As filed with the Securities and Exchange Commission on
March 25, 2005
Registration No. 333-41375
(Investment Company Act Registration No. 811-08527)
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
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Pre-Effective Amendment No. /1/
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Post-Effective Amendment No. / /
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(Check appropriate box or boxes)
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AllianceBernstein International Premier Growth Fund, Inc.
1345 Avenue of the Americas, New York, New York 10105
(800)221-5672
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Mark R. Manley
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
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Copies to:
Joseph B. Kittredge, Esquire
ROPES & GRAY LLP
One International Place
Boston, Massachusetts 02110
Patricia A. Poglinko, Esquire
SEWARD & KISSELL LLP
One Battery Park Plaza
New York, New York 10004
Title of Securities Being Registered:
Class A
Class B
Class C
Advisor Class
Approximate Date of Proposed Offering:
As soon as practicable after this Registration Statement becomes or is declared
effective.
It is proposed that this filing will become effective on March 28, 2005 pursuant
to Rule 488.
An indefinite amount of the Registrant's securities has been registered under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. In reliance upon such rule, no filing fee is being paid at this
time.
-2-
ALLIANCEBERNSTEIN ALL-ASIA INVESTMENT FUND, INC.
ALLIANCEBERNSTEIN NEW EUROPE FUND, INC.
1345 Avenue of the Americas, New York, New York 10105
Dear Investor:
I am writing to ask for your vote on the proposed acquisition of all of
the assets and liabilities of AllianceBernstein All-Asia Investment Fund, Inc.
(the "All-Asia Fund") and AllianceBernstein New Europe Fund, Inc. (the "New
Europe Fund") by AllianceBernstein International Premier Growth Fund, Inc.
(which fund proposes to change its name to "AllianceBernstein International
Research Growth Fund, Inc." upon shareholder approval of certain changes to its
investment objective, and which fund will be referred to herein as
"International Research Growth Fund"). At a special joint meeting of
shareholders of each fund on May 17, 2005, you will be asked to vote on the
transaction affecting your fund. Your fund's transaction will not be contingent
upon the consummation of the other fund's transaction. Your fund's transaction
will, however, be contingent upon the approval by shareholders of International
Research Growth Fund of a change to International Research Growth Fund's
investment objective (the "Investment Objective Change"). International Research
Growth Fund will hold a special meeting of its shareholders on April 21, 2005,
at which the International Research Growth Fund shareholders will be asked to
vote upon the Investment Objective Change, as well as certain other matters.
The proposed acquisition of assets and liabilities of All-Asia Fund and
New Europe Fund by International Research Growth Fund is recommended by the
Board of Directors of each fund and by Alliance Capital Management L.P.
("Alliance"), the funds' investment advisor. Alliance believes that broadly
diversified international funds, such as International Research Growth Fund,
generally bear less risk and may afford greater opportunities for long-term
capital growth than funds that invest in a single geographic region.
Shareholders will also gain access to several non-U.S. markets through a single
diversified fund, which may be less expensive than investing in several regional
funds. Finally, because each of the funds is relatively small, fixed costs such
as audit and legal fees impact the investment performance of these funds more
than they would a larger fund. If the proposed acquisitions are approved and
implemented, fixed costs will be spread over a larger asset base.
Should your fund's acquisition be approved and other conditions to the
acquisition satisfied (including approval by International Research Growth Fund
shareholders of the Investment Objective Change, as discussed above), your
current fund investment will be exchanged for an equal investment (that is,
dollar value) in International Research Growth Fund. Shareholders of All-Asia
Fund and New Europe Fund will receive shares of International Research Growth
Fund of the same class as the shares they currently own. More information on the
specific details and reasons for each proposed transaction is contained in the
enclosed combined Prospectus/Proxy Statement. Please read it carefully.
THE DIRECTORS OF YOUR FUND UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR THE
ACQUISITION OF THE ASSETS AND LIABILITIES OF YOUR FUND BY ALLIANCEBERNSTEIN
INTERNATIONAL RESEARCH GROWTH FUND, INC.
YOUR VOTE IS IMPORTANT. YOU CAN VOTE BY COMPLETING THE ENCLOSED PROXY
CARD. A SELF-ADDRESSED POSTAGE-PAID ENVELOPE HAS BEEN ENCLOSED FOR YOUR
CONVENIENCE.
We appreciate your participation and prompt response in these matters and
thank you for your continued support.
Sincerely,
Mark Manley
Secretary
March 29, 2005
-2-
NOTICE OF A SPECIAL JOINT MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 2005
AllianceBernstein All-Asia Investment Fund, Inc.
AllianceBernstein New Europe Fund, Inc.
1-800-221-5672
To the shareholders of AllianceBernstein All-Asia Investment Fund, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of
AllianceBernstein All-Asia Investment Fund, Inc., a Maryland corporation (the
"All-Asia Fund"), will be held at 11:00 a.m. Eastern Time on Tuesday, May 17,
2005, at the offices of All-Asia Fund, 1345 Avenue of the Americas, New York,
New York 10105, for the following purposes:
1. To approve or disapprove an Agreement and Plan of Reorganization and
Liquidation providing for (i) the sale of all of the assets of
All-Asia Fund to, and the assumption of all of the liabilities of
All-Asia Fund by, AllianceBernstein International Premier Growth
Fund, Inc. (which fund proposes to change its name to
"AllianceBernstein International Research Growth Fund, Inc." upon
shareholder approval of certain changes to its investment objective,
and which fund will be referred to herein as "International Research
Growth Fund") in exchange for shares of International Research
Growth Fund, and (ii) the distribution of such shares to the
shareholders of All-Asia Fund in complete liquidation and
dissolution of All-Asia Fund.
2. To consider and act upon such other matters that properly come
before the meeting or any adjournment or postponement thereof.
To the shareholders of AllianceBernstein New Europe Fund, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of
AllianceBernstein New Europe Fund, Inc., a Maryland corporation (the "New Europe
Fund"), will be held at 11:00 a.m. Eastern Time on Tuesday, May 17, 2005, at the
offices of New Europe Fund, 1345 Avenue of the Americas, New York, New York
10105, for the following purposes:
1. To approve or disapprove an Agreement and Plan of Reorganization and
Liquidation providing for (i) the sale of all of the assets of New
Europe Fund to, and the assumption of all of the liabilities of New
Europe Fund by, AllianceBernstein International Premier Growth Fund,
Inc. (which fund proposes to change its name to "AllianceBernstein
International Research Growth Fund, Inc." upon shareholder approval
of certain changes to its investment objective, and which fund will
be referred to herein as "International Research Growth Fund") in
exchange for shares of International Research Growth Fund, and (ii)
the distribution of such shares to the shareholders of New Europe
Fund in complete liquidation and dissolution of New Europe Fund.
2. To consider and act upon such other matters that properly come
before the meeting or any adjournment or postponement thereof.
Shareholders of record of each of All-Asia Fund and New Europe Fund at the
close of business on March 15, 2005 are entitled to notice of and to vote at the
meeting and any adjournment or postponement thereof.
By Order of the Board of Directors,
Mark R. Manley, Secretary
March 29, 2005
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE SEE THE ENCLOSED PROSPECTUS/ PROXY STATEMENT AND OTHER
MATERIALS FOR INSTRUCTIONS ON HOW TO VOTE EASILY AND QUICKLY.
-2-
Combined Prospectus/Proxy Statement
March 29, 2005
Acquisition of the Assets and Liabilities of
AllianceBernstein All-Asia Investment Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
1-800-221-5672
and
AllianceBernstein New Europe Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
1-800-221-5672
By and in Exchange for Shares of
AllianceBernstein International Premier Growth Fund, Inc.
(which fund proposes to change its name to AllianceBernstein
International Research Growth Fund, Inc., as discussed below)
1345 Avenue of the Americas
New York, New York 10105
1-800-221-5672
TABLE OF CONTENTS
Questions and Answers..........................................................4
Proposal 1 - Acquisition of AllianceBernstein All-Asia Investment
Fund, Inc. by AllianceBernstein International Research
Growth Fund, Inc.................................................15
The Proposal...............................................................15
Principal Investment Risks.................................................15
Information about the Acquisition..........................................15
Proposal 2 - Acquisition of AllianceBernstein New Europe Fund, Inc. by
AllianceBernstein International Research Growth Fund, Inc. ......21
The Proposal...............................................................21
Principal Investment Risks.................................................21
Information about the Acquisition..........................................21
General.......................................................................27
Voting Information.........................................................27
Appendix A - Agreement and Plan of Reorganization and Liquidation
Relating to the Acquisition of the AllianceBernstein
All-Asia Investment Fund, Inc. .................................A-1
Appendix B - Agreement and Plan of Reorganization and Liquidation
Relating to the Acquisition of the AllianceBernstein
New Europe Fund, Inc. ..........................................B-1
Appendix C - Capitalization..................................................C-1
Appendix D - Principal Investment Risks......................................D-1
Appendix E - Information Applicable to Class A, Class B, Class C and
Advisor Class Shares of AllianceBernstein International
Research Growth Fund, Inc. .....................................E-1
Appendix F - Financial Highlights for AllianceBernstein International
Research Growth Fund, Inc. .....................................F-1
Appendix G - Fund Information................................................G-1
1
This combined Prospectus/Proxy Statement (the "Prospectus/Proxy Statement")
contains information you should know before voting on (A) the Agreement and Plan
of Reorganization and Liquidation among AllianceBernstein All-Asia Investment
Fund, Inc. (the "All-Asia Fund") and AllianceBernstein International Premier
Growth Fund, Inc. (which fund proposes to change its name to "AllianceBernstein
International Research Growth Fund, Inc." upon shareholder approval of certain
changes to its investment objective, and which fund will be referred to herein
as "International Research Growth Fund" or "Acquiring Fund") relating to the
proposed acquisition of All-Asia Fund by International Research Growth Fund (the
"All-Asia Fund Agreement and Plan of Reorganization"); or (B) the Agreement and
Plan of Reorganization and Liquidation among AllianceBernstein New Europe Fund,
Inc. (the "New Europe Fund," and together with All-Asia Fund, each an "Acquired
Fund" and together, the "Acquired Funds") and International Research Growth Fund
(collectively with the Acquired Funds, each a "Fund" and together, the "Funds")
relating to the proposed acquisition of New Europe Fund by International
Research Growth Fund (the "New Europe Fund Agreement and Plan of
Reorganization," and together with the All-Asia Agreement and Plan of
Reorganization, each an "Agreement and Plan of Reorganization") at a Special
Meeting of Shareholders of each Acquired Fund (each a "Meeting"), which will be
held at 11:00 a.m. Eastern Time on May 17, 2005, at the offices of the Funds,
1345 Avenue of the Americas, New York, New York 10105. The transactions
contemplated by the Agreements and Plans of Reorganization are each referred to
as an "Acquisition," and together, the "Acquisitions." The Funds are each
registered open-end management investment companies. Alliance Capital Management
L.P. ("Alliance") serves as investment advisor to each Fund. Please read this
Prospectus/Proxy Statement and keep it for future reference.
Each Acquisition is contingent upon the approval by shareholders of
International Research Growth Fund of a change to International Research Growth
Fund's investment objective (the "Investment Objective Change"). International
Research Growth Fund will hold a special meeting of its shareholders on April
21, 2005, at which the International Research Growth Fund shareholders will be
asked to vote upon the Investment Objective Change and certain other changes to
International Research Growth Fund's fundamental investment policies (though
neither Acquisition is contingent upon shareholder approval of changes other
than the Investment Objective Change).
Proposal 1 in this Prospectus/Proxy Statement relates to the proposed
acquisition of All-Asia Fund by International Research Growth Fund. Proposal 2
in this Prospectus/Proxy Statement relates to the proposed acquisition of New
Europe Fund by International Research Growth Fund. If the Acquisition of your
Acquired Fund occurs, you will become a shareholder of International Research
Growth Fund. International Research Growth Fund seeks long-term growth of
capital. If the Agreement and Plan of Reorganization relating to your Acquired
Fund is approved by the shareholders of your Acquired Fund and the related
Acquisition occurs, your Acquired Fund will transfer all of its assets and
liabilities to International Research Growth Fund in exchange for shares of
International Research Growth Fund with the same aggregate net asset value as
the net value of the assets and liabilities transferred. After that exchange,
shares of each class received by your Acquired Fund will be distributed pro rata
to such Acquired Fund's shareholders of the corresponding class and the Acquired
Fund will be dissolved.
If you are a shareholder of All-Asia Fund, you are being asked to vote on
Proposal 1 in this Prospectus/Proxy Statement. Please review this Proposal
carefully.
If you are a shareholder of New Europe Fund, you are being asked to vote
on Proposal 2 in this Prospectus/Proxy Statement. Please review this Proposal
carefully.
The following document has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated into this Prospectus/Proxy Statement
by reference:
o The Statement of Additional Information of International Research
Growth Fund dated November 1, 2004, as revised March 24, 2005,
relating to this Prospectus/Proxy Statement.
2
For All-Asia Fund shareholders only, the following documents have also
been filed with the SEC and are also incorporated into this Prospectus/Proxy
Statement by reference:
o The Prospectus of All-Asia Fund dated March 1, 2005.
o The Report of Independent Registered Public Accounting Firm and the
financial statements included in the Annual Report to Shareholders
of All-Asia Fund dated October 31, 2004.
For New Europe Fund shareholders only, the following documents have also
been filed with the SEC and are also incorporated into this Prospectus/Proxy
Statement by reference:
o The Prospectus of New Europe Fund dated November 1, 2004.
o The Report of Independent Registered Public Accounting Firm and the
financial statements included in the Annual Report to Shareholders
of New Europe Fund dated July 31, 2004.
Each Acquired Fund has previously sent its Annual Report to its
shareholders. For a free copy of this report or any of the other documents
listed above, you may call 1-800-221-5672, or you may write to your Fund at the
address listed on the cover of this Prospectus/Proxy Statement. Text-only
versions of each Fund's documents can be viewed online or downloaded from the
EDGAR database on the SEC's Internet site at www.sec.gov. You can review and
copy information about the Funds by visiting the Public Reference Room, U.S.
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, DC
20549-0102 or the regional offices of the SEC located at 233 Broadway, New York,
NY 10279 and 175 W. Jackson Boulevard, Suite 900, Chicago, IL 60604. You can
obtain copies, upon payment of a duplicating fee, by sending an e-mail request
to publicinfo@sec.gov or by writing the Public Reference Room at its Washington,
DC address above. Information on the operation of the Public Reference Room may
be obtained by calling 202-942-8090.
The SEC has not approved or disapproved these securities or determined if
this Prospectus/Proxy Statement is truthful or complete. Any representation to
the contrary is a criminal offense.
An investment in the Funds is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
3
QUESTIONS AND ANSWERS
The following questions and answers provide an overview of key features of the
Acquisitions and of the information contained in this Prospectus/Proxy
Statement. Please review the full Prospectus/Proxy Statement prior to casting
your vote.
1. What is being proposed?
The Directors of All-Asia Fund are recommending in Proposal 1 that International
Research Growth Fund acquire all of the assets and liabilities of All-Asia Fund
in exchange for shares of International Research Growth Fund. The Directors of
New Europe Fund are recommending in Proposal 2 that International Research
Growth Fund acquire all of the assets and liabilities of New Europe Fund in
exchange for shares of International Research Growth Fund. If the Acquisitions
are approved and consummated, shareholders of each Acquired Fund will receive
shares of International Research Growth Fund with an aggregate net asset value
equal to the aggregate net asset value of their Acquired Fund shares as of the
business day before the closing of the Acquisition, and each Acquired Fund will
then take all actions necessary to complete its dissolution. The Acquisition of
All-Asia Fund is currently scheduled to take place on or around June 17, 2005,
or on such other date as the parties may agree, subject to receipt of
shareholder approval. The Acquisition of New Europe Fund is currently scheduled
to take place on or about June 24, 2005 or on such other date as the parties may
agree, subject to receipt of shareholder approval.
Please note that the closing of each Acquisition is not conditioned on the
closing of the other Acquisition proposed in this Prospectus/Proxy Statement.
Accordingly, in the event that the shareholders of one of the Acquired Funds
approve their Fund's Acquisition, it is expected that the approved Acquisition
will take place as described, subject to the terms of that Fund's Agreement and
Plan of Reorganization, even if the shareholders of the other Acquired Fund have
not approved their Fund's Acquisition. The closing of each Acquisition is,
however, contingent upon the approval by shareholders of the Investment
Objective Change. International Research Growth Fund will hold a special meeting
of its shareholders on April 21, 2005, at which the International Research
Growth Fund shareholders will be asked to vote upon the Investment Objective
Change and certain other changes to International Research Growth Fund's
fundamental investment policies (though neither Acquisition is contingent upon
shareholder approval of changes other than the Investment Objective Change).
2. Why are the Acquisitions being proposed?
The Directors of the Acquired Funds recommend approval of the Acquisitions
because they offer shareholders of the Acquired Funds the opportunity to invest
in a broadly diversified international fund, which Alliance believes may bear
less risk and afford greater opportunities for long-term capital growth than an
investment in a fund that invests in a single geographic region. The
Acquisitions will also allow shareholders access to several non-U.S. markets
through a single diversified fund, which may be less expensive than investing in
several regional funds. Finally, because each of the Funds is relatively small,
fixed costs such as audit and legal fees impact the investment performance of
the Funds more than they would a larger fund. If the proposed acquisition is
approved, these fixed costs will be spread over a larger asset base.
Please review "Reasons for the Acquisition" in the Proposal sections of this
Prospectus/Proxy Statement for more information regarding the factors considered
by the Directors in reaching their decision to approve and recommend the
Acquisitions.
Shareholders of each Acquired Fund should note that the investment objective and
strategies of each Acquired Fund differ significantly from the proposed
investment objective and strategies of International Research Growth Fund. For
example, while All-Asia Fund invests the majority of its net assets in the
securities of Asian companies and New Europe Fund invests the majority of its
net assets in the securities of European companies, International Research
Growth Fund would not have a policy of investing the majority of its net assets
in any one region. Question 4 below provides more information comparing the
investment objectives and strategies of the Funds.
4
3. How do the management fees and expenses of the Funds compare and what are
they estimated to be following the Acquisitions?
The following tables allow you to compare the sales charges, management fees and
expenses of each Fund and estimated expenses for the combined fund in its first
year following the Acquisitions. Sales charges, if applicable, are paid directly
by shareholders to AllianceBernstein Investment Research and Management, Inc.
("ABIRM"), each Fund's principal underwriter. Annual Fund Operating Expenses are
paid by each Fund. They include management fees, 12b-1 fees (if applicable) and
administrative costs, including pricing and custody services.
The Annual Fund Operating Expenses shown in the tables below represent expenses
for each Fund's most recent fiscal year (ended July 31, 2004 for New Europe Fund
and International Research Growth Fund and October 31, 2004 for All-Asia Fund)
and those projected for the combined fund, assuming that both mergers were
completed as of August 1, 2003 and that expenses were calculated as of the 12
months ended July 31, 2004.
In addition, following the presentation of that information, Annual Fund
Operating Expenses and Example Expenses are presented on a pro forma combined
basis for each case in which International Research Growth Fund acquires one but
not both of the Acquired Funds, assuming that such acquisition was completed as
of August 1, 2003 and that expenses were calculated as of the 12 months ended
July 31, 2004.
Shareholders of each Acquired Fund will not pay additional sales charges as a
result of the Acquisition, although contingent deferred sales charges ("CDSCs")
will continue to apply as though the shareholders continued to hold shares of
the Acquired Fund.
Alliance intends to contractually cap the total expense ratio of International
Research Growth Fund at 1.65% upon approval by that fund's shareholders of the
Investment Objective Change. This total expense ratio cap would also apply to
the combined fund, resulting in a total expense ratio that is lower than the
current expense ratios of All-Asia Fund, New Europe Fund or International
Research Growth Fund (as shown below, All-Asia Fund's expense ratio is currently
capped at 3.00%, New Europe Fund's expense ratio is currently capped at 2.02%
and IPG's expense ratio is 2.23% and not currently subject to any cap). This
expense cap would be in effect for an initial period of one year from approval
of the Investment Objective Change; Alliance would reconsider the expense cap
after this initial period, and it may not continue after that time.
Shareholder Fees
(fees paid directly from your investment)
All-Asia Fund
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Advisor
Class A Class B Class C Class
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Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.25%(a) None None None
- -----------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or redemption
price, whichever is lower) None 4.00(a)* 1.00(a)** None
- -----------------------------------------------------------------------------------------------------
Exchange Fee None None None None
New Europe Fund
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Advisor
Class A Class B Class C Class
- ------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.25%(a) None None None
- ------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or redemption
price, whichever is lower) None 4.00(a)* 1.00(a)** None
- ------------------------------------------------------------------------------------------------------
Exchange Fee None None None None
5
International Research Growth Fund
----------------------------------
Advisor
Class A Class B Class C Class
- ------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.25%(a) None None None
- ------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or redemption
price, whichever is lower) None 4.00(a)* 1.00(a)** None
- ------------------------------------------------------------------------------------------------------
Exchange Fee None None None None
International Research Growth Fund (pro forma combined)
-------------------------------------------------------
Advisor
Class A Class B Class C Class
- ------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.25%(a) None None None
- ------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or redemption
price, whichever is lower) None 4.00(a)* 1.00(a)** None
- ------------------------------------------------------------------------------------------------------
Exchange Fee None None None None
- ------------
(a) Class A sales charges may be reduced or eliminated in certain
circumstances, typically for large purchases and for certain group
retirement plans. In some cases, however, a 1%, 1-year contingent deferred
sales charge, or CDSC, may apply. CDSCs for Class A, B and C shares may
also be subject to waiver in certain circumstances.
* Class B Shares automatically convert to Class A Shares after eight years.
The CDSC decreases over time. For Class B Shares, the CDSC decreases 1.00%
annually to 0% after the 4th year.
** For Class C Shares, the CDSC is 0% after the first year.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
All-Asia Fund
-------------
Advisor
Class A Class B Class C Class
Management fees 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------
Distribution and/or service (12b-1) fees 0.30% 1.00% 1.00% None
- ------------------------------------------------------------------------------------------------------
Other expenses 2.67% 2.67% 2.67% 2.67%
- ------------------------------------------------------------------------------------------------------
Total fund operating expenses(a) (b) 3.72% 4.42% 4.42% 3.42%
- ------------------------------------------------------------------------------------------------------
Waiver and/or expense reimbursement(c) (0.72)% (0.72)% (0.72)% (0.72)%
- ------------------------------------------------------------------------------------------------------
Net expenses 3.00% 3.70% 3.70% 2.70%
New Europe Fund
---------------
Advisor
Class A Class B Class C Class
Management fees 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------
Distribution and/or service (12b-1) fees 0.30% 1.00% 1.00% None
- ------------------------------------------------------------------------------------------------------
Other expenses 1.06% 1.06% 1.06% 1.06%
- ------------------------------------------------------------------------------------------------------
Total fund operating expenses(a) 2.11% 2.81% 2.81% 1.81%
- ------------------------------------------------------------------------------------------------------
Waiver and/or expense reimbursement(c) (.09)% (.09)% (.09)% (.09)%
- ------------------------------------------------------------------------------------------------------
Net expenses 2.02% 2.72% 2.72% 1.72%
6
International Research Growth Fund
----------------------------------
Advisor
Class A Class B Class C Class
Management fees 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------
Distribution and/or service (12b-1) fees 0.30% 1.00% 1.00% None
- ------------------------------------------------------------------------------------------------------
Other expenses 1.18% 1.18% 1.18% 1.18%
- ------------------------------------------------------------------------------------------------------
Total fund operating expenses(a) 2.23% 2.93% 2.93% 1.93%
International Research Growth Fund
(pro forma combined)
--------------------
Advisor
Class A Class B Class C Class
Management fees 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------
Distribution and/or service (12b-1) fees 0.30% 1.00% 1.00% None
- ------------------------------------------------------------------------------------------------------
Other expenses 0.93% 0.93% 0.93% 0.93%
- ------------------------------------------------------------------------------------------------------
Total fund operating expenses(a) 1.98% 2.68% 2.68% 1.68%
- ------------------------------------------------------------------------------------------------------
Waiver and/or expense reimbursement(c) (0.33)% (0.33)% (0.33)% (0.33)%
- ------------------------------------------------------------------------------------------------------
Net expenses 1.65% 2.35% 2.35% 1.35%
- ----------
(a) Reflects a reduction in advisory fees effective September 7, 2004.
(b) Reflects a reduction in transfer agency fees effective August 1, 2004.
(c) Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. This
waiver extends through the Fund's current fiscal year and may be extended
by Alliance for additional one-year terms.
(d) Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. As
described above, this waiver and reimbursement will be implemented upon
shareholder approval of the Fund's Investment Objective Change and will
cap the Fund's total expense ratio at 1.65%. This expense cap would be in
effect for an initial period of one year from approval of the Investment
Objective Change; Alliance would reconsider the expense cap after this
initial period, and it may not continue after that time.
The number of Acquisitions that occur will affect the total Annual Fund
Operating Expenses of International Research Growth Fund on a pro forma combined
basis after the Acquisitions. The tables below present the pro forma combined
Total Annual Fund Operating Expenses assuming in each case that only one, but
not both, of the Acquisitions is consummated.
If only the Acquisition of All-Asia Fund were to occur, the total Annual Fund
Operating Expenses of International Research Growth Fund on a pro forma combined
basis would be as follows:
International Research Growth Fund
(pro forma combined)
Advisor
Class A Class B Class C Class
Management fees(a) 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------
Distribution and/or service (12b-1) fees 0.30% 1.00% 1.00% None
- ------------------------------------------------------------------------------------------------------
Other expenses 1.12% 1.12% 1.12% 1.12%
- ------------------------------------------------------------------------------------------------------
Total fund operating expenses 2.17% 2.87% 2.87% 1.87%
- ------------------------------------------------------------------------------------------------------
Waiver and/or expense reimbursement(b) (0.52)% (0.52)% (0.52)% (0.52)%
- ------------------------------------------------------------------------------------------------------
Net expenses 1.65% 2.35% 2.35% 1.35%
- ----------
(a) Reflects a reduction in advisory fees effective September 7, 2004.
(b) Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. As
described above, this waiver and reimbursement will be implemented upon
shareholder approval of the Fund's Investment Objective Change and will
cap the Fund's total expense ratio at 1.65%. This expense cap would be in
effect for an initial period of one year from approval of the Investment
Objective Change; Alliance would reconsider the expense cap after this
initial period, and it may not continue after that time.
7
If only the Acquisition of New Europe Fund were to occur, the total Annual Fund
Operating Expenses of International Research Growth Fund on a pro forma combined
basis would be as follows:
International Research Growth Fund
(pro forma combined)
--------------------
Advisor
Class A Class B Class C Class
Management fees(a) 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------
Distribution and/or service (12b-1) fees 0.30% 1.00% 1.00% None
- ------------------------------------------------------------------------------------------------------
Other expenses 0.93% 0.93% 0.93% 0.93%
- ------------------------------------------------------------------------------------------------------
Total fund operating expenses 1.98% 2.68% 2.68% 1.68%
- ------------------------------------------------------------------------------------------------------
Waiver and/or expense reimbursement(b) (0.33)% (0.33)% (0.33)% (0.33)%
- ------------------------------------------------------------------------------------------------------
Net expenses 1.65% 2.35% 2.35% 1.35%
- ----------
(a) Reflects a reduction in advisory fees effective September 7, 2004.
(b) Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. As
described above, this waiver and reimbursement will be implemented upon
shareholder approval of the Fund's Investment Objective Change and will
cap the Fund's total expense ratio at 1.65%. This expense cap would be in
effect for an initial period of one year from approval of the Investment
Objective Change; Alliance would reconsider the expense cap after this
initial period, and it may not continue after that time.
Examples
The Examples are to help you compare the cost of investing in each Fund with the
cost of investing in the combined fund on a pro forma combined basis. They
assume that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. They also assume
that your investment has a 5% return each year, that the Fund's operating
expenses stay the same and that all dividends and distributions are reinvested.
Although your actual costs may be higher or lower, based on these assumptions
your costs as reflected in the Examples would be:
Advisor
Class A Class B+ Class B++ Class C+ Class C++ Class
All-Asia Fund
After 1 Yr. $715 $772 $372 $472 $372 $273
- -----------------------------------------------------------------------------------------------------------------------
After 3 Yrs. $1,451 $1,473 $1,273 $1,273 $1,273 $984
- -----------------------------------------------------------------------------------------------------------------------
After 5 Yrs. $2,206 $2,184 $2,184 $2,184 $2,184 $1,717
- -----------------------------------------------------------------------------------------------------------------------
After 10 Yrs. $4,179 $4,366(a) $4,366(a) $4,509 $4,509 $3,655
New Europe Fund
After 1 Yr. $621 $675 $275 $375 $275 $175
- -----------------------------------------------------------------------------------------------------------------------
After 3 Yrs. $1,050 $1,063 $863 $863 $863 $561
- -----------------------------------------------------------------------------------------------------------------------
After 5 Yrs. $1,503 $1,476 $1,476 $1,476 $1,476 $972
- -----------------------------------------------------------------------------------------------------------------------
After 10 Yrs. $2,756 $2,965(a) $2,965(a) $3,131 $3,131 $2,119
- -----------------------------------------------------------------------------------------------------------------------
International Research
Growth Fund
After 1 Yr. $641 $696 $296 $396 $296 $196
- -----------------------------------------------------------------------------------------------------------------------
After 3 Yrs. $1,093 $1,107 $907 $907 $907 $606
- -----------------------------------------------------------------------------------------------------------------------
After 5 Yrs. $1,569 $1,543 $1,543 $1,543 $1,543 $1,042
- -----------------------------------------------------------------------------------------------------------------------
After 10 Yrs. $2,881 $3,087(a) $3,087(a) $3,252 $3,252 $2,254
- -----------------------------------------------------------------------------------------------------------------------
8
International Research
Growth Fund (pro forma
combined) (both
Acquisitions)
After 1 Yr. $586 $638 $238 $338 $238 $137
- -----------------------------------------------------------------------------------------------------------------------
After 3 Yrs. $989 $1,001 $801 $801 $801 $497
- -----------------------------------------------------------------------------------------------------------------------
After 5 Yrs. $1,418 $1,391 $1,391 $1,391 $1,391 $882
- -----------------------------------------------------------------------------------------------------------------------
After 10 Yrs. $2,608 $2,819(a) $2,819(a) $2,988 $2,988 $1,959
- -----------------------------------------------------------------------------------------------------------------------
- ----------
+ Assumes redemption at the end of period.
++ Assumes no redemption at the end of period.
(a) Assumes Class B shares convert to Class A shares after eight years.
The pro forma combined Examples detailed above assume that both Acquisitions
occur. The tables below present the pro forma combined Examples assuming in each
case that only one of the Acquired Funds approved the Acquisition.
If only the Acquisition of All-Asia Fund were to occur, the Examples of
International Research Growth Fund on a pro forma combined basis would be as
follows:
Advisor
Class A Class B+ Class B++ Class C+ Class C++ Class
International Research
Growth Fund (pro
forma combined)
After 1 Yr. $586 $638 $238 $338 $238 $137
- -----------------------------------------------------------------------------------------------------------------------
After 3 Yrs. $1,027 $1,040 $840 $840 $840 $537
- -----------------------------------------------------------------------------------------------------------------------
After 5 Yrs. $1,494 $1,468 $1,468 $1,468 $1,468 $963
- -----------------------------------------------------------------------------------------------------------------------
After 10 Yrs. $2,783 $2,991(a) $2,991(a) $3,158 $3,158 $2,148
- -----------------------------------------------------------------------------------------------------------------------
- ----------
+ Assumes redemption at the end of period.
++ Assumes no redemption at the end of period.
(a) Assumes Class B shares convert to Class A shares after eight years.
If only the Acquisition of New Europe Fund were to occur, the Examples of
International Research Growth Fund on a pro forma combined basis would be as
follows:
Advisor
Class A Class B+ Class B++ Class C+ Class C++ Class
International Research
Growth Fund (pro
forma combined)
After 1 Yr. $586 $638 $238 $338 $238 $137
- -----------------------------------------------------------------------------------------------------------------------
After 3 Yrs. $989 $1,001 $801 $801 $801 $497
- -----------------------------------------------------------------------------------------------------------------------
After 5 Yrs. $1,418 $1,391 $1,391 $1,391 $1,391 $882
- -----------------------------------------------------------------------------------------------------------------------
After 10 Yrs. $2,608 $2,819(a) $2,819(a) $2,988 $2,988 $1,959
- -----------------------------------------------------------------------------------------------------------------------
- ----------
+ Assumes redemption at the end of period.
++ Assumes no redemption at the end of period.
(a) Assumes Class B shares convert to Class A shares after eight years.
The projected post-Acquisition pro forma Annual Fund Operating Expenses and
Examples presented above are based upon numerous material assumptions, including
that (1) the current contractual agreements will remain in place and (2) certain
fixed costs involved in operating the Acquired Funds are eliminated. Although
these projections represent good faith estimates, there can be no assurance that
any particular level of expenses or expense savings will be achieved, because
expenses depend on a variety of factors, including the future level of fund
assets, many of which are beyond the control of International Research Growth
Fund or Alliance.
9
4. How do the investment goals, strategies and policies of the Funds compare?
All-Asia Fund's investment objective is long-term capital appreciation. All-Asia
Fund seeks to achieve this objective by investing at least 65% of its total
assets in equity securities, preferred stocks and equity-linked debt securities
issued by Asian companies, and may invest more than 50% of its total assets in
equity securities of Japanese issuers. All-Asia Fund may also invest up to 35%
of its total assets in debt securities issued or guaranteed by Asian companies
or by Asian governments, their agencies or instrumentalities, and may invest up
to 25% of its net assets in convertible securities. Under normal circumstances,
the Fund will invest at least 80% of its net assets in such equity and debt
securities.
New Europe Fund's investment objective is long-term capital appreciation through
investments primarily in the equity securities of companies based in Europe. New
Europe Fund seeks to achieve this objective under normal circumstances by
investing at least 80%, and normally substantially all, of its net assets in
such securities. While New Europe Fund normally invests in companies based in at
least three European countries, it may invest 25% or more of its assets in the
securities of companies in a single country. New Europe Fund may also invest up
to 20% of its net assets in high-quality, U.S. dollar or foreign currency
denominated fixed-income securities issued or guaranteed by European
governmental entities, European or multinational companies, or supranational
organizations.
International Research Growth Fund's investment objective is currently long-term
growth of capital by investing predominantly in equity securities of a limited
number of carefully selected international companies that are judged likely to
achieve superior earnings growth. Current income is incidental to the Fund's
objective. However, International Research Growth Fund's Board of Directors has
asked the Fund's shareholders to approve changing International Research Growth
Fund's investment objective to "long-term growth of capital." The Board believes
that this change will give International Research Growth Fund greater ability to
diversify its investments and pursue long-term growth opportunities in a wider
range of investments. As discussed above, the approval of this Investment
Objective Change by International Research Growth Fund's shareholders is a
condition to each of the Acquisitions.
International Research Growth Fund's Board of Directors has also approved the
following changes to the Fund's non-fundamental investment policies, effective
upon approval of the Investment Objective Change: (i) altering International
Research Growth Fund's policy regarding investments in foreign countries to
provide that the Fund will invest, under normal circumstances, in the equity
securities of companies based in at least three foreign countries; (ii)
eliminating the Fund's policy to invest in companies with market values
generally in excess of $10 billion; (iii) eliminating the Fund's policy to
invest in about 45-60 companies; (iv) eliminating the Fund's policy to only make
loans of portfolio securities of up to 30% of its total assets; (v) amending the
Fund's policy on options, futures contracts and forward contracts to read "the
Fund may purchase and sell options and enter into futures contracts, forward
contracts and other derivatives"; and (vi) adopting a policy regarding investing
in other investment companies, including exchange traded funds.
International Research Growth Fund shareholders are also being asked to (i)
reclassify that Fund's investment objective as non-fundamental and (ii) change
or eliminate a number of the Fund's fundamental investment policies that, in the
view of the Adviser and International Research Growth Fund's Board of Directors,
are either outdated, unnecessarily restrictive or were adopted in response to
business or industry requirements that no longer apply. The following table
shows these investment policies in their current form, along with the changes
proposed thereto. Unlike the Investment Objective Change discussed above, the
Acquisitions are not contingent on the approval of any of these changes.
---------------------------------------------------------------------------------------------------------
Current Policy Proposed New Policy
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
The Fund may not borrow money or issue senior The Fund may not issue any senior security (as
securities, except that the Fund may borrow (a) from that term is defined in the 1940 Act) or borrow
a bank if immediately after such borrowing there is money, except to the extent permitted by the 1940
asset coverage of at least 300% as defined in the Act or the rules and regulations thereunder (as
1940 Act and (b) for temporary purposes in an amount such statute, rules or regulations may be amended
not exceeding 5% of the value of the from time to time) or by guidance regarding, or
---------------------------------------------------------------------------------------------------------
10
---------------------------------------------------------------------------------------------------------
total assets of the Fund. interpretations of, or exemptive orders under,
the 1940 Act or the rules or regulations
thereunder published by appropriate regulatory
authorities.
For the purposes of this restriction, collateral
arrangements, including, for example, with
respect to options, futures contracts and options
on futures contracts and collateral arrangements
with respect to initial and variation margin, are
not deemed to be the issuance of a senior
security.
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
The Fund may not issue any senior security within Eliminate.
the meaning of the 1940 Act.
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
[T]he Fund may not purchase or sell commodities or The Fund may not purchase or sell commodities
commodity contracts, including futures contracts regulated by the Commodity Futures Trading
(except foreign currencies, foreign currency options Commission under the Commodity Exchange Act or
and futures, options and futures on securities and commodity contracts except for futures contracts
securities indices and forward contracts or and options on futures contracts.
contracts for the future acquisition or delivery of
securities and foreign currencies and related
options on futures contracts and similar contracts).
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
[I]nvest under normal circumstances at least 85% Eliminate.
of its total assets in equity securities.
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
The Fund may not purchase or sell real estate, The Fund may not purchase or sell real estate
except that it may purchase and sell securities of except that it may dispose of real estate
companies that deal in real estate or interests held acquired as a result of the ownership of
therein. securities or other instruments. This
restriction does not prohibit the Fund from
investing in securities or other instruments
backed by real estate or in securities of
companies engaged in the real estate business.
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
The Fund may not participate on a joint or joint and Eliminate.
several basis in any securities trading account.
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
The Fund may not make short sales of securities or Eliminate.
maintain a short position, unless not more than 25%
of the Fund's net assets (taken at market value) are
held as collateral for such sales at any one time.
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
The Fund may not invest in companies for the purpose Eliminate.
of exercising control.
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
The Fund may not purchase securities on margin Eliminate. The Board has instead adopted the
except for such short-term credits as may be following non-fundamental policy:
necessary for the clearance of transactions.
"The Fund may not purchase securities on margin,
except that the Fund may obtain such short-term
credits as are necessary for the clearance of
portfolio transactions, and the Fund may make
margin payments in connection with futures
contracts, options, forward contracts, swaps,
caps,
---------------------------------------------------------------------------------------------------------
11
---------------------------------------------------------------------------------------------------------
floors, collars and other financial instruments.
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
The Fund may not pledge, hypothecate, mortgage or Eliminate.
otherwise encumber its assets, except to secure
permitted borrowings.
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
The Fund may not invest 25% or more of its total The Fund may not concentrate investments in an
assets in securities of issuers conducting their industry, as concentration may be defined under
principal business activities in the same industry, the 1940 Act or the rules and regulations
except that this restriction does not apply to U.S. thereunder (as such statute, rules or regulations
Government securities. may be amended from time to time) or by guidance
regarding, interpretations of, or exemptive
orders under, the 1940 Act or the rules or
regulations thereunder published by appropriate
regulatory authorities.
