pre-Effective Amendment No. 2).
(4)(b) Specimen Share Certificate - California Municipal
Portfolio (supplied by Post-Effective Amendment No.
4).
(4)(c) Specimen Share Certificate - Tax-Managed
International Value Portfolio (formerly known as
International Value Portfolio) (supplied by
Post-Effective Amendment No. 7).
(4)(d) Specimen Share Certificates - Short Duration
California Municipal Portfolio; Short Duration
Diversified Municipal Portfolio; Short Duration New
York Municipal Portfolio (supplied by Post-Effective
Amendment No. 10).
(4)(e) Specimen Share Certificate - Emerging Markets Value
Portfolio (supplied by Post-Effective Amendment No.
12).
10
<PAGE>
(5)(a) Investment Management Agreement dated October 12,
1988 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") (supplied by Pre-Effective Amendment
No. 2 and submitted electronically by Post-Effective
Amendment No. 16).
(5)(a)(1) Investment Management Agreement dated May 1, 1990
between the Registrant on behalf of California
Municipal Portfolio and Bernstein (supplied by
Post-Effective Amendment No. 4 and submitted
electronically by Post-Effective Amendment No. 16).
(5)(a)(2) Investment Management Agreement dated March 18, 1992
between the Registrant on behalf of Tax-Managed
International Value Portfolio (formerly known as
International Value Portfolio) and Bernstein
(supplied by Post-Effective Amendment No. 7 and
submitted electronically by Post-Effective Amendment
No. 16).
(5)(a)(3) Investment Management Agreement dated May 2, 1994
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
(supplied by Post-Effective Amendment No. 10 and
submitted electronically by Post-Effective Amendment
No. 16).
(5)(a)(4) Amendment to Investment Management Agreement dated
October 5, 1994 between the Registrant on behalf of
Government Short Duration; Short Duration Plus; New
York Municipal; Diversified Municipal; and
Intermediate Duration Portfolios and Bernstein
(supplied by Post-Effective Amendment No. 11 and
submitted electronically by Post-Effective Amendment
No. 16).
(5)(a)(5) Amendment to Investment Management Agreement dated
October 5, 1994 between the Registrant on behalf of
the California Municipal Portfolio and Bernstein
(supplied by Post-Effective Amendment No. 11 and
submitted electronically by Post-Effective Amendment
No. 16).
11
<PAGE>
(5)(a)(6) Investment Management Agreement dated October 11,
1995 between the Registrant on behalf of the Emerging
Markets Value Portfolio and Bernstein (supplied by
Post-Effective Amendment No. 12 and submitted
electronically by Post-Effective Amendment No. 15).
(5)(a)(7) Amendment No. 1 to Investment Management Agreement
dated October 11, 1995 between the Registrant on
behalf of the Tax-Managed International Value
Portfolio (formerly known as International Value
Portfolio) and Bernstein (submitted electronically by
Post-Effective Amendment No. 13).
(5)(a)(8) Form of Investment Management Agreement between
Registrant on behalf of the International Value
Portfolio (submitted electronically by Post-
Effective Amendment No. 17).
(5)(b) Shareholder Servicing and Administrative Agreement
dated October 12, 1988 between the Registrant on
behalf of Government Short Duration; Short Duration
Plus; New York Municipal; Diversified Municipal;
Intermediate Duration and Bernstein (supplied by Post
Effective Amendment No. 3 and submitted
electronically by Post-Effective Amendment No. 16).
(5)(b)(1) Shareholder Servicing and Administrative Agreement
dated May 1, 1990 between the Registrant on behalf of
California Municipal Portfolio and Bernstein
(supplied by Post-Effective Amendment No. 4 and
submitted electronically by Post-Effective Amendment
No. 16)
(5)(b)(2) Shareholder Servicing and Administrative Agreement
dated March 18, 1992 between the Registrant on behalf
of Tax-Managed International Value Portfolio
(formerly known as International Value Portfolio) and
Bernstein (supplied by Post-Effective Amendment No. 7
and submitted electronically by Post-Effective
Amendment No. 16).
12
<PAGE>
(5)(b)(3) Shareholder Servicing and Administrative Agreement
dated May 2, 1994 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
(supplied by Post-Effective Amendment No. 10 and
submitted electronically by Post-Effective Amendment
No. 16).
(5)(b)(4) Shareholder Servicing and Administrative Agreement
dated October 11, 1995 between the Registrant on
behalf of the Emerging Markets Value Portfolio and
Bernstein (supplied by Post-Effective Amendment No.
12 and submitted electronically by Post-Effective
Amendment No. 15).
(5)(b)(5) Form of Shareholder Servicing and Administrative
Agreement between the Registrant on behalf of the
International Value Portfolio and Bernstein
(submitted electronically by Post-Effective
Amendment No. 17.)
(6)(a) Distribution Agreement dated October 12, 1988 between
the Registrant on behalf of Government Short
Duration; Short Duration Plus; New York Municipal;
Diversified Municipal; Intermediate Duration and
Bernstein (supplied by Pre-Effective Amendment No. 2
and submitted electronically by Post-Effective
Amendment No. 16).
(6)(b) Distribution Agreement dated May 1, 1990 between the
Registrant on behalf of California Municipal
Portfolio and Bernstein (supplied by Post-Effective
Amendment No. 4 and submitted electronically by
Post-Effective Amendment No. 16).
