UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02383
ALLIANCEBERNSTEIN BOND FUND, INC. |
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105 |
(Address of principal executive offices) (Zip code)
Joseph J. Mantineo AllianceBernstein L.P. 1345 Avenue of the Americas New York, New York 10105 |
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 221-5672
Date of fiscal year end: October 31, 2010
Date of reporting period: October 31, 2010
ITEM 1. | REPORTS TO STOCKHOLDERS. |
ANNUAL REPORT
AllianceBernstein Bond Fund
Intermediate Bond Portfolio
October 31, 2010
Annual Report
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
The investment return and principal value of an investment in the Fund will fluctuate as the prices of the individual securities in which it invests fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For a free copy of the Fund’s prospectus, which contains this and other information, visit our web site at www.alliancebernstein.com or call your financial advisor or AllianceBernstein® at (800) 227-4618. Please read the prospectus carefully before you invest.
You may obtain performance information current to the most recent month-end by visiting www.alliancebernstein.com.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AllianceBernstein’s web site at www.alliancebernstein.com, or go to the Securities and Exchange Commission’s (the “Commission”) web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s web site at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AllianceBernstein publishes full portfolio holdings for the Fund monthly at www.alliancebernstein.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AllianceBernstein family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.
AllianceBernstein® and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
December 16, 2010
Annual Report
This report provides management’s discussion of fund performance for AllianceBernstein Intermediate Bond Portfolio (the “Portfolio”) for the annual reporting period ended October 31, 2010.
Investment Objective and Policies
The Portfolio’s investment objective is to generate income and price appreciation without assuming what AllianceBernstein L.P. (the “Adviser”) considers undue risk.
The Portfolio invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. The Portfolio 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 Portfolio 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 Portfolio may invest up to 25% of its net assets in below investment grade bonds. The Portfolio may use leverage for investment purposes.
The Portfolio may invest without limit in US Dollar-denominated foreign fixed-income securities and may invest up to 25% of its assets in non-US Dollar-denominated foreign fixed-income securities. These investments may include, in each case, developed and emerging market debt securities. The Portfolio 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 Portfolio intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Portfolio may invest, without limit, in derivatives, such as options, futures, forwards, or swap agreements.
The Portfolio 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 Portfolio’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.
Investment Results
The table on page 5 shows the Portfolio’s performance compared with its benchmark, the Barclays Capital US Aggregate Bond Index, which is a standard measure of the performance of a basket of unmanaged US investment-grade debt securities, for the six- and 12-month periods ended October 31, 2010.
The Portfolio outperformed the benchmark, for the 12-month period ended October 31, 2010, before sales charges. Performance was driven primarily by sector allocation. Overweight positions in commercial mortgage-backed securities (CMBS) and investment grade corporates, as
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 1 |
well as exposure to high yield corporates and bank loans, contributed positively to relative performance. An underweight to governments was also positive. Overall security selection was positive, particularly in the Portfolio’s investment grade and asset-backed holdings while CMBS security selection detracted. The Portfolio’s overall currency positioning was flat as positive long positions in the Australian dollar, Swedish krona and Korean won were offset by a short position in the Japanese yen and long position in the Norwegian krone. Yield curve positioning, specifically an overweight in the five- to 10-year area of the yield curve, also contributed positively.
Class A shares of the Portfolio outperformed the benchmark for the six-month period ended October 31, 2010, before sales charges. Yield curve positioning was the primary positive contributor followed by security selection within the Portfolio’s investment grade corporate holdings. Within the Portfolio’s sector positioning, an overweight in investment grade corporates and an underweight to agency mortgages detracted while an overweight to CMBS and exposure to high yield contributed positively. Through the use of derivatives, including interest rate futures, the Portfolio’s US Treasury futures holdings had a positive impact on performance for both periods.
Market Review and Investment Strategy
The global economic recovery continued in 2010 driven by strong gains in emerging-market economies. Import
growth in emerging-market economies boomed, acting as an important catalyst in the recovery of industrialized economies. Financial markets followed making fitful progress as credit spreads narrowed. Investors gained confidence from increasing signs that the global economic recovery was continuing to gain momentum.
Concerns over sovereign debt in peripheral Europe and the potential for a double-dip in the US economy however rose in the second quarter dampening market sentiment. Worries about the fiscal position of Greece intensified, causing Greek sovereign bond spreads to sharply widen. These worries spread to other peripheral countries such as Spain and Portugal, while shares of French, German and Spanish banks came under pressure as concerns grew about their exposure to troubled government debt. Downgrades of Greece, Portugal and Spain by the rating agencies added to the anxiety along with renewed concern about Ireland.
Most major fixed income indices posted solid absolute returns for the annual period as markets continued to recover. CMBS securities, which posted some of the worst returns during the financial crisis, continued to rebound posting strong gains. For the annual period under review, CMBS returned 21.63%, followed by high yield corporates at 19.35% and investment grade corporates at 11.61%. All three sectors saw significant spread compression. Asset-backed securities led by the home equity sector returned 7.81%. The
2 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
agency mortgage backed sector followed returning 5.99% for the annual period. Treasury securities returned 7.20% as yields significantly declined across the maturity spectrum. All returns are according to the Barclays Capital Indices.
With government bond yields still very low by historical standards, the Portfolio continued to hold overweight allocations to investment grade corporate bonds and CMBS and maintain exposure to high yield and bank loans. From a fundamental perspective the US Investment Grade Core Fixed
Income Team (the “Team”) continues to see a positive outlook for corporates and consequently the Team still sees credit as offering good value. Earnings continued to be strong with almost three quarters of companies in the S&P beating earnings estimates in the third quarter. Revenues have also been running strong. While the Team remains confident that the global economic recovery, powered by strong growth in emerging market economies should remain on track, a host of uncertainties are likely to keep financial-market volatility high.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 3 |
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance shown on the following pages represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.alliancebernstein.com. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost.
Investors should consider the investment objectives, risks, charges and expenses of the Fund/Portfolio carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares; the applicable contingent deferred sales charge for Class B shares (3% year 1, 2% year 2, 1% year 3, 0% year 4); a 1% 1 year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
Benchmark Disclosure
The unmanaged Barclays Capital US Aggregate Bond Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. Barclays Capital US Aggregate Index represents the performance of securities within the US investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, asset-backed securities, and commercial mortgaged backed securities. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
The Portfolio may invest in convertible debt securities, preferred stock and dividend-paying stocks, US government obligations and foreign fixed-income securities. The Portfolio may invest in mortgage-related and other asset-backed securities which are subject to prepayment risk; the risk that early payments on principal on some mortgage-related securities may occur during periods of falling mortgage rates and expose the Portfolio to a lower rate of return upon reinvestment of principal. The Portfolio may invest a portion of its assets in foreign securities, including emerging markets, which may magnify fluctuations. Price fluctuations may also be caused by changes in interest rates or bond credit quality ratings. These changes have a greater effect on bonds with longer maturities than on those with shorter maturities. Please note, as interest rates rise, existing bond prices fall and can cause the value of your investment in the Portfolio to decline. Investments in the Portfolio are not guaranteed because of fluctuation in the net asset value of the underlying fixed-income related investments. Similar to direct bond ownership, bond funds have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the Portfolio. Portfolio purchasers should understand that, in contrast to owning individual bonds, there are ongoing fees and expenses associated with owning shares of bond funds. The Portfolio may invest in high yield bonds, otherwise known as “junk bonds”, which involves a greater risk of default and price volatility than other bonds. Investing in below-investment grade presents special risks, including credit risk. The Portfolio is also subject to leverage risk. When a fund borrows money or otherwise leverages its portfolio, it may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of a fund’s investments. The Portfolio may create leverage through the use of reverse repurchase agreements, forward contracts or dollar rolls or by borrowing money. While the Portfolio invests principally in bonds and other fixed-income securities, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Portfolio’s prospectus.
(Historical Performance continued on next page)
4 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
THE PORTFOLIO VS. ITS BENCHMARK PERIODS ENDED OCTOBER 31, 2010 | NAV Returns | |||||||||||
6 Months | 12 Months | |||||||||||
AllianceBernstein Bond Fund Intermediate Bond Portfolio* | ||||||||||||
Class A | 5.36% | 11.17% | ||||||||||
Class B** | 4.99% | 10.40% | ||||||||||
Class C | 5.00% | 10.42% | ||||||||||
Advisor Class† | 5.61% | 11.59% | ||||||||||
Class R† | 5.25% | 10.94% | ||||||||||
Class K† | 5.48% | 11.21% | ||||||||||
Class I† | 5.60% | 11.59% | ||||||||||
Barclays Capital US Aggregate Bond Index | 5.33% | 8.01% | ||||||||||
* Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the 12-month period ended October 31, 2010, by 0.01%.
** Effective January 31, 2009, Class B shares are no longer available for purchase to new investors. Please see Note A for additional information.
† Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Portfolio.
Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. |
| |||||||||||
See Historical Performance and Benchmark disclosures on page 4.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 5 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
GROWTH OF A $10,000 INVESTMENT IN THE PORTFOLIO
10/31/00 TO 10/31/10
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Bond Fund Intermediate Bond Portfolio Class A shares (from 10/31/00 to 10/31/10) as compared to the performance of its benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Portfolio and assumes the reinvestment of dividends and capital gains distributions.
See Historical Performance and Benchmark disclosures on page 4.
(Historical Performance continued on next page)
6 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2010 | ||||||||||||
NAV Returns | SEC Returns | SEC Yields* | ||||||||||
�� | ||||||||||||
Class A Shares | 2.67 | % | ||||||||||
1 Year | 11.17 | % | 6.40 | % | ||||||||
5 Years | 6.12 | % | 5.20 | % | ||||||||
10 Years | 5.73 | % | 5.28 | % | ||||||||
Class B Shares | 2.09 | % | ||||||||||
1 Year | 10.40 | % | 7.40 | % | ||||||||
5 Years | 5.47 | % | 5.47 | % | ||||||||
10 Years(a) | 5.35 | % | 5.35 | % | ||||||||
Class C Shares | 2.10 | % | ||||||||||
1 Year | 10.42 | % | 9.42 | % | ||||||||
5 Years | 5.39 | % | 5.39 | % | ||||||||
10 Years | 5.01 | % | 5.01 | % | ||||||||
Advisor Class Shares** | 3.09 | % | ||||||||||
1 Year | 11.59 | % | 11.59 | % | ||||||||
5 Years | 6.45 | % | 6.45 | % | ||||||||
10 Years | 6.06 | % | 6.06 | % | ||||||||
Class R Shares** | 2.59 | % | ||||||||||
1 Year | 10.94 | % | 10.94 | % | ||||||||
5 Years | 5.90 | % | 5.90 | % | ||||||||
Since Inception† | 4.98 | % | 4.98 | % | ||||||||
Class K Shares** | 2.84 | % | ||||||||||
1 Year | 11.21 | % | 11.21 | % | ||||||||
5 Years | 6.16 | % | 6.16 | % | ||||||||
Since Inception† | 5.57 | % | 5.57 | % | ||||||||
Class I Shares** | 3.09 | % | ||||||||||
1 Year | 11.59 | % | 11.59 | % | ||||||||
5 Years | 6.45 | % | 6.45 | % | ||||||||
Since Inception† | 5.85 | % | 5.85 | % |
The Portfolio’s prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.11%, 1.87%, 1.82%, 0.80%, 1.38%, 1.05% and 0.72% for Class A, Class B, Class C, Advisor Class, Class R, Class K and Class I, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Portfolio’s annual operating expense ratios, exclusive of interest expense, to 0.85%, 1.55%, 1.55%, 0.55%, 1.05%, 0.80%, and 0.55% for Class A, Class B, Class C, Advisor Class, Class R, Class K and Class I, respectively. These waivers/ reimbursements extend through the Portfolio’s current fiscal year and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower.
* | SEC yields are calculated based on SEC guidelines for the 30-day period ended October 31, 2010. |
(a) | Assumes conversion of Class B shares into Class A shares after six years. |
** | These share classes are offered at net asset value (NAV) to eligible investors and their SEC returns are the same as the NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Portfolio. |
† | Inception dates: 11/3/03 for Class R shares; 3/1/05 for Class K and Class I shares. |
See Historical Performance disclosures on page 4.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 7 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES) AS OF THE MOST RECENT CALENDAR QUARTER-END (SEPTEMBER 30, 2010) | ||||
SEC Returns | ||||
Class A Shares | ||||
1 Year | 7.18 | % | ||
5 Years | 4.89 | % | ||
10 Years | 5.27 | % | ||
Class B Shares | ||||
1 Year | 8.14 | % | ||
5 Years | 5.19 | % | ||
10 Years(a) | 5.32 | % | ||
Class C Shares | ||||
1 Year | 10.16 | % | ||
5 Years | 5.09 | % | ||
10 Years | 5.00 | % | ||
Advisor Class Shares† | ||||
1 Year | 12.34 | % | ||
5 Years | 6.15 | % | ||
10 Years | 6.06 | % | ||
Class R Shares† | ||||
1 Year | 11.69 | % | ||
5 Years | 5.60 | % | ||
Since Inception* | 4.96 | % | ||
Class K Shares† | ||||
1 Year | 11.96 | % | ||
5 Years | 5.86 | % | ||
Since Inception* | 5.55 | % | ||
Class I Shares† | ||||
1 Year | 12.34 | % | ||
5 Years | 6.15 | % | ||
Since Inception* | 5.83 | % |
(a) | Assumes conversion of Class B shares into Class A shares after six years. |
† | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Portfolio. |
* | Inception dates: 11/3/03 for Class R shares; 3/1/05 for Class K and Class I shares. |
See Historical Performance disclosures on page 4.
8 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Historical Performance
FUND EXPENSES
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2010 | Ending Account Value October 31, 2010 | Expenses Paid During Period* | ||||||||||||||||||||||
Actual | Hypothetical | Actual | Hypothetical** | Actual | Hypothetical | |||||||||||||||||||
Class A | $ | 1,000 | $ | 1,000 | $ | 1,053.57 | $ | 1,020.87 | $ | 4.45 | $ | 4.38 | ||||||||||||
Class B | $ | 1,000 | $ | 1,000 | $ | 1,049.91 | $ | 1,017.34 | $ | 8.06 | $ | 7.93 | ||||||||||||
Class C | $ | 1,000 | $ | 1,000 | $ | 1,049.98 | $ | 1,017.34 | $ | 8.06 | $ | 7.93 | ||||||||||||
Advisor Class | $ | 1,000 | $ | 1,000 | $ | 1,056.08 | $ | 1,022.38 | $ | 2.90 | $ | 2.85 | ||||||||||||
Class R | $ | 1,000 | $ | 1,000 | $ | 1,052.50 | $ | 1,019.91 | $ | 5.43 | $ | 5.35 | ||||||||||||
Class K | $ | 1,000 | $ | 1,000 | $ | 1,054.76 | $ | 1,021.12 | $ | 4.20 | $ | 4.13 | ||||||||||||
Class I | $ | 1,000 | $ | 1,000 | $ | 1,056.04 | $ | 1,022.33 | $ | 2.95 | $ | 2.91 |
* | Expenses are equal to the classes’ annualized expense ratios of 0.86%, 1.56%, 1.56%, 0.56%, 1.05%, 0.81% and 0.57%, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
** | Assumes 5% return before expenses. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 9 |
Fund Expenses
PORTFOLIO SUMMARY
October 31, 2010 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $597.1
* | All data are as of October 31, 2010. The Portfolio’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
10 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio Summary
PORTFOLIO OF INVESTMENTS
October 31, 2010
Principal Amount (000) | U.S. $ Value | |||||||||||
CORPORATES – INVESTMENT | ||||||||||||
Industrial – 14.2% | ||||||||||||
Basic – 2.7% | ||||||||||||
Alcoa, Inc. | U.S.$ | 553 | $ | 604,466 | ||||||||
Anglo American Capital PLC | 885 | 1,206,232 | ||||||||||
AngloGold Ashanti Holdings PLC | 855 | 913,138 | ||||||||||
ArcelorMittal | 1,470 | 1,607,673 | ||||||||||
ArcelorMittal USA, Inc. | 150 | 166,835 | ||||||||||
BHP Billiton Finance USA Ltd. | 1,116 | 1,382,281 | ||||||||||
Dow Chemical Co. (The) | 15 | 17,507 | ||||||||||
7.60%, 5/15/14 | 762 | 896,535 | ||||||||||
8.55%, 5/15/19 | 1,059 | 1,360,113 | ||||||||||
Eastman Chemical Co. | 183 | 201,017 | ||||||||||
International Paper Co. | 235 | 260,449 | ||||||||||
7.50%, 8/15/21 | 569 | 693,861 | ||||||||||
7.95%, 6/15/18 | 830 | 1,014,860 | ||||||||||
Packaging Corp. of America | 870 | 942,547 | ||||||||||
PPG Industries, Inc. | 1,125 | 1,232,220 | ||||||||||
Rio Tinto Finance USA Ltd. | 1,385 | 1,701,611 | ||||||||||
Teck Resources Ltd. | 90 | 93,879 | ||||||||||
Vale Inco Ltd. | 1,650 | 1,795,799 | ||||||||||
16,091,023 | ||||||||||||
Capital Goods – 0.6% | ||||||||||||
Holcim US Finance Sarl & Cie SCS | 132 | 143,475 | ||||||||||
Lafarge SA | 784 | 810,960 | ||||||||||
Owens Corning | 955 | 1,038,504 | ||||||||||
Republic Services, Inc. | 508 | 563,521 | ||||||||||
5.50%, 9/15/19 | 753 | 852,558 | ||||||||||
3,409,018 | ||||||||||||
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 11 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Communications - Media – 1.6% | ||||||||||||
BSKYB Finance UK PLC | U.S.$ | 270 | $ | 309,702 | ||||||||
CBS Corp. | 1,305 | 1,690,761 | ||||||||||
Comcast Cable Communications Holdings, Inc. | 174 | 247,105 | ||||||||||
Comcast Corp. | 313 | 318,644 | ||||||||||
DirecTV Holdings LLC / DirecTV Financing Co., Inc. | 525 | 576,304 | ||||||||||
6.375%, 6/15/15 | 100 | 103,500 | ||||||||||
News America Holdings, Inc. | 310 | 363,080 | ||||||||||
News America, Inc. | 142 | 154,047 | ||||||||||
Reed Elsevier Capital, Inc. | 530 | 695,966 | ||||||||||
RR Donnelley & Sons Co. | 85 | 88,852 | ||||||||||
11.25%, 2/01/19 | 740 | 952,669 | ||||||||||
Time Warner Cable, Inc. | 740 | 802,986 | ||||||||||
7.50%, 4/01/14 | 1,055 | 1,244,157 | ||||||||||
Time Warner Entertainment Co. LP | 325 | 435,514 | ||||||||||
WPP Finance UK | 149 | 166,270 | ||||||||||
8.00%, 9/15/14 | 1,320 | 1,572,385 | ||||||||||
9,721,942 | ||||||||||||
Communications - | ||||||||||||
America Movil SAB de CV | 1,246 | 1,361,862 | ||||||||||
American Tower Corp. | 1,185 | 1,237,154 | ||||||||||
British Telecommunications PLC | 770 | 830,529 | ||||||||||
9.375%, 12/15/10 | 524 | 529,416 | ||||||||||
Embarq Corp. | 1,470 | 1,678,500 | ||||||||||
Qwest Corp. | 1,085 | 1,239,613 | ||||||||||
7.875%, 9/01/11 | 285 | 300,319 | ||||||||||
Telecom Italia Capital SA | 1,150 | 1,284,883 |
12 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
6.375%, 11/15/33 | U.S.$ | 110 | $ | 110,102 | ||||||||
7.175%, 6/18/19 | 515 | 620,973 | ||||||||||
United States Cellular Corp. | 1,560 | 1,578,771 | ||||||||||
10,772,122 | ||||||||||||
Consumer Cyclical - Automotive – 0.8% | ||||||||||||
Daimler Finance North America LLC | 455 | 473,673 | ||||||||||
7.30%, 1/15/12 | 464 | 496,732 | ||||||||||
7.75%, 1/18/11 | 173 | 175,489 | ||||||||||
Harley-Davidson Funding Corp. | 1,010 | 1,088,265 | ||||||||||
Nissan Motor Acceptance Corp. | 1,035 | 1,107,353 | ||||||||||
Volvo Treasury AB | 1,196 | 1,316,205 | ||||||||||
4,657,717 | ||||||||||||
Consumer Cyclical - | ||||||||||||
Time Warner, Inc. | 600 | 645,593 | ||||||||||
7.625%, 4/15/31 | 1,285 | 1,564,209 | ||||||||||
Viacom, Inc. | 1,230 | 1,416,168 | ||||||||||
3,625,970 | ||||||||||||
Consumer Cyclical - Other – 0.5% | ||||||||||||
Marriott International, Inc./DE | 1,370 | 1,484,296 | ||||||||||
MDC Holdings, Inc. | 1,155 | 1,197,775 | ||||||||||
Toll Brothers Finance Corp. | 35 | 35,822 | ||||||||||
6.875%, 11/15/12 | 9 | 9,617 | ||||||||||
2,727,510 | ||||||||||||
Consumer Cyclical - Retailers – 0.1% | ||||||||||||
CVS Caremark Corp. | 605 | 735,571 | ||||||||||
Consumer Non-Cyclical – 1.9% | ||||||||||||
Ahold Finance USA LLC | 1,275 | 1,460,759 | ||||||||||
Altria Group, Inc. | 765 | 1,055,268 | ||||||||||
Bunge Ltd. Finance Corp. | 130 | 139,090 | ||||||||||
5.875%, 5/15/13 | 965 | 1,044,523 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 13 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Cadbury Schweppes US Finance LLC | U.S.$ | 310 | $ | 339,797 | ||||||||
Delhaize Group SA | 335 | 378,918 | ||||||||||
Fortune Brands, Inc. | 810 | 824,631 | ||||||||||
4.875%, 12/01/13 | 667 | 707,766 | ||||||||||
Kraft Foods, Inc. | 2,340 | 2,536,335 | ||||||||||
Newell Rubbermaid, Inc. | 535 | 582,241 | ||||||||||
Reynolds American, Inc. | 1,520 | 1,708,573 | ||||||||||
Safeway, Inc. | 82 | 83,448 | ||||||||||
Whirlpool Corp. | 155 | 184,546 | ||||||||||
11,045,895 | ||||||||||||
Energy – 2.0% | ||||||||||||
Anadarko Petroleum Corp. | 1,276 | 1,395,497 | ||||||||||
6.45%, 9/15/36 | 401 | 398,962 | ||||||||||
Baker Hughes, Inc. | 610 | 707,607 | ||||||||||
BP Capital Markets PLC | 1,043 | 1,080,367 | ||||||||||
4.75%, 3/10/19 | 211 | 224,277 | ||||||||||
Canadian Natural Resources Ltd. | 435 | 472,394 | ||||||||||
Hess Corp. | 98 | 124,467 | ||||||||||
8.125%, 2/15/19 | 394 | 519,688 | ||||||||||
Marathon Oil Corp. | 413 | 531,871 | ||||||||||
Nabors Industries, Inc. | 1,275 | 1,639,687 | ||||||||||
Noble Energy, Inc. | 1,232 | 1,601,684 | ||||||||||
Noble Holding International Ltd. | 108 | 118,943 | ||||||||||
Valero Energy Corp. | 541 | 598,838 | ||||||||||
Weatherford International Ltd. | 560 | 600,462 | ||||||||||
6.00%, 3/15/18 | 215 | 241,091 | ||||||||||
9.625%, 3/01/19 | 605 | 798,968 |
14 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Williams Cos., Inc. (The) | U.S.$ | 598 | $ | 714,602 | ||||||||
11,769,405 | ||||||||||||
Other Industrial – 0.2% | ||||||||||||
Noble Group Ltd. | 1,099 | 1,221,749 | ||||||||||
Technology – 0.6% | ||||||||||||
Agilent Technologies, Inc. | 217 | 232,669 | ||||||||||
Computer Sciences Corp. | 805 | 871,785 | ||||||||||
Motorola, Inc. | 855 | 925,981 | ||||||||||
7.50%, 5/15/25 | 30 | 35,405 | ||||||||||
7.625%, 11/15/10 | 28 | 28,068 | ||||||||||
Xerox Corp. | 1,250 | 1,503,261 | ||||||||||
3,597,169 | ||||||||||||
Transportation - Airlines – 0.2% | ||||||||||||
Southwest Airlines Co. | 730 | 787,579 | ||||||||||
5.75%, 12/15/16 | 490 | 536,899 | ||||||||||
1,324,478 | ||||||||||||
Transportation - Services – 0.6% | ||||||||||||
Asciano Finance Ltd. | 1,490 | 1,498,246 | ||||||||||
Aviation Capital Group | 552 | 568,300 | ||||||||||
Con-way, Inc. | 923 | 851,519 | ||||||||||
Ryder System, Inc. | 383 | 432,085 | ||||||||||
7.20%, 9/01/15 | 369 | 435,424 | ||||||||||
3,785,574 | ||||||||||||
84,485,143 | ||||||||||||
Financial Institutions – 11.9% | ||||||||||||
Banking – 6.0% | ||||||||||||
American Express Co. | 735 | 860,165 | ||||||||||
Bank of America Corp. | 1,050 | 1,190,332 | ||||||||||
7.625%, 6/01/19 | 1,305 | 1,527,710 | ||||||||||
Series L | 1,520 | 1,599,776 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 15 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Bank of Tokyo-Mitsubishi UFJ Ltd./New York NY | U.S.$ | 100 | $ | 103,583 | ||||||||
BankAmerica Capital II | 415 | 418,112 | ||||||||||
Bear Stearns Cos. LLC (The) | 315 | 344,433 | ||||||||||
5.70%, 11/15/14 | 1,655 | 1,885,588 | ||||||||||
Citigroup, Inc. | 520 | 562,988 | ||||||||||
6.50%, 8/19/13 | 1,015 | 1,132,528 | ||||||||||
8.50%, 5/22/19 | 2,190 | 2,749,933 | ||||||||||
Compass Bank | 1,774 | 1,774,889 | ||||||||||
Countrywide Financial Corp. | 62 | 66,130 | ||||||||||
Goldman Sachs Group, Inc. (The) | 1,430 | 1,589,175 | ||||||||||
7.50%, 2/15/19 | 990 | 1,191,716 | ||||||||||
JPMorgan Chase & Co. | 2,060 | 2,096,225 | ||||||||||
M&I Marshall & Ilsley Bank | 1,695 | 1,602,402 | ||||||||||
Macquarie Group Ltd. | 1,475 | 1,491,421 | ||||||||||
Merrill Lynch & Co., Inc. | 586 | 619,858 | ||||||||||
Morgan Stanley | 2,375 | 2,471,658 | ||||||||||
6.625%, 4/01/18 | 995 | 1,117,615 | ||||||||||
National Capital Trust II | 372 | 360,330 | ||||||||||
National City Bank/Cleveland OH | 1,515 | 1,543,726 | ||||||||||
Nationwide Building Society | 1,415 | 1,554,775 | ||||||||||
Santander US Debt SA Unipersonal | 1,500 | 1,507,854 | ||||||||||
SouthTrust Corp. | 1,470 | 1,622,640 | ||||||||||
UFJ Finance Aruba AEC | 172 | 195,677 | ||||||||||
Union Bank NA | 1,580 | 1,782,362 | ||||||||||
Wachovia Corp. | 485 | 533,541 | ||||||||||
35,497,142 | ||||||||||||
16 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Brokerage – 0.1% | ||||||||||||
Jefferies Group, Inc. | U.S.$ | 568 | $ | 604,542 | ||||||||
Finance – 1.0% | ||||||||||||
General Electric Capital Corp. | 2,960 | 3,202,622 | ||||||||||
HSBC Finance Corp. | 845 | 912,793 | ||||||||||
SLM Corp. | 1,960 | 1,967,848 | ||||||||||
6,083,263 | ||||||||||||
Insurance – 3.9% | ||||||||||||
Aetna, Inc. | 435 | 513,544 | ||||||||||
Aflac, Inc. | 240 | 250,858 | ||||||||||
Allied World Assurance Co. Holdings Ltd. | 650 | 740,860 | ||||||||||
Allstate Corp. (The) | 1,520 | 1,504,800 | ||||||||||
Assurant, Inc. | 92 | 98,523 | ||||||||||
CIGNA Corp. | 485 | 526,800 | ||||||||||
Coventry Health Care, Inc. | 295 | 301,047 | ||||||||||
6.125%, 1/15/15 | 115 | 120,903 | ||||||||||
6.30%, 8/15/14 | 900 | 957,354 | ||||||||||
Genworth Financial, Inc. | 1,395 | 1,447,781 | ||||||||||
Guardian Life Insurance Co. of America | 700 | 815,509 | ||||||||||
Hartford Financial Services Group, Inc. | 280 | 287,975 | ||||||||||
5.50%, 3/30/20 | 1,320 | 1,349,406 | ||||||||||
Humana, Inc. | 361 | 396,277 | ||||||||||
6.45%, 6/01/16 | 130 | 144,922 | ||||||||||
7.20%, 6/15/18 | 825 | 958,766 | ||||||||||
Liberty Mutual Group, Inc. | 167 | 176,191 | ||||||||||
Lincoln National Corp. | 361 | 465,495 | ||||||||||
Markel Corp. | 684 | 782,449 | ||||||||||
Massachusetts Mutual Life Insurance Co. | 710 | 939,133 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 17 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Metlife Capital Trust IV | U.S.$ | 590 | $ | 637,200 | ||||||||
MetLife, Inc. | 425 | 449,647 | ||||||||||
7.717%, 2/15/19 | 358 | 456,063 | ||||||||||
Nationwide Mutual Insurance Co. | 1,190 | 1,395,713 | ||||||||||
Principal Financial Group, Inc. | 1,020 | 1,205,638 | ||||||||||
Prudential Financial, Inc. | 905 | 973,082 | ||||||||||
6.20%, 1/15/15 | 145 | 164,690 | ||||||||||
8.875%, 6/15/38 | 570 | 655,500 | ||||||||||
Series D | 110 | 133,327 | ||||||||||
UnitedHealth Group, Inc. | 1,855 | 2,052,320 | ||||||||||
WellPoint, Inc. | 1,225 | 1,264,375 | ||||||||||
5.875%, 6/15/17 | 120 | 138,537 | ||||||||||
7.00%, 2/15/19 | 290 | 352,863 | ||||||||||
XL Capital Ltd. | 824 | 883,238 | ||||||||||
23,540,786 | ||||||||||||
Other Finance – 0.2% | ||||||||||||
ORIX Corp. | 1,345 | 1,393,214 | ||||||||||
REITS – 0.7% | ||||||||||||
HCP, Inc. | 1,550 | 1,607,379 | ||||||||||
Healthcare Realty Trust, Inc. | 845 | 901,340 | ||||||||||
Simon Property Group LP | 1,540 | 1,577,864 | ||||||||||
4,086,583 | ||||||||||||
71,205,530 | ||||||||||||
Utility – 2.2% | ||||||||||||
Electric – 1.1% | ||||||||||||
Allegheny Energy Supply Co. LLC | 1,415 | 1,484,120 | ||||||||||
Ameren Corp. | 770 | 893,850 | ||||||||||
American Transmission Systems, Inc. | 385 | 422,098 | ||||||||||
FirstEnergy Corp. | 126 | 131,655 |
18 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Series C | U.S.$ | 279 | $ | 300,168 | ||||||||
Nisource Finance Corp. | 1,465 | 1,732,551 | ||||||||||
7.875%, 11/15/10 | 154 | 154,310 | ||||||||||
SPI Electricity & Gas Australia Holdings Pty Ltd. | 283 | 312,965 | ||||||||||
Teco Finance, Inc. | 310 | 326,795 | ||||||||||
5.15%, 3/15/20 | 380 | 412,480 | ||||||||||
Union Electric Co. | 140 | 168,892 | ||||||||||
Wisconsin Energy Corp. | 140 | 137,200 | ||||||||||
6,477,084 | ||||||||||||
Natural Gas – 0.9% | ||||||||||||
DCP Midstream LLC | 396 | 427,950 | ||||||||||
Energy Transfer Partners LP | 886 | 1,028,712 | ||||||||||
7.50%, 7/01/38 | 909 | 1,052,219 | ||||||||||
EQT Corp. | 689 | 847,731 | ||||||||||
TransCanada PipeLines Ltd. | 1,670 | 1,599,025 | ||||||||||
Williams Partners LP | 733 | 800,723 | ||||||||||
5,756,360 | ||||||||||||
Other Utility – 0.2% | ||||||||||||
Veolia Environnement | 935 | 1,085,952 | ||||||||||
13,319,396 | ||||||||||||
Non Corporate Sectors – 1.3% | ||||||||||||
Agencies - Not Government | ||||||||||||
Gaz Capital SA for Gazprom | 3,215 | 3,427,994 | ||||||||||
Petrobras International Finance Co. | 2,190 | 2,449,830 | ||||||||||
TransCapitalInvest Ltd. for OJSC AK Transneft | 1,425 | 1,795,500 | ||||||||||
7,673,324 | ||||||||||||
Total Corporates – Investment Grades | 176,683,393 | |||||||||||
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 19 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
MORTGAGE PASS-THRU’S – 17.0% | ||||||||||||
Agency Fixed Rate 30-Year – 15.1% | ||||||||||||
Federal Home Loan Mortgage Corp. Gold | U.S.$ | 1,758 | $ | 1,852,404 | ||||||||
5.50%, 1/01/35 | 1,857 | 2,007,719 | ||||||||||
Series 2007 | 10,122 | 10,672,883 | ||||||||||
5.50%, 7/01/35 | 256 | 276,940 | ||||||||||
Federal National Mortgage Association | 8,097 | 8,746,598 | ||||||||||
5.50%, 6/01/38 | 9,442 | 10,168,878 | ||||||||||
6.00%, 2/01/38-11/01/40 | 15,682 | 17,027,414 | ||||||||||
Series 2003 | 283 | 303,466 | ||||||||||
5.50%, 4/01/33-7/01/33 | 2,296 | 2,489,331 | ||||||||||
Series 2004 | 175 | 189,985 | ||||||||||
5.50%, 5/01/34-11/01/34 | 1,004 | 1,086,621 | ||||||||||
6.00%, 9/01/34 | 433 | 477,232 | ||||||||||
Series 2005 | 889 | 938,990 | ||||||||||
5.50%, 2/01/35 | 868 | 941,199 | ||||||||||
Series 2006 | 773 | 825,728 | ||||||||||
5.50%, 4/01/36 | 2,099 | 2,267,915 | ||||||||||
6.00%, 2/01/36 | 2,762 | 3,043,384 | ||||||||||
Series 2007 | 687 | 727,496 | ||||||||||
5.00%, 11/01/35-7/01/36 | 9,233 | 9,864,624 | ||||||||||
5.50%, 8/01/37 | 7,259 | 7,869,727 | ||||||||||
Series 2008 | 7,375 | 8,084,498 | ||||||||||
Government National Mortgage Association | 0 | * | 129 | |||||||||
Series 1999 | 187 | 213,915 | ||||||||||
90,077,076 | ||||||||||||
Agency ARMs – 1.7% | ||||||||||||
Federal Home Loan Mortgage Corp. | 511 | 536,048 | ||||||||||
5.922%, 1/01/37(c) | 154 | 162,742 | ||||||||||
Series 2007 | 1,938 | 2,071,625 | ||||||||||
5.747%, 1/01/37(c) | 2,292 | 2,412,533 |
20 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Series 2009 | U.S.$ | 2,325 | $ | 2,433,291 | ||||||||
Federal National Mortgage Association | 684 | 722,194 | ||||||||||
4.643%, 3/01/34(b) | 1,813 | 1,888,280 | ||||||||||
10,226,713 | ||||||||||||
Agency Fixed Rate 15-Year – 0.2% | ||||||||||||
Government National Mortgage Association | 165 | 170,191 | ||||||||||
Series 2001 | 1,009 | 1,056,329 | ||||||||||
1,226,520 | ||||||||||||
Total Mortgage Pass-Thru’s | 101,530,309 | |||||||||||
GOVERNMENTS – TREASURIES – 16.4% | ||||||||||||
United States – 16.4% | ||||||||||||
U.S. Treasury Bonds | 8,899 | 9,744,186 | ||||||||||
4.625%, 2/15/40 | 7,555 | 8,383,693 | ||||||||||
4.75%, 2/15/37 | 1,660 | 1,887,472 | ||||||||||
U.S. Treasury Notes | 3,695 | 3,805,000 | ||||||||||
2.125%, 5/31/15 | 12,085 | 12,665,684 | ||||||||||
2.50%, 3/31/15 | 20,920 | 22,292,980 | ||||||||||
3.375%, 11/15/19 | 6,075 | 6,520,656 | ||||||||||
3.625%, 2/15/20 | 15,930 | 17,392,326 | ||||||||||
3.75%, 11/15/18 | 13,672 | 15,248,880 | ||||||||||
Total Governments – Treasuries | 97,940,877 | |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 9.2% | ||||||||||||
Non-Agency Fixed Rate CMBS – 9.2% | ||||||||||||
Bear Stearns Commercial Mortgage Securities | 2,315 | 2,482,612 | ||||||||||
Citigroup Commercial Mortgage Trust | 2,890 | 3,133,710 | ||||||||||
Commercial Mortgage Pass Through Certificates | ||||||||||||
5.306%, 12/10/46 | 2,130 | 2,234,954 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 21 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Credit Suisse Mortgage Capital Certificates | U.S.$ | 2,850 | $ | 3,128,819 | ||||||||
Series 2006-C5, Class A3 | 1,600 | 1,684,520 | ||||||||||
FHLMC Multifamily Structured Pass Through Certificates | 2,044 | 2,085,625 | ||||||||||
Greenwich Capital Commercial Funding Corp. | 775 | 701,735 | ||||||||||
Series 2007-GG11, Class A4 | 420 | 443,114 | ||||||||||
Series 2007-GG9, Class A4 | 1,820 | 1,945,519 | ||||||||||
JP Morgan Chase Commercial Mortgage Securities Corp. | 1,455 | 1,573,082 | ||||||||||
Series 2006-CB15, Class A4 | 2,335 | 2,554,085 | ||||||||||
Series 2006-CB16, Class A4 | 1,810 | 1,969,263 | ||||||||||
Series 2007-C1, Class A4 | 2,965 | 3,125,178 | ||||||||||
Series 2007-LD11, Class A4 | 300 | 318,428 | ||||||||||
LB-UBS Commercial Mortgage Trust | 3,360 | 3,653,540 | ||||||||||
Series 2007-C1, Class A4 | 2,275 | 2,436,800 | ||||||||||
Merrill Lynch/Countrywide Commercial Mortgage Trust | 220 | 245,707 | ||||||||||
Series 2006-4, Class AM | 940 | 830,585 | ||||||||||
Series 2007-9, Class A4 | 2,940 | 3,088,074 | ||||||||||
Morgan Stanley Capital I | 2,910 | 3,013,981 | ||||||||||
Series 2007-IQ13, Class A4 | 1,640 | 1,720,538 |
22 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Prudential Securities Secured Financing Corp. | U.S.$ | 31,908 | $ | 670,078 | ||||||||
Wachovia Bank Commercial Mortgage Trust | 2,885 | 3,161,029 | ||||||||||
Series 2006-C28, Class A4 | 2,990 | 3,173,028 | ||||||||||
Series 2007-C31, Class A4 | 2,925 | 3,025,674 | ||||||||||
Series 2007-C32, Class A3 | 2,435 | 2,443,068 | ||||||||||
Total Commercial Mortgage-Backed Securities | 54,842,746 | |||||||||||
AGENCIES – 8.9% | ||||||||||||
Agency Debentures – 8.9% | ||||||||||||
Federal Farm Credit Bank | 8,300 | 8,294,622 | ||||||||||
0.276%, 10/12/12(c) | 3,700 | 3,698,701 | ||||||||||
0.286%, 9/20/12(c) | 9,500 | 9,498,993 | ||||||||||
0.316%, 6/26/13(c) | 7,300 | 7,297,540 | ||||||||||
Federal National Mortgage Association | 13,415 | 13,413,810 | ||||||||||
6.25%, 5/15/29 | 8,610 | 11,121,942 | ||||||||||
Total Agencies | 53,325,608 | |||||||||||
CORPORATES – NON-INVESTMENT GRADES – 4.1% | ||||||||||||
Industrial – 2.5% | ||||||||||||
Basic – 0.7% | ||||||||||||
Georgia-Pacific LLC | 224 | 226,240 | ||||||||||
Ineos Group Holdings PLC | 110 | 100,100 | ||||||||||
Steel Capital SA for OAO Severstal | 545 | 602,879 | ||||||||||
Stora Enso Oyj | 1,475 | 1,528,469 | ||||||||||
United States Steel Corp. | 1,625 | 1,604,687 | ||||||||||
Westvaco Corp. | 85 | 92,133 | ||||||||||
4,154,508 | ||||||||||||
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 23 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Capital Goods – 0.5% | ||||||||||||
Case New Holland, Inc. | U.S.$ | 445 | $ | 497,287 | ||||||||
Masco Corp. | 755 | 773,048 | ||||||||||
Mohawk Industries, Inc. | 1,555 | 1,661,906 | ||||||||||
Textron Financial Corp. | 208 | 218,582 | ||||||||||
3,150,823 | ||||||||||||
Communications - Media – 0.3% | ||||||||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | 189 | 200,813 | ||||||||||
8.125%, 4/30/20(a) | 64 | 69,120 | ||||||||||
CSC Holdings LLC | 430 | 479,450 | ||||||||||
Interpublic Group of Cos., Inc. (The) | 570 | 619,162 | ||||||||||
Univision Communications, Inc. | 131 | 144,919 | ||||||||||
1,513,464 | ||||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
Cricket Communications, Inc. | 250 | 269,375 | ||||||||||
Qwest Communications International, Inc. | 60 | 61,200 | ||||||||||
Windstream Corp. | 390 | 426,075 | ||||||||||
756,650 | ||||||||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||||||
Ford Motor Co. | 600 | 681,000 | ||||||||||
Consumer Cyclical - Retailers – 0.0% | ||||||||||||
Limited Brands, Inc. | 203 | 220,255 | ||||||||||
Consumer Non-Cyclical – 0.5% | ||||||||||||
Bausch & Lomb, Inc. | 490 | 532,875 | ||||||||||
HCA, Inc. | 680 | 765,000 | ||||||||||
Mylan, Inc. | 85 | 93,500 | ||||||||||
7.875%, 7/15/20(a) | 485 | 540,775 |
24 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Universal Health Services, Inc. | U.S.$ | 970 | $ | 1,068,172 | ||||||||
3,000,322 | ||||||||||||
Energy – 0.1% | ||||||||||||
Tesoro Corp. | 630 | 626,850 | ||||||||||
Technology – 0.1% | ||||||||||||
Freescale Semiconductor, Inc. | 555 | 593,850 | ||||||||||
Transportation - Airlines – 0.1% | ||||||||||||
UAL 2007-1 Pass Through Trust | 573 | 587,774 | ||||||||||
15,285,496 | ||||||||||||
Financial Institutions – 1.1% | ||||||||||||
Banking – 0.7% | ||||||||||||
ABN Amro Bank NV | EUR | 340 | 372,886 | |||||||||
Commerzbank Capital Funding Trust I | 200 | 197,636 | ||||||||||
LBG Capital No.1 PLC | U.S.$ | 1,995 | 1,900,237 | |||||||||
Regions Financial Corp. | 615 | 632,015 | ||||||||||
Union Planters Corp. | 1,002 | 1,015,307 | ||||||||||
4,118,081 | ||||||||||||
Brokerage – 0.1% | ||||||||||||
Lehman Brothers Holdings, Inc. | 520 | 113,100 | ||||||||||
6.20%, 9/26/14(e) | 615 | 133,762 | ||||||||||
7.875%, 11/01/09(e) | 1,476 | 321,030 | ||||||||||
Series G | 79 | 17,183 | ||||||||||
585,075 | ||||||||||||
Finance – 0.0% | ||||||||||||
International Lease Finance Corp. | 175 | 175,000 | ||||||||||
Insurance – 0.3% | ||||||||||||
ING Capital Funding TR III | 825 | 792,000 | ||||||||||
Liberty Mutual Group, Inc. | 165 | 165,000 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 25 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
XL Capital Ltd. | U.S.$ | 805 | $ | 720,475 | ||||||||
1,677,475 | ||||||||||||
6,555,631 | ||||||||||||
Utility – 0.5% | ||||||||||||
Electric – 0.5% | ||||||||||||
AES Corp. (The) | 550 | 601,412 | ||||||||||
CMS Energy Corp. | 490 | 588,221 | ||||||||||
Dynegy Holdings, Inc. | 645 | 495,037 | ||||||||||
Edison Mission Energy | 100 | 73,750 | ||||||||||
NRG Energy, Inc. | 685 | 701,269 | ||||||||||
7.375%, 2/01/16 | 90 | 93,713 | ||||||||||
RRI Energy, Inc. | 315 | 317,363 | ||||||||||
2,870,765 | ||||||||||||
Total Corporates – Non-Investment Grades | 24,711,892 | |||||||||||
BANK LOANS – 1.9% | ||||||||||||
Industrial – 1.5% | ||||||||||||
Basic – 0.2% | ||||||||||||
Hexion Specialty Chemicals, Inc. | 62 | 60,438 | ||||||||||
Ineos US Finance LLC | 259 | 265,468 | ||||||||||
7.50%, 12/16/13(c) | 227 | 231,085 | ||||||||||
John Maneely Co. | 403 | 391,793 | ||||||||||
Univar Inc. | 421 | 418,645 | ||||||||||
1,367,429 | ||||||||||||
Capital Goods – 0.0% | ||||||||||||
Sequa Corp. | 278 | 262,738 | ||||||||||
Communications - Media – 0.2% | ||||||||||||
Cengage Learning Acquisitions, Inc. | 479 | 438,244 | ||||||||||
Clear Channel Communications, Inc. | 169 | 134,358 |
26 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
SuperMedia Inc. (fka Idearc Inc.) | U.S.$ | 327 | $ | 244,082 | ||||||||
Univision Communications Inc. | 494 | 466,538 | ||||||||||
1,283,222 | ||||||||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||||||
Ford Motor Co. | 459 | 453,420 | ||||||||||
Consumer Cyclical - Entertainment – 0.0% | ||||||||||||
Las Vegas Sands, LLC | 255 | 238,915 | ||||||||||
Consumer Cyclical - Other – 0.1% | ||||||||||||
Harrah’s Operating Company, Inc. | 400 | 353,410 | ||||||||||
Consumer Cyclical - Retailers – 0.2% | ||||||||||||
Burlington Coat Factory Warehouse Corporation | 280 | 272,155 | ||||||||||
Neiman Marcus Group Inc., (The) | 783 | 763,707 | ||||||||||
1,035,862 | ||||||||||||
Consumer Non-Cyclical – 0.1% | ||||||||||||
CHS/ Community Health Systems, Inc. | 349 | 342,606 | ||||||||||
Energy – 0.1% | ||||||||||||
CITGO Petroleum | 599 | 614,025 | ||||||||||
Services – 0.2% | ||||||||||||
Aveta, Inc. | 240 | 233,828 | ||||||||||
Sabre Inc. | 495 | 470,843 | ||||||||||
ServiceMaster Co. (The) | 60 | 56,881 | ||||||||||
2.76%, 7/24/14(c) | 6 | 5,664 | ||||||||||
Travelport LLC | 727 | 717,805 | ||||||||||
1,485,021 | ||||||||||||
Technology – 0.2% | ||||||||||||
Avaya, Inc. | 171 | 155,501 | ||||||||||
First Data Corporation | 932 | 837,544 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 27 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
SunGard Data Systems Inc | U.S.$ | 25 | $ | 24,214 | ||||||||
3.90%-4.04%, 2/28/16(c) | 357 | 353,403 | ||||||||||
1,370,662 | ||||||||||||
Transportation - Airlines – 0.1% | ||||||||||||
Delta Air Lines, Inc. | 394 | 380,466 | ||||||||||
9,187,776 | ||||||||||||
Utility – 0.3% | ||||||||||||
Electric – 0.3% | ||||||||||||
FirstLight Power Resources, Inc. | 433 | 406,940 | ||||||||||
4.81%, 5/01/14(c) | 852 | 781,471 | ||||||||||
Texas Competitive Electric Holdings Company, LLC (TXU) | 479 | 372,056 | ||||||||||
1,560,467 | ||||||||||||
Financial Institutions – 0.1% | ||||||||||||
Finance – 0.1% | ||||||||||||
CIT Group, Inc. | 261 | 265,272 | ||||||||||
Delos Aircraft Inc. | 59 | 60,547 | ||||||||||
International Lease Finance Corp | 81 | 82,548 | ||||||||||
408,367 | ||||||||||||
Total Bank Loans | 11,156,610 | |||||||||||
CMOs – 1.5% | ||||||||||||
Non-Agency Fixed Rate – 1.0% | ||||||||||||
Bear Stearns Alt-A Trust | 2,009 | 1,266,590 | ||||||||||
Citigroup Mortgage Loan Trust, Inc. | 1,799 | 1,662,452 | ||||||||||
Indymac Index Mortgage Loan Trust | 1,487 | 792,287 | ||||||||||
JP Morgan Alternative Loan Trust | 1,680 | 911,130 |
28 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Structured Asset Securities Corp. | U.S.$ | 1,926 | $ | 1,143,143 | ||||||||
Series 2003-6A, Class B3 | 878 | 216,508 | ||||||||||
5,992,110 | ||||||||||||
Non-Agency Floating Rate – 0.3% | ||||||||||||
Countrywide Alternative Loan Trust | 135 | 82,406 | ||||||||||
Series 2006-OA14, Class 3A1 | 2,345 | 1,126,032 | ||||||||||
Series 2007-OA3, Class M1 | 180 | 472 | ||||||||||
WaMu Mortgage Pass Through Certificates | 1,892 | 1,107,005 | ||||||||||
2,315,915 | ||||||||||||
Agency Floating Rate – 0.1% | ||||||||||||
Government National Mortgage Association | 19,512 | 471,628 | ||||||||||
Non-Agency ARMs – 0.1% | ||||||||||||
Citigroup Mortgage Loan Trust, Inc. | 481 | 351,821 | ||||||||||
Agency Fixed Rate – 0.0% | ||||||||||||
Fannie Mae Grantor Trust | 65 | 47,963 | ||||||||||
Total CMOs | 9,179,437 | |||||||||||
GOVERNMENTS – SOVEREIGN AGENCIES – 1.2% | ||||||||||||
United Kingdom – 1.2% | ||||||||||||
Royal Bank of Scotland PLC (The) | 4,495 | 4,532,965 | ||||||||||
2.625%, 5/11/12(a) | 2,780 | 2,837,963 | ||||||||||
Total Governments – Sovereign Agencies | 7,370,928 | |||||||||||
GOVERNMENTS – SOVEREIGN | ||||||||||||
Croatia – 0.3% | ||||||||||||
Republic of Croatia | 1,435 | 1,635,900 | ||||||||||
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 29 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
Peru – 0.5% | ||||||||||||
Republic of Peru | U.S.$ | 2,159 | $ | 3,281,680 | ||||||||
Poland – 0.3% | ||||||||||||
Poland Government International Bond | 1,228 | 1,301,680 | ||||||||||
6.375%, 7/15/19 | 200 | 239,500 | ||||||||||
1,541,180 | ||||||||||||
Total Governments – Sovereign Bonds | 6,458,760 | |||||||||||
INFLATION-LINKED SECURITIES – 1.0% | ||||||||||||
United States – 1.0% | ||||||||||||
U.S. Treasury Inflation Index | 5,512 | 5,861,013 | ||||||||||
QUASI-SOVEREIGNS – 0.8% | ||||||||||||
Quasi-Sovereign Bonds – 0.8% | ||||||||||||
Kazakhstan – 0.1% | ||||||||||||
KazMunaiGaz Finance Sub BV | 790 | 839,770 | ||||||||||
Malaysia – 0.3% | ||||||||||||
Petronas Capital Ltd. | 1,385 | 1,532,058 | ||||||||||
Russia – 0.4% | ||||||||||||
RSHB Capital SA for OJSC Russian Agricultural Bank | 2,180 | 2,479,750 | ||||||||||
Total Quasi-Sovereigns | 4,851,578 | |||||||||||
SUPRANATIONALS – 0.7% | ||||||||||||
European Bank for Reconstruction & Development | BRL | 3,890 | 2,326,038 | |||||||||
European Investment Bank | U.S.$ | 1,490 | 1,763,421 | |||||||||
Total Supranationals | 4,089,459 | |||||||||||
30 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
ASSET-BACKED SECURITIES – 0.3% | ||||||||||||
Home Equity Loans - Floating Rate – 0.2% | ||||||||||||
HSBC Home Equity Loan Trust | U.S.$ | 147 | $ | 127,234 | ||||||||
Series 2007-1, Class M1 | 1,250 | 687,024 | ||||||||||
Series 2007-2, Class M1 | 600 | 288,154 | ||||||||||
Lehman XS Trust | 130 | 74 | ||||||||||
Series 2006-18N, Class M2 | 8 | 0 | ||||||||||
Newcastle Mortgage Securities Trust | 282 | 238,982 | ||||||||||
1,341,468 | ||||||||||||
Home Equity Loans - Fixed Rate – 0.1% | ||||||||||||
Asset Backed Funding Certificates | 112 | 100,513 | ||||||||||
Citifinancial Mortgage Securities, Inc. | 92 | 85,082 | ||||||||||
Credit-Based Asset Servicing and Securitization LLC | 252 | 225,139 | ||||||||||
Nationstar NIM Trust | 18 | 0 | ||||||||||
410,734 | ||||||||||||
Total Asset-Backed Securities | 1,752,202 | |||||||||||
LOCAL GOVERNMENTS – MUNICIPAL BONDS – 0.3% | ||||||||||||
United States – 0.3% | ||||||||||||
California ST | 1,355 | 1,430,582 | ||||||||||
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 31 |
Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||||||
PREFERRED STOCKS – 0.1% | ||||||||||||
Financial Institutions – 0.1% | ||||||||||||
Finance – 0.1% | ||||||||||||
Citigroup Capital XII | 23,000 | $ | 609,247 | |||||||||
Non Corporate Sectors – 0.0% | ||||||||||||
Agencies - Government Sponsored – 0.0% | ||||||||||||
Federal Home Loan Mortgage Corp. | 22,200 | 11,766 | ||||||||||
Federal National Mortgage Association | 32,900 | 18,095 | ||||||||||
29,861 | ||||||||||||
Total Preferred Stocks | 639,108 | |||||||||||
Principal Amount (000) | ||||||||||||
EMERGING MARKETS – CORPORATE BONDS – 0.1% | ||||||||||||
Industrial – 0.1% | ||||||||||||
Energy – 0.1% | ||||||||||||
Ecopetrol SA | $ | 465 | 571,950 | |||||||||
Shares | ||||||||||||
SHORT-TERM INVESTMENTS – 8.6% | ||||||||||||
Investment Companies – 8.6% | ||||||||||||
AllianceBernstein Fixed-Income Shares, Inc. – Government STIF Portfolio, | 51,510,406 | 51,510,406 | ||||||||||
Total Investments – 102.8% | 613,906,858 | |||||||||||
Other assets less liabilities – (2.8)% | (16,820,925 | ) | ||||||||||
Net Assets – 100.0% | $ | 597,085,933 | ||||||||||
32 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
FUTURES CONTRACTS (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at October 31, 2010 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Purchased Contracts |
| |||||||||||||||||||
U.S. T-Note 10 Yr Futures | 34 | December 2010 | $ | 4,244,223 | $ | 4,293,562 | $ | 49,339 | ||||||||||||
U.S. T-Note 5 Yr Futures | 70 | December 2010 | 8,413,810 | 8,510,469 | 96,659 | |||||||||||||||
$ | 145,998 | |||||||||||||||||||
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty & Description | Contract Amount (000) | U.S. $ Value on Origination Date | U.S. $ Value at October 31, 2010 | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Buy Contracts: | ||||||||||||||||
Barclays Bank PLC Wholesale: | 6,327 | $ | 6,150,772 | $ | 6,160,469 | $ | 9,697 | |||||||||
Swedish Krona settling 12/15/10 | 65,283 | 9,803,569 | 9,760,357 | (43,212 | ) | |||||||||||
Credit Suisse London Branch (GFX): | 27,083 | 4,291,645 | 4,623,927 | 332,282 | ||||||||||||
Deutsche Bank AG London: | 1,404 | 239,576 | 239,731 | 155 | ||||||||||||
HSBC Bank USA: | 4,063 | 2,373,496 | 2,389,828 | 16,332 | ||||||||||||
Morgan Stanley and Co., Inc.: | 12,686,223 | 11,044,560 | 11,266,128 | 221,568 | ||||||||||||
Royal Bank of Scotland PLC: | 6,421 | 8,883,441 | 8,933,046 | 49,605 | ||||||||||||
Standard Chartered Bank: | 4,063 | 2,388,283 | 2,389,828 | 1,545 | ||||||||||||
Sale Contracts: | ||||||||||||||||
Credit Suisse London Branch (GFX): | 28,487 | 4,884,677 | 4,853,389 | 31,288 | ||||||||||||
Goldman Sachs International: | 741,452 | 8,908,363 | 9,214,591 | (306,228 | ) | |||||||||||
HSBC Bank USA: | 4,063 | 2,388,283 | 2,389,828 | (1,545 | ) | |||||||||||
Brazilian Real settling 12/02/10 | 4,063 | 2,359,849 | 2,375,177 | (15,328 | ) | |||||||||||
Royal Bank of Scotland PLC: | 5,629 | 8,883,442 | 9,017,785 | (134,343 | ) | |||||||||||
Standard Chartered Bank: | 4,063 | 2,369,758 | 2,389,828 | (20,070 | ) | |||||||||||
UBS AG: | 11,825 | 16,358,633 | 16,444,579 | (85,946 | ) |
(1) | Contract represents non-deliverable forward where payment is received from or paid to a counterparty based on the net realized gain/loss on settlement date. |
(2) | Represents a cross-currency purchase of Euro and a sale of Great British Pound. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 33 |
Portfolio of Investments
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2010, the aggregate market value of these securities amounted to $45,211,281 or 7.6% of net assets. |
(b) | Variable rate coupon, rate shown as of October 31, 2010. |
(c) | Floating Rate Security. Stated interest rate was in effect at October 31, 2010. |
(d) | IO – Interest Only |
(e) | Security is in default and is non-income producing. |
(f) | Illiquid security. |
(g) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.00% of net assets as of October 31, 2010, are considered illiquid and restricted. |
Security | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Nationstar NIM Trust Series 2007-A, Class A 9.79%, 3/25/37 | 4/04/07 | $ | 17,606 | $ | 0 | 0.00 | % |
(h) | Fair valued. |
(i) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
The fund currently owns investments collateralized by subprime mortgage loans. Subprime loans are offered to homeowners who do not have a history of debt or who have had problems meeting their debt obligations. Because repayment is less certain, subprime borrowers pay a higher rate of interest than prime borrowers. As of October 31, 2010, the fund’s total exposure to subprime investments was 1.75% of net assets. These investments are valued in accordance with the fund’s Valuation Policies (see Note A for additional details). |
* | Principal amount less than $500. |
Currency Abbreviations:
BRL – Brazilian Real
EUR – Euro
Glossary:
ARMs – Adjustable Rate Mortgages
CMBS – Commercial Mortgage-Backed Securities
CMOs – Collateralized Mortgage Obligations
FHLMC – Federal Home Loan Mortgage Corporation
OJSC – Open Joint Stock Company
REIT – Real Estate Investment Trust
TIPS – Treasury Inflation Protected Security
See notes to financial statements.
