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Alliancebernstein High Income Fund Inc – ‘497’ on 2/4/11

On:  Friday, 2/4/11, at 4:29pm ET   ·   Effective:  2/4/11   ·   Accession #:  919574-11-553   ·   File #:  33-72460

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/04/11  Alliancebernstein High Incom..Inc 497         2/04/11    1:899K                                   Seward & Kissel LLP

Definitive Material   —   Rule 497
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 497         Definitive Material                                  326±  1.31M 


Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Alliancebernstein Global Bond Fund
4Table of Contents
5Summary Information
"Fees and Expenses of the Fund
"Class B Shares
27Derivatives
"The Funds' investments in derivatives may include, but are not limited to, the following:
30Illiquid Securities
36Investing in the Funds
"How to Buy Shares
"Advisor Class Shares
"Retirement Plans, Tax-Deferred Accounts and Employee Benefit Plans
37General
"The Different Share Class Expenses
"Asset-Based Sales Charges or Distribution and/or Service (Rule 12b-1) Fees
38Sales Charge Reduction Programs
40CDSC Waivers and Other Programs
"Automatic Investment Program
"Systematic Withdrawal Plan
"The "Pros" and "Cons" of Different Share Classes
41Payments to Financial Advisors and Their Firms
42How to Exchange Shares
"How to Sell or Redeem Shares
43Frequent Purchases and Redemptions of Fund Shares
44How the Funds Value Their Shares
45Management of the Funds
"Portfolio Managers
49Transfer Agency and Retirement Plan Services
50Dividends, Distributions and Taxes
51General Information
"Shareholder Services
"Householding
52Glossary of Investment Terms
53Financial Highlights
55Intermediate Bond
57Global Bond
59High Income
62Appendix A
"Bond Ratings
65Appendix B
"Hypothetical Investment and Expense Information
98Class A Shares
"Distribution Arrangements for Group Retirement Plans
"Payments to Financial Intermediaries
122AllianceBernstein High Income Fund, Inc
"AllianceBernstein Global Bond Fund, Inc
124Information About the Funds and Their Investments
"Additional Investment Policies and Practices
"Forward Commitments and When-Issued and Delayed Delivery Securities
"Mortgage-Related Securities and Other Asset-Backed Securities
"Structured Securities
"Zero Coupon Securities
"Independent Directors
"Unconstrained Bond
"Expenses of the Funds
125Transfer Agency Agreement
"Purchase of Shares
"Alternative Purchase Arrangements
"Conversion Feature
"Class C shares
"Contingent Deferred Sales Charge
"Class R shares
"Class K shares
"Class I shares
"Alternative Purchase Arrangements - Group Retirement Plans and Tax-Deferred Accounts
"Combined Purchase Privilege
"Redemption and Repurchase of Shares
126Net Asset Value
"Backup Withholding
"Fund Transactions
133Financial Statements and Report of Independent Registered Public Accounting Firm
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This is filed pursuant to Rule 497(c). File No. 33-72460 and 811-08188.
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BOND FUNDS (A, B, C AND ADVISOR CLASS SHARES) PROSPECTUS | JANUARY 31, 2011 The AllianceBernstein Bond Funds [Enlarge/Download Table] Stability Absolute Return (Shares Offered--Exchange Ticker Symbol) (Shares Offered--Exchange Ticker Symbol) AllianceBernstein Short Duration Portfolio AllianceBernstein Diversified Yield Fund (Class A-ADPAX; Class B-ADPBX; Class C-ADPCX) (Class A-AGSAX; Class B-AGSBX; Class C-AGCCX; Advisor Class-AGSIX) Core High Income (Shares Offered--Exchange Ticker Symbol) (Shares Offered--Exchange Ticker Symbol) AllianceBernstein Intermediate Bond Portfolio AllianceBernstein High Income Fund (Class A-ABQUX; Class B-ABQBX; (Class A-AGDAX; Class B-AGDBX; Class C-ABQCX; Advisor Class-ABQYX) Class C-AGDCX; Advisor Class-AGDYX) AllianceBernstein Global Bond Fund (Class A-ANAGX; Class B-ANABX; Class C-ANACX; Advisor Class-ANAYX) 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. [LOGO] AB ALLIANCEBERNSTEIN
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INVESTMENT PRODUCTS OFFERED .. ARE NOT FDIC INSURED .. MAY LOSE VALUE .. ARE NOT BANK GUARANTEED
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TABLE OF CONTENTS -------------------------------------------------------------------------------- [Download Table] Page SUMMARY INFORMATION........................................... 4 STABILITY ALLIANCEBERNSTEIN SHORT DURATION PORTFOLIO.................. 4 CORE ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO............... 8 ALLIANCEBERNSTEIN GLOBAL BOND FUND.......................... 12 ABSOLUTE RETURN ALLIANCEBERNSTEIN DIVERSIFIED YIELD FUND.................... 16 HIGH INCOME ALLIANCEBERNSTEIN HIGH INCOME FUND.......................... 20 ADDITIONAL INFORMATION ABOUT THE FUNDS' RISKS AND INVESTMENTS. 26 INVESTING IN THE FUNDS........................................ 35 How to Buy Shares........................................... 35 The Different Share Class Expenses.......................... 36 Sales Charge Reduction Programs............................. 37 CDSC Waivers and Other Programs............................. 39 The "Pros" and "Cons" of Different Share Classes............ 39 Payments to Financial Advisors and Their Firms.............. 40 How to Exchange Shares...................................... 41 How to Sell or Redeem Shares................................ 41 Frequent Purchases and Redemptions of Fund Shares........... 42 How the Funds Value Their Shares............................ 43 MANAGEMENT OF THE FUNDS....................................... 44 DIVIDENDS, DISTRIBUTIONS AND TAXES............................ 49 GENERAL INFORMATION........................................... 50 GLOSSARY OF INVESTMENT TERMS.................................. 51 FINANCIAL HIGHLIGHTS.......................................... 52 APPENDIX A--BOND RATINGS...................................... A-1 APPENDIX B--HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION... B-1
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SUMMARY INFORMATION -------------------------------------------------------------------------------- ALLIANCEBERNSTEIN SHORT DURATION PORTFOLIO -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The Fund seeks to provide safety of principal and a moderate rate of return that is subject to taxes. FEES AND EXPENSES OF THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge reductions if you and members of your family invest, or agree to invest in the future, at least $100,000 in AllianceBernstein Mutual Funds. More information about these and other discounts is available from your financial intermediary and in Investing in the Funds--Sales Charge Reduction Programs on page 37 of this Prospectus and in Purchase of Shares--Sales Charge Reduction Programs on page 43 of the Fund's Statement of Additional Information ("SAI"). SHAREHOLDER FEES (fees paid directly from your investment) [Enlarge/Download Table] CLASS B SHARES (NOT CURRENTLY CLASS A OFFERED TO CLASS C SHARES NEW INVESTORS) SHARES ---------------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.25% None None ---------------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None 3.00%(a) 1.00%(b) ---------------------------------------------------------------------------------------------------------------- Exchange Fee None None None ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) [Download Table] CLASS A CLASS B CLASS C ----------------------------------------------------------------- Management Fees .45% .45% .45% Distribution and/or Service (12b-1) Fees .30% 1.00% 1.00% Other Expenses: Transfer Agent .10% .15% .11% Other Expenses .09% .09% .09% ---- ----- ----- Total Other Expenses .19% .24% .20% ---- ----- ----- Total Annual Fund Operating Expenses .94% 1.69% 1.65% ==== ===== ===== ----------------------------------------------------------------- (a)Class B shares automatically convert to Class A shares after six years. The contingent deferred sales charge, or CDSC, decreases over time. For Class B shares, the CDSC decreases 1.00% annually to 0% after the third year. (b)For Class C shares, the CDSC is 0% after the first year. EXAMPLES The Examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year and that the Fund's operating expenses stay the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: [Download Table] CLASS A CLASS B CLASS C --------------------------------------- After 1 Year $ 517 $ 472 $ 268 After 3 Years $ 712 $ 633 $ 520 After 5 Years $ 923 $ 918 $ 897 After 10 Years $1,531 $1,616 $1,955 --------------------------------------- 4
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You would pay the following expenses if you did not redeem your shares at the end of period: [Download Table] CLASS A CLASS B CLASS C --------------------------------------- After 1 Year $ 517 $ 172 $ 168 After 3 Years $ 712 $ 533 $ 520 After 5 Years $ 923 $ 918 $ 897 After 10 Years $1,531 $1,616 $1,955 --------------------------------------- PORTFOLIO TURNOVER The Fund will pay transaction costs, such as commissions, when it buys or sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These transaction costs, which are not reflected in the Annual Fund Operating Expenses or in the Examples, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 107% of the average value of its portfolio. PRINCIPAL STRATEGIES The Fund invests at least 80% of its total assets in securities rated A or better by national ratings agencies (or, if unrated, determined by the Adviser to be of comparable quality) and comparably rated commercial paper and notes. The Fund may purchase many types of fixed-income securities, including corporate bonds, notes, U.S. Government and agency securities, asset-backed securities, mortgage-related securities, inflation-protected securities, loan participations and preferred stock, as well as others. The Fund also may invest up to 20% of its total assets in foreign fixed-income securities in developed or emerging market countries. The Fund also 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 Fund may invest up to 20% of its fixed-income securities rated BB or B by national rating agencies, which are not investment grade (commonly known as "junk bonds"). The Fund seeks to maintain an effective duration of one to three years under normal market conditions. Duration is a measure that related the expected price volatility of a security to changes in interest rates. The duration of a debt security is the weighted average time to maturity expressed in years, of the present value of all future cash flows, including coupon payments and principal repayments. Thus, by definition, duration is always less than or equal to full maturity. In managing the Fund, the Adviser may use interest rate forecasting to determine the best level of interest rate risk at a given time. The Fund may moderately shorten its average duration when the Adviser expects interest rates to rise and modestly lengthen its average duration when the Adviser anticipates that rates will fall. The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund's other holdings. The Fund may invest, without limit, in derivatives, such as options, futures, forwards and swaps. The Fund also may invest up to 20% of its assets in structured instruments, which have characteristics of futures, options, currencies, and securities. PRINCIPAL RISKS .. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. .. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. 5
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.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings ("junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. .. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund's assets can decline as can the value of the Fund's distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities. .. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. .. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect the value of the Fund's investments or reduce its returns. .. PREPAYMENT RISK: The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Fund to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Fund may not be able to realize the rate of return it expected. .. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its net asset value, or NAV, may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund's investments. .. LIQUIDITY RISK: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Fund from selling out of these illiquid securities at an advantageous price. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Fund is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets. .. DERIVATIVES RISK: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments. .. MANAGEMENT RISK: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. As with all investments, you may lose money by investing in the Fund. BAR CHART AND PERFORMANCE INFORMATION The bar chart and performance information provide an indication of the historical risk of an investment in the Fund by showing: .. how the Fund's performance changed from year to year over the life of the Fund; and .. how the Fund's average annual returns for one and five years and over the life of the Fund compare to those of a broad-based securities market index. You may obtain updated performance information on the Fund's website at www.AllianceBernstein.com (click on "Pricing & Performance"). The Fund's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. 6
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BAR CHART The annual returns in the bar chart are for the Fund's Class A shares and do not reflect sales loads. If sales loads were reflected, returns would be less than those shown. [CHART] 01 02 03 04 05 06 07 08 09 10 ---- ---- ---- ---- ---- ---- ---- ------ ---- ---- n/a n/a n/a 0.92 1.02 3.75 3.50 -4.18 6.52 2.90 Calendar Year End (%) During the period shown in the bar chart, the Fund's: BEST QUARTER WAS UP 2.32% IN THE 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN -1.79% IN THE 1ST QUARTER, 2008. PERFORMANCE TABLE AVERAGE ANNUAL TOTAL RETURNS (For the periods ended December 31, 2010) [Enlarge/Download Table] SINCE 1 YEAR 5 YEARS INCEPTION* ------------------------------------------------------------------------------------------------- Class A** Return Before Taxes -1.48% 1.54% 1.37% -------------------------------------------------------------------------------------- Return After Taxes on Distributions -1.90% 0.44% 0.33% -------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -0.96% 0.67% 0.56% ------------------------------------------------------------------------------------------------- Class B Return Before Taxes -0.77% 1.72% 1.38% ------------------------------------------------------------------------------------------------- Class C Return Before Taxes 1.18% 1.73% 1.23% ------------------------------------------------------------------------------------------------- BofA Merrill Lynch 1-3 Year Treasury Index (reflects no deduction for fees, expenses, or taxes) 2.35% 4.17% 3.17% ------------------------------------------------------------------------------------------------- * Inception date for Class A, Class B and Class C shares: 5/21/03. **After-tax returns: -Are shown for Class A shares only and will vary for Class B and Class C shares because these Classes have different expense ratios; -Are an estimate, which is based on the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and -Are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. INVESTMENT ADVISER AllianceBernstein L.P. is the investment adviser for the Fund. PORTFOLIO MANAGER The following table lists the persons responsible for day-to-day management of the Fund's portfolio: [Download Table] EMPLOYEE LENGTH OF SERVICE TITLE ---------------------------------------------------------------------------- Jon P. Denfeld Since 2008 Vice President of the Adviser Shawn E. Keegan Since 2005 Vice President of the Adviser Alison M. Martier Since 2009 Senior Vice President of the Adviser Douglas J. Peebles Since 2009 Senior Vice President of the Adviser Greg J. Wilensky Since 2009 Senior Vice President of the Adviser ADDITIONAL INFORMATION For important information about the purchase and sale of Fund shares, tax information and financial intermediary compensation, please turn to ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES, page 25 in this Prospectus. 7
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ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The Fund's investment objective is to generate income and price appreciation without assuming what the Adviser considers undue risk. FEES AND EXPENSES OF THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge reductions if you and members of your family invest, or agree to invest in the future, at least $100,000 in AllianceBernstein Mutual Funds. More information about these and other discounts is available from your financial intermediary and in Investing in the Funds--Sales Charge Reduction Programs on page 37 of this Prospectus and in Purchase of Shares--Sales Charge Reduction Programs on page 108 of the Funds' SAI. SHAREHOLDER FEES (fees paid directly from your investment) [Enlarge/Download Table] CLASS B SHARES CLASS A (NOT CURRENTLY OFFERED CLASS C ADVISOR CLASS SHARES TO NEW INVESTORS) SHARES SHARES --------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.25% None None None --------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None 3.00%(a) 1.00%(b) None --------------------------------------------------------------------------------------------------------- Exchange Fee None None None None ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) [Enlarge/Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ---------------------------------------------------------------------------------------------------------------------------- Management Fees .45% .45% .45% .45% Distribution and/or Service (12b-1) Fees .30% 1.00% 1.00% None Other Expenses: Transfer Agent .17% .22% .18% .17% Interest Expense and Related Expenses .06% .07% .06% .05% Other Expenses .13% .14% .14% .13% ------ ------ ------ ------ Total Other Expenses .36% .43% .38% .35% ------ ------ ------ ------ Total Annual Fund Operating Expenses 1.11% 1.88% 1.83% .80% ====== ====== ====== ====== Fee Waiver and/or Expense Reimbursement(c) (.20)% (.26)% (.22)% (.20)% ------ ------ ------ ------ Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(d) .91% 1.62% 1.61% .60% ====== ====== ====== ====== ---------------------------------------------------------------------------------------------------------------------------- (a)Class B shares automatically convert to Class A shares after six years. The CDSC decreases over time. For Class B shares, the CDSC decreases 1.00% annually to 0% after the third year. (b)For Class C shares, the CDSC is 0% after the first year. (c)The fee waiver and/or expense reimbursements will remain in effect until January 31, 2012 and will continue thereafter from year-to-year unless the Adviser provides notice of termination 60 days prior to the end of the Fund's fiscal year. (d)If interest expenses were excluded, net expenses would be as follows: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ------------------------------------- .85% 1.55% 1.55% .55% 8
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EXAMPLES The Examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year, that the Fund's operating expenses stay the same and that the fee waiver is in effect for only the first year. Although your actual costs may be higher or lower, based on these assumptions your costs would be: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ----------------------------------------------------- After 1 Year $ 514 $ 465 $ 264 $ 61 After 3 Years $ 744 $ 666 $ 554 $235 After 5 Years $ 992 $ 992 $ 970 $425 After 10 Years $1,702 $1,794 $2,130 $971 ----------------------------------------------------- You would pay the following expenses if you did not redeem your shares at the end of period: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ----------------------------------------------------- After 1 Year $ 514 $ 165 $ 164 $ 61 After 3 Years $ 744 $ 566 $ 554 $235 After 5 Years $ 992 $ 992 $ 970 $425 After 10 Years $1,702 $1,794 $2,130 $971 ----------------------------------------------------- PORTFOLIO TURNOVER The Fund will pay transaction costs, such as commissions, when it buys or sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These transaction costs, which are not reflected in the Annual Fund Operating Expenses or in the Examples, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 99% of the average value of its portfolio. PRINCIPAL STRATEGIES The Fund invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. The Fund expects to invest in readily marketable fixed-income securities with a range of maturities from short- to long-term and relatively attractive yields that do not involve undue risk of loss of capital. The Fund expects to invest in fixed-income securities with a dollar-weighted average maturity of between three to ten years and an average duration of three to six years. The Fund may invest up to 25% of its net assets in below investment grade bonds. The Fund may use leverage for investment purposes. The Fund may invest without limit in U.S. Dollar-denominated foreign fixed-income securities and may invest up to 25% of its assets in non-U.S. Dollar-denominated foreign fixed-income securities. These investments may include, in each case, developed and emerging market debt securities. The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund's other holdings. The Fund may invest in mortgage-related and other asset-backed securities, loan participations, inflation-protected securities, structured securities, variable, floating, and inverse floating rate instruments and preferred stock, and may use other investment techniques. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures, forwards, or swap agreements. The Fund expects to engage in active and frequent trading of portfolio securities to achieve its principal investment strategies. A higher rate of portfolio turnover increases transaction expenses, which may negatively affect the Fund's performance. High portfolio turnover also may result in the realization of substantial net short-term capital gains, which, when distributed, are taxable to shareholders. PRINCIPAL RISKS .. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. 9
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.. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. .. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. .. BELOW INVESTMENT GRADE SECURITIES: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity. .. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund's assets can decline as can the value of the Fund's distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities. .. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. .. EMERGING MARKET RISK: Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties. .. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect the value of the Fund's investments or reduce its returns. .. PREPAYMENT RISK: The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Fund to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Fund may not be able to realize the rate of return it expected. .. DERIVATIVES RISK: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments. .. MANAGEMENT RISK: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. As with all investments, you may lose money by investing in the Fund. BAR CHART AND PERFORMANCE INFORMATION The bar chart and performance information provide an indication of the historical risk of an investment in the Fund by showing: .. how the Fund's performance changed from year to year over ten years; and .. how the Fund's average annual returns for one, five and ten years compare to those of a broad-based securities market index. You may obtain updated performance information on the Fund's website at www.AllianceBernstein.com (click on "Pricing & Performance"). The Fund's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. 10
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BAR CHART The annual returns in the bar chart are for the Fund's Class A shares and do not reflect sales loads. If sales loads were reflected, returns would be less than those shown. [CHART] 01 02 03 04 05 06 07 08 09 10 ---- ---- ---- ---- ---- ---- ---- ----- ----- ---- 7.36 7.67 3.69 3.48 1.94 3.97 5.68 -8.26 19.18 9.20 Calendar Year End (%) During the period shown in the bar chart, the Fund's: BEST QUARTER WAS UP 7.86% IN THE 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN -4.57% IN THE 3RD QUARTER, 2008. PERFORMANCE TABLE AVERAGE ANNUAL TOTAL RETURNS (For the periods ended December 31, 2010) [Enlarge/Download Table] 1 YEAR 5 YEARS 10 YEARS --------------------------------------------------------------------------------------------------- Class A* Return Before Taxes 4.61% 4.67% 4.74% ------------------------------------------------------------------------------------ Return After Taxes on Distributions 3.21% 3.09% 3.06% ------------------------------------------------------------------------------------ Return After Taxes on Distributions and Sale of Fund Shares 2.97% 3.04% 3.03% --------------------------------------------------------------------------------------------------- Class B Return Before Taxes 5.45% 4.95% 4.80% --------------------------------------------------------------------------------------------------- Class C Return Before Taxes 7.46% 4.86% 4.47% --------------------------------------------------------------------------------------------------- Advisor Class Return Before Taxes 9.52% 5.89% 5.50% --------------------------------------------------------------------------------------------------- Barclays Capital U.S. Aggregate Index (reflects no deduction for fees, expenses, or taxes) 6.54% 5.80% 5.84% --------------------------------------------------------------------------------------------------- * After-tax Returns: -Are shown for Class A shares only and will vary for Class B, Class C and Advisor Class shares because these Classes have different expense ratios. -Are an estimate, which is based on the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and -Are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. INVESTMENT ADVISER AllianceBernstein L.P. is the investment adviser for the Fund. PORTFOLIO MANAGER The following table lists the persons responsible for day-to-day management of the Fund's portfolio: [Download Table] EMPLOYEE LENGTH OF SERVICE TITLE ---------------------------------------------------------------------------- Paul J. DeNoon Since 2009 Senior Vice President of the Adviser Shawn E. Keegan Since 2005 Vice President of the Adviser Alison M. Martier Since 2005 Senior Vice President of the Adviser Douglas J. Peebles Since 2007 Senior Vice President of the Adviser Greg J. Wilensky Since 2005 Senior Vice President of the Adviser ADDITIONAL INFORMATION For important information about the purchase and sale of Fund shares, tax information and financial intermediary compensation, please turn to ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES, page 25 in this Prospectus. 11
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ALLIANCEBERNSTEIN GLOBAL BOND FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The Fund's investment objective is to generate current income consistent with preservation of capital. FEES AND EXPENSES OF THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge reductions if you and members of your family invest, or agree to invest in the future, at least $100,000 in AllianceBernstein Mutual Funds. More information about these and other discounts is available from your financial intermediary and in Investing in the Funds--Sales Charge Reduction Programs on page 37 of this Prospectus and in Purchase of Shares--Sales Charge Reduction Programs on page 108 of the Funds' SAI. SHAREHOLDER FEES (fees paid directly from your investment) [Enlarge/Download Table] CLASS B SHARES CLASS A (NOT CURRENTLY OFFERED CLASS C ADVISOR CLASS SHARES TO NEW INVESTORS) SHARES SHARES --------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.25% None None None --------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None 3.00%(a) 1.00%(b) None --------------------------------------------------------------------------------------------------------- Exchange Fee None None None None ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) [Enlarge/Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ---------------------------------------------------------------------------------------------------------------------------- Management Fees .50% .50% .50% .50% Distribution and/or Service (12b-1) Fees .30% 1.00% 1.00% None Other Expenses: Transfer Agent .10% .12% .10% .10% Interest Expense and Related Expenses .08% .08% .07% .06% Other Expenses .04% .06% .06% .06% ------ ------ ------ ------ Total Other Expenses .22% .26% .23% .22% ------ ------ ------ ------ Total Annual Fund Operating Expenses 1.02% 1.76% 1.73% .72% ====== ====== ====== ====== Fee Waiver and/or Expense Reimbursement(c) (.04)% (.08)% (.06)% (.06)% ------ ------ ------ ------ Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(d) .98% 1.68% 1.67% .66% ====== ====== ====== ====== ---------------------------------------------------------------------------------------------------------------------------- (a)Class B shares automatically convert to Class A shares after six years. The CDSC decreases over time. For Class B shares, the CDSC decreases 1.00% annually to 0% after the third year. (b)For Class C shares, the CDSC is 0% after the first year. (c)The fee waiver and/or expense reimbursements will remain in effect until January 31, 2012 and will continue thereafter from year to year unless the Adviser provides notice of termination 60 days prior to the end of the Fund's fiscal year. (d)If interest expenses were excluded, net expenses would be as follows: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ------------------------------------- .90% 1.60% 1.60% .60% 12
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EXAMPLES The Examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year, that the Fund's operating expenses stay the same and that the fee waiver is in effect for only the first year. Although your actual costs may be higher or lower, based on these assumptions your costs would be: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ----------------------------------------------------- After 1 Year $ 521 $ 471 $ 270 $ 67 After 3 Years $ 732 $ 646 $ 539 $224 After 5 Years $ 961 $ 947 $ 933 $395 After 10 Years $1,617 $1,692 $2,036 $889 ----------------------------------------------------- You would pay the following expenses if you did not redeem your shares at the end of period: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ----------------------------------------------------- After 1 Year $ 521 $ 171 $ 170 $ 67 After 3 Years $ 732 $ 546 $ 539 $224 After 5 Years $ 961 $ 947 $ 933 $395 After 10 Years $1,617 $1,692 $2,036 $889 ----------------------------------------------------- PORTFOLIO TURNOVER The Fund will pay transaction costs, such as commissions, when it buys or sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These transaction costs, which are not reflected in the Annual Fund Operating Expenses or in the Examples, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 69% of the average value of its portfolio. PRINCIPAL STRATEGIES The Fund invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. Under normal market conditions, the Fund invests significantly in fixed-income securities of non-U.S. companies. In addition, the Fund invests, under normal circumstances, in the fixed-income securities of companies located in at least three countries. The Fund may invest in a broad range of fixed-income securities in both developed and emerging markets. The Fund may invest across all fixed-income sectors, including U.S. and non-U.S. government and corporate debt securities. The Fund's investments may be denominated in local currency or U.S. Dollar-denominated. The Fund may invest in debt securities with a range of maturities from short- to long-term. The Fund may use borrowings or other leverage for investment purposes. The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund's other holdings. The Adviser will actively manage the Fund's assets in relation to market conditions and general economic conditions and adjust the Fund's investments in an effort to best enable the Fund to achieve its investment objective. Thus, the percentage of the Fund's assets invested in a particular country or denominated in a particular currency will vary in accordance with the Adviser's assessment of the relative yield and appreciation potential of such securities and the relationship of the country's currency to the U.S. Dollar. Under normal circumstances, the Fund invests at least 75% of its net assets in fixed-income securities rated investment grade at the time of investment and may invest up to 25% of its net assets in below investment grade fixed-income securities. The Fund may invest in mortgage-related and other asset-backed securities, loan participations, inflation-protected securities, structured securities, variable, floating, and inverse floating rate instruments and preferred stock, and may use other investment techniques. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures, forwards, or swap agreements. PRINCIPAL RISKS .. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. 13
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.. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. .. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. .. BELOW INVESTMENT GRADE SECURITIES: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity. .. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund's assets can decline as can the value of the Fund's distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities. .. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. .. EMERGING MARKET RISK: Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties. .. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect the value of the Fund's investments or reduce its returns. .. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund's investments. .. DIVERSIFICATION RISK: The Fund may have more risk because it is "non-diversified," meaning that it can invest more of its assets in a smaller number of issuers and that adverse changes in the value of one security could have a more significant effect on the Fund's NAV. .. DERIVATIVES RISK: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments. .. MANAGEMENT RISK: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. As with all investments, you may lose money by investing in the Fund. BAR CHART AND PERFORMANCE INFORMATION The bar chart and performance information provide an indication of the historical risk of an investment in the Fund by showing: .. how the Fund's performance changed from year to year over ten years; and .. how the Fund's average annual returns for one, five and ten years compare to those of a broad-based securities market index. You may obtain updated performance information on the Fund's website at www.AllianceBernstein.com (click on "Pricing & Performance"). The Fund's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. 14
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BAR CHART The annual returns in the bar chart are for the Fund's Class A shares and do not reflect sales loads. If sales loads were reflected, returns would be less than those shown. [CHART] 01 02 03 04 05 06 07 08 09 10 ---- ----- ----- ---- ---- ---- ---- ------ ----- ---- 0.31 10.68 15.13 6.87 9.71 6.57 9.90 -10.71 23.96 9.53 Calendar Year End (%) During the period shown in the bar chart, the Fund's: BEST QUARTER WAS UP 11.30% IN THE 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN -5.57% IN THE 4TH QUARTER, 2008. PERFORMANCE TABLE AVERAGE ANNUAL TOTAL RETURNS (For the periods ended December 31, 2010) [Enlarge/Download Table] 1 YEAR 5 YEARS 10 YEARS ----------------------------------------------------------------------------------------------------- Class A* Return Before Taxes 4.90% 6.34% 7.38% ------------------------------------------------------------------------------------ Return After Taxes on Distributions 3.55% 4.39% 4.85% ------------------------------------------------------------------------------------ Return After Taxes on Distributions and Sale of Fund Shares 3.16% 4.23% 4.74% ----------------------------------------------------------------------------------------------------- Class B Return Before Taxes 5.78% 6.53% 7.35% ----------------------------------------------------------------------------------------------------- Class C Return Before Taxes 7.73% 6.52% 7.07% ----------------------------------------------------------------------------------------------------- Advisor Class** Return Before Taxes 9.71% 7.56% 8.15% ----------------------------------------------------------------------------------------------------- Barclays Capital Global Aggregate Index (U.S. hedged) (reflects no deduction for fees, expenses, or taxes) -1.33% 3.50% 4.33% ----------------------------------------------------------------------------------------------------- * After-tax Returns: -Are shown for Class A shares only and will vary for Class B and Class C shares because these Classes have higher expense ratios; -Are an estimate, which is based on the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and -Are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. **Inception date of Advisor Class shares: 11/05/07. Performance information for periods prior to the inception of Advisor Class shares is the performance of the Fund's Class A shares adjusted to reflect the lower expense ratio of Advisor Class shares. INVESTMENT ADVISER AllianceBernstein L.P. is the investment adviser for the Fund. PORTFOLIO MANAGER The following table lists the persons responsible for day-to-day management of the Fund's portfolio: [Download Table] EMPLOYEE LENGTH OF SERVICE TITLE ----------------------------------------------------------------------------- Paul J. DeNoon Since 2002 Senior Vice President of the Adviser Scott DiMaggio Since 2005 Senior Vice President of the Adviser Michael L. Mon Since 2003 Vice President of the Adviser Douglas J. Peebles Since 1992 Senior Vice President of the Adviser Matthew S. Sheridan Since 2007 Vice President of the Adviser ADDITIONAL INFORMATION For important information about the purchase and sale of Fund shares, tax information and financial intermediary compensation, please turn to ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES, page 25 in this Prospectus. 15
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ALLIANCEBERNSTEIN DIVERSIFIED YIELD FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The Fund's investment objective is to generate current income consistent with preservation of capital. FEES AND EXPENSES OF THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge reductions if you and members of your family invest, or agree to invest in the future, at least $100,000 in AllianceBernstein Mutual Funds. More information about these and other discounts is available from your financial intermediary and in Investing in the Funds--Sales Charge Reduction Programs on page 37 of this Prospectus and in Purchase of Shares--Sales Charge Reduction Programs on page 108 of the Funds' SAI. SHAREHOLDER FEES (fees paid directly from your investment) [Enlarge/Download Table] CLASS B SHARES CLASS A (NOT CURRENTLY OFFERED CLASS C ADVISOR CLASS SHARES TO NEW INVESTORS) SHARES SHARES --------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.25% None None None --------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None 4.00%(a) 1.00%(b) None --------------------------------------------------------------------------------------------------------- Exchange Fee None None None None ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) [Enlarge/Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ------------------------------------------------------------------------------------------------------------------------- Management Fees .50% .50% .50% .50% Distribution and/or Service (12b-1) Fees .30% 1.00% 1.00% None Other Expenses: Transfer Agent .12% .17% .13% .12% Other Expenses .63% .63% .63% .61% ------ ------ ------ ------ Total Other Expenses .75% .80% .76% .73% ------ ------ ------ ------ Total Annual Fund Operating Expenses 1.55% 2.30% 2.26% 1.23% ====== ====== ====== ====== Fee Waiver and/or Expense Reimbursement(c) (.65)% (.70)% (.66)% (.63)% ------ ------ ------ ------ Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement .90% 1.60% 1.60% .60% ====== ====== ====== ====== ------------------------------------------------------------------------------------------------------------------------- (a)Class B shares automatically convert to Class A shares after eight years. The CDSC decreases over time. For Class B shares, the CDSC decreases 1.00% annually to 0% after the fourth year. (b)For Class C shares, the CDSC is 0% after the first year. (c)The fee waiver and/or expense reimbursements will remain in effect until January 31, 2012 and will continue thereafter from year to year unless the Adviser provides notice of termination 60 days prior to the end of the Fund's fiscal year. EXAMPLES The Examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year, that the Fund's operating expenses stay the same and that the fee waiver is in effect for only the first year. Although your actual costs may be higher or lower, based on these assumptions your costs would be: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ----------------------------------------------------- After 1 Year $ 513 $ 563 $ 263 $ 61 After 3 Years $ 833 $ 851 $ 643 $ 339 After 5 Years $1,175 $1,167 $1,150 $ 637 After 10 Years $2,139 $2,393 $2,544 $1,485 ----------------------------------------------------- 16
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You would pay the following expenses if you did not redeem your shares at the end of period: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ------------------------------------------------------------------------- After 1 Year $ 513 $ 163 $ 163 $ 61 After 3 Years $ 833 $ 651 $ 643 $ 339 After 5 Years $1,175 $1,167 $1,150 $ 637 After 10 Years $2,139 $2,393 $2,544 $1,485 ------------------------------------------------------------------------- PORTFOLIO TURNOVER The Fund will pay transaction costs, such as commissions, when it buys or sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These transaction costs, which are not reflected in the Annual Fund Operating Expenses or in the Examples, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 54% of the average value of its portfolio. PRINCIPAL STRATEGIES The Fund employs a dynamic risk allocation, meaning that the Fund's risk profile may vary significantly over time based upon market conditions. The Fund invests in a portfolio of fixed-income securities of U.S. and non-U.S. companies, U.S. and non-U.S. government entities and supranational entities, including lower-rated securities. The Fund limits its investments in the securities of any one non-U.S. government to 25% of its total assets. The Fund may invest in debt securities with a range of maturities from short- to long-term. The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund's other holdings. The Fund typically maintains at least 50% of its net assets in investment grade securities. The Fund may invest up to 50% of its net assets in below investment grade securities, such as corporate high yield fixed-income securities, sovereign debt obligations and fixed-income securities of issuers located in emerging markets. The Fund may also invest in mortgage-related and other asset-backed securities, loan participations, inflation-protected securities, structured securities, variable, floating, and inverse floating rate instruments and preferred stock, and may use other investment techniques. The Fund may make short sales of securities or currencies or maintain a short position. The Fund may use borrowings or other leverage for investment purposes. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures, forwards, or swap agreements. PRINCIPAL RISKS .. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. .. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. .. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. .. BELOW INVESTMENT GRADE SECURITIES: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity. .. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund's assets can decline as can the value of the Fund's distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities. 17
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.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. .. EMERGING MARKET RISK: Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties. .. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect the value of the Fund's investments or reduce its returns. .. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund's investments. .. PREPAYMENT RISK: The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Fund to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Fund may not be able to realize the rate of return it expected. .. DERIVATIVES RISK: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments. .. MANAGEMENT RISK: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. As with all investments, you may lose money by investing in the Fund. BAR CHART AND PERFORMANCE INFORMATION The bar chart and performance information provide an indication of the historical risk of an investment in the Fund by showing: .. how the Fund's performance changed from year to year over ten years; and .. how the Fund's average annual returns for one, five and ten years compare to those of a broad-based securities market index. You may obtain updated performance information on the Fund's website at www.AllianceBernstein.com (click on "Pricing & Performance"). The Fund's past performance before and after taxes, of course, does not necessarily indicate how it will perform in the future. BAR CHART The annual returns in the bar chart are for the Fund's Class A shares and do not reflect sales loads. If sales loads were reflected, returns would be less than those shown. [CHART] 01 02 03 04 05 06 07 08 09 10 ----- ---- ----- ---- ---- ---- ---- ------ ----- ---- -2.81 5.04 15.61 6.13 4.81 4.46 6.38 -16.52 19.20 7.38 Calendar Year End (%) During the period shown in the bar chart, the Fund's: BEST QUARTER WAS UP 8.57% IN THE 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN -9.62% IN THE 4TH QUARTER, 2008. 18
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PERFORMANCE TABLE AVERAGE ANNUAL TOTAL RETURNS (For the periods ended December 31, 2010) [Enlarge/Download Table] 1 YEAR 5 YEARS 10 YEARS --------------------------------------------------------------------------------------------------- Class A* Return Before Taxes 2.82% 2.61% 4.09% ------------------------------------------------------------------------------------ Return After Taxes on Distributions 1.87% 1.31% 2.26% ------------------------------------------------------------------------------------ Return After Taxes on Distributions and Sale of Fund Shares 1.82% 1.45% 2.36% --------------------------------------------------------------------------------------------------- Class B Return Before Taxes 2.63% 2.78% 4.10% --------------------------------------------------------------------------------------------------- Class C Return Before Taxes 5.64% 2.77% 3.80% --------------------------------------------------------------------------------------------------- Advisor Class Return Before Taxes 7.83% 3.80% 4.85% --------------------------------------------------------------------------------------------------- Barclays Capital Global Aggregate Index (U.S. hedged) (reflects no deduction for fees, expenses, or taxes) 4.61% 4.85% 5.20% --------------------------------------------------------------------------------------------------- BofA Merrill Lynch 3-Month T-Bill Index 0.13% 2.43% 2.38% --------------------------------------------------------------------------------------------------- * After-tax Returns: -Are shown for Class A shares only and will vary for Class B, Class C and Advisor Class shares because these Classes have different expense ratios. -Are an estimate, which is based on the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and -Are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. INVESTMENT ADVISER AllianceBernstein L.P. is the investment adviser for the Fund. PORTFOLIO MANAGER The following table lists the persons responsible for day-to-day management of the Fund's portfolio: [Download Table] EMPLOYEE LENGTH OF SERVICE TITLE ----------------------------------------------------------------------------- Paul J. DeNoon Since 2005 Senior Vice President of the Adviser Joran Laird Since 2009 Vice President of the Adviser Douglas J. Peebles Since 1996 Senior Vice President of the Adviser Matthew S. Sheridan Since 2006 Vice President of the Adviser Greg J. Wilensky Since 2008 Senior Vice President of the Adviser ADDITIONAL INFORMATION For important information about the purchase and sale of Fund shares, tax information and financial intermediary compensation, please turn to ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES, page 25 in this Prospectus. 19
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ALLIANCEBERNSTEIN HIGH INCOME FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The Fund's investment objective is to seek to maximize total returns from price appreciation and income. FEES AND EXPENSES OF THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge reductions if you and members of your family invest, or agree to invest in the future, at least $100,000 in AllianceBernstein Mutual Funds. More information about these and other discounts is available from your financial intermediary and in Investing in the Funds--Sales Charge Reduction Programs on page 37 of this Prospectus and in Purchase of Shares--Sales Charge Reduction Programs on page 108 of the Funds' SAI. SHAREHOLDER FEES (fees paid directly from your investment) [Enlarge/Download Table] CLASS B SHARES CLASS A (NOT CURRENTLY OFFERED TO CLASS C ADVISOR CLASS SHARES NEW INVESTORS) SHARES SHARES -------------------------------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.25% None None None -------------------------------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None 3.00%(a) 1.00%(b) None -------------------------------------------------------------------------------------------------------------------------------- Exchange Fee None None None None ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) [Enlarge/Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ---------------------------------------------------------------------------------------------------------------------------- Management Fees .50% .50% .50% .50% Distribution and/or Service (12b-1) Fees .30% 1.00% 1.00% None Other Expenses: Transfer Agent .12% .16% .12% .12% Interest Expenses and Related Expenses .04% .05% .04% .03% Other Expenses .08% .07% .07% .08% ------ ------ ------ ------ Total Other Expenses .24% .28% .23% .23% ------ ------ ------ ------ Total Annual Fund Operating Expenses 1.04% 1.78% 1.73% .73% ====== ====== ====== ====== Fee Waiver and/or Expense Reimbursement(c) (.05)% (.08)% (.04)% (.05)% ------ ------ ------ ------ Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(d) .99% 1.70% 1.69% .68% ====== ====== ====== ====== ---------------------------------------------------------------------------------------------------------------------------- (a)Class B shares automatically convert to Class A shares after six years. The CDSC decreases over time. For Class B shares, the CDSC decreases 1.00% annually to 0% after the third year. (b)For Class C shares, the CDSC is 0% after the first year. (c)The fee waiver and/or expense reimbursements will remain in effect until January 31, 2012 and will continue thereafter from year-to-year unless the Adviser provides notice of termination 60 days prior to the end of the Fund's fiscal year. (d)If interest expenses were excluded, net expenses would be as follows: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ------------------------------------- .95% 1.65% 1.65% .65% 20
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EXAMPLES The Examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year, that the Fund's operating expenses stay the same and that the fee waiver is in effect for only the first year. Although your actual costs may be higher or lower, based on these assumptions your costs would be: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ----------------------------------------------------- After 1 Year $ 522 $ 473 $ 272 $ 69 After 3 Years $ 737 $ 653 $ 541 $228 After 5 Years $ 970 $ 958 $ 935 $401 After 10 Years $1,638 $1,715 $2,038 $902 ----------------------------------------------------- You would pay the following expenses if you did not redeem your shares at the end of period: [Download Table] CLASS A CLASS B CLASS C ADVISOR CLASS ----------------------------------------------------- After 1 Year $ 522 $ 173 $ 172 $ 69 After 3 Years $ 737 $ 553 $ 541 $228 After 5 Years $ 970 $ 958 $ 935 $401 After 10 Years $1,638 $1,715 $2,038 $902 ----------------------------------------------------- PORTFOLIO TURNOVER The Fund will pay transaction costs, such as commissions, when it buys or sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These transaction costs, which are not reflected in the Annual Fund Operating Expenses or in the Examples, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 26% of the average value of its portfolio. PRINCIPAL STRATEGIES The Fund pursues income opportunities from government, corporate, emerging market and high yield sources. It has the flexibility to invest in a broad range of fixed-income securities in both developed and emerging market countries. The Fund's investments may include U.S. and non-U.S. corporate debt securities and sovereign debt securities. The Fund may invest, without limitation, in either U.S. Dollar-denominated or non-U.S. Dollar-denominated fixed-income securities. The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund's other holdings. The Fund may invest in debt securities with a range of maturities from short- to long-term. Substantially all of the Fund's assets may be invested in lower-rated securities, which may include securities having the lowest rating for non-subordinated debt instruments (i.e., rated C by Moody's or CCC+ or lower by S&P and Fitch) and unrated securities of equivalent investment quality. The Fund also may invest in investment grade securities and unrated securities. The Fund may also make short sales of securities or maintain a short position. The Fund is non-diversified, meaning it may invest more of its assets in a fewer number of issuers. The Fund may invest in mortgage-related and other asset-backed securities, loan participations, inflation-protected securities, structured securities, variable, floating, and inverse floating rate instruments and preferred stock, and may use other investment techniques. The Fund may use borrowings or other leverage for investment purposes. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures, forwards, or swap agreements. PRINCIPAL RISKS .. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. 21
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.. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. .. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. .. BELOW INVESTMENT GRADE SECURITIES: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity. .. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund's assets can decline as can the value of the Fund's distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities. .. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. .. EMERGING MARKET RISK: Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties. .. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect the value of the Fund's investments or reduce its returns. .. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund's investments. .. DIVERSIFICATION RISK: The Fund may have more risk because it is "non-diversified," meaning that it can invest more of its assets in a smaller number of issuers and that adverse changes in the value of one security could have a more significant effect on the Fund's NAV. .. DERIVATIVES RISK: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments. .. MANAGEMENT RISK: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. As with all investments, you may lose money by investing in the Fund. 22
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BAR CHART The annual returns in the bar chart are for the Fund's Class A shares and do not reflect sales loads. If sales loads were reflected, returns would be less than those shown. [CHART] 01 02 03 04 05 06 07 08 09 10 ---- ----- ----- ----- ----- ----- ---- ------ ----- ----- 6.10 18.70 38.42 11.09 10.16 11.85 7.29 -26.52 61.74 16.80 Calendar Year End (%) During the period shown in the bar chart, the Fund's: BEST QUARTER WAS UP 23.96% IN THE 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN -17.75% IN THE 4TH QUARTER, 2008. PERFORMANCE TABLE AVERAGE ANNUAL TOTAL RETURNS (For the periods ended December 31, 2010) [Enlarge/Download Table] 1 YEAR 5 YEARS 10 YEARS --------------------------------------------------------------------------------------------------------------- Class A* Return Before Taxes 11.89% 9.78% 13.02% ---------------------------------------------------------------------------------------- Return After Taxes on Distributions 8.73% 6.43% 9.36% ---------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 7.59% 6.35% 9.03% --------------------------------------------------------------------------------------------------------------- Class B Return Before Taxes 12.88% 9.88% 12.98% --------------------------------------------------------------------------------------------------------------- Class C Return Before Taxes 14.91% 9.88% 12.61% --------------------------------------------------------------------------------------------------------------- Advisor Class** Return Before Taxes 17.18% 11.10% 13.87% --------------------------------------------------------------------------------------------------------------- JPMorgan Emerging Markets Bond Index Global ("EMBI Global") (U.S. Dollar-denominated) (reflects no deduction for fees, expenses, or taxes) 12.04% 8.36% 10.29% --------------------------------------------------------------------------------------------------------------- JPMorgan Government Bond Index-Emerging Markets ("GBI-EM") (local currency-denominated) (reflects no deduction for fees, expenses, or taxes) 13.08% 9.82% N/A --------------------------------------------------------------------------------------------------------------- Barclays Capital High Yield Index (2% Constrained) ("BC High Yield") (reflects no deduction for fees, expenses, or taxes) 14.94% 8.91% 9.01% --------------------------------------------------------------------------------------------------------------- Composite Benchmark (equal weighted blend of EMBI Global, GBI-EM and BC High Yield) 13.43% 9.19% N/A --------------------------------------------------------------------------------------------------------------- * After-tax Returns: -Are shown for Class A shares only and will vary for Class B and Class C shares because these Classes have higher expense ratios; -Are an estimate, which is based on the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes; actual after-tax returns depend on an individual investor's tax situation and are likely to differ from those shown; and -Are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. ** Inception date for Advisor Class shares: 1/28/08. Performance information for periods prior to the inception of Advisor Class shares is the performance of the Fund's Class A shares adjusted to reflect the lower expense ratio of Advisor Class shares. 23
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INVESTMENT ADVISER AllianceBernstein L.P. is the investment adviser for the Fund. PORTFOLIO MANAGER The following table lists the persons responsible for day-to-day management of the Fund's portfolio: [Download Table] EMPLOYEE LENGTH OF SERVICE TITLE ------------------------------------------------------------------------------- Paul J. DeNoon Since 2002 Senior Vice President of the Adviser Gershon M. Distenfeld Since 2008 Senior Vice President of the Adviser Douglas J. Peebles Since 2002 Senior Vice President of the Adviser Marco Santamaria Since 2010 Vice President of the Adviser Matthew S. Sheridan Since 2005 Vice President of the Adviser ADDITIONAL INFORMATION For important information about the purchase and sale of Fund shares, tax information and financial intermediary compensation, please turn to ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES, page 25 in this Prospectus. 24
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ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES . PURCHASE AND SALE OF FUND SHARES PURCHASE MINIMUMS [Enlarge/Download Table] INITIAL SUBSEQUENT --------------------------------------------------------------------------------------------------------------- Class A/Class C Shares, including traditional IRAs and Roth $2,500 $50 IRAs (Class B shares are not currently offered to new shareholders) --------------------------------------------------------------------------------------------------------------- Automatic Investment Program None $50 If initial minimum investment is less than $2,500, then $200 monthly until account balance reaches $2,500 --------------------------------------------------------------------------------------------------------------- Advisor Class Shares (only available to fee-based programs or None None through other limited arrangements) --------------------------------------------------------------------------------------------------------------- You may sell (redeem) your shares each day the New York Stock Exchange is open. You may sell your shares through your financial intermediary or by mail (AllianceBernstein Investor Services, Inc., P.O. Box 786003, San Antonio, TX 78278-6003) or telephone (800-221-5672). . TAX INFORMATION Each Fund may make income dividends or capital gains distributions, which may be subject to federal income taxes and taxable as ordinary income or capital gains, and may also be subject to state and local taxes. . PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES If you purchase shares of a Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary's website for more information. 25
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ADDITIONAL INFORMATION ABOUT THE FUNDS' RISKS AND INVESTMENTS -------------------------------------------------------------------------------- This section of the Prospectus provides additional information about the Funds' investment practices and related risks. Most of these investment practices are discretionary, which means that the Adviser may or may not decide to use them. This Prospectus does not describe all of a Fund's investment practices and additional information about each Fund's risks and investments can be found in the Funds' SAIs. DERIVATIVES Each Fund may, but is not required to, use derivatives for risk management purposes or as part of its investment strategies. Derivatives are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index. A Fund may use derivatives to earn income and enhance returns, to hedge or adjust the risk profile of its portfolio, to replace more traditional direct investments and to obtain exposure to otherwise inaccessible markets. There are four principal types of derivatives, including options, futures, forwards and swaps, which are described below. Derivatives may be (i) standardized, exchange-traded contracts or (ii) customized, privately negotiated contracts. Exchange-traded derivatives tend to be more liquid and subject to less credit risk than those that are privately negotiated. A Fund's use of derivatives may involve risks that are different from, or possibly greater than, the risks associated with investing directly in securities or other more traditional instruments. These risks include the risk that the value of a derivative instrument may not correlate perfectly, or at all, with the value of the assets, reference rates, or indices that they are designed to track. Other risks include: the possible absence of a liquid secondary market for a particular instrument and possible exchange-imposed price fluctuation limits, either of which may make it difficult or impossible to close out a position when desired; and the risk that the counterparty will not perform its obligations. Certain derivatives may have a leverage component and involve leverage risk. Adverse changes in the value or level of the underlying asset, note or index can result in a loss substantially greater than the Fund's investment (in some cases, the potential loss is unlimited). The Funds' investments in derivatives may include, but are not limited to, the following: .. FORWARD CONTRACTS--A forward contract is an agreement that obligates one party to buy, and the other party to sell, a specific quantity of an underlying commodity or other tangible asset for an agreed upon price at a future date. A forward contract is either settled by physical delivery of the commodity or tangible asset to an agreed-upon location at a future date, rolled forward into a new forward contract or, in the case of a non-deliverable forward, by a cash payment at maturity. The Funds' investments in forward contracts may include the following: - Forward Currency Exchange Contracts. A Fund may purchase or sell forward currency exchange contracts for hedging purposes to minimize the risk from adverse changes in the relationship between the U.S. Dollar and other currencies or for non-hedging purposes as a means of making direct investments in foreign currencies as described below under "Other Derivatives and Strategies--Currency Transactions." A Fund, for example, may enter into a forward contract as a transaction hedge (to "lock in" the U.S. Dollar price of a non-U.S. Dollar security), as a position hedge (to protect the value of securities the Fund owns that are denominated in a foreign currency against substantial changes in the value of the foreign currency) or as a cross-hedge (to protect the value of securities the Fund owns that are denominated in a foreign currency against substantial changes in the value of that foreign currency by entering into a forward contract for a different foreign currency that is expected to change in the same direction as the currency in which the securities are denominated). .. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A futures contract is an agreement that obligates the buyer to buy and the seller to sell a specified quantity of an underlying asset (or settle for cash the value of a contract based on an underlying asset, rate or index) at a specific price on the contract maturity date. Options on futures contracts are options that call for the delivery of futures contracts upon exercise. A Fund may purchase or sell futures contracts and options thereon to hedge against changes in interest rates, securities (through index futures or options) or currencies. A Fund may also purchase or sell futures contracts for foreign currencies or options thereon for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions." .. OPTIONS--An option is an agreement that, for a premium payment or fee, gives the option holder (the buyer) the right but not the obligation to buy (a "call option") or sell (a "put option") the underlying asset (or settle for cash an amount based on an underlying asset, rate or index) at a specified price (the exercise price) during a period of time or on a specified date. Investments in options are considered speculative. A Fund may lose the premium paid for them if the price of the underlying security or other asset decreased or remained the same (in the case of a call option) or increased or remained the same (in the case of a put option). If a put or call option purchased by a Fund were permitted to expire without being sold or exercised, its premium would represent a loss to the Fund. The Funds' investments in options include the following: - Options on Foreign Currencies. A Fund may invest in options on foreign currencies that are privately negotiated or traded on U.S. or foreign exchanges for hedging purposes to protect against declines in the U.S. Dollar value of foreign currency denominated securities held by a Fund 26