(6)(c) Distribution Agreement dated March 18, 1992 between
the Registrant on behalf of Tax-Managed International
Value Portfolio (formerly known as International
Value Portfolio) and Bernstein (supplied by
Post-Effective Amendment No. 7 and submitted
electronically by Post-Effective Amendment No. 16).
13
<PAGE>
(6)(d) Distribution Agreement dated May 2, 1994 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 (supplied by
Post-Effective Amendment No. 10 and submitted
electronically by Post-Effective Amendment No. 16).
(6)(e) Distribution Agreement dated October 11, 1995 between
the Registrant on behalf of the Emerging Markets
Value Portfolio and Bernstein (supplied by
Post-Effective Amendment No. 12 and submitted
electronically by Post-Effective Amendment No. 15).
(6)(f) Form of Distribution Agreement between the Registrant
on behalf of the International Value Portfolio and
Bernstein (submitted electronically by Post-
Effective Amendment No. 17).
(7) Not applicable.
(8)(a) Custodian Contract dated October 12, 1988 between the
Registrant and State Street Bank and Trust Company
(supplied by Pre-Effective Amendment No. 2 and
submitted electronically by Post-Effective Amendment
No. 16).
(8)(b) Custodian Contract Fee Schedule dated October 12,
1988 (supplied by Post-Effective Amendment No. 2).
(8)(c) Fee Information for Automated Securities Pricing
dated October 12, 1988 (supplied by Post-Effective
Amendment No. 2).
(8)(d) Amendment to the Custodian Contract dated May 8, 1989
(supplied by Post-Effective Amendment No. 2 and
submitted electronically by Post-Effective Amendment
No. 16).
(8)(e) Second Amendment to the Custodian Contract dated July
24, 1989 (supplied by Post-Effective Amendment No. 3
and submitted electronically by Post-Effective
Amendment No. 16).
14
<PAGE>
(8)(f) Third Amendment to the Custodian Contract dated April
30, 1990 (supplied by Post-Effective Amendment No. 4
and submitted electronically by Post-Effective
Amendment No. 16).
(8)(g) Custodian Contract Fee Schedule dated October 1, 1991
(supplied by Post-Effective Amendment No. 6).
(8)(h) Fourth Amendment to the Custodian Contract dated
March 18, 1992 (supplied by Post-Effective Amendment
No. 7 and submitted electronically by Post-Effective
Amendment No. 16).
(8)(i) Custodian Fee Schedule dated August 20, 1993 -
Tax-Managed International Value Portfolio (formerly
known as International Value Portfolio) (supplied by
Post-Effective Amendment No. 9).
(8)(j) Fifth Amendment to the Custodian Contract dated April
19, 1994 (supplied by Post-Effective Amendment No. 10
and submitted electronically by Post-Effective
Amendment No. 16).
(8)(k) Custodian Fee Schedule dated May 20, 1994 - Short
Duration California Municipal Portfolio; Short
Duration Diversified Municipal Portfolio and Short
Duration New York Municipal Portfolio (supplied by
Post-Effective Amendment No. 10).
(8)(l) Sixth Amendment to the Custodian Contract dated
August 21, 1995 (supplied by Post-Effective Amendment
No. 12 and submitted electronically by Post-Effective
Amendment No. 16).
(8)(m) Custodian Fee Schedule dated July 27, 1995 -
Tax-Managed International Value Portfolio (formerly
known as International Value Portfolio) (submitted
electronically by Post-Effective Amendment No. 13).
(8)(n) Custodian Fee Schedule dated August 21, 1995 -
Emerging Markets Value Portfolio (submitted
electronically by Post-Effective Amendment No. 13).
15
<PAGE>
(8)(o) Custodian Fee Schedule Amendment dated December 8,
1995 - Tax-Managed International Value Portfolio
(formerly known as International Value Portfolio)
(submitted electronically by Post-Effective Amendment
No. 13).
(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 (submitted electronically by
Post-Effective Amendment No.
13).
(8)(q) Seventh Amendment to the Custodian Contract dated May
6, 1996 (submitted electronically by Post-Effective
Amendment No. 15).
(8)(r) Custodian Fee Schedule dated July 9, 1996 -
Government Short Duration, Short Duration Plus, New
York Municipal, Diversified Municipal Portfolio,
Intermediate Duration, California Municipal, Short
Duration New York Municipal, Short Duration
California Municipal and Short Duration Diversified
Municipal Portfolios (submitted electronically by
Post-Effective Amendment No. 15).
(8)(s) Custodian Fee Schedule dated July 9, 1996 -
Tax-Managed International Value Portfolio (formerly
known as International Value Portfolio) and Emerging
Markets Value Portfolio (submitted electronically by
Post-Effective Amendment No. 15).
(8)(t) Eighth Amendment to the Custodian Contract dated
September 25, 1996 (submitted electronically by
Post-Effective Amendment No. 15).
(8)(u) Custodian Fee Schedule dated June 12, 1998 -
Government Short Duration, Short Duration Plus, New
York Municipal, Diversified Municipal, Intermediate
Duration, California Municipal; Short Duration
California Municipal, Short Duration Diversified
Municipal, and Short Duration New York Municipal
Portfolios (submitted electronically by Post-
Effective Amendment No. 17).