34 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
STATEMENT OF ASSETS & LIABILITIES
October 31, 2010
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $536,912,313) | $ | 562,396,452 | ||
Affiliated issuers (cost $51,510,406) | 51,510,406 | |||
Cash | 110,337 | (a) | ||
Interest and dividends receivable | 5,796,671 | |||
Receivable for capital stock sold | 913,666 | |||
Receivable for investment securities sold | 679,413 | |||
Unrealized appreciation of forward currency exchange contracts | 662,472 | |||
Receivable for variation margin on futures contracts | 33,484 | |||
Other assets (see Note F) | 237,779 | |||
Total assets | 622,340,680 | |||
Liabilities | ||||
Payable for investment securities purchased | 22,169,566 | |||
Payable for capital stock redeemed | 966,298 | |||
Dividends payable | 627,770 | |||
Unrealized depreciation of forward currency exchange contracts | 606,672 | |||
Distribution fee payable | 178,728 | |||
Advisory fee payable | 169,218 | |||
Transfer Agent fee payable | 48,649 | |||
Administrative fee payable | 21,252 | |||
Accrued expenses and other liabilities | 466,594 | |||
Total liabilities | 25,254,747 | |||
Net Assets | $ | 597,085,933 | ||
Composition of Net Assets | ||||
Capital stock, at par | $ | 54,367 | ||
Additional paid-in capital | 640,658,338 | |||
Undistributed net investment income | 3,379,230 | |||
Accumulated net realized loss on investment | (72,809,513 | ) | ||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities and other assets | 25,803,511 | |||
$ | 597,085,933 | |||
Net Asset Value Per Share—21 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 418,023,200 | 38,057,217 | $ | 10.98 | * | ||||||
B | $ | 16,048,155 | 1,460,935 | $ | 10.98 | |||||||
C | $ | 66,568,103 | 6,071,859 | $ | 10.96 | |||||||
Advisor | $ | 89,981,334 | 8,188,852 | $ | 10.99 | |||||||
R | $ | 758,738 | 69,079 | $ | 10.98 | |||||||
K | $ | 4,358,668 | 396,553 | $ | 10.99 | |||||||
I | $ | 1,347,735 | 122,546 | $ | 11.00 | |||||||
(a) | An amount of $103,600 has been segregated to collateralize margin requirements for open futures contracts outstanding at October 31, 2010. |
* | The maximum offering price per share for Class A shares was $11.47 which reflects a sales charge of 4.25%. |
See notes to financial statements.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 35 |
Statement of Assets & Liabilities
STATEMENT OF OPERATIONS
Year Ended October 31, 2010
Investment Income | ||||||||
Interest | $ | 28,030,044 | ||||||
Dividends | ||||||||
Affiliated issuers | 63,010 | |||||||
Unaffiliated issuers | 26,202 | $ | 28,119,256 | |||||
Expenses | ||||||||
Advisory fee (see Note B) | 2,592,080 | |||||||
Distribution fee—Class A | 1,238,084 | |||||||
Distribution fee—Class B | 187,771 | |||||||
Distribution fee—Class C | 637,316 | |||||||
Distribution fee—Class R | 1,949 | |||||||
Distribution fee—Class K | 11,031 | |||||||
Transfer agency—Class A | 692,431 | |||||||
Transfer agency—Class B | 42,230 | |||||||
Transfer agency—Class C | 115,440 | |||||||
Transfer agency—Advisor Class | 123,715 | |||||||
Transfer agency—Class R | 1,013 | |||||||
Transfer agency—Class K | 8,824 | |||||||
Transfer agency—Class I | 1,891 | |||||||
Custodian | 216,780 | |||||||
Printing | 177,661 | |||||||
Registration fees | 113,640 | |||||||
Administrative | 82,651 | |||||||
Audit | 65,398 | |||||||
Legal | 55,904 | |||||||
Directors’ fees | 23,967 | |||||||
Miscellaneous | 36,361 | |||||||
Total expenses before interest expense | 6,426,137 | |||||||
Interest expense | 347,151 | |||||||
Total expenses | 6,773,288 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (1,181,888 | ) | ||||||
Net expenses | 5,591,400 | |||||||
Net investment income | 22,527,856 | |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | 6,103,371 | |||||||
Futures contracts | 2,459,276 | |||||||
Swap contracts | 629,826 | |||||||
Foreign currency transactions | (166,114 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 29,042,650 | |||||||
Futures contracts | 19,523 | |||||||
Swap contracts | (472,853 | ) | ||||||
Foreign currency denominated assets and liabilities and other assets | 724,899 | |||||||
Net gain on investment and foreign currency transactions | 38,340,578 | |||||||
Net Increase in Net Assets from Operations | $ | 60,868,434 | ||||||
See notes to financial statements.
36 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Statement of Operations
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2010 | Year Ended October 31, 2009 | |||||||
Increase in Net Assets from Operations | ||||||||
Net investment income | $ | 22,527,856 | $ | 24,007,755 | ||||
Net realized gain on investment and foreign currency transactions | 9,026,359 | 2,831,487 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities and other assets | 29,314,219 | 81,472,766 | ||||||
Net increase in net assets from operations | 60,868,434 | 108,312,008 | ||||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (16,561,657 | ) | (18,563,671 | ) | ||||
Class B | (626,368 | ) | (1,119,457 | ) | ||||
Class C | (2,112,596 | ) | (2,345,361 | ) | ||||
Advisor Class | (3,181,347 | ) | (2,300,654 | ) | ||||
Class R | (14,384 | ) | (4,703 | ) | ||||
Class K | (179,089 | ) | (197,149 | ) | ||||
Class I | (74,493 | ) | (237,237 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase (decrease) | (16,039,225 | ) | 5,659,014 | |||||
Capital Contributions | ||||||||
Proceeds from third party regulatory settlement (see Note E) | 168,359 | 3,266 | ||||||
Total increase | 22,247,634 | 89,206,056 | ||||||
Net Assets | ||||||||
Beginning of period | 574,838,299 | 485,632,243 | ||||||
End of period (including undistributed net investment income of $3,379,230 and $3,136,287, respectively) | $ | 597,085,933 | $ | 574,838,299 | ||||
See notes to financial statements.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 37 |
Statement of Changes in Net Assets
NOTES TO FINANCIAL STATEMENTS
October 31, 2010
NOTE A
Significant Accounting Policies
AllianceBernstein Bond Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund, which is a Maryland corporation, operates as a series company currently comprised of four portfolios: the Intermediate Bond Portfolio, the Bond Inflation Strategy Portfolio, the Municipal Bond Inflation Strategy Portfolio and the Real Asset Strategy Portfolio (formally, Multi-Asset Inflation Strategy Portfolio). The Intermediate Bond Portfolio commenced operations on July 1, 1999. The Bond Inflation Strategy Portfolio and Municipal Bond Inflation Strategy Portfolio commenced operations on January 26, 2010. The Real Asset Strategy Portfolio commenced operations on March 8, 2010. This report relates only to the Intermediate Bond Portfolio. The Intermediate Bond Portfolio (the “Portfolio”) offers Class A, Class B, Class C, Advisor Class, Class R, Class K, and Class I shares. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class B shares are currently sold with a contingent deferred sales charge which declines from 3% to zero depending on the period of time the shares are held. Effective January 31, 2009, sales of Class B shares of the Portfolio to new investors were suspended. Class B shares will only be issued (i) upon the exchange of Class B shares from another AllianceBernstein Mutual Fund, (ii) for purposes of dividend reinvestment, (iii) through the Portfolio’s Automatic Investment Program (the “Program”) for accounts that established the Program prior to January 31, 2009, and (iv) for purchases of additional shares by Class B shareholders as of January 31, 2009. The ability to establish a new Program for accounts containing Class B shares was suspended as of January 31, 2009. Class B shares will automatically convert to Class A shares six years after the end of the calendar month of purchase. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase. Class R and Class K shares are sold without an initial or contingent deferred sales charge. Advisor Class and Class I shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All seven classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio.
38 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors.
In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market (“OTC”) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, AllianceBernstein L.P. (the “Adviser”) may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Investments in money market funds are valued at their net asset value each day.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 39 |
Notes to Financial Statements
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 and may materially affect the value of those securities.
In valuing the Term Asset-Backed Loan Facility (“TALF”) transactions, the Adviser utilized a portfolio pricing service to price the TALF loans. The methodologies utilized by the vendor to value the TALF loans takes into consideration, among other factors, the deal characteristics, historical performance, market interest rates, and the value of the underlying collateral.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The U.S. GAAP disclosure requirements establish a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
As of July 15, 2010 and for the remainder of the reporting period, there were no TALF loans outstanding for the Portfolio. For the period November 1, 2009 through July 14, 2010, the Portfolio has elected the fair value option in valuing the TALF loan liability as permitted by U.S. GAAP regarding the fair value option for financial assets and financial liabilities. The fair value option permits a fund the opportunity to mitigate volatility in net assets caused by measuring related assets and liabilities differently. Consequently the Portfolio recorded the loan liability on the statement of assets and liabilities at fair value. The fair value option requires that the TALF loan be marked-to-market giving consideration to relevant market factors including changes in the market value of the collateral related to the TALF loan (see Note D.5). Through July 14,
40 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
2010, the Portfolio did not have a difference between the aggregate fair value and the aggregate unpaid principal balance of the TALF loans outstanding.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of October 31, 2010:
Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates – Investment Grades | $ | – 0 | – | $ | 176,683,393 | $ | – 0 | – | $ | 176,683,393 | ||||||
Mortgage Pass-Thru’s | – 0 | – | 101,530,309 | – 0 | – | 101,530,309 | ||||||||||
Governments – Treasuries | – 0 | – | 97,940,877 | – 0 | – | 97,940,877 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 37,363,811 | 17,478,935 | 54,842,746 | |||||||||||
Agencies | – 0 | – | 53,325,608 | – 0 | – | 53,325,608 | ||||||||||
Corporates – Non-Investment Grades | – 0 | – | 22,223,881 | 2,488,011 | 24,711,892 | |||||||||||
Bank Loans | – 0 | – | – 0 | – | 11,156,610 | 11,156,610 | ||||||||||
CMOs | – 0 | – | 519,591 | 8,659,846 | 9,179,437 | |||||||||||
Governments – Sovereign Agencies | – 0 | – | 7,370,928 | – 0 | – | 7,370,928 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 6,458,760 | – 0 | – | 6,458,760 | ||||||||||
Inflation-Linked Securities | – 0 | – | 5,861,013 | – 0 | – | 5,861,013 | ||||||||||
Quasi-Sovereigns | – 0 | – | 4,851,578 | – 0 | – | 4,851,578 | ||||||||||
Supranationals | – 0 | – | 4,089,459 | – 0 | – | 4,089,459 | ||||||||||
Asset-Backed Securities | – 0 | – | – 0 | – | 1,752,202 | 1,752,202 | ||||||||||
Local Governments – Municipal Bonds | – 0 | – | 1,430,582 | – 0 | – | 1,430,582 | ||||||||||
Preferred Stocks | 639,108 | – 0 | – | – 0 | – | 639,108 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 571,950 | – 0 | – | 571,950 | ||||||||||
Short-Term Investments | 51,510,406 | – 0 | – | – 0 | – | 51,510,406 | ||||||||||
Total Investments in Securities | 52,149,514 | 520,221,740 | 41,535,604 | 613,906,858 | ||||||||||||
Other Financial Instruments*: | ||||||||||||||||
Assets | ||||||||||||||||
Futures Contracts | 145,998 | – 0 | – | – 0 | – | 145,998 | + | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 662,472 | – 0 | – | 662,472 | ||||||||||
Liabilities | ||||||||||||||||
Forward Currency Exchange Contracts | – 0 | – | (606,672 | ) | – 0 | – | (606,672 | ) | ||||||||
Total | $ | 52,295,512 | $ | 520,277,540 | $ | 41,535,604 | $ | 614,108,656 | ||||||||
* | Other financial instruments are derivative instruments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. |
+ | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. Cumulative appreciation/(depreciation) of futures contracts is reported in the portfolio of investments. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 41 |
Notes to Financial Statements
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value. The transfers between level of the fair value hierarchy assumes the financial instrument was transferred at the beginning of the reporting period.
Corporates - Investment Grades | Governments - Treasuries | Commercial Mortgage- Backed Securities | ||||||||||
Balance as of 10/31/09 | $ | 7,550,375 | $ | 6,105,072 | $ | 6,154,540 | ||||||
Accrued discounts/premiums | 94 | (32,106 | ) | 135,595 | ||||||||
Realized gain (loss) | 68,660 | 761,030 | (8,327 | ) | ||||||||
Change in unrealized appreciation/depreciation | (57,331 | ) | (602,150 | ) | 2,468,277 | |||||||
Net purchases (sales) | (703,294 | ) | (6,231,846 | ) | 2,199,887 | |||||||
Transfers into Level 3 | – 0 | – | – 0 | – | 6,528,963 | |||||||
Transfers out of Level 3 | (6,858,504 | ) | – 0 | – | – 0 | – | ||||||
Balance as of 10/31/10 | $ | – 0 | – | $ | – 0 | – | $ | 17,478,935 | ||||
Net change in unrealized appreciation/depreciation from Investments held as of 10/31/10* | $ | – 0 | – | $ | – 0 | – | $ | 2,429,839 | ||||
Corporates - Non-Investment Grades | Bank Loans | CMOs | ||||||||||
Balance as of 10/31/09 | $ | 1,060,017 | $ | 14,004,197 | $ | 9,804,861 | ||||||
Accrued discounts/premiums | 937 | 246,618 | (1,361 | ) | ||||||||
Realized gain (loss) | 502 | 66,317 | 25 | |||||||||
Change in unrealized appreciation/depreciation | 1,311,134 | 683,319 | 1,616,593 | |||||||||
Net purchases (sales) | 661,784 | (3,843,841 | ) | (2,760,272 | ) | |||||||
Transfers into Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | (546,363 | ) | – 0 | – | – 0 | – | ||||||
Balance as of 10/31/10 | $ | 2,488,011 | $ | 11,156,610 | $ | 8,659,846 | ||||||
Net change in unrealized appreciation/depreciation from Investments held as of 10/31/10* | $ | 1,311,134 | $ | 482,318 | $ | 1,264,212 | ||||||
Governments - Sovereign Bonds | Quasi- Sovereigns | Asset- Backed Securities | ||||||||||
Balance as of 10/31/09 | $ | 2,593,444 | $ | 4,717,250 | $ | 3,145,983 | ||||||
Accrued discounts/premiums | – 0 | – | 1,276 | 410 | ||||||||
Realized gain (loss) | – 0 | – | 120,448 | (1,025,487 | ) | |||||||
Change in unrealized appreciation/depreciation | – 0 | – | (56,399 | ) | 5,653,897 | |||||||
Net purchases (sales) | – 0 | – | (1,591,200 | ) | (6,022,601 | ) | ||||||
Transfers into Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | (2,593,444 | ) | (3,191,375 | ) | – 0 | – | ||||||
Balance as of 10/31/10 | $ | – 0 | – | $ | – 0 | – | $ | 1,752,202 | ||||
Net change in unrealized appreciation/depreciation from Investments held as of 10/31/10* | $ | – 0 | – | $ | – 0 | – | $ | 1,269,574 | ||||
42 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
TALF Loans | Total | |||||||||||
Balance as of 10/31/09 | $ | (35,470,029 | ) | $ | 19,665,710 | |||||||
Accrued discounts/premiums | – 0 | – | 351,463 | |||||||||
Realized gain (loss) | – 0 | – | (16,832 | ) | ||||||||
Change in unrealized appreciation/depreciation | – 0 | – | 11,017,340 | |||||||||
Net purchases (sales) | 35,470,029 | 17,178,646 | ||||||||||
Transfers into Level 3 | – 0 | – | 6,528,963 | |||||||||
Transfers out of Level 3 | – 0 | – | (13,189,686 | ) | ||||||||
Balance as of 10/31/10 | $ | – 0 | – | $ | 41,535,604 | |||||||
Net change in unrealized appreciation/depreciation from Investments held as of 10/31/10* | $ | – 0 | – | $ | 6,757,077 | |||||||
* | The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation of investments in the accompanying statement of operations. |
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 43 |
Notes to Financial Statements
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion, .40% of the next $2.5 billion and .35% in excess of $5 billion, of the Portfolio’s average daily net assets. Effective November 5, 2007, the Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to .85%, 1.55%, 1.55%, .55%, 1.05%, .80% and .55% of the daily average net assets for the Class A, Class B, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. This waiver extends through January 29, 2011 and then may be extended by the Adviser for additional one year terms. Prior to November 5, 2007, the Adviser had agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating
44 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
expenses on an annual basis to .98%, 1.68%, 1.68%, .68%, 1.18%, .93% and .68% of the daily average net assets for the Class A, Class B, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. For the year ended October 31, 2010, such reimbursement amounted to $1,181,888.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended October 31, 2010, such fee amounted to $82,651.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $552,804 for the year ended October 31, 2010.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Portfolio’s shares. The Distributor has advised the Portfolio that it has retained front-end sales charges of $18,946 from the sale of Class A shares and received $5,229, $13,175 and $2,650 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A, Class B and Class C shares, respectively, for the year ended October 31, 2010.
The Portfolio may invest in the AllianceBernstein Fixed-Income Shares, Inc. – Government STIF Portfolio, an open-end management investment company managed by the Adviser. The Government STIF Portfolio is offered as a cash management option to mutual funds and other institutional accounts of the Adviser, and is not available for direct purchase by members of the public. The Government STIF Portfolio pays no investment management fees but does bear its own expenses. A summary of the Portfolio’s transactions in shares of the Government STIF Portfolio for the year ended October 31, 2010 is as follows:
Market Value October 31, 2009 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value October 31, 2010 (000) | Dividend Income (000) | ||||||||||||
$ 45,262 | $ | 231,620 | $ | 225,372 | $ | 51,510 | $ | 63 |
NOTE C
Distribution Services Agreement
The Portfolio has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to the Distributor at an annual rate of up to .30% of the Portfolio’s average daily net assets attributable to Class A shares, 1% of the Portfolio’s average daily net assets
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 45 |
Notes to Financial Statements
attributable to both Class B and Class C shares, .50% of the Portfolio’s average daily net assets attributable to Class R shares and .25% of the Portfolio’s average daily net assets attributable to Class K shares. There are no distribution and servicing fees on the Advisor Class and Class I shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Portfolio’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amounts of $0, $756,828, $74,815, and $27,717 for Class B, Class C, Class R and Class K shares, respectively. While such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2010 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 134,831,734 | $ | 215,464,534 | ||||
U.S. government securities | 408,504,982 | 356,455,708 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures, foreign currency and swap transactions) are as follows:
Cost | $ | 588,782,840 | ||
Gross unrealized appreciation | $ | 37,596,173 | ||
Gross unrealized depreciation | (12,472,155 | ) | ||
Net unrealized appreciation | $ | 25,124,018 | ||
1. Derivative Financial Instruments
The Portfolio 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, or to obtain exposure to otherwise inaccessible markets. The Portfolio may also use derivatives for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
46 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
• | Futures Contracts |
The Portfolio may buy or sell futures contracts for the purpose of hedging its portfolio against adverse effects of anticipated movements in the market or for investment purposes. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the securities hedged or used for cover. The Portfolio may also purchase or sell futures contracts for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
During the year ended October 31, 2010, the Portfolio entered into futures contracts for hedging and non-hedging purposes.
At the time the Portfolio enters into a futures contract, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures contracts is generally less than privately negotiated futures contracts, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, provides a guarantee of performance. This guarantee is supported by a daily payment system (i.e., margin requirements). When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures contracts subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures contracts. Use of short futures contracts subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 47 |
Notes to Financial Statements
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract.
During the year ended October 31, 2010, the Portfolio entered into forward currency exchange contracts for hedging and non-hedging purposes.
• | Swap Agreements |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk, or currencies. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures or making direct investments in foreign currencies, as described below under “Currency Transactions”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swap agreements to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap agreement.
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 the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio 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, where applicable. 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
48 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
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.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Portfolio may enter into interest rate swap contracts. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
During the year ended October 31, 2010, the Portfolio entered into interest rate swap contracts for hedging and non-hedging purposes.
A Portfolio may enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by the Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
Credit Default Swaps:
The Portfolio may enter into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap agreement, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon interest rate applied to the notional amount. The accrual for these interim payments is recorded within unrealized appreciation/depreciation of swap contracts on the statement of assets and liabilities. Upfront premiums paid or received in connection with credit default swap contracts are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. If the Portfolio is a buyer/(seller) of protection
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 49 |
Notes to Financial Statements
and a credit event occurs, as defined under the terms of the swap agreement, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap contract (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose its investment. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
Implied credit spreads over Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the market’s assessment of the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swap agreements entered into by the Portfolio for the same reference obligation with the same counterparty.
During the year ended October 31, 2010, the Portfolio did not enter into credit default swap contracts.
Documentation governing the Portfolio’s swap transactions may contain provisions for early termination of a swap in the event the net assets of the Portfolio decline below specific levels set forth in the documentation (“net asset contingent features”). If these levels are triggered, the Portfolio’s counterparty has the right to terminate the swap and require the Portfolio to pay or receive a settlement amount in connection with the terminated swap transaction.
50 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
At October 31, 2010, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Foreign exchange contracts | Unrealized appreciation of forward currency exchange contracts | $ | 662,472 | | Unrealized depreciation of forward currency exchange contracts | $ | 606,672 | | ||||
Interest rate contracts | Receivable for variation margin on futures contracts | | 145,998 | * | ||||||||
Total | $ | 808,470 | $ | 606,672 | ||||||||
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. Cumulative appreciation/(depreciation) of futures contracts is reported in the portfolio of investments. |
The effect of derivative instruments on the statement of operations for the year ended October 31, 2010:
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign exchange contracts | Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities and other assets | $ | (663,039 | ) | $ | 624,200 | ||||
Interest rate contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | 629,826 | (472,853 | ) | ||||||
Interest rate contracts | Net realized gain (loss) on futures contracts; Net change in unrealized appreciation/depreciation of futures contracts | 2,459,276 | 19,523 | |||||||
Total | $ | 2,426,063 | $ | 170,870 | ||||||
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 51 |
Notes to Financial Statements
For the year ended October 31, 2010, the average monthly principal amount of foreign exchange contracts was $99,427,371, average monthly original value of futures contracts was $21,512,599 and average monthly notional amount of interest rate swaps was $3,461,538.
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar securities on a currency hedged or unhedged basis. The Portfolio 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 other options. The Portfolio 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 Portfolio 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 Portfolio 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).
3. Dollar Rolls
The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio 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. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques and may be considered to be borrowings by the Portfolio. For the year ended October 31, 2010, the Portfolio earned drop income of $368,489 which is included in interest income in the accompanying statement of operations.
4. Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Portfolio sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Portfolio enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value at least equal to the repurchase price. For the year ended October 31, 2010, the average amount of reverse repurchase agreements outstanding was $1,094,904 and the daily weighted average interest rate was (0.44%). During the period, the Portfolio received net interest payment from counterparties.
52 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
5. Term Asset-Backed Securities Loan Facility
Through July 14, 2010, the Portfolio participated in the TALF program. Under the TALF program eligible borrowers obtained a non-recourse loan from the Federal Reserve Bank of New York (“FRBNY”) by posting certain asset-backed securities and commercial mortgage-backed securities (“Eligible Securities”) as collateral. The transfer of the collateral was not recorded as a sale on a Portfolio’s records. The Portfolio agreed to repay the non-recourse loan amount plus accrued interest under the terms of the loan, with the principal balance being due at loan maturity. According to the terms of the TALF program, the Portfolio was not required to pledge further collateral in the event that the value of the Eligible Securities transferred as collateral fell below the loan amount. The loan was prepayable in whole or in part at any time at the Portfolio’s option. Prepayments of principal received on the collateral during the loan term must be used to immediately reduce proportionately the loan balance outstanding. At the time of loan approval, the Portfolio paid a one time administration fee based upon the amount borrowed to the FRBNY.
Borrowing under TALF, as with the extension of other types of credit, subjected the Portfolio to certain risks, including possible delays in recovery of securities posted as collateral or possible loss of rights in collateral should the Portfolio be unable to repay a loan. Additionally, there was the risk that the expense associated with the TALF loan, including interest expense, may be greater than the income earned from the investment of the proceeds and/or the interest earned on the collateral to which the Portfolio was entitled. Under the TALF program, interest earned on collateral was used to pay interest expense associated with a loan. Should the interest earned exceed the interest expense on any given payment date, the remainder was applied to the principal balance. Conversely, should the interest earned on the collateral be in shortfall of the interest expense due at any given payment date, the Portfolio was required to expend cash for the difference in order to meet its obligation. Interest on the TALF loan was measured based on a predetermined rate on the loan origination date and is reported on the statement of operations as interest expense.
As of July 15, 2010 and for the remainder of the reporting period, there were no TALF loans outstanding for the Portfolio. For the period November 1, 2009 through July 15, 2010, the average amount of TALF loans outstanding for the Portfolio was $16,119,029 and the weighted average interest rate was 2.15%.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 53 |
Notes to Financial Statements
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||||||
Year Ended October 31, 2010 | Year Ended October 31, 2009 | Year Ended October 31, 2010 | Year Ended October 31, 2009 | |||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 3,783,872 | 5,806,310 | $ | 40,097,894 | $ | 54,230,723 | ||||||||||||||||||
Shares issued in reinvestment of dividends | 1,117,653 | 1,383,887 | 11,805,318 | 12,984,150 | ||||||||||||||||||||
Shares converted from Class B | 554,999 | 1,377,212 | 5,874,476 | 12,918,695 | ||||||||||||||||||||
Shares redeemed | (8,189,358 | ) | (8,887,206 | ) | (86,447,781 | ) | (82,848,498 | ) | ||||||||||||||||
Net decrease | (2,732,834 | ) | (319,797 | ) | $ | (28,670,093 | ) | $ | (2,714,930 | ) | ||||||||||||||
Class B | ||||||||||||||||||||||||
Shares sold | 333,372 | 741,369 | $ | 3,532,916 | $ | 6,803,221 | ||||||||||||||||||
Shares issued in reinvestment of dividends | 51,669 | 105,931 | 544,881 | 984,872 | ||||||||||||||||||||
Shares converted to Class A | (554,999 | ) | (1,377,369 | ) | (5,874,476 | ) | (12,918,695 | ) | ||||||||||||||||
Shares redeemed | (492,541 | ) | (904,208 | ) | (5,203,968 | ) | (8,366,233 | ) | ||||||||||||||||
Net decrease | (662,499 | ) | (1,434,277 | ) | $ | (7,000,647 | ) | $ | (13,496,835 | ) | ||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 1,138,306 | 1,415,653 | $ | 12,010,339 | $ | 13,138,963 | ||||||||||||||||||
Shares issued in reinvestment of dividends | 151,425 | 186,958 | 1,596,358 | 1,750,284 | ||||||||||||||||||||
Shares redeemed | (1,225,089 | ) | (1,501,615 | ) | (12,934,810 | ) | (14,075,189 | ) | ||||||||||||||||
Net increase | 64,642 | 100,996 | $ | 671,887 | $ | 814,058 | ||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 2,657,378 | 2,559,135 | $ | 28,172,205 | $ | 24,235,404 | ||||||||||||||||||
Shares issued in reinvestment of dividends | 292,328 | 236,845 | 3,095,448 | 2,240,587 | ||||||||||||||||||||
Shares redeemed | (825,457 | ) | (507,715 | ) | (8,719,645 | ) | (4,736,269 | ) | ||||||||||||||||
Net increase | 2,124,249 | 2,288,265 | $ | 22,548,008 | $ | 21,739,722 | ||||||||||||||||||
54 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
Shares | Amount | |||||||||||||||||||||||
Year Ended October 31, 2010 | Year Ended October 31, 2009 | Year Ended October 31, 2010 | Year Ended October 31, 2009 | |||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Shares sold | 66,211 | 22,295 | $ | 707,789 | $ | 215,619 | ||||||||||||||||||
Shares issued in reinvestment of dividends | 1,288 | 486 | 13,722 | 4,594 | ||||||||||||||||||||
Shares redeemed | (13,641 | ) | (15,840 | ) | (144,888 | ) | (152,816 | ) | ||||||||||||||||
Net increase | 53,858 | 6,941 | $ | 576,623 | $ | 67,397 | ||||||||||||||||||
Class K | ||||||||||||||||||||||||
Shares sold | 83,823 | 74,479 | $ | 882,061 | $ | 692,831 | ||||||||||||||||||
Shares issued in reinvestment of dividends | 17,010 | 21,058 | 179,761 | 197,450 | ||||||||||||||||||||
Shares redeemed | (135,292 | ) | (95,633 | ) | (1,430,861 | ) | (886,385 | ) | ||||||||||||||||
Net increase (decrease) | (34,459 | ) | (96 | ) | $ | (369,039 | ) | $ | 3,896 | |||||||||||||||
Class I | ||||||||||||||||||||||||
Shares sold | 36,758 | 35,958 | $ | 400,172 | $ | 340,644 | ||||||||||||||||||
Shares issued in reinvestment of dividends | 7,135 | 25,498 | 74,723 | 238,798 | ||||||||||||||||||||
Shares redeemed | (416,635 | ) | (148,940 | ) | (4,270,859 | ) | (1,333,736 | ) | ||||||||||||||||
Net decrease | (372,742 | ) | (87,484 | ) | $ | (3,795,964 | ) | $ | (754,294 | ) | ||||||||||||||
For the year ended October 31, 2010 and the year ended October 31, 2009, the Portfolio received $168,359 and $3,266, respectively, related to a third-party’s settlement of regulatory proceedings involving allegations of improper trading. These amounts are presented in the Portfolio’s statement of changes in net assets. Neither the Portfolio nor its affiliates were involved in the proceedings or the calculation of the payment.
NOTE F
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 55 |
Notes to Financial Statements
Prior to September 15, 2008, the Portfolio had swap counterparty exposure to Lehman Brothers Holdings Inc. (“Lehman Brothers”), as a guarantor for Lehman Brothers Special Financing Inc. (“LBSF”), which filed for bankruptcy on September 15, 2008. As a result, on September 15, 2008, the Portfolio terminated all outstanding swap contracts with LBSF prior to their scheduled maturity dates in accordance with the terms of the swap agreements. Upon the termination of the swap contracts, Lehman Brothers’ obligations to the Portfolio amounted to $743,058. The Portfolio’s claim to these obligations subject to the pending bankruptcy proceeding against the Lehman Brothers estate (the “Bankruptcy Claim”). As of October 31, 2010, the Bankruptcy Claim, based upon the estimated recovery value, was being valued at $237,779 (32.00% of the Bankruptcy Claim). The estimated recovery value may change over time. The Adviser has agreed to make the Portfolio whole in respect of the amount of the recovery that would be paid on the Bankruptcy Claim in the event the Bankruptcy Claim is not honored by the Lehman Brothers estate, or with respect to any diminution in value upon the sale of the Bankruptcy Claim, in either case resulting from the manner in which the Bankruptcy Claim was processed by the Adviser.
Foreign Securities Risk—Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign currency exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies or of the U.S. government.
Currency Risk—This is the risk that changes in foreign currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce the returns of the Portfolio. For example, the value of the Portfolio’s investments in foreign currency-denominated securities or currencies may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar). Currency markets are generally not as regulated as securities markets. Independent of the Portfolio’s investments denominated in foreign currencies, the Portfolio’s positions in various foreign currencies may cause the Portfolio to experience investment losses due to the changes in exchange rates and interest rates.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected in the statement of assets and liabilities.
56 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
Leverage Risk—When the Portfolio borrows money or otherwise leverages its portfolio, it may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures contracts or by borrowing money. The Portfolio may also utilize leverage through the use of the TALF loan. The use of derivative instruments by the Portfolio, such as forwards, futures, options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $140 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended October 31, 2010.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2010 and October 31, 2009 were as follows:
2010 | 2009 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 22,749,934 | $ | 24,768,232 | ||||
Total taxable distributions | 22,749,934 | 24,768,232 | ||||||
Total distributions paid | $ | 22,749,934 | $ | 24,768,232 | ||||
As of October 31, 2010, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 4,212,901 | ||
Accumulated capital and other losses | (72,433,479 | )(a) | ||
Unrealized appreciation/(depreciation) | 25,241,592 | (b) | ||
Total accumulated earnings/(deficit) | $ | (42,978,986 | )(c) | |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 57 |
Notes to Financial Statements
(a) | On October 31, 2010, the Portfolio had a net capital loss carryforward for federal income tax purposes of $72,321,683 (of which approximately $69,015,445 was attributable to the purchase of the net assets of AllianceBernstein Bond Fund -U.S. Government Portfolio) of which $27,734,923 expires in the year 2012, $12,682,229 expires in the year 2013, $19,419,566 expires in the year 2014, and $12,484,965 expires in the year 2015. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. During the fiscal year, the Portfolio utilized capital loss carryforwards of $8,376,338. The Portfolio had $9,362,051 of capital loss carryforwards expire in the fiscal year. As a result of the acquisition of U.S. Government Portfolio by the Portfolio, various limitations and reductions regarding the future utilization of certain capital loss carryforwards were applied, based on certain provisions in the Internal Revenue Code. The Portfolio deferred straddle losses of $111,796 at October 31, 2010. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the difference between book and tax amortization methods for premium, and the realization for tax purposes of gains/losses on certain derivative instruments. |
(c) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable to dividends payable and the tax treatment of interest on defaulted securities. |
During the current fiscal year, permanent differences primarily due to the tax treatment of foreign currency, the tax treatment of swap income, paydown reclassification, capital loss carryforward expiration, consent fee reclassification, and premium adjustments resulted in a net increase in undistributed net investment income, a net decrease in accumulated net realized loss on investment and foreign currency transactions, and a net decrease to additional paid in capital. This reclassification had no effect on net assets.
NOTE I
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
58 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ 10.28 | $ 8.77 | $ 10.24 | $ 10.18 | $ 10.15 | |||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .42 | .44 | .50 | .42 | .41 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .70 | 1.53 | (1.49 | ) | .06 | .04 | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | ||||||||||
Net increase (decrease) in net asset value from operations | 1.12 | 1.97 | (.99 | ) | .48 | .45 | ||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.42 | ) | (.46 | ) | (.48 | ) | (.42 | ) | (.42 | ) | ||||||||||
Net asset value, end of period | $ 10.98 | $ 10.28 | $ 8.77 | $ 10.24 | $ 10.18 | |||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 11.17 | %* | 23.01 | %* | (10.15 | )%* | 4.79 | %* | 4.51 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $418,023 | $419,319 | $360,606 | $41,696 | $44,409 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .91 | %(e) | .89 | % | .85 | % | .98 | % | .98 | %(e) | ||||||||||
Expenses, net of waivers/reimbursements, excluding interest expense and TALF administration fee | .85 | %(e) | .85 | % | .85 | % | .98 | % | .98 | %(e) | ||||||||||
Expenses, before waivers/reimbursements | 1.11 | %(e) | 1.11 | % | 1.09 | % | 1.54 | % | 1.34 | %(e) | ||||||||||
Expenses, before waivers/reimbursements, excluding interest expense and TALF administration fee | 1.05 | %(e) | 1.07 | % | 1.09 | % | 1.54 | % | 1.34 | %(e) | ||||||||||
Net investment income(b) | 3.98 | %(e) | 4.71 | % | 4.68 | % | 4.13 | % | 4.08 | %(e) | ||||||||||
Portfolio turnover rate | 99 | % | 95 | % | 184 | % | 173 | % | 446 | % |
See footnote summary on page 66.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 59 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class B | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ 10.28 | $ 8.77 | $ 10.23 | $ 10.18 | $ 10.15 | |||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .35 | .38 | .42 | .35 | (f) | .38 | (f) | |||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .70 | 1.52 | (1.47 | ) | .05 | .04 | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | ||||||||||
Net increase (decrease) in net asset value from operations | 1.05 | 1.90 | (1.05 | ) | .40 | .42 | ||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.35 | ) | (.39 | ) | (.41 | ) | (.35 | ) | (.39 | ) | ||||||||||
Net asset value, end of period | $ 10.98 | $ 10.28 | $ 8.77 | $ 10.23 | $ 10.18 | |||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 10.40 | %* | 22.17 | %* | (10.69 | )%* | 3.96 | %* | 4.20 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $16,048 | $21,830 | $31,207 | $20,157 | $30,154 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.62 | %(e) | 1.58 | % | 1.55 | % | 1.66 | % | 1.33 | %(e) | ||||||||||
Expenses, net of waivers/reimbursements, excluding interest expense and TALF administration fee | 1.55 | %(e) | 1.55 | % | 1.55 | % | 1.66 | % | 1.33 | %(e) | ||||||||||
Expenses, before waivers/reimbursements | 1.88 | %(e) | 1.87 | % | 1.83 | % | 2.29 | % | 2.10 | %(e) | ||||||||||
Expenses, before waivers/reimbursements, excluding interest expense and TALF administration fee | 1.81 | %(e) | 1.84 | % | 1.83 | % | 2.29 | % | 2.10 | %(e) | ||||||||||
Net investment income(b) | 3.35 | %(e) | 4.07 | % | 3.95 | % | 3.46 | %(f) | 3.75 | %(e)(f) | ||||||||||
Portfolio turnover rate | 99 | % | 95 | % | 184 | % | 173 | % | 446 | % |
See footnote summary on page 66.
60 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ 10.26 | $ 8.75 | $ 10.22 | $ 10.16 | $ 10.13 | |||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .35 | .38 | .43 | .35 | .34 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .70 | 1.52 | (1.49 | ) | .06 | .04 | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | ||||||||||
Net increase (decrease) in net asset value from operations | 1.05 | 1.90 | (1.06 | ) | .41 | .38 | ||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.35 | ) | (.39 | ) | (.41 | ) | (.35 | ) | (.35 | ) | ||||||||||
Net asset value, end of period | $ 10.96 | $ 10.26 | $ 8.75 | $ 10.22 | $ 10.16 | |||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 10.42 | %* | 22.22 | %* | (10.80 | )%* | 4.07 | %* | 3.80 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $66,568 | $61,635 | $51,708 | $9,404 | $9,874 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.61 | %(e) | 1.59 | % | 1.55 | % | 1.68 | % | 1.68 | %(e) | ||||||||||
Expenses, net of waivers/reimbursements, excluding interest expense and TALF administration fee | 1.55 | %(e) | 1.55 | % | 1.55 | % | 1.68 | % | 1.68 | %(e) | ||||||||||
Expenses, before waivers/reimbursements | 1.83 | %(e) | 1.82 | % | 1.80 | % | 2.27 | % | 2.07 | %(e) | ||||||||||
Expenses, before waivers/reimbursements, excluding interest expense and TALF administration fee | 1.77 | %(e) | 1.78 | % | 1.80 | % | 2.27 | % | 2.07 | %(e) | ||||||||||
Net investment income(b) | 3.27 | %(e) | 4.02 | % | 3.99 | % | 3.45 | % | 3.40 | %(e) | ||||||||||
Portfolio turnover rate | 99 | % | 95 | % | 184 | % | 173 | % | 446 | % |
See footnote summary on page 66.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 61 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ 10.28 | $ 8.78 | $ 10.24 | $ 10.18 | $ 10.15 | |||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .44 | .47 | .50 | .45 | .44 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .73 | 1.51 | (1.45 | ) | .06 | .04 | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | ||||||||||
Net increase (decrease) in net asset value from operations | 1.17 | 1.98 | (.95 | ) | .51 | .48 | ||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.46 | ) | (.48 | ) | (.51 | ) | (.45 | ) | (.45 | ) | ||||||||||
Net asset value, end of period | $ 10.99 | $ 10.28 | $ 8.78 | $ 10.24 | $ 10.18 | |||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 11.59 | %* | 23.23 | %* | (9.78 | )%* | 5.11 | %* | 4.83 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $89,981 | $62,369 | $33,139 | $32,375 | $29,966 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .60 | %(e) | .60 | % | .55 | % | .68 | % | .68 | %(e) | ||||||||||
Expenses, net of waivers/reimbursements, excluding interest expense and TALF administration fee | .55 | %(e) | .55 | % | .55 | % | .68 | % | .68 | %(e) | ||||||||||
Expenses, before waivers/reimbursements | .80 | %(e) | .80 | % | .80 | % | 1.25 | % | 1.02 | %(e) | ||||||||||
Expenses, before waivers/reimbursements, excluding interest expense and TALF administration fee | .75 | %(e) | .76 | % | .80 | % | 1.25 | % | 1.02 | %(e) | ||||||||||
Net investment income(b) | 4.19 | %(e) | 4.95 | % | 4.98 | % | 4.44 | % | 4.38 | %(e) | ||||||||||
Portfolio turnover rate | 99 | % | 95 | % | 184 | % | 173 | % | 446 | % |
See footnote summary on page 66.