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and against increases in the U.S. Dollar cost of securities to be acquired. The purchase of an option on a foreign currency may constitute an effective hedge against fluctuations in exchange rates, although if rates move adversely, a Fund may forfeit the entire amount of the premium plus related transaction costs. A Fund may also invest in options on foreign currencies for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions." - Options on Securities. A Fund may purchase or write a put or call option on securities. A Fund may write covered options, which means writing an option for securities the Fund owns, and uncovered options. - Options on Securities Indices. An option on a securities index is similar to an option on a security except that, rather than taking or making delivery of a security at a specified price, an option on a securities index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the chosen index is greater than (in the case of a call) or less than (in the case of a put) the exercise price of the option. .. SWAP TRANSACTIONS--A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals (payment dates) based upon or calculated by reference to changes in specified prices or rates (interest rates in the case of interest rate swaps, currency exchange rates in the case of currency swaps) for a specified amount of an underlying asset (the "notional" principal amount). Except for currency swaps, the notional principal amount is used solely to calculate the payment stream, but is not exchanged. Swaps are entered into on a net basis (i.e., the two payment streams are netted out, with a Fund receiving or paying, as the case may be, only the net amount of the two payments). The Funds' investments in swap transactions include the following: - Interest Rate Swaps, Swaptions, Caps and Floors. Interest rate swaps involve the exchange by a Fund with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating rate payments for fixed rate payments). Unless there is a counterparty default, the risk of loss to the Fund from interest rate swap transactions is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the counterparty to an interest rate swap transaction defaults, the Fund's risk of loss consists of the net amount of interest payments that the Fund contractually is entitled to receive. An option on a swap agreement, also called a "swaption," is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based "premium." A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest on a contractually-based principal amount from the party selling the interest rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on an agreed principal amount from the party selling the interest rate floor. Caps and floors may be less liquid than swaps. There is no limit on the amount of interest rate transactions that may be entered into by a Fund. The value of these transactions will fluctuate based on changes in interest rates. Interest rate swap, swaption, cap and floor transactions may be used to preserve a return or spread on a particular investment or a portion of a Fund's portfolio or to protect against an increase in the price of securities a Fund anticipates purchasing at a later date. - Inflation (CPI) Swaps. Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swap agreements may be used to protect the NAV of a Fund against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases. - Credit Default Swap Agreements. The "buyer" in a credit default swap contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract in return for a contingent payment upon the occurrence of a credit event with respect to an underlying reference obligation. Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or modified restructuring. A Fund may be either the buyer or seller in the transaction. If a Fund is a seller, the Fund receives a fixed rate of income throughout the term of the contract, which typically is between one month and five years, provided that no credit event occurs. If a credit event occurs, a Fund typically must pay the contingent payment to the buyer, which is typically the "par value" (full notional value) of the reference obligation. The contingent payment may be a cash settlement or by physical delivery of the reference obligation in return for payment of the face amount of the obligation. The value of the reference obligation received by a Fund coupled with the periodic payments previously received may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. If the reference obligation is a defaulted security, physical delivery of the security will cause 27
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a Fund to hold a defaulted security. If a Fund is a buyer and no credit event occurs, the Fund will lose its periodic stream of payments over the term of the contract. However, if a credit event occurs, the buyer typically receives full notional value for a reference obligation that may have little or no value. Credit default swaps may involve greater risks than if a Fund had invested in the reference obligation directly. Credit default swaps are subject to general market risk, liquidity risk and credit risk. - Currency Swaps. A Fund may invest in currency swaps for hedging purposes to protect against adverse changes in exchange rates between the U.S. Dollar and other currencies or for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions." Currency swaps involve the individually negotiated exchange by a Fund with another party of a series of payments in specified currencies. Actual principal amounts of currencies may be exchanged by the counterparties at the initiation, and again upon the termination, of the transaction. Therefore, the entire principal value of a currency swap is subject to the risk that the swap counterparty will default on its contractual delivery obligations. If there is a default by the counterparty to the transaction, the Fund will have contractual remedies under the transaction agreements. - Total Return Swaps. A Fund may enter into total return swaps, under which one party agrees to pay the other the total return of a defined underlying asset, such as a security or basket of securities, or non-asset reference, such as a securities index, during the specified period in return for periodic payments based on a fixed or variable interest rate or the total return from different underlying assets or references. Total return swaps could result in losses if the underlying asset or reference does not perform as anticipated. .. OTHER DERIVATIVES AND STRATEGIES-- - Eurodollar Instruments. Eurodollar instruments are essentially U.S. Dollar-denominated futures contracts or options that are linked to the London Interbank Offered Rate (LIBOR). Eurodollar futures contracts enable purchasers to obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate for borrowings. - Structured Instruments. As part of its investment program and to maintain greater flexibility, a Fund may invest in structured instruments. Structured instruments, including indexed or structured securities, combine the elements of futures contracts or options with those of debt, preferred equity or a depositary instrument. Generally, a structured instrument will be a debt security, preferred stock, depositary share, trust certificate, certificate of deposit or other evidence of indebtedness on which a portion of or all interest payments, and/or the principal or stated amount payable at maturity, redemption or retirement, is determined by reference to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, articles or commodities (collectively "Underlying Assets") or by another objective index, economic factor or other measure, such as interest rates, currency exchange rates, commodity indices, and securities indices (collectively, "Benchmarks"). Thus, structured instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion terms related to a particular commodity. Structured instruments are potentially more volatile and carry greater market risks than traditional debt instruments. Depending on the structure of the particular structured instrument, changes in a Benchmark may be magnified by the terms of the structured instrument and have an even more dramatic and substantial effect upon the value of the structured instrument. Also, the prices of the structured instrument and the Benchmark or Underlying Asset may not move in the same direction or at the same time. Structured instruments can have volatile prices and limited liquidity, and their use by a Fund may not be successful. The risk of these investments can be substantial; possibly all of the principal is at risk. - Currency Transactions. A Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or un-hedged basis. The Adviser may actively manage a Fund's currency exposures and may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps and options. The Adviser may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by a Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. A Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies). FORWARD COMMITMENTS Forward commitments for the purchase or sale of securities may include purchases on a when-issued basis or purchases or sales on a delayed delivery basis. In some cases, a forward commitment may be conditioned upon the occurrence of a subsequent event, such as approval and consummation of a 28
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merger, corporate reorganization or debt restructuring or approval of a proposed financing by appropriate authorities (i.e., a "when, as and if issued" trade). A Fund may invest significantly in TBA-mortgage-backed securities. A TBA or "To Be Announced" trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agreed-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed rate or variable rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions. When forward commitments with respect to fixed-income securities are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but payment for and delivery of the securities take place at a later date. Securities purchased or sold under a forward commitment are subject to market fluctuation and no interest or dividends accrue to the purchaser prior to the settlement date. There is the risk of loss if the value of either a purchased security declines before the settlement date or the security sold increases before the settlement date. The use of forward commitments helps a Fund to protect against anticipated changes in interest rates and prices. ILLIQUID SECURITIES Under current Securities and Exchange Commission ("Commission") guidelines, the Funds limit their investments in illiquid securities to 15% of their net assets. The term "illiquid securities" for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount a Fund has valued the securities. A Fund that invests in illiquid securities may not be able to sell such securities and may not be able to realize their full value upon sale. Restricted securities (securities subject to legal or contractual restrictions on resale) may be illiquid. Some restricted securities (such as securities issued pursuant to Rule 144A under the Securities Act of 1933 (the "Securities Act") or certain commercial paper) may be treated as liquid, although they may be less liquid than registered securities traded on established secondary markets. INFLATION-PROTECTED SECURITIES Inflation-protected securities, or IPS, are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of these securities will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. The value of inflation-protected securities tends to react to changes in real interest rates. In general, the price of an inflation-protected security can fall when real interest rates rise, and can rise when real interest rates fall. In addition, the value of inflation-protected securities can fluctuate based on fluctuations in expectations of inflation. Interest payments on inflation-protected securities can be unpredictable and will vary as the principal and/or interest is adjusted for inflation. INVESTMENT IN OTHER INVESTMENT COMPANIES The Funds (except for AllianceBernstein Short Duration Portfolio) may invest in other investment companies as permitted by the Investment Company Act of 1940 (the "1940 Act") or the rules and regulations thereunder. The Funds intend to invest uninvested cash balances in an affiliated money market fund as permitted by Rule 12d1-1 under the 1940 Act. If a Fund acquires shares in investment companies, shareholders would bear, indirectly, the expenses of such investment companies (which may include management and advisory fees), which are in addition to the Fund's expenses. A Fund may also invest in exchange-traded funds, subject to the restrictions and limitations of the 1940 Act or any applicable rules, exemptive orders or regulatory guidance. LOAN PARTICIPATIONS A Fund may invest in corporate loans either by participating as co-lender at the time the loan is originated or by buying an interest in the loan in the secondary market from a financial institution or institutional investor. The financial status of an institution interposed between a Fund and a borrower may affect the ability of the Fund to receive principal and interest payments. The success of a Fund may depend on the skill with which an agent bank administers the terms of the corporate loan agreements, monitors borrower compliance with covenants, collects principal, interest and fee payments from borrowers and, where necessary, enforces creditor remedies against borrowers. Agent banks typically have broad discretion in enforcing loan agreements. MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES A Fund may invest in mortgage-related or other asset-backed securities. Mortgage-related securities include mortgage pass-through securities, collateralized mortgage obligations ("CMOs"), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities ("SMBSs") and other securities that directly or indirectly represent a participation in or are secured by and payable from mortgage loans on real property. These securities may be issued or guaranteed by the U.S. Government or one of its sponsored entities or may be issued by private organizations. The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose a Fund to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them 29
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to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, a Fund may not be able to realize the rate of return it expected. One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or "IO" class), while the other class will receive all of the principal (the principal-only, or "PO" class). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund's yield to maturity from these securities. A Fund may invest in collateralized debt obligations ("CDOs"), which include collateralized bond obligations ("CBOs"), collateralized loan obligations ("CLOs"), and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust that is backed by a diversified pool of high-risk, below investment grade fixed-income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. The Funds may invest in other asset-backed securities that have been offered to investors. A Fund may invest in other asset-backed securities. The securitization techniques used to develop mortgage-related securities are being applied to a broad range of financial assets. Through the use of trusts and special purpose corporations, various types of assets, including automobile loans and leases, credit card receivables, home equity loans, equipment leases and trade receivables, are being securitized in structures similar to the structures used in mortgage securitizations. PREFERRED STOCK A Fund 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 issuer. These investments include convertible preferred stock, which includes an option for the holder to convert the preferred stock into the issuer's common stock under certain conditions, among which may be the specification of a future date when the conversion may begin, a certain number of common shares per preferred shares, or a certain price per share for the common stock. Convertible preferred stock tends to be more volatile than non-convertible preferred stock, because its value is related to the price of the issuer's common stock as well as the dividends payable on the preferred stock. REPURCHASE AGREEMENTS AND BUY/SELL BACK TRANSACTIONS A Fund may enter into repurchase agreements in which a Fund purchases a security from a bank or broker-dealer, which agrees to repurchase the security from the Fund at an agreed- upon future date, normally a day or a few days later. The purchase and repurchase transactions are transacted under one agreement. The resale price is greater than the purchase price, reflecting an agreed-upon interest rate for the period the buyer's money is invested in the security. Such agreements permit a Fund to keep all of its assets at work while retaining "overnight" flexibility in pursuit of investments of a longer-term nature. If the bank or broker-dealer defaults on its repurchase obligation, a Fund would suffer a loss to the extent that the proceeds from the sale of the security were less than the repurchase price. A Fund may enter into buy/sell back transactions, which are similar to repurchase agreements. In this type of transaction, a Fund enters a trade to buy securities at one price and simultaneously enters a trade to sell the same securities at another price on a specified date. Similar to a repurchase agreement, the repurchase price is higher than the sale price and reflects current interest rates. Unlike a repurchase agreement, however, the buy/sell back transaction is considered two separate transactions. REVERSE REPURCHASE AGREEMENTS, DOLLAR ROLLS AND OTHER BORROWINGS A Fund may enter into reverse repurchase agreements and dollar rolls, subject to the Fund's limitations on borrowings. A reverse repurchase agreement or dollar roll involves the sale of a security by a Fund and its agreement to repurchase the instrument at a specified time and price, and may be considered a form of borrowing for some purposes. Reverse repurchase agreements, dollar rolls and other forms of borrowings may create leverage risk for a Fund. In addition, reverse repurchase agreements and dollar rolls involve the risk that the market value of the securities a Fund is obligated to repurchase may decline below the purchase price. Dollar rolls involve sales by a Fund of securities for delivery in the current month and the Fund's simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, a Fund forgoes principal and interest paid on the securities. A Fund is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. Reverse repurchase agreements and dollar rolls involve the risk that the market value of the securities a Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement or dollar roll files for bankruptcy or becomes insolvent, a Fund's use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. RIGHTS AND WARRANTS Rights and warrants are option securities permitting their holders to subscribe for other securities. Rights are similar to warrants except that they have a substantially shorter duration. Rights and warrants do not carry with them dividend or voting 30
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rights with respect to the underlying securities, or any rights in the assets of the issuer. As a result, an investment in rights and warrants may be considered more speculative than certain other types of investments. In addition, the value of a right or a warrant does not necessarily change with the value of the underlying securities, and a right or a warrant ceases to have value if it is not exercised prior to its expiration date. SHORT SALES A Fund (except for ALLIANCEBERNSTEIN SHORT DURATION PORTFOLIO) may make short sales as a part of overall portfolio management or to offset a potential decline in the value of a security. A short sale involves the sale of a security that a Fund does not own, or if the Fund owns the security, is not to be delivered upon consummation of the sale. When the Fund makes a short sale of a security that it does not own, it must borrow from a broker-dealer the security sold short and deliver the security to the broker-dealer upon conclusion of the short sale. If the price of the security sold short increases between the time of the short sale and the time a Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a gain. The potential for the price of a fixed-income security sold short to rise is a function of both the remaining maturity of the obligation, its creditworthiness and its yield. Unlike short sales of equities or other instruments, potential for the price of a fixed-income security to rise may be limited due to the fact that the security will be no more than par at maturity. However, the short sale of other instruments or securities generally, including fixed-income securities convertible into equities or other instruments, a fixed-income security trading at a deep discount from par or that pays a coupon that is high in relative and/or absolute terms, or that is denominated in a currency other than the U.S. Dollar, involves the possibility of a theoretically unlimited loss since there is a theoretically unlimited potential for the market price of the security sold short to increase. STANDBY COMMITMENT AGREEMENTS Standby commitment agreements are similar to put options that commit a Fund, for a stated period of time, to purchase a stated amount of a security that may be issued and sold to the Fund at the option of the issuer. The price and coupon of the security are fixed at the time of the commitment. At the time of entering into the agreement, the Fund is paid a commitment fee, regardless of whether the security ultimately is issued. A Fund will enter into such agreements only for the purpose of investing in the security underlying the commitment at a yield and price considered advantageous to the Fund and unavailable on a firm commitment basis. There is no guarantee that a security subject to a standby commitment will be issued. In addition, the value of the security, if issued, on the delivery date may be more or less than its purchase price. Since the issuance of the security is at the option of the issuer, a Fund will bear the risk of capital loss in the event the value of the security declines and may not benefit from an appreciation in the value of the security during the commitment period if the issuer decides not to issue and sell the security to the Fund. STRUCTURED SECURITIES AND BASKET SECURITIES A Fund may invest in various types of structured securities and basket securities. Structured securities are securities issued in structured financing transactions, which generally involve aggregating types of debt assets in a pool or special purpose entity and then issuing new securities. Types of structured financings include securities described elsewhere in this Prospectus, such as mortgage-related and other asset-backed securities. A Fund's investments include investments in structured securities that represent interests in entities organized and operated solely for the purpose of restructuring the investment characteristics of particular debt obligations. This type of restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments (such as commercial bank loans or high yield bonds) and the issuance by that entity of one or more classes of structured securities backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics such as varying maturities, payment priorities and interest rate provisions, and the extent of the payments made with respect to structured securities is dependent on the extent of the cash flow from the underlying instruments. Structured securities of a given class may be either subordinated or unsubordinated to the payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Basket securities in which a Fund may invest may consist of entities organized and operated for the purpose of holding a basket of other securities. Baskets involving debt obligations may be designed to represent the characteristics of some portion of the debt securities market or the entire debt securities market. SOVEREIGN DEBT OBLIGATIONS No established secondary markets may exist for many sovereign debt obligations. Reduced secondary market liquidity may have an adverse effect on the market price and a Fund's ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain sovereign debt obligations may also make it more difficult for a Fund to obtain accurate market quotations for the purpose of valuing its portfolio. Market quotations are generally available on many sovereign debt obligations only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales. By investing in sovereign debt obligations, the Funds will be exposed to the direct or indirect consequences of political, social, and economic changes in various countries. Political changes in a country may affect the willingness of a foreign government to make or provide for timely payments of its 31
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obligations. The country's economic status, as reflected in, among other things, its inflation rate, the amount of its external debt and its gross domestic product, will also affect the government's ability to honor its obligations. The Funds are permitted to invest in sovereign debt obligations that are not current in the payment of interest or principal or are in default so long as the Adviser believes it to be consistent with the Funds' investment objectives. The Funds may have limited legal recourse in the event of a default with respect to certain sovereign debt obligations they hold. For example, remedies from defaults on certain sovereign debt obligations, unlike those on private debt, must, in some cases, be pursued in the courts of the defaulting party itself. Legal recourse therefore may be significantly diminished. Bankruptcy, moratorium, and other similar laws applicable to issuers of sovereign debt obligations may be substantially different from those applicable to issuers of private debt obligations. The political context, expressed as the willingness of an issuer of sovereign debt obligations to meet the terms of the debt obligation, for example, is of considerable importance. In addition, no assurance can be given that the holders of commercial bank debt will not contest payments to the holders of securities issued by foreign governments in the event of default under commercial bank loan agreements. VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS Variable and floating rate securities pay interest at rates that are adjusted periodically, according to a specified formula. A "variable" interest rate adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a "floating" interest rate adjusts whenever a specified benchmark rate (such as the bank prime lending rate) changes. A Fund may also invest in inverse floating rate debt instruments ("inverse floaters"). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may have greater volatility in market value, in that, during periods of rising interest rates, the market values of inverse floaters will tend to decrease more rapidly than those of fixed rate securities. ZERO COUPON AND PRINCIPAL-ONLY SECURITIES Zero coupon securities and principal-only (PO) securities are debt securities that have been issued without interest coupons or stripped of their unmatured interest coupons, and include receipts or certificates representing interests in such stripped debt obligations and coupons. Such a security pays no interest to its holder during its life. Its value to an investor consists of the difference between its face value at the time of maturity and the price for which it was acquired, which is generally an amount significantly less than its face value. Such securities usually trade at a deep discount from their face or par value and are subject to greater fluctuations in market value in response to changing interest rates than debt obligations of comparable maturities and credit quality that make current distributions of interest. On the other hand, because there are no periodic interest payments to be reinvested prior to maturity, these securities eliminate reinvestment risk and "lock in" a rate of return to maturity. ADDITIONAL RISK AND OTHER CONSIDERATIONS Investments in the Funds involve the special risk considerations described below. Certain of these risks may be heightened when investing in emerging markets. BORROWING AND LEVERAGE The Funds may use borrowings for investment purposes subject to applicable statutory or regulatory requirements. Borrowings by a Fund result in leveraging of the Fund's shares. A Fund may also use leverage for investment transactions by entering into transactions such as reverse repurchase agreements, forward contracts and dollar rolls. This means that a Fund uses cash made available during the term of these transactions to make investments in other fixed-income securities. Utilization of leverage, which is usually considered speculative, involves certain risks to a Fund's shareholders. These include a higher volatility of the NAV of a Fund's shares and the relatively greater effect on the NAV of the shares. So long as a Fund is able to realize a net return on its investment portfolio that is higher than the interest expense paid on borrowings or the carrying costs of leveraged transactions, the effect of leverage will be to cause the Fund's shareholders to realize a higher current net investment income than if the Fund were not leveraged. If the interest expense on borrowings or the carrying costs of leveraged transactions approaches the net return on a Fund's investment portfolio, the benefit of leverage to the Fund's shareholders will be reduced. If the interest expense on borrowings or the carrying costs of leveraged transactions were to exceed the net return to shareholders, a Fund's use of leverage would result in a lower rate of return. Similarly, the effect of leverage in a declining market could be a greater decrease in NAV. In an extreme case, if a Fund's current investment income were not sufficient to meet the interest expense on borrowings or the carrying costs of leveraged transactions, it could be necessary for the Fund to liquidate certain of its investments, thereby reducing its NAV. FOREIGN (NON-U.S.) SECURITIES Investing in foreign securities involves special risks and considerations not typically associated with investing in U.S. securities. The securities markets of many foreign countries are relatively small, with the majority of market capitalization and trading volume concentrated in a limited number of companies representing a small number of industries. A Fund that invests in foreign fixed-income securities may experience greater price volatility and significantly lower liquidity than a portfolio invested solely in securities of U.S. companies. These markets may be subject to greater influence by adverse events generally affecting the market, and by large investors trading significant blocks of securities, than is usual in the United States. Securities registration, custody, and settlement may in some instances be subject to delays and legal and administrative uncertainties. Foreign investment in the securities markets of certain foreign countries is restricted or controlled to varying 32
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degrees. These restrictions or controls may at times limit or preclude investment in certain securities and may increase the cost and expenses of a Fund. In addition, the repatriation of investment income, capital or the proceeds of sales of securities from certain of the countries is controlled under regulations, including in some cases the need for certain advance government notification or authority, and if a deterioration occurs in a country's balance of payments, the country could impose temporary restrictions on foreign capital remittances. A Fund also could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation, as well as by the application to it of other restrictions on investment. Investing in local markets may require a Fund to adopt special procedures or seek local governmental approvals or other actions, any of which may involve additional costs to a Fund. These factors may affect the liquidity of a Fund's investments in any country and the Adviser will monitor the effect of any such factor or factors on a Fund's investments. Transaction costs, including brokerage commissions for transactions both on and off the securities exchanges, in many foreign countries are generally higher than in the United States. Issuers of securities in foreign jurisdictions are generally not subject to the same degree of regulation as are U.S. issuers with respect to such matters as insider trading rules, restrictions on market manipulation, shareholder proxy requirements, and timely disclosure of information. The reporting, accounting, and auditing standards of foreign countries may differ, in some cases significantly, from U.S. standards in important respects, and less information may be available to investors in foreign securities than to investors in U.S. securities. Substantially less information is publicly available about certain non-U.S. issuers than is available about most U.S. issuers. The economies of individual foreign countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product or gross national product, rate of inflation, capital reinvestment, resource self-sufficiency, and balance of payments position. Nationalization, expropriation or confiscatory taxation, currency blockage, political changes, government regulation, political or social instability, revolutions, wars or diplomatic developments could affect adversely the economy of a foreign country. In the event of nationalization, expropriation, or other confiscation, a Fund could lose its entire investment in securities in the country involved. In addition, laws in foreign countries governing business organizations, bankruptcy and insolvency may provide less protection to security holders such as the Fund than that provided by U.S. laws. Investments in securities of companies in emerging markets involve special risks. There are approximately 100 countries identified by the World Bank as Low Income, Lower Middle Income and Upper Middle Income countries that are generally regarded as Emerging Markets. Emerging market countries that the Adviser currently considers for investment are listed below. Countries may be added to or removed from this list at any time. [Download Table] Algeria Hong Kong Poland Argentina Hungary Qatar Belize India Romania Brazil Indonesia Russia Bulgaria Israel Singapore Chile Jamaica Slovakia China Jordan Slovenia Colombia Kazakhstan South Africa Costa Rica Lebanon South Korea Cote D'Ivoire Malaysia Taiwan Croatia Mexico Thailand Czech Republic Morocco Trinidad & Tobago Dominican Republic Nigeria Tunisia Ecuador Pakistan Turkey Egypt Panama Ukraine El Salvador Peru Uruguay Guatemala Philippines Venezuela Investing in emerging market securities imposes risks different from, or greater than, risks of investing in domestic securities or in foreign, developed countries. These risks include: smaller market capitalization of securities markets, which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign investment; and possible repatriation of investment income and capital. In addition, foreign investors may be required to register the proceeds of sales; future economic or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies. The currencies of emerging market countries may experience significant declines against the U.S. Dollar, and devaluation may occur subsequent to investments in these currencies by a Fund. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries. Additional risks of emerging market securities may include: greater social, economic and political uncertainty and instability; more substantial governmental involvement in the economy; less governmental supervision and regulation; unavailability of currency hedging techniques; companies that are newly organized and small; differences in auditing and financial reporting standards, which may result in unavailability of material information about issuers; and less developed legal systems. In addition, emerging securities markets may have different clearance and settlement procedures, which may be unable to keep pace with the volume of securities transactions or otherwise make it difficult to engage in such transactions. Settlement problems may cause a Fund to miss attractive investment opportunities, hold a portion of its assets in cash pending investment, or be delayed in disposing of a portfolio security. Such a delay could result in possible liability to a purchaser of the security. FOREIGN (NON-U.S.) CURRENCIES A Fund that invests some portion of its assets in securities denominated in, and receives revenues in, foreign currencies will be adversely affected by reductions in the value of those 33
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currencies relative to the U.S. Dollar. Foreign currency exchange rates may fluctuate significantly. They are determined by supply and demand in the foreign exchange markets, the relative merits of investments in different countries, actual or perceived changes in interest rates, and other complex factors. Currency exchange rates also can be affected unpredictably by intervention (or the failure to intervene) by U.S. or foreign governments or central banks or by currency controls or political developments. In light of these risks, a Fund may engage in certain currency hedging transactions, as described above, which involve certain special risks. A Fund may also invest directly in foreign currencies for non-hedging purposes directly on a spot basis (i.e., cash) or through derivative transactions, such as forward currency exchange contracts, futures and options thereon, swaps and options as described above. These investments will be subject to the same risks. In addition, currency exchange rates may fluctuate significantly over short periods of time, causing a Fund's NAV to fluctuate. INVESTMENT IN BELOW INVESTMENT GRADE FIXED-INCOME SECURITIES Investments in securities rated below investment grade (commonly known as "junk bonds") may be subject to greater risk of loss of principal and interest than higher-rated securities. These securities are also generally considered to be subject to greater market risk than higher-rated securities. The capacity of issuers of these securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates. In addition, below investment grade securities may be more susceptible to real or perceived adverse economic conditions than investment grade securities. The market for these securities may be thinner and less active than that for higher-rated securities, which can adversely affect the prices at which these securities can be sold. To the extent that there is no established secondary market for these securities, a Fund may experience difficulty in valuing such securities and, in turn, the Fund's assets. UNRATED SECURITIES A Fund may invest in unrated securities when the Adviser believes that the financial condition of the issuers of such securities, or the protection afforded by the terms of the securities themselves, limits the risk to the Fund to a degree comparable to that of rated securities that are consistent with the Fund's objective and policies. FUTURE DEVELOPMENTS A Fund may take advantage of other investment practices that are not currently contemplated for use by the Fund, or are not available but may yet be developed, to the extent such investment practices are consistent with the Fund's investment objective and legally permissible for the Fund. Such investment practices, if they arise, may involve risks that exceed those involved in the activities described above. CHANGES IN INVESTMENT OBJECTIVES AND POLICIES A Fund's Board of Directors (the "Board") may change the Fund's investment objective without shareholder approval. The Fund will provide shareholders with 60 days' prior written notice of any change to the Fund's investment objective. Unless otherwise noted, all other investment policies of a Fund may be changed without shareholder approval. TEMPORARY DEFENSIVE POSITION For temporary defensive purposes in an attempt to respond to adverse market, economic, political or other conditions, each Fund may invest in certain types of short-term, liquid, investment grade or high quality (depending on the Fund) debt securities. While a Fund is investing for temporary defensive purposes, it may not meet its investment objectives. PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the disclosure of the Funds' portfolio securities is available in the Funds' SAIs. 34
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INVESTING IN THE FUNDS -------------------------------------------------------------------------------- This section discusses how to buy, sell or redeem, or exchange different classes of shares of a Fund that are offered in this Prospectus. ALLIANCEBERNSTEIN INTERMEDIATE BOND, ALLIANCEBERNSTEIN DIVERSIFIED YIELD, ALLIANCEBERNSTEIN GLOBAL BOND and ALLIANCEBERNSTEIN HIGH INCOME offer four classes of shares and ALLIANCEBERNSTEIN SHORT DURATION offers three classes of shares through this Prospectus. Retirement shares of ALLIANCEBERNSTEIN INTERMEDIATE BOND, ALLIANCEBERNSTEIN DIVERSIFIED YIELD, ALLIANCEBERNSTEIN GLOBAL BOND and ALLIANCEBERNSTEIN HIGH INCOME are available through a separate prospectus. Each share class represents an investment in the same portfolio of securities, but the classes may have different sales charges and bear different ongoing distribution expenses. For additional information on the differences between the different classes of shares and factors to consider when choosing among them, please see "The Different Share Class Expenses" and "The 'Pros' and 'Cons' of Different Share Classes" below. ONLY CLASS A SHARES OFFER QUANTITY DISCOUNTS ON SALES CHARGES, as described under "Sales Charge Reduction Programs" below. HOW TO BUY SHARES The purchase of a Fund's shares is priced at the next determined NAV after your order is received in proper form. CLASS A, CLASS B AND CLASS C SHARES EFFECTIVE JANUARY 31, 2009, SALES OF CLASS B SHARES OF THE FUNDS TO NEW INVESTORS WERE SUSPENDED. CLASS B SHARES MAY ONLY BE PURCHASED (I) BY EXISTING CLASS B SHAREHOLDERS AS OF JANUARY 31, 2009, (II) THROUGH EXCHANGE OF CLASS B SHARES FROM ANOTHER ALLIANCEBERNSTEIN MUTUAL FUND, OR (III) AS OTHERWISE DESCRIBED BELOW. You may purchase a Fund's Class A, Class B, or Class C shares through financial intermediaries, such as broker-dealers or banks. You also may purchase shares directly from the Funds' principal underwriter, AllianceBernstein Investments, Inc., or ABI. PURCHASE MINIMUMS AND MAXIMUMS MINIMUMS:* [Download Table] --Initial: $2,500 --Subsequent: $ 50 *These purchase minimums may not apply to some accounts established in connection with the Automatic Investment Program and to some retirement-related investment programs. Please see "Automatic Investment Program" and "Retirement Plans, Tax-Deferred Accounts and Employee Benefit Plans" below. Additionally, these investment minimums do not apply to persons participating in a fee-based program sponsored and maintained by a registered broker-dealer or other financial intermediary and approved by ABI. MAXIMUM INDIVIDUAL PURCHASE AMOUNT: [Download Table] --Class A shares None --Class B shares $ 100,000 --Class C shares $1,000,000 Your broker or financial advisor must receive your purchase request by 4:00 p.m., Eastern time, and submit it to the Fund by a pre-arranged time for you to receive the next-determined NAV, less any applicable initial sales charge. If you are an existing Fund shareholder and you have completed the appropriate section of the Mutual Fund Application, you may purchase additional shares by telephone with payment by electronic funds transfer in amounts not exceeding $500,000. AllianceBernstein Investor Services, Inc., or ABIS, must receive and confirm telephone requests before 4:00 p.m., Eastern time, to receive that day's public offering price. Call 800-221-5672 to arrange a transfer from your bank account. ADVISOR CLASS SHARES You may purchase Advisor Class shares through your financial advisor at NAV. Advisor Class shares may be purchased and held solely: .. through accounts established under a fee-based program, sponsored and maintained by a registered broker-dealer or other financial intermediary and approved by ABI; .. through a defined contribution employee benefit plan (e.g., a 401(k) plan) that has at least $10,000,000 in assets and that purchases shares directly without the involvement of a financial intermediary; and .. by investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Funds. The Funds' SAIs have more detailed information about who may purchase and hold Advisor Class shares. RETIREMENT PLANS, TAX-DEFERRED ACCOUNTS AND EMPLOYEE BENEFIT PLANS Special eligibility rules apply to these types of investments. Except as indicated, there are no investment minimums for the plans listed below. Class A shares are available to: .. Traditional and Roth IRAs (the minimums listed in the table above apply); .. SEPs, SAR-SEPs, SIMPLE IRAs, and individual 403(b) plans; .. AllianceBernstein-sponsored Coverdell Education Savings Accounts ($2,000 initial investment minimum, $150 automatic investment program monthly minimum); .. AllianceBernstein Link, AllianceBernstein Individual 401(k), and AllianceBernstein SIMPLE IRA plans; and .. certain defined contribution retirement plans that do not have plan level or omnibus accounts on the books of the Fund. Group retirement plans that selected Class B shares as an investment alternative under their plans before September 2, 2003 may continue to purchase Class B shares. Class C shares are available to AllianceBernstein Link, AllianceBernstein Individual 401(k), and AllianceBernstein SIMPLE IRA plans with less than $250,000 in plan assets and 35
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100 employees, and to group retirement plans with plan assets of less than $1,000,000. REQUIRED INFORMATION A Fund is required by law to obtain, verify, and record certain personal information from you or persons on your behalf in order to establish an account. Required information includes name, date of birth, permanent residential address and taxpayer identification number (for most investors, your social security number). A Fund may also ask to see other identifying documents. If you do not provide the information, the Fund will not be able to open your account. If a Fund is unable to verify your identity, or that of another person(s) authorized to act on your behalf, or, if the Fund believes it has identified potentially criminal activity, the Fund reserves the right to take action it deems appropriate or as required by law, which may include closing your account. If you are not a U.S. citizen or resident alien, your account must be affiliated with a Financial Industry Regulatory Authority, or FINRA, member firm. A Fund is required to withhold 28% of taxable dividends, capital gains distributions, and redemptions paid to any shareholder who has not provided the Fund with his or her correct taxpayer identification number. To avoid this, you must provide your correct tax identification number on your Mutual Fund Application. GENERAL ABI may refuse any order to purchase shares. Each Fund reserves the right to suspend the sale of its shares to the public in response to conditions in the securities markets or for other reasons. THE DIFFERENT SHARE CLASS EXPENSES This section describes the different expenses of investing in each class and explains factors to consider when choosing a class of shares. The expenses can include distribution and/or service (Rule 12b-1) fees, initial sales charges and/or CDSCs. ONLY CLASS A SHARES OFFER QUANTITY DISCOUNTS as described below. WHAT IS A RULE 12B-1 FEE? A Rule 12b-1 fee is a fee deducted from a Fund's assets that is used to pay for personal service, maintenance of shareholder accounts and distribution costs, such as advertising and compensation of financial intermediaries. The amount of each share class's Rule 12b-1 fee, if any, is disclosed below and in a Fund's fee table included in Summary Information section above. ASSET-BASED SALES CHARGES OR DISTRIBUTION AND/OR SERVICE (RULE 12B-1) FEES Each Fund has adopted a plan under Commission Rule 12b-1 that allows the Fund to pay asset-based sales charges or distribution and/or service (Rule 12b-1) fees for the distribution and sale of its shares. The amount of these fees for each class of the Fund's shares is up to: [Download Table] DISTRIBUTION AND/OR SERVICE (RULE 12B-1) FEE (AS A PERCENTAGE OF AGGREGATE AVERAGE DAILY NET ASSETS) ------------------------------------------ Class A .30% Class B 1.00% Class C 1.00% Advisor Class None Because these fees are paid out of a Fund's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales fees. Class B and Class C shares are subject to higher Rule 12b-1 fees than Class A shares. Class B shares are subject to these higher fees for a period of six years, after which they convert to Class A shares (except for ALLIANCEBERNSTEIN DIVERSIFIED YIELD Class B shares, which convert to Class A shares after eight years). Because higher fees mean a higher expense ratio, Class B and Class C shares pay correspondingly lower dividends and may have a lower NAV (and returns) than Class A shares. All or some of these fees may be paid to financial intermediaries, including your financial advisor's firm. CLASS A SHARES - INITIAL SALES CHARGE ALTERNATIVE You can purchase Class A shares at their public offering price (or cost), which is NAV plus an initial sales charge of up to 4.25% of the offering price. Any applicable sales charge will be deducted directly from your investment. Larger investments are subject to "breakpoints or quantity discounts" as discussed below. Purchases of Class A shares in the amount of $1,000,000 or more or by AllianceBernstein or non-AllianceBernstein sponsored group retirement plans are not subject to an initial sales charge, but may be subject to a 1% CDSC if redeemed or terminated within one year. 36
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CLASS B SHARES - DEFERRED SALES CHARGE ALTERNATIVE EFFECTIVE JANUARY 31, 2009, SALES OF CLASS B SHARES OF THE FUNDS TO NEW INVESTORS WERE SUSPENDED. CLASS B SHARES MAY ONLY BE PURCHASED (I) BY EXISTING CLASS B SHAREHOLDERS AS OF JANUARY 31, 2009, (II) THROUGH EXCHANGE OF CLASS B SHARES FROM ANOTHER ALLIANCEBERNSTEIN MUTUAL FUND, OR (III) AS OTHERWISE DESCRIBED BELOW. You can purchase Class B shares at NAV without an initial sales charge. This means that the full amount of your purchase is invested in the Fund. Your investment is subject to a CDSC if you redeem shares within three years (four years in the case of ALLIANCEBERNSTEIN DIVERSIFIED YIELD) of purchase. The CDSC varies depending on the number of years you hold the shares. The CDSC amounts for Class B shares are: ALLIANCEBERNSTEIN DIVERSIFIED YIELD: [Download Table] YEAR SINCE PURCHASE CDSC --------------------------- First 4.0% Second 3.0% Third 2.0% Fourth 1.0% Fifth and thereafter None ALL OTHER FUNDS: [Download Table] YEAR SINCE PURCHASE CDSC ---------------------------- First 3.0% Second 2.0% Third 1.0% Fourth and thereafter None If you exchange your shares for the Class B shares of another AllianceBernstein Mutual Fund, the CDSC also will apply to the Class B shares received. If you redeem your shares and directly invest the proceeds in units of CollegeBoundfund, the CDSC will apply to the units of CollegeBoundfund. The CDSC period begins with the date of your original purchase, not the date of exchange for the other Class B shares or purchase of CollegeBoundfund units. Class B shares purchased for cash automatically convert to Class A shares six years after the end of the month of your purchase (except for Class B shares of ALLIANCEBERNSTEIN DIVERSIFIED YIELD, which automatically convert to Class A shares eight years after the end of the month of your purchase). If you purchase shares by exchange for the Class B shares of another AllianceBernstein Mutual Fund, the conversion period runs from the date of your original purchase. CLASS C SHARES - ASSET-BASED SALES CHARGE ALTERNATIVE You can purchase Class C shares at NAV without an initial sales charge. This means that the full amount of your purchase is invested in the Fund. Your investment is subject to a 1% CDSC if you redeem your shares within 1 year. If you exchange your shares for the Class C shares of another AllianceBernstein Mutual Fund, the 1% CDSC also will apply to the Class C shares received. If you redeem your shares and directly invest the proceeds in units of CollegeBoundfund, the CDSC will apply to the units of CollegeBoundfund. The 1-year period for the CDSC begins with the date of your original purchase, not the date of the exchange for the other Class C shares or purchase of CollegeBoundfund units. Class C shares do not convert to any other class of shares of the Fund. HOW IS THE CDSC CALCULATED? The CDSC is applied to the lesser of NAV at the time of redemption or the original cost of shares being redeemed (or, as to Fund shares acquired through an exchange, the cost of the AllianceBernstein Mutual Fund shares originally purchased for cash). This means that no sales charge is assessed on increases in NAV above the initial purchase price. Shares obtained from dividend or distribution reinvestment are not subject to the CDSC. In determining the CDSC, it will be assumed that the redemption is, first, of any shares not subject to a CDSC and, second, of shares held the longest. ADVISOR CLASS SHARES - FEE-BASED PROGRAM ALTERNATIVE You may purchase Advisor Class shares through your financial advisor. Advisor Class shares are not subject to any initial or contingent sales charges, although your financial advisor may charge a fee. SALES CHARGE REDUCTION PROGRAMS THIS SECTION INCLUDES IMPORTANT INFORMATION ABOUT SALES CHARGE REDUCTION PROGRAMS AVAILABLE TO INVESTORS IN CLASS A SHARES AND DESCRIBES INFORMATION OR RECORDS YOU MAY NEED TO PROVIDE TO A FUND OR YOUR FINANCIAL INTERMEDIARY IN ORDER TO BE ELIGIBLE FOR SALES CHARGE REDUCTION PROGRAMS. Information about sales charge reduction programs also is available free of charge and in a clear and prominent format on our website at www.AllianceBernstein.com (click on "AllianceBernstein Mutual Fund Investors -US" then "Investment Insights--Investor Education" then "Sales Charge Reduction Programs"). More information on BREAKPOINTS and other sales charge waivers is available in the Funds' SAI. You Can Reduce Sales Charges When Buying Class A Shares. BREAKPOINTS OR QUANTITY DISCOUNTS OFFERED BY THE FUNDS The Funds offer investors the benefit of discounts on the sales charges that apply to purchases of Class A shares in certain circumstances. These discounts, which are also known as BREAKPOINTS, can reduce or, in some cases, eliminate the initial sales charges that would otherwise apply to your Class A investment. Mutual funds are not required to offer breakpoints and different mutual fund groups may offer different types of breakpoints. BREAKPOINTS or QUANTITY DISCOUNTS allow larger investments in Class A shares to be charged lower sales charges. A shareholder investing more than $100,000 in Class A shares of a Fund is eligible for a reduced sales charge. Initial sales charges are eliminated completely for purchases of $1,000,000 or more, although a 1%, 1-year CDSC may apply. 37
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The sales charge schedule of Class A share QUANTITY DISCOUNTS is as follows: [Download Table] INITIAL SALES CHARGE ------------------ AS % OF AS % OF NET AMOUNT OFFERING AMOUNT PURCHASED INVESTED PRICE ----------------------------------------------- Up to $100,000 4.44% 4.25% $100,000 up to $250,000 3.36 3.25 $250,000 up to $500,000 2.30 2.25 $500,000 up to $1,000,000 1.78 1.75 $1,000,000 and above 0.00 0.00 RIGHTS OF ACCUMULATION To determine if a new investment in Class A shares is eligible for a QUANTITY DISCOUNT, a shareholder can combine the value of the new investment in a Fund with the value of existing investments in the Fund, any other AllianceBernstein Mutual Fund, AllianceBernstein Institutional Funds and certain CollegeBoundfund accounts for which the shareholder, his or her spouse or domestic partner, or child under the age of 21 is the participant. The AllianceBernstein Mutual Funds use the current NAV of your existing investments when combining them with your new investment. COMBINED PURCHASE PRIVILEGES A shareholder may qualify for a QUANTITY DISCOUNT by combining purchases of shares of a Fund into a single "purchase." A "purchase" means a single purchase or concurrent purchases of shares of a Fund or any other AllianceBernstein Mutual Fund, including AllianceBernstein Institutional Funds, by: .. an individual, his or her spouse or domestic partner, or the individual's children under the age of 21 purchasing shares for his, her or their own account(s), including certain CollegeBoundfund accounts; .. a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account with one or more beneficiaries involved; .. the employee benefit plans of a single employer; or .. any company that has been in existence for at least six months or has a purpose other than the purchase of shares of the Fund. LETTER OF INTENT An investor may not immediately invest a sufficient amount to reach a QUANTITY DISCOUNT, but may plan to make one or more additional investments over a period of time that, in the end, would qualify for a QUANTITY DISCOUNT. For these situations, the Funds offer a LETTER OF INTENT, which permits the investor to express the intention, in writing, to invest at least $100,000 in Class A shares of the Fund or any AllianceBernstein Mutual Fund within 13 months. The Fund will then apply the QUANTITY DISCOUNT to each of the investor's purchases of Class A shares that would apply to the total amount stated in the LETTER OF INTENT. If an investor fails to invest the total amount stated in the LETTER OF INTENT, the Fund will retroactively collect the sales charges otherwise applicable by redeeming shares in the investor's account at their then current NAV. Investors qualifying for a Combined Purchase Privilege may purchase shares under a single LETTER OF INTENT. REQUIRED SHAREHOLDER INFORMATION AND RECORDS In order for shareholders to take advantage of sales charge reductions, a shareholder or his or her financial intermediary must notify the Fund that the shareholder qualifies for a reduction. Without notification, the Fund is unable to ensure that the reduction is applied to the shareholder's account. A shareholder may have to provide information or records to his or her financial intermediary or a Fund to verify eligibility for breakpoint privileges or other sales charge waivers. This may include information or records, including account statements, regarding shares of the Fund or other AllianceBernstein Mutual Funds held in: .. all of the shareholder's accounts at the Funds or a financial intermediary; .. any account of the shareholder at another financial intermediary; and .. accounts of related parties of the shareholder, such as members of the same family, at any financial intermediary. OTHER PROGRAMS Class A shareholders may be able to purchase additional Class A shares with a reduced or eliminated sales charge through the following AllianceBernstein programs: DIVIDEND REINVESTMENT PROGRAM, DIVIDEND DIRECTION PLAN and REINSTATEMENT PRIVILEGE as described below. CLASS A SHARES - PURCHASES NOT SUBJECT TO SALES CHARGES The Funds may sell their Class A shares at NAV without an initial sales charge to some categories of investors, including: .. AllianceBernstein Link, AllianceBernstein Individual 401(k), and AllianceBernstein SIMPLE IRA plans with at least $250,000 in plan assets or 100 employees; .. persons participating in a fee-based program, sponsored and maintained by a registered broker-dealer or other financial intermediary and approved by ABI, under which persons pay an asset-based fee for services in the nature of investment advisory or administrative services; .. plan participants who roll over amounts distributed from employer maintained retirement plans to AllianceBernstein-sponsored IRAs where the plan is a client of or serviced by AllianceBernstein's Institutional Investment Management or Bernstein Global Wealth Management Divisions, including subsequent contributions to those IRAs; or .. certain other investors, such as investment management clients of the Adviser or its affiliates, including clients and prospective clients of the Adviser's AllianceBernstein Institutional Investment Management Division, employees of selected dealers authorized to sell a Fund's shares, and employees of the Adviser. Please see the Funds' SAIs for more information about purchases of Class A shares without sales charges. 38
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CDSC WAIVERS AND OTHER PROGRAMS Here Are Some Ways To Avoid Or Minimize Charges On Redemption. CDSC WAIVERS The Funds will waive the CDSCs on redemptions of shares in the following circumstances, among others: .. permitted exchanges of shares; .. following the death or disability of a shareholder; .. if the redemption represents a minimum required distribution from an IRA or other retirement plan to a shareholder who has attained the age of 70 1/2; .. if the proceeds of the redemption are invested directly in a CollegeBoundfund account; or .. if the redemption is necessary to meet a plan participant's or beneficiary's request for a distribution or loan from a group retirement plan or to accommodate a plan participant's or beneficiary's direction to reallocate his or her plan account among other investment alternatives available under a group retirement plan. DIVIDEND REINVESTMENT PROGRAM Shareholders may elect to have all income and capital gains distributions from their account paid to them in the form of additional shares of the same class of a Fund under the Fund's Dividend Reinvestment Program. There is no initial sales charge or CDSC imposed on shares issued pursuant to the Dividend Reinvestment Program. DIVIDEND DIRECTION PLAN A shareholder who already maintains accounts in more than one AllianceBernstein Mutual Fund may direct the automatic investment of income dividends and/or capital gains by one Fund, in any amount, without the payment of any sales charges, in shares of the same class of one or more other AllianceBernstein Mutual Fund(s). AUTOMATIC INVESTMENT PROGRAM The Automatic Investment Program allows investors to purchase shares of a Fund through pre-authorized transfers of funds from the investor's bank account. Under the Automatic Investment Program, an investor may (i) make an initial purchase of at least $2,500 and invest at least $50 monthly or (ii) make an initial purchase of less than $2,500 and commit to a monthly investment of $200 or more until the investor's account balance is $2,500 or more. Shareholders who committed to monthly investments of $25 or more through the Automatic Investment Program by October 15, 2004 will be able to continue their program despite the $50 monthly minimum discussed above. As of January 31, 2009, the Automatic Investment Program is available for purchase of Class B shares only if a shareholder was enrolled in the Program prior to January 31, 2009. Please see the Funds' SAIs for more details. REINSTATEMENT PRIVILEGE A shareholder who has redeemed all or any portion of his or her Class A shares may reinvest all or any portion of the proceeds from the redemption in Class A shares of any AllianceBernstein Mutual Fund at NAV without any sales charge, if the reinvestment is made within 120 calendar days after the redemption date. SYSTEMATIC WITHDRAWAL PLAN The Funds offer a systematic withdrawal plan that permits the redemption of Class A, Class B or Class C shares without payment of a CDSC. Under this plan, redemptions equal to 1% a month, 2% every two months or 3% a quarter of the value of a Fund account would be free of a CDSC. Shares would be redeemed so that Class B shares not subject to a CDSC (such as shares acquired with reinvested dividends or distributions) would be redeemed first and Class B shares that are held the longest would be redeemed next. For Class A and Class C shares, shares held the longest would be redeemed first. THE "PROS" AND "CONS" OF DIFFERENT SHARE CLASSES The decision as to which class of shares is most beneficial to you depends on the amount you intend to invest, how long you expect to own shares, and expenses associated with owning a particular class of shares. If you are making a large investment that qualifies for a reduced sales charge, you might consider purchasing Class A shares. Class A shares, with their lower Rule 12b-1 fees, are designed for investors with a long-term investing time frame. Although investors in Class B shares do not pay an initial sales charge, Class B shares may be more costly than Class A shares before they convert to Class A shares due to their substantially higher Rule 12b-1 fees. Class B shares redeemed within three years (four years for ALLIANCEBERNSTEIN DIVERSIFIED YIELD) of purchase are also subject to a CDSC. Class B shares are designed for investors with an intermediate-term investing time frame. Class C shares should not be considered as a long-term investment because they do not convert to Class A shares and are subject to a higher distribution fee indefinitely. Class C shares do not, however, have an initial sales charge or a CDSC so long as the shares are held for one year or more. Class C shares are designed for investors with a short-term investing time frame. Your financial intermediary may receive differing compensation for selling Class A, Class B, or Class C shares. See "Payments to Financial Advisors and their Firms" below. OTHER A transaction, service, administrative or other similar fee may be charged by your broker-dealer, agent, or other financial intermediary, with respect to the purchase, sale, or exchange of Class A, Class B, Class C, or Advisor Class shares made through your financial advisor. The financial intermediaries or your fee-based program also may impose requirements on the purchase, sale, or exchange of shares that are different from, or in addition to, those imposed by the Funds, including requirements as to the minimum initial and subsequent investment amounts. 39