16
<PAGE>
(8)(v) Custodian Fee Schedule dated June 12, 1998 -
Tax-Managed International Value Portfolio (formerly
known as International Value Portfolio) and Emerging
Markets Value Portfolio (submitted electronically
by Post-Effective Amendment No. 17).
(9)(a) Transfer Agency Agreement dated October 12, 1988
between the Registrant and State Street Bank and
Trust Company (supplied by Pre-Effective Amendment
No. 2 and submitted electronically by Post-Effective
Amendment No. 16).
(9)(b) Fee Schedule for Services under Transfer Agency
Agreement, dated December 22, 1992 (supplied by
Post-Effective Amendment No. 9 to this registration
statement).
(9)(c) Amendment to the Transfer Agency Agreement dated
April 30, 1990 (supplied by Post-Effective Amendment
No. 4 and submitted electronically by Post-Effective
Amendment No. 16).
(9)(d) Second Amendment to the Transfer Agency Agreement
dated March 18, 1992 (supplied by Post-Effective
Amendment No. 7 and submitted electronically by
Post-Effective Amendment No. 16).
(9)(e) Third Amendment to the Transfer Agency Agreement
dated April 19, 1994 (supplied by Post-Effective
Amendment No. 10 and submitted electronically by
Post-Effective Amendment No. 16).
(9)(f) Fee Schedule for Services under Transfer Agency
Agreement, dated May 20, 1994 (supplied by
Post-Effective Amendment No. 10).
(9)(g) Fourth Amendment to Transfer Agency Agreement dated
August 21, 1995 (supplied by Post-Effective Amendment
No. 12 and submitted electronically by Post-Effective
Amendment No. 16).
(9)(h) Fifth Amendment to Transfer Agency Agreement dated
July 18, 1996 (submitted electronically by
Post-Effective Amendment No. 15).
17
<PAGE>
(9)(i) Fee Schedule for Fee Information Services under
Transfer Agency Agreement, dated July 18, 1996
Government Short Duration, Short Duration Plus,
Diversified Municipal, Intermediate Duration, New
York Municipal, California Municipal, Tax-Managed
International Value (formerly known as International
Value), Short Duration California Municipal, Short
Duration Diversified Municipal, Short Duration New
York Municipal and Emerging Markets Value Portfolios
(submitted electronically by Post-Effective Amendment
No. 15).
(9)(j) Securities Lending Agreement dated July 17, 1996
between the Registrant, on behalf of the Tax-Managed
International Value Portfolio (formerly known as
International Value Portfolio) and State Street Bank
and Trust Company and Amendment dated September 30,
1996 (submitted electronically by Post-Effective
Amendment No. 15).
(9)(j)(1) Second Amendment to Securities Lending Agreement
dated May 29, 1997 (submitted electronically by
Post-Effective Amendment No. 16).
(9)(j)(2) Third Amendment to Securities Lending Agreement dated
May 11, 1998 (submitted electronically by
Post-Effective Amendment No. 17).
(9)(j)(3) Fourth Amendment to Securities Lending Agreement
dated August 10, 1998 (submitted electronically by
Post-Effective Amendment No. 17).
(10)(a) Opinion of Counsel dated October 13, 1988 -
Government Short Duration, Short Duration Plus, New
York Municipal, Diversified Municipal and
Intermediate Duration Portfolios. (supplied by
Pre-Effective Amendment No. 2 and submitted
electronically by Post-Effective Amendment No.
16).
(10)(b) Opinion of Counsel dated May 2, 1990 - California
Municipal Portfolio (supplied Post-Effective
Amendment No. 4 and submitted electronically by
Post-Effective Amendment No. 16).
18
<PAGE>
(10)(c) Opinion of Counsel dated March 30, 1992 - Tax-Managed
International Value Portfolio (formerly known as
International Value Portfolio) (supplied by
Post-Effective Amendment No. 7 and submitted
electronically by Post-Effective Amendment No. 16).
(10)(d) Opinion of Counsel dated May 23, 1994 - Short
Duration California Municipal Portfolio; Short
Duration Diversified Municipal Portfolio; Short
Duration New York Municipal Portfolio (supplied by
Post-Effective Amendment No. 10 and submitted
electronically by Post-Effective Amendment No. 16).
(10)(e) Opinion of Counsel dated September 25, 1995 -
Emerging Markets Value Portfolio (supplied by
Post-Effective Amendment No. 12 and submitted
electronically by Post-Effective Amendment No. 16).
(10)(f) Opinion of Counsel dated November 16, 1998 -
International Value (submitted electronically
by Post-Effective Amendment No. 17).
(11) Consent of Independent Accountants (submitted
electronically herewith).
(12) Not applicable.
(13) Purchase Agreement dated October 12, 1988 (supplied
by Pre-Effective Amendment No. 2 and submitted
electronically by Post-Effective Amendment No. 16).
(14) Not applicable.
(15) Not applicable.
(16)(a) Schedules of Computation of Performance Quotations -
Government Short Duration Portfolio; Short Duration
Plus Portfolio; New York Municipal Portfolio;
Diversified Municipal Portfolio; Intermediate
Duration Portfolio (supplied by Post-Effective
Amendment No. 2 and submitted electronically by
Post-Effective Amendment No. 16).