---------------------------------------------------------------------------------------------------------
The following highlights the differences in certain investment strategies that
the Funds use to achieve their investment goals:
o New Europe Fund invests at least 80% of its net assets specifically
in the equity securities of companies based in Europe. All-Asia Fund
normally invests at least 65% of its total assets in equity
securities, preferred stocks, and equity-linked debt securities
issued by Asian companies. International Research Growth Fund has no
corresponding geographic restriction.
o All-Asia Fund may invest more heavily in debt securities than the
other two funds, although All-Asia Fund has not invested a material
portion of its assets in debt securities.
o All-Asia Fund and New Europe Fund may not borrow money unless such
borrowing is for temporary or emergency purposes and does not exceed
15% of the value of each Fund's total assets. Though International
Research Growth Fund also prohibits borrowing except to the extent
permitted by the Investment Company Act of 1940, as amended (the
"1940 Act"), International Research Growth Fund is not bound by a
specific percentage limitation on its borrowing ability.
o While each Fund can make loans through the purchase of debt
obligations and the lending of portfolio securities, All-Asia Fund
and International Research Growth Fund can also make loans through
the use of repurchase agreements.
o All-Asia Fund may make short sales of securities only if no more
than 25% of its net assets are held as collateral for such sales,
and New Europe Fund may make short sales of securities only if no
more than 10% of its net assets are held as collateral for such
sales. International Research Growth Fund's shareholders have been
asked to eliminate International Research Growth Fund's policy on
short sales.
o As a fundamental policy, All-Asia Fund prohibits the purchase of
puts, calls, straddles or spreads if the value of the Fund's
aggregate investment in such securities would exceed 5% of the
Fund's total assets, while New Europe Fund prohibits the buying or
writing of put or call options other than foreign currency options
and warrants. International Research Growth Fund is not subject to
these fundamental investment restrictions.
o As a fundamental policy, All-Asia Fund may not purchase the
securities of any company that has a record of less than three years
of continuous operation if such purchase would cause more than 5% of
the Fund's total assets to be in the securities of such company. As
a fundamental policy, New Europe Fund may not purchase a security
(unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange) if, as a result, the Fund
would own any securities of an open-end investment company or more
than 3% of the total outstanding voting stock of any closed-end
investment company, or more than 5% of the value of the Fund's total
assets would be invested in securities of any closed-end investment
company,
12
or more than 10% of such value in closed-end investment companies in
general. International Research Growth Fund is not subject to such
fundamental investment restrictions.
o New Europe Fund may not purchase more than 10% of the outstanding
voting securities of any one issuer; All-Asia Fund and International
Research Growth Fund are not subject to this restriction.
o All-Asia Fund may not participate on a joint or joint and several
basis in any securities trading account. New Europe Fund is not
subject to this restriction. International Research Growth Fund is
currently subject to this restriction, but International Research
Growth Fund's shareholders have been asked to eliminate it.
Except as noted above, the Funds are subject to similar investment policies. For
a complete list of each Fund's investment policies and restrictions, see each
Fund's Statement of Additional Information.
5. What class of International Research Growth Fund shares will you receive
if the Acquisition relating to your Acquired Fund occurs?
Shareholders of each Acquired Fund will receive the same class of shares of the
International Research Growth Fund as the shares they currently own.
6. What are the federal income tax consequences of the Acquisition?
Each Acquisition is expected to be tax-free to you for federal income tax
purposes. This means that neither you nor your Acquired Fund is expected to
recognize a gain or loss as a direct result of the Acquisitions. However, since
the Acquisitions will end the tax years of the Acquired Funds, and to the extent
each Acquired Fund disposes of portfolio securities prior to the effective date
of the Acquisitions, the Acquisitions may accelerate distributions from your
Acquired Fund to you as a shareholder. Specifically, each Acquired Fund will
recognize any net investment company taxable income and any net realized capital
gains (after reduction by any available capital loss carryforwards) or losses in
the short tax year ending on the date of the Acquisitions, and will declare and
pay a distribution of such income and such gains to its shareholders on or
before that date.
The cost basis and holding period of your All-Asia Fund or New Europe Fund
shares are expected to carry over to your new shares in International Research
Growth Fund. The Funds expect that applicable rules may result in the loss of a
significant portion of each Fund's capital loss carryforwards and the spreading
of such losses as remain (including the capital loss carryforwards of
International Research Growth Fund as so limited) over a larger asset base.
More detailed information, including certain other tax consequences are
discussed below under "Federal Income Tax Consequences."
7. Who bears the expenses associated with the Acquisitions?
Alliance will bear most costs of the Acquisitions, including, but not limited
to: (1) the expenses associated with the preparation, printing and mailing of
shareholder communications, including this Prospectus/Proxy Statement, and
filings with the SEC and other governmental authorities in connection with the
Acquisitions; (2) the fees and expenses of any proxy solicitation firm retained
in connection with the Acquisitions; (3) the legal fees and expenses incurred by
the Funds in connection with the Acquisitions; and (4) the Director's fees and
other expenses incurred as a result of the Acquisitions. All-Asia Fund and New
Europe Fund will bear the costs of any sales or purchases of portfolio
securities in connection with the Acquisitions. International Research Growth
Fund will bear the expenses of investing the cash acquired in connection with
the Acquisitions.
8. Who is eligible to vote?
Shareholders of record at the close of business on March 15, 2005 are entitled
to attend and vote at the Meeting or any adjournment or postponement of the
Meeting. On each proposal, all shareholders of an Acquired Fund, regardless of
the class of shares held, will vote together as a single class. Each share is
entitled to one vote. Shares
13
represented by properly executed proxies, unless revoked before or at the
Meeting (see "General; Voting Information" in this combined prospectus/proxy
statement for more information about your rights to revoke your proxy), will be
voted according to shareholders' instructions. If you sign and return a proxy
but do not fill in a vote, your shares will be voted to approve the Acquisition.
If any other business properly comes before the Meeting, your shares will be
voted at the discretion of the persons named as proxies.
[Remainder of this page intentionally left blank.]
14
PROPOSAL 1 - ACQUISITION OF ALLIANCEBERNSTEIN ALL-ASIA INVESTMENT FUND, INC.
BY ALLIANCEBERNSTEIN INTERNATIONAL RESEARCH GROWTH FUND, INC.
The Proposal
Shareholders of All-Asia Fund are being asked to approve the Agreement and
Plan of Reorganization and the transactions contemplated thereby. A form of the
Agreement and Plan of Reorganization is attached as Appendix A to this
Prospectus/Proxy Statement. By approving the Agreement and Plan of
Reorganization, shareholders are approving the acquisition of the assets and
liabilities of All-Asia Fund by International Research Growth Fund and the
subsequent dissolution of All-Asia Fund.
Principal Investment Risks
What are the principal investment risks of International Research Growth
Fund, and how do they compare with those of All-Asia Fund?
Both Funds are subject to management risk, market risk, foreign risk and
currency risk. International Research Growth Fund is subject to focused
portfolio risk, though the effects of that risk will likely be mitigated if
International Research Growth Fund's shareholders approve the Investment
Objective Change described above. Additionally, if International Research Growth
Fund's shareholders approve the Investment Objective Change, International
Research Growth Fund is expected to be subject to a greater degree of: (i)
industry/sector risk, which is the risk of investments in a particular industry
or industry sector, (ii) capitalization risk, which is the risk of investments
in small- to mid-capitalization companies and (iii) allocation risk, which is
the risk that the allocation of the Fund's investments among industry sectors
may have a more significant effect on the Fund's net asset value when one of
these sectors performs more poorly than the others. Conversely, because
International Research Growth Fund invests primarily in equity securities, it
may be less susceptible to interest rate and credit risk than All-Asia Fund.
Also, because International Research Growth Fund does not normally invest
primarily in one geographic region, it may be less susceptible to country or
geographic risk than All-Asia Fund. For more information about the principal
investment risks and other investment risks of International Research Growth
Fund, please see Appendix D. The actual risks of investing in each Fund depend
on the securities held in each Fund's portfolio and on market conditions, both
of which change over time.
Shareholders of All-Asia Fund should note that while the investment
objective of both Funds is long-term capital appreciation, there will be some
differences in the investment style of the combined fund. Please see the answer
to question 4 above under "Questions and Answers" for more information comparing
the investment objectives and strategies of the Funds.
Information about the Acquisition
Terms of the Agreement and Plan of Reorganization
If approved by the shareholders of All-Asia Fund, the Acquisition is
expected to occur on or around June 17, 2005, or on such other date as the
parties may agree, under the Agreement and Plan of Reorganization, subject to
satisfaction of the conditions in the Agreement and Plan of Reorganization,
including approval by International Research Growth Fund shareholders of the
Investment Objective Change. The following is a brief summary of the principal
terms of the Agreement and Plan of Reorganization. Please review Appendix A for
more information regarding the Agreement and Plan of Reorganization.
o All-Asia Fund will transfer all of its assets and liabilities to
International Research Growth Fund in exchange for shares of
International Research Growth Fund with an aggregate net asset value
equal to the net value of the transferred assets and liabilities.
o The Acquisition will close on the next business day after the time
(currently scheduled to be 4:00 p.m. Eastern Time on June 16, 2005,
or such other date and time as the parties may determine) when the
net assets of each Fund are valued for purposes of the Acquisition.
15
o The Class A, Class B, Class C and Advisor Class shares of
International Research Growth Fund received by All-Asia Fund will be
distributed to the Class A, Class B, Class C and Advisor Class
shareholders of All-Asia Fund, respectively, pro rata in accordance
with their percentage ownership of All-Asia Fund in full liquidation
of All-Asia Fund.
o After the foregoing distribution, All-Asia Fund will be dissolved,
and its affairs will be wound up in an orderly fashion.
o The Acquisition requires approval by All-Asia Fund's shareholders
and satisfaction of a number of other conditions (including the
approval by International Research Growth Fund's shareholders of the
Investment Objective Change, as described above); the Acquisition
may be terminated at any time with the approval of the Directors of
the Fund.
Shareholders who object to the Acquisition will not be entitled under
Maryland law or the charter of the Fund to demand payment for, or an appraisal
of, their shares. However, shareholders should be aware that the Acquisition as
proposed is not expected to result in recognition of gain or loss to
shareholders for federal income tax purposes and that, if the Acquisition is
consummated, shareholders will be free to redeem the shares which they receive
in the transaction at their current net asset value, less any applicable sales
charge. In addition, shares may be redeemed at any time prior to the
consummation of the Acquisition.
Shares You Will Receive
If the Acquisition occurs, shareholders of All-Asia Fund will receive
shares in International Research Growth Fund of the same class as the shares
they currently own in All-Asia Fund. In comparison to your All-Asia Fund shares,
shares of International Research Growth Fund issued in connection with the
Acquisition will have the following characteristics:
o They will have an aggregate net asset value equal to the aggregate
net asset value of your All-Asia Fund shares as of the business day
before the closing of the Acquisition.
o They will bear the same sales charges, redemption fees, and CDSCs,
if any, as your current shares to the extent such charges and fees
apply, and for purposes of determining the CDSC applicable to any
redemption and/or conversion of Class B shares to Class A shares, if
applicable, the new shares will continue to age from the date you
purchased your All-Asia Fund shares.
o The procedures for purchasing and redeeming your shares will not
change as a result of the Acquisition.
o Shareholders will have the same voting rights and exchange options
as they currently have, but as shareholders of the International
Research Growth Fund.
Information concerning the capitalization of each of the Funds is provided
in Appendix C.
Reasons for the Acquisition
The Directors of the All-Asia Fund (who are also the directors of New
Europe Fund and International Research Growth Fund), including all Directors who
are not "interested persons" of the Fund, Alliance or its affiliates, have
determined that the Acquisition would be in the best interests of All-Asia
Fund's shareholders and that the interests of existing shareholders in All-Asia
Fund would not be diluted as a result of the Acquisition. The Directors have
unanimously approved the Agreement and Plan of Reorganization and the
Acquisition and recommended that Fund shareholders vote to approve the Agreement
and Plan of Reorganization and the Acquisition.
In proposing the Acquisition, Alliance presented to the Directors, at a
meeting held on February 9, 2005, the following reason for All-Asia Fund to
enter into the Acquisition:
16
o The Acquisition offers shareholders of All-Asia Fund an investment
in a broadly diversified international fund. Alliance believes that
broadly diversified international funds generally bear less risk and
may afford greater opportunities for long-term capital growth than
funds that invest in a single geographic region. In addition,
shareholders will be able to gain access to several non-U.S. markets
through a single diversified fund, which may be less expensive for
shareholders than investing in several regional funds.
At the meeting, the Directors (with the advice and assistance of
independent counsel) considered, among other things:
o potential shareholder benefits of the Acquisition, including (i)
that shareholders will be able to gain access to several non-U.S.
markets through a single diversified fund, which may be less
expensive for shareholders than investing in several regional funds,
(ii) that the volatility of shareholders' investments may be reduced
due to the combined fund's anticipated increased diversification,
and (iii) the fact that the total expense ratio of the combined fund
will be contractually capped at 1.65% for Class A shares, 2.35% for
Class B shares, 2.35% for Class C shares and 1.35% for Advisor Class
shares for at least the first year following shareholder approval of
International Research Growth Fund's Investment Objective Change,
and that even if the cap were not in place, the Acquisition would
result in a significant decrease in the expense ratio of each class
of shares of the Fund;
o the current asset levels of All-Asia Fund and the combined pro forma
asset levels of International Research Growth Fund (assuming, in the
alternative, that either one or both Acquisitions occur);
o the historical performance results of the Funds;
o the investment objective and principal investment strategies of
All-Asia Fund and the proposed investment objective and principal
investment strategies of International Research Growth Fund;
o Alliance's agreement to pay the direct costs of the Acquisition,
other than the costs of disposing of portfolio securities in advance
of the closing of the Acquisition;
o Alliance's agreement to indemnify and hold International Premier
Growth Fund harmless against any liability of All-Asia Fund that is
undisclosed or otherwise not fully reflected in the value of the net
assets transferred to International Premier Growth Fund from
All-Asia Fund;
o the historical and pro forma tax attributes of the Funds and the
effect of the Acquisition on certain tax losses of the Funds (see
"Federal Income Tax Consequences" below); that the Funds would bear
any costs that arise due to the disposition or acquisition of
portfolio securities in connection with the Acquisition;
o the terms of the Agreement and Plan of Reorganization;
o the potential benefits of the acquisition to Alliance and its
affiliates;
o Alliance's unwillingness to support All-Asia Fund in its current
form indefinitely; and
o potential alternatives to the Acquisition, including the management
of All-Asia Fund by another investment adviser or the acquisition of
All-Asia Fund's assets and liabilities by a fund advised by an
investment adviser other than the Adviser.
If approved, the Acquisition will combine All-Asia Fund's assets with
those of International Research Growth Fund, resulting in a significantly larger
combined portfolio. Because larger mutual funds generally have more buying power
(for example, they have greater opportunity to purchase round lots of securities
and are better able to diversify their portfolios), the combined fund may be
able to operate more efficiently after the Acquisition than could All-Asia Fund
or International Research Growth Fund alone.
All-Asia Fund has experienced a low level of investment in recent years.
From nearly $93 million as of the fiscal year ended October 31, 1999, All-Asia
Fund's total assets had fallen to approximately $25.7 million as of the fiscal
year ended October 31, 2004. Absent significant asset growth, All-Asia Fund's
continued viability eventually may be at risk. The Acquisition would allow
All-Asia Fund shareholders the opportunity to invest in a combined
17
fund that offers the benefits that come with larger asset size. As of December
31, 2004, International Research Growth Fund had total assets of approximately
$89.8 million and the New Europe Fund had total assets of approximately $143
million.
The Acquisition is intended to permit All-Asia Fund's shareholders to
exchange their investment for an investment in International Research Growth
Fund without recognizing gain or loss for federal income tax purposes. By
contrast, if an All-Asia Fund shareholder were to redeem his or her shares to
invest in another fund, the transaction would likely be a taxable event for such
shareholder. After the Acquisition, shareholders may redeem any or all of their
Common Stock Fund shares at net asset value (subject to any applicable CDSC) at
any time, at which point they would recognize a taxable gain or loss.
In addition, the Directors considered the relative Fund performance
results set forth below under "Performance Information."
Performance Information
The charts below show the percentage gain or loss in each calendar year
for the ten-year period ended December 31, 2004, for Class A shares of All-Asia
Fund and Class A shares of International Research Growth Fund. They should give
you a general idea of how each Fund's return has varied from year to year. The
charts include the effects of Fund expenses, but not applicable sales charges.
Returns would be lower if any applicable sales charges were included. The
calculations of annual total return assume the reinvestment of all dividends and
capital gain distributions on the reinvestment date. Performance results include
the effect of expense reduction arrangements, if any. If these arrangements had
not been in place, the performance results would have been lower. As with all
mutual funds, past performance is not an indication of future results. No
assurance can be given that International Research Growth Fund will achieve any
particular level of performance after the Acquisition.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information.
Calendar Year Total Returns
All-Asia Fund (Class A)
(BAR CHART)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
27.18% 19.37% 8.08% 3.56% 46.65% -18.09% -25.07% -27.36% 39.90% 14.36%
For period shown in bar chart:
Best quarter: up 38.96%, 4th quarter, 1999
Worst quarter: down -22.26%, 4th quarter, 2000%
International Research Growth Fund (Class A)*
(BAR CHART)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
N/A N/A N/A N/A 47.21% -25.35% -20.17% -18.45% 26.66% 13.08%
For period shown in bar chart:
Best quarter: up 30.43%, 4th quarter 1999
Worst quarter: down -21.26%, 3rd quarter 2002
- ----------
* A special meeting of International Research Growth Fund's shareholders has
been called for April 21, 2005 for the purpose of seeking shareholder
approval of changes to International Research Growth Fund's investment
objective and certain of its fundamental investment policies. The
performance information shown in the Fund's bar chart is from periods
prior to the implementation of such changes. As a result, the Fund's
performance may not be representative of the performance it would have
achieved had its proposed investment objective and investment policies
been in place.
18
The following tables list each Fund's average annual total return before
taxes for each class of its shares for the one-year, five-year and since
inception periods ending December 31, 2004 (including applicable sales charges).
These tables are intended to provide you with some indication of the risks of
investing in the Funds. At the bottom of each table, you can compare the Funds'
performance with the performance of a broad-based market index.
Average Annual Total Returns** - For Periods Ended December 31, 2004
All-Asia Fund
1 Year 5 Years 10 Years***
Class A 9.56% -12.51% -3.02%
- -------------------------------------------------------------------------------
Class B 9.75% -12.38% -3.17%
- -------------------------------------------------------------------------------
Class C 12.70% -12.37% -3.25%
- -------------------------------------------------------------------------------
Advisor Class 14.83% -11.58% -4.78%
- -------------------------------------------------------------------------------
MSCI All Country Asia Pacific
Free Index (reflects no deduction
for fees, expenses, or taxes) 18.59% -2.77% N/A
** Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
*** Performance information for periods prior to the inception of Advisor
Class shares (10/1/96) is the performance of the Fund's Class A shares
adjusted to reflect the lower expense ratio of Advisor Class shares.
International Research Growth Fund *
Since
1 Year 5 Years Inception***
Class A 8.28% -7.79% -0.23%
- -------------------------------------------------------------------------------
Class B 8.11% -7.70% -0.35%
- -------------------------------------------------------------------------------
Class C 11.23% -7.66% -0.33%
- -------------------------------------------------------------------------------
Advisor Class 13.44% -6.71% 0.68%
- -------------------------------------------------------------------------------
MSCI EAFE Index (reflects no
deduction for fees, expenses,
or taxes) 20.70% -0.80% 3.75%
- -------------------------------------------------------------------------------
MSCI EAFE Growth Index
(reflects no deduction for fees,
expenses, or taxes) 16.48% -5.77% 0.64%
** Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
*** Inception Date for all Classes is 3/3/98.
19
THE DIRECTORS OF ALL-ASIA FUND UNANIMOUSLY RECOMMEND APPROVAL OF THE ALL-ASIA
AGREEMENT AND PLAN OF REORGANIZATION AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Required Vote for Proposal 1
Approving the Acquisition requires the affirmative vote of a "majority of
the outstanding voting securities" of All-Asia Fund, as defined in the 1940 Act.
Under the 1940 Act, a vote of a majority of the outstanding voting securities of
a fund means the vote of the lesser of (a) 67% or more of the outstanding voting
shares of the fund represented at the meeting if, at such meeting, more than 50%
of the outstanding voting shares of the fund are represented, or (b) more than
50% of the outstanding voting shares of the fund. If the Acquisition is approved
by a "majority of the outstanding voting securities," International Research
Growth Fund will acquire the assets and assume the liabilities of All-Asia Fund
and All-Asia Fund shareholders will receive International Research Growth Fund
shares. Upon completion of the distribution of the Acquiring Fund shares,
All-Asia Fund will take all action necessary to complete the dissolution. In the
event that the Acquisition is not approved by a "majority of the outstanding
voting securities," the Board will consider other options.
For purposes of determining the presence of a quorum and counting votes on
the matters presented, Fund shares represented by abstentions (properly executed
proxy cards returned with instructions to abstain from voting or that withhold
authority to vote) and "broker non-votes" will be counted as present, but not as
votes cast, at the Meeting. Accordingly, abstentions and broker-non votes will
have the effect of a vote against the proposal.
A vote of the shareholders of International Research Growth Fund is not
needed to approve the Acquisition.
Although the Directors are proposing that International Research Growth
Fund acquire each of the Acquired Funds, the acquisition of one Acquired Fund is
not conditioned upon the acquisition of the other Acquired Fund. Accordingly, if
All-Asia Fund shareholders approve the acquisition of All-Asia Fund, but New
Europe Fund shareholders do not approve the acquisition of New Europe Fund, it
is expected that, subject to the terms of the Agreement and Plan of
Reorganization, the Acquisition proposed in this Proposal 1 will take place as
described in this Prospectus/Proxy Statement.
20
PROPOSAL 2 - ACQUISITION OF ALLIANCEBERNSTEIN NEW EUROPE FUND, INC.
BY ALLIANCEBERNSTEIN INTERNATIONAL RESEARCH GROWTH FUND
The Proposal
Shareholders of New Europe Fund are being asked to approve the Agreement
and Plan of Reorganization and the transactions contemplated thereby. A form of
the Agreement and Plan of Reorganization is attached as Appendix B to this
Prospectus/Proxy Statement. By approving the Agreement and Plan of
Reorganization, shareholders are approving the acquisition of the assets and
liabilities of New Europe Fund by International Research Growth Fund and the
subsequent dissolution of New Europe Fund.
Principal Investment Risks
What are the principal investment risks of International Research Growth
Fund, and how do they compare with those of New Europe Fund?
Both Funds are subject to management risk, market risk, foreign risk and
currency risk. International Research Growth Fund is subject to focused
portfolio risk, though the effects of that risk will likely be mitigated if
International Research Growth Fund's shareholders approve the Investment
Objective Change described above. Additionally, if International Research Growth
Fund's shareholders approve the Investment Objective Change, International
Research Growth Fund is expected to be subject to a greater degree of: (i)
industry/sector risk, which is the risk of investments in a particular industry
or industry sector, (ii) capitalization risk, which is the risk of investments
in small- to mid-capitalization companies and (iii) allocation risk, which is
the risk that the allocation of the Fund's investments among industry sectors
may have a more significant effect on the Fund's net asset value when one of
these sectors performs more poorly than the others. Because International
Research Growth Fund invests primarily in equity securities, it may be less
susceptible to interest rate and credit risk than New Europe Fund. Also, because
International Research Growth Fund does not normally invest primarily in one
geographic region, it may be less susceptible to country or geographic risk than
New Europe Fund. For more information about the principal investment risks and
other investment risks of International Research Growth Fund, please see
Appendix D. The actual risks of investing in each Fund depend on the securities
held in each Fund's portfolio and on market conditions, both of which change
over time.
Shareholders of New Europe Fund should note that, while each Fund seek
long-term capital appreciation as part of its investment objective, only New
Europe Fund seeks to attain this objective through investments primarily in the
equity securities of companies based in Europe. Additionally, there will be some
differences in the investment style of the combined fund. Please see the answer
to question 4 above under "Questions and Answers" for more information comparing
the investment objectives and strategies of the Funds.
Information about the Acquisition
Terms of the Agreement and Plan of Reorganization
If approved by the shareholders of New Europe Fund, the Acquisition is
expected to occur on or around June 24, 2005, or on such other date as the
parties may agree, under the Agreement and Plan of Reorganization, subject to
satisfaction of the conditions in the Agreement and Plan of Reorganization,
including approval by International Research Growth Fund's shareholders of the
Investment Objective Change. The following is a brief summary of the principal
terms of the Agreement and Plan of Reorganization. Please review Appendix B for
more information regarding the Agreement and Plan of Reorganization.
o New Europe Fund will transfer all of its assets and liabilities to
International Research Growth Fund in exchange for shares of
International Research Growth Fund with an aggregate net asset value
equal to the net value of the transferred assets and liabilities.
o The Acquisition will close on the next business day after the time
(currently scheduled to be 4:00 p.m. Eastern Time on June 23, 2005,
or such other date and time as the parties may determine) when the
net assets of each Fund are valued for purposes of the Acquisition.
21
o The Class A, Class B, Class C and Advisor Class shares of
International Research Growth Fund received by New Europe Fund will
be distributed to the Class A, Class B, Class C and Advisor Class
shareholders of New Europe Fund, respectively, pro rata in
accordance with their percentage ownership of New Europe Fund in
full liquidation of New Europe Fund.
o After the foregoing dissolution, New Europe Fund will be dissolved,
and its affairs will be wound up in an orderly fashion.
o The Acquisition requires approval by New Europe Fund's shareholders
and satisfaction of a number of other conditions (including the
approval by International Research Growth Fund's shareholders of the
Investment Objective Change, as described above); the Acquisition
may be terminated at any time with the approval of the Directors of
the Fund.
Shareholders who object to the Acquisition will not be entitled under
Maryland law or the charter of the Fund to demand payment for, or an appraisal
of, their shares. However, shareholders should be aware that the Acquisition as
proposed is not expected to result in recognition of gain or loss to
shareholders for federal income tax purposes and that, if the Acquisition is
consummated, shareholders will be free to redeem the shares which they receive
in the transaction at their current net asset value, less any applicable sales
charge. In addition, shares may be redeemed at any time prior to the
consummation of the Acquisition.
Shares You Will Receive
If the Acquisition occurs, shareholders of New Europe Fund will receive
shares in International Research Growth Fund of the same class as the shares
they currently own in New Europe Fund. In comparison to your New Europe Fund
shares, shares of International Research Growth Fund issued in connection with
the Acquisition will have the following characteristics:
o They will have an aggregate net asset value equal to the aggregate
net asset value of your New Europe Fund shares as of the business
day before the closing of the Acquisition.
o They will bear the same sales charges, redemption fees, and CDSCs as
your current shares to the extent such charges and fees apply, and
for purposes of determining the CDSC applicable to any redemption
and/or conversion of Class B shares to Class A shares, if
applicable, the new shares will continue to age from the date you
purchased your New Europe Fund shares.
o The procedures for purchasing and redeeming your shares will not
change as a result of the Acquisition.
o Shareholders will have the same voting rights and exchange options
as they currently have, but as shareholders of International
Research Growth Fund.
Information concerning the capitalization of each of the Funds is provided
in Appendix C.
Reasons for the Acquisition
The Directors of the New Europe Fund (who are also the directors of
All-Asia Fund and International Research Growth Fund, including all Directors
who are not "interested persons" of the Fund, have determined that the
Acquisition would be in the best interests of New Europe Fund's shareholders and
that the interests of existing shareholders in New Europe Fund would not be
diluted as a result of the Acquisition. The Directors have unanimously approved
the Agreement and Plan of Reorganization and the Acquisition and recommended
that Fund shareholders vote to approve the Agreement and Plan of Reorganization
and the Acquisition.
In proposing the Acquisition, Alliance presented to the Directors, at a
meeting held on February 9, 2005, the following reasons for New Europe Fund to
enter into the Acquisition:
22
o The Acquisition offers shareholders of New Europe Fund an investment
in a broadly diversified international fund. Alliance believes that
broadly diversified international funds generally bear less risk and
may afford greater opportunities for long-term capital growth than
funds that invest in a single geographic region. In addition,
shareholders will be able to gain access to several non-U.S. markets
through a single diversified fund, which may be less expensive for
shareholders than investing in several regional funds.
At the meeting, the Directors (with the advice and assistance of
independent counsel) considered, among other things:
o potential shareholder benefits of the Acquisition, including the
facts (i) that shareholders will be able to gain access to several
non-U.S. markets through a single diversified fund, which may be
less expensive for shareholders than investing in several regional
funds, (ii) that the volatility of shareholders' investments may be
reduced due to the combined fund's anticipated increased
diversification, and (iii) the fact that the total expense ratio of
the combined fund will be contractually capped at 1.65% for Class A
shares, 2.35% for Class B shares, 2.35% for Class C shares and 1.35%
for Advisor Class shares for at least the first year following
shareholder approval of International Research Growth Fund's
Investment Objective Change, and that even if the cap were not in
place, the Acquisition would result in a slight decrease in the
expense ratio of each class of shares of the Fund.
o the current asset levels of New Europe Fund and the combined pro
forma asset levels of International Research Growth Fund (assuming,
in the alternative, that either one or both Acquisitions occur);
o the historical performance results of the Funds;
o the investment objective and principal investment strategies of New
Europe Fund and the proposed investment objective and principal
investment strategies of International Research Growth Fund;
o Alliance's agreement to pay the direct costs of the Acquisition,
other than the costs of disposing of portfolio securities in advance
of the closing of the Acquisition;
o Alliance's agreement to indemnify and hold International Premier
Growth Fund harmless against any liability of New Europe Fund that
is undisclosed or otherwise not fully reflected in the value of the
net assets transferred to International Premier Growth Fund from New
Europe Fund;
o the historical and pro forma tax attributes of the Funds and the
effect of the Acquisition on certain tax losses of the Funds (see
"Federal Income Tax Consequences" below); that the Funds would bear
any costs that arise due to the disposition or acquisition of
portfolio securities in connection with the Acquisition;
o the terms of the Agreement and Plan of Reorganization;
o the potential benefits of the acquisition to Alliance and its
affiliates;
o Alliance's unwillingness to support New Europe Fund in its current
form indefinitely; and
o potential alternatives to the Acquisition, including the management
of New Europe Fund by another investment adviser or the acquisition
of New Europe Fund's assets and liabilities by a fund advised by an
investment adviser other than the Adviser.
If approved, the Acquisition will combine New Europe Fund's assets with
those of International Research Growth Fund, resulting in a larger combined
portfolio position with the potential for more efficient operation by spreading
relatively fixed costs over a larger asset base. Because larger mutual funds may
have more buying power (for example, they may have greater opportunity to
purchase round lots of securities and may be in a better position to diversity
their portfolios), the combined fund may be able to operate more efficiently
after the Acquisition that could New Europe Fund or International Research
Growth Fund alone.
The Acquisition is intended to permit New Europe Fund's shareholders to
exchange their investment for an investment in International Research Growth
Fund without recognizing gain or loss for federal income tax purposes. By
contrast, if a New Europe Fund shareholder were to redeem his or her shares to
invest in another fund, the
23
transaction would likely be a taxable event for the shareholder. After the
Acquisition, shareholders may redeem any or all of their New Europe Fund shares
at net asset value (subject to any applicable CDSC) at any time, at which point
they would recognize a taxable gain or loss.
In addition, the Directors considered the relative Fund performance
results set forth below under "Performance Information."
Performance Information
The charts below show the percentage gain or loss in each calendar year
for the ten-year period ended December 31, 2004 for the Class A shares of each
of New Europe Fund and International Research Growth Fund. They should give you
a general idea of how each Fund's return has varied from year to year. The
charts include the effects of Fund expenses, but not applicable sales charges.
Returns would be lower if any applicable sales charges were included. The
calculations of total return assume the reinvestment of all dividends and
capital gain distributions on the reinvestment date. Performance results include
the effect of expense reduction arrangements, if any. If these arrangements had
not been in place, the performance results would have been lower. As with all
mutual funds, past performance is not an indication of future results. No
assurance can be given that International Research Growth Fund will achieve any
particular level of performance after the Acquisition.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectuses and Statement of Additional
Information.
Calendar Year Total Returns
New Europe Fund (Class A)
(BAR CHART)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
18.63% 20.58% 16.83% 24.99% 26.13% -8.81% -22.15% -22.17% 30.79% 14.66%
For period shown in bar chart:
Best quarter: up 24.84%, 4th quarter, 1999
Worst quarter: down -25.84%, 3rd quarter, 2000%
International Research Growth Fund (Class A)+
(BAR CHART)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
N/A N/A N/A N/A 47.21% -25.35% -20.17% -18.45% 26.66% 13.08%
For period shown in bar chart:
Best quarter: up 30.43%, 4th quarter 1999
Worst quarter: down -21.26%, 3rd quarter 2002
- ----------
+ A special meeting of International Research Growth Fund's shareholders has
been called for April, 2005 the purpose of seeking shareholder approval of
changes to International Research Growth Fund's investment objective and
certain of its fundamental investment restrictions. The performance
information shown in the Fund's bar chart is from periods prior to the
implementation of such changes. As a result, the Fund's performance may
not be representative of the performance it would have achieved had its
proposed investment objective and investment policies been in place.
24
The following tables list the average annual total return before taxes for
the one-year, five-year and ten-year periods ending December 31, 2004 for the
Class A, B, C and Advisor Class shares of New Europe Fund and for the one-year,
five-year and since inception periods ended December 31, 2004 for the Class A,
B, C and Advisor Class shares of International Research Growth Fund. These
tables are intended to provide you with some indication of the risks of
investing in the Funds. At the bottom of each table, you can compare the Funds'
performance with the performance of a broad-based market index.
Average Annual Total Returns* - For Periods Ended December 31, 2004
New Europe Fund
1 Year 5 Years 10 Years**
Class A 9.81% -4.53% 7.65%
- ------------------------------------------------------------------------------
Class B 9.75% -4.50% 7.45%
- ------------------------------------------------------------------------------
Class C 12.86% -4.44% 7.32%
- ------------------------------------------------------------------------------
Advisor Class 15.07% -3.51% 6.68%
- ------------------------------------------------------------------------------
MSCI Europe Index (reflects no
deduction for fees, expenses,
or taxes) 21.39% 0.42% 10.11%
- ------------------------------------------------------------------------------
Solomon Smith Barney
Europe PMO Growth Index
(reflects no deduction for fees,
expenses, or taxes) 17.11% -3.00% 9.53%
* Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
** Inception Date for Advisor Class shares: 10/1/96. Performance information
for periods prior to the inception of Advisor Class shares is the
performance of the Fund's Class A shares adjusted to reflect the lower
expense ratio of Advisor Class shares.
International Research Growth Fund ++
Since
1 Year 5 Years Inception**
Class A 8.28% -7.79% -0.23%
- ------------------------------------------------------------------------------
Class B 8.11% -7.70% -0.35%
- ------------------------------------------------------------------------------
Class C 11.23% -7.66% -0.33%
- ------------------------------------------------------------------------------
Advisor Class 13.44% -6.71% 0.68%
- ------------------------------------------------------------------------------
MSCI EAFE Index (reflects no
deduction for fees, expenses,
or taxes) 20.70% -0.80% 3.75%
- ------------------------------------------------------------------------------
MSCI EAFE Growth Index
(reflects no deduction for fees,
expenses, or taxes) 16.48% -5.77% 0.64%
* Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
** Inception Date for all Classes is 3/3/98.
- ----------
++ A special meeting of International Research Growth Fund's shareholders has
been called for April 21, 2005 for the purpose of seeking shareholder
approval of changes to International Research Growth Fund's investment
objective and certain of its fundamental investment restrictions. The
performance information shown in the Fund's average annual total returns
table is from periods prior to the implementation of such changes. As a
result, the Fund's performance may not be representative of the
performance it would have achieved had its proposed investment objective
and investment policies been in place.
25
THE DIRECTORS OF NEW EUROPE FUND UNANIMOUSLY RECOMMEND APPROVAL OF THE NEW
EUROPE AGREEMENT AND PLAN OF REORGANIZATION AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
Required Vote for Proposal 2
Approving the Acquisition requires the affirmative vote of a "majority of
the outstanding voting securities" of New Europe Fund, as defined in the 1940
Act. Under the 1940 Act, a vote of a majority of the outstanding voting
securities of a fund means the vote of the lesser of (a) 67% or more of the
outstanding voting shares of the fund represented at the meeting if, at such
meeting, more than 50% of the outstanding voting shares of the fund are
represented, or (b) more than 50% of the outstanding voting shares of the fund.
If the Acquisition is approved by a "majority of the outstanding voting
securities," International Research Growth Fund will acquire the assets and
assume the liabilities of New Europe Fund and New Europe Fund shareholders will
receive International Research Growth Fund shares. Upon completion of the
distribution of the Acquiring Fund shares, New Europe Fund will take all action
necessary to complete its dissolution. In the event that the Acquisition is not
approved by a "majority of the outstanding voting securities," the Board will
consider other options.
For purposes of determining the presence of a quorum and counting votes on
the matters presented, Fund shares represented by abstentions (properly executed
proxy cards returned with instructions to abstain from voting or that withhold
authority to vote) and "broker non-votes" will be counted as present, but not as
votes cast, at the Meeting. Accordingly, abstentions and broker non-votes will
have the effect of a vote against the proposal.
A vote of the shareholders of International Research Growth Fund is not
needed to approve the Acquisition.
Although the Directors are proposing that International Research Growth
Fund acquire each of the Acquired Funds, the acquisition of one Acquired Fund is
not conditioned upon the acquisition of the other Acquired Fund. Accordingly, if
New Europe Fund shareholders approve the acquisition of New Europe Fund, but
All-Asia Fund shareholders do not approve the acquisition of All-Asia Fund, it
is expected that, subject to the terms of the Agreement and Plan of
Reorganization, the Acquisition proposed in this Proposal 2 will take place as
described in this Prospectus/Proxy Statement.
26
GENERAL
Alliance Capital Management L.P. ("Alliance"), located at 1345 Avenue of
the Americas, New York, New York, 10105, is each Fund's investment advisor.
Alliance is responsible for each Fund's management, subject to oversight by the
Fund's Board of Directors. In its duties as investment advisor, Alliance runs
each Fund's day-to-day business, including placing all orders for the purchase
and sale of the Fund's portfolio securities. Alliance is a leading international
investment adviser supervising client accounts with assets as of December 31,
2004 totaling approximately $539 billion (of which approximately $118 billion
represented assets of investment companies). As of December 31, 2004, Alliance
managed retirement assets for many of the largest public and private employee
benefit plans (including 37 of the nation's FORTUNE 100 companies), for public
employee retirement funds in 39 states, for investment companies, and for
foundations, endowments, banks and insurance companies worldwide. The 48
registered investment companies managed by Alliance, comprising 121 separate
investment portfolios, currently have approximately 6.7 million shareholder
accounts.
Voting Information
The Directors of the Fund are soliciting proxies from the shareholders of
All-Asia Fund and New Europe Fund in connection with the Meeting, which has been
called to be held at 11:00 a.m. Eastern Time on Tuesday, May 17, 2005, at 1345
Avenue of the Americas, New York, New York 10105. The meeting notice, this
Prospectus/Proxy Statement and proxy materials are being mailed to shareholders
beginning on or about March 29, 2005.
Information About Proxies and the Conduct of the Meeting
Solicitation of Proxies. Proxies will be solicited primarily by mailing
this combined Prospectus/Proxy Statement and its enclosures, but proxies may
also be solicited through further mailings, telephone calls, personal interviews
or e-mail by officers of the Acquired Funds or by employees or agents of
Alliance and its affiliated companies. In addition, Alamo Direct Mail Services,
Inc. has been engaged to assist in the solicitation of proxies, at an estimated
cost of approximately $150,000 for All-Asia Fund and $102,000 for New Europe
Fund. Alliance will bear the costs of such solicitation.
Voting Process
You can authorize a proxy to vote your shares in any one of the following
ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, fax or Internet (see enclosed proxy insert for
instructions); or
c. In person at the Meeting.
Shareholders who owned shares on the record date, March 15, 2005, are
entitled to cast one vote for each share owned on the record date. If you choose
to vote by mail or fax and you are an individual account owner, please sign
exactly as your name appears on the proxy insert. Either owner of a joint
account may sign the proxy insert, but the signer's name must exactly match the
name that appears on the card. Any shareholder may revoke that shareholder's
proxy at any time before a vote by giving written notice to the Secretary of the
Fund at 1345 Avenue of the Americas, New York, New York 10105, by signing and
delivering to the Secretary another proxy bearing a later date, or by attending
the Meeting in person, requesting the return of any previously delivered proxy
and personally voting at the Meeting.
Costs. All-Asia Fund and New Europe Fund will bear costs arising from the
disposition or acquisition of portfolio securities in connection with the
Acquisitions. Such portfolio disposition costs are one-time costs that are
estimated to be between $40,000 and $60,000 for All-Asia Fund and between
$150,000 and $175,000 for New Europe Fund. Such amounts were equal to between
0.14% and 0.21% of the net assets of All-Asia Fund and between 0.11% and 0.13%
of the net assets of New Europe Fund, respectively, on January 31, 2005.