62 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ 10.28 | $ 8.77 | $ 10.24 | $ 10.18 | $ 10.15 | |||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .37 | .43 | .46 | .44 | .39 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .73 | 1.51 | (1.47 | ) | .02 | .04 | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | ||||||||||
Net increase (decrease) in net asset value from operations | 1.10 | 1.94 | (1.01 | ) | .46 | .43 | ||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.40 | ) | (.43 | ) | (.46 | ) | (.40 | ) | (.40 | ) | ||||||||||
Net asset value, end of period | $ 10.98 | $ 10.28 | $ 8.77 | $ 10.24 | $ 10.18 | |||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 10.94 | %* | 22.74 | %* | (10.33 | )%* | 4.57 | %* | 4.31 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $759 | $156 | $73 | $577 | $13 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.08 | %(e) | 1.11 | % | 1.05 | % | 1.18 | % | 1.18 | %(e) | ||||||||||
Expenses, net of waivers/reimbursements, excluding interest expense and TALF administration fee | 1.05 | %(e) | 1.05 | % | 1.05 | % | 1.18 | % | 1.18 | %(e) | ||||||||||
Expenses, before waivers/reimbursements | 1.37 | %(e) | 1.38 | % | 1.25 | % | 1.74 | % | 1.57 | %(e) | ||||||||||
Expenses, before waivers/reimbursements, excluding interest expense and TALF administration fee | 1.34 | %(e) | 1.33 | % | 1.25 | % | 1.74 | % | 1.57 | %(e) | ||||||||||
Net investment income(b) | 3.49 | %(e) | 4.39 | % | 4.45 | % | 3.97 | % | 3.89 | %(e) | ||||||||||
Portfolio turnover rate | 99 | % | 95 | % | 184 | % | 173 | % | 446 | % |
See footnote summary on page 66.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 63 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ 10.29 | $ 8.78 | $ 10.25 | $ 10.19 | $ 10.16 | |||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .43 | .45 | .48 | .42 | .42 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .70 | 1.52 | (1.47 | ) | .06 | .03 | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | ||||||||||
Net increase (decrease) in net asset value from operations | 1.13 | 1.97 | (.99 | ) | .48 | .45 | ||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.43 | ) | (.46 | ) | (.48 | ) | (.42 | ) | (.42 | ) | ||||||||||
Net asset value, end of period | $ 10.99 | $ 10.29 | $ 8.78 | $ 10.25 | $ 10.19 | |||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 11.21 | %* | 23.05 | %* | (10.09 | )%* | 4.84 | %* | 4.54 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $4,359 | $4,434 | $3,784 | $7,222 | $10 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .86 | %(e) | .84 | % | .80 | % | .93 | % | .93 | %(e) | ||||||||||
Expenses, net of waivers/reimbursements, excluding interest expense and TALF administration fee | .80 | %(e) | .80 | % | .80 | % | .93 | % | .93 | %(e) | ||||||||||
Expenses, before waivers/reimbursements | 1.09 | %(e) | 1.05 | % | 1.02 | % | 1.53 | % | 1.27 | %(e) | ||||||||||
Expenses, before waivers/reimbursements, excluding interest expense and TALF administration fee | 1.03 | %(e) | 1.01 | % | 1.02 | % | 1.53 | % | 1.27 | %(e) | ||||||||||
Net investment income(b) | 4.02 | %(e) | 4.76 | % | 4.69 | % | 4.39 | % | 4.13 | %(e) | ||||||||||
Portfolio turnover rate | 99 | % | 95 | % | 184 | % | 173 | % | 446 | % |
See footnote summary on page 66.
64 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net asset value, beginning of period | $ 10.29 | $ 8.78 | $ 10.24 | $ 10.18 | $ 10.16 | |||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .49 | .47 | .50 | .45 | .44 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .68 | 1.52 | (1.45 | ) | .06 | .03 | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | ||||||||||
Net increase (decrease) in net asset value from operations | 1.17 | 1.99 | (.95 | ) | .51 | .47 | ||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.46 | ) | (.48 | ) | (.51 | ) | (.45 | ) | (.45 | ) | ||||||||||
Net asset value, end of period | $ 11.00 | $ 10.29 | $ 8.78 | $ 10.24 | $ 10.18 | |||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 11.59 | %* | 23.36 | %* | (9.78 | )%* | 5.10 | %* | 4.71 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $1,348 | $5,095 | $5,115 | $5,368 | $5,913 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .67 | %(e) | .59 | % | .55 | % | .68 | % | .68 | %(e) | ||||||||||
Expenses, net of waivers/reimbursements, excluding interest expense and TALF administration fee | .55 | %(e) | .55 | % | .55 | % | .68 | % | .68 | %(e) | ||||||||||
Expenses, before waivers/reimbursements | .81 | %(e) | .72 | % | .64 | % | 1.09 | % | .88 | %(e) | ||||||||||
Expenses, before waivers/reimbursements, excluding interest expense and TALF administration fee | .69 | %(e) | .68 | % | .64 | % | 1.09 | % | .88 | %(e) | ||||||||||
Net investment income(b) | 4.60 | %(e) | 5.02 | % | 4.98 | % | 4.44 | % | 4.37 | %(e) | ||||||||||
Portfolio turnover rate | 99 | % | 95 | % | 184 | % | 173 | % | 446 | % |
See footnote summary on page 66.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 65 |
Financial Highlights
(a) | Based on average shares outstanding. |
(b) | Net of fees waived and expenses reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | The ratio includes expenses attributable to costs of proxy solicitation. |
(f) | Net of fees and expenses waived by Distributor. |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended October 31, 2010, October 31, 2009, October 31, 2008 and October 31, 2007 by 0.01%, 0.01%, 0.21% and 0.61%, respectively. |
See notes to financial statements.
66 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Financial Highlights
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of AllianceBernstein Bond Fund, Inc. and the Shareholders of AllianceBernstein Intermediate Bond Portfolio
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the AllianceBernstein Intermediate Bond Portfolio (the “Portfolio”) (one of the portfolios constituting the AllianceBernstein Bond Fund, Inc.) as of October 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2010 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Intermediate Bond Portfolio of the AllianceBernstein Bond Fund, Inc. at October 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 29, 2010
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 67 |
Report of Independent Registered Public Accounting Firm
TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended October 31, 2010.
For foreign shareholders, 77.52% of ordinary dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2011.
68 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Tax Information
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Garry L. Moody(1) Marshall C. Turner(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Paul J. DeNoon(2), Vice President Shawn E. Keegan(2), Vice President Alison M. Martier(2) , Vice President | Douglas J. Peebles(2) , Vice President Greg J. Wilensky(2), Vice President Emilie D. Wrapp, Secretary Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller |
Custodian and Accounting Agent State Street Bank and Trust Company One Lincoln Street Boston, MA 02111
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. Mr. Foulk is the sole member of the Fair Value Pricing Committee. |
(2) | The day-to-day management of, and investment decisions for, the Fund’s portfolio are made by the U.S. Investment Grade Core Fixed Income Team. Mr. Paul J. DeNoon, Mr. Shawn E. Keegan, Ms. Alison M. Martier, Mr. Douglas J. Peebles and Mr. Greg J. Wilensky are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 69 |
Board of Directors
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith + 1345 Avenue of the Americas New York, New York 10105 50 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AllianceBernstein Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 97 | None |
70 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS | ||||||||
William H. Foulk, Jr., ++, # Chairman of the Board 78 (2002) | Investment Adviser and an Independent Consultant since prior to 2005. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AllianceBernstein Funds since 1983 and has been Chairman of the AllianceBernstein Funds and of the Independent Directors Committee of such Funds since 2003. He is also active in a number of mutual fund organizations and committees. | 97 | None | |||||
John H. Dobkin, # 68 (2002) | Independent Consultant since prior to 2005. Formerly, President of Save Venice, Inc. (preservation organization) from 2001-2002, Senior Advisor from June 1999 – June 2000 and President of Historic Hudson Valley (historic preservation) from December 1989 – May 1999. Previously, Director of the National Academy of Design. He has served as a director or trustee of various AllianceBernstein Funds since 1992, and as Chairman of the Audit Committees of a number of such Funds from 2001-2008. | 96 | None | |||||
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 71 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Michael J. Downey, # 66 (2005) | Private Investor since prior to 2005. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential Mutual Funds and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AllianceBernstein Funds since 2005 and is a director of two other registered investment companies (and Chairman of one of them). | 96 | Asia Pacific Fund, Inc. and The Merger Fund since prior to 2005 and Prospect Acquisition Corp. (financial services) since 2007 until 2009 | |||||
D. James Guzy, # 74 (2005) | Chairman of the Board of PLX Technology (semi-conductors) and of SRC Computers Inc., with which he has been associated since prior to 2005. He was a Director of Intel Corporation (semi-conductors) from 1969 until 2008 and served as Chairman of the Finance Committee of such company for several years until May 2008. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1982. | 96 | Cirrus Logic Corporation (semi-conductors) and PLX Technology, Inc. (semi-conductors) since prior to 2005 and Intel Corporation (semi-conductors) since prior to 2005 until 2008 |
72 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, # 62 (2006) | Professorial Lecturer at the Johns Hopkins School of Advanced International Studies since 2008. Formerly, U.S. Executive Director of the International Monetary Fund (December 2002 – May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AllianceBernstein Funds since 2006. | 96 | None |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 73 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody, # 58 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995); and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services. He is also a member of the Governing Council of the Independent Directors Council (IDC), an organization of independent directors of mutual funds, and serves on that organization’s Education and Communications Committee. He has served as a director or trustee, and as Chairman of the Audit Committee, of most of the AllianceBernstein Funds since 2008. | 96 | None |
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Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Marshall C. Turner, Jr., # 69 (2005) | Private Investor since prior to 2005. Interim CEO of MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) from November 2008 until March 2009. He was Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing), 2003-2005, and President and CEO, 2005-2006, after the company was acquired and renamed Toppan Photomasks, Inc. He has extensive experience in venture capital investing including prior service as general partner of three institutional venture capital partnerships, and serves on the boards of a number of education and science-related non-profit organizations. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1992. | 96 | Xilinx, Inc. (programmable logic semi-conductors) and MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) since prior to 2005 | |||||
Earl D. Weiner, # 71 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and member of ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AllianceBernstein Funds since 2007 and is Chairman of the Governance and Nominating Committees of most of the Funds. | 96 | None |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 75 |
Management of the Fund
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Philip L. Kirstein, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
+ | Mr. Keith is an “interested person”, as defined in the “40 Act”, due to his position as Senior Vice President of AllianceBernstein. |
++ | Member of the Fair Value Pricing Committee. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
76 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Management of the Fund
Officer Information
Certain information concerning the Fund’s Officers is set forth below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 50 | President and Chief Executive Officer | See biography above. | ||
Philip L. Kirstein 65 | Senior Vice President and Independent Compliance Officer | Senior Vice President and Independent Compliance Officer of the AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to March 2003. | ||
Paul J. DeNoon 48 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2005. | ||
Shawn E. Keegan 39 | Vice President | Vice President of the Adviser**, with which he has been associated since prior to 2005. | ||
Alison M. Martier 53 | Vice President | Senior Vice President of the Adviser**, with which she has been associated since prior to 2005. | ||
Douglas J. Peebles 45 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2005. | ||
Greg J. Wilensky 43 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2005. | ||
Emilie D. Wrapp 55 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2005. | ||
Joseph J. Mantineo 51 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2005. | ||
Phyllis J. Clarke 49 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2005. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AllianceBernstein at 1-800-227-4618, or visit www.alliancebernstein.com, for a free prospectus or SAI. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 77 |
Management of the Fund
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER’S EVALUATION OF INVESTMENT ADVISORY AGREEMENT1
The following is a summary of the evaluation of the Investment Advisory Agreement between AllianceBernstein L.P. (the “Adviser”) and AllianceBernstein Bond Fund, Inc. (the “Fund”) with respect to AllianceBernstein Intermediate Bond Portfolio (the “Portfolio”).2 The evaluation of the Investment Advisory Agreement was prepared by Philip L. Kirstein, the Senior Officer of the Fund, for the Directors of the Fund, as required by the September 1, 2004 Assurance of Discontinuance (“AoD”) between the Adviser and the New York State Attorney General (the “NYAG”). The Senior Officer’s evaluation of the Investment Advisory Agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the “40 Act”) and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees proposed to be paid by the Portfolio which was provided to the Directors in connection with their review of the proposed approval of the continuance of the Investment Advisory Agreement. The Senior Officer’s evaluation considered the following factors:
1. | Advisory fees charged to institutional and other clients of the Adviser for like services; |
2. | Advisory fees charged by other mutual fund companies for like services; |
3. | Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit; |
4. | Profit margins of the Adviser and its affiliates from supplying such services; |
5. | Possible economies of scale as the Portfolio grows larger; and |
6. | Nature and quality of the Adviser’s services including the performance of the Portfolio. |
These factors, with the exception of the first factor, are generally referred to as the “Gartenberg factors,” which were articulated by the United States Court of Appeals for the Second Circuit in 1982. The first factor is an additional factor required to be considered by the AoD. The Supreme Court recently held the Gartenberg decision was correct in its basic formulation of what Section 36(b) of
1 | It should be noted that the Senior Officer’s fee evaluation was completed on October 21, 2010 and discussed with the Board of Directors on November 2-4, 2010. |
2 | Future references to the Portfolio do not include “AllianceBernstein.” References in the fee summary pertaining to performance and expense ratios refer to the Class A shares of the Portfolio. |
78 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
the 40 Act requires: to face liability under Section 36(b), “an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arms length bargaining.” Jones v. Harris Associates L.P., (No. 08-586), slip op. at 9, 559 U.S. 2010. In the Jones decision, the Court stated the Gartenberg approach fully incorporates the correct understanding of fiduciary duty within the context of Section 36(b) and noted with approval that “Gartenberg insists that all relevant circumstances be taken into account” and “uses the range of fees that might result from arms-length bargaining as the benchmark for reviewing challenged fees.”3
PORTFOLIO ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS
The Adviser proposed that the Portfolio pay the advisory fee set forth in the table below for receiving the services to be provided pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser’s settlement with the NYAG in December 2003, is based on a master schedule that contemplates eight categories of funds with almost all funds in each category having the same advisory fee schedule.4
Category | Net Assets 09/30/10 | Advisory Fee Based on % of Average Daily Net Assets | Portfolio | |||
Low Risk Income | $594.8 | 45 bp on 1st $2.5 billion 40 bp on next $2.5 billion 35 bp on the balance | Intermediate Bond Portfolio |
The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Portfolio. During the Portfolio’s most recently completed fiscal year, the Adviser was entitled to receive $84,531 (0.016% of the Portfolio’s average daily net assets) for such services but waived the amount in its entirety.
The Adviser agreed to waive that portion of its advisory fees and/or reimburse the Portfolio for that portion of the Portfolio’s total operating expenses to the degree necessary to limit the Portfolio’s expense ratios to the amounts set forth below for the Portfolio’s current fiscal year. The waiver is terminable by the Adviser at the end of the Portfolio’s fiscal year upon at least 60 days written
3 | Jones v. Harris at 11. |
4 | Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser’s settlement with the NYAG. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 79 |
notice. In addition, set forth below are the Portfolio’s gross expense ratios, annualized for the most recent semi-annual period:
Portfolio | Expense Cap Pursuant to Expense Limitation Undertaking | Gross Expense Ratio5 (04/30/10) | Fiscal Year End | |||||||||||
Intermediate Bond Portfolio | Advisor Class A Class B Class C Class R Class K Class I |
| 0.55 0.85 1.55 1.55 1.05 0.80 0.55 | % % % % % % % |
| 0.88 1.19 1.95 1.90 1.45 1.16 0.88 | % % % % % % % | October 31 |
I. | ADVISORY FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS |
The advisory fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Portfolio that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Portfolio’s third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Portfolio are more costly than those for institutional client assets due to the greater complexities and time required for investment companies, although as previously noted, the Adviser is reimbursed for providing such services.6 In addition, retail mutual funds managed by the Adviser are widely held. Servicing the Portfolio’s investors is more time consuming and labor intensive compared to institutional clients since the Adviser needs to communicate with a more extensive network of financial intermediaries and shareholders. The Adviser also believes that it incurs substantial entrepreneurial risk when offering a new mutual fund since establishing a new mutual fund requires a large upfront investment and it may take a long time for the fund to achieve profitability since the fund must be priced to scale from inception in order to be competitive and assets are acquired one account at a time. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly if the Portfolio is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a fund with positive cash flow may be easier at times than managing a stable pool of
5 | Annualized. |
6 | For the most recently completed fiscal year, the Advisor waived the reimbursement amount that it was entitled to receive from the Portfolio in its entirety. |
80 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although arguably still not equal to those related to the mutual fund industry.
Notwithstanding the Adviser’s view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, the Supreme Court has indicated consideration should be given to the advisory fees charged to institutional accounts with a similar investment style as the Portfolio.7 In addition to the AllianceBernstein Institutional fee schedule, set forth below is what would have been the effective advisory fee of the Portfolio had the AllianceBernstein Institutional fee schedule been applicable to the Portfolio versus the Portfolio’s advisory fees based on September 30, 2010 net assets.8
Portfolio | Net Assets 09/30/10 ($MIL) | AllianceBernstein (“AB”) Fee Schedule | Effective AB Inst. Adv. Fee | Portfolio Advisory Fee | ||||||
Intermediate Bond Portfolio | $594.8 | U.S. Strategic Core Plus Schedule 50 bp on 1st $30 million 20 bp on the balance Minimum account size: $25m | 0.215% | 0.450% |
The Adviser manages Sanford C. Bernstein Fund, Inc. (“SCB Fund”), an open-end management investment company. The Intermediate Duration Portfolio of SCB Fund has a similar investment style as the Portfolio. Set forth in the table below is Intermediate Duration Portfolio’s advisory fee schedule and what would have been the effective advisory fee of the Portfolio had the fee schedule of Intermediate Duration Portfolio been applicable to the Portfolio versus the Portfolio’s advisory fees based on September 30, 2010 net assets:
Portfolio | SCB Fund Portfolio | Fee Schedule | SCB Fund Effective Fee | Portfolio Advisory Fee | ||||||||
Intermediate Bond Portfolio | Intermediate Duration Portfolio | 50 bp on 1st $1 billion 45 bp on next $2 billion 40 bp on next $2 billion 35 bp on next $2 billion 30 bp thereafter | 0.500% | 0.450% |
7 | It should be noted that the Supreme Court stated that “courts may give such comparisons the weight that they merit in light of the similarities and differences between the services that the clients in question require, but the courts must be wary of inapt comparisons.” Among the significant differences the Supreme Court noted that may exist between services provided to mutual funds and institutional accounts are “higher marketing costs.” Jones v. Harris at 13. |
8 | The Adviser has indicated that with respect to institutional accounts with assets greater than $300 million, it will negotiate a fee schedule. Discounts that are negotiated vary based upon each client relationship. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 81 |
The adviser also manages the AllianceBernstein Variable Products Series Fund, Inc. (“AVPS”), which is available through variable annuity and variable life contracts offered by other financial institutions and offers policyholders the option to utilize certain AVPS portfolios as the investment option underlying their insurance contracts. Set forth below is the fee schedule of the AVPS portfolio that has a substantially similar investment style as the Portfolio. 9 Also shown are what would have been the effective advisory fee of the Portfolio had the AVPS fee schedule been applicable to the Portfolio based on September 30, 2010 net assets and the Portfolio’s advisory fees:
Portfolio | AVPS Portfolio | Fee Schedule | AVPS Effective Fee | Portfolio Advisory Fee | ||||||||
Intermediate Bond Fund, Inc. | Intermediate Bond Portfolio | 0.45% on first $2.5 billion 0.40% on next $2.5 billion 0.35% on the balance | 0.450% | 0.450% |
The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the fees set forth below for the following sub-advisory relationship that has a somewhat similar investment style as the Portfolio. Also shown are what would have been the effective advisory fees of the Portfolio, had the sub-advised fund been applicable to the Portfolio based on September 30, 2010 net assets:
Portfolio | Sub-advised Fund | Sub-advised Fund Fee Schedule | Sub-Advised Management | |||||
Intermediate Bond Portfolio | Client #1 | 0.29% on first $100 million 0.20% thereafter | 0.215 |
It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Portfolio by the Adviser. In addition to the extent that the sub-advisory relationship is with an affiliate of the Adviser, the fee schedule may not reflect arms-length bargaining or negotiations.
While it appears that the sub-advisory relationship is paying a lower fee than the Portfolio, its is difficult to evaluate the relevance of fees due to differences in terms of the service provided, risks involved and other competitive factors between the Portfolio and sub-advisory relationship. There could be various business reasons why an investment adviser would be willing to manage a sub-advisory relationship for a different fee level than an investment company it
9 | It should be noted that the AVPS portfolio was also affected by the settlement between the Adviser and the NYAG. As a result, the Portfolio has the same breakpoints in its advisory fee schedule as the AVPS portfolio. |
82 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
is sponsoring where the investment adviser is providing all the services, not just investment services generally required by a registered investment company.
II. | MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. |
Lipper, Inc. (“Lipper”), an analytical service that is not affiliated with the Adviser, compared the fees charged to the Portfolio with fees charged to other investment companies for similar services by other investment advisers.10 Lipper’s analysis included the Portfolio’s ranking with respect to the contractual management fee relative to the median of the Portfolio’s Lipper Expense Group (“EG”)11 at the approximate current asset level of the subject Portfolio.12
Lipper describes an EG as a representative sample of comparable funds. Lipper’s standard methodology for screening funds to be included in an EG entails the consideration of several fund criteria, including fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, expense components and attributes. An EG will typically consist of seven to twenty funds.
Portfolio | Contractual Management Fee (%)13 | Lipper Expense Median (%) | Rank | |||||||||
Intermediate Bond Portfolio | 0.450 | 0.583 | 1/12 |
10 | In considering this section, it should be noted that the Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since “these comparisons are problematic because these fees, like those challenged, may not be the product of the negotiations conducted at arms length.” Jones v. Harris at 14. |
11 | It should be noted that Lipper does not consider average account size when constructing EGs. Funds with relatively small average account sizes tend to have higher transfer agent expense ratios than comparable sized funds that have relatively large average account sizes. Note that there are limitations on Lipper expense category data because different funds categorize expenses differently. |
12 | The contractual management fee is calculated by Lipper using the Portfolio’s contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Portfolio, rounded up to the next $25 million. Lipper’s total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of “1” means that the Portfolio has the lowest effective fee rate in the Lipper peer group. |
13 | The contractual management fee does not reflect any expense reimbursements made by any the Portfolio to the Adviser for certain clerical, legal, accounting, administrative, and other services, although it should be noted that the Adviser waived such reimbursements for the fiscal year 2009. In addition, the contractual management fee does not reflect any advisory fee waivers for expense caps that would effectively reduce the actual effective management fee. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 83 |
Lipper also compared the Portfolio’s total expense ratio to the medians of the Portfolio’s EG and Lipper Expense Universe (“EU”). The EU14 is a broader group compared to the EG, consisting of all funds that have the same investment classification/objective and load type as the subject Portfolio.
It should be noted that Lipper uses expense ratio data from financial statements of the most current fiscal year in their database. This has several implications: the total expense ratio of each fund that Lipper uses in their report is based on each fund’s average net assets during its fiscal year. Since funds have different fiscal year ends, the total expense ratios of the funds may cover different twelve month periods, depending on the funds’ fiscal year ends. This is the process that Lipper always follows but given the volatile market conditions during 2008 and 2009, notably the last three months of 2008 through the first three months of 2009, when equity markets declined substantially, and conversely through the remainder of 2009, when equity markets rallied the effects on the funds’ total expense ratio caused by the differences in fiscal year ends may be more pronounced in 2008 and 2009 compared to other years under more normal market conditions.15
Portfolio | Expense Ratio (%)16 | Lipper Exp. Group Median (%) | Lipper Group Rank | Lipper Exp. Median (%) | Lipper Rank | |||||||||||||||
Intermediate Bond Portfolio17 | 0.850 | 0.929 | 1/12 | 0.889 | 25/69 |
Based on this analysis, the Portfolio has equally favorable rankings on a management fee and on a total expense basis.
III. | COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE ADVISORY FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. |
The Adviser utilizes two profitability reporting systems, which operate independently but are aligned with each other, to estimate the Adviser’s profitability in connection with investment advisory services provided to the Portfolio. The Senior Officer has retained an independent consultant to provide independent advice regarding the alignment of the two profitability systems as well as the methodologies and allocations utilized by both profitability systems. See Section IV for additional discussion.
14 | Except for asset (size) comparability, Lipper uses the same criteria for selecting an EG when selecting an EU. Unlike the EG, the EU allows for the same adviser to be represented by more than just one fund. |
15 | To cite an example, the average net assets and total expense ratio of a fund with a fiscal year end of March 31, 2009 will not be reflective of the market rally that occurred post March 2009, in contrast to a fund with a fiscal year end of December 31, 2009. |
16 | Most recently completed fiscal year Class A share total expense ratio. |
17 | The Portfolio’s Class A share total expense ratio is capped at 0.85%. |
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IV. | PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. |
The profitability information for the Portfolio, prepared by the Adviser for the Board of Directors, was reviewed by the Senior Officer and the independent consultant. The Adviser’s profitability from providing investment advisory services to the Portfolio increased during calendar year 2009 relative to 2008.
In addition to the Adviser’s direct profits from managing the Portfolio, certain of the Adviser’s affiliates have business relationships with the Portfolio and may earn a profit from providing other services to the Portfolio. The courts have referred to this type of business opportunity as “fall-out benefits” to the Adviser and indicated that such benefits should be factored into the evaluation of the total relationship between the Portfolio and the Adviser. Neither case law nor common business practice precludes the Adviser’s affiliates from earning a reasonable profit on this type of relationship provided the affiliates’ charges and services are competitive. These affiliates provide transfer agent and distribution related services to the Portfolio and receive transfer agent fees, front-end sales loads, Rule 12b-1 payments and contingent deferred sales charges (“CDSC”). During the Portfolio’s most recently completed fiscal year, ABI received from the Portfolio $15,528, $1,987,369 and $39,123 in front-end sales charges, Rule 12b-1 and CDSC fees, respectively.
AllianceBernstein Investments, Inc. (“ABI”), an affiliate of the Adviser, is the Portfolio’s principal underwriter. ABI and the Adviser have disclosed in the Portfolio’s prospectus that they may make revenue sharing payments from their own resources, in addition to revenues derived from sales loads and Rule 12b-1 fees, to firms that sell shares of the Portfolio. In 2009, ABI paid approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $13.8 million for distribution services and educational support (revenue sharing payments).
Fees and reimbursements for out of pocket expenses charged by AllianceBernstein Investor Services, Inc. (“ABIS”), the affiliated transfer agent for the Portfolio, are charged on a per account basis, based on the level of service provided and the class of share held by the account. ABIS also receives a fee per shareholder sub-account for each account maintained by an intermediary on an omnibus basis. During the Portfolio’s most recently completed fiscal year, ABIS received $570,967 in fees from the Portfolio.
V. | POSSIBLE ECONOMIES OF SCALE |
The Adviser has indicated that economies of scale are being shared with shareholders through fee structures,18 subsidies and enhancement to services. Based on some of the professional literature that has considered economies of scale in
18 | Fee structures include fee reductions, pricing at scale and breakpoints in advisory fee schedules. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 85 |
the mutual fund industry, it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems, can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide services, there may be a sharing of economies of scale without a reduction in advisory fees.
An independent consultant, retained by the Senior Officer, provided the Board of Directors an update of the Deli19 study on advisory fees and various fund characteristics.20 The independent consultant first reiterated the results of his previous two dimensional comparison analysis (fund size and family size) with the Board of Directors.21 The independent consultant then discussed the results of the regression model that was utilized to study the effects of various factors on advisory fees. The regression model output indicated that the bulk of the variation in fees predicted were explained by various factors, but substantially by fund assets under management (“AUM”), family AUM, index fund indicator and investment style. The independent consultant also compared the advisory fees of the AllianceBernstein Mutual Funds to similar funds managed by 19 other large asset managers, regardless of fund size and the large asset manager’s proportion of mutual fund assets to non-mutual fund assets.
VI. | NATURE AND QUALITY OF THE ADVISER’S SERVICES INCLUDING THE PERFORMANCE OF THE PORTFOLIO. |
With assets under management of approximately $484 billion as of September 30, 2010, the Adviser has the investment experience to manage and provide non-investment services (described in Section I) to the Portfolio.
19 | The Deli study was originally published in 2002 based on 1997 data. |
20 | As mentioned previously, the Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since the fees may not be the product of negotiations conducted at arms length. See Jones V. Harris at 14. |
21 | The two dimensional analysis showed patterns of lower advisory fees for funds with larger asset sizes and funds from larger family sizes compared to funds with smaller asset sizes and funds from smaller family sizes, which according to the independent consultant is indicative of a sharing of economies of scale and scope. However, in less liquid and active markets, such is not the case, as the empirical analysis showed potential for diseconomies of scale in those markets. The empirical analysis also showed diminishing economies of scale and scope as funds surpassed a certain high level of assets. |
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The information below shows the 1, 3, 5 and 10 year performance returns and rankings of the Portfolio22 relative to its Lipper Performance Group (“PG”) and Lipper Performance Universe (“PU”)23 for the periods ended July 31, 2010.24
Portfolio | Portfolio (%) | PG Median (%) | PU Median (%) | PG Rank | PU Rank | |||||||||||||||
Intermediate Bond Portfolio | ||||||||||||||||||||
1 year | 14.33 | 13.15 | 10.89 | 6/12 | 14/84 | |||||||||||||||
3 year | 7.06 | 8.56 | 7.22 | 9/12 | 38/72 | |||||||||||||||
5 year | 5.49 | 6.32 | 5.49 | 9/12 | 32/63 | |||||||||||||||
10 year | 5.72 | 6.25 | 5.82 | 6/8 | 22/40 |
22 | The performance returns and rankings are for the Class A shares of the Portfolio. The performance returns of the Portfolios were provided Lipper. Lipper maintains its own database that includes the Portfolio’s performance returns. However, differences in the distribution price (ex-date versus payable date) and rounding differences may cause the Adviser’s own performance returns of the Portfolio to be different from Lipper. |
23 | The Portfolio’s PG is identical to the Portfolio’s EG. The Portfolio’s PU is not identical to the Portfolio’s EU as the criteria for including/excluding a portfolio in/from a PU are somewhat different from that of an EU. |
24 | Note that the current Lipper investment classification/objective dictates the PG and PU throughout the life of the Portfolio even if the Portfolio may have had a different investment classification/objective at different points in time. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 87 |
Set forth below are the 1, 3, 5, 10 year and since inception net performance returns of the Portfolio (in bold)25 versus its benchmark.26 Portfolio and benchmark volatility and reward-to-variability ratio (“Sharpe Ratio”) information is also shown.27
Periods Ending July 31, 2010 Annualized Performance | ||||||||||||||||||||||||||||||||
1 Year | 3 Year | 5 Year | 10 Year | Since | Annualized | Risk | ||||||||||||||||||||||||||
Volatility (%) | Sharpe (%) | |||||||||||||||||||||||||||||||
Intermediate Bond Portfolio | 14.18 | 6.96 | 5.44 | 5.70 | 5.62 | 4.61 | 0.66 | 10 | ||||||||||||||||||||||||
Barclays Capital U.S. Aggregate Bond Index | 8.91 | 7.63 | 5.96 | 6.48 | 6.34 | 3.79 | 0.99 | 10 | ||||||||||||||||||||||||
Inception Date: July 1, 1999 |
CONCLUSION:
Based on the factors discussed above the Senior Officer’s conclusion is that the proposed advisory fee for the Portfolio is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Portfolio is based on an evaluation of all of these factors and no single factor was dispositive.
Dated: November 22, 2010
25 | The performance returns and risk measures shown in the table are for the Class A shares of the Portfolio. |
26 | The Adviser provided Portfolio and benchmark performance return information for the periods through July 31, 2010. |
27 | Portfolio and benchmark volatility and Sharpe Ratio information was obtained through Lipper LANA, a database maintained by Lipper. Volatility is a statistical measure of the tendency of a market price or yield to vary over time. A Sharpe Ratio is a risk adjusted measure of return that divides a fund’s return in excess of the riskless return by the fund’s standard deviation. A portfolio with a greater volatility would be seen as more risky than a portfolio with equivalent performance but lower volatility; for that reason, a greater return would be demanded for the more risky fund. A portfolio with a higher Sharpe Ratio would be viewed as better performing than a fund with a lower Sharpe Ratio. |
88 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
Wealth Strategies Funds
Balanced Wealth Strategy
Wealth Appreciation Strategy
Conservative Wealth Strategy*
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Conservative Wealth Strategy*
Blended Style Funds
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
Growth Funds
Domestic
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Small/Mid Cap Growth Fund
U.S. Strategic Research Portfolio*
Global & International
Global Growth Fund
Global Thematic Growth Fund
Greater China ‘97 Fund
International Growth Fund
Value Funds
Domestic
Balanced Shares
Core Opportunities Fund*
Growth & Income Fund
Small/Mid Cap Value Fund
Utility Income Fund
Value Fund
Global & International
Global Real Estate Investment Fund
Global Value Fund
International Value Fund
Taxable Bond Funds
Bond Inflation Strategy
Diversified Yield Fund
Global Bond Fund
High Income Fund
Intermediate Bond Portfolio
Short Duration Portfolio
Municipal Bond Funds
Arizona Municipal Bond Inflation Strategy California High Income Massachusetts Michigan | Minnesota National New Jersey New York Ohio Pennsylvania Virginia |
Intermediate Municipal Bond Funds
Intermediate California
Intermediate Diversified
Intermediate New York
Closed-End Funds
AllianceBernstein Global High Income Fund
AllianceBernstein Income Fund
AllianceBernstein National Municipal Income Fund
Alliance California Municipal Income Fund
Alliance New York Municipal Income Fund
The Ibero-America Fund*
Inflation Strategies
Multi-Asset Inflation Strategy
Retirement Strategies Funds
2000 Retirement Strategy | 2020 Retirement Strategy | 2040 Retirement Strategy | ||
2005 Retirement Strategy | 2025 Retirement Strategy | 2045 Retirement Strategy | ||
2010 Retirement Strategy | 2030 Retirement Strategy | 2050 Retirement Strategy | ||
2015 Retirement Strategy | 2035 Retirement Strategy | 2055 Retirement Strategy |
We also offer Exchange Reserves,** which serves as the money market fund exchange vehicle for the AllianceBernstein mutual funds.
You should consider the investment objectives, risks, charges and expenses of any AllianceBernstein fund/portfolio carefully before investing. For free copies of our prospectuses, which contain this and other information, visit us online at www.alliancebernstein.com or contact your financial advisor. Please read the prospectus carefully before investing.
* | Prior to December 31, 2009, Conservative Wealth Strategy was named Wealth Preservation Strategy, and Tax-Managed Conservative Wealth Strategy was named Tax-Managed Wealth Preservation Strategy. U.S. Strategic Research Portfolio was incepted on December 23, 2009. Prior to January 20, 2010, The Ibero-America Fund was named The Spain Fund. Prior to March 1, 2010, Core Opportunities Fund was named the Focused Growth & Income Fund. |
** | An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 89 |
AllianceBernstein Family of Funds
NOTES
90 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
NOTES
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 91 |
NOTES
92 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800.221.5672
IB-0151-1010 | ![]() |
ANNUAL REPORT
AllianceBernstein
Bond Inflation Strategy
October 31, 2010
Annual Report
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
The investment return and principal value of an investment in the Fund will fluctuate as the prices of the individual securities in which it invests fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For a free copy of the Fund’s prospectus, which contains this and other information, visit our web site at www.alliancebernstein.com or call your financial advisor or AllianceBernstein® at (800) 227-4618. Please read the prospectus carefully before you invest.
You may obtain performance information current to the most recent month-end by visiting www.alliancebernstein.com.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AllianceBernstein’s web site at www.alliancebernstein.com, or go to the Securities and Exchange Commission’s (the “Commission”) web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s web site at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AllianceBernstein publishes full portfolio holdings for the Fund monthly at www.alliancebernstein.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AllianceBernstein family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.
AllianceBernstein® and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
December 14, 2010
Annual Report
This report provides management’s discussion of the performance of AllianceBernstein Bond Inflation Strategy (the “Strategy”) since inception, for the period ended October 31, 2010. The Strategy commenced operations on January 26, 2010.
Investment Objectives and Policies
The Strategy’s investment objective is to maximize real return without assuming what AllianceBernstein L.P. (the “Adviser”) consider to be under risk. The Strategy seeks real return. Real return is the rate of return after adjusting for inflation. The Strategy pursues its objective by investing principally in Treasury Inflation-Protected Securities (“TIPS”) directly or by gaining indirect exposure to TIPS through derivatives transactions such as total return swaps linked to TIPS. In deciding whether to take direct or indirect exposure, the Adviser will consider the relative costs and efficiency of each method. In addition, in seeking to maximize real return, the Strategy may invest in other fixed-income investments such as US and non-US government securities, corporate fixed-income securities and mortgage-related securities, as well as derivatives linked to such securities. Under normal circumstances, the Strategy invests at least 80% of its net assets in fixed-income securities. While the Strategy expects to invest principally in investment grade securities, it may invest up to 15% of its total assets in fixed-income securities rated BB or B or the equivalent by at least one national ratings agency (or deemed by the Adviser to be of comparable credit
quality), which are not investment grade (“junk bonds”).
Inflation-protected securities are fixed-income securities structured to provide protection against inflation. Their principal value and/or the interest paid on them are adjusted to reflect official inflation measures. The inflation measure for TIPS is the Consumer Price Index for Urban Consumers. The Strategy may also invest in other inflation-indexed securities, issued by both US and non-US issuers, and in derivative instruments linked to these securities.
The Strategy may invest to the extent permitted by applicable law in derivatives, such as options, futures, forwards, or swap agreements. The Strategy intends to use leverage for investment purposes. To do this, the Strategy expects to enter into (i) reverse repurchase agreement transactions and use the cash made available from these transactions to make additional investments in fixed income securities in accordance with the Strategy’s investment policies and (ii) total return swaps. In determining when and to what extent to employ leverage or enter into derivatives transactions, the Adviser will consider factors such as the relative risks and returns expected of potential investments and the cost of such transactions. The Adviser will consider the impact of reverse repurchase agreements, swap agreements and other derivatives in making its assessments of the Strategy’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 1 |
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 Strategy. 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 Strategy’s other holdings.
The Strategy may also invest in loan participations, structured securities, asset-backed securities, variable, floating, and inverse floating rate instruments, and preferred stock, and may use other investment techniques. The Strategy may invest in fixed-income securities of any maturity and duration. If the rating of a fixed-income security falls below investment grade, the Strategy will not be obligated to sell the security and may continue to hold it if, in the Adviser’s opinion, the investment is appropriate under the circumstances.
Investment Results
The table on page 5 shows the Strategy’s performance compared to its benchmark, the Barclays Capital 1-10 year Treasury Inflations Protected Securities (TIPS) Index. Also included in the table are returns for the Strategy’s peer group, as represented by the Lipper Treasury Protected Securities Funds Average (the “Lipper Average”). Funds in the Lipper Average have generally similar investment objectives to the Fund, although some may have different investment policies and sales and management fees.
Class A shares of the Strategy outperformed the benchmark for the six-month and since-inception periods ended October 31, 2010, before sales charges. The Strategy underperformed its Lipper Average during both periods. Yield curve positioning and exposure to commercial mortgage-backed securities (CMBS) contributed positively for both periods. Overall currency positioning, particularly a short position in the Japanese yen, as well as country positioning, detracted from performance for both periods. The Strategy’s investment grade corporate holdings contributed positively for the since inception period.
During the reporting period the Strategy continued to utilize leverage to implement the Strategy’s overall strategy and derivatives, such as futures contracts, to gain credit exposure and manage interest rate and currency risk.
Market Review and Investment Strategy
The global economic recovery continued in 2010 driven by strong gains in emerging-market economies. Import growth in emerging-market economies boomed, acting as an important catalyst in the recovery of industrialized economies. Concerns over sovereign debt in peripheral Europe and the potential for a double-dip recession in the US economy however rose in the second quarter of 2010 dampening market sentiment. Worries about the fiscal position of Greece intensified, causing Greek sovereign bond spreads to sharply widen. These worries spread to other peripheral countries such as
2 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Spain and Portugal, while shares of French, German and Spanish banks came under pressure as concerns grew about their exposure to troubled government debt. Downgrades of Greece, Portugal and Spain by the rating agencies added to the anxiety along with renewed concern about Ireland.
Most major fixed income indices posted solid absolute returns since the Strategy’s inception, as markets continued to recover. CMBS securities, which posted some of the worst returns during the financial crisis, continued to rebound posting strong gains. For the since inception period, CMBS returned 15.06%, followed by investment grade corporates at 9.54%. Corporate earnings in the third quarter 2010 were strong with approximately 72% of companies beating earnings expectations (compared with a long term average of 57%). Earnings in the S&P 500 were up an impressive 34% year over year, and 26% excluding financials. Spreads for CMBS and investment grade corporates tightened significantly during the reporting
period. All returns are according to the Barclays Capital Indices.
Treasury securities returned 7.12% since the Strategy’s inception as yields significantly declined across the maturity spectrum. Two-year Treasury yields declined 47 basis points to end at 0.34%, while ten year yields declined 102 basis points to 2.60% and thirty year yields declined 57 basis points to 3.98%. The yield curve flattened modestly by 10 basis points between two and thirty year yields. All returns are according to the Barclays Capital Indices.
Since inception of the Strategy, inflation protected securities posted strong absolute returns as real yields fell. According to the Barclays Capital 1-10 Year TIPS Index, inflation securities posted a positive return of 5.35%. However, TIPS underperformed duration-matched Treasuries, in excess of 3% as breakeven inflation rates (the difference between the yield on TIPS and a comparable maturity Treasury bond) compressed.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 3 |
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance on the following pages represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling 800-227-4618 for Class 2, A, C and Advisor Class shares and 212-756-4097 for Class 1 shares.
Investors should consider the investment objectives, risks, charges and expenses of the Strategy carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Strategy have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Strategy’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares; a 1% 1 year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
Benchmark Disclosure
The Barclays Capital 1-10 Year TIPS Index does not reflect fees and expenses associated with the active management of a fund portfolio. The Barclays Capital 1-10 Year TIPS Index represents the performance of Inflation-Protection securities issued by the US Treasury. For the six-month and since inception periods ended October 31, 2010, the Lipper Treasury Protected Securities Fund Average consisted of 157 and 140 funds, respectively. These funds have generally similar investment objectives to the Strategy, although some may have different investment policies and sales and management fees. An investor cannot invest directly in an index or average, and their results are not indicative of the performance for any specific investment, including the Strategy.
A Word About Risk
The market values of the Strategy’s holdings rise and fall from day to day, so investments may lose value. As interest rates rise, bond prices fall and vice versa—long-term securities tend to rise and fall more than short-term securities. A bond’s credit rating reflects the issuer’s ability to make timely payments of interest or principal—the lower the rating, the higher the risk of default. If the issuer’s financial strength deteriorates, the issuer’s rating may be lowered and the bond’s value may decline. Inflation risks—prices for goods and services tend to rise over time, which may erode the purchasing power of investments. Non-US securities may be more volatile because of political, regulatory, market and economic uncertainties associated with such securities. Fluctuations in currency exchange risk may negatively affect the value of the investment or reduce returns. These risks are magnified in emerging or developing markets. Liquidity risk is the difficulty of purchasing or selling a security at an advantageous time or price. Investing in derivative instruments such as options, futures, forwards or swaps can be riskier than traditional investments, and may be more volatile, especially in a down market. Leverage risk involves trying to enhance investment returns by borrowing money or using other leverage tools—magnify both gains and losses, resulting in greater volatility.
(Historical Performance continued on next page)
4 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
THE STRATEGY VS. ITS BENCHMARK PERIODS ENDED OCTOBER 31, 2010 | NAV Returns | |||||||||||
6 Months | Since Inception* | |||||||||||
AllianceBernstein Bond Inflation Strategy | ||||||||||||
Class 1 | 4.69% | 6.39% | ||||||||||
Class 2 | 4.73% | 6.44% | ||||||||||
Class A | 4.58% | 6.15% | ||||||||||
Class C | 4.28% | 5.61% | ||||||||||
Advisor Class** | 4.76% | 6.46% | ||||||||||
Class R** | 4.45% | 6.04% | ||||||||||
Class K** | 4.56% | 6.22% | ||||||||||
Class I** | 4.73% | 6.46% | ||||||||||
Barclays Capital 1-10 Year TIPs Index | 4.48% | 5.35% | ||||||||||
Lipper Treasury Protected Securities Fund Average | 5.88% | 8.01% | ||||||||||
* Since Inception: January 26, 2010
**Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
| |||||||||||
See Historical Performance and Benchmark disclosures on page 4.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 5 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
GROWTH OF A $10,000 INVESTMENT IN THE STRATEGY
1/26/10* TO 10/31/10
*Since inception: January 26, 2010
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Bond Inflation Strategy Class A shares (from 1/26/10* to 10/31/10) as compared to the performance of its benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Strategy and assumes the reinvestment of dividends and capital gains distributions.
See Historical Performance and Benchmark disclosures on page 4.
(Historical Performance continued on next page)
6 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2010 | ||||||||||||
NAV Returns | SEC Returns | SEC Yields** | ||||||||||
Class 1 Shares | 2.07 | % | ||||||||||
Six Months | 4.69 | % | 4.69 | % | ||||||||
Since Inception* | 6.39 | % | 6.39 | % | ||||||||
Class 2 Shares | 2.26 | % | ||||||||||
Six Months | 4.73 | % | 4.73 | % | ||||||||
Since Inception* | 6.44 | % | 6.44 | % | ||||||||
Class A Shares | 1.96 | % | ||||||||||
Six Months | 4.58 | % | 0.13 | % | ||||||||
Since Inception* | 6.15 | % | 1.68 | % | ||||||||
Class C Shares | 1.28 | % | ||||||||||
Six Months | 4.28 | % | 3.28 | % | ||||||||
Since Inception* | 5.61 | % | 4.61 | % | ||||||||
Advisor Class Shares† | 2.26 | % | ||||||||||
Six Months | 4.76 | % | 4.76 | % | ||||||||
Since Inception* | 6.46 | % | 6.46 | % | ||||||||
Class R Shares† | 1.67 | % | ||||||||||
Six Months | 4.45 | % | 4.45 | % | ||||||||
Since Inception* | 6.04 | % | 6.04 | % | ||||||||
Class K Shares† | 2.01 | % | ||||||||||
Six Months | 4.56 | % | 4.56 | % | ||||||||
Since Inception* | 6.22 | % | 6.22 | % | ||||||||
Class I Shares† | 2.17 | % | ||||||||||
Six Months | 4.73 | % | 4.73 | % | ||||||||
Since Inception* | 6.46 | % | 6.46 | % |
The Strategy’s current prospectus fee table shows the Strategy’s total annual operating expense ratios as 1.35%, 1.25%, 1.56%, 2.26%, 1.26%, 2.00%, 1.69%, and 1.36% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratios, exclusive of interest expense, to 0.55%, 0.45%, 0.75%, 1.45%, 0.45%, 0.95%, 0.70%, and 0.45% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. These waivers/reimbursements extend throughout the Strategy’s current fiscal year and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
* | Inception Date: January 26, 2010 |
** | SEC Yields are calculated based on SEC guidelines for the 30-day period ended October 31, 2010. |
† | These share classes are offered at net asset value (NAV) to eligible investors and their SEC returns are the same as the NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Funds. The inception date for these share classes are listed above. |
See Historical Performance disclosures on page 4.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 7 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES) AS OF THE MOST RECENT CALENDAR QUARTER-END (SEPTEMBER 30, 2010) | ||||||||
Returns | ||||||||
Class 1 Shares | ||||||||
Six Months | 4.64% | |||||||
Since Inception* | 4.56% | |||||||
Class 2 Shares | ||||||||
Six Months | 4.68% | |||||||
Since Inception* | 4.62% | |||||||
Class A Shares | ||||||||
Six Months | 0.13% | |||||||
Since Inception* | 0.03% | |||||||
Class C Shares | ||||||||
Six Months | 3.21% | |||||||
Since Inception* | 2.90% | |||||||
Advisor Class Shares† | ||||||||
Six Months | 4.75% | |||||||
Since Inception* | 4.64% | |||||||
Class R Shares† | ||||||||
Six Months | 4.46% | |||||||
Since Inception* | 4.32% | |||||||
Class K Shares† | ||||||||
Six Months | 4.60% | |||||||
Since Inception* | 4.50% | |||||||
Class I Shares† | ||||||||
Six Months | 4.69% | |||||||
Since Inception* | 4.63% |
* | Inception Date: January 26, 2010 |
† | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Funds. The inception date for these share classes are listed above. |
See Historical Performance disclosures on page 4.
