<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. 21
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AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 23 /x/
------------
Sanford C. Bernstein Fund, Inc.
(Exact Name of Fund as Specified in Charter)
767 Fifth Avenue, New York, New York 10153-0185
(Address of Principal Executive Offices) (Zip Code)
Fund'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)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
X on (date) pursuant to paragraph (b)
- -----
_____ on (date) pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following:
_____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<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 II 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. Front and Back Cover Pages Front and Back
Cover Pages
Item 2. Risk/Return Summary: Investments Investment
Risks and Performance Objectives,
Strategies, Risks,
Performance and Fees
Item 3. Risk/Return Summary: Fee Table Investment
Objectives,
Strategies, Risks,
Performance and Fees
Item 4. Investment Objectives, Principal Additional
Investment Strategies and Related Investment
Risks Information, Special
Investment
Techniques and
Related Risks
Item 5. Management's Discussion of Not Applicable
Fund Performance
Item 6. Management, Organization and Fund Management
Capital Structure
Item 7. Shareholder Information Shareholder
Information
Item 8. Distribution Agreements Not Applicable
Item 9. Financial Highlights Financial Highlights
3
<PAGE>
February 1, 2000
PROSPECTUS
SANFORD C. BERNSTEIN FUND, INC.
BERNSTEIN FIXED-INCOME TAXABLE PORTFOLIOS
SHORT-DURATION PORTFOLIOS INTERMEDIATE-DURATION PORTFOLIO
Bernstein Government Short Duration Bernstein Intermediate Duration
Bernstein Short Duration Plus
BERNSTEIN FIXED-INCOME MUNICIPAL PORTFOLIOS
SHORT-DURATION PORTFOLIOS INTERMEDIATE-DURATION PORTFOLIOS
Bernstein Short Duration New York Municipal Bernstein New York Municipal
Bernstein Short Duration California Municipal Bernstein California Municipal
Bernstein Short Duration Diversified Municipal Bernstein Diversified Municipal
BERNSTEIN FOREIGN-STOCK PORTFOLIOS
Bernstein Tax-Managed International Value
Bernstein International Value II
Bernstein Emerging Markets Value
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction................................................................___
Bernstein Fixed-Income Portfolios
The Taxable Portfolios
o Bernstein Government Short Duration ....................___
o Bernstein Short Duration Plus ..........................___
o Bernstein Intermediate Duration ........................___
The Municipal Portfolios
o Bernstein New York Municipal............................___
o Bernstein Short Duration New York Municipal.............___
o Bernstein California Municipal..........................___
o Bernstein Short Duration California Municipal...........___
o Bernstein Diversified Municipal.........................___
o Bernstein Short Duration Diversified Municipal..........___
Bernstein Foreign-Stock Portfolios
o Bernstein Tax-Managed International Value...............___
o Bernstein International Value II........................___
o Bernstein Emerging Markets Value........................___
Making Investment Decisions for the Portfolios..............................___
Additional Investment Information, Special Investment Techniques
and Related Risks..................................................___
The Bernstein Fixed-Income Portfolios..............................___
The Bernstein Foreign-Stock Portfolios.............................___
Special Investment Techniques and
Related Risks......................................................___
Additional Risks...................................................___
Fund Management.............................................................___
Pricing Portfolio Shares....................................................___
Purchasing Shares...........................................................___
Selling Shares..............................................................___
Exchanging Shares...........................................................___
Dividends, Distributions and Taxes..........................................___
Financial Highlights........................................................___
</TABLE>
2
<PAGE>
INTRODUCTION
This Prospectus describes the 12 Portfolios of the Sanford C. Bernstein
Fund, Inc. (the "Fund"), each representing a separate portfolio of securities
and each having its own investment objectives. There are nine fixed-income
Portfolios and three international equity portfolios.
Sanford C. Bernstein & Co., Inc. is the investment manager of the Fund.
This prospectus refers to Sanford C. Bernstein & Co., Inc. as "Bernstein" or
"we" and shareholders of the Fund Portfolios as "you."
Before investing in any Portfolio of the Fund, you should consider the
risks. The share prices of the Portfolios will fluctuate and you may lose money.
This risk is heightened in the case of the Bernstein foreign-stock Portfolios
which can experience high volatility in share prices. There is no guarantee that
a Portfolio will achieve its investment objective. In addition, the investments
made by a Portfolio may underperform the market generally or other mutual funds
with a similar investment objective. Also, the issuers in which the Portfolios
invest may be affected by the Year 2000 Issue and the Portfolios' returns could
be adversely affected as a result (see discussion on page _xx_).
These and other risks are discussed in more detail in the pages that
follow and in the Fund's Statement of Additional Information (SAI) which is
available without charge (see back cover).
3
<PAGE>
THE BERNSTEIN GOVERNMENT SHORT DURATION PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and a moderate rate of income that is
generally exempt from state and local taxes.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein Government Short Duration Portfolio will invest primarily
in U.S. government and agency securities. The Portfolio may also invest in high
quality money-market securities, which are securities that have remaining
maturities of one year or less and are rated AA or better by Standard & Poor's
or Aa or better by Moody's. Additionally, up to 10% of the Portfolio's total
assets may be invested in other securities rated A or better by national rating
agencies and comparably rated commercial paper and notes.
Many types of securities may be purchased by the Portfolio, including
bills, notes, corporate bonds, inflation-protected securities, mortgage-backed
securities, asset-backed securities as well as others. The Portfolio may use
special investment techniques, including futures.
The income earned by the Portfolio is generally exempt from state and
local taxes.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around two years, it will
lose about 2% in principal should interest rates rise 1% and gain about 2% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of one to three
years under normal market conditions.
Since the Bernstein Government Short Duration Portfolio owns a high
percentage of securities that are U.S. government securities, its returns will
generally be lower than those of the Bernstein Short Duration Plus Portfolio.
PRINCIPAL INVESTMENT RISKS
4
<PAGE>
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is a risk that the Portfolio's income
level and/or share price will fall. The Portfolio may retain a security whose
credit quality is downgraded or for which the issuer defaults.
While securities issued by the U.S. Treasury and some U.S. agency
securities are backed by the United States government, other U.S. agency
securities are backed only by the credit of the issuing agency or
instrumentality. For example, securities issued by Government National Mortgage
Association (GNMA) are backed by the United States while securities issued by
Federal Home Loan Mortgage Corporation (FHLMC) are backed only by the credit of
FHLMC. However, some issuers of agency securities may have the right to borrow
from the United States Treasury to meet their obligations, such as the United
States Postal Service.
No government guarantee: Investments in the Portfolio are not insured
by the U.S. government.
Riskier than a money-market fund: The Portfolio is invested in
securities with longer maturities than the assets of the type of mutual fund
known as a money-market fund. The risk of a decline in the market value of the
Portfolio is greater than for a money-market fund since the credit quality of
the portfolio securities may be lower and the effective duration of the
Portfolio will be longer.
Inflation-protected securities: 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.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Mortgage-related securities: In the case of mortgage-related 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
5
<PAGE>
collateral is government-backed. In addition, mortgage-related securities
subject the Portfolio to the following risks:
Prepayment risk: Because interest rates rise and fall, there
is no way to be certain of the actual rates of prepayment by the
borrowers on the underlying mortgages. Thus, actual prepayments on the
securities could differ from expected prepayments. As a result, the
value of a security could be lower than expected.
Shortening risk: Shortening risk is the possibility that
falling interest rates may cause prepayments of principal to occur at a
faster-than-expected rate. This particular risk may effectively change
a security that was considered intermediate- or long-term into a
short-term security. The prices of short-term securities do not rise as
much in response to a fall in interest rates as do the prices of
intermediate-or long-term securities.
Extension risk: Extension risk is the possibility that rising
interest rates may cause prepayments of principal to occur at a
slower-than-expected rate. This particular risk may effectively change
a security that was considered short- or intermediate-term into a
long-term security. The prices of long-term securities generally fall
more in response to a rise in interest rates than do the prices of
short- or intermediate-term securities.
INVESTMENT PERFORMANCE
The bar chart below shows the Portfolio's performance for the past 10
calendar years. The table below shows how the Portfolio's average annual returns
differ from those of a broad-based securities market index. Both the bar chart
and the table indicate the volatility of an investment in the Portfolio and give
some indication of the risk. The Portfolio's past performance is no guarantee of
how it will perform in the future.
Bar Chart
Calendar Year Total Returns
Bernstein Government Short Duration Portfolio
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
--- --- --- --- --- --- --- --- --- ---
8.98% 11.22% 5.37% 4.60% 0.42% 10.11% 4.09% 5.65% 5.55% 3.08%
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
Best Quarter 12/31/91 3.83%
Worst Quarter 3/31/92 -0.61%
6
<PAGE>
Average Annual Total Returns For Years ended 12/31/99
One Year Five Years Ten Years
-------- ---------- ---------
Bernstein Government Short Duration 3.08% 5.67% 5.86%
Merrill Lynch 1-3 Year Treasury Index 3.06% 6.51% 6.59%
Fees and Expenses
The following table describes the fees and expenses you would pay if
you buy and hold shares of the Portfolio.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Bernstein Government
Short Duration
Portfolio
- ---------------------------------------------------------------------------
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- ---------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
Management Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 0.20%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.10%
Total Annual Portfolio Operating Expenses 0.70%
- ---------------------------------------------------------------------------
</TABLE>
(1) Certain shareholders may be charged an annual account maintenance
fee of $100 by Bernstein (not the Fund). The fee applies to shareholders who
have Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ---------------------------------------------------------------------------
Bernstein
Government
Short Duration
Portfolio
- ---------------------------------------------------------------------------
1 Yr. 72
3 Yrs. (cum.) 224
5 Yrs. (cum.) 390
10 Yrs. (cum.) 871
- ---------------------------------------------------------------------------
7
<PAGE>
THE BERNSTEIN SHORT DURATION PLUS PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and a moderate rate of income that is
subject to taxes.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein Short Duration Plus Portfolio will invest at least 80% of
its total assets in securities rated A or better by national rating agencies and
comparably rated commercial paper and notes. Many types of securities may be
purchased by the Portfolio, including corporate bonds, notes, U.S. government
and agency securities, asset-backed securities, mortgage-related securities and
inflation-protected securities as well as others. The Portfolio may also invest
up to 20% of its total assets in fixed-income foreign securities in developed or
emerging-market countries. The Portfolio may use special investment techniques,
including futures.
The Portfolio may invest up to 20% of its total assets in fixed-income
securities rated BB or B by national rating agencies, which are not
investment-grade.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around two years, it will
lose about 2% in principal should interest rates rise 1% and gain about 2% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of one to three
years under normal market conditions.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is
8
<PAGE>
a risk that the Portfolio's income level and/or share price will fall.
Securities that are not investment-grade (including those that have been
downgraded to below investment-grade) are considered speculative as to the
payment of interest and principal and could experience more volatility in price.
The Portfolio may retain a security whose credit quality is downgraded or for
which the issuer defaults.
Riskier than a money-market fund: The Portfolio is invested in
securities with longer maturities than the assets of the type of mutual fund
known as a money-market fund. However, the risk of a decline in the market value
of the Portfolio is greater than for a money-market fund since the credit
quality of the portfolio securities may be lower and the effective duration of
the Portfolio will be longer.
Inflation-protected securities: 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.
Foreign securities: Investing in foreign securities entails special
risks, such as potential political and economic instability, greater volatility
and less liquidity. In addition, there is the possibility that changes in value
of a foreign currency will reduce the U.S. dollar value of securities
denominated in that currency. These risks are heightened with respect to
investments in emerging-market countries.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Mortgage-related securities: Investments in mortgage-related securities
expose the Portfolio to the following risks:
Prepayment risk: Because interest rates rise and fall, there
is no way to be certain of the actual rates of prepayment by the
borrowers on the underlying mortgages. Thus, actual prepayments on the
securities could differ from expected prepayments. As a result, the
value of a security could be lower than expected.
Shortening risk: Shortening risk is the possibility that
falling interest rates may cause prepayments of principal to occur at a
faster-than-expected rate. This particular risk may effectively change
a security that was considered intermediate- or long-term into a
short-term security. The prices of short-term securities do not rise as
much in response to a fall in interest rates as do the prices of
intermediate-or long-term securities.
Extension risk: Extension risk is the possibility that rising
interest rates may cause prepayments of principal to occur at a
slower-than-expected rate. This
9
<PAGE>
particular risk may effectively change a security that was considered
short- or intermediate-term into a long-term security. The prices of
long-term securities generally fall more in response to a rise in
interest rates than do the prices of short- or intermediate-term
securities.
INVESTMENT PERFORMANCE
The bar chart to the right shows the Portfolio's performance for the
past 10 calendar years. The table below the chart shows how the Portfolio's
average annual returns differ from those of a broad-based securities market
index. Both the bar chart and the table indicate the volatility of an investment
in the Portfolio and give some indication of the risk. The Portfolio's past
performance is no guarantee of how it will perform in the future.
Bar Chart
<TABLE>
<CAPTION>
Calendar Year Total Returns
Bernstein Short Duration Plus Portfolio
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.27% 12.39% 6.30% 5.42% 0.55% 10.10% 4.79% 5.54% 5.93% 3.78%
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
Best Quarter 12/31/91 3.75%
Worst Quarter 3/31/94 -0.31%
<CAPTION>
Average Annual Total Returns for Years Ended 12/31/99
One Year Five Years Ten Years
-------- ---------- ---------
<S> <C> <C> <C>
Bernstein Short Duration Plus 3.78% 6.01% 6.26%
Merrill Lynch 1-3 Year Treasury Index 3.06% 6.51% 6.59%
</TABLE>
Fees and Expenses
The following table describes the fees and expenses you would pay if
you buy and hold shares of the Portfolio.
- ----------------------------------------------------------------------------
Bernstein
Short Duration
Plus
Portfolio
- ----------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- ----------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from portfolio assets)
Management Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 0.15%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.05%
Total Annual Portfolio Operating Expenses 0.65%
- ----------------------------------------------------------------------------
(1) Certain shareholders may be charged an annual account maintenance fee
of $100 by Bernstein (not the Fund). The fee applies to shareholders who have
Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ---------------------------------------------------------------------------
Bernstein
Short Duration
Plus
Portfolio
- ---------------------------------------------------------------------------
1 Yr. 66
3 Yrs. (cum.) 208
5 Yrs. (cum.) 362
10 Yrs. (cum.) 810
- ---------------------------------------------------------------------------
10
<PAGE>
THE BERNSTEIN INTERMEDIATE DURATION PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and a moderate to high rate of current
income that is subject to taxes.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein Intermediate Duration Portfolio will invest at least 65%
of its total assets in securities rated AA or better by national rating agencies
and comparably rated commercial paper and notes. In addition, the Portfolio will
invest at least 80% of its total assets in securities rated A or better by
national rating agencies.
Many types of securities may be purchased by the Portfolio, including
corporate bonds, notes, U.S. government and agency securities, asset-backed
securities, mortgage-related securities and inflation-protected securities as
well as others. The Portfolio may also invest up to 20% of its total assets in
fixed-income foreign securities in developed or emerging-market countries. The
Portfolio may use special investment techniques, including futures.
The Portfolio may invest up to 20% of its total assets in fixed-income
securities rated BB or B by national rating agencies, which are not
investment-grade.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around five years, it will
lose about 5% in principal should interest rates rise 1% and gain about 5% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of three to six
years under normal market conditions.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
11
<PAGE>
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
Because prices of intermediate bonds are more sensitive to
interest-rate changes than those of shorter duration, this Portfolio has greater
interest-rate risk than Bernstein's short-duration Portfolios.
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is a risk that the Portfolio's income
level and/or share price will fall. Securities that are not investment-grade
(including those that have been downgraded to below investment-grade) are
considered speculative as to the payment of interest and principal and could
experience more volatility in price. The Portfolio may retain a security whose
credit quality is downgraded or for which the issuer defaults.
Inflation-protected securities: 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.
Foreign securities: Investing in foreign securities entails special
risks, such as potential political and economic instability, greater volatility
and less liquidity. In addition, there is the possibility that changes in value
of a foreign currency will reduce the U.S. dollar value of securities
denominated in that currency. These risks are heightened with respect to
investments in emerging-market countries.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Mortgage-related securities: Investments in mortgage-related securities
expose the Portfolio to the following risks:
Prepayment risk: Because interest rates rise and fall, there
is no way to be certain of the actual rates of prepayment by the
borrowers on the underlying mortgages. Thus, actual prepayments on the
securities could differ from expected prepayments. As a result, the
value of a security could be lower than expected.
Shortening risk: Shortening risk is the possibility that
falling interest rates may cause prepayments of principal to occur at
a faster-than-expected rate. This particular risk may effectively
change a security that was considered intermediate- or long-term into
a short-term security. The prices of short-term securities do not rise
as much in response to a fall in interest rates as do the prices of
intermediate-
12
<PAGE>
or long-term securities.
Extension risk: Extension risk is the possibility that rising
interest rates may cause prepayments of principal to occur at a
slower-than-expected rate. This particular risk may effectively change
a security that was considered short- or intermediate-term into a
long-term security. The prices of long-term securities generally fall
more in response to a rise in interest rates than do the prices of
short- or intermediate-term securities.
INVESTMENT PERFORMANCE
The bar chart to the right shows the Portfolio's performance for the
past 10 calendar years. The table below the chart shows how the Portfolio's
average annual returns differ from those of a broad-based securities market
index. Both the bar chart and the table indicate the volatility of an investment
in the Portfolio and give some indication of the risk. The Portfolio's past
performance is no guarantee of how it will perform in the future.
Bar Chart
<TABLE>
<CAPTION>
Calendar Year Total Returns
Bernstein Intermediate Duration Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
7.35% 17.11% 7.67% 10.34% -3.15% 17.83% 3.58% 7.66% 6.87% 0.64%
<CAPTION>
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
<S> <C> <C>
Best Quarter 12/31/91 5.94%
Worst Quarter 3/31/94 -2.30%
<CAPTION>
Average Annual Total Returns For Years Ended Dec. 31, 1999
One Year Five Years Ten Years
-------- ---------- ---------
<S> <C> <C> <C>
Bernstein Immediate Duration 0.64% 7.16% 7.41%
Lehman Brothers Aggregate Bond Index -0.82% 7.73% 7.70%
</TABLE>
Fees and Expenses
The following table describes the fees and expenses you would
pay if you buy and hold shares of the Portfolio.
- ---------------------------------------------------------------------------
Bernstein
Intermediate Duration
Portfolio
- ---------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- ---------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
Management Fees 0.47%
Distribution (12b-1) Fees None
Other Expenses 0.13%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.03%
Total Annual Portfolio Operating Expenses 0.60%
- ---------------------------------------------------------------------------
(1) Certain shareholders may be charged an annual account maintenance fee of
$100 by Bernstein (not the Fund). The fee applies to shareholders who have
Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ---------------------------------------------------------------------------
Bernstein
Intermediate
Duration
Portfolio
- ---------------------------------------------------------------------------
1 Yr. 61
3 Yrs. (cum.) 192
5 Yrs. (cum.) 335
10 Yrs. (cum.) 750
- ---------------------------------------------------------------------------
13
<PAGE>
THE BERNSTEIN NEW YORK MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and maximize total return after taking
account of federal, state and local taxes for New York residents.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein New York Municipal Portfolio will invest at least 80% of
its total assets in municipal securities rated A or better by national rating
agencies and comparably rated notes. The Portfolio will invest at least 65%
of its total assets in New York municipal securities.
The municipal securities in which the Portfolio may invest are issued
to raise money for a variety of public or private purposes, including general
financing for state and local governments, the District of Columbia or
possessions and territories of the United States, or financing for specific
projects or public facilities. The interest paid on these securities is
generally exempt from federal and New York state and local personal income tax,
although in certain instances, it may be includable in income subject to
alternative minimum tax.
The Portfolio may invest up to 20% of its total assets in fixed-income
securities rated BB or B by national rating agencies, which are not
investment-grade.
The Portfolio may also invest up to 20% of its assets in fixed-income
securities of U.S. issuers that are not municipal securities if, in our opinion,
these securities will enhance the after-tax return for New York investors.
The Portfolio may also use special investment techniques, including
futures.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around five years, it will
lose about 5% in principal should interest rates rise 1% and gain about 5% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of three and
one-half to seven years under normal market conditions.
The two main types of municipal securities in which the Portfolio will
invest are
14
<PAGE>
general obligation bonds and revenue bonds. The payment of principal and
interest on general obligation bonds is backed by the issuer's full taxing and
revenue raising power ("full faith and credit"), and is payable from the
unrestricted revenues of the issuer. In contrast, revenue bonds, also called
"special obligation bonds," usually rely exclusively on a specific or restricted
revenue source, such as revenue from a particular facility or the proceeds of a
special tax, to generate payment of principal and interest.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
Because prices of intermediate bonds are more sensitive to interest
rate changes than those of shorter duration, this Portfolio has greater
interest-rate risk than Bernstein's short-duration Portfolios.
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is a risk that the Portfolio's income
level and/or share price will fall. Securities that are not investment-grade
(including those that have been downgraded to below investment-grade) are
considered speculative as to the payment of interest and principal and could
experience more volatility in price. The Portfolio may retain a security whose
credit quality is downgraded or for which the issuer defaults.
Geographic risk: Since the Portfolio is primarily invested in New York
securities, it is exposed to adverse economic and political changes within New
York. Significant political and economic developments within New York and the
financial condition of the state and its municipalities may impact virtually all
municipal bonds issued in the state.
Nondiversified risk: The Portfolio is nondiversified - allowing for
investment of its assets in a fewer number of issuers than diversified mutual
funds. As a result, any changes in the market's assessment or in the financial
condition of any one of those issuers could significantly impact performance and
the value of your investment. The Portfolio may experience greater losses than
mutual funds that invest in a broader and larger pool of issuers.
Political risk: Any significant restructuring of federal income tax
rates or even serious discussion on the topic in Congress may cause municipal
bond prices to fall. The demand for municipal securities is strongly influenced
by the value of tax-exempt income to
15
<PAGE>
investors. Substantially lower income tax rates may reduce the advantage of
owning municipal securities.
Callable securities: The issuer of a callable security has the ability
to repay principal prior to the maturity date of the security. The issuer will
typically call a security when interest rates are lower than the original issue
yield of the security. The Portfolio may lose any premium it has paid for the
called security over its par value and the principal received by the Portfolio
when a security is called is usually reinvested at a lower yield.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Other risks: Bonds of certain sectors have special risks. For example,
the health care industry can be affected by federal or state legislation,
electric utilities are subject to governmental regulation, and private activity
bonds are not government backed.
Also, some municipal securities are municipal lease obligations. A
municipal lease obligation is not backed by the full faith and credit of the
issuing municipality, but is usually backed by the municipality's pledge to make
annual appropriations for lease payments. Thus, it is possible that a
municipality will not appropriate money for lease payments. Additionally, some
municipal lease obligations may allow for lease cancellation prior to the
maturity date of the security. Municipal lease obligations may be less readily
marketable than other municipal securities and some may be illiquid.
INVESTMENT PERFORMANCE
The bar chart below shows the Portfolio's performance for the past 10
calendar years. The table below shows how the Portfolio's average annual returns
differ from those of a broad-based securities market index. Both the bar chart
and the table indicate the volatility of an investment in the Portfolio and give
some indication of the risk. The Portfolio's past performance is no guarantee of
how it will perform in the future.
Bar Chart
<TABLE>
<CAPTION>
Calendar Year Total Returns
Bernstein New York Municipal Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
- ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
6.64% 10.41% 6.88% 8.56% -2.55% 12.97% 3.53% 6.54% 5.21% -0.03%
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
<S> <C> <C>
Best Quarter 3/31/95 4.87%
Worst Quarter 3/31/94 -2.90%
<CAPTION>
Average Annual Total Returns For Years Ended 12/31/99
One Year Five Years Ten Years
-------- ---------- ---------
<S> <C> <C> <C>
Bernstein New York Municipal -0.03% 5.56% 5.72%
Lehman Brothers Five-Year General
Obligation Municipal Bond Index 0.72% 5.80% 6.17%
</TABLE>
Fees and Expenses
The following table describes the fees and expenses you would
pay if you buy and hold shares of the Portfolio.
- ----------------------------------------------------------------------------
Bernstein
New York
Municipal
Portfolio
- ----------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- ----------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
Management Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 0.14%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.04%
Total Annual Portfolio Operating Expenses 0.64%
- ----------------------------------------------------------------------------
(1) Certain shareholders may be charged an annual account maintenance
fee of $100 by Bernstein (not the Fund). The fee applies to shareholders who
have Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ---------------------------------------------------------------------------
Bernstein
New York
Municipal
Portfolio
- ---------------------------------------------------------------------------
1 Yr. 65
3 Yrs. (cum.) 205
5 Yrs. (cum.) 357
10 Yrs. (cum.) 798
- ---------------------------------------------------------------------------
17
<PAGE>
THE BERNSTEIN SHORT DURATION NEW YORK MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and a moderate rate of return after
taking account of federal, state and local taxes for New York residents.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein Short Duration New York Municipal Portfolio will invest
at least 80% of its total assets in municipal securities rated A or better by
national rating agencies and comparably rated notes. The Portfolio will invest
at least 65% of its total assets in New York municipal securities.
The municipal securities in which the Portfolio may invest are issued
to raise money for a variety of public or private purposes, including general
financing for state and local governments, the District of Columbia or
possessions and territories of the United States, or financing for specific
projects or public facilities. The interest paid on these securities is
generally exempt from federal and New York state and local personal income tax,
although in certain instances, it may be includable in income subject to
alternative minimum tax.
The Portfolio may invest up to 20% of its total assets in fixed-income
securities rated BB or B by national rating agencies, which are not
investment-grade.
The Portfolio may also invest up to 20% of its assets in fixed-income
securities of U.S. issuers that are not municipal securities if, in our opinion,
these securities will enhance the after-tax return for New York investors.
The Portfolio may use special investment techniques, including futures.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around two years, it will
lose about 2% in principal should interest rates rise 1% and gain about 2% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of one-half year
to two and one-half years under normal market conditions.
The two main types of municipal securities are general obligation bonds
and revenue bonds. The payment of principal and interest on general obligation
bonds is
18
<PAGE>
backed by the issuer's full taxing and revenue raising power ("full faith and
credit"), and is payable from the unrestricted revenues of the issuer. In
contrast, revenue bonds, also called "special obligation bonds," usually rely
exclusively on a specific or restricted revenue source, such as revenue from a
particular facility or the proceeds of a special tax, to generate money for
payment of principal and interest.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is a risk that the Portfolio's income
level and/or share price will fall. Securities that are not investment-grade
(including those that have been downgraded to below investment-grade) are
considered speculative as to the payment of interest and principal and could
experience more volatility in price. The Portfolio may retain a security whose
credit quality is downgraded or for which the issuer defaults.
Riskier than a money-market fund: The Portfolio is invested in
securities with longer maturities than the assets of the type of mutual fund
known as a money-market fund. The risk of a decline in the market value of the
Portfolio is greater than for a money-market fund since the credit quality of
the portfolio securities may be lower and the effective duration of the
Portfolio will be longer.
Geographic risk: Since the Portfolio is primarily invested in New York
securities, it is exposed to adverse economic and political changes within New
York. Significant political and economic developments within New York and the
financial condition of the state and its municipalities may impact virtually all
municipal bonds issued in the state.
Nondiversified risk: The Portfolio is nondiversified -- allowing for
investment of its assets in a fewer number of issuers than diversified mutual
funds. As a result, any changes in the market's assessment or in the financial
condition of any of the issuers could significantly impact performance and the
value of your investment. The Portfolio may experience greater losses than
mutual funds that invest in a broader and larger pool of issuers.
Political risk: Any significant restructuring of federal income tax
rates or even serious discussion on the topic in Congress may cause municipal
bond prices to fall. The demand for municipal securities is strongly influenced
by the value of tax-exempt income to
19
<PAGE>
investors. Substantially lower income tax rates may reduce the advantage of
owning municipal securities.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Other risks: Bonds of certain sectors have special risks. For example,
the health care industry can be affected by federal or state legislation,
electric utilities are subject to governmental regulation, and private activity
bonds are not government backed.
Also, some municipal securities are municipal lease obligations. A
municipal lease obligation is not backed by the full faith and credit of the
issuing municipality, but is usually backed by the municipality's pledge to make
annual appropriations for lease payments. Thus, it is possible that a
municipality will not appropriate money for lease payments. Additionally, some
municipal lease obligations may allow for lease cancellation prior to the
maturity date of the security. Municipal lease obligations may be less readily
marketable than other municipal securities and some may be illiquid.