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YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR FOR ASSISTANCE IN CHOOSING A CLASS OF FUND SHARES. PAYMENTS TO FINANCIAL ADVISORS AND THEIR FIRMS Financial intermediaries market and sell shares of the Funds. These financial intermediaries employ financial advisors and receive compensation for selling shares of the Funds. This compensation is paid from various sources, including any sales charge, CDSC, and/or Rule 12b-1 fee that you or the Funds may pay. Your individual financial advisor may receive some or all of the amounts paid to the financial intermediary that employs him or her. WHAT IS A FINANCIAL INTERMEDIARY? A financial intermediary is a firm that receives compensation for selling shares of the Funds offered in this Prospectus and/or provides services to the Funds' shareholders. Financial intermediaries may include, among others, your broker, your financial planner or advisor, banks, and insurance companies. Financial intermediaries may employ financial advisors who deal with you and other investors on an individual basis. All or a portion of the initial sales charge that you pay may be paid by ABI to financial intermediaries selling Class A shares. ABI may also pay these financial intermediaries a fee of up to 1% on purchases of $1,000,000 or more or for AllianceBernstein Link, AllianceBernstein SIMPLE IRA plans with more than $250,000 in assets or for purchases made by certain other retirement plans. ABI may pay, at the time of your purchase, a commission to financial intermediaries selling Class B shares in an amount equal to 4% of your investment for sales of Class B shares and an amount equal to 1% of your investment for sales of Class C shares. For Class A and Class C shares, up to 100% and, for Class B shares, up to 30% of the Rule 12b-1 fees applicable to these Classes of shares each year may be paid to financial intermediaries. In the case of Advisor Class shares, your financial advisor may charge ongoing fees or transactional fees. Your financial advisor's firm receives compensation from the Funds, ABI, and/or the Adviser in several ways from various sources, which include some or all of the following: - upfront sales commissions; - Rule 12b-1 fees; - additional distribution support; - defrayal of costs for educational seminars and training; and - payments related to providing shareholder recordkeeping and/or transfer agency services. Please read the Prospectus carefully for information on this compensation. OTHER PAYMENTS FOR DISTRIBUTION SERVICES AND EDUCATIONAL SUPPORT In addition to the commissions paid to financial intermediaries at the time of sale and Rule 12b-1 fees, some or all of which may be paid to financial intermediaries (and, in turn, to your financial advisor), ABI, at its expense, currently provides additional payments to firms that sell shares of the AllianceBernstein Mutual Funds. Although the individual components may be higher and the total amount of payments made to each qualifying firm in any given year may vary, the total amount paid to a financial intermediary in connection with the sale of shares of the AllianceBernstein Mutual Funds will generally not exceed the sum of (a) 0.25% of the current year's fund sales by that firm and (b) 0.10% of average daily net assets attributable to that firm over the year. These sums include payments to reimburse directly or indirectly the costs incurred by these firms and their employees in connection with educational seminars and training efforts about the AllianceBernstein Mutual Funds for the firms' employees and/or their clients and potential clients. The costs and expenses associated with these efforts may include travel, lodging, entertainment and meals. ABI may pay a portion of "ticket" or other transactional charges. For 2011, ABI's additional payments to these firms for distribution services and educational support related to the AllianceBernstein Mutual Funds are expected to be approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds, or approximately $18.0 million. In 2010, ABI paid approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $16.5 million for distribution services and educational support related to the AllianceBernstein Mutual Funds. A number of factors are considered in determining the additional payments, including each firm's AllianceBernstein Mutual Fund sales, assets and redemption rates, and the willingness and ability of the firm to give ABI access to its financial advisors for educational and marketing purposes. In some cases, firms will include the AllianceBernstein Mutual Funds on a "preferred list." ABI's goal is to make the financial advisors who interact with current and prospective investors and shareholders more knowledgeable about the AllianceBernstein Mutual Funds so that they can provide suitable information and advice about the funds and related investor services. The Funds and ABI also make payments for recordkeeping and other transfer agency services to financial intermediaries that sell AllianceBernstein Mutual Fund shares. Please see "Management of the Funds--Transfer Agency and Retirement Plan Services" below. These expenses paid by the Funds are included in "Other Expenses" under "Fees and Expenses of the Fund--Annual Fund Operating Expenses" in the Summary Information at the beginning of the Prospectus. 40
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IF ONE MUTUAL FUND SPONSOR MAKES GREATER DISTRIBUTION ASSISTANCE PAYMENTS THAN ANOTHER YOUR FINANCIAL ADVISOR AND HIS OR HER FIRM MAY HAVE AN INCENTIVE TO RECOMMEND ONE FUND COMPLEX OVER ANOTHER. SIMILARLY IF YOUR FINANCIAL ADVISOR OR HIS OR HER FIRM RECEIVES MORE DISTRIBUTION ASSISTANCE FOR ONE SHARE CLASS VERSUS ANOTHER THEN THEY MAY HAVE AN INCENTIVE TO RECOMMEND THAT CLASS. PLEASE SPEAK WITH YOUR FINANCIAL ADVISOR TO LEARN MORE ABOUT THE TOTAL AMOUNTS PAID TO YOUR FINANCIAL ADVISOR AND HIS OR HER FIRM BY THE FUNDS, THE ADVISER, ABI, AND BY SPONSORS OF OTHER MUTUAL FUNDS HE OR SHE MAY RECOMMEND TO YOU. YOU SHOULD ALSO CONSULT DISCLOSURES MADE BY YOUR FINANCIAL ADVISOR AT THE TIME OF PURCHASE. As of the date of the Prospectus, ABI anticipates that the firms that will receive additional payments for distribution services and/or educational support include: Advisor Group, Inc. Ameriprise Financial Services AXA Advisors Bank of America Cadaret, Grant & Co. CCO Investment Services Corp. Chase Investment Services Commonwealth Financial Network Donegal Securities Financial Network Investment Company LPL Financial Corporation Merrill Lynch Morgan Stanley Smith Barney Multi-Financial Securities Corporation Northwestern Mutual Investment Services PrimeVest Financial Services Raymond James RBC Wealth Management Robert W. Baird UBS Financial Services Wells Fargo Advisors Wells Fargo Investments Although the Funds may use brokers and dealers that sell shares of the Funds to effect portfolio transactions, the Funds do not consider the sale of AllianceBernstein Mutual Fund shares as a factor when selecting brokers or dealers to effect portfolio transactions. HOW TO EXCHANGE SHARES You may exchange your Fund shares for shares of the same class of other AllianceBernstein Mutual Funds (including AllianceBernstein Exchange Reserves, a money market fund managed by the Adviser) provided that the other fund offers the same class of shares. Exchanges of shares are made at the next-determined NAV, without sales or service charges, after your order is received in proper form. All exchanges are subject to the minimum investment restrictions set forth in the prospectus for the AllianceBernstein Mutual Fund whose shares are being acquired. Your exchange of shares is priced at the next-determined NAV after your order is received in proper form. You may request an exchange by mail or telephone. In order to receive a day's NAV, ABIS must receive and confirm your telephone exchange request by 4:00 p.m., Eastern time, on that day. The Funds may modify, restrict, or terminate the exchange privilege on 60 days' written notice. HOW TO SELL OR REDEEM SHARES You may "redeem" your shares (i.e., sell your shares to a Fund) on any day the New York Stock Exchange, or Exchange, is open, either directly or through your financial intermediary. Your sale price will be the next-determined NAV, less any applicable CDSC, after the Fund receives your redemption request in proper form. Normally, redemption proceeds are sent to you within seven days. If you recently purchased your shares by check or electronic funds transfer, your redemption payment may be delayed until the Fund is reasonably satisfied that the check or electronic funds transfer has been collected (which may take up to 15 days). For Advisor Class shares, if you are in doubt about what procedures or documents are required by your fee-based program or employee benefit plan to sell your shares, you should contact your financial advisor. SELLING SHARES THROUGH YOUR BROKER OR OTHER FINANCIAL ADVISOR Your broker or financial advisor must receive your sales request by 4:00 p.m., Eastern time, and submit it to the Fund by a pre-arranged time for you to receive the next-determined NAV, less any applicable CDSC. Your broker or financial advisor is responsible for submitting all necessary documentation to the Fund and may charge you a fee for this service. SELLING SHARES DIRECTLY TO THE FUND BY MAIL: .. Send a signed letter of instruction or stock power, along with certificates, to: AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 .. For certified or overnight deliveries, send to: AllianceBernstein Investor Services, Inc. 8000 IH 10 W, 4th floor San Antonio, TX 78230 .. For your protection, a bank, a member firm of a national stock exchange or another eligible guarantor institution must guarantee signatures. Stock power forms are available from your financial intermediary, ABIS, and many commercial banks. Additional documentation is required for the sale of shares by corporations, intermediaries, fiduciaries, and surviving joint owners. If you have any questions about these procedures, contact ABIS. 41
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BY TELEPHONE: .. You may redeem your shares for which no stock certificates have been issued by telephone request. Call ABIS at 800-221-5672 with instructions on how you wish to receive your sale proceeds. .. ABIS must receive and confirm a telephone redemption request by 4:00 p.m., Eastern time, for you to receive that day's NAV, less any applicable CDSC. .. For your protection, ABIS will request personal or other information from you to verify your identity and will generally record the calls. Neither the Fund nor the Adviser, ABIS, ABI or other Fund agent will be liable for any loss, injury, damage or expense as a result of acting upon telephone instructions purporting to be on your behalf that ABIS reasonably believes to be genuine. .. If you have selected electronic funds transfer in your Mutual Fund Application, the redemption proceeds will be sent directly to your bank. Otherwise, the proceeds will be mailed to you. .. Redemption requests by electronic funds transfer or check may not exceed $100,000 per Fund account per day. .. Telephone redemption is not available for shares held in nominee or "street name" accounts, retirement plan accounts, or shares held by a shareholder who has changed his or her address of record within the previous 30 calendar days. FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES Each Fund's Board has adopted policies and procedures designed to detect and deter frequent purchases and redemptions of Fund shares or excessive or short-term trading that may disadvantage long-term Fund shareholders. These policies are described below. There is no guarantee that the Funds will be able to detect excessive or short-term trading and to identify shareholders engaged in such practices, particularly with respect to transactions in omnibus accounts. Shareholders should be aware that application of these policies may have adverse consequences, as described below, and avoid frequent trading in Fund shares through purchases, sales and exchanges of shares. Each Fund reserves the right to restrict, reject, or cancel, without any prior notice, any purchase or exchange order for any reason, including any purchase or exchange order accepted by any shareholder's financial intermediary. RISKS ASSOCIATED WITH EXCESSIVE OR SHORT-TERM TRADING GENERALLY. While the Funds will try to prevent market timing by utilizing the procedures described below, these procedures may not be successful in identifying or stopping excessive or short-term trading in all circumstances. By realizing profits through short-term trading, shareholders that engage in rapid purchases and sales or exchanges of a Fund's shares dilute the value of shares held by long-term shareholders. Volatility resulting from excessive purchases and sales or exchanges of Fund shares, especially involving large dollar amounts, may disrupt efficient portfolio management and cause a Fund to sell shares at inopportune times to accommodate redemptions relating to short-term trading. In particular, a Fund may have difficulty implementing its long-term investment strategies if it is forced to maintain a higher level of its assets in cash to accommodate significant short-term trading activity. In addition, a Fund may incur increased administrative and other expenses due to excessive or short-term trading, including increased brokerage costs and realization of taxable capital gains. Funds that may invest significantly in foreign securities may be particularly susceptible to short-term trading strategies. This is because foreign securities are typically traded on markets that close well before the time a Fund calculates its NAV at 4:00 p.m., Eastern time, which gives rise to the possibility that developments may have occurred in the interim that would affect the value of these securities. The time zone differences among international stock markets can allow a shareholder engaging in a short-term trading strategy to exploit differences in Fund share prices that are based on closing prices of foreign securities established some time before the Fund calculates its own share price (referred to as "time zone arbitrage"). The Funds have procedures, referred to as fair value pricing, designed to adjust closing market prices of foreign securities to reflect what is believed to be the fair value of those securities at the time a Fund calculates its NAV. While there is no assurance, the Funds expect that the use of fair value pricing, in addition to the short-term trading policies discussed below, will significantly reduce a shareholder's ability to engage in time zone arbitrage to the detriment of other Fund shareholders. A shareholder engaging in a short-term trading strategy may also target a Fund that does not invest primarily in foreign securities. Any Fund that invests in securities that are, among other things, thinly traded, traded infrequently or relatively illiquid has the risk that the current market price for the securities may not accurately reflect current market values. A shareholder may seek to engage in short-term trading to take advantage of these pricing differences (referred to as "price arbitrage"). All Funds may be adversely affected by price arbitrage. POLICY REGARDING SHORT-TERM TRADING. Purchases and exchanges of shares of the Funds should be made for investment purposes only. The Funds will seek to prevent patterns of excessive purchases and sales of Fund shares to the extent they are detected by the procedures described below. The Funds reserve the right to modify this policy, including any surveillance or account blocking procedures established from time to time to effectuate this policy, at any time without notice. .. TRANSACTION SURVEILLANCE PROCEDURES. The Funds, through their agents, ABI and ABIS, maintain surveillance procedures to detect excessive or short-term trading in Fund shares. This surveillance process involves several factors, which include scrutinizing transactions in Fund shares that exceed certain monetary thresholds or numerical limits within a specified period of time. Generally, more than two exchanges of Fund shares during any 90-day period or purchases of shares followed by a sale within 90 days will be 42
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identified by these surveillance procedures. For purposes of these transaction surveillance procedures, the Funds may consider trading activity in multiple accounts under common ownership, control, or influence. Trading activity identified by either, or a combination, of these factors, or as a result of any other information available at the time, will be evaluated to determine whether such activity might constitute excessive or short-term trading. These surveillance procedures may be modified from time to time, as necessary or appropriate to improve the detection of excessive or short-term trading or to address specific circumstances. .. ACCOUNT BLOCKING PROCEDURES. If the Funds determine, in their sole discretion, that a particular transaction or pattern of transactions identified by the transaction surveillance procedures described above is excessive or short-term trading in nature, the relevant Fund account(s) will be immediately "blocked" and no future purchase or exchange activity will be permitted. However, sales of Fund shares back to a Fund or redemptions will continue to be permitted in accordance with the terms of the Fund's current Prospectus. As a result, unless the shareholder redeems his or her shares, which may have consequences if the shares have declined in value, a CDSC is applicable or adverse tax consequences may result, the shareholder may be "locked" into an unsuitable investment. In the event an account is blocked, certain account-related privileges, such as the ability to place purchase, sale and exchange orders over the internet or by phone, may also be suspended. A blocked account will generally remain blocked unless and until the account holder or the associated broker, dealer or other financial intermediary provides evidence or assurance acceptable to the Fund that the account holder did not or will not in the future engage in excessive or short-term trading. .. APPLICATIONS OF SURVEILLANCE PROCEDURES AND RESTRICTIONS TO OMNIBUS ACCOUNTS. Omnibus account arrangements are common forms of holding shares of the Funds, particularly among certain brokers, dealers and other financial intermediaries, including sponsors of retirement plans and variable insurance products. The Funds apply their surveillance procedures to these omnibus account arrangements. As required by Commission rules, the Funds have entered into agreements with all of their financial intermediaries that require the financial intermediaries to provide the Funds, upon the request of the Funds or their agents, with individual account level information about their transactions. If the Funds detect excessive trading through their monitoring of omnibus accounts, including trading at the individual account level, the financial intermediaries will also execute instructions from the Funds to take actions to curtail the activity, which may include applying blocks to accounts to prohibit future purchases and exchanges of Fund shares. For certain retirement plan accounts, the Funds may request that the retirement plan or other intermediary revoke the relevant participant's privilege to effect transactions in Fund shares via the internet or telephone, in which case the relevant participant must submit future transaction orders via the U.S. Postal Service (i.e., regular mail). HOW THE FUNDS VALUE THEIR SHARES Each Fund's NAV is calculated at the close of regular trading on the Exchange (ordinarily, 4:00 p.m., Eastern time), only on days when the Exchange is open for business. To calculate NAV, a Fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. If a Fund invests in securities that are primarily traded on foreign exchanges that trade on weekends or other days when the Fund does not price its shares, the NAV of the Fund's shares may change on days when shareholders will not be able to purchase or redeem their shares in the Fund. The Funds value their securities at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of each Fund's Board. When a Fund uses fair value pricing, it may take into account any factors it deems appropriate. A Fund may determine fair value based upon developments related to a specific security, current valuations of foreign stock indices (as reflected in U.S. futures markets) and/or U.S. sector or broader stock market indices. The prices of securities used by the Fund to calculate its NAV may differ from quoted or published prices for the same securities. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security is materially different than the value that could be realized upon the sale of that security. Funds expect to use fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the early closing of the exchange on which a security is traded or suspension of trading in the security. Funds may use fair value pricing more frequently for securities primarily traded in non-U.S. markets because, among other things, most foreign markets close well before a Fund values its securities at 4:00 p.m., Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. For example, the Funds believe that foreign security values may be affected by events that occur after the close of foreign securities markets. To account for this, the Funds may frequently value many of their foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. Subject to its oversight, each Fund's Board has delegated responsibility for valuing a Fund's assets to the Adviser. The Adviser has established a Valuation Committee, which operates under the policies and procedures approved by the Board, to value the Fund's assets on behalf of the Fund. The Valuation Committee values Fund assets as described above. 43
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MANAGEMENT OF THE FUNDS -------------------------------------------------------------------------------- INVESTMENT ADVISER Each Fund's adviser is AllianceBernstein L.P., 1345 Avenue of the Americas, New York, New York 10105. The Adviser is a leading international investment adviser supervising client accounts with assets as of September 30, 2010, totaling approximately $484 billion (of which more than $81 billion represented assets of investment companies). As of September 30, 2010, the Adviser managed retirement assets for many of the largest public and private employee benefit plans (including 33 of the nation's FORTUNE 100 companies), for public employee retirement funds in 38 states, for investment companies, and for foundations, endowments, banks and insurance companies worldwide. Currently, the 35 registered investment companies managed by the Adviser, comprising 115 separate investment portfolios, have approximately 3.2 million accounts. The Adviser provides investment advisory services and order placement facilities for each of the Funds. For these advisory services, each Fund paid the Adviser during its most recent fiscal year a management fee as a percentage of average daily net assets as follows: [Download Table] FEE AS A PERCENTAGE OF AVERAGE DAILY NET FISCAL YEAR FUND ASSETS ENDED ----------------------------------------------------------------------- AllianceBernstein Short Duration .45% 9/30/10 AllianceBernstein Intermediate Bond .25%* 10/31/10 AllianceBernstein Global Bond .45%* 9/30/10 AllianceBernstein Diversified Yield .00%* 10/31/10 AllianceBernstein High Income .45%* 10/31/10 *Fee stated net of any waivers and/or reimbursements. See "Fees and Expenses of the Fund" in the Summary Information at the beginning of the Prospectus for more information about fee waivers. A discussion regarding the basis for the Board's approval of each Fund's investment advisory agreement is available in the Fund's semi-annual report to shareholders. The Adviser may act as an investment adviser to other persons, firms, or corporations, including investment companies, hedge funds, pension funds, and other institutional investors. The Adviser may receive management fees, including performance fees, that may be higher or lower than the advisory fees it receives from the Funds. Certain other clients of the Adviser may have investment objectives and policies similar to those of a Fund. The Adviser may, from time to time, make recommendations that result in the purchase or sale of a particular security by its other clients simultaneously with a Fund. If transactions on behalf of more than one client during the same period increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price or quantity. It is the policy of the Adviser to allocate advisory recommendations and the placing of orders in a manner that is deemed equitable by the Adviser to the accounts involved, including a Fund. When two or more of the clients of the Adviser (including a Fund) are purchasing or selling the same security on a given day from the same broker-dealer, such transactions may be averaged as to price. PORTFOLIO MANAGERS The management of, and investment decisions for, the Funds' portfolios are made by certain Investment Policy Teams. Each Investment Policy Team relies heavily on the fundamental analysis and research of the Adviser's large internal research staff. No one person is principally responsible for coordinating each Fund's investments. The following table lists the Investment Policy Teams, the person within each Investment Policy Team with the most significant responsibility for day-to-day management of each Fund's portfolio, the length of time that each person has been jointly and primarily responsible for the Fund, and each person's principal occupation during the past five years: [Enlarge/Download Table] PRINCIPAL OCCUPATION(S) FUND AND RESPONSIBLE TEAM EMPLOYEE; YEAR; TITLE DURING THE PAST FIVE (5) YEARS -------------------------------------------------------------------------------------------------------------- AllianceBernstein Short Jon P. Denfeld; since Vice President of the Adviser, with which he has been Duration Portfolio 2008; Vice President of associated in a substantially similar capacity to his U.S. Investment Grade: the Adviser current position since May 2008. Prior thereto, he was Liquid Markets/Structured a Senior U.S. Portfolio Manager for UBS Global Asset Products Investment Team Management from 2006 to 2007. Prior thereto, he served as a Portfolio Manager for Shay Asset Management since prior to 2006. Shawn E. Keegan; since Vice President of the Adviser, with which he has been 2005; Vice President of associated in a substantially similar capacity to his the Adviser current position since prior to 2006. Alison M. Martier; since Senior Vice President of the Adviser, with which she 2009; Senior Vice has been associated in a substantially similar capacity President of the Adviser to her current position since prior to 2006. and Director of the Fixed Income Senior Portfolio Management Team Douglas J. Peebles; Senior Vice President of the Adviser, with which he has since 2009; Senior Vice been associated in a substantially similar capacity to his President of the current position since prior to 2006. Adviser, and Chief Investment Officer and Head of Fixed Income Greg J. Wilensky; since Senior Vice President of the Adviser, with which he has 2009; Senior Vice been associated in a substantially similar capacity to his President of the Adviser current position since prior to 2006. and Director of Stable Value Investments 44
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[Enlarge/Download Table] PRINCIPAL OCCUPATION(S) FUND AND RESPONSIBLE TEAM EMPLOYEE; YEAR; TITLE DURING THE PAST FIVE (5) YEARS ----------------------------------------------------------------------------------------------------------- AllianceBernstein Paul J. DeNoon; since Senior Vice President of the Adviser, with which he has Intermediate Bond 2009; Senior Vice been associated in a substantially similar capacity to Portfolio President of the Adviser his current position since prior to 2006. U.S. Investment Grade and Director of Emerging Core Fixed Income Team Market Debt Shawn E. Keegan; since (see above) 2005; (see above) Alison M. Martier; since (see above) 2005; (see above) Douglas J. Peebles; (see above) since 2007; (see above) Greg J. Wilensky; since (see above) 2005; (see above) AllianceBernstein Global Paul J. DeNoon; since (see above) Bond Fund 2002; (see above) Global Fixed Income Investment Team Scott DiMaggio; since Senior Vice President of the Adviser, with which he has 2005; Senior Vice been associated in a substantially similar capacity to President of the Adviser his current position since prior to 2006. and Director of Canada Fixed Income Michael L. Mon; since Vice President of the Adviser, with which he has been 2003; Vice President of associated in a substantially similar capacity to his the Adviser current position since prior to 2006. Douglas J. Peebles; (see above) since 1992; (see above) Matthew S. Sheridan; Vice President of the Adviser, with which he has been since 2007; Vice associated in a substantially similar capacity to his President of the Adviser current position since prior to 2006. AllianceBernstein Paul J. DeNoon; since (see above) Diversified Yield Fund 2005; (see above) Global Fixed Income Investment Team and Global Credit Investment Team Joran Laird; since 2009; Vice President of the Adviser, with which he has been Vice President of the associated in a substantially similar capacity to his Adviser current position since prior to 2006. Douglas J. Peebles; (see above) since 1996; (see above) Matthew S. Sheridan; (see above) since 2006; (see above) Greg J. Wilensky; since (see above) 2008; (see above) AllianceBernstein High Paul J. DeNoon; since (see above) Income Fund 2002; (see above) Global Fixed Income Team and Global Credit Investment Team Gershon M. Distenfeld; Senior Vice President of the Adviser, with which he has since 2008; Senior Vice been associated in a substantially similar capacity to President of the Adviser his current position since prior to 2006. Douglas J. Peebles; (see above) since 2002; (see above) Marco Santamaria; since Vice President of the Adviser, with which he has been 2010; Vice President of associated in a substantially similar capacity to his the Adviser current position since June 2010. Prior thereto, he was a founding partner at Global Securities Advisors, an emerging-market-oriented fixed-income hedge fund since prior to 2006. Matthew S. Sheridan; (see above) since 2005; (see above) Additional information about the portfolio managers may be found in the Funds' SAIs. 45
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PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO The investment teams employed by the Adviser to manage ALLIANCEBERNSTEIN HIGH INCOME FUND and ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO have substantial experience in managing discretionary accounts of institutional clients, pooled investment vehicles and/or other registered investment companies and portions thereof (the "Historical Accounts") that have substantially the same investment objectives and policies and are managed in accordance with essentially the same investment strategies as the Funds. The Historical Accounts that are not registered investment companies are not subject to certain limitations, diversification requirements and other restrictions imposed under the 1940 Act and the Internal Revenue Code (the "Code") to which the Funds, as registered investment companies, are subject and which, if applicable to the Historical Accounts, may have adversely affected the performance of the Historical Accounts. With respect to ALLIANCEBERNSTEIN HIGH INCOME FUND, the Historical Accounts' performance information is representative solely of the performance of a pooled investment vehicle that is not offered for sale in the United States. Set forth below is performance data provided by the Adviser relating to the Historical Accounts managed by the investment team that manages each Fund's assets. Performance data is shown for the period during which the investment team of the Adviser managed the Historical Accounts through December 31, 2010. The aggregate assets for the Historical Accounts managed by the High Income investment team and the Intermediate Bond investment team as of September 30, 2010 were approximately $26.6 billion and $15.6 billion, respectively. The investment teams' Historical Accounts have a nearly identical composition of representative investment holdings and related percentage weightings. The performance data is net of all fees (including any portfolio transaction costs) charged to the Historical Accounts, calculated on a monthly basis. The highest fee payable for the Historical Accounts is 2.04% of assets for ALLIANCEBERNSTEIN HIGH INCOME FUND and .91% of assets for ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO, annually. Net-of-fee performance figures reflect the compounding effect of such fees. The data has not been adjusted to reflect any fees that will be payable by the Funds, which may be higher than the fees imposed on the Historical Accounts, and will reduce the returns of the Funds. Expenses associated with the distribution of Class A, Class B and Class C shares of the Funds in accordance with the plans adopted by the Boards of the Funds under Commission Rule 12b-1 are also excluded. Except as noted, the performance data has also not been adjusted for corporate or individual taxes, if any, payable by account owners. The Adviser has calculated the investment performance of the Historical Accounts on a trade-date basis. Income has been accrued daily and cash flows weighted daily. Composite investment performance for the Funds has been determined on an asset weighted basis. New accounts are included in the composite investment performance computations at the beginning of the quarter following the initial contribution. The total returns set forth below are calculated using a method that links the monthly return amounts for the disclosed periods, resulting in a time-weighted rate of return. Other methods of computing the investment performance of the Historical Accounts may produce different results, and the results for different periods may vary. A composite benchmark, comprised of the JPMorgan Emerging Markets Bond Index Global ("EMBI Global"), the JPMorgan Government Bond Index-Emerging Markets ("GBI-EM") and the Barclays Capital High Yield Index (2% Constrained) ("BC High Yield") on an equal weighted basis (the "High Income Composite Benchmark") is used by ALLIANCEBERNSTEIN HIGH INCOME FUND and its Historical Account, for purposes of this example, as a benchmark to measure its relative performance. EMBI Global tracks total returns for traded external debt instruments in the emerging markets, GBI-EM tracks total returns for local currency government bonds issued by emerging markets, and BC High Yield tracks the U.S. Dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. The Barclays Capital Aggregate Index ("BC Aggregate Index") is used by ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO as a benchmark to measure its relative performance and is composed of securities from Barclays Capital Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. The index's total return consists of price appreciation/depreciation plus income as a percentage of the original investment. Indices are rebalanced monthly by market capitalization. To the extent the investment teams utilize investment techniques such as swaps, futures or options, the performance of the High Income Composite Benchmark and the BC Aggregate Index may not be substantially comparable to the performance of the investment teams' Historical Accounts. The High Income Composite Benchmark and the BC Aggregate Index do not reflect the deduction of any fees or expenses associated with the active management of a mutual fund. The performance data below is provided solely to illustrate the investment teams' performance in managing the Historical Accounts as measured against a broad based market index. The performance of the Funds will be affected by the performance of the investment team managing the Funds' assets. If the investment team were to perform relatively poorly, the performance of the Funds would suffer. Investors should not rely on the performance data of the Historical Accounts as an indication of future performance of the Funds. The investment performance for the periods presented may not be indicative of future rates of return. The performance was not calculated pursuant to the methodology established by the Commission that will be used to calculate the Funds' performance. The use of methodology different from that used to calculate performance could result in different performance data. 46
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SCHEDULE OF HISTORICAL PERFORMANCE - HISTORICAL ACCOUNTS* [Enlarge/Download Table] HIGH INCOME HIGH INCOME HISTORICAL ACCOUNT COMPOSITE BC HIGH TOTAL RETURN** BENCHMARK EMBI GLOBAL*** GBI-EM YIELD INDEX*** -------------------------------------------------------------------------------------------------- Year Ended December 31: 2010 15.62% 14.01% 12.04% 13.08% 14.94% 2009 60.62% 33.73% 28.18% 16.56% 58.76% 2008 -32.27% -14.79% -10.91% -6.93% -25.88% 2007 5.91% 8.19% 6.28% 16.28% 2.26% 2006 12.56% 10.97% 9.88% 11.96% 10.76% 2005 7.99% 5.46% 10.73% 2.87% 2.76% 2004 11.11% 15.36% 11.73% 23.12% 11.14% 2003 36.36% 24.06% 25.66% 17.79% 28.78% 2002 5.26% 13.66% 13.11% 29.11% -.24% 2001 -10.44% N/A 1.36% N/A 5.46% 2000 -4.25% N/A 14.41% N/A -5.79% 1999 18.76% N/A 24.18% N/A 2.39% 1998 -15.60% N/A -11.54% N/A 1.87% Cumulative total return for the period September 22, 1997 (inception of Historical Account) to December 31, 2010 121.73% N/A 234.63%*** N/A 132.90%*** -------------------------------------------------------------------------------------------------- * Total return is a measure of investment performance that is based upon the change in value of an investment from the beginning to the end of a specified period and assumes reinvestment of all dividends and other distributions. The basis of presentation of this data is described in the preceding discussion. ** Net of all fees. ***Net inception cumulative index returns are from December 31, 1997. [Enlarge/Download Table] INTERMEDIATE BOND BC U.S. HISTORICAL ACCOUNTS AGGREGATE TOTAL RETURN** INDEX --------------------------------------------------------------------------------------------------------- Year Ended December 31: 2010 9.45% 6.54% 2009 18.77% 5.93% 2008 -5.41% 5.24% 2007 5.60% 6.97% 2006 5.26% 4.33% 2005 3.22% 2.43% 2004 5.48% 4.34% 2003 8.45% 4.10% 2002 7.93% 10.26% Cumulative total return for the period June 30, 2001 (inception of Historical Accounts) to December 31, 2010 81.89% 70.18% --------------------------------------------------------------------------------------------------------- * Total return is a measure of investment performance that is based upon the change in value of an investment from the beginning to the end of a specified period and assumes reinvestment of all dividends and other distributions. The basis of presentation of this data is described in the preceding discussion. ** Net of all fees. AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2010 [Download Table] SINCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION -------------------------------------------------------------------------- High Income Historical Account 15.62% 7.94% 8.44% 8.75% 6.18%* High Income Composite Benchmark 14.01% 9.12% 9.30% N/A N/A EMBI Global 12.04% 8.56% 8.36% 10.29% 9.74%** GBI-EM 13.08% 7.06% 9.82% N/A N/A BC High Yield 14.94% 10.59% 8.91% 9.01% 6.72%** -------------------------------------------------------------------------- * Inception date of Historical Account is September 22, 1997. **Since inception average annual total returns are from December 31, 1997. 47
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[Download Table] SINCE 1 YEAR 3 YEARS 5 YEARS INCEPTION ----------------------------------------------------------------------- Intermediate Bond Historical Accounts 9.45% 7.13% 6.45% 6.50%* BC U.S. Aggregate Index 6.54% 5.90% 5.80% 5.76%* ----------------------------------------------------------------------- * Inception date of Historical Accounts is June 30, 2001. TRANSFER AGENCY AND RETIREMENT PLAN SERVICES ABIS acts as the transfer agent for the Funds. ABIS, an indirect wholly-owned subsidiary of the Adviser, registers the transfer, issuance, and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. Many Fund shares are owned by financial intermediaries for the benefit of their customers. Retirement plans may also hold Fund shares in the name of the plan, rather than the participant. In those cases, the Funds often do not maintain an account for you. Thus, some or all of the transfer agency functions for these and certain other accounts are performed by the financial intermediaries and plan recordkeepers. The Funds, ABI and/or the Adviser pay to these financial intermediaries and recordkeepers, including those that sell shares of the AllianceBernstein Mutual Funds, fees for sub-transfer agency and recordkeeping services in amounts ranging up to $19 per customer fund account per annum and/or up to 0.25% per annum of the average daily assets held through the intermediary. To the extent any of these payments for recordkeeping services or transfer agency services are made by the Funds, they are included in the amount appearing opposite the caption "Other Expenses" found in the Fund expense tables under "Fees and Expenses of the Fund" in the Summary Information at the beginning of the Prospectus. In addition, financial intermediaries may be affiliates of entities that receive compensation from the Adviser or ABI for maintaining retirement plan "platforms" that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans. Because financial intermediaries and plan recordkeepers may be paid varying amounts per class for sub-transfer agency and recordkeeping services, the service requirements of which may also vary by class, this may create an additional incentive for financial intermediaries and their financial advisors to favor one fund complex over another or one class of shares over another. 48
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DIVIDENDS, DISTRIBUTIONS AND TAXES -------------------------------------------------------------------------------- Each Fund's income dividends and capital gains distributions, if any, declared by a Fund on its outstanding shares will, at the election of each shareholder, be paid in cash or in additional shares of the same class of shares of that Fund. If paid in additional shares, the shares will have an aggregate NAV as of the close of business on the declaration date of the dividend or distribution equal to the cash amount of the dividend or distribution. You may make an election to receive dividends and distributions in cash or in shares at the time you purchase shares. Your election can be changed at any time prior to a record date for a dividend. There is no sales or other charge in connection with the reinvestment of dividends or capital gains distributions. Cash dividends may be paid by check, or, at your election, electronically via the ACH network. If you receive an income dividend or capital gains distribution in cash you may, within 120 days following the date of its payment, reinvest the dividend or distribution in additional shares of that Fund without charge by returning to the Adviser, with appropriate instructions, the check representing the dividend or distribution. Thereafter, unless you otherwise specify, you will be deemed to have elected to reinvest all subsequent dividends and distributions in shares of that Fund. While it is the intention of each Fund to distribute to its shareholders substantially all of each fiscal year's net income and net realized capital gains, if any, the amount and timing of any dividend or distribution will depend on the realization by the Fund of income and capital gains from investments. There is no fixed dividend rate and there can be no assurance that a Fund will pay any dividends or realize any capital gains. The final determination of the amount of a Fund's return of capital distributions for the period will be made after the end of each calendar year. You will normally have to pay federal income tax, and any state or local income taxes, on the distributions you receive from a Fund, whether you take the distributions in cash or reinvest them in additional shares. Distributions of net capital gains from the sale of investments that a Fund owned for more than one year and that are properly designated as capital gain dividends are taxable as long-term capital gains. For taxable years beginning on or before December 31, 2012, distributions of dividends to a Fund's non-corporate shareholders may be treated as "qualified dividend income," which is taxed at reduced rates, if such distributions are derived from, and designated by a Fund as, "qualified dividend income" and provided that holding period and other requirements are met by both the shareholder and the Fund. "Qualified dividend income" generally is income derived from dividends from U.S. corporations and "qualified foreign corporations." Other distributions by a Fund are generally taxable to you as ordinary income. Dividends declared in October, November, or December and paid in January of the following year are taxable as if they had been paid the previous December. A Fund will notify you as to how much of the Fund's distributions, if any, qualify for these reduced tax rates. Investment income received by a Fund from sources within foreign countries may be subject to foreign income taxes withheld at the source. To the extent that any Fund is liable for foreign income taxes withheld at the source, the Fund intends, if possible, to operate so as to meet the requirements of the Code to "pass through" to the Fund's shareholders credits for foreign income taxes paid (or to permit shareholders to claim a deduction for such foreign taxes), but there can be no assurance that any Fund will be able to do so, and Funds that invest primarily in U.S. securities will not do so. Furthermore, a shareholder's ability to claim a foreign tax credit or deduction for foreign taxes paid by a Fund may be subject to certain limitations imposed by the Code, as a result of which a shareholder may not be permitted to claim a credit or deduction for all or a portion of the amount of such taxes. Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations in currency exchange rates) after paying a dividend, all or a portion of the dividend may subsequently be characterized as a return of capital. Returns of capital are generally nontaxable, but will reduce a shareholder's basis in shares of the Fund. If that basis is reduced to zero (which could happen if the shareholder does not reinvest distributions and returns of capital are significant), any further returns of capital will be taxable as a capital gain. If you buy shares just before a Fund deducts a distribution from its NAV, you will pay the full price for the shares and then receive a portion of the price back as a taxable distribution. The sale or exchange of Fund shares is a taxable transaction for federal income tax purposes. Each year shortly after December 31, each Fund will send you tax information stating the amount and type of all its distributions for the year. You are encouraged to consult your tax adviser about the federal, state, and local tax consequences in your particular circumstances, as well as about any possible foreign tax consequences. NON-U.S. SHAREHOLDERS If you are a nonresident alien individual or a foreign corporation for federal income tax purposes, please see the Funds' SAIs for information on how you will be taxed as a result of holding shares in the Funds. 49
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GENERAL INFORMATION -------------------------------------------------------------------------------- Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by federal securities law. The Funds reserve the right to close an account that has remained below $1,000 for 90 days. During drastic economic or market developments, you might have difficulty in reaching ABIS by telephone, in which event you should issue written instructions to ABIS. ABIS is not responsible for the authenticity of telephone requests to purchase, sell, or exchange shares. ABIS will employ reasonable procedures to verify that telephone requests are genuine, and could be liable for losses resulting from unauthorized transactions if it failed to do so. Dealers and agents may charge a commission for handling telephone requests. The telephone service may be suspended or terminated at any time without notice. Shareholder Services. ABIS offers a variety of shareholder services. For more information about these services or your account, call ABIS's toll-free number, 800-221-5672. Some services are described in the Mutual Fund Application. Householding. Many shareholders of the AllianceBernstein Mutual Funds have family members living in the same home who also own shares of the same Funds. In order to reduce the amount of duplicative mail that is sent to homes with more than one Fund account and to reduce expenses of the Funds, all AllianceBernstein Mutual Funds will, until notified otherwise, send only one copy of each prospectus, shareholder report and proxy statement to each household address. This process, known as "householding", does not apply to account statements, confirmations, or personal tax information. If you do not wish to participate in householding, or wish to discontinue householding at any time, call ABIS at 800-221-5672. We will resume separate mailings for your account within 30 days of your request. 50
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GLOSSARY OF INVESTMENT TERMS -------------------------------------------------------------------------------- BONDS are interest-bearing or discounted government or corporate securities that obligate the issuer to pay the bond holder a specified sum of money, usually at specified intervals, and to repay the principal amount of the loan at maturity. FIXED-INCOME SECURITIES are investments, such as bonds, that pay a fixed rate of return. NON-U.S. COMPANY or NON-U.S. ISSUER is an entity that (i) is organized under the laws of a foreign country and conducts business in a foreign country, (ii) derives 50% or more of its total revenues from business in foreign countries, or (iii) issues equity or debt securities that are traded principally on a stock exchange in a foreign country. SOVEREIGN DEBT OBLIGATIONS are foreign government debt securities, loan participations between foreign governments and financial institutions, and interests in entities organized and operated for the purpose of restructuring the investment characteristics of foreign government securities. SUPRANATIONAL ENTITIES are international organizations formed by two or more governments. Examples of supranational entities include the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the International Finance Corporation and the European Bank for Reconstruction and Development. U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including obligations that are issued by private issuers that are guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities, or by certain government-sponsored entities (entities chartered by or sponsored by Act of Congress). These securities include securities backed by the full faith and credit of the United States, those supported by the right of the issuer to borrow from the U.S. Treasury, and those backed only by the credit of the issuing agency or entity itself. The first category includes U.S. Treasury securities (which are U.S. Treasury bills, notes, and bonds) and certificates issued by GNMA. U.S. Government securities not backed by the full faith and credit of the United States or a right to borrow from the U.S. Treasury include certificates issued by FNMA and FHLMC. THE BOFA MERRILL LYNCH 3-MONTH T-BILL INDEX is an unmanaged index that measures returns of three-month Treasury Bills. THE BOFA MERRILL LYNCH 1-3 YEAR TREASURY INDEX is an unmanaged index consisting of all public U.S. Treasury obligations having maturities from 1 to 2.99 years and reflects total return. This unmanaged index does not reflect fees and expenses and is not available for direct investment. THE BARCLAYS CAPITAL U.S. AGGREGATE INDEX is a broad-based bond index comprised of government, corporate, mortgage and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. THE BARCLAYS CAPITAL GLOBAL AGGREGATE INDEX is a macro index of global government and corporate bond markets, and is composed of various indices calculated by Barclays Capital, including the U.S. Aggregate Index, the Pan-European Aggregate Index, the Global Treasury Index, the Asian-Pacific Aggregate Index, the Eurodollar Index and the U.S. Investment-Grade 144A Index. THE BARCLAYS CAPITAL HIGH YIELD INDEX is an unmanaged index generally representative of corporate bonds rated below investment grade. THE JPMORGAN EMERGING MARKETS BOND INDEX GLOBAL is a broad-based, unmanaged index which tracks total return for external currency denominated debt in emerging markets. THE JPMORGAN GOVERNMENT BOND INDEX-EMERGING MARKETS is a definitive local emerging markets debt benchmark that tracks local currency government bonds issued by emerging markets. 51
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FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand each Fund's financial performance for the past five years. Certain information reflects financial results for a single share of a class of each Fund. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by Ernst & Young, LLP, the independent registered public accounting firm for all Funds, except ALLIANCEBERNSTEIN SHORT DURATION PORTFOLIO, whose independent registered public accounting firm is PricewaterhouseCoopers LLP, whose reports, along with each Fund's financial statements, are included in each Fund's Annual Report, which is available upon request. 52
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[Enlarge/Download Table] INCOME FROM INVESTMENT OPERATIONS LESS: DIVIDENDS AND DISTRIBUTIONS -------------------------------------- -------------------------------------- NET INCREASE NET ASSET NET REALIZED (DECREASE) DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED IN NET ASSET FROM NET FROM NET TOTAL DIVI- FISCAL YEAR OR BEGINNING INVESTMENT GAIN (LOSS) ON VALUE FROM INVESTMENT REALIZED GAIN DENDS AND PERIOD OF PERIOD INCOME (a) INVESTMENTS OPERATIONS INCOME ON INVESTMENTS DISTRIBUTIONS ----------------------------------------------------------------------------------------------------------------- SHORT DURATION CLASS A Year Ended 9/30/10 $11.65 $.16 $ .30 $ .46 $(.19) $0.00 $(.19) Year Ended 9/30/09 11.46 .31 .21 .52 (.33) 0.00 (.33) Year Ended 9/30/08 12.24 .43 (.77) (.34) (.44) 0.00 (.44) Year Ended 9/30/07 12.31 .51 (.05) .46 (.53) 0.00 (.53) Year Ended 9/30/06 12.39 .45 (.06) .39 (.47) 0.00 (.47) CLASS B Year Ended 9/30/10 $11.64 $.08 $ .30 $ .38 $(.10) $0.00 $(.10) Year Ended 9/30/09 11.45 .23 .20 .43 (.24) 0.00 (.24) Year Ended 9/30/08 12.24 .34 (.77) (.43) (.36) 0.00 (.36) Year Ended 9/30/07 12.31 .43 (.06) .37 (.44) 0.00 (.44) Year Ended 9/30/06 12.39 .36 (.05) .31 (.39) 0.00 (.39) CLASS C Year Ended 9/30/10 $11.64 $.08 $ .30 $ .38 $(.10) $0.00 $(.10) Year Ended 9/30/09 11.45 .24 .20 .44 (.25) 0.00 (.25) Year Ended 9/30/08 12.23 .34 (.76) (.42) (.36) 0.00 (.36) Year Ended 9/30/07 12.30 .43 (.06) .37 (.44) 0.00 (.44) Year Ended 9/30/06 12.38 .36 (.05) .31 (.39) 0.00 (.39) INTERMEDIATE BOND CLASS A Year Ended 10/31/10 $10.28 $.42(e) $ .70 $ 1.12 $(.42) $0.00 $(.42) Year Ended 10/31/09 8.77 .44(e) 1.53 1.97 (.46) 0.00 (.46) Year Ended 10/31/08 10.24 .50(e) (1.49) (.99)(h) (.48) 0.00 (.48) Year Ended 10/31/07 10.18 .42(e) .06 .48 (.42) 0.00 (.42) Year Ended 10/31/06 10.15 .41(e) .04 .45 (.42) 0.00 (.42) CLASS B Year Ended 10/31/10 $10.28 $.35(e) $ .70 $ 1.05 $(.35) $0.00 $(.35) Year Ended 10/31/09 8.77 .38(e) 1.52 1.90 (.39) 0.00 (.39) Year Ended 10/31/08 10.23 .42(e) (1.47) (1.05)(h) (.41) 0.00 (.41) Year Ended 10/31/07 10.18 .35(e)(i) .05 .40 (.35) 0.00 (.35) Year Ended 10/31/06 10.15 .38(e)(i) .04 .42 (.39) 0.00 (.39) CLASS C Year Ended 10/31/10 $10.26 $.35(e) $ .70 $ 1.05 $(.35) $0.00 $(.35) Year Ended 10/31/09 8.75 .38(e) 1.52 1.90 (.39) 0.00 (.39) Year Ended 10/31/08 10.22 .43(e) (1.49) (1.06)(h) (.41) 0.00 (.41) Year Ended 10/31/07 10.16 .35(e) .06 .41 (.35) 0.00 (.35) Year Ended 10/31/06 10.13 .34(e) .04 .38 (.35) 0.00 (.35) ADVISOR CLASS Year Ended 10/31/10 $10.28 $.44(e) $ .73 $ 1.17 $(.46) $0.00 $(.46) Year Ended 10/31/09 8.78 .47(e) 1.51 1.98 (.48) 0.00 (.48) Year Ended 10/31/08 10.24 .50(e) (1.45) (.95)(h) (.51) 0.00 (.51) Year Ended 10/31/07 10.18 .45(e) .06 .51 (.45) 0.00 (.45) Year Ended 10/31/06 10.15 .44(e) .04 .48 (.45) 0.00 (.45) ----------------------------------------------------------------------------------------------------------------- Please refer to the footnotes on page 60. 54
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[Enlarge/Download Table] RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------ TOTAL RATIO OF NET INVESTMENT RATIO OF INVESTMENT NET ASSET RETURN BASED NET ASSETS, EXPENSES INCOME PORTFOLIO VALUE, END ON NET ASSET END OF PERIOD TO AVERAGE TO AVERAGE TURNOVER OF PERIOD VALUE (b) (000'S OMITTED) NET ASSETS NET ASSETS RATE -------------------------------------------------------------------------------------- $11.92 3.95%(c) $ 65,233 .94%(c) 1.35%(c) 107% 11.65 4.61 53,643 .99 2.72 176 11.46 (2.83)(d) 33,197 .96 3.60 116 12.24 3.80 40,444 .98 4.21 127 12.31 3.23 37,595 1.03(c) 3.63(c) 157 $11.92 3.27%(d) $ 6,538 1.69%(c) .72%(c) 107% 11.64 3.86 8,913 1.72 2.02 176 11.45 (3.59)(d) 9,125 1.66 2.91 116 12.24 3.09 10,791 1.68 3.48 127 12.31 2.55 16,899 1.73(c) 2.91(c) 157 $11.92 3.31%(d) $ 27,105 1.65%(c) .66%(c) 107% 11.64 3.88 25,193 1.70 2.04 176 11.45 (3.52)(d) 16,176 1.66 2.89 116 12.23 3.09 14,772 1.69 3.49 127 12.30 2.54 18,923 1.74(c) 2.93(c) 157 $10.98 11.17%(d) $418,023 .91%(c)(f)(g) 3.98%(c)(e) 99% 10.28 23.01(d) 419,319 .89(f)(g) 4.71(e) 95 8.77 (10.15)(d) 360,606 .85(g) 4.68(e) 184 10.24 4.79(d) 41,696 .98(g) 4.13(e) 173 10.18 4.51 44,409 .98(c)(g) 4.08(c)(e) 446 $10.98 10.40%(d) $ 16,048 1.62%(c)(f)(g) 3.35%(c)(e) 99% 10.28 22.17(d) 21,830 1.58(f)(g) 4.07(e) 95 8.77 (10.69)(d) 31,207 1.55(g) 3.95(e) 184 10.23 3.96(d) 20,157 1.66(g) 3.46(e)(i) 173 10.18 4.20 30,154 1.33(c)(g) 3.75(c)(e)(i) 446 $10.96 10.42%(d) $ 66,568 1.61%(c)(f)(g) 3.27%(c)(e) 99% 10.26 22.22(d) 61,635 1.59(f)(g) 4.02(e) 95 8.75 (10.80)(d) 51,708 1.55(g) 3.99(e) 184 10.22 4.07(d) 9,404 1.68(g) 3.45(e) 173 10.16 3.80 9,874 1.68(c)(g) 3.40(c)(e) 446 $10.99 11.59%(d) $ 89,981 .60%(c)(f)(g) 4.19%(c)(e) 99% 10.28 23.23(d) 62,369 .60(f)(g) 4.95(e) 95 8.78 (9.78)(d) 33,139 .55(g) 4.98(e) 184 10.24 5.11(d) 32,375 .68(g) 4.44(e) 173 10.18 4.83 29,966 .68(c)(g) 4.38(c)(e) 446 -------------------------------------------------------------------------------------- 55
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[Enlarge/Download Table] INCOME FROM INVESTMENT OPERATIONS LESS: DIVIDENDS AND DISTRIBUTIONS ----------------------------------- --------------------------------------------- NET INCREASE DISTRIBUTIONS NET ASSET NET REALIZED (DECREASE) DIVIDENDS TAX FROM NET VALUE, NET AND UNREALIZED IN NET ASSET FROM NET RETURN REALIZED GAIN TOTAL DIVI- BEGINNING INVESTMENT GAIN (LOSS) ON VALUE FROM INVESTMENT OF ON DENDS AND FISCAL YEAR OR PERIOD OF PERIOD INCOME (a) INVESTMENTS OPERATIONS INCOME CAPITAL INVESTMENTS DISTRIBUTIONS ----------------------------------------------------------------------------------------------------------------------- GLOBAL BOND CLASS A Year Ended 9/30/10 $7.87 $.32(e) $ .63 $ .95 $(.32) $(.00) $0.00 $(.32) Year Ended 9/30/09 7.39 .40(e) .60 1.00 (.40) (.00) (.12) (.52) Year Ended 9/30/08 8.07 .42(e) (.70) (.28) (.40) (.00) 0.00 (.40) Year Ended 9/30/07 7.54 .40 .52 .92 (.39) (.00) 0.00 (.39) Year Ended 9/30/06 7.69 .44 (.15) .29 (.44) (.00) 0.00 (.44) CLASS B Year Ended 9/30/10 $7.88 $.27(e) $ .63 $ .90 $(.27) $(.00) $0.00 $(.27) Year Ended 9/30/09 7.39 .35(e) .61 .96 (.35) (.00) (.12) (.47) Year Ended 9/30/08 8.07 .36(e) (.70) (.34) (.34) (.00) 0.00 (.34) Year Ended 9/30/07 7.54 .34 .52 .86 (.33) (.00) 0.00 (.33) Year Ended 9/30/06 7.68 .38 (.14) .24 (.38) (.00) 0.00 (.38) CLASS C Year Ended 9/30/10 $7.90 $.27(e) $ .63 $ .90 $(.27) $(.00) $0.00 $(.27) Year Ended 9/30/09 7.41 .35(e) .61 .96 (.35) (.00) (.12) (.47) Year Ended 9/30/08 8.09 .36(e) (.70) (.34) (.34) (.00) 0.00 (.34) Year Ended 9/30/07 7.56 .34 .52 .86 (.33) (.00) 0.00 (.33) Year Ended 9/30/06 7.71 .38 (.15) .23 (.38) (.00) 0.00 (.38) ADVISOR CLASS Year Ended 9/30/10 $7.87 $.34(e) $ .64 $ .98 $(.35) $(.00) $0.00 $(.35) Year Ended 9/30/09 7.38 .41(e) .62 1.03 (.42) (.00) (.12) (.54) 11/5/07(j) to 9/30/08 8.14 .41(e) (.78) (.37) (.39) (.00) 0.00 (.39) DIVERSIFIED YIELD CLASS A Year Ended 10/31/10 $8.10 $.24(e) $ .39 $ .63 $(.23) $(.00) $0.00 $(.23) Year Ended 10/31/09 7.39 .32(e) .71 1.03 (.28) (.04) 0.00 (.32) Year Ended 10/31/08 9.02 .36(e) (1.63) (1.27)(h) (.36) (.00) 0.00 (.36) Year Ended 10/31/07 8.62 .34 .40 .74 (.34) (.00) 0.00 (.34) Year Ended 10/31/06 8.70 .34 .14 .48 (.34) (.00) (.22) (.56) CLASS B Year Ended 10/31/10 $8.11 $.18(e) $ .39 $ .57 $(.17) $(.00) $0.00 $(.17) Year Ended 10/31/09 7.40 .26(e) .72 .98 (.23) (.04) 0.00 (.27) Year Ended 10/31/08 9.03 .30(e) (1.64) (1.34)(h) (.29) (.00) 0.00 (.29) Year Ended 10/31/07 8.63 .26 .41 .67 (.27) (.00) 0.00 (.27) Year Ended 10/31/06 8.70 .28 .14 .42 (.27) (.00) (.22) (.49) CLASS C Year Ended 10/31/10 $8.10 $.18(e) $ .39 $ .57 $(.17) $(.00) $0.00 $(.17) Year Ended 10/31/09 7.40 .26(e) .71 .97 (.23) (.04) 0.00 (.27) Year Ended 10/31/08 9.02 .29(e) (1.61) (1.32)(h) (.30) (.00) 0.00 (.30) Year Ended 10/31/07 8.63 .27 .39 .66 (.27) (.00) 0.00 (.27) Year Ended 10/31/06 8.71 .28 .14 .42 (.28) (.00) (.22) (.50) ADVISOR CLASS Year Ended 10/31/10 $8.09 $.26(e) $ .39 $ .65 $(.25) $(.00) $0.00 $(.25) Year Ended 10/31/09 7.39 .32(e) .72 1.04 (.30) (.04) 0.00 (.34) Year Ended 10/31/08 9.02 .38(e) (1.63) (1.25)(h) (.38) (.00) 0.00 (.38) Year Ended 10/31/07 8.62 .37 .39 .76 (.36) (.00) 0.00 (.36) Year Ended 10/31/06 8.70 .36 .14 .50 (.36) (.00) (.22) (.58) ----------------------------------------------------------------------------------------------------------------------- Please refer to the footnotes on page 60. 56
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[Download Table] RATIOS/SUPPLEMENTAL DATA ---------------------------------------------------------- TOTAL RATIO OF NET INVESTMENT RATIO OF INVESTMENT NET ASSET RETURN BASED NET ASSETS, EXPENSES INCOME PORTFOLIO VALUE, END ON NET ASSET END OF PERIOD TO AVERAGE TO AVERAGE TURNOVER OF PERIOD VALUE (b) (000'S OMITTED) NET ASSETS NET ASSETS RATE ------------------------------------------------------------------------------------ $8.50 12.38% $1,744,323 .98%(c)(f)(g) 3.98%(c)(e) 69% 7.87 14.65 1,367,036 .93(f)(g) 5.65(e) 91 7.39 (3.75) 1,425,649 1.04(f)(g) 5.19(e) 140 8.07 12.47 1,071,398 1.80(f) 5.09 170 7.54 3.90 935,901 1.04(c) 5.81(c) 104 $8.51 11.60% $ 80,989 1.68%(c)(f)(g) 3.34%(c)(e) 69% 7.88 14.01 98,925 1.63(f)(g) 4.95(e) 91 7.39 (4.44) 137,926 1.75(f)(g) 4.52(e) 140 8.07 11.65 171,078 2.53(f) 4.36 170 7.54 3.28 277,450 1.76(c) 5.10(c) 104 $8.53 11.55% $ 684,415 1.67%(c)(f)(g) 3.26%(c)(e) 69% 7.90 13.95 526,963 1.63(f)(g) 4.92(e) 91 7.41 (4.42) 492,541 1.75(f)(g) 4.46(e) 140 8.09 11.65 307,616 2.50(f) 4.37 170 7.56 3.15 256,047 1.74(c) 5.07(c) 104 $8.50 12.71% $ 457,794 .66%(c)(f)(g) 4.21%(c)(e) 69% 7.87 15.10 191,855 .64(f)(g) 5.88(e) 91 7.38 (4.83) 89,152 .74(f)(g)(k) 5.37(e)(k) 140 $8.50 7.88%(d) $ 42,733 .90%(c)(g) 2.83%(c)(e) 54% 8.10 14.45(d) 46,138 .90(g) 4.24(e) 86 7.39 (14.57)(d) 39,639 .90(g) 4.13(e) 81 9.02 8.60(d) 48,542 1.47 3.81 134 8.62 5.61 25,348 1.78(c)(f) 3.93(c) 169 $8.51 7.13%(d) $ 3,856 1.60%(c)(g) 2.15%(c)(e) 54% 8.11 13.65(d) 6,226 1.60(g) 3.66(e) 86 7.40 (15.15)(d) 13,666 1.60(g) 3.43(e) 81 9.03 7.77(d) 27,303 2.28 2.93 134 8.63 4.96 40,136 2.50(c)(f) 3.24(c) 169 $8.50 7.13%(d) $ 13,236 1.60%(c)(g) 2.13%(c)(e) 54% 8.10 13.50(d) 14,376 1.60(g) 3.53(e) 86 7.40 (15.05)(d) 11,245 1.60(g) 3.44(e) 81 9.02 7.69(d) 15,208 2.20 3.03 134 8.63 4.86 11,040 2.49(c)(f) 3.22(c) 169 $8.49 8.21%(d) $ 12,660 .60%(c)(g) 3.14%(c)(e) 54% 8.09 14.64(d) 12,255 .60(g) 4.39(e) 86 7.39 (14.31)(d) 3,756 .60(g) 4.42(e) 81 9.02 8.89(d) 5,529 1.14 4.00 134 8.62 5.94 2,494 1.49(c)(f) 4.17(c) 169 ------------------------------------------------------------------------------------ 57