8 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Historical Performance
FUND EXPENSES
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2010 | Ending Account Value October 31, 2010 | Expenses Paid During Period* | ||||||||||||||||||||||
Actual | Hypothetical | Actual | Hypothetical** | Actual | Hypothetical | |||||||||||||||||||
Class A | $ | 1,000 | $ | 1,000 | $ | 1,045.77 | $ | 1,021.17 | $ | 4.13 | $ | 4.08 | ||||||||||||
Class C | $ | 1,000 | $ | 1,000 | $ | 1,042.85 | $ | 1,017.64 | $ | 7.72 | $ | 7.63 | ||||||||||||
Advisor Class | $ | 1,000 | $ | 1,000 | $ | 1,047.63 | $ | 1,022.68 | $ | 2.58 | $ | 2.55 | ||||||||||||
Class R | $ | 1,000 | $ | 1,000 | $ | 1,044.46 | $ | 1,020.11 | $ | 5.20 | $ | 5.14 | ||||||||||||
Class K | $ | 1,000 | $ | 1,000 | $ | 1,045.59 | $ | 1,021.42 | $ | 3.87 | $ | 3.82 | ||||||||||||
Class I | $ | 1,000 | $ | 1,000 | $ | 1,047.28 | $ | 1,022.74 | $ | 2.53 | $ | 2.50 | ||||||||||||
Class 1 | $ | 1,000 | $ | 1,000 | $ | 1,046.92 | $ | 1,022.23 | $ | 3.04 | $ | 3.01 | ||||||||||||
Class 2 | $ | 1,000 | $ | 1,000 | $ | 1,047.26 | $ | 1,022.68 | $ | 2.58 | $ | 2.55 |
* | Expenses are equal to the classes’ annualized expense ratios of 0.80%, 1.50%, 0.50%, 1.01%, 0.75%, 0.49%, 0.59% and 0.50%, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
** | Assumes 5% return before expenses. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 9 |
Fund Expenses
PORTFOLIO SUMMARY
October 31, 2010 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $17.7
* | All data are as of October 31, 2010. The Strategy’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Strategy also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
10 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio Summary
PORTFOLIO OF INVESTMENTS
October 31, 2010
Principal Amount (000) | U.S. $ Value | |||||||
INFLATION - LINKED SECURITIES – 101.9% | ||||||||
United States – 101.9% | ||||||||
U.S. Treasury Inflation Index | U.S.$ | 230 | $ | 247,225 | ||||
1.375%, 7/15/18-1/15/20 (TIPS) | 970 | 1,055,163 | ||||||
1.625%, 1/15/15 (TIPS)(a) | 1,521 | 1,646,708 | ||||||
1.625%, 1/15/18 (TIPS) | 396 | 437,425 | ||||||
1.875%, 7/15/13-7/15/19 (TIPS)(a) | 4,278 | 4,706,770 | ||||||
2.00%, 1/15/14 (TIPS)(a) | 662 | 715,885 | ||||||
2.00%, 7/15/14-1/15/26 (TIPS) | 2,182 | 2,403,822 | ||||||
2.125%, 1/15/19 (TIPS) | 391 | 448,956 | ||||||
2.375%, 1/15/17-1/15/25 (TIPS) | 1,092 | 1,265,302 | ||||||
2.50%, 7/15/16 (TIPS) | 611 | 703,070 | ||||||
2.625%, 7/15/17 (TIPS) | 748 | 877,313 | ||||||
3.00%, 7/15/12 (TIPS)(a) | 2,301 | 2,446,460 | ||||||
3.375%, 1/15/12 (TIPS) | 1,063 | 1,113,389 | ||||||
Total Inflation-Linked Securities | 18,067,488 | |||||||
CORPORATES - INVESTMENT | ||||||||
Industrial – 6.7% | ||||||||
Basic – 1.4% | ||||||||
AngloGold Ashanti Holdings PLC | 20 | 21,360 | ||||||
ArcelorMittal | 30 | 32,809 | ||||||
Dow Chemical Co. (The) | 25 | 29,414 | ||||||
Eastman Chemical Co. | 18 | 19,772 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 25 | 26,781 | ||||||
International Paper Co. | 25 | 33,013 | ||||||
Lubrizol Corp. | 20 | 25,857 | ||||||
Packaging Corp. of America | 25 | 27,085 | ||||||
PPG Industries, Inc. | 25 | 27,383 | ||||||
243,474 | ||||||||
Capital Goods – 0.2% | ||||||||
Republic Services, Inc. | 30 | 33,279 | ||||||
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 11 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
Communications - Media – 0.4% | ||||||||
CBS Corp. | U.S.$ | 25 | $ | 32,390 | ||||
Time Warner Cable, Inc. | 25 | 33,269 | ||||||
65,659 | ||||||||
Communications - | ||||||||
American Tower Corp. | 30 | 31,320 | ||||||
Bell Canada | CAD | 25 | 26,291 | |||||
Deutsche Telekom International Finance BV | GBP | 25 | 43,682 | |||||
Embarq Corp. | U.S.$ | 25 | 28,546 | |||||
Telecom Italia Capital SA | 30 | 36,173 | ||||||
United States Cellular Corp. | 30 | 30,361 | ||||||
196,373 | ||||||||
Consumer Cyclical - Automotive – 0.2% | ||||||||
Harley-Davidson Funding Corp. | 30 | 32,325 | ||||||
Consumer Cyclical - | ||||||||
Viacom, Inc. | 25 | 29,597 | ||||||
Consumer Cyclical - Other – 0.1% | ||||||||
Marriott International, Inc. | 25 | 27,086 | ||||||
Consumer Cyclical - Retailers – 0.3% | ||||||||
CVS Caremark Corp. | 15 | 18,237 | ||||||
Nordstrom, Inc. | 25 | 29,192 | ||||||
47,429 | ||||||||
Consumer Non-Cyclical – 1.0% | ||||||||
Ahold Finance USA LLC | 25 | 28,642 | ||||||
Altria Group, Inc. | 25 | 34,324 | ||||||
Bunge Ltd. Finance Corp. | 25 | 30,518 |
12 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
Delhaize Group SA | U.S.$ | 25 | $ | 28,277 | ||||
Fortune Brands, Inc. | 30 | 30,235 | ||||||
Newell Rubbermaid, Inc. | 5 | 5,442 | ||||||
Reynolds American, Inc. | 25 | 29,429 | ||||||
186,867 | ||||||||
Energy – 1.3% | ||||||||
Anadarko Petroleum Corp. | 25 | 27,341 | ||||||
BP Capital Markets PLC | 39 | 40,026 | ||||||
Hess Corp. | 25 | 32,975 | ||||||
Marathon Oil Corp. | 8 | 10,302 | ||||||
Nabors Industries, Inc. | 25 | 32,151 | ||||||
Noble Energy, Inc. | 25 | 32,502 | ||||||
Noble Holding International Ltd. | 4 | 4,405 | ||||||
Weatherford International Ltd. | 30 | 32,168 | ||||||
Williams Cos., Inc. (The) | 25 | 29,875 | ||||||
241,745 | ||||||||
Technology – 0.4% | ||||||||
Agilent Technologies, Inc. | 7 | 7,506 | ||||||
Motorola, Inc. | 25 | 29,504 | ||||||
Xerox Corp. | 25 | 30,065 | ||||||
67,075 | ||||||||
Transportation - Services – 0.1% | ||||||||
Ryder System, Inc. | 10 | 11,800 | ||||||
1,182,709 | ||||||||
Financial Institutions – 3.1% | ||||||||
Banking – 0.8% | ||||||||
Bank of America Corp. | 25 | 29,267 | ||||||
Capital One Financial Corp. | 25 | 26,941 |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 13 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
Citigroup, Inc. | U.S.$ | 25 | $ | 25,312 | ||||
Goldman Sachs Group, Inc. (The) | 35 | 38,896 | ||||||
Macquarie Group Ltd. | 25 | 28,913 | ||||||
149,329 | ||||||||
Brokerage – 0.1% | ||||||||
Jefferies Group, Inc. | 14 | 14,901 | ||||||
Finance – 0.2% | ||||||||
HSBC Finance Corp. | 25 | 27,006 | ||||||
Insurance – 1.8% | ||||||||
Aetna, Inc. | 30 | 33,896 | ||||||
Allstate Corp. (The) | 30 | 29,700 | ||||||
Chubb Corp. | 25 | 28,886 | ||||||
CIGNA Corp. | 31 | 33,672 | ||||||
Genworth Financial, Inc. | 30 | 31,135 | ||||||
Humana, Inc. | 25 | 29,053 | ||||||
Markel Corp. | 9 | 10,295 | ||||||
Marsh & McLennan Cos., Inc. | 17 | 18,543 | ||||||
Nationwide Mutual Insurance Co. | 25 | 29,322 | ||||||
Prudential Financial, Inc. | 25 | 28,395 | ||||||
UnitedHealth Group, Inc. | 30 | 30,477 | ||||||
XL Capital Ltd. | 21 | 22,510 | ||||||
325,884 | ||||||||
Other Finance – 0.2% | ||||||||
ORIX Corp. | 26 | 26,932 | ||||||
544,052 | ||||||||
Utility – 1.0% | ||||||||
Electric – 0.6% | ||||||||
Allegheny Energy Supply Co. LLC | 25 | 27,013 |
14 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
Ohio Power Co. | U.S.$ | 16 | $ | 17,430 | ||||
PPL Energy Supply LLC | 25 | 28,588 | ||||||
Teco Finance, Inc. | 30 | 31,625 | ||||||
104,656 | ||||||||
Natural Gas – 0.4% | ||||||||
DCP Midstream LLC | 20 | 26,487 | ||||||
EQT Corp. | 12 | 14,764 | ||||||
Spectra Energy Capital LLC | 25 | 31,603 | ||||||
72,854 | ||||||||
177,510 | ||||||||
Non Corporate Sectors – 0.2% | ||||||||
Agencies - Not Government Guaranteed – 0.2% | ||||||||
Petrobras International Finance Co. | 40 | 44,746 | ||||||
Total Corporates - Investment Grades | 1,949,017 | |||||||
GOVERNMENTS - SOVEREIGN | ||||||||
Australia – 0.2% | ||||||||
Suncorp-Metway Ltd. | 45 | 46,050 | ||||||
Netherlands – 1.8% | ||||||||
NIBC Bank NV | EUR | 110 | 156,417 | |||||
SNS Bank NV | 110 | 156,015 | ||||||
312,432 | ||||||||
United Kingdom – 0.9% | ||||||||
Lloyds TSB Bank PLC | GBP | 50 | 81,758 | |||||
Yorkshire Building Society | 50 | 81,374 | ||||||
163,132 | ||||||||
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 15 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
United States – 3.0% | ||||||||
Goldman Sachs Group, Inc. (The) - FDIC Insured | EUR | 375 | $ | 533,869 | ||||
Total Governments - Sovereign Agencies | 1,055,483 | |||||||
COMMERCIAL MORTGAGE-BACKED | ||||||||
Non-Agency Fixed Rate CMBS – 5.5% | ||||||||
Banc of America Commercial Mortgage, Inc. | U.S.$ | 80 | 85,479 | |||||
Bear Stearns Commercial Mortgage Securities | 75 | 83,902 | ||||||
Citigroup Commercial Mortgage Trust | 55 | 59,638 | ||||||
Commercial Mortgage Pass Through Certificates | 55 | 57,710 | ||||||
Credit Suisse Mortgage Capital Certificates | 50 | 52,641 | ||||||
Greenwich Capital Commercial Funding Corp. | 65 | 69,483 | ||||||
GS Mortgage Securities Corp. II | 45 | 44,944 | ||||||
JP Morgan Chase Commercial Mortgage | 80 | 87,039 | ||||||
Series 2007-CB18, Class A4 | 60 | 63,292 | ||||||
Series 2007-LD11, Class A4 | 55 | 58,379 | ||||||
LB-UBS Commercial Mortgage Trust | 70 | 76,034 | ||||||
Series 2006-C4, Class A4 | 60 | 65,947 | ||||||
Series 2006-C7, Class A3 | 80 | 85,748 |
16 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
Merrill Lynch/Countrywide Commercial Mortgage Trust | U.S.$ | 25 | $ | 26,701 | ||||
Morgan Stanley Capital I | 60 | 62,144 | ||||||
Total Commercial Mortgage-Backed Securities | 979,081 | |||||||
SUPRANATIONALS – 1.4% | ||||||||
European Bank for Reconstruction & Development | BRL | 120 | 71,755 | |||||
European Investment Bank | U.S.$ | 50 | 50,235 | |||||
Inter-American Development Bank | 120 | 120,118 | ||||||
Total Supranationals | 242,108 | |||||||
GOVERNMENTS - TREASURIES – 0.9% | ||||||||
New Zealand – 0.9% | ||||||||
New Zealand Government Bond | NZD | 210 | 164,067 | |||||
GOVERNMENTS - SOVEREIGN BONDS – 0.7% | ||||||||
Poland – 0.1% | ||||||||
Poland Government International Bond | U.S.$ | 16 | 16,960 | |||||
Russia – 0.6% | ||||||||
Russian Federation | 85 | 102,030 | ||||||
Total Governments - Sovereign Bonds | 118,990 | |||||||
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 17 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
CORPORATES - NON-INVESTMENT | ||||||||
Industrial – 0.2% | ||||||||
Communications - Media – 0.0% | ||||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | U.S.$ | 5 | $ | 5,313 | ||||
8.125%, 4/30/20(b) | 3 | 3,240 | ||||||
8,553 | ||||||||
Consumer Non-Cyclical – 0.2% | ||||||||
Universal Health Services, Inc. | 25 | 27,530 | ||||||
Total Corporates - Non-Investment Grades | 36,083 | |||||||
EMERGING MARKETS - CORPORATE | ||||||||
Industrial – 0.1% | ||||||||
Energy – 0.1% | ||||||||
Ecopetrol SA | 10 | 12,300 | ||||||
CMOs – 0.1% | ||||||||
Non-Agency Fixed Rate – 0.1% | ||||||||
Merrill Lynch Mortgage Investors, Inc. | 9 | 8,944 | ||||||
Shares | ||||||||
SHORT-TERM INVESTMENTS – 3.7% | ||||||||
Investment Companies – 3.7% | ||||||||
AllianceBernstein Fixed-Income Shares, Inc. – Government STIF Portfolio, 0.17%(d) | 667,174 | 667,174 | ||||||
Total Investments – 131.4% | 23,300,735 | |||||||
Other assets less liabilities – (31.4)% | (5,564,980 | ) | ||||||
Net Assets – 100.0% | $ | 17,735,755 | ||||||
18 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
FUTURES CONTRACTS (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at October 31, 2010 | Unrealized Depreciation | |||||||||||||||
Purchased Contracts | ||||||||||||||||||||
German Euro Schatz Futures | 5 | December 2010 | $ | 761,985 | $ | 757,314 | $ | (4,671 | ) | |||||||||||
Sold Contracts | ||||||||||||||||||||
U.S. T-Note | 1 | December 2010 | 219,123 | 219,984 | (861 | ) | ||||||||||||||
U.S. T-Note | 5 | December 2010 | 607,234 | 607,891 | (657 | ) | ||||||||||||||
$ | (6,189 | ) | ||||||||||||||||||
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty & Description | Contract Amount (000) | U.S. $ Value on Origination Date | U.S. $ Value at October 31, 2010 | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Buy Contracts: | ||||||||||||||||
State Street Bank and Trust Co.: | ||||||||||||||||
Australian Dollar settling 12/22/10 | 84 | $ | 82,188 | $ | 82,244 | $ | 56 | |||||||||
British Pound settling 12/01/10 | 2 | 2,815 | 2,853 | 38 | ||||||||||||
Euro settling 12/01/10(1) | 121 | 168,107 | 169,046 | 939 | ||||||||||||
Norwegian Krone settling 11/04/10 | 359 | 56,707 | 61,319 | 4,612 | ||||||||||||
Norwegian Krone settling 11/04/10 | 24 | 4,159 | 4,161 | 2 | ||||||||||||
South Korean Won settling 11/18/10 | 351,611 | 311,919 | 312,251 | 332 | ||||||||||||
South Korean Won settling 11/18/10 | 23,893 | 21,425 | 21,218 | (207 | ) | |||||||||||
Swedish Krona settling 12/15/10 | 1,128 | 169,419 | 168,713 | (706 | ) | |||||||||||
Sale Contracts: | ||||||||||||||||
State Street Bank and Trust Co.: | ||||||||||||||||
Brazilian Real settling 11/03/10 | 125 | 72,684 | 73,722 | (1,038 | ) | |||||||||||
Brazilian Real settling 12/02/10 | 125 | 72,880 | 73,270 | (390 | ) | |||||||||||
British Pound settling 12/01/10(1) | 107 | 168,107 | 170,683 | (2,576 | ) | |||||||||||
British Pound settling 12/01/10 | 131 | 204,655 | 209,097 | (4,442 | ) | |||||||||||
Canadian Dollar settling 11/22/10 | 26 | 25,609 | 25,875 | (266 | ) | |||||||||||
Euro settling 1/06/11 | 822 | 1,140,181 | 1,142,702 | (2,521 | ) | |||||||||||
Japanese Yen settling 11/10/10 | 1,508 | 18,380 | 18,745 | (365 | ) | |||||||||||
Japanese Yen settling 11/10/10 | 19,275 | 231,950 | 239,540 | (7,590 | ) | |||||||||||
New Zealand Dollar settling 12/02/10 | 214 | 157,084 | 163,113 | (6,029 | ) | |||||||||||
Norwegian Krone settling 12/15/10 | 384 | 65,705 | 65,342 | 363 |
(1) | Represents a cross-currency purchase of Euro and a sale of British Pound. |
INTEREST RATE SWAP TRANSACTIONS (see Note D)
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments made by the Portfolio | Payments received by the Portfolio | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Morgan Stanley Capital | $ | 370 | 3/31/20 | 3.827 | % | 3 month LIBOR | $ | (40,016 | ) |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 19 |
Portfolio of Investments
CREDIT DEFAULT SWAP CONTRACTS ON CREDIT INDICES (see Note D)
Swap Counterparty & Index | Fixed Deal (Pay) Receive Rate | Implied Credit Spread at October 31, 2010 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation | ||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||
Morgan Stanley Capital: CDX-IG.15 10-Year Index 12/20/20* | 1.00 | % | 1.11 | % | $ | 1,000 | $ | (8,425 | ) | $ | (11,141 | ) | $ | 2,716 |
REVERSE REPURCHASE AGREEMENTS (see Note D)
Broker | Interest Rate | Maturity | Amount | |||||||||
Bank of America | 0.20 | % | 12/31/10 | $ | 494,894 | |||||||
Bank of America | 0.23 | % | 12/31/10 | 527,122 | ||||||||
Bank of America | 0.14 | % | 12/31/10 | 616,811 | ||||||||
Bank of America | 0.15 | % | 12/31/10 | 653,857 | ||||||||
Bank of America | 0.21 | % | 12/31/10 | 680,490 | ||||||||
Bank of America | 0.17 | % | 12/31/10 | 1,308,213 | ||||||||
$ | 4,281,387 | |||||||||||
(a) | Position, or a portion thereof, has been segregated to collateralize reverse repurchase agreements. The market value of the collateral amounted to $4,504,296. |
(b) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2010, the aggregate market value of these securities amounted to $300,693 or 1.7% of net assets. |
(c) | Floating Rate Security. Stated interest rate was in effect at October 31, 2010. |
(d) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
The fund currently owns investments collateralized by subprime mortgage loans. Subprime loans are offered to homeowners who do not have a history of debt or who have had problems meeting their debt obligations. Because repayment is less certain, subprime borrowers pay a higher rate of interest than prime borrowers. As of October 31, 2010, the fund’s total exposure to subprime investments was 0.05% of net assets. These investments are valued in accordance with the fund’s Valuation Policies (see Note A for additional details). |
Currency Abbreviations:
BRL – Brazilian Real
CAD – Canadian Dollar
EUR – Euro
GBP – Great British Pound
NZD – New Zealand Dollar
Glossary:
CMBS – Commercial Mortgage-Backed Securities
CMOs – Collateralized Mortgage Obligations
FDIC – Federal Deposit Insurance Corporation
LIBOR – London Interbank Offered Rates
TIPS – Treasury Inflation Protected Security
See notes to financial statements.
20 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
STATEMENT OF ASSETS & LIABILITIES
October 31, 2010
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $21,786,365) | $ | 22,633,561 | ||
Affiliated issuers (cost $667,174) | 667,174 | |||
Cash | 6,894 | (a) | ||
Interest and dividends receivable | 176,116 | |||
Deferred offering expenses | 63,052 | |||
Receivable for capital stock sold | 23,036 | |||
Receivable for investment securities sold and foreign currency transactions | 13,827 | |||
Unrealized appreciation of forward currency exchange contracts | 6,342 | |||
Unrealized appreciation on credit default swap contracts | 2,716 | |||
Total assets | 23,592,718 | |||
Liabilities | ||||
Payable for reverse repurchase agreements | 4,281,387 | |||
Payable for investment securities purchased and foreign currency transactions | 1,284,992 | |||
Payable for capital stock redeemed | 60,000 | |||
Payable to Adviser | 47,763 | |||
Unrealized depreciation on interest rate swap contracts | 40,016 | |||
Unrealized depreciation of forward currency exchange contracts | 26,130 | |||
Premium received on swaps | 11,141 | |||
Advisory fee payable | 7,251 | |||
Distribution fee payable | 3,146 | |||
Transfer Agent fee payable | 989 | |||
Payable for variation margin on futures contracts | 932 | |||
Accrued expenses | 93,216 | |||
Total liabilities | 5,856,963 | |||
Net Assets | $ | 17,735,755 | ||
Composition of Net Assets | ||||
Capital stock, at par | $ | 16,869 | ||
Additional paid-in capital | 16,931,346 | |||
Undistributed net investment income | 4,829 | |||
Accumulated net realized loss on investment and foreign currency transactions | (3,425 | ) | ||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 786,136 | |||
$ | 17,735,755 | |||
Net Asset Value Per Share—24 billion shares of capital stock authorized, $.01 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 2,001,158 | 189,998 | $ | 10.53 | * | ||||||
C | $ | 3,378,046 | 321,768 | $ | 10.50 | |||||||
Advisor | $ | 1,102,197 | 104,491 | $ | 10.55 | |||||||
R | $ | 10,501 | 1,000 | $ | 10.50 | |||||||
K | $ | 783,660 | 74,616 | $ | 10.50 | |||||||
I | $ | 10,509 | 1,000 | $ | 10.51 | |||||||
1 | $ | 10,509 | 1,000 | $ | 10.51 | |||||||
2 | $ | 10,439,175 | 993,000 | $ | 10.51 | |||||||
(a) | An amount of $6,894 has been segregated to collateralize margin requirements for open futures contracts outstanding at October 31, 2010. |
* | The maximum offering price per share for Class A shares was $11.00 which reflects a sales charge of 4.25%. |
See notes to financial statements.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 21 |
Statement of Assets & Liabilities
STATEMENT OF OPERATIONS
For the period January 26, 2010(a) to October 31, 2010
Investment Income | ||||||||
Interest | $ | 253,730 | ||||||
Dividends—Affiliated issuers | 894 | $ | 254,624 | |||||
Expenses | ||||||||
Advisory fee (see Note B) | 50,104 | |||||||
Distribution fee—Class A | 2,141 | |||||||
Distribution fee—Class C | 9,460 | |||||||
Distribution fee—Class R | 39 | |||||||
Distribution fee—Class K | 578 | |||||||
Transfer agency—Class A | 3,677 | |||||||
Transfer agency—Class C | 3,301 | |||||||
Transfer agency—Advisor Class | 1,702 | |||||||
Transfer agency—Class R | 5 | |||||||
Transfer agency—Class K | 405 | |||||||
Transfer agency—Class I | 2 | |||||||
Transfer agency—Class 1 | 10 | |||||||
Transfer agency—Class 2 | 2,303 | |||||||
Amortization of offering expenses | 155,276 | |||||||
Custodian | 86,653 | |||||||
Administrative | 55,000 | |||||||
Audit | 44,110 | |||||||
Registration fees | 25,545 | |||||||
Printing | 21,262 | |||||||
Legal | 17,977 | |||||||
Directors’ fees | 11,878 | |||||||
Miscellaneous | 8,315 | |||||||
Total expenses before interest expense | 499,743 | |||||||
Interest expense | 4,576 | |||||||
Total expenses | 504,319 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (442,424 | ) | ||||||
Net expenses | 61,895 | |||||||
Net investment income | 192,729 | |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | 10,327 | |||||||
Futures contracts | 14,478 | |||||||
Swap contracts | 5,198 | |||||||
Foreign currency transactions | (98,004 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 847,196 | |||||||
Futures contracts | (6,189 | ) | ||||||
Swap contracts | (37,300 | ) | ||||||
Foreign currency denominated assets and liabilities | (17,571 | ) | ||||||
Net gain on investment and foreign currency transactions | 718,135 | |||||||
Net Increase in Net Assets from Operations | $ | 910,864 | ||||||
(a) | Commencement of operations. |
See notes to financial statements.
22 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Statement of Operations
STATEMENT OF CHANGES IN NET ASSETS
January 26, 2010(a) to October 31, 2010 | ||||
Increase (Decrease) in Net Assets from Operations | ||||
Net investment income | $ | 192,729 | ||
Net realized loss on investment and foreign currency transactions | (68,001 | ) | ||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 786,136 | |||
Net increase in net assets from operations | 910,864 | |||
Dividends and Distributions to Shareholders from | ||||
Net investment income | ||||
Class A | (6,913 | ) | ||
Class C | (6,337 | ) | ||
Advisor Class | (6,220 | ) | ||
Class R | (94 | ) | ||
Class K | (1,661 | ) | ||
Class I | (123 | ) | ||
Class 1 | (116 | ) | ||
Class 2 | (120,917 | ) | ||
Tax return of capital | ||||
Class A | (342 | ) | ||
Class C | (314 | ) | ||
Advisor Class | (308 | ) | ||
Class R | (5 | ) | ||
Class K | (82 | ) | ||
Class I | (6 | ) | ||
Class 1 | (6 | ) | ||
Class 2 | (5,989 | ) | ||
Capital Stock Transactions | ||||
Net increase | 16,974,324 | |||
Total increase | 17,735,755 | |||
Net Assets | ||||
Beginning of period | — | |||
End of period (including undistributed net investment income of $4,829) | $ | 17,735,755 | ||
(a) | Commencement of operations. |
See notes to financial statements.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 23 |
Statement of Changes in Net Assets
STATEMENT OF CASH FLOWS
For the period January 26, 2010(a) to October 31, 2010
Increase (Decrease) in Cash from Operating Activities: | ||||||||
Interest and dividends received | $ | 146,004 | ||||||
Operating expenses reimbursed by the Adviser in excess of expenses paid | 31,994 | |||||||
Net increase in cash from operating activities | $ | 177,998 | ||||||
Investing Activities: | ||||||||
Purchases of long-term investments | (26,143,684) | |||||||
Proceeds from disposition of long-term investments | 5,550,045 | |||||||
Purchase of short-term investments, net | (667,174 | ) | ||||||
Payments on swap contracts | 16,339 | |||||||
Proceeds from futures | 9,989 | |||||||
Realized currency loss on foreign forward currency contracts closed | (79,719 | ) | ||||||
Net decrease in cash from investing activities | (21,314,204) | |||||||
Financing Activities: | ||||||||
Cash dividends paid | (128,961 | ) | ||||||
Subscriptions of capital stock, net | 16,990,674 | |||||||
Increase in reverse repurchase agreements | 4,281,387 | |||||||
Net increase in cash from financing activities | 21,143,100 | |||||||
Net increase in cash | 6,894 | |||||||
Cash at beginning of period | — | |||||||
Cash at end of period | $ | 6,894 | ||||||
Reconciliation of Net Increase in Net Assets from Operations to Net Increase in Cash from Operating Activities: | ||||||||
Net increase in net assets from operations | $ | 910,864 | ||||||
Adjustments: | ||||||||
Increase in interest and dividends receivable | $ | (176,116 | ) | |||||
Net accretion of bond discount and amortization of bond premium | 173,641 | |||||||
Inflation Index Adjustment | (106,146 | ) | ||||||
Increase in interest payable | 4,576 | |||||||
Increase in accrued expenses | 89,313 | |||||||
Net realized gain on investment and foreign currency transactions | 68,001 | |||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (786,135 | ) | ||||||
Total adjustments | (732,866 | ) | ||||||
Net increase in cash from operating activities | $ | 177,998 | ||||||
(a) | Commencement of operations. |
See notes to financial statements.
24 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Statement of Cash Flows
NOTES TO FINANCIAL STATEMENTS
October 31, 2010
NOTE A
Significant Accounting Policies
AllianceBernstein Bond Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund, which is a Maryland corporation, operates as a series company currently comprised of four portfolios: the Intermediate Bond Portfolio, the Bond Inflation Strategy Portfolio, the Municipal Bond Inflation Strategy Portfolio and the Real Asset Strategy Portfolio (formerly, AllianceBernstein Multi-Asset Inflation Strategy Portfolio). The Intermediate Bond Portfolio commenced operations on July 1, 1999. The Bond Inflation Strategy and Municipal Bond Inflation Strategy Portfolios commenced operations on January 26, 2010. The Real Asset Strategy Portfolio commenced operations on March 8, 2010. This report relates only to the Bond Inflation Strategy Portfolio. The Bond Inflation Strategy Portfolio (the “Portfolio”) offers Class A, Class C, Advisor Class, Class R, Class K, Class I , Class 1 and Class 2 shares. The Portfolio has also issued Class 1 shares to the Portfolio’s investment adviser, AllianceBernstein L.P. (the “Adviser”). Class 1 shares are not publicly offered. As of October 31, 2010, the Adviser was the sole shareholder of Class R, Class I, Class 1 and Class 2. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase. Class R, Class K, and Class 1 shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I, and Class 2 shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eight classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Portfolio’s Board of Directors.
In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 25 |
Notes to Financial Statements
price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market (“OTC”) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, AllianceBernstein L.P. (the “Adviser”) may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Investments in money market funds are valued at their net asset value each day.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio 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 and may materially affect the value of those securities.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The U.S. GAAP disclosure requirements establish a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in
26 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of October 31, 2010:
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Inflation-Linked Securities | $ | — | $ | 18,067,488 | $ | — | $ | 18,067,488 | ||||||||
Corporates—Investment Grades | — | 1,949,017 | — | 1,949,017 | ||||||||||||
Governments—Sovereign Agencies | — | 1,055,483 | — | 1,055,483 | ||||||||||||
Commercial Mortgage-Backed Securities | — | 858,558 | 120,523 | 979,081 | ||||||||||||
Supranationals | — | 242,108 | — | 242,108 | ||||||||||||
Governments—Treasuries | — | 164,067 | — | 164,067 | ||||||||||||
Governments—Sovereign Bonds | — | 118,990 | — | 118,990 | ||||||||||||
Corporates—Non-Investment Grades | — | 36,083 | — | 36,083 | ||||||||||||
Emerging Markets—Corporate Bonds | — | 12,300 | — | 12,300 | ||||||||||||
CMOs | — | — | 8,944 | 8,944 | ||||||||||||
Short-Term Investments | 667,174 | — | — | 667,174 | ||||||||||||
Total Investments in Securities | 667,174 | 22,504,094 | 129,467 | 23,300,735 | ||||||||||||
Other Financial Instruments* : | ||||||||||||||||
Assets | ||||||||||||||||
Forward Currency Exchange Contracts | — | 6,342 | — | 6,342 | ||||||||||||
Credit Default Swap Contracts | — | 2,716 | — | 2,716 | ||||||||||||
Liabilities | ||||||||||||||||
Futures Contracts | (6,189 | ) | — | — | (6,189 | )+ | ||||||||||
Forward Currency Exchange Contracts | — | (26,130 | ) | — | (26,130 | ) | ||||||||||
Interest Rate Swap Contracts | — | (40,016 | ) | — | (40,016 | ) | ||||||||||
Total | $ | 660,985 | $ | 22,447,006 | $ | 129,467 | $ | 23,237,458 | ||||||||
* | Other financial instruments are derivative instruments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. |
+ | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. Cumulative appreciation/(depreciation) of futures contracts is reported in the portfolio of investments. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 27 |
Notes to Financial Statements
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Commercial Mortgage-Backed Securities | CMOs | Total | ||||||||||
Balance as of 1/26/10(a) | $ | — | $ | — | $ | — | ||||||
Accrued discounts/premiums | 712 | 34 | 746 | |||||||||
Realized gain (loss) | — | 783 | 783 | |||||||||
Change in unrealized appreciation/depreciation | 19,244 | 676 | 19,920 | |||||||||
Net purchases (sales) | 100,567 | 7,451 | 108,018 | |||||||||
Transfers into Level 3 | — | — | — | |||||||||
Transfers out of Level 3 | — | — | — | |||||||||
Balance as of 10/31/10 | $ | 120,523 | $ | 8,944 | $ | 129,467 | ||||||
Net change in unrealized appreciation/depreciation from Investments held as of 10/31/10* | $ | 19,244 | $ | 676 | $ | 19,920 | ||||||
(a) | Commencement of operations. |
* | The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation of investments in the accompanying statement of operations. |
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required.
28 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for the current tax year and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
8. Offering Expenses
Offering expenses of $218,328 have been deferred and are being amortized on a straight line basis over a one year period.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 29 |
Notes to Financial Statements
basis to .75%, 1.45%, .45%, .95%, .70%, .45%, .55% and .45% of the daily average net assets for the Class A, Class C, Advisor Class, Class R, Class K, Class I, Class 1, and Class 2 shares, respectively. Under the agreement, fees waived and expenses borne by the Adviser are subject to repayment by the Portfolio until January 26, 2013. No repayment will be made that would cause the Portfolio’s total annualized operating expenses to exceed the net fee percentage set forth above or would exceed the amount of offering expenses as recorded by the Portfolio on or before January 26, 2011. This fee waiver and/or expense reimbursement agreement may not be terminated before October 31, 2011, after which it may be terminated by either party. For the period ended October 31, 2010, such reimbursement amounted to $387,424, that is subject to repayment, not to exceed the amount of offering expenses. Additionally, the Portfolio received excess reimbursement in the amount of $47,763 which was payable to the Adviser for the period ended October 31, 2010.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the period ended October 31, 2010, the Adviser voluntarily agreed to waive such fees in the amount of $55,000.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $9,211 for the period ended October 31, 2010.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Portfolio’s shares. The Distributor has advised the Portfolio that it has retained front-end sales charges of $1,291 from the sale of Class A shares and received $0 in contingent deferred sales charges imposed upon redemptions by shareholders of Class C shares for the period ended October 31, 2010.
The Portfolio may invest in the AllianceBernstein Fixed-Income Shares, Inc. – Government STIF Portfolio, an open-end management investment company managed by the Adviser. The Government STIF Portfolio is offered as a cash management option to mutual funds and other institutional accounts of the Adviser, and is not available for direct purchase by members of the public. The Government STIF Portfolio pays no investment management fees but does bear its own expenses. A summary of the Portfolio’s transactions in shares of the Government STIF Portfolio for the period ended October 31, 2010 is as follows:
Market Value January 26, 2010(a) (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value October 31, 2010 (000) | Dividend Income (000) | ||||||||||||
$ – 0 – | $ | 10,729 | $ | 10,062 | $ | 667 | $ | 1 |
(a) | Commencement of operations. |
30 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
NOTE C
Distribution Services Agreement
The Portfolio has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to the Distributor at an annual rate of up to .30% of the Portfolio’s average daily net assets attributable to Class A shares, 1% of the Portfolio’s average daily net assets attributable to Class C shares, .50% of the Portfolio’s average daily net assets attributable to Class R shares, .25% of the Portfolio’s average daily net assets attributable to Class K shares and .10% of the Portfolio’s average daily net assets attributable to Class 1 shares. There are no distribution and servicing fees on the Advisor Class, Class I, and Class 2 shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Portfolio’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amounts of $168,489, $9,520, $9,887 and $1,788 for Class C, Class R, Class K and Class 1 shares, respectively. While such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the period ended October 31, 2010 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 6,240,553 | $ | 1,874,782 | ||||
U.S. government securities | 21,164,639 | 3,632,741 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures, foreign currency and swap transactions) are as follows:
Cost | $ | 22,453,539 | ||
Gross unrealized appreciation | $ | 853,967 | ||
Gross unrealized depreciation | (6,771 | ) | ||
Net unrealized appreciation | $ | 847,196 | ||
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 31 |
Notes to Financial Statements
1. Derivative Financial Instruments
The Portfolio 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, or to obtain exposure to otherwise inaccessible markets.
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
• | Futures Contracts |
The Portfolio may buy or sell futures contracts for the purpose of hedging its portfolio against adverse effects of anticipated movements in the market or for investment purposes. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the securities hedged or used for cover.
During the period ended October 31, 2010, the Portfolio entered into futures contracts for hedging and non-hedging purposes.
At the time the Portfolio enters into a futures contract, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures contracts is generally less than privately negotiated futures contracts, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, provides a guarantee of performance. This guarantee is supported by a daily payment system (i.e., margin requirements). When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures contracts subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures contracts. Use of short futures contracts subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale
32 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract.
During the period ended October 31, 2010, the Portfolio entered into forward currency contracts for hedging and non-hedging purposes.
• | Swap Agreements |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk, or currencies. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures or making direct investments in foreign currencies, as described below under “Currency Transactions”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swap agreements to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap agreement.
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 the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 33 |
Notes to Financial Statements
securities. The Portfolio 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, where applicable. 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.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Portfolio may enter into interest rate swap contracts. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
During the period ended October 31, 2010, the Portfolio entered into interest rate swap contracts for hedging and non-hedging purposes.
A Portfolio may enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by the Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
Credit Default Swaps:
The Portfolio may enter into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap agreement, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon interest rate
34 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
applied to the notional amount. The accrual for these interim payments is recorded within unrealized appreciation/depreciation of swap contracts on the statement of assets and liabilities. Upfront premiums paid or received in connection with credit default swap contracts are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap agreement, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap contract (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose its investment. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
During the period ended October 31, 2010, the Portfolio entered credit default swap contracts for non-hedging purposes.
Implied credit spreads over Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the market’s assessment of the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
At October 31, 2010, the Portfolio had Sale Contracts outstanding with Maximum Payout Amounts aggregating $1,000,000, with net unrealized appreciation of $2,716, and terms of less than 10 years, as reflected in the portfolio of investments.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 35 |
Notes to Financial Statements
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swap agreements entered into by the Portfolio for the same reference obligation with the same counterparty.
As of October 31, 2010, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligation and same counterparty for its Sale Contracts outstanding.
Documentation governing the Portfolio’s swap transactions may contain provisions for early termination of a swap in the event the net assets of the Portfolio decline below specific levels set forth in the documentation (“net asset contingent features”). If these levels are triggered, the Portfolio’s counterparty has the right to terminate the swap and require the Portfolio to pay or receive a settlement amount in connection with the terminated swap transaction. As of October 31, 2010, the Portfolio had interest rate swap contracts in liability positions with net asset contingent features. The fair value of such contracts amounted to $40,016 at October 31, 2010.
At October 31, 2010, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Foreign exchange contracts | Unrealized appreciation of forward currency exchange contracts | $ | 6,342 |
| Unrealized depreciation of forward currency exchange contracts | $ | 26,130 |
| ||||
Credit contracts | Unrealized appreciation on credit default swap contracts | 2,716 | ||||||||||
Interest rate contracts | Payable for variation margin on futures contracts | | 6,189 | * | ||||||||
Interest rate contracts | Unrealized depreciation on interest rate swap contracts | | 40,016 | | ||||||||
Total | $ | 9,058 | $ | 72,335 | ||||||||
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. Cumulative appreciation/(depreciation) of futures contracts is reported in the portfolio of investments. |
36 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
The effect of derivative instruments on the statement of operations for the period ended October 31, 2010:
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign exchange contracts | Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities | $ | 64,185 |
| $ | (19,788 | ) | |||
Credit contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | 11,503 | 2,716 | |||||||
Interest rate contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | (6,305 | ) | (40,016 | ) | |||||
Interest rate contracts | Net realized gain (loss) on futures contracts; Net change in unrealized appreciation/depreciation of futures contracts | 14,478 | (6,189 | ) | ||||||
Total | $ | 83,861 | $ | (63,277 | ) | |||||
For the period ended October 31, 2010, the average monthly principal amount of foreign exchange contracts was $2,568,141, average monthly original value of futures contracts was $1,212,601, average monthly notional amount of interest rate swaps was $296,000 and average monthly notional amount of credit default swaps was $1,000,000.
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar securities on a currency hedged or unhedged basis. The Portfolio 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 other options. The Portfolio may enter into transactions for
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 37 |
Notes to Financial Statements
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 Portfolio 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 Portfolio 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).
3. Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Portfolio sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Portfolio enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value at least equal to the repurchase price. For the period ended October 31, 2010, the average amount of reverse repurchase agreements outstanding was $3,365,536 and the daily weighted average interest rate was 0.18%.
4. Dollar Rolls
The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio 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. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques and may be considered to be borrowings by the Portfolio. For the period ended October 31, 2010, the Portfolio earned drop income of $1,402 which is included in interest income in the accompanying statement of operations.
38 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||
January 26, 2010(a) to October 31, 2010 | January 26, 2010(a) to October 31, 2010 | |||||||||||||||
Class A | ||||||||||||||||
Shares sold | 206,876 | $ | 2,101,534 | |||||||||||||
Shares issued in reinvestment of dividends and distributions | 601 | 6,053 | ||||||||||||||
Shares redeemed | (17,479 | ) | (181,797 | ) | ||||||||||||
Net increase | 189,998 | $ | 1,925,790 | |||||||||||||
Class C | ||||||||||||||||
Shares sold | 326,492 | $ | 3,331,995 | |||||||||||||
Shares issued in reinvestment of dividends and distributions | 631 | 6,355 | ||||||||||||||
Shares redeemed | (5,355 | ) | (54,442 | ) | ||||||||||||
Net increase | 321,768 | $ | 3,283,908 | |||||||||||||
Advisor Class | ||||||||||||||||
Shares sold | 109,064 | $ | 1,102,344 | |||||||||||||
Shares issued in reinvestment of dividends and distributions | 638 | 6,437 | ||||||||||||||
Shares redeemed | (5,211 | ) | (52,876 | ) | ||||||||||||
Net increase | 104,491 | $ | 1,055,905 | |||||||||||||
Class R | ||||||||||||||||
Shares sold | 1,000 | $ | 10,000 | |||||||||||||
Net increase | 1,000 | $ | 10,000 | |||||||||||||
Class K | ||||||||||||||||
Shares sold | 74,549 | $ | 748,094 | |||||||||||||
Shares issued in reinvestment of dividends and distributions | 162 | 1,627 | ||||||||||||||
Shares redeemed | (95 | ) | (1,000 | ) | ||||||||||||
Net increase | 74,616 | $ | 748,721 | |||||||||||||
Class I | ||||||||||||||||
Shares sold | 1,000 | $ | 10,000 | |||||||||||||
Net increase | 1,000 | $ | 10,000 | |||||||||||||
Class 1 | ||||||||||||||||
Shares sold | 1,000 | $ | 10,000 | |||||||||||||
Net increase | 1,000 | $ | 10,000 | |||||||||||||
Class 2 | ||||||||||||||||
Shares sold | 993,000 | $ | 9,930,000 | |||||||||||||
Net increase | 993,000 | $ | 9,930,000 | |||||||||||||
(a) | Commencement of operations. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 39 |
Notes to Financial Statements
NOTE F
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Foreign Securities Risk—Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign currency exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies or of the U.S. government.
Currency Risk—This is the risk that changes in foreign currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce the returns of the Portfolio. For example, the value of the Portfolio’s investments in foreign currency-denominated securities or currencies may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar). Currency markets are generally not as regulated as securities markets. Independent of the Portfolio’s investments denominated in foreign currencies, the Portfolio’s positions in various foreign currencies may cause the Portfolio to experience investment losses due to the changes in exchange rates and interest rates.
Derivatives Risk—The Portfolio may enter into in derivatives transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected in the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its portfolio, it may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures
40 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
contracts or by borrowing money. The use of derivative instruments by the Portfolio, such as forwards, futures, options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $140 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the period ended October 31, 2010.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal period ended October 31, 2010 was as follows:
2010 | ||||
Distributions paid from: | ||||
Ordinary income | $ | 142,381 | ||
Total taxable distributions | 142,381 | |||
Tax return of capital | 7,052 | |||
Total distributions paid | $ | 149,433 | ||
As of October 31, 2010, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed net investment income | $ | – 0 | – | |
Accumulated capital and other gains/losses | (17,892 | )(a) | ||
Unrealized appreciation/(depreciation) | 805,432 | (b) | ||
Total accumulated earnings/(deficit)(a) | $ | 787,540 | (c) | |
(a) | The Fund deferred $17,892 in straddle losses. |
(b) | The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to the tax deferral of losses on swap income (loss) accrual, and the mark to market of forward foreign currency contracts and futures contracts. |
(c) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable to the amortization of offering costs. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 41 |
Notes to Financial Statements
During the current fiscal period, permanent differences primarily due to the tax treatment of swap income, paydown reclassification, foreign currency reclassification, nondeductible offering costs, and dividend overdistributions resulted in a net decrease in undistributed net investment income, a net decrease in accumulated net realized loss on investment transactions, and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE I
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
42 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .14 | |||
Net realized and unrealized gain on investment and foreign currency transactions | .47 | |||
Net increase in net asset value from operations | .61 | |||
Less: Dividends and Distributions | ||||
Dividends from net investment income | (.08 | ) | ||
Tax return of capital | (.00 | )(g) | ||
Total dividends and distributions | (.08 | ) | ||
Net asset value, end of period | $ 10.53 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 6.15 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $2,000 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e)(f) | .80 | % | ||
Expenses, net of waivers/reimbursements, excluding interest expense(e)(f) | .75 | % | ||
Expenses, before waivers/reimbursements(e)(f) | 4.63 | % | ||
Expenses, before waivers/reimbursements, excluding interest expense(e)(f) | 4.58 | % | ||
Net investment income(c)(e)(f) | 1.76 | % | ||
Portfolio turnover rate | 34 | % |
See footnote summary on page 50.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 43 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .08 | |||
Net realized and unrealized gain on investment and foreign currency transactions | .48 | |||
Net increase in net asset value from operations | .56 | |||
Less: Dividends and Distributions | ||||
Dividends from net investment income | (.06 | ) | ||
Tax return of capital | (.00 | )(g) | ||
Total dividends and distributions | (.06 | ) | ||
Net asset value, end of period | $ 10.50 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 5.61 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $3,378 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e)(f) | 1.50 | % | ||
Expenses, net of waivers/reimbursements, excluding interest expense(e)(f) | 1.45 | % | ||
Expenses, before waivers/reimbursements(e)(f) | 4.80 | % | ||
Expenses, before waivers/reimbursements, excluding interest expense(e)(f) | 4.75 | % | ||
Net investment income(c)(e)(f) | 1.12 | % | ||
Portfolio turnover rate | 34 | % |
See footnote summary on page 50.
44 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .17 | |||
Net realized and unrealized gain on investment and foreign currency transactions | .47 | |||
Net increase in net asset value from operations | .64 | |||
Less: Dividends and Distributions | ||||
Dividends from net investment income | (.09 | ) | ||
Tax return of capital | (.00 | )(g) | ||
Total dividends and distributions | (.09 | ) | ||
Net asset value, end of period | $ 10.55 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 6.46 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $1,102 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e)(f) | .50 | % | ||
Expenses, net of waivers/reimbursements, excluding interest expense(e)(f) | .45 | % | ||
Expenses, before waivers/reimbursements(e)(f) | 4.50 | % | ||
Expenses, before waivers/reimbursements, excluding interest expense(e)(f) | 4.44 | % | ||
Net investment income(c)(e)(f) | 2.13 | % | ||
Portfolio turnover rate | 34 | % |
See footnote summary on page 50.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 45 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .12 | |||
Net realized and unrealized gain on investment and foreign currency transactions | .48 | |||
Net increase in net asset value from operations | .60 | |||
Less: Dividends and Distributions | ||||
Dividends from net investment income | (.09 | ) | ||
Tax return of capital | (.01 | ) | ||
Total dividends and distributions | (.10 | ) | ||
Net asset value, end of period | $ 10.50 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 6.04 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $11 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e)(f) | 1.00 | % | ||
Expenses, net of waivers/reimbursements, excluding interest expense(e)(f) | .95 | % | ||
Expenses, before waivers/reimbursements(e)(f) | 5.74 | % | ||
Expenses, before waivers/reimbursements, excluding interest expense(e)(f) | 5.69 | % | ||
Net investment income(c)(e)(f) | 1.53 | % | ||
Portfolio turnover rate | 34 | % |
See footnote summary on page 50.
46 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .09 | |||
Net realized and unrealized gain on investment and foreign currency transactions | .53 | |||
Net increase in net asset value from operations | .62 | |||
Less: Dividends and Distributions | ||||
Dividends from net investment income | (.12 | ) | ||
Tax return of capital | (.00 | )(g) | ||
Total dividends and distributions | (.12 | ) | ||
Net asset value, end of period | $ 10.50 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 6.22 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $784 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e)(f) | .75 | % | ||
Expenses, net of waivers/reimbursements, excluding interest expense(e)(f) | .70 | % | ||
Expenses, before waivers/reimbursements(e)(f) | 3.53 | % | ||
Expenses, before waivers/reimbursements, excluding interest expense(e)(f) | 3.48 | % | ||
Net investment income(c)(e)(f) | 1.12 | % | ||
Portfolio turnover rate | 34 | % |
See footnote summary on page 50.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 47 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .16 | |||
Net realized and unrealized gain on investment and foreign currency transactions | ..48 | |||
Net increase in net asset value from operations | .64 | |||
Less: Dividends and Distributions | ||||
Dividends from net investment income | (.12 | ) | ||
Tax return of capital | (.01 | ) | ||
Total dividends and distributions | (.13 | ) | ||
Net asset value, end of period | $ 10.51 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 6.46 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $11 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e)(f) | .49 | % | ||
Expenses, net of waivers/reimbursements, excluding interest expense(e)(f) | .45 | % | ||
Expenses, before waivers/reimbursements(e)(f) | 5.19 | % | ||
Expenses, before waivers/reimbursements, excluding interest expense(e)(f) | 5.16 | % | ||
Net investment income(c)(e)(f) | 2.03 | % | ||
Portfolio turnover rate | 34 | % |
See footnote summary on page 50.