INVESTMENT PERFORMANCE
The bar chart below shows the Portfolio's performance for each full
calendar year since inception. The table below shows how the Portfolio's average
annual returns differ from those of a broad-based securities market index. Both
the bar chart and the table indicate the volatility of an investment in the
Portfolio and give some indication of the risk. The Portfolio's past performance
is no guarantee of how it will perform in the future.
Bar Chart
<TABLE>
<CAPTION>
Calendar Year Total Returns
Bernstein Short Duration New York Municipal Portfolio
<S> <C> <C> <C> <C>
'95 '96 '97 '98 '99
--- --- --- --- ---
6.07% 3.52% 3.75% 3.77% 2.30%
<CAPTION>
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
<S> <C> <C>
Best Quarter 3/31/95 2.07%
Worst Quarter 6/30/99 0.17%
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Returns For Years Ended 12/31/99
One Year Five Years Since Nov. 1, 1994*
-------- ---------- -------------------
<S> <C> <C> <C>
Bernstein Short Duration New York
Municipal 2.30% 3.88% 3.80%
Lehman Brothers One-Year Municipal
Index 2.93% 4.62% 4.55%
*First full month after Portfolio inception (October 4, 1994)
</TABLE>
Fees and Expenses
The following table describes the fees and expenses you would
pay if you buy and hold shares of the Portfolio.
- ---------------------------------------------------------------------------
Bernstein
Short Duration
New York Municipal
Portfolio
- ---------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- ---------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
Management Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 0.24%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.14%
Total Annual Portfolio Operating Expenses 0.74%
- ---------------------------------------------------------------------------
(1) Certain shareholders may be charged an annual account maintenance
fee of $100 by Bernstein (not the Fund). The fee applies to shareholders who
have Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ---------------------------------------------------------------------------
Bernstein
Short Duration
New York Municipal
Portfolio
- ---------------------------------------------------------------------------
1 Yr. 76
3 Yrs. (cum.) 237
5 Yrs. (cum.) 411
10 Yrs. (cum.) 918
- ---------------------------------------------------------------------------
21
<PAGE>
THE BERNSTEIN CALIFORNIA MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and maximize total return after taking
account of federal and state taxes for California residents.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein California Municipal Portfolio will invest at least 80%
of its total assets in municipal securities rated A or better by national rating
agencies and comparably rated notes. The Portfolio will invest at least 65% of
its total assets in California municipal securities.
The municipal securities in which the Portfolio may invest are issued
to raise money for a variety of public or private purposes, including general
financing for state and local governments, the District of Columbia or
possessions and territories of the United States, or financing for specific
projects or public facilities. The interest paid on these securities is
generally exempt from federal and California state personal income tax, although
in certain instances, it may be includeable in income subject to alternative
minimum tax.
The Portfolio may invest up to 20% of its total assets in securities
rated BB or B by national rating agencies, which are not investment-grade.
The Portfolio may also invest up to 20% of its assets in fixed-income
securities of U.S. issuers that are not municipal securities if, in our opinion,
these securities will enhance the after-tax return for California investors.
The Portfolio may use special investment techniques, including futures.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around five years, it will
lose about 5% in principal should interest rates rise 1% and gain about 5% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of three and
one-half to seven years under normal market conditions.
The two main types of municipal securities are general obligation bonds
and
22
<PAGE>
revenue bonds. The payment of principal and interest on general obligation bonds
is backed by the issuer's full taxing and revenue raising power ("full faith and
credit"), and is payable from the unrestricted revenues of the issuer. Revenue
bonds, also called "special obligation bonds," usually rely exclusively on a
specific or restricted revenue source, such as revenue from a particular
facility or the proceeds of a special tax, to generate money for payment of
principal and interest.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
Because prices of intermediate bonds are more sensitive to
interest-rate changes than those of shorter duration, this Portfolio has greater
interest-rate risk than Bernstein's short-duration Portfolios.
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is a risk that the Portfolio's income
level and/or share price will fall. Securities that are not investment-grade
(including those that have been downgraded to below investment-grade) are
considered speculative as to the payment of interest and principal and could
experience more volatility in price. The Portfolio may retain a security whose
credit quality is downgraded or for which the issuer defaults.
Geographic risk: Since the Portfolio is primarily invested in
California securities, it is exposed to adverse economic and political changes
within California. Significant political and economic developments within
California and the financial condition of the state and its municipalities may
impact virtually all municipal bonds issued in the state.
Nondiversified risk: The Portfolio is nondiversified -- allowing for
investment of its assets in a fewer number of issuers than diversified mutual
funds. As a result, any changes in the market's assessment or in the financial
condition of any one of those issuers could significantly impact performance and
the value of your investment. The Portfolio may experience greater losses than
mutual funds that invest in a broader and larger pool of issuers.
Political risk: Any significant restructuring of federal income tax
rates or even serious discussion on the topic in Congress may cause municipal
bond prices to fall. The demand for municipal securities is strongly influenced
by the value of tax-exempt income to
23
<PAGE>
investors. Substantially lower income tax rates may reduce the advantage of
owning municipal securities.
Callable securities: The issuer of a callable security has the ability
to repay principal prior to the maturity date of the security. The issuer will
typically call a security when interest rates are lower than the original issue
yield of the security. The Portfolio may lose any premium it has paid for the
called security over its par value and the principal received by the Portfolio
when a security is called is usually reinvested at a lower yield.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Other risks: Bonds of certain sectors have special risks. For example,
the health care industry can be affected by federal or state legislation,
electric utilities are subject to governmental regulation, and private activity
bonds are not government backed.
Also, some municipal securities are municipal lease obligations. A
municipal lease obligation is not backed by the full faith and credit of the
issuing municipality, but is usually backed by the municipality's pledge to make
annual appropriations for lease payments. Thus, it is possible that a
municipality will not appropriate money for lease payments. Additionally, some
municipal lease obligations may allow for lease cancellation prior to the
maturity date of the security. Municipal lease obligations may be less readily
marketable than other municipal securities and some may be illiquid.
INVESTMENT PERFORMANCE
The bar chart below shows the Portfolio's performance for each full
calendar year since inception. The table below shows how the Portfolio's average
annual returns differ from those of a broad-based securities market index. Both
the bar chart and the table indicate the volatility of an investment in the
Portfolio and give some indication of the risk. The Portfolio's past performance
is no guarantee of how it will perform in the future.
Bar Chart
Calendar Year Total Returns
Bernstein California Municipal Portfolio
'91 '92 '93 '94 '95 '96 '97 '98 '99
- ------ ------ ------ ------ ------ ------ ------ ------ ------
9.53% 6.80% 8.25% -3.15% 13.72% 3.72% 6.34% 5.12% -0.06%
24
<PAGE>
<TABLE>
<CAPTION>
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
<S> <C> <C>
Best Quarter 3/31/95 5.48%
Worst Quarter 3/31/94 -2.88%
<CAPTION>
Average Annual Total Returns For Years Ended 12/31/99
One Year Five Year Since Sep. 1, 1990*
-------- --------- -------------------
<S> <C> <C> <C>
Bernstein California Municipal -0.06% 5.67% 5.75%
Lehman Brothers Five-Year
General Obligation Municipal
Bond Index 0.72% 5.80% 6.21%
*First full month after Portfolio inception (August 6, 1990)
</TABLE>
Fees and Expenses
The following table describes the fees and expenses you would pay if
you buy and hold shares of the Portfolio.
- ---------------------------------------------------------------------------
Bernstein
California
Municipal
Portfolio
- ---------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- ---------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
Management Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 0.14%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.04%
Total Annual Portfolio Operating Expenses 0.64%
- ---------------------------------------------------------------------------
(1) Certain shareholders may be charged an annual account maintenance
fee of $100 by Bernstein (not the Fund). The fee applies to shareholders who
have Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ---------------------------------------------------------------------------
Bernstein
California
Municipal
Portfolio
- ---------------------------------------------------------------------------
1 Yr. 65
3 Yrs. (cum.) 205
5 Yrs. (cum.) 357
10 Yrs. (cum.) 798
- ---------------------------------------------------------------------------
25
<PAGE>
THE BERNSTEIN SHORT DURATION CALIFORNIA MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and a moderate rate of return after
taking account of federal and state taxes for California residents.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein Short Duration California Municipal Portfolio will invest
at least 80% of its total assets in municipal securities rated A or better by
national rating agencies and comparably rated notes. The Portfolio will invest
at least 65% of its total assets in California municipal securities.
The municipal securities in which the Portfolio may invest are issued
to raise money for a variety of public or private purposes, including general
financing for state and local governments, the District of Columbia or
possessions and territories of the United States, or financing for specific
projects or public facilities. The interest paid on these securities is
generally exempt from federal and California state personal income tax, although
in certain instances, it may be includable in income subject to alternative
minimum tax.
The Portfolio may invest up to 20% of its total assets in fixed-income
securities rated BB or B by national rating agencies, which are not
investment-grade.
The Portfolio may also invest up to 20% of its assets in fixed-income
securities of U.S. issuers that are not municipal securities if, in our opinion,
these securities will enhance the after-tax return for California investors.
The Portfolio may use special investment techniques, including futures.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around two years, it will
lose about 2% in principal should interest rates rise 1% and gain about 2% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of one-half year
to two and one-half years under normal market conditions.
The two main types of municipal securities are general obligation bonds
and
26
<PAGE>
revenue bonds. The payment of principal and interest on general obligation bonds
is backed by the issuer's full taxing and revenue raising power ("full faith and
credit"), and is payable from the unrestricted revenues of the issuer. Revenue
bonds, also called "special obligation bonds," usually rely exclusively on a
specific or restricted revenue source, such as revenue from a particular
facility or the proceeds of a special tax, to generate money for payment of
principal and interest.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is a risk that the Portfolio's income
level and/or share price will fall. Securities that are not investment-grade
(including those that have been downgraded to below investment-grade) are
considered speculative as to the payment of interest and principal and could
experience more volatility in price. The Portfolio may retain a security whose
credit quality is downgraded or for which the issuer defaults.
Riskier than a money-market fund: The Portfolio is invested in
securities with longer maturities than the assets of the type of mutual fund
known as a money-market fund. The risk of a decline in the market value of the
Portfolio is greater than for a money-market fund since the credit quality of
the portfolio securities may be lower and the effective duration of the
Portfolio will be longer.
Geographic risk: Since the Portfolio is primarily invested in
California securities, it is exposed to adverse economic and political changes
within California. Significant political and economic developments within
California and the financial condition of the state and its municipalities may
impact virtually all municipal bonds issued in the state.
Nondiversified risk: The Portfolio is nondiversified -- allowing for
investment of its assets in a fewer number of issuers than diversified mutual
funds. As a result, any changes in the market's assessment or in the financial
condition of any one of those issuers could significantly impact performance and
the value of your investment. The Portfolio may experience greater losses than
mutual funds that invest in a broader and larger pool of issuers.
Political risk: Any significant restructuring of federal income tax
rates or even serious discussion on the topic in Congress may cause municipal
bond prices to fall. The
27
<PAGE>
demand for municipal securities is strongly influenced by the value of
tax-exempt income to investors. Substantially lower income tax rates may reduce
the advantage of owning municipal securities.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Other risks: Bonds of certain sectors have special risks. For example,
the health care industry can be affected by federal or state legislation,
electric utilities are subject to governmental regulation, and private activity
bonds are not government backed.
Also, some municipal securities are municipal lease obligations. A
municipal lease obligation is not backed by the full faith and credit of the
issuing municipality, but is usually backed by the municipality's pledge to make
annual appropriations for lease payments. Thus, it is possible that a
municipality will not appropriate money for lease payments. Additionally, some
municipal lease obligations may allow for lease cancellation prior to the
maturity date of the security. Municipal lease obligations may be less readily
marketable than other municipal securities and some may be illiquid.
INVESTMENT PERFORMANCE
The bar chart below shows the Portfolio's performance for each full
calendar year since inception. The table below shows how the Portfolio's average
annual returns differ from those of a broad-based securities market index. Both
the bar chart and the table indicate the volatility of an investment in the
Portfolio and give some indication of the risk. The Portfolio's past performance
is no guarantee of how it will perform in the future.
Bar Chart
<TABLE>
<CAPTION>
Calendar Year Total Returns
Bernstein Short Duration California Municipal Portfolio
<S> <C> <C> <C> <C>
'95 '96 '97 '98 '99
--- --- --- --- ---
6.29% 3.55% 3.60% 3.90% 2.37%
<CAPTION>
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
<S> <C> <C>
Best Quarter 3/31/95 2.04%
Worst Quarter 6/30/99 0.28%
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Returns For Years Ended 12/31/99
One Year Five Years Since Nov. 1, 1994*
-------- ---------- -------------------
<S> <C> <C> <C>
Bernstein Short Duration California
Municipal 2.37% 3.94% 3.85%
Lehman Brothers One-Year Municipal
Index 2.93% 4.62% 4.55%
*First full month after Portfolio inception (October 3, 1994)
</TABLE>
Fees and Expenses
The following table describes the fees and expenses you would pay if
you buy and hold shares of the Portfolio.
- ----------------------------------------------------------------------------
Bernstein
Short Duration
California Municipal
Portfolio
- ----------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- ----------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
Management Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 0.23%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.13%
Total Annual Portfolio Operating Expenses 0.73%
- ----------------------------------------------------------------------------
(1) Certain shareholders may be charged an annual account maintenance
fee of $100 by Bernstein (not the Fund). The fee applies to shareholders who
have Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ---------------------------------------------------------------------------
Bernstein
Short Duration
California
Municipal
Portfolio
- ---------------------------------------------------------------------------
1 Yr. 75
3 Yrs. (cum.) 233
5 Yrs. (cum.) 406
10 Yrs. (cum.) 906
- ---------------------------------------------------------------------------
29
<PAGE>
THE BERNSTEIN DIVERSIFIED MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and maximize total return after taking
account of federal taxes.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein Diversified Municipal Portfolio will invest at least 80%
of its total assets in municipal securities rated A or better by national rating
agencies and comparably rated notes. The Portfolio will invest no more than 25%
of its total assets in municipal securities of issuers located in any one state.
The municipal securities in which the Portfolio may invest are issued
to raise money for a variety of public or private purposes, including general
financing for state and local governments, the District of Columbia or
possessions and territories of the United States, or financing for specific
projects or public facilities. The interest paid on these securities is
generally exempt from federal personal income tax, although in certain
instances, it may be includable in income subject to alternative minimum tax.
The Portfolio may invest up to 20% of its total assets in fixed-income
securities rated BB or B by national rating agencies, which are not
investment-grade.
The Portfolio may also invest up to 20% of its assets in fixed-income
securities of U.S. issuers that are not municipal securities if, in our opinion,
these securities will enhance the after-tax return for Portfolio investors.
The Portfolio may use special investment techniques, including futures.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around five years, it will
lose about 5% in principal should interest rates rise 1% and gain about 5% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of three and
one-half to seven years under normal market conditions.
The two main types of municipal securities are general obligation bonds
and revenue bonds. The payment of principal and interest on general obligation
bonds is backed
30
<PAGE>
by the issuer's full taxing and revenue raising power ("full faith and credit"),
and is payable from the unrestricted revenues of the issuer. Revenue bonds, also
called "special obligation bonds," usually rely exclusively on a specific or
restricted revenue source, such as revenue from a particular facility or the
proceeds of a special tax, to generate money for payment of principal and
interest.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
Because prices of intermediate bonds are more sensitive to
interest-rate changes than those of shorter duration, this Portfolio has
greater interest-rate risk than Bernstein's short-duration Portfolios.
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is a risk that the Portfolio's income
level and/or share price will fall. Securities that are not investment-grade
(including those that have been downgraded to below investment-grade) are
considered speculative as to the payment of interest and principal and could
experience more volatility in price. The Portfolio may retain a security whose
credit quality is downgraded or for which the issuer defaults.
Political risk: Any significant restructuring of federal income tax
rates, or even serious discussion on the topic in Congress may cause municipal
bond prices to fall. The demand for municipal securities is strongly influenced
by the value of tax-exempt income to investors. Substantially lower income tax
rates may reduce the advantage of owning municipal securities.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Callable securities: The issuer of a callable security has the ability
to repay principal prior to the maturity date of the security. The issuer will
typically call a security when interest rates are lower than the original issue
yield of the security. The Portfolio may lose any premium it has paid for the
called security over its par value and the principal received by the Portfolio
when a security is called is usually reinvested at a lower yield.
31
<PAGE>
Other risks: Bonds of certain sectors have special risks. For example,
the health care industry can be affected by federal or state legislation,
electric utilities are subject to governmental regulation, and private activity
bonds are not government backed.
Also, some municipal securities are municipal lease obligations. A
municipal lease obligation is not backed by the full faith and credit of the
issuing municipality, but is usually backed by the municipality's pledge to make
annual appropriations for lease payments. Thus, it is possible that a
municipality will not appropriate money for lease payments. Additionally, some
municipal lease obligations may allow for lease cancellation prior to the
maturity date of the security. Munciipal lease obligations may be less readily
marketable than other municipal securities and some may be illiquid.
INVESTMENT PERFORMANCE
The bar chart below shows the Portfolio's performance for the past
10 calendar years. The table below the chart shows how the Portfolio's average
annual returns differ from those of a broad-based securities market index. Both
the bar chart and the table indicate the volatility of an investment in the
Portfolio and give some indication of the risk. The Portfolio's past performance
is no guarantee of how it will perform in the future.
Bar Chart
<TABLE>
<CAPTION>
Calendar Year Total Returns
Bernstein Diversified Municipal Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
--- --- --- --- --- --- --- --- --- ---
6.80% 10.18% 6.54% 8.44% -2.52% 12.97% 3.64% 6.68% 4.62% 0.45%
<CAPTION>
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
<S> <C> <C>
Best Quarter 3/31/95 5.03%
Worst Quarter 3/31/94 -2.82%
<CAPTION>
Average Annual Total Returns For Years Ended 12/31/99
One Year Five Years Ten Years
-------- ---------- ---------
<S> <C> <C> <C>
Bernstein Diversified Municipal 0.45% 5.59% 5.69%
Lehman Brothers Five-Year General
Obligation Municipal Bond Index 0.72% 5.80% 6.17%
</TABLE>
Fees and Expenses
The following table describes the fees and expenses you would
pay if you buy and hold shares of the Portfolio.
- --------------------------------------------------------------------------------
Bernstein
Diversified
Municipal
Portfolio
- --------------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- --------------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
Management Fees .48%
Distribution (12b-1) Fees None
Other Expenses 0.15%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.05%
Total Annual Portfolio Operating Expenses 0.63%
- --------------------------------------------------------------------------------
(1) Certain shareholders may be charged an annual account maintenance fee of
$100 by Bernstein (not the Fund). The fee applies to shareholders who have
Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of
investing in the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Portfolio's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
- --------------------------------------------------------------------------------
Bernstein
Diversified
Municipal
Portfolio
- --------------------------------------------------------------------------------
1 Yr. 64
3 Yrs. (cum.) 202
5 Yrs. (cum.) 351
10 Yrs. (cum.) 786
- --------------------------------------------------------------------------------
32
<PAGE>
THE BERNSTEIN SHORT DURATION DIVERSIFIED MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and a moderate rate of return after
taking account of federal taxes.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein Short Duration Diversified Municipal Portfolio will
invest at least 80% of its total assets in municipal securities rated A or
better by national rating agencies and comparably rated notes. The Portfolio
will invest no more than 25% of its total assets in municipal securities of
issuers located in any one state.
The municipal securities in which the Portfolio may invest are issued
to raise money for a variety of public or private purposes, including general
financing for state and local governments, the District of Columbia or
possessions and territories of the United States, or financing for specific
projects or public facilities. The interest paid on these securities is
generally exempt from federal personal income tax, although in certain
instances, it may be includable in income subject to alternative minimum tax.
The Portfolio may invest up to 20% of its total assets in fixed-income
securities rated BB or B by national rating agencies, which are not
investment-grade.
The Portfolio may also invest up to 20% of its assets in fixed-income
securities of U.S. issuers that are not municipal securities if, in our opinion,
these securities will enhance the after-tax return for Portfolio investors.
The Portfolio may use special investment techniques, including futures.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around two years, it will
lose about 2% in principal should interest rates rise 1% and gain about 2% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of one-half year
to two and one-half years under normal market conditions.
The two main types of municipal securities are general obligation bonds
and
33
<PAGE>
revenue bonds. The payment of principal and interest under general obligation
bonds is backed by the issuer's full taxing and revenue raising power ("full
faith and credit"), and is payable from the unrestricted revenues of the issuer.
Revenue bonds, also called "special obligation bonds," usually rely exclusively
on a specific or restricted revenue source, such as revenue from a particular
facility or the proceeds of a special tax, to generate money for payment of
principal and interest.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is a risk that the Portfolio's income
level and/or share price will fall. Securities that are not investment-grade
(including those that have been downgraded to below investment-grade) are
considered speculative as to the payment of interest and principal and could
experience more volatility in price. The Portfolio may retain a security whose
credit quality is downgraded or for which the issuer defaults.
Riskier than a money-market fund: The Portfolio is invested in
securities with longer maturities than the assets of the type of mutual fund
known as a money-market fund. The risk of a decline in the market value of the
Portfolio is greater than for a money-market fund since the credit quality of
the portfolio securities may be lower and the effective duration of the
Portfolio will be longer.
Political risk: Any significant restructuring of federal income tax
rates or even serious discussion on the topic in Congress may cause municipal
bond prices to fall. The demand for municipal securities is strongly influenced
by the value of tax-exempt income to investors. Substantially lower income tax
rates may reduce the advantage of owning municipal securities.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Other risks: Bonds of certain sectors have special risks. For example,
the health care industry can be affected by federal or state legislation,
electric utilities are subject to governmental regulation, and private activity
bonds are not government backed.
34
<PAGE>
Also, some municipal securities are municipal lease obligations. A
municipal lease obligation is not backed by the full faith and credit of the
issuing municipality, but is usually backed by the municipality's pledge to make
annual appropriations for lease payments. Thus, it is possible that a
municipality will not appropriate money for lease payments. Additionally, some
municipal lease obligations may allow for lease cancellation prior to the
maturity date of the security. Municipal lease obligations may be less readily
marketable than other municipal securities and some may be illiquid.
INVESTMENT PERFORMANCE
The bar chart below to the right shows the Portfolio's performance for
each full calendar year since inception. The table below the chart shows how the
Portfolio's average annual returns differ from those of a broad-based securities
market index. Both the bar chart and the table indicate the volatility of an
investment in the Portfolio and give some indication of the risk. The
Portfolio's past performance is no guarantee of how it will perform in the
future.
Bar Chart
<TABLE>
<CAPTION>
Calendar Year Total Returns
Bernstein Short Duration Diversified Municipal Portfolio
<S> <C> <C> <C> <C>
'95 '96 '97 '98 '99
--- --- --- --- ---
6.36% 3.55% 3.96% 3.94% 2.57%
<CAPTION>
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
<S> <C> <C>
Best Quarter 3/31/95 2.01%
Worst Quarter 6/30/99 0.34%
<CAPTION>
Average Annual Total Returns For Years Ended 12/31/99
Since Nov.
One Year Five Years 1, 1994*
<S> <C> <C> <C>
Bernstein Short Duration Diversified Municipal 2.57% 4.07% 4.02%
Lehman Brothers One-Year Municipal Index 2.93% 4.62% 4.55%
*First full month after Portfolio inception
(October 3, 1994)
</TABLE>
Fees and Expenses
The following table describes the fees and expenses you would
pay if you buy and hold shares of the Portfolio.
35
<PAGE>
- --------------------------------------------------------------------------
Bernstein
Short Duration
Diversified
Municipal
Portfolio
- --------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- --------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
Management Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 0.21%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.11%
Total Annual Portfolio Operating Expenses 0.71%
- --------------------------------------------------------------------------
(1) Certain shareholders may be charged an annual account maintenance fee of
$100 by Bernstein (not the Fund). The fee applies to shareholders who have
Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of
investing in the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Portfolio's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
- -----------------------------------------------------------------------------
Bernstein
Short Duration
Diversified Municipal
Portfolio
- -----------------------------------------------------------------------------
1 Yr. 73
3 Yrs. (cum.) 227
5 Yrs. (cum.) 395
10 Yrs. (cum.) 883
- -----------------------------------------------------------------------------
36
<PAGE>
THE BERNSTEIN INTERNATIONAL VALUE PORTFOLIOS
INVESTMENT OBJECTIVES
Bernstein Tax-Managed International Value Portfolio
To provide long-term capital growth through investments in equity
securities of established foreign companies comprising the EAFE index, plus
Canada. The Portfolio seeks to minimize the impact of taxes on shareholders'
returns.
Bernstein International Value Portfolio II
To provide long-term capital growth through investments in equity
securities of established foreign companies comprising the EAFE index, plus
Canada. The Portfolio is managed without regard to tax considerations.
PRINCIPAL INVESTMENT STRATEGIES
Each of the Bernstein Tax-Managed International Value Portfolio and the
Bernstein International Value Portfolio II will invest primarily in equity
securities 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. We diversify among many foreign countries but not necessarily in the
same proportion that the countries are represented in the EAFE index. Bernstein
uses a value-oriented approach to stock selection.
The Portfolios will invest primarily in common stocks but may also
invest in preferred stocks, warrants and convertible securities of foreign
issuers, including sponsored or unsponsored American Depositary Receipts (ADRs)
and Global Depositary Receipts (GDRs).
In order to hedge a portion of the currency risk, the Portfolios will
generally invest in foreign currency futures contracts or foreign currency
forward contracts with terms of up to one year. The Portfolios will also
purchase foreign currency for immediate settlement in order to purchase foreign
securities.
In addition, the Portfolios will generally invest a portion of their
uncommitted cash balances in futures contracts to expose that portion of the
Portfolio to the equity markets.
The Portfolios may also make investments in less developed or emerging
equity markets.
The Bernstein International Value Portfolio II is managed without
regard to
37
<PAGE>
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.
Additional Strategies Applicable to the Bernstein Tax-Managed International
Value Portfolio
The Bernstein Tax-Managed International Value Portfolio seeks to
minimize capital-gains distributions by considering the tax impact that buy and
sell investment decisions will have on its shareholders. For example, Bernstein
may sell certain securities in order to realize capital losses. Capital losses
may be used to offset realized capital-gains. To minimize capital-gains
distributions, Bernstein may sell securities in the Portfolio with the highest
cost basis. Bernstein 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, Bernstein 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.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolios: The share prices of the
Portfolios will fluctuate and you may lose money. There is no guarantee that the
Portfolios will achieve their investment objectives.
Risks of investing in foreign securities: Investments in foreign
securities entail significant risks in addition to those customarily associated
with investing in U.S. equities. These risks are heightened with respect to
investments in emerging-market countries where there is an even greater amount
of economic, political and social instability.
Market risk: Each Portfolio is subject to market risk, which is the
risk that stock prices in general will decline over short or even extended
periods. In foreign markets there is often a lower degree of market volume and
liquidity than in U.S. markets, and this may result in greater price volatility.
Furthermore, since the composition of each Portfolio will differ from that of
market indexes, its performance generally will not mirror the returns provided
by a specific market index.
Foreign currency risk: Returns on foreign securities are influenced by
currency risk as well as equity risk. Foreign securities are generally
denominated in foreign currencies, which may change in value in relation to the
U.S. dollar, possibly for long periods of time. When a foreign currency declines
in value in relation to the U.S. dollar, your return on foreign stocks will
decline.
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. Foreign governments may also intervene in currency
markets or interpose
38
<PAGE>
registration/approval processes, which may adversely affect the Portfolios and
your investment.
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 risk: Futures contracts can be highly volatile and could reduce
a Portfolio's total returns. Each Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Other foreign investment risks include:
o the availability of less public information on issuers of securities
o less governmental supervision of brokers and issuers of securities
o lack of uniform accounting, auditing and financial reporting standards
o settlement practices that differ from those in the U.S. and may result
in delays or may not fully protect the Portfolios against loss or
theft of assets
o the possibility of nationalization of a company or industry and
expropriation or confiscatory taxation
o the imposition of foreign taxes
o high inflation and rapid fluctuations in inflation rates
o less developed legal structures governing private or foreign
investment
Higher costs associated with foreign investing: Investments in foreign
securities will also result in generally higher expenses due to:
o the costs of currency exchange
o higher brokerage commissions in certain foreign markets
o the expense of maintaining securities with foreign custodians
Additional risks of investing in emerging-market countries: Investing
in emerging-market countries entails greater economic, political and social
instability. In addition, there is heightened volatility because the securities
markets in these countries are substantially smaller, less developed, less
liquid and more volatile than the securities markets of developed countries.