19
<PAGE>
(16)(b) Schedule of Computation of Performance Quotations -
California Municipal Portfolio (supplied by
Post-Effective Amendment No. 5 and submitted
electronically by Post-Effective Amendment No.
16).
(16)(c) Schedule of Computation of Performance Quotations -
Government Short Duration Portfolio; New York
Municipal Portfolio, Diversified Municipal Portfolio;
California Municipal Portfolio (supplied by
Post-Effective Amendment No. 6 and submitted
electronically by Post-Effective Amendment No. 16).
(16)(d) Schedule of Computation of Performance Quotations -
Tax-Managed International Value Portfolio (formerly
known as International Value Portfolio) (supplied by
Post-Effective Amendment No. 8 and submitted
electronically by Post-Effective Amendment No. 16).
(16)(e) Schedules of Computation of Performance Quotations -
Short Duration California Municipal Portfolio; Short
Duration Diversified Municipal Portfolio; Short
Duration New York Municipal Portfolio (supplied by
Post-Effective Amendment No. 11 and submitted
electronically by Post-Effective Amendment No. 16).
(16)(f) Schedule of Computation of Performance Quotations -
Emerging Markets Value Portfolio (submitted
electronically by Post-Effective Amendment No. 15).
(17) Financial Data Schedules for 12 Months Ending
September 30, 1998 - Government Short Duration, Short
Duration Plus, New York Municipal, Diversified
Municipal, Intermediate Duration, California
Municipal, Tax-Managed International Value Portfolio
(formerly known as International Value Portfolio),
Short Duration New York Municipal, Short Duration
Diversified Municipal, Short Duration California
Municipal and Emerging Markets Value Portfolios
(submitted electonically herewith).
(18) Not applicable.
Item 25. Persons Controlled By or Under Common Control with Registrant. None.
20
<PAGE>
Item 26. Number of Holders of Securities.
Title of Class Number of Record Holders
-------------- ------------------------
Bernstein Government
Short Duration Portfolio 718 (As of October 21,
(Par value .001 per share) 1998)
Bernstein Short Duration
Plus Portfolio 2,781 (As of October 21,
(Par value .001 per share) 1998)
Bernstein New York
Municipal Portfolio 2,504 (As of October 21,
(Par value .001 per share) 1998)
Bernstein Diversified
Municipal Portfolio 3,990 (As of October 21,
(Par value .001 per share) 1998)
Bernstein Intermediate
Duration Portfolio 7,823 (As of October 21,
(Par value .001 per share) 1998)
Bernstein California
Municipal Portfolio 1,437 (As of October 21,
(Par Value .001 per share) 1998)
Bernstein Tax-Managed 24,043 (As of October 21,
International Value Portfolio 1998)
(formerly known as International
Value Portfolio)
(Par Value .001 per share)
Bernstein Short Duration
California Municipal Portfolio 340 (As of October 21,
(Par Value .001 per share) 1998)
Bernstein Short Duration
Diversified Municipal Portfolio 725 (As of October 21,
(Par Value .001 per share) 1998)
Bernstein Short Duration
New York Municipal Portfolio 430 (As of October 21,
(Par Value .001 per share) 1998)
Bernstein Emerging Markets 10,146 (As of October 21,
Value Portfolio 1998)
(Par Value .001 per share)
21
<PAGE>
Title of Class Number of Record Holders
-------------- ------------------------
Bernstein International Value
Portfolio 1 (As of November 13, 1998)
(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 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
22
<PAGE>
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
23
<PAGE>
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.
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 incorporated
herein by reference and "Management of the Portfolios" in the Regular and
Institutional Services Prospectuses constituting Parts A-1, A-2 and A-3 of this
Registration Statement, respectively, and incorporated herein by reference.
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
Roger Hertog* President and Chief President,
Operating Officer Treasurer and
Director
Andrew S. Adelson* Senior Vice President, Senior Vice
Chief Investment President &
Officer - International Director
Equities
Kevin R. Brine* Senior Vice President -
Global Asset Management
Services
Charles C. Cahn, Jr.* Senior Vice President,
Director of Global Fixed
Income
24
<PAGE>
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Underwriter Registrant
- ------------------ ------------ -------------
Marilyn Goldstein Fedak* Senior Vice President,
Chief Investment
Officer - U.S. Equities
Michael L. Goldstein* Senior Vice President -
Chief Investment Strategist
Thomas S. Hexner Senior Vice President -
Private Client Services
Gerald M. Lieberman Senior Vice President -
Finance and Administration
Jean Margo Reid Senior Vice President, Secretary
General Counsel
Francis H. Trainer, Jr.* Senior Vice President, Senior Vice
Chief Investment President
Officer - Fixed Income
- -------------------
* Business Address is 767 Fifth Avenue New York, New York 10153
(c) Registrant has no principal underwriter who is not an
affiliated person of the Registrant.
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 North Lexington Avenue, White
Plains, NY 10601 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 Swidler Berlin
Shereff Friedman LLP, 919 Third Avenue, New York, New York 10022, counsel to the
Registrant.
Item 31. Management Services.
Not applicable.
25
<PAGE>
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.
26
<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 23rd day of November,
1998.
Sanford C. Bernstein Fund, Inc.