International Research Growth Fund will bear the costs associated with investing
the cash received in the Acquisitions in additional portfolio securities. These
costs are the same type of ordinary portfolio transaction expenses that
International Research Growth Fund bears any time investors purchase additional
shares of the Fund. The costs of the Meeting, including the costs of soliciting
proxies, and all other costs of the Acquisitions will be borne by Alliance.
27
Quorum and Method of Tabulation. Votes cast in person or by proxy at the
Meeting will be counted by persons appointed by each Acquired Fund as tellers
for the Meeting (the "Tellers"). One-third of the shares of each of All-Asia
Fund and New Europe Fund outstanding on the record date, present in person or
represented by proxy, constitute a quorum for the transaction of business by the
shareholders of the respective Acquired Funds at the Meeting. In determining
whether a quorum is present, the Tellers will count shares represented by
abstentions (properly executed proxy cards returned with instructions to abstain
from voting or that withhold authority to vote) and "broker non-votes" as
present, but not as votes cast, at the Meeting. "Broker non-votes" are shares
held by brokers or nominees as to which (i) the broker or nominee does not have
discretionary voting power and (ii) the broker or nominee has not received
instructions from the beneficial owner or other person who is entitled to
instruct how the shares will be voted.
Advisors' and Underwriter's Addresses. The address of each Fund's
investment advisor, Alliance Capital Management L.P., is 1345 Avenue of the
Americas, New York, New York 10105. The address of each Fund's principal
underwriter, AllianceBernstein Investment Research and Management, Inc., is also
1345 Avenue of the Americas, New York, New York 10105.
Share Ownership. Appendix G to this Prospectus/Proxy Statement lists the
total number of shares outstanding as of March 15, 2005, for each class of each
Acquired Fund entitled to vote at the Meeting. It also identifies holders of
more than five percent any class of shares of each Fund, and contains
information about the executive officers, Directors of the Funds and their
shareholdings in the Funds.
Adjournments; Other Business. If either Acquired Fund has not received
enough votes by the time of the Meeting to approve its Proposal, the persons
named as proxies may propose that such Meeting be adjourned one or more times to
permit further solicitation of proxies. Any adjournment requires the affirmative
vote of a majority of the total number of shares of such Acquired Fund that are
present in person or by proxy on the question when the adjournment is being
voted on. The persons named as proxies will vote in favor of any such
adjournment all proxies that they are entitled to vote in favor of the relevant
Proposal. They will vote against any such adjournment any proxy that directs
them to vote against the relevant Proposal. They will not vote any proxy that
directs them to abstain from voting on the relevant Proposal.
The Meeting has been called to transact any business that properly comes
before it. The only business that management of each Acquired Fund intends to
present or knows that others will present is Proposals 1 and 2. If any other
matters properly come before the Meeting, and on all matters incidental to the
conduct of the Meeting, the persons named as proxies intend to vote the proxies
in accordance with their discretion.
Federal Income Tax Consequences
Each Acquisition is intended to be a tax-free reorganization. Ropes & Gray
LLP will deliver to each Acquired Fund and International Research Growth Fund an
opinion, and the closing of each Acquisition will be conditioned on receipt of
such opinion by each Fund, to the effect that, on the basis of existing
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
although not free from doubt, for federal income tax purposes:
o the Acquisitions will constitute reorganizations within the meaning
of Section 368(a) of the Code, and the Acquired Funds and
International Research Growth Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
o under Section 361 of the Code, no gain or loss will be recognized by
the Acquired Funds upon the transfer of their assets to
International Research Growth Fund in exchange for International
Research Growth Fund shares and the assumption by International
Research Growth Fund of the Acquired Funds' liabilities, or upon the
distribution of International Research Growth Fund shares by the
Acquired Funds to their shareholders in liquidation;
o under Section 354 of the Code, no gain or loss will be recognized by
shareholders of the Acquired Funds on the distribution of
International Research Growth Fund shares to them in exchange for
their shares of the Acquired Funds;
28
o under Section 358 of the Code, the aggregate tax basis of
International Research Growth Fund shares that the Acquired Funds'
shareholders receive in exchange for their Acquired Fund shares will
be the same as the aggregate tax basis of the Acquired Funds shares
exchanged therefor;
o under Section 1223(1) of the Code, an Acquired Fund shareholder's
holding period for International Research Growth Fund shares
received will be determined by including the holding period for the
Acquired Funds shares exchanged therefor, provided that the
shareholder held the Acquired Funds shares as a capital asset;
o under Section 1032 of the Code, no gain or loss will be recognized
by International Research Growth Fund upon receipt of the assets
transferred to it in exchange for International Research Growth Fund
Fund shares and the assumption by International Research Growth Fund
of the liabilities of the Acquired Funds;
o under Section 362(b) of the Code, International Research Growth
Fund's tax basis in the assets that it receives from the Acquired
Funds will be the same as the Acquired Funds' tax basis in such
assets immediately prior to such exchange;
o under Section 1223(2) of the Code, International Research Growth
Fund's holding periods in such assets will include the Acquired
Funds' holding periods in such assets; and
o under Section 381 of the Code, International Research Growth Fund
will succeed to the capital loss carryovers of the Acquired Funds,
if any, but the use by International Research Growth Fund of any
such capital loss carryovers (and of capital loss carryovers of
International Research Growth Fund) may be subject to limitation
under Section 383 of the Code.
The opinion will be based on certain factual certifications made by
officers of the Acquired Funds and of International Research Growth Fund and
will also be based on customary assumptions and subject to certain
qualifications. Each Fund has agreed to make and provide additional
representations to Ropes & Gray LLP with respect to each Fund that are
reasonably requested by Ropes & Gray LLP. A Fund may not waive in any material
respect the receipt of the tax opinions as a condition to confirmation and to
the reorganization. The opinion is not a guarantee that the tax consequences of
the Acquisitions will be as described above.
Ropes & Gray LLP will express no view with respect to the effect of the
Acquisitions on any transferred asset as to which any unrealized gain or loss is
required to be recognized at the end of a taxable year (or on the termination or
transfer thereof) under federal income tax principles.
Prior to the closing of the Acquisition, the Acquired Funds will, and
International Research Growth Fund may, declare a distribution to shareholders,
which together with all previous distributions, will have the effect of
distributing to shareholders all of their investment company taxable income
(computed without regard to the deduction for dividends paid) and net realized
capital gains (after reduction by any available capital loss carryforwards), if
any, through the closing of the Acquisition. Such distributions will be taxable
to shareholders.
It is expected that following the Acquisitions the combined fund's ability
to use the capital losses of both All-Asia Fund and International Research
Growth Fund, and possibly also of New Europe Fund, will be limited as a result
of the Acquisitions due to the effect of loss limitation rules under applicable
tax law. For example, if the Acquisitions had occurred as of November 30, 2004,
any unused losses of All-Asia Fund and International Research Growth Fund would
have become subject to an annual limitation. The combined fund would have had
net losses (defined as realized losses net of unrealized gains) equal to 28% of
its net assets available to reduce capital gains, whereas absent the
Acquisitions, All-Asia Fund, New Europe Fund, and International Research Growth
Fund would have had net losses equal to 51%, 33%, and 117% of their net assets,
respectively, available to offset capital gains. As a result of loss limitation
and the spreading of the losses remaining available over a larger asset base,
there would have been a decrease in the percentage of losses available to offset
capital gains of 23% with respect to All-Asia Fund, 5% with respect to New
Europe Fund, and 89% with respect to International Research Growth Fund. This
may accelerate gain distributions to shareholders of the combined fund.
Given the sizes of the Funds as of November 30, 2004, it is possible that
the relative net assets of the Funds will alter by the date of the Acquisitions
such that the combined fund's ability to use New Europe Fund's capital
29
losses will also be limited under applicable tax law. In such an instance, New
Europe Fund's unused losses would be subject to an annual limitation (in
addition to the spreading described above). This may further accelerate gain
distributions to shareholders of the combined fund.
30
Appendix A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
RELATING TO THE ACQUISTION OF THE
ALLIANCEBERNSTEIN ALL-ASIA INVESTMENT FUND, INC.
THIS AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of
March , 2005 is by and among AllianceBernstein All-Asia Investment Fund,
Inc. (the "Acquired Fund"), a Maryland corporation; AllianceBernstein
International Research Growth Fund (the "Acquiring Fund"), a Maryland
corporation; and Alliance Capital Management L.P. ("Alliance").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Sections 361(a) and Section
368(a) of the United States Internal Revenue Code of 1986, as amended (the
"Code"), and any successor provision. The reorganization will consist of the
transfer of all of the assets of the Acquired Fund attributable to its Class A
shares in exchange for Class A shares of common stock of the Acquiring Fund
("Class A Acquisition Shares"), the transfer of all of the assets of the
Acquired Fund attributable to its Class B shares in exchange for Class B shares
of common stock of the Acquiring Fund ("Class B Acquisition Shares"), the
transfer of all of the assets of the Acquired Fund attributable to its Class C
shares in exchange for Class C shares of common stock of the Acquiring Fund
("Class C Acquisition Shares"), the transfer of all of the assets of the
Acquired Fund attributable to its Advisor Class shares in exchange for Advisor
Class shares of common stock of the Acquiring Fund ("Advisor Class Acquisition
Shares" and together with the Class A Acquisition Shares, Class B Acquisition
Shares and Class C Acquisition Shares, the "Acquisition Shares") and the
assumption by the Acquiring Fund of certain liabilities of the Acquired Fund
(other than certain expenses of the reorganization contemplated hereby) and the
distribution of the Class A Acquisition Shares, the Class B Acquisition Shares,
the Class C Acquisition Shares, and the Advisor Class Acquisition Shares to the
Class A, Class B, Class C and Advisor Class shareholders, respectively, of the
Acquired Fund in liquidation of the Acquired Fund, all upon the terms and
conditions set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF CERTAIN
LIABILITIES AND ACQUISITION SHARES AND LIQUIDATION OF ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein,
(a) The Acquired Fund will transfer and deliver to the Acquiring
Fund, and the Acquiring Fund will acquire, all the assets of
the Acquired Fund as set forth in paragraph 1.2;
(b) The Acquiring Fund will assume all of the Acquired Fund's
liabilities and obligations of any kind whatsoever, whether
absolute, accrued, contingent or otherwise, in existence on
the Closing Date (as defined in paragraph 1.2 hereof), except
for any liability that is not disclosed to the Acquiring Fund
as of the Closing Date and any liability to the extent that
it, although disclosed, is not fully reflected on the books of
the Acquired Fund; and
(c) The Acquiring Fund will issue and deliver to the Acquired Fund
in exchange for such assets the number of Class A, Class B,
Class C, and Advisor Class Acquisition Shares (including
fractional shares, if any) determined by dividing the net
asset values of the Class A, Class B, Class C and Advisor
Class shares of the Acquired Fund, respectively, computed in
the manner and as of the time and date set forth in paragraph
2.1, by the net asset value of one Class A, Class B, Class C
or Advisor Class Acquisition Share, as applicable, computed in
the manner and as of the time and date set forth in paragraph
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2.2. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing").
(d) Alliance agrees to indemnify and hold harmless both the
Acquired Fund and the Acquiring Fund against any liability the
Acquiring Fund does not assume under paragraph 1.1(b) and to
reimburse any reasonable legal or other costs and expenses
incurred by them in connection with investigating or defending
against such liability.
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all cash, securities, dividends and interest
receivable, receivables for shares sold and all other assets which
are owned by the Acquired Fund on the closing date provided in
paragraph 3.1 (the "Closing Date") and any deferred expenses, other
than unamortized organizational expenses, shown as an asset on the
books of the Acquired Fund on the Closing Date. The Acquiring Fund
agrees that all rights to indemnification and all limitations of
liability existing in favor of the Acquired Fund's current and
former Directors and officers, acting in their capacities as such,
under the Acquired Fund's charter and Bylaws as in effect as of the
date of this Agreement shall survive the reorganization as
obligations of the Acquiring Fund and shall continue in full force
and effect, without any amendment thereto, and shall constitute
rights which may be asserted against the Acquiring Fund, its
successors or assigns.
1.3 As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to its Class A shareholders
of record ("Acquired Fund Class A Shareholders"), determined as of
the close of business on the Valuation Date (as defined in paragraph
2.1), Class A Acquisition Shares received by the Acquired Fund
pursuant to paragraph 1.1; to its Class B shareholders of record
("Acquired Fund Class B Shareholders"), determined as of the close
of business on the Valuation Date, Class B Acquisition Shares
received by the Acquired Fund pursuant to paragraph 1.1; to its
Class C shareholders of record ("Acquired Fund Class C
Shareholders"), determined as of the close of business on the
Valuation Date, Class C Acquisition Shares received by the Acquired
Fund pursuant to paragraph 1.1; and to its Advisor Class
shareholders of record ("Acquired Fund Advisor Class Shareholders,"
and collectively with Acquired Fund Class A Shareholders, Acquired
Fund Class B Shareholders and Acquired Fund Class C Shareholders,
the "Acquired Fund Shareholders"), determined as of the close of
business on the Valuation Date, Advisor Class Acquisition Shares
received by the Acquired Fund pursuant to paragraph 1.1. Such
liquidation and distribution will be accomplished by the transfer of
the Acquisition Shares then credited to the account of the Acquired
Fund on the books of the Acquiring Fund to open accounts on the
share records of the Acquiring Fund in the names of the Acquired
Fund Shareholders and representing the respective pro rata number of
Acquisition Shares due such shareholders. The Acquiring Fund shall
not be obligated to issue certificates representing Acquisition
Shares in connection with such exchange.
1.4 With respect to Acquisition Shares distributable pursuant to
paragraph 1.3 to an Acquired Fund Shareholder holding a certificate
or certificates for shares of the Acquired Fund, if any, on the
Valuation Date, the Acquiring Fund will not permit such shareholder
to receive Acquisition Share certificates therefor, exchange such
Acquisition Shares for shares of other investment companies, effect
an account transfer of such Acquisition Shares, or pledge or redeem
such Acquisition Shares until the Acquiring Fund has been notified
by the Acquired Fund or its agent that such Acquired Fund
Shareholder has surrendered all his or her outstanding certificates
for Acquired Fund shares or, in the event of lost certificates,
posted adequate bond.
1.5 After the Closing Date, the Acquired Fund shall not conduct any
business except in connection with its liquidation and dissolution.
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2. VALUATION.
2.1 For the purpose of paragraph 1, the value of the Acquired Fund's
assets to be acquired by the Acquiring Fund hereunder shall be the
net asset value computed as of the close of regular trading on the
New York Stock Exchange on the business day next preceding the
Closing (such time and date being herein called the "Valuation
Date") using the valuation procedures set forth in the charter of
the Acquiring Fund and the then current prospectus or prospectuses
or statement or statements of additional information of the
Acquiring Fund (collectively, as amended or supplemented from time
to time, the "Acquiring Fund Prospectus"), after deduction for the
expenses of the reorganization contemplated hereby to be paid by the
Acquired Fund pursuant to paragraph 9.2, and shall be certified by
the Acquired Fund.
2.2 For the purpose of paragraph 2.1, the net asset value of a Class A,
Class B, Class C and Advisor Class Acquisition Share shall be the
net asset value per share computed as of the close of regular
trading on the New York Stock Exchange on the Valuation Date, using
the valuation procedures set forth in the charter of the Acquiring
Fund and the Acquiring Fund Prospectus.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be on June 17, 2005 or on such other date as
the parties may agree, provided that if the Closing has not occurred
on or before December 31, 2005, either the Acquired Fund or the
Acquiring Fund may terminate this Agreement upon written notice to
the other. The Closing shall be held at 11:00 a.m. Eastern Time at
the offices of the Acquiring Fund, the Acquired Fund and Alliance,
1345 Avenue of the Americas, New York, New York 10105, or at such
other time and/or place as the parties may agree.
3.2 The portfolio securities of the Acquired Fund shall be made
available by the Acquired Fund to Brown Brothers Harriman & Co., as
custodian for the Acquiring Fund (the "Custodian"), for examination
no later than five business days preceding the Valuation Date. On
the Closing Date, such portfolio securities and all of the Acquired
Fund's cash shall be delivered by the Acquired Fund to the Custodian
for the account of the Acquiring Fund, such portfolio securities to
be duly endorsed in proper form for transfer in such manner and
condition as to constitute good delivery thereof in accordance with
the custom of brokers or, in the case of portfolio securities held
in the U.S. Treasury Department's book-entry system or by The
Depository Trust Company, Participants Trust Company or other third
party depositories, by transfer to the account of the Custodian in
accordance with Rule 17f-4, Rule 17f-5 or Rule 17f-7, as the case
may be, under the Investment Company Act of 1940 (the "1940 Act")
and accompanied by all necessary federal and state stock transfer
stamps or a check for the appropriate purchase price thereof. The
cash delivered shall be in the form of currency or certified or
official bank checks, payable to the order of "Brown Brothers
Harriman & Co., custodian for AllianceBernstein International
Research Growth Fund, Inc." or shall be wired to an account pursuant
to instructions provided by the Acquiring Fund.
3.3 In the event that on the Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be
restricted, or (b) trading or the reporting of trading on said
Exchange or elsewhere shall be disrupted so that accurate appraisal
of the value of the net assets of the Acquired Fund or the Acquiring
Fund is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully
resumed and reporting shall have been restored; provided that if
trading shall not be fully resumed and reporting restored within
three business days of the Valuation Date, this Agreement may be
terminated by either the Acquired Fund or the Acquiring Fund upon
the giving of written notice to the other party.
3.4 At the Closing, the Acquired Fund or its transfer agent shall
deliver to the Acquiring Fund or its designated agent a list of the
names and addresses of the Acquired Fund Shareholders and the number
of outstanding shares of common stock of the Acquired Fund owned by
each Acquired Fund Shareholder, all as of the close of business on
the Valuation Date, certified by the Vice President, Secretary or
Assistant Secretary of the Acquired Fund. The Acquiring Fund will
A-3
provide to the Acquired Fund evidence satisfactory to the Acquired
Fund that the Acquisition Shares issuable pursuant to paragraph 1.1
have been credited to the Acquired Fund's account on the books of
the Acquiring Fund. On the Liquidation Date, the Acquiring Fund will
provide to the Acquired Fund evidence satisfactory to the Acquired
Fund that such Acquisition Shares have been credited pro rata to
open accounts in the names of the Acquired Fund Shareholders as
provided in paragraph 1.3.
3.5 At the Closing each party shall deliver to the other such bills of
sale, instruments of assumption of liabilities, checks, assignments,
stock certificates, receipts or other documents as such other party
or its counsel may reasonably request in connection with the
transfer of assets, assumption of liabilities and liquidation
contemplated by paragraph 1.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants the following to the
Acquiring Fund as of the date hereof and agrees to confirm the
continuing accuracy and completeness in all material respects of the
following on the Closing Date:
(a) The Acquired Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Maryland;
(b) The Acquired Fund is a duly registered investment company
classified as a management company of the open-end type and
its registration with the Securities and Exchange Commission
as an investment company under the 1940 Act is in full force
and effect;
(c) The Acquired Fund is not in violation in any material respect
of any provision of its charter or Bylaws or of any agreement,
indenture, instrument, contract, lease or other undertaking to
which the Acquired Fund is a party or by which the Acquired
Fund is bound, and the execution, delivery and performance of
this Agreement will not result in any such violation;
(d) The Acquired Fund has no material contracts or other
commitments (other than this Agreement and such other
contracts as may be entered into in the ordinary course of its
business) which if terminated may result in material liability
to the Acquired Fund or under which (whether or not
terminated) any material payments for periods subsequent to
the Closing Date will be due from the Acquired Fund;
(e) To the knowledge of the Acquired Fund, except as has been
disclosed in writing to the Acquiring Fund, no litigation or
administrative proceeding or investigation of or before any
court or governmental body is presently pending or threatened
as to the Acquired Fund or any of its properties or assets or
any person whom the Acquired Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation, and the Acquired Fund is not a party to or
subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely
affects its business or its ability to consummate the
transactions contemplated hereby;
(f) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the
schedule of investments of the Acquired Fund at, as of and for
the fiscal year ended October 31, 2004, audited by
PricewaterhouseCoopers LLP, copies of which have been
furnished to the Acquiring Fund, fairly reflect the financial
condition and results of operations of the Acquired Fund as of
such date and for the period then ended in accordance with
generally accepted accounting principles consistently applied,
and the Acquired Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on the
statements of assets referred to above or those incurred in
the ordinary course of its business since October 31, 2004;
A-4
(g) Since October 31, 2004, there has not been any material
adverse change in the Acquired Fund's financial condition,
assets, liabilities or business (other than changes occurring
in the ordinary course of business), or any incurrence by the
Acquired Fund of indebtedness, except as disclosed in writing
to the Acquiring Fund. For the purposes of this subparagraph
(g), distributions of net investment income and net realized
capital gains, changes in portfolio securities, changes in the
market value of portfolio securities or net redemptions shall
be deemed to be in the ordinary course of business;
(h) As of the Closing Date, all federal and other tax returns and
reports of the Acquired Fund required by law to have been
filed by such date (giving effect to extensions) shall have
been filed, and all federal and other taxes shown to be due on
such returns and reports or on any assessment received shall
have been paid, or provisions shall have been made for the
payment thereof. All of the Acquired Fund's tax liabilities
will have been adequately provided for on its books. To the
best of the Acquired Fund's knowledge, it will not have had
any tax deficiency or liability asserted against it or
question with respect thereto raised, and it will not be under
audit by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid;
(i) For federal income tax purposes, the Acquired Fund qualifies
as a "regulated investment company," and the provisions of
sections 851 through 855 of the Code apply to the Acquired
Fund for the remainder of its current taxable year beginning
November 1, 2004, and will continue to apply to it through the
Closing Date.
The Acquired Fund will sell all securities that the Acquiring
Fund advises it in writing, by a date to be agreed by the
parties, that the Acquiring Fund does not wish to receive at
the Closing, and will declare to Acquired Fund shareholders of
record on or prior to the Closing Date a dividend or dividends
which, together with all previous such dividends, shall have
the effect of distributing (a) all of the excess of (i)
Acquired Fund's investment income excludable from gross income
under section 103(a) of the Code over (ii) Acquired Fund's
deductions disallowed under sections 265 and 171(a)(2) of the
Code, (b) all of Acquired Fund's investment company taxable
income (as defined in Code section 852) (computed in each case
without regard to any deduction for dividends paid), and (c)
all of Acquired Fund's net realized capital gain (after
reduction for any capital loss carryover), in each case for
both the taxable year ending on October 31, 2004, and the
short taxable year beginning on November 1, 2004 and ending on
the Closing Date. Such dividends will be made to ensure
continued qualification of Acquired Fund as a "regulated
investment company" for tax purposes and to eliminate
fund-level tax.
(j) The authorized capital of the Acquired Fund consists of twelve
billion (12,000,000,000) shares of common stock, having a par
value of one-tenth of one cent ($.001) per share. The
outstanding shares of common stock in the Acquiring Fund are,
and at the Closing Date will be, divided into Class A shares,
Class B shares, Class C Shares and Advisor Class shares, each
having the characteristics described in the Acquiring Fund
Prospectus. All issued and outstanding shares of the Acquiring
Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable (except
as set forth in the Acquiring Fund Prospectus) by the
Acquiring Fund, and will have been issued in compliance with
all applicable registration or qualification requirements of
federal and state securities laws. Except for Class B shares
which convert to Class A shares, no options, warrants or other
rights to subscribe for or purchase, or securities convertible
into, any shares of common stock in the Acquiring Fund of any
class are outstanding and none will be outstanding on the
Closing Date;
A-5
(k) The Acquired Fund's investment operations from inception to
the date hereof have been in compliance in all material
respects with the investment policies and investment
restrictions set forth in its prospectus or prospectuses and
statement or statements of additional information as in effect
from time to time, except as previously disclosed in writing
to the Acquiring Fund;
(l) The execution, delivery and performance of this Agreement has
been duly authorized by the Directors of the Acquired Fund,
and, upon approval thereof by the required majority of the
shareholders of the Acquired Fund (within the meaning of the
1940 Act), this Agreement will constitute the valid and
binding obligation of the Acquired Fund enforceable in
accordance with its terms except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and
other equitable principles;
(m) The Acquisition Shares to be issued to the Acquired Fund
pursuant to paragraph 1 will not be acquired for the purpose
of making any distribution thereof other than to the Acquired
Fund Shareholders as provided in paragraph 1.3;
(n) The information provided by the Acquired Fund for use in the
Registration Statement and Prospectus/Proxy Statement referred
to in paragraph 5.3 shall be accurate and complete in all
material respects and shall comply with federal securities and
other laws and regulations as applicable thereto;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this
Agreement, except such as may be required under the Securities
Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940
Act and state insurance, securities or "Blue Sky" laws (which
terms used herein shall include the laws of the District of
Columbia and of Puerto Rico);
(p) At the Closing Date, the Acquired Fund will have good and
marketable title to its assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.1 and will have full
right, power and authority to sell, assign, transfer and
deliver the Investments (as defined below) and any other
assets and liabilities of the Acquired Fund to be transferred
to the Acquiring Fund pursuant to this Agreement. At the
Closing Date, subject only to the delivery of the Investments
and any such other assets and liabilities and payment therefor
as contemplated by this Agreement, the Acquiring Fund will
acquire good and marketable title thereto and will acquire the
Investments and any such other assets and liabilities subject
to no encumbrances, liens or security interests whatsoever and
without any restrictions upon the transfer thereof, except as
previously disclosed to the Acquiring Fund. As used in this
Agreement, the term "Investments" shall mean the Acquired
Fund's investments shown on the schedule of its investments as
of October 31, 2004, referred to in subparagraph 4.1(f)
hereof, as supplemented with such changes in the portfolio as
the Acquired Fund shall make, and changes resulting from stock
dividends, stock split-ups, mergers and similar corporate
actions through the Closing Date;
(q) At the Closing Date, the Acquired Fund will have sold such of
its assets, if any, as are necessary to assure that, after
giving effect to the acquisition of the assets of the Acquired
Fund pursuant to this Agreement, the Acquiring Fund will
remain a "diversified company" within the meaning of Section
5(b)(1) of the 1940 Act and in compliance with such other
mandatory investment restrictions as are set forth in the
Acquiring Fund Prospectus, as amended through the Closing
Date; and
(r) No registration of any of the Investments would be required if
they were, as of the time of such transfer, the subject of a
public distribution by either of the Acquiring Fund or
A-6
the Acquired Fund, except as previously disclosed by the
Acquired Fund to the Acquiring Fund.
4.2 The Acquiring Fund represents and warrants the following to the
Acquired Fund as of the date hereof and agrees to confirm the
continuing accuracy and completeness in all material respects of the
following on the Closing Date:
(a) The Acquiring Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Maryland;
(b) The Acquiring Fund is a duly registered investment company
classified as a management company of the open-end type and
its registration with the Securities and Exchange Commission
as an investment company under the 1940 Act is in full force
and effect;
(c) The Acquiring Fund Prospectus conforms in all material
respects to the applicable requirements of the 1933 Act and
the rules and regulations of the Securities and Exchange
Commission thereunder and does not include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading, and there are no material
contracts to which the Acquiring Fund is a party that are not
referred to in such Prospectus or in the registration
statement of which it is a part;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to its assets;
(e) The Acquiring Fund is not in violation in any material respect
of any provisions of its charter or Bylaws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which
the Acquiring Fund is bound, and the execution, delivery and
performance of this Agreement will not result in any such
violation;
(f) To the knowledge of the Acquiring Fund, except as has been
disclosed in writing to the Acquired Fund, no litigation or
administrative proceeding or investigation of or before any
court or governmental body is presently pending or threatened
as to the Acquiring Fund or any of their properties or assets
or any person whom the Acquiring Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation, and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely
affects its business or its ability to consummate the
transactions contemplated hereby;
(g) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the
schedule of investments at, as of and for the year ended July
31, 2004, of the Acquiring Fund, audited by
PricewaterhouseCoopers LLP, copies of which have been
furnished to the Acquired Fund, fairly reflect the financial
condition and results of operations of the Acquiring Fund as
of such date and for the period then ended in accordance with
generally accepted accounting principles consistently applied,
and the Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on the
statements of assets referred to above or those incurred in
the ordinary course of its business since July 31, 2004;
(h) Since July 31, 2004, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets,
liabilities or business (other than changes occurring in the
ordinary course of business), or any incurrence by the
Acquiring Fund of
A-7
indebtedness. For the purposes of this subparagraph (h),
changes in portfolio securities, changes in the market value
of portfolio securities or net redemptions shall be deemed to
be in the ordinary course of business;
(i) As of the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law to have been
filed by such date (giving effect to extensions) shall have
been filed, and all federal and other taxes shown to be due on
such returns and reports or any assessments received shall
have been paid, or provisions shall have been made for the
payment thereof. All of the Acquiring Fund's tax liabilities
will have been adequately provided for on its books. To the
best of the Acquiring Fund's knowledge, it will not have had
any tax deficiency or liability asserted against it or
question with respect thereto raised, and it will not be under
audit by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid;
(j) For federal income tax purposes, the Acquiring Fund qualifies
as a regulated investment company, and the provisions of
sections 851 through 855 of the Code will apply to the
Acquiring Fund for the remainder of its current taxable year
beginning August 1, 2004, and will continue to apply to it
through the Closing Date;
(k) The authorized capital of the Acquiring Fund consists of
twelve billion (12,000,000,000) shares of common stock, having
a par value of one-tenth of one cent ($.001) per share. The
outstanding shares of common stock in the Acquiring Fund are,
and at the Closing Date will be, divided into Class A, Class
B, Class C, and Advisor Class shares, each having the
characteristics described in the Acquiring Fund Prospectus.
All issued and outstanding shares of the Acquiring Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable (except as set
forth in the Acquiring Fund Prospectus) by the Acquiring Fund,
and will have been issued in compliance with all applicable
registration or qualification requirements of federal and
state securities laws. Except for Class B shares which convert
to Class A shares, no options, warrants or other rights to
subscribe for or purchase, or securities convertible into, any
shares of common stock in the Acquiring Fund of any class are
outstanding and none will be outstanding on the Closing Date;
(l) The Acquiring Fund's investment operations from inception to
the date hereof have been in compliance in all material
respects with the investment policies and investment
restrictions set forth in the Acquiring Fund Prospectus;
(m) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of
the Acquiring Fund, and this Agreement constitutes the valid
and binding obligation of the Acquiring Fund enforceable in
accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally
and other equitable principles;
(n) The Acquisition Shares to be issued and delivered to the
Acquired Fund pursuant to the terms of this Agreement will at
the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Class A, Class
B, Class C and Advisor Class shares of common stock in the
Acquiring Fund, and will be fully paid and non-assessable
(except as set forth in the Acquiring Fund Prospectus) by the
Acquiring Fund, and no shareholder of the Acquiring Fund will
have any preemptive right of subscription or purchase in
respect thereof;
(o) The information to be furnished by the Acquiring Fund for use
in the Registration Statement and Prospectus/Proxy Statement
referred to in paragraph 5.3 shall be accurate and complete in
all material respects and shall comply with federal securities
and other laws and regulations applicable thereto; and
A-8
(p) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act,
the 1934 Act, the 1940 Act and state insurance, securities or
"Blue Sky" laws (which term as used herein shall include the
laws of the District of Columbia and of Puerto Rico).
5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND.
The Acquired Fund and the Acquiring Fund hereby covenant and agree as
follows:
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of
business will include regular and customary periodic dividends and
distributions.
5.2 The Acquired Fund will call a meeting of its shareholders to be held
prior to the Closing Date to consider and act upon this Agreement
and take all other reasonable action necessary to obtain the
required shareholder approval of the transactions contemplated
hereby.
5.3 In connection with the Acquired Fund shareholders' meeting referred
to in paragraph 5.2, the Acquired Fund will prepare a
Prospectus/Proxy Statement for such meeting, to be included in a
Registration Statement on Form N-14 (the "Registration Statement")
which the Acquiring Fund will prepare and file for the registration
under the 1933 Act of the Acquisition Shares to be distributed to
the Acquired Fund shareholders pursuant hereto, all in compliance
with the applicable requirements of the 1933 Act, the 1934 Act, and
the 1940 Act.
5.4 The information to be furnished by the Acquired Fund for use in the
Registration Statement and the information to be furnished by the
Acquiring Fund for use in the Prospectus/Proxy Statement, each as
referred to in paragraph 5.3, shall be accurate and complete in all
material respects and shall comply with federal securities and other
laws and regulations thereunder applicable thereto.
5.5 The Acquiring Fund will advise the Acquired Fund promptly if at any
time prior to the Closing Date the assets of the Acquired Fund
include any securities which the Acquiring Fund is not permitted to
acquire.
5.6 Subject to the provisions of this Agreement, the Acquired Fund and
the Acquiring Fund will each take, or cause to be taken, all action,
and do or cause to be done, all things reasonably necessary, proper
or advisable to cause the conditions to the other party's
obligations to consummate the transactions contemplated hereby to be
met or fulfilled and otherwise to consummate and make effective such
transactions.
5.7 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state securities or "Blue Sky" laws as it may deem
appropriate in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, to the following further
conditions:
6.1 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or Vice President
and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquired Fund and dated as of the Closing Date,
to the effect that the representations and warranties of the
Acquiring Fund made in this Agreement are true and correct
A-9
at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and that the Acquiring
Fund has complied with all the covenants and agreements and
satisfied all of the conditions on their parts to be performed or
satisfied under this Agreement at or prior to the Closing Date.
6.2 The Acquiring Fund shall have received a favorable opinion of Ropes
& Gray LLP, counsel to the Acquiring Fund for the transactions
contemplated hereby, or other counsel to the Acquiring Fund, dated
the Closing Date and in a form satisfactory to the Acquiring Fund,
substantially to the following effect:
(a) The Acquiring Fund is a corporation duly organized and
existing under the laws of the State of Maryland and has power
to own all of its properties and assets and to carry on its
business as presently conducted;
(b) This Agreement has been duly authorized, executed and
delivered by the Acquiring Fund and, assuming the Registration
Statement and the Prospectus/Proxy Statement referred to in
paragraph 5.3 comply with applicable federal securities laws
and assuming the due authorization, execution and delivery of
this Agreement by the Acquired Fund, is the valid and binding
obligation of the Acquiring Fund enforceable against the
Acquiring Fund in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors'
rights generally and other equitable principles;
(c) The Acquiring Fund has the power to assume the liabilities to
be assumed by it hereunder and upon consummation of the
transactions contemplated hereby the Acquiring Fund will have
duly assumed such liabilities;
(d) The Acquisition Shares to be issued for transfer to the
Acquired Fund Shareholders as provided by this Agreement are
duly authorized and upon such transfer and delivery will be
validly issued and outstanding and fully paid and
nonassessable Class A, Class B, Class C and Advisor Class
shares of common stock in the Acquiring Fund, and no
shareholder of the Acquiring Fund has any preemptive right of
subscription or purchase in respect thereof;
(e) The execution and delivery of this Agreement did not, and the
performance by the Acquiring Fund of its obligations hereunder
will not, violate the Acquiring Fund's charter or Bylaws, or
any provision of any agreement known to such counsel to which
the Acquiring Fund is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of
any obligation or the imposition of any penalty under any
agreement, judgment, or decree to which the Acquiring Fund is
a party or by which either of them is bound;
(f) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority
is required for the consummation by the Acquiring Fund of the
transactions contemplated by this Agreement except such as may
be required under state securities or "Blue Sky" laws or such
as have been obtained;
(g) Such counsel does not know of any legal or governmental
proceedings relating to the Acquiring Fund existing on or
before the date of mailing of the Prospectus/Proxy Statement
referred to in paragraph 5.3 or the Closing Date required to
be described in the Registration Statement which are not
described as required;
(h) The Acquiring Fund is registered with the Securities and
Exchange Commission as an investment company under the 1940
Act; and
A-10
(i) To the knowledge of such counsel, except as has been disclosed
in writing to the Acquired Fund, no litigation or
administrative proceeding or investigation of or before any
court or governmental body is presently pending or threatened
as to the Acquiring Fund or any of its properties or assets or
any person whom the Acquiring Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation, and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely
affects its business or its ability to consummate the
transactions contemplated hereby.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, to the following further
conditions:
7.1 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate executed in its name by its President or Vice President
and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date,
to the effect that the representations and warranties of the
Acquired Fund made in this Agreement are true and correct at and as
of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and that the Acquired
Fund has complied with all the covenants and agreements and
satisfied all of the conditions on their parts to be performed or
satisfied under this Agreement at or prior to the Closing Date;
7.2 The Acquired Fund shall have received a favorable opinion of Ropes &
Gray LLP, counsel to the Acquired Fund for the transactions
contemplated hereby, or other counsel to the Acquired Fund, dated
the Closing Date and in a form satisfactory to the Acquired Fund,
substantially to the following effect:
(a) The Acquired Fund is a corporation duly organized and existing
under the laws of the State of Maryland and has power to own
all of its properties and assets and to carry on its business
as presently conducted, and is duly constituted in accordance
with the applicable provisions of the 1940 Act and the charter
and Bylaws of the Acquired Fund;
(b) This Agreement has been duly authorized, executed and
delivered on behalf of the Acquired Fund and, assuming the
Registration Statement and the Prospectus/Proxy Statement
referred to in paragraph 5.3 comply with applicable federal
securities laws and assuming the due authorization, execution
and delivery of this Agreement by the Acquiring Fund, is the
valid and binding obligation of the Acquired Fund enforceable
against the Acquired Fund in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles;
(c) The Acquired Fund has the power to sell, assign, transfer and
deliver the assets to be transferred by it hereunder, and,
upon consummation of the transactions contemplated hereby, the
Acquired Fund will have duly transferred such assets to the
Acquiring Fund;
(d) The execution and delivery of this Agreement did not, and the
performance by the Acquired Fund of its obligations hereunder
will not, violate the Acquired Fund's charter or Bylaws, or
any provision of any agreement known to such counsel to which
the Acquired Fund is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of
any obligation or the imposition of any penalty under any
agreement, judgment, or decree to which the Acquired Fund is a
party or by which it is bound;
A-11
(e) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority
is required for the consummation by the Acquired Fund of the
transactions contemplated by this Agreement, except such as
have been obtained;
(f) Such counsel does not know of any legal or governmental
proceedings relating to the Acquired Fund existing on or
before the date of mailing of the Prospectus/Proxy Statement
referred to in paragraph 5.3 or the Closing Date required to
be described in the Registration Statement which are not
described as required;
(g) The Acquired Fund is registered with the Securities and
Exchange Commission as an investment company under the 1940
Act; and
(h) To the knowledge of such counsel, except as has been disclosed
in writing to the Acquiring Fund, no litigation or
administrative proceeding or investigation of or before any
court or governmental body is presently pending or threatened
as to the Acquired Fund or any of its properties or assets or
any person whom the Acquired Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation, and the Acquired Fund is not a party to or
subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely
affects its business or its ability to consummate the
transactions contemplated hereby.
7.3 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous dividends,
shall have the effect of distributing all of the Acquired Fund's
investment company taxable income for its taxable years ending on or
after October 31, 2004 and on or prior to the Closing Date (computed
without regard to any deduction for dividends paid), and all of its
net capital gains realized in each of its taxable years ending on or
after October 31, 2004 and on or prior to the Closing Date.
7.4 The Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer of the Acquired Fund, as to the adjusted tax basis in the
hands of the Acquired Fund of the securities delivered to the
Acquiring Fund pursuant to this Agreement.
7.5 The custodian of the Acquired Fund shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the
Acquired Fund held by such custodian as of the Valuation Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
The respective obligations of the Acquiring Fund and the Acquired Fund
hereunder are subject to the further conditions that on or before the Closing
Date:
8.1 This Agreement and the transactions contemplated herein shall have
received all necessary shareholder approvals at the meeting of
shareholders of the Acquired Fund referred to in paragraph 5.2.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated
hereby.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities
(including those of the Securities and Exchange Commission and of
state "Blue Sky" and securities authorities) deemed necessary by the
Acquiring Fund and the Acquired Fund to permit consummation, in all
material respects, of the transactions contemplated hereby shall
have been obtained, except where failure to obtain any such consent,
order or permit would
A-12
not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund.