INVESTMENT PERFORMANCE
The bar chart to the right shows the Bernstein Tax-Managed
International Value Portfolio's performance for each full calendar year since
inception. The table below the chart shows how the Portfolio's average annual
returns differ from those of a broad-based securities market index. Both the bar
chart and the table indicate the volatility of an
39
<PAGE>
investment in the Portfolio and give some indication of the risk. The
Portfolio's past performance is no guarantee of how it will perform in the
future.
No performance information has been provided for the Bernstein
International Value Portfolio II because the Portfolio has not yet completed one
calendar year of operations.
Bar Chart
<TABLE>
<CAPTION>
Calendar Year Total Returns
Bernstein Tax-Managed International Value Portfolio
<S> <C> <C> <C> <C> <C> <C>
'93 '94 '95 '96 '97 '98 '99
--- --- --- --- --- --- ---
34.52% 3.83% 8.07% 17.46% 9.27% 10.95% 22.71%
<CAPTION>
Best and Worst Quarters
Quarter Total
Ended Return
<S> <C> <C>
Best Quarter 3/31/98 18.62%
Worst Quarter 9/30/98 -17.72%
<CAPTION>
Average Annual Total Returns For Years Ended 12/31/99
Since July 1,
One Year Five Years 1992*
<S> <C> <C> <C>
Bernstein Tax-Managed International Value 22.71% 13.56% 13.03%
EAFE Foreign-Stock Market Index** 36.02% 18.72% 16.19%
* First full month after Portfolio inception (June 22, 1992)
**Morgan Stanley Capital International (MSCI) EAFE index of major foreign
markets in Europe, Australia and the Far East, with currencies half-hedged and
countries weighted according to gross domestic product.
</TABLE>
Fees and Expenses
The following table describes the fees and expenses you would
pay if you buy and hold shares of the Portfolios.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Bernstein
Tax-Managed Bernstein
International Value International Value
Portfolio Portfolio II*
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None None
Sales Charge (Load) Imposed on Reinvested Dividends None None
Deferred Sales Charge (Load) None None
Redemption Fees None None
Exchange Fees None None
Maximum Account Fee $100 (1) $100 (1)
- ------------------------------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
Management Fees 0.93% 0.94%
Distribution (12b-1) Fees None None
Other Expenses(2) 0.31% 0.32%
Shareholder Servicing and Administrative Fees 0.25% 0.25%
All Other Expenses 0.06% 0.07%
Total Annual Portfolio Operating Expenses 1.24% 1.26%
- ------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
(1) Certain shareholders may be charged an annual account maintenance fee
of $100 by Bernstein (not the Fund). The fee applies to shareholders who have
Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. 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) Other expenses for the Bernstein International Value Portfolio II are
based on estimated amounts for the current fiscal year.
Example
This example is intended to help you compare the cost of
investing in the Portfolios with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Portfolios
for the time periods indicated and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5% return
each year and that the Portfolios' operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Bernstein
Tax-Managed Bernstein
International Value International Value
Portfolio Portfolio II
------------------- -------------------
<S> <C> <C>
1 Yr. 126 128
3 Yrs. (cum.) 393 400
5 Yrs. (cum.) 681 N/A
10 Yrs. (cum.) 1,500 N/A
- -----------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
THE BERNSTEIN EMERGING MARKETS VALUE PORTFOLIO
INVESTMENT OBJECTIVE
To provide long-term capital growth through investments in equity
securities of companies in emerging-market countries.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein Emerging Markets Value Portfolio will invest primarily in
equity securities in emerging-market countries. Issuers of these securities may
be large or relatively small companies.
Bernstein will determine which countries are emerging-market countries.
In general, these will be the countries considered to be developing countries by
the international financial community and will include those countries
considered by the International Finance Corporation (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 will invest primarily in common stocks but may also
invest in preferred stocks, warrants and convertible securities of foreign
issuers, including sponsored or unsponsored American Depositary Receipts (ADRs)
and Global Depositary Receipts (GDRs).
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. Bernstein uses a value-oriented approach
to stock selection.
We will hedge currency risk when we believe there is potential to
enhance risk-adjusted returns. However, the currency exposures of this Portfolio
will generally be unhedged. This is because currency hedging in emerging-market
countries is often either subject to legal and regulatory controls or
prohibitively expensive.
In addition, the Portfolio may invest a portion of its uncommitted cash
balances in futures contracts to expose that portion of the Portfolio to the
equity markets.
41
<PAGE>
The Portfolio may also make investments in developed foreign securities
that comprise the EAFE index.
PRINCIPAL INVESTMENT RISKS
Inability to redeem shares in the Portfolio: There is a risk that you
may not be able to readily redeem your shares in the Portfolio. This may occur
when the New York Stock Exchange is closed (other than for customary weekend or
holiday closings), or if trading in the markets that the Portfolio normally uses
is closed or restricted or an emergency situation exists when it is not
reasonably practicable for a Portfolio to determine its net asset value or to
sell its investments.
General risks of investing in the Portfolio: The share price of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Risks of investing in emerging-markets securities: Investments in
foreign securities entail significant risks in addition to those customarily
associated with investing in U.S. equities. These risks are heightened with
respect to investments in emerging-market countries where there is an even
greater amount of economic, political and social instability. Economic,
political and social instability could disrupt the financial markets in which
the Portfolio invests and adversely affect the value of the Portfolio's assets.
In addition, national policies may restrict investment opportunities.
For example, there may be restrictions on investment in issuers or industries
deemed sensitive to national interests.
Market risk: The Portfolio is subject to market risk, which is the risk
that stock prices in general will decline over short or even extended periods.
In foreign markets there is often a lower degree of market volume and liquidity
than in U.S. markets, and this may result in greater price volatility. 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. Furthermore, since the composition of the Portfolio will
differ from that of market indexes, its performance will generally not mirror
the returns provided by a specific market index.
Foreign currency risk: Returns on foreign securities are influenced by
currency risk as well as equity risk. Foreign securities are generally
denominated in foreign currencies, which may change in value in relation to the
U.S. dollar, possibly for long periods of time. When a foreign currency declines
in value in relation to the U.S. dollar, your returns on foreign stocks will
also fall.
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.
42
<PAGE>
Foreign governments may also intervene in currency markets or interpose
registration/approval processes, which could adversely affect the Portfolio.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Other foreign investing risks include:
o the availability of less public information on issuers of securities
o less governmental supervision of brokers and issuers of securities
o lack of uniform accounting, auditing and financial reporting standards
o settlement practices that differ from those in the U.S. and may result
in delays or may not fully protect the Portfolio against loss or theft
of assets
o the possibility of nationalization of a company or industry and
expropriation or confiscatory taxation
o the imposition of foreign taxes
o high inflation and rapid fluctuations in inflation rates
o less developed legal structures governing private or foreign
investment
Higher costs associated with foreign investing: Investments in foreign
securities will also result in generally higher expenses due to:
o the costs of currency exchange
o higher brokerage commissions in certain foreign markets
o the expense of maintaining securities with foreign custodians
Investments in small companies: The Portfolio may invest in securities
of smaller companies which 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.
Actions by a few major investors: 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 Portfolio.
INVESTMENT PERFORMANCE
The bar chart to the right shows the Portfolio's performance for
each full calendar year since inception. The table below the chart shows how the
Portfolio's average annual returns differ from those of a broad-based securities
market index. Both the bar chart and the table indicate the volatility of an
investment in the Portfolio and give some indication of the risk. The
Portfolio's past performance is no guarantee of how it will perform in the
future.
43
<PAGE>
Bar Chart
The returns in the bar chart below do not reflect the portfolio
transaction fee of 2.00% that is payable to the Portfolio when shares of the
Portfolio are purchased and when shares are sold. If these fees were reflected
in the chart, the returns would be less than those shown.
<TABLE>
<CAPTION>
Calendar Year Total Returns
Bernstein Emerging Markets Value Portfolio
<S> <C> <C> <C>
'96 '97 '98 '99
--- --- --- ---
7.05% -23.92% -21.09% 73.01%
<CAPTION>
Best and Worst Quarters
Quarter Total
Ended Return
<S> <C> <C>
Best Quarter 6/3099 35.18%
Worst Quarter 12/31/97 -26.32%
<CAPTION>
Average Annual Total Returns For Years Ended 12/31/99
One Year Since Jan 1, 1996*
<S> <C> <C>
Bernstein Emerging Markets Value 66.16% 1.65%
MSCI Emerging Markets Free Index 66.41% 3.89%
*First full month after Portfolio inception (December 15, 1995)
</TABLE>
The average annual total returns in the table above reflect 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. Average annual total return to a shareholder
for the most recently ended calendar year period without taking account of these
transaction fees would have been 73.01%and since January 1, 1996, the first full
month after Portfolio inception on December 15, 1995, would have been 2.68%.
Fees and Expenses
The following table describes the fees and expenses you would pay if
you buy and hold shares of the Portfolio.
44
<PAGE>
Fees and Expenses
The following table describes the fees and expenses you would pay if you buy and
hold shares of the Portfolio.
<TABLE>
<CAPTION>
Bernstein
Emerging
Markets
Value
Portfolio
- ------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
- ------------------------------------------------------------------------
<S> <C>
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Maximum Account Fee $100(1)
Portfolio Transaction Fee upon Purchase of Shares 2.00%
(as a percentage of amount invested)*
Portfolio Transaction Fee upon Redemption of Shares 2.00%
(as a percentage of amount redeemed)**
Portfolio Transaction Fee upon Exchange of Shares ***
- ------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
- ------------------------------------------------------------------------
Management Fees 1.25%
Distribution (12b-1) Fees None
Other Expenses 0.49%
Shareholder Servicing and Administrative Fees 0.25%
All Other Expenses 0.24%
Total Annual Portfolio Operating Expenses 1.74%
- ------------------------------------------------------------------------
</TABLE>
* The portfolio transaction fee on purchases is deducted automatically
from the amount invested and paid to the Portfolio.
** The Portfolio transaction fee upon redemption is withheld from redemption
proceeds by the Portfolio and paid to the Portfolio.
*** Exchanges will be treated as purchases or redemptions for purposes of
imposing the portfolio transaction fee on purchases or redemptions.
(1) Certain shareholders may be charged an annual account maintenance fee of
$100 by Bernstein (not the Fund). The fee applies to shareholders who have
Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
45
<PAGE>
Example
This Example is intended to help you compare the cost of investing
in the Portfolios with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in each Portfolio for
the time periods indicated and then redeem all of your shares at the end of
those periods.* The Example also assumes that your investment has a 5% return
each year and that the Portfolio's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
- ----------------------------------------------------
Bernstein
Emerging Markets
Value
Portfolio
- ----------------------------------------------------
1 Yr. 576
3 Yrs. (cum.) 953
5 Yrs. (cum.) 1,355
10 Yrs. (cum.) 2,481
- ----------------------------------------------------
* The expenses include the portfolio transaction fee on purchases and
redemptions.
You would pay the following expenses if you did not redeem your shares:
- ----------------------------------------------------
Bernstein
Emerging Markets
Value
Portfolio
- ----------------------------------------------------
1 Year 373
3 Years 737
5 Years 1,125
10 Years 2,211
- ----------------------------------------------------
The example reflects the portfolio transaction on purchases but does not reflect
the portfolio transaction fee on redemptions. If this fee were included, your
costs would be higher.
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 these
fees is to allocate transaction costs associated with purchase and redemptions
to the investors making those purchases and redemptions, not to other
shareholders. For more information on the portfolio transaction fees, see
pages
___.
46
<PAGE>
Making Investment Decisions for the Portfolios
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. 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.
To minimize the emotional aspects of decision-making under uncertainty, we
strive to apply our valuation tools in a consistent and disciplined fashion.
Bernstein research is applied within a value-oriented framework. Investment
decision-making is disciplined, centralized and highly systematic.
The Fixed-Income Portfolios: To identify attractive bonds for the
Bernstein Fixed-Income Portfolios, we evaluate securities and sectors to
identify the most attractive securities in the market at a given time-- those
offering the highest expected return in relation to their risks. In addition, we
may analyze the yield curve to determine the optimum combination of duration for
given degrees of interest-rate risk. Finally, we may use interest-rate
forecasting to determine the best level of interest-rate risk at a given time,
within specified limits for each Portfolio.
The International Value and Emerging Markets Value Portfolios: 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 invests in underpriced stocks--those with
low price/earnings ratios, low price/book-value ratios and high dividend yields.
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.
Portfolio turnover: The Portfolios of the Fund generally buy portfolio
securities with the intention of holding them for investment. However, when
market conditions or other circumstances warrant, securities may be purchased
and sold without regard to the length of time held. Over the past few years, the
Bernstein Intermediate Duration Portfolio has had a portfolio turnover ratio in
excess of 200%. A high turnover ratio may increase transaction costs and may
affect taxes paid by shareholders to the extent short-term or long-term gains
are distributed.
Temporary defensive positions: Under exceptional conditions abroad or when
Bernstein believes that economic or market conditions warrant, any of the
Bernstein foreign-stock Portfolios 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. When a Portfolio
is investing for temporary defensive purposes, it is not pursuing its investment
goal.
47
<PAGE>
Additional Investment Information, Special Investment Techniques and Related
Risks
This section of the prospectus contains detailed information about the
instruments in which the Portfolios may invest, special investment techniques
that Bernstein may employ and information about the related risks. The
limitations and restrictions discussed below supplement those discussed earlier
in this prospectus.
Portfolio holdings are detailed in the Fund's financial statements, which
are sent to Fund shareholders twice a year.
Additional investments, strategies and practices permitted; details in
Fund's SAI: Each Portfolio may invest in other securities, use other strategies
and engage in other investment practices. Detailed information about these
securities, strategies and practices is contained in the Fund's Statement of
Additional Information (SAI), which is available upon request at no cost (see
the back cover of this prospectus).
Investment policies and limitations apply at time of purchase only: Unless
otherwise specified, the policies and limitations discussed in this prospectus
apply at the time an instrument is purchased. Thus, a change of circumstances
will not require the sale of an investment if it was otherwise properly
purchased.
Changing the investment objectives by the portfolios; when shareholder
approval is required: A fundamental investment objective cannot be changed
without shareholder approval. As a fundamental investment objective, each
Bernstein Municipal Portfolio will invest no less than 80% of its assets in
municipal securities. All other investment objectives of the Portfolios are not
fundamental and thus may be changed without shareholder approval. Bernstein will
provide shareholders with prior written notice before implementing any change to
the investment objectives of any Portfolio.
The Fixed-Income Portfolios
Obligations of Supranational Agencies
The Portfolios may invest in the obligations of supranational agencies.
Supranational agencies rely on participating countries (which may include the
United States) for funds. 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 associated with
investments in foreign securities (see discussion on pages _____).
Interest Only/Principal Only Securities
48
<PAGE>
The Portfolios may invest in a type of mortgage-related security where 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. Most IOs
and POs are considered to be illiquid securities (see discussion below).
Asset-Backed Securities
Each of the Fixed-Income Portfolios may invest in asset-backed securities,
which are bonds secured by pools of assets such as 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 debts is used to pay interest and
principal to the asset-backed noteholders. It is possible that the collateral
may not be available to support payments on the securities.
Illiquid Securities
Securities that are not readily marketable may be illiquid securities.
Each of the Bernstein Government Short Duration, Bernstein Short Duration Plus,
Bernstein Intermediate Duration, Bernstein New York Municipal, Bernstein
California Municipal and Bernstein Diversified Municipal Portfolios may invest
as much as 10% of its net assets in illiquid securities. Each of the Short
Duration New York Municipal, Short Duration California Municipal and Short
Duration Diversified Municipal Portfolios may invest as much as 15% of its net
assets in illiquid securities.
Examples of illiquid securities include guaranteed investment contracts
("GICs"), bank investment contracts ("BICs") and private placement securities. A
GIC is a contract issued by an insurance company that guarantees payment of
interest and repayment of principal. A BIC is a contract issued by a bank that
guarantees payment of interest and repayment of principal. Private placement
securities are securities that are exempt from registration with the Securities
and Exchange Commission and may be sold only in privately negotiated
transactions.
49
<PAGE>
The Bernstein Foreign-Stock Portfolios
Investments in common and preferred stocks, warrants and convertible
securities of foreign issuers are part of the principal investment strategy of
each of the Bernstein Tax-Managed International Value Portfolio and the
Bernstein International Value Portfolio II (referred to together as the
"International Value Portfolios") and the Bernstein Emerging Markets Value
Portfolio.
Illiquid Securities: Securities that are not readily marketable may be
illiquid securities. Each of the International Value Portfolios and Emerging
Markets Value Portfolio may invest as much as 15% of its net assets in illiquid
securities.
Private placement securities are usually illiquid securities. These
securities are exempt from registration with the Securities and Exchange
Commission and may be sold only in privately negotiated transactions.
The tax-management strategies used in the Bernstein Tax-Managed
International Value Portfolio were implemented in May of 1999 following a
division of what was previously known as the Bernstein International Value
Portfolio. Prior to this portfolio division, there were both taxable and
tax-exempt shareholders in the Bernstein International Value Portfolio. The Fund
obtained an order from the SEC that permitted tax-exempt shareholders to redeem
their shares of the Bernstein International Value Portfolio in-kind and invest
these assets in a new Portfolio, the Bernstein International Value Portfolio II.
The taxable shareholders remained in the Bernstein International Value
Portfolio, which is now known as the Bernstein Tax-Managed International Value
Portfolio.
50
<PAGE>
Special Investment Techniques And Related Risks
In seeking to achieve its investment objectives, each of the Portfolios
may invest in higher-risk securities or use special investment techniques.
These techniques may be used:
o to hedge various market risks (such as interest rates, currency
exchange rates and broad or security-specific changes in the prices of
securities);
o to manage the effective maturity or duration of fixed-income
securities;
o to exploit mispricings in the securities markets; and
o as an alternative to activities in the underlying cash markets.
Below is a description of some of these special investment techniques. For
additional information on special investment techniques, see the Fund's SAI (see
the back cover of this prospectus).
Foreign Currency Transactions
The Bernstein Short Duration Plus Portfolio, Bernstein Intermediate
Duration Portfolio, Bernstein Tax-Managed International Value Portfolio,
Bernstein International Value Portfolio II and Bernstein Emerging Markets Value
Portfolio may enter into foreign currency exchange contracts on either a spot
(i.e., cash) or forward basis. Spot contracts are entered into at the rate then
prevailing in the currency exchange market. Forward contracts 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.
Although forward contracts will be used primarily to protect the
Portfolios from adverse currency movements, they involve the risk that Bernstein
will not accurately predict currency movements. As a result, the Portfolios'
total return could be adversely affected.
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. Bernstein 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.
Futures Contracts and Options
The Portfolios may also enter into contracts involving the right or
obligation to deliver or receive assets or money depending on the performance of
one or more assets or an economic index. These include futures contracts with
respect to bonds, Eurodeposits, securities indexes, currencies, options or other
derivatives or financial instruments.
51
<PAGE>
In addition, the Portfolios may each purchase and sell put and call
options on securities, securities indexes, foreign currencies, futures
contracts. The Portfolios will write only covered options or other derivatives
or financial instruments.
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.
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. Attempts by Bernstein to use these investments for
hedging or other purposes may not be successful. Each Portfolio's potential
losses from the use of futures and options 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. These 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. They may also be debt
instruments with interest or principal payments determined by reference to
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 obligate one party to make payments to the other party
based on the change in the market value of an index or asset. In return, the
other party agrees to make payments to the first party based on the return of
another index or asset. Swap agreements entail the risk that a party will
default on its payment obligations to the Portfolio. 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
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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 for a variety of reasons. A Portfolio may attempt 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. A Portfolio may also enter
these transactions 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 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.
Lending Portfolio Securities
Each Portfolio may lend portfolio securities. Each of the Fixed-Income
Portfolios may lend up to 30% of its total assets; each of the Short Duration
Municipal Portfolios may lend up to one-third of its total assets. Each of the
Bernstein International Value Portfolios and the Bernstein Emerging Markets
Value Portfolio may also lend up to one-third of its total assets. Loans may be
made 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 time deposits and repurchase agreements. Loans of portfolio
securities are marked to the market daily and secured by collateral consisting
of certificates of deposit and other cash instruments or U.S. government and
agency securities worth no less than the securities loaned.
Bernstein 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. 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.
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When-Issued and Delayed-Delivery Transactions
The Portfolios may purchase securities on a "when-issued" or
"delayed-delivery" basis, where a security purchased by a Portfolio is delivered
at a later date, usually within three months.
The market value of the security at delivery may be more or less than the
purchase price. The Portfolio must segregate liquid assets in an amount at least
equal to its purchase commitments; the Portfolio must also segregate securities
sold on a delayed-delivery basis.
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 Bernstein 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
restrictions and legally permissible for that Portfolio, we may utilize the
strategies. These opportunities may involve risks that differ from those
described above.
ADDITIONAL RISKS
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 Bernstein 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." We
are taking steps that we believe are reasonably designed to address the Year
2000 Issue with respect to the computer software and hardware that we use 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.
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FUND MANAGEMENT
The investment manager of the 12 Portfolios of the Fund is Sanford C.
Bernstein & Co., Inc., a New York corporation with principal offices at 767
Fifth Avenue, New York, New York 10153. Bernstein, a registered investment
advisor, manages, as of September 30, 1999, some $85 billion in assets 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.
Bernstein provides the Portfolios of the Fund with investment management,
shareholder servicing and administration and distribution services.
Bernstein's Investment Policy Groups are comprised of Bernstein employees
and make all investment decisions for the Portfolios. No one person is primarily
responsible for making recommendations to the Investment Policy Groups.
Investment Management Fees
The aggregate fees paid to Bernstein as a percentage of assets for
services rendered to each Portfolio with respect to investment management for
the period ending September 30, 1999 were 0.50% for the Bernstein Government
Short Duration Portfolio, 0.50% for the Bernstein Short Duration Plus Portfolio,
0.47% for the Bernstein Intermediate Duration Portfolio, 0.50% for the Bernstein
New York Municipal Portfolio, 0.50% for the Bernstein Short Duration New York
Municipal Portfolio, 0.50% for the Bernstein California Municipal Portfolio,
0.50% for the Bernstein Short Duration California Municipal Portfolio, 0.48% for
the Bernstein Diversified Municipal Portfolio, 0.50% for the Bernstein Short
Duration Diversified Municipal Portfolio, 0.93% for the Bernstein Tax-Managed
International Value Portfolio, and 1.25% for the Bernstein Emerging Markets
Portfolio.
Effective April 30, 1999, the Bernstein International Value Portfolio was
divided into two portfolios, Bernstein Tax-Managed International Value Portfolio
and Bernstein International Value Portfolio II. Prior to this portfolio
division, Bernstein charged the Bernstein International Value Portfolio a
management fee at an annual rate of 1.00% of the Portfolio's average daily net
assets up to but not exceeding $2 billion and an annual rate of 0.90 of 1% of
average daily net assets that exceeded $2 billion. Following this portfolio
division, Bernstein charged each of the resulting International Value Portfolios
a management fee at an annual rate of 1.00% of each Portfolio's average daily
net assets up to but not exceeding $1 billion and an annual rate of 0.90 of 1%
of average daily net assets that exceed $1 billion.
Bernstein acts as the Distributor of each Portfolio's shares free of
charge. Bernstein also acts as the Fund's Shareholder Servicing Agent. For these
services, Bernstein charges each Fixed-Income Portfolio an annual fee of 0.10%
of that Portfolio's
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average daily assets, and each of the International Value Portfolios and the
Emerging Markets Value Portfolio an annual fee of 0.25% of each Portfolio's
average daily net assets.
PRICING PORTFOLIO SHARES
The share price for each Portfolio is based on the Portfolio's net asset
value ("NAV"). To calculate the NAV, a Portfolio's net worth (assets less
liabilities) is divided by the number of outstanding shares.
Regarding Portfolio securities for which readily available market
quotations exist, the value is based on the most recent sale price, 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 Bernstein.
Debt instruments with remaining maturities of 60 days or less may be valued at
amortized cost. The Fund may use an independent pricing service to value the
Portfolios' assets at such times and to such extent as Bernstein deems
appropriate.
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 the Fund's Board of
Directors. In the latter situation, prices used by the Fund to calculate its net
asset value may differ from quoted or published prices for the underlying
securities.
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 Bernstein 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 Bernstein becomes aware of them, whichever is
later.
A Portfolio's NAV is determined as of the close of regular trading of the
New York Stock Exchange (normally 4:00 p.m. New York time) 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, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
To the extent that the assets of a Portfolio are traded in other markets
(such as a foreign market) on days when the New York Stock Exchange is closed,
the net asset value of a Portfolio may be affected on days when you will not be
able to purchase or redeem the Portfolio's shares.
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Your purchase price for shares of a Portfolio will be the NAV next
determined after receipt of a purchase order in good form. When you sell shares
of a Portfolio, you will receive the NAV next determined after receipt of the
order to sell in proper form.
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Purchasing Shares
Minimum Investments
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. 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 $5,000. For Uniform Gifts to Minors
Act/Uniform Transfers to Minors Act accounts, the minimum initial investment is
$20,000. 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. There is no minimum amount for
reinvestment of dividends and distributions declared by a Portfolio in the
shares of that Portfolio.
With respect to any account that is invested solely in a single Fund
Portfolio (including accounts of Bernstein investment-management clients),
Bernstein will, in January and June of each year, automatically invest the cash
balances in any such account in the same Fund Portfolio without regard to the
minimum investment requirement.
For clients of Bernstein's investment-management services, Bernstein may,
at a client's request, maintain a specified percentage of assets in one or more
of the Portfolios of the Fund or vary the percentage based on Bernstein's
opinion of the relative allocation of fixed-income investments versus
international investments or domestic stock. In keeping with these client
mandates or for tax considerations, Bernstein may, without additional
instructions from the client, purchase shares of any Portfolio from time to
time.
These purchases and sales by Bernstein will be subject to the following
minimum investment requirements:
o initial purchases of shares of the Portfolios (other than the Bernstein
Emerging Markets Value Portfolio) will be subject to the initial
minimum investment requirements specified above, but the subsequent
minimum investment requirements may be waived;
o 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
o Bernstein may, in its discretion, waive initial and subsequent minimum
investment requirements for any participant-directed defined
contribution plan.
Any purchases and sales of shares of the Bernstein Emerging Markets Value
Portfolio will incur a portfolio transaction fee on purchases and redemptions.
The Bernstein
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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. 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 discussed above 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.
Procedures
To purchase shares, you must submit to Bernstein a completed application
(unless you currently have an account with us) and payment for the requested
shares. Payment may be made by wire transfer or check. Unless waived by
Bernstein, bank or certified checks are required if you are not a Bernstein
investment-management client. All checks should be made payable to the
particular Portfolio in which you are purchasing shares. Payment must be made in
U.S. dollars. If you have a Bernstein investment advisory account, your purchase
order will be carried out after confirmation that your account has a balance at
least equal to the amount of your purchase. All purchase orders will be
confirmed 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.
The share price you pay will depend on when Bernstein receives your order
in proper form. Orders received at or prior to the close of regular trading of
the New York Stock Exchange (normally 4:00 p.m. New York time) on any business
day will receive the offering price determined as of the closing time that day.
Orders received after the close of regular trading will receive the next
business day's price.
Transaction Fees: As discussed above, if you purchase shares of the
Bernstein Emerging Markets Value Portfolio you will pay to this Portfolio a
transaction fee of 2.00% of the amount invested.
The Fund may, at its sole option, accept securities as payment for shares
of any Fixed-Income Portfolio if Bernstein believes that the securities are
appropriate investments for the Portfolio. The securities are valued by the
method described under "Pricing Portfolio Shares" as of the date the Portfolio
receives the securities and corresponding documentation necessary to transfer
the securities to the Portfolio. This is a taxable transaction to the
shareholder.
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If you purchase shares through broker-dealers, banks or other financial
institutions, they may impose fees and conditions on you that are not 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.
The Fund reserves the right to reject any purchase order and may stop
selling shares of any of the Portfolios at any time. Share certificates are
issued only upon written request, but no certificates are issued for fractional
shares. 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.
Selling Shares
You may sell your shares of the Fund by sending Bernstein a request, along
with duly endorsed share certificates, if issued. Orders for redemption given to
a bank, broker-dealer or financial institution authorized by the Fund are
considered received when such third party receives a written request,
accompanied by duly endorsed share certificates, if issued. The bank,
broker-dealer or other financial institution is responsible for transmitting the
order to the Fund.
Your signature must appear on your written redemption order and must be
guaranteed by a financial institution that meets the Fund's requirements (such
as 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). An authorized person at the guarantor institution must sign
the guarantee and "Signature Guaranteed" must appear with the signature.
Signature guarantees by notaries or institutions that do not provide
reimbursement in the case of fraud are not acceptable. 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.