By: /s/ 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
- --------- ----- ----
/s/ Roger Hertog President November 23, 1998
(Principal Executive
Officer), Treasurer,
(Principal Financial and
Accounting Officer) and
Director
/s/ Andrew S. Adelson Senior Vice President November 23, 1998
and Director
/s/ Arthur Aeder Director November 23, 1998
/s/ Peter L. Bernstein Director November 23, 1998
/s/ Theodore Levitt Director November 23, 1998
/s/ William Kristol Director November 23, 1998
<PAGE>
Index to Exhibits
Exhibit No. Description
- ----------- -----------
(11) Consent of Independent Accountants
(17) Financial Data Schedules for 12 Months Ending September 30,
1998 - Government Short Duration, Short Duration Plus, New
York Municipal, Diversified Municipal, Intermediate Duration,
California Municipal, Tax-Managed International Value
Portfolio (formerly known as International Value Portfolio),
Short Duration New York Municipal, Short Duration Diversified
Municipal, Short Duration California Municipal and Emerging
Markets Value Portfolios.
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Regular and
Institutional Services Prospectuses and the Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 18 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
November 19, 1998, relating to the financial statements and financial highlights
of Bernstein International Value Portfolio (referred to as Bernstein Tax-Managed
International Value Portfolio in the Registration Statement), Bernstein Emerging
Markets 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
the eleven portfolios of Sanford C. Bernstein Fund, Inc., appearing in the
September 30, 1998 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.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 19, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein
Government Short Duration Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> BERNSTEIN GOVERNMENT SHORT DURATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 134,309,252
<INVESTMENTS-AT-VALUE> 135,931,564
<RECEIVABLES> 2,535,502
<ASSETS-OTHER> 907
<OTHER-ITEMS-ASSETS> 1,518
<TOTAL-ASSETS> 138,469,491
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 432,298
<TOTAL-LIABILITIES> 432,298
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 137,833,291
<SHARES-COMMON-STOCK> 10,904,533
<SHARES-COMMON-PRIOR> 11,337,360
<ACCUMULATED-NII-CURRENT> 55,344
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,484,659)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,622,312
<NET-ASSETS> 138,037,193
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,124,744
<OTHER-INCOME> 0
<EXPENSES-NET> 972,988
<NET-INVESTMENT-INCOME> 7,151,756
<REALIZED-GAINS-CURRENT> 466,529
<APPREC-INCREASE-CURRENT> 936,119
<NET-CHANGE-FROM-OPS> 8,554,404
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,151,756
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,874,744
<NUMBER-OF-SHARES-REDEEMED> 4,543,252
<SHARES-REINVESTED> 235,691
<NET-CHANGE-IN-ASSETS> 4,044,077
<ACCUMULATED-NII-PRIOR> 55,344
<ACCUMULATED-GAINS-PRIOR> (1,951,188)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 697,100
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 972,988
<AVERAGE-NET-ASSETS> 140,337,846
<PER-SHARE-NAV-BEGIN> 12.53
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> 0.64
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.66
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein Short
Duration Plus Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> BERNSTEIN SHORT DURATION PLUS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 585,594,865
<INVESTMENTS-AT-VALUE> 589,841,747
<RECEIVABLES> 7,437,657
<ASSETS-OTHER> 1,735,507
<OTHER-ITEMS-ASSETS> 74,796
<TOTAL-ASSETS> 599,089,707
<PAYABLE-FOR-SECURITIES> 371,198
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,631,341
<TOTAL-LIABILITIES> 4,002,539
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 597,062,089
<SHARES-COMMON-STOCK> 47,481,108
<SHARES-COMMON-PRIOR> 48,893,478
<ACCUMULATED-NII-CURRENT> (913,770)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,717,728)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,609,095
<NET-ASSETS> 595,087,168
<DIVIDEND-INCOME> 34,819,188
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3,803,757
<NET-INVESTMENT-INCOME> 31,015,431
<REALIZED-GAINS-CURRENT> 40,908
<APPREC-INCREASE-CURRENT> 3,994,024
<NET-CHANGE-FROM-OPS> 35,050,363
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 35,204,551
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,129,450
<NUMBER-OF-SHARES-REDEEMED> 18,486,032
<SHARES-REINVESTED> 944,212
<NET-CHANGE-IN-ASSETS> 17,657,089
<ACCUMULATED-NII-PRIOR> 3,317,626
<ACCUMULATED-GAINS-PRIOR> (5,026,172)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,959,580
<INTEREST-EXPENSE> 1,597
<GROSS-EXPENSE> 3,803,757
<AVERAGE-NET-ASSETS> 592,348,409
<PER-SHARE-NAV-BEGIN> 12.53
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> 0.74
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.53
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein New
York Municipal Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> BERNSTEIN NEW YORK MUNICIPAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 780,962,389