8.4 The Registration Statement shall have become effective under the
1933 Act and no stop order suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties
hereto, no investigation or proceeding for that purpose shall have
been instituted or be pending, threatened or contemplated under the
1933 Act.
8.5 The Acquired Fund and the Acquiring Fund shall have received an
opinion of Ropes & Gray LLP reasonably satisfactory to each Fund
substantially to the effect that, although not free from doubt, for
federal income tax purposes:
(a) The acquisition by the Acquiring Fund of the assets of the
Acquired Fund in exchange for the Acquiring Fund's assumption
of the liabilities of the Acquired Fund under paragraph 1.1(b)
and issuance of the Acquisition Shares, followed by the
distribution by the Acquired Fund of such Acquisition Shares
to the shareholders of the Acquired Fund in exchange for their
shares of the Acquired Fund, all as provided in paragraph 1
hereof (the "Acquisition"), will constitute a reorganization
within the meaning of Section 368(a) of the Code, and the
Acquired Fund and the Acquiring Fund will each be "a party to
a reorganization" within the meaning of Section 368(b) of the
Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for
Acquisition Shares and the assumption by the Acquiring Fund of
the liabilities of the Acquired Fund;
(c) The basis in the hands of the Acquiring Fund of the assets of
the Acquired Fund transferred to the Acquiring Fund in the
Transaction will be the same as the basis of such assets in
the hands of the Acquired Fund immediately prior to the
transfer;
(d) The holding periods of the assets of the Acquired Fund in the
hands of the Acquiring Fund will include the periods during
which such assets were held by the Acquired Fund;
(e) No gain or loss will be recognized by the Acquired Fund upon
the transfer of the Acquired Fund's assets to the Acquiring
Fund in exchange for Acquisition Shares and the assumption by
the Acquiring Fund of the liabilities of the Acquired Fund, or
upon the distribution of Acquisition Shares by the Acquired
Fund to its shareholders in liquidation;
(f) No gain or loss will be recognized by the Acquired Fund
shareholders upon the exchange of their Acquired Fund shares
for Acquisition Shares;
(g) The aggregate basis of Acquisition Shares that an Acquired
Fund shareholder receives in connection with the Acquisition
will be the same as the aggregate basis of his or her Acquired
Fund shares exchanged therefore;
(h) An Acquired Fund shareholder's holding period for his or her
Acquisition Shares will be determined by including the period
for which he or she held the Acquired Fund shares exchanged
therefore, provided that he or she held such Acquired Fund
shares as capital assets; and
(i) The Acquiring Fund will succeed to and take into account the
items of the Acquired Fund described in Section 381(c) of the
Code. The Acquiring Fund will take these items into account
subject to the conditions and limitations specified in
Sections 381, 382, 383 and 384 of the Code and the Regulations
thereunder.
A-13
The opinion will be based on certain factual certifications
made by officers of the Acquired Fund and Acquiring Fund and
will also be based on customary assumptions and subject to
certain qualifications. The opinion is not a guarantee that
the tax consequences of the Acquisition will be as described
above.
Notwithstanding paragraphs (c) and (e) above, Ropes & Gray LLP
will express no view with respect to the effect of the
Acquisition on any transferred asset as to which any
unrealized gain or loss is required to be recognized at the
end of a taxable year (or on the termination or transfer
thereof) under federal income tax principles. Each Fund agrees
to make and provide additional representations to Ropes & Gray
LLP with respect to the Acquiring Fund and the Acquired Fund,
respectively, that are reasonably necessary to enable Ropes &
Gray LLP to deliver the tax opinion. Notwithstanding anything
herein to the contrary, neither Fund may waive in any material
respect the condition set forth in this paragraph 8.5.
8.6 At a special meeting of shareholders held on April 21, 2005,
the Acquiring Fund shall have obtained the requisite
shareholder approval for the change to its investment
objective described in the proxy statement of the Acquiring
Fund dated March 4, 2005 and set forth in Appendix A to this
Agreement.
8.7 At any time prior to the Closing, any of the foregoing
conditions of this Agreement may be waived by the Board of
Directors of the Acquired Fund or the Acquiring Fund, if, in
their judgment, such waiver will not have a material adverse
effect on the interests of the shareholders of the Acquired
Fund or the Acquiring Fund.
9. BROKERAGE FEES AND EXPENSES.
9.1 The Acquired Fund and the Acquiring Fund each represents and
warrants to the other that there are no brokers or finders entitled
to receive any payments in connection with the transactions provided
for herein.
9.2 All fees paid to governmental authorities for the registration or
qualification of the Acquisition Shares and all transfer agency
costs related to the issuance of the Acquisition Shares shall be
paid by Alliance. All fees and expenses related to printing,
mailing, solicitation of proxies and tabulation of votes of Acquired
Fund shareholders shall be paid by Alliance. All of the other
expenses of the transaction, including without limitation,
accounting, legal and custodial expenses, shall also be paid by
Alliance; provided, however, the expenses associated with the
disposition or acquisition of portfolio securities in connection
with the transactions contemplated by this Agreement shall be
allocated to the Fund making such disposition or acquisition.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES.
10.1 The Acquired Fund and the Acquiring Fund each agree that neither
party has made any representation, warranty or covenant not set
forth herein and that this Agreement constitutes the entire
agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in
connection herewith shall not survive the consummation of the
transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.5,
5.4, 9, 10 and 13.
11. TERMINATION.
11.1 This Agreement may be terminated by the mutual agreement of the
Acquired Fund and the Acquiring Fund. In addition, either the
Acquired Fund or the Acquiring Fund may at its option terminate this
Agreement at or prior to the Closing Date because:
A-14
(a) Of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be
performed by the other party at or prior to the Closing Date;
(b) A condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met; or
(c) Any governmental authority of competent jurisdiction shall
have issued any judgment, injunction, order, ruling or decree
or taken any other action restraining, enjoining or otherwise
prohibiting this Agreement or the consummation of any of the
transactions contemplated herein and such judgment,
injunction, order, ruling, decree or other action becomes
final and non-appealable; provided that the party seeking to
terminate this Agreement pursuant to this Section 11.1(c)
shall have used its reasonable best efforts to have such
judgment, injunction, order, ruling, decree or other action
lifted, vacated or denied.
11.2 If for any reason the transactions contemplated by this Agreement
are not consummated, no party shall be liable to any other party for
any damages resulting therefrom, including without limitation
consequential damages.
12. AMENDMENTS.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
shareholders' meeting called by the Acquired Fund pursuant to paragraph 5.2, no
such amendment may have the effect of changing the provisions for determining
the number of the Acquisition Shares to be issued to shareholders of the
Acquired Fund under this Agreement to the detriment of such shareholders without
their further approval.
13. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; NON-RECOURSE.
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of the State of Maryland, without
giving effect to any choice or conflicts of law rule or provision
that would result in the application of the domestic substantive
laws of any other jurisdiction.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of
the other party. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person, firm or
corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of
this Agreement.
A-15
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as a sealed instrument by its President or Treasurer and its
corporate seal to be affixed thereto and attested by its Secretary or Assistant
Secretary.
ALLIANCEBERNSTEIN ALL-ASIA INVESTMENT
FUND, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ATTEST:
- ---------------------------------
Name:
---------------------------
Title:
---------------------------
ALLIANCEBERNSTEIN INTERNATIONAL RESEARCH
GROWTH FUND, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ATTEST:
- ---------------------------------
Name:
---------------------------
Title:
---------------------------
Solely for purposes of Paragraphs 1.1(d)
and 9.2 of the Agreement
ALLIANCE CAPITAL MANAGEMENT L.P.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ATTEST:
- ---------------------------------
Name:
---------------------------
Title:
---------------------------
APPENDIX A
- --------------------------------------------------------------------------------
Former Investment Objective New Investment Objective
- --------------------------------------------------------------------------------
[L]ong-term growth of capital by investing Long-term growth of capital
predominantly in equity securities of a
limited number of carefully selected
international companies that are judged
likely to achieve superior earnings growth.
Current income is incidental to the Fund's
objective
- --------------------------------------------------------------------------------
Appendix B
FORM OF AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
RELATING TO THE ACQUISTION OF THE
ALLIANCEBERNSTEIN NEW EUROPE FUND, INC.
THIS AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of
March , 2005 is by and among AllianceBernstein New Europe Fund, Inc. (the
"Acquired Fund"), a Maryland corporation; AllianceBernstein International
Research Growth Fund, Inc. (the "Acquiring Fund"), a Maryland corporation; and
Alliance Capital Management L.P. ("Alliance").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Sections 361(a) and Section
368(a) of the United States Internal Revenue Code of 1986, as amended (the
"Code"), and any successor provision. The reorganization will consist of the
transfer of all of the assets of the Acquired Fund attributable to its Class A
shares in exchange for Class A shares of common stock of the Acquiring Fund
("Class A Acquisition Shares"), the transfer of all of the assets of the
Acquired Fund attributable to its Class B shares in exchange for Class B shares
of common stock of the Acquiring Fund ("Class B Acquisition Shares"), the
transfer of all of the assets of the Acquired Fund attributable to its Class C
shares in exchange for Class C shares of common stock of the Acquiring Fund
("Class C Acquisition Shares"), the transfer of all of the assets of the
Acquired Fund attributable to its Advisor Class shares in exchange for Advisor
Class shares of common stock of the Acquiring Fund ("Advisor Class Acquisition
Shares" and together with the Class A Acquisition Shares, Class B Acquisition
Shares and Class C Acquisition Shares, the "Acquisition Shares") and the
assumption by the Acquiring Fund of certain liabilities of the Acquired Fund
(other than certain expenses of the reorganization contemplated hereby) and the
distribution of the Class A Acquisition Shares, the Class B Acquisition Shares,
the Class C Acquisition Shares, and the Advisor Class Acquisition Shares to the
Class A, Class B, Class C and Advisor Class shareholders, respectively, of the
Acquired Fund in liquidation of the Acquired Fund, all upon the terms and
conditions set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF CERTAIN
LIABILITIES AND ACQUISITION SHARES AND LIQUIDATION OF ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein,
(a) The Acquired Fund will transfer and deliver to the Acquiring
Fund, and the Acquiring Fund will acquire, all the assets of
the Acquired Fund as set forth in paragraph 1.2;
(b) The Acquiring Fund will assume all of the Acquired Fund's
liabilities and obligations of any kind whatsoever, whether
absolute, accrued, contingent or otherwise, in existence on
the Closing Date (as defined in paragraph 1.2 hereof), except
for any liability that is not disclosed to the Acquiring Fund
as of the Closing Date and any liability to the extent that
it, although disclosed, is not fully reflected on the books of
the Acquired Fund; and
(c) The Acquiring Fund will issue and deliver to the Acquired Fund
in exchange for such assets the number of Class A, Class B,
Class C, and Advisor Class Acquisition Shares (including
fractional shares, if any) determined by dividing the net
asset values of the Class A, Class B, Class C and Advisor
Class shares of the Acquired Fund, respectively, computed in
the manner and as of the time and date set forth in paragraph
2.1, by the net asset value of one Class A, Class B, Class C
or Advisor Class Acquisition Share, as applicable, computed in
the manner and as of the time and date set forth in paragraph
2.2.
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Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing").
(d) Alliance agrees to indemnify and hold harmless the Acquired
Fund and the Acquiring Fund against any liability the
Acquiring Fund does not assume under paragraph 1.1(b) and to
reimburse any reasonable legal or other costs and expenses
incurred by them in connection with investigating or defending
against such liability.
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all cash, securities, dividends and interest
receivable, receivables for shares sold and all other assets which
are owned by the Acquired Fund on the closing date provided in
paragraph 3.1 (the "Closing Date") and any deferred expenses, other
than unamortized organizational expenses, shown as an asset on the
books of the Acquired Fund on the Closing Date. The Acquiring Fund
agrees that all rights to indemnification and all limitations of
liability existing in favor of the Acquired Fund's current and
former Directors and officers, acting in their capacities as such,
under the Acquired Fund's charter and Bylaws as in effect as of the
date of this Agreement shall survive the reorganization as
obligations of the Acquiring Fund and shall continue in full force
and effect, without any amendment thereto, and shall constitute
rights which may be asserted against the Acquiring Fund, its
successors or assigns.
1.3 As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to its Class A shareholders
of record ("Acquired Fund Class A Shareholders"), determined as of
the close of business on the Valuation Date (as defined in paragraph
2.1), Class A Acquisition Shares received by the Acquired Fund
pursuant to paragraph 1.1; to its Class B shareholders of record
("Acquired Fund Class B Shareholders"), determined as of the close
of business on the Valuation Date, Class B Acquisition Shares
received by the Acquired Fund pursuant to paragraph 1.1; to its
Class C shareholders of record ("Acquired Fund Class C
Shareholders"), determined as of the close of business on the
Valuation Date, Class C Acquisition Shares received by the Acquired
Fund pursuant to paragraph 1.1; and to its Advisor Class
shareholders of record ("Acquired Fund Advisor Class Shareholders,"
and collectively with Acquired Fund Class A Shareholders, Acquired
Fund Class B Shareholders and Acquired Fund Class C Shareholders,
the "Acquired Fund Shareholders"), determined as of the close of
business on the Valuation Date, Advisor Class Acquisition Shares
received by the Acquired Fund pursuant to paragraph 1.1. Such
liquidation and distribution will be accomplished by the transfer of
the Acquisition Shares then credited to the account of the Acquired
Fund on the books of the Acquiring Fund to open accounts on the
share records of the Acquiring Fund in the names of the Acquired
Fund Shareholders and representing the respective pro rata number of
Acquisition Shares due such shareholders. The Acquiring Fund shall
not be obligated to issue certificates representing Acquisition
Shares in connection with such exchange.
1.4 With respect to Acquisition Shares distributable pursuant to
paragraph 1.3 to an Acquired Fund Shareholder holding a certificate
or certificates for shares of the Acquired Fund, if any, on the
Valuation Date, the Acquiring Fund will not permit such shareholder
to receive Acquisition Share certificates therefor, exchange such
Acquisition Shares for shares of other investment companies, effect
an account transfer of such Acquisition Shares, or pledge or redeem
such Acquisition Shares until the Acquiring Fund has been notified
by the Acquired Fund or its agent that such Acquired Fund
Shareholder has surrendered all his or her outstanding certificates
for Acquired Fund shares or, in the event of lost certificates,
posted adequate bond.
1.5 After the Closing Date, the Acquired Fund shall not conduct any
business except in connection with its liquidation and dissolution.
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2. VALUATION.
2.1 For the purpose of paragraph 1, the value of the Acquired Fund's
assets to be acquired by the Acquiring Fund hereunder shall be the
net asset value computed as of the close of regular trading on the
New York Stock Exchange on the business day next preceding the
Closing (such time and date being herein called the "Valuation
Date") using the valuation procedures set forth in the charter of
the Acquiring Fund and the then current prospectus or prospectuses
or statement or statements of additional information of the
Acquiring Fund (collectively, as amended or supplemented from time
to time, the "Acquiring Fund Prospectus"), after deduction for the
expenses of the reorganization contemplated hereby to be paid by the
Acquired Fund pursuant to paragraph 9.2, and shall be certified by
the Acquired Fund.
2.2 For the purpose of paragraph 2.1, the net asset value of a Class A,
Class B, Class C and Advisor Class Acquisition Share shall be the
net asset value per share computed as of the close of regular
trading on the New York Stock Exchange on the Valuation Date, using
the valuation procedures set forth in the charter of the Acquiring
Fund and the Acquiring Fund Prospectus.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be on June 24, 2005 or on such other date as
the parties may agree, provided that if the Closing has no occurred
on or before December 31, 2005, either the Acquired Fund or the
Acquiring Fund may terminate this Agreement upon written notice to
the other. The Closing shall be held at 11:00 a.m. Eastern Time at
the offices of the Acquiring Fund, the Acquired Fund and Alliance,
1345 Avenue of the Americas, New York, New York 10105, or at such
other time and/or place as the parties may agree.
3.2 The portfolio securities of the Acquired Fund shall be made
available by the Acquired Fund to Brown Brothers Harriman & Co., as
custodian for the Acquiring Fund (the "Custodian"), for examination
no later than five business days preceding the Valuation Date. On
the Closing Date, such portfolio securities and all of the Acquired
Fund's cash shall be delivered by the Acquired Fund to the Custodian
for the account of the Acquiring Fund, such portfolio securities to
be duly endorsed in proper form for transfer in such manner and
condition as to constitute good delivery thereof in accordance with
the custom of brokers or, in the case of portfolio securities held
in the U.S. Treasury Department's book-entry system or by The
Depository Trust Company, Participants Trust Company or other third
party depositories, by transfer to the account of the Custodian in
accordance with Rule 17f-4, Rule 17f-5 or Rule 17f-7, as the case
may be, under the Investment Company Act of 1940 (the "1940 Act")
and accompanied by all necessary federal and state stock transfer
stamps or a check for the appropriate purchase price thereof. The
cash delivered shall be in the form of currency or certified or
official bank checks, payable to the order of "Brown Brothers
Harriman & Co., custodian for AllianceBernstein International
Research Growth Fund, Inc." or shall be wired to an account pursuant
to instructions provided by the Acquiring Fund.
3.3 In the event that on the Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be
restricted, or (b) trading or the reporting of trading on said
Exchange or elsewhere shall be disrupted so that accurate appraisal
of the value of the net assets of the Acquired Fund or the Acquiring
Fund is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully
resumed and reporting shall have been restored; provided that if
trading shall not be fully resumed and reporting restored within
three business days of the Valuation Date, this Agreement may be
terminated by either the Acquired Fund or the Acquiring Fund upon
the giving of written notice to the other party.
3.4 At the Closing, the Acquired Fund or its transfer agent shall
deliver to the Acquiring Fund or its designated agent a list of the
names and addresses of the Acquired Fund Shareholders and the number
of outstanding shares of common stock of the Acquired Fund owned by
each Acquired Fund Shareholder, all as of the close of business on
the Valuation Date, certified by the Vice President, Secretary or
Assistant Secretary of the Acquired Fund. The Acquiring Fund will
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provide to the Acquired Fund evidence satisfactory to the Acquired
Fund that the Acquisition Shares issuable pursuant to paragraph 1.1
have been credited to the Acquired Fund's account on the books of
the Acquiring Fund. On the Liquidation Date, the Acquiring Fund will
provide to the Acquired Fund evidence satisfactory to the Acquired
Fund that such Acquisition Shares have been credited pro rata to
open accounts in the names of the Acquired Fund Shareholders as
provided in paragraph 1.3.
3.5 At the Closing each party shall deliver to the other such bills of
sale, instruments of assumption of liabilities, checks, assignments,
stock certificates, receipts or other documents as such other party
or its counsel may reasonably request in connection with the
transfer of assets, assumption of liabilities and liquidation
contemplated by paragraph 1.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants the following to the
Acquiring Fund as of the date hereof and agrees to confirm the
continuing accuracy and completeness in all material respects of the
following on the Closing Date:
(a) The Acquired Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Maryland;
(b) The Acquired Fund is a duly registered investment company
classified as a management company of the open-end type and
its registration with the Securities and Exchange Commission
as an investment company under the 1940 Act is in full force
and effect;
(c) The Acquired Fund is not in violation in any material respect
of any provision of its charter or Bylaws or of any agreement,
indenture, instrument, contract, lease or other undertaking to
which the Acquired Fund is a party or by which the Acquired
Fund is bound, and the execution, delivery and performance of
this Agreement will not result in any such violation;
(d) The Acquired Fund has no material contracts or other
commitments (other than this Agreement and such other
contracts as may be entered into in the ordinary course of its
business) which if terminated may result in material liability
to the Acquired Fund or under which (whether or not
terminated) any material payments for periods subsequent to
the Closing Date will be due from the Acquired Fund;
(e) To the knowledge of the Acquired Fund, except as has been
disclosed in writing to the Acquiring Fund, no litigation or
administrative proceeding or investigation of or before any
court or governmental body is presently pending or threatened
as to the Acquired Fund or any of its properties or assets or
any person whom the Acquired Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation, and the Acquired Fund is not a party to or
subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely
affects its business or its ability to consummate the
transactions contemplated hereby;
(f) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the
schedule of investments of the Acquired Fund at, as of and for
the fiscal year ended July 31, 2004, audited by
PricewaterhouseCoopers LLP, copies of which have been
furnished to the Acquiring Fund, fairly reflect the financial
condition and results of operations of the Acquired Fund as of
such date and for the period then ended in accordance with
generally accepted accounting principles consistently applied,
and the Acquired Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on the
statements of assets referred to above or those incurred in
the ordinary course of its business since July 31, 2004;
B-4
(g) Since July 31, 2004, there has not been any material adverse
change in the Acquired Fund's financial condition, assets,
liabilities or business (other than changes occurring in the
ordinary course of business), or any incurrence by the
Acquired Fund of indebtedness, except as disclosed in writing
to the Acquiring Fund. For the purposes of this subparagraph
(g), distributions of net investment income and net realized
capital gains, changes in portfolio securities, changes in the
market value of portfolio securities or net redemptions shall
be deemed to be in the ordinary course of business;
(h) As of the Closing Date, all federal and other tax returns and
reports of the Acquired Fund required by law to have been
filed by such date (giving effect to extensions) shall have
been filed, and all federal and other taxes shown to be due on
such returns and reports or on any assessment received shall
have been paid, or provisions shall have been made for the
payment thereof. All of the Acquired Fund's tax liabilities
will have been adequately provided for on its books. To the
best of the Acquired Fund's knowledge, it will not have had
any tax deficiency or liability asserted against it or
question with respect thereto raised, and it will not be under
audit by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid;
(i) For federal income tax purposes, the Acquired Fund qualifies
as a "regulated investment company," and the provisions of
sections 851 through 855 of the Code apply to the Acquired
Fund for the remainder of its current taxable year beginning
August 1, 2004, and will continue to apply to it through the
Closing Date.
The Acquired Fund will sell all securities that the Acquiring
Fund advises it in writing, by a date to be agreed by the
parties, that the Acquiring Fund does not wish to receive at
the Closing, and will declare to Acquired Fund shareholders of
record on or prior to the Closing Date a dividend or dividends
which, together with all previous such dividends, shall have
the effect of distributing (a) all of the excess of (i)
Acquired Fund's investment income excludable from gross income
under section 103(a) of the Code over (ii) Acquired Fund's
deductions disallowed under sections 265 and 171(a)(2) of the
Code, (b) all of Acquired Fund's investment company taxable
income (as defined in Code section 852) (computed in each case
without regard to any deduction for dividends paid), and (c)
all of Acquired Fund's net realized capital gain (after
reduction for any capital loss carryover), in each case for
both the taxable year ending on July 31, 2004, and the short
taxable year beginning on August 1, 2004 and ending on the
Closing Date. Such dividends will be made to ensure continued
qualification of Acquired Fund as a "regulated investment
company" for tax purposes and to eliminate fund-level tax.
(j) The authorized capital of the Acquired Fund one hundred
million (100,000,000) shares of common stock, having a par
value of one cent ($.01) per share. The outstanding shares of
common stock in the Acquiring Fund are, and at the Closing
Date will be, divided into Class A shares, Class B shares,
Class C Shares and Advisor Class shares, each having the
characteristics described in the Acquiring Fund Prospectus.
All issued and outstanding shares of the Acquiring Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable (except as set
forth in the Acquiring Fund Prospectus) by the Acquiring Fund,
and will have been issued in compliance with all applicable
registration or qualification requirements of federal and
state securities laws. Except for Class B shares which convert
to Class A shares, no options, warrants or other rights to
subscribe for or purchase, or securities convertible into, any
shares of common stock in the Acquiring Fund of any class are
outstanding and none will be outstanding on the Closing Date;
(k) The Acquired Fund's investment operations from inception to
the date hereof have been in compliance in all material
respects with the investment policies and investment
restrictions set forth in its prospectus or prospectuses and
statement or statements of
B-5
additional information as in effect from time to time, except
as previously disclosed in writing to the Acquiring Fund;
(l) The execution, delivery and performance of this Agreement has
been duly authorized by the Directors of the Acquired Fund,
and, upon approval thereof by the required majority of the
shareholders of the Acquired Fund (within the meaning of the
1940 Act), this Agreement will constitute the valid and
binding obligation of the Acquired Fund enforceable in
accordance with its terms except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and
other equitable principles;
(m) The Acquisition Shares to be issued to the Acquired Fund
pursuant to paragraph 1 will not be acquired for the purpose
of making any distribution thereof other than to the Acquired
Fund Shareholders as provided in paragraph 1.3;
(n) The information provided by the Acquired Fund for use in the
Registration Statement and Prospectus/Proxy Statement referred
to in paragraph 5.3 shall be accurate and complete in all
material respects and shall comply with federal securities and
other laws and regulations as applicable thereto;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this
Agreement, except such as may be required under the Securities
Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940
Act and state insurance, securities or "Blue Sky" laws (which
terms used herein shall include the laws of the District of
Columbia and of Puerto Rico);
(p) At the Closing Date, the Acquired Fund will have good and
marketable title to its assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.1 and will have full
right, power and authority to sell, assign, transfer and
deliver the Investments (as defined below) and any other
assets and liabilities of the Acquired Fund to be transferred
to the Acquiring Fund pursuant to this Agreement. At the
Closing Date, subject only to the delivery of the Investments
and any such other assets and liabilities and payment therefor
as contemplated by this Agreement, the Acquiring Fund will
acquire good and marketable title thereto and will acquire the
Investments and any such other assets and liabilities subject
to no encumbrances, liens or security interests whatsoever and
without any restrictions upon the transfer thereof, except as
previously disclosed to the Acquiring Fund. As used in this
Agreement, the term "Investments" shall mean the Acquired
Fund's investments shown on the schedule of its investments as
of July 31, 2004, referred to in subparagraph 4.1(f) hereof,
as supplemented with such changes in the portfolio as the
Acquired Fund shall make, and changes resulting from stock
dividends, stock split-ups, mergers and similar corporate
actions through the Closing Date;
(q) At the Closing Date, the Acquired Fund will have sold such of
its assets, if any, as are necessary to assure that, after
giving effect to the acquisition of the assets of the Acquired
Fund pursuant to this Agreement, the Acquiring Fund will
remain a "diversified company" within the meaning of Section
5(b)(1) of the 1940 Act and in compliance with such other
mandatory investment restrictions as are set forth in the
Acquiring Fund Prospectus, as amended through the Closing
Date; and
(r) No registration of any of the Investments would be required if
they were, as of the time of such transfer, the subject of a
public distribution by either of the Acquiring Fund or the
Acquired Fund, except as previously disclosed by the Acquired
Fund to the Acquiring Fund.
B-6
4.2 The Acquiring Fund represents and warrants the following to the
Acquired Fund as of the date hereof and agrees to confirm the
continuing accuracy and completeness in all material respects of the
following on the Closing Date:
(a) The Acquiring Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Maryland;
(b) The Acquiring Fund is a duly registered investment company
classified as a management company of the open-end type and
its registration with the Securities and Exchange Commission
as an investment company under the 1940 Act is in full force
and effect;
(c) The Acquiring Fund Prospectus conforms in all material
respects to the applicable requirements of the 1933 Act and
the rules and regulations of the Securities and Exchange
Commission thereunder and does not include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading, and there are no material
contracts to which the Acquiring Fund is a party that are not
referred to in such Prospectus or in the registration
statement of which it is a part;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to its assets;
(e) The Acquiring Fund is not in violation in any material respect
of any provisions of its charter or Bylaws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which
the Acquiring Fund is bound, and the execution, delivery and
performance of this Agreement will not result in any such
violation;
(f) To the knowledge of the Acquiring Fund, except as has been
disclosed in writing to the Acquired Fund, no litigation or
administrative proceeding or investigation of or before any
court or governmental body is presently pending or threatened
as to the Acquiring Fund or any of their properties or assets
or any person whom the Acquiring Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation, and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely
affects its business or its ability to consummate the
transactions contemplated hereby;
(g) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the
schedule of investments at, as of and for the year ended July
31, 2004, of the Acquiring Fund, audited by
PricewaterhouseCoopers LLP, copies of which have been
furnished to the Acquired Fund, fairly reflect the financial
condition and results of operations of the Acquiring Fund as
of such date and for the period then ended in accordance with
generally accepted accounting principles consistently applied,
and the Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on the
statements of assets referred to above or those incurred in
the ordinary course of its business since July 31, 2004;
(h) Since July 31, 2004, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets,
liabilities or business (other than changes occurring in the
ordinary course of business), or any incurrence by the
Acquiring Fund of indebtedness. For the purposes of this
subparagraph (h), changes in portfolio securities, changes in
the market value of portfolio securities or net redemptions
shall be deemed to be in the ordinary course of business;
(i) As of the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law to have been
filed by such date (giving effect to extensions) shall
B-7
have been filed, and all federal and other taxes shown to be
due on such returns and reports or any assessments received
shall have been paid, or provisions shall have been made for
the payment thereof. All of the Acquiring Fund's tax
liabilities will have been adequately provided for on its
books. To the best of the Acquiring Fund's knowledge, it will
not have had any tax deficiency or liability asserted against
it or question with respect thereto raised, and it will not be
under audit by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid;
(j) For federal income tax purposes, the Acquiring Fund qualifies
as a regulated investment company, and the provisions of
sections 851 through 855 of the Code will apply to the
Acquiring Fund for the remainder of its current taxable year
beginning August 1, 2004, and will continue to apply to it
through the Closing Date;
(k) The authorized capital of the Acquiring Fund consists of
twelve billion (12,000,000,000) shares of common stock, having
a par value of one-tenth of one cent ($.001) per share. The
outstanding shares of common stock in the Acquiring Fund are,
and at the Closing Date will be, divided into Class A, Class
B, Class C, and Advisor Class shares, each having the
characteristics described in the Acquiring Fund Prospectus.
All issued and outstanding shares of the Acquiring Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable (except as set
forth in the Acquiring Fund Prospectus) by the Acquiring Fund,
and will have been issued in compliance with all applicable
registration or qualification requirements of federal and
state securities laws. Except for Class B shares which convert
to Class A shares, no options, warrants or other rights to
subscribe for or purchase, or securities convertible into, any
shares of common stock in the Acquiring Fund of any class are
outstanding and none will be outstanding on the Closing Date;
(l) The Acquiring Fund's investment operations from inception to
the date hereof have been in compliance in all material
respects with the investment policies and investment
restrictions set forth in the Acquiring Fund Prospectus;
(m) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of
the Acquiring Fund, and this Agreement constitutes the valid
and binding obligation of the Acquiring Fund enforceable in
accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally
and other equitable principles;
(n) The Acquisition Shares to be issued and delivered to the
Acquired Fund pursuant to the terms of this Agreement will at
the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Class A, Class
B, Class C and Advisor Class shares of common stock in the
Acquiring Fund, and will be fully paid and non-assessable
(except as set forth in the Acquiring Fund Prospectus) by the
Acquiring Fund, and no shareholder of the Acquiring Fund will
have any preemptive right of subscription or purchase in
respect thereof;
(o) The information to be furnished by the Acquiring Fund for use
in the Registration Statement and Prospectus/Proxy Statement
referred to in paragraph 5.3 shall be accurate and complete in
all material respects and shall comply with federal securities
and other laws and regulations applicable thereto; and
(p) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act,
the 1934 Act, the 1940 Act and state insurance, securities or
"Blue Sky" laws (which term as used herein shall include the
laws of the District of Columbia and of Puerto Rico).
B-8
5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND.
The Acquired Fund and the Acquiring Fund hereby covenants and agree as
follows:
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of
business will include regular and customary periodic dividends and
distributions.
5.2 The Acquired Fund will call a meeting of its shareholders to be held
prior to the Closing Date to consider and act upon this Agreement
and take all other reasonable action necessary to obtain the
required shareholder approval of the transactions contemplated
hereby.
5.3 In connection with the Acquired Fund shareholders' meeting referred
to in paragraph 5.2, the Acquired Fund will prepare a
Prospectus/Proxy Statement for such meeting, to be included in a
Registration Statement on Form N-14 (the "Registration Statement")
which the Acquiring Fund will prepare and file for the registration
under the 1933 Act of the Acquisition Shares to be distributed to
the Acquired Fund shareholders pursuant hereto, all in compliance
with the applicable requirements of the 1933 Act, the 1934 Act, and
the 1940 Act.
5.4 The information to be furnished by the Acquired Fund for use in the
Registration Statement and the information to be furnished by the
Acquiring Fund for use in the Prospectus/Proxy Statement, each as
referred to in paragraph 5.3, shall be accurate and complete in all
material respects and shall comply with federal securities and other
laws and regulations thereunder applicable thereto.
5.5 The Acquiring Fund will advise the Acquired Fund promptly if at any
time prior to the Closing Date the assets of the Acquired Fund
include any securities which the Acquiring Fund is not permitted to
acquire.
5.6 Subject to the provisions of this Agreement, the Acquired Fund and
the Acquiring Fund will each take, or cause to be taken, all action,
and do or cause to be done, all things reasonably necessary, proper
or advisable to cause the conditions to the other party's
obligations to consummate the transactions contemplated hereby to be
met or fulfilled and otherwise to consummate and make effective such
transactions.
5.7 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state securities or "Blue Sky" laws as it may deem
appropriate in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by them hereunder on or
before the Closing Date and, in addition thereto, to the following further
conditions:
6.1 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or Vice President
and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquired Fund and dated as of the Closing Date,
to the effect that the representations and warranties of the
Acquiring Fund made in this Agreement are true and correct at and as
of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and that the Acquiring
Fund has complied with all the covenants and agreements and
satisfied all of the conditions on their parts to be performed or
satisfied under this Agreement at or prior to the Closing Date.
B-9
6.2 The Acquiring Fund shall have received a favorable opinion of Ropes
& Gray LLP, counsel to the Acquiring Fund for the transactions
contemplated hereby, or other counsel to the Acquiring Fund, dated
the Closing Date and in a form satisfactory to the Acquiring Fund,
substantially to the following effect:
(a) The Acquiring Fund is a corporation duly organized and
existing under the laws of the State of Maryland and has power
to own all of its properties and assets and to carry on its
business as presently conducted;
(b) This Agreement has been duly authorized, executed and
delivered by the Acquiring Fund and, assuming the Registration
Statement and the Prospectus/Proxy Statement referred to in
paragraph 5.3 comply with applicable federal securities laws
and assuming the due authorization, execution and delivery of
this Agreement by the Acquired Fund, is the valid and binding
obligation of the Acquiring Fund enforceable against the
Acquiring Fund in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors'
rights generally and other equitable principles;
(c) The Acquiring Fund has the power to assume the liabilities to
be assumed by it hereunder and upon consummation of the
transactions contemplated hereby the Acquiring Fund will have
duly assumed such liabilities;
(d) The Acquisition Shares to be issued for transfer to the
Acquired Fund Shareholders as provided by this Agreement are
duly authorized and upon such transfer and delivery will be
validly issued and outstanding and fully paid and
nonassessable Class A, Class B, Class C and Advisor Class
shares of common stock in the Acquiring Fund, and no
shareholder of the Acquiring Fund has any preemptive right of
subscription or purchase in respect thereof;
(e) The execution and delivery of this Agreement did not, and the
performance by the Acquiring Fund of its obligations hereunder
will not, violate the Acquiring Fund's charter or Bylaws, or
any provision of any agreement known to such counsel to which
the Acquiring Fund is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of
any obligation or the imposition of any penalty under any
agreement, judgment, or decree to which the Acquiring Fund is
a party or by which either of them is bound;
(f) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority
is required for the consummation by the Acquiring Fund of the
transactions contemplated by this Agreement except such as may
be required under state securities or "Blue Sky" laws or such
as have been obtained;
(g) Such counsel does not know of any legal or governmental
proceedings relating to the Acquiring Fund existing on or
before the date of mailing of the Prospectus/Proxy Statement
referred to in paragraph 5.3 or the Closing Date required to
be described in the Registration Statement which are not
described as required;
(h) The Acquiring Fund is registered with the Securities and
Exchange Commission as an investment company under the 1940
Act; and
(i) To the knowledge of such counsel, except as has been disclosed
in writing to the Acquired Fund, no litigation or
administrative proceeding or investigation of or before any
court or governmental body is presently pending or threatened
as to the Acquiring Fund or any of its properties or assets or
any person whom the Acquiring Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation, and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree
B-10
or judgment of any court or governmental body, which
materially and adversely affects its business or its ability
to consummate the transactions contemplated hereby.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, to the following further
conditions:
7.1 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate executed in its name by its President or Vice President
and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date,
to the effect that the representations and warranties of the
Acquired Fund made in this Agreement are true and correct at and as
of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and that the Acquired
Fund has complied with all the covenants and agreements and
satisfied all of the conditions on their parts to be performed or
satisfied under this Agreement at or prior to the Closing Date;
7.2 The Acquired Fund shall have received a favorable opinion of Ropes &
Gray LLP, counsel to the Acquired Fund for the transactions
contemplated hereby, or other counsel to the Acquired Fund, dated
the Closing Date and in a form satisfactory to the Acquired Fund,
substantially to the following effect:
(a) The Acquired Fund is a corporation duly organized and existing
under the laws of the State of Maryland and has power to own
all of its properties and assets and to carry on its business
as presently conducted, and is duly constituted in accordance
with the applicable provisions of the 1940 Act and the charter
and Bylaws of the Acquired Fund;
(b) This Agreement has been duly authorized, executed and
delivered on behalf of the Acquired Fund and, assuming the
Registration Statement and the Prospectus/Proxy Statement
referred to in paragraph 5.3 comply with applicable federal
securities laws and assuming the due authorization, execution
and delivery of this Agreement by the Acquiring Fund, is the
valid and binding obligation of the Acquired Fund enforceable
against the Acquired Fund in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles;
(c) The Acquired Fund has the power to sell, assign, transfer and
deliver the assets to be transferred by it hereunder, and,
upon consummation of the transactions contemplated hereby, the
Acquired Fund will have duly transferred such assets to the
Acquiring Fund;
(d) The execution and delivery of this Agreement did not, and the
performance by the Acquired Fund of its obligations hereunder
will not, violate the Acquired Fund's charter or Bylaws, or
any provision of any agreement known to such counsel to which
the Acquired Fund is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of
any obligation or the imposition of any penalty under any
agreement, judgment, or decree to which the Acquired Fund is a
party or by which it is bound;
(e) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority
is required for the consummation by the Acquired Fund of the
transactions contemplated by this Agreement, except such as
have been obtained;
(f) Such counsel does not know of any legal or governmental
proceedings relating to the Acquired Fund existing on or
before the date of mailing of the Prospectus/Proxy
B-11
Statement referred to in paragraph 5.3 or the Closing Date
required to be described in the Registration Statement which
are not described as required;
(g) The Acquired Fund is registered with the Securities and
Exchange Commission as an investment company under the 1940
Act; and
(h) To the knowledge of such counsel, except as has been disclosed
in writing to the Acquiring Fund, no litigation or
administrative proceeding or investigation of or before any
court or governmental body is presently pending or threatened
as to the Acquired Fund or any of its properties or assets or
any person whom the Acquired Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation, and the Acquired Fund is not a party to or
subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely
affects its business or its ability to consummate the
transactions contemplated hereby.
7.3 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous dividends,
shall have the effect of distributing all of the Acquired Fund's
investment company taxable income for its taxable years ending on or
after July 31, 2004 and on or prior to the Closing Date (computed
without regard to any deduction for dividends paid), and all of its
net capital gains realized in each of its taxable years ending on or
after July 31, 2004 and on or prior to the Closing Date.
7.4 The Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer of the Acquired Fund, as to the adjusted tax basis in the
hands of the Acquired Fund of the securities delivered to the
Acquiring Fund pursuant to this Agreement.
7.5 The custodian of the Acquired Fund shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the
Acquired Fund held by such custodian as of the Valuation Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
The respective obligations of the Acquiring Fund and the Acquired Fund
hereunder are subject to the further conditions that on or before the Closing
Date:
8.1 This Agreement and the transactions contemplated herein shall have
received all necessary shareholder approvals at the meeting of
shareholders of the Acquired Fund referred to in paragraph 5.2.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated
hereby.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities
(including those of the Securities and Exchange Commission and of
state "Blue Sky" and securities authorities) deemed necessary by
each Fund to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except
where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund.