We will normally make payment to you of your sales proceeds by check
within seven days of receipt of your sell order in proper form and any issued
share certificates. The check will be sent to you at your address on record with
the Fund unless prior other instructions are on file. If you are a Bernstein
advisory client, the sales proceeds will be held in your Bernstein account
unless you have previously provided us with alternative written instructions. If
you redeem shares through an authorized bank, broker-dealer or other financial
institution, unless otherwise instructed, the proceeds will be sent to your
brokerage account within seven days. Your broker may charge a separate or
additional fee for sales of Portfolio shares. The cost of wire transfers will be
borne by the shareholder. No interest will accumulate on amounts represented by
uncashed distribution or sales proceeds
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checks.
The price you will receive when you sell your shares will depend on when
Bernstein or the authorized third-party bank, brokerage-dealer or other
financial institution receives your sell order in proper form. Orders received
at or prior to the close of regular trading of the New York Stock Exchange
(normally 4:00 p.m. New York time) on any business day will receive the offering
price determined as of the closing time that day. Orders received after the
close of regular trading will receive the next business day's price.
When you sell your shares, you may receive more or less than what you paid
for them. Any capital gain or loss realized on any sale of Portfolio shares is
subject to federal income taxes. For additional information, see Dividends,
Distributions and Taxes on page __.
If you are selling shares recently purchased with a check, we may delay
sending you the proceeds for up to 15 days until your check clears. This delay
may be avoided if the shares were originally purchased by certified or bank
check or by wire transfer.
Transaction Fees upon Redemption: You will be charged a 2% redemption fee
upon the sale of shares of the Bernstein Emerging Markets Value Portfolio that
will be deducted from the proceeds of the sale and paid to the Portfolio. This
transaction fee is payable only by investors in this Portfolio and is charged
because of the additional costs involved in the purchase and sale of these
shares. For more information, see page__.
Restrictions on Sales: There may be times during which you may not be able
to sell your shares or we may delay payment of the proceeds for longer than
seven days such as when the New York Stock Exchange is closed (other than for
customary weekend or holiday closings), or if trading in the markets that the
Portfolio normally uses is closed or restricted or an emergency situation exists
when it is not reasonably practicable for a Portfolio to determine its net asset
value or to sell its investments. Investors in the Emerging Markets Value
Portfolio run a greater risk that they may not be able to readily sell their
Portfolio shares.
Sale In-Kind: The Fund normally pays proceeds of a sale of Portfolio
shares in cash. However, the Fund has reserved the right to pay the sale price
in part by a distribution in-kind of securities in lieu of cash. If payment is
made in-kind, you may incur brokerage commissions if you elect to sell the
securities for cash. For more information, see the Statement of Additional
Information (SAI).
Automatic Sale of Your Shares: Under certain circumstances, the Fund may
redeem your shares without your consent. Maintaining small shareholder accounts
is costly. Accordingly, if you make a sale that reduces the value of your
account to less than $1,000, we may, on at least 60 days prior written notice,
sell your remaining shares in that Portfolio
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and close your account. We will not close your account if you increase your
account balance to $1,000 during the 60-day notice period.
Systematic Withdrawal Plan: A systematic withdrawal plan enables
shareholders to sell shares automatically at regular monthly intervals. In
general, a systematic withdrawal plan is available only to shareholders who own
book-entry shares worth $25,000 or more. The proceeds of these sales will be
sent directly to you or your designee. The use of this service is at the Fund's
discretion. For further information, call Bernstein at (212) 756-4097.
Exchanging Shares
You may exchange your shares in a Portfolio for shares in any other
Portfolio 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. Exchanges are subject to the minimum
investment requirements of the Portfolio into which the exchange is being made.
The Fund reserves the right, on behalf of any of the Portfolios, to reject any
exchange of shares. Shares purchased through broker-dealers, banks or other
financial institutions may be exchanged through such entities.
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 pages __ for additional information.
The exchange privilege is available only in states where the exchange may
legally be made. While the Fund plans to maintain this exchange policy, changes
to this policy may be made upon 90 days prior written notice to shareholders.
For shareholders subject to federal income taxes, an exchange constitutes
a taxable transaction upon which a gain or loss may be realized. See "Dividends,
Distributions and Taxes" on pages ____-____.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio will distribute substantially all of its net investment
income (interest and dividends less expenses) and realized net capital-gains
from the sale of its securities, if any, to its shareholders.
The Bernstein Fixed-Income Portfolios intend to declare dividends daily
and pay them monthly. The Bernstein International Value Portfolios and the
Bernstein Emerging Markets Value Portfolio intend to declare and pay dividends
at least annually, generally in December. All Portfolios distribute
capital-gains distributions at least annually, generally in December. You will
be taxed on dividends and distributions generally in the year you
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receive them except that dividends declared in October, November and December
and paid prior to February 1 of the following year are taxable to you in the
year they are declared.
If you purchase shares shortly before the record date of a dividend of the
Bernstein International Value Portfolios or the Bernstein Emerging Markets Value
Portfolio or a capital-gains distribution of any of the Portfolios, the share
price will include the amount of the distribution. On the record date of the
distribution, the net asset value of Portfolio shares will drop by the amount of
the distribution.
Your dividends and capital-gains distributions, if any, will be
automatically reinvested in shares of the same Portfolio on which they were
paid. The number of shares you receive is based upon the net asset value of the
Portfolio on the record date. Such reinvestments automatically occur on the
payment date of such dividends and capital-gains distributions. In the
alternative, you may elect in writing received by us not less than five business
days prior to the record date to receive dividends and/or capital-gains
distributions in cash. You will not receive interest on uncashed dividend,
distribution or redemption checks.
As a result of investment objectives and strategies, Bernstein expects
that, in general, the Bernstein Fixed-Income Portfolios will distribute
primarily ordinary income dividends, and in general, the Bernstein Tax-Managed
International Value and the Bernstein Emerging Markets Value Portfolios will
distribute primarily capital-gains dividends. The Bernstein International Value
Portfolio II may distribute ordinary income dividends or capital-gains
dividends, but since the shareholders of this Portfolio are tax-exempt, the type
of dividends distributed is not relevant to shareholders.
If you are subject to taxes, you may pay taxes on income dividends
(unless, as described below, they are derived from the interest earned on
municipal securities) and capital-gains distributions from the Portfolios
whether they are received in cash or additional shares. Regardless of how long
you have owned your shares in the Portfolio, distributions of long-term
capital-gains are taxed as such and distributions of net investment income,
short-term capital-gains and certain foreign currency gains are taxed as
ordinary income. For individual taxpayers, ordinary income is taxed at a higher
rate than long-term capital-gains. Income dividends that are exempt from federal
tax may be subject to state and local taxes.
Generally, it is intended that dividends of both Bernstein New York
Municipal Portfolios, both Bernstein California Municipal Portfolios and both
Bernstein Diversified Municipal Portfolios will be exempt from federal income
taxes. However, any of these Portfolios may invest a portion of its assets in
securities that generate income that is not exempt from federal or state income
tax. In addition, you may pay taxes on any capital-gains distributions from
these Portfolios.
The New York Municipal Portfolios provide income that is generally
tax-free for New York State and local personal income tax purposes to the extent
that the income is
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derived from New York State Municipal Securities or securities issued by
possessions of the United States. Similarly, the California Municipal Portfolios
provide income that is generally tax-free for California personal income tax
purposes to the extent that the income is derived from California Municipal
Securities or securities issued by possessions of the United States. A portion
of income of the other Portfolios may also be exempt from state and local income
taxes in certain states to the extent that the Portfolio derives income from
securities on which the interest is exempt from taxes in that state.
Interest on certain "private activity bonds" issued after August 7, 1986
are items of tax preference for the corporate and individual alternative minimum
tax. If you hold shares in a Portfolio that invests in private activity bonds,
you may be subject to the alternative minimum tax on that portion of the
Portfolio's distributions derived from interest income on those bonds.
Additionally, tax-exempt income constitutes "adjusted current earnings" ("ACE")
for purposes of calculating the ACE adjustment for the corporate alternative
minimum tax.
If, for any taxable year, a Portfolio distributes income from dividends
from domestic corporations and complies with certain requirements, corporate
shareholders may be entitled to take a dividends-received deduction for some or
all of the dividends they receive. In general, dividends of the Bernstein
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.
Dividends and interest received by the Fixed-Income Portfolios that invest
in foreign securities, the Bernstein International Value Portfolios and the
Bernstein Emerging Markets Portfolio may be subject to foreign tax and
withholding. Some emerging markets 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. You may be
entitled to claim foreign tax credits or deductions on your federal income tax
returns with respect to such taxes paid by a Portfolio.
If you redeem shares of a Portfolio or exchange them for shares of another
Portfolio, you generally will recognize a capital gain or loss on the
transaction. Any such gain or loss will be a long-term capital gain or loss if
you held your shares for more than 12 months. Losses realized on a sale and
repurchase are disallowed to the extent that the shares disposed of are replaced
within a 61 day period beginning 30 days before and ending 30 days after the
transaction date. However, if you experience a loss and have held your shares
for only six months or less, such loss will be treated as a long-term capital
loss to the extent that you treat any dividends as long-term capital-gains.
Additionally, such loss will be disallowed to the extent you receive any
tax-exempt dividends.
Under certain circumstances, the Bernstein International Value Portfolios
and the Bernstein Emerging Markets Value Portfolio may elect for U.S. income tax
purposes to treat foreign income taxes paid by the Portfolio as paid by its
shareholders. If this election is made, you will be required to include your pro
rata portion of such foreign taxes in
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computing your taxable income--treating an amount equal to these foreign taxes
as a U.S. federal income tax deduction or foreign tax credit against your U.S.
federal income taxes. You will not be entitled to claim a deduction for foreign
taxes if you do not itemize your deductions on your returns. Other limitations
may apply regarding the extent to which the credit and deduction may be claimed.
To the extent that these Portfolios may hold securities of corporations which
are considered to be passive foreign investment companies, capital-gains on
these securities may be treated as ordinary income and the Portfolios may be
subject to corporate income taxes and interest charges on certain dividends and
capital-gains earned by these investments.
This Prospectus summarizes only some of the tax implications you should
consider when investing in our Fund. You are urged to consult your own tax
adviser regarding specific questions as to federal, state, local and foreign
taxes.
Statements as to the tax status of dividends and distributions of each
Portfolio are mailed annually.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the Portfolios of the Fund for the past 5 years or
since inception, if shorter. Certain information reflects financial results for
a single Portfolio share. The total returns in the table represent the rate that
an investor would have earned (or lost) on an investment in the Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose reports, along with the Fund's
financial statements, are included in the annual report, which is available upon
request.
65
<PAGE>
<TABLE>
<CAPTION>
BERNSTEIN TAX-MANAGED INTERNATIONAL VALUE PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97 9/30/96 9/30/95
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $17.63 $20.92 $18.14 $16.08 $16.57
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.15 0.20 0.26 0.23 0.18
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 4.04 (1.67) 3.73 2.26 0.07
------ ------ ------ ------ ------
Total from investment operations 4.19 (1.47) 3.99 2.49 0.25
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.93) (1.11) (0.99) (0.10) (0.11)
Dividends from tax-exempt net
investment income 0 0 0 0 0
Distributions from net realized gains (0.87) (0.71) (0.22) (0.33) (0.63)
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 (1.80) (1.82) (1.21) (0.43) (0.74)
------ ------ ------ ------ ------
Portfolio transaction fee 0 0 0 0 0
------ ------ ------ ------ ------
Net asset value, end of period $20.02 $17.63 $20.92 $18.14 $16.08
====== ====== ====== ====== ======
Total return 25.35% (7.19)% 23.25% 15.83% 1.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $3,654,579 $4,912,583 $4,965,998 $3,131,258 $1,996,112
Average net assets (000 omitted) $4,618,500 $5,309,076 $3,977,823 $2,569,586 $1,591,703
Ratio of expenses to average net assets 1.24% 1.26% 1.27% 1.31% 1.35%
Ratio of net investment income to average
net assets 0.80% 0.98% 1.37% 1.37% 1.17%
Portfolio turnover rate 31.99% 30.34% 26.24% 21.89% 29.53%
<CAPTION>
BERNSTEIN
INTERNATIONAL BERNSTEIN EMERGING MARKETS VALUE PORTFOLIO
VALUE PORTFOLIO II
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 (a) 9/30/99 9/30/98 9/30/97 9/30/96 (b)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $19.43 $10.11 $22.54 $21.82 $20.00
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.19 0.16 0.20 0.14 0.18
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.49 7.39 (12.17) 0.44 0.83
------ ------ ------ ------ ------
Total from investment operations 0.68 7.55 (11.97) 0.58 1.01
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income 0 (0.12) (0.11) (0.08) 0
Dividends from tax-exempt net
investment income 0 0 0 0 0
Distributions from net realized gains 0 0 (0.61) (0.02) 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 (0.02) 0 0 0
------ ------ ------ ------ ------
Total distributions 0 (0.14) (0.72) (0.10) 0
------ ------ ------ ------ ------
Portfolio transaction fee 0 0.15 0.26 0.24 0.81
------ ------ ------ ------ ------
Net asset value, end of period $20.11 $17.67 $10.11 $22.54 $21.82
====== ====== ====== ====== ======
Total return 3.50% 69.88%+ (55.09)%+ (0.32)%+ 4.80%+
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $2,459,123 $720,444 $362,686 $438,305 $273,924
Average net assets (000 omitted) $2,397,807 $581,638 $417,615 $379,351 $165,362
Ratio of expenses to average net assets 1.26%* 1.74% 1.77% 1.75% 1.92%*
Ratio of net investment income to average
net assets 2.23%* 1.04% 1.29% 0.58% 1.01%*
Portfolio turnover rate 9.34% 28.54% 19.56% 32.45% 9.81%
<CAPTION>
BERNSTEIN INTERMEDIATE
DURATION PORTFOLIO
YEAR ENDED YEAR ENDED
9/30/99 9/30/98
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $13.49 $13.38
------ ------
Income from investment operations:
Investment income, net 0.77 0.73
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.63) 0.37
------ ------
Total from investment operations 0.14 1.10
------ ------
Less distributions:
Dividends from taxable net investment income (0.76) (0.80)
Dividends from tax-exempt net
investment income 0 0
Distributions from net realized gains (0.10) (0.17)
Distributions in excess of net investment
income due to timing differences (0.03) (0.02)
Distributions in excess of net realized
gains due to timing differences (0.07) 0
------ ------
Total distributions (0.96) (0.99)
------ ------
Portfolio transaction fee 0 0
------ ------
Net asset value, end of period $12.67 $13.49
====== ======
Total return 1.04% 8.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $2,674,408 $2,541,549
Average net assets (000 omitted) $2,601,959 $2,303,250
Ratio of expenses to average net assets 0.60% 0.60%
Ratio of net investment income to average
net assets 5.89% 5.41%
Portfolio turnover rate 229.75% 233.08%
</TABLE>
+ 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, 1999, September
30, 1998, September 30, 1997, and September 30, 1996, without taking into
account these transaction fees would have been 76.88%, (53.24)%, 3.79% and
9.10%, respectively.
* Annualized
(a) Commenced operations April 30, 1999
(b) Commenced operations December 15, 1995
- --------------------------------------------------------------------------------
66
<PAGE>
<TABLE>
<CAPTION>
BERNSTEIN INTERMEDIATE
DURATION PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED
9/30/97 9/30/96 9/30/95
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.08 $13.30 $12.54
------ ------ ------
Income from investment operations:
Investment income, net 0.75 0.80 0.78
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.35 (0.14) 0.77
------ ------ ------
Total from investment operations 1.10 0.66 1.55
------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.80) (0.80) (0.76)
Dividends from tax-exempt net
investment income 0 0 0
Distributions from net realized gains 0 (0.08) 0
Distributions in excess of net investment
income due to timing differences 0 0 (0.03)
Distributions in excess of net realized
gains due to timing differences 0 0 0
------ ------ ------
Total distributions (0.80) (0.88) (0.79)
------ ------ ------
Portfolio transaction fee 0 0 0
------ ------ ------
Net asset value, end of period $13.38 $13.08 $13.30
====== ====== ======
Total return 8.66% 5.05% 12.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $2,058,220 $1,451,776 $1,142,768
Average net assets (000 omitted) $1,745,554 $1,310,208 $957,247
Ratio of expenses to average net assets 0.62% 0.63% 0.64%
Ratio of net investment income to average
net assets 5.61% 5.99% 6.11%
Portfolio turnover rate 238.04% 141.04% 212.40%
<CAPTION>
BERNSTEIN SHORT DURATION PLUS PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97 9/30/96 9/30/95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.53 $12.53 $12.48 $12.49 $12.32
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.67 0.65 0.67 0.69 0.70
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.20) 0.09 0.08 (0.01) 0.18
------ ------ ------ ------ ------
Total from investment operations 0.47 0.74 0.75 0.68 0.88
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.67) (0.72) (0.70) (0.69) (0.69)
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 (0.02) 0 0 (0.02)
Distributions in excess of net realized
gains due to timing differences 0 0 0 0 0
------ ------ ------ ------ ------
Total distributions (0.67) (0.74) (0.70) (0.69) (0.71)
------ ------ ------ ------ ------
Portfolio transaction fee 0 0 0 0 0
------ ------ ------ ------ ------
Net asset value, end of period $12.33 $12.53 $12.53 $12.48 $12.49
====== ====== ====== ====== ======
Total return 3.82% 6.10% 6.21% 5.54% 7.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $557,016 $595,087 $612,744 $538,248 $534,462
Average net assets (000 omitted) $569,298 $591,866 $583,003 $532,094 $536,042
Ratio of expenses to average net assets 0.65% 0.64% 0.65% 0.65% 0.65%
Ratio of net investment income to average
net assets 5.36% 5.24% 5.38% 5.47% 5.69%
Portfolio turnover rate 95.60% 71.40% 118.58% 169.96% 61.03%
<CAPTION>
BERNSTEIN GOVERNMENT
SHORT DURATION PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.66 $12.53 $12.48
------ ------ ------
Income from investment operations:
Investment income, net 0.58 0.64 0.67
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.20) 0.13 0.05
------ ------ ------
Total from investment operations 0.38 0.77 0.72
------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.58) (0.64) (0.67)
Dividends from tax-exempt net
investment income 0 0 0
Distributions from net realized gains 0 0 0
Distributions in excess of net investment
income due to timing differences 0 0 0
Distributions in excess of net realized
gains due to timing differences 0 0 0
------ ------ ------
Total distributions (0.58) (0.64) (0.67)
------ ------ ------
Portfolio transaction fee 0 0 0
------ ------ ------
Net asset value, end of period $12.46 $12.66 $12.53
====== ====== ======
Total return 3.07% 6.35% 5.88%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $127,598 $138,037 $142,081
Average net assets (000 omitted) $132,741 $139,410 $136,888
Ratio of expenses to average net assets 0.70% 0.70% 0.69%
Ratio of net investment income to average
net assets 4.61% 5.13% 5.32%
Portfolio turnover rate 82.16% 56.93% 80.11%
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
BERNSTEIN GOVERNMENT
SHORT DURATION PORTFOLIO
YEAR ENDED YEAR ENDED
9/30/96 9/30/95
- ------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $12.55 $12.34
------ ------
Income from investment operations:
Investment income, net 0.65 0.69
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.07) 0.21
------ ------
Total from investment operations 0.58 0.90
------ ------
Less distributions:
Dividends from taxable net investment income (0.65) (0.69)
Dividends from tax-exempt net
investment income 0 0
Distributions from net realized gains 0 0
Distributions in excess of net investment
income due to timing differences 0 0
Distributions in excess of net realized
gains due to timing differences 0 0
------ ------
Total distributions (0.65) (0.69)
------ ------
Portfolio transaction fee 0 0
------ ------
Net asset value, end of period $12.48 $12.55
====== ======
Total return 4.76% 7.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $139,802 $143,723
Average net assets (000 omitted) $145,268 $145,710
Ratio of expenses to average net assets 0.69% 0.69%
Ratio of net investment income to average
net assets 5.21% 5.58%
Portfolio turnover rate 155.29% 49.34%
<CAPTION>
BERNSTEIN DIVERSIFIED MUNICIPAL PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97 9/30/96 9/30/95
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.96 $13.74 $13.44 $13.50 $12.99
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.56 0.58 0.60 0.63 0.65
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.46) 0.23 0.31 (0.04) 0.51
------ ------ ------ ------ ------
Total from investment operations 0.10 0.81 0.91 0.59 1.16
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.02) (0.02) (0.02) (0.01) (0.02)
Dividends from tax-exempt net
investment income (0.54) (0.56) (0.58) (0.62) (0.63)
Distributions from net realized gains (0.03) (0.01) (0.01) (0.02) 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 (0.59) (0.59) (0.61) (0.65) (0.65)
------ ------ ------ ------ ------
Portfolio transaction fee 0 0 0 0 0
------ ------ ------ ------ ------
Net asset value, end of period $13.47 $13.96 $13.74 $13.44 $13.50
====== ====== ====== ====== ======
Total return 0.77% 5.98% 6.95% 4.38% 9.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,517,233 $1,385,785 $1,114,374 $820,395 $660,814
Average net assets (000 omitted) $1,458,118 $1,250,621 $965,455 $744,452 $572,769
Ratio of expenses to average net assets 0.63% 0.63% 0.65% 0.66% 0.66%
Ratio of net investment income to average
net assets 4.08% 4.17% 4.43% 4.61% 4.89%
Portfolio turnover rate 44.69% 22.00% 24.65% 25.22% 42.55%
<CAPTION>
BERNSTEIN CALIFORNIA
MUNICIPAL PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97 9/30/96 9/30/95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.19 $13.90 $13.58 $13.58 $13.06
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.54 0.57 0.59 0.61 0.64
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.46) 0.30 0.32 0 0.52
------ ------ ------ ------ ------
Total from investment operations 0.08 0.87 0.91 0.61 1.16
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.02) (0.02) (0.03) (0.03) (0.05)
Dividends from tax-exempt net
investment income (0.52) (0.55) (0.56) (0.58) (0.59)
Distributions from net realized gains (0.04) (0.01) 0 0 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 (0.58) (0.58) (0.59) (0.61) (0.64)
------ ------ ------ ------ ------
Portfolio transaction fee 0 0 0 0 0
------ ------ ------ ------ ------
Net asset value, end of period $13.69 $14.19 $13.90 $13.58 $13.58
====== ====== ====== ====== ======
Total return 0.60% 6.37% 6.82% 4.60% 9.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $605,962 $549,757 $411,384 $285,758 $213,951
Average net assets (000 omitted) $586,510 $473,077 $339,514 $246,410 $185,990
Ratio of expenses to average net assets 0.64% 0.65% 0.67% 0.68% 0.69%
Ratio of net investment income to average
net assets 3.88% 4.04% 4.26% 4.48% 4.78%
Portfolio turnover rate 38.44% 25.33% 41.32% 23.87% 63.89%
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
BERNSTEIN NEW YORK MUNICIPAL PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97 9/30/96 9/30/95
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.87 $13.62 $13.35 $13.48 $12.98
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.56 0.58 0.61 0.64 0.65
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.46) 0.26 0.27 (0.07) 0.50
------ ------ ------ ------ ------
Total from investment operations 0.10 0.84 0.88 0.57 1.15
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.01) (0.01) (0.01) (0.02) (0.02)
Dividends from tax-exempt net
investment income (0.55) (0.57) (0.60) (0.62) (0.63)
Distributions from net realized gains (0.05) (0.01) 0 (0.06) 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 (0.61) (0.59) (0.61) (0.70) (0.65)
------ ------ ------ ------ ------
Portfolio transaction fee 0 0 0 0 0
------ ------ ------ ------ ------
Net asset value, end of period $13.36 $13.87 $13.62 $13.35 $13.48
====== ====== ====== ====== ======
Total return 0.74% 6.32% 6.73% 4.31% 9.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $845,970 $816,082 $671,700 $539,217 $458,543
Average net assets (000 omitted) $843,755 $746,257 $603,119 $497,391 $413,892
Ratio of expenses to average net assets 0.64% 0.64% 0.65% 0.66% 0.66%
Ratio of net investment income to average
net assets 4.09% 4.25% 4.51% 4.73% 4.95%
Portfolio turnover rate 35.13% 27.20% 25.94% 26.19% 44.84%
<CAPTION>
BERNSTEIN
SHORT DURATION
DIVERSIFIED MUNICIPAL
PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97 9/30/96 9/30/95 (c)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.57 $12.56 $12.52 $12.63 $12.50
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.42 0.45 0.46 0.52 0.55
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.05) 0.04 0.05 (0.06) 0.13
------ ------ ------ ------ ------
Total from investment operations 0.37 0.49 0.51 0.46 0.68
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.01) (0.01) (0.02) (0.02) (0.04)
Dividends from tax-exempt net
investment income (0.41) (0.44) (0.44) (0.50) (0.51)
Distributions from net realized gains (0.03) (0.03) (0.01) (0.05) 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 (0.45) (0.48) (0.47) (0.57) (0.55)
------ ------ ------ ------ ------
Portfolio transaction fee 0 0 0 0 0
------ ------ ------ ------ ------
Net asset value, end of period $12.49 $12.57 $12.56 $12.52 $12.63
====== ====== ====== ====== ======
Total return 2.91% 4.02% 4.17% 3.68% 5.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $170,722 $158,553 $151,821 $119,096 $101,325
Average net assets (000 omitted) $167,918 $150,699 $135,288 $105,467 $85,893
Ratio of expenses to average net assets 0.71% 0.71% 0.72% 0.71% 0.72%*
Ratio of net investment income to average
net assets 3.29% 3.58% 3.66% 4.07% 4.32%*
Portfolio turnover rate 95.33% 99.93% 68.25% 63.40% 73.50%
</TABLE>
*Annualized
(c) Commenced operations October 3, 1994
- --------------------------------------------------------------------------------
69
<PAGE>
<TABLE>
<CAPTION>
BERNSTEIN SHORT DURATION
CALIFORNIA MUNICIPAL PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97 9/30/96 9/30/95 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.61 $12.55 $12.53 $12.65 $12.50
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.40 0.42 0.45 0.50 0.53
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.04) 0.07 0.03 (0.07) 0.15
------ ------ ------ ------ ------
Total from investment operations 0.36 0.49 0.48 0.43 0.68
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.02) (0.02) (0.04) (0.05) (0.06)
Dividends from tax-exempt net
investment income (0.38) (0.40) (0.41) (0.45) (0.47)
Distributions from net realized gains (0.04) (0.01) (0.01) (0.05) 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 (0.44) (0.43) (0.46) (0.55) (0.53)
------ ------ ------ ------ ------
Portfolio transaction fee 0 0 0 0 0
------ ------ ------ ------ ------
Net asset value, end of period $12.53 $12.61 $12.55 $12.53 $12.65
====== ====== ====== ====== ======
Total return 2.90% 3.98% 3.89% 3.50% 5.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $108,511 $99,050 $86,311 $72,925 $63,530
Average net assets (000 omitted) $97,808 $88,338 $76,339 $68,060 $49,944
Ratio of expenses to average net assets 0.73% 0.73% 0.74% 0.72% 0.73%*
Ratio of net investment income to average
net assets 3.18% 3.34% 3.56% 3.96% 4.12%*
Portfolio turnover rate 126.65% 77.01% 75.36% 60.76% 89.33%
<CAPTION>
BERNSTEIN SHORT DURATION
NEW YORK MUNICIPAL PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97 9/30/96 9/30/95 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.47 $12.47 $12.52 $12.60 $12.50
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.44 0.46 0.50 0.51 0.54
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.12) 0.01 (0.01) (0.07) 0.10
------ ------ ------ ------ ------
Total from investment operations 0.32 0.47 0.49 0.44 0.64
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.02) (0.01) (0.08) (0.02) (0.05)
Dividends from tax-exempt net
investment income (0.42) (0.45) (0.42) (0.49) (0.49)
Distributions from net realized gains 0 (0.01) (0.04) (0.01) 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 (0.44) (0.47) (0.54) (0.52) (0.54)
------ ------ ------ ------ ------
Portfolio transaction fee 0 0 0 0 0
------ ------ ------ ------ ------
Net asset value, end of period $12.35 $12.47 $12.47 $12.52 $12.60
====== ====== ====== ====== ======
Total return 2.64% 3.86% 3.99% 3.53% 5.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $101,901 $78,652 $76,142 $58,750 $55,221
Average net assets (000 omitted) $92,014 $77,989 $69,567 $54,087 $50,642
Ratio of expenses to average net assets 0.74% 0.74% 0.76% 0.74% 0.73%*
Ratio of net investment income to average
net assets 3.57% 3.66% 3.97% 4.02% 4.23%*
Portfolio turnover rate 77.64% 52.93% 98.01% 55.81% 112.15%
</TABLE>
*Annualized
(c) Commenced operations October 3, 1994
- --------------------------------------------------------------------------------
70
<PAGE>
Sanford C. Bernstein Fund, Inc.