<INVESTMENTS-AT-VALUE> 813,435,056
<RECEIVABLES> 15,497,601
<ASSETS-OTHER> 125
<OTHER-ITEMS-ASSETS> 7,071
<TOTAL-ASSETS> 828,939,853
<PAYABLE-FOR-SECURITIES> 10,639,460
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,218,317
<TOTAL-LIABILITIES> 12,857,777
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 781,743,968
<SHARES-COMMON-STOCK> 58,817,028
<SHARES-COMMON-PRIOR> 49,309,430
<ACCUMULATED-NII-CURRENT> 9,519
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,363,417
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31,906,354
<NET-ASSETS> 816,082,076
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,549,517
<OTHER-INCOME> 0
<EXPENSES-NET> 4,802,729
<NET-INVESTMENT-INCOME> 31,746,788
<REALIZED-GAINS-CURRENT> 2,841,704
<APPREC-INCREASE-CURRENT> 11,740,142
<NET-CHANGE-FROM-OPS> 46,328,634
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31,746,788
<DISTRIBUTIONS-OF-GAINS> 346,570
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,521,963
<NUMBER-OF-SHARES-REDEEMED> 9,652,745
<SHARES-REINVESTED> 638,380
<NET-CHANGE-IN-ASSETS> 144,381,845
<ACCUMULATED-NII-PRIOR> 9,519
<ACCUMULATED-GAINS-PRIOR> (131,717)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,729,305
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,802,729
<AVERAGE-NET-ASSETS> 746,064,041
<PER-SHARE-NAV-BEGIN> 13.62
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0.58
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.87
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein
Diversified Municipal Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 04
<NAME> BERNSTEIN DIVERSIFIED MUNICIPAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1,358,608,384
<INVESTMENTS-AT-VALUE> 1,412,080,624
<RECEIVABLES> 23,515,291
<ASSETS-OTHER> 11,526
<OTHER-ITEMS-ASSETS> 46,230
<TOTAL-ASSETS> 1,435,653,671
<PAYABLE-FOR-SECURITIES> 46,211,475
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,656,791
<TOTAL-LIABILITIES> 49,868,266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,330,456,643
<SHARES-COMMON-STOCK> 99,275,747
<SHARES-COMMON-PRIOR> 81,114,898
<ACCUMULATED-NII-CURRENT> 32,266
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,636,792
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 52,560,427
<NET-ASSETS> 1,385,785,405
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 60,038,813
<OTHER-INCOME> 0
<EXPENSES-NET> 7,940,926
<NET-INVESTMENT-INCOME> 52,097,887
<REALIZED-GAINS-CURRENT> 3,559,573
<APPREC-INCREASE-CURRENT> 17,757,074
<NET-CHANGE-FROM-OPS> 73,414,534
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 52,097,887
<DISTRIBUTIONS-OF-GAINS> 607,173
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,521,830
<NUMBER-OF-SHARES-REDEEMED> 14,193,908
<SHARES-REINVESTED> 832,927
<NET-CHANGE-IN-ASSETS> 271,410,940
<ACCUMULATED-NII-PRIOR> 32,266
<ACCUMULATED-GAINS-PRIOR> (315,608)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,124,465
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,940,926
<AVERAGE-NET-ASSETS> 1,250,616,127
<PER-SHARE-NAV-BEGIN> 13.74
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> 0.58
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.96
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein
Intermediate Duration Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 05
<NAME> BERNSTEIN INTERMEDIATE DURATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2,737,523,035
<INVESTMENTS-AT-VALUE> 2,791,757,944
<RECEIVABLES> 41,063,261
<ASSETS-OTHER> 9,384,152
<OTHER-ITEMS-ASSETS> 312,586
<TOTAL-ASSETS> 2,842,517,943
<PAYABLE-FOR-SECURITIES> 287,512,676
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,456,363
<TOTAL-LIABILITIES> 300,969,039
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,474,315,368
<SHARES-COMMON-STOCK> 188,389,761
<SHARES-COMMON-PRIOR> 153,832,223
<ACCUMULATED-NII-CURRENT> (2,498,711)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,492,370
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,051,486
<NET-ASSETS> 2,541,548,904
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 138,502,022
<OTHER-INCOME> 0
<EXPENSES-NET> 13,917,168
<NET-INVESTMENT-INCOME> 124,584,854
<REALIZED-GAINS-CURRENT> 34,233,313
<APPREC-INCREASE-CURRENT> 31,984,312
<NET-CHANGE-FROM-OPS> 190,802,479
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 140,818,925
<DISTRIBUTIONS-OF-GAINS> 26,215,852
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 56,368,750
<NUMBER-OF-SHARES-REDEEMED> 26,187,703
<SHARES-REINVESTED> 4,376,491
<NET-CHANGE-IN-ASSETS> 483,328,412
<ACCUMULATED-NII-PRIOR> 13,425,164
<ACCUMULATED-GAINS-PRIOR> 16,785,105
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,858,619
<INTEREST-EXPENSE> 12,411
<GROSS-EXPENSE> 13,917,168
<AVERAGE-NET-ASSETS> 2,302,569,504
<PER-SHARE-NAV-BEGIN> 13.38
<PER-SHARE-NII> 0.73
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.82
<PER-SHARE-DISTRIBUTIONS> 0.17
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.49
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein
California Municipal Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 06
<NAME> BERNSTEIN CALIFORNIA MUNICIPAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 525,756,165
<INVESTMENTS-AT-VALUE> 546,780,666