48 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .15 | |||
Net realized and unrealized gain on investment and foreign currency transactions | .48 | |||
Net increase in net asset value from operations | .63 | |||
Less: Dividends and Distributions | ||||
Dividends from net investment income | (.11 | ) | ||
Tax return of capital | (.01 | ) | ||
Total dividends and distributions | (.12 | ) | ||
Net asset value, end of period | $ 10.51 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 6.39 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $11 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e)(f) | .58 | % | ||
Expenses, net of waivers/reimbursements, excluding interest expense(e)(f) | .55 | % | ||
Expenses, before waivers/reimbursements(e)(f) | 5.29 | % | ||
Expenses, before waivers/reimbursements, excluding interest expense(e)(f) | 5.25 | % | ||
Net investment income(c)(e)(f) | 1.93 | % | ||
Portfolio turnover rate | 34 | % |
See footnote summary on page 50.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 49 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .16 | |||
Net realized and unrealized gain on investment and foreign currency transactions | .48 | |||
Net increase in net asset value from operations | .64 | |||
Less: Dividends and Distributions | ||||
Dividends from net investment income | (.12 | ) | ||
Tax return of capital | (.01 | ) | ||
Total dividends and distributions | (.13 | ) | ||
Net asset value, end of period | $ 10.51 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 6.44 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $10,439 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e)(f) | .49 | % | ||
Expenses, net of waivers/reimbursements, excluding interest expense(e)(f) | .45 | % | ||
Expenses, before waivers/reimbursements(e)(f) | 5.18 | % | ||
Expenses, before waivers/reimbursements, excluding interest expense(e)(f) | 5.13 | % | ||
Net investment income(c)(e)(f) | 2.05 | % | ||
Portfolio turnover rate | 34 | % |
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Net of fees waived and expenses reimbursed by the Adviser. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | The ratio includes expenses attributable to costs of proxy solicitation. |
(f) | Annualized. |
(g) | Amount is less than $.005. |
See notes to financial statements.
50 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Financial Highlights
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of AllianceBernstein Bond Fund, Inc.
and Shareholders of the AllianceBernstein Bond Inflation Strategy Portfolio
We have audited the accompanying statement of assets and liabilities of AllianceBernstein Bond Inflation Strategy Portfolio (one of the portfolios constituting the AllianceBernstein Bond Fund, Inc.) (the “Portfolio”), including the portfolio of investments, as of October 31, 2010, and the related statements of operations and changes in net assets, and the financial highlights for the period January 26, 2010 (commencement of operations) through October 31, 2010. These financial statements and financial highlights are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2010 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AllianceBernstein Bond Inflation Strategy Portfolio of the AllianceBernstein Bond Fund, Inc. at October 31, 2010, and the results of its operations, changes in its net assets and the financial highlights for the period January 26, 2010 (commencement of operations) through October 31, 2010, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 29, 2010
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 51 |
Report of Independent Registered Public Accounting Firm
FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable period ended October 31, 2010.
For foreign shareholders, 100% of ordinary dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2011.
52 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Federal Tax Information
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Garry L. Moody(1) Marshall C. Turner(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Paul J. DeNoon(2), Vice President Rajen B. Jadav(2), Vice President Shawn E. Keegan(2) , Vice President | Douglas J. Peebles(2) , Vice President Greg J. Wilensky(2), Vice President Emilie D. Wrapp, Secretary Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller |
Custodian and Accounting Agent State Street Bank and Trust Company One Lincoln Street Boston, MA 02111
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. Mr. Foulk is the sole member of the Fair Value Pricing Committee. |
(2) | The day-to-day management of, and investment decisions for, the Strategy’s portfolio are made by the U.S. Core Fixed-Income Team. Mr. Paul J. DeNoon, Mr. Rajen B. Jadav, Mr. Shawn E. Keegan, Mr. Douglas J. Peebles and Mr. Greg J. Wilensky are the investment professionals with the most significant responsibility for the day-to-day management of the Strategy’s portfolio. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 53 |
Board of Directors
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Strategy are managed under the direction of the Board of Directors. Certain information concerning the Strategy’s Directors is set forth below.
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith + 1345 Avenue of the Americas New York, New York 10105 50 (2010) | Senior Vice President of the Adviser and head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AllianceBernstein Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 97 | None | |||||
54 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS | ||||||||
William H. Foulk, Jr., ++, # Chairman of the Board 78 (2002) | Investment Adviser and an Independent Consultant since prior to 2005. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AllianceBernstein Funds since 1983 and has been Chairman of the AllianceBernstein Funds and of the Independent Directors Committee of such Funds since 2003. He is also active in a number of mutual fund organizations and committees. | 97 | None | |||||
John H. Dobkin, # 68 (2002) | Independent Consultant since prior to 2005. Formerly, President of Save Venice, Inc. (preservation organization) from 2001-2002, Senior Advisor from June 1999-June 2000 and President of Historic Hudson Valley (historic preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design. He has served as a director or trustee of various AllianceBernstein Funds since 1992, and as Chairman of the Audit Committees of a number of such Funds from 2001-2008. | 96 | None | |||||
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 55 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Michael J. Downey, # 66 (2005) | Private Investor since prior to 2005. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, Director of the Prudential Mutual Funds and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AllianceBernstein Funds since 2005 and is a director of two other registered investment companies (and Chairman of one of them). | 96 | Asia Pacific Fund, Inc. and The Merger Fund since prior to 2005 and Prospect Acquisition Corp. (financial services) since 2007 until 2009 | |||||
D. James Guzy, # 74 (2005) | Chairman of the Board of PLX Technology (semi-conductors) and of SRC Computers Inc., with which he has been associated since prior to 2005. He was a Director of Intel Corporation (semi-conductors) from 1969 until 2008 and served as Chairman of the Finance Committee of such company for several years until May 2008. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1982. | 96 | Cirrus Logic Corporation (semi-conductors) and PLX Technology, Inc. (semi-conductors) since prior to 2005 and Intel Corporation (semi-conductors) since prior to 2005 until 2008 | |||||
56 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, # 62 (2006) | Professorial Lecturer at the Johns Hopkins School of Advanced International Studies since 2008. Formerly, U.S. Executive Director of the International Monetary Fund (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AllianceBernstein Funds since 2006. | 96 | None | |||||
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 57 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody, # 58 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995); and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services. He is also a member of the Governing Council of the Independent Directors Council (IDC), an organization of independent directors of mutual funds, and serves on that organization’s Education and Communications Committee. He has served as a director or trustee, and as Chairman of the Audit Committee, of most of the AllianceBernstein Funds since 2008. | 96 | None |
58 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Marshall C. Turner, Jr., # 69 (2005) | Private Investor since prior to 2005. Interim CEO of MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) from November 2008 until March 2009. He was Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing), 2003-2005, and President and CEO, 2005-2006, after the company was acquired and renamed Toppan Photomasks, Inc. He has extensive experience in venture capital investing including prior service as general partner of three institutional venture capital partnerships, and serves on the boards of a number of education and science-related non-profit organizations. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1992. | 96 | Xilinx, Inc. (programmable logic semi-conductors) and MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) since prior to 2005. | |||||
Earl D. Weiner, # 71 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP, and member of ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AllianceBernstein Funds since 2007 and is Chairman of the Governance and Nominating Committees of most of the Funds. | 96 | None |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 59 |
Management of the Fund
* | The address for each of the Strategy’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Philip L. Kirstein, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Strategy’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Strategy. |
+ | Mr. Keith is an “interested person”, as defined in the “40 Act”, due to his position as Senior Vice President of AllianceBernstein. |
++ | Member of the Fair Value Pricing Committee. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
60 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Management of the Fund
Officer Information
Certain information concerning the Strategy’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 50 | President and Chief Executive Officer | See biography above. | ||
Philip L. Kirstein 65 | Senior Vice President and Independent Compliance Officer | Senior Vice President and Independent Compliance Officer of the AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to March 2003. | ||
Paul J. DeNoon 48 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2005. | ||
Rajen B. Jadav 35 | Vice President | Vice President of the Adviser,** with which he has been associated since prior to 2005. | ||
Shawn E. Keegan 39 | Vice President | Vice President of the Adviser,** with which he has been associated since prior to 2005. | ||
Douglas J. Peebles 45 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2005. | ||
Greg J. Wilensky 43 | Vice President | Senior Vice President of the Adviser,** and Director of Stable Value Investments, with which he has been associated since prior to 2005. | ||
Emilie D. Wrapp 55 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2005. | ||
Joseph J. Mantineo 51 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”),** with which he has been associated since prior to 2005. | ||
Phyllis J. Clarke 49 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2005. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Strategy. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Strategy’s Directors and Officers and is available without charge upon request. Contact your financial representative or AllianceBernstein at 1-800-227-4618, or visit www.alliancebernstein.com, for a free prospectus or SAI. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 61 |
Management of the Fund
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER’S EVALUATION OF INVESTMENT ADVISORY AGREEMENT1
The following is a summary of the evaluation of the Investment Advisory Agreement between AllianceBernstein L.P. (the “Adviser”) and AllianceBernstein Bond Fund, Inc. (the “Fund”) in respect of AllianceBernstein Bond Inflation Strategy and AllianceBernstein Municipal Bond Inflation Strategy (each a “Strategy” and collectively the “Strategies”).2
Bond Inflation Strategy’s (“Bond Strategy”) investment objective is to maximize real return without assuming what the Adviser considers to be undue risk. The Strategy pursues its objective by investing principally in Treasury Inflation Protected Securities (“TIPS”) directly or by gaining indirect exposure to TIPS through derivatives transactions such as Total Return Swaps (“TRS”) linked to TIPS. In the normal course, at least 80 percent of the Strategy’s net assets will be invested in fixed-income securities. In addition, in order to maximize real return, the Strategy may invest in other fixed-income investments, such as U.S. and non-U.S. government securities, corporate fixed-income securities and mortgage-related securities or derivatives linked to such securities.
Municipal Bond Inflation Strategy’s (“Municipal Strategy”) investment objective is to maximize real after-tax return for investors subject to federal income taxes, without undue risk to principal. The Strategy pursues its investment objective by investing principally in high-quality, predominantly investment grade, municipal securities. In the normal course, at least 80% of the Strategy’s net assets will be invested in municipal securities. At least 80% of the Strategy’s total assets will have a credit rating of A or better. To provide inflation protection, Municipal Strategy will enter into inflation swap agreements. The Strategy may also use other inflation-protected instruments.
The evaluation of the investment Advisory Agreement was prepared by Philip L. Kirstein, the Senior Officer of the Fund, for the Directors of the Fund, as required by the September 1, 2004 Assurance of Discontinuance (“AoD”) between the Adviser and the New York State Attorney General (the “NYAG”). The Senior Officer’s evaluation of the Investment Advisory Agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the “40 Act”) and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees proposed to be paid by the Portfolios which was provided to the Directors in connection with their review of the
1 | It should be noted that the Senior Officer’s evaluation was completed on December 2, 2009. |
2 | Future references to the Fund or the Strategy do not include “AllianceBernstein.” |
62 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
proposed approval of the continuance of the Investment Advisory Agreement. The Senior Officer’s evaluation considered the following factors:
1. | Advisory fees charged to institutional and other clients of the Adviser for like services; |
2. | Advisory fees charged by other mutual fund companies for like services; |
3. | Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit; |
4. | Profit margins of the Adviser and its affiliates from supplying such services; |
5. | Possible economies of scale as the Portfolios grow larger; and |
6. | Nature and quality of the Adviser’s services including the performance of the Portfolios. |
PORTFOLIOS’ ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS
The Adviser has proposed that the Strategies pay the advisory fee set forth in the table below for receiving the services to be provided pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in consideration of the Adviser’s settlement with the NYAG in December 2003, is based on a master schedule that contemplates eight categories of funds with almost all funds in each category having the same advisory schedule.3
Category | Advisory Fee4 | Strategy | ||
High Income | 50 bp on 1st $2.5 billion 45 bp on next $2.5 billion 40 bp on the balance | Bond Strategy Municipal Strategy |
The Adviser agreed to waive that portion of its management fees and/or reimburse the Strategies for that portion of the Strategies’ total operating expenses to the degree necessary to limit the Strategies’ expense ratios to the amounts set forth below for the Strategies’ start up period. The agreement allows for the Adviser to be reimbursed through a limited period for management fees that the Adviser waived or reimbursements that the Adviser made for fund expenses exceeding the Strategies’ expense caps for the period through the Strategies start up period. The agreement provides that such payment shall be made only to the extent that the payment does not cause each Strategy’s aggregate expenses to exceed, on an annual basis, the Strategy’s expense limitation, and that such payment shall not exceed the amount of the offering expenses recorded by the Strategy.
3 | Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser’s settlement with the NYAG. |
4 | The advisory fees of the Strategies are based on the percentage of each Strategy’s average daily net assets, not an aggregate of the assets of the Strategies shown. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 63 |
The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Strategies.
Strategy | Expense Cap Pursuant to Expense Limitation Undertaking | Estimated Gross | ||||||
Bond Strategy | Advisor | 0.45 | % | 1.05% | ||||
Class A | 0.75 | % | 1.35% | |||||
Class C | 1.45 | % | 2.05% | |||||
Class R | 0.95 | % | 1.55% | |||||
Class K | 0.70 | % | 1.30% | |||||
Class I5 | 0.45 | % | 1.05% | |||||
Class 15 | 0.55 | % | 1.15% | |||||
Class 25 | 0.45 | % | 1.05% | |||||
Municipal Strategy6 | Advisor | 0.50 | % | 0.97% | ||||
Class A | 0.80 | % | 1.27% | |||||
Class C | 1.50 | % | 1.97% | |||||
Class 15 | 0.60 | % | 1.07% | |||||
Class 25 | 0.50 | % | 0.97% |
I. | MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS |
The advisory fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Strategies that are not provided to non-investment company clients include providing office space and personnel to serve as the Strategies’ Officers, who among other responsibilities make the certifications required under the Sarbanes–Oxley Act of 2002, and coordinating with and monitoring the Strategies’ third party service providers such as the Strategies’ counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Strategies are more costly than those for institutional client assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Strategies to the Adviser. Also, retail mutual funds managed by the Adviser are widely held. Servicing the Strategies’ investors is more
5 | The strategy will consist of two new classes of shares, Class 1 and Class 2, in addition to the traditional A, B, C, R, K and I share classes. Class 1 shares are intended exclusively for the private clients of the Sanford C. Bernstein & Co. LLC (“Bernstein or the “Private Clients”) while Class 2 shares are intended for the Adviser’s institutional advisory clients and Private Clients who have at least $3 million in fixed-income assets under management with the Adviser after giving effect to their investment in the Strategies. The minimum investment by institutions for class 2 shares is $5 million. |
6 | Because retirement plans have no need for tax-favored investments, Municipal Strategy will not offer and issue Classes R, K and I shares. |
64 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
time consuming and labor intensive compared to institutional clients since the Adviser needs to communicate with a more extensive network of financial intermediaries and shareholders. The Adviser also believes that it incurs substantial entrepreneurial risk when offering a new mutual fund since establishing a new mutual fund requires a large upfront investment and it may take a long time for the fund to achieve profitability since the fund must be priced to scale from inception in order to be competitive and assets are acquired one account at a time. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if a fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing funds with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although arguably still not equal to those related to the mutual fund industry.
Notwithstanding the Adviser’s view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with substantially similar investment styles as the Strategies.7 Although, the Adviser represented that there is no category in the Form ADV for institutional products that have a substantially similar investment style as the Strategies, the Strategies consist of investments in various asset classes for which the Adviser does have institutional counterparts. It should be noted that in addition to investing in multiple asset classes as opposed to a single asset class, the Strategies may employ with greater frequency the use of derivatives than their institutional counterparts. Set forth below are the institutional fee schedules of the various asset classes of which the Strategies consists. Also shown below are what would have been the effective advisory fees of the Strategies had the advisory fee schedules of the institutional accounts been applicable to the Strategies based on the initial estimate of the Strategies net assets.
7 | The Adviser has indicated that with respect to institutional accounts with assets greater than $300 million, it will negotiate a fee schedule. Discounts that are negotiated vary based upon each client relationship. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 65 |
AB Institutional Account Category | Initial ($MIL) | Fee Schedule | Effective AB Inst. Adv. Fee | |||||||
U.S. Inflation-Linked Bonds (TIPs) | $100.0 | 25 bp | 0.250% | |||||||
Global Plus Fixed Income | $100.0 | 50 bp on 1st $30 million Minimum account size: $25m | 0.325% | |||||||
Short Duration Municipal | $100.0 | 30 bp on 1st $20 million Minimum account size: $5m | 0.220% | |||||||
Intermediate Duration Municipal | $100.0 | 50 bp on 1st $5 million 25 bp on next $80 million Minimum account size: $3m | 0.281% | |||||||
The Adviser represented that it does not sub-advise any registered investment companies that have a similar investment strategy as the Strategies.
II. | MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. |
Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fees charged to the Strategies with fees charged to other investment companies for similar services by other investment advisers. Lipper’s analysis included the Strategies’ rankings with respect to the proposed management fees relative to the median of each Strategy’s Lipper Expense Group (“EG”)8 at the approximate current asset level of the Strategy.9
Lipper describes an EG as a representative sample of comparable funds. Lipper’s standard methodology for screening funds to be included in an EG entails the consideration of several fund criteria, including fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset
8 | It should be noted that Lipper does not consider average account size when constructing EGs. Funds with relatively small average account sizes tend to have a higher transfer agent expense ratio than comparable sized funds that have relatively large average account sizes. |
9 | The contractual management fee is calculated by Lipper using the Strategy’s contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Strategy, rounded up to the next $25 million. Lipper’s total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of “1” means that the Strategy has the lowest effective fee rate in the Lipper peer group. |
66 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
(size)10 comparability, and expense components and attributes. An EG will typically consist of seven to twenty funds.
Strategy | Contractual Management Fee (%)11 | Lipper Exp. Median (%) | Rank | |||||||||
Bond Strategy | 0.500 | 0.628 | 2/8 | |||||||||
Municipal Strategy | 0.500 | 0.500 | 5/9 |
Set forth below is a comparison of the Strategies’ total expense ratios and the medians of their EGs and EUs. The Strategies’ rankings are also shown.
Strategy | Expense Ratio12 (%) | Lipper Exp. Group Median (%) | Lipper Group Rank | Lipper Exp. Median (%) | Lipper Rank | |||||||||||
Bond Strategy | 0.750 | 0.874 | 1/8 | 0.848 | 5/19 | |||||||||||
Municipal Strategy | 0.800 | 0.860 | 3/10 | 0.788 | 19/35 |
Based on this analysis, the Strategies have a more favorable ranking on a total expense ratio basis than on a management fee basis.
III. | COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. |
The Adviser utilizes two profitability reporting systems, which operate independently but are aligned with each other, to estimate the Adviser’s profitability in connection with investment advisory services provided to the Strategies. The Senior Officer has retained a consultant to provide independent advice regarding the alignment of the two profitability systems as well as the methodologies and allocations utilized by both profitability systems. See Section IV for additional discussion.
IV. | PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. |
The Strategies have not yet commenced operations. Therefore there is no historic profitability data with respect to the Adviser’s investment services to the Strategies.
10 | The Adviser asked Lipper to anticipate that each Strategy’s asset size would be approximately $100 million. |
11 | The contractual management fee does not reflect any expense reimbursements made by the Strategy to the Adviser for certain clerical, legal, accounting, administrative, and other services. In addition, the contractual management fee does not reflect any advisory fee waivers for expense caps that would effectively reduce the actual effective management fee. |
12 | Information on the Strategies’ total expense ratios pertain to the Strategies’ Class A shares. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 67 |
In addition to the Adviser’s future direct profits from managing the Strategies, it is anticipated that certain of the Adviser’s affiliates will have business relationships with the Strategies and may earn a profit from providing non-investment services to the Strategies. The courts have referred to this type of business opportunity as “fall-out benefits” to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Strategies and the Adviser. Neither case law nor common business practice precludes the Adviser’s affiliates from earning a reasonable profit on this type of relationship provided the affiliates’ charges and services are competitive and the relationship otherwise complies with the 40 Act restrictions. These affiliates will provide transfer agent and distribution related services to the Strategies and receive transfer agent fees, Rule 12b-1 payments, front-end sales loads and contingent deferred sales charges (“CDSC”).
The Adviser has advised the Senior Officer that ABI and the Adviser will disclose in the Strategies’ prospectus that they may make revenue sharing payments from their own resources, in addition to resources derived from sales loads and Rule 12b-1 fees, to firms that sell shares of the Strategies. The total amount to be paid to a financial intermediary associated with the sale of shares 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 the average daily net assets attributable to that firm over the year. In 2008, ABI paid from its resources an amount equal to approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $19 million for distribution services and educational support (revenue sharing payments).
It is anticipated AllianceBernstein Investor Services (“ABIS”), an affiliate of the Adviser, will be the Strategies’ transfer agent. Fees and reimbursements for out of pocket expenses charged by AllianceBernstein Investor Services, Inc. (“ABIS”) are charged on a per account basis, based on the level of service provided and the class of share held by the account. ABIS also receives a fee per shareholder sub-account for each account maintained by an intermediary on an omnibus basis.5
V. | POSSIBLE ECONOMIES OF SCALE |
The Adviser has indicated that economies of scale are being shared with shareholders through fee structures,13 subsidies and enhancement to services. Based on some of the professional literature that has considered economies of scale in the mutual fund industry, it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems, can be spread across a greater asset base as the fund family increases in size. It is also possible that as the
13 | Fee structures include fee reductions, pricing at scale and breakpoints in advisory fee schedules. |
68 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide services, there may be a sharing of economies of scale without a reduction in advisory fees.
An independent consultant, retained by the Senior Officer, provided the Board of Directors an update of the Deli14 study on advisory fees and various fund characteristics. The independent consultant first reiterated the results of his previous two dimensional comparison analysis (fund size and family size) with the Board of Directors.15 The independent consultant then discussed the results of the regression model that was utilized to study the effects of various factors on advisory fees. The regression model output indicated that the bulk of the variation in fees predicted were explained by various factors, but substantially by fund assets under management (“AUM”), family AUM, index fund indicator and investment style. The independent consultant also compared the advisory fees of the AllianceBernstein Mutual Funds to similar funds managed by 19 other large asset managers, regardless of fund size and the large asset manager’s proportion of mutual fund assets to non-mutual fund assets.
VI. | NATURE AND QUALITY OF THE ADVISER’S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. |
The Adviser believes it is a leading international investment adviser. It managed assets approximate $487 billion as of October 31, 2009. The Adviser has reported that it has the investment experience to manage the portfolio assets of the Strategies and provide non-investment services to the Strategies contemplated by the Investment Advisory Agreement.
Because the Strategies have not yet commenced operations and there are no comparable institutional or sub-advised or off-shore accounts that the Adviser manages and has a substantially similar investment styles as the Strategies, there is no performance history. It is anticipated that both Strategies will have the Barclays Capital 1-10 Year U.S. TIPS Index as their benchmarks. To demonstrate the Adviser’s experience in managing Inflation-Protected Securities
14 | The Deli study was originally published in 2002 based on 1997 data. |
15 | The two dimensional analysis showed patterns of lower advisory fees for funds with larger asset sizes and funds from larger family sizes compared to funds with smaller asset sizes and funds from smaller family sizes, which according to the independent consultant is indicative of a sharing of economies of scale and scope. However, in less liquid and active markets, such is not the case, as the empirical analysis showed potential for diseconomies of scale in those markets. The empirical analysis also showed diminishing economies of scale and scope as funds surpassed a certain high level of assets. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 69 |
Portfolios, listed below are the 1, 3, 5, year performance returns of the AllianceBernstein Inflation Protected Security Pooling Portfolios and benchmark as of October 31, 2009:
Periods Ending October 31, 2009 Annualized Performance (%) | ||||||||||||
1 Year | 3 Year | Since Inception | ||||||||||
Inflation Protected Securities Portfolio | 14.46 | 6.39 | 4.97 | |||||||||
Barclays Capital 1-10 Yr. TIPS Index | 14.65 | 6.34 | 4.99 | |||||||||
Inception Date: May 20, 2005 |
CONCLUSION:
Based on the factors discussed above the Senior Officer’s conclusion is that the proposed advisory fee for the Strategies is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Strategies is based on an evaluation of all of these factors and no single factor was dispositive.
Dated: January 11, 2010
70 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
Wealth Strategies Funds
Balanced Wealth Strategy
Wealth Appreciation Strategy
Conservative Wealth Strategy*
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Conservative Wealth Strategy*
Blended Style Funds
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
Growth Funds
Domestic
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Small/Mid Cap Growth Fund
U.S. Strategic Research Portfolio
Global & International
Global Growth Fund
Global Thematic Growth Fund
Greater China ‘97 Fund
International Discovery Equity Portfolio
International Growth Fund
Value Funds
Domestic
Balanced Shares
Core Opportunities Fund*
Growth & Income Fund
Small/Mid Cap Value Fund
Equity Income Fund*
Value Fund
Global & International
Global Real Estate Investment Fund
Global Value Fund
International Value Fund
Taxable Bond Funds
Bond Inflation Strategy
Diversified Yield Fund
Global Bond Fund
High Income Fund
Intermediate Bond Portfolio
Short Duration Portfolio
Municipal Bond Funds
Arizona Municipal Bond Inflation Strategy California High Income Massachusetts Michigan | Minnesota National New Jersey New York Ohio Pennsylvania Virginia |
Intermediate Municipal Bond Funds
Intermediate California
Intermediate Diversified
Intermediate New York
Closed-End Funds
AllianceBernstein Global High Income Fund
AllianceBernstein Income Fund
AllianceBernstein National Municipal Income Fund
Alliance California Municipal Income Fund
Alliance New York Municipal Income Fund
The Ibero-America Fund*
Inflation Strategies
Real Asset Strategy*
Alternative Strategies
Market Neutral Strategy – U.S.
Market Neutral Strategy – Global
Retirement Strategies Funds
2000 Retirement Strategy | 2020 Retirement Strategy | 2040 Retirement Strategy | ||
2005 Retirement Strategy | 2025 Retirement Strategy | 2045 Retirement Strategy | ||
2010 Retirement Strategy | 2030 Retirement Strategy | 2050 Retirement Strategy | ||
2015 Retirement Strategy | 2035 Retirement Strategy | 2055 Retirement Strategy |
We also offer Exchange Reserves,** which serves as the money market fund exchange vehicle for the AllianceBernstein mutual funds.
You should consider the investment objectives, risks, charges and expenses of any AllianceBernstein fund/portfolio carefully before investing. For free copies of our prospectuses, which contain this and other information, visit us online at www.alliancebernstein.com or contact your financial advisor. Please read the prospectus carefully before investing.
* | Prior to December 31, 2009, Conservative Wealth Strategy was named Wealth Preservation Strategy, and Tax-Managed Conservative Wealth Strategy was named Tax-Managed Wealth Preservation Strategy. Prior to January 20, 2010, The Ibero-America Fund was named The Spain Fund. Prior to March 1, 2010, Core Opportunities Fund was named the Focused Growth & Income Fund. Prior to September 1, 2010, Equity Income Fund was named Utility Income Fund. Prior to September 27, 2010, Real Asset Strategy was named Multi-Asset Inflation Strategy. |
** | An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 71 |
AllianceBernstein Family of Funds
NOTES
72 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800.221.5672
BIS-0151-1010 | ![]() |
ANNUAL REPORT
AllianceBernstein
Municipal Bond Inflation Strategy
October 31, 2010
Annual Report
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
The investment return and principal value of an investment in the Fund will fluctuate as the prices of the individual securities in which it invests fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For a free copy of the Fund’s prospectus, which contains this and other information, visit our web site at www.alliancebernstein.com or call your financial advisor or AllianceBernstein® at (800) 227-4618. Please read the prospectus carefully before you invest.
You may obtain performance information current to the most recent month-end by visiting www.alliancebernstein.com.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AllianceBernstein’s web site at www.alliancebernstein.com, or go to the Securities and Exchange Commission’s (the “Commission”) web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s web site at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AllianceBernstein publishes full portfolio holdings for the Fund monthly at www.alliancebernstein.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AllianceBernstein family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.
AllianceBernstein® and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
December 16, 2010
Annual Report
This report provides management’s discussion of fund performance for AllianceBernstein Municipal Bond Inflation Strategy (the “Strategy”) since inception, for the period ended October 31, 2010. The Strategy commenced operations on January 26, 2010.
Investment Objectives and Policies
The Strategy seeks real after-tax return for investors subject to federal income taxes. Real return is the rate of return after adjusting for inflation. The Strategy pursues its objective by investing principally in high-quality, predominantly investment grade, municipal securities, that pay interest exempt from federal taxation. As a fundamental policy, the Strategy will invest at least 80% of its net assets in municipal securities. These securities may be subject to the federal alternative minimum tax (“AMT”) for some taxpayers.
The Strategy will invest at least 80% of its total assets in fixed-income securities rated A or better or the equivalent by one or more national rating agencies or deemed to be of comparable credit quality by AllianceBernstein L.P. (the “Adviser”). In deciding whether to take direct or indirect exposure, the Strategy may invest up to 20% of its total assets in fixed-income securities rated BB or B or the equivalent by one or more national rating agencies (or deemed to be of comparable credit quality by the Adviser), which are not investment grade (“junk bonds”). If the rating of a fixed-income security falls below investment grade, the Strategy will not be obligated to sell the
security and may continue to hold it if, in the Adviser’s opinion, the investment is appropriate under the circumstances.
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 Strategy. 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 Strategy’s other holdings. The Strategy may invest in fixed-income securities with any maturity and duration.
To provide inflation protection, the Strategy will typically enter into inflation swap agreements. The Strategy may use other inflation-protected instruments. Payments to the Strategy pursuant to swap agreements will result in taxable income, either ordinary income or capital gains, rather than income exempt from federal income taxation. It is expected that the Strategy’s primary use of derivatives will be for the purpose of inflation protection.
The Strategy may utilize leverage for investment purposes through the use of tender option bond (“TOB”) transactions. The Adviser will consider the impact of TOB’s, swap agreements and other derivatives in making its assessments of the Strategy’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 1 |
Investment Results
The table on page 5 shows the Strategy’s performance compared to its benchmark, the Barclays Capital 1-10 year Treasury Inflation Protected Securities (TIPS) Index. Also included in the table are returns for the Strategy’s peer group, as represented by the Lipper Intermediate Municipal Debt Funds Average (the “Lipper Average”). Funds in the Lipper Average have generally similar investment objectives to the Strategy, although some may have different investment policies and sales and management fees.
Class A shares of the Strategy underperformed the benchmark and the Lipper Average for the six-month and since-inception periods ended October 31, 2010, before sales charges. The objective of the Strategy is to maximize real (net of inflation) after-tax return without undue risk to principal. In pursuit of this objective, the Strategy invests in municipal bonds that are exempt from Federal income tax and typically enters into derivatives, such as inflation swap agreements, in order to provide inflation protection. The result of this is generally less overall interest rate exposure than many members of the Lipper Average peer group. As interest rates declined over both periods, the Strategy underperformed the peer group. Municipal bonds underperformed US Treasuries during both the six-month and since-inception periods, causing the Strategy to also underperform its benchmark. The Strategy did not utilize leverage during the reporting periods. The Strategy utilized interest rate swaps, during
the six-month reporting period. Given the relatively small size of these positions, these swaps had little impact on performance.
Market Review and Investment Strategy
During 2010, states and municipalities have continued to address the financial difficulties brought about by the sharpest decline in economically-sensitive tax revenues in many years. While there has been some indication that tax revenue growth has resumed, it is coming off a low base and is therefore not close to the level prior to the start of the credit crisis. For the most part, states and municipalities are aggressively addressing their large budget gaps by raising taxes and cutting spending. Various metrics indicate that the finances of many, but not all, states and municipalities have begun to stabilize which made security selection a critical factor. It also became apparent during this period that many states are confronting serious problems due to underfunded state pension plans. As a result, the Strategy’s Municipal Bond Investment Team (the “Team”) has systematically incorporated the evaluation of these pension plans into the Team’s internal municipal bond rating process and focused the Strategy’s investments on essential-purpose revenue bonds, such as those backed by water and sewer services which the Team believes remain well-insulated from pension and other budgetary pressures.
Near the end of 2009, the expectation of most investors was that the Federal Reserve was likely to raise the Federal
2 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Funds rate in the third quarter of 2010. As 2010 progressed, it became clear that the economy was not nearly as robust as had been expected. As a result, the Federal Reserve did not raise rates and indicated in its statements that it will continue to keep the Federal Funds rate at its historically low level for an extended period. Until late summer 2010, securities’ prices in the market generally reflected low inflation expectations. As the Federal Reserve announced an aggressive program to purchase Treasury securities in an attempt to keep longer rates low, it also expressed greater tolerance of a modest increase in inflation. During the first part of 2010, with declining inflation expectations, the Strategy’s inflation hedges detracted from absolute performance, but as inflation expectations rose toward the end of
the reporting period, these positions benefited performance.
Given the extremely steep yield curve for short to intermediate maturities, the Team structured the Strategy’s bond holdings as a modified barbell with a large position around the duration target and a smaller, longer duration position offset by a shorter duration position. The large position around the Strategy’s duration target allowed the Team to take advantage of the steep curve as the value of these bonds increased as they rolled down the curve. The long position added to performance as long yields fell, largely due to a scarcity of longer tax-exempt bonds in the marketplace brought about the federal government’s Build America Bond Program.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 3 |
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance on the following pages represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling 800-227-4618 for Class 2, A, C and Advisor Class shares and 212-756-4097 for Class 1 shares.
Investors should consider the investment objectives, risks, charges and expenses of the Strategy carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Strategy have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Strategy’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 3% maximum front-end sales charge for Class A shares; a 1% 1 year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
Benchmark Disclosure
The Barclays Capital 1-10 Year TIPS Index does not reflect fees and expenses associated with the active management of a fund portfolio. The Barclays Capital 1-10 Year TIPS Index represents the performance of Inflation-Protection securities issued by the US Treasury. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Strategy. For the six-month and since inception periods ended October 31, 2010, the Lipper Intermediate Municipal Debt Funds Average consisted of 160 and 154 funds, respectively. These funds have generally similar investment objectives to the Strategy, although some may have different investment policies and sales and management fees. An investor cannot invest directly in an index or average, and their results are not indicative of the performance for any specific investment, including the Strategy.
A Word About Risk
The market values of the Strategy’s holdings rise and fall from day to day, so investments may lose value. As interest rates rise, bond prices fall and vice versa—long-term securities tend to rise and fall more than short-term securities. A bond’s credit rating reflects the issuer’s ability to make timely payments of interest or principal—the lower the rating, the higher the risk of default. If the issuer’s financial strength deteriorates, the issuer’s rating may be lowered and the bond’s value may decline. Inflation risks—prices for goods and services tend to rise over time, which may erode the purchasing power of investments. Municipal bond risks: debt securities issued by state or local governments may be subject to special political, legal, economic and market factors that can have a significant effect on the portfolio’s yield or value. Liquidity risk is the difficulty of purchasing or selling a security at an advantageous time or price. Investing in derivative instruments such as options, futures, forwards or swaps can be riskier than traditional investments, and may be more volatile, especially in a down market. Leverage risk is trying to enhance investment returns by borrowing money or using other leverage tools—magnify both gains and losses, resulting in greater volatility.
(Historical Performance continued on next page)
4 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
THE STRATEGY VS. ITS BENCHMARK PERIODS ENDED OCTOBER 31, 2010 | NAV Returns | |||||||
6 Months | Since Inception* | |||||||
AllianceBernstein Municipal Bond Inflation Strategy | ||||||||
Class 1 | 0.81% | 1.78% | ||||||
Class 2 | 0.86% | 1.85% | ||||||
Class A | 0.81% | 1.70% | ||||||
Class C | 0.50% | 1.23% | ||||||
Advisor Class** | 0.93% | 1.97% | ||||||
Barclays Capital 1-10 Year TIPS Index | 4.48% | 5.35% | ||||||
Lipper Intermediate Municipal Debt Funds Average | 3.49% | 4.88% | ||||||
* Since Inception: January 26, 2010
** Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
| |||||||
GROWTH OF A $10,000 INVESTMENT IN THE STRATEGY
1/26/10* TO 10/31/10
*Since Inception: January 26, 2010
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Municipal Bond Inflation Strategy Class A shares (from 1/26/10* to 10/31/10) as compared to the performance of its benchmark. The chart reflects the deduction of the maximum 3.00% sales charge from the initial $10,000 investment in the Strategy and assumes the reinvestment of dividends and capital gains distributions.
See Historical Performance and Benchmark disclosures on page 4.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 5 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2010 | ||||||||||||
NAV Returns | SEC Returns | SEC Yields** | ||||||||||
Class 1 Shares | 1.32 | % | ||||||||||
Six Months | 0.81 | % | 0.81 | % | ||||||||
Since Inception* | 1.78 | % | 1.78 | % | ||||||||
Class 2 Shares | 1.41 | % | ||||||||||
Six Months | 0.86 | % | 0.86 | % | ||||||||
Since Inception* | 1.85 | % | 1.85 | % | ||||||||
Class A Shares | 1.12 | % | ||||||||||
Six Months | 0.81 | % | -2.20 | % | ||||||||
Since Inception* | 1.70 | % | -1.36 | % | ||||||||
Class C Shares | 0.42 | % | ||||||||||
Six Months | 0.50 | % | -0.50 | % | ||||||||
Since Inception* | 1.23 | % | 0.23 | % | ||||||||
Advisor Class Shares† | 1.42 | % | ||||||||||
Six Months | 0.93 | % | 0.93 | % | ||||||||
Since Inception* | 1.97 | % | 1.97 | % |
The Strategy’s current prospectus fee table shows the Strategy’s total annual operating expense ratios as 1.23%, 1.13%, 1.44%, 2.14%, 1.14% for Class 1, Class 2, Class A, Class C, Advisor Class shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Strategy’s annual operating expense ratios, exclusive of interest expense, to 0.60%, 0.50%, 0.80%, 1.50%, 0.50% for Class 1, Class 2, Class A, Class C, Advisor Class shares, respectively. These waivers/reimbursements extend throughout the Strategy’s current fiscal year and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
* | Inception Date: January 26, 2010 |
** | SEC Yields are calculated based on SEC guidelines for the 30-day period ended October 31, 2010. |
† | These share classes are offered at net asset value (NAV) to eligible investors and their SEC returns are the same as the NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. The inception date for these share classes are listed above. |
See Historical Performance disclosures on page 4.
(Historical Performance continued on next page)
6 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES) AS OF THE MOST RECENT CALENDAR QUARTER-END (SEPTEMBER 30, 2010) | ||||
SEC Returns | ||||
Class 1 Shares | ||||
Six Months | 1.69 | % | ||
Since Inception* | 1.34 | % | ||
Class 2 Shares | ||||
Six Months | 1.74 | % | ||
Since Inception* | 1.40 | % | ||
Class A Shares | ||||
Six Months | -1.49 | % | ||
Since Inception* | -1.76 | % | ||
Class C Shares | ||||
Six Months | 0.18 | % | ||
Since Inception* | -0.23 | % | ||
Advisor Class Shares† | ||||
Six Months | 1.70 | % | ||
Since Inception* | 1.43 | % |
* | Inception Date: January 26, 2010 |
† | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. The inception date for these share classes are listed above. |
See Historical Performance disclosures on page 4.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 7 |
Historical Performance
FUND EXPENSES
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2010 | Ending Account Value October 31, 2010 | Expenses Paid During Period* | ||||||||||||||||||||||
Actual | Hypothetical | Actual | Hypothetical** | Actual | Hypothetical | |||||||||||||||||||
Class A | $ | 1,000 | $ | 1,000 | $ | 1,009.05 | $ | 1,021.17 | $ | 4.05 | $ | 4.08 | ||||||||||||
Class C | $ | 1,000 | $ | 1,000 | $ | 1,004.99 | $ | 1,017.64 | $ | 7.58 | $ | 7.63 | ||||||||||||
Advisor Class | $ | 1,000 | $ | 1,000 | $ | 1,009.28 | $ | 1,022.68 | $ | 2.53 | $ | 2.55 | ||||||||||||
Class 1 | $ | 1,000 | $ | 1,000 | $ | 1,009.05 | $ | 1,022.18 | $ | 3.04 | $ | 3.06 | ||||||||||||
Class 2 | $ | 1,000 | $ | 1,000 | $ | 1,009.55 | $ | 1,022.68 | $ | 2.53 | $ | 2.55 |
* | Expenses are equal to the classes’ annualized expense ratios of 0.80%, 1.50%, 0.50%, 0.60% and 0.50%, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
** | Assumes 5% return before expenses. |
8 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Fund Expenses
PORTFOLIO SUMMARY
October 31, 2010 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $62.4
* | All data are as of October 31, 2010. The Strategy’s quality rating breakdown is expressed as a percentage of the Strategy’s total investments in municipal securities and may vary over time. The Strategy enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). The quality ratings are determined by using the Standard & Poor’s Rating Services, Moody’s Investors Service, Inc. and Fitch Ratings, Ltd. Quality breakdown is the measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is highest (best) and D is lowest (worst). |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 9 |
Portfolio Summary
PORTFOLIO OF INVESTMENTS
October 31, 2010
Principal Amount (000) | U.S. $ Value | |||||||
MUNICIPAL OBLIGATIONS – 94.4% | ||||||||
Long-Term Municipal Bonds – 77.9% | ||||||||
Alaska – 0.7% | ||||||||
Alaska Ind Dev & Export Auth | $ | 400 | $ | 456,600 | ||||
Arizona – 3.2% | ||||||||
Pima Cnty AZ Swr | 1,765 | 1,978,830 | ||||||
Arkansas – 2.5% | ||||||||
Arkansas GO | 1,500 | 1,590,255 | ||||||
California – 4.4% | ||||||||
California Dept Wtr Res Pwr | 1,225 | 1,345,099 | ||||||
California GO | 275 | 316,470 | ||||||
California Statewide CDA | 225 | 245,372 | ||||||
San Francisco City/Cnty CA Arpt Commn (San Francisco CA Intl Airport) | 450 | 510,547 | ||||||
NPFGC-RE Series 2006 32F | 290 | 336,243 | ||||||
2,753,731 | ||||||||
Colorado – 1.7% | ||||||||
Denver CO City & Cnty Arpt | 375 | 411,915 | ||||||
Denver CO Urban Renewal Auth | 200 | 216,160 | ||||||
Regional Trnsp Dist CO | 440 | 454,489 | ||||||
1,082,564 | ||||||||
10 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
District of Columbia – 2.6% | ||||||||
Metro Washington Arpt Auth VA | $ | 1,495 | $ | 1,642,586 | ||||
Florida – 11.4% | ||||||||
Citizens Ppty Ins Corp. FL | 315 | 335,132 | ||||||
NPFGC Series A | 275 | 291,874 | ||||||
Florida Brd of Ed Lottery | 2,140 | 2,258,599 | ||||||
Series 2010 C | 550 | 636,608 | ||||||
Florida Hurricane Catastr Fd Fin Corp. | 665 | 708,764 | ||||||
Series 2010A | 700 | 766,507 | ||||||
Greater Orlando Aviation FL | 420 | 459,572 | ||||||
Lee Cnty FL Arpt | 1,000 | 1,076,460 | ||||||
Tampa Bay FL Wtr Util Sys | 560 | 588,969 | ||||||
7,122,485 | ||||||||
Illinois – 13.9% | ||||||||
Chicago IL Brd of Ed GO | 1,690 | 1,902,906 | ||||||
Chicago IL GO | 1,975 | 2,147,259 | ||||||
Cook Cnty IL GO | 2,200 | 2,387,903 | ||||||
Illinois GO | 500 | 547,120 | ||||||
Illinois Sales Tax | 1,450 | 1,659,308 | ||||||
8,644,496 | ||||||||
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 11 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
Kansas – 0.2% | ||||||||
Wyandotte Cnty/Kansas City KS Uni Govt (Wyandotte Cnty/Kansas City KS Sales Tax) | $ | 180 | $ | 100,255 | ||||
Louisiana – 1.6% | ||||||||
Orleans Parish LA Par SD GO | 910 | 975,884 | ||||||
Massachusetts – 0.6% | ||||||||
Massachusetts GO | 400 | 367,204 | ||||||
Minnesota – 3.6% | ||||||||
Minnesota Hgr Ed Fac Auth | 1,295 | 1,423,827 | ||||||
Minnesota PFA | 750 | 822,862 | ||||||
2,246,689 | ||||||||
Nevada – 2.2% | ||||||||
Clark Cnty NV Arpt | 775 | 856,969 | ||||||
Clark Cnty NV SD GO | 450 | 506,754 | ||||||
1,363,723 | ||||||||
New Jersey – 0.9% | ||||||||
New Jersey EDA | 480 | 550,363 | ||||||
New York – 2.4% | ||||||||
Long Island Pwr Auth NY | 1,000 | 977,400 | ||||||
New York NY Mun Wtr Fin Auth | 500 | 501,340 | ||||||
1,478,740 | ||||||||
Ohio – 2.4% | ||||||||
Cleveland OH COP | 700 | 780,654 |
12 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
Toledo OH City Svcs Spl Assmt Notes | $ | 725 | $ | 750,636 | ||||
1,531,290 | ||||||||
Pennsylvania – 3.5% | ||||||||
Montgomery Cnty PA IDA | 475 | 532,048 | ||||||
Pennsylvania GO | 700 | 769,202 | ||||||
Series 2010A | 220 | 243,122 | ||||||
Philadelphia PA Wtr & WstWtr | 550 | 633,682 | ||||||
2,178,054 | ||||||||
Puerto Rico – 7.0% | ||||||||
Puerto Rico Elec Pwr Auth | 1,830 | 2,045,940 | ||||||
Puerto Rico Govt Dev Bank | 1,000 | 1,049,770 | ||||||
Puerto Rico Hwy & Trnsp Auth | 1,500 | 972,120 | ||||||
Puerto Rico Pub Bldgs Auth | 275 | 308,162 | ||||||
4,375,992 | ||||||||
Texas – 9.4% | ||||||||
Garland TX GO | 500 | 560,670 | ||||||
Harris Cnty TX GO | 400 | 453,816 | ||||||
Katy TX ISD GO | 700 | 752,395 | ||||||
Lower Colorado River Auth TX | 2,615 | 2,857,411 | ||||||
Univ of Texas | 1,070 | 1,246,946 | ||||||
5,871,238 | ||||||||
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 13 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
Washington – 2.5% | ||||||||
Seattle WA GO | $ | 700 | $ | 743,001 | ||||
Washington St GO | 710 | 820,519 | ||||||
1,563,520 | ||||||||
Wisconsin – 1.2% | ||||||||
Badger Tob Asset Sec Corp. WI | 700 | 763,385 | ||||||
Total Long-Term Municipal Bonds | 48,637,884 | |||||||
Short-Term Municipal Notes – 16.5% | ||||||||
Alaska – 3.9% | ||||||||
Valdez AK Marine Terminal | 2,400 | 2,400,000 | ||||||
Colorado – 3.2% | ||||||||
Colorado Educational & Cultural Facilities Authority | 2,000 | 2,000,000 | ||||||
Florida – 3.2% | ||||||||
Jacksonville FL Hlth Facs Auth | 2,000 | 2,000,000 | ||||||
North Carolina – 2.2% | ||||||||
Charlotte-Mecklenburg Hosp Auth NC | 1,400 | 1,400,000 | ||||||
Oregon – 1.9% | ||||||||
Medford OR Hosp Facs Auth | 1,200 | 1,200,000 | ||||||
Texas – 2.1% | ||||||||
Dallas Ctr for The Performing Arts | 1,000 | 1,000,000 |
14 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
Houston TX Hgr Ed Fin Corp. | $ | 300 | $ | 300,000 | ||||
1,300,000 | ||||||||
Total Short-Term Municipal Notes | 10,300,000 | |||||||
Total Municipal Obligations | 58,937,884 | |||||||
AGENCIES – 8.0% | ||||||||
Federal Home Loan Banks | 2,195 | 2,245,197 | ||||||
2.25%, 4/13/12 | 2,660 | 2,733,235 | ||||||
Total Agencies | 4,978,432 | |||||||
Total Investments – 102.4% | 63,916,316 | |||||||
Other assets less liabilities – (2.4)% | (1,548,704 | ) | ||||||
Net Assets – 100.0% | $ | 62,367,612 | ||||||
INTEREST RATE SWAP TRANSACTIONS (see Note D)
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount | Termination Date | Payments made by the | Payments received by the | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Barclays Bank PLC | $ | 10,000 | 9/28/12 | 1.09 | % | CPI | # | $ | 12,655 | |||||||||||
Barclays Bank PLC | 7,000 | 3/16/13 | 1.795 | % | CPI | # | (138,205) | |||||||||||||
Barclays Bank PLC | 2,000 | 4/8/15 | 2.22 | % | CPI | # | (61,671 | ) | ||||||||||||
Barclays Bank PLC | 5,500 | 6/1/15 | 2.0375 | % | CPI | # | (101,072 | ) | ||||||||||||
Barclays Bank PLC | 6,000 | 2/26/17 | 2.37 | % | CPI | # | (170,844 | ) | ||||||||||||
Barclays Bank PLC | 3,000 | 7/19/17 | 2.0375 | % | CPI | # | 6,564 | |||||||||||||
Barclays Bank PLC | 4,000 | 6/15/20 | 2.48 | % | CPI | # | (23,760 | ) | ||||||||||||
Barclays Bank PLC | 1,500 | 8/4/20 | 2.0375 | % | CPI | # | 20,640 | |||||||||||||
Citibank, N.A. | 2,000 | 4/15/14 | 2.06 | % | CPI | # | (53,589 | ) | ||||||||||||
JPMorgan Chase Bank, N.A. | 1,000 | 7/29/20 | 2.305 | % | CPI | # | 14,258 | |||||||||||||
Morgan Stanley Capital Services Inc | 7,000 | 6/25/12 | 0.99 | % | CPI | # | (255 | ) | ||||||||||||
Morgan Stanley Capital Services Inc | 1,000 | 5/6/13 | 1.95 | % | CPI | # | (22,309 | ) | ||||||||||||
Morgan Stanley Capital Services Inc | 9,000 | 10/27/13 | 1.61 | % | CPI | # | (56,549 | ) | ||||||||||||
Morgan Stanley Capital Services Inc | 2,000 | 10/14/20 | 2.37 | % | CPI | # | 22,408 |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 15 |
Portfolio of Investments
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
(a) | When-Issued or delayed delivery security. |
(b) | Floating Rate Security. Stated interest rate was in effect at October 31, 2010. |
(c) | Variable Rate Demand Notes (VRDN) are instruments whose interest rates change on a specific date (such as coupon date or interest payment date) or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). This instrument is payable on demand and is secured by letters of credit or other credit support agreements from major banks. |
As of October 31, 2010, the Portfolio held 13.4% of net assets in insured bonds (of this amount 7.1% represents the Portfolio’s holding in prerefunded or escrowed to maturity bonds).