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[Enlarge/Download Table] INCOME FROM INVESTMENT OPERATIONS LESS: DIVIDENDS AND DISTRIBUTIONS ----------------------------------- ---------------------------------------------- NET INCREASE NET ASSET NET REALIZED (DECREASE) DIVIDENDS TAX DISTRIBUTIONS VALUE, NET AND UNREALIZED IN NET ASSET FROM NET RETURN FROM NET TOTAL DIVI- FISCAL YEAR OR BEGINNING INVESTMENT GAIN (LOSS) ON VALUE FROM INVESTMENT OF REALIZED GAIN DENDS AND PERIOD OF PERIOD INCOME (a) INVESTMENTS OPERATIONS INCOME CAPITAL ON INVESTMENTS DISTRIBUTIONS ---------------------------------------------------------------------------------------------------------------------- HIGH INCOME CLASS A Year Ended 10/31/10 $8.24 $.69(e) $ .96 $ 1.65(h) $(.70) $(.00) $0.00 $(.70) Year Ended 10/31/09 5.85 .67(e) 2.44 3.11 (.69) (.01) (.02) (.72) Year Ended 10/31/08 9.02 .61(e) (2.87) (2.26)(h) (.68) (.00) (.23) (.91) Year Ended 10/31/07 8.97 .56 .41 .97 (.57) (.00) (.35) (.92) Year Ended 10/31/06 8.70 .55 .43 .98 (.57) (.00) (.14) (.71) CLASS B Year Ended 10/31/10 $8.31 $.63(e) $ .96 $ 1.59(h) $(.64) $(.00) $0.00 $(.64) Year Ended 10/31/09 5.90 .62(e) 2.46 3.08 (.64) (.01) (.02) (.67) Year Ended 10/31/08 9.09 .55(e) (2.89) (2.34)(h) (.62) (.00) (.23) (.85) Year Ended 10/31/07 9.05 .49 .41 .90 (.51) (.00) (.35) (.86) Year Ended 10/31/06 8.77 .49 .44 .93 (.51) (.00) (.14) (.65) CLASS C Year Ended 10/31/10 $8.33 $.62(e) $ .97 $ 1.59(h) $(.63) $(.00) $0.00 $(.63) Year Ended 10/31/09 5.92 .62(e) 2.46 3.08 (.64) (.01) (.02) (.67) Year Ended 10/31/08 9.11 .55(e) (2.89) (2.34)(h) (.62) (.00) (.23) (.85) Year Ended 10/31/07 9.07 .49 .41 .90 (.51) (.00) (.35) (.86) Year Ended 10/31/06 8.79 .49 .44 .93 (.51) (.00) (.14) (.65) ADVISOR CLASS Year Ended 10/31/10 $8.25 $.71(e) $ .97 $ 1.68(h) $(.73) $(.00) $0.00 $(.73) Year Ended 10/31/09 5.86 .72(e) 2.41 3.13 (.71) (.01) (.02) (.74) 1/28/08(j) to 10/31/08 8.52 .52(e) (2.69) (2.17)(h) (.49) (.00) 0.00 (.49) ---------------------------------------------------------------------------------------------------------------------- Please refer to the footnotes on page 60. 58
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[Enlarge/Download Table] RATIOS/SUPPLEMENTAL DATA -------------------------------------------------------------- TOTAL RATIO OF NET INVESTMENT RATIO OF INVESTMENT NET ASSET RETURN BASED NET ASSETS, EXPENSES INCOME PORTFOLIO VALUE, END ON NET ASSET END OF PERIOD TO AVERAGE TO AVERAGE TURNOVER OF PERIOD VALUE (b) (000'S OMITTED) NET ASSETS NET ASSETS RATE ---------------------------------------------------------------------------------------- $9.19 20.85%(d) $1,326,974 .99%(c)(f)(g) 7.93%(c)(e) 26% 8.24 57.11(d) 780,222 .99(f)(g) 10.13(e) 46 5.85 (27.49)(d) 450,517 1.03(c)(f)(g) 7.65(c)(e) 74 9.02 11.54 281,677 1.41(c)(f) 6.24(c) 67 8.97 11.87 235,763 1.48(f) 6.32 75 $9.26 19.86%(d) $ 40,092 1.70%(c)(f)(g) 7.25%(c)(e) 26% 8.31 55.89(d) 52,041 1.68(f)(g) 9.46(e) 46 5.90 (28.03)(d) 54,724 1.74(c)(f)(g) 6.83(c)(e) 74 9.09 10.51 35,058 2.14(c)(f) 5.45(c) 67 9.05 11.11 45,133 2.18(f) 5.55 75 $9.29 19.88%(d) $ 541,386 1.69%(c)(f)(g) 7.08%(c)(e) 26% 8.33 55.68(d) 222,632 1.69(f)(g) 9.27(e) 46 5.92 (27.95)(d) 112,508 1.75(c)(f)(g) 6.82(c)(e) 74 9.11 10.50 86,525 2.11(c)(f) 5.47(c) 67 9.07 11.10 88,046 2.17(f) 5.54 75 $9.20 21.22%(d) $ 385,380 .68%(c)(f)(g) 8.12%(c)(e) 26% 8.25 57.57(d) 76,843 .72(f)(g) 10.07(e) 46 5.86 (26.77)(d) 6,095 .69(c)(f)(g)(k) 8.16(c)(e)(k) 74 ---------------------------------------------------------------------------------------- 59
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(a)Based on average shares outstanding. (b)Total investment return is calculated assuming an initial investment made at the NAV at the beginning of the period, reinvestment of all dividends and distributions at the NAV during the period, and a redemption on the last day of the period. Initial sales charge or contingent deferred sales charge, if applicable, is not reflected in the calculation of total investment return. Total investment return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment returns calculated for periods of less than one year are not annualized. (c)The ratio includes expenses attributable to costs of proxy solicitation. (d)Includes the impact of proceeds received and credited to the Fund resulting from the class action settlements, which enhanced the performance of each share class. [Download Table] FOR FISCAL YEAR ENDED ---------------------------------------------------------------- ALLIANCEBERNSTEIN SHORT DURATION September 30, 2010 .01% September 30, 2008 .05% ALLIANCEBERNSTEIN INTERMEDIATE BOND October 31, 2010 .01% October 31, 2009 .01% October 31, 2008 .21% October 31, 2007 .61% ALLIANCEBERNSTEIN DIVERSIFIED YIELD October 31, 2010 .55% October 31, 2009 .57% October 31, 2008 .81% October 31, 2007 4.31% ALLIANCEBERNSTEIN HIGH INCOME October 31, 2010 .15% October 31, 2009 .05% October 31, 2008 .41% (e)Net of fees waived and expenses reimbursed by the Adviser. (f)Includes interest expense. For the following Funds, the ratio of gross expenses to average net assets, excluding interest expense (and any related expenses), would have been as follows: [Download Table] 2010 2009 2008 2007 2006 ---------------------------------------------------------------------- ALLIANCEBERNSTEIN INTERMEDIATE BOND Class A 1.05%* 1.07% Class B 1.81%* 1.84% Class C 1.77%* 1.78% Advisor Class .75%* .76% ALLIANCEBERNSTEIN GLOBAL BOND Class A .95%* .97% 1.01% 1.05% Class B 1.68%* 1.71% 1.73% 1.77% Class C 1.65%* 1.67% 1.71% 1.75% Advisor Class .65%* .65% .74% ALLIANCEBERNSTEIN DIVERSIFIED YIELD Class A 1.72%* Class B 2.45%* Class C 2.44%* Advisor Class 1.44%* ALLIANCEBERNSTEIN HIGH INCOME Class A 1.00%* 1.09% 1.07%* 1.14%* 1.14% Class B 1.73%* 1.85% 1.80%* 1.87%* 1.85% Class C 1.69%* 1.79% 1.77%* 1.85%* 1.84% Advisor Class .70%* .76% .76%* -------- *The ratio includes expenses attributable to costs of proxy solicitation. (g)Net of fees waived by the Adviser. If the following Funds had borne all expenses for the respective year ends, the expense ratios would have been as follows: [Download Table] 2010 2009 2008 2007 2006 -------------------------------------------------------------------- ALLIANCEBERNSTEIN INTERMEDIATE BOND Class A 1.11%* 1.11% 1.09% 1.54% 1.34%* Class B 1.88%* 1.87% 1.83% 2.29% 2.10%* Class C 1.83%* 1.82% 1.80% 2.27% 2.07%* Advisor Class .80%* .80% .80% 1.25% 1.02%* ALLIANCEBERNSTEIN GLOBAL BOND Class A 1.02%* 1.00% 1.15% Class B 1.76%* 1.73% 1.88% Class C 1.73%* 1.70% 1.86% Advisor Class .72%* .69% .88% ALLIANCEBERNSTEIN DIVERSIFIED YIELD Class A 1.55%* 1.69% 1.65% Class B 2.30%* 2.49% 2.41% Class C 2.26%* 2.39% 2.36% Advisor Class 1.23%* 1.28% 1.33% ALLIANCEBERNSTEIN HIGH INCOME Class A 1.04%* 1.13% 1.13% Class B 1.78%* 1.88% 1.86% Class C 1.73%* 1.83% 1.84% Advisor Class .73%* .83% .80% -------- *The ratio includes expenses attributable to costs of proxy solicitation. (h)Amount includes contribution from Advisor of less than $ .005. (i)Net of fees and expenses waived by the distributor. (j)Commencement of distribution. (k)Annualized. 60
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APPENDIX A -------------------------------------------------------------------------------- BOND RATINGS MOODY'S INVESTORS SERVICE, INC. Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C--Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Absence of Rating--When no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue. Should no rating be assigned, the reason may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities or companies that are unrated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed, in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. STANDARD & POOR'S RATINGS SERVICES AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A--Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt rated BBB normally exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having significant speculative characteristics. BB indicates the lowest degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. A-1
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BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to an inadequate capacity to pay interest and repay principal. B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there is capacity to pay interest and repay principal. Adverse business, financial or economic conditions will likely impair the capacity or willingness to pay principal or repay interest. CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial and economic conditions to pay interest and repay principal. In the event of adverse business, financial or economic conditions, there is not likely to be capacity to pay interest or repay principal. CC--Debt rated CC is currently highly vulnerable to nonpayment. C--The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments are being continued. D--The D rating, unlike other ratings, is not prospective; rather, it is used only where a default has actually occurred. Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. NR--Not rated. FITCH RATINGS AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F1+. A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB--Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B--Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC--Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC--Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C--Bonds are in imminent default in payment of interest or principal. DDD, DD, D--Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. DDD represents the highest potential for recovery on these bonds, and D represents the lowest potential for recovery. Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the AAA category or in categories below B. NR--Indicates that Fitch does not rate the specific issue. DOMINION BOND RATING SERVICE LIMITED Each rating category is denoted by the subcategories "high" and "low". The absence of either a "high" or "low" designation indicates the rating is in the "middle" of the category. The AAA and D categories do not utilize "high", "middle", and "low" as differential grades. AAA--Long-term debt rated AAA is of the highest credit quality, with exceptionally strong protection for the timely repayment of principal and interest. Earnings are considered stable, the structure of the industry in which the entity operates is strong, and the outlook for future profitability is favorable. There are few qualifying factors present that would detract from the performance of the entity. The strength of liquidity and coverage ratios is unquestioned and the entity has established a credible track record of superior performance. Given the extremely high standard that Dominion has set for this category, few entities are able to achieve a AAA rating. AA--Long-term debt rated AA is of superior credit quality, and protection of interest and principal is considered high. In many cases they differ from long-term debt rated AAA only to a small degree. Given the extremely restrictive definition Dominion has for the AAA category, entities rated AA are also A-2
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considered to be strong credits, typically exemplifying above-average strength in key areas of consideration and unlikely to be significantly affected by reasonably foreseeable events. A--Long-term debt rated A is of satisfactory credit quality. Protection of interest and principal is still substantial, but the degree of strength is less than that of AA rated entities. While A is a respectable rating, entities in this category are considered to be more susceptible to adverse economic conditions and have greater cyclical tendencies than higher-rated securities. BBB--Long-term debt rated BBB is of adequate credit quality. Protection of interest and principal is considered acceptable, but the entity is fairly susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions present which reduce the strength of the entity and its rated securities. BB--Long-term debt rated BB is defined to be speculative and non-investment grade, where the degree of protection afforded interest and principal is uncertain, particularly during periods of economic recession. Entities in the BB range typically have limited access to capital markets and additional liquidity support. In many cases, deficiencies in critical mass, diversification, and competitive strength are additional negative considerations. B--Long-term debt rated B is considered highly speculative and there is a reasonably high level of uncertainty as to the ability of the entity to pay interest and principal on a continuing basis in the future, especially in periods of economic recession or industry adversity. CCC, CC and C--Long-term debt rated in any of these categories is very highly speculative and is in danger of default of interest and principal. The degree of adverse elements present is more severe than long-term debt rated B. Long-term debt rated below B often have features which, if not remedied, may lead to default. In practice, there is little difference between these three categories, with CC and C normally used for lower ranking debt of companies for which the senior debt is rated in the CCC to B range. D--A security rated D implies the issuer has either not met a scheduled payment of interest or principal or that the issuer has made it clear that it will miss such a payment in the near future. In some cases, Dominion may not assign a D rating under a bankruptcy announcement scenario, as allowances for grace periods may exist in the underlying legal documentation. Once assigned, the D rating will continue as long as the missed payment continues to be in arrears, and until such time as the rating is suspended, discontinued, or reinstated by Dominion. A-3
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APPENDIX B -------------------------------------------------------------------------------- HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION -------------------------------------------------------------------------------- The settlement agreement between the Adviser and the New York State Attorney General requires the Funds to include the following supplemental hypothetical investment information, which provides additional information calculated and presented in a manner different from expense information found under "Fees and Expenses of the Fund" in the Summary Information at the beginning of this Prospectus about the effect of a Fund's expenses, including investment advisory fees and other Fund costs, on each Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A shares of each Fund assuming a 5% return each year, including an initial sales charge of 4.25%. Except as otherwise indicated, the chart also assumes that the current annual expense ratio stays the same throughout the 10-year period. The current annual expense ratio for each Fund is the same as stated under "Financial Highlights." If you wish to obtain hypothetical investment information for other classes of shares of each Fund, please refer to the "Mutual Fund Fees & Expenses Calculators" on www.AllianceBernstein.com. Your actual expenses may be higher or lower. ALLIANCEBERNSTEIN SHORT DURATION PORTFOLIO -------------------------------------------------------------------------------- [Download Table] HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT --------------------------------------------------------------------- 1 $10,000.00 $ 478.75 $10,053.75 $ 519.51 $ 9,959.24 2 9,959.24 497.96 10,457.20 98.30 10,358.90 3 10,358.90 517.95 10,876.85 102.24 10,774.81 4 10,774.61 538.73 11,313.34 106.35 11,206.99 5 11,206.99 560.35 11,767.34 110.61 11,656.73 6 11,656.73 582.84 12,239.57 115.05 12,124.52 7 12,124.52 606.23 12,730.75 119.67 12,611.08 8 12,611.08 630.55 13,241.63 124.47 13,117.16 9 13,117.16 655.86 13,773.02 129.47 13,643.55 10 13,643.55 682.18 14,325.73 134.66 14,191.07 --------------------------------------------------------------------- Total $5,751.40 $1,560.33 ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO -------------------------------------------------------------------------------- [Download Table] HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT ---------------------------------------------------------------------- 1 $10,000.00 $ 478.75 $10,053.75 $ 514.48 $ 9,964.27 2 9,964.27 498.21 10,462.48 116.13 10,346.35 3 10,346.35 517.32 10,863.67 120.59 10,743.08 4 10,743.08 537.15 11,280.23 125.21 11,155.02 5 11,155.02 557.75 11,712.77 130.01 11,582.76 6 11,582.76 579.14 12,161.90 135.00 12,026.90 7 12,026.90 601.35 12,628.25 140.17 12,488.08 8 12,488.08 624.40 13,112.48 145.55 12,966.93 9 12,966.93 648.35 13,615.28 151.13 13,464.15 10 13,464.15 673.21 14,137.36 156.92 13,980.44 ---------------------------------------------------------------------- Total $5,715.63 $1,735.19 ALLIANCEBERNSTEIN GLOBAL BOND FUND -------------------------------------------------------------------------------- [Download Table] HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT ---------------------------------------------------------------------- 1 $10,000.00 $ 478.75 $10,053.75 $ 523.53 $ 9,955.22 2 9,955.22 497.76 10,452.98 106.62 10,346.36 3 10,346.36 517.32 10,863.68 110.81 10,752.87 4 10,752.87 537.64 11,290.51 115.16 11,175.35 5 11,175.35 558.77 11,734.12 119.69 11,614.43 6 11,614.43 580.72 12,195.15 124.39 12,070.76 7 12,070.76 603.54 12,674.30 129.28 12,545.02 8 12,545.02 627.25 13,172.27 134.36 13,037.91 9 13,037.91 651.90 13,689.81 139.64 13,550.17 10 13,550.17 677.51 14,227.68 145.12 14,082.56 ---------------------------------------------------------------------- Total $5,731.16 $1,648.60 B-1
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ALLIANCEBERNSTEIN DIVERSIFIED YIELD FUND -------------------------------------------------------------------------------- [Download Table] HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT ---------------------------------------------------------------------- 1 $10,000.00 $ 478.75 $10,053.75 $ 515.48 $ 9,963.27 2 9,963.27 498.16 10,461.43 162.15 10,299.28 3 10,299.28 514.96 10,814.24 167.62 10,646.62 4 10,646.62 532.33 11,178.95 173.27 11,005.68 5 11,005.68 550.28 11,555.96 179.12 11,376.84 6 11,376.84 568.84 11,945.68 185.16 11,760.52 7 11,760.52 588.03 12,348.55 191.40 12,157.15 8 12,157.15 607.86 12,765.01 197.86 12,567.15 9 12,567.15 628.36 13,195.51 204.53 12,990.98 10 12,990.98 649.55 13,640.53 211.43 13,429.10 ---------------------------------------------------------------------- Total $5,617.12 $2,188.02 ALLIANCEBERNSTEIN HIGH INCOME FUND -------------------------------------------------------------------------------- [Download Table] HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT ---------------------------------------------------------------------- 1 $10,000.00 $ 478.75 $10,053.75 $ 524.53 $ 9,954.22 2 9,954.22 497.71 10,451.93 108.70 10,343.23 3 10,343.23 517.16 10,860.39 112.95 10,747.44 4 10,747.44 537.37 11,284.81 117.36 11,167.45 5 11,167.45 558.37 11,725.82 121.95 11,603.87 6 11,603.87 580.19 12,184.06 126.71 12,057.35 7 12,057.35 602.87 12,660.22 131.67 12,528.55 12,528.55 626.43 13,154.98 136.81 13,018.17 9 13,018.17 650.91 13,669.08 142.16 13,526.92 10 13,526.92 676.35 14,203.27 147.71 14,055.56 ---------------------------------------------------------------------- Total $5,726.11 $1,670.55 * Expenses are net of any fee waiver or expense waiver for the first year. Thereafter, the expense ratio reflects the Fund's operating expenses as reflected under "Fees and Expenses of the Fund" before waiver in the Summary Information at the beginning of this Prospectus. B-2
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For more information about the Funds, the following documents are available upon request: .. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The Funds' annual and semi-annual reports to shareholders contain additional information on the Funds' investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected a Fund's performance during its last fiscal year. .. STATEMENT OF ADDITIONAL INFORMATION (SAI) The Funds have SAIs, which contains more detailed information about the Funds, including their operations and investment policies. The Funds' SAIs and the independent registered public accounting firms' reports and financial statements in each Fund's most recent annual report to shareholders are incorporated by reference into (and are legally part of) this Prospectus. You may request a free copy of the current annual/semi-annual report or the SAIs, or make inquiries concerning the Funds, by contacting your broker or other financial intermediary, or by contacting the Adviser: [Download Table] BY MAIL: c/o AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 BY PHONE: For Information: (800) 221-5672 For Literature: (800) 227-4618 ON THE INTERNET: www.AllianceBernstein.com Or you may view or obtain these documents from the Securities and Exchange Commission (the "Commission"): .. Call the Commission at 1-202-551-8090 for information on the operation of the Public Reference Room. .. Reports and other information about the Funds are available on the EDGAR Database on the Commission's Internet site at http://www.sec.gov. .. Copies of the information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Commission's Public Reference Section, Washington, DC 20549-1520. You also may find these documents and more information about the Adviser and the Funds on the Internet at: www.AllianceBernstein.com. AllianceBernstein(R) and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P. [Download Table] FUND SEC FILE NO. ------------------------------- Short Duration 811-05555 Intermediate Bond 811-02383 Global Bond 811-06554 Diversified Yield 811-07391 High Income 811-08188 PRO-0115-0111 [GRAPHIC]
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BOND FUNDS - RETIREMENT SHARES -- (CLASS A, R, K AND I SHARES) PROSPECTUS | JANUARY 31, 2011 The AllianceBernstein Bond Funds [Enlarge/Download Table] Core High Income (Shares Offered--Exchange Ticker Symbol) (Shares Offered--Exchange Ticker Symbol) AllianceBernstein Intermediate Bond Portfolio AllianceBernstein High Income Fund (Class A-ABQUX; Class R-ABQRX; Class K-ABQKX; (Class A-AGDAX; Class R-AGDRX; Class K-AGDKX; Class I-ABQIX) Class I-AGDIX) AllianceBernstein Global Bond Fund (Class A-ANAGX; Class R-ANARX; Class K-ANAKX; Class I-ANAIX) Absolute Return (Shares Offered--Exchange Ticker Symbol) AllianceBernstein Diversified Yield Fund (Class A-AGSAX; Class R-AGSRX; Class K-AGSKX; Class I-AGLIX) 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. [LOGO] AB ALLIANCEBERNSTEIN
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INVESTMENT PRODUCTS OFFERED .. ARE NOT FDIC INSURED .. MAY LOSE VALUE .. ARE NOT BANK GUARANTEED
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TABLE OF CONTENTS -------------------------------------------------------------------------------- [Download Table] Page SUMMARY INFORMATION........................................... 4 CORE ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO............... 4 ALLIANCEBERNSTEIN GLOBAL BOND FUND.......................... 8 ABSOLUTE RETURN ALLIANCEBERNSTEIN DIVERSIFIED YIELD FUND.................... 12 HIGH INCOME ALLIANCEBERNSTEIN HIGH INCOME FUND.......................... 16 ADDITIONAL INFORMATION ABOUT THE FUNDS' RISKS AND INVESTMENTS. 21 INVESTING IN THE FUNDS........................................ 30 How to Buy Shares........................................... 30 The Different Share Class Expenses.......................... 30 Distribution Arrangements for Group Retirement Plans........ 31 Payments to Financial Intermediaries........................ 31 How to Exchange Shares...................................... 32 How to Sell or Redeem Shares................................ 32 Frequent Purchases and Redemptions of Fund Shares........... 32 How the Funds Value Their Shares............................ 34 MANAGEMENT OF THE FUNDS....................................... 35 DIVIDENDS, DISTRIBUTIONS AND TAXES............................ 39 GENERAL INFORMATION........................................... 40 GLOSSARY OF INVESTMENT TERMS.................................. 41 FINANCIAL HIGHLIGHTS.......................................... 43 APPENDIX A--BOND RATINGS...................................... A-1 APPENDIX B--HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION... B-1
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SUMMARY INFORMATION -------------------------------------------------------------------------------- ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The Fund's investment objective is to generate income and price appreciation without assuming what the Adviser considers undue risk. FEES AND EXPENSES OF THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment) [Enlarge/Download Table] CLASS A CLASS R CLASS K CLASS I SHARES SHARES SHARES SHARES ---------------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None None ---------------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None(a) None None None ---------------------------------------------------------------------------------------------------------------- Exchange Fee None None None None ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) [Enlarge/Download Table] CLASS A CLASS R CLASS K CLASS I ----------------------------------------------------------------------------------------------------------------------- Management Fees .45% .45% .45% .45% Distribution and/or Service (12b-1) Fees .30% .50% .25% None Other Expenses: Transfer Agent .17% .26% .20% .11% Interest Expense and Related Expenses .06% .03% .06% .12% Other Expenses .13% .13% .13% .13% ---- ---- ---- ---- Total Other Expenses .36% .42% .39% .36% ---- ---- ---- ---- Total Annual Fund Operating Expenses 1.11% 1.37% 1.09% .81% ==== ==== ==== ==== Fee Waiver and/or Expense Reimbursement (b) (.20)% (.29)% (.23)% (.14)% ---- ---- ---- ---- Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (c) .91% 1.08% .86% .67% ==== ==== ==== ==== ----------------------------------------------------------------------------------------------------------------------- (a)In some cases, a 1%, 1-year contingent deferred sales charge, or CDSC, may apply for Class A shares. (b)The fee waiver and/or expense reimbursements will remain in effect until January 31, 2012 and will continue thereafter from year-to-year unless the Adviser provides notice of termination 60 days prior to the end of the Fund's fiscal year. (c)If interest expenses were excluded, net expenses would be as follows: [Download Table] CLASS A CLASS R CLASS K CLASS I ------------------------------- .85% 1.05% .80% .55% EXAMPLES The Examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year, that the Fund's operating expenses stay the same and that the fee waiver is in effect for only the first year. Although your actual costs may be higher or lower, based on these assumptions your costs would be: [Download Table] CLASS A CLASS R CLASS K CLASS I ----------------------------------------------- After 1 Year $ 93 $ 110 $ 88 $ 68 After 3 Years $ 333 $ 405 $ 324 $245 After 5 Years $ 592 $ 722 $ 579 $436 After 10 Years $1,334 $1,621 $1,308 $989 ----------------------------------------------- 4
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PORTFOLIO TURNOVER The Fund will pay transaction costs, such as commissions, when it buys or sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These transaction costs, which are not reflected in the Annual Fund Operating Expenses or in the Examples, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 99% of the average value of its portfolio. PRINCIPAL STRATEGIES The Fund invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. The Fund expects to invest in readily marketable fixed-income securities with a range of maturities from short- to long-term and relatively attractive yields that do not involve undue risk of loss of capital. The Fund expects to invest in fixed-income securities with a dollar-weighted average maturity of between three to ten years and an average duration of three to six years. The Fund may invest up to 25% of its net assets in below investment grade bonds. The Fund may use leverage for investment purposes. The Fund may invest without limit in U.S. Dollar-denominated foreign fixed-income securities and may invest up to 25% of its assets in non-U.S. Dollar-denominated foreign fixed-income securities. These investments may include, in each case, developed and emerging market debt securities. The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund's other holdings. The Fund may invest in mortgage-related and other asset-backed securities, loan participations, inflation-protected securities, structured securities, variable, floating, and inverse floating rate instruments and preferred stock, and may use other investment techniques. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures, forwards, or swap agreements. The Fund expects to engage in active and frequent trading of portfolio securities to achieve its principal investment strategies. A higher rate of portfolio turnover increases transaction expenses, which may negatively affect the Fund's performance. High portfolio turnover also may result in the realization of substantial net short-term capital gains, which, when distributed, are taxable to shareholders. PRINCIPAL RISKS .. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. .. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. .. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. .. BELOW INVESTMENT GRADE SECURITIES: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity. .. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund's assets can decline as can the value of the Fund's distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities. .. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. 5
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.. EMERGING MARKET RISK: Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties. .. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect the value of the Fund's investments or reduce its returns. .. PREPAYMENT RISK: The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Fund to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Fund may not be able to realize the rate of return it expected. .. DERIVATIVES RISK: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments. .. MANAGEMENT RISK: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. As with all investments, you may lose money by investing in the Fund. BAR CHART AND PERFORMANCE INFORMATION The bar chart and performance information provide an indication of the historical risk of an investment in the Fund by showing: .. how the Fund's performance changed from year to year over ten years; and .. how the Fund's average annual returns for one, five and ten years compare to those of a broad-based securities market index. You may obtain updated performance information on the Fund's website at www.AllianceBernstein.com (click on "Pricing & Performance"). The Fund's past performance, of course, does not necessarily indicate how it will perform in the future. BAR CHART The annual returns in the bar chart are for the Fund's Class A shares and do not reflect sales loads. If sales loads were reflected, returns would be less than those shown. [CHART] 01 02 03 04 05 06 07 08 09 10 ---- ---- ---- ---- ---- ---- ---- ----- ----- ---- 7.36 7.67 3.69 3.48 1.94 3.97 5.68 -8.26 19.18 9.20 Calendar Year End (%) During the period shown in the bar chart, the Fund's: BEST QUARTER WAS UP 7.86% IN THE 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN -4.57% IN THE 3RD QUARTER, 2008. 6
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PERFORMANCE TABLE AVERAGE ANNUAL TOTAL RETURNS (For the periods ended December 31, 2010) [Download Table] 1 YEAR 5 YEARS* 10 YEARS* ------------------------------------------------------------------------------- Class A 8.20% 5.58% 5.19% ------------------------------------------------------------------------------- Class R 8.99% 5.36% 4.98% ------------------------------------------------------------------------------- Class K 9.25% 5.61% 5.24% ------------------------------------------------------------------------------- Class I 9.52% 5.89% 5.51% ------------------------------------------------------------------------------- Barclays Capital U.S. Aggregate Index (reflects no deduction for fees, expenses, or taxes) 6.54% 5.80% 5.84% ------------------------------------------------------------------------------- * Inception Dates for Class R shares: 11/03/03, and Class K and Class I shares: 3/1/05. Performance information for periods prior to the inception of Class R, Class K and Class I shares is the performance of the Fund's Class A shares adjusted to reflect the higher expense ratio of Class R shares and the lower expense ratio of Class K and Class I shares, respectively. INVESTMENT ADVISER AllianceBernstein L.P. is the investment adviser for the Fund. PORTFOLIO MANAGER The following table lists the persons responsible for day-to-day management of the Fund's portfolio: [Download Table] EMPLOYEE LENGTH OF SERVICE TITLE --------------------------------------------------------------------------- Paul J. DeNoon Since 2009 Senior Vice President of the Adviser Shawn E. Keegan Since 2005 Vice President of the Adviser Alison M. Martier Since 2005 Senior Vice President of the Adviser Douglas J. Peebles Since 2007 Senior Vice President of the Adviser Greg J. Wilensky Since 2005 Senior Vice President of the Adviser ADDITIONAL INFORMATION For important information about the purchase and sale of Fund shares, tax information and financial intermediary compensation, please turn to ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES, page 20 in this Prospectus. 7
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ALLIANCEBERNSTEIN GLOBAL BOND FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The Fund's investment objective is to generate current income consistent with preservation of capital. FEES AND EXPENSES OF THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment) [Enlarge/Download Table] CLASS A CLASS R CLASS K CLASS I SHARES SHARES SHARES SHARES ---------------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None None ---------------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None(a) None None None ---------------------------------------------------------------------------------------------------------------- Exchange Fee None None None None ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) [Enlarge/Download Table] ---------------------------------------------------------------------------------------------------------------------- CLASS A CLASS R CLASS K CLASS I ---------------------------------------------------------------------------------------------------------------------- Management Fees .50% .50% .50% .50% Distribution and/or Service (12b-1) Fees .30% .50% .25% None Other Expenses: Transfer Agent .10% .24% .20% .02% Interest Expense and Related Expenses .08% .05% .05% .06% Other Expenses .04% .06% .06% .05% ---- ---- ---- ---- Total Other Expenses .22% .35% .31% .13% ---- ---- ---- ---- Total Annual Fund Operating Expenses 1.02% 1.35% 1.06% .63% ==== ==== ==== ==== Fee Waiver and/or Expense Reimbursement(b) (.04)% (.20)% (.16)% (.00)% ---- ---- ---- ---- Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(c) .98% 1.15% .90% .63% ==== ==== ==== ==== ---------------------------------------------------------------------------------------------------------------------- (a)In some cases, a 1%, 1-year CDSC may apply for Class A shares. (b)The fee waiver and/or expense reimbursements will remain in effect until January 31, 2012 and will continue thereafter from year-to-year unless the Adviser provides notice of termination 60 days prior to the end of the Fund's fiscal year. (c)If interest expenses were excluded, net expenses would be as follows: [Download Table] CLASS A CLASS R CLASS K CLASS I ------------------------------- .90% 1.10% .85% .57% EXAMPLES The Examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year, that the Fund's operating expenses stay the same and that the fee waiver is in effect for only the first year. Although your actual costs may be higher or lower, based on these assumptions your costs would be: [Download Table] CLASS A CLASS R CLASS K CLASS I ----------------------------------------------- After 1 Year $ 100 $ 117 $ 92 $ 64 After 3 Years $ 321 $ 408 $ 321 $202 After 5 Years $ 559 $ 720 $ 569 $351 After 10 Years $1,244 $1,606 $1,280 $786 ----------------------------------------------- 8
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PORTFOLIO TURNOVER The Fund will pay transaction costs, such as commissions, when it buys or sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These transaction costs, which are not reflected in the Annual Fund Operating Expenses or in the Examples, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 69% of the average value of its portfolio. PRINCIPAL STRATEGIES The Fund invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. Under normal market conditions, the Fund invests significantly in fixed-income securities of non-U.S. companies. In addition, the Fund invests, under normal circumstances, in the fixed-income securities of companies located in at least three countries. The Fund may invest in a broad range of fixed-income securities in both developed and emerging markets. The Fund may invest across all fixed-income sectors, including U.S. and non-U.S. government and corporate debt securities. The Fund's investments may be denominated in local currency or U.S. Dollar-denominated. The Fund may invest in debt securities with a range of maturities from short- to long-term. The Fund may use borrowings or other leverage for investment purposes. The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund's other holdings. The Adviser will actively manage the Fund's assets in relation to market conditions and general economic conditions and adjust the Fund's investments in an effort to best enable the Fund to achieve its investment objective. Thus, the percentage of the Fund's assets invested in a particular country or denominated in a particular currency will vary in accordance with the Adviser's assessment of the relative yield and appreciation potential of such securities and the relationship of the country's currency to the U.S. Dollar. Under normal circumstances, the Fund invests at least 75% of its net assets in fixed-income securities rated investment grade at the time of investment and may invest up to 25% of its net assets in below investment grade fixed-income securities. The Fund may invest in mortgage-related and other asset-backed securities, loan participations, inflation-protected securities, structured securities, variable, floating, and inverse floating rate instruments and preferred stock, and may use other investment techniques. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures, forwards, or swap agreements. PRINCIPAL RISKS .. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. .. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. .. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. .. BELOW INVESTMENT GRADE SECURITIES: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity. .. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund's assets can decline as can the value of the Fund's distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities. .. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. 9
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.. EMERGING MARKET RISK: Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties. .. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect the value of the Fund's investments or reduce its returns. .. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its net asset value, or NAV, may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund's investments. .. DIVERSIFICATION RISK: The Fund may have more risk because it is "non-diversified," meaning that it can invest more of its assets in a smaller number of issuers and that adverse changes in the value of one security could have a more significant effect on the Fund's NAV. .. DERIVATIVES RISK: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments. .. MANAGEMENT RISK: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. As with all investments, you may lose money by investing in the Fund. BAR CHART AND PERFORMANCE INFORMATION The bar chart and performance information provide an indication of the historical risk of an investment in the Fund by showing: .. how the Fund's performance changed from year to year over ten years; and .. how the Fund's average annual returns for one, five and ten years compare to those of a broad-based securities market index. You may obtain updated performance information on the Fund's website at www.AllianceBernstein.com (click on "Pricing & Performance"). The Fund's past performance, of course, does not necessarily indicate how it will perform in the future. BAR CHART The annual returns in the bar chart are for the Fund's Class A shares and do not reflect sales loads. If sales loads were reflected, returns would be less than those shown. [CHART] 01 02 03 04 05 06 07 08 09 10 ---- ----- ----- ---- ---- ---- ---- ------ ----- ---- 0.31 10.68 15.13 6.87 9.71 6.57 9.90 -10.71 23.96 9.53 Calendar Year End (%) During the period shown in the bar chart, the Fund's: BEST QUARTER WAS UP 11.30% IN THE 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN -5.57% IN THE 4TH QUARTER, 2008. 10
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PERFORMANCE TABLE AVERAGE ANNUAL TOTAL RETURNS (For the periods ended December 31, 2010) [Download Table] 1 YEAR 5 YEARS* 10 YEARS* -------------------------------------------------------------------------------- Class A 8.53% 7.26% 7.84% -------------------------------------------------------------------------------- Class R 9.30% 7.18% 7.49% -------------------------------------------------------------------------------- Class K 9.59% 7.33% 7.90% -------------------------------------------------------------------------------- Class I 10.04% 7.60% 8.18% -------------------------------------------------------------------------------- Barclays Capital Global Aggregate Index (U.S. hedged) (reflects no deduction for fees, expenses, or taxes) -1.33% 3.50% 4.33% -------------------------------------------------------------------------------- * Inception dates for Class R, Class K and Class I shares: 11/5/07. Performance information for periods prior to the inception of Class R, Class K and Class I shares is the performance of the Fund's Class A shares adjusted to reflect the higher expense ratio of Class R shares and the lower expense ratio of Class K and Class I shares, respectively. INVESTMENT ADVISER AllianceBernstein L.P. is the investment adviser for the Fund. PORTFOLIO MANAGER The following table lists the persons responsible for day-to-day management of the Fund's portfolio: [Download Table] EMPLOYEE LENGTH OF SERVICE TITLE ----------------------------------------------------------------------------- Paul J. DeNoon Since 2002 Senior Vice President of the Adviser Scott DiMaggio Since 2005 Senior Vice President of the Adviser Michael L. Mon Since 2003 Vice President of the Adviser Douglas J. Peebles Since 1992 Senior Vice President of the Adviser Matthew S. Sheridan Since 2007 Vice President of the Adviser ADDITIONAL INFORMATION For important information about the purchase and sale of Fund shares, tax information and financial intermediary compensation, please turn to ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES, page 20 in this Prospectus. 11
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ALLIANCEBERNSTEIN DIVERSIFIED YIELD FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The Fund's investment objective is to generate current income consistent with preservation of capital. FEES AND EXPENSES OF THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment) [Enlarge/Download Table] CLASS A CLASS R CLASS K CLASS I SHARES SHARES SHARES SHARES ---------------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None None ---------------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None(a) None None None ---------------------------------------------------------------------------------------------------------------- Exchange Fee None None None None ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) [Enlarge/Download Table] CLASS A CLASS R CLASS K CLASS I ------------------------------------------------------------------------------------------------------------------- Management Fees .50% .50% .50% .50% Distribution and/or Service (12b-1) Fees .30% .50% .25% None Other Expenses: Transfer Agent .12% .26% .19% .05% Other Expenses .63% .62% .35% .63% ------ ------ ------ ------ Total Other Expenses .75% .88% .54% .68% ------ ------ ------ ------ Total Annual Fund Operating Expenses 1.55% 1.88% 1.29% 1.18% ====== ====== ====== ====== Fee Waiver and/or Expense Reimbursement(b) (.65)% (.78)% (.44)% (.58)% ------ ------ ------ ------ Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement .90% 1.10% .85% .60% ====== ====== ====== ====== ------------------------------------------------------------------------------------------------------------------- (a)In some cases, a 1%, 1-year CDSC may apply for Class A shares. (b)The fee waiver and/or expense reimbursements will remain in effect until January 31, 2012 and will continue thereafter from year-to-year unless the Adviser provides notice of termination 60 days prior to the end of the Fund's fiscal year. EXAMPLES The Examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year, that the Fund's operating expenses stay the same and that the fee waiver is in effect for only the first year. Although your actual costs may be higher or lower, based on these assumptions your costs would be: [Download Table] CLASS A CLASS R CLASS K CLASS I ----------------------------------------------- After 1 Year $ 92 $ 112 $ 87 $ 61 After 3 Years $ 426 $ 515 $ 366 $ 317 After 5 Years $ 783 $ 944 $ 665 $ 593 After 10 Years $1,790 $2,137 $1,518 $1,380 ----------------------------------------------- PORTFOLIO TURNOVER The Fund will pay transaction costs, such as commissions, when it buys or sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These transaction costs, which are not reflected in the Annual Fund Operating Expenses or in the Examples, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 54% of the average value of its portfolio. 12
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PRINCIPAL STRATEGIES The Fund employs a dynamic risk allocation, meaning that the Fund's risk profile may vary significantly over time based upon market conditions. The Fund invests in a portfolio of fixed-income securities of U.S. and non-U.S. companies, U.S. and non-U.S. government entities and supranational entities, including lower-rated securities. The Fund limits its investments in the securities of any one non-U.S. government to 25% of its total assets. The Fund may invest in debt securities with a range of maturities from short- to long-term. The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund's other holdings. The Fund typically maintains at least 50% of its net assets in investment grade securities. The Fund may invest up to 50% of its net assets in below investment grade securities, such as corporate high yield fixed-income securities, sovereign debt obligations and fixed-income securities of issuers located in emerging markets. The Fund may also invest in mortgage-related and other asset-backed securities, loan participations, inflation-protected securities, structured securities, variable, floating, and inverse floating rate instruments and preferred stock, and may use other investment techniques. The Fund may make short sales of securities or currencies or maintain a short position. The Fund may use borrowings or other leverage for investment purposes. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures, forwards, or swap agreements. PRINCIPAL RISKS .. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. .. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. .. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. .. BELOW INVESTMENT GRADE SECURITIES: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity. .. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund's assets can decline as can the value of the Fund's distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities. .. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. .. EMERGING MARKET RISK: Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties. .. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect the value of the Fund's investments or reduce its returns. .. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund's investments. .. PREPAYMENT RISK: The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Fund to a lower rate of return upon reinvestment of principal. Early payments associated with 13
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mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Fund may not be able to realize the rate of return it expected. .. DERIVATIVES RISK: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments. .. MANAGEMENT RISK: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. As with all investments, you may lose money by investing in the Fund. BAR CHART AND PERFORMANCE INFORMATION The bar chart and performance information provide an indication of the historical risk of an investment in the Fund by showing: .. how the Fund's performance changed from year to year over ten years; and .. how the Fund's average annual returns for one, five and ten years compare to those of a broad-based securities market index. You may obtain updated performance information on the Fund's website at www.AllianceBernstein.com (click on "Pricing & Performance"). The Fund's past performance, of course, does not necessarily indicate how it will perform in the future. BAR CHART The annual returns in the bar chart are for the Fund's Class A shares and do not reflect sales loads. If sales loads were reflected, returns would be less than those shown. [CHART] 01 02 03 04 05 06 07 08 09 10 ----- ---- ----- ---- ---- ---- ---- ------ ----- ---- -2.81 5.04 15.61 6.13 4.81 4.46 6.38 -16.52 19.20 7.38 Calendar Year End (%) During the period shown in the bar chart, the Fund's: BEST QUARTER WAS UP 8.57% IN THE 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN -9.62% IN THE 4TH QUARTER, 2008. PERFORMANCE TABLE AVERAGE ANNUAL TOTAL RETURNS (For the periods ended December 31, 2010) [Enlarge/Download Table] 1 YEAR 5 YEARS* 10 YEARS* --------------------------------------------------------------------------------------------- Class A 6.38% 3.49% 4.54% --------------------------------------------------------------------------------------------- Class R 7.28% 3.27% 4.31% --------------------------------------------------------------------------------------------- Class K 7.63% 3.59% 4.61% --------------------------------------------------------------------------------------------- Class I 7.76% 3.83% 4.86% --------------------------------------------------------------------------------------------- Barclays Capital Global Aggregate Index (U.S. hedged) (reflects no deduction for fees, expenses, or taxes) 4.61% 4.85% 5.20% --------------------------------------------------------------------------------------------- BofA Merrill Lynch 3-Month T-Bill Index 0.13% 2.43% 2.38% --------------------------------------------------------------------------------------------- * Inception Dates for Class R, Class K and Class I shares: 3/1/05. Performance information for periods prior to the inception of Class R, Class K and Class I shares is the performance of the Fund's Class A shares adjusted to reflect the higher expense ratio of Class R shares and the lower expense ratio of Class K and Class I shares, respectively. 14
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INVESTMENT ADVISER AllianceBernstein L.P. is the investment adviser for the Fund. PORTFOLIO MANAGER The following table lists the persons responsible for day-to-day management of the Fund's portfolio: [Download Table] EMPLOYEE LENGTH OF SERVICE TITLE ----------------------------------------------------------------------------- Paul J. DeNoon Since 2005 Senior Vice President of the Adviser Joran Laird Since 2009 Vice President of the Adviser Douglas J. Peebles Since 1996 Senior Vice President of the Adviser Matthew S. Sheridan Since 2006 Vice President of the Adviser Greg J. Wilensky Since 2008 Senior Vice President of the Adviser ADDITIONAL INFORMATION For important information about the purchase and sale of Fund shares, tax information and financial intermediary compensation, please turn to ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES, page 20 in this Prospectus. 15
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ALLIANCEBERNSTEIN HIGH INCOME FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The Fund's investment objective is to seek to maximize total returns from price appreciation and income. FEES AND EXPENSES OF THE FUND This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment) [Enlarge/Download Table] CLASS A CLASS R CLASS K CLASS I SHARES SHARES SHARES SHARES ---------------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None None ---------------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of offering price or redemption proceeds, whichever is lower) None(a) None None None ---------------------------------------------------------------------------------------------------------------- Exchange Fee None None None None ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment) [Enlarge/Download Table] CLASS A CLASS R CLASS K CLASS I ---------------------------------------------------------------------------------------------------------------------- Management Fees .50% .50% .50% .50% Distribution and/or Service (12b-1) Fees .30% .50% .25% None Other Expenses: Transfer Agent .12% .25% .20% .12% Interest Expense and Related Expenses .04% .03% .05% .02% Other Expenses .08% .09% .08% .08% ---- ---- ---- ---- Total Other Expenses .24% .37% .33% .22% ---- ---- ---- ---- Total Annual Fund Operating Expenses 1.04% 1.37% 1.08% .72% ==== ==== ==== ==== Fee Waiver and/or Expense Reimbursement(a) (.05)% (.19)% (.13)% (.05)% ---- ---- ---- ---- Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(b) .99% 1.18% .95% .67% ==== ==== ==== ==== ---------------------------------------------------------------------------------------------------------------------- (a)In some cases, a 1%, 1-year CDSC may apply for Class A shares. (b)The fee waiver and/or expense reimbursements will remain in effect until January 31, 2012 and will continue thereafter from year-to-year unless the Adviser provides notice of termination 60 days prior to the end of the Fund's fiscal year. (c)If interest expenses were excluded, net expenses would be as follows: [Download Table] CLASS A CLASS R CLASS K CLASS I ------------------------------- .95% 1.15% .90% .65% EXAMPLES The Examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Examples also assume that your investment has a 5% return each year, that the Fund's operating expenses stay the same and that the fee waiver is in effect for only the first year. Although your actual costs may be higher or lower, based on these assumptions your costs would be: [Download Table] CLASS A CLASS R CLASS K CLASS I ----------------------------------------------- After 1 Year $ 101 $ 120 $ 97 $ 68 After 3 Years $ 326 $ 416 $ 331 $225 After 5 Years $ 569 $ 733 $ 583 $396 After 10 Years $1,267 $1,632 $1,307 $890 ----------------------------------------------- 16
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PORTFOLIO TURNOVER The Fund will pay transaction costs, such as commissions, when it buys or sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These transaction costs, which are not reflected in the Annual Fund Operating Expenses or in the Examples, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 26% of the average value of its portfolio. PRINCIPAL STRATEGIES The Fund pursues income opportunities from government, corporate, emerging market and high yield sources. It has the flexibility to invest in a broad range of fixed-income securities in both developed and emerging market countries. The Fund's investments may include U.S. and non-U.S. corporate debt securities and sovereign debt securities. The Fund may invest, without limitation, in either U.S. Dollar-denominated or non-U.S. Dollar-denominated fixed-income securities. The Adviser selects securities for purchase or sale based on its assessment of the securities' risk and return characteristics as well as the securities' impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund's other holdings. The Fund may invest in debt securities with a range of maturities from short- to long-term. Substantially all of the Fund's assets may be invested in lower-rated securities, which may include securities having the lowest rating for non-subordinated debt instruments (i.e., rated C by Moody's or CCC+ or lower by S&P and Fitch) and unrated securities of equivalent investment quality. The Fund also may invest in investment grade securities and unrated securities. The Fund may also make short sales of securities or maintain a short position. The Fund is non-diversified, meaning it may invest more of its assets in a fewer number of issuers. The Fund may invest in mortgage-related and other asset-backed securities, loan participations, inflation-protected securities, structured securities, variable, floating, and inverse floating rate instruments and preferred stock, and may use other investment techniques. The Fund may use borrowings or other leverage for investment purposes. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures, forwards, or swap agreements. PRINCIPAL RISKS .. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. .. INTEREST RATE RISK: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. .. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. .. BELOW INVESTMENT GRADE SECURITIES: Investments in fixed-income securities with lower ratings (commonly known as "junk bonds") tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity. .. INFLATION RISK: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund's assets can decline as can the value of the Fund's distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities. .. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. .. EMERGING MARKET RISK: Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties. 17
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.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect the value of the Fund's investments or reduce its returns. .. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund's investments. .. DIVERSIFICATION RISK: The Fund may have more risk because it is "non-diversified," meaning that it can invest more of its assets in a smaller number of issuers and that adverse changes in the value of one security could have a more significant effect on the Fund's NAV. .. DERIVATIVES RISK: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments. .. MANAGEMENT RISK: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. As with all investments, you may lose money by investing in the Fund. BAR CHART AND PERFORMANCE INFORMATION The bar chart and performance information provide an indication of the historical risk of an investment in the Fund by showing: .. how the Fund's performance changed from year to year over ten years; and .. how the Fund's average annual returns for one, five and ten years compare to those of a broad-based securities market index. You may obtain updated performance information on the Fund's website at www.AllianceBernstein.com (click on "Pricing & Performance"). The Fund's past performance, of course, does not necessarily indicate how it will perform in the future. BAR CHART The annual returns in the bar chart are for the Fund's Class A shares and do not reflect sales loads. If sales loads were reflected, returns would be less than those shown. [CHART] 01 02 03 04 05 06 07 08 09 10 ---- ----- ----- ----- ----- ----- ---- ------ ----- ----- 6.10 18.70 38.42 11.09 10.16 11.85 7.29 -26.52 61.74 16.80 Calendar Year End (%) During the period shown in the bar chart, the Fund's: BEST QUARTER WAS UP 23.96% IN THE 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN -17.75% IN THE 4TH QUARTER, 2008. 18
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PERFORMANCE TABLE AVERAGE ANNUAL TOTAL RETURNS (For the periods ended December 31, 2010) [Enlarge/Download Table] 1 YEAR 5 YEARS* 10 YEARS* ------------------------------------------------------------------------------------------------------------------ Class A 15.80% 10.75% 13.52% ------------------------------------------------------------------------------------------------------------------ Class R 16.58% 10.54% 13.30% ------------------------------------------------------------------------------------------------------------------ Class K 16.89% 10.82% 13.59% ------------------------------------------------------------------------------------------------------------------ Class I 17.31% 11.11% 13.87% ------------------------------------------------------------------------------------------------------------------ JPMorgan Emerging Markets Bond Index Global ("EMBI Global") (U.S. Dollar-denominated) 12.04% 8.36% 10.29% ------------------------------------------------------------------------------------------------------------------ JPMorgan Government Bond Index Emerging Markets ("GBI-EM") (local currency-denominated) (reflects no deduction for fees, expenses, or taxes) 13.08% 9.82% N/A ------------------------------------------------------------------------------------------------------------------ Barclays Capital High Yield Index (2% Constrained) ("BC High Yield") (reflects no deduction for fees, expenses, or taxes) 14.94% 8.91% 9.01% ------------------------------------------------------------------------------------------------------------------ Composite Benchmark (equal weighted blend of EMBI Global, GBI-EM and BC High Yield) 13.43% 9.19% N/A ------------------------------------------------------------------------------------------------------------------ * Inception date for Class R, Class K and Class I shares: 1/28/08. Performance information for periods prior to the inception of Class R, Class K and Class I shares is the performance of the Class A shares adjusted to reflect the higher expense ratio of Class R shares and the lower expense ratio of Class K and Class I shares, respectively. INVESTMENT ADVISER AllianceBernstein L.P. is the investment adviser for the Fund. PORTFOLIO MANAGER The following table lists the persons responsible for day-to-day management of the Fund's portfolio: [Download Table] EMPLOYEE LENGTH OF SERVICE TITLE ------------------------------------------------------------------------------- Paul J. DeNoon Since 2002 Senior Vice President of the Adviser Gershon M. Distenfeld Since 2008 Senior Vice President of the Adviser Douglas J. Peebles Since 2002 Senior Vice President of the Adviser Marco Santamaria Since 2010 Vice President of the Adviser Matthew S. Sheridan Since 2005 Vice President of the Adviser ADDITIONAL INFORMATION For important information about the purchase and sale of Fund shares, tax information and financial intermediary compensation, please turn to ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES, page 20 in this Prospectus. 19
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ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARIES . PURCHASE AND SALE OF FUND SHARES PURCHASE MINIMUMS Class A, Class R, Class K and Class I shares are available at NAV, without an initial sales charge, to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit-sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans where plan level or omnibus accounts are held on the books of a Fund. You may sell (redeem) your shares each day the New York Stock Exchange is open. You may sell your shares through your financial intermediary. . TAX INFORMATION Each Fund may make income dividends or capital gains distributions, which may be subject to federal income taxes and taxable as ordinary income or capital gains, and may also be subject to state and local taxes. . PAYMENTS TO FINANCIAL INTERMEDIARIES Financial intermediaries market and sell shares of the Funds. A Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the financial intermediary to recommend the Fund over another investment. 20