The Statement of Additional Information (SAI) includes further
information about the Fund and its investment policies. The SAI has been filed
with the Securities and Exchange Commission (SEC) and is incorporated by
reference into this prospectus. This means that the SAI is legally considered a
part of this prospectus even though it is not physically contained within this
prospectus. Further information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain free copies of any of these documents or make inquiries
about the Fund, call (212) 756-4097 collect or write to us at: 767 Fifth Avenue,
New York, NY 10153-0185.
You can also obtain copies from the SEC's internet site at http://www.sec.gov,
by visiting the SEC's Public Reference Room in Washington, D.C., by sending an
e-mail to [email protected] or by sending your request and a duplicating fee to
the SEC's Public Reference Section, Washington, D.C. 20549-6009. You can call
(202) 942-8090 for information on the operation of the Public Reference Room.
Sanford C. Bernstein Fund, Inc., SEC file number: 811 - 5555
71
<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. Front and Back Cover Pages Front and Back
Cover Pages
Item 2. Risk/Return Summary: Investment Investment
Risks and Performance Objectives,
Strategies, Risks,
Performance and Fees
Item 3. Risk/Return Summary: Fee Table Investment
Objectives,
Strategies, Risks,
Performance and Fees
Item 4. Investment Objectives, Principal Additional
Investment Strategies and Related Investment
Risks Information, Special
Investment
Techniques and
Related Risks
Item 5. Management's Discussion of Not Applicable
Fund Performance
Item 6. Management, Organization and Fund Management
Capital Structure
Item 7. Shareholder Information Shareholder
Information
Item 8. Distribution Agreements Not Applicable
Item 9. Financial Highlights Financial Highlights
<PAGE>
February 1, 2000
PROSPECTUS
SANFORD C. BERNSTEIN FUND, INC.
Bernstein Fixed-Income Portfolios
o BERNSTEIN SHORT DURATION PLUS PORTFOLIO
o BERNSTEIN INTERMEDIATE DURATION PORTFOLIO
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Bernstein Fixed-Income Portfolios
Introduction.................................................................___
Bernstein Short Duration Plus Portfolio .....................................___
Bernstein Intermediate Duration Portfolio....................................___
Making Investment Decisions for the Portfolios...............................___
Additional Investment Information, Special Investment Techniques
and Related Risks...................................................___
Fund Management..............................................................___
Pricing Portfolio Shares.....................................................___
Participating in Your Plan...................................................___
Dividends, Distributions and Taxes...........................................___
Financial Highlights.........................................................___
</TABLE>
2
<PAGE>
INTRODUCTION
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
(2) of the twelve (12) Portfolios of the Sanford C. Bernstein Fund, Inc. (the
"Fund")--the Bernstein Short Duration Plus Portfolio and the Bernstein
Intermediate Duration Portfolio. A prospectus containing information on the 12
Fund Portfolios and on how to open a personal account is available for
individual investors and may be obtained by writing to the address or calling
the telephone number on the back cover of this prospectus.
Sanford C. Bernstein & Co., Inc. is the investment manager of the Fund.
This prospectus refers to Sanford C. Bernstein & Co., Inc. as "Bernstein" or
"we" and shareholders of the Portfolio as "you."
Before investing in any Portfolio, you should consider the risks. The
share prices of the Portfolios will fluctuate and you may lose money. There is
no guarantee that the Portfolios will achieve their investment objective. In
addition, the investments made by the Portfolios may underperform the market
generally or other mutual funds with a similar investment objective. Also, the
issuers in which the Portfolios invest may be affected by the Year 2000 Issue
and the Portfolios' returns could be adversely affected as a result (see
discussion on page __).
These and other risks are discussed in more detail in the pages that
follow and in the Fund's Statement of Additional Information (SAI) which is
available without charge (see back cover).
3
<PAGE>
THE BERNSTEIN SHORT DURATION PLUS PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and a moderate rate of income that is
subject to taxes.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein Short Duration Plus Portfolio will invest at least 80% of
its total assets in securities rated A or better by national rating agencies and
comparably rated commercial paper and notes. Many types of securities may be
purchased by the Portfolio, including corporate bonds, notes, U.S. government
and agency securities, asset-backed securities, mortgage-related securities and
inflation-protected securities as well as others. The Portfolio may use special
investment techniques, including futures. The Portfolio may also invest up to
20% of its total assets in fixed-income foreign securities in developed or
emerging-market countries.
The Portfolio may invest up to 20% of its total assets in fixed-income
securities rated BB or B by national rating agencies, which are not
investment-grade.
The Portfolio may use special investment techniques, including futures.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around two years, it will
lose about 2% in principal should interest rates rise 1% and gain about 2% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of one to three
years under normal market conditions.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
4
<PAGE>
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is a risk that the Portfolio's income
level and/or share price will fall. Securities that are not investment-grade
(including those that have been downgraded to below investment-grade) are
considered speculative as to the payment of interest and principal and could
experience more volatility in price. The Portfolio may retain a security whose
credit quality is downgraded or for which the issuer defaults.
Riskier than a money-market fund: The Portfolio is invested in
securities with longer maturities than the assets of the type of mutual fund
known as a money-market fund. The risk of a decline in the market value of the
Portfolio is greater than for a money-market fund since the credit quality of
the portfolio securities may be lower and the effective duration of the
Portfolio will be longer.
Inflation-protected securities: 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.
Foreign securities: Investing in foreign securities entails special
risks, such as potential political and economic instability, greater volatility
and less liquidity. In addition, there is the possibility that changes in value
of a foreign currency will reduce the U.S. dollar value of securities
denominated in that currency.
Futures risk: Futures contracts can be highly volatile and could reduce
a Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Mortgage-related securities: Investments in mortgage-related securities
expose the Portfolio to the following risks:
Prepayment risk: Because interest rates rise and fall, there
is no way to be certain of the actual rates of prepayment by the
borrowers on the underlying mortgages. Thus, actual prepayments on the
securities could differ from expected prepayments. As a result, the
value of a security could be lower than expected.
Shortening risk: Shortening risk is the possibility that
falling interest rates may cause prepayments of principal to occur at a
faster-than-expected rate. This particular risk may effectively change
a security that was considered intermediate- or long-term into a
short-term security. The prices of short-term securities do not rise as
much in response to a fall in interest rates as do the prices of
intermediate- or long-term securities.
Extension risk: Extension risk is the possibility that rising
interest rates may cause prepayments of principal to occur at a
slower-than-expected rate. This particular risk may effectively change
a security that was considered short- or intermediate-term into a
long-term security. The prices of long-term securities generally fall
more in response to a rise in interest rates than do the prices of
short- or intermediate-term securities.
5
<PAGE>
INVESTMENT PERFORMANCE
The bar chart below shows the Portfolio's performance for the past 10
calendar years. The table below the chart shows how the Portfolio's average
annual returns differ from those of a broad-based securities market index. Both
the bar chart and the table indicate the volatility of an investment in the
Portfolio and give some indication of the risk. The Portfolio's past performance
is no guarantee of how it will perform in the future.
Bar Chart
Calendar Year Total Returns
Bernstein Short Duration Plus Portfolio
`90 `91 `92 `93 `94 `95 `96 `97 `98 `99
- ----- ------ ----- ----- ----- ------ ----- ----- ----- -----
8.27% 12.39% 6.30% 5.42% 0.55% 10.10% 4.79% 5.54% 5.93% 3.78%
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
Best Quarter 12/31/91 3.75%
Worst Quarter 3/31/94 -0.31%
Average Annual Total Returns for Years Ended 12/31/99
One Year Five Years Ten Years
-------- ---------- ---------
Bernstein Short Duration Plus 3.78% 6.01% 6.26%
Merrill Lynch 1-3 Year Treasury Index 3.06% 6.51% 6.59%
Fees and Expenses
The following table describes the fees and expenses you would pay if
you buy and hold shares of the Portfolio.
- --------------------------------------------------------------------------------
Bernstein
Short Duration
Plus
Portfolio
- --------------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- --------------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from portfolio assets)
Management Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 0.15%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.05%
Total Annual Portfolio Operating Expenses 0.65%
- --------------------------------------------------------------------------------
(1) Certain shareholders may be charged an annual account maintenance
fee of $100 by Bernstein (not the Fund). The fee applies to shareholders who
have Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ----------------------------------------------------
Bernstein
Short Duration
Plus
Portfolio
- ----------------------------------------------------
1 Yr. 66
3 Yrs. (cum.) 208
5 Yrs. (cum.) 362
10 Yrs. (cum.) 810
- ----------------------------------------------------
6
<PAGE>
THE BERNSTEIN INTERMEDIATE DURATION PORTFOLIO
INVESTMENT OBJECTIVE
To provide safety of principal and a moderate to high rate of current
income that is subject to taxes.
PRINCIPAL INVESTMENT STRATEGIES
The Bernstein Intermediate Duration Portfolio will invest at least 65%
of its total assets in securities rated AA or better by national rating agencies
and comparably rated commercial paper and notes. In addition, the Portfolio will
invest at least 80% of its total assets in securities rated A or better by
national rating agencies.
Many types of securities may be purchased by the Portfolio, including
corporate bonds, notes, U.S. government and agency securities, asset-backed
securities, mortgage-related securities and inflation-protected securities as
well as others. The Portfolio may also invest up to 20% of its total assets in
fixed-income foreign securities in developed or emerging-market countries.
The Portfolio may use special investment techniques, including futures.
The Portfolio may invest up to 20% of its total assets in fixed-income
securities rated BB or B by national rating agencies, which are not
investment-grade.
In managing the Portfolio, we may use interest-rate forecasting to
determine the best level of interest-rate risk at a given time. We may
moderately shorten the average duration of the Portfolio when we expect interest
rates to rise and modestly lengthen average duration when we anticipate that
rates will fall.
Duration is a measure of interest-rate risk (described further below).
The duration of a bond is the effect on price of a rise or fall of 1% in
interest rates. Thus, if the Portfolio's duration is around five years, it will
lose about 5% in principal should interest rates rise 1% and gain about 5% in
principal should interest rates fall 1%.
The Portfolio seeks to maintain an effective duration of three to six
years under normal market conditions.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
7
<PAGE>
Interest-rate risk: Should there be a rise in the overall level of
interest rates, it is likely that the value of the Portfolio securities will
decline. Accordingly, it is likely that the Portfolio share price will fall.
Because prices of intermediate bonds are more sensitive to
interest-rate changes than those of shorter duration, this Portfolio has greater
interest-rate risk than the Bernstein Short Duration Plus Portfolio.
Credit risk: In the event that the credit rating of a Portfolio
security is downgraded or the issuer defaults by failing to make scheduled
interest or principal payments, there is a risk that the Portfolio's income
level and/or share price will fall. Securities that are not investment-grade
(including those that have been downgraded to below investment-grade) are
considered speculative as to the payment of interest and principal and could
experience more volatility in price. The Portfolio may retain a security whose
credit quality is downgraded or for which the issuer defaults.
Inflation-protected securities: 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.
Foreign securities: Investing in foreign securities entails special
risks, such as potential political and economic instability, greater volatility
and less liquidity. In addition, there is the possibility that changes in value
of a foreign currency will reduce the U.S. dollar value of securities
denominated in that currency.
Futures risk: Futures contracts can be highly volatile and could reduce
a Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Mortgage-related securities: Investments in mortgage-related securities
expose the Portfolio to the following risks:
Prepayment risk: Because interest rates rise and fall, there
is no way to be certain of the actual rates of prepayment by the
borrowers on the underlying mortgages. Thus, actual prepayments on the
securities could differ from expected prepayments. As a result, the
value of a security could be lower than expected.
Shortening risk: Shortening risk is the possibility that
falling interest rates may cause prepayments of principal to occur at a
faster-than-expected rate. This particular risk may effectively change
a security that was considered intermediate- or long-term into a
short-term security. The prices of short-term securities do not rise as
much in response to a fall in interest rates as do the prices of
intermediate- or long-term securities.
Extension risk: Extension risk is the possibility that rising
interest rates may cause prepayments of principal to occur at a
slower-than-expected rate. This particular risk may effectively change
a security that was considered short- or intermediate-term into a
long-
8
<PAGE>
term security. The prices of long-term securities generally fall more
in response to a rise in interest rates than do the prices of short- or
intermediate-term securities.
INVESTMENT PERFORMANCE
The bar chart to the right shows the Portfolio's performance for the
past 10 calendar years. The table below the chart shows how the Portfolio's
average annual returns differ from those of a broad-based securities market
index. Both the bar chart and the table indicate the volatility of an investment
in the Portfolio and give some indication of the risk. The Portfolio's past
performance is no guarantee of how it will perform in the future.
Bar Chart
Calendar Year Total Returns
Bernstein Intermediate Duration Portfolio
`90 `91 `92 `93 `94 `95 `96 `97 `98 `99
--- --- --- --- --- --- --- --- --- ---
7.35% 17.11% 7.67% 10.34% -3.15% 17.83% 3.58% 7.66% 6.87% 0.64%
Best and Worst Quarters
Quarter Total
Ended Return
----- ------
Best Quarter 12/31/91 5.94%
Worst Quarter 3/31/94 -2.30%
Average Annual Total Returns For Years Ended Dec. 31, 1999
One Year Five Years Ten Years
-------- ---------- ---------
Bernstein Immediate Duration 0.64% 7.16% 7.41%
Lehman Brothers Aggregate Bond Index -0.82% 7.73% 7.70%
Fees and Expenses
The following table describes the fees and expenses you would pay if
you buy and hold shares of the Portfolio.
- ---------------------------------------------------------------------------
Bernstein
Intermediate Duration
Portfolio
- ---------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested None
Dividends
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- ---------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio
assets)
Management Fees 0.47%
Distribution (12b-1) Fees None
Other Expenses 0.13%
Shareholder Servicing and Administrative Fees 0.10%
All Other Expenses 0.03%
Total Annual Portfolio Operating Expenses 0.60%
- ---------------------------------------------------------------------------
(1) Certain shareholders may be charged an annual account maintenance
fee of $100 by Bernstein (not the Fund). The fee applies to shareholders who
have Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. Shares of the Fund
purchased or redeemed through broker-dealers, banks and other financial
institutions may be subject to fees imposed by those institutions.
Example
This Example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ---------------------------------------------------------------------------
Bernstein
Intermediate
Duration
Portfolio
- ---------------------------------------------------------------------------
1 Yr. 61
3 Yrs. (cum.) 192
5 Yrs. (cum.) 335
10 Yrs. (cum.) 750
- ---------------------------------------------------------------------------
9
<PAGE>
MAKING INVESTMENT DECISIONS FOR THE PORTFOLIOS
We believe opportunity in the fixed-income market is primarily the
result of complexity and emotion.
To solve the complex problems of bond valuation, we devote considerable
resources to research. 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.
To minimize the emotional aspects of decision-making under uncertainty,
we strive to apply our valuation tools in a consistent and disciplined fashion.
Bernstein research is applied within a value-oriented framework. Investment
decision-making is disciplined, centralized and highly systematic.
To identify attractive bonds for the Portfolios, we evaluate securities
and sectors to identify the most attractive securities in the market at a given
time -- those offering the highest expected return in optimum combination of
duration for given degrees of interest-rate risk. Finally, we may use
interest-rate forecasting to determine the best level of interest-rate risk at a
given time, within the limits for each Portfolio.
Portfolio turnover: These Portfolios generally buy portfolio securities
with the intention of holding them for investment. However, when market
conditions or other circumstances warrant, securities may be purchased and sold
without regard to the length of time held. Over the past few years, the
Bernstein Intermediate Duration Portfolio has had a portfolio turnover ratio in
excess of 200%. A high turnover ratio may increase transaction costs and may
affect taxes paid by shareholders to the extent short-term or long-term gains
are distributed.
Additional Investment Information, Special Investment Techniques and Related
Risks
This section of the prospectus contains detailed information about the
instruments in which the Portfolios may invest, special investment techniques
that Bernstein may employ and information about the related risks. The
limitations and restrictions discussed below supplement those discussed earlier
in this prospectus.
Each Portfolio's holdings are detailed in the Fund's financial
statements, which are sent to Fund shareholders twice a year.
Additional investments, strategies and practices permitted; details in
Fund's SAI: The Portfolios may invest in other securities, use other strategies
and engage in other investment practices. Detailed information about these
securities, strategies and practices is contained in the Fund's Statement of
Additional Information (SAI), which is available upon request at no cost (see
the back cover of this prospectus).
Investment policies and limitations apply at time of purchase only:
Unless otherwise specified, the policies and limitations
10
<PAGE>
discussed in this prospectus apply at the time an instrument is purchased. Thus,
a change of circumstances will not require the sale of an investment if it was
otherwise properly purchased.
Changing the investment objectives by the Portfolios: The investment
objectives of the Portfolios are not fundamental and thus may be changed without
shareholder approval. Bernstein will provide shareholders with prior written
notice before implementing any change to the investment objectives of these
Portfolios.
Additional Investments
Obligations of Supranational Agencies
The Portfolios may invest in the obligations of supranational agencies.
Supranational agencies rely on participating countries (which may include the
United States) for funds. 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 associated with
investments in foreign securities (see discussion on pages _____).
Interest Only/Principal Only Securities
The Portfolios may invest in a type of mortgage-related security where
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. Most IOs and POs are considered to be illiquid securities (see
discussion below).
Asset-Backed Securities
The Portfolios may invest in asset-backed securities, which are bonds
secured by pools of assets such as 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 debts is used to pay interest and principal to the
asset-backed noteholders. It is possible that the collateral may not be
available to support payments on the securities.
11
<PAGE>
Illiquid Securities
Securities that are not readily marketable may be illiquid securities.
Each of the Portfolios may invest as much as 10% of its net assets in illiquid
securities..
Examples of illiquid securities include guaranteed investment contracts
("GICs"), bank investment contracts ("BICs") and private placement securities. A
GIC is a contract issued by an insurance company that guarantees payment of
interest and repayment of principal. A BIC is a contract issued by a bank that
guarantees payment of interest and repayment of principal. Private placement
securities are securities that are exempt from registration with the Securities
and Exchange Commission and may be sold only in privately negotiated
transactions.
Special Investment Techniques
In seeking to achieve its investment objectives, each of the Portfolios
may invest in higher-risk securities or use special investment techniques. These
techniques may be used:
o to hedge various market risks (such as interest rates,
currency exchange rates and broad or security-specific changes
in the prices of securities);
o to manage the effective maturity or duration of fixed-income
securities;
o to exploit mispricings in the securities markets; and
o as an alternative to activities in the underlying cash
markets.
Below is a description of some of these special investment techniques. For
additional information on special investment techniques, see the Fund's SAI (see
the back cover of this prospectus).
Foreign Currency Transactions
The Portfolios may enter into foreign currency exchange contracts on
either a spot (i.e., cash) or forward basis. Spot contracts are entered into at
the rate then prevailing in the currency exchange market. Forward contracts
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.
Although forward contracts will be used primarily to protect the
Portfolios from adverse currency movements, they involve the risk that Bernstein
will not accurately predict currency movements. As a result, the Portfolios'
total return could be adversely affected.
Futures Contracts and Options
The Portfolios may also enter into contracts involving the right or
obligation to deliver or
12
<PAGE>
receive assets or money depending on the performance of one or more assets or an
economic index. These include futures contracts with respect to bonds,
Eurodeposits, securities indexes, currencies, options or other derivatives or
financial instruments.
In addition, the Portfolios may each purchase and sell put and call
options on securities, securities indexes, foreign currencies, and futures
contracts. The Portfolios will write only covered options or other derivatives
or financial instruments.
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.
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. Attempts by Bernstein to use these investments for
hedging or other purposes may not be successful. Each Portfolio's potential
losses from the use of futures and options 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,
the Portfolios may invest in hybrid instruments (a type of potentially high-risk
derivative) that have the characteristics of futures, options, currencies and
securities. These 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. They may also be debt
instruments with interest or principal payments determined by reference to
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 Portfolios may not be successful. The risk of these investments can be
substantial; possibly all of the principal is at risk. Neither Portfolio will
invest more than 20% of its total assets in these investments.
Swap agreements obligate one party to make payments to the other party
based on the change in the market value of an index or asset. In return, the
other party agrees to make payments to the first party based on the return of
another index or asset. Swap agreements entail the risk that a party will
default on its payment obligations to the Portfolios. Swap agreements also bear
the risk that the Portfolios will not be able to meet their obligations to the
counterparty.
The Portfolios 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
13
<PAGE>
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 for a variety of reasons. A Portfolio
may attempt 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. A Portfolio may also enter these transactions 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 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 Portfolios to alter their exposure to interest-rate market risk
without changing the composition of the Portfolios. 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.
Lending Portfolio Securities
Each Portfolio may lend up to 30% of its total assets. Loans may be
made 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 time deposits and repurchase agreements. Loans of portfolio
securities are marked to the market daily and secured by collateral consisting
of certificates of deposit and other cash instruments or U.S. government and
agency securities worth no less than the securities loaned.
Bernstein 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. 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, where a security purchased by a Portfolio is delivered
at a later date, usually within three months.
The market value of the security at delivery may be more or less than
the purchase price. A Portfolio must segregate liquid assets in accounts in an
amount at least equal to its purchase commitments; a Portfolio must also
segregate securities sold on a delayed-delivery basis.
Future Developments
14
<PAGE>
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 Bernstein 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
restrictions and legally permissible for that Portfolio, we may utilize the
strategies. These opportunities may involve risks that differ from those
described above.
ADDITIONAL RISKS
Year 2000 Risks
Like other mutual funds and financial and business operations around
the world, the Portfolios could be adversely affected if the computer software
and, to a lesser extent, hardware used by Bernstein 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." We are taking steps that we believe are reasonably designed to address
the Year 2000 Issue with respect to the computer software and hardware that we
use 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
Portfolios. 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, the Portfolio's returns could be adversely
affected.
FUND MANAGEMENT
The investment manager of the Fund is Sanford C. Bernstein & Co., Inc.,
a New York corporation with principal offices at 767 Fifth Avenue, New York, New
York 10153. Bernstein, a registered investment advisor, manages as of September
30, 1999, some $85 billion in assets 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.
Bernstein provides the Portfolios of the Fund with investment
management, shareholder servicing and administration and distribution services.
Bernstein's Investment Policy Groups are comprised of Bernstein
employees and make all investment decisions for the Portfolios. No one person is
primarily responsible for making recommendations to the Investment Policy
Groups.
Investment Management Fees
The aggregate fees paid to Bernstein as a percentage of assets for
services rendered to each Portfolio with respect to investment management for
the period ending September 30, 1999 were 0.50% for the Bernstein Short Duration
Plus Portfolio and 0.47% for the Bernstein Intermediate Duration Portfolio.
15
<PAGE>
Bernstein acts as the Distributor of the Portfolios' shares free of
charge. Bernstein also acts as the Fund's Shareholder Servicing Agent. For these
services, Bernstein charges each of the Bernstein Short Duration Plus and the
Bernstein Intermediate Duration Portfolios an annual fee of 0.10% of the
Portfolio's average daily net assets.
Pricing Portfolio Shares
The share price for the Portfolios is based on the Portfolios' net
asset value ("NAV"). To calculate the NAV, a Portfolio's net worth (assets less
liabilities) is divided by the number of outstanding shares.
Regarding Portfolio securities for which readily available market
quotations exist, the value is based on the most recent sale price, 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 Bernstein.
Debt instruments with remaining maturities of 60 days or less may be valued at
amortized cost. The Fund may use an independent pricing service to value the
Portfolios' assets at such times and to such extent as Bernstein deems
appropriate.
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 the Fund's Board of
Directors. In the latter situation, prices used by the Fund to calculate the
Portfolios' net asset value may differ from quoted or published prices for the
underlying securities.
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 Bernstein 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 Bernstein becomes aware of
them, whichever is later.
Each Portfolio's NAV is determined as of the close of regular trading
of the New York Stock Exchange (normally 4:00 p.m. New York time) 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, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day.
To the extent that the assets of either of the Portfolios are traded in
other markets (such as a foreign market) on days when the New York Stock
Exchange is closed, the net asset value of the respective Portfolio may be
affected on days when you will not be able to purchase or redeem the Portfolio's
shares.
16
<PAGE>
Your purchase price for shares of the Portfolios will be the NAV next
determined after receipt of a purchase order in good form. When you sell shares
of the Portfolios, you will receive the NAV next determined after receipt of the
order to sell in proper form.
Participating in your Plan
The Portfolios are 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 any of the Portfolios 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 Portfolio shares are
effective when received in "good form" by Bernstein or its agents. "Good form"
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 that appears on the back 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.
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.
If you utilize any Portfolio as an investment option in an
employer-sponsored retirement or savings plan, dividend and capital-gains
distributions from any Portfolio 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
17
<PAGE>
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.
Your dividends and capital-gains distributions, if any, will be
automatically reinvested in shares of the Portfolios. The number of shares you
receive is based upon the net asset value of the Portfolios on the record date.
Such reinvestments automatically occur on the payment date of such dividends and
capital-gains distributions. In the alternative, you may elect in writing
received by us not less than five business days prior to the record date to
receive dividends and/or capital-gains distributions in cash. You will not
receive interest on uncashed dividend, distribution or redemption checks.
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.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of these Portfolios of the Fund for the past 5 years.
Certain information reflects financial results for a single Portfolio share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Portfolio (assuming reinvestment of all
dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, is included in the annual report, which is available upon request.
18
<PAGE>
<TABLE>
<CAPTION>
BERNSTEIN INTERMEDIATE DURATION PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97 9/30/96 9/30/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.49 $13.38 $13.08 $13.30 $12.54
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.77 0.73 0.75 0.80 0.78
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.63) 0.37 0.35 (0.14) 0.77
------ ------ ------ ------ ------
Total from investment operations 0.14 1.10 1.10 0.66 1.55
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.76) (0.80) (0.80) (0.80) (0.76)
Dividends from tax-exempt net
investment income 0 0 0 0 0
Distributions from net realized gains (0.10) (0.17) 0 (0.08) 0
Distributions in excess of net investment
income due to timing differences (0.03) (0.02) 0 0 (0.03)
Distributions in excess of net realized
gains due to timing differences (0.07) 0 0 0 0
------ ------ ------ ------ ------
Total distributions (0.96) (0.99) (0.80) (0.88) (0.79)
------ ------ ------ ------ ------
Portfolio transaction fee 0 0 0 0 0
------ ------ ------ ------ ------
Net asset value, end of period $12.67 $13.49 $13.38 $13.08 $13.30
====== ====== ====== ====== ======
Total return 1.04% 8.59% 8.66% 5.05% 12.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $2,674,408 $2,541,549 $2,058,220 $1,451,776 $1,142,768
Average net assets (000 omitted) $2,601,959 $2,303,250 $1,745,554 $1,310,208 $957,247
Ratio of expenses to average net assets 0.60% 0.60% 0.62% 0.63% 0.64%
Ratio of net investment income to average
net assets 5.89% 5.41% 5.61% 5.99% 6.11%
Portfolio turnover rate 229.75% 233.08% 238.04% 141.04% 212.40%
<CAPTION>
BERNSTEIN SHORT DURATION PLUS PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/99 9/30/98 9/30/97 9/30/96 9/30/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.53 $12.53 $12.48 $12.49 $12.32
------ ------ ------ ------ ------
Income from investment operations:
Investment income, net 0.67 0.65 0.67 0.69 0.70
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies (0.20) 0.09 0.08 (0.01) 0.18
------ ------ ------ ------ ------
Total from investment operations 0.47 0.74 0.75 0.68 0.88
------ ------ ------ ------ ------
Less distributions:
Dividends from taxable net investment income (0.67) (0.72) (0.70) (0.69) (0.69)
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 (0.02) 0 0 (0.02)
Distributions in excess of net realized
gains due to timing differences 0 0 0 0 0
------ ------ ------ ------ ------
Total distributions (0.67) (0.74) (0.70) (0.69) (0.71)
------ ------ ------ ------ ------
Portfolio transaction fee 0 0 0 0 0
------ ------ ------ ------ ------
Net asset value, end of period $12.33 $12.53 $12.53 $12.48 $12.49
====== ====== ====== ====== ======
Total return 3.82% 6.10% 6.21% 5.54% 7.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $557,016 $595,087 $612,744 $538,248 $534,462
Average net assets (000 omitted) $569,298 $591,866 $583,003 $532,094 $536,042
Ratio of expenses to average net assets 0.65% 0.64% 0.65% 0.65% 0.65%
Ratio of net investment income to average
net assets 5.36% 5.24% 5.38% 5.47% 5.69%
Portfolio turnover rate 95.60% 71.40% 118.58% 169.96% 61.03%
</TABLE>
19
<PAGE>
Sanford C. Bernstein Fund, Inc.