<RECEIVABLES> 9,571,750
<ASSETS-OTHER> 74,331
<OTHER-ITEMS-ASSETS> 4,114
<TOTAL-ASSETS> 556,430,861
<PAYABLE-FOR-SECURITIES> 5,311,646
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,361,767
<TOTAL-LIABILITIES> 6,673,413
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 527,125,523
<SHARES-COMMON-STOCK> 38,753,540
<SHARES-COMMON-PRIOR> 29,590,176
<ACCUMULATED-NII-CURRENT> (31,860)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,600,530
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,024,501
<NET-ASSETS> 549,757,448
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,203,565
<OTHER-INCOME> 0
<EXPENSES-NET> 3,087,271
<NET-INVESTMENT-INCOME> 19,116,294
<REALIZED-GAINS-CURRENT> 1,868,344
<APPREC-INCREASE-CURRENT> 8,730,332
<NET-CHANGE-FROM-OPS> 29,714,970
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19,116,294
<DISTRIBUTIONS-OF-GAINS> 233,401
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,733,043
<NUMBER-OF-SHARES-REDEEMED> 6,899,266
<SHARES-REINVESTED> 329,587
<NET-CHANGE-IN-ASSETS> 138,373,019
<ACCUMULATED-NII-PRIOR> (31,860)
<ACCUMULATED-GAINS-PRIOR> (34,413)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,363,510
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,087,271
<AVERAGE-NET-ASSETS> 472,949,445
<PER-SHARE-NAV-BEGIN> 13.90
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.30
<PER-SHARE-DIVIDEND> 0.57
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.19
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein
International Value Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 07
<NAME> BERNSTEIN INTERNATIONAL VALUE
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 5,053,325,031
<INVESTMENTS-AT-VALUE> 4,762,079,380
<RECEIVABLES> 158,372,949
<ASSETS-OTHER> 986,475,814
<OTHER-ITEMS-ASSETS> 42,291,170
<TOTAL-ASSETS> 5,949,219,314
<PAYABLE-FOR-SECURITIES> 46,552,945
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 990,083,572
<TOTAL-LIABILITIES> 1,036,636,517
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,708,689,110
<SHARES-COMMON-STOCK> 278,635,991
<SHARES-COMMON-PRIOR> 237,367,711
<ACCUMULATED-NII-CURRENT> 243,194,051
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 242,274,620
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 281,853,621
<NET-ASSETS> 4,912,582,797
<DIVIDEND-INCOME> 82,534,329
<INTEREST-INCOME> 36,020,922
<OTHER-INCOME> 0
<EXPENSES-NET> 66,657,139
<NET-INVESTMENT-INCOME> 51,898,112
<REALIZED-GAINS-CURRENT> 449,144,345
<APPREC-INCREASE-CURRENT> (904,604,515)
<NET-CHANGE-FROM-OPS> 403,562,058
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 264,449,031
<DISTRIBUTIONS-OF-GAINS> 168,349,560
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 59,041,183
<NUMBER-OF-SHARES-REDEEMED> 41,077,328
<SHARES-REINVESTED> 23,304,425
<NET-CHANGE-IN-ASSETS> 53,415,071
<ACCUMULATED-NII-PRIOR> 252,892,059
<ACCUMULATED-GAINS-PRIOR> 164,332,746
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,783,233
<INTEREST-EXPENSE> 26,917
<GROSS-EXPENSE> 66,657,139
<AVERAGE-NET-ASSETS> 5,309,075,631
<PER-SHARE-NAV-BEGIN> 20.92
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> (1.67)
<PER-SHARE-DIVIDEND> 1.11
<PER-SHARE-DISTRIBUTIONS> 0.71
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.63
<EXPENSE-RATIO> 1.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein Short
Duration New York Municipal Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 08
<NAME> BERNSTEIN SHORT DURATION NEW YORK MUNICIPAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 78,061,739
<INVESTMENTS-AT-VALUE> 78,359,919
<RECEIVABLES> 1,142,429
<ASSETS-OTHER> 19,751
<OTHER-ITEMS-ASSETS> 2,460
<TOTAL-ASSETS> 79,524,559
<PAYABLE-FOR-SECURITIES> 614,702
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 258,058
<TOTAL-LIABILITIES> 872,760
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78,590,757
<SHARES-COMMON-STOCK> 6,309,282
<SHARES-COMMON-PRIOR> 6,105,588
<ACCUMULATED-NII-CURRENT> 172
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (206,120)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 260,680
<NET-ASSETS> 78,651,799
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,430,591
<OTHER-INCOME> 0
<EXPENSES-NET> 574,893
<NET-INVESTMENT-INCOME> 2,855,698
<REALIZED-GAINS-CURRENT> (203,871)
<APPREC-INCREASE-CURRENT> 248,888
<NET-CHANGE-FROM-OPS> 2,900,715
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,855,698
<DISTRIBUTIONS-OF-GAINS> 90,423
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,697,614
<NUMBER-OF-SHARES-REDEEMED> 4,590,799
<SHARES-REINVESTED> 96,879
<NET-CHANGE-IN-ASSETS> 2,510,036
<ACCUMULATED-NII-PRIOR> 172
<ACCUMULATED-GAINS-PRIOR> 88,174
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 389,910
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 574,893
<AVERAGE-NET-ASSETS> 77,998,538
<PER-SHARE-NAV-BEGIN> 12.47
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> 0.46
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.47
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein Short
Duration Diversified Municipal Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 09
<NAME> BERNSTEIN SHORT DURATION DIVERSIFIED MUNICIPAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 159,513,764