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ADDITIONAL INFORMATION ABOUT THE FUNDS' RISKS AND INVESTMENTS -------------------------------------------------------------------------------- This section of the Prospectus provides additional information about the Funds' investment practices and related risks. Most of these investment practices are discretionary, which means that the Adviser may or may not decide to use them. This Prospectus does not describe all of a Fund's investment practices and additional information about each Fund's risks and investments can be found in the Funds' SAI. DERIVATIVES Each Fund may, but is not required to, use derivatives for risk management purposes or as part of its investment strategies. Derivatives are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index. A Fund may use derivatives to earn income and enhance returns, to hedge or adjust the risk profile of its portfolio, to replace more traditional direct investments and to obtain exposure to otherwise inaccessible markets. There are four principal types of derivatives, including options, futures, forwards and swaps, which are described below. Derivatives may be (i) standardized, exchange-traded contracts or (ii) customized, privately negotiated contracts. Exchange-traded derivatives tend to be more liquid and subject to less credit risk than those that are privately negotiated. A Fund's use of derivatives may involve risks that are different from, or possibly greater than, the risks associated with investing directly in securities or other more traditional instruments. These risks include the risk that the value of a derivative instrument may not correlate perfectly, or at all, with the value of the assets, reference rates, or indices that they are designed to track. Other risks include: the possible absence of a liquid secondary market for a particular instrument and possible exchange-imposed price fluctuation limits, either of which may make it difficult or impossible to close out a position when desired; and the risk that the counterparty will not perform its obligations. Certain derivatives may have a leverage component and involve leverage risk. Adverse changes in the value or level of the underlying asset, note or index can result in a loss substantially greater than the Fund's investment (in some cases, the potential loss is unlimited). The Funds' investments in derivatives may include, but are not limited to, the following: .. FORWARD CONTRACTS--A forward contract is an agreement that obligates one party to buy, and the other party to sell, a specific quantity of an underlying commodity or other tangible asset for an agreed upon price at a future date. A forward contract is either settled by physical delivery of the commodity or tangible asset to an agreed-upon location at a future date, rolled forward into a new forward contract or, in the case of a non-deliverable forward, by a cash payment at maturity. The Funds' investments in forward contracts may include the following: - Forward Currency Exchange Contracts. A Fund may purchase or sell forward currency exchange contracts for hedging purposes to minimize the risk from adverse changes in the relationship between the U.S. Dollar and other currencies or for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions." A Fund, for example, may enter into a forward contract as a transaction hedge (to "lock in" the U.S. Dollar price of a non-U.S. Dollar security), as a position hedge (to protect the value of securities the Fund owns that are denominated in a foreign currency against substantial changes in the value of the foreign currency) or as a cross-hedge (to protect the value of securities the Fund owns that are denominated in a foreign currency against substantial changes in the value of that foreign currency by entering into a forward contract for a different foreign currency that is expected to change in the same direction as the currency in which the securities are denominated). .. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A futures contract is an agreement that obligates the buyer to buy and the seller to sell a specified quantity of an underlying asset (or settle for cash the value of a contract based on an underlying asset, rate or index) at a specific price on the contract maturity date. Options on futures contracts are options that call for the delivery of futures contracts upon exercise. A Fund may purchase or sell futures contracts and options thereon to hedge against changes in interest rates, securities (through index futures or options) or currencies. A Fund may also purchase or sell futures contracts for foreign currencies or options thereon for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions." .. OPTIONS--An option is an agreement that, for a premium payment or fee, gives the option holder (the buyer) the right but not the obligation to buy (a "call option") or sell (a "put option") the underlying asset (or settle for cash an amount based on an underlying asset, rate or index) at a specified price (the exercise price) during a period of time or on a specified date. Investments in options are considered speculative. A Fund may lose the premium paid for them if the price of the underlying security or other asset decreased or remained the same (in the case of a call option) or increased or remained the same (in the case of a put option). If a put or call option purchased by a Fund were permitted to expire without being sold or exercised, its premium would represent a loss to the Fund. The Funds' investments in options include the following: - Options on Foreign Currencies. A Fund may invest in options on foreign currencies that are privately negotiated or traded on U.S. or foreign exchanges for hedging purposes to protect against declines in the U.S. Dollar value of foreign currency denominated securities held by a Fund 21
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and against increases in the U.S. Dollar cost of securities to be acquired. The purchase of an option on a foreign currency may constitute an effective hedge against fluctuations in exchange rates, although if rates move adversely, a Fund may forfeit the entire amount of the premium plus related transaction costs. A Fund may also invest in options on foreign currencies for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions." - Options on Securities. A Fund may purchase or write a put or call option on securities. A Fund may write covered options, which means writing an option for securities the Fund owns, and uncovered options. - Options on Securities Indices. An option on a securities index is similar to an option on a security except that, rather than taking or making delivery of a security at a specified price, an option on a securities index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the chosen index is greater than (in the case of a call) or less than (in the case of a put) the exercise price of the option. .. SWAP TRANSACTIONS--A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals (payment dates) based upon or calculated by reference to changes in specified prices or rates (interest rates in the case of interest rate swaps, currency exchange rates in the case of currency swaps) for a specified amount of an underlying asset (the "notional" principal amount). Swaps are entered into on a net basis (i.e., the two payment streams are netted out, with a Fund receiving or paying, as the case may be, only the net amount of the two payments). Except for currency swaps, the notional principal amount is used solely to calculate the payment stream, but is not exchanged. The Funds' investments in swap transactions include the following: - Interest Rate Swaps, Swaptions, Caps and Floors. Interest rate swaps involve the exchange by a Fund with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating rate payments for fixed rate payments). Unless there is a counterparty default, the risk of loss to the Fund from interest rate swap transactions is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the counterparty to an interest rate swap transaction defaults, the Fund's risk of loss consists of the net amount of interest payments that the Fund contractually is entitled to receive. An option on a swap agreement, also called a "swaption," is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based "premium." A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest on a contractually-based principal amount from the party selling the interest rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on an agreed principal amount from the party selling the interest rate floor. Caps and floors may be less liquid than swaps. There is no limit on the amount of interest rate transactions that may be entered into by a Fund. The value of these transactions will fluctuate based on changes in interest rates. Interest rate swap, swaption, cap and floor transactions may be used to preserve a return or spread on a particular investment or a portion of a Fund's portfolio or to protect against an increase in the price of securities a Fund anticipates purchasing at a later date. - Inflation (CPI) Swaps. Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swap agreements may be used to protect the NAV of a Fund against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases. - Credit Default Swap Agreements. The "buyer" in a credit default swap contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract in return for a contingent payment upon the occurrence of a credit event with respect to an underlying reference obligation. Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or modified restructuring. A Fund may be either the buyer or seller in the transaction. If a Fund is a seller, the Fund receives a fixed rate of income throughout the term of the contract, which typically is between one month and five years, provided that no credit event occurs. If a credit event occurs, a Fund typically must pay the contingent payment to the buyer, which is typically the "par value" (full notional value) of the reference obligation. The contingent payment may be a cash settlement or by physical delivery of the reference obligation in return for payment of the face amount of the obligation. The value of the reference obligation received by a Fund coupled with the periodic payments previously received may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. If the reference obligation is a defaulted security, physical delivery of the security will cause a Fund to hold a defaulted security. If a Fund is a buyer and no credit event occurs, the Fund will lose its periodic 22
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stream of payments over the term of the contract. However, if a credit event occurs, the buyer typically receives full notional value for a reference obligation that may have little or no value. Credit default swaps may involve greater risks than if a Fund had invested in the reference obligation directly. Credit default swaps are subject to general market risk, liquidity risk and credit risk. - Currency Swaps. A Fund may invest in currency swaps for hedging purposes to protect against adverse changes in exchange rates between the U.S. Dollar and other currencies or for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Other Derivatives and Strategies--Currency Transactions." Currency swaps involve the individually negotiated exchange by a Fund with another party of a series of payments in specified currencies. Actual principal amounts of currencies may be exchanged by the counterparties at the initiation, and again upon the termination, of the transaction. Therefore, the entire principal value of a currency swap is subject to the risk that the swap counterparty will default on its contractual delivery obligations. If there is a default by the counterparty to the transaction, the Fund will have contractual remedies under the transaction agreements. - Total Return Swaps. A Fund may enter into total return swaps, under which one party agrees to pay the other the total return of a defined underlying asset, such as a security or basket of securities, or non-asset reference, such as a securities index, during the specified period in return for periodic payments based on a fixed or variable interest rate or the total return from different underlying assets or references. Total return swaps could result in losses if the underlying asset or reference does not perform as anticipated. .. OTHER DERIVATIVES AND STRATEGIES-- - Eurodollar Instruments. Eurodollar instruments are essentially U.S. Dollar-denominated futures contracts or options that are linked to the London Interbank Offered Rate (LIBOR). Eurodollar futures contracts enable purchasers to obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate for borrowings. - Structured Instruments. As part of its investment program and to maintain greater flexibility, a Fund may invest in structured instruments. Structured instruments, including indexed or structured securities, combine the elements of futures contracts or options with those of debt, preferred equity or a depositary instrument. Generally, a structured instrument will be a debt security, preferred stock, depositary share, trust certificate, certificate of deposit or other evidence of indebtedness on which a portion of or all interest payments, and/or the principal or stated amount payable at maturity, redemption or retirement, is determined by reference to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, articles or commodities (collectively "Underlying Assets") or by another objective index, economic factor or other measure, such as interest rates, currency exchange rates, commodity indices, and securities indices (collectively, "Benchmarks"). Thus, structured instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion terms related to a particular commodity. Structured instruments are potentially more volatile and carry greater market risks than traditional debt instruments. Depending on the structure of the particular structured instrument, changes in a Benchmark may be magnified by the terms of the structured instrument and have an even more dramatic and substantial effect upon the value of the structured instrument. Also, the prices of the structured instrument and the Benchmark or Underlying Asset may not move in the same direction or at the same time. Structured instruments can have volatile prices and limited liquidity, and their use by a Fund may not be successful. The risk of these investments can be substantial; possibly all of the principal is at risk. No Fund will invest more than 20% of its total assets in these investments. - Currency Transactions. A Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or un-hedged basis. The Adviser may actively manage a Fund's currency exposures and may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps and options. The Adviser may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by a Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. A Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies). FORWARD COMMITMENTS Forward commitments for the purchase or sale of securities may include purchases on a when-issued basis or purchases or sales on a delayed delivery basis. In some cases, a forward commitment may be conditioned upon the occurrence of a subsequent event, such as approval and consummation of a merger, corporate reorganization or debt restructuring or approval of a proposed financing by appropriate authorities (i.e., a "when, as and if issued" trade). 23
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A Fund may invest significantly in TBA-mortgage-backed securities. A TBA or "To Be Announced" trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agreed-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed rate or variable rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions. When forward commitments with respect to fixed-income securities are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but payment for and delivery of the securities take place at a later date. Securities purchased or sold under a forward commitment are subject to market fluctuation and no interest or dividends accrue to the purchaser prior to the settlement date. There is the risk of loss if the value of either a purchased security declines before the settlement date or the security sold increases before the settlement date. The use of forward commitments helps a Fund to protect against anticipated changes in interest rates and prices. ILLIQUID SECURITIES Under current Securities and Exchange Commission ("Commission") guidelines, the Funds limit their investments in illiquid securities to 15% of their net assets. The term "illiquid securities" for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount a Fund has valued the securities. A Fund that invests in illiquid securities may not be able to sell such securities and may not be able to realize their full value upon sale. Restricted securities (securities subject to legal or contractual restrictions on resale) may be illiquid. Some restricted securities (such as securities issued pursuant to Rule 144A under the Securities Act of 1933 (the "Securities Act") or certain commercial paper) may be treated as liquid, although they may be less liquid than registered securities traded on established secondary markets. INDEXED COMMERCIAL PAPER Indexed commercial paper may have its principal linked to changes in foreign currency exchange rates whereby its principal amount is adjusted upwards or downwards (but not below zero) at maturity to reflect changes in the referenced exchange rate. A Fund will receive interest and principal payments on such commercial paper in the currency in which such commercial paper is denominated, but the amount of principal payable by the issuer at maturity will change in proportion to the change (if any) in the exchange rate between the two specified currencies between the date the instrument is issued and the date the instrument matures. While such commercial paper entails the risk of loss of principal, the potential for realizing gains as a result of changes in foreign currency exchange rates enables a Fund to hedge (or cross-hedge) against a decline in the U.S. Dollar value of investments denominated in foreign currencies while providing an attractive money market rate of return. A Fund will purchase such commercial paper for hedging purposes only, not for speculation. INFLATION-PROTECTED SECURITIES Inflation-protected securities, or IPS, are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of these securities will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. The value of inflation-protected securities tends to react to changes in real interest rates. In general, the price of an inflation-protected security can fall when real interest rates rise, and can rise when real interest rates fall. In addition, the value of inflation-protected securities can fluctuate based on fluctuations in expectations of inflation. Interest payments on inflation-protected securities can be unpredictable and will vary as the principal and/or interest is adjusted for inflation. INVESTMENT IN OTHER INVESTMENT COMPANIES The Funds may invest in other investment companies as permitted by the Investment Company Act of 1940 (the "1940 Act") or the rules and regulations thereunder. The Funds intend to invest uninvested cash balances in an affiliated money market fund as permitted by Rule 12d1-1 under the 1940 Act. If a Fund acquires shares in investment companies, shareholders would bear, indirectly, the expenses of such investment companies (which may include management and advisory fees), which are in addition to the Fund's expenses. A Fund may also invest in exchange-traded funds, subject to the restrictions and limitations of the 1940 Act or any applicable rules, exemptive orders or regulatory guidance. LOAN PARTICIPATIONS A Fund may invest in corporate loans either by participating as co-lender at the time the loan is originated or by buying an interest in the loan in the secondary market from a financial institution or institutional investor. The financial status of an institution interposed between a Fund and a borrower may affect the ability of the Fund to receive principal and interest payments. The success of a Fund may depend on the skill with which an agent bank administers the terms of the corporate loan agreements, monitors borrower compliance with covenants, collects principal, interest and fee payments from borrowers and, where necessary, enforces creditor remedies against borrowers. Agent banks typically have broad discretion in enforcing loan agreements. MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES A Fund may invest in mortgage-related or other asset-backed securities. Mortgage-related securities include mortgage pass-through securities, collateralized mortgage obligations ("CMOs"), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities ("SMBSs") and other securities that directly or indirectly represent a participation in or are secured by and payable from 24
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mortgage loans on real property. These securities may be issued or guaranteed by the U.S. Government or one of its sponsored entities or may be issued by private organizations. The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose a Fund to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, a Fund may not be able to realize the rate of return it expected. One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or "IO" class), while the other class will receive all of the principal (the principal-only, or "PO" class). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund's yield to maturity from these securities. A Fund may invest in collateralized debt obligations ("CDOs"), which include collateralized bond obligations ("CBOs"), collateralized loan obligations ("CLOs"), and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust that is backed by a diversified pool of high-risk, below investment grade fixed-income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. The Funds may invest in other asset-backed securities that have been offered to investors. A Fund may invest in other asset-backed securities. The securitization techniques used to develop mortgage-related securities are being applied to a broad range of financial assets. Through the use of trusts and special purpose corporations, various types of assets, including automobile loans and leases, credit card receivables, home equity loans, equipment leases and trade receivables, are being securitized in structures similar to the structures used in mortgage securitizations. PREFERRED STOCK A Fund 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 issuer. These investments include convertible preferred stock, which includes an option for the holder to convert the preferred stock into the issuer's common stock under certain conditions, among which may be the specification of a future date when the conversion may begin, a certain number of common shares per preferred shares, or a certain price per share for the common stock. Convertible preferred stock tends to be more volatile than non-convertible preferred stock, because its value is related to the price of the issuer's common stock as well as the dividends payable on the preferred stock. REPURCHASE AGREEMENTS AND BUY/SELL BACK TRANSACTIONS A Fund may enter into repurchase agreements in which a Fund purchases a security from a bank or broker-dealer, which agrees to repurchase the security from the Fund at an agreed-upon future date, normally a day or a few days later. The purchase and repurchase transactions are transacted under one agreement. The resale price is greater than the purchase price, reflecting an agreed-upon interest rate for the period the buyer's money is invested in the security. Such agreements permit a Fund to keep all of its assets at work while retaining "overnight" flexibility in pursuit of investments of a longer-term nature. If the bank or broker-dealer defaults on its repurchase obligation, a Fund would suffer a loss to the extent that the proceeds from the sale of the security were less than the repurchase price. A Fund may enter into buy/sell back transactions, which are similar to repurchase agreements. In this type of transaction, a Fund enters a trade to buy securities at one price and simultaneously enters a trade to sell the same securities at another price on a specified date. Similar to a repurchase agreement, the repurchase price is higher than the sale price and reflects current interest rates. Unlike a repurchase agreement, however, the buy/sell back transaction is considered two separate transactions. REVERSE REPURCHASE AGREEMENTS, DOLLAR ROLLS AND OTHER BORROWINGS A Fund may enter into reverse repurchase agreements and dollar rolls, subject to the Fund's limitations on borrowings. A reverse repurchase agreement or dollar roll involves the sale of a security by a Fund and its agreement to repurchase the instrument at a specified time and price, and may be considered a form of borrowing for some purposes. Reverse repurchase agreements, dollar rolls and other forms of borrowings may create leverage risk for a Fund. In addition, reverse repurchase agreements and dollar rolls involve the risk that the market value of the securities a Fund is obligated to repurchase may decline below the purchase price. Dollar rolls involve sales by a Fund of securities for delivery in the current month and the Fund's simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, a Fund forgoes principal and interest paid on the securities. A Fund is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. 25
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Reverse repurchase agreements and dollar rolls involve the risk that the market value of the securities a Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement or dollar roll files for bankruptcy or becomes insolvent, a Fund's use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. RIGHTS AND WARRANTS Rights and warrants are option securities permitting their holders to subscribe for other securities. Rights are similar to warrants except that they have a substantially shorter duration. Rights and warrants do not carry with them dividend or voting rights with respect to the underlying securities, or any rights in the assets of the issuer. As a result, an investment in rights and warrants may be considered more speculative than certain other types of investments. In addition, the value of a right or a warrant does not necessarily change with the value of the underlying securities, and a right or a warrant ceases to have value if it is not exercised prior to its expiration date. SHORT SALES A Fund may make short sales as a part of overall portfolio management or to offset a potential decline in the value of a security. A short sale involves the sale of a security that a Fund does not own, or if the Fund owns the security, is not to be delivered upon consummation of the sale. When the Fund makes a short sale of a security that it does not own, it must borrow from a broker-dealer the security sold short and deliver the security to the broker-dealer upon conclusion of the short sale. If the price of the security sold short increases between the time of the short sale and the time a Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a gain. The potential for the price of a fixed-income security sold short to rise is a function of both the remaining maturity of the obligation, its creditworthiness and its yield. Unlike short sales of equities or other instruments, potential for the price of a fixed-income security to rise may be limited due to the fact that the security will be no more than par at maturity. However, the short sale of other instruments or securities generally, including fixed-income securities convertible into equities or other instruments, a fixed-income security trading at a deep discount from par or that pays a coupon that is high in relative and/or absolute terms, or that is denominated in a currency other than the U.S. Dollar, involves the possibility of a theoretically unlimited loss since there is a theoretically unlimited potential for the market price of the security sold short to increase. STANDBY COMMITMENT AGREEMENTS Standby commitment agreements are similar to put options that commit a Fund, for a stated period of time, to purchase a stated amount of a security that may be issued and sold to the Fund at the option of the issuer. The price and coupon of the security are fixed at the time of the commitment. At the time of entering into the agreement, the Fund is paid a commitment fee, regardless of whether the security ultimately is issued. The Funds will enter into such agreements only for the purpose of investing in the security underlying the commitment at a yield and price considered advantageous to the Fund and unavailable on a firm commitment basis. There is no guarantee that a security subject to a standby commitment will be issued. In addition, the value of the security, if issued, on the delivery date may be more or less than its purchase price. Since the issuance of the security is at the option of the issuer, a Fund will bear the risk of capital loss in the event the value of the security declines and may not benefit from an appreciation in the value of the security during the commitment period if the issuer decides not to issue and sell the security to the Fund. STRUCTURED SECURITIES AND BASKET SECURITIES A Fund may invest in various types of structured securities and basket securities. Structured securities are securities issued in structured financing transactions, which generally involve aggregating types of debt assets in a pool or special purpose entity and then issuing new securities. Types of structured financings include securities described elsewhere in this Prospectus, such as mortgage-related and other asset-backed securities. A Fund's investments include investments in structured securities that represent interests in entities organized and operated solely for the purpose of restructuring the investment characteristics of particular debt obligations. This type of restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments (such as commercial bank loans or high yield bonds) and the issuance by that entity of one or more classes of structured securities backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics such as varying maturities, payment priorities and interest rate provisions, and the extent of the payments made with respect to structured securities is dependent on the extent of the cash flow from the underlying instruments. Structured securities of a given class may be either subordinated or unsubordinated to the payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Basket securities in which a Fund may invest may consist of entities organized and operated for the purpose of holding a basket of other securities. Baskets involving debt obligations may be designed to represent the characteristics of some portion of the debt securities market or the entire debt securities market. SOVEREIGN DEBT OBLIGATIONS No established secondary markets may exist for many sovereign debt obligations. Reduced secondary market liquidity may have an adverse effect on the market price and a Fund's ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain sovereign debt obligations may also make it more difficult for a Fund to 26
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obtain accurate market quotations for the purpose of valuing its portfolio. Market quotations are generally available on many sovereign debt obligations only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales. By investing in sovereign debt obligations, the Funds will be exposed to the direct or indirect consequences of political, social, and economic changes in various countries. Political changes in a country may affect the willingness of a foreign government to make or provide for timely payments of its obligations. The country's economic status, as reflected in, among other things, its inflation rate, the amount of its external debt and its gross domestic product, will also affect the government's ability to honor its obligations. The Funds are permitted to invest in sovereign debt obligations that are not current in the payment of interest or principal or are in default so long as the Adviser believes it to be consistent with the Funds' investment objectives. The Funds may have limited legal recourse in the event of a default with respect to certain sovereign debt obligations they hold. For example, remedies from defaults on certain sovereign debt obligations, unlike those on private debt, must, in some cases, be pursued in the courts of the defaulting party itself. Legal recourse therefore may be significantly diminished. Bankruptcy, moratorium, and other similar laws applicable to issuers of sovereign debt obligations may be substantially different from those applicable to issuers of private debt obligations. The political context, expressed as the willingness of an issuer of sovereign debt obligations to meet the terms of the debt obligation, for example, is of considerable importance. In addition, no assurance can be given that the holders of commercial bank debt will not contest payments to the holders of securities issued by foreign governments in the event of default under commercial bank loan agreements. VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS Variable and floating rate securities pay interest at rates that are adjusted periodically, according to a specified formula. A "variable" interest rate adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a "floating" interest rate adjusts whenever a specified benchmark rate (such as the bank prime lending rate) changes. A Fund may also invest in inverse floating rate debt instruments ("inverse floaters"). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may have greater volatility in market value, in that, during periods of rising interest rates, the market values of inverse floaters will tend to decrease more rapidly than those of fixed rate securities. ZERO COUPON AND PRINCIPAL-ONLY SECURITIES Zero coupon securities and principal-only (PO) securities are debt securities that have been issued without interest coupons or stripped of their unmatured interest coupons, and include receipts or certificates representing interests in such stripped debt obligations and coupons. Such a security pays no interest to its holder during its life. Its value to an investor consists of the difference between its face value at the time of maturity and the price for which it was acquired, which is generally an amount significantly less than its face value. Such securities usually trade at a deep discount from their face or par value and are subject to greater fluctuations in market value in response to changing interest rates than debt obligations of comparable maturities and credit quality that make current distributions of interest. On the other hand, because there are no periodic interest payments to be reinvested prior to maturity, these securities eliminate reinvestment risk and "lock in" a rate of return to maturity. ADDITIONAL RISK AND OTHER CONSIDERATIONS Investments in the Funds involve the special risk considerations described below. Certain of these risks may be heightened when investing in emerging markets. BORROWING AND LEVERAGE The Funds may use borrowings for investment purposes subject to applicable statutory or regulatory requirements. Borrowings by a Fund result in leveraging of the Fund's shares. A Fund may also use leverage for investment transactions by entering into transactions such as reverse repurchase agreements, forward contracts and dollar rolls. This means that a Fund uses cash made available during the term of these transactions to make investments in other fixed-income securities. Utilization of leverage, which is usually considered speculative, involves certain risks to a Fund's shareholders. These include a higher volatility of the NAV of a Fund's shares and the relatively greater effect on the NAV of the shares. So long as a Fund is able to realize a net return on its investment portfolio that is higher than the interest expense paid on borrowings or the carrying costs of leveraged transactions, the effect of leverage will be to cause the Fund's shareholders to realize a higher current net investment income than if the Fund were not leveraged. If the interest expense on borrowings or the carrying costs of leveraged transactions approaches the net return on a Fund's investment portfolio, the benefit of leverage to the Fund's shareholders will be reduced. If the interest expense on borrowings or the carrying costs of leveraged transactions were to exceed the net return to shareholders, a Fund's use of leverage would result in a lower rate of return. Similarly, the effect of leverage in a declining market could be a greater decrease in NAV. In an extreme case, if a Fund's current investment income were not sufficient to meet the interest expense on borrowings or the carrying costs of leveraged transactions, it could be necessary for the Fund to liquidate certain of its investments, thereby reducing its NAV. FOREIGN (NON-U.S.) SECURITIES Investing in foreign securities involves special risks and considerations not typically associated with investing in U.S. securities. The securities markets of many foreign countries are relatively small, with the majority of market capitalization and trading volume concentrated in a limited number of companies representing a small number of industries. A Fund that invests 27
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in foreign fixed-income securities may experience greater price volatility and significantly lower liquidity than a portfolio invested solely in securities of U.S. companies. These markets may be subject to greater influence by adverse events generally affecting the market, and by large investors trading significant blocks of securities, than is usual in the United States. Securities registration, custody, and settlement may in some instances be subject to delays and legal and administrative uncertainties. Foreign investment in the securities markets of certain foreign countries is restricted or controlled to varying degrees. These restrictions or controls may at times limit or preclude investment in certain securities and may increase the cost and expenses of a Fund. In addition, the repatriation of investment income, capital or the proceeds of sales of securities from certain of the countries is controlled under regulations, including in some cases the need for certain advance government notification or authority, and if a deterioration occurs in a country's balance of payments, the country could impose temporary restrictions on foreign capital remittances. A Fund also could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation, as well as by the application to it of other restrictions on investment. Investing in local markets may require a Fund to adopt special procedures or seek local governmental approvals or other actions, any of which may involve additional costs to a Fund. These factors may affect the liquidity of a Fund's investments in any country and the Adviser will monitor the effect of any such factor or factors on a Fund's investments. Transaction costs, including brokerage commissions for transactions both on and off the securities exchanges, in many foreign countries are generally higher than in the United States. Issuers of securities in foreign jurisdictions are generally not subject to the same degree of regulation as are U.S. issuers with respect to such matters as insider trading rules, restrictions on market manipulation, shareholder proxy requirements, and timely disclosure of information. The reporting, accounting, and auditing standards of foreign countries may differ, in some cases significantly, from U.S. standards in important respects, and less information may be available to investors in foreign securities than to investors in U.S. securities. Substantially less information is publicly available about certain non-U.S. issuers than is available about most U.S. issuers. The economies of individual foreign countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product or gross national product, rate of inflation, capital reinvestment, resource self-sufficiency, and balance of payments position. Nationalization, expropriation or confiscatory taxation, currency blockage, political changes, government regulation, political or social instability, revolutions, wars or diplomatic developments could affect adversely the economy of a foreign country. In the event of nationalization, expropriation, or other confiscation, a Fund could lose its entire investment in securities in the country involved. In addition, laws in foreign countries governing business organizations, bankruptcy and insolvency may provide less protection to security holders such as the Fund than that provided by U.S. laws. Investments in securities of companies in emerging markets involve special risks. There are approximately 100 countries identified by the World Bank as Low Income, Lower Middle Income and Upper Middle Income countries that are generally regarded as Emerging Markets. Emerging market countries that the Adviser currently considers for investment are listed below. Countries may be added to or removed from this list at any time. [Download Table] Algeria Hong Kong Poland Argentina Hungary Qatar Belize India Romania Brazil Indonesia Russia Bulgaria Israel Singapore Chile Jamaica Slovakia China Jordan Slovenia Colombia Kazakhstan South Africa Costa Rica Lebanon South Korea Cote D'Ivoire Malaysia Taiwan Croatia Mexico Thailand Czech Republic Morocco Trinidad & Tobago Dominican Republic Nigeria Tunisia Ecuador Pakistan Turkey Egypt Panama Ukraine El Salvador Peru Uruguay Guatemala Philippines Venezuela Investing in emerging market securities imposes risks different from, or greater than, risks of investing in domestic securities or in foreign, developed countries. These risks include: smaller market capitalization of securities markets, which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign investment; and possible repatriation of investment income and capital. In addition, foreign investors may be required to register the proceeds of sales; future economic or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization or creation of government monopolies. The currencies of emerging market countries may experience significant declines against the U.S. Dollar, and devaluation may occur subsequent to investments in these currencies by a Fund. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries. Additional risks of emerging market securities may include: greater social, economic and political uncertainty and instability; more substantial governmental involvement in the economy; less governmental supervision and regulation; unavailability of currency hedging techniques; companies that are newly organized and small; differences in auditing and financial reporting standards, which may result in unavailability of material information about issuers; and less developed legal systems. In addition, emerging securities markets may have different clearance and settlement procedures, which may be unable to keep pace with the volume of securities transactions or otherwise make it difficult to engage in such transactions. Settlement problems may cause a Fund to miss attractive investment oppor- 28
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tunities, hold a portion of its assets in cash pending investment, or be delayed in disposing of a portfolio security. Such a delay could result in possible liability to a purchaser of the security. FOREIGN (NON-U.S.) CURRENCIES A Fund that invests some portion of its assets in securities denominated in, and receives revenues in, foreign currencies will be adversely affected by reductions in the value of those currencies relative to the U.S. Dollar. Foreign currency exchange rates may fluctuate significantly. They are determined by supply and demand in the foreign exchange markets, the relative merits of investments in different countries, actual or perceived changes in interest rates, and other complex factors. Currency exchange rates also can be affected unpredictably by intervention (or the failure to intervene) by U.S. or foreign governments or central banks or by currency controls or political developments. In light of these risks, a Fund may engage in certain currency hedging transactions, as described above, which involve certain special risks. A Fund may also invest directly in foreign currencies for non-hedging purposes directly on a spot basis (i.e., cash) or through derivative transactions, such as forward currency exchange contracts, futures and options thereon, swaps and options as described above. These investments will be subject to the same risks. In addition, currency exchange rates may fluctuate significantly over short periods of time, causing a Fund's NAV to fluctuate. INVESTMENT IN BELOW INVESTMENT GRADE FIXED-INCOME SECURITIES Investments in securities rated below investment grade (commonly known as "junk bonds") may be subject to greater risk of loss of principal and interest than higher-rated securities. These securities are also generally considered to be subject to greater market risk than higher-rated securities. The capacity of issuers of these securities to pay interest and repay principal is more likely to weaken than is that of issuers of higher-rated securities in times of deteriorating economic conditions or rising interest rates. In addition, below investment grade securities may be more susceptible to real or perceived adverse economic conditions than investment grade securities. The market for these securities may be thinner and less active than that for higher-rated securities, which can adversely affect the prices at which these securities can be sold. To the extent that there is no established secondary market for these securities, a Fund may experience difficulty in valuing such securities and, in turn, the Fund's assets. UNRATED SECURITIES A Fund may invest in unrated securities when the Adviser believes that the financial condition of the issuers of such securities, or the protection afforded by the terms of the securities themselves, limits the risk to the Fund to a degree comparable to that of rated securities that are consistent with the Fund's objective and policies. FUTURE DEVELOPMENTS A Fund may take advantage of other investment practices that are not currently contemplated for use by the Fund, or are not available but may yet be developed, to the extent such investment practices are consistent with the Fund's investment objective and legally permissible for the Fund. Such investment practices, if they arise, may involve risks that exceed those involved in the activities described above. CHANGES IN INVESTMENT OBJECTIVES AND POLICIES A Fund's Board of Directors (the "Board") may change the Fund's investment objective without shareholder approval. The Fund will provide shareholders with 60 days' prior written notice of any change to the Fund's investment objective. Unless otherwise noted, all other investment policies of a Fund may be changed without shareholder approval. TEMPORARY DEFENSIVE POSITION For temporary defensive purposes in an attempt to respond to adverse market, economic, political or other conditions, each Fund may invest in certain types of short-term, liquid, investment grade or high quality (depending on the Fund) debt securities. While a Fund is investing for temporary defensive purposes, it may not meet its investment objectives. PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the disclosure of the Funds' portfolio securities is available in the Funds' SAI. 29
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INVESTING IN THE FUNDS -------------------------------------------------------------------------------- This section discusses how to buy, sell or redeem, or exchange different classes of shares of a Fund that are offered in this Prospectus. The Funds offer four classes of shares through this Prospectus. Each share class represents an investment in the same portfolio of securities, but the classes may have different sales charges and bear different ongoing distribution expenses. For additional information on the differences between the different classes of shares and factors to consider when choosing among them, please see "The Different Share Class Expenses" below. HOW TO BUY SHARES The purchase of a Fund's shares is priced at the next determined NAV after your order is received in proper form. Class A, Class R, Class K and Class I shares are available at NAV, without an initial sales charge, to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit-sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans where plan level or omnibus accounts are held on the books of a Fund ("group retirement plans"), as follows: Class A shares offered through this Prospectus are designed for group retirement plans with assets in excess of $10,000,000. Class A shares are also available at NAV to the AllianceBernstein Link, AllianceBernstein Individual 401(k) and AllianceBernstein SIMPLE IRA plans with at least $250,000 in plan assets or 100 employees. Class R shares are designed for group retirement plans with plan assets up to $10,000,000. Class K shares are designed for group retirement plans with at least $1,000,000 in plan assets. Class I shares are designed for group retirement plans with at least $10,000,000 in plan assets and certain related group retirement plans described in the Funds' SAI. Class I shares are also available to certain institutional clients of the Adviser who invest at least $2 million in a Fund. Class A, Class R, Class K and Class I shares are also available to certain AllianceBernstein-sponsored group retirement plans. Class R, Class K and Class I shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, and individual 403(b) plans. Effective October 19, 2005, Class I shares were no longer available to AllianceBernstein-sponsored group retirement plan programs known as the "Informed Choice" programs. REQUIRED INFORMATION A Fund is required by law to obtain, verify, and record certain personal information from you or persons on your behalf in order to establish an account. Required information includes name, date of birth, permanent residential address and taxpayer identification number (for most investors, your social security number). A Fund may also ask to see other identifying documents. If you do not provide the information, the Fund will not be able to open your account. If a Fund is unable to verify your identity, or that of another person(s) authorized to act on your behalf, or if the Fund believes it has identified potentially criminal activity, the Fund reserves the right to take action it deems appropriate or as required by law, which may include closing your account. If you are not a U.S. citizen or resident alien, your account must be affiliated with a Financial Industry Regulatory Authority, or FINRA, member firm. A Fund is required to withhold 28% of taxable dividends, capital gains distributions, and redemptions paid to any shareholder who has not provided the Fund with his or her correct taxpayer identification number. To avoid this, you must provide your correct tax identification number on your Mutual Fund Application. GENERAL AllianceBernstein Investments, Inc., or ABI, may refuse any order to purchase shares. Each Fund reserves the right to suspend the sale of its shares to the public in response to conditions in the securities markets or for other reasons. THE DIFFERENT SHARE CLASS EXPENSES This section describes the different expenses of investing in each class and explains factors to consider when choosing a class of shares. The expenses can include distribution and/or service (Rule 12b-1) fees or CDSCs. WHAT IS A RULE 12B-1 FEE? A Rule 12b-1 fee is a fee deducted from a Fund's assets that is used to pay for personal service, maintenance of shareholder accounts and distribution costs, such as advertising and compensation of financial intermediaries. The amount of each share class's Rule 12b-1 fee, if any, is disclosed below and in a Fund's fee table included in Summary Information section above. ASSET-BASED SALES CHARGES OR DISTRIBUTION AND/OR SERVICE (RULE 12B-1) FEES Each Fund has adopted a plan under Commission Rule 12b-1 that allows the Fund to pay asset-based sales charges or distribution and/or service (Rule 12b-1) fees for the distribution and sale of its shares. The amount of these fees for each class of the Fund's shares is: [Download Table] DISTRIBUTION AND/OR SERVICE (RULE 12B-1) FEE (AS A PERCENTAGE OF AGGREGATE AVERAGE DAILY NET ASSETS) ------------------------------------ Class A .30% Class R .50% Class K .25% Class I None 30
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Because these fees are paid out of a Fund's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales fees. Class R shares are subject to higher Rule 12b-1 fees than Class A shares. Because higher fees mean a higher expense ratio, Class R shares pay correspondingly lower dividends and may have a lower NAV (and returns) than Class A shares. Conversely, Class K and Class I shares have a lower or no Rule 12b-1 fee. Therefore, Class K and Class I shares have a lower expense ratio and may have a higher NAV (and returns) than Class A or Class R shares. All or some of these fees may be paid to financial intermediaries, including your financial intermediary. CLASS A SHARES Class A shares offered through this Prospectus do not have an initial sales charge. Class A shares may be subject to a CDSC of up to 1%. Purchases of Class A shares by AllianceBernstein or non-AllianceBernstein-sponsored group retirement plans may be subject to a 1% CDSC if terminated within one year. The CDSC is applied to the lesser of NAV at the time of redemption of shares or the original cost of shares being redeemed. CLASS R, CLASS K AND CLASS I SHARES Class R, Class K and Class I shares do not have an initial sales charge or CDSC. DISTRIBUTION ARRANGEMENTS FOR GROUP RETIREMENT PLANS Each Fund offers distribution arrangements for group retirement plans. Plan sponsors, plan fiduciaries and other financial intermediaries may establish requirements for group retirement plans as to the purchase, sale or exchange of shares of a Fund, including maximum and minimum initial investment requirements, that are different from those described in this Prospectus and the Funds' SAI. Group retirement plans also may not offer all classes of shares of a Fund. A Fund is not responsible for, and has no control over, the decision of any plan sponsor or fiduciary to impose such differing requirements. PAYMENTS TO FINANCIAL INTERMEDIARIES Financial intermediaries market and sell shares of the Funds. These financial intermediaries may receive compensation for selling shares of the Funds. This compensation is paid from various sources, including any CDSC, and/or Rule 12b-1 fee that you or the Funds may pay. WHAT IS A FINANCIAL INTERMEDIARY? A financial intermediary is a firm that receives compensation for selling shares of the Funds offered in this Prospectus and/or provides services to the Funds' shareholders. Financial intermediaries may include, among others, brokers, financial planners or advisors, banks and insurance companies. Financial intermediaries may employ financial advisors who deal with you and other investors on an individual basis. ABI may pay financial intermediaries selling Class A shares a fee of up to 1%. Up to 100% of the Rule 12b-1 fees applicable to Class A shares each year may be paid to financial intermediaries, including your financial intermediary, that sell Class A shares. For Class R and Class K shares, up to 100% of the Rule 12b-1 fee applicable to these classes of shares each year may be paid to financial intermediaries, including your financial intermediary, that sell Class R and Class K shares. Your financial advisor's firm receives compensation from the Funds, ABI, and/or the Adviser in several ways from various sources, which include some or all of the following: - Rule 12b-1 fees; - additional distribution support; - defrayal of costs for educational seminars and training; and - payments related to providing shareholder recordkeeping and/or transfer agency services. Please read the Prospectus carefully for information on this compensation. OTHER PAYMENTS FOR DISTRIBUTION SERVICES AND EDUCATIONAL SUPPORT In addition to the Rule 12b-1 fees described above, some or all of which may be paid to financial intermediaries, ABI, at its expense, currently provides additional payments to firms that sell shares of the AllianceBernstein Mutual Funds. Although the individual components may be higher and the total amount of payments made to each qualifying firm in any given year may vary, the total amount paid to a financial intermediary in connection with the sale of shares of the AllianceBernstein Mutual Funds will generally not exceed the sum of (a) 0.25% of the current year's fund sales by that firm and (b) 0.10% of average daily net assets attributable to that firm over the year. These sums include payments to reimburse directly or indirectly the costs incurred by these firms and their employees in connection with educational seminars and training efforts about the AllianceBernstein Mutual Funds for the firms' employees and/or their clients and potential clients. The costs and expenses associated with these efforts may include travel, lodging, entertainment and meals. ABI may pay a portion of "ticket" or other transactional charges. For 2011, ABI's additional payments to these firms for distribution services and educational support related to the AllianceBernstein Mutual Funds are expected to be approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds, or approximately $18.0 million. In 2010, ABI paid approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $16.5 million for distribution services and educational support related to the AllianceBernstein Mutual Funds. A number of factors are considered in determining the additional payments, including each firm's AllianceBernstein Mu- 31
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tual Fund sales, assets and redemption rates, and the willingness and ability of the firm to give ABI access to its financial advisors for educational and marketing purposes. In some cases, firms will include the AllianceBernstein Mutual Funds on a "preferred list." ABI's goal is to make the financial intermediaries who interact with current and prospective investors and shareholders more knowledgeable about the AllianceBernstein Mutual Funds so that they can provide suitable information and advice about the funds and related investor services. The Funds and ABI also make payments for recordkeeping and other transfer agency services to financial intermediaries that sell AllianceBernstein Mutual Fund shares. Please see "Management of the Funds--Transfer Agency and Retirement Plan Services" below. These expenses paid by the Funds are included in "Other Expenses" under "Fees and Expenses of the Fund--Annual Fund Operating Expenses" in the Summary Information at the beginning of the Prospectus. IF ONE MUTUAL FUND SPONSOR MAKES GREATER DISTRIBUTION ASSISTANCE PAYMENTS THAN ANOTHER, YOUR FINANCIAL INTERMEDIARY MAY HAVE AN INCENTIVE TO RECOMMEND ONE FUND COMPLEX OVER ANOTHER. SIMILARLY, IF YOUR FINANCIAL ADVISOR AND HIS OR HER FIRM RECEIVES MORE DISTRIBUTION ASSISTANCE FOR ONE SHARE CLASS VERSUS ANOTHER, THE FINANCIAL INTERMEDIARY MAY HAVE AN INCENTIVE TO RECOMMEND THAT CLASS. As of the date of the Prospectus, ABI anticipates that the firms that will receive additional payments for distribution services and/or educational support include: Advisor Group, Inc. Ameriprise Financial Services AXA Advisors Bank of America Cadaret, Grant & Co. CCO Investment Services Corp. Chase Investment Services Commonwealth Financial Network Donegal Securities Financial Network Investment Company LPL Financial Corporation Merrill Lynch Morgan Stanley Smith Barney Multi-Financial Securities Corporation Northwestern Mutual Investment Services PrimeVest Financial Services Raymond James RBC Wealth Management Robert W. Baird UBS Financial Services Wells Fargo Advisors Wells Fargo Investments Although the Funds may use brokers and dealers that sell shares of the Funds to effect portfolio transactions, the Funds do not consider the sale of AllianceBernstein Mutual Fund shares as a factor when selecting brokers or dealers to effect portfolio transactions. HOW TO EXCHANGE SHARES You may exchange your Fund shares for shares of the same class of other AllianceBernstein Mutual Funds (including AllianceBernstein Exchange Reserves, a money market fund managed by the Adviser) provided that the other fund offers the same class of shares. Exchanges of shares are made at the next-determined NAV, without sales or service charges. All exchanges are subject to the minimum investment restrictions set forth in the prospectus for the AllianceBernstein Mutual Fund whose shares are being acquired. Your exchange of shares is priced at the next-determined NAV after your order is received in proper form. You may request an exchange by mail or telephone. In order to receive a day's NAV, AllianceBernstein Investor Services, Inc., or ABIS, must receive and confirm your telephone exchange request by 4:00 p.m., Eastern time, on that day. The Funds may modify, restrict or terminate the exchange privilege on 60 days' written notice. HOW TO SELL OR REDEEM SHARES You may "redeem" your shares (i.e., sell your shares to a Fund) on any day the New York Stock Exchange, or Exchange, is open. Your sale price will be the next-determined NAV, less any applicable CDSC, after the Fund receives your redemption request in proper form. Normally, redemption proceeds are sent to you within seven days. If you recently purchased your shares by check or electronic funds transfer, your redemption payment may be delayed until the Fund is reasonably satisfied that the check or electronic funds transfer has been collected (which may take up to 15 days). Your financial intermediary must receive your sales request by 4:00 p.m., Eastern time, and submit it to the Fund by a pre-arranged time for you to receive the next-determined NAV, less any applicable CDSC. Your financial intermediary is responsible for submitting all necessary documentation to the Fund and may charge you a fee for this service. FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES Each Fund's Board has adopted policies and procedures designed to detect and deter frequent purchases and redemptions of Fund shares or excessive or short-term trading that may disadvantage long-term Fund shareholders. These policies are described below. There is no guarantee that the Funds will be able to detect excessive or short-term trading and to identify shareholders engaged in such practices, particularly with respect to transactions in omnibus accounts. Shareholders should be aware that application of these policies may have adverse consequences, as described below, and avoid frequent trading in Fund shares through purchases, sales and exchanges of shares. Each Fund reserves the right to restrict, reject, or cancel, without any prior notice, any purchase or exchange order for any reason, including any purchase or exchange order accepted by any shareholder's financial intermediary. 32
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RISKS ASSOCIATED WITH EXCESSIVE OR SHORT-TERM TRADING GENERALLY. While the Funds will try to prevent market timing by utilizing the procedures described below, these procedures may not be successful in identifying or stopping excessive or short-term trading in all circumstances. By realizing profits through short-term trading, shareholders that engage in rapid purchases and sales or exchanges of a Fund's shares dilute the value of shares held by long-term shareholders. Volatility resulting from excessive purchases and sales or exchanges of Fund shares, especially involving large dollar amounts, may disrupt efficient portfolio management and cause a Fund to sell shares at inopportune times to accommodate redemptions relating to short-term trading. In particular, a Fund may have difficulty implementing its long-term investment strategies if it is forced to maintain a higher level of its assets in cash to accommodate significant short-term trading activity. In addition, a Fund may incur increased administrative and other expenses due to excessive or short-term trading, including increased brokerage costs and realization of taxable capital gains. Funds that may invest significantly in foreign securities may be particularly susceptible to short-term trading strategies. This is because foreign securities are typically traded on markets that close well before the time a Fund calculates its NAV at 4:00 p.m., Eastern time, which gives rise to the possibility that developments may have occurred in the interim that would affect the value of these securities. The time zone differences among international stock markets can allow a shareholder engaging in a short-term trading strategy to exploit differences in Fund share prices that are based on closing prices of foreign securities established some time before the Fund calculates its own share price (referred to as "time zone arbitrage"). The Funds have procedures, referred to as fair value pricing, designed to adjust closing market prices of foreign securities to reflect what is believed to be the fair value of those securities at the time a Fund calculates its NAV. While there is no assurance, the Funds expect that the use of fair value pricing, in addition to the short-term trading policies discussed below, will significantly reduce a shareholder's ability to engage in time zone arbitrage to the detriment of other Fund shareholders. A shareholder engaging in a short-term trading strategy may also target a Fund that does not invest primarily in foreign securities. Any Fund that invests in securities that are, among other things, thinly traded, traded infrequently or relatively illiquid, has the risk that the current market price for the securities may not accurately reflect current market values. A shareholder may seek to engage in short-term trading to take advantage of these pricing differences (referred to as "price arbitrage"). All Funds may be adversely affected by price arbitrage. POLICY REGARDING SHORT-TERM TRADING. Purchases and exchanges of shares of the Funds should be made for investment purposes only. The Funds will seek to prevent patterns of excessive purchases and sales of Fund shares to the extent they are detected by the procedures described below. The Funds reserve the right to modify this policy, including any surveillance or account blocking procedures established from time to time to effectuate this policy, at any time without notice. .. TRANSACTION SURVEILLANCE PROCEDURES. The Funds, through their agents, ABI and ABIS, maintain surveillance procedures to detect excessive or short-term trading in Fund shares. This surveillance process involves several factors, which include scrutinizing transactions in Fund shares that exceed certain monetary thresholds or numerical limits within a specified period of time. Generally, more than two exchanges of Fund shares during any 90-day period or purchases of shares followed by a sale within 90 days will be identified by these surveillance procedures. For purposes of these transaction surveillance procedures, the Funds may consider trading activity in multiple accounts under common ownership, control or influence. Trading activity identified by either, or a combination, of these factors, or as a result of any other information available at the time, will be evaluated to determine whether such activity might constitute excessive or short-term trading. These surveillance procedures may be modified from time to time, as necessary or appropriate to improve the detection of excessive or short-term trading or to address specific circumstances. .. ACCOUNT BLOCKING PROCEDURES. If the Funds determine, in their sole discretion, that a particular transaction or pattern of transactions identified by the transaction surveillance procedures described above is excessive or short-term trading in nature, the relevant Fund account(s) will be immediately "blocked" and no future purchase or exchange activity will be permitted. However, sales of Fund shares back to a Fund or redemptions will continue to be permitted in accordance with the terms of the Fund's current Prospectus. As a result, unless the shareholder redeems his or her shares, which may have consequences if the shares have declined in value, a CDSC is applicable or adverse tax consequences may result, the shareholder may be "locked" into an unsuitable investment. In the event an account is blocked, certain account-related privileges, such as the ability to place purchase, sale and exchange orders over the internet or by phone, may also be suspended. A blocked account will generally remain blocked unless and until the account holder or the associated broker, dealer or other financial intermediary provides evidence or assurance acceptable to the Fund that the account holder did not or will not in the future engage in excessive or short-term trading. .. APPLICATIONS OF SURVEILLANCE PROCEDURES AND RESTRICTIONS TO OMNIBUS ACCOUNTS. Omnibus account arrangements are common forms of holding shares of the Funds, particularly among certain brokers, dealers and other financial intermediaries, including sponsors of retirement plans and variable insurance products. The Funds apply their surveillance procedures to these omnibus account arrangements. As required by Commission rules, the Funds have entered into agreements with all of their financial intermediaries that require the financial intermediaries to provide the Funds, upon the request of the Funds or their agents, with individual account level information about their trans- 33