Bernstein Short Duration Plus Portfolio
Bernstein Intermediate Duration Portfolio
Important: 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
(2) of the twelve (12) Portfolios of the Sanford C. Bernstein Fund, Inc. (the
"Fund")--the Bernstein Short Duration Plus Portfolio and the Bernstein
Intermediate Duration Portfolio. A prospectus containing information on the 12
Fund Portfolios and on how to open a personal account is available for
individual investors and may be obtained by writing to the address or calling
the telephone number below.
The Statement of Additional Information (SAI) includes further
information about the Fund and its investment policies. The SAI has been filed
with the Securities and Exchange Commission (SEC) and is incorporated by
reference into this prospectus. This means that the SAI is legally considered a
part of this prospectus even though it is not physically contained within this
prospectus. Further information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain free copies of any of these documents or make inquiries
about the Fund, call (212) 756-4097 collect or write to us at: 767 Fifth Avenue,
New York, NY 10153-0185.
You can also obtain copies from the SEC's Internet site at http://www.sec.gov,
by visiting the SEC's Public Reference Room in Washington, DC, by sending an
e-mail to [email protected], or by sending your request and a duplicating fee
to the SEC's Public Reference Section, Washington, DC 20549-6009. You can call
(202) 942-8090 for information on the operation of the Public Reference Room.
Sanford C. Bernstein Fund, Inc., SEC file number: 811 - 5555
20
<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. Front and Back Cover Pages Front and Back
Cover Pages
Item 2. Risk/Return Summary: Investment Investment
Risks and Performance Objectives,
Strategies, Risks,
Performance and Fees
Item 3. Risk/Return Summary: Fee Table Investment
Objectives,
Strategies, Risks,
Performance and Fees
Item 4. Investment Objectives, Principal Additional
Investment Strategies and Related Investment
Risks Information, Special
Investment
Techniques and
Related Risks
Item 5. Management's Discussion of Not Applicable
Fund Performance
Item 6. Management, Organization and Fund Management
Capital Structure
Item 7. Shareholder Information Shareholder
Information
Item 8. Distribution Agreements Not Applicable
Item 9. Financial Highlights Information Financial Highlights
<PAGE>
February 1, 2000
PROSPECTUS
SANFORD C. BERNSTEIN FUND, INC.
BERNSTEIN INTERNATIONAL VALUE PORTFOLIO II
As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction ...............................................................___
Bernstein International Value Portfolio II..................................___
Making Investment Decisions for the Portfolio...............................___
Additional Investment Information, Special Investment Techniques
and Related Risks..................................................___
Fund Management.............................................................___
Pricing Portfolio Shares....................................................___
Participating in Your Plan..................................................___
Dividends, Distributions and Taxes..........................................___
Financial Highlights........................................................___
</TABLE>
2
<PAGE>
INTRODUCTION
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
(1) of the twelve (12) Portfolios of the Sanford C. Bernstein Fund, Inc. (the
"Fund")--the Bernstein International Value Portfolio II. A prospectus containing
information on the 12 Fund Portfolios and on how to open a personal account is
available for individual investors and may be obtained by writing to the address
or calling (collect) the telephone number on the back cover of this prospectus.
Sanford C. Bernstein & Co., Inc. is the investment manager of the Fund.
This prospectus refers to Sanford C. Bernstein & Co., Inc. as "Bernstein" or
"we" and shareholders of the Portfolio as "you."
Before investing in the Portfolio, you should consider the risks. The
share prices of the Portfolio will fluctuate and you may lose money. This risk
is heightened in the case of international equities, which can experience high
volatility in share prices. There is no guarantee that the Portfolio will
achieve its investment objective. In addition, the investments made by the
Portfolio may underperform the market generally or other mutual funds with a
similar investment objective. Also, the issuers in which the Portfolio invests
may be affected by the Year 2000 Issue and the Portfolio's returns could be
adversely affected as a result (see discussion on page __).
These and other risks are discussed in more detail in the pages that
follow and in the Fund's Statement of Additional Information (SAI) which is
available without charge (see back cover).
BERNSTEIN INTERNATIONAL VALUE PORTFOLIO II
INVESTMENT OBJECTIVE
The Bernstein International Value Portfolio II seeks to provide
long-term capital growth through investments in equity securities of established
foreign companies comprising the EAFE index plus Canada. The Portfolio is
managed without regard to tax considerations.
PRINCIPAL INVESTMENT STRATEGIES
The Portfolio will invest primarily in equity securities 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. We
diversify among many foreign countries but not necessarily in the same
proportion that the countries are represented in the EAFE index. Bernstein uses
a value-oriented approach to stock selection.
The Portfolio will invest primarily in common stocks but may also
invest in preferred stocks, warrants and convertible securities of foreign
issuers, including sponsored or unsponsored American Depositary Receipts (ADRs)
and Global Depositary Receipts (GDRs).
3
<PAGE>
In order to hedge a portion of the currency risk, the Portfolio will
generally invest in foreign currency future contracts and foreign currency
forward contracts with terms of up to one year. The Portfolio will also purchase
foreign currency for immediate settlement in order to purchase foreign
securities.
In addition, the Portfolio will generally invest a portion of its
uncommitted cash balances in futures contracts to expose that portion of the
Portfolio to the equity markets.
The Portfolio may also make investments in less developed or emerging
equity markets.
The 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.
PRINCIPAL INVESTMENT RISKS
General risks of investing in the Portfolio: The share prices of the
Portfolio will fluctuate and you may lose money. There is no guarantee that the
Portfolio will achieve its investment objective.
Risks of investing in foreign securities: Investments in foreign
securities entail significant risks in addition to those customarily associated
with investing in U.S. equities. These risks are heightened with respect to
investments in emerging-market countries where there is an even greater amount
of economic, political and social instability.
Market risk: The Portfolio is subject to market risk, which is the risk
that stock prices in general will decline over short or even extended periods.
In foreign markets there is often a lower degree of market volume and liquidity
than in U.S. markets, and this may result in greater price volatility.
Furthermore, since the composition of the Portfolio will differ from that of
market indexes, its performance generally will not mirror the returns provided
by a specific market index.
Foreign currency risk: Returns on foreign securities are influenced by
currency risk as well as equity risk. Foreign securities are generally
denominated in foreign currencies, which may change in value in relation to the
U.S. dollar, possibly for long periods of time. When a foreign currency declines
in value in relation to the U.S. dollar, your return on foreign stocks will
decline.
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. Foreign governments may also intervene in currency
markets or interpose registration/approval processes, which may adversely affect
the Portfolio and your investment.
4
<PAGE>
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.
Futures risk: Futures contracts can be highly volatile and could reduce
the Portfolio's total returns. The Portfolio's potential losses from the use of
futures could extend beyond its initial investment.
Other foreign investment risks include:
o the availability of less public information on issuers of securities
o less governmental supervision of brokers and issuers of securities
o lack of uniform accounting, auditing and financial reporting standards
o settlement practices that differ from those in the U.S. and may result
in delays or may not fully protect the Portfolio against loss or theft
of assets
o the possibility of nationalization of a company or industry and
expropriation or confiscatory taxation
o the imposition of foreign taxes
o high inflation and rapid fluctuations in inflation rates
o less developed legal structures governing private or foreign investment
Higher costs associated with foreign investing: Investments in foreign
securities will also result in generally higher expenses due to:
o the costs of currency exchange
o higher brokerage commissions in certain foreign markets
o the expense of maintaining securities with foreign custodians
Additional risks of investing in emerging-market countries: Investing
in emerging-market countries entails greater economic, political and social
instability. In addition, there is heightened volatility because the securities
markets in these countries are substantially smaller, less developed, less
liquid and more volatile than the securities markets of developed countries.
INVESTMENT PERFORMANCE
5
<PAGE>
No performance information has been provided for the Bernstein
International Value Portfolio II because the Portfolio has not yet completed one
calendar year of operations.
Fees and Expenses
The following table describes the fees and expenses you would pay if
you buy and hold shares of the Portfolio.
- --------------------------------------------------------------------------------
Bernstein
International Value
Portfolio II*
- --------------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Deferred Sales Charge (Load) None
Redemption Fees None
Exchange Fees None
Maximum Account Fee $100(1)
- --------------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets)
Management Fees 0.94%
Distribution (12b-1) Fees None
Other Expenses(2) 0.32%
Shareholder Servicing and Administrative Fees 0.25%
All Other Expenses 0.07%
Total Annual Portfolio Operating Expenses 1.26%
- --------------------------------------------------------------------------------
*Annualized
(1) Certain shareholders may be charged an annual account maintenance
fee of $100 by Bernstein (not the Fund). The fee applies to shareholders who
have Portfolio shares in an account at Bernstein that has assets of less than
$400,000. This fee is deducted from cash held in the account or, if insufficient
cash is maintained in that account, by selling securities. 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) Other expenses for the Bernstein International Value Portfolio II
are based on estimated amounts for the current fiscal year.
Example
This Example is intended to help you compare the cost of investing in
the Portfolios with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- --------------------------------------------------------------------------------
Bernstein
International Value
Portfolio II
- --------------------------------------------------------------------------------
1 Yr. 128
3 Yrs. (cum.) 400
5 Yrs. (cum.) N/A
10 Yrs. (cum.) N/A
- --------------------------------------------------------------------------------
MAKING INVESTMENT DECISIONS FOR THE PORTFOLIO
We believe opportunity in the 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. 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.
To minimize the emotional aspects of decision-making under uncertainty,
we strive to apply our valuation tools in a consistent and disciplined fashion.
Bernstein research is applied within a value-oriented framework. Investment
decision-making is disciplined, centralized and highly systematic.
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 invests in underpriced stocks--those
with low price/earnings ratios, low price/book-value ratios and high dividend
yields. Investment decision-making for the Bernstein International Value
6
<PAGE>
Portfolio II is systematic and centralized, pursued by an investment policy
group working in concert, and guided by the findings of our global equity
research staff.
Portfolio turnover: This Portfolio generally buys portfolio securities
with the intention of holding them for investment. However, when market
conditions or other circumstances warrant, securities may be purchased and sold
without regard to the length of time held. A high turnover ratio may increase
transaction costs and may affect taxes paid by shareholders to the extent
short-term or long-term gains are distributed.
Temporary defensive positions: Under exceptional conditions abroad or
when Bernstein believes that economic or market conditions warrant, the
Portfolio may temporarily, for defensive purposes, invest part or all of its
portfolio of assets in U.S. government obligations or investment-grade debt or
equity securities of U.S. issuers. When a Portfolio is investing for temporary
defensive purposes, it is not pursuing its investment goal.
ADDITIONAL INVESTMENT INFORMATION, SPECIAL INVESTMENT
TECHNIQUES AND RELATED RISKS
This section of the prospectus contains detailed information about the
instruments in which the Bernstein International Value Portfolio II may invest,
special investment techniques that Bernstein may employ and information about
the related risks. The limitations and restrictions discussed below supplement
those discussed earlier in this prospectus.
Portfolio holdings are detailed in the Fund's financial statements,
which are sent to Fund shareholders twice a year.
Additional investments, strategies and practices permitted; details in
Fund's SAI: The Portfolio may invest in other securities, use other strategies
and engage in other investment practices. Detailed information about these
securities, strategies and practices is contained in the Fund's Statement of
Additional Information (SAI), which is available upon request at no cost (see
the back cover of this prospectus).
Investment policies and limitations apply at time of purchase only:
Unless otherwise specified, the policies and limitations discussed in this
prospectus apply at the time an instrument is purchased. Thus, a change of
circumstances will not require the sale of an investment if it was otherwise
properly purchased.
Changing the investment objectives by the Portfolio: All investment
objectives of the International Value Portfolio II are not fundamental and thus
may be changed without shareholder approval. Bernstein will provide shareholders
with prior written notice before implementing any change to the investment
objectives of this Portfolio.
7
<PAGE>
Illiquid securities: Securities that are not readily marketable may be
illiquid securities. The International Value Portfolio II may invest as much as
15% of its net assets in illiquid securities.
Private placement securities are usually illiquid securities. These
securities are exempt from registration with the Securities and Exchange
Commission and may be sold only in privately negotiated transactions.
Special Investment Techniques and Related Risks
In seeking to achieve its investment objectives, the Portfolio may
invest in higher-risk securities or use special investment techniques. These
techniques may be used:
o to hedge various market risks (such as interest rates,
currency exchange rates and broad or security-specific changes
in the prices of securities);
o to manage the effective maturity or duration of fixed-income
securities;
o to exploit mispricings in the securities markets; and
o as an alternative to activities in the underlying cash
markets.
Below is a description of some of these special investment techniques. For
additional information on special investment techniques, see the Fund's SAI (see
the back cover of this prospectus).
Foreign Currency Transactions
The Bernstein International Value Portfolio II may enter into foreign
currency exchange contracts on either a spot (i.e., cash) or forward basis. Spot
contracts are entered into at the rate then prevailing in the currency exchange
market. Forward contracts 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.
Although forward contracts will be used primarily to protect the
Portfolio from adverse currency movements, they involve the risk that Bernstein
will not accurately predict currency movements. As a result, the Portfolio's
total return could be adversely affected.
Under certain circumstances, the Bernstein International Value
Portfolio II may commit a substantial portion or the entire value of its
portfolio to the consummation of these contracts. Bernstein will consider the
effect that a substantial commitment of assets to forward contracts would have
on the investment program of this Portfolio and the flexibility of this
Portfolio to purchase additional securities.
Futures Contracts and Options
The Portfolio may also enter into contracts involving the right or
obligation to deliver or
8
<PAGE>
receive assets or money depending on the performance of one or more assets or an
economic index. These include futures contracts with respect to bonds,
Eurodeposits, securities indexes, currencies, options or other derivatives or
financial instruments.
In addition, the Portfolio may purchase and sell put and call options
on securities, securities indexes, foreign currencies, futures contracts or
other derivatives or financial instruments. 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.
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. Attempts by Bernstein to use these investments
for hedging or other purposes may not be successful. The Portfolio's potential
losses from the use of futures and options extends 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. These 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. They may also be debt
instruments with interest or principal payments determined by reference to
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 Bernstein
International Value Portfolio II will not invest more than 20% of its total
assets in these investments.
Swap agreements obligate one party to make payments to the other party
based on the change in the market value of an index or asset. In return, the
other party agrees to make payments to the first party based on the return of
another index or asset. Swap agreements entail the risk that a party will
default on its payment obligations to the Portfolio. 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
9
<PAGE>
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 for
a variety of reasons. The Portfolio may attempt 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. The Portfolio may also enter these
transactions 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.
Lending Portfolio Securities
The Portfolio may lend portfolio securities. The Bernstein
International Value Portfolio II may lend up to one-third of its total assets.
Loans may be made 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 time deposits and repurchase agreements. Loans of portfolio
securities are marked to the market daily and secured by collateral consisting
of certificates of deposit and other cash instruments or U.S. government and
agency securities worth no less than the securities loaned.
We believe 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 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, where a security purchased by the Portfolio is
delivered at a later date, usually within three months.
The market value of the security at delivery may be more or less than
the purchase price. The Portfolio must segregate liquid assets in accounts in an
amount at least equal to its purchase commitments; the Portfolio must also
segregate securities sold on a delayed-delivery basis.
Future Developments
10
<PAGE>
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 we develop 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
restrictions and legally permissible for the Portfolio, we may utilize the
strategies. These opportunities may involve risks that differ from those
described above.
ADDITIONAL RISKS
Year 2000 Risks
Like other mutual funds and financial and business operations around
the world, the Portfolio could be adversely affected if the computer software
and, to a lesser extent, hardware used by Bernstein 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." We are taking steps that we believe are reasonably designed to address
the Year 2000 Issue with respect to the computer software and hardware that we
use 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
Portfolio. 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 degree of impact. To the extent the impact on the
Portfolio holding is negative, the Portfolio's returns could be adversely
affected.
FUND MANAGEMENT
The investment manager of the Fund is Sanford C. Bernstein & Co., Inc.,
a New York corporation with principal offices at 767 Fifth Avenue, New York, New
York 10153. Bernstein, a registered investment advisor, manages as of September
30, 1999 some $85 billion in assets 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.
Bernstein provides the Portfolio with investment management,
shareholder servicing and administration and distribution services.
Bernstein's Investment Policy Groups consist of Bernstein employees and
make all investment decisions for the Portfolio. No one person is primarily
responsible for making recommendations to the Investment Policy Groups.
Investment Management Fees
Bernstein charges the Portfolio a management fee at an annual rate of
1.00% of the Portfolio's average daily net assets up to but not exceeding $1
billion and an annual rate of 0.90 of 1% of average daily net assets that exceed
$1 billion.
11
<PAGE>
Bernstein acts as the Distributor of the Portfolio's shares free of
charge. Bernstein also acts as the Fund's Shareholder Servicing Agent. For these
services, Bernstein charges the Portfolio an annual fee of 0.25% of the
Portfolio's average daily net assets.
PRICING PORTFOLIO SHARES
The share price for the Portfolio is based on the Portfolio's net asset
value ("NAV"). To calculate the NAV, the Portfolio's net worth (assets less
liabilities) is divided by the number of outstanding shares.
Regarding Portfolio securities for which readily available market
quotations exist, the value is based on the most recent sale price, 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 Bernstein.
Debt instruments with remaining maturities of 60 days or less may be valued at
amortized cost. The Fund may use an independent pricing service to value the
Portfolio's assets at such times and to such extent as Bernstein deems
appropriate.
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 the Fund's Board of
Directors. In the latter situation, prices used by the Fund to calculate the
Portfolio's net asset value may differ from quoted or published prices for the
underlying securities.
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 Bernstein 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 Bernstein becomes aware of
them, whichever is later.
The Portfolio's NAV is determined as of the close of regular trading of
the New York Stock Exchange (normally 4:00 p.m. New York time) 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, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
To the extent that the assets of the Portfolio are traded in other
markets (such as a foreign market) on days when the New York Stock Exchange is
closed, the net asset value of the Portfolio may be affected on days when you
will not be able to purchase or redeem the Portfolio's shares.
Your purchase price for shares of the Portfolio will be the NAV next
determined after receipt of a purchase order in good form. When you sell shares
of the Portfolio, you will receive the NAV next determined after receipt of the
order to sell in proper form.
PARTICIPATING IN YOUR PLAN
12
<PAGE>
The Portfolio 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 Portfolio 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 Portfolio's shares are
effective when received in "good form" by Bernstein or its agents. "Good form"
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 that 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Portfolio will distribute substantially all of its net investment
income (interest and dividends less expenses) and realized net capital gains
from the sale of its securities, if any, to its shareholders.
The 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 distribution 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. You will be taxed on dividends and
distributions generally in the year you receive them except that dividends
declared in October, November and December and paid prior to February 1 of the
following year are taxable to you in the year they are declared.
If you purchase shares shortly before the record date of a dividend or
a capital-gains distribution of the Portfolio, the share price will include the
amount of the distribution. On the
13
<PAGE>
record date of the distribution, the net asset value of the Portfolio's shares
will drop by the amount of the distribution.
If you utilize the Portfolio as an investment option in an
employer-sponsored retirement or savings plan, dividend and capital-gains
distributions from the Portfolio 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. Some emerging-market countries may impose taxes on
capital gains earned by the Portfolio in that country. However, tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. You may be entitled to claim foreign tax credits or deductions on your
federal income-tax returns with respect to such taxes paid by the Portfolio.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the Portfolio since inception. Certain information
reflects financial results for a single Portfolio share. The total returns in
the table represent the rate that an investor would have earned (or lost) on an
investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the Fund's financial statements, is included in the
annual report, which is available upon request.
BERNSTEIN INTERNATIONAL VALUE PORTFOLIO II
YEAR ENDED
9/30/99 (a)
- ---------------------------------------------------------------------
Net asset value, beginning of period $19.43
------
Income from investment operations:
Investment income, net 0.19
Net realized and unrealized gain (loss) on
investments, futures and foreign currencies 0.49
------
Total from investment operations 0.68
------
Less distributions:
Dividends from taxable net investment income 0
Dividends from tax-exempt net
investment income 0
Distributions from net realized gains 0
Distributions in excess of net investment
income due to timing differences 0
Distributions in excess of net realized
gains due to timing differences 0
------
Total distributions 0
------
Portfolio transaction fee 0
------
Net asset value, end of period $20.11
======
Total return 3.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $2,459,123
Average net assets (000 omitted) $2,397,807
Ratio of expenses to average net assets 1.26%*
Ratio of net investment income to average
net assets 2.23%*
Portfolio turnover rate 9.34%
*Annualized
(a) Commenced operations April 30, 1999
14
<PAGE>
Sanford C. Bernstein Fund, Inc.
Bernstein International Value Portfolio II
Important: 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
(1) of the twelve (12) Portfolios of the Sanford C. Bernstein Fund, Inc. (the
"Fund")--the Bernstein International Value Portfolio II. A prospectus containing
information on the 12 Fund Portfolios and on how to open a personal account is
available for individual investors and may be obtained by writing to the address
or calling the telephone number below.
The Statement of Additional Information (SAI) includes further
information about the Bernstein International Value Portfolio II and its
investment policies. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is incorporated by reference into this prospectus. This
means that the SAI is legally considered a part of this prospectus even though
it is not physically contained within this prospectus. Further information about
the Fund's investments is available in the Fund's annual and semiannual reports
to shareholders. In the Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year. To obtain free copies of any of
these documents or make inquiries about the Fund, call (212) 756-4097 collect or
write to us at: 767 Fifth Avenue, New York, NY 10153-0185.
You can also obtain copies from the SEC's Internet site at http://www.sec.gov,
by visiting the SEC's Public Reference Room in Washington, DC, by sending an
e-mail to [email protected], or by sending your request and a duplicating fee
to the SEC's Public Reference Section, Washington, DC 20549-6009. You can call
(202) 942-8090 for information on the operation of the Public Reference Room.
Sanford C. Bernstein Fund, Inc., SEC file number: 811 - 5555.
15
<PAGE>
Location in Statement of
Part B of Additional Information
- ------ -------------------------
Item 10. Cover Page and Table Cover Page and Table
Of Contents Of Contents
Item 11. Fund History Fund History
Item 12. Description of the Fund Investment Strategies and
Its Investments and Risks Related Risks
Item 13. Management of the Fund Manager and Distributor
Item 14. Control Persons and Directors and Officers
Principal Holders of and Principal Holders of
Securities Securities
Item 15. Investment Advisory and Manager and Distributor
Other Services
Item 16. Brokerage Allocation and Portfolio Transactions
Other Practices and Brokerage
Item 17. Capital Stock and Other Not Applicable
Practices
Item 18. Purchase, Redemption, and Purchase and Redemption
Pricing of Shares of Shares
Item 19. Taxation of the Fund. Taxes
Item 20. Underwriters Manager and Distributor
Item 21. Calculation of Performance
Performance Data
Item 22. Financial Statements Custodian, Transfer
Agent, Independent
Accountants and
Financial Statements
16
<PAGE>
SANFORD C. BERNSTEIN FUND, INC.
767 Fifth Avenue
New York, New York 10153
(212) 756-4097
Statement of Additional Information
February 1, 2000
This Statement of Additional Information ("SAI") relates to the following
12 series of shares of the Sanford C. Bernstein Fund, Inc. (the "Fund"). Each
series is referred to as a "Portfolio" in this SAI.
BERNSTEIN FIXED-INCOME PORTFOLIOS
<TABLE>
<S> <C>
Bernstein Government Short Duration Bernstein Intermediate Duration Portfolio
Bernstein Short Duration Plus
Bernstein Short Duration New York Municipal Bernstein New York Municipal
Bernstein Short Duration California Municipal Bernstein California Municipal
Bernstein Short Duration Diversified Municipal Bernstein Diversified Municipal
</TABLE>
BERNSTEIN INTERNATIONAL EQUITY PORTFOLIOS
<TABLE>
<S> <C>
Bernstein Tax-Managed International Value Bernstein Emerging Markets Value
Bernstein International Value II
</TABLE>
This SAI is not a prospectus, and should be read in conjunction with the
Fund's Prospectus, dated February 1, 2000, which may be obtained by writing to
or telephoning (collect) the Fund at the above address or telephone number.
Certain financial statements from the Fund's annual report dated September
30, 1999 are incorporated by reference into this SAI.
<PAGE>
B-2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross
Cross Reference Reference to
to Page in the
Page in the Prospectus
Cross Reference Prospectus Relating only
to Page in Relating only to the
Prospectus to the Intermediate
Relating to all International Duration and
12 Fund Value Portfolio Short Duration
Page Portfolios II Plus Portfolios
----
<S> <C> <C> <C> <C>
Fund History
Investment Strategies
and Related Risks
Fixed-Income Portfolios
Manager and Distributor
Net Asset Value
Portfolio Transactions
and Brokerage
Purchase and Redemption
of Shares
Taxes
Custodian, Transfer
Agent, Independent
Accountants and
Financial Statements
Performance
Description of Shares
Appendix
</TABLE>
<PAGE>
B-3
FUND HISTORY
The Fund was incorporated under the laws of the state of Maryland on May
4, 1988 as an open-end management investment company. Each Portfolio of the Fund
is diversified except for the Bernstein New York Municipal Portfolio, Bernstein
Short Duration New York Municipal Portfolio, Bernstein California Municipal
Portfolio and the Bernstein Short Duration California Municipal Portfolio.
INVESTMENTS STRATEGIES AND RELATED RISKS
For a summary description of the objectives, principal investment
strategies and policies of each Portfolio, see the section of the Fund's
Prospectus entitled "Investment Objectives, Strategies, Risks, Performance and
Fees". The following information is provided for those investors desiring
information in addition to that contained in the Prospectus.
FIXED-INCOME PORTFOLIOS
General Investment Policies --- All Fixed-Income Portfolios
Each Fixed-Income Portfolio evaluates a wide variety of instruments and
issuers, utilizing a variety of internally developed, quantitatively based
valuation techniques. Except as otherwise specified, each of the Fixed-Income
Portfolios may invest in any of the securities described in the Prospectus and
this SAI. In addition, each of the Fixed-Income Portfolios may use any of the
special investment techniques, some of which are commonly called derivatives,
described in the Prospectus and this SAI 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
<PAGE>
B-4
rated by other ratings agencies or are not rated but in either case 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 rated by other ratings agencies or
not rated but in either case 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.
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.
Specific Investment Policies of Each Fixed-Income Portfolio
The Short Duration Taxable Portfolios
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The Bernstein Government Short Duration Portfolio. 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 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-1 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.
The Bernstein Intermediate Duration Portfolio. 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.
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 enhance the expected after-tax return of the
Portfolio in accordance with the Portfolio's objectives.
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
<PAGE>
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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.
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 the Bernstein Short Duration New York Municipal Portfolio and the
Bernstein New York Municipal Portfolio invest primarily in New York Municipal
Securities, the Portfolios' performance is closely tied to economic conditions
within the State of New York and the financial condition of the State and its
agencies and municipalities. The following information concerning the State's
economic background is contained in an Annual Information Statement of the State
of New York dated August 24, 1999. 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. 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 1998, 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; since then it has been higher. On an average annual
basis, the employment growth rate is expected to be somewhat lower than in 1998.
<PAGE>
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According to data published by the U.S. Bureau of Economic Analysis, personal
income in the State has risen more slowly than the national average since 1988.
Wage growth is expected to be slower than in the previous year as the recent
robust growth in bonus payments moderates.
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 could impact
projected structural budget gaps for the State. These gaps would result from a
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 Division of the Budget (DOB) believes 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 these projections.
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 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, the condition of the financial sector,
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.
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.
Additional risks to the Financial Plan arise out of potential actions at
the federal level. Potential changes to federal tax law currently under
discussion as part of the federal government's efforts to enact a multi-year tax
reduction package could alter the definitions of income on which certain State
taxes rely. Certain proposals, if enacted, could have a significant impact on
State revenues in the future.
The State adopted the debt service component of the State budget for the
1999-2000 fiscal year on March 31, 1999 and the remainder of the budget on
August 4, 1999. In 1999-2000, General Fund disbursements, including transfers to
support capital projects, debt service and other funds, are estimated
<PAGE>
B-8
at $37.36 billion, an increase of $868 million or 2.38 percent over 1998-99.