Glossary:
AGM – Assured Guaranty Municipal
AMBAC – Ambac Assurance Corporation
CDA – Community Development Authority
COP – Certificate of Participation
EDA – Economic Development Agency
ETM – Escrowed to Maturity
FGIC – Financial Guaranty Insurance Company
GO – General Obligation
IDA – Industrial Development Authority/Agency
ISD – Independent School District
NPFGC – National Public Finance Guarantee Corporation
NPFGC-RE – National Public Finance Guarantee Corporation Reinsuring FGIC
PFA – Public Finance Authority
SD – School District
SRF – State Revolving Fund
See notes to financial statements.
16 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio of Investments
STATEMENT OF ASSETS & LIABILITIES
October 31, 2010
Assets | ||||
Investments in securities, at value (cost $63,141,103) | $ | 63,916,316 | ||
Cash | 2,728,780 | |||
Receivable for capital stock sold | 735,230 | |||
Interest receivable | 513,626 | |||
Unrealized appreciation on interest rate swap contracts | 76,525 | |||
Deferred offering expenses | 40,437 | |||
Total assets | 68,010,914 | |||
Liabilities | ||||
Payable for investment securities purchased | 4,829,538 | |||
Unrealized depreciation on interest rate swap contracts | 628,254 | |||
Payable for capital stock redeemed | 40,490 | |||
Advisory fee payable | 24,128 | |||
Distribution fee payable | 16,365 | |||
Payable to Adviser | 6,304 | |||
Transfer Agent fee payable | 3,210 | |||
Accrued expenses | 95,013 | |||
Total liabilities | 5,643,302 | |||
Net Assets | $ | 62,367,612 | ||
Composition of Net Assets | ||||
Capital stock, at par | $ | 6,181 | ||
Additional paid-in capital | 61,949,011 | |||
Undistributed net investment income | 75,828 | |||
Accumulated net realized gain on investment transactions | 113,108 | |||
Net unrealized appreciation on investments | 223,484 | |||
$ | 62,367,612 | |||
Net Asset Value Per Share—24 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 28,200,269 | 2,793,999 | $ | 10.09 | * | ||||||
C | $ | 11,803,865 | 1,171,310 | $ | 10.08 | |||||||
Advisor | $ | 12,309,259 | 1,218,917 | $ | 10.10 | |||||||
1 | $ | 10,084 | 1,000 | $ | 10.08 | |||||||
2 | $ | 10,044,135 | 996,000 | $ | 10.08 | |||||||
* | The maximum offering price per share for Class A shares was $10.40 which reflects a sales charge of 3.0%. |
See notes to financial statements.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 17 |
Statement of Assets & Liabilities
STATEMENT OF OPERATIONS
For the period January 26, 2010(a) to October 31, 2010
Investment Income | ||||||||
Interest | $ | 539,609 | ||||||
Expenses | ||||||||
Advisory fee (see Note B) | $ | 124,317 | ||||||
Distribution fee—Class A | 32,213 | |||||||
Distribution fee—Class C | 42,616 | |||||||
Distribution fee—Class 1 | 8 | |||||||
Transfer agency—Class A | 8,501 | |||||||
Transfer agency—Class C | 3,039 | |||||||
Transfer agency—Advisor Class | 1,804 | |||||||
Transfer agency—Class 1 | 2 | |||||||
Transfer agency—Class 2 | 2,516 | |||||||
Amortization of offering expenses | 129,548 | |||||||
Custodian | 66,011 | |||||||
Administrative | 55,000 | |||||||
Audit | 35,180 | |||||||
Legal | 27,643 | |||||||
Registration fees | 18,732 | |||||||
Directors’ fees | 15,565 | |||||||
Printing | 14,030 | |||||||
Miscellaneous | 5,883 | |||||||
Total expenses | 582,608 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (383,454 | ) | ||||||
Net expenses | 199,154 | |||||||
Net investment income | 340,455 | |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (1,187 | ) | ||||||
Swap contracts | 124,000 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 775,213 | |||||||
Swap contracts | (551,729) | |||||||
Net gain on investment transactions | 346,297 | |||||||
Net Increase in Net Assets from Operations | $ | 686,752 | ||||||
(a) | Commencement of operations. |
See notes to financial statements.
18 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Statement of Operations
STATEMENT OF CHANGES IN NET ASSETS
January 26, 2010(a) to October 31, 2010 | ||||
Increase in Net Assets from Operations | ||||
Net investment income | $ | 340,455 | ||
Net realized gain on investment transactions | 122,813 | |||
Net change in unrealized appreciation/depreciation of investments | 223,484 | |||
Net increase in net assets from operations | 686,752 | |||
Dividends to Shareholders from | ||||
Net investment income | ||||
Class A | (143,027 | ) | ||
Class C | (32,940 | ) | ||
Advisor Class | (36,724 | ) | ||
Class 1 | (97 | ) | ||
Class 2 | (103,484 | ) | ||
Capital Stock Transactions | ||||
Net increase | 61,997,132 | |||
Total increase | 62,367,612 | |||
Net Assets | ||||
Beginning of period | – 0 | – | ||
End of period (including undistributed | $ | 62,367,612 | ||
(a) | Commencement of operations. |
See notes to financial statements.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 19 |
Statement of Changes in Net Assets
NOTES TO FINANCIAL STATEMENTS
October 31, 2010
NOTE A
Significant Accounting Policies
AllianceBernstein Bond Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund, which is a Maryland corporation, operates as a series company currently comprised of four portfolios: the Intermediate Bond Portfolio, the Bond Inflation Strategy Portfolio, the Municipal Bond Inflation Strategy Portfolio and the Real Asset Strategy Portfolio (formerly, AllianceBernstein Multi-Asset Inflation Strategy Portfolio). The Intermediate Bond Portfolio commenced operations on July 1, 1999. The Bond Inflation Strategy and Municipal Bond Inflation Strategy Portfolios commenced operations on January 26, 2010. The Real Asset Strategy Portfolio commenced operations on March 8, 2010. This report relates only to the Municipal Bond Inflation Strategy Portfolio. The Municipal Bond Inflation Strategy Portfolio (the “Portfolio”) offers Class A, Class C, Advisor Class, Class 1, and Class 2 shares. Class R, Class K and Class I shares have been authorized by the Portfolio but are not currently being offered. The Portfolio has also issued Class 1 shares to the Portfolio’s investment adviser, AllianceBernstein L.P. (the “Adviser”). Class 1 shares are not publicly offered. As of October 31, 2010, the Adviser was the sole shareholder of Class 1 and Class 2. Class A shares are sold with a front-end sales charge of up to 3.0% for purchases not exceeding $500,000. With respect to purchases of $500,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase. Class R, Class K, and Class 1 shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I, and Class 2 shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eight classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Portfolio’s Board of Directors.
20 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market (“OTC”) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Investments in money market funds are valued at their net asset value each day.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio 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 and may materially affect the value of those securities.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 21 |
Notes to Financial Statements
measurement date. The U.S. GAAP disclosure requirements establish a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of October 31, 2010:
Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Long-Term Municipal Bonds | $ | — | $ | 48,637,884 | $ | — | $ | 48,637,884 | ||||||||
Short-Term Municipal Notes | — | 10,300,000 | — | 10,300,000 | ||||||||||||
Agencies | — | 4,978,432 | — | 4,978,432 | ||||||||||||
Total Investments in Securities | — | 63,916,316 | — | 63,916,316 | ||||||||||||
Other Financial | ||||||||||||||||
Assets | ||||||||||||||||
Interest Rate Swap Contracts | — | 76,525 | — | 76,525 | ||||||||||||
Liabilities | ||||||||||||||||
Interest Rate Swap Contracts | — | (628,254 | ) | — | (628,254 | ) | ||||||||||
Total | $ | — | $ | 63,364,587 | $ | — | $ | 63,364,587 | ||||||||
* | Other financial instruments are derivative instruments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. |
3. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax
22 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
positions taken or expected to be taken on federal and state income tax returns for the current tax year and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
4. Investment Income and Investment Transactions
Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes original issue discounts and market discounts as adjustments to interest income.
5. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
6. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
7. Offering Expenses
Offering expenses of $169,985 have been deferred and are being amortized on a straight line basis over a one year period.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. Effective January 26, 2010, the Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to .80%, 1.50%, .50%, .60% and .50% of the daily average net assets for the Class A, Class C, Advisor Class, Class 1 and Class 2 shares, respectively. Under the agreement, fees waived and expenses borne by the Adviser are subject to repayment by the Portfolio until January 26, 2013. No repayment will be made that would cause the Portfolio’s total annualized operating expenses to exceed the net fee percentage set forth above or would exceed the amount of offering expenses as recorded by the Portfolio on or before January 26, 2011. This fee waiver and/or
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 23 |
Notes to Financial Statements
expense reimbursement agreement may not be terminated before October 31, 2011, after which it may be terminated by either party. For the period ended October 31, 2010, such reimbursement amounted to $328,454, which is subject to repayment, not to exceed the amount of offering expenses. Additionally, the Portfolio received reimbursement in the amount of $6,304 which was payable to the Adviser for the period ended October 31, 2010.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the period ended October 31, 2010, the Adviser voluntarily agreed to waive such fees in the amount of $55,000.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $9,322 for the period ended October 31, 2010.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Portfolio’s shares. The Distributor has advised the Portfolio that it has retained front-end sales charges of $0 from the sale of Class A shares and received $732 and $6,300 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the period ended October 31, 2010.
NOTE C
Distribution Services Agreement
The Portfolio has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to the Distributor at an annual rate of up to .30% of the Portfolio’s average daily net assets attributable to Class A shares, 1% of the Portfolio’s average daily net assets attributable to Class C shares and .10% of the Portfolio’s average daily net assets attributable to Class 1 shares. There are no distribution and servicing fees on the Advisor Class and Class 2 shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Portfolio’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amounts of $168,501 for Class C shares. While such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
24 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the period ended October 31, 2010 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 48,185,414 | $ | – 0 | – | |||
U.S. government securities | 5,155,042 | 239,154 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding swap transactions) are as follows:
Cost | $ | 63,141,103 | ||
Gross unrealized appreciation | $ | 885,358 | ||
Gross unrealized depreciation | (110,145 | ) | ||
Net unrealized appreciation | $ | 775,213 | ||
1. Derivative Financial Instruments
The Portfolio 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, or to obtain exposure to otherwise inaccessible markets.
The principal type of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
• | Swap Agreements |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk, or currencies. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swap agreements to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap agreement.
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 the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 25 |
Notes to Financial Statements
posting of collateral by the counterparty to the Portfolio to cover the Portfolio exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio 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, where applicable. 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.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Portfolio may enter into interest rate swap contracts. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
A Portfolio may enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
During the period ended October 31, 2010, the Portfolio entered into interest rate swaps for hedging purposes.
As of October 31, 2010, the Portfolio had interest rate swap contracts in liability positions with net asset contingent features. The fair value of such contracts amounted to $628,254 at October 31, 2010.
26 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
At October 31, 2010, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate | Unrealized appreciation on interest rate swap contracts | $ | 76,525 |
| Unrealized depreciation on interest rate swap contracts | $ | 628,254 |
| ||||
Total | $ | 76,525 | $ | 628,254 | ||||||||
The effect of derivative instruments on the statement of operations for the period ended October 31, 2010:
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | $ | 124,000 | $ | (551,729 | ) | ||||
Total | $ | 124,000 | $ | (551,729) | ||||||
For the period ended October 31, 2010, the average monthly notional amount of interest rate swaps was $28,750,000.
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for Class A, Class C, Advisor Class, Class 1 and Class 2 were as follows:
Shares | Amount | |||||||||||||||
January 26, 2010(a) to October 31, 2010 | January 26, 2010(a) to October 31, 2010 | |||||||||||||||
Class A | ||||||||||||||||
Shares sold | 3,163,536 | $ | 31,733,618 | |||||||||||||
Shares issued in reinvestment of dividends | 10,166 | 101,948 | ||||||||||||||
Shares redeemed | (379,703 | ) | (3,797,745 | ) | ||||||||||||
Net increase | 2,793,999 | $ | 28,037,821 | |||||||||||||
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 27 |
Notes to Financial Statements
Shares | Amount | |||||||||||||||
January 26, 2010(a) to October 31, 2010 | January 26, 2010(a) to October 31, 2010 | |||||||||||||||
Class C | ||||||||||||||||
Shares sold | 1,219,122 | $ | 12,200,973 | |||||||||||||
Shares issued in reinvestment of dividends | 2,858 | 28,605 | ||||||||||||||
Shares redeemed | (50,670 | ) | (508,193 | ) | ||||||||||||
Net increase | 1,171,310 | $ | 11,721,385 | |||||||||||||
Advisor Class | ||||||||||||||||
Shares sold | 1,274,214 | $ | 12,824,351 | |||||||||||||
Shares issued in reinvestment of dividends | 2,854 | 28,710 | ||||||||||||||
Shares redeemed | (58,151 | ) | (585,135 | ) | ||||||||||||
Net increase | 1,218,917 | $ | 12,267,926 | |||||||||||||
Class 1 | ||||||||||||||||
Shares sold | 1,000 | $ | 10,000 | |||||||||||||
Net increase | 1,000 | $ | 10,000 | |||||||||||||
Class 2 | ||||||||||||||||
Shares sold | 996,000 | $ | 9,960,000 | |||||||||||||
Net increase | 996,000 | $ | 9,960,000 | |||||||||||||
(a) | Commencement of operations. |
NOTE F
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Municipal Market Risk—This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Portfolio’s investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Portfolio may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes or earthquakes. The Fund’s investments in certain municipal securities with principal and interest
28 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
Bond Insurer Risk—The Portfolio may purchase municipal securities that are insured under policies issued by certain insurance companies. Historically, insured municipal securities typically received a higher credit rating, which meant that the issuer of the securities paid a lower interest rate. As a result of declines in the credit quality and associated downgrades of most fund insurers, insurance has less value than it did in the past. The market now values insured municipal securities primarily based on the credit quality of the issuer of the security with little value given to the insurance feature. In purchasing such insured securities, the Adviser evaluates the risk and return of municipal securities through its own research.
The ratings of most insurance companies have been downgraded and it is possible that an insurance company may become insolvent. If an insurance company’s rating is downgraded or the company becomes insolvent, the prices of municipal securities insured by the insurance company may decline.
The Adviser believes that downgrades in insurance company ratings or insurance company insolvencies present limited risk to the Portfolio. The generally investment grade underlying credit quality of the insured municipal securities reduces the risk of a significant reduction in the value of the insured municipal security.
Derivatives Risk—The Portfolio may enter into in derivatives such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected in the statement of assets and liabilities.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $140 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 29 |
Notes to Financial Statements
restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the period ended October 31, 2010.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal period ended October 31, 2010 was as follows:
2010 | ||||
Distributions paid from: | ||||
Ordinary income | $ | 57,510 | ||
Tax-exempt income | 258,762 | |||
Total distributions paid | $ | 316,272 | ||
As of October 31, 2010, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed tax-exempt income | $ | 198,851 | ||
Undistributed net investment income | 113,108 | |||
Unrealized appreciation/(depreciation) | 223,484 | |||
Total accumulated earnings/(deficit) | $ | 535,443 | (a) | |
(a) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to the amortization of offering costs. |
During the current fiscal period, permanent differences primarily due to the tax treatment of swap income and nondeductible offering costs resulted in a net increase in undistributed net investment income, a net decrease in accumulated net realized gain on investment transactions, and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE I
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
30 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .11 | |||
Net realized and unrealized gain on investment transactions | .06 | |||
Net increase in net asset value from operations | .17 | |||
Less: Dividends | ||||
Dividends from net investment income | (.08 | ) | ||
Net asset value, end of period | $ 10.09 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 1.70 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $28,200 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e) | .80 | % | ||
Expenses, before waivers/reimbursements(e) | 2.15 | % | ||
Net investment income(b)(e) | 1.43 | % | ||
Portfolio turnover rate | 1 | % |
See footnote summary on page 35.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 31 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .06 | |||
Net realized and unrealized gain on investment transactions | .06 | |||
Net increase in net asset value from operations | .12 | |||
Less: Dividends | ||||
Dividends from net investment income | (.04 | ) | ||
Net asset value, end of period | $10.08 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 1.23 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $ 11,804 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e) | 1.50 | % | ||
Expenses, before waivers/reimbursements(e) | 2.76 | % | ||
Net investment income(b)(e) | .78 | % | ||
Portfolio turnover rate | 1 | % |
See footnote summary on page 35.
32 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .12 | |||
Net realized and unrealized gain on investment transactions | .08 | |||
Net increase in net asset value from operations | .20 | |||
Less: Dividends | ||||
Dividends from net investment income | (.10 | ) | ||
Net asset value, end of period | $ 10.10 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 1.97 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $12,310 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e) | .50 | % | ||
Expenses, before waivers/reimbursements(e) | 1.57 | % | ||
Net investment income(b)(e) | 1.81 | % | ||
Portfolio turnover rate | 1 | % |
See footnote summary on page 35.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 33 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .11 | |||
Net realized and unrealized gain on investment transactions | .07 | |||
Net increase in net asset value from operations | .18 | |||
Less: Dividends | ||||
Dividends from net investment income | (.10 | ) | ||
Net asset value, end of period | $ 10.08 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 1.78 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $10 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e) | .60 | % | ||
Expenses, before waivers/reimbursements(e) | 2.70 | % | ||
Net investment income(b)(e) | 1.38 | % | ||
Portfolio turnover rate | 1 | % |
See footnote summary on page 35.
34 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||
January 26, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .11 | |||
Net realized and unrealized gain on investment transactions | .07 | |||
Net increase in net asset value from operations | .18 | |||
Less: Dividends | ||||
Dividends from net investment income | (.10 | ) | ||
Net asset value, end of period | $ 10.08 | |||
Total Return | ||||
Total investment return based on net asset value(d) | 1.85 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $10,044 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(e) | .50 | % | ||
Expenses, before waivers/reimbursements(e) | 2.61 | % | ||
Net investment income(b)(e) | 1.49 | % | ||
Portfolio turnover rate | 1 | % |
(a) | Commencement of operations. |
(b) | Net of fees waived and expenses reimbursed by the Adviser. |
(c) | Based on average shares outstanding. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | Annualized. |
See notes to financial statements.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 35 |
Financial Highlights
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of AllianceBernstein Bond Fund, Inc.
and Shareholders of the AllianceBernstein Municipal Bond Inflation Strategy Portfolio
We have audited the accompanying statement of assets and liabilities of AllianceBernstein Municipal Bond Inflation Strategy Portfolio (one of the portfolios constituting AllianceBernstein Bond Fund, Inc.) (the “Portfolio”), including the portfolio of investments, as of October 31, 2010, and the related statement of operations, statement of changes in net assets, and the financial highlights for the period January 26, 2010 (commencement of operations) through October 31, 2010. These financial statements and financial highlights are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2010 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AllianceBernstein Municipal Bond Inflation Strategy Portfolio of the AllianceBernstein Bond Fund, Inc. at October 31, 2010, and the results of its operations, changes in its net assets and the financial highlights for the period January 26, 2010 (commencement of operations) through October 31, 2010, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 29, 2010
36 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Report of Independent Registered Public Accounting Firm
FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable period ended October 31, 2010.
The Portfolio designates $258,762 as exempt-interest dividends for the year ended October 31, 2010.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2011.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 37 |
Federal Tax Information
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Garry L. Moody(1) Marshall C. Turner(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Michael Brooks(2), Vice President Robert (Guy) B. Davidson III(2), Vice President | Wayne Godlin(2), Vice President Terrance T. Hults(2) , Vice President Emilie D. Wrapp, Secretary Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller |
Custodian and Accounting Agent State Street Bank and Trust Company One Lincoln Street Boston, MA 02111
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. Mr. Foulk is the sole member of the Fair Value Pricing Committee. |
(2) | The day-to-day management of, and investment decisions for, the Strategy’s portfolio are made by the Municipal Bond Investment Team. Messrs. Michael G. Brooks, Robert (Guy) B. Davidson III, Wayne Godlin and Terrance T. Hults are the investment professionals with the most significant responsibility for the day-to-day management of the Strategy’s portfolio. |
38 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Board of Directors
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Strategy are managed under the direction of the Board of Directors. Certain information concerning the Strategy’s Directors is set forth below.
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith + 1345 Avenue of the Americas New York, New York 10105 50 (2010) | Senior Vice President of the Adviser and head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AllianceBernstein Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 97 | None | |||||
DISINTERESTED DIRECTORS | ||||||||
William H. Foulk, Jr., ++, # Chairman of the Board (2002) | Investment Adviser and an Independent Consultant since prior to 2005. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AllianceBernstein Funds since 1983 and has been Chairman of the AllianceBernstein Funds and of the Independent Directors Committee of such Funds since 2003. He is also active in a number of mutual fund organizations and committees. | 97 | None |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 39 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
John H. Dobkin, # 68 (2002) | Independent Consultant since prior to 2005. Formerly, President of Save Venice, Inc. (preservation organization) from 2001 – 2002, Senior Advisor from June 1999 – June 2000 and President of Historic Hudson Valley (historic preservation) from December 1989 – May 1999. Previously, Director of the National Academy of Design. He has served as a director or trustee of various AllianceBernstein Funds since 1992, and as Chairman of the Audit Committees of a number of such Funds from 2001-2008. | 96 | None | |||||
Michael J. Downey, # 66 (2005) | Private Investor since prior to 2005. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, Director of the Prudential Mutual Funds and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AllianceBernstein Funds since 2005 and is a director of two other registered investment companies (and Chairman of one of them). | 96 | Asia Pacific Fund, Inc. and The Merger Fund since prior to 2005 and Prospect Acquisition Corp. (financial services) since 2007 until 2009 | |||||
40 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
D. James Guzy, # 74 (2005) | Chairman of the Board of PLX Technology (semi-conductors) and of SRC Computers Inc., with which he has been associated since prior to 2005. He was a Director of Intel Corporation (semi-conductors) from 1969 until 2008 and served as Chairman of the Finance Committee of such company for several years until May 2008. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1982. | 96 | Cirrus Logic Corporation (semi-conductors) and PLX Technology, Inc. (semi-conductors) since prior to 2005 and Intel Corporation (semi-conductors) since prior to 2005 until 2008 | |||||
Nancy P. Jacklin, # 62 (2006) | Professorial Lecturer at the Johns Hopkins School of Advanced International Studies since 2008. Formerly, U.S. Executive Director of the International Monetary Fund (December 2002 – May 2006); Partner, Clifford Chance (1992 – 2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985 – 1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982 – 1985); and Attorney Advisor, U.S. Department of the Treasury (1973 – 1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AllianceBernstein Funds since 2006. | 96 | None | |||||
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 41 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody, # 58 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995); and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services. He is also a member of the Governing Council of the Independent Directors Council (IDC), an organization of independent directors of mutual funds, and serves on that organization’s Education and Communications Committee. He has served as a director or trustee, and as Chairman of the Audit Committee, of most of the AllianceBernstein Funds since 2008. | 96 | None | |||||
42 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Marshall C. Turner, Jr., # 69 (2005) | Private Investor since prior to 2005. Interim CEO of MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) from November 2008 until March 2009. He was Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing), 2003–2005, and President and CEO, 2005–2006, after the company was acquired and renamed Toppan Photomasks, Inc. He has extensive experience in venture capital investing including prior service as general partner of three institutional venture capital partnerships, and serves on the boards of a number of education and science-related non-profit organizations. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1992. | 96 | Xilinx, Inc. (programmable logic semi-conductors) and MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) since prior to 2005 | |||||
Earl D. Weiner, # 71 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP, and member of ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AllianceBernstein Funds since 2007 and is Chairman of the Governance and Nominating Committees of most of the Funds. | 96 | None |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 43 |
Management of the Fund
* | The address for each of the Strategy’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Philip L. Kirstein, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Strategy’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Strategy. |
+ | Mr. Keith is an “interested person,” as defined in the “40 Act,” due to his position as Senior Vice President of AllianceBernstein. |
++ | Member of the Fair Value Pricing Committee. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
44 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Management of the Fund
Officer Information
Certain information concerning the Strategy’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 50 | President and Chief Executive Officer | See biography above. | ||
Philip L. Kirstein 65 | Senior Vice President and Independent Compliance Officer | Senior Vice President and Independent Compliance Officer of the AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to March 2003. | ||
Michael Brooks 62 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2005. | ||
Robert (Guy) B. Davidson III, 49 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2005. | ||
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Strategy. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Strategy’s Directors and Officers and is available without charge upon request. Contact your financial representative or AllianceBernstein at 1-800-227-4618, or visit www.alliancebernstein.com, for a free prospectus or SAI. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 45 |
Management of the Fund
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Wayne Godlin 49 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since December 2009. Prior thereto, he was an investment manager and a Managing Director of Van Kampen Asset Management with which he had been associated since prior to 2005. | ||
Terrance T. Hults 44 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2005. | ||
Emilie D. Wrapp 55 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2005. | ||
Joseph J. Mantineo 51 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”),** with which he has been associated since prior to 2005. | ||
Phyllis J. Clarke 49 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2005. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Strategy. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Strategy’s Directors and Officers and is available without charge upon request. Contact your financial representative or AllianceBernstein at 1-800-227-4618, or visit www.alliancebernstein.com, for a free prospectus or SAI. |
46 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Management of the Fund
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER’S EVALUATION OF INVESTMENT ADVISORY AGREEMENT1
The following is a summary of the evaluation of the Investment Advisory Agreement between AllianceBernstein L.P. (the “Adviser”) and AllianceBernstein Bond Fund, Inc. (the “Fund”) in respect of AllianceBernstein Bond Inflation Strategy and AllianceBernstein Municipal Bond Inflation Strategy (each a “Strategy” and collectively the “Strategies”).2
Bond Inflation Strategy’s (“Bond Strategy”) investment objective is to maximize real return without assuming what the Adviser considers to be undue risk. The Strategy pursues its objective by investing principally in Treasury Inflation Protected Securities (“TIPS”) directly or by gaining indirect exposure to TIPS through derivatives transactions such as Total Return Swaps (“TRS”) linked to TIPS. In the normal course, at least 80 percent of the Strategy’s net assets will be invested in fixed-income securities. In addition, in order to maximize real return, the Strategy may invest in other fixed-income investments, such as U.S. and non-U.S. government securities, corporate fixed-income securities and mortgage-related securities or derivatives linked to such securities.
Municipal Bond Inflation Strategy’s (“Municipal Strategy”) investment objective is to maximize real after-tax return for investors subject to federal income taxes, without undue risk to principal. The Strategy pursues its investment objective by investing principally in high-quality, predominantly investment grade, municipal securities. In the normal course, at least 80% of the Strategy’s net assets will be invested in municipal securities. At least 80% of the Strategy’s total assets will have a credit rating of A or better. To provide inflation protection, Municipal Strategy will enter into inflation swap agreements. The Strategy may also use other inflation-protected instruments.
The evaluation of the investment Advisory Agreement was prepared by Philip L. Kirstein, the Senior Officer of the Fund, for the Directors of the Fund, as required by the September 1, 2004 Assurance of Discontinuance (“AoD”) between the Adviser and the New York State Attorney General (the “NYAG”). The Senior Officer’s evaluation of the Investment Advisory Agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the “40 Act”) and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees proposed to be paid by the Portfolios which was provided to the Directors in connection with their review of the
1 | It should be noted that the Senior Officer’s evaluation was completed on December 2, 2009. |
2 | Future references to the Fund or the Strategy do not include “AllianceBernstein.” |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 47 |
proposed approval of the continuance of the Investment Advisory Agreement. The Senior Officer’s evaluation considered the following factors:
1. | Advisory fees charged to institutional and other clients of the Adviser for like services; |
2. | Advisory fees charged by other mutual fund companies for like services; |
3. | Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit; |
4. | Profit margins of the Adviser and its affiliates from supplying such services; |
5. | Possible economies of scale as the Portfolios grow larger; and |
6. | Nature and quality of the Adviser’s services including the performance of the Portfolios. |
PORTFOLIOS’ ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS
The Adviser has proposed that the Strategies pay the advisory fee set forth in the table below for receiving the services to be provided pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in consideration of the Adviser’s settlement with the NYAG in December 2003, is based on a master schedule that contemplates eight categories of funds with almost all funds in each category having the same advisory schedule.3
Category | Advisory Fee4 | Strategy | ||||
High Income | 50 bp on 1st $2.5 billion 45 bp on next $2.5 billion 40 bp on the balance |
| Bond Strategy Municipal Strategy |
|
The Adviser agreed to waive that portion of its management fees and/or reimburse the Strategies for that portion of the Strategies’ total operating expenses to the degree necessary to limit the Strategies’ expense ratios to the amounts set forth below for the Strategies’ start up period. The agreement allows for the Adviser to be reimbursed through a limited period for management fees that the Adviser waived or reimbursements that the Adviser made for fund expenses exceeding the Strategies’ expense caps for the period through the Strategies’ start up period. The agreement provides that such payment shall be made only to the extent that the payment does not cause each Strategy’s aggregate expenses to exceed, on an annual basis, the Strategy’s expense limitation, and that such payment shall not exceed the amount of the offering expenses recorded by the Strategy.
3 | Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser’s settlement with the NYAG. |
4 | The advisory fees of the Strategies are based on the percentage of each Strategy’s average daily net assets, not an aggregate of the assets of the Strategies shown. |
48 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Strategies.
Strategy | Expense Cap Pursuant to Expense Limitation Undertaking | Estimated Gross | ||||||
Bond Strategy | Advisor Class A Class C Class R Class K Class I5 Class 15 Class 25 |
| 0.45 0.75 1.45 0.95 0.70 0.45 0.55 0.45 | % % % % % % % % | 1.05% 1.35% 2.05% 1.55% 1.30% 1.05% 1.15% 1.05% | |||
Municipal Strategy6 | Advisor Class A Class C Class 15 Class 25 |
| 0.50 0.80 1.50 0.60 0.50 | % % % % % | 0.97% 1.27% 1.97% 1.07% 0.97% |
I. | MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS |
The advisory fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Strategies that are not provided to non-investment company clients include providing office space and personnel to serve as the Strategies’ Officers, who among other responsibilities make the certifications required under the Sarbanes–Oxley Act of 2002, and coordinating with and monitoring the Strategies’ third party service providers such as the Strategies’ counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Strategies are more costly than those for institutional client assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Strategies to the Adviser. Also, retail mutual funds
5 | The strategy will consist of two new classes of shares, Class 1 and Class 2, in addition to the traditional A, B, C, R, K and I share classes. Class 1 shares are intended exclusively for the private clients of the Sanford C. Bernstein & Co. LLC (“Bernstein or the “Private Clients”) while Class 2 shares are intended for the Adviser’s institutional advisory clients and Private Clients who have at least $3 million in fixed-income assets under management with the Adviser after giving effect to their investment in the Strategies. The minimum investment by institutions for class 2 shares is $5 million. |
6 | Because retirement plans have no need for tax-favored investments, Municipal Strategy will not offer and issue Classes R, K and I shares. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 49 |
managed by the Adviser are widely held. Servicing the Strategies’ investors is more time consuming and labor intensive compared to institutional clients since the Adviser needs to communicate with a more extensive network of financial intermediaries and shareholders. The Adviser also believes that it incurs substantial entrepreneurial risk when offering a new mutual fund since establishing a new mutual fund requires a large upfront investment and it may take a long time for the fund to achieve profitability since the fund must be priced to scale from inception in order to be competitive and assets are acquired one account at a time. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if a fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing funds with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although arguably still not equal to those related to the mutual fund industry.
Notwithstanding the Adviser’s view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with substantially similar investment styles as the Strategies.7 Although, the Adviser represented that there is no category in the Form ADV for institutional products that have a substantially similar investment style as the Strategies, the Strategies consist of investments in various asset classes for which the Adviser does have institutional counterparts. It should be noted that in addition to investing in multiple asset classes as opposed to a single asset class, the Strategies may employ with greater frequency the use of derivatives than their institutional counterparts. Set forth below are the institutional fee schedules of the various asset classes of which the Strategies consists. Also shown below are what would have been the effective advisory fees of the Strategies had the advisory fee schedules of the institutional accounts been applicable to the Strategies based on the initial estimate of the Strategies net assets.
AB Institutional Account Category | Initial ($MIL) | Fee Schedule | Effective AB Inst. Adv. Fee | |||||||
U.S. Inflation- Linked Bonds (TIPs) | $100.0 | 25 bp | 0.250% |
7 | The Adviser has indicated that with respect to institutional accounts with assets greater than $300 million, it will negotiate a fee schedule. Discounts that are negotiated vary based upon each client relationship. |
50 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
AB Institutional Account Category | Initial ($MIL) | Fee Schedule | Effective AB Inst. Adv. Fee | |||||||
Global Plus Fixed Income | $100.0 | 50 bp on 1st $30 million 25 bp on the balance Minimum Account Size: $25 m | 0.325% | |||||||
Short Duration Municipal | $100.0 | 30 bp on 1st $20 million 20 bp on next $80 million 15 bp on next $150 million 12.5 bp on next $250 million 10 bp on the balance Minimum Account Size: $5 m | 0.220% | |||||||
Intermediate Duration Municipal | $100.0 | 50 bp on 1st $5 million 37.5 bp on next $15 million 25 bp on next $80 million 18.75 bp on the balance Minimum Account Size: $3 m | 0.281% |
The Adviser represented that it does not sub-advise any registered investment companies that have a similar investment strategy as the Strategies.
II. | MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. |
Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fees charged to the Strategies with fees charged to other investment companies for similar services by other investment advisers. Lipper’s analysis included the Strategies’ rankings with respect to the proposed management fees relative to the median of each Strategy’s Lipper Expense Group (“EG”)8 at the approximate current asset level of the Strategy.9
Lipper describes an EG as a representative sample of comparable funds. Lipper’s standard methodology for screening funds to be included in an EG entails the consideration of several fund criteria, including fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size)10 comparability, and expense components and attributes. An EG will typically consist of seven to twenty funds.
8 | It should be noted that Lipper does not consider average account size when constructing EGs. Funds with relatively small average account sizes tend to have a higher transfer agent expense ratio than comparable sized funds that have relatively large average account sizes. |
9 | The contractual management fee is calculated by Lipper using the Strategy’s contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Strategy, rounded up to the next $25 million. Lipper’s total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of “1” means that the Strategy has the lowest effective fee rate in the Lipper peer group. |
10 | The Adviser asked Lipper to anticipate that each Strategy’s asset size would be approximately $100 million. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 51 |
Strategy | Contractual Management Fee (%)11 | Lipper Exp. Median (%) | Rank | |||||||||
Bond Strategy | 0.500 | 0.628 | 2/8 | |||||||||
Municipal Strategy | 0.500 | 0.500 | 5/9 |
Set forth below is a comparison of the Strategies’ total expense ratios and the medians of their EGs and EUs. The Strategies’ rankings are also shown.
Strategy | Expense Ratio12 | Lipper Exp. Group Median (%) | Lipper Group Rank | Lipper Exp. Median (%) | Lipper Rank | |||||||||||||||
Bond Strategy | 0.750 | 0.874 | 1/8 | 0.848 | 5/19 | |||||||||||||||
Municipal Strategy | 0.800 | 0.860 | 3/10 | 0.788 | 19/35 |
Based on this analysis, the Strategies have a more favorable ranking on a total expense ratio basis than on a management fee basis.
III. | COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. |
The Adviser utilizes two profitability reporting systems, which operate independently but are aligned with each other, to estimate the Adviser’s profitability in connection with investment advisory services provided to the Strategies. The Senior Officer has retained a consultant to provide independent advice regarding the alignment of the two profitability systems as well as the methodologies and allocations utilized by both profitability systems. See Section IV for additional discussion.
IV. | PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. |
The Strategies have not yet commenced operations. Therefore there is no historic profitability data with respect to the Adviser’s investment services to the Strategies.
In addition to the Adviser’s future direct profits from managing the Strategies, it is anticipated that certain of the Adviser’s affiliates will have business relationships with the Strategies and may earn a profit from providing non-investment services to the Strategies. The courts have referred to this type of business opportunity as “fall-out benefits” to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Strategies and the Adviser. Neither case law nor common business practice precludes the
11 | The contractual management fee does not reflect any expense reimbursements made by the Strategy to the Adviser for certain clerical, legal, accounting, administrative, and other services. In addition, the contractual management fee does not reflect any advisory fee waivers for expense caps that would effectively reduce the actual effective management fee. |
12 | Information on the Strategies’ total expense ratios pertain to the Strategies’ Class A shares. |
52 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Adviser’s affiliates from earning a reasonable profit on this type of relationship provided the affiliates’ charges and services are competitive and the relationship otherwise complies with the 40 Act restrictions. These affiliates will provide transfer agent and distribution related services to the Strategies and receive transfer agent fees, Rule 12b-1 payments, front-end sales loads and contingent deferred sales charges (“CDSC”).
The Adviser has advised the Senior Officer that ABI and the Adviser will disclose in the Strategies’ prospectus that they may make revenue sharing payments from their own resources, in addition to resources derived from sales loads and Rule 12b-1 fees, to firms that sell shares of the Strategies. The total amount to be paid to a financial intermediary associated with the sale of shares 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 the average daily net assets attributable to that firm over the year. In 2008, ABI paid from its resources an amount equal to approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $19 million for distribution services and educational support (revenue sharing payments).
It is anticipated AllianceBernstein Investor Services (“ABIS”), an affiliate of the Adviser, will be the Strategies’ transfer agent. Fees and reimbursements for out of pocket expenses charged by AllianceBernstein Investor Services, Inc. (“ABIS”) are charged on a per account basis, based on the level of service provided and the class of share held by the account. ABIS also receives a fee per shareholder sub-account for each account maintained by an intermediary on an omnibus basis.5
V. | POSSIBLE ECONOMIES OF SCALE |
The Adviser has indicated that economies of scale are being shared with shareholders through fee structures,13 subsidies and enhancement to services. Based on some of the professional literature that has considered economies of scale in the mutual fund industry, it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems, can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide services, there may be a sharing of economies of scale without a reduction in advisory fees.
13 | Fee structures include fee reductions, pricing at scale and breakpoints in advisory fee schedules. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 53 |
An independent consultant, retained by the Senior Officer, provided the Board of Directors an update of the Deli14 study on advisory fees and various fund characteristics. The independent consultant first reiterated the results of his previous two dimensional comparison analysis (fund size and family size) with the Board of Directors.15 The independent consultant then discussed the results of the regression model that was utilized to study the effects of various factors on advisory fees. The regression model output indicated that the bulk of the variation in fees predicted were explained by various factors, but substantially by fund assets under management (“AUM”), family AUM, index fund indicator and investment style. The independent consultant also compared the advisory fees of the AllianceBernstein Mutual Funds to similar funds managed by 19 other large asset managers, regardless of fund size and the large asset manager’s proportion of mutual fund assets to non-mutual fund assets.
VI. | NATURE AND QUALITY OF THE ADVISER’S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. |
The Adviser believes it is a leading international investment adviser. It managed assets approximate $487 billion as of October 31, 2009. The Adviser has reported that it has the investment experience to manage the portfolio assets of the Strategies and provide non-investment services to the Strategies contemplated by the Investment Advisory Agreement.
Because the Strategies have not yet commenced operations and there are no comparable institutional or sub-advised or off-shore accounts that the Adviser manages and has a substantially similar investment styles as the Strategies, there is no performance history. It is anticipated that both Strategies will have the Barclays Capital 1-10 Year U.S. TIPS Index as their benchmarks. To demonstrate the Adviser’s experience in managing Inflation-Protected Securities Portfolios, listed below are the 1, 3, 5, year performance returns of the AllianceBernstein Inflation Protected Security Pooling Portfolios and benchmark as of October 31, 2009:
Periods Ending October 31, 2009 Annualized Performance (%) | ||||||||||||
1 Year | 3 Year | Since Inception | ||||||||||
Inflation Protected Securities Portfolio | 14.46 | 6.39 | 4.97 | |||||||||
Barclays Capital 1-10 Yr. TIPS Index | 14.65 | 6.34 | 4.99 | |||||||||
Inception Date: May 20, 2005 |
14 | The Deli study was originally published in 2002 based on 1997 data. |
15 | The two dimensional analysis showed patterns of lower advisory fees for funds with larger asset sizes and funds from larger family sizes compared to funds with smaller asset sizes and funds from smaller family sizes, which according to the independent consultant is indicative of a sharing of economies of scale and scope. However, in less liquid and active markets, such is not the case, as the empirical analysis showed potential for diseconomies of scale in those markets. The empirical analysis also showed diminishing economies of scale and scope as funds surpassed a certain high level of assets. |
54 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
CONCLUSION:
Based on the factors discussed above the Senior Officer’s conclusion is that the proposed advisory fee for the Strategies is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Strategies is based on an evaluation of all of these factors and no single factor was dispositive.
Dated: January 11, 2010
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 55 |
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
Wealth Strategies Funds
Balanced Wealth Strategy
Wealth Appreciation Strategy
Conservative Wealth Strategy*
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Conservative Wealth Strategy*
Blended Style Funds
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
Growth Funds
Domestic
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Small/Mid Cap Growth Fund
U.S. Strategic Research Portfolio
Global & International
Global Growth Fund
Global Thematic Growth Fund
Greater China ‘97 Fund
International Discovery Equity Portfolio
International Growth Fund
Value Funds
Domestic
Balanced Shares
Core Opportunities Fund*
Growth & Income Fund
Small/Mid Cap Value Fund
Equity Income Fund*
Value Fund
Global & International
Global Real Estate Investment Fund
Global Value Fund
International Value Fund
Taxable Bond Funds
Bond Inflation Strategy
Diversified Yield Fund
Global Bond Fund
High Income Fund
Intermediate Bond Portfolio
Short Duration Portfolio
Municipal Bond Funds
Arizona Municipal Bond Inflation Strategy California High Income Massachusetts Michigan | Minnesota National New Jersey New York Ohio Pennsylvania Virginia |
Intermediate Municipal Bond Funds
Intermediate California
Intermediate Diversified
Intermediate New York
Closed-End Funds
AllianceBernstein Global High Income Fund
AllianceBernstein Income Fund
AllianceBernstein National Municipal Income Fund
Alliance California Municipal Income Fund
Alliance New York Municipal Income Fund
The Ibero-America Fund*
Inflation Strategies
Real Asset Strategy*
Alternative Strategies
Market Neutral Strategy – U.S.
Market Neutral Strategy – Global
Retirement Strategies Funds
2000 Retirement Strategy | 2020 Retirement Strategy | 2040 Retirement Strategy | ||
2005 Retirement Strategy | 2025 Retirement Strategy | 2045 Retirement Strategy | ||
2010 Retirement Strategy | 2030 Retirement Strategy | 2050 Retirement Strategy | ||
2015 Retirement Strategy | 2035 Retirement Strategy | 2055 Retirement Strategy |
We also offer Exchange Reserves,** which serves as the money market fund exchange vehicle for the AllianceBernstein mutual funds.
You should consider the investment objectives, risks, charges and expenses of any AllianceBernstein fund/portfolio carefully before investing. For free copies of our prospectuses, which contain this and other information, visit us online at www.alliancebernstein.com or contact your financial advisor. Please read the prospectus carefully before investing.
* | Prior to December 31, 2009, Conservative Wealth Strategy was named Wealth Preservation Strategy, and Tax-Managed Conservative Wealth Strategy was named Tax-Managed Wealth Preservation Strategy. Prior to January 20, 2010, The Ibero-America Fund was named The Spain Fund. Prior to March 1, 2010, Core Opportunities Fund was named the Focused Growth & Income Fund. Prior to September 1, 2010, Equity Income Fund was named Utility Income Fund. Prior to September 27, 2010, Real Asset Strategy was named Multi-Asset Inflation Strategy. |
** | An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. |
56 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
AllianceBernstein Family of Funds
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800.221.5672
MBIS-0151-1010 | ![]() |
ANNUAL REPORT
AllianceBernstein
Real Asset Strategy
October 31, 2010
Annual Report
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
The investment return and principal value of an investment in the Fund will fluctuate as the prices of the individual securities in which it invests fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For a free copy of the Fund’s prospectus, which contains this and other information, visit our web site at www.alliancebernstein.com or call your financial advisor or AllianceBernstein® at (800) 227-4618. Please read the prospectus carefully before you invest.
You may obtain performance information current to the most recent month-end by visiting www.alliancebernstein.com.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AllianceBernstein’s web site at www.alliancebernstein.com, or go to the Securities and Exchange Commission’s (the “Commission”) web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s web site at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AllianceBernstein publishes full portfolio holdings for the Fund monthly at www.alliancebernstein.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AllianceBernstein family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.
AllianceBernstein® and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
December 21, 2010
Annual Report
This report provides management’s discussion of fund performance for AllianceBernstein Real Asset Strategy (the “Strategy”) since-inception, for the period ended October 31, 2010. The Strategy commenced operations on March 8, 2010.
Investment Objective and Policies
The Strategy’s investment objective is to maximize real return. Real return is the rate of return after adjusting for inflation.
The Strategy pursues an aggressive investment strategy involving a variety of asset classes. The Strategy invests primarily in instruments that AllianceBernstein L.P. (the “Adviser”) expects to outperform broad equity indices during periods of rising inflation. Under normal circumstances, the Strategy expects to invest its assets principally in the following instruments that, in the judgment of the Adviser, are affected directly or indirectly by the level and change in the rate of inflation: inflation-protected fixed-income securities, such as Treasury Inflation-Protected Securities (“TIPS”) and similar bonds issued by governments outside of the US, commodities, commodity-related stocks, real estate securities, utility securities, infrastructure-related securities, currencies, and securities and derivatives linked to the price of other assets (such as commodities, stock indices and real estate). The Strategy expects its investments in fixed-income securities to have a broad range of maturities and quality levels. The Strategy will seek inflation protection from investments around the globe, both in developed and emerging market countries.
In selecting securities for purchase and sale, the Adviser will utilize its qualitative and quantitative resources to determine overall inflation sensitivity, asset allocation, and security selection. When its analysis indicates that changes are necessary, the Adviser intends to implement them through a combination of changes to underlying positions and the use of inflation swaps and other types of derivatives, such as interest rate swaps. The Strategy anticipates that its investments, other than its investments in inflation-protected securities, will focus roughly equally on commodity-related equity securities, commodities and commodity derivatives, and real estate equity securities to provide a balance between expected return and inflation protection. Its commodities investments will include significant exposure to energy commodities, but will also include agricultural products, industrial and precious metals, such as gold. The Strategy’s investments in real estate equity securities will include Real Estate Investment Trusts (“REITs”), other real estate-related securities, and infrastructure-related securities. The Strategy will invest in both US and non-US Dollar-denominated equity or fixed-income securities. The Strategy may invest in currencies for hedging or for investment purposes, both in the spot market and through long- or short-positions in currency-related derivatives. The Strategy does not ordinarily expect to hedge its foreign currency exposure because it will be balanced by investments in US Dollar-denominated securities although it may hedge the exposure under certain circumstances. The Strategy may
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 1 |
invest to the extent permitted by applicable law in derivatives, such as options, futures, forwards, swap agreements or structured notes. The Strategy intends to use leverage for investment purposes. In determining when and to what extent to employ leverage or enter into derivatives transactions, the Adviser will consider factors such as the relative risks and returns expected of potential investments and the cost of such transactions. The Adviser will consider the impact of derivatives in making its assessments of the Strategy’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
The Strategy may seek to gain exposure to physical commodities traded in the commodities markets through investments in a variety of derivative instruments, including investments in commodity index-linked notes. The Adviser expects that the Strategy will seek to gain exposure to commodities and commodities-related instruments and derivatives primarily through investments in AllianceBernstein Cayman Inflation Strategy, Ltd., a wholly-owned subsidiary of the Strategy organized under the laws of the Cayman Islands (the “Subsidiary”). The Subsidiary is advised by the Adviser and has the same investment objective and substantially similar investment policies and restrictions as the Strategy. The Subsidiary, unlike the Strategy, may invest, without limitation, in commodities and commodities-related instruments. The Strategy will be subject to the risks associated with the
commodities, derivatives and other instruments in which the Subsidiary invests, to the extent of its investment in the Subsidiary. The Strategy limits its investment in the Subsidiary to no more than 25% of its net assets. The Strategy is non-diversified, which means that it may concentrate its assets in a smaller number of issuers than a diversified fund.
Investment Results
The table on page 7 shows the Strategy’s performance compared to its primary benchmark, the Morgan Stanley Capital International (MSCI) All Country (AC) World Commodity Producers Index.
The Strategy’s Class A shares without sales charges outperformed its benchmark for both the six-month period ended October 31, 2010 and the period between March 8, 2010 (inception of Strategy) and October 31, 2010. During the since-inception period ended October 31, 2010, the Strategy outperformed its benchmark primarily due to the Strategy’s strategic overweights to global real estate securities, commodity-linked derivatives, and US inflation-indexed bonds (TIPS). Positive contributions from tactical asset allocation decisions, including an emphasis on longer duration TIPS and curve positioning strategies in commodities, were partially offset by negative security selection, coming primarily from poor performance in the Strategy’s active commodity futures overlay, which seeks to benefit from relative value opportunities in individual commodity futures. Exposure to the various sleeves varied over the reporting periods, but
2 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
averaged out to about equal weights. Due to this, the Strategy has a high tracking error compared to its benchmark.
During the six-month period ended October 31, 2010, the Strategy outperformed its benchmark primarily due to strong returns to strategic exposures to commodities, global real estate securities, and TIPS, partially offset by negative security selection coming primarily from the Strategy’s active commodity futures overlay. During the period, the Strategy was invested in approximately equal weights of real estate, commodity stocks and TIPS-collateralized commodity futures. Additionally, tactical asset allocation decisions, including an underweight to energy-related commodity futures and an overweight to metals and mining equities, contributed positively to performance.