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actions. If the Funds detect excessive trading through their monitoring of omnibus accounts, including trading at the individual account level, the financial intermediaries will also execute instructions from the Funds to take actions to curtail the activity, which may include applying blocks to accounts to prohibit future purchases and exchanges of Fund shares. For certain retirement plan accounts, the Funds may request that the retirement plan or other intermediary revoke the relevant participant's privilege to effect transactions in Fund shares via the internet or telephone, in which case the relevant participant must submit future transaction orders via the U.S. Postal Service (i.e., regular mail). HOW THE FUNDS VALUE THEIR SHARES Each Fund's NAV is calculated at the close of regular trading on the Exchange (ordinarily, 4:00 p.m., Eastern time), only on days when the Exchange is open for business. To calculate NAV, a Fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. If a Fund invests in securities that are primarily traded on foreign exchanges that trade on weekends or other days when the Fund does not price its shares, the NAV of the Fund's shares may change on days when shareholders will not be able to purchase or redeem their shares in the Fund. The Funds value their securities at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of each Fund's Board. When a Fund uses fair value pricing, it may take into account any factors it deems appropriate. A Fund may determine fair value based upon developments related to a specific security, current valuations of foreign stock indices (as reflected in U.S. futures markets) and/or U.S. sector or broader stock market indices. The prices of securities used by the Fund to calculate its NAV may differ from quoted or published prices for the same securities. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security is materially different than the value that could be realized upon the sale of that security. Funds expect to use fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the early closing of the exchange on which a security is traded or suspension of trading in the security. Funds may use fair value pricing more frequently for securities primarily traded in non-U.S. markets because, among other things, most foreign markets close well before a Fund values its securities at 4:00 p.m., Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. For example, the Funds believe that foreign security values may be affected by events that occur after the close of foreign securities markets. To account for this, the Funds may frequently value many of their foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. Subject to the Board's oversight, each Fund's Board has delegated responsibility for valuing a Fund's assets to the Adviser. The Adviser has established a Valuation Committee, which operates under the policies and procedures approved by the Board, to value the Fund's assets on behalf of the Fund. The Valuation Committee values Fund assets as described above. 34
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MANAGEMENT OF THE FUNDS -------------------------------------------------------------------------------- INVESTMENT ADVISER Each Fund's adviser is AllianceBernstein L.P., 1345 Avenue of the Americas, New York, New York 10105. The Adviser is a leading international investment adviser supervising client accounts with assets as of September 30, 2010, totaling approximately $484 billion (of which more than $81 billion represented assets of investment companies). As of September 30, 2010, the Adviser managed retirement assets for many of the largest public and private employee benefit plans (including 33 of the nation's FORTUNE 100 companies), for public employee retirement funds in 38 states, for investment companies, and for foundations, endowments, banks and insurance companies worldwide. Currently, the 35 registered investment companies managed by the Adviser, comprising 115 separate investment portfolios, have approximately 3.2 million retail accounts. The Adviser provides investment advisory services and order placement facilities for each of the Funds. For these advisory services, each Fund paid the Adviser during the most recent fiscal year a management fee as a percentage of average daily net assets as follows: [Download Table] FEE AS A PERCENTAGE OF AVERAGE DAILY NET FISCAL YEAR FUND ASSETS ENDED ----------------------------------------------------------------------- AllianceBernstein Intermediate Bond .25%* 10/31/10 AllianceBernstein Global Bond .45% 9/30/10 AllianceBernstein Diversified Yield .00%* 10/31/10 AllianceBernstein High Income .45% 10/31/10 *Fee stated net of any waivers and/or reimbursements. See "Fees and Expenses of the Fund" in the Summary Information at the beginning of the Prospectus for more information about fee waivers. A discussion regarding the basis for the Board's approval of each Fund's investment advisory agreement is available in the Fund's semi-annual report to shareholders. The Adviser may act as an investment adviser to other persons, firms, or corporations, including investment companies, hedge funds, pension funds, and other institutional investors. The Adviser may receive management fees, including performance fees, that may be higher or lower than the advisory fees it receives from the Funds. Certain other clients of the Adviser may have investment objectives and policies similar to those of a Fund. The Adviser may, from time to time, make recommendations that result in the purchase or sale of a particular security by its other clients simultaneously with a Fund. If transactions on behalf of more than one client during the same period increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price or quantity. It is the policy of the Adviser to allocate advisory recommendations and the placing of orders in a manner that is deemed equitable by the Adviser to the accounts involved, including a Fund. When two or more of the clients of the Adviser (including a Fund) are purchasing or selling the same security on a given day from the same broker-dealer, such transactions may be averaged as to price. PORTFOLIO MANAGERS The management of, and investment decisions for, the Funds' portfolios are made by certain Investment Policy Teams. Each Investment Policy Team relies heavily on the fundamental analysis and research of the Adviser's large internal research staff. No one person is principally responsible for coordinating each Fund's investments. The following table lists the Investment Policy Teams, the person within each Investment Policy Team with the most significant responsibility for day-to-day management of each Fund's portfolio, the length of time that each person has been jointly and primarily responsible for the Fund, and each person's principal occupation during the past five years: FUND AND PRINCIPAL OCCUPATION(S) RESPONSIBLE DURING THE PAST FIVE (5) TEAM EMPLOYEE; YEAR; TITLE YEARS ----------------------------------------------------------------------------- AllianceBernstein Alison M. Martier; since Senior Vice President of Intermediate Bond 2005; Senior Vice the Adviser, with which Portfolio President of the Adviser she has been associated U.S. Investment Grade and Director of the in a substantially Core Fixed Income Team Fixed Income Senior similar capacity to her Portfolio Management Team current position since prior to 2006. Greg J. Wilensky; since Senior Vice President of 2005; Senior Vice the Adviser, with which President of the Adviser he has been associated and Director of Stable in a substantially Value Investments similar capacity to his current position since prior to 2006. Shawn E. Keegan; since Vice President of the 2005; Vice President of Adviser, with which he the Adviser has been associated in a substantially similar capacity to his current position since prior to 2006. Douglas J. Peebles; Senior Vice President of since 2007; Senior Vice the Adviser, with which President of the he has been associated Adviser; and Chief in a substantially Investment Officer and similar capacity to his Head of Fixed Income current position since prior to 2006. Paul J. DeNoon; since Senior Vice President of 2009; Senior Vice the Adviser, with which President of the Adviser he has been associated and Director of Emerging in a substantially Market Debt similar capacity to his current position since prior to 2006. 35
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FUND AND PRINCIPAL OCCUPATION(S) RESPONSIBLE DURING THE PAST FIVE (5) TEAM EMPLOYEE; YEAR; TITLE YEARS ----------------------------------------------------------------------------- AllianceBernstein Global Paul J. DeNoon; since (see above) Bond Fund 2002; (see above) Global Fixed Income Senior Vice President of Investment Team Scott DiMaggio; since the Adviser, with which 2005; Senior Vice he has been associated President of the Adviser in a substantially and Director of Canada similar capacity to his Fixed Income current position since prior to 2006. Michael L. Mon; since Vice President of the 2003; Vice President of Adviser, with which he the Adviser has been associated in a substantially similar capacity to his current position since prior to 2006. Douglas J. Peebles; (see above) since 1992; (see above) Matthew S. Sheridan; Vice President of the since 2007; Vice Adviser, with which he President of the Adviser has been associated in a substantially similar capacity to his current position since prior to 2006. AllianceBernstein Paul J. DeNoon; since (see above) Diversified Yield Fund 2005; (see above) Vice President of the Global Fixed Income Joran Laird; since 2009; Adviser, with which he Investment Team and Vice President of the has been associated in a Global Credit Investment Adviser substantially similar Team capacity to his current position since prior to 2006. Douglas J. Peebles; (see above) since 1996; (see above) Matthew S. Sheridan; (see above) since 2006; (see above) Greg J. Wilensky; since (see above) 2008; (see above) AllianceBernstein High Paul J. DeNoon; since (see above) Income Fund 2002; (see above) Senior Vice President of Global Fixed Income Gershon M. Distenfeld; the Adviser, with which Investment Team and since 2008; Senior Vice he has been associated Global Credit Investment President of the Adviser in a substantially Team similar capacity to his current position since prior to 2006. Douglas J. Peebles; (see above) since 2002; (see above) Marco Santamaria; since Vice President of the 2010; Vice President of Adviser, with which he the Adviser has been associated in a substantially similar capacity to his current position since June 2010. Prior thereto, he was a founding partner at Global Securities Advisors, an emerging-market-oriented fixed-income hedge fund since prior to 2006. Matthew S. Sheridan; (see above) since 2005; (see above) Additional information about the portfolio managers may be found in the Funds' SAI. PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO The investment teams employed by the Adviser to manage ALLIANCEBERNSTEIN HIGH INCOME FUND and ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO have substantial experience in managing discretionary accounts of institutional clients, pooled investment vehicles and/or other registered investment companies and portions thereof (the "Historical Accounts") that have substantially the same investment objectives and policies and are managed in accordance with essentially the same investment strategies as the Funds. The Historical Accounts that are not registered investment companies are not subject to certain limitations, diversification requirements and other restrictions imposed under the 1940 Act and the Internal Revenue Code (the "Code") to which the Funds, as registered investment companies, are subject and which, if applicable to the Historical Accounts, may have adversely affected the performance of the Historical Accounts. With respect to ALLIANCEBERNSTEIN HIGH INCOME FUND, the Historical Accounts' performance information is representative solely of the performance of a pooled investment vehicle that is not offered for sale in the United States. Set forth below is performance data provided by the Adviser relating to the Historical Accounts managed by the investment team that manages each Fund's assets. Performance data is shown for the period during which the investment teams of the Adviser managed the Historical Accounts through December 31, 2010. The aggregate assets for the Historical Accounts managed by the High Income investment team and the Intermediate Bond investment team as of September 30, 2010 were approximately $26.6 billion and $15.6 billion, respectively. The investment teams' Historical Accounts have a nearly identical composition of representative investment holdings and related percentage weightings. The performance data is net of all fees (including any portfolio transaction costs) charged to the Historical Accounts, calculated on a monthly basis. The highest fee payable for the Historical Accounts is 2.04% of assets for ALLIANCEBERNSTEIN HIGH INCOME FUND and .91% of assets for ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO, annually. Net-of-fee performance figures reflect the compounding effect of such fees. The data has not been adjusted to reflect any fees that will be payable by the Funds, which may be higher than the fees imposed on the Historical Accounts, and will reduce the returns of the Funds. Expenses associated with the distribution of Class A, Class R and Class K shares of the Funds in accordance with the plans adopted by the Boards of the Funds under 36
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Commission Rule 12b-1 are also excluded. Except as noted, the performance data has also not been adjusted for corporate or individual taxes, if any, payable by account owners. The Adviser has calculated the investment performance of the Historical Accounts on a trade-date basis. Income has been accrued daily and cash flows weighted daily. Composite investment performance for the Funds has been determined on an asset weighted basis. New accounts are included in the composite investment performance computations at the beginning of the quarter following the initial contribution. The total returns set forth below are calculated using a method that links the monthly return amounts for the disclosed periods, resulting in a time-weighted rate of return. Other methods of computing the investment performance of the Historical Accounts may produce different results, and the results for different periods may vary. A composite benchmark, comprised of the JPMorgan Emerging Markets Bond Index Global ("EMBI Global"), the JPMorgan Government Bond Index-Emerging Markets ("GBI-EM") and the Barclays Capital High Yield Index (2% Constrained) ("BC High Yield") on an equal weighted basis (the "High Income Composite Benchmark") is used by High Income and its Historical Account, for purposes of this example, as a benchmark to measure its relative performance. EMBI Global tracks total returns for traded external debt instruments in the emerging markets, GBI-EM tracks total returns for local currency government bonds issued by emerging markets, and BC High Yield tracks the U.S. Dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. The Barclays Capital Aggregate Index ("BC Aggregate Index") is used by ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO as a benchmark to measure its relative performance and is composed of securities from Barclays Capital Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. The index's total return consists of price appreciation/depreciation plus income as a percentage of the original investment. Indices are rebalanced monthly by market capitalization. To the extent the investment teams utilize investment techniques such as swaps, futures or options, the performance of the High Income Composite Benchmark and the BC Aggregate Index may not be substantially comparable to the performance of the investment teams' Historical Accounts. The High Income Composite Benchmark and the BC Aggregate Index do not reflect the deduction of any fees or expenses associated with the active management of a mutual fund. The performance data below is provided solely to illustrate the investment teams' performance in managing the Historical Accounts as measured against a broad based market index. The performance of the Funds will be affected by the performance of the investment teams managing the Funds' assets. If the investment teams were to perform relatively poorly, the performance of the Funds would suffer. Investors should not rely on the performance data of the Historical Accounts as an indication of future performance of the Funds. The investment performance for the periods presented may not be indicative of future rates of return. The performance was not calculated pursuant to the methodology established by the Commission that will be used to calculate the Funds' performance. The use of methodology different from that used to calculate performance could result in different performance data. SCHEDULE OF HISTORICAL PERFORMANCE - HISTORICAL ACCOUNTS* [Enlarge/Download Table] HIGH INCOME HIGH INCOME HISTORICAL ACCOUNT COMPOSITE BC HIGH TOTAL RETURN** BENCHMARK EMBI GLOBAL*** GBI-EM YIELD INDEX*** ------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31: 2010 15.62% 14.01% 12.04% 13.08% 14.94% 2009 60.62% 33.73% 28.18% 16.56% 58.76% 2008 -32.27% -14.79% -10.91% -6.93% -25.88% 2007 5.91% 8.19% 6.28% 16.28% 2.26% 2006 12.56% 10.97% 9.88% 11.96% 10.76% 2005 7.99% 5.46% 10.73% 2.87% 2.76% 2004 11.11% 15.36% 11.73% 23.12% 11.14% 2003 36.36% 24.06% 25.66% 17.79% 28.78% 2002 5.26% 13.66% 13.11% 29.11% -.24% 2001 -10.44% N/A 1.36% N/A 5.46% 2000 -4.25% N/A 14.41% N/A -5.79% 1999 18.76% N/A 24.18% N/A 2.39% 1998 -15.60% N/A -11.54% N/A 1.87% Cumulative total return for the period September 22, 1997 (inception of Historical Account) to December 31, 2010 121.73% N/A 234.63%*** N/A 132.90%*** ------------------------------------------------------------------------------------------------------------------------------ * Total return is a measure of investment performance that is based upon the change in value of an investment from the beginning to the end of a specified period and assumes reinvestment of all dividends and other distributions. The basis of presentation of this data is described in the preceding discussion. ** Net of all fees. ***Net inception cumulative index returns are from December 31, 1997. 37
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[Enlarge/Download Table] INTERMEDIATE BOND BC U.S. HISTORICAL ACCOUNTS AGGREGATE TOTAL RETURN** INDEX ------------------------------------------------------------------------------------------ Year Ended December 31: 2010 9.45% 6.54% 2009 18.77% 5.93% 2008 -5.41% 5.24% 2007 5.60% 6.97% 2006 5.26% 4.33% 2005 3.22% 2.43% 2004 5.48% 4.34% 2003 8.45% 4.10% 2002 7.93% 10.26% Cumulative total return for the period June 30, 2001 (inception of Historical Accounts) to December 31, 2010 81.89% 70.18% ------------------------------------------------------------------------------------------ * Total return is a measure of investment performance that is based upon the change in value of an investment from the beginning to the end of a specified period and assumes reinvestment of all dividends and other distributions. The basis of presentation of this data is described in the preceding discussion. ** Net of all fees. AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2010 [Download Table] SINCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION -------------------------------------------------------------------------- High Income Historical Account 15.62% 7.94% 8.44% 8.75% 6.18%* High Income Composite Benchmark 14.01% 9.12% 9.30% N/A N/A EMBI Global 12.04% 8.56% 8.36% 10.29% 9.74%** GBI-EM 13.08% 7.06% 9.82% N/A N/A BC High Yield 14.94% 10.59% 8.91% 9.01% 6.72%** -------------------------------------------------------------------------- * Inception date of Historical Account is September 22, 1997. ** Since inception average annual total returns are from December 31, 1997. [Download Table] SINCE 1 YEAR 3 YEARS 5 YEARS INCEPTION ----------------------------------------------------------------------- Intermediate Bond Historical Accounts 9.45% 7.13% 6.45% 6.50%* BC U.S. Aggregate Index 6.54% 5.90% 5.80% 5.76%* * Inception date of Historical Accounts is June 30, 2001. TRANSFER AGENCY AND RETIREMENT PLAN SERVICES ABIS acts as the transfer agent for the Funds. ABIS, an indirect wholly-owned subsidiary of the Adviser, registers the transfer, issuance, and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. Retirement plans may also hold Fund shares in the name of the plan, rather than the participant. Plan recordkeepers, who may have affiliated financial intermediaries who sell shares of the Funds, may be paid for each participant fund account in amounts up to $19 per customer fund account per annum and/or up to 0.25% per annum of the average daily assets held in the plan. To the extent any of these payments for recordkeeping services, transfer agency services or retirement plan accounts are made by the Funds, they are included in the amount appearing opposite the caption "Other Expenses" found in the Fund expense tables under "Fees and Expenses of the Fund" in the Summary Information at the beginning of the Prospectus. In addition, financial intermediaries may be affiliates of entities that receive compensation from the Adviser or ABI for maintaining retirement plan "platforms" that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans. Because financial intermediaries and plan recordkeepers may be paid varying amounts per class for sub-transfer agency and related recordkeeping services, the service requirements of which may also vary by class, this may create an additional incentive for financial intermediaries and their financial advisors to favor one fund complex over another or one class of shares over another. 38
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DIVIDENDS, DISTRIBUTIONS AND TAXES -------------------------------------------------------------------------------- Each Fund's income dividends and capital gains distributions, if any, declared by a Fund on its outstanding shares will, at the election of each shareholder, be paid in cash or in additional shares of the same class of shares of that Fund. If paid in additional shares, the shares will have an aggregate NAV as of the close of business on the declaration date of the dividend or distribution equal to the cash amount of the dividend or distribution. You may make an election to receive dividends and distributions in cash or in shares at the time you purchase shares. Your election can be changed at any time prior to a record date for a dividend. There is no sales or other charge in connection with the reinvestment of dividends or capital gains distributions. Cash dividends may be paid by check, or at your election, electronically via the ACH network. If you receive an income dividend or capital gains distribution in cash you may, within 120 days following the date of its payment, reinvest the dividend or distribution in additional shares of that Fund without charge by returning to the Adviser, with appropriate instructions, the check representing the dividend or distribution. Thereafter, unless you otherwise specify, you will be deemed to have elected to reinvest all subsequent dividends and distributions in shares of that Fund. While it is the intention of each Fund to distribute to its shareholders substantially all of each fiscal year's net income and net realized capital gains, if any, the amount and timing of any dividend or distribution will depend on the realization by the Fund of income and capital gains from investments. There is no fixed dividend rate and there can be no assurance that a Fund will pay any dividends or realize any capital gains. The final determination of the amount of a Fund's return of capital distributions for the period will be made after the end of each calendar year. Investments made through a 401(k) plan, 457 plan, employer sponsored 403(b) plan, profit sharing and money purchase plan, defined benefit plan or nonqualified deferred compensation plan are subject to special United States federal income tax rules. Therefore, the federal income tax consequences described below apply only to investments made other than by such plans. You will normally have to pay federal income tax, and any state or local income taxes, on the distributions you receive from a Fund, whether you take the distributions in cash or reinvest them in additional shares. Distributions of net capital gains from the sale of investments that a Fund owned for more than one year and that are properly designated as capital gain dividends are taxable as long-term capital gains. For taxable years beginning on or before December 31, 2012, distributions of dividends to a Fund's non-corporate shareholders may be treated as "qualified dividend income," which is taxed at reduced rates, if such distributions are derived from, and designated by a Fund as, "qualified dividend income" and provided that holding period and other requirements are met by both the shareholder and the Fund. "Qualified dividend income" generally is income derived from dividends from U.S. corporations and "qualified foreign corporations." Other distributions by a Fund are generally taxable to you as ordinary income. Dividends declared in October, November, or December and paid in January of the following year are taxable as if they had been paid the previous December. A Fund will notify you as to how much of the Fund's distributions, if any, qualify for these reduced tax rates. Investment income received by a Fund from sources within foreign countries may be subject to foreign income taxes withheld at the source. To the extent that any Fund is liable for foreign income taxes withheld at the source, the Fund intends, if possible, to operate so as to meet the requirements of the Code to "pass through" to the Fund's shareholders credits for foreign income taxes paid (or to permit shareholders to claim a deduction for such foreign taxes), but there can be no assurance that any Fund will be able to do so, and Funds that invest primarily in U.S. securities will not do so. Furthermore, a shareholder's ability to claim a foreign tax credit or deduction for foreign taxes paid by a Fund may be subject to certain limitations imposed by the Code, as a result of which a shareholder may not be permitted to claim a credit or deduction for all or a portion of the amount of such taxes. Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations in currency exchange rates) after paying a dividend, all or a portion of the dividend may subsequently be characterized as a return of capital. Returns of capital are generally nontaxable, but will reduce a shareholder's basis in shares of the Fund. If that basis is reduced to zero (which could happen if the shareholder does not reinvest distributions and returns of capital are significant), any further returns of capital will be taxable as capital gain. If you buy shares just before a Fund deducts a distribution from its NAV, you will pay the full price for the shares and then receive a portion of the price back as a taxable distribution. The sale or exchange of Fund shares is a taxable transaction for federal income tax purposes. Each year shortly after December 31, each Fund will send you tax information stating the amount and type of all its distributions for the year. You are encouraged to consult your tax adviser about the federal, state, and local tax consequences in your particular circumstances, as well as about any possible foreign tax consequences. NON-U.S. SHAREHOLDERS If you are a nonresident alien individual or a foreign corporation for federal income tax purposes, please see the Funds' SAI for information on how you will be taxed as a result of holding shares in the Funds. 39
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GENERAL INFORMATION -------------------------------------------------------------------------------- Under unusual circumstances, a Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by federal securities law. The Funds reserve the right to close an account that has remained below $1,000 for 90 days. During drastic economic or market developments, you might have difficulty in reaching ABIS by telephone, in which event you should issue written instructions to ABIS. ABIS is not responsible for the authenticity of telephone requests to purchase, sell, or exchange shares. ABIS will employ reasonable procedures to verify that telephone requests are genuine, and could be liable for losses resulting from unauthorized transactions if it failed to do so. Dealers and agents may charge a commission for handling telephone requests. The telephone service may be suspended or terminated at any time without notice. Shareholder Services. ABIS offers a variety of shareholder services. For more information about these services or your account, call ABIS's toll-free number, 800-221-5672. Some services are described in the Mutual Fund Application. Householding. Many shareholders of the AllianceBernstein Mutual Funds have family members living in the same home who also own shares of the same Funds. In order to reduce the amount of duplicative mail that is sent to homes with more than one Fund account and to reduce expenses of the Funds, all AllianceBernstein Mutual Funds will, until notified otherwise, send only one copy of each prospectus, shareholder report and proxy statement to each household address. This process, known as "householding," does not apply to account statements, confirmations, or personal tax information. If you do not wish to participate in householding, or wish to discontinue householding at any time, call ABIS at 1-800-221-5672. We will resume separate mailings for your account within 30 days of your request. 40
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GLOSSARY OF INVESTMENT TERMS -------------------------------------------------------------------------------- BONDS are interest-bearing or discounted government or corporate securities that obligate the issuer to pay the bond holder a specified sum of money, usually at specified intervals, and to repay the principal amount of the loan at maturity. FIXED-INCOME SECURITIES are investments, such as bonds, that pay a fixed rate of return. NON-U.S. COMPANY or NON-U.S. ISSUER is an entity that (i) is organized under the laws of a foreign country and conducts business in a foreign country, (ii) derives 50% or more of its total revenues from business in foreign countries, or (iii) issues equity or debt securities that are traded principally on a stock exchange in a foreign country. SOVEREIGN DEBT OBLIGATIONS are foreign government debt securities, loan participations between foreign governments and financial institutions, and interests in entities organized and operated for the purpose of restructuring the investment characteristics of foreign government securities. SUPRANATIONAL ENTITIES are international organizations formed by two or more governments. Examples of supranational entities include the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the International Finance Corporation and the European Bank for Reconstruction and Development. U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including obligations that are issued by private issuers that are guaranteed as to principal or interest by the U.S. Government, its agencies or instrumentalities, or by certain government-sponsored entities (entities chartered by or sponsored by Act of Congress). These securities include securities backed by the full faith and credit of the United States, those supported by the right of the issuer to borrow from the U.S. Treasury, and those backed only by the credit of the issuing agency or entity itself. The first category includes U.S. Treasury securities (which are U.S. Treasury bills, notes, and bonds) and certificates issued by GNMA. U.S. Government securities not backed by the full faith and credit of the United States or a right to borrow from the U.S. Treasury include certificates issued by FNMA and FHLMC. THE BOFA MERRILL LYNCH 3-MONTH T-BILL INDEX is an unmanaged index that measures returns of three-month Treasury Bills. THE BARCLAYS CAPITAL U.S. AGGREGATE INDEX is a broad-based bond index comprised of government, corporate, mortgage and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. THE BARCLAYS CAPITAL GLOBAL AGGREGATE INDEX is a macro index of global government and corporate bond markets, and is composed of various indices calculated by Barclays Capital, including the U.S. Aggregate Index, the Pan-European Aggregate Index, the Global Treasury Index, the Asian-Pacific Aggregate Index, the Eurodollar Index and the U.S. Investment-Grade 144A Index. THE BARCLAYS CAPITAL HIGH YIELD INDEX is an unmanaged index generally representative of corporate bonds rated below investment grade. THE JPMORGAN EMERGING MARKETS BOND INDEX GLOBAL is a broad-based, unmanaged index which tracks total return for external currency denominated debt in emerging markets. THE JPMORGAN GOVERNMENT BOND INDEX-EMERGING MARKETS is a definitive local emerging markets debt benchmark that tracks local currency government bonds issued by emerging markets. 41
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FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand each Fund's financial performance for the past five years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single share of a class of each Fund. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by Ernst & Young, LLP, the independent registered public accounting firm for all Funds, whose reports, along with each Fund's financial statements, are included in each Fund's Annual Report, which is available upon request. 43
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[Enlarge/Download Table] INCOME FROM INVESTMENT OPERATIONS LESS: DIVIDENDS AND DISTRIBUTIONS ----------------------------------- ---------------------------------------------- NET INCREASE NET ASSET NET REALIZED (DECREASE) DIVIDENDS TAX DISTRIBUTIONS VALUE, NET AND UNREALIZED IN NET ASSET FROM NET RETURN FROM NET TOTAL FISCAL YEAR OR BEGINNING INVESTMENT GAIN (LOSS) ON VALUE FROM INVESTMENT OF REALIZED GAIN DIVIDENDS AND PERIOD OF PERIOD INCOME (a) INVESTMENTS OPERATIONS INCOME CAPITAL ON INVESTMENTS DISTRIBUTIONS ---------------------------------------------------------------------------------------------------------------------- INTERMEDIATE BOND CLASS A Year Ended 10/31/10 $10.28 $.42(c) $ .70 $ 1.12 $(.42) $(.00) $0.00 $(.42) Year Ended 10/31/09 8.77 .44(c) 1.53 1.97 (.46) (.00) 0.00 (.46) Year Ended 10/31/08 10.24 .50(c) (1.49) (.99)(h) (.48) (.00) 0.00 (.48) Year Ended 10/31/07 10.18 .42(c) .06 .48 (.42) (.00) 0.00 (.42) Year Ended 10/31/06 10.15 .41(c) .04 .45 (.42) (.00) 0.00 (.42) CLASS R Year Ended 10/31/10 $10.28 $.37(c) $ .73 $ 1.10 $(.40) $(.00) $0.00 $(.40) Year Ended 10/31/09 8.77 .43(c) 1.51 1.94 (.43) (.00) 0.00 (.43) Year Ended 10/31/08 10.24 .46(c) (1.47) (1.01)(h) (.46) (.00) 0.00 (.46) Year Ended 10/31/07 10.18 .44(c) .02 .46 (.40) (.00) 0.00 (.40) Year Ended 10/31/06 10.15 .39(c) .04 .43 (.40) (.00) 0.00 (.40) CLASS K Year Ended 10/31/10 $10.29 $.43(c) $ .70 $ 1.13 $(.43) $(.00) $0.00 $(.43) Year Ended 10/31/09 8.78 .45(c) 1.52 1.97 (.46) (.00) 0.00 (.46) Year Ended 10/31/08 10.25 .48(c) (1.47) (.99)(h) (.48) (.00) 0.00 (.48) Year Ended 10/31/07 10.19 .42(c) .06 .48 (.42) (.00) 0.00 (.42) Year Ended 10/31/06 10.16 .42(c) .03 .45 (.42) (.00) 0.00 (.42) CLASS I Year Ended 10/31/10 $10.29 $.49(c) $ .68 $ 1.17 $(.46) $(.00) $0.00 $(.46) Year Ended 10/31/09 8.78 .47(c) 1.52 1.99 (.48) (.00) 0.00 (.48) Year Ended 10/31/08 10.24 .50(c) (1.45) (.95)(h) (.51) (.00) 0.00 (.51) Year Ended 10/31/07 10.18 .45(c) .06 .51 (.45) (.00) 0.00 (.45) Year Ended 10/31/06 10.16 .44(c) .03 .47 (.45) (.00) 0.00 (.45) DIVERSIFIED YIELD CLASS A Year Ended 10/31/10 $ 8.10 $.24 $ .39 $ .63 $(.23) $(.00) $0.00 $(.23) Year Ended 10/31/09 7.39 .32 .71 1.03 (.28) (.04) 0.00 (.32) Year Ended 10/31/08 9.02 .36 (1.63) (1.27)(h) (.36) (.00) 0.00 (.36) Year Ended 10/31/07 8.62 .34 .40 .74 (.34) (.00) 0.00 (.34) Year Ended 10/31/06 8.70 .34 .14 .48 (.34) (.00) (.22) (.56) CLASS R Year Ended 10/31/10 $ 8.07 $.22 $ .39 $ .61 $(.21) $(.00) $0.00 $(.21) Year Ended 10/31/09 7.37 .30 .70 1.00 (.26) (.04) 0.00 (.30) Year Ended 10/31/08 8.99 .34 (1.62) (1.28)(h) (.34) (.00) 0.00 (.34) Year Ended 10/31/07 8.61 .35 .34 .69 (.31) (.00) 0.00 (.31) Year Ended 10/31/06 8.69 .31 .14 .45 (.31) (.00) (.22) (.53) CLASS K Year Ended 10/31/10 $ 8.10 $.23 $ .41 $ .64 $(.24) $(.00) $0.00 $(.24) Year Ended 10/31/09 7.39 .32 .71 1.03 (.28) (.04) 0.00 (.32) Year Ended 10/31/08 9.00 .38 (1.63) (1.25)(h) (.36) (.00) 0.00 (.36) Year Ended 10/31/07 8.61 .32 .40 .72 (.33) (.00) 0.00 (.33) Year Ended 10/31/06 8.69 .29 .19 .48 (.34) (.00) (.22) (.56) CLASS I Year Ended 10/31/10 $ 8.08 $.26 $ .40 $ .66 $(.26) $(.00) $0.00 $(.26) Year Ended 10/31/09 7.38 .34 .70 1.04 (.30) (.04) 0.00 (.34) Year Ended 10/31/08 9.00 .38 (1.62) (1.24)(h) (.38) (.00) 0.00 (.38) Year Ended 10/31/07 8.61 .36 .40 .76 (.37) (.00) 0.00 (.37) Year Ended 10/31/06 8.69 .37 .14 .51 (.37) (.00) (.22) (.59) ---------------------------------------------------------------------------------------------------------------------- Please refer to the footnotes on pages 47 through 48. 44
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[Download Table] RATIOS/SUPPLEMENTAL DATA ---------------------------------------------------------- TOTAL RATIO OF NET INVESTMENT RATIO OF INVESTMENT NET ASSET RETURN BASED NET ASSETS, EXPENSES INCOME PORTFOLIO VALUE, END ON NET ASSET END OF PERIOD TO AVERAGE TO AVERAGE TURNOVER OF PERIOD VALUE (b) (000'S OMITTED) NET ASSETS NET ASSETS RATE ------------------------------------------------------------------------------------ $10.98 11.17%(d) $418,023 .91%(e)(f)(g) 3.98%(c)(e) 99% 10.28 23.01(d) 419,319 .89(f)(g) 4.71(c) 95 8.77 (10.15)(d) 360,606 .85(f) 4.68(c) 184 10.24 4.79(d) 41,696 .98(f) 4.13(c) 173 10.18 4.51 44,409 .98(e)(f) 4.08(c)(e) 446 $10.98 10.94%(d) $ 759 1.08%(e)(f)(g) 3.49%(c)(e) 99% 10.28 22.74(d) 156 1.11(f)(g) 4.39(c) 95 8.77 (10.33)(d) 73 1.05(f) 4.45(c) 184 10.24 4.57(d) 577 1.18(f) 3.97(c) 173 10.18 4.31 13 1.18(e)(f) 3.89(c)(e) 446 $10.99 11.21%(d) $ 4,359 .86%(e)(f)(g) 4.02%(c)(e) 99% 10.29 23.05(d) 4,434 .84(f)(g) 4.76(c) 95 8.78 (10.09)(d) 3,784 .80(f) 4.69(c) 184 10.25 4.84(d) 7,222 .93(f) 4.39(c) 173 10.19 4.54 10 .93(e)(f) 4.13(c)(e) 446 $11.00 11.59%(d) $ 1,348 .67%(e)(f)(g) 4.60%(c)(e) 99% 10.29 23.36(d) 5,095 .59(f)(g) 5.02(c) 95 8.78 (9.78)(d) 5,115 .55(f) 4.98(c) 184 10.24 5.10(d) 5,368 .68(f) 4.44(c) 173 10.18 4.71 5,913 .68(e)(f) 4.37(c)(e) 446 $ 8.50 7.88%(d) $ 42,733 .90%(e)(f) 2.83%(c)(e) 54% 8.10 14.45(d) 46,138 .90(f) 4.24(c) 86 7.39 (14.57)(d) 39,639 .90(f) 4.13(c) 81 9.02 8.60(d) 48,542 1.47 3.81 134 8.62 5.61 25,348 1.78(e)(g) 3.93(e) 169 $ 8.47 7.68%(d) $ 516 1.10%(e)(f) 2.61%(c)(e) 54% 8.07 14.12(d) 364 1.10(f) 4.02(c) 86 7.37 (14.65)(d) 252 1.10(f) 3.98(c) 81 8.99 8.15(d) 187 1.58 4.08 134 8.61 5.32 20 2.03(e)(g) 3.64(e) 169 $ 8.50 8.00%(d) $ 205 .85%(e)(f) 2.73%(c)(e) 54% 8.10 14.45(d) 25 .85(f) 4.29(c) 86 7.39 (14.28)(d) 21 .85(f) 4.02(c) 81 9.00 8.46(d) 57 1.59 3.47 134 8.61 5.61 141 1.80(e)(g) 3.63(e) 169 $ 8.48 8.26%(d) $ 10 .60%(e)(f) 3.13%(c)(e) 54% 8.08 14.69(d) 9 .60(f) 4.57(c) 86 7.38 (14.21)(d) 8 .60(f) 4.45(c) 81 9.00 8.92(d) 10 1.14 4.06 134 8.61 5.95 10 1.46(e)(g) 4.25(e) 169 ------------------------------------------------------------------------------------ 45
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[Enlarge/Download Table] INCOME FROM INVESTMENT OPERATIONS LESS: DIVIDENDS AND DISTRIBUTIONS ----------------------------------- ---------------------------------------------- NET INCREASE NET ASSET NET REALIZED (DECREASE) DIVIDENDS TAX DISTRIBUTIONS VALUE, NET AND UNREALIZED IN NET ASSET FROM NET RETURN FROM NET TOTAL BEGINNING INVESTMENT GAIN (LOSS) ON VALUE FROM INVESTMENT OF REALIZED GAIN DIVIDENDS AND FISCAL YEAR OR PERIOD OF PERIOD INCOME (a) INVESTMENTS OPERATIONS INCOME CAPITAL ON INVESTMENTS DISTRIBUTIONS -------------------------------------------------------------------------------------------------------------------------- GLOBAL BOND CLASS A Year Ended 9/30/10 $7.87 $.32(c) $ .63 $ .95 $(.32) $(.00) $0.00 $(.32) Year Ended 9/30/09 7.39 .40(c) .60 1.00 (.40) (.00) (.12) (.52) Year Ended 9/30/08 8.07 .42(c) (.70) (.28) (.40) (.00) 0.00 (.40) Year Ended 9/30/07 7.54 .40 .52 .92 (.39) (.00) 0.00 (.39) Year Ended 9/30/06 7.69 .44 (.15) .29 (.44) (.00) 0.00 (.44) CLASS R Year Ended 9/30/10 $7.87 $.30(c) $ .64 $ .94 $(.31) $(.00) $0.00 $(.31) Year Ended 9/30/09 7.39 .37(c) .61 .98 (.38) (.00) (.12) (.50) 11/5/07(i) to 9/30/08 8.14 .35(c) (.75) (.40) (.35) (.00) 0.00 (.35) CLASS K Year Ended 9/30/10 $7.87 $.32(c) $ .64 $ .96 $(.33) $(.00) $0.00 $(.33) Year Ended 9/30/09 7.38 .40(c) .61 1.01 (.40) (.00) (.12) (.52) 11/5/07(i) to 9/30/08 8.14 .36(c) (.75) (.39) (.37) (.00) 0.00 (.37) CLASS I Year Ended 9/30/10 $7.87 $.34(c) $ .64 $ .98 $(.35) $(.00) $0.00 $(.35) Year Ended 9/30/09 7.39 .36(c) .66 1.02 (.42) (.00) (.12) (.54) 11/5/07(i) to 9/30/08 8.14 .47(c) (.83) (.36) (.39) (.00) 0.00 (.39) HIGH INCOME CLASS A Year Ended 10/31/10 $8.24 $.69(c) $ .96 $ 1.65(h) $(.70) $(.00) $0.00 $(.70) Year Ended 10/31/09 5.85 .67(c) 2.44 3.11 (.69) (.01) (.02) (.72) Year Ended 10/31/08 9.02 .61(c) (2.87) (2.26)(h) (.68) (.00) (.23) (.91) Year Ended 10/31/07 8.97 .56 .41 .97 (.57) (.00) (.35) (.92) Year Ended 10/31/06 8.70 .55 .43 .98 (.57) (.00) (.14) (.71) CLASS R Year Ended 10/31/10 $8.24 $.67(c) $ .96 $ 1.63(h) $(.68) $(.00) $0.00 $(.68) Year Ended 10/31/09 5.85 .67(c) 2.43 3.10 (.68) (.01) (.02) (.71) 1/28/08(g) to 10/31/08 8.52 .46(c) (2.66) (2.20)(h) (.47) (.00) 0.00 (.47) CLASS K Year Ended 10/31/10 $8.24 $.69(c) $ .96 $ 1.65(h) $(.70) $(.00) $0.00 $(.70) Year Ended 10/31/09 5.85 .68(c) 2.44 3.12 (.70) (.01) (.02) (.73) 1/28/08(i) to 10/31/08 8.52 .47(c) (2.66) (2.19)(h) (.48) (.00) 0.00 (.48) CLASS I Year Ended 10/31/10 $8.25 $.71(c) $ .97 $ 1.68(h) $(.73) $(.00) $0.00 $(.73) Year Ended 10/31/09 5.85 .70(c) 2.44 3.14 (.71) (.01) (.02) (.74) 1/28/08(i) to 10/31/08 8.52 .49(c) (2.67) (2.18)(h) (.49) (.00) 0.00 (.49) -------------------------------------------------------------------------------------------------------------------------- Please refer to the footnotes on pages 47 through 48. 46
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[Enlarge/Download Table] RATIOS/SUPPLEMENTAL DATA -------------------------------------------------------------- TOTAL RATIO OF NET INVESTMENT RATIO OF INVESTMENT NET ASSET RETURN BASED NET ASSETS, EXPENSES INCOME PORTFOLIO VALUE, END ON NET ASSET END OF PERIOD TO AVERAGE TO AVERAGE TURNOVER OF PERIOD VALUE (b) (000'S OMITTED) NET ASSETS NET ASSETS RATE ---------------------------------------------------------------------------------------- $8.50 12.38% $1,744,323 .98%(e)(f)(g) 3.98%(c)(e) 69% 7.87 14.65 1,367,036 .93(f)(g) 5.65(c) 91 7.39 (3.75) 1,425,649 1.04(f)(g) 5.19(c) 140 8.07 12.47 1,071,398 1.80(g) 5.09 170 7.54 3.90 935,901 1.04(e) 5.81(e) 104 $8.50 12.15% $ 11,857 1.15%(e)(f)(g) 3.66%(c)(e) 69% 7.87 14.38 2,302 1.15(f)(g) 5.35(c) 91 7.39 (5.15) 122 1.24(f)(g)(j) 4.92(c)(j) 140 $8.50 12.46% $ 1,261 .90%(e)(f)(g) 3.88%(c)(e) 69% 7.87 14.88 392 .89(f)(g) 5.63(c) 91 7.38 (5.07) 59 .99(f)(g)(j) 5.06(c)(j) 140 $8.50 12.77% $ 9,931 .63%(e) 4.17%(c)(e) 69% 7.87 15.00 2,897 .60(f)(g) 5.88(c) 91 7.39 (4.72) 67 .74(f)(g)(j) 5.45(c)(j) 140 $9.19 20.85%(d) $1,326,974 .99%(e)(f)(g) 7.93%(c)(e) 26% 8.24 57.11(d) 780,222 .99(f)(g) 10.13(c) 46 5.85 (27.49)(d) 450,517 1.03(e)(f)(g) 7.65(c)(e) 74 9.02 11.54 281,677 1.41(e)(g) 6.24(e) 67 8.97 11.87 235,763 1.48(g) 6.32 75 $9.19 20.62%(d) $ 13,250 1.18%(e)(f)(g) 7.70%(c)(e) 26% 8.24 56.83(d) 3,754 1.19(f)(g) 9.86(c) 46 5.85 (27.09)(d) 1,443 1.18(e)(f)(g)(j) 7.62(c)(e)(j) 74 $9.19 20.94%(d) $ 1,624 .95%(e)(f)(g) 8.04%(c)(e) 26% 8.24 57.24(d) 1,328 .94(f)(g) 10.18(c) 46 5.85 (26.94)(d) 753 .93(e)(f)(g)(j) 8.01(c)(e)(j) 74 $9.20 21.23%(d) $ 17,272 .67%(e)(f)(g) 8.03%(c)(e) 26% 8.25 57.79(d) 306 .69(f)(g) 10.45(c) 46 5.85 (26.84)(d) 165 .69(e)(f)(g)(j) 8.09(c)(e)(j) 74 ---------------------------------------------------------------------------------------- (a)Based on average shares outstanding. (b)Total investment return is calculated assuming an initial investment is made at the NAV at the beginning of the period, reinvestment of all dividends and distributions at the NAV during the period, and a redemption on the last day of the period. Initial sales charges or CDSC, if applicable, are not reflected in the calculation of total investment return. Total investment return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment returns calculated for periods of less than one year are not annualized. (c)Net of fees waived and expenses reimbursed by the Adviser. (d)Includes the impact of proceeds received, and credited to the Fund resulting from class action settlements, which enhanced the performance of each share class. 47
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[Download Table] FOR FISCAL YEAR ENDED ---------------------------------------------------------------- ALLIANCEBERNSTEIN INTERMEDIATE BOND October 31, 2010 .01% October 31, 2009 .01% October 31, 2008 .21% October 31, 2007 .61% ALLIANCEBERNSTEIN DIVERSIFIED YIELD October 31, 2010 .55% October 31, 2009 .57% October 31, 2008 .81% October 31, 2007 4.31% ALLIANCEBERNSTEIN HIGH INCOME October 31, 2010 .15% October 31, 2009 .05% October 31, 2008 .41% (e)The ratio includes expenses attributable to costs of proxy solicitation. (f)Net of expenses assumed and/or waived/reimbursed. If the following Funds had borne all expenses for the respective years ended, the expense ratios would have been as follows: [Download Table] 2010 2009 2008 2007 2006 ---------------------------------------------------------------------- ALLIANCEBERNSTEIN INTERMEDIATE BOND Class A 1.11%* 1.11% 1.09% 1.54% 1.34%* Class R 1.37%* 1.38% 1.25% 1.74% 1.57%* Class K 1.09%* 1.05% 1.02% 1.53% 1.27%* Class I .81%* .72% .64% 1.09% .88%* ALLIANCEBERNSTEIN DIVERSIFIED YIELD Class A 1.55%* 1.69% 1.65% Class R 1.88%* 1.96% 1.88% Class K 1.29%* 1.68% 1.53% Class I 1.18%* 1.25% 1.28% ALLIANCEBERNSTEIN GLOBAL BOND Class A 1.02%* 1.00% 1.15% Class R 1.35%* 1.31% 1.48%+ Class K 1.06%* .98% 1.09%+ Class I .63% .60% .77%+ ALLIANCEBERNSTEIN HIGH INCOME Class A 1.04%* 1.13% 1.13%*+ Class R 1.37%* 1.36% 1.43%*+ Class K 1.08%* 1.10% 1.12%*+ Class I .72%* .72% .79%*+ -------- *The ratio includes expenses attributable to costs of proxy solicitation. +Annualized. (g)Includes interest expense. For the following Funds, the ratio of gross expenses to average net assets, excluding interest expense (and any related expenses), would have been as follows: [Download Table] 2010 2009 2008 2007 2006 ------------------------------------------------------------------------- ALLIANCEBERNSTEIN INTERMEDIATE BOND Class A 1.05%* 1.07% Class R 1.34%* 1.33% Class K 1.03%* 1.01% Class I .69%* .68% ALLIANCEBERNSTEIN DIVERSIFIED YIELD Class A 1.72%* Class R 1.98%* Class K 1.75%* Class I 1.41%* ALLIANCEBERNSTEIN GLOBAL BOND Class A .95%* .97% 1.01%(j) 1.05% Class R 1.29%* 1.27% 1.34%(j) Class K 1.01%* .93% .95%(j) Class I .57%* .54% .63%(j) ALLIANCEBERNSTEIN HIGH INCOME Class A 1.00%* 1.09% 1.07%*(j) 1.14%* 1.14% Class R 1.34%* 1.32% 1.40%*(j) Class K 1.03%* 1.06% 1.09%*(j) Class I .71%* .68% .75%*(j) -------- *The ratio includes expenses attributable to costs of proxy solicitation. (h)Amount includes contribution from the Adviser of less than $.005. (i)Commencement of distribution. (j)Annualized. 48
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APPENDIX A -------------------------------------------------------------------------------- BOND RATINGS MOODY'S INVESTORS SERVICE, INC. Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C--Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Absence of Rating--When no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue. Should no rating be assigned, the reason may be one of the following: 1. An application for rating was not received or accepted. 2. The issue or issuer belongs to a group of securities or companies that are unrated as a matter of policy. 3. There is a lack of essential data pertaining to the issue or issuer. 4. The issue was privately placed, in which case the rating is not published in Moody's publications. Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons. Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. STANDARD & POOR'S RATINGS SERVICES AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A--Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt rated BBB normally exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having significant speculative characteristics. BB indicates the lowest degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt. However, it faces major ongoing A-1
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uncertainties or exposure to adverse business, financial or economic conditions which could lead to an inadequate capacity to pay interest and repay principal. B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there is capacity to pay interest and repay principal. Adverse business, financial or economic conditions will likely impair the capacity or willingness to pay principal or repay interest. CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial and economic conditions to pay interest and repay principal. In the event of adverse business, financial or economic conditions, there is not likely to be capacity to pay interest or repay principal. CC--Debt rated CC is currently highly vulnerable to nonpayment. C--The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments are being continued. D--The D rating, unlike other ratings, is not prospective; rather, it is used only where a default has actually occurred. Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. NR--Not rated. FITCH RATINGS AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F1+. A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB--Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B--Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC--Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC--Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C--Bonds are in imminent default in payment of interest or principal. DDD, DD, D--Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. DDD represents the highest potential for recovery on these bonds, and D represents the lowest potential for recovery. Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the AAA category or in categories below B. NR--Indicates that Fitch does not rate the specific issue. DOMINION BOND RATING SERVICE LIMITED Each rating category is denoted by the subcategories "high" and "low". The absence of either a "high" or "low" designation indicates the rating is in the "middle" of the category. The AAA and D categories do not utilize "high", "middle", and "low" as differential grades. AAA--Long-term debt rated AAA is of the highest credit quality, with exceptionally strong protection for the timely repayment of principal and interest. Earnings are considered stable, the structure of the industry in which the entity operates is strong, and the outlook for future profitability is favorable. There are few qualifying factors present that would detract from the performance of the entity. The strength of liquidity and coverage ratios is unquestioned and the entity has established a credible track record of superior performance. Given the extremely high standard that Dominion has set for this category, few entities are able to achieve a AAA rating. AA--Long-term debt rated AA is of superior credit quality, and protection of interest and principal is considered high. In many cases they differ from long-term debt rated AAA only to a small degree. Given the extremely restrictive definition Dominion has for the AAA category, entities rated AA are also considered to be strong credits, typically exemplifying above-average strength in key areas of consideration and unlikely to be significantly affected by reasonably foreseeable events. A-2
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A--Long-term debt rated A is of satisfactory credit quality. Protection of interest and principal is still substantial, but the degree of strength is less than that of AA rated entities. While A is a respectable rating, entities in this category are considered to be more susceptible to adverse economic conditions and have greater cyclical tendencies than higher-rated securities. BBB--Long-term debt rated BBB is of adequate credit quality. Protection of interest and principal is considered acceptable, but the entity is fairly susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions present which reduce the strength of the entity and its rated securities. BB--Long-term debt rated BB is defined to be speculative and non-investment grade, where the degree of protection afforded interest and principal is uncertain, particularly during periods of economic recession. Entities in the BB range typically have limited access to capital markets and additional liquidity support. In many cases, deficiencies in critical mass, diversification, and competitive strength are additional negative considerations. B--Long-term debt rated B is considered highly speculative and there is a reasonably high level of uncertainty as to the ability of the entity to pay interest and principal on a continuing basis in the future, especially in periods of economic recession or industry adversity. CCC, CC and C--Long-term debt rated in any of these categories is very highly speculative and is in danger of default of interest and principal. The degree of adverse elements present is more severe than long-term debt rated B. Long-term debt rated below B often have features which, if not remedied, may lead to default. In practice, there is little difference between these three categories, with CC and C normally used for lower ranking debt of companies for which the senior debt is rated in the CCC to B range. D--A security rated D implies the issuer has either not met a scheduled payment of interest or principal or that the issuer has made it clear that it will miss such a payment in the near future. In some cases, Dominion may not assign a D rating under a bankruptcy announcement scenario, as allowances for grace periods may exist in the underlying legal documentation. Once assigned, the D rating will continue as long as the missed payment continues to be in arrears, and until such time as the rating is suspended, discontinued, or reinstated by Dominion. A-3
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APPENDIX B -------------------------------------------------------------------------------- HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION -------------------------------------------------------------------------------- The settlement agreement between the Adviser and the New York State Attorney General requires the Funds to include the following supplemental hypothetical investment information, which provides additional information calculated and presented in a manner different from expense information found under "Fees and Expenses of the Fund" in the Summary Information at the beginning of this Prospectus about the effect of a Fund's expenses, including investment advisory fees and other Fund costs, on each Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A shares of each Fund assuming a 5% return each year. Except as otherwise indicated, the chart also assumes that the current annual expense ratio stays the same throughout the 10-year period. The current annual expense ratio for each Fund is the same as stated under "Financial Highlights." If you wish to obtain hypothetical investment information for other classes of shares of each Fund, please refer to the "Mutual Fund Fees & Expenses Calculators" on www.AllianceBernstein.com. Your actual expenses may be higher or lower. ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO -------------------------------------------------------------------------------- [Download Table] HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT --------------------------------------------------------------------- 1 $10,000.00 $ 500.00 $10,500.00 $ 93.45 $10,406.55 2 10,406.55 520.33 10,926.88 121.29 10,805.59 3 10,805.59 540.28 11,345.87 125.94 11,219.93 4 11,219.93 561.00 11,780.93 130.77 11,650.16 5 11,650.16 582.51 12,232.67 135.78 12,096.89 6 12,096.89 604.84 12,701.73 140.99 12,560.74 7 12,560.74 628.04 13,188.78 146.40 13,042.38 8 13,042.38 652.12 13,694.50 152.01 13,542.49 9 13,542.49 677.12 14,219.61 157.84 14,061.77 10 14,061.77 703.09 14,764.86 163.89 14,600.97 --------------------------------------------------------------------- Total $5,969.33 $1,368.36 ALLIANCEBERNSTEIN GLOBAL BOND FUND -------------------------------------------------------------------------------- [Download Table] HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT --------------------------------------------------------------------- 1 $10,000.00 $ 500.00 $10,500.00 $ 102.90 $10,397.10 2 10,397.10 519.86 10,916.96 111.35 10,805.61 3 10,805.61 540.28 11,345.89 115.73 11,230.16 4 11,230.16 561.51 11,791.67 120.28 11,671.39 5 11,671.39 583.57 12,254.96 125.00 12,129.96 6 12,129.96 606.50 12,736.46 129.91 12,606.55 7 12,606.55 630.33 13,236.88 135.02 13,101.86 8 13,101.86 655.09 13,756.95 140.32 13,616.63 9 13,616.63 680.83 14,297.46 145.83 14,151.63 10 14,151.63 707.58 14,859.21 151.56 14,707.65 --------------------------------------------------------------------- Total $5,985.55 $1,277.90 ALLIANCEBERNSTEIN DIVERSIFIED YIELD FUND -------------------------------------------------------------------------------- [Download Table] HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT --------------------------------------------------------------------- 1 $10,000.00 $ 500.00 $10,500.00 $ 94.50 $10,405.50 2 10,405.50 520.28 10,925.78 169.35 10,756.43 3 10,756.43 537.82 11,294.25 175.06 11,119.19 4 11,119.19 555.96 11,675.15 180.96 11,494.19 5 11,494.19 574.71 12,068.90 187.07 11,881.83 6 11,881.83 594.09 12,475.92 193.38 12,282.54 7 12,282.54 614.13 12,896.67 199.90 12,696.77 8 12,696.77 634.84 13,331.61 206.64 13,124.97 9 13,124.97 656.25 13,781.22 213.61 13,567.61 10 13,567.61 678.38 14,245.99 220.81 14,025.18 --------------------------------------------------------------------- Total $5,866.46 $1,841.28 B-1
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ALLIANCEBERNSTEIN HIGH INCOME FUND -------------------------------------------------------------------------------- [Download Table] HYPOTHETICAL INVESTMENT HYPOTHETICAL HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT --------------------------------------------------------------------- 1 $10,000.00 $ 500.00 $10,500.00 $ 103.95 $10,396.05 2 10,396.05 519.80 10,915.85 113.52 10,802.33 3 10,802.33 540.12 11,342.45 117.96 11,224.49 4 11,224.49 561.22 11,785.71 122.57 11,663.14 5 11,663.14 583.16 12,246.30 127.36 12,118.94 6 12,118.94 605.95 12,724.89 132.34 12,592.55 7 12,592.55 629.63 13,222.18 137.51 13,084.67 8 13,084.67 654.23 13,738.90 142.88 13,596.02 9 13,596.02 679.80 14,275.82 148.47 14,127.35 10 14,127.35 706.37 14,833.72 154.27 14,679.45 --------------------------------------------------------------------- Total $5,980.28 $1,300.83 *Expenses are net of any fee waiver or expense waiver for the first year. Thereafter, the expense ratio reflects the Fund's operating expenses as reflected under "Fees and Expenses of the Fund" before waiver in the Summary Information at the beginning of this Prospectus. B-2
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For more information about the Funds, the following documents are available upon request: .. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS The Funds' annual and semi-annual reports to shareholders contain additional information on the Funds' investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected a Fund's performance during its last fiscal year. .. STATEMENT OF ADDITIONAL INFORMATION (SAI) The Funds have an SAI, which contains more detailed information about the Funds, including their operations and investment policies. The Funds' SAI and independent registered public accounting firm's reports and financial statements in each Fund's most recent annual report to shareholders are incorporated by reference into (and are legally part of) this Prospectus. You may request a free copy of the current annual/semi-annual report or the SAI, or make inquiries concerning the Funds, by contacting your broker or other financial intermediary, or by contacting the Adviser: [Download Table] BY MAIL: c/o AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 BY PHONE: For Information: (800) 221-5672 For Literature: (800) 227-4618 ON THE INTERNET: www.AllianceBernstein.com Or you may view or obtain these documents from the Securities and Exchange Commission (the "Commission"): .. Call the Commission at 1-202-551-8090 for information on the operation of the Public Reference Room. .. Reports and other information about the Funds are available on the EDGAR Database on the Commission's Internet site at http://www.sec.gov. .. Copies of the information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Commission's Public Reference Section, Wash. DC 20549-1520. You also may find these documents and more information about the Adviser and the Funds on the Internet at: www.AllianceBernstein.com. AllianceBernstein(R) and the AB logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P. [Download Table] FUND SEC FILE NO. ------------------------------- Intermediate Bond 811-02383 Global Bond 811-06554 Diversified Yield 811-07391 High Income 811-08188 PRO-RTMT-0115-0111 [GRAPHIC]
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[LOGO] ALLIANCEBERNSTEIN BOND FUND, INC. -ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO (Class A-ABQUX; Class B-ABQBX; Class C-ABQCX; Advisor Class-ABQYX; Class R-ABQRX; Class K-ABQKX; Class I-ABQIX) ALLIANCEBERNSTEIN UNCONSTRAINED BOND FUND, INC. (Class A-AGSAX; Class B-AGSBX; Class C-AGCCX; Advisor Class-AGSIX; Class R-AGSRX; Class K-AGSKX; Class I-AGLIX) ALLIANCEBERNSTEIN HIGH INCOME FUND, INC. (Class A-AGDAX; Class B-AGDBX; Class C-AGDCX; Advisor Class AGDYX; Class R-AGDRX; Class K-AGDKX; Class I-AGDIX) ALLIANCEBERNSTEIN GLOBAL BOND FUND, INC. (Class A-ANAGX; Class B-ANABX; Class C-ANACX; Advisor Class ANAYX; Class R-ANARX; Class K-ANAKX; Class I-ANAIX) -------------------------------------------------------------------------------- c/o AllianceBernstein Investor Services, Inc. P. O. Box 786003, San Antonio, Texas 78278-6003 Toll Free: (800) 221-5672 For Literature: Toll Free (800) 227-4618 -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION January 31, 2011 -------------------------------------------------------------------------------- This Statement of Additional Information ("SAI") is not a prospectus but supplements and should be read in conjunction with the current prospectus, dated January 31, 2011, for the AllianceBernstein Intermediate Bond Portfolio ("Intermediate Bond") of AllianceBernstein Bond Fund, Inc., AllianceBernstein Unconstrained Bond Fund, Inc. ("Unconstrained Bond"), AllianceBernstein Global Bond Fund, Inc. ("Global Bond") and AllianceBernstein High Income Fund, Inc. ("High Income") (each a "Fund" and collectively, the "Funds") that offers Class A, Class B, Class C and Advisor Class shares of the Funds and the prospectus, dated January 31, 2011, of the Funds that offers Class A, Class R, Class K and Class I shares of the Funds (each a "Prospectus" and together, the "Prospectuses"). Financial statements for Intermediate Bond, Unconstrained Bond and High Income for the year ended October 31, 2010, and financial statements for Global Bond for the year ended September 30, 2010, are included in each Fund's annual report to shareholders and are incorporated into the SAI by reference. Copies of the Prospectuses and each Fund's annual report may be obtained by contacting AllianceBernstein Investor Services, Inc., ("ABIS") at the address or the "For Literature" telephone number shown above or on the Internet at www.AllianceBernstein.com.