Projected spending under the 1999-2000 enacted budget is $215 million above the
Governor's Executive Budget recommendations. The increase in General Fund
spending is comprised of $1.1 billion in legislative additions to the Executive
Budget (primarily in education).
State law requires the Governor to propose a balanced budget each year.
Preliminary analysis by DOB indicates that the State will have a 2000-2001
budget gap of approximately $1.9 billion, or about $300 million above the
1999-2000 Executive Budget estimate. This estimate includes an assumption for
the projected costs of new collective bargaining agreements, $500 million in
assumed operating efficiencies, as well as the planned application of
approximately $615 million of the $1.82 billion tax reduction reserve.
The 1999-2000 Financial Plan has reserved $100 million for possible
collective bargaining agreements, and reserves are contained in the preliminary
outyear projection for 2000-01 to cover the recurring costs of any new
agreements. To the extent these reserves are inadequate to finance such
agreements, the costs of new labor contracts could increase the size of future
budget gaps.
The forecast for continued growth, and any resultant impact on the State's
1999-2000 Financial Plan, contains some uncertainties. Inventory investment due
to the Year 2000 Problem may be significantly stronger than expected towards the
end of this year possibly followed by significant weakness early next year.
Also, improvements in foreign economies may be weaker than expected and
therefore, may have unanticipated effects on the domestic economy. The inflation
rate may differ significantly from expectations due to the conflicting impact of
a tight labor market and improved productivity growth as well as to the future
direction and magnitude of fluctuations of oil prices. In addition, the State
economic forecast could over- or underestimate the level of future bonus
payments, financial sector profits or inflation growth, resulting in unexpected
economic impacts. Similarly, the State forecast could fail to correctly estimate
the amount of employment change in the banking, financial and other business
service sectors as well as 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 and
adversely affected, if any of its public authorities were to default on their
respective obligations. As of December 31, 1998, there were 17 public
authorities that had outstanding debt of $100 million or more, and the aggregate
outstanding debt, including refunding bonds, of these State public authorities
was $94 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
<PAGE>
B-9
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.
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.
The fiscal health of the State may also be affected by the fiscal health
of New York City (the "City"), which requires 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 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. In City fiscal year 1997-98, the State constitutional debt
limit would have prevented the City from entering into new capital contracts. In
response, in 1997, the State created the New York City Transitional Finance
Authority ("TFA") 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. To continue its capital plan without interruption, the City is
proposing an amendment to the State Constitution to change the methodology used
to calculate the debt limit. Since an amendment to the Constitution to raise the
debt limit could not take effect until City fiscal year 2001-02 at the earliest,
the City has decided to securitize a portion of its share of the proceeds from
the settlement with the nation's tobacco companies. However, a number of
potential developments may affect both the availability and level of funding
that the City will receive from the tobacco settlement. City officials have
indicated that, should their efforts to securitize a portion of City tobacco
settlement proceeds fail or not be accomplished in a timely manner, the City
will request that the State increase the borrowing authority of the TFA.
Although several sectors of the City's economy have expanded over the last
several years, especially tourism and business and professional services, City
tax revenues remain heavily dependent on the continued profitability of the
securities industries and the performance of the national economy. In addition,
the size of recent tax reductions has increased to over $2 billion in City
fiscal year 1999-2000 through the expiration of a personal income tax surcharge,
the repeal of the non-resident earnings tax and
<PAGE>
B-10
the elimination of the sales tax on clothing items costing less than $110. 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
relies in part on actions outside its direct control. These reports have also
indicated that the City has not yet brought its long-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 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 1999-2000 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
marketability 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 economic 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.
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
<PAGE>
B-11
income from these securities is exempt from federal and California personal
income taxes but, in certain instances, may be includable in income subject to
the alternative minimum tax.
Each California Municipal Portfolio is a non-diversified portfolio under
the 1940 Act. Nonetheless, the Fund intends to qualify each California Municipal
Portfolio as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended. This will require, at the close of each
quarter of each fiscal year, that at least 50% of the market value of each
California Municipal Portfolio's total assets be represented by cash, cash
items, U.S. government securities and other securities limited, in respect to
any one issuer, to an amount no 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 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
September 14, 1999 which was issued in connection with the sale of $400,000,000
of California General Obligation Bonds.
California's economy is the largest among the 50 states and one of the
largest in the world. The State's July 1, 1998 population of 33.4 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
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B-12
and approved by the Governor, as well as appropriations pursuant to various
constitutional authorizations and initiative statutes.
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.
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 Legislature eliminated most of the
remaining components of post-Proposition 13 aid to local government entities
other than K-14 education districts by requiring cities and counties to transfer
some of the property tax revenues to school districts. However, the Legislature
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.
The 1999 Budget Act includes a $150 million one-time subvention from the
General Fund to local agencies for relief from the 1992 and 1993 property tax
shifts. Legislation has been passed, subject to voter approval at the election
in November, 2000, to provide a more permanent payment to local governments to
offset the property tax shift. In addition, legislation was enacted in 1999 to
provide annually up to $50 million relief to cities based on 1997-98 costs of
jail booking and processing fees paid to counties.
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
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B-13
impact on local governments and their bonded debt which will require
interpretation by the courts or the Legislature.
State Appropriations Limit. The State is subject to an annual
appropriations limit imposed by Article XIII B of the 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 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
1999-2000 Fiscal Year
On January 8, 1999, Governor Davis released his proposed budget for Fiscal
Year 1999-00 (the "January Governor's Budget"). The January Governor's Budget
generally reported that general fund revenues for FY 1998-99 and FY 1999-00
would be lower than earlier projections (primarily due to weaker overseas
economic conditions perceived in late 1998), while some caseloads would be
higher than
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earlier projections. The January Governor's Budget proposed $60.5 billion of
general fund expenditures in FY 1999-00, with a $415 million SFEU reserve at
June 30, 2000.
The 1999 May Revision of the Budget showed an additional $4.3 billion of
revenues for combined fiscal year 1998-99 and 1999-00. The completion of the
1999 Budget Act occurred in a timely fashion. The final Budget Bill was adopted
by the Legislature on June 16, 1999, and was signed by the Governor on June 29,
1999 (the "1999 Budget Act"), meeting the Constitutional deadline for budget
enactment for only the second time in the 1990's. The May Revision projected
that the California economy will show strong growth in 1999, but slow down in
2000. The Asian economic crisis, which began in 1997, has tended to dampen the
State's economic growth, particularly in high technology manufacturing.
The final 1999 Budget Act estimated General Fund revenues and transfers of
$63.0 billion, and contained expenditures totaling $63.7 billion after the
Governor used his line-item veto to reduce the legislative Budget Bill
Expenditures by $581 million (both General Fund and Special Fund). The 1999
Budget Act also contained expenditures of $16.1 billion from special funds and
$1.5 billion from bond funds. The Administration estimated that the SFEU would
have a balance at June 30, 2000 of about $880 million. Not included in this
amount was an additional $300 million which (after the Governor's vetoes) was
"set aside" to provide funds for employee salary increases (to be negotiated in
bargaining with employee unions), and for litigation reserves. The 1999 Budget
Act anticipates normal cash flow borrowing during the fiscal year.
The principal features of the 1999 Budget Act include the following:
1. Proposition 98 funding for K-12 schools was increased by $1.6
billion in General Fund moneys over revised 1998-99 levels, $108.6
million higher than the minimum Proposition 98 guarantee. The Budget
also includes $310 million as repayment of prior years' loans to
schools, as part for the settlement of the CTA v. Gould lawsuit.
2. Funding for higher education increased substantially above the
actual 1998-99 level. General Fund support was increased by $184
million (7.3 percent) for the University of California and $126
million (5.9 percent) for the California State University system. In
addition, Community Colleges funding increased by $324.3 million
(6.6 percent).
3. The Budget included increased funding of nearly $600 million for
health and human services.
4. About $800 million from the General Fund will be directed toward
infrastructure costs.
5. The Legislature enacted a one-year additional reduction of 10
percent of the Vehicle License Fee (VLF) for calendar year 2000, at
a General Fund cost of about $250 million in each of FY 1999-00 and
2000-01 to make up lost funding to local governments.
<PAGE>
B-15
6. A one-time appropriation of $150 million, to be split between cities
and counties, was made to offset property tax shifts during the
early 1990's. Additionally, an ongoing $50 million was appropriated
as a subvention to cities for jail booking or processing fees
charged by counties when an individual arrested by city personnel is
taken to a county detention facility.
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. 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.
TAX-MANAGED INTERNATIONAL VALUE PORTFOLIO, THE INTERNATIONAL VALUE PORTFOLIO II
AND THE EMERGING MARKETS VALUE PORTFOLIO
The Bernstein Tax-Managed International Value Portfolio, the Bernstein
International Value Portfolio II (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. The Emerging Markets Value Portfolio will invest
primarily in equity securities of both large and small companies domiciled, or
with primary operations in, emerging-market countries.
Bernstein Emerging Markets Value Portfolio. 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." The Portfolio may also make investments in developed
foreign countries that comprise the EAFE index.
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.
<PAGE>
B-16
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 may utilize options on securities and securities indexes
and futures contracts and options on futures.
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). 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, at 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). The
Portfolio will generally invest less than 35% of its total
<PAGE>
B-17
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 predominantly
speculative with respect to the capacity to pay interest and repay principal in
accordance with the 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 International Value and Emerging Markets Value
Portfolios
Market Risk. Since the Bernstein International Value Portfolios and the
Bernstein Emerging Markets Value Portfolio invest 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
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 net asset value. As a result, the net asset value of the
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 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 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
<PAGE>
B-18
regulations, such as the currency exchange 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.
Additional Risks of Investing in Emerging Markets
Investing in securities of companies in emerging-market 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-market countries may require governmental approval
prior to investments by foreign persons, or limit the amount of investment by
foreign persons in the country, or limit the investment by foreign persons to
only specific classes 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-market 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-market 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-market 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
exacerbates the risks in certain emerging-market 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
<PAGE>
B-19
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-market 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-market
countries, there is generally less government supervision and regulation of
business and industry practices, stock exchanges, brokers, issuers 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.
The sophisticated legal systems necessary for the proper and efficient
functioning of modern capital markets have yet to be developed in most
emerging-market 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
<PAGE>
B-20
emerging-market 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-market 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 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.
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 contries; (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 policies that could cause their
governments to act in a detrimental or hostile manner toward
<PAGE>
B-21
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 in some countries could disrupt the financial markets in which the
Portfolio invests and adversely affect the value of the Portfolio's assets.
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.
Investment Restrictions of the Short Duration Municipal Portfolios
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
<PAGE>
B-22
borrowings). Any borrowings that come to exceed 33 1/3% of the Portfolio's total
assets by reason of a decline in net assets will be reduced within three days
(not including Saturdays, Sundays and holidays) to the extent necessary to
comply with the 33 1/3% limitation. The Portfolio may not enter into reverse
repurchase agreements if the Portfolio's obligations thereunder would be in
excess of one-third of the Portfolio's total assets, less liabilities other than
obligations under such reverse repurchase agreements;
4) Issue senior securities, except as permitted under the 1940 Act;
5) Purchase or sell commodities or commodity contracts, except financial
futures and currency futures and options thereon;
6) Purchase or sell real estate or interests in real estate, although the
Portfolio may purchase and sell securities which are secured by real estate, and
securities of companies which invest and deal in real estate;
7) Purchase oil, gas or other mineral interests;
8) Make loans although the Portfolio may (i) purchase fixed-income
securities and enter into repurchase agreements, or (ii) lend portfolio
securities provided that no more than 33 1/3% of the Portfolio's total assets
will be lent to other parties;
9) Act as an underwriter, except to the extent that, in connection with
the disposition of certain portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
10) Purchase any security if, as a result, more than 25% of the
Portfolio's total assets (taken at current value) would be invested in a single
industry. (For purposes of this restriction, assets invested in obligations
issued or guaranteed by the U.S. Government and its agencies or
instrumentalities or tax-exempt 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.
<PAGE>
B-23
The following investment limitations are not fundamental, and may be
changed without shareholder approval. None of the Short Duration Municipal
Portfolios has or currently intends to:
1) Issue senior securities, borrow money or pledge its assets except to
the extent that forward commitments and securities loans may be considered loans
and except that the Portfolio may borrow from a bank for temporary or emergency
purposes in amounts not exceeding 5% (taken at the lower of cost or current
value) of its total assets (not including the amount borrowed) and pledge its
assets to secure such borrowings. The Portfolio does not intend to purchase a
security while borrowings exceed 5% of its total assets;
2) Purchase any security if, as a result, the Portfolio would then have
more than 15% of its net assets (at current value) invested in securities
restricted as to disposition under federal securities laws (excluding restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 ("144A securities") that have been determined to be liquid under procedures
adopted by the Board of Directors based on the trading market for the security)
or otherwise illiquid or not readily marketable, including repurchase agreements
with maturities of more than 7 days;
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.
Investment Restrictions of the Fixed-Income Portfolios (Other Than the Short
Duration Municipal Portfolios)
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;
<PAGE>
B-24
3) Issue senior securities, borrow money or pledge its assets except to
the extent that forward commitments and reverse repurchase agreements may be
considered senior securities or loans and except that any Portfolio may borrow
from a bank for temporary or emergency purposes in amounts not exceeding 5%
(taken at the lower of cost or current value) of its total assets (not including
the amount borrowed) and pledge its assets to secure such borrowings. A
Portfolio may not purchase a security while borrowings (other than forward
commitments and reverse repurchase agreements which may be considered loans)
exceed 5% of its total assets. A Portfolio may not enter into reverse repurchase
agreements if the Portfolio's obligations thereunder would be in excess of
one-third of the Portfolio's total assets, less liabilities other than
obligations under such reverse repurchase agreements;
4) Purchase or sell commodities or commodity contracts, except financial
futures and options thereon;
5) Purchase or sell real estate or interests in real estate, although each
Portfolio may purchase and sell securities which are secured by real estate, and
securities of companies which invest and deal in real estate;
6) Purchase oil, gas or other mineral interests;
7) Lend money, except to the extent that repurchase agreements or the
purchase of fixed-income securities may be considered loans of money or loan
participations;
8) Lend securities if, as a result, the total current value of the loaned
securities is equal to more than 30% of the Portfolio's total assets;
9) Act as an underwriter, except to the extent that, in connection with
the disposition of certain portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
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;
<PAGE>
B-25
13) Purchase any security if, as a result, more than 25% of the
Portfolio's total assets (taken at current value) would be invested in a single
industry. (For purposes of this restriction as applied to all Portfolios but the
Bernstein California Municipal Portfolio, assets invested in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
securities issued by governments or political subdivisions of governments of
states, possessions, or territories of the U.S. are not considered to be
invested in any industry. For purposes of this restriction as applied to the
Bernstein California Municipal Portfolio, assets invested in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
tax-exempt securities issued by governments or political subdivisions of
governments of states, possessions, or territories of the U.S. are not
considered to be invested in any industry);
14) Invest more than 5% of its total assets in the securities of any one
issuer other than obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities if as a result of the purchase less than 75% of
the Portfolio's total assets is represented by cash and cash items (including
receivables), government securities, and other securities for the purposes of
this calculation limited in respect of any one issuer to an amount not greater
in value than 5% of the value of the total assets of such Portfolio determined
at the time of investment. (This restriction does not apply to the Bernstein New
York Municipal Portfolio or the Bernstein California Municipal Portfolio);
15) Purchase any security if, as a result, it would hold more than 10% of
the voting securities of any issuer;
16) Make investments for the purpose of exercising control or management;
17) Invest in securities of other registered investment companies;
18) Purchase warrants if as a result the Fund would then have more than 5%
of its total assets (determined at the time of investment) invested in warrants.
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 Tax-Managed International Value Portfolio and the
International Value Portfolio II
Neither the Tax-Managed International Value Portfolio or the International
Value Portfolio II may, except as otherwise provided herein:
<PAGE>
B-26
1) Purchase securities on margin, but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions;
2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Portfolio owns or has the right to
obtain at no added cost securities identical to those sold short;
3) Borrow money except that the Portfolio may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed 33 1/3%
of the Portfolio's total assets by reason of a decline in net assets will be
reduced within three days (not including Saturdays, Sundays and holidays) to the
extent necessary to comply with the 33 1/3% limitation. The Portfolio may not
enter into reverse repurchase agreements if the Portfolio's obligations
thereunder would be in excess of one-third of the Portfolio's total assets, less
liabilities other than obligations under such reverse repurchase agreements.
4) Issue senior securities, except as permitted under the 1940 Act;
5) Purchase or sell commodities or commodity contracts, except financial
futures and currency futures and options thereon;
6) Purchase or sell real estate or interests in real estate, although the
Portfolio may purchase and sell securities which are secured by real estate, and
securities of companies which invest and deal in real estate;
7) Purchase oil, gas or other mineral interests;
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
<PAGE>
B-27
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 Tax-Managed International
Value Portfolio and the International Value Portfolio II has not and currently
does not intend to:
1) Issue senior securities, borrow money or pledge its assets except to
the extent that forward commitments and securities loans may be considered loans
and except that the Portfolio may borrow from a bank for temporary or emergency
purposes in amounts not exceeding 5% (taken at the lower of cost or current
value) of its total assets (not including the amount borrowed) and pledge its
assets to secure such borrowings. The Portfolio does not intend to purchase a
security while borrowings exceed 5% of its total assets. The Portfolio will not
enter into reverse repurchase agreements and securities loans if the Portfolio's
obligations thereunder would be in excess of one-third of the Portfolio's total
assets, less liabilities other than obligations under such reverse repurchase
agreements and securities loans;
2) Purchase any security if, as a result, the Portfolio would then have
more than 15% of its net assets (at current value) invested in securities
restricted as to disposition under federal securities laws (excluding restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 ("144A Securities") that have been determined to be liquid under procedures
adopted by the Board of Directors based on the trading market for the security)
or otherwise illiquid or not readily marketable, including repurchase agreements
with maturities of more than 7 days;
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.
Investment Restrictions of the Bernstein Emerging Markets Value Portfolio
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
transactions;
<PAGE>
B-28
2) Make short sales of securities or maintain a short position, unless
at all times when a short position is open the Portfolio owns or has
the right to obtain at no added cost securities identical to those
sold short;
3) Borrow money except that the Portfolio may borrow money for
temporary or emergency purposes (not for leveraging or investment)
in an amount not exceeding 33 1/3% of its total assets (including
the amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed 33 1/3% of the Portfolio's total
assets by reason of a decline in net assets will be reduced within
three days (not including Saturdays, Sundays and holidays) to the
extent necessary to comply with the 33 1/3 % limitation. 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
<PAGE>
B-29
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%
(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.
<PAGE>
B-30
INVESTMENTS
Subject to each Fixed-Income Portfolio's investment policies, each
Portfolio will primarily be invested in debt securities, including, 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; (iv) loan participations; (v) commercial paper; (vi)
obligations (including certificates of deposit, time deposits and bankers'
acceptances) of thrifts and 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) in the case of the Bernstein Intermediate Duration
and Short Duration Plus Portfolios, 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 some circumstances 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. Some information regarding some
of these types of investments is provided below.
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
<PAGE>
B-31
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 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
<PAGE>
B-32
payments in additional securities, which may not be mortgage-related. Interest
received by the Portfolios is, however, reflected in dividends to shareholders.
Asset-Backed Securities
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.
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 the
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 the 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
<PAGE>
B-33
exempt from federal income tax, these securities will not be considered
Municipal Securities for the purpose of determining the portions of the muncipal
Portfolios' assets that are invested in Municipal Securities.
Municipal Securities include "private activity bonds" such as industrial
revenue bonds, the interest income from which is subject to the alternative
minimum tax.
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 ledge 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 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 taxing power is pledged, although the lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make 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 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.
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.
Where registration of restricted securities 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
<PAGE>
B-34
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.
Illiquid Securities
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 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 subject to more fluctuations in market value, due to changes in
market participants' perceptions of the issuer's ability to continue to pay
dividends, than debt of the same issuer.
Foreign Securities
While the Bernstein Short Duration Plus Portfolio and the Bernstein
Intermediate Duration Portfolio generally invest in domestic securities, each
Portfolio may also invest up to 20% of its total
<PAGE>
B-35
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. 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.
Bank Obligations
The Portfolios may invest in fixed-income obligations (including, but not
limited to, certificates of deposit, time deposits and bankers' acceptances) of
thrift institutions and commercial 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
<PAGE>
B-36
Manager to be of comparable quality. For investments in non-insured foreign
banks, the Intermediate Duration and Short Duration Plus 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.
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.
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
bond. As the market price of the underlying common stock rises above the
conversion price, the price of the convertible security may rise accordingly.
Equity Securities
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
<PAGE>
B-37
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.
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.
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
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
The Bernstein Short Duration Plus Portfolio, Bernstein Intermediate
Duration Portfolio, Bernstein Tax-Managed International Value Portfolio,
Bernstein International Value Portfolio II and Bernstein Emerging Markets Value
Portfolio may employ certain risk management techniques to attempt to protect
against some or all effects of adverse changes in foreign currency exchange
rates, including entering into a foreign currency exchange contract on either a
spot (i.e. cash) basis at the rate then prevailing in the currency exchange
market or by entering into 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. The Portfolios will
generally not enter into a forward contract with a term greater than one year.
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.
<PAGE>
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Each Portfolio may enter into forward contracts for any lawful and
appropriate purpose in light of its activities. For example, 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.
Under certain circumstances, each of the Bernstein International Value
Portfolios and the Bernstein Emerging Markets Value Portfolio may commit
substantial portions or the entire value of their 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.
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.
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
<PAGE>
B-39
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.
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 futures commission
merchant ("FCM") or its Custodian in a segregated account 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
<PAGE>
B-40
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 5% of the liquidation value of the Portfolio; provided however,
in the case of an option that is in the money (see discussion below) 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.
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.
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
<PAGE>
B-41
underlying the option, in each case at an exercise price as high as or higher
than the price of the contract held by the Portfolio or, if lower, the Portfolio
deposits and maintains the differential between the two exercise prices in
liquid assets in a segregated account with its Custodian; or (iii) owns a short
position in the underlying futures contract.
The Portfolios may write covered straddles of options on futures. A
straddle is a combination of a call and a put written on the same underlying
futures contract. A straddle will be covered when sufficient assets are
deposited to meet the requirements, as defined in the preceding paragraph. A
Portfolio may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, the Portfolios will
also segregate liquid assets equivalent to the amount, if any, by which the put
is "in the money."
Possible Risks Associated with Futures Transactions. In considering the
proposed use of futures contracts and related options, particular note should be
taken of the following:
(1) Successful use by the Portfolios of futures contracts and related
options will depend in part upon the Manager's ability to assess the market's
valuation of these instruments. There is, in addition, the risk that the
movements in the price of a futures contract will not correlate with the
movement in prices of any securities being hedged. If the price of the futures
contract moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective, but if the price of the
securities being hedged has moved in an unfavorable direction, the Portfolio
would be in a better position than if it had not hedged at all. If the price of
the securities being hedged has moved in a favorable direction, this advantage
may be partially offset by losses in the futures position. If the price of the
futures contract moves more than the price of the underlying securities, the
Portfolio will experience either a loss or a gain on the futures contract which
may or may not be completely offset by movements in the price of the securities
which are the subject of the hedge.
(2) The price of the futures contracts may not correlate perfectly with
movements in the prices of any hedged securities. There may be several reasons
unrelated to the value of the underlying securities which cause 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.
<PAGE>
B-42
Accordingly, there can be no assurance that it will always be possible to close
a futures position when desired. In the event of adverse price movements, the
Portfolios would be required to continue to make daily cash payments of
variation margin, except in the case of purchased options on futures contracts.
(4) The hours of trading of financial futures contracts may not conform to
the hours during which the Portfolios may trade securities. To the extent that
one market closes before the other market, significant price and rate movements
can take place that cannot be reflected in the correlating market on a
day-to-day basis.
(5) Futures exchanges may establish daily limits in the amount that the
price of a futures contract or related options contract may vary either up or
down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond the limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may prevent the liquidation of unfavorable positions. Futures or options
contract prices could move to the daily limit for several consecutive trading
days with little or no trading and thereby prevent prompt liquidations of
positions and subject some traders to substantial losses. In such event, it may
not be possible for a Portfolio to close a position, and in the event of adverse
price movements, the Portfolio would have to make daily cash payments of
variation margin (except in the case of purchased options).
(6) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount, and the transaction costs, is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(7) Each Portfolio's potential losses from the use of futures extend
beyond its initial investment in such contracts and are potentially unlimited.
(8) 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.
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
<PAGE>
B-43
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.
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
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B-44
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 permitted to invest in foreign securities 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. 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
<PAGE>
B-45
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
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
<PAGE>
B-46
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.
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 simultaneously 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 the purchase price and an agreed-upon rate of
interest. Whenever a Portfolio enters into a repurchase agreement, the
Portfolio's Custodian obtains collateral having a value at least equal to the
amount of the repurchase price, which includes accrued interest. The instruments
held subject to repurchase are valued daily, and if the value of the instruments
declines, the Portfolio will be entitled to additional collateral. If the seller
defaults and the value of the collateral securing the repurchase agreements
declines, the Portfolio may incur a loss. In addition, if bankruptcy proceedings
are commenced with respect to the seller of the security, realization of the
collateral by the Portfolio may be delayed or limited.
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
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
<PAGE>
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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 time deposits and repurchase
agreements. Any such loan of portfolio securities will be marked to the market
daily and secured by collateral consisting of certificates of deposit and other
cash instruments or U.S. government and agency 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. 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.
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.
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 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
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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.
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.
- --------------------------------------------------------------------------------
NAME, POSITION(S) PRINCIPAL OCCUPATION
ADDRESS, AND AGE WITH THE FUND DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
Roger Hertog* President, President, Chief Operating Officer and
767 Fifth Avenue Treasurer, Director-Bernstein
New York, NY 10153 Director
DOB: 11/4/44
- --------------------------------------------------------------------------------
Andrew S. Adelson* Senior Vice Senior Vice President, Chief Investment
767 Fifth Avenue President Officer- International Equities and
New York, NY 10153 Director Director-Bernstein
DOB: 5/31/55
- --------------------------------------------------------------------------------
Arthur Aeder Director 1987-Present: Consultant;
516 Fifth Avenue Formerly Senior Partner of Oppenheim,
New York, NY 10036 Appel, Dixon & Co. (subsequently Spicer &
DOB: 12/31/25 Oppenheim) Certified Public Accountants,
and Chairman of Spicer & Oppenheim
International
- ------------------------------------------------------------------------------
Peter L. Bernstein** Director President and Chief Executive Officer of
575 Madison Avenue Peter L. Bernstein, Inc., Economic
Suite 1006 Consultants
New York, NY 10022
DOB: 1/22/19
- --------------------------------------------------------------------------------
<PAGE>
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William Kristol Director 6/95-Present: Editor and Publisher, The
1150 17th Street, N.W. Weekly Standard
5th Floor 7/95-Present: Consultant, ABC News
Washington, D.C. 20036 11/93-5/95: Chairman, Project for the
DOB: 12/23/52 Republican Future
- --------------------------------------------------------------------------------
Theodore Levitt Director Professor Emeritus of Business
Harvard Business Administration, Harvard University
School 1985-1989: Editor, Harvard Business
Cumnock 300 Review
Boston, MA 02163
DOB: 3/1/25
- --------------------------------------------------------------------------------
Francis H. Trainer, Jr. Senior Vice Senior Vice President, Chief Investment
767 Fifth Avenue President Officer-Fixed Income and Director-
New York, NY 10153 Bernstein
DOB: 11/15/46
- --------------------------------------------------------------------------------
Jean Margo Reid Secretary 1999: Senior Vice President, General
767 Fifth Avenue Counsel and Director-Bernstein
New York, NY 10153 1997-1998: Vice President and General
DOB: 8/31/45 Counsel- Bernstein
Previously: Vice President and Associate
General Counsel-Bernstein
- --------------------------------------------------------------------------------
* An "interested person" of the Fund, as defined in the 1940 Act.
** Not related to any person formerly or currently associated with Bernstein.
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 also perform various duties imposed
on directors of investment companies by the 1940 Act and by the State of
Maryland. 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 require
stockholder approval; or (6) approve any matter which,
<PAGE>
B-50
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, 1999. 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.
As of January 25, 2000, directors and officers of the Fund, as a group,
owned less than one percent of the outstanding shares of the Bernstein
Government Short Dduration Portfolio, 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.
As of January 24, 2000, the B. D. Shapiro Administrative Trust of Los
Angeles, CA owned 7.92% of the Bernstein Short Duration California Municipal
Portfolio and the New Mexico State Investment Council of Santa Fe, New Mexico
owned 13.03% of the Bernstein Emerging Markets Value Portfolio.