The Strategy makes regular use of notional derivatives—primarily commodity-linked swaps and commodity futures—with the aim of gaining cost-effective exposure to the commodity futures markets. These derivatives had a material impact on performance over the six-month and since-inception periods ended October 31, 2010.
Market Review and Investment Strategy
Equity and commodity markets moved higher for much of the period from March 8, 2010 through October 31, 2010, despite the emergence of concerns over the durability of the on-going global economic recovery in April 2010. Mixed data on
the health of the US economy combined with worries over Europe’s sovereign debt issues and growing evidence of slowing Chinese growth resulted in the equity and commodity markets correcting sharply over the next two months. While the Real Asset Strategy Team (the “Team”) believed throughout the reporting period that the global economic recovery was sustainable, the Team opted to emphasize longer duration in the Strategy’s TIPS holdings for the majority of the reporting period, with the aim of benefiting from expected declines in real interest rates associated with the likely central bank response to nascent deflation fears.
As the summer progressed, strong responses from US and European monetary authorities appeared to have stabilized the markets, and concerns over the potential for a widespread deflationary crisis waned. During the final week of August 2010, in a bid to further tilt the odds in favor of economic recovery and a return to more desirable levels of inflation, the US central bank began to telegraph its intention to initiate another round of so-called “quantitative easing” (a program the media quickly dubbed “QE2”). Over the next two months, equity markets, commodity markets, and TIPS rallied sharply as real interest rates hit record-lows and longer-term inflation expectations began to normalize.
With the swing between investors’ enthusiasm and anxiety around economic growth dominating stock and commodity price action and macro economic headlines driving the returns of virtually all risky assets over the
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 3 |
reporting period, bottom-up security selection potential was unsurprisingly limited. However, the varying sensitivity of broader sectors and asset classes to volatility in the macro backdrop provided the Team with an opportunity to benefit from a number of tactical allocation decisions during the reporting period. Although the Team remains vigilant for signs that underlying conditions have begun to worsen once again—and is similarly focused on the judicious implementation of hedges to mitigate corresponding downside risks—most evidence suggests that the global economic recovery remains on a solid footing. In addition to surprisingly robust economic data, as well as stabilizing employment losses in the US and much of the developing world,
commodity prices and corporate earnings remain generally strong, led by emerging market growth and developed market exports.
In the Team’s view, the primary risks in the future are barbelled between economic growth coming in stronger than current consensus estimates and a QE2-induced supply shock (and subsequent recessionary pressures) stemming from a falling US dollar and rising prices of imports and commodities. In either case, the Team believes the Strategy is well-positioned to deliver strong relative performance on the back of the surprise increase in inflation expectations likely to accompany either outcome.
4 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
HISTORICAL PERFORMANCE
An Important Note About the Value of Historical Performance
The performance shown on the following pages represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.alliancebernstein.com, for Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I shares, and by calling 212-756-4097 for Class 1 shares. The investment return and principal value of an investment in the Strategy will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost.
Investors should consider the investment objectives, risks, charges and expenses of the Strategy carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Strategy have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Strategy’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares; a 1% 1 year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
Benchmark Disclosure
The unmanaged Morgan Stanley Capital International (MSCI) All Country (AC) World Commodity Producers Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI AC World Commodity Producers Index is a free float-adjusted market capitalization index designed to track the performance of global listed commodity producers, including emerging markets. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Strategy.
MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI.
A Word About Risk
The market values of the portfolio’s holdings rise and fall from day to day, so investments may lose value. Liquidity risk involves the difficulty of purchasing or selling a security at an advantageous time or price. Non-US securities may be more volatile because of political, regulatory, market and economic uncertainties associated with such securities. Fluctuations in currency exchange risk may negatively affect the value of the investment or reduce returns. These risks are magnified in emerging or developing markets. As interest rates rise, bond prices fall and vice versa—long-term securities tend to rise and fall more than short-term securities. A bond’s credit rating reflects the issuer’s ability to make timely payments of interest or principal—the lower the rating, the higher the risk of default. If the issuer’s financial strength deteriorates, the issuer’s rating may be lowered and the bond’s value may decline. Commodity-linked investments may experience greater volatility than investments in traditional securities. The value of commodity-linked investments may be affected by financial factors, political developments and natural disasters. Investing in derivative instruments such as options, futures, forwards or swaps can be riskier than traditional
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 5 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
investments, and may be more volatile, especially in a down market. Portfolios that hold a smaller number of securities may be more volatile than more diversified portfolios, since gains or losses from each security will have a greater impact on the portfolio’s overall value. By investing in the Subsidiary, the Strategy is indirectly exposed to the risks associated with the Subsidiary’s investments. Adverse changes in the value or level of an asset or index underlying a derivative can result in a loss substantially greater than the Strategy’s (or the Subsidiary’s) investment. There is no guarantee that the investment objective of the Subsidiary will be achieved.
(Historical Performance continued on next page)
6 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
THE STRATEGY VS. ITS BENCHMARK PERIODS ENDED OCTOBER 31, 2010 | NAV Returns | |||||||||||
6 Months | Since Inception* | |||||||||||
AllianceBernstein Real Asset Strategy | ||||||||||||
Class 1 | 9.65% | 12.50% | ||||||||||
Class 2 | 9.74% | 12.70% | ||||||||||
Class A | 9.65% | 12.50% | ||||||||||
Class C | 9.17% | 11.90% | ||||||||||
Advisor Class† | 9.75% | 12.60% | ||||||||||
Class R † | 9.45% | 12.30% | ||||||||||
Class K † | 9.65% | 12.50% | ||||||||||
Class I † | 9.74% | 12.70% | ||||||||||
MSCI All Country World Commodity Producers Index | 2.91% | 3.82% | ||||||||||
* Inception Date: March 8, 2010
† Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy.
Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. |
| |||||||||||
See Historical Performance and Benchmark disclosures on pages 5-6.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 7 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
GROWTH OF A $10,000 INVESTMENT IN THE STRATEGY 3/8/10* TO 10/31/10
* Since the Strategy’s inception on 3/8/10.
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Real Asset Strategy’s Class A shares (from 3/8/10* to 10/31/10) as compared to the performance of its benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Strategy and assumes the reinvestment of dividends and capital gains distributions.
See Historical Performance and Benchmark disclosures on pages 5-6.
(Historical Performance continued on next page)
8 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2010 | ||||||||
NAV Returns | SEC Returns | |||||||
Class 1 Shares | ||||||||
6 Months | 9.65 | % | 9.65 | % | ||||
Since Inception* | 12.50 | % | 12.50 | % | ||||
Class 2 Shares | ||||||||
6 Months | 9.74 | % | 9.74 | % | ||||
Since Inception* | 12.70 | % | 12.70 | % | ||||
Class A Shares | ||||||||
6 Months | 9.65 | % | 4.94 | % | ||||
Since Inception* | 12.50 | % | 7.76 | % | ||||
Class C Shares | ||||||||
6 Months | 9.17 | % | 8.17 | % | ||||
Since Inception* | 11.90 | % | 10.90 | % | ||||
Advisor Class Shares** | ||||||||
6 Months | 9.75 | % | 9.75 | % | ||||
Since Inception* | 12.60 | % | 12.60 | % | ||||
Class R Shares** | ||||||||
6 Months | 9.45 | % | 9.45 | % | ||||
Since Inception* | 12.30 | % | 12.30 | % | ||||
Class K Shares** | ||||||||
6 Months | 9.65 | % | 9.65 | % | ||||
Since Inception* | 12.50 | % | 12.50 | % | ||||
Class I Shares** | ||||||||
6 Months | 9.74 | % | 9.74 | % | ||||
Since Inception* | 12.70 | % | 12.70 | % |
The Strategy’s prospectus fee table shows the Strategy’s total annual operating expense ratios as 1.00%, 1.58%, 1.94%, 2.64%, 1.64%, 2.33%, 2.02% and 1.69% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Strategy’s annual operating expense ratios to 1.00%, 0.75%, 1.05%, 1.75%, 0.75%, 1.25%, 1.00% and 0.75% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I, respectively. These waivers/ reimbursements extend through the Strategy’s current fiscal year and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower.
* | Inception date: 3/8/10. |
** | These share classes are offered at net asset value (NAV) to eligible investors and their SEC returns are the same as the NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
See Historical Performance disclosures on pages 5-6.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 9 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES) AS OF THE MOST RECENT CALENDAR QUARTER-END (SEPTEMBER 30, 2010) | ||||||||
SEC Returns | ||||||||
Class 1 Shares | ||||||||
6 Months | 5.96 | % | ||||||
Since Inception* | 6.60 | % | ||||||
Class 2 Shares | ||||||||
6 Months | 6.16 | % | ||||||
Since Inception* | 6.80 | % | ||||||
Class A Shares | ||||||||
6 Months | 1.52 | % | ||||||
Since Inception* | 2.20 | % | ||||||
Class C Shares | ||||||||
6 Months | 4.67 | % | ||||||
Since Inception* | 5.20 | % | ||||||
Advisor Class Shares† | ||||||||
6 Months | 6.16 | % | ||||||
Since Inception* | 6.80 | % | ||||||
Class R Shares† | ||||||||
6 Months | 5.87 | % | ||||||
Since Inception* | 6.50 | % | ||||||
Class K Shares† | ||||||||
6 Months | 5.96 | % | ||||||
Since Inception* | 6.60 | % | ||||||
Class I Shares† | ||||||||
6 Months | 6.16 | % | ||||||
Since Inception* | 6.80 | % |
* | Inception date: 3/8/10. |
† | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
See Historical Performance disclosures on pages 5-6.
10 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Historical Performance
FUND EXPENSES
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2010 | Ending Account Value October 31, 2010 | Expenses Paid During Period* | ||||||||||||||||||||||
Actual | Hypothetical | Actual | Hypothetical** | Actual | Hypothetical | |||||||||||||||||||
Class A | $ | 1,000 | $ | 1,000 | $ | 1,096.49 | $ | 1,019.91 | $ | 5.55 | $ | 5.35 | ||||||||||||
Class C | $ | 1,000 | $ | 1,000 | $ | 1,091.71 | $ | 1,016.38 | $ | 9.23 | $ | 8.89 | ||||||||||||
Advisor Class | $ | 1,000 | $ | 1,000 | $ | 1,097.47 | $ | 1,021.42 | $ | 3.97 | $ | 3.82 | ||||||||||||
Class R | $ | 1,000 | $ | 1,000 | $ | 1,094.54 | $ | 1,018.90 | $ | 6.60 | $ | 6.36 | ||||||||||||
Class K | $ | 1,000 | $ | 1,000 | $ | 1,096.49 | $ | 1,020.16 | $ | 5.28 | $ | 5.09 | ||||||||||||
Class I | $ | 1,000 | $ | 1,000 | $ | 1,097.37 | $ | 1,021.42 | $ | 3.96 | $ | 3.82 | ||||||||||||
Class 1 | $ | 1,000 | $ | 1,000 | $ | 1,096.49 | $ | 1,020.16 | $ | 5.28 | $ | 5.09 | ||||||||||||
Class 2 | $ | 1,000 | $ | 1,000 | $ | 1,097.37 | $ | 1,021.42 | $ | 3.96 | $ | 3.82 |
* | Expenses are equal to the classes’ annualized expense ratios of 1.05%, 1.75%, 0.75%, 1.25%, 1.00%, 0.75%, 1.00% and 0.75%, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
** | Assumes 5% return before expenses. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 11 |
Fund Expenses
PORTFOLIO SUMMARY
October 31, 2010 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $13.6
TEN LARGEST HOLDINGS**
Company | U.S. $ Value | Percent of Net Assets | ||||||
U.S. Treasury Inflation Index | $ | 3,736,504 | 27.5 | % | ||||
Exxon Mobil Corp. | 321,981 | 2.4 | ||||||
Sun Hung Kai Properties Ltd. | 222,786 | 1.6 | ||||||
BHP Biliton Ltd. | 190,243 | 1.4 | ||||||
Chevron Corp. | 186,699 | 1.4 | ||||||
Rio Tinto PLC | 179,782 | 1.3 | ||||||
Simon Property Group, Inc. | 175,236 | 1.3 | ||||||
BP PLC | 163,132 | 1.2 | ||||||
Mitsui Fudosan Co., Ltd. | 151,282 | 1.1 | ||||||
Westfield Group | 145,949 | 1.1 | ||||||
$ | 5,473,594 | 40.3 | % |
* | All data are as of October 31, 2010. The Portfolio’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purpose (see “Portfolio of Investments” section of the report for additional details). |
** | Long-term investments. |
12 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Portfolio Summary and Ten Largest Holdings
CONSOLIDATED PORTFOLIO OF INVESTMENTS
October 31, 2010
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS – 68.5% | ||||||||
Energy – 19.2% | ||||||||
Coal & Consumable Fuels – 0.4% | ||||||||
Banpu PCL | 300 | $ | 7,822 | |||||
China Coal Energy Co. – Class H | 9,000 | 15,649 | ||||||
Indo Tambangraya Megah PT | 2,000 | 10,142 | ||||||
Peabody Energy Corp. | 250 | 13,225 | ||||||
Yanzhou Coal Mining Co., Ltd. – Class H | 2,000 | 5,787 | ||||||
52,625 | ||||||||
Integrated Oil & Gas – 13.5% | ||||||||
BG Group PLC | 3,800 | 73,971 | ||||||
BP PLC | 24,000 | 163,132 | ||||||
Chevron Corp. | 2,260 | 186,699 | ||||||
China Petroleum & Chemical Corp. – Class H | 44,000 | 41,750 | ||||||
ConocoPhillips | 1,640 | 97,416 | ||||||
ENI SpA | 2,800 | 63,049 | ||||||
Exxon Mobil Corp. | 4,844 | 321,981 | ||||||
Gazprom OAO (Sponsored ADR) | 4,150 | 90,677 | ||||||
Hess Corp. | 660 | 41,600 | ||||||
LUKOIL OAO (London) (Sponsored ADR) | 1,170 | 65,344 | ||||||
Marathon Oil Corp. | 1,600 | 56,912 | ||||||
OMV AG | 500 | 18,701 | ||||||
PetroChina Co., Ltd. – Class H | 12,000 | 14,740 | ||||||
Petroleo Brasileiro SA | 500 | 8,396 | ||||||
Petroleo Brasileiro SA (ADR) | 1,820 | 62,098 | ||||||
Petroleo Brasileiro SA (Sponsored ADR) | 1,930 | 60,197 | ||||||
PTT PCL (NVDR) | 1,500 | 15,160 | ||||||
Repsol YPF SA | 700 | 19,411 | ||||||
Rosneft Oil Co. (GDR)(a)(b) | 1,550 | 10,803 | ||||||
Royal Dutch Shell PLC (Euronext Amsterdam) – Class A | 4,450 | 144,345 | ||||||
Royal Dutch Shell PLC – Class B | 2,400 | 76,804 | ||||||
Statoil ASA | 950 | 20,750 | ||||||
Suncor Energy, Inc. (Toronto) | 1,400 | 44,859 | ||||||
Total SA | 2,400 | 130,641 | ||||||
1,829,436 | ||||||||
Oil & Gas Exploration & Production – 5.3% | ||||||||
Afren PLC(b) | 7,200 | 14,929 | ||||||
Anadarko Petroleum Corp. | 450 | 27,707 | ||||||
Apache Corp. | 360 | 36,367 | ||||||
Canadian Natural Resources Ltd. | 2,230 | 81,184 | ||||||
Chesapeake Energy Corp. | 530 | 11,501 | ||||||
Cimarex Energy Co. | 120 | 9,210 | ||||||
CNOOC Ltd. | 19,000 | 39,568 | ||||||
Devon Energy Corp. | 760 | 49,415 | ||||||
EnCana Corp. | 700 | 19,774 | ||||||
Inpex Corp. | 3 | 15,623 | ||||||
KazMunaiGas Exploration Production (GDR)(a) | 950 | 16,340 | ||||||
Newfield Exploration Co.(b) | 470 | 28,021 | ||||||
Nexen, Inc. (New York) | 700 | 14,903 |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 13 |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
Nexen, Inc. (Toronto) | 2,800 | $ | 59,574 | |||||
Noble Energy, Inc. | 300 | 24,444 | ||||||
Occidental Petroleum Corp. | 910 | 71,553 | ||||||
OGX Petroleo e Gas Participacoes SA(b) | 1,900 | 24,942 | ||||||
Penn West Energy Trust | 3,500 | 79,719 | ||||||
Santos Ltd. | 1,400 | 17,311 | ||||||
Talisman Energy, Inc. | 900 | 16,316 | ||||||
Tullow Oil PLC | 1,420 | 26,970 | ||||||
Woodside Petroleum Ltd. | 900 | 38,487 | ||||||
723,858 | ||||||||
2,605,919 | ||||||||
�� | ||||||||
Materials – 17.0% | ||||||||
Aluminum – 0.1% | ||||||||
Alcoa, Inc. | 1,240 | 16,281 | ||||||
Diversified Metals & Mining – 8.7% | ||||||||
Acerinox SA | 39 | 640 | ||||||
African Rainbow Minerals Ltd. | 40 | 1,019 | ||||||
Agnico-Eagle Mines Ltd. | 65 | 5,041 | ||||||
Allegheny Technologies, Inc. | 40 | 2,108 | ||||||
Alumina Ltd. | 900 | 1,798 | ||||||
Aluminum Corp. of China Ltd.(b) | 1,544 | 1,466 | ||||||
Aneka Tambang TBK PT | 1,307 | 374 | ||||||
Angang Steel Co., Ltd. | 425 | 668 | ||||||
Anglo American PLC | 1,916 | 89,272 | ||||||
Anglo Platinum Ltd.(b) | 25 | 2,470 | ||||||
Antofagasta PLC | 145 | 3,069 | ||||||
ArcelorMittal South Africa Ltd. | 65 | 746 | ||||||
BHP Billiton Ltd. | 4,604 | 190,243 | ||||||
BHP Billiton PLC | 3,064 | 108,542 | ||||||
Boliden AB | 107 | 1,817 | ||||||
Capstone Mining Corp.(b) | 5,600 | 19,657 | ||||||
China Zhongwang Holdings Ltd. | 635 | 380 | ||||||
Cia de Minas Buenaventura SA (ADR) – Class B | 70 | 3,713 | ||||||
Dongkuk Steel Mill Co., Ltd. | 14 | 323 | ||||||
Dowa Holdings Co., Ltd. | 2,000 | 12,143 | ||||||
Eldorado Gold Corp. | 200 | 3,387 | ||||||
Eramet | 3 | 1,041 | ||||||
Eregli Demir ve Celik Fabrikalari TAS(b) | 156 | 577 | ||||||
Eurasian Natural Resources Corp. PLC | 95 | 1,325 | ||||||
Exxaro Resources Ltd. | 50 | 941 | ||||||
First Quantum Minerals Ltd. | 30 | 2,627 | ||||||
Fosun International | 628 | 519 | ||||||
Franco-Nevada Corp. | 45 | 1,552 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 840 | 79,531 | ||||||
Fresnillo PLC | 90 | 1,802 | ||||||
Fushan International Energy Group Ltd. | 1,158 | 781 | ||||||
Grande Cache Coal Corp.(b) | 3,000 | 20,590 | ||||||
Grupo Mexico SAB de CV | 5,393 | 17,763 | ||||||
Harmony Gold Mining Co., Ltd. | 145 | 1,665 |
14 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
Hidili Industry International Development Ltd. | 403 | $ | 430 | |||||
Hitachi Metals Ltd. | 1,022 | 11,633 | ||||||
IAMGOLD Corp. | 130 | 2,372 | ||||||
Industrias Penoles SAB de CV | 38 | 1,077 | ||||||
Inmet Mining Corp. | 25 | 1,495 | ||||||
International Nickel Indonesia Tbk PT | 972 | 519 | ||||||
Ivanhoe Mines Ltd.(b) | 95 | 2,275 | ||||||
Jiangxi Copper Co., Ltd. | 544 | 1,512 | ||||||
KGHM Polska Miedz SA | 655 | 29,416 | ||||||
Korea Zinc Co., Ltd. | 3 | 759 | ||||||
Lonmin PLC(b) | 60 | 1,679 | ||||||
Lundin Mining Corp.(b) | 8,100 | 51,305 | ||||||
Maanshan Iron & Steel | 678 | 391 | ||||||
MacArthur Coal Ltd. | 141 | 1,662 | ||||||
Mechel | 55 | 1,295 | ||||||
Metalurgica Gerdau SA (Preference Shares) | 105 | 1,617 | ||||||
Mitsubishi Materials Corp(b) | 4,000 | 12,522 | ||||||
MMC Norilsk Nickel (ADR) | 950 | 17,717 | ||||||
MMX Mineracao e Metalicos SA(b) | 168 | 1,351 | ||||||
Norsk Hydro ASA | 348 | 2,136 | ||||||
Northam Platinum Ltd. | 75 | 519 | ||||||
Novolipetsk Steel (GDR)(a) | 35 | 1,198 | ||||||
Nucor Corp. | 120 | 4,586 | ||||||
Outokumpu Oyj | 50 | 898 | ||||||
OZ Minerals Ltd. | 1,150 | 1,774 | ||||||
Pan American Silver Corp. | 55 | 1,760 | ||||||
Polymetal OOO(a)(b) | 40 | 632 | ||||||
Polyus Gold Co. | 30 | 897 | ||||||
POSCO | 26 | 10,731 | ||||||
Rautaruukki Oyj | 33 | 656 | ||||||
Rio Tinto Ltd. | 932 | 75,848 | ||||||
Rio Tinto PLC | 2,768 | 179,782 | ||||||
Salzgitter AG | 17 | 1,220 | ||||||
Severstal OAO (GDR)(a)(b) | 97 | 1,307 | ||||||
Sherritt International Corp. | 193 | 1,501 | ||||||
Silver Wheaton Corp.(b) | 120 | 3,450 | ||||||
Sims Metal Management Ltd. | 65 | 1,044 | ||||||
Southern Copper Corp. | 80 | 3,424 | ||||||
SSAB AB – Class A | 71 | 996 | ||||||
SSAB AB – Class B | 32 | 396 | ||||||
Sumitomo Metal Mining Co., Ltd. | 500 | 7,957 | ||||||
Teck Resources Ltd. | 985 | 44,040 | ||||||
Vedanta Resources PLC | 45 | 1,496 | ||||||
Voestalpine AG | 43 | 1,707 | ||||||
Xstrata PLC | 5,435 | 105,294 | ||||||
Zijin Mining Group Co., Ltd. | 1,568 | 1,480 | ||||||
1,177,346 | ||||||||
Fertilizers & Agricultural Chemicals – 1.8% | ||||||||
Agrium, Inc. (Toronto) | 1,000 | 88,460 | ||||||
CF Industries Holdings, Inc. | 170 | 20,830 |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 15 |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
Incitec Pivot Ltd. | 12,900 | $ | 47,236 | |||||
Monsanto Co. | 640 | 38,029 | ||||||
Potash Corp. of Saskatchewan, Inc. | 100 | 14,462 | ||||||
Syngenta AG | 92 | 25,473 | ||||||
Yara International ASA | 300 | 15,818 | ||||||
250,308 | ||||||||
Forest Products – 0.3% | ||||||||
West Fraser Timber Co., Ltd. | 800 | 34,749 | ||||||
Gold – 2.2% | ||||||||
Anglogold Ashanti Ltd. | 149 | 6,988 | ||||||
Barrick Gold Corp. | 1,486 | 71,568 | ||||||
Gold Fields Ltd. | 294 | 4,616 | ||||||
Gold Fields Ltd. (Sponsored ADR) | 700 | 11,039 | ||||||
Goldcorp, Inc. | 287 | 12,815 | ||||||
Kinross Gold Corp. | 1,620 | 29,147 | ||||||
New Gold, Inc.(b) | 10,200 | 75,508 | ||||||
Newcrest Mining Ltd. | 581 | 22,865 | ||||||
Newmont Mining Corp. | 883 | 53,748 | ||||||
Randgold Resources Ltd. | 35 | 3,280 | ||||||
Yamana Gold, Inc. | 870 | 9,571 | ||||||
301,145 | ||||||||
Paper Products – 0.3% | ||||||||
Mondi PLC | 2,300 | 19,151 | ||||||
Svenska Cellulosa AB – Class B | 600 | 9,302 | ||||||
UPM-Kymmene Oyj | 500 | 8,307 | ||||||
36,760 | ||||||||
Precious Metals & Minerals – 0.2% | ||||||||
Impala Platinum Holdings Ltd. | 198 | 5,590 | ||||||
Kazakhmys PLC | 1,080 | 22,757 | ||||||
28,347 | ||||||||
Steel – 3.4% | ||||||||
ArcelorMittal (Euronext Amsterdam) | 1,236 | 39,995 | ||||||
BlueScope Steel Ltd. | 670 | 1,317 | ||||||
Bradespar SA | 85 | 2,178 | ||||||
Cia Siderurgica Nacional SA | 1,050 | 17,445 | ||||||
Cliffs Natural Resources, Inc. | 400 | 26,080 | ||||||
Commercial Metals Co. | 500 | 6,940 | ||||||
Fortescue Metals Group Ltd.(b) | 3,160 | 19,431 | ||||||
Gerdau SA | 940 | 12,163 | ||||||
Hyundai Steel Co. | 321 | 31,169 | ||||||
JFE Holdings, Inc. | 900 | 28,066 | ||||||
Kobe Steel Ltd. | 1,000 | 2,198 | ||||||
Kumba Iron Ore Ltd. | 30 | 1,703 | ||||||
Nippon Steel Corp. | 8,000 | 25,145 | ||||||
OneSteel Ltd. | 4,590 | 12,183 | ||||||
POSCO (ADR) | 300 | 31,182 | ||||||
Sumitomo Metal Industries Ltd. | 1,000 | 2,321 | ||||||
ThyssenKrupp AG | 930 | 34,216 |
16 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
United States Steel Corp. | 55 | $ | 2,353 | |||||
Usinas Siderurgicas de Minas Gerais SA | 70 | 1,021 | ||||||
Usinas Siderurgicas de Minas Gerais SA | 770 | 9,614 | ||||||
Vale SA | 1,510 | 47,601 | ||||||
Vale SA (Preference Shares) | 993 | 27,887 | ||||||
Vale SA (Sponsored ADR) | 1,750 | 50,277 | ||||||
Vale SA (Sponsored ADR) – Class B | 980 | 31,497 | ||||||
463,982 | ||||||||
2,308,918 | ||||||||
Equity:Other – 12.3% | ||||||||
Diversified/Specialty – 10.2% | ||||||||
BioMed Realty Trust, Inc. | 2,300 | 42,205 | ||||||
British Land Co. PLC | 6,836 | 55,812 | ||||||
CB Richard Ellis Group, Inc. – Class A(b) | 1,100 | 20,185 | ||||||
Cheung Kong Holdings Ltd. | 3,000 | 45,939 | ||||||
Coresite Realty Corp.(b) | 1,500 | 22,590 | ||||||
Dexus Property Group | 52,100 | 42,432 | ||||||
Digital Realty Trust, Inc. | 1,250 | 74,662 | ||||||
Evergrande Real Estate Group Ltd. | 120,000 | 51,078 | ||||||
Forest City Enterprises, Inc.(b) | 684 | 9,980 | ||||||
Jones Lang LaSalle, Inc. | 350 | 27,321 | ||||||
Kerry Properties Ltd. | 13,000 | 72,220 | ||||||
Lend Lease Group | 5,800 | 40,947 | ||||||
Mitsubishi Estate Co., Ltd. | 4,000 | 70,074 | ||||||
Mitsui Fudosan Co., Ltd. | 8,000 | 151,282 | ||||||
New World Development Ltd. | 28,000 | 55,421 | ||||||
Savills PLC | 3,700 | 19,502 | ||||||
Sumitomo Realty & Development Co., Ltd. | 3,000 | 65,351 | ||||||
Sun Hung Kai Properties Ltd. | 13,000 | 222,786 | ||||||
Swire Pacific Ltd. | 2,500 | 35,520 | ||||||
Telecity Group PLC(b) | 5,300 | 42,308 | ||||||
Unibail-Rodamco SE | 300 | 62,594 | ||||||
UOL Group Ltd. | 9,000 | 31,718 | ||||||
Vornado Realty Trust | 850 | 74,282 | ||||||
Wereldhave NV | 525 | 53,383 | ||||||
1,389,592 | ||||||||
Health Care – 1.6% | ||||||||
Chartwell Seniors Housing Real Estate Investment Trust | 5,000 | 45,838 | ||||||
Health Care REIT, Inc. | 1,775 | 90,703 | ||||||
Ventas, Inc. | 1,575 | 84,357 | ||||||
220,898 | ||||||||
Triple Net – 0.5% | ||||||||
Entertainment Properties Trust | 1,400 | 64,722 | ||||||
1,675,212 | ||||||||
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 17 |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
Retail – 6.8% | ||||||||
Regional Mall – 3.6% | ||||||||
BR Malls Participacoes SA | 5,100 | $ | 48,741 | |||||
CapitaMall Trust | 18,000 | 27,650 | ||||||
CBL & Associates Properties, Inc. | 1,400 | 21,952 | ||||||
Multiplan Empreendimentos Imobiliarios SA | 1,500 | 34,406 | ||||||
Simon Property Group, Inc. | 1,825 | 175,236 | ||||||
Taubman Centers, Inc. | 825 | 38,297 | ||||||
Westfield Group | 12,000 | 145,949 | ||||||
492,231 | ||||||||
Shopping Center/Other Retail – 3.2% | ||||||||
Corio NV | 950 | 69,829 | ||||||
Developers Diversified Realty Corp. | 3,400 | 43,860 | ||||||
Eurocommercial Properties N.V. | 650 | 32,175 | ||||||
Japan Retail Fund Investment Corp. | 15 | 23,362 | ||||||
Kimco Realty Corp. | 2,500 | 43,075 | ||||||
Klepierre | 2,100 | 81,750 | ||||||
Link REIT (The) | 13,000 | 40,208 | ||||||
RioCan Real Estate Investment Trust (Toronto) | 1,306 | 29,516 | ||||||
Tanger Factory Outlet Centers | 450 | 21,564 | ||||||
Weingarten Realty Investors | 1,725 | 41,624 | ||||||
426,963 | ||||||||
919,194 | ||||||||
Residential – 5.3% | ||||||||
Multi-Family – 4.2% | ||||||||
BRE Properties, Inc. | 1,200 | 51,516 | ||||||
Camden Property Trust | 1,350 | 66,947 | ||||||
Colonial Properties Trust | 1,100 | 19,723 | ||||||
Equity Residential | 1,500 | 72,945 | ||||||
Essex Property Trust, Inc. | 300 | 33,888 | ||||||
Home Properties, Inc. | 950 | 51,728 | ||||||
KWG Property Holding Ltd. | 48,500 | 38,414 | ||||||
Mid-America Apartment Communities, Inc. | 925 | 56,453 | ||||||
Rossi Residencial SA | 4,600 | 45,072 | ||||||
Stockland | 12,600 | 46,660 | ||||||
UDR, Inc. | 2,900 | 65,192 | ||||||
Wing Tai Holdings Ltd. | 20,000 | 27,143 | ||||||
575,681 | ||||||||
Self Storage – 1.1% | ||||||||
Big Yellow Group PLC | 4,330 | 23,047 | ||||||
Extra Space Storage, Inc. | 2,250 | 36,450 | ||||||
Public Storage | 850 | 84,337 | ||||||
143,834 | ||||||||
719,515 | ||||||||
Office – 3.9% | ||||||||
Office – 3.9% | ||||||||
Allied Properties Real Estate Investment Trust | 1,300 | 28,628 | ||||||
Beni Stabili SpA | 21,700 | 22,065 | ||||||
Boston Properties, Inc. | 475 | 40,940 |
18 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
Brandywine Realty Trust | 1,400 | $ | 16,758 | |||||
Brookfield Properties Corp. | 2,600 | 45,214 | ||||||
Castellum AB | 3,900 | 51,098 | ||||||
Cominar Real Estate Investment Trust | 1,787 | 38,004 | ||||||
Corporate Office Properties Trust SBI MD | 300 | 10,647 | ||||||
Derwent London PLC | 1,600 | 38,984 | ||||||
Douglas Emmett, Inc. | 2,250 | 40,365 | ||||||
Duke Realty Corp. | 900 | 11,223 | �� | |||||
Dundee Real Estate Investment Trust | 496 | 14,205 | ||||||
Great Portland Estates PLC | 7,300 | 40,426 | ||||||
Hongkong Land Holdings Ltd. | 10,000 | 69,038 | ||||||
ING Office Fund | 31,200 | 18,857 | ||||||
Japan Real Estate Investment Corp. | 4 | 38,508 | ||||||
Sponda Oyj | 1,600 | 8,060 | ||||||
533,020 | ||||||||
Lodging – 2.4% | ||||||||
Lodging – 2.4% | ||||||||
DiamondRock Hospitality Co.(b) | 2,800 | 29,624 | ||||||
Great Eagle Holdings Ltd. | 7,000 | 20,976 | ||||||
Hersha Hospitality Trust | 5,400 | 32,940 | ||||||
Hyatt Hotels Corp.(b) | 600 | 24,180 | ||||||
InnVest Real Estate Investment Trust | 4,500 | 30,224 | ||||||
Intercontinental Hotels Group PLC | 2,350 | 45,386 | ||||||
Kosmopolito Hotels International Ltd.(b) | 33,000 | 6,982 | ||||||
LaSalle Hotel Properties | 1,350 | 31,981 | ||||||
Sunstone Hotel Investors, Inc.(b) | 1,700 | 18,445 | ||||||
Whitbread PLC | 2,000 | 54,256 | ||||||
Wyndham Worldwide Corp. | 1,100 | 31,625 | ||||||
326,619 | ||||||||
Industrials – 1.2% | ||||||||
Industrial Warehouse Distribution – 1.0% | ||||||||
Ascendas Real Estate Investment Trust | 22,000 | 35,116 | ||||||
Global Logistic Properties Ltd.(b) | 13,000 | 23,302 | ||||||
ProLogis | 5,200 | 70,980 | ||||||
129,398 | ||||||||
Mixed Office Industrial – 0.2% | ||||||||
Goodman Group | 51,000 | 31,546 | ||||||
160,944 | ||||||||
Food Beverage & Tobacco – 0.4% | ||||||||
Agricultural Products – 0.4% | ||||||||
Archer-Daniels-Midland Co. | 750 | 24,990 | ||||||
Bunge Ltd. | 620 | 37,243 | ||||||
62,233 | ||||||||
Total Common Stocks | 9,311,574 | |||||||
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 19 |
Consolidated Portfolio of Investments
Company | Principal Amount (000) | U.S. $ Value | ||||||
INFLATION-LINKED SECURITIES – 27.5% |
| |||||||
United States – 27.5% | ||||||||
U.S. Treasury Inflation Index | ||||||||
1.375%, 7/15/18-1/15/20 (TIPS) | $ | 211 | $ | 229,070 | ||||
1.875%, 7/15/13-7/15/19 (TIPS) | 812 | 887,738 | ||||||
2.00%, 7/15/14-1/15/26 (TIPS) | 386 | 429,186 | ||||||
2.125%, 1/15/19-2/15/40 (TIPS) | 144 | 166,624 | ||||||
2.375%, 1/15/25-1/15/27 (TIPS) | 329 | 394,371 | ||||||
2.50%, 7/15/16 (TIPS) | 329 | 378,289 | ||||||
2.625%, 7/15/17 (TIPS) | 221 | 259,487 | ||||||
3.00%, 7/15/12 (TIPS) | 239 | 254,326 | ||||||
3.375%, 1/15/12 (TIPS)(c) | 361 | 378,424 | ||||||
3.625%, 4/15/28 (TIPS) | 184 | 255,163 | ||||||
3.875%, 4/15/29 (TIPS) | 72 | 103,826 | ||||||
Total Inflation-Linked Securities | 3,736,504 | |||||||
Shares | ||||||||
WARRANTS – 0.2% | ||||||||
Materials – 0.2% | ||||||||
Diversified Metals & Mining – 0.1% | ||||||||
Hon Hai Precision, Credit Suisse, expiring 9/15/14(b) | 434 | 2,053 | ||||||
Jindal Steel & Power Ltd., Deutsche Bank AG, expiring 4/16/19(b) | 146 | 2,292 | ||||||
JSW Steel Ltd., Merrill Lynch Intl & Co., expiring 6/21/12(a)(b) | 33 | 994 | ||||||
Kinross Gold Corp., expiring 9/17/14(b) | 9 | 37 | ||||||
Sesa Goa Ltd., JPMorgan Chase Bank NA, expiring 9/29/14(a)(b) | 135 | 972 | ||||||
Steel Authority of India Ltd., Merril Lynch Intl & Co., expiring 3/25/14(a)(b) | 2,263 | 9,890 | ||||||
Sterlite Industries India Ltd., Merril Lynch Intl & Co., expiring 3/24/11(b) | 526 | 1,998 | ||||||
18,236 | ||||||||
Steel – 0.1% | ||||||||
Tata Steel Ltd., Merrill Lynch Intl & Co., expiring 12/23/14(a)(b) | 1,130 | 14,992 | ||||||
33,228 | ||||||||
Equity:Other – 0.0% | ||||||||
Diversified/Specialty – 0.0% | ||||||||
Henderson Land Development, | 1,200 | 464 | ||||||
Total Warrants | 33,692 | |||||||
20 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
SHORT-TERM INVESTMENTS – 2.4% | ||||||||
Investment Companies – 2.4% | ||||||||
AllianceBernstein Fixed-Income Shares, Inc. – Government STIF Portfolio, 0.17%(d) (cost $323,272) | 323,272 | $ | 323,272 | |||||
Total Investments – 98.6% | 13,405,042 | |||||||
Other assets less liabilities – 1.4% | 191,788 | |||||||
Net Assets – 100.0% | $ | 13,596,830 | ||||||
FUTURES CONTRACTS (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at October 31, 2010 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Purchased Contracts | ||||||||||||||||||||
Aluminum HG Futures | 4 | January 2011 | $ | 221,278 | $ | 234,600 | $ | 13,322 | ||||||||||||
Lean Hogs Futures | 3 | December 2010 | 89,157 | 79,440 | (9,717 | ) | ||||||||||||||
Platinum Futures | 2 | January 2011 | 156,866 | 170,710 | 13,844 | |||||||||||||||
Soybean Futures | 2 | December 2010 | 60,208 | 67,540 | 7,332 | |||||||||||||||
Sold Contracts | ||||||||||||||||||||
Brent Crude Oil Futures | 3 | December 2010 | 239,635 | 250,140 | (10,505) | |||||||||||||||
Corn Futures | 3 | December 2010 | 52,579 | 87,300 | (34,721 | ) | ||||||||||||||
Gold 100 OZ Futures | 1 | December 2010 | 122,467 | 135,760 | (13,293 | ) | ||||||||||||||
Nickel Futures | 1 | January 2011 | 137,999 | 137,922 | 77 | |||||||||||||||
$ | (33,661 | ) | ||||||||||||||||||
TOTAL RETURN SWAP CONTRACTS ON INDICES (see Note D)
Receive Total Return on Reference Index | Index | # of Shares or Units | Pay Fixed rate | Notional Amount (000) | Maturity Date | Counterparty | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
Receive | DJ-UBS Index | 13,317 | 0.165 | $ | 4,013 | 11/15/10 | Citibank | $ | 43,893 | |||||||||||||||||
Receive | DJ-UBS Index | 334 | 0.165 | 100 | 11/15/10 | Citibank | 1,612 | |||||||||||||||||||
$ | 45,505 | |||||||||||||||||||||||||
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2010, the aggregate market value of these securities amounted to $57,128 or 0.4% of net assets. |
(b) | Non-income producing security. |
(c) | An amount of U.S. $198,921 has been segregated to collateralize margin requirements for the open futures contracts at October 31, 2010. |
(d) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 21 |
Consolidated Portfolio of Investments
Glossary:
ADR – American Depositary Receipt
GDR – Global Depositary Receipt
NVDR – Non Voting Depositary Receipt
REIT – Real Estate Investment Trust
TIPS – Treasury Inflation Protected Security
See notes to consolidated financial statements.
22 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
CONSOLIDATED STATEMENT OF ASSETS & LIABILITIES
October 31, 2010
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $12,057,166) | $ | 13,081,770 | ||
Affiliated issuers (cost $323,272) | 323,272 | |||
Cash | 259,153 | (a) | ||
Foreign currencies, at value (cost $22,128) | 22,159 | |||
Receivable for investment securities sold and foreign currency transactions | 217,393 | |||
Deferred offering expenses | 162,667 | |||
Receivable for capital stock sold | 145,491 | |||
Unrealized appreciation on total return swap contracts | 45,505 | |||
Interest and dividends receivable | 31,232 | |||
Receivable due from Adviser | 13,319 | |||
Receivable for variation margin on futures contracts | 790 | |||
Total assets | 14,302,751 | |||
Liabilities | ||||
Payable for investment securities purchased and foreign currency transactions | 383,916 | |||
Offering expenses payable | 158,429 | |||
Audit fee payable | 46,992 | |||
Transfer Agent fee payable | 13,917 | |||
Distribution fee payable | 431 | |||
Accrued expenses and other liabilities | 102,236 | |||
Total liabilities | 705,921 | |||
Net Assets | $ | 13,596,830 | ||
Composition of Net Assets | ||||
Capital stock, at par | $ | 12,073 | ||
Additional paid-in capital | 12,372,919 | |||
Undistributed net investment income | 205,073 | |||
Accumulated net realized loss on investment and foreign currency transactions | (29,362 | ) | ||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 1,036,127 | |||
$ | 13,596,830 | |||
Net Asset Value Per Share—24 billion shares of capital stock authorized, $.01 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 1,122,528 | 99,778 | $ | 11.25 | * | ||||||
C | $ | 279,535 | 24,974 | $ | 11.19 | |||||||
Advisor | $ | 963,185 | 85,510 | $ | 11.26 | |||||||
R | $ | 11,228 | 1,000 | $ | 11.23 | |||||||
K | $ | 11,247 | 1,000 | $ | 11.25 | |||||||
I | $ | 11,265 | 1,000 | $ | 11.27 | |||||||
1 | $ | 11,248 | 1,000 | $ | 11.25 | |||||||
2 | $ | 11,186,594 | 993,000 | $ | 11.27 | |||||||
* | The maximum offering price per share for Class A shares was $11.75 which reflects a sales charge of 4.25%. |
(a) | An amount of $13,043 has been segregated to collateralize margin requirements for open futures contracts outstanding at October 31, 2010. |
See notes to consolidated financial statements.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 23 |
Consolidated Statement of Assets & Liabilities
CONSOLIDATED STATEMENT OF OPERATIONS
For the Period Ended March 8, 2010(a) to October 31, 2010
Investment Income | ||||||||
Dividends | ||||||||
Unaffiliated issuers (net of foreign taxes withheld of $7,339) | $ | 136,159 | ||||||
Affiliated issuers | 292 | |||||||
Interest | 50,924 | $ | 187,375 | |||||
Expenses | ||||||||
Management fee (see Note B) | 51,488 | |||||||
Distribution fee—Class A | 437 | |||||||
Distribution fee—Class C | 658 | |||||||
Distribution fee—Class R | 33 | |||||||
Distribution fee—Class K | 16 | |||||||
Distribution fee—Class 1 | 16 | |||||||
Transfer agency—Class A | 3,106 | |||||||
Transfer agency—Class C | 2,733 | |||||||
Transfer agency—Advisor Class | 4,444 | |||||||
Transfer agency—Class R | 16 | |||||||
Transfer agency—Class K | 15 | |||||||
Transfer agency—Class I | 13 | |||||||
Transfer agency—Class 1 | 14 | |||||||
Transfer agency—Class 2 | 15,074 | |||||||
Amortization of offering expenses | 173,031 | |||||||
Custodian | 108,918 | |||||||
Administrative | 60,000 | |||||||
Audit | 46,992 | |||||||
Legal | 35,463 | |||||||
Printing | 25,127 | |||||||
Registration fees | 12,232 | |||||||
Directors’ fees | 11,023 | |||||||
Miscellaneous | 10,474 | |||||||
Total expenses | 561,323 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (508,675 | ) | ||||||
Net expenses | 52,648 | |||||||
Net investment income | 134,727 | |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (7,973 | )(b) | ||||||
Futures contracts | (71,724 | ) | ||||||
Swap contracts | 345,307 | |||||||
Foreign currency transactions | (3,006 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 1,024,067 | (c) | ||||||
Futures contracts | (33,661 | ) | ||||||
Swap contracts | 45,505 | |||||||
Foreign currency denominated assets and liabilities | 216 | |||||||
Net gain on investment and foreign currency transactions | 1,298,731 | |||||||
Contributions from Adviser (see Note B) | 289 | |||||||
Net Increase in Net Assets from Operations | $ | 1,433,747 | ||||||
(a) | Commencement of operations. |
(b) | Net of foreign capital gains taxes of $270. |
(c) | Net of increase in accrued foreign capital gains taxes of $537. |
See notes to consolidated financial statements.
24 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Statement of Operations
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
March 8, 2010(a) to October 31, 2010 | ||||
Increase in Net Assets from Operations | ||||
Net investment income | $ | 134,727 | ||
Net realized gain on investment and foreign currency transactions | 262,604 | |||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 1,036,127 | |||
Contributions from Adviser (see Note B) | 289 | |||
Net increase in net assets from operations | 1,433,747 | |||
Capital Stock Transactions | ||||
Net increase | 12,163,083 | |||
Total increase | 13,596,830 | |||
Net Assets | ||||
Beginning of period | – 0 | – | ||
End of period (including undistributed net investment income of $205,073) | $ | 13,596,830 | ||
(a) | Commencement of operations. |
See notes to consolidated financial statements.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 25 |
Consolidated Statement of Changes in Net Assets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2010
NOTE A
Significant Accounting Policies
AllianceBernstein Bond Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund, which is a Maryland corporation, operates as a series company currently comprised of four portfolios: the Intermediate Bond Portfolio, the Bond Inflation Strategy Portfolio, the Municipal Bond Inflation Strategy Portfolio and the Real Asset Strategy Portfolio (formerly, Multi-Asset Inflation Strategy Portfolio) (the “Portfolio”). As part of the Portfolio’s investment strategy, the Portfolio seeks to gain exposure to commodities and commodities-related instruments and derivatives primarily through investments in AllianceBernstein Cayman Inflation Strategy, Ltd., a wholly-owned subsidiary of the Portfolio organized under the laws of the Cayman Islands (the “Subsidiary”). The Intermediate Bond Portfolio commenced operations on July 1, 1999. The Bond Inflation Strategy and Municipal Bond Inflation Strategy commenced operations on January 26, 2010. The Portfolio and the Subsidiary commenced operations on March 8, 2010. This consolidated report relates to the Real Asset Strategy and the Subsidiary. The Portfolio offers Class A, Class C, Advisor Class, Class R, Class K, Class I and Class 2. The Portfolio has also issued Class 1 shares to the Portfolio’s investment adviser, AllianceBernstein L.P. (the “Adviser”). Class 1 shares are not publicly offered. As of October 31, 2010, the Adviser was the sole shareholder of Class A, Class C, Class R, Class K, Class I, Class 1 and Class 2. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase. Class R, Class K, and Class 1 shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I, and Class 2 shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eight classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the consolidated financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or
26 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Portfolio’s Board of Directors.
In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market (“OTC”) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, AllianceBernstein L.P. (the “Adviser”) may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Investments in money market funds are valued at their net asset value each day.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio 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 and may materially affect the value of those securities.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 27 |
Notes to Consolidated Financial Statements
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The U.S. GAAP disclosure requirements establish a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of October 31, 2010:
Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Common Stocks | ||||||||||||||||
Energy | $ | 1,475,156 | $ | 1,115,603 | $ | 15,160 | $ | 2,605,919 | ||||||||
Materials | 1,023,996 | 1,284,922 | — | 2,308,918 | ||||||||||||
Equity:Other | 556,845 | 1,118,367 | — | 1,675,212 | ||||||||||||
Retail | 498,271 | 420,923 | — | 919,194 | ||||||||||||
Residential | 584,251 | 135,264 | — | 719,515 | ||||||||||||
Office | 245,984 | 287,036 | — | 533,020 | ||||||||||||
Lodging | 206,001 | 120,618 | — | 326,619 | ||||||||||||
Industrials | 94,282 | 66,662 | — | 160,944 | ||||||||||||
Food Beverage & Tobacco | 62,233 | — | — | 62,233 | ||||||||||||
Inflation-Linked Securities | — | 3,736,504 | — | 3,736,504 | ||||||||||||
Warrants | 501 | — | 33,191 | 33,692 | ||||||||||||
Short-Term Investments | 323,272 | — | — | 323,272 | ||||||||||||
Total Investments in Securities | 5,070,792 | 8,285,899 | + | 48,351 | 13,405,042 | |||||||||||
Other Financial Instruments* : | ||||||||||||||||
Assets | ||||||||||||||||
Futures Contracts | 34,575 | — | — | 34,575 | # | |||||||||||
Total Return Swap Contracts | — | 45,505 | — | 45,505 |
28 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Liabilities | ||||||||||||||||
Futures Contracts | $ | (68,236 | ) | $ | — | $ | — | $ | (68,236 | )# | ||||||
Total | $ | 5,037,131 | $ | 8,331,404 | $ | 48,351 | $ | 13,416,886 | ||||||||
* | Other financial instruments are derivative instruments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. |
+ | The earlier close of the foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred between the close of the foreign markets and the time at which the Portfolio values its securities which may materially affect the value of securities trading in such markets. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. Accordingly, a significant portion of the Portfolio’s investments are categorized as Level 2 investments. |
# | Only variation margin receivable/payable at period end is reported within the consolidated statement of assets and liabilities. Cumulative appreciation/(depreciation) of futures contracts is reported in the consolidated portfolio of investments. |
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Energy | Warrants | Total | ||||||||||
Balance as of 3/8/10(a) | $ | — | $ | — | $ | — | ||||||
Accrued discounts/premiums | — | — | — | |||||||||
Realized gain (loss) | — | (1,361 | ) | (1,361 | ) | |||||||
Change in unrealized appreciation/depreciation | 2,016 | 295 | 2,311 | |||||||||
Net purchases (sales) | 13,144 | 34,257 | 47,401 | |||||||||
Transfers into Level 3 | — | — | — | |||||||||
Transfers out of Level 3 | — | — | — | |||||||||
Balance as of 10/31/10 | $ | 15,160 | $ | 33,191 | $ | 48,351 | ||||||
Net change in unrealized appreciation/depreciation from Investments held as of 10/31/10* | $ | 2,016 | $ | 295 | $ | 2,311 |
(a) | Commencement of operations. |
* | The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation of investments in the accompanying consolidated statement of operations. |
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 29 |
Notes to Consolidated Financial Statements
foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
If, during a taxable year, the Subsidiary’s taxable losses (and other deductible items) exceed its income and gains, the net loss will not pass through to the Portfolio as a deductible amount for federal income tax purposes. Note that the loss from the Subsidiary’s contemplated activities also cannot be carried forward to reduce future Subsidiary’s income in subsequent years. However, if the Subsidiary’s taxable gains exceed its losses and other deductible items during a taxable year, the net gain will pass through to the Portfolio as income for federal income tax purposes.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for the current tax year and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate
30 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each portfolio in proportion to net assets. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
8. Offering Expenses
Offering expenses of $315,838 have been deferred and are being amortized on a straight line basis over a one year period.