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TABLE OF CONTENTS ----------------- Page ---- INFORMATION ABOUT THE FUNDS AND THEIR INVESTMENTS............................ 2 INVESTMENTS RESTRICTIONS..................................................... 44 MANAGEMENT OF THE FUNDS...................................................... 47 EXPENSES OF THE FUNDS........................................................ 82 PURCHASE OF SHARES............................................................92 REDEMPTION AND REPURCHASE OF SHARES..........................................117 SHAREHOLDER SERVICES.........................................................120 NET ASSET VALUE..............................................................124 DIVIDENDS, DISTRIBUTIONS AND TAXES...........................................127 FUND TRANSACTIONS............................................................134 GENERAL INFORMATION..........................................................138 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..............................................................157 -------- AllianceBernstein(R) and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
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-------------------------------------------------------------------------------- INFORMATION ABOUT THE FUNDS AND THEIR INVESTMENTS -------------------------------------------------------------------------------- Introduction to the Funds ------------------------- Except as otherwise noted, each Fund's investment objectives and policies described below are not "fundamental policies" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act") and may, therefore, be changed by the Fund's Board of Directors (the "Board") without shareholder approval. However, no Fund will change its investment objective without at least 60 days' prior written notice to shareholders. There is no guarantee that a Fund will achieve its investment objective. Whenever any investment policy or restriction states a percentage of a Fund's assets that may be invested in any security or other asset, it is intended that such percentage limitation be determined immediately after and as a result of a Fund's acquisition of such securities or other assets. Accordingly, any later increases or decreases in percentage beyond the specified limitations resulting from a change in values or net assets will not be considered a violation of this percentage limitation. Additional Investment Policies and Practices -------------------------------------------- The following information about the Funds' investment policies and practices supplements the information set forth in the Prospectuses. Derivatives ----------- A Fund may, but is not required to, use derivatives for risk management purposes or as part of its investment practices. Derivatives are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index. These assets, rates, and indices may include bonds, stocks, mortgages, commodities, interest rates, currency exchange rates, bond indices and stock indices. There are four principal types of derivatives, which include options, futures, forwards and swaps. The four principal types of derivative instruments, as well as the methods in which they may be used by a Fund are described below. Derivatives may be (i) standardized, exchange-traded contracts or (ii) customized, privately-negotiated contracts. Exchange-traded derivatives tend to be more liquid and subject to less credit risk than those that are privately negotiated. The Funds may use derivatives to earn income and enhance returns, to hedge or adjust the risk profile of a portfolio and either to replace more traditional direct investments or to obtain exposure to otherwise inaccessible markets. Forward Contracts. A forward contract, which may be standardized and exchange-traded or customized, and privately negotiated, is an agreement for one party to buy, and the other party to sell, a specific quantity of an underlying commodity or other tangible asset for an agreed-upon price at a future date. A forward contract generally is settled by physical delivery of the commodity or other tangible asset underlying the forward contract to an agreed upon location at a future date (rather than settled by cash) or will be rolled forward into a new forward contract. Non-deliverable forwards ("NDFs") specify a cash payment upon maturity. NDFs are normally used when the market for physical settlement of the currency is underdeveloped, heavily regulated or highly taxed. Futures Contracts and Options on Futures Contracts. A futures contract is an agreement that obligates the buyer to buy and the seller to sell a specified quantity of an underlying asset (or settle for cash the value of a contract based on an underlying asset, rate or index) at a specific price on the contract maturity date. Options on futures contracts are options that call for the delivery of futures contracts upon exercise. Futures contracts are standardized, exchange-traded instruments and are fungible (i.e., considered to be perfect substitutes for each other). This fungibility allows futures contracts to be readily offset or cancelled through the acquisition of equal but opposite positions, which is the primary method in which futures contracts are liquidated. A cash-settled futures contract does not require physical delivery of the underlying asset but instead is settled for cash equal to the difference between the values of the contract on the date it is entered into and its maturity date. Options. An option, which may be standardized and exchange-traded, or customized and privately negotiated, is an agreement that, for a premium payment or fee, gives the option holder (the buyer) the right but not the obligation to buy (a "call") or sell (a "put") the underlying asset (or settle for cash an amount based on an underlying asset, rate or index) at a specified price (the exercise price) during a period of time or on a specified date. Likewise, when an option is exercised the writer of the option is obligated to sell (in the case of a call option) or to purchase (in the case of a put option) the underlying asset (or settle for cash an amount based on an underlying asset, rate or index). Investments in options are considered speculative. A Fund may lose the premium paid for them if the price of the underlying security or other asset decreased or remained the same (in the case of a call option) or increased or remained the same (in the case of a put option). If a put or call option purchased by the Fund were permitted to expire without being sold or exercised, its premium would represent a loss to the Fund. Swaps. A swap, which may be standardized and exchange-traded or customized, and privately negotiated, is an agreement that obligates two parties to exchange a series of cash flows at specified intervals (payment dates) based upon or calculated by reference to changes in specified prices or rates (interest rates in the case of interest rate swaps, currency exchange rates in the case of currency swaps) for a specified amount of an underlying asset (the "notional" principal amount). Swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Funds receiving or paying, as the case may be, only the net amount of the two payments). Except for currency swaps, the notional principal amount is used solely to calculate the payment streams but is not exchanged. With respect to currency swaps, actual principal amounts of currencies may be exchanged by the counterparties at the initiation, and again upon the termination, of the transaction. Risks of Derivatives. Investment techniques employing such derivatives involve risks different from, and, in certain cases, greater than, the risks presented by more traditional investments. Following is a general discussion of important risk factors and issues concerning the use of derivatives. -- Market Risk. This is the general risk attendant to all investments that the value of a particular investment will change in a way detrimental to a Fund's interest. -- Management Risk. Derivative products are highly specialized instruments that require investment techniques and risk analyses different from those associated with stocks and bonds. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. In particular, the use and complexity of derivatives require the maintenance of adequate controls to monitor the transactions entered into, the ability to assess the risk that a derivative adds to a Fund's investment portfolio, and the ability to forecast price, interest rate or currency exchange rate movements correctly. -- Credit Risk. This is the risk that a loss may be sustained by a Fund as a result of the failure of another party to a derivative (usually referred to as a "counterparty") to comply with the terms of the derivative contract. The credit risk for exchange-traded derivatives is generally less than for privately negotiated derivatives, since the clearinghouse, which is the issuer or counterparty to each exchange-traded derivative, provides a guarantee of performance. This guarantee is supported by a daily payment system (i.e., margin requirements) operated by the clearinghouse in order to reduce overall credit risk. For privately negotiated derivatives, there is no similar clearing agency guarantee. Therefore, a Fund considers the creditworthiness of each counterparty to a privately negotiated derivative in evaluating potential credit risk. -- Liquidity Risk. Liquidity risk exists when a particular instrument is difficult to purchase or sell. If a derivative transaction is particularly large or if the relevant market is illiquid (as is the case with many privately negotiated derivatives), it may not be possible to initiate a transaction or liquidate a position at an advantageous price. -- Leverage Risk. Since many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, rate or index can result in a loss substantially greater than the amount invested in the derivative itself. In the case of swaps, the risk of loss generally is related to a notional principal amount, even if the parties have not made any initial investment. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment. -- Risk of Potential Governmental Regulation of Derivatives. Recent legislation and regulatory developments will eventually require the clearing and exchange trading of most over-the-counter derivatives investments. It is possible that new government regulation of various types of derivative instruments, including futures and swap agreements, may affect a Fund's ability to use such instruments as a part of its investment strategy. -- Other Risks. Other risks in using derivatives include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate perfectly with underlying assets, rates and indices. Many derivatives, in particular privately negotiated derivatives, are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a Fund. Derivatives do not always perfectly or even highly correlate or track the value of the assets, rates or indices they are designed to closely track. Consequently, a Fund's use of derivatives may not always be an effective means of, and sometimes could be counterproductive to, furthering the Fund's investment objective. Use of Options, Futures, Forwards and Swaps by a Fund ----------------------------------------------------- - Forward Currency Exchange Contracts. A forward currency exchange contract is an obligation by one party to buy, and the other party to sell, a specific amount of a currency for an agreed upon price at a future date. A forward currency exchange contract may result in the delivery of the underlying asset upon maturity of the contract in return for the agreed upon payment. NDFs specify a cash payment upon maturity. NDFs are normally used when the market for physical settlement of the currency is underdeveloped, heavily regulated or highly taxed. A Fund may, for example, enter into forward currency exchange contracts to attempt to minimize the risk to the Fund from adverse changes in the relationship between the U.S. Dollar and other currencies. A Fund may purchase or sell forward currency exchange contracts for hedging purposes similar to those described below in connection with its transactions in foreign currency futures contracts. A Fund may also purchase or sell forward currency exchange contracts for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Currency Transactions". If a hedging transaction in forward currency exchange contracts is successful, the decline in the value of portfolio securities or the increase in the cost of securities to be acquired may be offset, at least in part, by profits on the forward currency exchange contract. Nevertheless, by entering into such forward currency exchange contracts, a Fund may be required to forego all or a portion of the benefits which otherwise could have been obtained from favorable movements in exchange rates. A Fund may also use forward currency exchange contracts to seek to increase total return when AllianceBernstein L.P., the Fund's adviser (the "Adviser"), anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. For example, a Fund may enter into a foreign currency exchange contract to purchase a currency if the Adviser expects the currency to increase in value. The Fund would recognize a gain if the market value of the currency is more than the contract value of the currency at the time of settlement of the contract. Similarly, a Fund may enter into a foreign currency exchange contract to sell a currency if the Adviser expects the currency to decrease in value. The Fund would recognize a gain if the market value of the currency is less than the contract value of the currency at the time of settlement of the contract. The cost of engaging in forward currency exchange contracts varies with such factors as the currencies involved, the length of the contract period and the market conditions then prevailing. Since transactions in foreign currencies are usually conducted on a principal basis, no fees or commissions are involved. - Options on Securities. A Fund may write and purchase call and put options on securities. In purchasing an option on securities, a Fund would be in a position to realize a gain if, during the option period, the price of the underlying securities increased (in the case of a call) or decreased (in the case of a put) by an amount in excess of the premium paid; otherwise the Fund would experience a loss not greater than the premium paid for the option. Thus, a Fund would realize a loss if the price of the underlying security declined or remained the same (in the case of a call) or increased or remained the same (in the case of a put) or otherwise did not increase (in the case of a put) or decrease (in the case of a call) by more than the amount of the premium. If a put or call option purchased by a Fund were permitted to expire without being sold or exercised, its premium would represent a loss to the Fund. A Fund may write a put or call option in return for a premium, which is retained by the Fund whether or not the option is exercised. A Fund may write covered options or uncovered options. A call option written by a Fund is "covered" if the Fund owns the underlying security, has an absolute and immediate right to acquire that security upon conversion or exchange of another security it holds, or holds a call option on the underlying security with an exercise price equal to or less than of the call option it has written. A put option written by a Fund is covered if the Fund holds a put option on the underlying securities with an exercise price equal to or greater than of the put option it has written. Uncovered options or "naked options" are riskier than covered options. For example, if a Fund wrote a naked call option and the price of the underlying security increased, the Fund would have to purchase the underlying security for delivery to the call buyer and sustain a loss equal to the difference between the option price and the market price of the security. A Fund may also, as an example, write combinations of put and call options on the same security, known as "straddles," with the same exercise and expiration date. By writing a straddle, the Fund undertakes a simultaneous obligation to sell and purchase the same security in the event that one of the options is exercised. If the price of the security subsequently rises above the exercise price, the call will likely be exercised and the Fund will be required to sell the underlying security at or below market price. This loss may be offset, however, in whole or part, by the premiums received on the writing of the two options. Conversely, if the price of the security declines by a sufficient amount, the put will likely be exercised. The writing of straddles will likely be effective, therefore, only where the price of the security remains stable and neither the call nor the put is exercised. In those instances where one of the options is exercised, the loss on the purchase or sale of the underlying security may exceed the amount of the premiums received. By writing a call option, a Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option. By writing a put option, a Fund assumes the risk that it may be required to purchase the underlying security for an exercise price above its then current market value, resulting in a capital loss unless the security subsequently appreciates in value. Where options are written for hedging purposes, such transactions constitute only a partial hedge against declines in the value of portfolio securities or against increases in the value of securities to be acquired, up to the amount of the premium. A Fund may purchase put options to hedge against a decline in the value of portfolio securities. If such decline occurs, the put options will permit the Fund to sell the securities at the exercise price or to close out the options at a profit. By using put options in this way, the Fund will reduce any profit it might otherwise have realized on the underlying security by the amount of the premium paid for the put option and by transaction costs. A Fund may purchase or write options on securities of the types in which it is permitted to invest in privately negotiated (i.e., over-the-counter) transactions. A Fund will effect such transactions only with investment dealers and other financial institutions (such as commercial banks or savings and loan institutions) deemed creditworthy by the Adviser, and the Adviser has adopted procedures for monitoring the creditworthiness of such entities. A Fund may purchase or write options on securities of the types in which they are permitted to invest in privately negotiated (i.e., over-the-counter) transactions. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price above its then current market value, resulting in a capital loss unless the security subsequently appreciates in value. Where options are written for hedging purposes, such transactions constitute only a partial hedge against declines in the value of portfolio securities or against increases in the value of securities to be acquired, up to the amount of the premium. The Fund may purchase put options to hedge against a decline in the value of portfolio securities. If such decline occurs, the put options will permit the Fund to sell the securities at the exercise price or to close out the options at a profit. By using put options in this way, the Fund will reduce any profit it might otherwise have realized on the underlying security by the amount of the premium paid for the put option and by transaction costs. A Fund may purchase call options to hedge against an increase in the price of securities that the Fund anticipates purchasing in the future. If such increase occurs, the call option will permit the Fund to purchase the securities at the exercise price, or to close out the options at a profit. The premium paid for the call option plus any transaction costs will reduce the benefit, if any, realized by the Fund upon exercise of the option, and, unless the price of the underlying security rises sufficiently, the option may expire worthless to the Fund and the Fund will suffer a loss on the transaction to the extent of the premium paid. A Fund will effect such transactions only with investment dealers and other financial institutions (such as commercial banks or savings and loan institutions) deemed creditworthy by the Adviser, and the Adviser has adopted procedures for monitoring the creditworthiness of such entities. Options purchased or written in negotiated transactions may be illiquid and it may not be possible for the Fund to effect a closing transaction at a time when the Adviser believes it would be advantageous to do so. --Options on Securities Indices. An option on a securities index is similar to an option on a security except that, rather than taking or making delivery of a security at a specified price, an option on a securities index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the chosen index is greater than (in the case of a call) or less than (in the case of a put) the exercise price of the option. A Fund may write (sell) call and put options and purchase call and put options on securities indices. If a Fund purchases put options on securities indices to hedge its investments against a decline in the value of portfolio securities, it will seek to offset a decline in the value of securities it owns through appreciation of the put option. If the value of the Fund's investments does not decline as anticipated, or if the value of the option does not increase, the Fund's loss will be limited to the premium paid for the option. The success of this strategy will largely depend on the accuracy of the correlation between the changes in value of the index and the changes in value of the Fund's security holdings. The purchase of call options on securities indices may be used by a Fund to attempt to reduce the risk of missing a broad market advance, or an advance in an industry or market segment, at a time when the Fund holds uninvested cash or short-term debt securities awaiting investment. When purchasing call options for this purpose, the Fund will also bear the risk of losing all or a portion of the premium paid if the value of the index does not rise. The purchase of call options on stock indices when a Fund is substantially fully invested is a form of leverage, up to the amount of the premium and related transaction costs, and involves risks of loss and of increased volatility similar to those involved in purchasing call options on securities the Fund owns. --Options on Foreign Currencies. A Fund may purchase and write options on foreign currencies for hedging purposes. For example, a decline in the dollar value of a foreign currency in which portfolio securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of portfolio securities, the Fund may purchase put options on the foreign currency. If the value of the currency does decline, the Fund will have the right to sell such currency for a fixed amount in dollars and could thereby offset, in whole or in part, the adverse effect on its portfolio which otherwise would have resulted. Conversely, where a rise in the dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, a Fund may purchase call options thereon. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to the Fund from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, the Fund could sustain losses on transactions in foreign currency options which would require it to forego a portion or all of the benefits of advantageous changes in such rates. A Fund may write options on foreign currencies for hedging purposes or to increase return. For example, where a Fund anticipates a decline in the dollar value of foreign-denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised, and the diminution in value of portfolio securities could be offset by the amount of the premium received. Similarly, instead of purchasing a call option to hedge against an anticipated increase in the dollar cost of securities to be acquired, a Fund could write a put option on the relevant currency, which, if rates move in the manner projected, will expire unexercised and allow the Fund to hedge such increased cost up to the amount of the premium. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the Fund will be required to purchase or sell the underlying currency at a loss which may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the Fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements in exchange rates. In addition to using options for the hedging purposes described above, a Fund may also invest in options on foreign currencies for non-hedging purposes as a means of making direct investments in foreign currencies. A Fund may use options on currency to seek to increase total return when the Adviser anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. For example, the Fund may purchase call options in anticipation of an increase in the market value of a currency. A Fund would ordinarily realize a gain if, during the option period, the value of such currency exceeded the sum of the exercise price, the premium paid and transaction costs. Otherwise, the Fund would realize no gain or a loss on the purchase of the call option. Put options may be purchased by a Fund for the purpose of benefiting from a decline in the value of a currency that the Fund does not own. A Fund would normally realize a gain if, during the option period, the value of the underlying currency decreased below the exercise price sufficiently to more than cover the premium and transaction costs. Otherwise, the Fund would realize no gain or loss on the purchase of the put option. For additional information on the use of options on foreign currencies for non-hedging purposes, see "Currency Transactions" below. Special Risks Associated with Options on Currency. An exchange-traded options position may be closed out only on an options exchange that provides a secondary market for an option of the same series. Although a Fund will generally purchase or sell options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option, or at any particular time. For some options, no secondary market on an exchange may exist. In such event, it might not be possible to effect closing transactions in particular options, with the result that the Fund would have to exercise its options in order to realize any profit and would incur transaction costs on the sale of the underlying currency. --Futures Contracts and Options on Futures Contracts. Futures contracts that a Fund may buy and sell may include futures contracts on fixed-income or other securities, and contracts based on interest rates, foreign currencies or financial indices, including any index of U.S. Government securities. A Fund may, for example, purchase or sell futures contracts and options thereon to hedge against changes in interest rates, securities (through index futures or options) or currencies. Interest rate futures contracts are purchased or sold for hedging purposes to attempt to protect against the effects of interest rate changes on a Fund's current or intended investments in fixed-income securities. For example, if a Fund owned long-term bonds and interest rates were expected to increase, that Fund might sell interest rate futures contracts. Such a sale would have much the same effect as selling some of the long-term bonds in that Fund's portfolio. However, since the futures market is more liquid than the cash market, the use of interest rate futures contracts as a hedging technique allows a Fund to hedge its interest rate risk without having to sell its portfolio securities. If interest rates were to increase, the value of the debt securities in the portfolio would decline, but the value of that Fund's interest rate futures contracts would be expected to increase at approximately the same rate, thereby keeping the net asset value ("NAV") of that Fund from declining as much as it otherwise would have. On the other hand, if interest rates were expected to decline, interest rate futures contracts could be purchased to hedge in anticipation of subsequent purchases of long-term bonds at higher prices. Because the fluctuations in the value of the interest rate futures contracts should be similar to those of long-term bonds, a Fund could protect itself against the effects of the anticipated rise in the value of long-term bonds without actually buying them until the necessary cash becomes available or the market has stabilized. At that time, the interest rate futures contracts could be liquidated and that Fund's cash reserves could then be used to buy long-term bonds on the cash market. A Fund may purchase and sell foreign currency futures contracts for hedging purposes in order to protect against fluctuations in currency exchange rates. Such fluctuations could reduce the dollar value of portfolio securities denominated in foreign currencies, or increase the cost of foreign-denominated securities to be acquired, even if the value of such securities in the currencies in which they are denominated remains constant. A Fund may sell futures contracts on a foreign currency, for example, when it holds securities denominated in such currency and it anticipates a decline in the value of such currency relative to the dollar. If such a decline were to occur, the resulting adverse effect on the value of foreign-denominated securities may be offset, in whole or in part, by gains on the futures contracts. However, if the value of the foreign currency increases relative to the dollar, a Fund's loss on the foreign currency futures contract may or may not be offset by an increase in the value of the securities because a decline in the price of the security stated in terms of the foreign currency may be greater than the increase in value as a result of the change in exchange rates. Conversely, a Fund could protect against a rise in the dollar cost of non-U.S. Dollar-denominated securities to be acquired by purchasing futures contracts on the relevant currency, which could offset, in whole or in part, the increased cost of such securities resulting from a rise in the dollar value of the underlying currencies. When a Fund purchases futures contracts under such circumstances, however, and the price in dollars of securities to be acquired instead declines as a result of appreciation of the dollar, the Fund will sustain losses on its futures position which could reduce or eliminate the benefits of the reduced cost of portfolio securities to be acquired. A Fund may also engage in currency "cross hedging" when, in the opinion of the Adviser, the historical relationship among foreign currencies suggests that a Fund may achieve protection against fluctuations in currency exchange rates similar to that described above at a reduced cost through the use of a futures contract relating to a currency other than the U.S. Dollar or the currency in which the foreign security is denominated. Such "cross hedging" is subject to the same risks as those described above with respect to an unanticipated increase or decline in the value of the subject currency relative to the U.S. Dollar. A Fund may also use foreign currency futures contracts and options on such contracts for non-hedging purposes. Similar to options on currencies described above, a Fund may use foreign currency futures contracts and options on such contracts to seek to increase total return when the Adviser anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. The risks associated with foreign currency futures contracts and options on futures are similar to those associated with options on foreign currencies, as described above. For additional information on the use of options on foreign currencies for non-hedging purposes, see "Currency Transactions" below. Purchases or sales of stock or bond index futures contracts may be used for hedging purposes to attempt to protect a Fund's current or intended investments from broad fluctuations in stock or bond prices. For example, a Fund may sell stock or bond index futures contracts in anticipation of or during a market decline to attempt to offset the decrease in market value of the Fund's portfolio securities that might otherwise result. If such decline occurs, the loss in value of portfolio securities may be offset, in whole or part, by gains on the futures position. When a Fund is not fully invested in the securities market and anticipates a significant market advance, it may purchase stock or bond index futures contracts in order to gain rapid market exposure that may, in whole or in part, offset increases in the cost of securities that the Fund intends to purchase. As such purchases are made, the corresponding positions in stock or bond index futures contracts will be closed out. Each Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and therefore is not subject to registration or regulation as a pool operator under that Act. Options on futures contracts are options that call for the delivery of futures contracts upon exercise. Options on futures contracts written or purchased by a Fund will be traded on U.S. exchanges. The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities in a Fund's portfolio. If the futures price at expiration of the option is below the exercise price, a Fund will retain the full amount of the option premium, which provides a partial hedge against any decline that may have occurred in the Fund's portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities or other instruments required to be delivered under the terms of the futures contract. If the futures price at expiration of the put option is higher than the exercise price, a Fund will retain the full amount of the option premium, which provides a partial hedge against any increase in the price of securities which the Fund intends to purchase. If a put or call option a Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it receives. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its options on futures positions, a Fund's losses from exercised options on futures may to some extent be reduced or increased by changes in the value of portfolio securities. A Fund may purchase options on futures contracts for hedging purposes instead of purchasing or selling the underlying futures contracts. For example, where a decrease in the value of portfolio securities is anticipated as a result of a projected market-wide decline or changes in interest or exchange rates, a Fund could, in lieu of selling futures contracts, purchase put options thereon. In the event that such decrease were to occur, it may be offset, in whole or part, by a profit on the option. If the anticipated market decline were not to occur, the Fund will suffer a loss equal to the price of the put. Where it is projected that the value of securities to be acquired by a Fund will increase prior to acquisition due to a market advance or changes in interest or exchange rates, a Fund could purchase call options on futures contracts, rather than purchasing the underlying futures contracts. If the market advances, the increased cost of securities to be purchased may be offset by a profit on the call. However, if the market declines, the Fund will suffer a loss equal to the price of the call, but the securities that the Fund intends to purchase may be less expensive. - Credit Default Swap Agreements. The "buyer" in a credit default swap contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract in return for a contingent payment upon the occurrence of a credit event with respect to an underlying reference obligation. Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or modified restructuring. A Fund may be either the buyer or seller in the transaction. As a seller, the Fund receives a fixed rate of income throughout the term of the contract, which typically is between one month and five years, provided that no credit event occurs. If a credit event occurs, the Fund typically must pay the contingent payment to the buyer, which is typically the "par value" (full notional value) of the reference obligation. The contingent payment may be a cash settlement or by physical delivery of the reference obligation in return for payment of the face amount of the obligation. The value of the reference obligation received by the Fund as a seller if a credit event occurs, coupled with the periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. If the Fund is a buyer and no credit event occurs, the Fund will lose its periodic stream of payments over the term of the contract. However, if a credit event occurs, the buyer typically receives full notional value for a reference obligation that may have little or no value. Credit default swaps may involve greater risks than if a Fund had invested in the reference obligation directly. Credit default swaps are subject to general market risk, liquidity risk and credit risk. - Currency Swaps. A Fund may enter into currency swaps for hedging purposes in an attempt to protect against adverse changes in exchange rates between the U.S. Dollar and other currencies or for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under "Currency Transactions". Currency swaps involve the exchange by the Fund with another party of a series of payments in specified currencies. Actual principal amounts of currencies may be exchanged by the counterparties at the initiation and again upon termination of the transaction. Since currency swaps are individually negotiated, the Fund expects to achieve an acceptable degree of correlation between its portfolio investments and its currency swaps positions. Therefore the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. With respect to Intermediate Bond, the Fund will not enter into any currency swap unless the credit quality of the unsecured senior debt or the claims-paying ability of the other party thereto is rated in the highest rating category of at least one nationally recognized statistical rating organization at the time of entering into the transaction. If there is a default by the other party to such a transaction, a Fund will have contractual remedies pursuant to the agreements related to the transactions. --Swaps: Interest Rate Transactions. A Fund may enter into interest rate swap, swaptions and cap or floor transactions, which may include preserving a return or spread on a particular investment or portion of its portfolio or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Unless there is a counterparty default, the risk of loss to a Fund from interest rate transactions is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the counterparty to an interest rate transaction defaults, the Fund's risk of loss consists of the net amount of interest payments that the Fund is contractually entitled to receive. Interest rate swaps involve the exchange by a Fund with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or "notional") amount. An option on a swap agreement, also called a "swaption," is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based "premium." A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties. Interest rate caps and floors are similar to options in that the purchase of an interest rate cap or floor entitles the purchaser, to the extent that a specified index exceeds (in the case of a cap) or falls below (in the case of a floor) a predetermined interest rate, to receive payments of interest on a notional amount from the party selling the interest rate cap or floor. Caps and floors are less liquid than swaps. These transactions do not involve the delivery of securities or other underlying assets or principal. A Fund will enter into interest rate swap, swaptions, cap or floor transactions only with counterparties who have credit ratings of at least A- (or the equivalent) from any one NRSRO or counterparties with guarantors with debt securities having such a rating. - Inflation (CPI) Swaps. Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swap agreements may be used to protect the NAV of the Fund against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases. - Total Return Swaps. A Fund may enter into total return swaps in order to take a "long" or "short" position with respect to an underlying referenced asset. The Fund is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Fund will receive a payment from or make a payment to the counterparty. Special Risks Associated with Swaps. Risks may arise as a result of the failure of the counterparty to the swap contract to comply with the terms of the swap contract. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by a Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. The risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund's exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swap contracts on the statement of assets and liabilities. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swap contracts. Fluctuations in the value of swap contracts are recorded as a component of net change in unrealized appreciation/depreciation of swap contracts on the statement of operations. - Eurodollar Instruments. Eurodollar instruments are essentially U.S. Dollar-denominated futures contracts or options thereon that are linked to the London Interbank Offered Rate and are subject to the same limitations and risks as other futures contracts and options. - Currency Transactions. A Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or un-hedged basis. The Adviser will actively manage the Fund's currency exposures and may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps and options. The Adviser may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Funds may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies). Forward Commitments and When-Issued and Delayed Delivery Securities ------------------------------------------------------------------- Forward commitments for the purchase or sale of securities may include purchases on a "when-issued" basis or purchases or sales on a "delayed delivery" basis. In some cases, a forward commitment may be conditioned upon the occurrence of a subsequent event, such as approval and consummation of a merger, corporate reorganization or debt restructuring (i.e., a "when, as and if issued" trade). When forward commitment transactions are negotiated, the price is fixed at the time the commitment is made. The Fund assumes the rights and risks of ownership of the security, but does not pay for the securities until they are received. If a Fund is fully or almost fully invested when forward commitment purchases are outstanding, such purchases may result in a form of leverage. Leveraging the portfolio in this manner may increase the Fund's volatility of returns. When-issued securities and forward commitments may be sold prior to the settlement date. If the Fund chooses to dispose of the right to acquire a when-issued security prior to its acquisition or dispose of its right to deliver or receive against a forward commitment, it may incur a gain or loss. Any significant commitment of Fund assets to the purchase of securities on a "when, as and if issued" basis may increase the volatility of the Fund's NAV. The use of forward commitments enables a Fund to protect against anticipated changes in exchange rates, interest rates and/or prices. For instance, a Fund may enter into a forward contract when it enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. Dollar price of the security ("transaction hedge"). In addition, when a Fund believes that a foreign currency may suffer a substantial decline against the U.S. Dollar, it may enter into a forward sale contract to sell an amount of that foreign currency approximating the value of some or all of that Fund's securities denominated in such foreign currency, or when the Fund believes that the U.S. Dollar may suffer a substantial decline against a foreign currency, it may enter into a forward purchase contract to buy that foreign currency for a fixed dollar amount ("position hedge"). If the Adviser were to forecast incorrectly the direction of exchange rate movements, a Fund might be required to complete such when-issued or forward transactions at prices inferior to the then current market values. Forward commitments include "To be announced" ("TBA") mortgage-backed securities, which are contracts for the purchase or sale of mortgage-backed securities to be delivered at a future agreed-upon date, whereby the specific mortgage pool number or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Subsequent to the time of the trade, a mortgage pool or pools guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Association, or FHLMC (including fixed rate or variable rate mortgages) are allocated to the TBA mortgage-backed securities transactions. At the time a Fund intends to enter into a forward commitment, it will record the transaction and thereafter reflect the value of the security purchased or, if a sale, the proceeds to be received, in determining its NAV. Any unrealized appreciation or depreciation reflected in such valuation of a "when, as and if issued" security would be canceled in the event that the required conditions did not occur and the trade was canceled. Purchases of securities on a forward commitment or when-issued basis may involve more risk than other types of purchases. For example, by committing to purchase securities in the future, a Fund subjects itself to a risk of loss on such commitments as well as on its portfolio securities. Also, a Fund may have to sell assets which have been set aside in order to meet redemptions. In addition, if a Fund determines it is advisable as a matter of investment strategy to sell the forward commitment or "when-issued" or "delayed delivery" securities before delivery, that Fund may incur a gain or loss because of market fluctuations since the time the commitment to purchase such securities was made. Any such gain or loss would be treated as a capital gain or loss for tax purposes. When the time comes to pay for the securities to be purchased under a forward commitment or on a "when-issued" or "delayed delivery" basis, the Fund will meet its obligations from the then available cash flow or the sale of securities, or, although it would not normally expect to do so, from the sale of the forward commitment or "when-issued" or "delayed delivery" securities themselves (which may have a value greater or less than the Fund's payment obligation). No interest or dividends accrue to the purchaser prior to the settlement date for securities purchased or sold under a forward commitment. In addition, in the event the other party to the transaction files for bankruptcy, becomes insolvent, or defaults on its obligation, a Fund may be adversely affected. Illiquid Securities ------------------- A Fund will not invest in illiquid securities if immediately after such investment more than 15% or such other amount permitted by guidance regarding the 1940 Act of the Fund's net assets would be invested in such securities. For this purpose, illiquid securities include, among others, (a) direct placements or other securities which are subject to legal or contractual restrictions on resale or for which there is no readily available market (e.g., trading in the security is suspended or, in the case of unlisted securities, market makers do not exist or will not entertain bids or offers), (b) options purchased by the Fund over-the-counter and the cover for options written by the Fund over-the-counter, and (c) repurchase agreements not terminable within seven days. Securities that have legal or contractual restrictions on resale but have a readily available market are not deemed illiquid for purposes of this limitation. Mutual funds do not typically hold a significant amount of restricted securities (securities that are subject to restrictions on resale to the general public) or other illiquid securities because of the potential for delays on resale and uncertainty in valuation. Limitations on resale may have an adverse effect on the marketability of portfolio securities and a mutual fund might be unable to dispose of restricted or other illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days. A mutual fund may also have to take certain steps or wait a certain amount of time in order to remove the transfer restrictions for such restricted securities in order to dispose of them, resulting in additional expense and delay. Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") allows a broader institutional trading market for securities otherwise subject to restriction on resale to the general public. Rule 144A establishes a "safe harbor" from the registration requirements of the Securities Act for resales of certain securities to qualified institutional buyers. An insufficient number of qualified institutional buyers interested in purchasing certain restricted securities held by a Fund, however, could affect adversely the marketability of such portfolio securities and the Fund might be unable to dispose of such securities promptly or at reasonable prices. The Adviser, acting under the oversight of the Board, will monitor the liquidity of restricted securities in a Fund that are eligible for resale pursuant to Rule 144A. In reaching liquidity decisions, the Adviser will consider, among others, the following factors: (1) the frequency of trades and quotes for the security; (2) the number of dealers issuing quotations to purchase or sell the security; (3) the number of other potential purchasers of the security; (4) the number of dealers undertaking to make a market in the security; (5) the nature of the security (including its unregistered nature) and the nature of the marketplace for the security (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of the transfer); and (6) any applicable Securities and Exchange Commission ("Commission") interpretation or position with respect to such type of securities. Investments in Other Investment Companies ----------------------------------------- A Fund may invest in securities of other investment companies to the extent permitted under the 1940 Act or the rules and regulations thereunder (as such statute, rules or regulations may be amended from time to time) or by guidance regarding, interpretations of, or exemptive orders under, the 1940 Act or the rules or regulations thereunder published by appropriate regulatory authorities. The Funds intend to invest uninvested cash balances in an affiliated money market fund as permitted by Rule 12d1-1 under the 1940 Act. If the Fund acquires shares in investment companies, shareholders would bear, indirectly, the expenses of such investment companies (which may include management and advisory fees), which are in addition to the Fund's expenses. A Fund may also invest in exchange-traded funds, subject to the restrictions and limitations of the 1940 Act. Lending of Portfolio Securities ------------------------------- A Fund may seek to increase income by lending portfolio securities. A principal risk in lending portfolio securities, as with other extensions of credit, consists of the possible loss of rights in the collateral should the borrower fail financially. In addition, a Fund may be exposed to the risk that the sale of any collateral realized upon the borrower's default will not yield proceeds sufficient to replace the loaned securities. In determining whether to lend securities to a particular borrower, the Adviser (subject to oversight by the Fund's Directors) will consider all relevant facts and circumstances, including the creditworthiness of the borrower. The loans would be made only to firms deemed by the Adviser to be of good standing, and when, in the judgment of the Adviser, the consideration that can be earned currently from securities loans of this type justifies the attendant risk. A Fund may lend portfolio securities to the extent permitted under the 1940 Act or the rules and regulations thereunder (as such statute, rules or regulations may be amended from time to time) or by guidance regarding, interpretations of, or exemptive orders under, the 1940 Act. Under present regulatory policies, including those of the Board of Governors of the Federal Reserve System and the Commission, such loans may be made only to member firms of the New York Stock Exchange (the "Exchange") and will be required to be secured continuously by collateral in cash, cash equivalents, or U.S. Treasury Bills maintained on a current basis at an amount at least equal to the market value of the securities loaned. A Fund will have the right to call a loan and obtain the securities loaned at any time on five days' notice. While securities are on loan, the borrower will pay the Fund any income from the securities. A Fund may invest any cash collateral in portfolio securities and earn additional income or receive an agreed-upon amount of income from a borrower who has delivered equivalent collateral. Any such investment of cash collateral will be subject to the Fund's investment risks. A Fund will not have the right to vote any securities having voting rights during the existence of the loan. A Fund will have the right to regain record ownership of loaned securities or equivalent securities in order to exercise ownership rights such as voting rights, subscription rights and rights to dividends, interest, or distributions. A Fund may pay reasonable finders', administrative, and custodial fees in connection with a loan. Loan Participations and Assignments ----------------------------------- A Fund may invest in fixed or floating rate corporate loans ("Loans" and each, a "Loan") either by participating as co-lender at the time the loan is originated ("Participations") or by buying an interest in the loan in the secondary market from a financial institution or institutional investor ("Assignments"). These loans may include "bridge loans", which are loans taken out for a short period (typically less than six months) pending arrangement of more permanent financing through, for example, the issuance of bonds, frequently high-yield bonds issued for the purposes of acquisitions. The financial status of an institution interposed between a Fund and a borrower may affect the ability of the Fund to receive principal and interest payments. The success of a Fund may depend on the skill with which an agent bank administers the terms of the corporate loan agreements, monitors borrower compliance with covenants, collects principal, interest and fee payments from borrowers and, where necessary, enforces creditor remedies against borrowers. Agent banks typically have broad discretion in enforcing loan agreements. A Fund's investment in Participations typically will result in the Fund having a contractual relationship only with the financial institution arranging the Loan with the borrower (the "Lender") and not with the borrower directly. A Fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and the Fund may not directly benefit from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund may be subject to the credit risk of both the borrower and the Lender that is selling the Participation. In the event of the insolvency of the Lender selling a Participation, the Fund may be treated as a general creditor of the Lender and may not benefit from any set-off between the Lender and the borrower. Certain Participations may be structured in a manner designed to avoid purchasers of Participations being subject to the credit risk of the Lender with respect to the Participation; but even under such a structure, in the event of the Lender's insolvency, the Lender's servicing of the Participation may be delayed and the assignability of the Participation impaired. A Fund will acquire Participations only if the Lender interpositioned between the Fund and the borrower is a Lender having total assets of more than $25 billion and whose senior unsecured debt is rated investment grade or higher. When a Fund purchases Assignments from Lenders it will acquire direct rights against the borrower on the Loan. Because Assignments are arranged through private negotiations between potential assignees and potential assignors, however, the rights and obligations acquired by the Fund as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning Lender. The assignability of certain obligations is restricted by the governing documentation as to the nature of the assignee such that the only way in which the Fund may acquire an interest in a Loan is through a Participation and not an Assignment. A Fund may have difficulty disposing of Assignments and Participations because to do so it will have to assign such securities to a third party. Because there is no liquid market for such securities, the Fund anticipates that such securities could be sold only to a limited number of institutional investors. The lack of a liquid secondary market may have an adverse impact on the value of such securities and the Fund's ability to dispose of particular Assignments or Participations when necessary to meet the Fund's liquidity needs in response to a specific economic event such as a deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for Assignments and Participations also may make it more difficult for the Fund to assign a value to these securities for purposes of valuing the Fund's portfolio and calculating its asset value. Mortgage-Related Securities and Other Asset-Backed Securities ------------------------------------------------------------- The mortgage-related securities in which a Fund may invest typically are securities representing interests in pools of mortgage loans made by lenders such as savings and loan associations, mortgage bankers and commercial banks and are assembled for sale to investors (such as the Funds) by governmental, government-related or private organizations. Private organizations include commercial banks, savings associations, mortgage companies, investment banking firms, finance companies, special purpose finance entities (called special purpose vehicles or SPVs) and other entities that acquire and package loans for resales as mortgage-related securities. Specifically, these securities may include pass-through mortgage-related securities, collateralized mortgage obligations ("CMOs"), CMO residuals, adjustable-rate mortgage securities ("ARMS"), stripped mortgage-backed securities ("SMBSs"), commercial mortgage-backed securities, TBA mortgage-backed securities, mortgage dollar rolls, collateralized obligations and other securities that directly or indirectly represent a participation in or are secured by and payable from mortgage loans on real property and other assets. Pass-Through Mortgage-Related Securities. Interests in pools of mortgage-related securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment consisting of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on their residential mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying residential property, refinancing or foreclosure, net of fees or costs that may be incurred. Some mortgage-related securities, such as securities issued by GNMA, are described as "modified pass-through." These securities entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, regardless of whether or not the mortgagor actually makes the payment. The average life of pass-through pools varies with the maturities of the underlying mortgage instruments. In addition, a pool's term may be shortened by unscheduled or early payments of principal and interest on the underlying mortgages. The occurrence of mortgage prepayments is affected by factors including the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. As prepayment rates of individual pools vary widely, it is not possible to accurately predict the average life of a particular pool. For pools of fixed-rate 30-year mortgages, common industry practice is to assume that prepayments will result in a 12-year average life. Pools of mortgages with other maturities or different characteristics will have varying average life assumptions. The assumed average life of pools of mortgages having terms of less than 30 years, is less than 12 years, but typically not less than 5 years. Yields on pass-through securities are typically quoted by investment dealers and vendors based on the maturity of the underlying instruments and the associated average life assumption. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of a pool of mortgage-related securities. Conversely, in periods of rising interest rates the rate of prepayment tends to decrease, thereby lengthening the actual average life of the pool. Historically, actual average life has been consistent with the 12-year assumption referred to above. Actual prepayment experience may cause the yield to differ from the assumed average life yield. Reinvestment of prepayments may occur at higher or lower interest rates than the original investment, thus affecting the yield of the Fund. The compounding effect from reinvestment of monthly payments received by the Fund will increase the yield to shareholders compared with bonds that pay interest semi-annually. The principal governmental (i.e., backed by the full faith and credit of the U.S. Government) guarantor of mortgage-related securities is GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages. Government-related (i.e., not backed by the full faith and credit of the U.S. Government) guarantors include FNMA and FHLMC. FNMA and FHLMC are a government-sponsored corporation or corporate instrumentality of the U.S. Government respectively (government-sponsored entities or "GSEs"), which were owned entirely by private stockholders until 2008 when they were placed in conservatorship by the U.S. Government. After being placed in conservatorship, the GSEs issued senior preferred stock and common stock to the U.S. Treasury in an amount equal to 79.9% of each GSE in return for certain funding and liquidity arrangements. The GSEs continue to operate as going concerns while in conservatorship and each remains liable for all of its obligations associated with its mortgage-backed securities. The U.S. Treasury has provided additional funding to the GSEs and their future is unclear as Congress is considering whether to adopt legislation that would severely restrict or even terminate their operations. FNMA purchases residential mortgages from a list of approved seller/servicers which include state and federally-chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA and are now, in effect, backed by the full faith and credit of the U.S. Government. Participation certificates issued by FHLMC, which represent interests in mortgages from FHLMC's national portfolio, are guaranteed by FHLMC as to the timely payment of interest and ultimate collection of principal and are now, in effect, backed by the full faith and credit of the U.S. Government. Commercial banks, savings and loan associations, private mortgage insurance companies, mortgage bankers and other secondary market issuers create pass-through pools of conventional residential mortgage loans. Securities representing interests in pools created by non-governmental private issuers generally offer a higher rate of interest than securities representing interests in pools created by governmental issuers because there are no direct or indirect governmental guarantees of the underlying mortgage payments. However, private issuers sometimes obtain committed loan facilities, lines of credit, letters of credit, surety bonds or other forms of liquidity and credit enhancement to support the timely payment of interest and principal with respect to their securities if the borrowers on the underlying mortgages fail to make their mortgage payments. The ratings of such non-governmental securities are generally dependent upon the ratings of the providers of such liquidity and credit support and would be adversely affected if the rating of such an enhancer were downgraded. The structuring of the pass-through pool may also provide credit enhancement. Examples of such credit support arising out of the structure of the transaction include the issue of senior and subordinated securities (e.g., the issuance of securities by a SPV in multiple classes or "tranches", with one or more classes being senior to other subordinated classes as to payment of principal and interest, with the result that defaults on the underlying mortgage loans are borne first by the holders of the subordinated class); creation of "reserve funds" ( in which case cash or investments sometimes funded from a portion of the payments on the underlying mortgage loans, are held in reserve against future losses); and "overcollateralization" (in which case the scheduled payments on, or the principal amount of, the underlying mortgage loans exceeds that required to make payment of the securities and pay any servicing or other fees). There can be no guarantee the credit enhancements, if any will be sufficient to prevent losses in the event of defaults on the underlying mortgage loans. In addition, mortgage-related securities that are issued by private issuers are not subject to the underwriting requirements for the underlying mortgages that are applicable to those mortgage-related securities that have a government or government-sponsored entity guaranteed. As a result, the mortgage loans underlying private mortgage-related securities may, and frequently do, have less favorable collateral, credit risk or other underwriting characteristics than government or government-sponsored mortgage-related securities and have wider variances in a number of terms, including interest rate, term, size, purposes and borrower characteristics. Privately issued pools more frequently include second mortgages, high loan-to-value mortgages and manufactured housing loans. The coupon rates and maturities of the underlying mortgage loans in a private-label mortgage-related pool may vary to a greater extent than those included in a government guaranteed pool, and the pool may include subprime mortgage loans. Subprime loans refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their loans. For these reasons, the loans underlying these securities have had in many cases higher default rates than those loans that meet government underwriting requirements. Collateralized Mortgage Obligations. Another form of mortgage-related security is a "pay-through" security, which is a debt obligation of the issuer secured by a pool of mortgage loans pledged as collateral that is legally required to be paid by the issuer, regardless of whether payments are actually made on the underlying mortgages. CMOs are the predominant type of "pay-through" mortgage-related security. In a CMO, a series of bonds or certificates is issued in multiple classes. Each class of a CMO, often referred to as a "tranche," is issued at a specific coupon rate and has a stated maturity or final distribution date. Principal prepayments on collateral underlying a CMO may cause one or more tranches of the CMO to be retired substantially earlier than the stated maturities or final distribution dates of the collateral. Although payment of the principal of, and interest on, the underlying collateral securing privately issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these CMOs represent obligations solely of the private issuer and are not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental agency or any other person or entity. Adjustable-Rate Mortgage Securities. Another type of mortgage-related security, known as adjustable-rate mortgage securities ("ARMS"), bears interest at a rate determined by reference to a predetermined interest rate or index. ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS secured by fixed-rate mortgages generally have lifetime caps on the coupon rates of the securities. To the extent that general interest rates increase faster than the interest rates on the ARMS, these ARMS will decline in value. The adjustable-rate mortgages that secure ARMS will frequently have caps that limit the maximum amount by which the interest rate or the monthly principal and interest payments on the mortgages may increase. These payment caps can result in negative amortization (i.e., an increase in the balance of the mortgage loan). Furthermore, since many adjustable-rate mortgages only reset on an annual basis, the values of ARMS tend to fluctuate to the extent that changes in prevailing interest rates are not immediately reflected in the interest rates payable on the underlying adjustable-rate mortgages. Stripped Mortgage-Related Securities. Stripped mortgage-related securities (SMRS) are mortgage related securities that are usually structured with separate classes of securities collateralized by a pool of mortgages or a pool of mortgage backed bonds or pass-through securities, with each class receiving different proportions of the principal and interest payments from the underlying assets. A common type of SMRS has one class of interest-only securities (IOs) receiving all of the interest payments from the underlying assets and one class of principal-only securities (POs) receiving all of the principal payments from the underlying assets. IOs and POs are extremely sensitive to interest rate changes and are more volatile than mortgage-related securities that are not stripped. IOs tend to decrease in value as interest rates decrease and are extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal prepayments may have a material adverse effect on the yield to maturity of the IO class. POs generally increase in value as interest rates decrease. If prepayments of the underlying mortgages are greater than anticipated, the amount of interest earned on the overall pool will decrease due to the decreasing principal balance of the assets. Due to their structure and underlying cash flows, SMRS may be more volatile than mortgage-related securities that are not stripped. Changes in the values of IOs and POs can be substantial and occur quickly, such as occurred in the first half of 1994 when the value of many POs dropped precipitously due to increases in interest rates. A Fund will only invest in SMRS that are issued by the U.S. Government, its agencies or instrumentalities and supported by the full faith and credit of the U.S. Although SMRS are purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers, the complexity of these instruments and the smaller number of investors in the sector can lend to illiquid markets in the sector. Commercial Mortgage-Backed Securities. Commercial mortgage-backed securities are securities that represent an interest in, or are secured by, mortgage loans secured by multifamily or commercial properties, such as industrial and warehouse properties, office buildings, retail space and shopping malls, and cooperative apartments, hotels and motels, nursing homes, hospitals and senior living centers. Commercial mortgage-backed securities have been issued in public and private transactions by a variety of public and private issuers using a variety of structures, some of which were developed in the residential mortgage context, including multi-class structures featuring senior and subordinated classes. Commercial mortgage-backed securities may pay fixed or floating-rates of interest. The commercial mortgage loans that underlie commercial mortgage-related securities have certain distinct risk characteristics. Commercial mortgage loans generally lack standardized terms, which may complicate their structure, tend to have shorter maturities than residential mortgage loans and may not be fully amortizing. Commercial properties themselves tend to be unique and are more difficult to value than single-family residential properties. In addition, commercial properties, particularly industrial and warehouse properties, are subject to environmental risks and the burdens and costs of compliance with environmental laws and regulations. "To Be Announced" Mortgaged-Backed Securities. TBA mortgage-backed securities are described in "Derivatives--Forward Commitments and When-Issued and Delayed Delivery Securities" above. Certain Risks. The value of mortgage-related securities is affected by a number of factors. Unlike traditional debt securities, which have fixed maturity dates, mortgage-related securities may be paid earlier than expected as a result of prepayments of underlying mortgages. Such prepayments generally occur during periods of falling mortgage interest rates. If property owners make unscheduled prepayments of their mortgage loans, these prepayments will result in the early payment of the applicable mortgage-related securities. In that event, the Fund may be unable to invest the proceeds from the early payment of the mortgage-related securities in investments that provide as high a yield as the mortgage-related securities. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. The level of general interest rates, general economic conditions and other social and demographic factors affect the occurrence of mortgage prepayments. During periods of falling interest rates, the rate of mortgage prepayments tends to increase, thereby tending to decrease the life of mortgage-related securities. Conversely, during periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Fund may not be able to realize the rate of return it expected. As with other fixed-income securities, there is also the risk of nonpayment of mortgage-related securities, particularly for those securities that are backed by mortgage pools that contain subprime loans. Market factors adversely affecting mortgage loan repayments include a general economic downturn, high unemployment, a general slowdown in the real estate market, a drop in the market prices of real estate, or higher mortgage payments required to be made by holders of adjustable rate mortgages due to scheduled increases or increases due to higher interest rates. Subordinated mortgage-related securities may have additional risks. The subordinated mortgage-related security may serve as credit support for the senior securities purchased by other investors. In addition, the payments of principal and interest on these subordinated securities generally will be made only after payments are made to the holders of securities senior to the subordinated securities. Therefore, if there are defaults on the underlying mortgage loans, the holders of subordinated mortgage-related securities will be less likely to receive payments of principal and interest and will be more likely to suffer a loss. Commercial mortgage-related securities, like all fixed-income securities, generally decline in value as interest rates rise. Moreover, although generally the value of fixed-income securities increases during periods of falling interest rates, this inverse relationship is not as marked in the case of single-family residential mortgage-related securities, due to the increased likelihood of prepayments during periods of falling interest rates, and may not be as marked in the case of commercial mortgage-related securities. The process used to rate commercial mortgage-related securities may focus on, among other factors, the structure of the security, the quality and adequacy of collateral and insurance, and the creditworthiness of the originators, servicing companies and providers of credit support. Although the market for mortgage-related securities is becoming increasingly liquid, those issued by certain private organizations may not be readily marketable there may be a limited market for these securities, especially when there is a perceived weakness in the mortgage and real estate market sectors. In particular, the secondary markets for CMOs, IOs and POs may be more volatile and less liquid than those for other mortgage-related securities, thereby potentially limiting a Fund's ability to buy or sell those securities at any particular time. Without an active trading market, mortgage-related securities held in a Fund's portfolio may be particularly difficult to value because of the complexities involved in the value of the underlying mortgages. In addition, the rating agencies may have difficulties in rating commercial mortgage-related securities through different economic cycles and in monitoring such ratings on a longer-term basis. As with fixed-income securities generally, the value of mortgage-related securities can also be adversely affected by increases in general interest rates relative to the yield provided by such securities. Such an adverse effect is especially possible with fixed-rate mortgage securities. If the yield available on other investments rises above the yield of the fixed-rate mortgage securities as a result of general increases in interest rate levels, the value of the mortgage-related securities will decline. Other Asset-Backed Securities. A Fund may invest in other asset-backed securities. The securitization techniques used to develop mortgage-related securities are being applied to a broad range of financial assets. Through the use of trusts and special purpose corporations, various types of assets, including automobile loans and leases, credit card receivables, home equity loans, equipment leases and trade receivables, are being securitized in structures similar to the structures used in mortgage securitizations. For example, the Fund may invest in collateralized debt obligations ("CDOs"), which include collateralized bond obligations ("CBOs"), collateralized loan obligations ("CLOs"), and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust, which is backed by a diversified pool of high-risk, below investment grade fixed-income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. These asset-backed securities are subject to risks associated with changes in interest rates, prepayment of underlying obligations and defaults similar to the risks of investment in mortgage-related securities discussed above. Each type of asset-backed security also entails unique risks depending on the type of assets involved and the legal structure used. For example, credit card receivables are generally unsecured obligations of the credit card holder and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. There have also been proposals to cap the interest rate that a credit card issuer may charge. In some transactions, the value of the asset-backed security is dependent on the performance of a third party acting as credit enhancer or servicer. Furthermore, in some transactions (such as those involving the securitization of vehicle loans or leases) it may be administratively burdensome to perfect the interest of the security issuer in the underlying collateral and the underlying collateral may become damaged or stolen. Participation in the TALF Program --------------------------------- A Fund may invest a portion of its assets through participation in the Term Asset-Backed Securities Loan Facility program ("TALF Program"), a program created by the Board of Governors of the Federal Reserve System (the "Federal Reserve") and the U.S. Department of the Treasury to assist the securitization markets by supporting the issuance of certain eligible collateral, which are investment-grade rated, asset-backed securities such as automobile loans, student loans, and credit card loans, as well as receivables related to residential mortgage servicing advances or certain commercial mortgage-backed securities. The types of eligible collateral may be expanded by the Federal Reserve in the future, and among other requirements must at issuance be rated in the highest investment-grade rating category by at least two ratings agencies (without he benefit of a third-party guarantee), and must not be placed on a watch list or downgraded by any such rating agency. The TALF Program is operated by the Federal Reserve Bank of New York (the "New York Fed"). Under the TALF Program, the New York Fed provides non-recourse loans to a Fund in a minimum size of $10 million. In order to obtain a loan under the TALF Program, a Fund is required to put up a certain percentage of the purchase price or value of the eligible collateral (called the "haircut"). In addition, it is required to pay an administrative fee to the New York Fed on the settlement date of each TALF Program loan received by the Fund. The interest rate under the loan will vary and will be determined under the terms of the TALF Program. The term of a loan under the TALF Program depends on the nature of the eligible collateral and are currently three years or five years. In connection with a TALF Program loan, a Fund will pledge eligible collateral, which will consist of either certain eligible asset-backed securities that the Fund currently owns or other asset-backed securities that the Fund purchases with the loan proceeds. Except in limited circumstances, TALF loans by the New York Fed to the Fund are non-recourse, and if the Fund does not repay the loan, the New York Fed may enforce its rights only against the eligible collateral pledged by the Fund and not against any other assets of the Fund. TALF loans are prepayable at the option of the Fund without penalty, and the Fund may satisfy its loan obligation in full at any time by surrendering the eligible collateral to the New York Fed. If the securities constituting eligible collateral default and lose all their value, under the current terms of the TALF Program the New York Fed cannot look to the Fund to cover the principal on the loan. Generally, under the terms of the TALF Program payment of principal on eligible collateral must be used immediately to reduce the principal amount of the TALF loan in proportion to the haircut (for example, if the original haircut was 10%, 90% of any principal repaid must be immediately paid to the New York Fed). The risk of leverage to the Fund under the TALF Program is the same risk of leverage that applies to other types of borrowings the Fund may engage in (see "Effects of Borrowing and Use of Leverage" below for more details). Loans under the TALF Program would not be subject to the Funds' limitations on borrowings (which are generally limited to 33 1/3% of the Fund's total assets). However, the Fund will borrow under the TALF Program only if it maintains segregated liquid assets (in addition to any assets pledged as eligible collateral), marked-to-market daily, in an amount equal to the Fund's outstanding principal and interest under the TALF loan, treating the loans under the TALF Program similar to other financial instruments (such as reverse repurchase agreements) that obligate a fund to "cover:" its obligation to purchase or deliver cash or securities at a future time. Participations in the TALF Program and other loan programs sponsored by the United States of America (and any of its subdivisions, agencies, departments, commissions, boards, authorities, instrumentalities or bureaus) will not be considered purchasing securities on margin for purposes of the Fund's limits on margin. The New York Fed reserves the right to reject any request for a loan, in whole or in part, in its sole discretion, even if a Fund meets all requirements of the TALF Program. The Federal Reserve may also change the terms of the TALF Program at its discretion. While the current terms of the TALF Program state that amendments will only apply to future participations, there is no guarantee that retroactive changes to the TALF Program will not occur. The Fund cannot predict the form any such changes or modifications might take and, if the Fund participates in the TALF Program, such changes may adversely affect the value of the Fund's assets and the ability of the Fund to achieve its investment objectives. Any changes to the TALF Program may, among other things, further limit or expand the types of securities that may be purchased with the proceeds of a TALF Program loan. Participation in the TALF Program requires the Fund to contract with a primary dealer that will be authorized to act as agent for the Fund. A primary dealer may receive direct or indirect fees for its services. Any such fees incurred will be borne by the Fund. Under the terms of the TALF Program, any interest and principal payments from TALF eligible collateral will be directed first to a custodial account in the name of the primary dealer prior to remittance to the Fund. As a result, the Fund will be subject to the counterparty risk of the primary dealer. Any voting rights held in respect of TALF eligible collateral under a TALF Program loan currently are subject to the consent of the New York Fed, whose consent must be obtained via the primary dealer, which may delay the Fund's voting ability. Under certain circumstances, loans under the TALF Program may become recourse to the Fund, which may adversely affect the Fund's ability to achieve its investment objective. In connection with any borrowing by the Fund under the TALF Program, a Fund is required to represent, among other things, that at the time of borrowing the Fund is an eligible borrower and that the collateral is eligible collateral. A determination that the Fund is, at any time, not an eligible borrower (based on the criteria that is applicable at the time of borrowing), or a determination that certain representations made by the Fund under the TALF Program were untrue when made , will cause the loan to become full recourse to the Fund, and the Fund must then repay the loan or surrender the eligible collateral at a time when it may not be advantageous to do so, which may result in losses to the Fund. Additionally, the loan may become recourse to the Fund if certain persons acquire more than 25% of the Fund's outstanding securities or if the Fund fails to make certain timely filings under the TALF Program. If loans under the TALF Program become recourse against the Fund and the value of the eligible collateral pledged to the New York Fed does not at least equal the amount of principal and interest the Fund owes to the New York Fed under the loan, then the Fund will be required to pay the difference to the New York Fed. In order to make this payment, the Fund may be required to sell portfolio securities during adverse market conditions or at other times it would not otherwise choose to sell such securities. Finally, if the Fund were to surrender its eligible collateral under the terms of the TALF Program, it would lose the amount of the haircut. Under the terms of its agreement with the Fund, the primary dealer generally disclaims all liability for losses that may occur in connection with the TALF Program, the risk of which is borne by the Fund. Further, the Fund indemnifies for any losses that the primary dealer may incur under the terms of the TALF Program. The primary dealer may terminate its agreement with the Fund at any time. If the Fund is not able to find a replacement primary dealer within the requisite period of time, it may be required to either repay the loan, sell the eligible collateral, or surrender the eligible collateral at a time when it may not be advantageous to do so, which may result in losses to the Fund. Agreements with the primary dealer are subject to amendment by the primary dealer without the Fund's consent, in order to conform to any future amendments of the TALF Program by the Federal Reserve. Participation in TALF will not subject the Fund or the Manager to restrictions on executive compensation under the Treasury Department's Troubled Assets Relief Program. Preferred Stock --------------- A Fund may invest in preferred stock. Preferred stock is an equity security that has features of debt because it generally entitles the holder to periodic payments at a fixed rate of return. Preferred stock is subordinated to any debt the issuer has outstanding but has liquidation preference over common stock. Accordingly, preferred stock dividends are not paid until all debt obligations are first met. Preferred stock may be subject to more fluctuations in market value, due to changes in market participants' perceptions of the issuer's ability to continue to pay dividends, than debt of the same issuer. Repurchase Agreements and Buy/Sell Back Transactions ---------------------------------------------------- A repurchase agreement is an agreement by which a Fund purchases a security and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date, normally one day or a week later. The purchase and repurchase obligations are transacted under one document. The resale price is greater than the purchase price, reflecting an agreed-upon "interest rate" that is effective for the period of time the buyer's money is invested in the security, and which is related to the current market rate of the purchased security rather than its coupon rate. During the term of a repurchase agreement, the Fund monitors on a daily basis the market value of the securities subject to the agreement and, if the market value of the securities falls below the resale amount provided under the repurchase agreement, the seller under the repurchase agreement is required to provide additional securities or cash equal to the amount by which the market value of the securities falls below the resale amount. Because a repurchase agreement permits a Fund to invest temporarily available cash on a fully-collateralized basis, repurchase agreements permit the Fund to earn a return on temporarily available cash while retaining "overnight" flexibility in pursuit of investments of a longer-term nature. Repurchase agreements may exhibit the characteristics of loans by a Fund. The obligation of the seller under the repurchase agreement is not guaranteed, and there is a risk that the seller may fail to repurchase the underlying security, whether because