<INVESTMENTS-AT-VALUE> 160,263,318
<RECEIVABLES> 4,520,371
<ASSETS-OTHER> 84,028
<OTHER-ITEMS-ASSETS> 5,795
<TOTAL-ASSETS> 164,873,512
<PAYABLE-FOR-SECURITIES> 5,886,998
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 433,331
<TOTAL-LIABILITIES> 6,320,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 157,616,087
<SHARES-COMMON-STOCK> 12,615,659
<SHARES-COMMON-PRIOR> 12,089,969
<ACCUMULATED-NII-CURRENT> (9,678)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 258,542
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 675,616
<NET-ASSETS> 158,553,183
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,467,212
<OTHER-INCOME> 0
<EXPENSES-NET> 1,076,517
<NET-INVESTMENT-INCOME> 5,390,695
<REALIZED-GAINS-CURRENT> 328,088
<APPREC-INCREASE-CURRENT> 239,108
<NET-CHANGE-FROM-OPS> 5,957,891
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,390,695
<DISTRIBUTIONS-OF-GAINS> 430,886
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,487,311
<NUMBER-OF-SHARES-REDEEMED> 9,132,723
<SHARES-REINVESTED> 171,102
<NET-CHANGE-IN-ASSETS> 6,731,771
<ACCUMULATED-NII-PRIOR> (9,678)
<ACCUMULATED-GAINS-PRIOR> 361,340
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 753,420
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,076,517
<AVERAGE-NET-ASSETS> 151,284,207
<PER-SHARE-NAV-BEGIN> 12.56
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> 0.45
<PER-SHARE-DISTRIBUTIONS> 0.03
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.57
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein Short
Duration California Municipal Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> BERNSTEIN SHORT DURATION CALIFORNIA MUNICIPAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 96,038,483
<INVESTMENTS-AT-VALUE> 96,677,500
<RECEIVABLES> 1,467,184
<ASSETS-OTHER> 1,190,327
<OTHER-ITEMS-ASSETS> 2,337
<TOTAL-ASSETS> 99,337,348
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 287,659
<TOTAL-LIABILITIES> 287,659
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98,304,436
<SHARES-COMMON-STOCK> 7,855,273
<SHARES-COMMON-PRIOR> 6,875,216
<ACCUMULATED-NII-CURRENT> (20,838)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 119,219
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 639,017
<NET-ASSETS> 99,049,689
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,598,015
<OTHER-INCOME> 0
<EXPENSES-NET> 643,851
<NET-INVESTMENT-INCOME> 2,954,164
<REALIZED-GAINS-CURRENT> 119,716
<APPREC-INCREASE-CURRENT> 335,512
<NET-CHANGE-FROM-OPS> 3,409,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,954,164
<DISTRIBUTIONS-OF-GAINS> 40,712
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,487,988
<NUMBER-OF-SHARES-REDEEMED> 5,606,118
<SHARES-REINVESTED> 98,187
<NET-CHANGE-IN-ASSETS> 12,738,838
<ACCUMULATED-NII-PRIOR> (20,838)
<ACCUMULATED-GAINS-PRIOR> 40,215
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 441,450
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 643,851
<AVERAGE-NET-ASSETS> 88,768,840
<PER-SHARE-NAV-BEGIN> 12.55
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> 0.07
<PER-SHARE-DIVIDEND> 0.42
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.61
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Fund's
Annual Report to Shareholders for the one year ending September 30, 1998 and is
qualified in its entirety by reference to the Fund's Annual Report to
Shareholders for the one year ending September 30, 1998 for the Bernstein
Emerging Markets Value Portfolio.
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> BERNSTEIN EMERGING MARKETS VALUE
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 659,466,490
<INVESTMENTS-AT-VALUE> 348,393,632
<RECEIVABLES> 10,907,390
<ASSETS-OTHER> 8,276,323
<OTHER-ITEMS-ASSETS> 39,581
<TOTAL-ASSETS> 367,616,926
<PAYABLE-FOR-SECURITIES> 3,495,284
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,435,933
<TOTAL-LIABILITIES> 4,931,217
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 703,083,321
<SHARES-COMMON-STOCK> 35,870,455
<SHARES-COMMON-PRIOR> 19,447,363
<ACCUMULATED-NII-CURRENT> 1,160,120
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (30,463,194)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 311,130,408
<NET-ASSETS> 362,685,709
<DIVIDEND-INCOME> 11,996,499
<INTEREST-INCOME> 796,857
<OTHER-INCOME> 0
<EXPENSES-NET> 7,397,292
<NET-INVESTMENT-INCOME> 5,396,064
<REALIZED-GAINS-CURRENT> (33,661,548)
<APPREC-INCREASE-CURRENT> (282,039,453)
<NET-CHANGE-FROM-OPS> 310,304,937
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,126,337
<DISTRIBUTIONS-OF-GAINS> 12,049,985
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,333,480
<NUMBER-OF-SHARES-REDEEMED> 4,744,203
<SHARES-REINVESTED> 833,815
<NET-CHANGE-IN-ASSETS> 75,619,339
<ACCUMULATED-NII-PRIOR> 1,084,293
<ACCUMULATED-GAINS-PRIOR> 12,054,439
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,214,211
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,397,292
<AVERAGE-NET-ASSETS> 415,165,187
<PER-SHARE-NAV-BEGIN> 22.54
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> (11.91)
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0.61
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.11
<EXPENSE-RATIO> 1.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