NOTE B
Management Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the Portfolio’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to 1.05%, 1.75%, 0.75%, 1.25%, 1.00%, 0.75%, 1.00% and 0.75% of daily average net assets for Class A, Class C, Advisor Class, Class R, Class K, Class I, Class 1 and Class 2 shares, respectively. Under the agreement, fees waived and expenses borne by the Adviser are subject to repayment by the Portfolio until March 8, 2013. No repayment will be made that would cause the Portfolio’s total annualized operating expenses to exceed the net fee percentage set forth above or would exceed the amount of offering expenses as recorded by the Portfolio on or before March 8, 2011. This fee waiver and/or expense reimbursement agreement may not be terminated before October 31, 2011, after which it may be terminated by either party. For the period ended October 31, 2010, the amount of such fees waived was $448,675, which is subject to repayment, not to exceed the amount of offering expenses.
The Subsidiary has entered into a separate agreement with the Adviser for the management of the Subsidiary’s portfolio. The Adviser receives no compensation from the Subsidiary for its services under the agreement.
During the period ended October 31, 2010, the Adviser reimbursed the Portfolio $289 for trading losses incurred due to a trade entry error.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the period ended October 31, 2010, the Adviser voluntarily waived such fee in the amount of $60,000.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 31 |
Notes to Consolidated Financial Statements
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $9,082 for the period ended October 31, 2010.
The Portfolio may invest in the AllianceBernstein Fixed-Income Shares, Inc.—Government STIF Portfolio, an open-end management investment company managed by the Adviser. The Government STIF Portfolio is offered as a cash management option to mutual funds and other institutional accounts of the Adviser, and is not available for direct purchase by members of the public. The Government STIF Portfolio pays no investment management fees but does bear its own expenses. A summary of the Portfolio’s transactions in shares of the Government STIF Portfolio for the period ended October 31, 2010 is as follows:
Market Value March 8, 2010(a) (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value October 31, 2010 (000) | Dividend Income (000) | ||||||||||||
$ 0 | $ | 10,422 | $ | 10,099 | $ | 323 | $ | 0 | * |
(a) | Commencement of operations. |
* | Amount is less than $500. |
Brokerage commissions paid on investment transactions for the period ended October 31, 2010 amounted to $6,837, of which $40 and $67, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C
Distribution Services Agreement
The Portfolio has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”) at an annual rate of up to .30% of the Portfolio’s average daily net assets attributable to Class A shares, 1% of the Portfolio’s average daily net assets attributable to Class C shares, .50% of the Portfolio’s average daily net assets attributable to Class R shares, .25% of the Portfolio’s average daily net assets attributable to Class K shares and .25% of the Portfolio’s average daily net assets attributable to Class 1 shares. There are no distribution and servicing fees on the Advisor Class, Class I, and Class 2 shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Portfolio’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amounts of $26,992, $13,992, $13,929
32 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
and $9,144 for Class C, Class R, Class K and Class 1 shares, respectively. While such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the period ended October 31, 2010 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 11,449,680 | $ | 2,857,877 | ||||
U.S. government securities | 5,041,455 | 1,568,854 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures and swap transactions) are as follows:
Cost | $ | 12,767,820 | ||
Gross unrealized appreciation | $ | 1,276,030 | ||
Gross unrealized depreciation | (357,873 | ) | ||
Net unrealized appreciation | $ | 918,157 | ||
1. Derivative Financial Instruments
The Portfolio 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, or to obtain exposure to otherwise inaccessible markets. The Portfolio may also use derivatives for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
• | Futures Contracts |
The Portfolio may buy or sell futures contracts for the purpose of hedging its portfolio against adverse effects of anticipated movements in the market or for investment purposes. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the securities hedged or used for cover. The
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 33 |
Notes to Consolidated Financial Statements
Portfolio may also purchase or sell futures contracts for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
During the period ended October 31, 2010, the Portfolio entered into futures contracts for hedging purposes and to increase exposure to underlying asset classes.
At the time the Portfolio enters into a futures contract, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures contracts is generally less than privately negotiated futures contracts, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, provides a guarantee of performance. This guarantee is supported by a daily payment system (i.e., margin requirements). When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures contracts subjects the Portfolio to risk of loss in excess of the amounts shown on the consolidated statement of assets and liabilities, up to the notional value of the futures contracts. Use of short futures contracts subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
• | Swap Agreements |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk, equity markets and currencies. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions” or in order to take a “long” or “short” position with respect to an underlying referenced asset described below under “Total Return Swaps”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the
34 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
Portfolio in accordance with the terms of the respective swap agreements to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap agreement.
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 the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio 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 consolidated statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the consolidated 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 consolidated statement of operations.
Total Return Swaps:
The Portfolio may enter into total return swaps in order take a “long” or “short” position with respect to an underlying referenced asset. The Portfolio 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 Portfolio will receive a payment from or make a payment to the counterparty.
During the period ended October 31, 2010, the Portfolio entered into total return swaps to increase exposure to underlying asset classes.
Documentation governing the Portfolio’s swap transactions may contain provisions for early termination of a swap in the event the net assets of the Portfolio decline below specific levels set forth in the documentation (“net asset contingent features”). If these levels are triggered, the Portfolio’s counterparty has the right to terminate the swap and require the Portfolio to pay or receive a settlement amount in connection with the terminated swap transaction.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 35 |
Notes to Consolidated Financial Statements
At October 31, 2010, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Consolidated | Fair Value | Consolidated Statement of | Fair Value | ||||||||
Commodity contracts | Payable for variation margin on futures contracts | $ | 33,661 | * | ||||||||
Equity contracts | Unrealized appreciation on total return swap agreements | $ | 45,505 | |||||||||
Total | $ | 45,505 | $ | 33,661 | ||||||||
* | Only variation margin receivable/payable at period end is reported within the consolidated statement of assets and liabilities. Cumulative appreciation/(depreciation) of futures contracts is reported in the consolidated portfolio of investments. |
The effect of derivative instruments on the consolidated statement of operations for the period ended October 31, 2010:
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Commodity contracts | Net realized gain (loss) on futures contracts; Net change in unrealized appreciation/depreciation of futures contracts | $ | (71,724 | ) | $ | (33,661 | ) | |||
Equity contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | 345,307 | 45,505 | |||||||
Total | $ | 273,583 | $ | 11,844 | ||||||
For the period ended October 31, 2010, the average monthly original value of futures contracts was $1,363,261 and average monthly notional amount of total return swaps was $3,590,744.
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar securities on a currency hedged or unhedged basis. The Portfolio 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,
36 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
swaps, and other options. The Portfolio 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 Portfolio 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 Portfolio 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).
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||
March 8, 2010(a) to October 31, 2010 | March 8, 2010(a) to October 31, 2010 | |||||||||||||||
Class A | ||||||||||||||||
Shares sold | 99,826 | $ | 1,054,527 | |||||||||||||
Shares redeemed | (48 | ) | (538 | ) | ||||||||||||
Net increase | 99,778 | $ | 1,053,989 | |||||||||||||
Class C | ||||||||||||||||
Shares sold | 24,974 | $ | 250,712 | |||||||||||||
Net increase | 24,974 | $ | 250,712 | |||||||||||||
Advisor Class | ||||||||||||||||
Shares sold | 85,510 | $ | 888,382 | |||||||||||||
Net increase | 85,510 | $ | 888,382 | |||||||||||||
Class R | ||||||||||||||||
Shares sold | 1,000 | $ | 10,000 | |||||||||||||
Net increase | 1,000 | $ | 10,000 | |||||||||||||
Class K | ||||||||||||||||
Shares sold | 1,000 | $ | 10,000 | |||||||||||||
Net increase | 1,000 | $ | 10,000 | |||||||||||||
Class I | ||||||||||||||||
Shares sold | 1,000 | $ | 10,000 | |||||||||||||
Net increase | 1,000 | $ | 10,000 | |||||||||||||
Class 1 | ||||||||||||||||
Shares sold | 1,000 | $ | 10,000 | |||||||||||||
Net increase | 1,000 | $ | 10,000 | |||||||||||||
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 37 |
Notes to Consolidated Financial Statements
Shares | Amount | |||||||||||||||
March 8, 2010(a) to October 31, 2010 | March 8, 2010(a) to October 31, 2010 | |||||||||||||||
Class 2 | ||||||||||||||||
Shares sold | 993,000 | $ | 9,930,000 | |||||||||||||
Net increase | 993,000 | $ | 9,930,000 | |||||||||||||
(a) | Commencement of operations. |
NOTE F
Basis for Consolidation
The Subsidiary was incorporated on February 1, 2010. The Portfolio is the sole shareholder of the Subsidiary and it is intended that the Portfolio will remain the sole shareholder and will continue to control the Subsidiary. Under the Articles of Association of the Subsidiary, shares issued by the Subsidiary confer upon a shareholder the right to receive notice of, to attend and to vote at general meetings of the Subsidiary and shall confer upon the shareholder rights in a winding-up or repayment of capital and the right to participate in the profits or assets of the Subsidiary. As of October 31, 2010, net assets of the Portfolio were $13,596,830, of which $2,317,304, or approximately 17.0%, represented the Portfolio’s ownership of all issued shares and voting rights of the Subsidiary.
NOTE G
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Foreign Securities Risk—Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign currency exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies or of the U.S. government.
Currency Risk—This is the risk that changes in foreign currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce the
38 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
returns of the Portfolio. For example, the value of the Portfolio’s investments in foreign currency-denominated securities or currencies may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar). Currency markets are generally not as regulated as securities markets. Independent of the Portfolio’s investments denominated in foreign currencies, the Portfolio’s positions in various foreign currencies may cause the Portfolio to experience investment losses due to the changes in exchange rates and interest rates.
Commodity Risk—Investing in commodity-linked derivative instruments may subject the Portfolio to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
Derivatives Risk—The Portfolio may enter into derivatives transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected in the consolidated statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its portfolio, it may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures contracts or by borrowing money. The use of derivative instruments by the Portfolio, such as forwards, futures, options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $140 million revolving credit facility (the “Facility”)
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 39 |
Notes to Consolidated Financial Statements
intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the period ended October 31, 2010.
NOTE I
Distributions to Shareholders
There were no distributions paid by the Portfolio during the fiscal period ended October 31, 2010.
As of October 31, 2010, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed net investment income | $ | 527,677 | ||
Accumulated capital and other gains/losses | (11,543 | )(a) | ||
Unrealized appreciation/(depreciation) | 918,157 | (b) | ||
Total accumulated earnings/(deficit) | $ | 1,434,291 | ||
(a) | On October 31, 2010, the Portfolio had a net capital loss carryforward of $11,543 which expires in the year 2018. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. |
(b) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is primarily due to the tax deferral of losses on wash sales, swap income (loss) accrual, the tax treatment of passive foreign investment companies and real estate investment trusts (REITs), and the tax treatment of earnings from the Subsidiary. |
During the current fiscal period, permanent differences primarily due to the tax treatment of swap income, foreign currency reclassification, the book/tax differences associated with the treatment of earnings from the Subsidiary, and the tax treatment of passive foreign investment companies resulted in a net increase in undistributed net investment income, a net decrease in accumulated net realized gain on investment transactions, and a net increase in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
40 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
CONSOLIDATED FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||
March 8, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .04 | |||
Net realized and unrealized gain on investment and foreign currency transactions | 1.21 | |||
Contributions from Adviser(d) | .00 | |||
Net increase in net asset value from operations | 1.25 | |||
Net asset value, end of period | $ 11.25 | |||
Total Return | ||||
Total investment return based on net asset value(e) | 12.50 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $1,123 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(f)(g) | 1.05 | % | ||
Expenses, before waivers/reimbursements(f)(g) | 7.68 | % | ||
Net investment income(c)(f)(g) | .80 | % | ||
Portfolio turnover rate | 42 | % |
See footnote summary on page 48.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 41 |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||
March 8, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .04 | |||
Net realized and unrealized gain on investment and foreign currency transactions | 1.15 | |||
Contributions from Adviser(d) | .00 | |||
Net increase in net asset value from operations | 1.19 | |||
Net asset value, end of period | $ 11.19 | |||
Total Return | ||||
Total investment return based on net asset value(e) | 11.90 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $280 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(f)(g) | 1.75 | % | ||
Expenses, before waivers/reimbursements(f)(g) | 11.21 | % | ||
Net investment income(c)(f)(g) | .65 | % | ||
Portfolio turnover rate | 42 | % |
See footnote summary on page 48.
42 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||
March 8, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .08 | |||
Net realized and unrealized gain on investment and foreign currency transactions | 1.18 | |||
Contributions from Adviser(d) | .00 | |||
Net increase in net asset value from operations | 1.26 | |||
Net asset value, end of period | $ 11.26 | |||
Total Return | ||||
Total investment return based on net asset value(e) | 12.60 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $963 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(f)(g) | .75 | % | ||
Expenses, before waivers/reimbursements(f)(g) | 8.89 | % | ||
Net investment income(c)(f)(g) | 1.46 | % | ||
Portfolio turnover rate | 42 | % |
See footnote summary on page 48.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 43 |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||
March 8, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .10 | |||
Net realized and unrealized gain on investment and foreign currency transactions | 1.13 | |||
Contributions from Adviser(d) | .00 | |||
Net increase in net asset value from operations | 1.23 | |||
Net asset value, end of period | $ 11.23 | |||
Total Return | ||||
Total investment return based on net asset value(e) | 12.30 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $11 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(f)(g) | 1.25 | % | ||
Expenses, before waivers/reimbursements(f)(g) | 8.66 | % | ||
Net investment income(c)(f)(g) | 1.50 | % | ||
Portfolio turnover rate | 42 | % |
See footnote summary on page 48.
44 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||
March 8, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .12 | |||
Net realized and unrealized gain on investment and foreign currency transactions | 1.13 | |||
Contributions from Adviser(d) | .00 | |||
Net increase in net asset value from operations | 1.25 | |||
Net asset value, end of period | $ 11.25 | |||
Total Return | ||||
Total investment return based on net asset value(e) | 12.50 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $11 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(f)(g) | 1.00 | % | ||
Expenses, before waivers/reimbursements(f)(g) | 8.39 | % | ||
Net investment income(c)(f)(g) | 1.76 | % | ||
Portfolio turnover rate | 42 | % |
See footnote summary on page 48.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 45 |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||
March 8, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .13 | |||
Net realized and unrealized gain on investment and foreign currency transactions | 1.14 | |||
Contributions from Adviser(d) | .00 | |||
Net increase in net asset value from operations | 1.27 | |||
Net asset value, end of period | $ 11.27 | |||
Total Return | ||||
Total investment return based on net asset value(e) | 12.70 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $11 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(f)(g) | .75 | % | ||
Expenses, before waivers/reimbursements(f)(g) | 8.11 | % | ||
Net investment income(c)(f)(g) | 1.99 | % | ||
Portfolio turnover rate | 42 | % |
See footnote summary on page 48.
46 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||
March 8, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .12 | |||
Net realized and unrealized gain on investment and foreign currency transactions | 1.13 | |||
Contributions from Adviser(d) | .00 | |||
Net increase in net asset value from operations | 1.25 | |||
Net asset value, end of period | $ 11.25 | |||
Total Return | ||||
Total investment return based on net asset value(e) | 12.50 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $11 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(f)(g) | 1.00 | % | ||
Expenses, before waivers/reimbursements(f)(g) | 8.39 | % | ||
Net investment income(c)(f)(g) | 1.78 | % | ||
Portfolio turnover rate | 42 | % |
See footnote summary on page 48.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 47 |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||
March 8, 2010(a) to October 31, 2010 | ||||
Net asset value, beginning of period | $ 10.00 | |||
Income From Investment Operations | ||||
Net investment income(b)(c) | .13 | |||
Net realized and unrealized gain on investment and foreign currency transactions | 1.14 | |||
Contributions from Adviser(d) | .00 | |||
Net increase in net asset value from operations | 1.27 | |||
Net asset value, end of period | $ 11.27 | |||
Total Return | ||||
Total investment return based on net asset value(e) | 12.70 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000’s omitted) | $11,187 | |||
Ratio to average net assets of: | ||||
Expenses, net of waivers/reimbursements(f)(g) | .75 | % | ||
Expenses, before waivers/reimbursements(f)(g) | 8.14 | % | ||
Net investment income(c)(f)(g) | 2.01 | % | ||
Portfolio turnover rate | 42 | % |
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Net of fees and expenses waived/reimbursed by the Adviser. |
(d) | Amount is less than $.005 |
(e) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(f) | The ratio includes expenses attributable to costs of proxy solicitation. |
(g) | Annualized. |
See notes to financial statements.
48 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Financial Highlights
Report of Independent Registered Public Accounting Firm
To the Board of Directors of AllianceBernstein Bond Fund, Inc.
and Shareholders of the AllianceBernstein Real Asset Strategy Portfolio
We have audited the accompanying consolidated statement of assets and liabilities of AllianceBernstein Real Asset Strategy Portfolio (one of the portfolios constituting AllianceBernstein Bond Fund, Inc.) (the “Portfolio”), formerly known as AllianceBernstein Multi Asset Inflation Strategy Portfolio, including the consolidated portfolio of investments, as of October 31, 2010, and the related consolidated statement of operations, consolidated statement of changes in net assets, and financial highlights for the period March 8, 2010 (commencement of operations) through October 31, 2010. These financial statements and financial highlights are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2010 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the consolidated financial position of AllianceBernstein Real Asset Strategy Portfolio of AllianceBernstein Bond Fund, Inc. at October 31, 2010, and the consolidated results of their operations, changes in their net assets and the financial highlights for the period March 8, 2010 (commencement of operations) through October 31, 2010, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 29, 2010
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 49 |
Report of Independent Registered Public Accounting Firm
FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to designations made by the Portfolio during the taxable period ended October 31, 2010.
For the taxable period ended October 31, 2010, the Portfolio designates $136,451 as the maximum amount that may be considered qualified dividend income for individual shareholders.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2011.
50 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Federal Tax Information
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Garry L. Moody(1) Marshall C. Turner(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Drew W. Demakis(2), Vice President Joshua B. Lisser(2) , Vice President | Teresa Marziano(2), Vice President Jonathan E. Ruff(2) , Vice President Greg J. Wilensky(2) , Vice President Emilie D. Wrapp, Secretary Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller |
Custodian and Accounting Agent State Street Bank and Trust Company One Lincoln Street Boston, MA 02111
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. Mr. Foulk is the sole member of the Fair Value Pricing Committee. |
(2) | The day-to-day management of, and investment decisions for, the Strategy’s portfolio are made by the Real Asset Strategy Team. Ms. Teresa Marziano and Messrs. Drew W. Demakis, Joshua B. Lisser, Jonathan E. Ruff and Mr. Greg J. Wilensky are the investment professionals with the most significant responsibility for the day-to-day management of the Strategy’s portfolio. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 51 |
Board of Directors
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Strategy are managed under the direction of the Board of Directors. Certain information concerning the Strategy’s Directors is set forth below.
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER RELEVANT QUALIFICATIONS*** | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith + 1345 Avenue of the Americas NewYork, New York 10105 50 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AllianceBernstein Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 97 | None |
52 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER RELEVANT QUALIFICATIONS*** | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS | ||||||||
William H. Foulk, Jr., ++, # Chairman of the Board 78 (2002) | Investment Adviser and an Independent Consultant since prior to 2005. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AllianceBernstein Funds since 1983 and has been Chairman of the AllianceBernstein Funds and of the Independent Directors Committee of such Funds since 2003. He is also active in a number of mutual fund organizations and committees. | 97 | None | |||||
John H. Dobkin, # 68 (2002) | Independent Consultant since prior to 2005. Formerly, President of Save Venice, Inc. (preservation organization) from 2001 – 2002, Senior Advisor from June 1999 – June 2000 and President of Historic Hudson Valley (historic preservation) from December 1989 – May 1999. Previously, Director of the National Academy of Design. He has served as a director or trustee of various AllianceBernstein Funds since 1992, and as Chairman of the Audit Committees of a number of such Funds from 2001-2008. | 96 | None |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 53 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER RELEVANT QUALIFICATIONS*** | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Michael J. Downey, # 66 (2005) | Private Investor since prior to 2005. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential Mutual Funds and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AllianceBernstein Funds since 2005 and is a director of two other registered investment companies (and Chairman of one of them). | 96 | Asia Pacific Fund, Inc. and The Merger Fund since prior to 2005 and Prospect Acquisition Corp. (financial services) since 2007 until 2009 | |||||
D. James Guzy, # 74 (2005) | Chairman of the Board of PLX Technology (semi-conductors) and of SRC Computers Inc., with which he has been associated since prior to 2005. He was a Director of Intel Corporation (semi-conductors) from 1969 until 2008 and served as Chairman of the Finance Committee of such company for several years until May 2008. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1982. | 96 | Cirrus Logic Corporation (semi-conductors) and PLX Technology, Inc. (semi-conductors) since prior to 2005 and Intel Corporation (semi-conductors) since prior to 2005 until 2008 |
54 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL QUALIFICATIONS*** | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, # 62 (2006) | Professorial Lecturer at the Johns Hopkins School of Advanced International Studies since 2008. Formerly, U.S. Executive Director of the International Monetary Fund (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AllianceBernstein Funds since 2006. | 96 | None | |||||
Garry L. Moody, # 58 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995); and Partner, Ernst & Young LLP (1975 – 1993), where he served as the National Director of Mutual Fund Tax Services. He is also a member of the Governing Council of the Independent Directors Council (IDC), an organization of independent directors of mutual funds, and serves on that organization’s Education and Communications Committee. He has served as a director or trustee, and as Chairman of the Audit Committee, of most of the AllianceBernstein Funds since 2008. | 96 | None |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 55 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL QUALIFICATIONS*** | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Marshall C. Turner, Jr., # 69 (2005) | Private Investor since prior to 2005. Interim CEO of MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) from November 2008 until March 2009. He was Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing), 2003–2005, and President and CEO, 2005–2006, after the company was acquired and renamed Toppan Photomasks, Inc. He has extensive experience in venture capital investing including prior service as general partner of three institutional venture capital partnerships, and serves on the boards of a number of education and science-related non-profit organizations. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1992. | 96 | Xilinx, Inc. (programmable logic semi-conductors) and MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) since prior to 2005 | |||||
Earl D. Weiner, # 71 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and member of ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AllianceBernstein Funds since 2007 and is Chairman of the Governance and Nominating Committees of most of the Funds. | 96 | None |
* | The address for each of the Strategy’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Philip L. Kirstein, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Strategy’s’ Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Strategy. |
+ | Mr. Keith is an “interested person”, as defined in the “40 Act”, due to his position as Senior Vice President of AllianceBernstein. |
++ | Member of the Fair Value Pricing Committee. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
56 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Management of the Fund
Officer Information
Certain information concerning the Strategy’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 50 | President and Chief Executive Officer | See biography above. | ||
Philip L. Kirstein 65 | Senior Vice President and Independent Compliance Officer | Senior Vice President and Independent Compliance Officer of the AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to March 2003. | ||
Drew W. Demakis 47 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2005. | ||
Joshua B. Lisser 44 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2005. | ||
Teresa Marziano 56 | Vice President | Senior Vice President of the Adviser,** with which she has been associated since prior to 2005. | ||
Jonathan E. Ruff 40 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2005. | ||
Greg J. Wilensky 43 | Vice President | Senior Vice President of the Adviser,** and Director of Stable Value Investments, with which he has been associated since prior to 2005. | ||
Emilie D. Wrapp 55 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2005. | ||
Joseph J. Mantineo 51 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc, (“ABIS”),** with which he has been associated since prior to 2005. | ||
Phyllis J. Clarke 49 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2005. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Strategy. |
�� | The Fund’s Statement of Additional Information (“SAI”) has additional information about the Strategy’s Directors and Officers and is available without charge upon request. Contact your financial representative or AllianceBernstein at 1-800-227-4618, or visit www.alliancebernstein.com, for a free prospectus or SAI. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 57 |
Management of the Fund
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER’S EVALUATION OF INVESTMENT ADVISORY AGREEMENT1
The following is a summary of the evaluation of the Investment Advisory Agreement between AllianceBernstein L.P. (the “Adviser”) and the AllianceBernstein Bond Fund, Inc. (the “Fund”) in respect of AllianceBernstein Multi-Asset Inflation Strategy (“Multi-Asset Strategy” or “Strategy”).2 The evaluation of the investment Advisory Agreement was prepared by Philip L. Kirstein, the Senior Officer of the Fund, for the Directors of the Fund, as required by the September 1, 2004 Assurance of Discontinuance (“AoD”) between the Adviser and the New York State Attorney General (the “NYAG”).
Multi-Asset Strategy’s investment objective is to maximize real return. Real return equals total return less the estimated effect of inflation. The Strategy pursues its investment objective through investing in foreign and domestic investments, including inflation-protected fixed-income securities, real estate equities, commodity-related equities and physical commodities. While Multi-Asset Strategy will have broad flexibility to choose among investments and asset classes, the Adviser expects that, given the current market environment, the Strategy will take roughly equal exposure to real estate stocks, commodity-related stocks, and Treasury Inflation Protected Securities (“TIPS”) collateralized commodity derivatives. In addition, the Strategy may implement active long and short currency positions, primarily through currency-related derivatives such as forward contracts, for speculative reasons.
The Senior Officer’s evaluation of the Investment Advisory Agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the “40 Act”) and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees proposed to be paid by the Portfolios which was provided to the Directors in connection with their review of the proposed approval of the continuance of the Investment Advisory Agreement. The Senior Officer’s evaluation considered the following factors:
1. | Advisory fees charged to institutional and other clients of the Adviser for like services; |
2. | Advisory fees charged by other mutual fund companies for like services; |
1 | It should be noted that the Senior Officer’s evaluation was completed on January 21, 2010. |
2 | Future references to the Fund or the Strategy do not include “AllianceBernstein.” |
58 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
3. | Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit; |
4. | Profit margins of the Adviser and its affiliates from supplying such services; |
5. | Possible economies of scale as the Strategy grows larger; and |
6. | Nature and quality of the Adviser’s services including the performance of the Strategy. |
INVESTMENT ADVISORY FEES, NET ASSETS, EXPENSE CAP & RATIO
The Adviser has proposed that the Strategy pay the advisory fee set forth in the table below for receiving the services to be provided pursuant to the Investment Advisory Agreement. The advisory fee schedule of the Strategy is set forth in the table below:
Strategy | Advisory Fee | |
Multi-Asset Strategy | 0.75% of Average Daily Net Assets |
The Adviser proposes to be reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative, and other services.
The Adviser proposes to set expense caps, set forth below, for its share classes for an initial period ending October 31, 2011. The expense limitation agreement will terminate three years after the Strategy commences operations. During the period between the initial period and the termination of the agreement, the Adviser may be able to recoup all or a portion of the Strategy’s operating expenses, which will be paid initially by the Adviser, to the extent that the reimbursement does not cause the expense ratios of the Strategy’s share classes to not exceed the expense caps. Either the Adviser or Strategy may terminate the agreement on sixty days’ notice.
Strategy | Expense Cap Pursuant to Expense Limitation Undertaking | Estimated Gross | Fiscal Year End | |||||||||
Multi-Asset Strategy | Advisor Class A Class C Class R Class K Class I3 Class 1 Class 23 |
| 0.75 1.05 1.75 1.25 1.00 0.75 1.00 0.75 | % % % % % % % % |
| 1.43 1.73 2.43 1.93 1.68 1.43 1.68 1.43 | % % % % % % % % | October 31 |
3 | Class 2 shares will have the same characteristics as Class I shares. However, Class 2 shares, unlike Class I shares, will incur no pension plan participant post recordkeeping charges. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 59 |
I. | MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS |
The advisory fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Strategies that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes—Oxley Act of 2002, and coordinating with and monitoring the Strategies’ third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Strategies are more costly than those for institutional assets due to the greater complexities and time required for investment companies. Also, retail mutual funds managed by the Adviser are widely held. Servicing the Strategies’ investors is more time consuming and labor intensive compared to institutional clients since the Adviser needs to communicate with a more extensive network of financial intermediaries and shareholders. The Adviser also believes that it incurs substantial entrepreneurial risk when offering a new mutual fund since establishing a new mutual fund requires a large upfront investment, and it may take a long time for the fund to achieve profitability since the fund must be priced to scale from inception in order to be competitive and assets are acquired one account at a time. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Strategy is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry.
Notwithstanding the Adviser’s view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with substantially similar investment styles as the Strategy.4 Although, the Adviser represented that there is no category in
4 | The Adviser has indicated that with respect to institutional accounts with assets greater than $300 million, it will negotiate a fee schedule, although it should be noted that there were no such institutional accounts to be opened in the last three years ending September 30, 2009. Discounts that are negotiated vary based upon each client relationship. |
60 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
the Form ADV for institutional products that have a substantially similar investment style as the Strategy, the Strategy consist of investments in various asset classes for which the Adviser does have institutional counterparts for certain of those asset classes. It should be noted that in addition to investing in multiple asset classes as opposed to a single asset class, the Strategy may employ, with greater frequency, the use of derivatives than their institutional counterparts. Set forth below are the institutional fee schedules of the various asset classes of which the Strategy consists. Also shown below are what would have been the effective advisory fee of the Strategy had the advisory fee schedules of the institutional accounts been applicable to the Strategy based on the initial estimate of the Strategy net assets:
AB Institutional Account Category5 | Initial ($MIL) | Fee Schedule | Effective AB Inst. Adv. Fee | |||||||
U.S. REIT | $100.0 | 70 bp on 1st $25 million 60 bp on next $25 million 50 bp on next $25 million Negotiable on the balance Minimum Account Size: $25 m | 0.575% | |||||||
U.S. Inflation-Linked Bonds (TIPs) | $100.0 | 25 bp | 0.250% |
In addition to the institutional categories above, the Adviser manages single asset class retail mutual funds that have a somewhat similar investment style as that of one of the Strategy’s multi-asset components and their advisory fee schedules are set forth in the table below:
Fund | Advisory Fee | |
AllianceBernstein Global Real Estate Investment Fund, Inc. | 55 bp on 1st $2.5 billion 45 bp on next $2.5 billion 40 bp on the balance | |
AllianceBernstein Institutional Funds, Inc. – Global Real Estate Investment Fund II | 55 bp on 1st $2.5 billion 45 bp on next $2.5 billion 40 bp on the balance |
The AllianceBernstein Variable Products Series Fund, Inc. (“AVPS”), which is managed by the Adviser and is available through variable annuity and variable life contracts offered by other financial institutions, offers policy holders the option to utilize certain AVPS portfolios as the investment option underlying their insurance contracts. Set forth below is the AVPS portfolio whose investment style is similar to that of one of the Strategy’s multi-asset components.
5 | Although there is no investment category in the Adviser’s Form ADV for commodity related securities, the Adviser does have experience in managing commodity related securities. Various AllianceBernstein Mutual Funds own commodity stocks. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 61 |
AVPS Portfolio | Advisory Fee6 | |
Real Estate Investment Portfolio | 55 bp on 1st $2.5 billion 45 bp on next $2.5 billion 40 bp on the balance |
The Adviser also manages and sponsors retail mutual funds, which are organized in jurisdictions outside the United States, generally Luxembourg and Japan, and sold to non-United States resident investors. The Adviser charges the following fees for the Luxembourg fund that has a somewhat similar investment style as that of one of the Strategy’s multi-asset components:
Fund | Luxembourg Fund | Fee7 | ||
Global Real Estate Investment Fund, Inc. | Global Real Estate Securities Portfolio Class A Class I | 1.75% 0.95% |
The Adviser has represented that there are no sub-advisory relationships managed by the Adviser that have a substantially similar investment style as any of the Strategy’s multi-asset components.
II. | MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. |
Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fees charged to the Strategy with fees charged to other investment companies for similar services by other investment advisers. Lipper’s analysis included the Strategy’s rankings with respect to the proposed management fees relative to the median of the Strategy’s Lipper Expense Group (“EG”) at the approximate current asset level of the Strategy.8
6 | Except for Small Cap Growth Portfolio and Global Thematic Growth Fund, Inc., the advisory fees of the Funds are based on a percentage of the average daily net assets of the Funds and paid on a monthly basis. The advisory fees of Small Cap Growth Portfolio and Global Thematic Fund, Inc. are based on the percentage of each Fund’s net assets at quarter end and are paid on a quarterly basis. |
7 | Class A shares of the Luxembourg funds are charged an “all-in” fee, which includes investment advisory and distribution related services, unlike Class I shares, whose fee is for only investment advisory services. |
8 | The contractual management fee is calculated by Lipper using the Strategy’s contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Strategy, rounded up to the next $25 million. Lipper’s total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of “1” means that the Strategy has the lowest effective fee rate in the Lipper peer group. |
62 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Lipper describes an EG as a representative sample of comparable funds. Lipper’s standard methodology for screening funds to be included in an EG entails the consideration of several fund criteria, including fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size)9 comparability, and expense components and attributes. An EG will typically consist of seven to twenty funds.
Strategy | Contractual Management Fee (%)10,11 | Lipper Exp. Median (%) | Rank | |||||||||
Multi-Asset Strategy | 0.750 | 1.000 | 1/10 |
Lipper also compared the Strategy’s total expense ratio to the medians of the Strategy’s EGs and Lipper Expense Universes (“EU”). Lipper describes the EU as a broader group, consisting of all funds with the same investment classification/objective as the subject Strategy.12 The results of that comparison are set forth below:
Strategy | Expense Ratio (%)11,13 | Lipper Exp. Group Median (%) | Lipper Group Rank | Lipper Exp. Median (%) | Lipper Rank | |||||||||||||||
Multi-Asset Strategy | 1.050 | 1.475 | 1/10 | 1.343 | 1/14 |
Based on this analysis, the Strategy has equally favorable ranking on a management fee and total expense ratio basis.
9 | The Adviser asked Lipper to anticipate that the Strategy’s asset size would be approximately $100 million. |
10 | The contractual management fee does not reflect any expense reimbursements made by the Strategy to the Adviser for certain clerical, legal, accounting, administrative, and other services. In addition, the contractual management fee does not reflect any advisory fee waivers for expense caps that would effectively reduce the actual effective management fee. |
11 | The Strategy’s contractual management fee and total expense ratio is based on an initial estimate of the Strategy’s net assets of $100 million. |
12 | Except for asset (size) comparability, Lipper uses the same EG criteria for selecting an EU peer. Unlike the EG, the EU allows for the same adviser to be represented by more than just one fund. |
13 | Information on the Strategy’s total expense ratios pertain to the Strategy’s Class A shares. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 63 |
III. | COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE ADVISORY AGREEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. |
The Adviser utilizes two profitability reporting systems, which operate independently but are aligned with each other, to estimate the Adviser’s profitability in connection with investment advisory services provided to the Portfolios. The Senior Officer has retained a consultant to provide independent advice regarding the alignment of the two profitability systems as well as the methodologies and allocations utilized by both profitability systems. See Section IV for additional discussion.
IV. | PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. |
The Strategy has not yet commenced operations. Therefore there is no historic profitability data with respect to the Adviser’s investment services to the Strategy.
In addition to the Adviser’s future direct profits from managing the Strategy, it is anticipated that certain of the Adviser’s affiliates will have business relationships with the Strategy and may earn a profit from providing non-investment services to the Strategy. The courts have referred to this type of business opportunity as “fall-out benefits” to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Strategy and the Adviser. Neither case law nor common business practice precludes the Adviser’s affiliates from earning a reasonable profit on this type of relationship provided the affiliates’ charges and services are competitive and the relationship otherwise complies with the 40 Act restrictions. These affiliates will provide transfer agent and distribution related services to the Strategy and receive transfer agent fees, Rule 12b-1 payments, front-end sales loads and contingent deferred sales charges (“CDSC”).
The Adviser has advised the Senior Officer that ABI and the Adviser will disclose in the Strategies’ prospectus that they may make revenue sharing payments from their own resources, in addition to resources derived from sales loads and Rule 12b-1 fees, to firms that sell shares of the Strategies. The total amount to be paid to a financial intermediary associated with the sale of shares 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 the average daily net assets attributable to that firm over the year. In 2008, ABI paid from its resources an amount equal to approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $19 million for distribution services and educational support (revenue sharing payments).
It is anticipated AllianceBernstein Investor Services (“ABIS”), an affiliate of the Adviser, will be the Strategy’s transfer agent. Fees and reimbursements for out of
64 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
pocket expenses charged by AllianceBernstein Investor Services, Inc. (“ABIS”) are charged on a per account basis, based on the level of service provided and the class of share held by the account. ABIS also receives a fee per shareholder sub-account for each account maintained by an intermediary on an omnibus basis.
The Strategy may effect brokerage transactions through the Adviser’s affiliate, Sanford C. Bernstein & Co., LLC (“SCB & Co.”) and/or its U.K. affiliate, Sanford C. Bernstein Limited (“SCB Ltd.”), collectively “SCB,” and pay commissions for such transactions. The Adviser represented that SCB’s profitability from business conducted with the Strategy will be comparable to the profitability of SCB’s dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks (“ECNs”) derived from trading for its clients, including the Strategy. These credits and charges are not being passed onto any SCB client.
V. | POSSIBLE ECONOMIES OF SCALE |
The Adviser has indicated that economies of scale are being shared with shareholders through fee structures,14 subsidies and enhancement to services. Based on some of the professional literature that has considered economies of scale in the mutual fund industry, it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms make such investments in their business to provide services, there may be a sharing of economies of scale without a reduction in advisory fees.
An independent consultant, retained by the Senior Officer, provided the Board of Trustees an update of the Deli15 study on advisory fees and various fund characteristics. The independent consultant first reiterated the results of his previous two dimensional comparison analysis (fund size and family size) with the Board
14 | Fee structures include fee reductions, pricing at scale and breakpoints in advisory fee schedules. Note that the fee structures identified in this note are not applicable to the Strategy. |
15 | The Deli study, which was based on 1997 SEC reported filings, was published in 2002 by Daniel N. Deli. The results of the study with respect to fund size and family size were consistent with economies of scale being shared with shareholders, suggesting a competitive environment. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 65 |
of Directors.16 The independent consultant then discussed the results of the regression model that was utilized to study the effects of various factors on advisory fees. The regression model output indicated that the bulk of the variation in fees predicted were explained by various factors, but substantially by fund AUM, family AUM, index fund indicator and investment style. The independent consultant also compared the advisory fees of the AllianceBernstein Mutual Funds to similar funds managed by 19 other large asset managers, regardless of the fund size and each Adviser’s proportion of mutual fund assets to non-mutual fund assets.
VI. | NATURE AND QUALITY OF THE ADVISER’S SERVICES, INCLUDING THE PERFORMANCE OF THE STRATEGY |
With assets under management of approximately $496 billion as of December 31, 2009, the Adviser has the investment experience to manage and provide non-investment services (described in Section I) to the Strategy.
Because the Strategy has not yet commenced operations and there are no comparable institutional or sub-advised or off-shore accounts that the Adviser manages and has a substantially similar investment styles as the Strategy, there is no performance history shown in this summary. The Strategy’s benchmark was originally proposed to be the Barclays Capital 10+ year U.S. TIPS Index (“Barclays Index”), but was changed prior to the commencement of the Strategy’s operations to MSCI All Country World Commodity Producers Index as the primary index with the Dow Jones-UBS Commodity Index and the Barclay Index as secondary benchmarks.
CONCLUSION:
Based on the factors discussed above the Senior Officer’s conclusion is that the proposed advisory fee for the Strategy is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. The Senior Officer suggested that the Board of Directors consider discussing the Strategy’s proposed advisory fee schedule, which has no breakpoints, with the Adviser, unlike the advisory fee schedules of other AllianceBernstein Mutual Funds. This conclusion in respect of the Strategies is based on an evaluation of all of these factors and no single factor was dispositive.
Dated: February 25, 2010
16 | The two dimensional analysis showed patterns of lower advisory fees for funds with larger asset sizes and funds from larger family sizes compared to funds with smaller asset sizes and funds from smaller family sizes, which according to the independent consultant is indicative of a sharing of economies of scale and scope. However, in less liquid and active markets, such is not the case, as the empirical analysis showed potential for diseconomies of scale in those markets. The empirical analysis also showed diminishing economies of scale and scope as funds surpassed a certain high level of assets. |
66 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
Wealth Strategies Funds
Balanced Wealth Strategy
Wealth Appreciation Strategy
Conservative Wealth Strategy*
Tax-Managed Balanced Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Tax-Managed Conservative Wealth Strategy*
Blended Style Funds
U.S. Large Cap Portfolio
International Portfolio
Tax-Managed International Portfolio
Growth Funds
Domestic
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
Small/Mid Cap Growth Fund
U.S. Strategic Research Portfolio
Global & International
Global Growth Fund
Global Thematic Growth Fund
Greater China ‘97 Fund
International Discovery Equity Portfolio
International Growth Fund
Value Funds
Domestic
Balanced Shares
Core Opportunities Fund*
Growth & Income Fund
Small/Mid Cap Value Fund
Equity Income Fund*
Value Fund
Global & International
Global Real Estate Investment Fund
Global Value Fund
International Value Fund
Taxable Bond Funds
Bond Inflation Strategy
Diversified Yield Fund
Global Bond Fund
High Income Fund
Intermediate Bond Portfolio
Short Duration Portfolio
Municipal Bond Funds
Arizona Municipal Bond Inflation Strategy California High Income Massachusetts Michigan | Minnesota National New Jersey New York Ohio Pennsylvania Virginia |
Intermediate Municipal Bond Funds
Intermediate California
Intermediate Diversified
Intermediate New York
Closed-End Funds
AllianceBernstein Global High Income Fund
AllianceBernstein Income Fund
AllianceBernstein National Municipal Income Fund
Alliance California Municipal Income Fund
Alliance New York Municipal Income Fund
The Ibero-America Fund*
Inflation Strategies
Real Asset Strategy*
Alternative Strategies
Market Neutral Strategy – U.S.
Market Neutral Strategy – Global
Retirement Strategies Funds
2000 Retirement Strategy | 2020 Retirement Strategy | 2040 Retirement Strategy | ||
2005 Retirement Strategy | 2025 Retirement Strategy | 2045 Retirement Strategy | ||
2010 Retirement Strategy | 2030 Retirement Strategy | 2050 Retirement Strategy | ||
2015 Retirement Strategy | 2035 Retirement Strategy | 2055 Retirement Strategy |
We also offer Exchange Reserves,** which serves as the money market fund exchange vehicle for the AllianceBernstein mutual funds.
You should consider the investment objectives, risks, charges and expenses of any AllianceBernstein fund/portfolio carefully before investing. For free copies of our prospectuses, which contain this and other information, visit us online at www.alliancebernstein.com or contact your financial advisor. Please read the prospectus carefully before investing.
* | Prior to December 31, 2009, Conservative Wealth Strategy was named Wealth Preservation Strategy, and Tax-Managed Conservative Wealth Strategy was named Tax-Managed Wealth Preservation Strategy. Prior to January 20, 2010, The Ibero-America Fund was named The Spain Fund. Prior to March 1, 2010, Core Opportunities Fund was named the Focused Growth & Income Fund. Prior to September 1, 2010, Equity Income Fund was named Utility Income Fund. Prior to September 27, 2010, Real Asset Strategy was named Multi-Asset Inflation Strategy. |
** | An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 67 |
AllianceBernstein Family of Funds
NOTES
68 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800.221.5672
RAS-0151-1010 | ![]() |
ITEM 2. | CODE OF ETHICS. |
(a) The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. A copy of the registrant’s code of ethics is filed herewith as Exhibit 12(a)(1).
(b) During the period covered by this report, no material amendments were made to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a) above were granted.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The registrant’s Board of Directors has determined that independent directors Garry L. Moody and William H. Foulk, Jr. qualify as audit committee financial experts.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
(a) - (c) The following table sets forth the aggregate fees billed by the independent registered public accounting firm Ernst & Young LLP, for the Fund’s last two fiscal years for professional services rendered for: (i) the audit of the Fund’s annual financial statements included in the Fund’s annual report to stockholders; (ii) assurance and related services that are reasonably related to the performance of the audit of the Fund’s financial statements and are not reported under (i), which include advice and education related to accounting and auditing issues and quarterly press release review (for those Funds which issue press releases), and preferred stock maintenance testing (for those Funds that issue preferred stock); and (iii) tax compliance, tax advice and tax return preparation.
Audit Fees | Audit -Related Fees | Tax Fees | ||||||||||||||
-AllianceBernstein Intermediate Bond Portfolio | 2009 | $ | 44,837 | $ | 7,764 | $ | 5,564 | |||||||||
2010 | $ | 44,500 | $ | — | $ | 11,924 | ||||||||||
-AllianceBernstein Bond Inflation Strategy | 2009 | $ | — | $ | — | $ | — | |||||||||
2010 | $ | 33,375 | $ | — | $ | 11,089 | ||||||||||
-AllianceBernstein Municipal Bond Inflation Strategy | 2009 | $ | — | $ | — | $ | — | |||||||||
2010 | $ | 23,468 | $ | — | $ | 11,089 | ||||||||||
-AllianceBernstein Real Asset Strategy | 2009 | $ | — | $ | — | $ | — | |||||||||
2010 | $ | 26,250 | $ | — | $ | 20,742 |
(d) Not applicable.
(e) (1) Beginning with audit and non-audit service contracts entered into on or after May 6, 2003, the Fund’s Audit Committee policies and procedures require the pre-approval of all audit and non-audit services provided to the Fund by the Fund’s independent registered public accounting firm. The Fund’s Audit Committee policies and procedures also require pre-approval of all audit and non-audit services provided to the Adviser and Service Affiliates to the extent that these services are directly related to the operations or financial reporting of the Fund.
(e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in the table under Item 4 (a) – (c) are for services pre-approved by the Fund’s Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregate non-audit services provided to the Fund, the Fund’s Adviser and entities that control, are controlled by or under common control with the Adviser that provide ongoing services to the Fund, which include preparing an annual internal control report pursuant to Statement on Auditing Standards No. 70 (“Service Affiliates”):
All Fees for Non-Audit Services Provided to the Portfolio, the Adviser and Service Affiliates | Pre-approved by the Audit Committee (Portion Comprised of Audit Related Fees) (Portion Comprised of Tax Fees) | |||||||||||
-AllianceBernstein Intermediate Bond Portfolio | 2009 | $ | 787,985 | $ | 257,174 | |||||||
$ | (251,610 | ) | ||||||||||
$ | (5,564 | ) | ||||||||||
2010 | $ | 704,104 | $ | 139,639 | ||||||||
$ | (127,715 | ) | ||||||||||
$ | (11,924 | ) | ||||||||||
-AllianceBernstein Bond Inflation Strategy | 2009 | $ | — | $ | — | |||||||
$ | — | |||||||||||
$ | — | |||||||||||
2010 | $ | 575,554 | $ | 11,089 | ||||||||
$ | — | |||||||||||
$ | (11,089 | ) | ||||||||||
-AllianceBernstein Municipal Bond Inflation Strategy | 2009 | $ | — | $ | — | |||||||
$ | — | |||||||||||
$ | — | |||||||||||
2010 | $ | 575,554 | $ | 11,089 | ||||||||
$ | — | |||||||||||
$ | (11,089 | ) | ||||||||||
-AllianceBernstein Real Asset Strategy | 2009 | $ | — | $ | — | |||||||
$ | — | |||||||||||
$ | — | |||||||||||
2010 | $ | 585,207 | $ | 20,742 | ||||||||
$ | — | |||||||||||
$ | (20,742 | ) |
(h) The Audit Committee of the Fund has considered whether the provision of any non-audit services not pre-approved by the Audit Committee provided by the Fund’s independent registered public accounting firm to the Adviser and Service Affiliates is compatible with maintaining the auditor’s independence.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable to the registrant.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Please see Schedule of Investments contained in the Report to Shareholders included under Item 1 of this Form N-CSR.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the registrant.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the registrant.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable to the registrant.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3 (c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no changes in the registrant’s internal controls over financial reporting that occurred during the second fiscal quarter of the period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
ITEM 12. | EXHIBITS. |
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. | DESCRIPTION OF EXHIBIT | |
12 (a) (1) | Code of Ethics that is subject to the disclosure of Item 2 hereof | |
12 (b) (1) | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12 (b) (2) | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12 (c) | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): AllianceBernstein Bond Fund, Inc.
By: | /s/ Robert M. Keith | |
Robert M. Keith President |
Date: December 28, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Robert M. Keith | |
Robert M. Keith President |
Date: December 28, 2010
By: | /s/ Joseph J. Mantineo | |
Joseph J. Mantineo Treasurer and Chief Financial Officer |
Date: December 28, 2010