8.4 The Registration Statement shall have become effective under the
1933 Act and no stop order suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties
hereto, no investigation or proceeding for that purpose shall have
been instituted or be pending, threatened or contemplated under the
1933 Act.
B-12
8.5 The Acquired Fund and the Acquiring Fund shall have received an
opinion of Ropes & Gray LLP reasonably satisfactory to each Fund
substantially to the effect that, although not free from doubt, for
federal income tax purposes:
(a) The acquisition by the Acquiring Fund of the assets of the
Acquired Fund in exchange for the Acquiring Fund's assumption
of the liabilities of the Acquired Fund under paragraph 1.1(b)
and issuance of the Acquisition Shares, followed by the
distribution by the Acquired Fund of such Acquisition Shares
to the shareholders of the Acquired Fund in exchange for their
shares of the Acquired Fund, all as provided in paragraph 1
hereof (the "Acquisition"), will constitute a reorganization
within the meaning of Section 368(a) of the Code, and the
Acquired Fund and the Acquiring Fund will each be "a party to
a reorganization" within the meaning of Section 368(b) of the
Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for
Acquisition Shares and the assumption by the Acquiring Fund of
the liabilities of the Acquired Fund;
(c) The basis in the hands of the Acquiring Fund of the assets of
the Acquired Fund transferred to the Acquiring Fund in the
Transaction will be the same as the basis of such assets in
the hands of the Acquired Fund immediately prior to the
transfer;
(d) The holding periods of the assets of the Acquired Fund in the
hands of the Acquiring Fund will include the periods during
which such assets were held by the Acquired Fund;
(e) No gain or loss will be recognized by the Acquired Fund upon
the transfer of the Acquired Fund's assets to the Acquiring
Fund in exchange for Acquisition Shares and the assumption by
the Acquiring Fund of the liabilities of the Acquired Fund, or
upon the distribution of Acquisition Shares by the Acquired
Fund to its shareholders in liquidation;
(f) No gain or loss will be recognized by the Acquired Fund
shareholders upon the exchange of their Acquired Fund shares
for Acquisition Shares;
(g) The aggregate basis of Acquisition Shares that an Acquired
Fund shareholder receives in connection with the Acquisition
will be the same as the aggregate basis of his or her Acquired
Fund shares exchanged therefore;
(h) An Acquired Fund shareholder's holding period for his or her
Acquisition Shares will be determined by including the period
for which he or she held the Acquired Fund shares exchanged
therefore, provided that he or she held such Acquired Fund
shares as capital assets; and
(i) The Acquiring Fund will succeed to and take into account the
items of the Acquired Fund described in Section 381(c) of the
Code. The Acquiring Fund will take these items into account
subject to the conditions and limitations specified in
Sections 381, 382, 383 and 384 of the Code and the Regulations
thereunder.
The opinion will be based on certain factual certifications made by
officers of the Acquired Fund and Acquiring Fund and will also be
based on customary assumptions and subject to certain
qualifications. The opinion is not a guarantee that the tax
consequences of the Acquisition will be as described above.
Notwithstanding paragraphs (c) and (e) above, Ropes & Gray LLP will
express no view with respect to the effect of the Acquisition on any
transferred asset as to which any unrealized gain or loss is
required to be recognized at the end of a taxable year (or on the
termination or transfer thereof) under federal income tax
principles. Each Fund agrees to make and provide additional
representations to Ropes & Gray LLP with respect to the Acquiring
Fund and the Acquired Fund,
B-13
respectively, that are reasonably necessary to enable Ropes & Gray
LLP to deliver the tax opinion. Notwithstanding anything herein to
the contrary, neither Fund may waive in any material respect the
condition set forth in this paragraph 8.5.
8.6 At a special meeting of shareholders held on April 21, 2005, the
Acquiring Fund shall have obtained the requisite shareholder
approval for the change to its investment objective described in the
proxy statement of the Acquiring Fund dated March 4, 2005 and set
forth in Appendix A to this Agreement.
8.7 At any time prior to the Closing, any of the foregoing conditions of
this Agreement may be waived by the Board of Directors of the
Acquired Fund or the Acquiring Fund, if, in their judgment, such
waiver will not have a material adverse effect on the interests of
the shareholders of the Acquired Fund or the Acquiring Fund.
9. BROKERAGE FEES AND EXPENSES.
9.1 The Acquired Fund and the Acquiring Fund each represents and
warrants to the other that there are no brokers or finders entitled
to receive any payments in connection with the transactions provided
for herein.
9.2 All fees paid to governmental authorities for the registration or
qualification of the Acquisition Shares and all transfer agency
costs related to the issuance of the Acquisition Shares shall be
paid by Alliance. All fees and expenses related to printing,
mailing, solicitation of proxies and tabulation of votes of Acquired
Fund shareholders shall be paid by Alliance. All of the other
expenses of the transaction, including without limitation,
accounting, legal and custodial expenses, shall also be paid by
Alliance; provided, however the expenses associated with the
disposition or acquisition of portfolio securities in connection
with the transactions contemplated by this Agreement shall be
allocated to the Fund making such disposition or acquisition.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES.
10.1 The Acquired Fund and the Acquiring Fund each agree that neither
party has made any representation, warranty or covenant not set
forth herein and that this Agreement constitutes the entire
agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in
connection herewith shall not survive the consummation of the
transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.5,
5.4, 9, 10 and 13.
11. TERMINATION.
11.1 This Agreement may be terminated by the mutual agreement of the
Acquired Fund and the Acquiring Fund. In addition, either the
Acquired Fund or the Acquiring Fund may at its option terminate this
Agreement at or prior to the Closing Date because:
(a) Of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be
performed by the other party at or prior to the Closing Date;
(b) A condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met; or
(c) Any governmental authority of competent jurisdiction shall
have issued any judgment, injunction, order, ruling or decree
or taken any other action restraining, enjoining or otherwise
prohibiting this Agreement or the consummation of any of the
transactions contemplated herein and such judgment,
injunction, order, ruling, decree or other action
B-14
becomes final and non-appealable; provided that the party
seeking to terminate this Agreement pursuant to this Section
11.1(c) shall have used its reasonable best efforts to have
such judgment, injunction, order, ruling, decree or other
action lifted, vacated or denied.
11.2 If for any reason the transactions contemplated by this Agreement
are not consummated, no party shall be liable to any other party for
any damages resulting therefrom, including without limitation
consequential damages.
12. AMENDMENTS.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
shareholders' meeting called by the Acquired Fund pursuant to paragraph 5.2 no
such amendment may have the effect of changing the provisions for determining
the number of the Acquisition Shares to be issued to shareholders of the
Acquired Fund under this Agreement to the detriment of such shareholders without
their further approval.
13. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; NON-RECOURSE.
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of the State of Maryland, without
giving effect to any choice or conflicts of law rule or provision
that would result in the application of the domestic substantive
laws of any other jurisdiction.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of
the other party. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person, firm or
corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of
this Agreement.
B-15
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as a sealed instrument by its President or Treasurer and its
corporate seal to be affixed thereto and attested by its Secretary or Assistant
Secretary.
ALLIANCEBERNSTEIN NEW EUROPE FUND, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ATTEST:
- ---------------------------------
Name:
---------------------------
Title:
---------------------------
ALLIANCEBERNSTEIN INTERNATIONAL RESEARCH
GROWTH FUND, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ATTEST:
- ---------------------------------
Name:
---------------------------
Title:
---------------------------
Solely for purposes of Paragraphs 1.1(d)
and 9.2 of the Agreement
ALLIANCE CAPITAL MANAGEMENT L.P.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ATTEST:
- ---------------------------------
Name:
---------------------------
Title:
---------------------------
APPENDIX A
- --------------------------------------------------------------------------------
Former Investment Objective New Investment Objective
- --------------------------------------------------------------------------------
[L]ong-term growth of capital by investing Long-term growth of capital
predominantly in equity securities of a
limited number of carefully selected
international companies that are judged
likely to achieve superior earnings growth.
Current income is incidental to the Fund's
objective
- --------------------------------------------------------------------------------
Appendix C
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of each
of All-Asia Fund, New Europe Fund and International Research Growth Fund as of
July 31, 2004 and on a pro forma combined basis, giving effect to the
acquisition of the assets and liabilities of All-Asia Fund by International
Research Growth Fund, of New Europe Fund by International Research Growth Fund,
and of both Acquired Funds by International Research Growth Fund, in each case,
at net asset value as of July 31, 2004.
Pro Forma
Combined of
All-Asia Fund
International into
Research International
All-Asia New Europe Growth Pro Forma Research Growth Pro Forma
Fund Fund Fund Adjustments Fund(1) Adjustments
---- ---- ---- ----------- ------- -----------
Class A
Net asset value $8,145,521 $66,252,996 $22,001,482 $30,147,003
Shares 1,454,875 4,612,759 2,588,559 (496,369) 3,547,065 3,180,090
outstanding
Net asset value $5.60 $14.36 $8.50 $8.50
per share
Class B
Net asset value $9,858,832 $49,465,577 $38,429,729 $48,288,561
Shares 1,900,128 3,875,844 4,744,170 (682,639) 5,961,659 2,229,807
outstanding
Net asset value $5.19 $12.76 $8.10 $8.10
per share
Class C
Net asset value $3,533,751 $14,959,579 $12,416,883 $15,950,634
Shares 678,660 1,167,557 1,532,197 (242,139) 1,968,718 678,913
outstanding
Net asset value $5.21 $12.81 $8.10 $8.10
per share
Advisor Class
Net asset value $4,145,497 $2,978,090 $14,406,752 $18,552,249
Shares 727,230 205,206 1,665,133 (248,015) 2,144,348 139,018
outstanding
Net asset value $5.70 $14.51 $8.65 $8.65
per share
Pro Forma
Combined of
New Europe Total
Fund into Pro Forma
International Combined
Research Pro Forma of All
Growth Fund(1) Adjustments Funds(1)
-------------- ----------- --------
Class A
Net asset value $88,254,478 $96,399,999
Shares 10,381,408 2,683,721 11,339,914
outstanding
Net asset value $8.50 $8.50
per share
Class B
Net asset value $87,895,306 $97,754,138
Shares 10,849,821 1,547,168 12,067,310
outstanding
Net asset value $8.10 $8.10
per share
Class C
Net asset value $27,376,462 $30,910,213
Shares 3,378,667 436,774 3,815,188
outstanding
Net asset value $8.10 $8.10
per share
Advisor Class
Net asset value $17,384,842 $21,530,339
Shares 2,009,357 (108,997) 2,488,572
outstanding
Net asset value $8.65 $8.65
per share
- ----------
(1) Assumes the Acquisition was consummated on August 1, 2003 and is for
information purposes only. No assurance can be given as to how many shares
of International Research Growth Fund will be received by the shareholders
of the Acquired Fund(s) on the date the Acquisition takes place, and the
foregoing should not be relied upon to reflect the number of shares of
International Research Growth Fund that actually will be received on or
after such date.
C-1
Appendix D
PRINCIPAL INVESTMENT RISKS
The principal risks of investing in the AllianceBernstein International Research
Growth Fund, Inc. (the "Fund" as used in the following discussion of principal
investment risks) are described below. Please note that capitalization risk,
industry/sector risk and allocation risk are expected to have a greater effect
on the Fund if the Fund's shareholders approve the Fund's Investment Objective
Change. On the other hand, approval of the Fund's Investment Objective Change is
expected to mitigate the effects of focused portfolio risk.
There are many circumstances (including additional risks that are not described
here) which could prevent the Fund from achieving its investment goal. You may
lose money by investing in the Fund.
Market Risk
This is the risk that the value of the Fund's investments will fluctuate as the
stock or bond markets fluctuate and that prices overall will decline over short-
or long-term periods.
Foreign Risk
This is the risk of investments in issuers located in foreign countries.
Investments in foreign securities may experience more rapid and extreme changes
in value than investments solely in securities of U.S. companies. This is
because the securities markets of many foreign countries are relatively small,
with a limited number of companies representing a small number of industries.
Additionally, foreign securities issuers are usually not subject to the same
degree of regulation as U.S. issuers. Reporting, accounting, and auditing
standards of foreign countries differ, in some cases significantly, from U.S.
standards. Also, nationalization, expropriation or confiscatory taxation,
currency blockage, or political changes or diplomatic developments could
adversely affect the Fund's investments in a foreign country. In the event of
nationalization, expropriation, or other confiscation, the Fund could lose its
entire investment.
Currency Risk
This is the risk that fluctuations in the exchange rates between the U.S. Dollar
and foreign currencies may negatively affect the value of the Fund's
investments. Because the Fund may invest in foreign securities, it is
particularly subject to this risk.
Capitalization Risk
The Fund may invest in smaller, emerging companies. Investment in such companies
involves greater risks than is customarily associated with securities of more
established companies. Companies in the earlier stages of their development
often have products and management personnel which have not been thoroughly
tested by time or the marketplace; their financial resources may not be as
substantial as those of more established companies. The securities of smaller
companies may have relatively limited marketability and may be subject to more
abrupt or erratic market movements than securities of larger companies or broad
market indices. The revenue flow of such companies may be erratic and their
results of operations may fluctuate widely and may also contribute to stock
price volatility.
Management Risk
The Fund is subject to management risk because it is an actively managed
investment portfolio. Alliance will apply its investment techniques and risk
analyses in making investment decisions for the Fund, but there is no guarantee
that its decisions will produce the intended results.
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.
D-1
Industry/Sector Risk
This is the risk of investments in a particular industry sector. If a Fund
invests a substantial amount of its assets in companies engaged in a particular
industry sector, market or economic factors affecting that industry could have a
major effect on the value of the Fund's investments.
Allocation Risk
This is the risk that the allocation of a Fund's investments among industry
sectors may have a more significant effect on the Fund's net asset value when
one of these sectors is performing more poorly than the others.
Focused Portfolio Risk
Funds that invest in a limited number of companies may have more risk because
changes in the value of a single security may have a more significant effect,
either negative or positive, on the Fund's net asset value.
D-2
Appendix E
Information Applicable to Class A, Class B, Class C and Advisor
Class Shares of AllianceBernstein International Research Growth Fund,
Inc. (the "Fund" as used in this Appendix)
HOW TO BUY SHARES
Class A, Class B and Class C Shares
You may purchase the Fund's Class A, Class B, or Class C shares through
financial intermediaries, such as broker-dealers or banks. You also may purchase
shares directly from the Fund's principal underwriter, AllianceBernstein
Investment Research and Management, Inc., or ABIRM.
Purchases Minimums and Maximums
- -------------------------------
Minimums:*
--Initial: $2,500
--Subsequent: $ 50
--Automatic Investment
Program (monthly): $ 200
* These purchase minimums may not apply to some retirement-related
investment programs. Please see "Retirement and Employee Benefit Plans"
below. Additionally, these investment minimums do not apply to persons
participating in a fee-based program sponsored and maintained by a
registered broker-dealer or other financial intermediary and approved by
ABIRM. Shareholders committed to monthly investments of $25 or more
through the Automatic Investment Program by October 15, 2004 will be able
to continue their program despite the $200 monthly minimum.
The Automatic Investment Program allows investors to purchase shares of
the Fund through pre-authorized transfers of funds from the investor's bank
account. Please see the Fund's SAI for more details.
Maximum Individual Purchase Amount:
--Class A shares None
--Class B shares $100,000
--Class C shares $1,000,000
Your broker or financial advisor must receive your purchase request by
4:00 p.m., Eastern time, and submit it to the Fund by a pre-arranged time for
you to receive the next-determined net asset value or NAV, less any applicable
initial sales charge.
If you are an existing Fund shareholder and you have completed the
appropriate section of the Subscription Application, you may purchase additional
shares by telephone with payment by electronic funds transfer in amounts not
exceeding $500,000. Alliance Global Investor Services, Inc., or AGIS, must
receive and confirm telephone requests before 4:00 p.m., Eastern time, to
receive that day's public offering price. Call 800-221-5672 to arrange a
transfer from your bank account.
Advisor Class Shares
You may purchase Advisor Class shares through your financial advisor at
NAV. Advisor Class shares may be purchased and held solely:
o through accounts established under a fee-based program, sponsored
and maintained by a registered broker-dealer or other financial
intermediary and approved by ABIRM;
E-1
o through a self-directed defined contribution employee benefit plan
(e.g., a 401(k) plan) that has at least $10,000,000 in assets and
that purchases shares directly without the involvement of a
financial intermediary; and
o by investment advisory clients of, and certain other persons
associated with, Alliance and its affiliates or the Fund.
The Fund's SAI has more detailed information about who may purchase and
hold Advisor Class shares.
Retirement and Employee Benefit Plans
Special eligibility rules apply to some retirement and employee benefit
plans. Except as indicated, there are no investment minimums for the plans
listed below. Class A shares are available to:
o SEPs, traditional and ROTH IRAs (the minimums listed in the table
above apply);
o SAR-SEPs, SIMPLE IRAs, and individual 403(b) plans;
o all 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit
sharing and money purchase pension plans, defined benefit plans, and
non-qualified deferred compensation plans where plan level or
omnibus accounts are held on the books of the Fund ("group
retirement plans") with assets in excess of $10,000,000;
o AllianceBernstein-sponsored Coverdell Education Savings Accounts
($2,000 initial investment minimum, $150 automatic investment
program monthly minimum);
o AllianceBernstein-sponsored group retirement plans;
o AllianceBernstein Link, AllianceBernstein Individual 401(k), and
AllianceBernstein Simple IRA plans; and
o certain defined contribution retirement plans that do not have plan
level or omnibus accounts on the books of the Fund.
Class B shares are generally not available to group retirement plans;
however, group retirement plans that selected Class B shares as an investment
alternative under their plan before September 2, 2003 may continue to purchase
Class B shares.
Class C shares are available to:
o AllianceBernstein Link, AllianceBernstein Individual 401(k), and
AllianceBernstein Simple IRA plans with less than $250,000 in plan
assets and 100 employees; and
o group retirement plans with plan assets of less than $1,000,000.
Required Information
The Fund is required by law to obtain, verify and record certain personal
information from you or persons on your behalf in order to establish an account.
Required information includes name, date of birth, permanent residential address
and taxpayer identification number (for most investors, your social security
number). The Fund may also ask to see other identifying documents. If you do not
provide the information, the Fund will not be able to open your account. If the
Fund is unable to verify your identity, or that of another person(s) authorized
to act on your behalf, or if the Fund believes it has identified potentially
criminal activity, the Fund reserves the right to take action it deems
appropriate or as required by law, which may include closing your account. If
you are not a U.S. citizen or Resident Alien, your account must be affiliated
with a NASD member firm.
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The Fund is required to withhold 28% of taxable dividends, capital gains
distributions, and redemptions paid to any shareholder who has not provided the
Fund with his or her certified taxpayer identification number. To avoid this,
you must provide your correct tax identification number (social security number
for most investors) on your Subscription Application.
General
ABIRM may refuse any order to purchase shares. The Fund reserves the right
to suspend the sale of its shares to the public in response to conditions in the
securities markets or for other reasons.
THE DIFFERENT SHARE CLASS EXPENSES
This section describes the different expenses of investing in each class
and explains factors to consider when choosing a class of shares. The expenses
can include distribution and/or service fees (12b-1 fees), initial sales charges
and/or contingent deferred sales charges ("CDSCs"). Please see below for a
discussion of how CDSCs are calculated. If you are not eligible to buy Advisor
Class shares, you will need to choose among Class A, Class B and Class C shares.
Only Class A shares offer Quantity Discounts, as described below under "Sales
Charge Reduction Programs."
------------------------------------
WHAT IS A RULE 12b-1 FEE?
A Rule 12b-1 fee is a fee deducted from a fund's assets that is used to
pay for personal service, maintenance of shareholder accounts and
distribution costs, such as advertising and compensation of financial
intermediaries. The amount of each share class's 12b-1 fee, if any, is
disclosed below and in the Fund's fee table near the front of the
Prospectus.
------------------------------------
Asset-based Sales Charges or Distribution and/or Service (Rule 12b-1) Fees
The Fund has adopted plans under Commission Rule 12b-1 that allows the
Fund to pay asset-based sales charges or distribution and/or service fees for
the distribution and sale of its shares. The amount of these fees for each class
of the Fund's shares is:
Distribution and/or Service (Rule
12b-1) Fee (as a Percentage of
Aggregate Average Daily Net Assets)
-----------------------------------
Class A .30%
Class B 1.00%
Class C 1.00%
Advisor Class None
Because these fees are paid out of the Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales fees. Class B and Class C shares are
subject to higher Rule 12b-1 fees than Class A shares. (Class B shares are
subject to these higher fees for a period of eight years, after which they
convert to Class A shares). The higher fees mean a higher expense ratio, so
Class B and Class C shares pay correspondingly lower dividends and may have a
lower NAV (and returns) than Class A shares. All or some of these fees may be
paid to financial intermediaries, including your financial advisor's firm.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at their public offering price (or cost),
which is NAV plus an initial sales charge of up to 4.25% of the offering price.
Purchases of Class A shares in excess of $1,000,000 are not subject to a sales
charge but, if redeemed within one year, may be subject to a CDSC of up to 1%.
When a group retirement
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plan terminates the Fund as an investment option, all investments in Class A
shares of that fund through the plan will be subject to a 1%, 1-year CDSC upon
redemption. Furthermore, when a group retirement plan ceases to participate in
an AllianceBernstein-sponsored group retirement plan program, investments in the
Fund's Class A shares through the plan are subject to a 1%, 1-year CDSC upon
redemption.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at NAV without an initial sales charge.
This means that the full amount of your purchase is invested in the Fund. Your
investment, however, is subject to a CDSC if you redeem shares within four years
of purchase. The CDSC varies depending on the number of years you hold the
shares. The CDSC amounts for Class B shares are:
Year Since Purchase CDSC
------------------- ----
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
If you exchange your shares for the Class B shares of another
AllianceBernstein Mutual Fund, the CDSC also will apply to the Class B shares
received. The CDSC period begins with the date of your original purchase, not
the date of exchange for the other Class B shares.
Class B shares purchased for cash automatically convert to Class A shares
eight years after the end of the month of your purchase. If you purchase shares
by exchange for the Class B shares of another AllianceBernstein Mutual Fund, the
conversion period runs from the date of your original purchase.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares at NAV without an initial sales charge.
This means that the full amount of your purchase is invested in the Fund. Your
investment, however, is subject to a 1% CDSC if you redeem your shares within 1
year. If you exchange your shares for the Class C shares of another
AllianceBernstein Mutual Fund, the 1% CDSC also will apply to the Class C shares
received. The 1-year period for the CDSC begins with the date of your original
purchase, not the date of the exchange for the other Class C shares.
Class C shares do not convert to any other class of shares of the Fund.
------------------------------------
HOW IS THE CDSC CALCULATED?
The CDSC is applied to the lesser of NAV at the time of redemption or the
original cost of shares being redeemed (or, as to Fund shares acquired
through an exchange, the cost of the AllianceBernstein mutual fund shares
originally purchased for cash). This means that no sales charge is
assessed on increases in NAV above the initial purchase price. Shares
obtained from dividend or distribution reinvestment are not subject to the
CDSC. In determining the CDSC, it will be assumed that the redemption is,
first, of any shares not subject to a CDSC and, second, of shares held the
longest.
------------------------------------
Advisor Class Shares--Fee Based Program Alternative
You may purchase Advisor Class shares through your financial advisor.
Advisor Class shares are not subject to any initial or contingent sales charges.
However, when you purchase Advisor Class shares through your financial advisor,
your financial advisor may charge a fee. Advisor Class shares are not available
to everyone. See "How to Buy Shares" above.
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SALES CHARGE REDUCTION PROGRAMS
This section includes important information about sales charge reduction
programs available to investors in Class A shares and describes information or
records you may need to provide to the Fund or your financial intermediary in
order to be eligible for sales charge reduction programs.
Information about sales charge reduction programs also is available free
of charge and in a clear and prominent format on our website at
www.AllianceBernstein.com (click on "Individual Investors - U.S." and then
"Reducing or Eliminating Sales Charges"). More information on Breakpoints and
other sales charge waivers is available in the Fund's SAI.
Required Shareholder Information and Records
In order for shareholders to take advantage of sales charge reductions, a
shareholder or his or her financial intermediary must notify the Fund that the
shareholder qualifies for a reduction. Without notification, the Fund is unable
to ensure that the reduction is applied to the shareholder's account. A
shareholder may have to provide information or records to his or her financial
intermediary or the Fund to verify eligibility for breakpoint privileges or
other sales charge waivers. This may include information or records, including
account statements, regarding shares of the Fund or other AllianceBernstein
Mutual Funds held in:
o all of the shareholder's accounts at the Fund or a financial
intermediary;
o any account of the shareholder at another financial intermediary;
and
o accounts of related parties of the shareholder, such as members of
the same family, at any financial intermediary.
------------------------------------
You Can Reduce Sales Charges
When Buying Class A Shares
------------------------------------
Breakpoints or Quantity Discounts Offered by the Fund
The Fund offers investors the benefit of discounts on the sales charges
that apply to purchases of Class A shares in certain circumstances. These
discounts, which are also known as Breakpoints, can reduce or, in some cases,
eliminate the initial sales charges that would otherwise apply to your Class A
investment. Mutual funds are not required to offer breakpoints and different
mutual fund groups may offer different types of breakpoints.
Breakpoints or Quantity Discounts allow larger investments in Class A
shares to be charged lower sales charges. A shareholder investing more than
$100,000 in Class A shares of the Fund is eligible for a reduced sales charge.
Initial sales charges are eliminated completely for purchases of $1,000,000 or
more, although a 1%, 1-year CDSC may apply.
The sales charge schedule of Class A share Quantity Discounts is as
follows:
Initial Sales Charge
as % of as % of
Net Amount Offering
Amount Purchased invested Price
------------------------------------------------------------
Up to $100,000 4.44% 4.25%
$100,000 up to $250,000 3.36 3.25
$250,000 up to $500,000 2.30 2.25
$500,000 up to $1,000,000 1.78 1.75
$1,000,000 and above 0.00 0.00
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Rights of Accumulation
To determine if a new investment in Class A shares is eligible for a
Quantity Discount, a shareholder can combine the value of the new investment of
the Fund with the value of existing investments in the Fund, any other
AllianceBernstein Mutual Fund, AllianceBernstein Institutional Funds and certain
CollegeBoundfund accounts for which the shareholder, his or her spouse, or child
under the age of 21 is the participant. The AllianceBernstein Mutual Funds use
the current NAV of your existing investments when combining them with your new
investment.
Combined Purchase Privileges
A shareholder may qualify for a Quantity Discount by combining purchases
of shares of the Fund into a single "purchase." A "purchase" means a single
purchase or concurrent purchases of shares of a Fund or any other
AllianceBernstein Mutual Fund, including AllianceBernstein Institutional Funds,
by:
o an individual, his or her spouse, or the individual's children under
the age of 21 purchasing shares for his, her or their own
account(s), including certain CollegeBoundfund accounts;
o a trustee or other fiduciary purchasing shares for a single trust,
estate or single fiduciary account with one or more beneficiaries
involved;
o the employee benefit plans of a single employer; or
o any company that has been in existence for at least six months or
has a purpose other than the purchase of shares of the Fund.
Letter of Intent
An investor may not immediately invest a sufficient amount to reach a
Quantity Discount, but may plan to make one or more additional investments over
a period of time that, in the end, would qualify for a Quantity Discount. For
these situations, the Fund offers a Letter of Intent, which permits the investor
to express the intention, in writing, to invest at least $100,000 in Class A
shares of the Fund or any AllianceBernstein Mutual Fund within 13 months. The
Fund will then apply the Quantity Discount to each of the investor's purchases
of Class A shares that would apply to the total amount stated in the Letter of
Intent. If an investor fails to invest the total amount stated in the Letter of
Intent, the Fund will retroactively collect the sales charges otherwise
applicable by redeeming shares in the investor's account at their then current
NAV. Investors qualifying for a Combined Purchase Privilege may purchase shares
under a single Letter of Intent.
Other Programs
Class A shareholders may be able to purchase additional Class A shares
with a reduced or eliminated sales charge through the following
AllianceBernstein programs: Dividend Reinvestment Program, Dividend Direction
Plan and Reinstatement Privilege. These additional programs are described under
"CDSC Waivers and Other Programs" below.
Class A Shares - Sales at NAV
The Fund may sell their Class A shares at NAV without an initial sales
charge to some categories of investors, including:
o all AllianceBernstein-sponsored group retirement plans;
o group retirement plans;
E-6
o AllianceBernstein Link, AllianceBernstein Individual 401(k), and
AllianceBernstein Simple IRA plans with at least $250,000 in plan
assets or 100 employees;
o investment management clients of Alliance or its affiliates,
including clients and prospective clients of Alliance's
AllianceBernstein Institutional Investment Management division;
o present or retired full-time employees and former employees (for
subsequent investment in accounts established during the course of
their employment) of Alliance, ABIRM, AGIS and their affiliates or
their spouses, siblings, direct ancestors or direct descendants or
any trust, individual retirement account or retirement plan account
for the benefit of such person;
o officers, directors and present full-time employees of selected
dealers or agents, their spouses, or any trust, individual
retirement account or retirement plan account for the benefit of
such person; or
o persons participating in a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial
intermediary and approved by ABIRM, under which persons pay an
asset-based fee for service in the nature of investment advisory or
administrative services.
CDSC WAIVERS AND OTHER PROGRAMS
-----------------------------------------------
Here Are Some Ways To Avoid Or Minimize
Charges On Redemption
-----------------------------------------------
CDSC Waivers
The Fund will waive the CDSCs on redemptions of shares in the following
circumstances, among others:
o permitted exchanges of shares;
o following the death or disability of a shareholder;
o if the redemption represents a minimum required distribution from an
IRA or other retirement plan to a shareholder who has attained the
age of 70-1/2; or
o if the redemption is necessary to meet a plan participant's or
beneficiary's request for a distribution or loan from a group
retirement plan or to accommodate a plan participant's or
beneficiary's direction to reallocate his or her plan account among
other investment alternatives available under a group retirement
plan.
Dividend Reinvestment Program
Shareholders may elect to have all income and capital gains distributions
from their account paid to them in the form of additional shares of the same
class of the Fund under the Fund's Dividend Reinvestment Program. There is no
initial sales charge or CDSC imposed on shares issued pursuant to the Dividend
Reinvestment Program. Dividend Direction Plan
A shareholder who already maintains accounts in more than one
AllianceBernstein Mutual Fund may direct the automatic investment of income
dividends and/or capital gains by the Fund, in any amount, without the payment
of any sales charges, in shares of the same class of one or more other
AllianceBernstein Mutual Fund(s).
E-7
Reinstatement Privilege
A shareholder who has redeemed all or any portion of his or her Class A or
Class B shares may reinvest all or any portion of the proceeds from the
redemption in Class A shares of the Fund at NAV without any sales charge, if the
reinvestment is made within 120 calendar days after the redemption date, and,
for Class B shares, a CDSC has been paid and ABIRM has approved, at its
discretion, the reinstatement of the shares.
Systematic Withdrawal Plan
The Fund offers a systematic withdrawal plan that permits the redemption
of Class B or Class C shares without payment of a CDSC. Under this plan,
redemptions equal to 1% a month, 2% every two months or 3% a quarter of the
value of the Fund account would be free of a CDSC. Shares would be redeemed so
that Class B shares not subject to a CDSC (such as shares acquired with
reinvested dividends or distributions) would be redeemed first and Class B
shares that are held the longest would be redeemed next. For Class C shares,
shares held the longest would be redeemed first.
SPECIAL DISTRIBUTION ARRANGEMENTS FOR GROUP RETIREMENT PLANS
The Fund offers special distribution arrangements for group retirement
plans and employee benefit plans, including employer-sponsored, tax-qualified
401(k) plans, and other defined contribution plans (the "Plans"). However, plan
sponsors, plan fiduciaries and other financial intermediaries may establish
requirements for the Plans as to the purchase, sale or exchange of shares of a
Fund, including maximum and minimum initial investment requirements, which are
different from those described in the Prospectus and the Fund's SAI. Therefore,
plan sponsors or fiduciaries may not impose the same share class eligibility
standards as set forth in the Prospectus and the Fund's SAI. The Plans also may
not offer all classes of shares of the Fund. The Fund is not responsible for,
and has no control over, the decision of any plan sponsor or fiduciary to impose
such differing requirements.
Class A shares are available at NAV to all AllianceBernstein-sponsored
group retirement plans, regardless of size, and to the AllianceBernstein Link,
AllianceBernstein Individual 401(k) and AllianceBernstein SIMPLE IRA plans with
at least $250,000 in plan assets or 100 employees. Class A shares are also
available at NAV to group retirement plans with plan assets in excess of
$10,000,000. When a non-AllianceBernstein-sponsored group retirement plan
terminates the Fund as an investment option, all investments in Class A shares
of the Fund through the plan are subject to a 1%, 1-year CDSC upon redemption.
Furthermore, when a group retirement plan ceases to participate in an
AllianceBernstein-sponsored group retirement plan program, investments in the
Fund's Class A shares through the plan are subject to a 1%, 1-year CDSC upon
redemption.
Class C shares are available to group retirement plans with plan level
assets of less than $1,000,000 and to AllianceBernstein Link, AllianceBernstein
Individual 401(k), and AllianceBernstein SIMPLE IRA plans with less than
$250,000 in plan assets and 100 employees.
THE "PROS" AND "CONS" OF DIFFERENT SHARE CLASSES
The decision as to which class of shares is most beneficial to you depends
on the amount and intended length of your investment. If you are making a large
investment that qualifies for a reduced sales charge, you might consider
purchasing Class A shares. Class A shares, with their lower 12b-1 fees, are
designed for investors with a long-term investing time frame.
Although investors in Class B shares do not pay an initial sales charge,
Class B shares can be more costly than Class A shares over the long run due to
their substantially higher 12b-1 fees. Class B shares redeemed within four years
of purchase are also subject to a CDSC. Class B shares are designed for
investors with an intermediate-term investing time frame.
Class C shares should not be considered as a long-term investment because
they do not convert to Class A shares and are subject to a higher distribution
fee indefinitely. Class C shares do not, however, have an initial sales charge
or a CDSC so long as the shares are held for one year or more. Class C shares
are designed for investors with a short-term investing time frame.
E-8
Your financial intermediary may receive differing compensation for selling
Class A, Class B, or Class C shares. See "Payments to Financial Advisors and
their Firms" below.
Choosing a Class of Shares for Group Retirement Plans
Group retirement plans with plan assets of $1,000,000 or more are eligible
to purchase Class A shares at NAV. In addition, under certain circumstances, the
1%, 1-year CDSC may be waived. Class B shares are generally not available to
group retirement plans. Class C shares are available to group retirement plans
with plan level assets of less tan $1,000,000.
Other
A transaction, service, administrative or other similar fee may be charged
by your broker-dealer, agent, or other financial intermediary, with respect to
the purchase, sale, or exchange of Class A, Class B, Class C or Advisor Class
shares made through your financial advisor. The financial intermediaries or your
fee-based program also may impose requirements on the purchase, sale, or
exchange of shares that are different from, or in addition to, those imposed by
the Fund, including requirements as to the minimum initial and subsequent
investment amounts.
You should consult your financial advisor for assistance in choosing a
class of Fund shares.
PAYMENTS TO FINANCIAL ADVISORS AND THEIR FIRMS
Financial intermediaries market and sell shares of the Fund. These
financial intermediaries employ financial advisors and receive compensation for
selling shares of the Fund. This compensation is paid from various sources,
including any sales charge, CDSC and/or Rule 12b-1 fee that you or the Fund may
pay. Your individual financial advisor may receive some or all of the amounts
paid to the financial intermediary that employs him or her.
-----------------------------------------------
What is a Financial Intermediary?
A financial intermediary is a firm that receives compensation for selling
shares of the Fund and/or provides services to the Fund's shareholders.
Financial intermediaries may include, among others, your broker, your
financial planner or advisor, banks, pension plan consultants and
insurance companies. Financial intermediaries employ financial advisors
who deal with you and other investors on an individual basis.
-----------------------------------------------
In the case of Class A shares, all or a portion of the initial sales
charge that you pay may be paid by ABIRM to financial intermediaries selling
Class A shares. ABIRM may also pay these financial intermediaries a fee of up to
1% on purchases of $1,000,000 or more. Additionally, up to 100% of the Rule
12b-1 fees applicable to Class A shares each year may be paid to financial
intermediaries, including your financial intermediary, that sell Class A shares.
In the case of Class B shares, ABIRM will pay, at the time of your
purchase, a commission to financial intermediaries selling Class B Shares in an
amount equal to 4% of your investment. Additionally, up to 30% of the Rule 12b-1
fees applicable to Class B shares each year may be paid to financial
intermediaries, including your financial intermediary, that sell Class B shares.
In the case of Class C shares, ABIRM will pay, at the time of your
purchase, a commission to firms selling Class C Shares in an amount equal to 1%
of your investment. Additionally, up to 100% of the Rule 12b-1 fee applicable to
Class C shares each year may be paid to financial intermediaries, including your
financial intermediary, that sell Class C shares.
In the case of Advisor Class shares, your financial advisor may charge
ongoing fees or transactional fees. ABIRM may pay a portion of "ticket" or other
transactional charges.
E-9
Your financial advisor's firm receives compensation from the Funds, ABIRM
and/or Alliance in several ways from various sources, which include some or all
of the following:
- upfront sales commissions
- 12b-1 fees
- additional distribution support
- defrayal of costs for educational seminars and training
- payments related to providing shareholder record-keeping and/or
transfer agency services
Please read the Fund's Prospectus carefully for information on this
compensation.
Other Payments for Distribution Services and Educational Support
In addition to the commissions paid to financial intermediaries at the
time of sale and the fees described under "Asset-Based Sales Charges or
Distribution and/or Service (Rule 12b-1) Fees," some or all of which may be paid
to financial intermediaries (and, in turn, to your financial advisor), ABIRM, at
its expense, currently provides additional payments to firms that sell shares of
the AllianceBernstein Mutual Funds. Although the individual components may be
higher and the total amount of payments made to each qualifying firm in any
given year may vary, the total amount paid to a financial intermediary in
connection with the sale of shares of the AllianceBernstein Mutual Funds will
generally not exceed the sum of (a) 0.25% of the current year's fund sales by
that firm and (b) 0.10% of average daily net assets attributable to that firm
over the year. These sums include payments to reimburse directly or indirectly
the costs incurred by these firms and their employees in connection with
educational seminars and training efforts about the AllianceBernstein Mutual
Funds for the firms' employees and/or their clients and potential clients. The
costs and expenses associated with these efforts may include travel, lodging,
entertainment and meals.
For 2004 ABIRM's additional payments to these firms for distribution
services and educational support related to the AllianceBernstein Mutual Funds
is expected to be approximately 0.05% of the average monthly assets of the
AllianceBernstein Mutual Funds, or approximately $20,000,000. In 2003, ABIRM
paid approximately 0.05% of the average monthly assets of the AllianceBernstein
Mutual Funds or approximately $19,000 for distribution services and educational
support related to the AllianceBernstein Mutual Funds.
A number of factors are considered in determining the additional payments,
including each firm's AllianceBernstein Mutual Fund sales, assets and redemption
rates, and the willingness and ability of the firm to give ABIRM access to its
financial advisors for educational and marketing purposes. In some cases, firms
will include the AllianceBernstein Mutual Funds on a "preferred list." ABIRM's
goal is to make the financial advisors who interact with current and prospective
investors and shareholders more knowledgeable about the AllianceBernstein Mutual
Funds so that they can provide suitable information and advice about the funds
and related investor services.
The Fund and ABIRM also make payments for recordkeeping and other transfer
agency services to financial intermediaries that sell AllianceBernstein Mutual
Fund shares. Please see "Management of the Funds - Transfer Agency Services"
below.
-----------------------------------------------
If one mutual fund sponsor makes greater distribution assistance payments
than another, your financial advisor and his or her firm may have an
incentive to recommend one fund complex over another. Similarly, if your
financial advisor or his or her firm receives more distribution assistance
for one share class versus another, then they may have an incentive to
recommend that class.
Please speak with your financial advisor to learn more about the total
amounts paid to your financial advisor and his or her firm by the Fund,
Alliance, ABIRM and by sponsors of other mutual funds he or she
E-10
may recommend to you. You should also consult disclosures made by your
financial advisor at the time of purchase.
-----------------------------------------------
As of the date of the Prospectus, ABIRM anticipates that the firms that
will receive additional payments for distribution services and/or educational
support include:
A.G. Edwards
AIG Advisor Group
American Express Financial Advisors
AXA Advisors
Banc of America
Bank One Securities Corp.
Charles Schwab
Chase Investment Services
Citigroup Global Markets
Commonwealth Financial
IFMG Securities
ING Advisors Network
Legg Mason
Lincoln Financial Advisors
Linsco Private Ledger
Merrill Lynch
Morgan Stanley
Mutual Service Corporation
National Financial
NPH Holdings
PFS Investments
Piper Jaffray
Raymond James
RBC Dain Rauscher
Securities America
SunTrust Bank
UBS Financial
Uvest Financial Services
Wachovia Securities
Wells Fargo
Although the Fund may use brokers or other financial intermediaries who
sell shares of the Funds to effect portfolio transactions, the Fund does not
consider the sale of AllianceBernstein Mutual Fund shares as a factor when
selecting brokers to effect portfolio transactions.
HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of the same class of other
AllianceBernstein Mutual Funds (including AllianceBernstein Exchange Reserves, a
money market fund managed by Alliance). Exchanges of shares are made at the
next-determined NAV, without sales or service charges. You may request an
exchange by mail or telephone. In order to receive a day's NAV, AGIS must
receive and confirm your telephone exchange request by 4:00 p.m., Eastern time,
on that day. The Fund may modify, restrict, or terminate the exchange privilege
on 60 days' written notice.
HOW TO SELL OR REDEEM SHARES
You may "redeem" your shares (i.e., sell your shares to a Fund) on any day
the New York Stock Exchange is open, either directly or through your financial
intermediary. Your sale price will be the next-determined NAV, less any
applicable CDSC, after the Fund receives your redemption request in proper form.
Normally, redemption proceeds are sent to you within 7 days. If you recently
purchased your shares by check or electronic funds
E-11
transfer, your redemption payment may be delayed until the Fund is reasonably
satisfied that the check or electronic funds transfer has been collected (which
may take up to 15 days). For Advisor Class shares, if you are in doubt about
what procedures or documents are required by your fee-based program or employee
benefit plan to sell your shares, you should contact your financial advisor.
Selling Shares Through Your Broker or other Financial Advisor
Your broker or financial advisor must receive your sales request by 4:00
p.m., Eastern time, and submit it to the Fund by a pre-arranged time for you to
receive the next-determined NAV, less any applicable CDSC. Your broker or
financial advisor is responsible for submitting all necessary documentation to
the Fund and may charge you a fee for this service.
Selling Shares Directly to the Fund
By Mail
-- Send a signed letter of instruction or stock power, along with
certificates, to:
Alliance Global Investor Services
P.O. Box 786003
San Antonio, TX 78278-6003
-- For certified or overnight deliveries, send to:
Alliance Global Investor Services
8000 IH 10 W, 4th floor
San Antonio, TX 78230
-- For your protection, a bank, a member firm of a national stock
exchange, or other eligible guarantor institution, must guarantee
signatures. Stock power forms are available from your financial
intermediary, AGIS, and many commercial banks. Additional
documentation is required for the sale of shares by corporations,
intermediaries, fiduciaries, and surviving joint owners. If you have
any questions about these procedures, contact AGIS.
By Telephone
-- You may redeem your shares for which no stock certificates have been
issued by telephone request. Call AGIS at 800-221-5672 with
instructions on how you wish to receive your sale proceeds.
-- AGIS must receive and confirm a telephone redemption request by 4:00
p.m., Eastern time, for you to receive that day's NAV, less any
applicable CDSC.
-- If you have selected electronic funds transfer in your Subscription
Application, the redemption proceeds will be sent directly to your
bank. Otherwise, the proceeds will be mailed to you.
-- Redemption requests by electronic funds transfer may not exceed
$100,000 per day and redemption requests by check may not exceed
$50,000 per day.
-- Telephone redemption is not available for shares held in nominee or
"street name" accounts, retirement plan accounts, or shares held by
a shareholder who has changed his or her address of record within
the previous 30 calendar days.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
Each Fund's Board of Directors has adopted policies and procedures
designed to detect and deter frequent purchases and redemptions of Fund shares
or excessive or short-term trading that may disadvantage long-term Fund
shareholders. These policies are described below. The Fund reserves the right to
restrict, reject or cancel, without any prior notice, any purchase or exchange
order for any reason, including any purchase or exchange order accepted by any
shareholder's financial intermediary.
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Risks Associated With Excessive Or Short-term Trading Generally. While the
Fund will try to prevent market timing by utilizing the procedures described
below, these procedures may not be successful in identifying or stopping
excessive or short-term trading in all circumstances. By realizing profits
through short-term trading, shareholders that engage in rapid purchases and
sales or exchanges of the Fund's shares dilute the value of shares held by
long-term shareholders. Volatility resulting from excessive purchases and sales
or exchanges of Fund shares, especially involving large dollar amounts, may
disrupt efficient portfolio management. In particular, the Fund may have
difficulty implementing its long-term investment strategies if it is forced to
maintain a higher level of its assets in cash to accommodate significant
short-term trading activity. Excessive purchases and sales or exchanges of the
Fund's shares may force the Fund to sell portfolio securities at inopportune
times to raise cash to accommodate short-term trading activity. In addition, the
Fund may incur increased expenses if one or more shareholders engage in
excessive or short-term trading. For example, the Fund may be forced to
liquidate investments as a result of short-term trading and incur increased
brokerage costs and realization of taxable capital gains without attaining any
investment advantage. Similarly, the Fund may bear increased administrative
costs due to asset level and investment volatility that accompanies patterns of
short-term trading activity. All of these factors may adversely affect Fund
performance.
Because the Fund may invest in foreign securities, it may be susceptible
to short-term trading strategies. This is because foreign securities are
typically traded on markets that close well before the time the Fund calculates
its NAV at 4:00 p.m. Eastern time, which gives rise to the possibility that
developments may have occurred in the interim that would affect the value of
these securities. The time zone differences among international stock markets
can allow a shareholder engaging in a short-term trading strategy to exploit
differences in Fund share prices that are based on closing prices of foreign
securities established some time before the Fund calculates its own share price
(referred to as "time zone arbitrage"). The Fund has procedures, referred to as
fair value pricing, designed to adjust closing market prices of foreign
securities to reflect what is believed to be the fair value of those securities
at the time the Fund calculates its NAV. While there is no assurance, the Fund
expects that the use of fair value pricing, in addition to the short-term
trading policies discussed below, will significantly reduce a shareholder's
ability to engage in time zone arbitrage to the detriment of other Fund
shareholders.
A shareholder engaging in a short-term trading strategy may also target a
fund that does not invest primarily in foreign securities. Any fund that invests
in securities that are, among other things, thinly traded, traded infrequently,
or relatively illiquid has the risk that the current market price for the
securities may not accurately reflect current market values. A shareholder may
seek to engage in short-term trading to take advantage of these pricing
differences (referred to as "price arbitrage"). The Fund may be adversely
affected by price arbitrage because it invests, among other things, in small cap
securities.
Policy Regarding Short-term Trading. Purchases and exchanges of shares of
the Fund should be made for investment purposes only. The Fund seeks to prevent
patterns of excessive purchases and sales or exchanges of Fund shares. The Fund
will seek to prevent such practices to the extent they are detected by the
procedures described below. The Fund reserves the right to modify this policy,
including any surveillance or account blocking procedures established from time
to time to effectuate this policy, at any time without notice.
o Transaction Surveillance Procedures. The Fund, through its agents,
ABIRM and AGIS, maintains surveillance procedures to detect
excessive or short-term trading in Fund shares. This surveillance
process involves several factors, which include scrutinizing
transactions in Fund shares that exceed certain monetary thresholds
or numerical limits within a specified period of time. Generally,
more than two exchanges of Fund shares during any 90-day period or
purchases of shares followed by a sale within 90 days will be
identified by these surveillance procedures. For purposes of these
transaction surveillance procedures, the Fund may consider trading
activity in multiple accounts under common ownership, control, or
influence. Trading activity identified by either, or a combination,
of these factors, or as a result of any other information available
at the time, will be evaluated to determine whether such activity
might constitute excessive or short-term trading. These surveillance
procedures may be modified from time to time, as necessary or
appropriate to improve the detection of excessive or short-term
trading or to address specific circumstances, such as for certain
retirement plans, to conform to plan exchange limits or U.S.
Department of Labor regulations, or for certain automated or
pre-established exchange, asset allocation or dollar cost averaging
programs, or omnibus account arrangements.
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o Account Blocking Procedures. If the Fund determines, in its sole
discretion, that a particular transaction or pattern of transactions
identified by the transaction surveillance procedures described
above is excessive or short-term trading in nature, the relevant
Fund account(s) will be immediately "blocked" and no future purchase
or exchange activity will be permitted. However, sales of Fund
shares back to the Fund or redemptions will continue to be permitted
in accordance with the terms of the Fund's Prospectus. In the event
an account is blocked, certain account-related privileges, such as
the ability to place purchase, sale and exchange orders over the
internet or by phone, may also be suspended. A blocked account will
generally remain blocked unless and until the account holder or the
associated broker, dealer or other financial intermediary provides
evidence or assurance acceptable to the Fund that the account holder
did not or will not in the future engage in excessive or short-term
trading.
o Applications of Surveillance Procedures and Restrictions to Omnibus
accounts. Omnibus account arrangements are common forms of holding
shares of the Fund, particularly among certain brokers, dealers, and
other financial intermediaries, including sponsors of retirement
plans and variable insurance products. The Fund seeks to apply its
surveillance procedures to these omnibus account arrangements. If an
intermediary does not have the capabilities, or declines, to provide
individual account level detail to the Fund, the Fund will monitor
turnover of assets to purchases and redemptions of the omnibus
account. If excessive turnover, defined as annualized purchases and
redemptions exceeding 50% of assets is detected, the Fund will
notify the intermediary and request that the intermediary review
individual account transactions for excessive or short-term trading
activity and confirm to the Fund that appropriate action has been
taken to curtail the activity, which may include applying blocks to
accounts to prohibit future purchases and exchanges of Fund shares.
For certain retirement plan accounts, the Fund may request that the
retirement plan or other intermediary revoke the relevant
participant's privilege to effect transactions in Fund shares via
the internet or telephone, in which case the relevant participant
must submit future transaction orders via the U.S. Postal Service
(i.e., regular mail). The Fund will continue to monitor the turnover
attributable to an intermediary's omnibus account arrangement and
may consider whether to terminate the relationship if the
intermediary does not demonstrate that appropriate action has been
taken.
Risks to Shareholders Resulting From Imposition of Account Blocks in
Response to Excessive Short-term Trading Activity. A shareholder identified as
having engaged in excessive or short-term trading activity whose account is
"blocked" and who may not otherwise wish to redeem his or her shares effectively
may be "locked" into an investment in the Fund that the shareholder did not
intend to hold on a long-term basis or that may not be appropriate for the
shareholder's risk profile. To rectify this situation, a shareholder with a
"blocked" account may be forced to redeem Fund shares, which could be costly if,
for example, these shares have declined in value, the shareholder recently paid
a front-end sales charge or the shares are subject to a CDSC, or the sale
results in adverse tax consequences to the shareholder. To avoid this risk, a
shareholder should carefully monitor the purchases, sales, and exchanges of Fund
shares and avoid frequent trading in Fund shares.
Limitations on Ability to Detect and Curtail Excessive Trading Practices.
Shareholders seeking to engage in excessive short-term trading activities may
deploy a variety of strategies to avoid detection and, despite the efforts of
the Fund and its agents to detect excessive or short duration trading in Fund
shares, there is no guarantee that the Fund will be able to identify these
shareholders or curtail their trading practices. In particular, the Fund may not
be able to detect excessive or short-term trading in Fund shares attributable to
a particular investor who effects purchase and/or exchange activity in Fund
shares through omnibus accounts. Also, multiple tiers of these entities may
exist, each utilizing an omnibus account arrangement, which may further compound
the difficulty of detecting excessive or short duration trading activity in Fund
shares.
HOW THE FUND VALUES ITS SHARES
The Fund's NAV is calculated at the close of regular trading on the
Exchange (ordinarily, 4:00 p.m., Eastern time), only on days when the Exchange
is open for business. To calculate NAV, the Fund's assets are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding. If the Fund invests in securities
that are primarily traded on foreign exchanges that trade on weekends or other
days when the Fund does not price its shares, the NAV of the Fund's shares may
change on days when shareholders will not be able to purchase or redeem their
shares in the Fund.
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The Fund values its securities at their current market value determined on
the basis of market quotations or, if market quotations are not readily
available or are unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors. When the Fund uses fair value pricing, it may take into account
any factors it deems appropriate. The Fund may determine fair value based upon
developments related to a specific security, current valuations of foreign stock
indices (as reflected in U.S. futures markets) and/or U.S. sector or broader
stock market indices. The prices of securities used by the Fund to calculate its
NAV may differ from quoted or published prices for the same securities. Fair
value pricing involves subjective judgments and it is possible that the fair
value determined for a security is materially different than the value that
could be realized upon the sale of that security.
The Fund expects to use fair value pricing for securities primarily traded
on U.S. exchanges only under very limited circumstances, such as the early
closing of the exchange on which a security is traded or suspension of trading
in the security. The Fund may use fair value pricing more frequently for
securities primarily traded in non-U.S. markets because, among other things,
most foreign markets close well before the Fund values its securities at 4:00
p.m., Eastern time. The earlier close of these foreign markets gives rise to the
possibility that significant events, including broad market moves, may have
occurred in the interim. For example, the Fund believes that foreign security
values may be affected by events that occur after the close of foreign
securities markets. To account for this, the Fund may frequently value many of
its foreign equity securities using fair value prices based on third party
vendor modeling tools to the extent available.
Subject to the Board's oversight, the Fund's Board has delegated
responsibility for valuing the Fund's assets to Alliance. Alliance has
established a Valuation Committee, which operates under the policies and
procedures approved by the Board, to value the Fund's assets on behalf of the
Fund. The Valuation Committee values Fund assets as described above.
Your order for purchase, sale, or exchange of shares is priced at the
next-determined NAV after your order is received in proper form by the Fund.
Your purchase of Fund shares may be subject to an initial sales charge. Your
sales of Fund shares may be subject to a CDSC.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are
described in the "Questions and Answers" section above under "How Do the
Investment Goals, Strategies and Policies of the Funds Compare?" and in
"Appendix D -- Principal Investment Risks." This section describes other
investments the Fund may make and the risks associated with them. In seeking to
achieve its investment goal, the Fund may invest in various types of securities
and engage in various investment techniques which are not the principal focus of
the Fund and therefore are not described in this prospectus. These types of
securities and investment practices and their associated risks are identified
and discussed in the Fund's Statement of Additional Information, which you may
obtain free of charge (see back cover). The advisor may elect not to buy any of
these securities or use any of these techniques. The Fund may not always achieve
its investment goal. Except as otherwise noted, approval by the Fund's
shareholders is not required to modify or change the Fund's investment goal or
any of its investment strategies.
Derivatives. The Fund may use derivatives to achieve its investment
objective. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices, and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund may use derivatives for one or more of
these purposes. The use of derivatives may have greater risk if they are used
for other than hedging purposes. Derivatives are a valuable tool, which, when
used properly, can provide significant benefits to Fund shareholders. The Fund
may take a significant position in those derivatives that are within its
investment policies if, in Alliance's judgment, this represents the most
effective response to current or anticipated market conditions. Alliance's use
of derivatives is subject to
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continuous risk assessment and control from the standpoint of the Fund's
investment objective and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately-negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated. There are four principal types of derivative instruments - options,
futures, forwards, and swaps - from which virtually any type of derivative
transaction can be created.
o Options--An option, which may be standardized and exchange-traded,
or customized and privately negotiated, is an agreement that, for a
premium payment or fee, gives the option holder (the buyer) the
right but not the obligation to buy or sell the underlying asset (or
settle for cash an amount based on an underlying asset, rate or
index) at a specified price (the exercise price) during a period of
time or on a specified date. A call option entitles the holder to
purchase, and a put option entitles the holder to sell, the
underlying asset (or settle for cash an amount based on an
underlying asset, rate or index). Likewise, when an option is
exercised the writer of the option is obligated to sell (in the case
of a call option) or to purchase (in the case of a put option) the
underlying asset (or settle for cash an amount based on an
underlying asset, rate or index).
o Futures--A futures contract is an agreement that obligates the buyer
to buy and the seller to sell a specified quantity of an under-lying
asset (or settle for cash the value of a contract based on an
underlying asset, rate or index) at a specific price on the contract
maturity date. Futures contracts are standardized, exchange-traded
instruments and are fungible (i.e., considered to be perfect
substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition
of equal but opposite positions, which is the primary method in
which futures contracts are liquidated. A cash-settled futures
contract does not require physical delivery of the underlying asset
but instead is settled for cash equal to the difference between the
values of the contract on the date it is entered into and its
maturity date.
o Forwards--A forward contract is an obligation by one party to buy,
and the other party to sell, a specific quantity of an under-lying
commodity or other tangible asset for an agreed upon price at a
future date. Forward contracts are customized, privately negotiated
agreements designed to satisfy the objectives of each party. A
forward contract usually results in the delivery of the underlying
asset upon maturity of the contract in return for the agreed upon
payment.
o Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at
specified intervals (payment dates) based upon or calculated by
reference to changes in specified prices or rates (interest rates in
the case of interest rate swaps, currency exchange rates in the case
of currency swaps) for a specified amount of an underlying asset
(the "notional" principal amount). The swap market has grown
substantially in recent years, with a large number of banks and
investment banking firms acting as principals and as agents
utilizing standard swap documentation. As a result, the swap market
has become well established and relatively liquid.
While the judicious use of derivatives by highly-experienced investment
managers such as Alliance can be quite beneficial, derivatives involve risks
different from, and, in certain cases, greater than, the risks presented by more
traditional investments. The following is a general discussion of important risk
factors and issues relating to the use of derivatives that investors should
understand before investing in the Fund.
Derivatives Used by the Fund. The following describes specific derivatives
that the Fund may use.
Forward Currency Exchange Contracts. The Fund may purchase or sell forward
currency exchange contracts to minimize the risk of adverse changes in the
relationship between the U.S. Dollar and other currencies. A forward currency
exchange contract is an obligation to purchase or sell a specific currency for
an agreed price at a future date, and is individually negotiated and privately
traded.
The Fund may enter into a forward currency exchange contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. Dollar price of
the security ("transaction hedge"). The Fund will not engage in transaction
hedges with respect to the currency of a particular country to an extent greater
than the aggregate amount of the Fund's transactions in that currency. When
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the Fund believes that a foreign currency may suffer a substantial decline
against the U.S. Dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency, or when the
Fund believes that the U.S. Dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward purchase contract to buy that
foreign currency for a fixed dollar amount ("position hedge"). The Fund will not
position hedge with respect to a particular currency to an extent greater than
the aggregate market value (at the time of making such sale) of the securities
held in its portfolio denominated or quoted in that currency. Instead of
entering into a position hedge, the Fund may, in the alternative, enter into a
forward currency exchange contract to sell a different foreign currency for a
fixed U.S. Dollar amount where the Fund believes that the U.S. Dollar value of
the currency to be sold pursuant to the forward currency exchange contract will
fall whenever there is a decline in the U.S. Dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross-hedge").
Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than if it had not entered into such forward currency
exchange contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
Futures Contracts and Options on Futures Contracts. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currencies or other commodity called for by the contract
at a specified price on a specified date. A "purchase" of a futures contract
means the incurring of an obligation to acquire the securities, foreign
currencies or other commodity called for by the contract at a specified price on
a specified date. The purchaser of a futures contract on an index agrees to take
or make delivery of an amount of cash equal to the difference between a
specified dollar multiple of the value of the index on the expiration date of
the contract ("current contract value") and the price at which the contract was
originally struck. No physical delivery of the securities underlying the index
is made.
The Fund may purchase options on futures contracts written or purchased by
the Fund that are traded on U.S. or foreign exchanges or over-the-counter. These
investment techniques will be used only to hedge against anticipated future
changes in market conditions and interest or exchange rates which otherwise
might either adversely affect the value of the Fund's portfolio securities or
adversely affect the prices of securities which the Fund intends to purchase at
a later date.
The Fund will not enter into any futures contracts or options on futures
contracts if immediately thereafter the market values of the outstanding futures
contracts of the Fund and the currencies and futures contracts subject to
outstanding options written by the Fund would exceed 100% of its total assets.
Options on Currencies. As in the case of other kinds of options, the
writing of an option on a currency constitutes only a partial hedge, up to the
amount of the premium received, and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates and incur losses. The
purchase of an option on a currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, the Fund may forfeit the entire amount of the premium
plus related transaction costs. See the Fund's SAI for further discussion of the
use, risks, and costs of options on currencies.
Options on Securities. An option gives the purchaser of the option, upon
payment of a premium, the right to deliver to (in the case of a put) or receive
from (in the case of a call) the writer a specified amount of a security on or
before a fixed date at a predetermined price. A call option written by the Fund
is "covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it has written. A
put option written by the Fund is covered if the Fund holds a put option on the
underlying securities with an exercise price equal to or greater than that of
the put option it has written.
A call option is for cross-hedging purposes if the Fund does not own the
underlying security, and the position is designed to provide a hedge against a
decline in value in another security that the Fund owns or has the right to
acquire. The Fund would write a call option for cross-hedging purposes, instead
of writing a covered call option, when the premium to be received from the
cross-hedge transaction would exceed that which would be
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received from writing a covered call option, while at the same time achieving
the desired hedge.
In purchasing an option, the Fund would be in a position to realize a gain
if, during the option period, the price of the underlying security increased (in
the case of a call) or decreased (in the case of a put) by an amount in excess
of the premium paid; otherwise the Fund would experience a loss equal to the
premium paid for the option.
If an option written by the Fund were exercised, the Fund would be
obligated to purchase (in the case of a put) or sell (in the case of a call) the
underlying security at the exercise price. The risk involved in writing an
option is that, if the option were exercised, the under-lying security would
then be purchased or sold by the Fund at a disadvantageous price. Entering into
a closing transaction (i.e., by disposing of the option prior to its exercise)
could reduce these risks. The Fund retains the premium received from writing a
put or call option whether or not the option is exercised. The writing of
covered call options could result in increases in the Fund's portfolio turnover
rate, especially during periods when market prices of the underlying securities
appreciate.
Options purchased or written by the Fund in negotiated transactions are
illiquid and it may not be possible for the Fund to effect a closing transaction
at an advantageous time.
Options on Securities Indices. An option on a securities index is similar
to an option on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in the case of a
call) or less than (in the case of a put) the exercise price of the option.
Swap Transactions. A swap transaction involves a swap agreement, which is
a customized, privately negotiated agreement that obligates two parties to
exchange a series of cash flows at specified intervals (payment dates) based
upon or calculated by reference to changes in specified prices or rates for a
specified amount of an underlying asset, reference rate or index. The Fund will
not enter into swap transactions unless the unsecured senior debt or the
claims-paying ability of the other party is rated in the highest rating category
of at least one nationally recognized statistical rating organization.
Examples of swap agreements include, but are not limited to, interest rate
swaps, credit default swaps, equity swaps, commodity swaps, foreign currency
swaps, index swaps and total return swaps. Most swap agreements provide that
when the payment dates for both parties are the same, payments are netted and
only the net amount is paid to the counterparty entitled to receive the net
payment. Consequently, the Fund's current obligations (or rights) under a swap
agreement will generally be equal only to the net amount to be paid or received
under the agreement based on the relative values of the positions held by each
counterparty. Swap agreements allow for a wide variety of transactions. For
example, fixed rate payments may be exchanged for floating rate payments;
dollar-denominated payments may be exchanged for non-dollar-denominated
payments; and payments tied to the price of one asset, reference rate or index
may be exchanged for payments tied to the price of another asset, reference rate
or index.
o Currency Swaps. Currency swaps involve the individually negotiated
exchange by the Fund with another party of a series of payments in
specified currencies. A currency swap may involve the delivery at
the end of the exchange period of a substantial amount of one
designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject
to the risk that the other party to the swap will default on its
contractual delivery obligations. If there is a default by the
counterparty to the transaction, the Fund will have contractual
remedies under the transaction agreements.
o Interest Rate Swaps, Caps and Floors. The Fund may enter into
interest rate transactions primarily to preserve a return or spread
on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund does not intend to use these
transactions in a speculative manner.
Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate swaps are entered
on a net basis (i.e., the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments). The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a
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contractually-based principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on an agreed principal amount from the party
selling the interest rate floor. Caps and floors may be less liquid than swaps.
The Fund may enter into interest rate swaps, caps, and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities. There is no limit on the amount of interest rate
transactions that may be entered into by the Fund. These transactions do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate transactions is
limited to the net amount of interest payments that the Fund is contractually
obligated to make. If the counterparty to an interest rate transaction defaults,
the Fund's risk of loss consists of the net amount of interest payments that the
Fund contractually is entitled to receive.
An option on a swap agreement, also called a "swaption," is an option that
gives the buyer the right, but not the obligation, to enter into a swap on a
future date in exchange for paying a market-based "premium." A receiver swaption
gives the owner the right to receive the total return of a specified asset,
reference rate or index. A payer swaption gives the owner the right to pay the
total return of a specified asset, reference rate or index. Swaptions also
include options that allow an existing swap to be terminated or extended by one
of the counterparties.
The use of swap agreements by the Fund entails certain risks, which are
different from, or possibly greater than, the risks associated with investing
directly in securities and other traditional investments. The use of a swap
requires an understanding not only of the referenced asset, reference rate or
index but also of the swap itself, without the benefit of observing the
performance of the swap under all possible market conditions.
Swap agreements may be subject to liquidity risk, which exists when a
particular swap is difficult to purchase or sell. If a swap transaction is
particularly large or if the relevant market is illiquid (as is the case with
many over-the-counter swaps), it may not be possible to initiate a transaction
or liquidate a position at an advantageous time or price. For this reason, a
swap transaction may be subject to the Fund's limitation on investments in
illiquid securities.
Under certain market conditions, it may not be economically feasible to
initiate a transaction or liquidate a position in time to avoid a loss or take
advantage of an opportunity. Because some swap agreements have a leverage or
borrowing component, adverse changes in the value or level of the underlying
asset, reference rate or index can result in a loss substantially greater than
the amount invested in the swap itself. Certain swaps have the potential for
unlimited loss, regardless of the size of the initial investment. Certain swap
transactions may be considered to constitute borrowing transactions. Such a swap
transaction will not be considered to constitute the issuance of a "senior
security" by the Fund, if the Fund covers the transaction or segregates
sufficient liquid assets.
The use of a swap transaction involves the risk that a loss may be
sustained as a result of the insolvency or bankruptcy of the counterparty or the
failure of the counterparty to make required payments or otherwise comply with
the terms of the agreement. Additionally, the use of credit default swaps can
result in losses if the Adviser does not correctly evaluate the creditworthiness
of the issuer on which the credit swap is based.
Convertible Securities. Prior to conversion, convertible securities have
the same general characteristics as non-convertible debt securities, which
generally provide a stable stream of income with yields that are generally
higher than those of equity securities of the same or similar issuers. The price
of a convertible security will normally vary with changes in the price of the
underlying equity security, although the higher yield tends to make the
convertible security less volatile than the underlying equity security. As with
debt securities, the market value of convertible securities tends to decrease as
interest rates rise and increase as interest rates decline. While convertible
securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality, they offer investors the
potential to benefit from increases in the market price of the underlying common
stock. Convertible debt securities that are rated Baa or lower by Moody's or BBB
or lower by S&P or Fitch and comparable unrated securities as determined by
Alliance may share some or all of the risks of non-convertible debt securities
with those ratings.
Depositary Receipts. Depositary receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of unsponsored
depositary receipts are not obligated to disclose material information in the
United States and, therefore, there may
E-19
not be a correlation between such information and the market value of the
depositary receipts. ADRs are depositary receipts typically issued by an U.S.
bank or trust company that evidence ownership of underlying securities issued by
a foreign corporation. GDRs and other types of depositary receipts are typically
issued by foreign banks or trust companies and evidence ownership of underlying
securities issued by either a foreign or an U.S. company. Generally, depositary
receipts in registered form are designed for use in the U.S. securities markets,
and depositary receipts in bearer form are designed for use in foreign
securities markets. For purposes of determining the country of issuance,
investments in depositary receipts of either type are deemed to be investments
in the underlying securities.
Forward Commitments. Forward commitments for the purchase or sale of
securities may include purchases on a "when-issued" basis or purchases or sales
on a "delayed delivery" basis. In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt restructuring (i.e.,
a "when, as and if issued" trade).
When forward commitment transactions are negotiated, the price is fixed at
the time the commitment is made, but delivery and payment for the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but a Fund may negotiate settlements beyond two
months. Securities purchased or sold under a forward commitment are subject to
market fluctuations and no interest or dividends accrue to the purchaser prior
to the settlement date.
The use of forward commitments enables the Fund to protect against
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rates and falling bond prices, the Fund might sell securities in
its portfolio on a forward commitment basis to limit its exposure to falling
prices. In periods of falling interest rates and rising bond prices, the Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis to obtain the benefit of
currently higher cash yields. If, however, Alliance were to forecast incorrectly
the direction of interest rate movements, the Fund might be required to complete
such when-issued or forward transactions at prices inferior to the then current
market values. When-issued securities and forward commitments may be sold prior
to the settlement date, but the Fund enters into when-issued and forward
commitments only with the intention of actually receiving securities or
delivering them, as the case may be. If the Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss. Any significant commitment of Fund assets to the purchase of securities on
a "when, as and if issued" basis may increase the volatility of the Fund's net
asset value. No forward commitments will be made by the Fund if, as a result,
the Fund's aggregate commitments under the transactions would be more than 30%
of its total assets. In the event the other party to a forward commitment
transaction were to default, the Fund might lose the opportunity to invest money
at favorable rates or to dispose of securities at favorable prices.
Illiquid Securities. The Fund will limit its investments in illiquid
securities to no more than 15% of their net assets. Illiquid securities
generally include: (i) direct placements or other securities that are subject to
legal or contractual restrictions on resale or for which there is no readily
available market (e.g., when trading in the security is suspended or, in the
case of unlisted securities, when market makers do not exist or will not
entertain bids or offers), including many individually negotiated currency swaps
and any assets used to cover currency swaps and most privately negotiated
investments in state enterprises that have not yet conducted an initial equity
offering, (ii) over-the-counter options and assets used to cover
over-the-counter options, and (iii) repurchase agreements not terminable within
seven days.
Because of the absence of a trading market for illiquid securities, the
Fund may not be able to realize their full value upon sale. Alliance will
monitor the liquidity of the Fund's investments in illiquid securities. Rule
144A securities will not be treated as "illiquid" for purposes of this limit on
investments if they meet certain liquidity guidelines established by the Fund.
A fund that invests in securities for which there is no ready market may
not be able to readily sell such securities. Such securities are unlike
securities that are traded in the open market and can be expected to be sold
immediately if the market is adequate. The sale price of illiquid securities may
be lower or higher than Alliance's most recent estimate of their fair value.
Generally, less public information is available about the issuers of such
securities than about companies whose securities are traded on an exchange. To
the extent that these securities are foreign securities, there is no law in many
of the countries in which the Fund may invest similar to the Securities Act
requiring an issuer to register the sale of securities with a governmental
agency or imposing legal restrictions on
E-20
resales of securities, either as to length of time the securities may be held or
manner of resale. However, there may be contractual restrictions on resales of
non-publicly traded foreign securities
Loans of Portfolio Securities. A principal risk in lending portfolio
securities, as with other collateralized extensions of credit, consists of the
possible loss of rights in the collateral should the borrower fail financially.
In addition, the Fund will be exposed to the risk that the sale of any
collateral realized upon the borrower's default will not yield proceeds
sufficient to replace the loaned securities. In determining whether to lend
securities to a particular borrower, Alliance will consider all relevant facts
and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income from the
securities. The Fund may invest any cash collateral in portfolio securities and
earn additional income or receive an agreed-upon amount of income from a
borrower who has delivered equivalent collateral. Any such investment of cash
collateral will be subject to the Fund's investment risks. The Fund will have
the right to regain record ownership of loaned securities or equivalent
securities in order to exercise owner-ship rights such as voting rights,
subscription rights and rights to dividends, interest, or distributions. The
Fund may pay reasonable finders', administrative, and custodial fees in
connection with a loan.
Repurchase Agreements. A repurchase agreement arises when a buyer
purchases a security and simultaneously agrees to resell it to the vendor at an
agreed-upon future date, normally a day or a few days later. The resale price is
greater than the purchase price, reflecting an agreed-upon interest rate for the
period the buyer's money is invested in the security. Such agreements permit the
Fund to keep all of its assets at work while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. If a vendor defaults on its
repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
a vendor goes bankrupt, the Fund might be delayed in, or prevented from, selling
the collateral for its benefit. Alliance monitors the creditworthiness of the
vendors with which the Fund enters into repurchase agreements.
Rights and Warrants. The Fund will invest in rights or warrants only if
Alliance deems the underlying equity securities themselves appropriate for
inclusion in the Fund's portfolio. Rights and warrants entitle the holder to buy
equity securities at a specific price for a specific period of time. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative than certain other types
of investments in that they do not entitle a holder to dividends or voting
rights with respect to the underlying securities nor do they represent any
rights in the assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying security, although
the value of a right or warrant may decline because of a decrease in the value
of the underlying security, the passage of time or a change in perception as to
the potential of the underlying security, or any combination of these factors.
If the market price of the underlying security is below the exercise price of
the warrant on the expiration date, the warrant will expire worthless. Moreover,
a right or warrant ceases to have value if it is not exercised prior to the
expiration date.
Short Sales. A short sale is effected by selling a security that the Fund
does not own, or, if the Fund does own such security, it is not to be delivered
upon consummation of the sale. A short sale is "against the box" to the extent
that the Fund contemporaneously owns or has the right to obtain securities
identical to those sold short without payment. The Fund may utilize short
selling in order to attempt both to protect their portfolios against the effects
of potential downtrends in the securities markets and as a means of enhancing
their overall performance. If the price of the security sold short increases
between the time of the short sale and the time the Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price declines, the
Fund will realize a capital gain. Although the Fund's gain is limited by the
price at which it sold the security short, its potential loss is unlimited.
Standby Commitment Agreements. Standby commitment agreements commit the
Fund, for a stated period of time, to purchase a stated amount of a security
that may be issued and sold to the Fund at the option of the issuer. The price
and coupon of the security are fixed at the time of the commitment. At the time
of entering into the agreement, the Fund is paid a commitment fee, regardless of
whether the security ultimately is issued, typically equal to approximately 0.5%
of the aggregate purchase price of the security the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security under-lying the commitment at a yield and price
considered advantageous to the Fund and unavailable on a firm commitment basis.
Investments in standby commitments will be limited so that the aggregate
purchase price of the securities subject to the commitments will not exceed 50%
of the Fund's assets at the time of making the commitment.
E-21
There is no guarantee that a security subject to a standby commitment will
be issued and the value of the security, if issued, on the delivery date may be
more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Fund will bear the
risk of capital loss in the event that the value of the security declines and
may not benefit from an appreciation in the value of the security during the
commitment period if the issuer decides not to issue and sell the security to
the Fund.
Future Developments. The Fund may, following written notice to its
shareholders, take advantage of other investment practices that are not
currently contemplated for use by the Fund, or are not available but may yet be
developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that exceed those
involved in the activities described above.
General. The successful use of the investment practices described above
draws upon Alliance's special skills and experience and usually depends on
Alliance's ability to forecast price movements, interest rates, or currency
exchange rate movements correctly. Should interest rates, prices or exchange
rates move unexpectedly, the Fund may not achieve the anticipated benefits of
the transactions or may realize losses and thus be in a worse position than if
such strategies had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price fluctuation limits
for certain options and forward contracts, and adverse market movements could
therefore continue to an unlimited extent over a period of time. In addition,
the correlation between movements in the prices of futures contracts, options
and forward contracts and movements in the prices of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.
The Fund's ability to dispose of its position in futures contracts,
options, and forward contracts depends on the availability of liquid markets in
such instruments. Markets in options and futures with respect to a number of
types of securities and currencies are relatively new and still developing, and
there is no public market for forward contracts. It is impossible to predict the
amount of trading interest that may exist in various types of futures contracts,
options, and forward contracts. If a secondary market does not exist for an
option purchased or written by the Fund, it might not be possible to effect a
closing transaction in the option (i.e., dispose of the option), with the result
that (i) an option purchased by the Fund would have to be exercised in order for
the Fund to realize any profit and (ii) the Fund may not be able to sell
currencies or portfolio securities covering an option written by the Fund until
the option expires or it delivers the underlying security, futures contract or
currency upon exercise. Therefore, no assurance can be given that the Fund will
be able to utilize these instruments effectively. In addition, the Fund's
ability to engage in options and futures transactions may be limited by tax
considerations and the use of certain hedging techniques may adversely impact
the characterization of income to a Fund for U.S. federal income tax purposes.
Portfolio Turnover. The portfolio turnover rate for the Fund is included
in the Financial Highlights section (see Appendix F herein). The Fund is
actively managed and, in some cases in response to market conditions, the Fund's
portfolio turnover may exceed 100%. A higher rate of portfolio turnover
increases brokerage and other expenses, which must be borne by the Fund and its
shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains, which, when distributed, are taxable
to shareholders.
Temporary Defensive Position. For temporary defensive purposes to attempt
to respond to adverse market, economic, political or other conditions, the Fund
may reduce its position in equity securities and invest in, without limit,
certain types of short-term, liquid, high grade or high-quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime commercial
paper and other types of short-term debt securities including notes and bonds.
Such securities also may include short-term, foreign-currency denominated
securities of the type mentioned above issued by foreign govern-mental entities,
companies, and supranational organizations. While the Fund is investing for
temporary defensive purposes, it may not meet its investment objectives.
Portfolio Holdings. Alliance publishes a complete schedule of the
portfolio holdings for the Fund monthly on www.AllianceBernstein.com (click on
the "US-INVESTORS" link, then click on the "Pricing & Performance" quick link,
then select the Fund, then click on the "Holdings" link). Alliance posts the
schedule on the website as of the last day of each calendar month, approximately
30 days after the end of that month. This posted information generally remains
accessible on the website for three months. In addition, Alliance may post
information about the number of securities the Fund holds, a summary of the
Fund's top ten holdings (including name and the percentage of the Fund's assets
invested in each holding), and a percentage of the breakdown of the Fund's
investments by
E-22
country, sector and industry, as applicable. The Fund's SAI includes a
description of the policies and procedures that apply to disclosure of the
Fund's portfolio holdings. These policies and procedures are also available at
www.AllianceBernstein.com.
MANAGEMENT OF THE FUND
Investment Advisor
The Fund's Adviser is Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, NY 10105. Alliance is a leading international investment
adviser supervising client accounts with assets as of December 31, 2004 totaling
approximately $539 billion (of which approximately $118 billion represented
assets of investment companies). As of December 31, 2004, Alliance managed
retirement assets for many of the largest public and private employee benefit
plans (including 37 of the nation's FORTUNE 100 companies), for public employee
retirement funds in 39 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 48 registered
investment companies managed by Alliance, comprising 121 separate investment
portfolios, currently have approximately 6.7 million shareholder accounts.
Alliance provides investment advisory services and order placement facilities
for the Fund. For these advisory services, the Fund paid Alliance a fee as a
percentage of average daily net assets of .78% during the fiscal year ended July
31, 2004.
Alliance may act as an investment adviser to other persons, firms or
corporations, including investment companies, hedge funds, pension funds and
other institutional investors. Alliance may receive management fees, including
performance fees, that may be higher or lower than the advisory fees it receives
from the Fund. Certain other clients of Alliance may have investment objectives
and policies similar to those of the Fund. Alliance may, from time to time, make
recommendations which result in the purchase or sale of a particular security by
its other clients simultaneously with the Fund. If transactions on behalf of
more than one client during the same period increase the demand for securities
being purchased or the supply of securities being sold, there may be an adverse
effect on price or quantity. It is the policy of Alliance to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by Alliance to the accounts involved, including the Fund. When two or more of
the clients of Alliance (including the Fund) are purchasing or selling the same
security on a given day from the same broker-dealer, such transactions may be
averaged as to price.
Portfolio Manager
The day-to-day management and investment decisions for the Fund are made
by the Adviser's International Research Growth sector analyst-managers, with
oversight by the Adviser's International Research Growth Oversight Group. Stock
selection within each market sector of the Fund's portfolio is the
responsibility of a senior analyst-manager for that sector. The sector
analyst-managers rely heavily on the fundamental analysis and research of the
Adviser's industry-focused equity analysts abroad. Alliance's International
Research Growth Oversight Group, comprised of senior investment professionals,
in consultation with the International Research Growth sector analyst-managers,
is responsible for determining the market sectors into which the Fund's assets
are invested and the percentage allocation into each sector.
The following table lists the sector analyst-managers with the most
significant responsibility for the day-to-day management of the Fund's
portfolio, the length of time that each person has been jointly and primarily
responsible for the Fund, and each person's principal occupation during the past
five years:
----------------------------------------------------------------------------------------------------
Employee; Year; Title Principal Occupation During the Past Five (5)
Years
----------------------------------------------------------------------------------------------------
Hiromitsu Agata; since 2005; Senior Vice President Senior Vice President of ACAM with which he
of Alliance Capital Asset Management ("ACAM") has been associated since prior to 2000.