of the seller's bankruptcy or otherwise. In such event, the Fund would attempt to exercise its rights with respect to the underlying security, including possible sale of the securities. A Fund may incur various expenses in connection with the exercise of its rights and may be subject to various delays and risks of loss, including (a) possible declines in the value of the underlying securities, (b) possible reduction in levels of income and (c) lack of access to the securities (if they are held through a third-party custodian) and possible inability to enforce the Fund's rights. The Fund's Board has established procedures, which are periodically reviewed by the Board, pursuant to which the Adviser monitors the creditworthiness of the dealers with which the Fund enters into repurchase agreement transactions. A Fund may enter into repurchase agreements pertaining to U.S. Government securities with member banks of the Federal Reserve System or "primary dealers" (as designated by the Federal Reserve Bank of New York) in such securities. There is no percentage restriction on a Fund's ability to enter into repurchase agreements. Currently, each Fund intends to enter into repurchase agreements only with its custodian and such primary dealers. A Fund may enter into buy/sell back transactions, which are similar to repurchase agreements. In this type of transaction, a Fund enters a trade to buy securities at one price and simultaneously enters a trade to sell the same securities at another price on a specified date. Similar to a repurchase agreement, the repurchase price is higher than the sale price and reflects current interest rates. Unlike a repurchase agreement, however, the buy/sell back transaction, though done simultaneously, is two separate legal agreements. A buy/sell back transaction also differs from a repurchase agreement in that the seller is not required to provide margin payments if the value of the securities falls below the repurchase price because the transaction is two separate transactions. Each Fund has the risk of changes in the value of the purchased security during the term of the buy/sell back agreement although these agreements typically provide for the repricing of the original transaction at a new market price if the value of the security changes by a specific amount. Reverse Repurchase Agreements and Dollar Rolls ---------------------------------------------- Reverse repurchase agreements are identical to repurchase agreements except that rather than buying securities for cash subject to their repurchase by the seller, a Fund sells portfolio assets concurrently with an agreement by the Fund to repurchase the same assets at a later date at a fixed price slightly higher than the sale price. During the reverse repurchase agreement period, the Fund continues to receive principal and interest payments on these securities. Generally, the effect of a reverse repurchase agreement is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while it will be able to keep the interest income associated with those portfolio securities. Such transactions are advantageous only if the "interest cost" to the Fund of the reverse repurchase transaction, i.e., the difference between the sale and repurchase price for the securities, is less than the cost of otherwise obtaining the cash. Dollar rolls involve sales by a Fund of securities for delivery in the current month and the Fund's simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Fund forgoes principal and interest paid on the securities. The Fund is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. Reverse repurchase agreements and dollar rolls involve the risk that the market value of the securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement or dollar roll files for bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. In addition, the use of these investments results in leveraging the Fund's common stocks because the Fund uses the proceeds to make investments in other securities. See Borrowing and Use of Leverage below. Securities Ratings ------------------ The ratings of fixed-income securities by Moody's, S&P, and Fitch Ratings ("Fitch"), Dominion Bond Rating Service Ltd. and A.M. Best Company are a generally accepted barometer of credit risk. They are, however, subject to certain limitations from an investor's standpoint. The rating of an issuer is heavily weighted by past developments and does not necessarily reflect probable future conditions. There is frequently a lag between the time a rating is assigned and the time it is updated. In addition, there may be varying degrees of difference in credit risk of securities within each rating category. Securities rated Baa, BBB+, BBB, or BBB- by S&P or Baa1, Baa2 or Baa3 by Moody's are considered by Moody's to have speculative characteristics. Sustained periods of deteriorating economic conditions or rising interest rates are more likely to lead to a weakening in the issuer's capacity to pay interest and repay principal than in the case of higher-rated securities. Non-rated securities will also be considered for investment by a Fund when the Adviser believes that the financial condition of the issuers of such securities, or the protection afforded by the terms of the securities themselves, limits the risk to the Fund to a degree comparable to that of rated securities which are consistent with the Fund's objectives and policies. The Adviser generally uses ratings issued by S&P, Moody's, Fitch and Dominion Bond Rating Service Ltd. Some securities are rated by more than one of these ratings agencies, and the ratings assigned to the security by the rating agencies may differ. In such an event and for purposes of determining compliance with restrictions on investments for the Fund, if a security is rated by two or more rating agencies, the Adviser will deem the security to be rated at the highest rating. For example, if a security is rated by Moody's and S&P only, with Moody's rating the security as Ba and S&P as BBB, the Adviser will deem the security to be rated as the equivalent of BBB (i.e., Baa by Moody's and BBB by S&P). Or, if a security is rated by Moody's, S&P and Fitch, with Moody's rating the security as Ba, S&P as BBB and Fitch as BB, the Adviser will deem the security to be rated as the equivalent of BBB (i.e., Ba1 by Moody's, BBB by S&P and BBB by Fitch). The Adviser will try to reduce the risk inherent in the Fund's investment approach through credit analysis, diversification and attention to current developments and trends in interest rates and economic conditions. However, there can be no assurance that losses will not occur. In considering investments for Funds that invest in high-yielding securities, the Adviser will attempt to identify those high-yielding securities whose financial condition is adequate to meet future obligations, has improved, or is expected to improve in the future. The Adviser's analysis focuses on relative values based on such factors as interest or dividend coverage, asset coverage, earnings prospects, and the experience and managerial strength of the issuer. In the event that the credit rating of a security held by the Fund is downgraded, the credit quality deteriorates after purchase, or the security defaults, the Fund will not be obligated to dispose of that security and may continue to hold the security if, in the opinion of the Adviser, such investment is appropriate in the circumstances. Unless otherwise indicated, references to securities ratings by one rating agency in this SAI shall include the equivalent rating by another rating agency. Short Sales ----------- A short sale is effected by selling a security that a Fund does not own, or if the Fund does own such security, it is not to be delivered upon consummation of the sale. A Fund may make short sales of securities or maintain a short position only for the purpose of deferring realization of gain or loss for U.S. federal income tax purposes, provided that at all times when a short position is open the Fund owns an equal amount of such securities of the same issue as, and equal in amount to, the securities sold short. In addition, the Fund may not make a short sale if more than 10% of the Fund's net assets (taken at market value) is held as collateral for short sales at any one time. A short sale of a security involves the risk that, instead of declining, the price of the security sold short will rise. If the price of the securities sold short increases between the time of a short sale and the time a Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a gain. The potential for the price of a fixed-income security sold short to rise is a function of both the remaining maturity of the obligation, its creditworthiness and its yield. Unlike short sales of equities or other instruments, potential for the price of a fixed-income security to rise may be limited due to the fact that the security will be no more than par at maturity. However, the short sale of other instruments or securities generally, including fixed-income securities convertible into equities or other instruments, a fixed-income security trading at a deep discount from par or which pays a coupon that is high in relative or absolute terms, or which is denominated in a currency other than the U.S. Dollar, involves the possibility of a theoretically unlimited loss since there is a theoretically unlimited potential for the market price of the security sold short to increase. See "Dividends, Distributions and Taxes-Tax Straddles" for a discussion of certain special federal income tax considerations that may apply to short sales which are entered into by the Fund. Structured Securities --------------------- A Fund may invest securities issued in structured financing transactions, which generally involve aggregating types of debt assets in a pool or special purpose entity and then issuing new securities. Types of structured financings include, for example, mortgage-related and other asset-backed securities. A Fund's investments include investments in structured securities that represent interests in entities organized and operated solely for the purpose of restructuring the investment characteristics of debt obligations. This type of restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments (such as commercial bank loans) and the issuance by that entity of one or more classes of securities ("Structured Securities") backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued Structured Securities to create securities with different investment characteristics such as varying maturities, payment priorities and interest rate provisions, and the extent of the payments made with respect to Structured Securities is dependent on the extent of the cash flow on the underlying instruments. Because Structured Securities of the type in which the Fund anticipates it will invest typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. A Fund is permitted to invest in a class of Structured Securities that is either subordinated or unsubordinated to the right of payment of another class. Subordinated Structured Securities typically have higher yields and present greater risks than unsubordinated Structured Securities. Under the terms of subordinated securities, payments that would be made to their holders may be required to be made to the holders of more senior securities and/or the subordinated or junior securities may have junior liens, if they have any rights at all, in any collateral (meaning proceeds of the collateral are required to be paid first to holders of more senior securities). As a result, subordinated or junior securities will be disproportionately affected by a default or even a perceived decline in the creditworthiness of the issuer. U.S. Government Securities -------------------------- U.S. Government securities may be backed by the full faith and credit of the U.S., supported only by the right of the issuer to borrow from the U.S. Treasury or backed only by the credit of the issuing agency itself. These securities include: (i) the following U.S. Treasury securities, which are backed by the full faith and credit of the U.S. and differ only in their interest rates, maturities and times of issuance: U.S. Treasury bills (maturities of one year or less with no interest paid and hence issued at a discount and repaid at full face value upon maturity), U.S. Treasury notes (maturities of one to ten years with interest payable every six months) and U.S. Treasury bonds (generally maturities of greater than ten years with interest payable every six months); (ii) obligations issued or guaranteed by U.S. Government agencies and instrumentalities that are supported by the full faith and credit of the U.S. Government, such as securities issued by GNMA, the Farmers Home Administration, the Department of Housing and Urban Development, the Export-Import Bank, the General Services Administration and the Small Business Administration and including obligations that are issued by private issuers that are guaranteed as to principal or interest by the U.S. Government, its agencies or institutions; and (iii) obligations issued or guaranteed by U.S. government agencies and instrumentalities that were historically not supported by the full faith and credit of the U.S. Government or a right to borrow from the U.S. Treasury, such as securities issued by the FNMA and FHLMC(which are, as described above, now in effect backed by the full faith and credit of the U.S. Government due to the conservatorship of the agencies), and governmental collateralized mortgage obligations ("CMOs"). The maturities of the U.S. Government securities listed in paragraphs (i) and (ii) above usually range from three months to 30 years. Such securities, except GNMA certificates, normally provide for periodic payments of interest in fixed amount with principal payments at maturity or specified call dates. U.S. Government securities also include zero coupon securities and principal-only securities and certain stripped mortgage-related securities. Zero coupon securities are described in more detail in "Zero Coupon Securities" below, and stripped mortgage-related securities and principal-only securities are described in more detail in "Mortgage-Related Securities and Other Asset-Backed Securities -Stripped Mortgage-Related Securities" above. In addition, other U.S. Government agencies and instrumentalities have issued stripped securities that are similar to SMRS. Inflation-protected securities, or IPS, such as Treasury Inflation-Protected Securities, or TIPS, are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of these securities will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-protected securities. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal. Inflation-protected securities tend to react to changes in real interest rates. In general, the price of an inflation-protected debt security can fall when real interest rates rise, and can rise when real interest rates fall. In addition, the value of inflation-protected securities may be vulnerable to changes in expectations of inflation. Interest payments on inflation-protected debt securities can be unpredictable and will vary as the principal and/or interest is adjusted for inflation. TIPS, which are issued by the U.S Treasury, use the Consumer Price Index for Urban Consumers, or the CPI, as the inflation measure. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the CPI. When a TIPS matures, the holder is paid the adjusted principal or original principal, whichever is greater. TIPS pay interest twice a year, at a fixed rate, which is determined by auction at the time the TIPS are issued. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation. TIPS are issued in terms of 5, 10, and 20 years. Guarantees of securities by the U.S. Government or its agencies or instrumentalities guarantee only the payment of principal and interest on the securities, and do not guarantee the securities' yield or value or the yield or value of the shares of the Fund that holds the securities. U.S. Government securities are considered among the safest of fixed-income investments. As a result, however, their yields are generally lower than the yields available from other fixed-income securities. Variable, Floating and Inverse Floating Rate Securities ------------------------------------------------------- These securities have interest rates that are reset at periodic intervals, usually by reference to some interest rate index or market interest rate. Some of these securities are backed by pools of mortgage loans. Although the rate adjustment feature may act as a buffer to reduce sharp changes in the value of these securities, they are still subject to changes in value based on changes in market interest rates or changes in the issuer's creditworthiness. Because the interest rate is reset only periodically, changes in the interest rate on these securities may lag behind changes in prevailing market interest rates. Also, some of these securities (or the underlying mortgages) are subject to caps or floors that limit the maximum change in the interest rate during a specified period or over the life of the security. Zero Coupon Securities ---------------------- A zero coupon security pays no interest to its holder during its life. An investor acquires a zero coupon security at a discounted price from the face value of the security, which is generally based upon its present value, and which, depending upon the time remaining until maturity, may be significantly less than its face value (sometimes referred to as a "deep discount" price). Upon maturity of the zero coupon security, the investor receives the face value of the security. A Fund may invest in zero coupon Treasury securities, which consist of Treasury bills or the principal components of U.S. Treasury bonds or notes. A Fund may also invest in zero coupon securities issued by U.S. Government agencies or instrumentalities that are supported by the full faith and credit of the U.S., which consist of the principal components of securities of U.S. Government agencies or instrumentalities. Currently, the only U.S. Treasury security issued without coupons is the Treasury bill. The zero coupon securities purchased by the Fund may consist of principal components held in STRIPS form issued through the U.S. Treasury's STRIPS program, which permits the beneficial ownership of the component to be recorded directly in the Treasury book-entry system. In addition, in the last few years a number of banks and brokerage firms have separated ("stripped") the principal portions ("corpus") from the coupon portions of the U.S. Treasury bonds and notes and sold them separately in the form of receipts or certificates representing undivided interests in these instruments (which instruments are generally held by a bank in a custodial or trust account). Because zero coupon securities trade at a discount from their face or par value but pay no periodic interest, they are subject to greater fluctuations of market value in response to changing interest rates than debt obligations of comparable maturities which make periodic distributions of interest. Current federal tax law requires that a holder (such as the Fund) of a zero coupon security accrue a portion of the discount at which the security was purchased as income each year even though the holder receives no interest payment in cash on the security during the year (generally referred to as "original issue discount" or "OID"). As a result, in order to make the distributions necessary for the Fund not to be subject to federal income or excise taxes, the Fund may be required to pay out as an income distribution each year an amount, obtained by liquidation of portfolio securities or borrowings if necessary, greater than the total amount of cash that the Fund has actually received as interest during the year. A Fund believes, however, that it is highly unlikely that it would be necessary to liquidate portfolio securities or borrow money in order to make such required distributions or to meet its investment objective. Certain Risk and Other Considerations ------------------------------------- Borrowing and Use of Leverage. A Fund may use borrowings for investment purposes subject to the restrictions of the 1940 Act. A Fund may also use leverage for investment purposes by entering into transactions such as reverse repurchase agreements, forward contracts and dollar rolls. This means that the Fund uses the cash proceeds made available during the term of these transactions to make investments in other securities. Borrowings by a Fund result in leveraging of the Fund's shares of common stock. The proceeds of such borrowings will be invested in accordance with the Fund's investment objective and policies. The Adviser anticipates that the difference between the interest expense paid by the Fund on borrowings and the rates received by the Fund from its investment portfolio issuers will provide the Fund's shareholders with a potentially higher yield. Utilization of leverage, which is usually considered speculative, however, involves certain risks to the Fund's shareholders. These include a higher volatility of the NAV of the Fund's shares of common stock and the relatively greater effect on the NAV of the shares caused by favorable or adverse changes in market conditions or interest rates. So long as the Fund is able to realize a net return on the leveraged portion of its investment portfolio that is higher than the interest expense paid on borrowings or the carrying costs of leveraged transactions, the effect of leverage will be to cause the Fund's shareholders to realize higher current net investment income than if the Fund were not leveraged. However, to the extent that the interest expense on borrowings or the carrying costs of leveraged transactions approaches the net return on the leveraged portion of the Fund's investment portfolio, the benefit of leverage to the Fund's shareholders will be reduced, and if the interest expense on borrowings or the carrying costs of leveraged transactions were to exceed the net return to shareholders, the Fund's use of leverage would result in a lower rate of return than if the Fund were not leveraged. Similarly, the effect of leverage in a declining market could be a greater decrease in NAV per share than if the Fund were not leveraged. In an extreme case, if the Fund's current investment income were not sufficient to meet the interest expense on borrowings or the carrying costs of leveraged transactions, it could be necessary for the Fund to liquidate certain of its investments, thereby reducing the NAV of the Fund's shares. Certain transactions, such as derivatives transactions, forward commitments, reverse repurchase agreements and short sales involve leverage and may expose a Fund to potential losses that, in some cases, may exceed the amount originally invested by the Fund. When a Fund engages in such transactions, it will, in accordance with guidance provided by the Commission or its staff in, among other things, regulations, interpretative releases and no-action letters, deposit in a segregated account certain liquid assets with a value at least equal to the Fund's exposure, on a marked-to-market or other relevant basis, to the transaction. Transactions for which assets have been segregated will not be considered "senior securities" for purposes of the Fund's investment restriction concerning senior securities. The segregation of assets is intended to enable the Fund to have assets available to satisfy its obligations with respect to these transactions, but will not limit the Fund's exposure to loss. Investments in Lower-Rated and Unrated Instruments. A Fund may invest in lower-rated securities, in some cases, substantially (High Income), which may include securities having the lowest rating for non-subordinated debt securities (i.e., rated C by Moody's or CCC or lower by S&P & Fitch) and unrated securities of equivalent investment quality. Debt securities with such a rating are considered by the rating organizations to be subject to greater risk of loss of principal and interest than higher-rated securities and are considered to be predominantly speculative with respect to the issuer's capacity to pay interest and repay principal, which may in any case decline during sustained periods of deteriorating economic conditions or rising interest rates. These securities are considered to have extremely poor prospects of ever attaining any real investment standing, to have a current identifiable vulnerability to default, to be unlikely to have the capacity to pay interest and repay principal when due in the event of adverse business, financial or economic conditions, and/or to be in default or not current in the payment of interest or principal. Lower-rated securities generally are considered to be subject to greater market risk than higher-rated securities in times of deteriorating economic conditions. In addition, lower-rated securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities, although the market values of securities rated below investment grade and comparable unrated securities tend to react less to fluctuations in interest rate levels than do those of higher-rated securities. The market for lower-rated securities may be thinner and less active than that for higher-quality securities, which can adversely affect the prices at which these securities can be sold. To the extent that there is no established secondary market for lower-rated securities, the Adviser may experience difficulty in valuing such securities and, in turn, a Fund's assets. In addition, adverse publicity and investor perceptions about lower-rated securities, whether or not based on fundamental analysis, may tend to decrease the market value and liquidity of such lower-rated securities. Transaction costs with respect to lower-rated securities may be higher, and in some cases information may be less available, than is the case with investment grade securities. Many fixed-income securities, including certain U.S. corporate fixed-income securities in which a Fund may invest, contain call or buy-back features that permit the issuer of the security to call or repurchase it. Such securities may present risks based on payment expectations. If an issuer exercises such a "call option" and redeems the security, the Fund may have to replace the called security with a lower yielding security, resulting in a decreased rate of return for the Fund. In seeking to achieve a Fund's investment objectives, there will be times, such as during periods of rising interest rates, when depreciation and realization of capital losses on securities in the Fund's portfolio will be unavoidable. Moreover, medium and lower rated securities and non-rated securities of comparable quality may be subject to wider fluctuations in yield and market values than higher-rated securities under certain market conditions. Such fluctuations after a security is acquired do not affect the cash income received from that security but are reflected in the NAV of the Fund. U.S. Corporate Fixed-Income Securities. A Fund may invest in U.S. corporate fixed-income securities that may include securities issued in connection with corporate restructurings such as takeovers or leveraged buyouts, which may pose particular risks. Securities issued to finance corporate restructurings may have special credit risks due to the highly leveraged conditions of the issuer. In addition, such issuers may lose experienced management as a result of the restructuring. Finally, the market price of such securities may be more volatile to the extent that expected benefits from the restructuring do not materialize. A Fund may also invest in U.S. corporate fixed-income securities that are not current in the payment of interest or principal or are in default, so long as the Adviser believes such investment is consistent with the Fund's investment objectives. A Fund's rights with respect to defaults on such securities will be subject to applicable U.S. bankruptcy, moratorium and other similar laws. Risks of Investments in Foreign Securities. Investors should understand and consider carefully the substantial risks involved in securities of foreign companies and governments of foreign nations, some of which are referred to below, and which are in addition to the usual risks inherent in domestic investments. Investing in securities of non-U.S. companies which are generally denominated in foreign currencies, and utilization of derivative investment products denominated in, or the value of which is dependent upon movements in the relative value of, a foreign currency, involve certain considerations comprising both risk and opportunity not typically associated with investing in U.S. companies. These considerations include changes in exchange rates and exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than are generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and issuers, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. There is generally less publicly available information about foreign companies comparable to reports and ratings that are published about companies in the U.S. Foreign issuers are subject to accounting and financial standards and requirements that differ, in some cases significantly, from those applicable to U.S. issuers. In particular, the assets and profits appearing on the financial statements of a foreign issuer may not reflect its financial position or results of operations in the way they would be reflected had the financial statement been prepared in accordance with U.S. generally accepted accounting principles. In addition, for an issuer that keeps accounting records in local currency, inflation accounting rules in some of the countries in which the Fund may invest require, for both tax and accounting purposes, that certain assets and liabilities be restated on the issuer's balance sheet in order to express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits. Consequently, financial data may be materially affected by restatements for inflation and may not accurately reflect the real condition of those issuers and securities markets. Substantially less information is publicly available about certain non-U.S. issuers than is available about U.S. issuers. It is contemplated that foreign securities will be purchased in over-the-counter markets or on stock exchanges located in the countries in which the respective principal offices of the issuers of the various securities are located, if that is the best available market. Foreign securities markets are generally not as developed or efficient as those in the U.S. While growing in volume, they usually have substantially less volume than the Exchange, and securities of some foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Similarly, volume and liquidity in most foreign bond markets is less than in the U.S. and, at times, volatility of price can be greater than in the U.S. Fixed commissions on foreign stock exchanges are generally higher than negotiated commissions on U.S. exchanges, although a Fund will endeavor to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of stock exchanges, brokers and listed companies than in the U.S. Expropriation, confiscatory taxation, nationalization, political, economic or social instability or other similar developments, such as military coups, have occurred in the past in countries in which a Fund may invest and could adversely affect a Fund's assets should these conditions or events recur. Foreign investment in certain foreign securities is restricted or controlled to varying degrees. These restrictions or controls may at times limit or preclude foreign investment in certain foreign securities and increase the costs and expenses of a Fund. Certain countries in which the Fund may invest require governmental approval prior to investments by foreign persons, limit the amount of investment by foreign persons in a particular issuer, limit the investment by foreign persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of the countries and/or impose additional taxes on foreign investors. Certain countries may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in a country's balance of payments, the country could impose temporary restrictions on foreign capital remittances. Income from certain investments held by a Fund could be reduced by foreign income taxes, including withholding taxes. It is impossible to determine the effective rate of foreign tax in advance. A Fund's NAV may also be affected by changes in the rates or methods of taxation applicable to that Fund or to entities in which that Fund has invested. The Adviser generally will consider the cost of any taxes in determining whether to acquire any particular investments, but can provide no assurance that the tax treatment of investments held by the Fund will not be subject to change. A shareholder otherwise subject to U.S. federal income taxes may, subject to certain limitations, be entitled to claim a credit or deduction for U.S. federal income tax purposes for his or her proportionate share of such foreign taxes paid by the Fund. See "U.S. Federal Income Taxes." Investors should understand that the expense ratio of a fund investing in foreign securities may be higher than investment companies investing only in domestic securities since, among other things, the cost of maintaining the custody of foreign securities is higher and the purchase and sale of portfolio securities may be subject to higher transaction charges, such as stamp duties and turnover taxes. For many foreign securities, there are U.S. Dollar-denominated American Depositary Receipts ("ADRs") which are traded in the U.S. on exchanges or over-the-counter and are issued by domestic banks or trust companies and for which market quotations are readily available. ADRs do not lessen the foreign exchange risk inherent in investing in the securities of foreign issuers. However, by investing in ADRs rather than directly in stock of foreign issuers, a Fund can avoid currency risks which might occur during the settlement period for either purchases or sales. A Fund may purchase foreign securities directly, as well as through ADRs. Foreign Currency Transactions. A Fund may invest in securities denominated in foreign currencies and a corresponding portion of the Fund's revenues will be received in such currencies. In addition, a Fund may conduct foreign currency transactions for hedging and non-hedging purposes on a spot (i.e., cash) basis or through the use of derivatives transactions, such as forward currency exchange contracts, currency futures and options thereon, and options on currencies as described above. The dollar equivalent of a Fund's net assets and distributions will be adversely affected by reductions in the value of certain foreign currencies relative to the U.S. Dollar. Such changes will also affect a Fund's income. A Fund will, however, have the ability to attempt to protect itself against adverse changes in the values of foreign currencies by engaging in certain of the investment practices listed above. While a Fund has this ability, there is no certainty as to whether and to what extent the Fund will engage in these practices. Currency exchange rates may fluctuate significantly over short periods of time causing, along with other factors, a Fund's NAV to fluctuate. Currency exchange rates generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or anticipated changes in interest rates and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the U.S. or abroad. To the extent a Fund's total assets adjusted to reflect the Fund's net position after giving effect to currency transactions is denominated or quoted in the currencies of foreign countries, the Fund will be more susceptible to the risk of adverse economic and political developments within those countries. A Fund will incur costs in connection with conversions between various currencies. A Fund may hold foreign currency received in connection with investments when, in the judgment of the Adviser, it would be beneficial to convert such currency into U.S. Dollars at a later date, based on anticipated changes in the relevant exchange rate. If the value of the foreign currencies in which a Fund receives its income falls relative to the U.S. Dollar between receipt of the income and the making of Fund distributions, the Fund may be required to liquidate securities in order to make distributions if the Fund has insufficient cash in U.S. Dollars to meet, among other things, distribution requirements that the Fund must satisfy to qualify as a regulated investment company for federal income tax purposes. Similarly, if the value of a particular foreign currency declines between the time a Fund incurs expenses in U.S. Dollars and the time cash expenses are paid, the amount of the currency required to be converted into U.S. Dollars in order to pay expenses in U.S. Dollars could be greater than the equivalent amount of such expenses in the currency at the time they were incurred. In light of these risks, a Fund may engage in certain currency hedging transactions, which themselves, involve certain special risks. See "Additional Investment Policies and Practices," above. Additional Risks of Options on Forward Currency Exchange Contracts, Options on Foreign Currencies and Other Options. Unlike transactions entered into by a Fund in futures contracts and exchange-traded options, options on foreign currencies and forward currency exchange contracts may not be traded on contract markets regulated by the Commodity Futures Trading Commission (the "CFTC") or (with the exception of certain foreign currency options) by the Commission. Such instruments may instead be traded through financial institutions acting as market-makers, although foreign currency options are also traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to Commission regulation. Similarly, options on currencies may be traded over-the-counter. In an over-the-counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Moreover, the option writer and a trader of forward currency exchange contracts could lose amounts substantially in excess of their initial investments, due to the margin and collateral requirements associated with such positions. Over-the-counter transactions can be entered into only with a financial institution willing to take the opposite side, as principal, of a Fund's position unless the institution acts as broker and is able to find another counterparty willing to enter into the transaction with the Fund. Where no such counterparty is available, it will not be possible to enter into a desired transaction. There also may be no liquid secondary market in the trading of over-the-counter contracts, and a Fund could be required to retain options purchased or written, or forward currency exchange contracts entered into, until exercise, expiration or maturity. This in turn could limit the Fund's ability to profit from open positions or to reduce losses experienced, and could result in greater losses. Further, over-the-counter transactions are not subject to the guarantee of an exchange clearing house, and a Fund will therefore be subject to the risk of default by, or the bankruptcy of, the financial institution serving as its counterparty. A Fund will enter into an over-the-counter transaction only with parties whose creditworthiness has been reviewed and found to be satisfactory by the Adviser. Transactions in over-the-counter options on foreign currencies are subject to a number of conditions regarding the commercial purpose of the purchaser of such option. A Fund is not able to determine at this time whether or to what extent additional restrictions on the trading of over-the-counter options on foreign currencies may be imposed at some point in the future, or the effect that any such restrictions may have on the hedging strategies to be implemented by them. Options on foreign currencies traded on national securities exchanges are within the jurisdiction of the Commission, as are other securities traded on such exchanges. As a result, many of the protections provided to traders on organized exchanges will be available with respect to such transactions. In particular, all foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting the Fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of the availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in applicable foreign countries for this purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on the OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions, on exercise. Options on U.S. Government Securities, futures contracts, options on futures contracts, forward currency exchange contracts and options on foreign currencies may be traded on foreign exchanges. Such transactions are subject to the risk of governmental actions affecting trading in or the prices of foreign currencies or securities. The value of such positions also could be adversely affected by (i) other complex foreign political and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in the Fund's ability to act upon economic events occurring in foreign markets during nonbusiness hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S., and (v) lesser trading volume period. Sovereign Debt Obligations. No established secondary markets may exist for many of the Sovereign Debt Obligations in which a Fund may invest. Reduced secondary market liquidity may have an adverse effect on the market price and the Fund's ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain Sovereign Debt Obligations may also make it more difficult for the Fund to obtain accurate market quotations for the purpose of valuing its portfolio. Market quotations are generally available on many Sovereign Debt Obligations only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales. By investing in Sovereign Debt Obligations, a Fund will be exposed to the direct or indirect consequences of political, social and economic changes in various countries. Political changes in a country may affect the willingness of a foreign government to make or provide for timely payments of its obligations. The country's economic status, as reflected, among other things, in its inflation rate, the amount of its external debt and its gross domestic product, will also affect the government's ability to honor its obligations. Many countries providing investment opportunities for a Fund have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have adverse effects on the economies and securities markets of certain of these countries. In an attempt to control inflation, wage and price controls have been imposed in certain countries. Investing in Sovereign Debt Obligations involves economic and political risks. The Sovereign Debt Obligations in which a Fund may invest in most cases pertain to countries that are among the world's largest debtors to commercial banks, foreign governments, international financial organizations and other financial institutions. In recent years, the governments of some of these countries have encountered difficulties in servicing their external debt obligations, which led to defaults on certain obligations and the restructuring of certain indebtedness. Restructuring arrangements have included, among other things, obtaining new credit to finance interest payments. Certain governments have not been able to make payments of interest on or principal of Sovereign Debt Obligations as those payments have come due. Obligations arising from past restructuring agreements may affect the economic performance and political and social stability of those issuers. Central banks and other governmental authorities which control the servicing of Sovereign Debt Obligations may not be willing or able to permit the payment of the principal or interest when due in accordance with the terms of the obligations. As a result, the issuers of Sovereign Debt Obligations may default on their obligations. Defaults on certain Sovereign Debt Obligations have occurred in the past. Holders of certain Sovereign Debt Obligations may be requested to participate in the restructuring and rescheduling of these obligations and to extend further loans to the issuers. The interests of holders of Sovereign Debt Obligations could be adversely affected in the course of restructuring arrangements or by certain other factors referred to below. Furthermore, some of the participants in the secondary market for Sovereign Debt Obligations may also be directly involved in negotiating the terms of these arrangements and may therefore have access to information not available to other market participants. The ability of governments to make timely payments on their obligations is likely to be influenced strongly by the issuer's balance of payments, including export performance, and its access to international credits and investments. A country whose exports are concentrated in a few commodities could be vulnerable to a decline in the international prices of one or more of those commodities. Increased protectionism on the part of a country's trading partners could also adversely affect the country's exports and diminish its trade account surplus, if any. To the extent that a country receives payment for its exports in currencies other than dollars, its ability to make debt payments denominated in dollars could be adversely affected. To the extent that a country develops a trade deficit, it will need to depend on continuing loans from foreign governments, multilateral organizations or private commercial banks, aid payments from foreign governments and on inflows of foreign investment. The access of a country to these forms of external funding may not be certain, and a withdrawal of external funding could adversely affect the capacity of a government to make payments on its obligations. In addition, the cost of servicing debt obligations can be affected by a change in international interest rates since the majority of these obligations carry interest rates that are adjusted periodically based upon international rates. Another factor bearing on the ability of a country to repay Sovereign Debt Obligations is the level of the country's international reserves. Fluctuations in the level of these reserves can affect the amount of foreign exchange readily available for external debt payments and, thus, could have a bearing on the capacity of the country to make payments in its Sovereign Debt Obligations. A Fund is permitted to invest in Sovereign Debt Obligations that are not current in the payment of interest or principal or are in default, so long as the Adviser believes it to be consistent with the Fund's investment objectives. A Fund may have limited legal recourse in the event of a default with respect to certain Sovereign Debt Obligations it holds. For example, remedies from defaults on certain Sovereign Debt Obligations, unlike those on private debt, must, in some cases, be pursued in the courts of the defaulting party itself. Legal recourse therefore may be significantly diminished. Bankruptcy, moratorium and other similar laws applicable to issuers of Sovereign Debt Obligations may be substantially different from those applicable to issuers of private debt obligations. The political context, expressed as the willingness of an issuer of Sovereign Debt Obligations to meet the terms of the debt obligation, for example, is of considerable importance. In addition, no assurance can be given that the holders of commercial bank debt will not contest payments to the holders of securities issued by foreign governments in the event of default under commercial bank loan agreements. -------------------------------------------------------------------------------- INVESTMENT RESTRICTIONS -------------------------------------------------------------------------------- Fundamental Investment Policies ------------------------------- Each Fund has adopted the following investment restrictions which may not be changed without approval of the vote of a majority of a Fund's outstanding voting securities. The term "majority of outstanding securities" means the affirmative vote of the holders of (i) 67% or more of the shares of the Fund represented at a meeting at which more than 50% of the outstanding shares are present in person or by proxy or (ii) more than 50% of the outstanding shares of the Fund, whichever is less. As a matter of fundamental policy, a Fund: (a) may not concentrate investments in an industry, as concentration may be defined under the 1940 Act or the rules and regulations thereunder (as such statute, rules or regulations may be amended from time to time) or by guidance regarding, interpretations of, or exemptive orders under, the 1940 Act or the rules or regulations thereunder published by appropriate regulatory authorities; (b) may not issue any senior security (as that term is defined in the 1940 Act) or borrow money, except to the extent permitted by the 1940 Act or the rules and regulations thereunder (as such statute, rules or regulations may be amended from time to time) or by guidance regarding, or interpretations of, or exemptive orders under, the 1940 Act or the rules or regulations thereunder published by appropriate regulatory authorities. For the purposes of this restriction, margin and collateral arrangements, including, for example, with respect to permitted borrowings, options, futures contracts, options on futures contracts and other derivatives such as swaps, are not deemed to be the issuance of a senior security; (c) may not make loans except through (i) the purchase of debt obligations in accordance with its investment objective and policies; (ii) the lending of portfolio securities; (iii) the use of repurchase agreements; or (iv) the making of loans to affiliated funds as permitted under the 1940 Act, the rules and regulations thereunder (as such statutes, rule or regulations may be amended from time to time), or by guidance regarding, and interpretations of, or exemptive orders under, the 1940 Act; (d) may not purchase or sell real estate except that it may dispose of real estate acquired as a result of the ownership of securities or other instruments. This restriction does not prohibit the Fund from investing in securities or other instruments backed by real estate or in securities of companies engaged in the real estate business; (e) with respect to High Income and Global Bond, may not purchase or sell commodities regulated by the CFTC under the Commodity Exchange Act or commodities contracts except for futures contracts and options on futures contracts, and, with respect to Intermediate Bond and Unconstrained Bond, may purchase or sell commodities or options thereon to the extent permitted by applicable law; or (f) may not act as an underwriter of securities, except that the Fund may acquire restricted securities under circumstances in which, if such securities were sold, the Fund might be deemed to be an underwriter for purposes of the Securities Act. As a matter of fundamental policy, each of Intermediate Bond, Unconstrained Bond and High Income is diversified (as that term is defined in the 1940 Act). This means that at least 75% of the Fund's assets consist of: o Cash or cash items; o Government securities; o Securities of other investment companies; and o Securities of any one issuer that represent not more than 10% of the outstanding voting securities of the issuer of the securities and not more than 5% of the total assets of the Fund. As a matter of fundamental policy, Global Bond is a "non-diversified" investment company, which means the Fund is not limited in the proportion of its assets that may be invested in the securities of a single issuer. This policy may be changed without a shareholder vote. However, the Fund intends to limit its investments so as to qualify to be taxed as a "regulated investment company" for purposes of the Internal Revenue Code of 1986, as amended (the "Code"), which will relieve the Fund of any liability for federal income tax to the extent its earnings are distributed to shareholders. See "Dividends, Distributions and Taxes." To so qualify, among other requirements, the Fund will limit its investment so that, at the close of each quarter of the taxable year, (i) not more than 25% of the Fund's total assets will be invested in the securities of a single issuer, and (ii) with respect to 50% of its total assets, not more than 5% of its total assets will be invested in the securities of a single issuer and the Fund will not own more than 10% of the outstanding voting securities of a single issuer. A Fund's investments in U.S. Government securities are not subject to these limitations. Because Global Bond is a non-diversified investment company, it may invest in a smaller number of individual issuers than a diversified investment company, and an investment in the Fund may, under certain circumstances, present greater risk to an investor than an investment in a diversified investment company. Foreign government securities are not treated like U.S. Government securities for purposes of the diversification tests described in the preceding paragraph, but instead are subject to these tests in the same manner as the securities of non-governmental issuers. In this regard sovereign debt obligations issued by different issuers located in the same country are often treated as issued by a single issuer for purposes of these diversification tests. Certain issuers of structured securities and loan participations may be treated as separate issuers for the purposes of these tests. Non-Fundamental Investment Policies ----------------------------------- As a matter of non-fundamental policy, each Fund has adopted a policy that provides that the Fund may not purchase securities on margin, except (i) as otherwise provided under rules adopted by the Commission under the 1940 Act or by guidance regarding the 1940 Act, or interpretations thereof, and (ii) that the Fund may obtain such short-term credits as are necessary for the clearance of portfolio transactions, and the Fund may make margin payments in connection with futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments. -------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS -------------------------------------------------------------------------------- The Adviser ----------- The Adviser, a Delaware limited partnership with principal offices at 1345 Avenue of the Americas, New York, New York 10105, has been retained under an investment advisory agreement (the "Advisory Agreement") to provide investment advice and, in general, to conduct the management and investment program of each of the Funds under the supervision of each Fund's Board (see "Management of the Funds" in the Prospectuses). The Adviser is an investment adviser registered under the Investment Advisers Act of 1940, as amended. The Adviser is a leading global investment management firm supervising client accounts with assets as of September 30, 2010, totaling approximately $484 billion. The Adviser provides management services for many of the largest U.S. public and private employee benefit plans, endowments, foundations, public employee retirement funds, banks, insurance companies and high net worth individuals worldwide. The Adviser is also one of the largest mutual fund sponsors, with a diverse family of globally distributed mutual fund portfolios. As one of the world's leading global investment management organizations, the Adviser is able to compete for virtually any portfolio assignment in any developed capital market in the world. As of September 30, 2010, AXA, a societe anonyme organized under the laws of France and the holding company for an international group of insurance and related financial services companies, through certain of its subsidiaries ("AXA and its subsidiaries") owned approximately 1.4% of the issued and outstanding assignments of beneficial ownership of limited partnership interests ("Holding Units") in AllianceBernstein Holding L.P., a Delaware limited partnership ("Holding"). Holding Units trade publicly on the Exchange under the ticker symbol "AB." As of September 30, 2010, the ownership structure of the Adviser, expressed as a percentage of general and limited partnership interests, was as follows: AXA and its subsidiaries 61.4% Holding 36.7 Unaffiliated holders 1.9 ------------ 100.0% ============ AllianceBernstein Corporation (an indirect wholly-owned subsidiary of AXA) is the general partner of both Holding and the Adviser. AllianceBernstein Corporation owns 100,000 general partnership units in Holding and a 1% general partnership interest in the Adviser. Including both the general partnership and limited partnership interests in Holding and the Adviser, AXA and its subsidiaries had an approximate 63.0% economic interest in the Adviser as of September 30, 2010. AXA, a French company, is the holding company for an international group of companies and a worldwide leader in financial protection and wealth management. AXA operates primarily in Western Europe, North America and the Asia/Pacific region and, to a lesser extent, in other regions including the Middle East, Africa and South America. AXA has five operating business segments: life and savings, property and casualty insurance, international insurance (including reinsurance), asset management and other financial services. AXA Financial, Inc. is a wholly-owned subsidiary of AXA. AXA Equitable is an indirect wholly-owned subsidiary of AXA Financial. Advisory Agreement and Expenses ------------------------------- The Adviser serves as investment manager and adviser of each of the Funds, continuously furnishes an investment program for each Fund, and manages, supervises and conducts the affairs of each Fund, subject to supervision of each Fund's Board. Under the Advisory Agreements for Intermediate Bond, Unconstrained Bond, High Income, and Global Bond, the Adviser furnishes advice and recommendations with respect to the Funds' portfolio of securities and investments and provides persons satisfactory to the Board to act as officers of the Funds. Such officers and employees may be employees of the Adviser or its affiliates. The Adviser is, under each Fund's Advisory Agreement, responsible for certain expenses incurred by the Fund, including, for example, office facilities and certain administrative services, and any expenses incurred in promoting the sale of Fund shares (other than the portion of the promotional expenses borne by the Fund in accordance with an effective plan pursuant to Rule 12b-1 under the 1940 Act, and the costs of printing Fund prospectuses and other reports to shareholders and fees related to registration with the Commission and with state regulatory authorities). The Advisory Agreements are terminable without penalty by a vote of a majority of the Funds' outstanding voting securities or by a vote of a majority of the Directors on 60 days' written notice or by the Adviser on 60 days' written notice, and will automatically terminate in the event of assignment. Each Advisory Agreement provides that in the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser, or of reckless disregard of its obligations thereunder, the Adviser shall not be liable for any action or failure to act in accordance with its duties thereunder. ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO For services rendered by the Adviser under the Advisory Agreement, the Fund paid the Adviser a fee effective September 7, 2004 of .45 of 1% of the first $2.5 billion of the Fund's average net assets and .40 of 1% of the excess of $2.5 billion up to 5 billion and .35 of 1% of the excess over $5 billion as a percentage of aggregate daily net assets (for the year 2004, the Fund's previously effective advisory fee was waived to this amount by the Adviser after January 1, 2004). The fee is accrued daily and paid monthly. The Adviser has contractually agreed through the Fund's fiscal year ending October 31, 2011 to waive its fee and bear certain expenses so that total operating expenses, excluding interest expense, do not exceed on an annual basis .85%, 1.55%, 1.55%, 1.05%, .80%, .55% and .55% of aggregate average net assets, respectively, for Class A, Class B, Class C, Class R, Class K, Class I and Advisor Class shares. This contractual agreement automatically extends each year unless the Adviser provides the Fund written notice 60 days prior to the Fund's fiscal year end. For the fiscal years ended October 31, 2008, 2009 and 2010 the Adviser received under the Advisory Agreement the amount of $2,586,786, $2,334,733 and $2,592,080 respectively, as advisory fees from the Fund. Under the expense limitation undertaking, $1,313,293, $1,136,115 and $1,181,888 were waived and/or reimbursed by the Adviser for the fiscal years ended October 31, 2008, 2009 and 2010, respectively. The Fund has, under the Advisory Agreement, assumed the obligation for payment of all of its other expenses. As to the obtaining of services other than those specifically provided to the Fund by the Adviser, the Fund may employ its own personnel. For such services it may also utilize personnel employed by the Adviser or its affiliates and, in such event, the services will be provided to the Fund at cost and the payments therefore must be specifically approved by the Fund's Board. For the fiscal year ended October 31, 2010, the cost of certain legal and accounting services amounting to $82,651 provided to the Fund by the Adviser was waived. The Advisory Agreement became effective with respect to the Fund on July 1, 1999. The Advisory Agreement continues in effect provided that such continuance is specifically approved at least annually by a vote of a majority of the Fund's outstanding voting securities or by the Fund's Board, and in either case, by a majority of the Directors who are not parties to the Advisory Agreement or interested persons of any such party. Most recently, continuance of the Advisory Agreement for an additional annual term was approved by vote, cast in person, by the Board, including a majority of the Directors who are not "interested persons" as defined in the 1940 Act, at their meetings held on November 2-4, 2010. ALLIANCEBERNSTEIN UNCONSTRAINED BOND FUND, INC. For the services rendered by the Adviser under the Advisory Agreement, the Fund paid the Adviser effective September 7, 2004 a fee at the annual rate of .50 of 1% for the first $2.5 billion, .45 of 1% of the excess of $2.5 billion up to $5 billion and .40 of 1% of the excess over $5 billion as a percentage of the Fund's average daily net assets (for the year 2004, the Fund's previously effective advisory fee rate was waived to this amount after January 1, 2004). The fee is accrued daily and paid monthly. The Adviser has contractually agreed through the Fund's fiscal year ending October 31, 2011 to waive its fee and bear certain expenses so that total expenses do not exceed on an annual basis .90%, 1.60%, 1.60%, .60%, 1.10%, .85%, and .60% of aggregate daily net assets, respectively, for Class A, Class B, Class C, Advisor Class, Class R, Class K, and Class I shares. This contractual agreement automatically extends each year unless the Adviser provides written notice 60 days prior to the Fund's fiscal year end. For the fiscal years ended October 31, 2008, 2009 and 2010, the Adviser received from the Fund advisory fees of $455,521, $331,772 and $374,781, respectively. Under the expense limitation undertaking, $489,151 was waived and/or reimbursed by the Adviser for the fiscal year ended 2010. The Fund has, under the Advisory Agreement, assumed the obligation for payment of all of its other expenses. As to the obtaining of services other than those specifically provided to the Fund by the Adviser, the Fund may employ its own personnel. For such services, it may also utilize personnel employed by the Adviser or its affiliates and, in such event, the services will be provided to the Fund at cost and the payments will be specifically approved by the Fund's Board. For the fiscal year ended October 31, 2010, the Fund paid to the Adviser a total of $88,288 with respect to such services. The Advisory Agreement became effective on January 2, 1996. The Advisory Agreement will continue in effect provided that such continuance is specifically approved at least annually by a vote of a majority of the Fund's outstanding voting securities or by the Fund's Board, including in either case approval by a majority of the Directors who are not parties to the Advisory Agreement or "interested persons," as defined by the 1940 Act, of any such party. Most recently, the Advisory Agreement was approved for an additional annual term by the Board, including majority of the Directors who are not parties to the Advisory Agreement or interested periods of any such party, at their meetings held on November 2-4, 2010. ALLIANCEBERNSTEIN GLOBAL BOND FUND, INC. For the services rendered by the Adviser under the Advisory Agreement, the Fund paid the Adviser a fee effective September 7, 2004 at an annual rate of .50 of 1% for the first $2.5 billion, .45 of 1% of the excess of $2.5 billion up to $5 billion and .40 of 1% of the excess over $5 billion up to $5 billion as a percentage of the Fund's average daily net assets (for the year 2004, the Fund's previously effective advisory fee rate was waived to this amount after January 1, 2004). The fee is accrued daily and paid monthly. The Adviser has contractually agreed through the Fund's fiscal year ending September 30, 2011 to waive its fee and bear certain expenses so that total operating expenses, excluding interest expense, do not exceed on an annual basis .90%, 1.60%, 1.60%, .60%, 1.10%, .85%, and .60% of aggregate daily net assets, respectively, for Class A, Class B, Class C, Advisor Class, Class R, Class K, and Class I shares. This contractual agreement automatically extends each year unless the Adviser provides written notice 60 days prior to the Fund's fiscal year end. For the fiscal years of the Fund ended September 30, 2008, 2009 and 2010, the Adviser received from the Fund advisory fees of $10,057,085, $9,417,000 and $12,980,904. Under the expense limitation undertaking $1,347,642 was waived and/or reimbursed by the Adviser for the fiscal year ended 2010. The Fund has, under the Advisory Agreement, assumed the obligation for payment of all of its other expenses. As to the obtaining of services other than those specifically provided to the Fund by the Adviser, the Fund may employ its own personnel. For such services it may also utilize personnel employed by the Adviser or its affiliates and, in such event, the services will be provided to the Fund at cost and the payments will be specifically approved by the Fund's Board. During the Fund's fiscal year ended September 30, 2010, the Fund paid to the Adviser a total of $85,510 with respect to such services. The Advisory Agreement became effective on July 22, 1992. The Advisory Agreement continues in effect provided that such continuance is specifically approved at least annually by the Fund's Directors or by a majority vote of the holders of the outstanding voting securities of the Fund, and, in either case, by a majority of the Directors who are not parties to the Advisory Agreement or "interested persons" as defined in the 1940 Act of any such party. Most recently the Advisory Agreement was approved for an additional annual term by a vote, cast in person, of the Directors, including a majority of the Directors who are not parties to the Advisory Agreement or interested persons of any such party, at their meetings held on November 2-4, 2010. ALLIANCEBERNSTEIN HIGH INCOME FUND, INC. For the services rendered by the Adviser under the Advisory Agreement, the Fund paid the Adviser a fee effective September 7, 2004 at an annual rate of .50 of 1% for the first $2.5 billion, .45 of 1% of the excess of $2.5 billion up to $5 billion, and .40 of 1% of the excess over $5 billion of the Fund's average daily net assets (for the year 2004, the Fund's previously effective advisory fee was waived to this amount after January 1, 2004). The fee is accrued daily and paid monthly. The Adviser has contractually agreed through the Fund's fiscal year ending October 31, 2011 to waive its fee and bear certain expenses so that total operating expenses, excluding interest expense, do not exceed on an annual basis .95%, 1.65%, 1.65%, .65%, 1.15%, .90%, and .65% of aggregate daily net assets, respectively, for Class A, Class B, Class C, Advisor Class, Class R, Class K, and Class I shares. This contractual agreement automatically extends each year unless the Adviser provides written notice 60 days prior to the Fund's fiscal year end. For the fiscal years ended October 31, 2008, 2009 and 2010, the Adviser received from the Fund advisory fees of $4,026,514, $3,771,257 and $7,787,382, respectively. Under the expense limitation undertaking $736,252 was waived and/or reimbursed by the Adviser for the fiscal year ended 2010. The Fund has, under the Advisory Agreement, assumed the obligation for payment of all of its other expenses. As to the obtaining of services other than those specifically provided to the Fund by the Adviser, the Fund may employ its own personnel. For such services, it may also utilize personnel employed by the Adviser or its affiliates and, in such event, the services will be provided to the Fund at cost and the payments will be specifically approved by the Fund's Board. The Fund paid to the Adviser a total of $89,160 in respect of such services during the Fund's fiscal year ended October 31, 2010. The Advisory Agreement became effective on February 1, 1994. The Advisory Agreement continues in effect provided that such continuance is approved at least annually by a vote of a majority of the Fund's outstanding voting securities or by the Fund's Board, including in either case, approval by a majority of the Directors who are not parties to the Advisory Agreement or interested persons of any such party as defined by the Act. Most recently, continuance of the Advisory Agreement was approved for an additional annual term by the Board, including a majority of the Directors who are not "interested persons" as defined in the 1940 Act, at their meetings held on November 2-4, 2010. The Adviser may act as an investment adviser to other persons, firms or corporations, including investment companies, and is the investment adviser to the following registered investment companies: AllianceBernstein Balanced Shares, Inc., AllianceBernstein Blended Style Series, Inc., AllianceBernstein Cap Fund, Inc., AllianceBernstein Corporate Shares, AllianceBernstein Core Opportunities Fund, Inc., AllianceBernstein Equity Income Fund, Inc., AllianceBernstein Exchange Reserves, AllianceBernstein Fixed-Income Shares, Inc., AllianceBernstein Global Bond Fund, Inc., AllianceBernstein Global Growth Fund, Inc., AllianceBernstein Global Real Estate Investment Fund, Inc., AllianceBernstein Global Thematic Growth Fund, Inc., AllianceBernstein Greater China '97 Fund, Inc., AllianceBernstein Growth and Income Fund, Inc., AllianceBernstein High Income Fund, Inc., AllianceBernstein Institutional Funds, Inc., AllianceBernstein International Growth Fund, Inc., AllianceBernstein Large Cap Growth Fund, Inc., AllianceBernstein Municipal Income Fund, Inc., AllianceBernstein Municipal Income Fund II, AllianceBernstein Small/Mid Cap Growth Fund, Inc., AllianceBernstein Trust, AllianceBernstein Unconstrained Bond Fund, Inc., AllianceBernstein Variable Products Series Fund, Inc., Sanford C. Bernstein Fund, Inc., Sanford C. Bernstein Fund II, Inc., The AllianceBernstein Pooling Portfolios and The AllianceBernstein Portfolios, all registered open-end investment companies; and to AllianceBernstein Global High Income Fund, Inc., AllianceBernstein Income Fund, Inc., AllianceBernstein National Municipal Income Fund, Inc., Alliance California Municipal Income Fund, Inc., Alliance New York Municipal Income Fund, Inc., and The Ibero-America Fund, Inc., all registered closed-end investment companies. Additional Information About the Funds' Portfolio Managers ---------------------------------------------------------- ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO The management of and investment decisions for the Fund's portfolio are made by the U.S. Investment Grade: Core Fixed Income Investment Team. Mr. Paul J. DeNoon, Mr. Shawn E. Keegan, Ms. Alison M. Martier and Mr. Greg J. Wilensky are the investment professionals(1) with the most significant responsibility for the day-to-day management of the Fund's portfolio. For additional information about the portfolio management of the Fund, see "Management of the Fund - Fund Managers" in the Fund's prospectuses. -------- (1) Investment professionals at the Adviser include portfolio managers and research analysts. Investment professionals are part of investment groups (or teams) that service individual fund portfolios. The number of investment professionals assigned to a particular fund will vary from fund to fund. The dollar ranges of the Fund's equity securities owned directly or beneficially by the Fund's portfolio manager as of October 31, 2010 are set forth below: DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(2) ------------------------------------------------ Mr. Paul J. DeNoon None Mr. Shawn E. Keegan $0 - $10,000(3) Ms. Alison M. Martier None Mr. Douglas J. Peebles None Mr. Greg J. Wilensky None -------- (2) The dollar range presented above include any vested shares awarded under the Adviser's Partners Compensation Plan (the "Plan"). (3) For information presented as of the fiscal year ended October 31, 2010, with respect to Mr. Keegan, if the unvested shares awarded for calendar year 2010 and previous years under the Plan were included, the range would be $10,001 - $50,000. As of October 31, 2010, employees of the Adviser had approximately $7,290,416 invested in shares of the Fund and approximately $408,512,031 invested in shares of all AllianceBernstein Mutual Funds (excluding AllianceBernstein money market funds) through their interests in certain deferred compensation plans, including the Partners Compensation Plan, including both vested and unvested amounts. The following tables provide information regarding registered investment companies other than the Fund, other pooled investment vehicles and other accounts over which the Fund's portfolio managers also have day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of October 31, 2010. -------------------------------------------------------------------------------- REGISTERED INVESTMENT COMPANIES (excluding the Fund) -------------------------------------------------------------------------------- Total Number of Assets of Total Total Registered Registered Number of Assets of Investment Investment Registered Registered Companies Companies Investment Investment Managed with Managed with Companies Companies Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 91 $22,563,000,000 90 $22,563,000,000 Mr. Shawn E. Keegan 46 $9,959,000,000 46 $9,559,000,000 Ms. Alison M. Martier 45 $9,691,000,000 45 $9,691,000,000 Mr. Douglas J. Peebles 123 $25,565,000,000 122 $25,565,000,000 Mr. Greg J. Wilensky 108 $12,840,000,000 107 $12,840,000,000 -------------------------------------------------------------------------------- OTHER POOLED INVESTMENT VEHICLES -------------------------------------------------------------------------------- Number of Total Total Other Assets of Number of Pooled Other Pooled Other Total Assets of Investment Investment Pooled Other Pooled Vehicles Vehicles Investment Investment Managed with Managed with Vehicles Vehicles Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 102 $32,471,000,000 97 $32,105,000,000 Mr. Shawn E. Keegan 51 $4,576,000,000 51 $4,576,000,000 Ms. Alison M. Martier 42 $250,000,000 42 $250,000,000 Mr. Douglas J. Peebles 151 $45,009,000,000 146 $44,642,000,000 Mr. Greg J. Wilensky 87 $3,012,000,000 82 $2,646,000,000 -------------------------------------------------------------------------------- OTHER ACCOUNTS -------------------------------------------------------------------------------- Total Number of Assets of Total Other Other Number of Accounts Accounts Other Total Assets of Managed with Managed with Accounts Other Accounts Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 232 $34,313,000,000 226 $31,467,000,000 Mr. Shawn E. Keegan 186 $54,710,000,000 182 $52,438,000,000 Ms. Alison M. Martier 82 $6,305,000,000 81 $6,173,000,000 Mr. Douglas J. Peebles 406 $89,804,000,000 396 $84,499,000,000 Mr. Greg J. Wilensky 179 $11,037,000,000 177 $10,215,000,000 ALLIANCEBERNSTEIN UNCONSTRAINED BOND FUND, INC. The management of and investment decisions for the Fund's portfolio are made by the Global Fixed Income Investment Team and the Global Credit Investment Team. Mr. Paul J. DeNoon, Mr. Joran Laird, Mr. Douglas J. Peebles, Mr. Matthew S. Sheridan and Mr. Greg J. Wilensky are the investment professionals(4) with the most significant responsibility for the day-to-day management of the Fund's portfolio. For additional information about the portfolio management of the Fund, see "Management of the Fund - Portfolio Managers" in the Fund's prospectuses. -------- (4) Investment professionals at the Adviser include portfolio managers and research analysts. Investment professionals are part of investment groups (or teams) that service individual fund portfolios. The number of investment professionals assigned to a particular fund will vary from fund to fund. The dollar ranges of the Fund's equity securities owned directly or beneficially by the Fund's portfolio managers as of October 31, 2010 are set forth below: DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(5) Mr. Paul J. DeNoon None Mr. Joran Laird None Mr. Douglas J. Peebles Over $100,000 Mr. Matthew S. Sheridan None Mr. Greg J. Wilensky None -------- (5) The dollar range presented above include any vested shares awarded under the Adviser's Partners Compensation Plan (the "Plan"). As of October 31, 2010, employees had approximately $118,940,466 invested in shares of all AllianceBernstein Mutual Funds (excluding AllianceBernstein money market funds) through their interests in certain deferred compensation plans, including the Partners Compensation Plan, including both vested and unvested amounts. The following tables provide information regarding registered investment companies other than the Fund, other pooled investment vehicles and other accounts over which the Fund's portfolio managers also have day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of October 31, 2010. -------------------------------------------------------------------------------- REGISTERED INVESTMENT COMPANIES (excluding the Fund) -------------------------------------------------------------------------------- Total Number of Assets of Total Total Registered Registered Number of Assets of Investment Investment Registered Registered Companies Companies Investment Investment Managed with Managed with Companies Companies Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 91 $23,087,000,000 1 None Mr. Joran Laird 12 $10,296,000,000 None None Mr. Douglas J. Peebles 123 $26,089,000,000 1 None Mr. Matthew S. Sheridan 13 $10,447,000,000 None None Mr. Greg J. Wilensky 108 $13,364,000,000 1 None -------------------------------------------------------------------------------- OTHER POOLED INVESTMENT VEHICLES -------------------------------------------------------------------------------- Total Number of Assets of Total Other Other Number of Pooled Pooled Other Total Assets of Investment Investment Pooled Other Pooled Vehicles Vehicles Investment Investment Managed with Managed with Vehicles Vehicles Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 102 $32,471,000,000 5 $367,000,000 Mr. Joran Laird 26 $25,973,000,000 None None Mr. Douglas J. Peebles 151 $45,009,000,000 5 $367,000,000 Mr. Matthew S. Sheridan 33 $29,482,000,000 None None Mr. Greg J. Wilensky 87 $3,012,000,000 5 $367,000,000 -------------------------------------------------------------------------------- OTHER ACCOUNTS -------------------------------------------------------------------------------- Total Number of Assets of Total Other Other Number of Accounts Accounts Other Total Assets of Managed with Managed with Accounts Other Accounts Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 232 $34,313,000,000 6 $2,846,000,000 Mr. Joran Laird 49 $16,774,000,000 4 $2,025,000,000 Mr. Douglas J. Peebles 406 $89,804,000,000 10 $5,305,000,000 Mr. Matthew S. Sheridan 54 $23,288,000,000 4 $2,025,000,000 Mr. Greg J. Wilensky 179 $11,037,000,000 2 $822,000,000 ALLIANCEBERNSTEIN GLOBAL BOND FUND, INC. The management of and investment decisions for the Fund's portfolio are made by the Global Fixed Income Investment Team. Mr. Paul J. DeNoon, Mr. Scott DiMaggio, Mr. Michael L. Mon, Mr. Douglas J. Peebles and Mr. Matthew S. Sheridan are the investment professionals(6) with the most significant responsibility for the day-to-day management of the Fund's portfolio. For additional information about the portfolio management of the Fund, see "Management of the Fund - Portfolio Managers" in the Fund's prospectuses. -------- (6) Investment professionals at the Adviser include portfolio managers and research analysts. Investment professionals are part of investment groups (or teams) that service individual fund portfolios. The number of investment professionals assigned to a particular fund will vary from fund to fund. The dollar ranges of the Fund's equity securities owned directly or beneficially by the Fund's portfolio managers as of September 30, 2010 are set forth below: DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(7) Mr. Paul J. DeNoon None Mr. Scott DiMaggio None Mr. Michael L. Mon None Mr. Douglas J. Peebles None Mr. Matthew S. Sheridan None -------- (7) The dollar range presented above include any vested shares awarded under the Adviser's Partners Compensation Plan (the "Plan"). As of September 30, 2010, employees of the Adviser had approximately $398,751,432 invested in shares of all AllianceBernstein Mutual Funds (excluding AllianceBernstein money market funds) through their interests in certain deferred compensation plans, including the Partners Compensation Plan, including both vested and unvested amounts. The following tables provide information regarding registered investment companies other than the Fund, other pooled investment vehicles and other accounts over which the Fund's portfolio managers also have day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of September 30, 2010. -------------------------------------------------------------------------------- REGISTERED INVESTMENT COMPANIES (excluding the Fund) -------------------------------------------------------------------------------- Total Number of Assets of Total Total Registered Registered Number of Assets of Investment Investment Registered Registered Companies Companies Investment Investment Managed with Managed with Companies Companies Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 91 $20,366,000,000 1 None Mr. Scott DiMaggio 14 $8,880,000,000 None None Mr. Michael L. Mon 12 $7,145,000,000 None None Mr. Douglas J. Peebles 139 $23,835,000,000 1 None Mr. Matthew S. Sheridan 12 $7,145,000,000 None None -------------------------------------------------------------------------------- OTHER POOLED INVESTMENT VEHICLES -------------------------------------------------------------------------------- Total Number of Assets of Total Other Other Number of Pooled Pooled Other Total Assets of Investment Investment Pooled Other Pooled Vehicles Vehicles Investment Investment Managed with Managed with Vehicles Vehicles Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 101 $31,876,000,000 5 $366,000,000 Mr. Scott DiMaggio 29 $25,714,000,000 None None Mr. Michael L. Mon 34 $28,885,000,000 None None Mr. Douglas J. Peebles 150 $43,980,000,000 5 $366,000,000 Mr. Matthew S. Sheridan 34 $28,885,000,000 None None -------------------------------------------------------------------------------- OTHER ACCOUNTS -------------------------------------------------------------------------------- Total Number of Assets of Total Other Other Number of Accounts Accounts Other Total Assets of Managed with Managed with Accounts Other Accounts Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 233 $34,296,000,000 6 $2,810,000,000 Mr. Scott DiMaggio 84 $20,640,000,000 4 $1,996,000,000 Mr. Michael L. Mon 53 $22,616,000,000 4 $1,996,000,000 Mr. Douglas J. Peebles 1,891 $91,278,000,000 10 $5,267,000,000 Mr. Matthew S. Sheridan 53 $22,616,000,000 4 $1,996,000,000 ALLIANCEBERNSTEIN HIGH INCOME FUND, INC. The management of and investment decisions for the Fund's portfolio are made by the Global Fixed Income Team and Global Credit Investment Team. Mr. Paul DeNoon, Mr. Gershon Distenfeld, Mr. Douglas Peebles, Mr. Marco Santamaria and Mr. Matthew Sheridan are the investment professionals(8) with the most significant responsibility for the day-to-day management of the Fund's portfolio. For additional information about the portfolio management of the Fund, see "Management of the Fund - Portfolio Managers" in the Fund's prospectus. -------- (8) Investment professionals at the Adviser include portfolio managers and research analysts. Investment professionals are part of investment groups (or teams) that service individual fund portfolios. The number of investment professionals assigned to a particular fund will vary from fund to fund. The dollar ranges of the Fund's equity securities owned directly or beneficially by the Fund's portfolio managers as of October 31, 2010 are set forth below: DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(9) Mr. Paul J. DeNoon None(10) Mr. Gershon Distenfeld None Mr. Douglas J. Peebles None(11) Mr. Marco Santamaria None Mr. Matthew S. Sheridan None -------- (9) The dollar range presented above include any vested shares awarded under the Adviser's Partners Compensation Plan (the "Plan"). (10) For information presented as of the fiscal year ended October 31, 2010, with respect to Mr. DeNoon, if the unvested shares awarded for calendar year 2010 and previous years under the Plan were included, the range would be $500,001-$1,000,000. (11) For information presented as of the fiscal year ended October 31, 2010, with respect to Mr. Peebles, if the unvested shares awarded for calendar year 2010 and previous years under the Plan were included, the range would be $100,001-$500,000. As of October 31, 2010, employees of the Adviser had approximately $12,754,298 invested in shares of the Fund and approximately $408,512,031 invested in shares of all AllianceBernstein Mutual Funds (excluding AllianceBernstein money market funds) through their interests in certain deferred compensation plans, including the Partners Compensation Plan, including both vested and unvested amounts. The following tables provide information regarding registered investment companies other than the Fund, other pooled investment vehicles and other accounts over which the Fund's portfolio managers also has day-to-day management responsibilities. The tables provide the numbers of such accounts, the total assets in such accounts and the number of accounts and total assets whose fees are based on performance. The information is provided as of October 31, 2010. -------------------------------------------------------------------------------- REGISTERED INVESTMENT COMPANIES (excluding the Fund) -------------------------------------------------------------------------------- Total Number of Assets of Total Total Registered Registered Number of Assets of Investment Investment Registered Registered Companies Companies Investment Investment Managed with Managed with Companies Companies Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 91 $20,843,000,000 1 None Mr. Gershon Distenfeld 30 $2,703,000,000 None None Mr. Douglas J. Peebles 123 $23,845,000,000 1 None Mr. Marco Santamaria 1 $152,000,000 None None Mr. Matthew S. Sheridan 12 $8,130,000,000 None None -------------------------------------------------------------------------------- OTHER POOLED INVESTMENT VEHICLES -------------------------------------------------------------------------------- Total Number of Assets of Total Other Other Number of Pooled Pooled Other Total Assets of Investment Investment Pooled Other Pooled Vehicles Vehicles Investment Investment Managed with Managed with Vehicles Vehicles Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 102 $32,471,000,000 5 $367,000,000 Mr. Gershon Distenfeld 44 $4,881,000,000 None None Mr. Douglas J. Peebles 151 $45,009,000,000 5 $367,000,000 Mr. Marco Santamaria 7 $3,509,000,000 None None Mr. Matthew S. Sheridan 33 $29,482,000,000 None None -------------------------------------------------------------------------------- OTHER ACCOUNTS -------------------------------------------------------------------------------- Total Number of Assets of Total Other Other Number of Accounts Accounts Other Total Assets of Managed with Managed with Accounts Other Accounts Performance- Performance- Portfolio Manager Managed Managed based Fees based Fees -------------------------------------------------------------------------------- Mr. Paul J. DeNoon 232 $34,313,000,000 6 $2,846,000,000 Mr. Gershon Distenfeld 141 $52,931,000,000 3 $2,140,000,000 Mr. Douglas J. Peebles 406 $89,804,000,000 10 $5,305,000,000 Mr. Marco Santamaria 5 $6,513,000,000 None None Mr. Matthew S. Sheridan 54 $23,288,000,000 4 $2,025,000,000 Investment Professional Conflict of Interest Disclosure