MANAGER AND DISTRIBUTOR
Manager. Sanford C. Bernstein & Co., Inc. ("Bernstein" or the "Manager"),
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 holding
corporation. Sanford C. Bernstein Inc. is controlled by its Board of Directors
which consists of the following individuals: Andrew S. Adelson, Kevin R. Brine,
Charles C. Cahn, Jr., Marilyn Goldstein Fedak, Michael L. Goldstein, Roger
Hertog, Thomas S. Hexner, Gerald M. Lieberman, Marc O. Mayer, 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
<PAGE>
B-51
policies of each of the Portfolios, Bernstein manages the investment of each
Portfolio's assets. Bernstein makes investment decisions for each Portfolio and
places purchase and sale orders. The services of the Manager are not exclusive
under the terms of the Management Agreements. Bernstein is free to render
similar services to others.
Bernstein has authorized those of its directors, officers or employees who
are elected as directors or officers of the Fund to serve in the capacities in
which they are elected. All services furnished by Bernstein under the Management
Agreements may be furnished through the medium of any such directors, officers
or employees of Bernstein. In connection with the provision of its services
under the Management Agreements, the Manager bears various expenses, including
the salaries and expenses of all personnel, except the fees and expenses of
directors not affiliated with Bernstein.
Each Portfolio pays the Manager for the services performed on behalf of
that Portfolio, as well as for the services performed on behalf of the Fund as a
whole. The fee paid by each of the Fixed-Income Portfolios (other than the Short
Duration Municipal Portfolios) is at an annual rate of 0.50% of each such
Portfolio's average daily net assets up to and including $1 billion and at an
annual rate of 0.45% of each such Portfolio's average daily net assets in excess
of $1 billion. The fee paid by each of the Short Duration Municipal Portfolios
is at an annual rate of 0.50% of each such Portfolio's average daily net assets.
The fee paid by each of the Bernstein International Value Portfolios 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 0.90 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 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,
1997, 1998, and 1999 the investment management fees accrued or paid to Bernstein
pursuant to the Management Agreements were, respectively, $65,345,690,
$83,314,803, and $91,558,133.
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
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,
<PAGE>
B-52
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, 1997, 1998, and 1999 the fees
accrued or paid to Bernstein pursuant to the Shareholder Servicing and
Administrative Agreements were $15,530,342, $20,136,349, and $22,051,781,
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 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
<PAGE>
B-53
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, the Intermediate
Duration Portfolio and the Short Duration Plus Portfolio may be 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 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
<PAGE>
B-54
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, 1999, the Fund paid total
brokerage commissions of $11,213,060, of which $90,581 or 0.8078% was paid to
Bernstein for effecting 0.6053% of the aggregate dollar amount of transactions
on which the Fund paid brokerage commissions. 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 0.9527% of the
aggregate dollar amount of transactions on which the Fund paid brokerage
commissions. For the fiscal year ended September 30,
<PAGE>
B-55
1997, the Fund paid total brokerage commissions of $7,778,946, of which $83,553
or 1.0741% was paid to Bernstein for effecting 1.5781% of the aggregate dollar
amount of transactions on which the Fund paid brokerage commissions.
On September 30, 1999, the Bernstein Short Duration Plus Portfolio owned
approximately $5.7 million of securities issued by Merrill, Lynch, Pierce,
Fenner & Smith; approximately $9.9 million of securities issued by Morgan
Stanley; approximately $2.9 million of securities issued by Goldman, Sachs &
Co.; approximately $5.5 million of securities issued by Lehman Brothers; $6.7
million of securities issued by C.S. First Boston; approximately $2.8 million of
securities issued by Salomon Smith Barney; and approximately $3.5 million of
securities issued by J.P. Morgan.
On September 30, 1999, the Bernstein Intermediate Duration Portfolio owned
approximately $16.8 million of securities issued by Goldman, Sachs & Co.;
approximately $24.1 million of securities issued by Lehman Brothers;
approximately $31.6 million of securities issued by C.S. First Boston;
approximately $12.7 million of securities issued by Nomura Securities;
approximately $8.9 million of securities issued by Merrill, Lynch, Pierce,
Fenner & Smith; approximately $22.4 million of securities issued by J.P. Morgan;
and approximately $50.2 million of securities issued by Morgan Stanley.
Lehman Brothers, Inc. is a parent corporation of Lehman Government
Securities, Inc. Merrill, Lynch, Pierce, Fenner & Smith, Morgan Stanley,
Goldman, Sachs & Co., Lehman Government Securities, Inc., C.S. First Boston,
Salomon Smith Barney, J.P. Morgan 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 II and the 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,
<PAGE>
B-56
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 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
<PAGE>
B-57
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 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.
<PAGE>
B-58
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"). If a Portfolio does not qualify, it is subject to federal income taxes
on net income and capital gains, if any, realized during any fiscal year and the
net income and capital gains distributed to shareholders will be lower.
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 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").
Currently, distributions of net investment income and net capital gains
are taxable to shareholders subject to federal income tax regardless of whether
the shareholder receives such distributions in
<PAGE>
B-59
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 advisor about the status of
distributions from the Portfolios in their individual states or localities.
The Code includes special rules applicable to certain 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 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
<PAGE>
B-60
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 indexes,
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 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
<PAGE>
B-61
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, futures contracts that are not "regulated futures contracts"
("Non-Regulated Futures Contracts"), and from unlisted options will generally be
treated as ordinary income or ordinary loss; however, any Portfolio of the Fund
may make an election pursuant to Section 988(a)(1)(B) to treat any foreign
currency gain or loss from forward contracts, Non-Regulated Futures Contracts
and unlisted options as a capital gain or loss. In general, in the event such
election is made with respect to forward contracts, Non-Regulated Futures
Contracts and unlisted options that are Section 1256 contracts, 60% of the gain
or loss will be treated as long-term and 40% will be treated as short-term (as
described above); in the event such election is made with respect to contracts
or options that are not Section 1256 contracts, treatment of a gain or loss as
long-term or short-term will depend upon the holding period thereof. 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. The gains or losses described above
that are treated as ordinary income or ordinary loss 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 ordinary 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
<PAGE>
B-62
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 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.
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 advisors regarding
application of these withholding rules.
<PAGE>
B-63
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 advisors 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:
<TABLE>
<CAPTION>
Annual Report Page
------------------
<S> <C>
Statement of Assets and Liabilities, September 30, 1999 6-8
Statements of Operations for the Year Ended September 30, 1999 9-11
Statements of Changes in Net Assets, Year Ended September
30, 1999 and Year Ended September 30, 1998 12-15
Financial Highlights for the periods ended September 30, 1999; September 30,
1998; September 30, 1997; September 30, 1996; and September 30, 1995 (or as
applicable) 16-25
</TABLE>
<PAGE>
B-64
<TABLE>
<S> <C>
Notes to Financial Statements, September 30, 1999 26-35
Schedule of Investments-Taxable Bond Portfolios, dated September 30, 1999 and Separate Insert to
Report of Independent Accountants with respect to such Portfolios dated Annual Report
November 15, 1999
Schedule of Investments-Municipal Bond Portfolios, dated September 30, 1999 and Separate Insert to
Report of Independent Accountants with respect to such Portfolios dated Annual Report
November 15, 1999
Schedule of Investments - Stock Portfolios, dated September 30, 1999 and Report Separate Insert to
of Independent Accountants with respect to such Portfolios dated Annual Report
November 15, 1999
</TABLE>
PERFORMANCE
Each of the Portfolios may, from time to time, advertise yield, average
annual total return and aggregate total return.
For the thirty-day period ending September 30, 1999, yields for the
Fixed-Income Portfolios were as follows: Government Short Duration Portfolio -
5.19%; Short Duration Plus Portfolio - 5.81%; Intermediate Duration Portfolio -
6.30%; New York Municipal Portfolio - 4.02%; California Municipal Portfolio -
3.83%; Diversified Municipal Portfolio - 4.04%; Short Duration California
Municipal - 3.24%; Short Duration Diversified Municipal Portfolio - 3.52%; Short
Duration New York Municipal Portfolio - 3.46 %.
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)/cd + 1)^6 - 1]
Where:
a = total interest and dividends earned during the month;
b = total expenses accrued during the month (net of reimbursements);
<PAGE>
B-65
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, 1999, tax-equivalent yield
for the Government Short Duration Portfolio was 5.6%, assuming a combined state
and local tax of 10% and reflecting that 36% 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, 1999 was 7.4%, assuming
<PAGE>
B-66
an investor was subject to a combined federal, state and New York City tax rate
of 46.43% and reflecting that 1.5% of the income was estimated to be subject to
federal taxes and 1.9% to be subject to state and local taxes. Tax-equivalent
yield for the California Municipal Portfolio at September 30, 1999 was 6.9%,
assuming an investor was subject to a combined federal and state tax rate of
45.2% and reflecting that 1.6% of the income was estimated to be subject to
federal taxes and 2.4% to be subject to state taxes. Tax-equivalent yield for
the Diversified Municipal Portfolio at September 30, 1999 was 6.6%, assuming an
investor was subject to a combined federal and state tax rate of 39.6% and
reflecting that 1.6% 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, 1999 was 6.2%, assuming an investor was subject to a combined
federal, state and New York City tax rate of 46.43% and reflecting that 10.6% of
the income was estimated to be subject to federal taxes and 1.1% to be subject
to state and local taxes. Tax-equivalent yield for the Short Duration California
Municipal Portfolio at September 30, 1999 was 5.6%, assuming an investor was
subject to a combined federal and state tax rate of 45.2% and reflecting that
10.9% of the income was estimated to be subject to federal taxes and 3.2% to be
subject to state taxes. Tax-equivalent yield for the Short Duration Diversified
Municipal Portfolio at September 30, 1999 was 5.8%, assuming an investor was
subject to federal tax rate of 39.6% and reflecting that 1.9% 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 1 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;
<PAGE>
B-67
c = the portion of the yield which is exempt from federal, but not New
York State and local income taxation;
d = the highest marginal income tax imposed on an individual's
unearned ordinary income subject to federal income taxation;
e = the portion of the yield which is exempt from New York State and
local, but not federal, income taxation;
f = the highest marginal income tax imposed on an individual's
unearned ordinary income subject to New York State and local, but
not federal, income taxation; and
g = the portion of the yield which is not exempt from federal, New
York State or local income taxation.
Tax-equivalent yield for the Bernstein Short Duration California Municipal
Portfolio and the Bernstein California Municipal Portfolio is computed by first
determining the portion of the yield (calculated as set forth above) for the
respective Portfolio that is exempt from (i) federal and California personal
income taxation; (ii) federal taxation only; (iii) California personal income
taxation only and (iv) neither California personal nor federal income taxation;
dividing each portion of the yield by one minus the relevant combined tax rate,
and adding the quotients together as expressed in the following formula:
Tax-equivalent Yield = a + c + e + g
--- --- ---
1-b 1-d 1-f
Where:
a = the portion of the yield which is exempt from federal and
California personal income taxation;
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;
<PAGE>
B-68
f = the highest marginal income tax imposed on an individual's
unearned ordinary income subject to California personal, but not
federal, income taxation; and
g = the portion of the yield which is not exempt from federal or
California personal income taxation.
Tax-equivalent yield for the Bernstein Short Duration Diversified
Municipal Portfolio and the Bernstein Diversified Municipal Portfolio is
computed by first determining the fraction of the yield calculated as set forth
above for the respective Portfolio (i) that is exempt from federal taxation and
(ii) that is not exempt from federal taxation, then dividing that portion of the
yield which is exempt from federal taxation by one minus the highest marginal
federal individual income taxation and adding the quotient to that portion, if
any, of the yield which is not exempt from federal income taxation, as expressed
in the following formula:
Tax-equivalent Yield = h + j
---
1-I
Where:
h = the portion of the yield which is exempt from federal taxes;
i = the highest marginal tax rate imposed on individual income subject
to federal income taxation; and
j = the portion of the yield which is not exempt from federal income
taxation.
Tax-equivalent yield for the Bernstein Government Short Duration Portfolio
is computed by first determining the portion of the yield that is (i) exempt
from state and local, but not federal, income taxation and (ii) not exempt from
state and local or federal income taxation; dividing each portion of the yield
by one 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
<PAGE>
B-69
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, 1999; (2) the Portfolios for the one year period
ended September 30, 1999; and (3) the Tax-Managed International Value Portfolio
and the Fixed-Income Portfolios (other than the Short Duration Municipal
Portfolios) for the five year period ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
Average Annual
Period Since Total Return One Year Five Year Ten Year
Portfolio Inception Since Inception Total Return Total Return Total Return
- --------- --------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Government Short
Duration 10.74 6.27 3.07 5.51 6.05
Short Duration Plus 10.80 6.62 3.82 5.80 6.41
New York Municipal 10.72 6.09 0.74 5.41 6.03
California Municipal 9.15 5.87 0.60 5.46 N/A
Diversified Municipal 10.72 6.00 0.77 5.41 5.99
Intermediate Duration 10.70 7.99 1.04 7.16 7.72
Tax-Managed
International Value 7.27 12.09 25.34 11.08 N/A
International Value II 0.42 8.60 N/A N/A N/A
Short Duration
California Municipal 4.99 3.97 2.90 N/A N/A
Short Duration
Diversified Municipal 4.99 4.07 2.91 N/A N/A
Short Duration
New York Municipal 4.99 3.85 2.64 N/A N/A
Emerging Markets
Value 3.79 (2.75) 69.88 N/A N/A
</TABLE>
<PAGE>
B-70
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,
1999 was as follows:
Period Aggregate
Since Total
Portfolio Inception Return
- --------- --------- -------
Government Short Duration Portfolio 10.75 years 92.18
Short Duration Plus Portfolio 10.81 years 99.84
Intermediate Duration Portfolio 10.71 years 127.71
New York Municipal Portfolio 10.75 years 88.61
California Municipal Portfolio 9.16 years 68.60
Diversified Municipal Portfolio 10.75 years 86.89
Tax-Managed International Value Portfolio 7.28 years 129.50
International Value Portfolio II 0.42 years 3.50
Short Duration New York Municipal Portfolio 4.99 years 20.79
Short Duration California Municipal Portfolio 4.99 years 21.48
Short Duration Diversified Municipal Portfolio 4.99 years 22.03
Emerging Markets Value Portfolio 3.79 years (6.34)
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:
<PAGE>
B-71
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 indexes, 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, the MSCI
Emerging Markets Global Index and the MSCI Emerging Markets Free Index, which
are widely recognized indexes 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 indexes
of emerging markets performance.
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
<PAGE>
B-72
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. In order to avoid unnecessary expenses, the Fund does not intend
to hold annual meetings of shareholders.
<PAGE>
B-73
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-74
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-75
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-76
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-77
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-78
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-79
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.
7
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits.
(a)(1) Articles of Incorporation of the Fund dated May 3, 1988
(supplied by Pre-Effective Amendment No. 1 and submitted
electronically by Post-Effective Amendment No. 15).
(a)(2) Articles Supplementary of the Fund dated October 14, 1988
(supplied by Pre-Effective Amendment No. 2 and submitted
electronically by Post-Effective Amendment No. 15).
(a)(3) Articles Supplementary of the Fund dated April 25, 1990
(supplied by Post-Effective Amendment No. 4 and submitted
electronically by Post-Effective Amendment No. 15).
(a)(4) Articles Supplementary of the Fund dated March 16, 1992
(supplied by Post-Effective Amendment No. 7 and submitted
electronically by Post-Effective Amendment No. 15).
(a)(5) Articles Supplementary of the Fund 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).
(a)(6) Articles Supplementary of the Fund dated October 10, 1994
(supplied by Post-Effective Amendment No. 11 and submitted
electronically by Post-Effective Amendment No. 15).
(a)(7) Articles Supplementary of the Fund dated August 29, 1995
(supplied by Post-Effective Amendment No. 12 and submitted
electronically by Post-Effective Amendment No. 15).
(a)(8) Articles Supplementary of the Fund dated February 26, 1996
(submitted electronically by Post-Effective Amendment No. 15).
(a)(9) Articles Supplementary of the Fund dated March 9, 1998
(submitted electronically by Post-Effective Amendment No. 17).
8
<PAGE>
(a)(10) Articles Supplementary of the Fund dated November 5, 1998
(submitted electronically by Post-Effective Amendment No. 17).
(a)(11) Articles of Amendment of the Fund dated April 20, 1999
(submitted electronically by Post-Effective Amendment No. 20).
(a)(12) Articles Supplementary of the Fund dated May 24, 1999
(submitted electronically by Post-Effective Amendment No. 20).
(b)(1) By-Laws of the Fund as Revised and Restated October 4, 1988
(supplied by Pre-Effective Amendment No. 2 and submitted
electronically by Post-Effective Amendment No. 16).
(b)(2) Amendment to Article I, Section 2 of the By-Laws of Fund dated
January 30, 1992 (supplied by Post-Effective Amendment No. 7
and submitted electronically by Post-Effective Amendment No.
16).
(c) Instruments Defining Rights of Security Holders - supplied by
Exhibit (a)(1) (see Article V - Common Stock; Sections 1(b),
2(c), (2)(d), (2)(e), (2)(g), 4 and 5; Article VII -
Miscellaneous; Sections 1(d), 2, 3, 5 and 6; Article VIII -
Voting; Article IX - Amendments; and supplied by Exhibit
(b)(1) (see Article I - Stockholders and Article IV - Capital
Stock).
(d)(1) Investment Management Agreement dated October 12, 1988 between
the Fund 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).
(d)(1)(a) Investment Management Agreement dated May 1, 1990 between the
Fund on behalf of California Municipal Portfolio and Bernstein
(supplied by Post-Effective Amendment No. 4 and submitted
electronically by Post-Effective Amendment No. 16).
9
<PAGE>
(d)(1)(b) Investment Management Agreement dated March 18, 1992 between
the Fund on behalf of International Value Portfolio and
Bernstein (supplied by Post-Effective Amendment No. 7 and
submitted electronically by Post-Effective Amendment No. 16).
(d)(1)(c) Investment Management Agreement dated May 2, 1994 between the
Fund 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).
(d)(1)(d) Amendment to Investment Management Agreement dated October 5,
1994 between the Fund 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).
(d)(1)(e) Amendment to Investment Management Agreement dated October 5,
1994 between the Fund 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).
(d)(1)(f) Investment Management Agreement dated October 11, 1995 between
the Fund 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).
(d)(1)(g) Amendment No. 1 to Investment Management Agreement dated
October 11, 1995 between the Fund on behalf of the
International Value Portfolio and Bernstein (submitted
electronically by Post-Effective Amendment No. 13).
(d)(1)(h) Investment Management Agreement dated February 22, 1999
between Fund on behalf of the International Value Portfolio II
(submitted electronically by Post-Effective Amendment No. 20).
10
<PAGE>
(d)(1)(i) Amendment No. 2 to Investment Management Agreement dated
February 22, 1999 between the Fund on behalf of the
International Value Portfolio and Bernstein (submitted
electronically by Post-Effective Amendment No. 20).
(d)(1)(j) Amendment No. 3 to Investment Management Agreement dated April
30, 1999 between the Fund on behalf of the International Value
Portfolio and Bernstein (submitted electronically by
Post-Effective Amendment No. 20).
(d)(2) Shareholder Servicing and Administrative Agreement dated
October 12, 1988 between the Fund 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).
(d)(2)(a) Shareholder Servicing and Administrative Agreement dated May
1, 1990 between the Fund on behalf of California Municipal
Portfolio and Bernstein (supplied by Post-Effective Amendment
No. 4 and submitted electronically by Post-Effective Amendment
No. 16)
(d)(2)(b) Shareholder Servicing and Administrative Agreement dated March
18, 1992 between the Fund on behalf of International Value
Portfolio and Bernstein (supplied by Post-Effective Amendment
No. 7 and submitted electronically by Post-Effective Amendment
No. 16).
(d)(2)(c) Shareholder Servicing and Administrative Agreement dated May
2, 1994 between the Fund 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).
(d)(2)(d) Shareholder Servicing and Administrative Agreement dated
October 11, 1995 between the Fund 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).
11
<PAGE>
(d)(2)(e) Shareholder Servicing and Administrative Agreement dated
February 22, 1999 between the Fund on behalf of the
International Value Portfolio II and Bernstein (submitted
electronically by Post-Effective Amendment No.
20.)
(d)(2)(f) Amendment No. 1 dated April 30, 1999 to Shareholder Servicing
and Administrative Agreement between the Fund on behalf of the
International Value Portfolio and Bernstein (submitted
electronically by Post-Effective Amendment No. 20).
(e)(1) Distribution Agreement dated October 12, 1988 between the Fund
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).
(e)(2) Distribution Agreement dated May 1, 1990 between the Fund on
behalf of California Municipal Portfolio and Bernstein
(supplied by Post-Effective Amendment No. 4 and submitted
electronically by Post-Effective Amendment No. 16).
(e)(3) Distribution Agreement dated March 18, 1992 between the Fund
on behalf of International Value Portfolio and Bernstein
(supplied by Post-Effective Amendment No. 7 and submitted
electronically by Post-Effective Amendment No. 16).
(e)(4) Distribution Agreement dated May 2, 1994 between the Fund 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).
12
<PAGE>
(e)(5) Distribution Agreement dated October 11, 1995 between the Fund
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).
(e)(6) Distribution Agreement dated February 22, 1999 between the
Fund on behalf of the International Value Portfolio II and
Bernstein (submitted electronically by Post-Effective
Amendment No. 20).
(e)(7) Amendment No. 1 dated April 30, 1999 to the Distribution
Agreement between the Fund on behalf of the International
Value Portfolio and Bernstein (submitted electronically by
Post-Effective Amendment No. 20).
(f) Bonus or Profit Sharing Contracts - Not applicable.
(g)(1) Custodian Contract dated October 12, 1988 between the Fund and
State Street Bank and Trust Company (supplied by Pre-Effective
Amendment No. 2 and submitted electronically by Post-Effective
Amendment No. 16).
(g)(2) 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).
(g)(3) 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).
13
<PAGE>
(g)(4) 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).
(g)(5) 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).
(g)(6) 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).
(g)(7) 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).
(g)(8) Seventh Amendment to the Custodian Contract dated May 6, 1996
(submitted electronically by Post-Effective Amendment No. 15).
(g)(9) Eighth Amendment to the Custodian Contract dated September 25,
1996 (submitted electronically by Post-Effective Amendment No.
15).
(g)(10) 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).
(g)(11) Ninth Amendment to the Custodian Contract dated February 22,
1999 (submitted electronically by Post-Effective Amendment No.
20).
(g)(12) Tenth Amendment to the Custodian Contract dated May 3, 1999
(submitted electronically by Post-Effective Amendment No. 20).
14
<PAGE>
(g)(13) Custodian Fee Schedule dated October 27, 1999 - Tax-Managed
International Value, International Value II and Emerging
Markets Value Portfolios (submitted electronically by
Post-Effective Amendment No. 20).
(h)(1) Transfer Agency Agreement dated October 12, 1988 between the
Fund and State Street Bank and Trust Company (supplied by
Pre-Effective Amendment No. 2 and submitted electronically by
Post-Effective Amendment No. 16).
(h)(2) 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).
(h)(3) 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).
(h)(4) 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).
(h)(5) 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).
(h)(6) Fifth Amendment to Transfer Agency Agreement dated July 18,
1996 (submitted electronically by Post-Effective Amendment No.
15).
(h)(7) Sixth Amendment to Transfer Agency Agreement dated February
22, 1999 (submitted electronically by Post-Effective Amendment
No. 20).
(h)(8) Seventh Amendment to Transfer Agency Agreement dated May 3,
1999 (submitted electronically by Post-Effective Amendment No.
20).
15
<PAGE>
(h)(9) Transfer Agency Fee Schedule dated July 21, 1999 - Government
Short Duration, Short Duration Plus, Diversified Municipal,
Intermediate Duration, New York Municipal, California
Municipal, Tax-Managed International Value, Short Duration
California Municipal, Short Duration Diversified Municipal,
Short Duration New York Municipal, Emerging Markets Value and
International Value II Portfolios (submitted electronically by
Post-Effective Amendment No. 20).
(h)(10) Securities Lending Agreement dated July 17, 1996 between the
Fund, on behalf of the International Value Portfolio and State
Street Bank and Trust Company and Amendment dated September
30, 1996 (submitted electronically by Post-Effective Amendment
No. 15).
(h)(10)(a) Second Amendment to Securities Lending Agreement dated May 29,
1997 (submitted electronically by Post-Effective Amendment No.
16).
(h)(10)(b) Third Amendment to Securities Lending Agreement dated May 11,
1998 (submitted electronically by Post-Effective Amendment No.
17).
(h)(10)(c) Fourth Amendment to Securities Lending Agreement dated August
10, 1998 (submitted electronically by Post-Effective Amendment
No. 17).
(h)(10)(d) Fifth Amendment to Securities Lending Agreement dated April
21, 1999 (submitted electronically by Post-Effective Amendment
No. 20).
(h)(10)(e) Securities Lending Agreement dated April 30, 1999 between the
Fund, on behalf of the International Value Portfolio II and
State Street Bank and Trust Company (submitted electronically
by Post-Effective Amendment No. 20).
(i)(1) 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).
16
<PAGE>
(i)(2) 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).
(i)(3) Opinion of Counsel dated March 30, 1992 - International Value
Portfolio (supplied by Post-Effective Amendment No. 7 and
submitted electronically by Post-Effective Amendment No. 16).
(i)(4) 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).
(i)(5) 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).
(i)(6) Opinion of Counsel dated November 16, 1998 - International
Value Portfolio II (submitted electronically by Post-Effective
Amendment No. 17).
(j) Consent of Independent Accountants (submitted electronically
herewith).
(k) Omitted Financial Statements - Not applicable.
(l) Purchase Agreement dated October 12, 1988 (supplied by
Pre-Effective Amendment No. 2 and submitted electronically by
Post-Effective Amendment No. 16).
(m) Rule 12b-1 Plan - Not applicable.
(n) Rule 18f-3 Plan - Not applicable.
Item 24. Persons Controlled By or Under Common Control with Fund.
None.
17
<PAGE>
Item 25. 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 (b) 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 Fund 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 Fund pursuant to the foregoing provisions, or otherwise, the Fund
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as
18
<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 Fund
of expenses incurred or paid by a director, officer or controlling person of the
Fund in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person, the Fund 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 Fund 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 Fund 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 Fund 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
19
<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 26. Business and Other Connections of Investment Adviser.
See "Management of the Fund" in the Statement of Additional
Information constituting Part B of this Registration Statement and incorporated
herein by reference and "Management, Organization and Capital Structure" 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 27. Principal Underwriters
(a) Sanford C. Bernstein & Co., Inc. is the Distributor for no
investment company other than the Fund.
(b)
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Underwriter Fund
- ------------------ ------------- -------------
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
Marilyn Goldstein Fedak* Senior Vice President,
Chief Investment
Officer - U.S. Equities
20
<PAGE>
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Underwriter Fund
- ------------------ ------------- -------------
Arthur W. Fried Director
1 Rue Pedro-Meylan
1208 Geneva
Switzerland
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) The Fund has no principal underwriter who is not an affiliated
person of the Fund.
Item 28. 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 Fund'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 Fund.
Item 29. Management Services - Not applicable.
Item 30. Undertakings - Not Applicable.
21
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund certifies that it meets all the requirements for
effectiveness of this registration statement under Rule 485(b) under the
Securities Act and has duly caused this registration statement to be signed on
its behalf by the undersigned, duly authorized in the City and State of New York
on the 27th day of January, 2000.
Sanford C. Bernstein Fund, Inc.
By: s/Roger Hertog, President
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
- --------- ----- ----
s/Roger Hertog President January 27, 2000
(Principal
Executive
Officer),
Treasurer,
(Principal
Financial and
Accounting
Officer) and
Director
s/Andrew S. Adelson Senior Vice January 27, 2000
President
and Director
s/Arthur Aeder Director January 27, 2000
s/Peter L. Bernstein Director January 27, 2000
s/Theodore Levitt Director January 27, 2000
s/William Kristol Director January 27, 2000
<PAGE>
Index to Exhibits
Exhibit No. Description
- ----------- -----------
(j) Consent of Independent Accountants.
<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. 21 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
November 15, 1999, relating to the financial statements and financial highlights
of Bernstein Tax Managed International Value Portfolio (formerly, Bernstein
International Value Portfolio), Bernstein International Value Portfolio II,
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 and Bernstein Short Duration New York
Municipal Portfolio (constituting the twelve portfolios of Sanford C. Bernstein
Fund, Inc.), appearing in the September 30, 1999 Annual Report 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 heading "Financial Highlights" in the 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
January 24, 2000