----------------------------------------------------------------------------------------------------
Isabel Buccellati; since 2005; Vice President of Vice President of ACL with which she has been
Alliance Capital Limited ("ACL") associated since prior to 2000.
----------------------------------------------------------------------------------------------------
William Johnston; since 2005; Vice President of Vice President of ACMC with which he has been
ACMC associated since prior to 2000.
----------------------------------------------------------------------------------------------------
E-23
----------------------------------------------------------------------------------------------------
Valli Niththyananthan; since 2005; Vice President Vice President of ACL with which she has been
of ACL associated since October 2000. Prior thereto,
she was a research analyst at Gartmore
Investment Management since prior to 2000.
----------------------------------------------------------------------------------------------------
Michele Patri; since 2005; Vice President of ACL Vice President of ACL and a Non-US Developed
Analyst since April 2001. Prior thereto, he
was a portfolio manager at Citigroup Asset
Manager in London since prior to 2000.
----------------------------------------------------------------------------------------------------
Thomas A. Schmitt; since 2005; Senior Vice Senior Vice President of ACMC with which he
President of ACMC has been associated since prior to 2000.
----------------------------------------------------------------------------------------------------
Atsushi Yamamoto; since 2005; Senior Vice Senior Vice President of ACAM with which he
President of ACAM has been associated since prior to 2000.
----------------------------------------------------------------------------------------------------
Legal Proceedings
As has been previously reported in the press, the Staff of the Commission
and the Office of the New York Attorney General ("NYAG") have been investigating
practices in the mutual fund industry identified as "market timing" and "late
trading" of mutual fund shares. Certain other regulatory authorities have also
been conducting investigations into these practices within the industry and have
requested that Alliance provide information to them. Alliance has been
cooperating and will continue to cooperate with all of these authorities.
On December 18, 2003, Alliance confirmed that it had reached terms with
the Commission and the NYAG for the resolution of regulatory claims relating to
the practice of "market timing" mutual fund shares in some of the
AllianceBernstein Mutual Funds. The agreement with the Commission is reflected
in an Order of the Commission ("Commission Order"). The agreement with the NYAG
is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG
Order"). Among the key provisions of these agreements are the following:
(i) Alliance agreed to establish a $250 million fund (the "Reimbursement
Fund") to compensate mutual fund shareholders for the adverse effects of
market timing attributable to market timing relationships described in the
Commission Order. According to the Commission Order, the Reimbursement
Fund is to be paid, in order of priority, to fund investors based on (a)
their aliquot share of losses suffered by the fund due to market timing,
and (b) a proportionate share of advisory fees paid by such fund during
the period of such market timing;
(ii) Alliance agreed to reduce the advisory fees it receives from some of
the AllianceBernstein long-term, open-end retail funds until December 31,
2008; and
(iii) Alliance agreed to implement changes to its governance and
compliance procedures. Additionally, the Commission Order and the NYAG
Order contemplate that Alliance's registered investment company clients,
including the Fund, will introduce governance and compliance changes.
In anticipation of final, definitive documentation of the NYAG Order and
effective January 1, 2004, Alliance began waiving a portion of its advisory fee
it receives for managing the Fund. On September 7, 2004, each Fund's advisory
agreement was amended to reflect the reduced advisory fee.
The special committee of Alliance's Board of Directors, comprised of the
members of Alliance's Audit Committee and the other independent member of the
Board, is continuing to direct and oversee an internal investigation and a
comprehensive review of the facts and circumstances relevant to the Commission's
and the NYAG's investigations. In addition, the Independent Directors of the
Fund (the "Independent Directors") have initiated an investigation of the
above-mentioned matters with the advice of an independent economic consultant
and independent counsel. The Independent Directors have formed a special
committee to supervise the investigation.
On October 2, 2003, a putative class action complaint entitled Hindo et
al. v. AllianceBernstein Growth & Income Fund et al. (the "Hindo Complaint") was
filed against Alliance; Alliance Capital Management Holding L.P.; Alliance
Capital Management Corporation; AXA Financial, Inc.; certain of the
AllianceBernstein Mutual Funds, including the Fund; Gerald Malone; Charles
Schaffran (collectively, the "Alliance Capital defendants"); and certain other
defendants not affiliated with Alliance. The Hindo Complaint was filed in the
United States District Court for the Southern District of New York by alleged
shareholders of two of the AllianceBernstein Mutual Funds. The Hindo Complaint
alleges that certain of the Alliance Capital defendants failed to disclose that
they improperly
E-24
allowed certain hedge funds and other unidentified parties to engage in late
trading and market timing of AllianceBernstein Mutual Fund securities, violating
Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the
Exchange Act, and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an
unspecified amount of compensatory damages and rescission of their contracts
with Alliance, including recovery of all fees paid to Alliance pursuant to such
contracts.
Since October 2, 2003, numerous additional lawsuits making factual
allegations similar to those in the Hindo Complaint were filed against Alliance
and certain other defendants, some of which name the Fund as defendants. All of
these lawsuits seek an unspecified amount of damages. The lawsuits are now
pending in the United States District Court for the District of Maryland
pursuant to a ruling by the Judicial Panel on Multidistrict Litigation
transferring and centralizing all of the mutual fund cases involving market
timing and late trading in the District of Maryland.
As a result of the matters described above, investors in the
AllianceBernstein Mutual Funds may choose to redeem their investments. This may
require the AllianceBernstein Mutual Funds to sell investments held by those
funds to provide for sufficient liquidity and could also have an adverse effect
on the investment performance of the AllianceBernstein Mutual Funds.
Alliance and approximately twelve other investment management firms were
publicly mentioned in connection with the settlement by the Commission of
charges that an unaffiliated broker/dealer violated federal securities laws
relating to its receipt of compensation for selling specific mutual funds and
the disclosure of such compensation. The Commission has indicated publicly that,
among other things, it is considering enforcement action in connection with
mutual funds' disclosure of such arrangements and in connection with the
practice of considering mutual fund sales in the direction of brokerage
commissions from fund portfolio transactions. The Commission and the National
Association of Securities Dealers, Inc. ("NASD") have issued subpoenas to
Alliance in connection with this matter and Alliance has provided documents and
other information to the Commission and the NASD and is cooperating fully with
their investigation.
On June 22, 2004, a purported class action complaint entitled Aucoin, et
al. v. Alliance Capital Management L.P., et al. (the "Aucoin Complaint") was
filed against Alliance, Alliance Capital Management Holding L.P., Alliance
Capital Management Corporation, AXA Financial, Inc., AllianceBernstein
Investment Research & Management, Inc., certain current and former directors of
the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin
Compliant names certain of the AllianceBernstein Mutual Funds, including the
Fund, as nominal defendants. The Aucoin Complaint was filed in the United States
District Court for the Southern District of New York by an alleged shareholder
of an AllianceBernstein Mutual fund. The Aucoin Complaint alleges, among other
things, (i) that certain of the defendants improperly authorized the payment of
excessive commissions and other fees from AllianceBernstein Fund assets to
broker-dealers in exchange for preferential marketing services, (ii) that
certain of the defendants misrepresented and omitted from registration
statements and other reports material facts concerning such payments, and (iii)
that certain defendants caused such conduct as control persons of other
defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b),
36(b) and 48(a) of the 1940 Act, Sections 206 and 215 of the Advisers Act,
breach of common law fiduciary duties, and aiding and abetting breaches of
common law fiduciary duties. Plaintiffs seek an unspecified amount of
compensatory damages and punitive damages, rescission of their contracts with
Alliance, including recovery of all fees paid to Alliance pursuant to such
contracts, an accounting of all AllianceBernstein Fund-related fees, commissions
and soft dollar payments, and restitution of all unlawfully or discriminatorily
obtained fees and expenses.
Since June 22, 2004, numerous additional lawsuits making factual
allegations substantially similar to those in the Aucoin Complaint were filed
against Alliance and certain other defendants, and others may be filed.
It is possible that these matters and/or other developments resulting from
these matters could result in increased redemptions of the Fund's shares or
other adverse consequences to the Fund. However, Alliance believes that these
matters are not likely to have a material adverse effect on its ability to
perform advisory services relating to the Fund.
Transfer Agency and Retirement Plan Services
Alliance Global Investor Services, Inc. ("AGIS") acts as the transfer
agent for the Fund. AGIS, an
E-25
indirect wholly-owned subsidiary of Alliance, registers the transfer, issuance
and redemption of Fund shares and disburses dividends and other distributions to
Fund shareholders.
Many Fund shares are owned by financial intermediaries for the benefit of
their customers. In those cases, the Fund often does not maintain an account for
you. Thus, some or all of the transfer agency functions for these accounts are
performed by the financial intermediaries. The Fund, ABIRM and/or Alliance pay
to these financial intermediaries, including those that sell shares of the
AllianceBernstein Mutual Funds, fees for sub-transfer agency and related
recordkeeping services in amounts ranging up to $19 per customer fund account
per annum. Retirement plans may also hold Fund shares in the name of the plan,
rather than the participant. Plan recordkeepers, who may have affiliated
financial intermediaries who sell shares of the Fund, may be paid for each plan
participant fund account in amounts up to $19 per account per annum and/or up to
0.20% per annum of the average daily assets held in the plan. To the extent any
of these payments for recordkeeping services, transfer agency services or
retirement plan accounts are made by the Fund, they are included in the amount
appearing opposite the caption "Other Expenses" found in the Fund expense tables
(see page 6 of this Prospectus/Proxy Statement). In addition, financial
intermediaries may be affiliates of entities that receive compensation from
Alliance or ABIRM for maintaining retirement plan "platforms" that facilitate
trading by affiliated and non-affiliated financial intermediaries and
recordkeeping for retirement plans.
Because financial intermediaries and plan recordkeepers may be paid
varying amounts per class for sub-transfer agency and related recordkeeping
services, the service requirements of which may also vary by class, this may
create an additional incentive for financial intermediaries and their financial
advisors to favor one fund complex over another or one class of shares over
another.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund's income dividends and capital gains distributions, if any,
declared by the Fund on its outstanding shares will, at the election of each
shareholder, be paid in cash or in additional shares of the same class of shares
of the Fund. If paid in additional shares, the shares will have an aggregate net
asset value as of the close of business on the declaration date of the dividend
or distribution equal to the cash amount of the dividend or distribution. You
may make an election to receive dividends and distributions in cash or in shares
at the time you purchase shares. Your election can be changed at any time prior
to a record date for a dividend. There is no sales or other charge in connection
with the reinvestment of dividends or capital gains distributions. Cash
dividends may be paid in check, or at your election, electronically via the ACH
network.
If you receive an income dividend or capital gains distribution in cash
you may, within 120 days following the date of its payment, reinvest the
dividend or distribution in additional shares of the Fund without charge by
returning to Alliance, with appropriate instructions, the check representing the
dividend or distribution. Thereafter, unless you otherwise specify, you will be
deemed to have elected to reinvest all subsequent dividends and distributions in
shares of the Fund.
While it is the intention of the Fund to distribute to its share-holders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any dividend or distribution will depend
on the realization by the Fund of income and capital gains from investments.
There is no fixed dividend rate and there can be no assurance that the Fund will
pay any dividends or realize any capital gains. The final determination of the
amount of the Fund's return of capital distributions for the period will be made
after the end of each calendar year.
You will normally have to pay federal income tax, and any state or local
income taxes, on the distributions you receive from the Fund, whether you take
the distributions in cash or reinvest them in additional shares. Distributions
of net capital gains from the sale of investments that the Fund owned for more
than one year and that are properly designated as capital gain dividends are
taxable as long-term capital gains. For taxable years beginning on or before
December 31, 2008, distributions of dividends to the Fund's non-corporate
shareholders may be treated as "qualified dividend income", which is taxed at
reduced rates, if such distributions are derived from, and designated by the
Fund as, "qualified dividend income" and provided that holding period and other
requirements are met by both the shareholder and the Fund. "Qualified dividend
income" generally is income derived from dividends from U.S. corporations and
"qualified foreign corporations." Other distributions by the Fund are generally
taxable to you as ordinary income. Dividends declared in October, November, or
December and paid in January of the following year are taxable as if they had
been paid the previous December. The Fund will notify you as to how much of the
Fund's distributions, if any, would qualify for these reduced tax rates.
E-26
Investment income received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the source. To the
extent that the Fund is liable for foreign income taxes withheld at the source,
the Fund intends, if possible, to operate so as to meet the requirements of the
Code to "pass through" to the Fund's shareholders credits for foreign income
taxes paid (or to permit shareholders to claim a deduction for such foreign
taxes), but there can be no assurance that the Fund will be able to do so.
Furthermore, a shareholder's ability to claim a foreign tax credit or deduction
for foreign taxes paid by the Fund may be subject to certain limitations imposed
by the Code, as a result of which a shareholder may not be permitted to claim a
credit or deduction for all or a portion of the amount of such taxes.
Under certain circumstances, if the Fund realizes losses (e.g., from
fluctuations in currency exchange rates) after paying a dividend, all or a
portion of the dividend may subsequently be characterized as a return of
capital. Returns of capital are generally nontaxable, but will reduce a
shareholder's basis in shares of the Fund. If that basis is reduced to zero
(which could happen if the shareholder does not reinvest distributions and
returns of capital are significant), any further returns of capital will be
taxable as capital gain.
If you buy shares just before the Fund deducts a distribution from its
NAV, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for federal
income tax purposes.
Each year shortly after December 31, the Fund will send its shareholders
tax information stating the amount and type of all its distributions for the
year. Consult your tax adviser about the federal, state, and local tax
consequences in your particular circumstances.
If you are neither a citizen nor resident of the United States, the Fund
will withhold U.S. federal income tax at the rate of 30% on income dividends and
other payments that are subject to such withholding. You may be able to arrange
for a lower withholding rate under an applicable tax treaty if you supply the
appropriate documentation required by the Fund. Under the American Jobs Creation
Act of 2004, for taxable years of the Fund beginning after December 31, 2004 and
before January 1, 2008, the Fund is not required to withhold with respect to
distributions of net short-term capital gains in excess of net long-term capital
losses nor with respect to distributions of interest income that would not be
subject to U.S. federal income tax if earned directly by a non-resident foreign
person. The Fund is also required to apply backup withholding on distributions
and redemption proceeds otherwise payable to any noncorporate shareholder
(including a shareholder who is neither a citizen nor a resident of the United
States) who does not furnish to the Fund certain information and certifications
or, in the case of distributions, who is otherwise subject to backup
withholding. Backup withholding is not an additional tax. Rather, the federal
income tax liability of persons subject to backup withholding will be offset by
the amount of tax withheld. If backup withholding results in an overpayment of
United States federal income tax, a refund or credit may be obtained from the
Internal Revenue Service, provided that required information is furnished. The
backup withholding rate is 28% for amounts paid through 2010 and will be 31% for
amounts paid after December 31, 2010
CONVERSION FEATURE
As described above, Advisor Class shares may be held solely through
certain fee-based program accounts and employee benefit plans, and by investment
advisory clients of, and certain persons associated with, Alliance and its
affiliates or the Fund. If a holder of Advisor Class shares (i) ceases to
participate in the fee-based program or plan, or (ii) is otherwise no longer
eligible to purchase Advisor Class shares (each a "Conversion Event"), then all
Advisor Class shares held by the shareholder will convert automatically to Class
A shares of the Fund. The Fund will provide the shareholder with at least 30
days advance notice of such conversion. The failure of a shareholder or a
fee-based program to satisfy the minimum investment requirements to purchase
Advisor Class shares will not constitute a Conversion Event. The conversion
would occur on the basis of the relative NAV of the two classes and without the
imposition of any sales load, fee or other charge. Class A shares have a higher
expense ratio, may pay lower dividends, and may have a lower NAV than Advisor
Class shares.
E-27
Appendix F
Financial Highlights for AllianceBernstein International
Research Growth Fund, Inc.
The financial highlights table is intended to help you understand the
AllianceBernstein International Research Growth Fund Inc.'s (the "Fund's")
financial performance. Information shown is that of Class A, Class B, Class C
and Advisor Class shares. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that you
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been derived from the
Fund's financial statements, which have been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the Fund's financial statements, is included in the Fund's annual report. You
can request a free annual report containing those financial statements by
calling 1-800-221-5672.
A special meeting of the Fund's shareholders has been called for April 21, 2005
for the purpose of seeking shareholder approval of changes to the Fund's
investment objective and certain of its fundamental policies. Please note that
the that financial highlights table shown below are from periods prior to the
implementation of such changes. As a result, these financial highlights may not
be representative of the Fund's financial highlights had its new investment
objective and investment policies been in place.
Class A
Year Ended December 1, Year Ended November 30,
July 31, 2002 to July -----------------------
2004 31, 2003(a) 2002 2001 2000 1999
Net asset value, beginning of
period $ 7.54 $ 7.31 $ 8.36 $ 10.50 $ 13.22 $ 9.63
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (b) (.07)(c)(d) (.03)(c) (.09) (.10) (.14) (.15)(c)
Net realized and unrealized
gain (loss) on investment and
foreign currency transactions 1.03 .26 (.96) (2.04) (2.14) 3.74
Net increase (decrease) in net
asset value from operations .96 .23 (1.05) (2.14) (2.28) 3.59
LESS: DISTRIBUTIONS
Distributions from net
realized gain on investment
and foreign currency
transactions -0- -0- -0- -0- (.44) -0-
Total distributions -0- -0- -0- -0- (.44) -0-
Net asset value, end of period $ 8.50 $ 7.54 $ 7.31 $ 8.36 $ 10.50 $ 13.22
TOTAL RETURN
Total investment return based on
net asset value (e) 12.73% 3.15% (12.56)% (20.38)% (17.88)% 37.28%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted) $ 22,001 $ 23,851 $ 27,456 $ 40,555 $ 60,330 $ 12,851
Ratio to average net assets of:
Expenses, net of
waivers/reimbursements 2.23% 2.50%(f) 2.47% 2.17% 1.95% 2.51%(g)
Expenses, before
waivers/reimbursements 2.46% 2.99%(f) 2.47% 2.17% 1.95% 3.26%
Net investment loss (.81)%(c)(d) (.68)%(c)(f) (1.17)% (1.06)% (1.07)% (1.34)%(c)
Portfolio turnover rate 84% 56% 75% 171% 111% 107%
(a) Change in fiscal year end.
(b) Based on average shares outstanding.
(c) Net of expenses waived/reimbursed by the Adviser.
(d) Net of expenses waived/reimbursed by the Transfer Agent.
(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 charge or
contingent deferred sales charges are not
F-1
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.
(f) Annualized.
(g) Ratios reflect expenses grossed up for expense offset arrangement with the
Transfer Agent. For the period shown below, the net expense ratios were as
follows:
Year Ended
November 30, 1999
-----------------
Class A 2.50%
Class B 3.20%
Class C 3.20%
Advisor Class 2.20%
Class B
Year Ended December 1, Year Ended November 30,
July 31, 2002 to July -----------------------
2004 31, 2003(a) 2002 2001 2000 1999
Net asset value, beginning of
period $ 7.25 $ 7.06 $ 8.12 $ 10.29 $ 13.05 $ 9.58
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (b) (.13)(c)(d) (.06)(c) (.14)(c) (.17) (.23) (.22)(c)
Net realized and unrealized
gain (loss) on investment and
foreign currency transactions .98 .25 (.92) (2.00) (2.09) 3.69
Net increase (decrease) in net
asset value from operations .85 .19 (1.05) (2.17) (2.32) 3.47
LESS: DISTRIBUTIONS
Distributions from net
realized gain on investment
and foreign currency
transactions -0- -0- -0- -0- (.44) -0-
Total distributions -0- -0- -0- -0- (.44) -0-
Net asset value, end of period $ 8.10 $ 7.25 $ 7.06 $ 8.12 $ 10.29 $ 13.05
TOTAL RETURN
Total investment return based on
net asset value (e) 11.72% 2.69% (13.05)% (21.09)% (18.44)% 36.22%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted) $ 38,430 $ 45,815 $ 52,744 $ 80,353 $ 122,503 $ 28,678
Ratio to average net assets of:
Expenses, net of
waivers/reimbursements 2.99% 3.20%(f) 3.20% 2.92% 2.67% 3.21%(g)
Expenses, before
waivers/reimbursements 3.26% 3.79%(f) 3.25% 2.92% 2.67% 3.93%
Net investment loss (1.57)%(c)(d) (1.38)%(c)(f) (1.88)%(c) (1.84)% (1.79)% (2.07)%(c)
Portfolio turnover rate 84% 56% 75% 171% 111% 107%
(a) Change in fiscal year end.
(b) Based on average shares outstanding.
(c) Net of expenses waived/reimbursed by the Adviser.
(d) Net of expenses waived/reimbursed by the Transfer Agent.
(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 charge 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.
(f) Annualized.
F-2
(g) Ratios reflect expenses grossed up for expense offset arrangement with the
Transfer Agent. For the period shown below, the net expense ratios were as
follows:
Year Ended
November 30, 1999
-----------------
Class A 2.50%
Class A 2.50%
Class B 3.20%
Class C 3.20%
Advisor Class 2.20%
Class C
Year Ended December 1, Year Ended November 30,
July 31, 2002 to July -----------------------
2004 31, 2003(a) 2002 2001 2000 1999
Net asset value, beginning of
period $ 7.25 $ 7.06 $ 8.13 $ 10.29 $ 13.05 $ 9.57
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (b) (.13)(c)(d) (.06)(c) (.14)(c) (.16) (.23) (.22)(c)
Net realized and unrealized
gain (loss) on investment and
foreign currency transactions .98 .25 (.93) (2.00) (2.09) 3.70
Net increase (decrease) in net
asset value from operations .85 .19 (1.07) (2.16) (2.32) 3.48
LESS: DISTRIBUTIONS
Distributions from net
realized gain on investment
and foreign currency
transactions -0- -0- -0- -0- (.44) -0-
Total distributions -0- -0- -0- -0- (.44) -0-
Net asset value, end of period $ 8.10 $ 7.25 $ 7.06 $ 8.13 $ 10.29 $ 13.05
TOTAL RETURN
Total investment return based on
net asset value (e) 11.72% 2.69% (13.16)% (20.99)% (18.44)% 36.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted) $ 12,417 $ 15,257 $ 17,942 $ 28,990 $ 46,894 $ 9,235
Ratio to average net assets of:
Expenses, net of
waivers/reimbursements 2.97% 3.20%(f) 3.20% 2.88% 2.66% 3.21%(g)
Expenses, before
waivers/reimbursements 3.21% 3.73%(f) 3.20% 2.88% 2.66% 3.92%
Net investment loss (1.54)%(c)(d) (1.37)%(c)(f) (1.90)%(c) (1.80)% (1.79)% (2.06)%(c)
Portfolio turnover rate 84% 56% 75% 171% 111% 107%
(a) Change in fiscal year end.
(b) Based on average shares outstanding.
(c) Net of expenses waived/reimbursed by the Adviser.
(d) Net of expenses waived/reimbursed by the Transfer Agent.
(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 charge 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.
(f) Annualized.
(g) Ratios reflect expenses grossed up for expense offset arrangement with the
Transfer Agent. For the period shown below, the net expense ratios were as
follows:
F-3
Year Ended
November 30, 1999
-----------------
Class A 2.50%
Class B 3.20%
Class C 3.20%
Advisor Class 2.20%
Advisor Class
Year Ended December 1, Year Ended November 30,
July 31, 2002 to July -----------------------
2004 31, 2003(a) 2002 2001 2000 1999
Net asset value, beginning of
period $ 7.66 $ 7.41 $ 8.44 $ 10.58 $ 13.27 $ 9.64
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (b) (.03)(c)(d) (.01)(c) (.07) (.07) (.09) (.12)(c)
Net realized and unrealized
gain (loss) on investment and
foreign currency transactions 1.02 .26 (.96) (2.07) (2.16) 3.75
Net increase (decrease) in net
asset value from operations .99 .25 (1.03) (2.14) (2.25) 3.63
LESS: DISTRIBUTIONS
Distributions from net
realized gain on investment
and foreign currency
transactions -0- -0- -0- -0- (.44) -0-
Total distributions -0- -0- -0- -0- (.44) -0-
Net asset value, end of period $ 8.65 $ 7.66 $ 7.41 $ 8.44 $ 10.58 $ 13.27
TOTAL RETURN
Total investment return based on
net asset value (e) 12.92% 3.37% (12.20)% (20.23)% (17.57)% 37.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted) $ 14,407 $ 12,629 $ 11,437 $ 14,116 $ 18,800 $ 2,386
Ratio to average net assets of:
Expenses, net of
waivers/reimbursements 1.90% 2.20%(f) 2.18% 1.86% 1.61% 2.21%(g)
Expenses, before
waivers/reimbursements 2.13% 2.70%(f) 2.18% 1.86% 1.61% 2.96%
Net investment loss (.37)%(c)(d) (.32)%(c)(f) (.85)% (.78)% (.68)% (1.06)%(c)
Portfolio turnover rate 84% 56% 75% 171% 111% 107%
(a) Change in fiscal year end.
(b) Based on average shares outstanding.
(c) Net of expenses waived/reimbursed by the Adviser.
(d) Net of expenses waived/reimbursed by the Transfer Agent.
(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 charge 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.
(f) Annualized.
(g) Ratios reflect expenses grossed up for expense offset arrangement with the
Transfer Agent. For the period shown below, the net expense ratios were as
follows:
Year Ended
November 30, 1999
-----------------
Class A 2.50%
Class B 3.20%
Class C 3.20%
Advisor Class 2.20%
F-4
Appendix G
FUND INFORMATION
Shares Outstanding and Entitled to Vote of the Acquired Funds
For each class of each Acquired Fund's shares entitled to vote at the
Meeting, the number of shares outstanding as of March 15, 2005 was as follows:
Number of Shares
Outstanding and
Fund Class Entitled to Vote
- ---- ----- ----------------
All-Asia Fund A 1,344,230.512
B 1,588,987.407
C 587,506.220
Advisor 818,710.383
New Europe Fund A 4,065,438.333
B 3,165,915.919
C 999,607.101
Advisor 267,703.885
Ownership of Shares
As of February 24, 2005, each Fund believes that its Directors and
officers, as a group, owned less than one percent of each class of shares of
each Fund. As of March 15, 2005, the following shareholders of record owned 5%
or more of the outstanding shares of the noted class of shares of the noted
Fund:
Number of Percentage of
Outstanding Outstanding
Shares of Shares of Class
Fund and Class Name and Address of Shareholder Class Owned Owned
- -------------- ------------------------------- ----------- -----
All-Asia Fund
Class A.................. Citigroup Global Markets 76,624.825 5.70%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 150,896.751 11.22%
P.O. Box 2052
Jersey City, NJ 07303-2052
MLPF&S 118,275.414 8.80%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL32246-6484
Union Bank of California Trust Nominee 85,001.484 6.32%
F/B/O Closren Inc. 401K
P.O. Box 85484
San Diego, CA 92186-5484
G-1
Class B.................. Citigroup Global Markets 111,882.057 7.00%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 167,526.327 10.48%
P.O. Box 2052
Jersey City, NJ 07303-2052
First Clearing LLC 80,689.375 5.05%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
MLPF&S 117,005.789 7.32%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Dean Witter Reynolds 94,335.568 5.90%
Attn: Mutual Fund Operations
2 Harborside Plaza, 2nd Fl.
Jersey City, NJ 07311
Class C.................. Citigroup Global Markets 96,973.498 16.06%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
First Clearing LLC 76,801.734 12.72%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
Merrill Lynch 62,776.521 10.39%
Mutual Fund Admin
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Advisor Class ........... Frontier Trust Company 80,529.385 9.84%
F/B/O Maurice S. Mandel Rollover IRA
14 Hillside Ave.
Prt. Washington, NY 11050-2747
Trust for Profit Sharing Plan for Employees of 664,897.240 81.21%
Alliance Capital Mgmt L.P., Plan F
Attn: Diana Marotta, Fl. 31
1345 Avenue of the Americas
New York, NY 10105
G-2
New Europe Fund
Class A.................. Citigroup Global Markets 504,251.207 12.17%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 419,934.598 10.30%
P.O. Box 2052
Jersey City, NJ 07303-2052
MLPF&S 231,179.804 5.67%
For the Sole Benefit of Its Customers
Attn: Fund Admin. 1977K41
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Class B.................. Citigroup Global Markets 198,976.155 6.28%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 430,435.091 11.59%
P.O. Box 2052
Jersey City, NJ 07303-2052
First Clearing LLC 183,177.910 5.78%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
MLPF&S 185,823.916 5.86%
For the Sole Benefit of Its Customers
Attn: Fund Admin. 1977H23
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Class C.................. Citigroup Global Markets 167,487.023 16.74%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 62,990.469 6.30%
P.O. Box 2052
Jersey City, NJ 07303-2052
First Clearing LLC 92,860.562 9.28%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
G-3
MLPF&S 159,126.689 15.91%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Advisor Class ........... Frontier Trust Company 25,058.416 9.36%
F/B/O Maurice S. Mandel Rollover IRA
14 Hillside Ave.
Prt. Washington, NY 11050-2747
MLPF&S 59,221.630 22.02%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Trust for Profit Sharing Plan for Employees of 159,779.985 59.69%
Alliance Capital Mgmt L.P., Plan F
Attn: Diana Marotta, Fl. 31
1345 Avenue of the Americas
New York, NY 10105
International Research
Growth Fund
Class A.................. Pershing LLC 218,352.425 9.96%
P.O. Box 2052
Jersey City, NJ 07303-2052
Class B.................. Citigroup Global Markets 267,195.522 6.91%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 384,852.926 9.98%
P.O. Box 2052
Jersey City, NJ 07303-2052
First Clearing LLC 253,488.321 6.57%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
MLPF&S 563,454.473 14.61%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Class C.................. Citigroup Global Markets 140,756.264 11.51%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
G-4
Pershing LLC 111,666.962 9.13%
P.O. Box 2052
Jersey City, NJ 07303-2052
First Clearing LLC 65,869.700 5.39%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
MLPF&S 241,417.561 19.75%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Advisor Class ........... Strafe & Co. FBO 784,383.381 32.80%
Munson Medical Center Operating - Sec.
Assets
P.O. Box 160
Westerville, OH 43086-0360
PIMS/Prudential Retirement 1,088,353.708 45.51%
As Nominee for the TTEE/Cust. Pl. 007
Alliance Capital Management
300 International Pkwy, Suite 270
Heathrow, FL 32746-5028
Trust for Profit Sharing Plan for Employees of 364,564.411 15.24%
Alliance Capital Management, L.P. Plan 8
Attn: Diana Marotta, Fl. 31
1345 Avenue of the Americas
New York, NY 10105
Ownership of Shares Upon Consummation of Acquisition
As of March 15, 2005, the shareholders of record that owned 5% or more of
the outstanding shares of the noted class of shares of the noted Fund would own
the following percentage of the International Research Growth Fund upon
consummation of the Acquisition:
Percentage of
Outstanding Shares of
Class Owned Upon
Consummation of
Fund and Class Name and Address of Shareholder Acquisition
- -------------- -------------------------------- ----------------------
All-Asia Fund
Class A....................... Citigroup Global Markets 9.95%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 10.34%
P.O. Box 2052
Jersey City, NJ 07303-2052
MLPF&S 5.57%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL32246-6484
Class B....................... Citigroup Global Markets 17.99%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 32.28%
P.O. Box 2052
Jersey City, NJ 07303-2052
First Clearing LLC 16.39%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
MLPF&S 25.68%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Dean Witter Reynolds 8.47%
Attn: Mutual Fund Operations
2 Harborside Plaza, 2nd Fl.
Jersey City, NJ 07311
Class C....................... MLPF&S 5.42%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
G-6
Percentage of
Outstanding Shares of
Class Owned Upon
Consummation of
Fund and Class Name and Address of Shareholder Acquisition
- -------------- -------------------------------- ----------------------
All-Asia Fund
Advisor Class ................ MLPF&S 5.09%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL32246-6484
Trust for Profit Sharing Plan for Employees 36.04%
of Alliance Capital Mgmt L.P., Plan X
Attn: Diana Marotta, Fl. 31
1345 Avenue of the Americas
New York, NY 10105
New Europe Fund
Class A....................... Citigroup Global Markets 9.95%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 10.34%
P.O. Box 2052
Jersey City, NJ 07303-2052
MLPF&S 5.57%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL32246-6484
Class B....................... Citigroup Global Markets 17.99%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 32.28%
P.O. Box 2052
Jersey City, NJ 07303-2052
First Clearing LLC 16.39%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
MLPF&S 25.68%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Dean Witter Reynolds 8.47%
Attn: Mutual Fund Operations
2 Harborside Plaza, 2nd Fl.
Jersey City, NJ 07311
G-7
Percentage of
Outstanding Shares of
Class Owned Upon
Consummation of
Fund and Class Name and Address of Shareholder Acquisition
- -------------- -------------------------------- ----------------------
Class C....................... MLPF&S 5.42%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Advisor Class ................ MLPF&S 5.09%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL32246-6484
Trust for Profit Sharing Plan for Employees 36.04%
of Alliance Capital Mgmt L.P., Plan X
Attn: Diana Marotta, Fl. 31
1345 Avenue of the Americas
New York, NY 10105
International Research
Growth Fund
Class B....................... Citigroup Global Markets 17.99%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 32.28%
P.O. Box 2052
Jersey City, NJ 07303-2052
First Clearing LLC 16.39%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
MLPF&S 25.68%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Dean Witter Reynolds 8.47%
Attn: Mutual Fund Operations
2 Harborside Plaza, 2nd Fl.
Jersey City, NJ 07311
Class C....................... MLPF&S 5.42%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Advisor Class ................ MLPF&S 5.09%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL32246-6484
Trust for Profit Sharing Plan for Employees 36.04%
of Alliance Capital Mgmt L.P., Plan X
Attn: Diana Marotta, Fl. 31
1345 Avenue of the Americas
New York, NY 10105
PIMS/Prudential Retirement 36.62%
As Nominee for the TTEE/CUST Pl. 007
Alliance Capital Management
300 International Pkwy Ste. 270
Heathrow, FL 32746-5028
Strafe & Co. FAO 26.39%
Munsun Med. Ctr. Operation - Seg. Assets
P.O. Box 160
Westerville, OH 43086-0160
G-8
ALLIANCEBERNSTEIN INTERNATIONAL RESEARCH GROWTH FUND, INC.
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
March 29, 2005
This Statement of Additional Information (the "SAI") relates to the
proposed acquisitions (the "Acquisitions") of all of the assets and liabilities
of AllianceBernstein All-Asia Investment Fund, Inc. (the "All-Asia Fund") and
AllianceBernstein New Europe Fund, Inc. (the "New Europe Fund" and together with
the All-Asia Fund, the "Acquired Funds") by AllianceBernstein International
Research Growth Fund, Inc. (the "Acquiring Fund").
This SAI contains information which may be of interest to shareholders but
which is not included in the Prospectus/Proxy Statement dated March 29, 2005
(the "Prospectus/Proxy Statement") of the Acquiring Fund which relates to the
Acquisitions. As described in the Prospectus/Proxy Statement, the Acquisitions
would involve the transfer of all the assets of each Acquired Fund in exchange
for shares of the Acquiring Fund and the assumption by the Acquiring Fund of all
the liabilities of such Acquired Fund. Each Acquired Fund would distribute the
Acquiring Fund shares it receives to its shareholders in complete liquidation of
the Acquired Fund. The Acquiring Fund will be the survivor for accounting
purposes.
This SAI is not a prospectus and should be read in conjunction with the
Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with
the Securities and Exchange Commission and is available upon request and without
charge by writing to your Acquired Fund at 1345 Avenue of the Americas, New
York, New York 10105, or by calling 1-800-221-5672.
-1-
TABLE OF CONTENTS
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND
AND THE ACQUIRED FUNDS .................................................. 2
FINANCIAL STATEMENTS ....................................................... 2
APPENDIX A ................................................................. A-1
Additional Information about the Acquiring Fund and the Acquired Fund.
Attached hereto as Appendix A is the Statement of Additional Information of the
Acquiring Fund dated November 1, 2004, as amended March 24, 2005 to reflect
certain changes to the Acquiring Fund's investment objective and fundamental
investment restrictions with respect to which shareholder approval is currently
being sought, the approval of which is a condition to the effectiveness of the
Acquisitions.
Further information about All-Asia Fund and New Europe Fund is contained in
their Statements of Additional Information dated March 1, 2004, as amended May
3, 2004, and November 1, 2004, respectively, which are available upon request
and without charge by writing to the Acquired Fund at 1345 Avenue of the
Americas, New York, New York 10105, or by calling 1-800-221-5672.
Financial Statements.
The financial statements and Report of Independent Registered Public Accounting
Firm contained in the Annual Report for the twelve months ended July 31, 2004,
of the Acquiring Fund has been filed with the Securities and Exchange Commission
and is incorporated herein by reference.
The financial statements and Report of Independent Registered Public Accounting
Firm contained in the Annual Report for the twelve months ended October 31,
2004, of the All-Asia Fund, which report contains historical financial
information regarding the All-Asia Fund, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference.
The financial statements and Report of Independent Registered Public Accounting
Firm contained in the Annual Report for the twelve months ended July 31, 2004,
of the New Europe Fund, which report contains historical financial information
regarding the New Europe Fund, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference.
Pro forma financial statements of the Acquiring Funds for each Acquisition, and
for both acquisitions taken together, are provided on the following pages.
-2-
ALLIANCEBERNSTEIN ALL-ASIA INVESTMENT FUND, INC.
ALLIANCEBERNSTEIN NEW EUROPE FUND, INC.
AND
ALLIANCEBERNSTEIN INTERNATIONAL RESEARCH GROWTH FUND, INC.
PRO FORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma combining investment portfolio and
statement of assets and liabilities assumes that three possible exchanges
described in the next paragraph occurred as of July 31, 2004 and the unaudited
pro forma combining statement of operations for the twelve months ended July 31,
2004 presents the results of operations of the Acquiring Fund as if the
combination with (1) both Acquired Funds, (2) All-Asia Fund, Inc. but not New
Europe Fund or (3) New Europe Fund but not All-Asia Fund, had been consummated
at August 1, 2003. The pro forma results of operations are not necessarily
indicative of future operations or the actual results that would have occurred
had any of the combinations been consummated at August 1, 2003. In addition, it
should be noted that a special meeting of the Acquiring Fund's shareholders has
been called for April 21, 2005 to seek shareholder approval of changes to the
Acquiring Fund's investment objective and certain of its fundamental investment
policies. The pro forma results of operations are for periods prior to the
implementation of such changes. As a result, the pro forma results of operations
may not be representative of results the Fund would have would have achieved had
its proposed investment objective and investment policies been in place. These
historical statements have been derived from All-Asia Fund's, New Europe Fund's
and Acquiring Fund's books and records utilized in calculating daily net asset
values at July 31, 2004, and for the twelve-month period then ended.
The pro forma statements give effect to three scenarios: (1) the proposed
transfer of all of the assets of the All-Asia Fund and the New Europe Fund to
the Acquiring Fund in exchange for the assumption by the Acquiring Fund of all
of the liabilities of the All-Asia Fund and the New Europe Fund, and for a
number of the Acquiring Fund's shares equal in value to the value of the net
assets of the All-Asia Fund and the New Europe Fund transferred to the Acquiring
Fund; (2) the proposed transfer of all of the assets of the All-Asia Fund, but
not the New Europe Fund, to the Acquiring Fund in exchange for the assumption by
the Acquiring Fund of all of the liabilities of the All-Asia Fund, and for a
number of the Acquiring Fund's shares equal in value to the value of the net
assets of the All-Asia Fund transferred to the Acquiring Fund; and (3) the
proposed transfer of all of the assets of the New Europe Fund, but not the
All-Asia Fund, to the Acquiring Fund in exchange for the assumption by the
Acquiring Fund of all of the liabilities of the New Europe Fund, and for a
number of the Acquiring Fund's shares equal in value to the value of the net
assets of the New Europe Fund transferred to the Acquiring Fund. Under generally
accepted accounting principles, the historical cost of investment securities
will be carried forward to the surviving entity and the results of operations of
the Acquiring Fund for pre-combination periods will not be restated. The pro
forma statement of operations does not reflect the expenses of any of the funds
in carrying out their obligations under the Agreements and Plans of
Reorganization.
-3-
The unaudited pro forma combining statements should be read in conjunction with
the separate financial statements of the All-Asia Fund, the New Europe Fund and
the Acquiring Fund incorporated by reference in this SAI.
-4-
PRO FORMA ALLIANCEBERNSTEIN
INTERNATIONAL PREMIER GROWTH FUND
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ALLIANCEBERNSTEIN INTERNATIONAL PREMIER GROWTH FUND
ALLIANCEBERNSTEIN ALL-ASIA INVESTMENT FUND
ALLIANCEBERNSTEIN NEW EUROPE FUND
- --------------------------------------------------------------------------------
JULY 31, 2004
(unaudited)
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN
INTERNATIONAL PREMIER GROWTH FUND
July 31, 2004 (unaudited)
AllianceBernstein International Premier Growth Fund
AllianceBernstein All-Asia Investment Fund
AllianceBernstein New Europe Fund
================================================================================
Pro Forma AllianceBernstein AllianceBernstein Pro Forma
AllianceBernstein International All-Asia AllianceBernstein AllianceBernstein
International Premier Growth Investment New Europe International
Premier Growth Fund Fund Fund Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON & PREFERRED
STOCKS-99.2%
AUSTRALIA-1.1%
Australia & New Zealand Banking
Group, Ltd. .................. 29,374 $ -0- $ 372,805 $ -0- $ 372,805
BHP Billiton, Ltd. ........... 52,073 -0- 482,313 -0- 482,313
James Hardie Industries NV.... 23,390 -0- 93,693 -0- 93,693
National Australia Bank, Ltd. 8,868 -0- 166,207 -0- 166,207
News Corp., Ltd. ............. 31,625 -0- 271,583 -0- 271,583
Perpetual Trustees Australia, Ltd. 10,424 -0- 336,971 -0- 336,971
QBE Insurance Group, Ltd. .... 31,106 -0- 272,809 -0- 272,809
St. George Bank, Ltd. ........ 17,673 -0- 263,919 -0- 263,919
Westpac Banking Corp., Ltd. .. 17,169 -0- 203,304 -0- 203,304
Woodside Petroleum, Ltd. ..... 20,191 -0- 255,264 -0- 255,264
------------ ------------ ------------ -----------
-0- 2,718,868 -0- 2,718,868
------------ ------------ ------------ -----------
CHINA -0.3%
China Petroleum and Chemical
Corp. (Sinopec) Cl. H......... 828,000 -0- 321,128 -0- 321,128
China Resources Enterprise, Ltd. 102,000 -0- 125,543 -0- 125,543
China Telecom Corp., Ltd. Cl. H 430,000 -0- 141,961 -0- 141,961
CNOOC, Ltd. .................. 415,000 -0- 199,527 -0- 199,527
------------ ------------ ------------ -----------
-0- 788,159 -0- 788,159
------------ ------------ ------------ -----------
FRANCE-12.2%
BNP Paribas, SA............... 62,444 977,129 -0- 2,658,628 3,635,757
Essilor International, SA..... 48,341 734,504 -0- 2,235,543 2,970,047
L'Oreal, SA................... 56,663 1,433,467 -0- 2,626,911 4,060,378
LVMH Moet Hennessy Louis
Vuitton, SA................. 64,068 1,734,588 -0- 2,636,420 4,371,008
Sanofi-Synthelabo, SA......... 11,010 -0- -0- 730,377 730,377
Schneider Electric, SA........ 60,219 1,774,441 -0- 2,054,634 3,829,075
Total, SA..................... 48,957 2,889,331 -0- 6,613,766 9,503,097
Vinci, SA..................... 10,147 -0- -0- 1,032,903 1,032,903
------------ ------------ ------------ -----------
9,543,460 -0- 20,589,182 30,132,642
------------ ------------ ------------ -----------
GERMANY-7.0%
Altana AG..................... 47,771 1,606,516 -0- 985,022 2,591,538
E.ON AG....................... 18,415 -0- -0- 1,308,072 1,308,072
Porsche AG pfd. .............. 6,052 1,291,163 -0- 2,619,701 3,910,864
SAP AG........................ 53,313 3,398,170 -0- 5,152,897 8,551,067
Siemens AG.................... 13,320 931,814 -0- -0- 931,814
------------ ------------ ------------ -----------
7,227,663 -0- 10,065,692 17,293,355
------------ ------------ ------------ -----------
HONG KONG-0.8%
Cheung Kong Holdings, Ltd. ... 25,000 -0- 184,302 -0- 184,302
Esprit Holdings, Ltd. ........ 240,000 771,876 298,935 -0- 1,070,811
HSBC Holdings Plc. ........... 10,000 -0- 147,442 -0- 147,442
Li & Fung, Ltd. .............. 160,000 -0- 221,547 -0- 221,547
Sun Hung Kai Properties, Ltd. 30,000 -0- 253,856 -0- 253,856
------------ ------------ ------------ -----------
771,876 1,106,082 -0- 1,877,958
------------ ------------ ------------ -----------
1
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN
INTERNATIONAL PREMIER GROWTH FUND
(continued)
AllianceBernstein International Premier Growth Fund
AllianceBernstein All-Asia Investment Fund
AllianceBernstein New Europe Fund
================================================================================
Pro Forma AllianceBernstein AllianceBernstein Pro Forma
AllianceBernstein International All-Asia AllianceBernstein AllianceBernstein
International Premier Growth Investment New Europe International
Premier Growth Fund Fund Fund Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
INDIA-1.1%
Bharti Tele-Ventures, Ltd. (a) 276,000 $ -0- $ 904,625 $ -0- $ 904,625
Canara Bank, Ltd. .......... 59,700 -0- 160,981 -0- 160,981
Housing Development Finance
Corp., Ltd. ................ 38,222 473,953 -0- -0- 473,953
Infosys Technologies, Ltd. ... 19,200 402,049 241,229 -0- 643,278
Reliance Industries, Ltd. .... 43,333 456,830 -0- -0- 456,830
Tata Motors, Ltd. ............ 10,100 -0- 91,994 -0- 91,994
------------ ------------ ------------ -----------
1,332,832 1,398,829 -0- 2,731,661
------------ ------------ ------------ -----------
INDONESIA-0.0%
Bank Rakyat Indonesia ............. 466,500 -0- 88,091 -0- 88,091
------------ ------------ ------------ -----------
IRELAND-3.2%
Anglo Irish Bank Corp. Plc ........ 118,535 -0- -0- 1,878,065 1,878,065
CRH Plc ........................... 264,347 1,578,609 -0- 4,386,475 5,965,084
------------ ------------ ------------ -----------
1,578,609 -0- 6,264,540 7,843,149
------------ ------------ ------------ -----------
ISRAEL-0.7%
Teva Pharmaceutical Industries,
Ltd. (ADR) ...................... 54,200 1,604,320 -0- -0- 1,604,320
------------ ------------ ------------ -----------
ITALY-1.2%
Alleanza Assicurazioni S.p.A ...... 155,744 217,095 -0- 1,451,409 1,668,504
Eni S.p.A ......................... 68,532 -0- -0- 1,410,904 1,410,904
------------ ------------ ------------ -----------
217,095 -0- 2,862,313 3,079,408
------------ ------------ ------------ -----------
JAPAN-13.5%
Advantest Corp. ................... 3,900 -0- 228,269 -0- 228,269
Aeon Credit Service Co., Ltd. ..... 20,100 717,366 515,032 -0- 1,232,398
Arnest One Corp. .................. 1,400 -0- 41,474 -0- 41,474
Bridgestone Corp. ................. 22,000 -0- 396,966 -0- 396,966
Canon, Inc. ....................... 69,100 2,197,585 1,176,929 -0- 3,374,514
Daiwa Securities Group, Inc. ...... 90,000 -0- 590,601 -0- 590,601
Denso Corp. ....................... 61,400 801,392 703,362 -0- 1,504,754
Fujisawa Pharmaceutical Co.,
Ltd. ............................ 18,700 -0- 453,252 -0- 453,252
Fujitsu, Ltd. ..................... 34,000 -0- 210,602 -0- 210,602
Eisai Co., Ltd. ................... 34,600 1,015,683 -0- -0- 1,015,683
Honda Motor Co., Ltd. ............. 9,200 -0- 447,632 -0- 447,632
Hoya Corp. ........................ 32,200 2,518,291 791,463 -0- 3,309,754
Ito-Yokado Co., Ltd. .............. 18,000 699,672 -0- -0- 699,672
Japan Wind Development Co.,
Ltd. (a) ........................ 27 -0- 64,473 -0- 64,473
JFE Holdings, Inc. ................ 36,600 -0- 875,614 -0- 875,614
JSR Corp. ......................... 6,600 -0- 109,314 -0- 109,314
KDDI Corp. ........................ 388 1,527,277 454,607 -0- 1,981,884
Keyence Corp. ..................... 4,100 867,148 -0- -0- 867,148
Leopalace21 Corp. ................. 25,400 -0- 505,059 -0- 505,059
Matsushita Electric Industrial Co.,
Ltd. ............................ 129,000 919,215 799,318 -0- 1,718,533
2
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN
INTERNATIONAL PREMIER GROWTH FUND
(continued)
AllianceBernstein International Premier Growth Fund
AllianceBernstein All-Asia Investment Fund
AllianceBernstein New Europe Fund
================================================================================
Pro Forma AllianceBernstein AllianceBernstein Pro Forma
AllianceBernstein International All-Asia AllianceBernstein AllianceBernstein
International Premier Growth Investment New Europe International
Premier Growth Fund Fund Fund Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
Mitsubishi Corp. ............. 226,000 $ 1,405,018 $ 769,873 $ -0- $ 2,174,891
Mitsubishi Tokyo Financial Group,
Inc. ....................... 261 1,414,121 921,864 -0- 2,335,985
Nippon Mining Holdings, Inc. . 103,500 -0- 434,831 -0- 434,831
Nitto Denko Corp. ............ 47,600 1,464,159 527,097 -0- 1,991,256
Nok Corp. .................... 12,100 -0- 364,971 -0- 364,971
OBIC Co., Ltd. ............... 2,100 -0- 405,314 -0- 405,314
Reins International, Inc. .... 23 -0- 117,896 -0- 117,896
Ricoh Co., Ltd. .............. 80,000 1,558,418 -0- -0- 1,558,418
Sammy Corp. .................. 12,000 -0- 591,409 -0- 591,409
Sumitomo Corp. ............... 53,000 -0- 370,160 -0- 370,160
Sumitomo Mitsui Financial Group,
Inc. ....................... 195 602,361 572,243 -0- 1,174,604
Takashimaya Co., Ltd. ........ 41,000 -0- 381,310 -0- 381,310
TDK Corp. .................... 5,800 -0- 400,916 -0- 400,916
Tokyo Steel Manufacturing Co.,
Ltd. ....................... 21,300 -0- 325,059 -0- 325,059
Touei Housing Corp. .......... 5,290 -0- 174,283 -0- 174,283
Toyota Motor Corp. ........... 21,300 -0- 856,627 -0- 856,627
------------ ------------ ------------ -----------
17,707,706 15,577,820 -0- 33,285,526
------------ ------------ ------------ -----------
MALAYSIA-0.2%
Maxis Communications Berhad... 92,000 -0- 213,053 -0- 213,053
Public Bank Berhad............ 106,000 -0- 195,263 -0- 195,263
------------ ------------ ------------ -----------
-0- 408,316 -0- 408,316
------------ ------------ ------------ -----------
MEXICO-0.7%
America Movil SA de CV Series L
(ADR)......................... 49,000 1,750,770 -0- -0- 1,750,770
------------ ------------ ------------ -----------
NETHERLANDS-0.5%
ASML Holding NV(a)............ 55,100 786,283 -0- -0- 786,283
ING Groep NV.................. 19,760 458,006 -0- -0- 458,006
------------ ------------ ------------ -----------
1,244,289 -0- -0- 1,244,289
------------ ------------ ------------ -----------
NORWAY-0.2%
Norsk Hydro ASA............... 8,973 567,206 -0- -0- 567,206
------------ ------------ ------------ -----------
RUSSIA-0.3%
Mobile Telesystems (ADR)...... 6,900 -0- -0- 807,645 807,645
------------ ------------ ------------ -----------
SINGAPORE-0.3%
Oversea-Chinese Banking Corp. 55,000 -0- 409,326 -0- 409,326
United Overseas Bank, Ltd. ... 50,000 -0- 398,279 -0- 398,279
------------ ------------ ------------ -----------
-0- 807,605 -0- 807,605
------------ ------------ ------------ -----------
SOUTH KOREA-1.3%
Hyundai Motor Co., Ltd. ...... 3,460 -0- 128,400 -0- 128,400
Kookmin Bank (a).............. 9,380 -0- 257,860 -0- 257,860
POSCO......................... 1,560 -0- 212,758 -0- 212,758
Samsung Electronics Co., Ltd. 5,710 1,604,532 431,441 -0- 2,035,973
3
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN
INTERNATIONAL PREMIER GROWTH FUND
(continued)
AllianceBernstein International Premier Growth Fund
AllianceBernstein All-Asia Investment Fund
AllianceBernstein New Europe Fund
================================================================================
Pro Forma AllianceBernstein AllianceBernstein Pro Forma
AllianceBernstein International All-Asia AllianceBernstein AllianceBernstein
International Premier Growth Investment New Europe International
Premier Growth Fund Fund Fund Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
Shinhan Financial Group Co.,
Ltd. ....................... 10,170 $ -0- $ 148,267 $ -0- $ 148,267
SK Telecom Co., Ltd. ......... 2,350 -0- 319,495 -0- 319,495
------------ ------------ ------------ -----------
1,604,532 1,498,221 -0- 3,102,753
------------ ------------ ------------ -----------
SPAIN-4.3%
Banco Bilbao Vizcaya Argentaria, SA 358,990 1,396,115 -0- 3,382,048 4,778,163
Industria de Diseno Textil, SA
(Inditex)..................... 135,327 1,321,371 -0- 1,775,574 3,096,945
Telefonica, SA(a)............. 185,516 -0- -0- 2,704,790 2,704,790
------------ ------------ ------------ -----------
2,717,486 -0- 7,862,412 10,579,898
------------ ------------ ------------ -----------
SWEDEN-3.0%
LM Ericsson AB(a)............. 2,784,928 2,682,963 -0- 4,758,806 7,441,769
------------ ------------ ------------ -----------
SWITZERLAND-13.2%
Alcon, Inc. .................. 39,200 1,256,240 -0- 1,746,480 3,002,720
Nestle, SA.................... 21,837 1,276,366 -0- 4,304,791 5,581,157
Nobel Biocare Holding AG...... 15,383 484,098 -0- 1,619,983 2,104,081
Novartis AG................... 124,951 1,846,701 -0- 3,744,262 5,590,963
Roche Holding AG - Genusschein 75,330 2,561,435 -0- 4,886,370 7,447,805
Swiss Reinsurance Co. ........ 45,082 1,139,737 -0- 1,494,007 2,633,744
UBS AG........................ 93,606 2,287,661 -0- 3,974,795 6,262,456
------------ ------------ ------------ -----------
10,852,238 -0- 21,770,688 32,622,926
------------ ------------ ------------ -----------
TAIWAN-0.5%
Cathay Financial Holding Co.,
Ltd. ....................... 22,000 -0- 36,246 -0- 36,246
Cathay Financial Holding Co., Ltd.
(GDR) (b)................... 5,083 -0- 84,124 -0- 84,124
Chinatrust Financial Holding Co.,
Ltd. ....................... 122,000 -0- 124,548 -0- 124,548
Hon Hai Precision Industry Co.,
Ltd. ....................... 61,700 -0- 222,367 -0- 222,367
Taiwan Semiconductor
Manufacturing Co., Ltd. ...... 349,334 217,819 223,088 -0- 440,907
United Microelectronics Corp. (a) 170,640 -0- 108,940 -0- 108,940
Yageo Corp. (a)............... 271,000 -0- 112,020 -0- 112,020
------------ ------------ ------------ -----------
217,819 911,333 -0- 1,129,152
------------ ------------ ------------ -----------
THAILAND-0.1%
Advanced Info Service Public Co.,
Ltd. ....................... 79,100 -0- 180,904 -0- 180,904
Siam Commercial Bank Public
Co., Ltd. .................. 95,400 -0- 103,896 -0- 103,896
------------ ------------ ------------ -----------
-0- 284,800 -0- 284,800
------------ ------------ ------------ -----------
UNITED KINGDOM-33.5%
AstraZeneca Plc. ............. 155,650 2,318,220 -0- 4,647,491 6,965,711
Capita Group Plc. ............ 119,187 -0- -0- 663,210 663,210
Carnival Plc. ................ 154,953 3,120,946 -0- 4,458,859 7,579,805
4
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN
INTERNATIONAL PREMIER GROWTH FUND
(continued)
AllianceBernstein International Premier Growth Fund
AllianceBernstein All-Asia Investment Fund
AllianceBernstein New Europe Fund
================================================================================
Pro Forma AllianceBernstein AllianceBernstein Pro Forma
AllianceBernstein International All-Asia AllianceBernstein AllianceBernstein
International Premier Growth Investment New Europe International
Premier Growth Fund Fund Fund Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
Centrica Plc. ................ 144,261 $ -0- $ -0- $ 620,413 $ 620,413
Compass Group Plc. ........... 135,706 -0- -0- 789,060 789,060
Enterprise Inns Plc. ......... 183,305 428,287 -0- 1,348,376 1,776,663
GUS Plc. ..................... 240,513 -0- -0- 3,765,669 3,765,669
HBOS Plc. .................... 55,351 -0- -0- 717,151 717,151
Hilton Group Plc. ............ 670,164 1,083,487 -0- 2,094,193 3,177,680
HSBC Holdings Plc. ........... 600,861 2,810,504 -0- 6,012,595 8,823,099
Legal & General Group Plc. ... 1,129,588 -0- -0- 1,992,472 1,992,472
Man Group Plc. ............... 47,361 -0- -0- 1,126,495 1,126,495
Reckitt Benckiser Plc. ....... 282,234 2,914,824 -0- 4,804,201 7,719,025
Royal Bank of Scotland Group
Plc. ....................... 262,629 2,021,397 -0- 5,361,999 7,383,396
Smith & Nephew Plc. .......... 465,799 1,484,188 -0- 3,216,875 4,701,063
Standard Chartered Plc. ...... 346,430 1,952,443 -0- 3,777,141 5,729,584
Tesco Plc. ................... 2,141,656 3,613,348 -0- 6,298,227 9,911,575
Vodafone Group Plc. .......... 3,071,804 2,222,992 -0- 4,438,272 6,661,264
WPP Group Plc. ............... 258,925 1,064,283 -0- 1,329,977 2,394,260
------------ ------------ ------------ ------------
25,034,919 -0- 57,462,676 82,497,595
------------ ------------ ------------ ------------
TOTAL INVESTMENTS-99.2%
(cost $199,732,055)........ 86,655,783 25,588,124 132,443,954 244,687,861
Other assets less liabilities-0.8% 599,063 95,477 1,212,288 1,906,828
------------ ------------ ------------ ------------
NET ASSETS-100%............... $ 87,254,846 $ 25,683,601 $133,656,242 $246,594,689
============ ============ ============ ============
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security is considered liquid and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. At July 31, 2004, the market value of this security amounted to
$84,124 or .03% of net assets.
Glossary of terms:
ADR -American Depositary Receipt
GDR -Global Depositary Receipt
pfd -Preferred Stock
See notes to Pro Forma AllianceBernstein International Premier Growth Fund
financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
PRO FORMA ALLIANCEBERNSTEIN
INTERNATIONAL PREMIER GROWTH FUND
July 31, 2004 (unaudited)
AllianceBernstein International Premier Growth Fund
AllianceBernstein All-Asia Investment Fund
AllianceBernstein New Europe Fund
================================================================================
Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein
International All-Asia AllianceBernstein International
Premier Growth Fund Investment Fund New Europe Fund Adjustments Premier Growth Fund
=================== ================= ================= =========== ===================
ASSETS
Investments in securities, at value
(cost $199,732,055) ............. $ 86,655,783 $ 25,588,124 $ 132,443,954 $ -0- $ 244,687,861
Cash .............................. 478,680 116,355 233,361 -0- 828,396
Foreign cash, at value
(cost $2,028,939) ................. 799,581 82,566 1,146,672 -0- 2,028,819
Dividends receivable .............. 100,015 28,007 324,157 -0- 452,179
Receivable for capital stock sold . 72,665 275,499 362,510 -0- 710,674
Receivable for investment
securities sold and foreign
currency contracts .............. -0- 14,357 337,471 -0- 351,828
Receivable from Adviser ........... -0- 7,400 -0- (7,400) -0-
------------- ------------- ------------- ---------- --------------
Total assets ...................... 88,106,724 26,112,308 134,848,125 (7,400) $ 249,059,757
------------- ------------- ------------- ---------- --------------
LIABILITIES
Payable for capital stock
redeemed .......................... 305,781 42,700 618,827 -0- 967,308
Payable for investment securities
purchased and foreign currency
contracts ......................... 227,030 28,100 150,639 -0- 405,769
Advisory fee payable .............. 59,836 -0- 86,981 (7,400) 139,417
Distribution fee payable .......... 50,436 14,189 73,383 -0- 138,008
Transfer Agent fee payable ........ 31,265 12,812 46,152 -0- 90,229
Accrued expenses and other
liabilities ....................... 177,530 330,906 215,901 -0- 724,337
------------- ------------- ------------- ---------- --------------
Total liabilities ................. 851,878 428,707 1,191,883 (7,400) 2,465,068
------------- ------------- ------------- ---------- --------------
NET ASSETS ........................... $ 87,254,846 $ 25,683,601 $ 133,656,242 $ -0- $ 246,594,689
============= ============= ============= ========== ==============
Class A Shares
Net assets ........................ $ 22,001,482 $ 8,145,521 $ 66,252,996 $ 96,399,999
============= ============= ============= ==============
Shares of capital stock
outstanding ..................... 2,588,559 1,454,875 4,612,759 2,683,721 11,339,914
============= ============= ============= ========== ==============
Net asset value and redemption
price per share ................. $ 8.50 $ 5.60 $ 14.36 $ 8.50
Sales charge--4.25% of public
offering price .................. .38 .25 .64 .38
------------- ------------- ------------- --------------
Maximum offering price ............ $ 8.88 $ 5.85 $ 15.00 $ 8.88
============= ============= ============= ==============
Class B Shares
Net assets ........................ $ 38,429,729 $ 9,858,832 $ 49,465,577 $ 97,754,138
============= ============= ============= ==============
Shares of capital stock
outstanding ..................... 4,744,170 1,900,128 3,875,844 1,547,168 12,067,310
============= ============= ============= ========== ==============
Net asset value and offering price
per share ....................... $ 8.10 $ 5.19 $ 12.76 $ 8.10
============= ============= ============= ==============
Class C Shares
Net assets ........................ $ 12,416,883 $ 3,533,751 $ 14,959,579 $ 30,910,213
============= ============= ============= ==============
Shares of capital stock
outstanding ..................... 1,532,197 678,660 1,167,557 436,774 3,815,188
============= ============= ============= ========== ==============
Net asset value and offering price
per share ....................... $ 8.10 $ 5.21 $ 12.81 $ 8.10
============= ============= ============= ==============
Advisor Class Shares
Net assets ........................ $ 14,406,752 $ 4,145,497 $ 2,978,090 $ 21,530,339
============= ============= ============= ==============
Shares of capital stock
outstanding ..................... 1,665,133 727,230 205,206 (108,997) 2,488,572
============= ============= ============= ========== ==============
Net asset value and offering price
per share ....................... $ 8.65 $ 5.70 $ 14.51 $ 8.65
============= ============= ============= ==============
- --------------------------------------------------------------------------------
See notes to Pro Forma AllianceBernstein International Premier Growth Fund
financial statements.
6
STATEMENT OF OPERATIONS
PRO FORMA ALLIANCEBERNSTEIN
INTERNATIONAL PREMIER GROWTH FUND
Year Ended July 31, 2004 (unaudited)
AllianceBernstein International Premier Growth Fund
AllianceBernstein All-Asia Investment Fund
AllianceBernstein New Europe Fund
================================================================================
Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein
International All-Asia AllianceBernstein International
Premier Growth Fund Investment Fund New Europe Fund Adjustments Premier Growth Fund
=================== ================= ================= =========== ===================
INVESTMENT INCOME
Dividends (net of foreign taxes
withheld of $535,586) ............ $ 1,406,287 $ 425,494 $ 2,927,545 $ -0- $ 4,759,326
Interest ......................... 2,611 3,210 -0- -0- 5,821
------------ ------------ ------------- --------- ------------
Total income ..................... 1,408,898 428,704 2,927,545 -0- 4,765,147
------------ ------------ ------------- --------- ------------
EXPENSES
Advisory fee ..................... 979,873 269,788 1,573,507 (75,771) 2,747,397 (a)
Distribution fee--Class A ........ 73,290 25,480 214,340 -0- 313,110 (b)
Distribution fee--Class B ........ 452,572 109,463 572,503 -0- 1,134,538 (c)
Distribution fee--Class C ........ 148,616 36,256 178,095 -0- 362,967 (c)
Transfer agency .................. 579,359 165,049 911,924 15,234 1,671,566 (d)
Custodian ........................ 236,180 228,894 249,711 (55,410) 659,375 (d)
Audit and legal .................. 118,452 153,162 147,393 (269,007) 150,000 (d)
Administration ................... 105,000 40,364 117,000 (157,364) 105,000 (d)
Registration ..................... 59,290 35,591 67,294 (99,175) 63,000 (d)
Printing ......................... 55,265 30,485 70,943 (31,820) 124,873 (d)
Directors' fees .................. 21,696 59,273 54,463 (113,736) 21,696 (d)
Miscellaneous .................... 8,548 7,199 17,296 (21,043) 12,000 (d)
------------ ------------ ------------- --------- ------------
Total expenses ................... 2,838,141 1,161,004 4,174,469 (808,092) 7,365,522
Less: expenses waived and
reimbursed by the Adviser and
Transfer Agent (see Note C) ... (241,226) (261,119) (293,922) 256,144 (540,123)
Less: expense offset arrangement
(see Note C) ................... (53) (18) (80) -0- (151)
------------ ------------ ------------- --------- ------------
Net expenses ..................... 2,596,862 899,867 3,880,467 (551,948) 6,825,248
------------ ------------ ------------- --------- ------------
Net investment loss .............. (1,187,964) (471,163) (952,922) 551,948 (2,060,101)
------------ ------------ ------------- --------- ------------
REALIZED AND
UNREALIZED GAIN(LOSS)
ON INVESTMENT AND
FOREIGN CURRENCY
TRANSACTIONS
Net realized gain of:
Investment transactions ........ 9,597,116 3,723,687 20,578,411 -0- 33,899,214
Foreign currency transactions .. 89,655 34,742 17,369 -0- 141,766
Net change in unrealized
appreciation/depreciation of:
Investments .................... 3,421,052 1,168,005 3,756,164 -0- 8,345,221
Foreign currency denominated
assets and liabilities ......... (7,580) (93,967) (5,617) -0- (107,164)
------------ ------------ ------------- --------- ------------
Net gain on investment and foreign
currency transactions .......... 13,100,243 4,832,467 24,346,327 -0- 42,279,037
------------ ------------ ------------- --------- ------------
NET INCREASE IN NET
ASSETS FROM
OPERATIONS .......................... $ 11,912,279 $ 4,361,304 $ 23,393,405 $ 551,948 $ 40,218,936
============ ============ ============= ========= ============
- --------------------------------------------------------------------------------
(a) Advisory fee based on annual rate of 1.00% of the total combined average
daily net assets.
(b) Distribution fee based on annual rate of .30% of the total combined
average daily net assets.
(c) Distribution fee based on annual rate of 1.00% of the total combined
average daily net assets.
(d) Expenses are based on one Fund.
See notes to Pro Forma AllianceBernstein International Premier Growth Fund
financial statements.
7
NOTES TO FINANCIAL STATEMENTS
PRO FORMA ALLIANCEBERNSTEIN
INTERNATIONAL PREMIER GROWTH FUND
July 31, 2004 (unaudited)
AllianceBernstein International Premier Growth Fund
AllianceBernstein All-Asia Investment Fund
AllianceBernstein New Europe Fund
================================================================================
NOTE A: General
The Pro Forma AllianceBernstein International Premier Growth Fund Financial
Statements give effect to the proposed acquisitions (the "Acquisitions") of the
assets and liabilities of each of AllianceBernstein All-Asia Investment Fund and
AllianceBernstein New Europe Fund (collectively, the "Acquired Funds") by
AllianceBernstein International Premier Growth Fund (the "Fund" or "Acquiring
Fund") pursuant to Agreements and Plans of Reorganization. The Acquisitions
would be accomplished by a tax-free exchange of the assets and liabilities of
each of AllianceBernstein All-Asia Investment Fund and AllianceBernstein New
Europe Fund for shares of the Fund.
The Fund commenced operations on March 3, 1998. The Fund's unaudited Pro Forma
Portfolio of Investments, Statement of Assets and Liabilities and Statement of
Operations are prepared as though the Acquisitions were effective for the period
August 1, 2003 - July 31, 2004. You should read them in conjunction with the
Fund's historical financial statements, which are included in the Fund's
Statement of Additional Information. The Fund's Pro Forma Statement of
Operations reflects the assumption that certain expenses would be lower for the
combined Fund as a result of the Acquisitions. Alliance Capital Management L.P.
will bear the expenses of the Acquisitions, including the costs of proxy
solicitation, except that AllianceBernstein All-Asia Investment Fund and
AllianceBernstein New Europe Fund will each bear its own costs associated with
the disposition or acquisition of portfolio securities in connection with the
Acquisitions.
NOTE B: Significant Accounting Policies
The Fund's Pro Forma financial statements have been prepared in conformity with
U.S. generally accepted accounting principles, 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.
1. Security Valuation
In accordance with Pricing Policies adopted by the Board of Directors of the
Fund (the "Pricing Policies) and applicable law, portfolio securities are valued
at current market value or at fair value. The Board of Directors has delegated
to Alliance Capital Management L.P. (the "Adviser"), subject to the Board's
continuing oversight, certain responsibilities with respect to the
implementation of the Pricing Policies. Pursuant to the Pricing Policies,
securities for which market quotations are readily available are valued at their
current market value. In general, the market value of these securities is
determined as follows:
Securities listed on a national securities exchange 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. If no bid or asked prices are quoted on such day, then the security is
valued in good faith at fair value in accordance with the Pricing Policies.
Securities listed on more than one exchange are valued by reference to the
principal exchange on which the securities are traded; securities not listed on
an exchange but traded on The Nasdaq Stock Market, Inc. (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 valuations, the last available closing
settlement price is used; securities traded in the over-the-counter market, (but
excluding securities traded on NASDAQ) 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 form one or more of the major broker/dealers. In cases
where broker/dealer quotes are obtained, the Pricing Policies provide that 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 form a major broker/dealer in such security. Securities for
which market quotations are not readily available are valued at fair value in
accordance with the Pricing Policies.
2. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency 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 at the rates of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when accrued.
8
NOTES TO FINANCIAL STATEMENTS
PRO FORMA ALLIANCEBERNSTEIN
INTERNATIONAL PREMIER GROWTH FUND
July 31, 2004 (unaudited)
AllianceBernstein International Premier Growth Fund
AllianceBernstein All-Asia Investment Fund
AllianceBernstein New Europe Fund
================================================================================
Net realized gain or loss on foreign currency transactions represents foreign
exchange gains and losses from sales and maturities of investments and foreign
currency contracts, the holding of foreign currencies, currency gains and losses
realized between the trade and settlement dates on foreign security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Fund'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 and
depreciation of investments and foreign currency denominated assets and
liabilities.
3. Taxes
It is the Fund'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 Fund may be subject to taxes imposed my 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.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is
informed of the dividend. Interest income is accrued daily. Investment
transactions are accounted for on the date securities are purchased or sold.
Investment gains and losses are determined on the identified cost basis. The
Fund accretes discounts on short-term securities as adjustments to interest
income.
5. Income and Expenses
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the net assets of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees than
Class A shares and Advisor Class shares. Advisor Class shares have no
distribution fees.
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 accounting principles. 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 reclassification.
NOTE C: Advisory Fee and other Transactions with Affiliates
Until September 6, 2004, under the terms of an investment advisory agreement,
the Fund paid the Adviser an advisory fee at an annual rate of 1% of the Fund's
average daily net assets. Effective September 7, 2004, the terms of the
investment advisory agreement were amended so that the advisory fee was reduced
to an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5
billion and .60% in excess of $5 billion, of the Fund's average daily net
assets. The fee is accrued daily and paid monthly.
Effective January 1, 2004 through September 6, 2004, the Adviser began waiving a
portion of its advisory fee so as to charge the Fund at the reduced annual rate
discussed above. Through July 31, 2004 such waiver amounted to $441,788.
The Fund compensates Alliance Global Investor Services, Inc. (AGIS), a
wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for
providing personnel and facilities to perform transfer agency services for the
Fund. During the period, AGIS voluntarily agreed to waive a portion of its fees
for such services. Such waiver amounted to $98,335.
For the year ended July 31, 2004, the Fund's expenses were reduced by $151 under
an expense offset arrangement with AGIS.
AllianceBernstein Investment Research
and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the
Adviser serves as the distributor of the Fund's shares.
NOTE D: Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the "Agreeement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement the Fund pays distribution and servicing fees to the Disbributor at an
annual rate of up to .30% of the Fund's average daily net assets attributable to
Class A shares and 1% of the average daily net assets attributable to the Class
B and Class C shares. There are no distribution and servicing fees on the
Advisor Class 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.
NOTE E: CAPITAL SHARES
The pro-forma combining net asset value per share assumes the issuance of
Acquiring Fund shares to Acquired Fund shareholders in connection with the
proposed merger. The number of shares assumed to be issued is equal to the net
asset value of the Acquired Fund divided by the net asset value per share of the
Acquiring Fund as of July 31, 2004. The pro-forma number of shares outstanding,
by class, for the combined entity consists of the following at July 31, 2004.
- --------------------------------------------------------------------------------
Shares of Additional Shares Total Shares
Acquiring Fund Assumed Issued Outstanding
Class of Shares Pre-Combination with Merger Post-Combination
- --------------------------------------------------------------------------------
Class A 2,588,559 8,751,355 11,339,914
- --------------------------------------------------------------------------------
Class B 4,744,170 7,323,140 12,067,310
- --------------------------------------------------------------------------------
Class C 1,532,197 2,282,991 3,815,188
- --------------------------------------------------------------------------------
Advisor Class 1,665,133 823,439 2,488,572
- --------------------------------------------------------------------------------
9
PRO FORMA ALLIANCEBERNSTEIN
---------------------------
INTERNATIONAL PREMIER GROWTH FUND
---------------------------
FINANCIAL STATEMENTS
---------------------------
ALLIANCEBERNSTEIN INTERNATIONAL PREMIER GROWTH FUND
ALLIANCEBERNSTEIN ALL-ASIA INVESTMENT FUND
JULY 31, 2004
(unaudited)
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
July 31, 2004 (unaudited) AllianceBernstein All-Asia Investment Fund
================================================================================
Pro Forma Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein AllianceBernstein
International International All-Asia International
Premier Growth Fund Premier Growth Fund Investment Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON & PREFERRED STOCKS-99.4%
AUSTRALIA-2.4%
Australia & New Zealand Banking
Group, Ltd. .............................. 29,374 $ -0- $ 372,805 $ 372,805
BHP Billiton, Ltd. ........................... 52,073 -0- 482,313 482,313
James Hardie Industries NV.................... 23,390 -0- 93,693 93,693
National Australia Bank, Ltd. ................ 8,868 -0- 166,207 166,207
News Corp., Ltd. ............................. 31,625 -0- 271,583 271,583
Perpetual Trustees Australia, Ltd. ........... 10,424 -0- 336,971 336,971
QBE Insurance Group, Ltd. .................... 31,106 -0- 272,809 272,809
St. George Bank, Ltd. ........................ 17,673 -0- 263,919 263,919
Westpac Banking Corp., Ltd. .................. 17,169 -0- 203,304 203,304
Woodside Petroleum, Ltd. ..................... 20,191 -0- 255,264 255,264
--------------- ------------- ------------
-0- 2,718,868 2,718,868
--------------- ------------- ------------
CHINA-0.7%
China Petroleum and Chemical Corp.
(Sinopec) Cl. H........................... 828,000 -0- 321,128 321,128
China Resources Enterprise,
Ltd. ..................................... 102,000 -0- 125,543 125,543
China Telecom Corp., Ltd.
Cl. H..................................... 430,000 -0- 141,961 141,961
CNOOC, Ltd. .................................. 415,000 -0- 199,527 199,527
--------------- ------------- ------------
-0- 788,159 788,159
--------------- ------------- ------------
FRANCE-8.4%
BNP Paribas, SA............................... 16,800 977,129 -0- 977,129
Essilor International, SA..................... 11,968 734,504 -0- 734,504
L'Oreal, SA................................... 20,023 1,433,467 -0- 1,433,467
LVMH Moet Hennessy Louis Vuitton,
SA ....................................... 25,447 1,734,588 -0- 1,734,588
Schneider Electric, SA........................ 27,928 1,774,441 -0- 1,774,441
Total, SA..................................... 14,900 2,889,331 -0- 2,889,331
--------------- ------------- ------------
9,543,460 -0- 9,543,460
--------------- ------------- ------------
GERMANY-6.4%
Altana AG..................................... 29,630 1,606,516 -0- 1,606,516
Porsche AG pfd. .............................. 2,000 1,291,163 -0- 1,291,163
SAP AG ....................................... 21,205 3,398,170 -0- 3,398,170
Siemens AG.................................... 13,320 931,814 -0- 931,814
--------------- ------------- ------------
7,227,663 -0- 7,227,663
--------------- ------------- ------------
HONG KONG-1.7%
Cheung Kong Holdings, Ltd. ................... 25,000 -0- 184,302 184,302
Esprit Holdings, Ltd. ........................ 240,000 771,876 298,935 1,070,811
HSBC Holdings Plc. ........................... 10,000 -0- 147,442 147,442
Li & Fung, Ltd. .............................. 160,000 -0- 221,547 221,547
Sun Hung Kai Properties, Ltd. ................ 30,000 -0- 253,856 253,856
--------------- ------------- ------------
771,876 1,106,082 1,877,958
--------------- ------------- ------------
1
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
July 31, 2004 (unaudited) AllianceBernstein All-Asia Investment Fund
================================================================================
Pro Forma Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein AllianceBernstein
International International All-Asia International
Premier Growth Fund Premier Growth Fund Investment Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
INDIA-2.4%
Bharti Tele-Ventures, Ltd. (a)................ 276,000 $ -0- $ 904,625 $ 904,625
Canara Bank, Ltd. ............................ 59,700 -0- 160,981 160,981
Housing Development Finance Corp.,
Ltd. ..................................... 38,222 473,953 -0- 473,953
Infosys Technologies, Ltd. ................... 19,200 402,049 241,229 643,278
Reliance Industries, Ltd. .................... 43,333 456,830 -0- 456,830
Tata Motors, Ltd. ............................ 10,100 -0- 91,994 91,994
--------------- ------------- ------------
1,332,832 1,398,829 2,731,661
--------------- ------------- ------------
INDONESIA-0.1%
Bank Rakyat Indonesia......................... 466,500 -0- 88,091 88,091
--------------- ------------- ------------
IRELAND-1.4%
CRH Plc. ..................................... 70,032 1,578,609 -0- 1,578,609
--------------- ------------- ------------
ISRAEL-1.4%
Teva Pharmaceutical Industries, Ltd.
(ADR)..................................... 54,200 1,604,320 -0- 1,604,320
--------------- ------------- ------------
ITALY -0.2%
Alleanza Assicurazioni S.p.A. ................ 20,290 217,095 -0- 217,095
--------------- ------------- ------------
JAPAN -29.5%
Advantest Corp. .............................. 3,900 -0- 228,269 228,269
Aeon Credit Service Co., Ltd. ................ 20,100 717,366 515,032 1,232,398
Arnest One Corp. ............................. 1,400 -0- 41,474 41,474
Bridgestone Corp. ............................ 22,000 -0- 396,966 396,966
Canon, Inc. .................................. 69,100 2,197,585 1,176,929 3,374,514
Daiwa Securities Group, Inc. ................. 90,000 -0- 590,601 590,601
Denso Corp. .................................. 61,400 801,392 703,362 1,504,754
Fujisawa Pharmaceutical Co., Ltd. ............ 18,700 -0- 453,252 453,252
Fujitsu, Ltd. ................................ 34,000 -0- 210,602 210,602
Eisai Co., Ltd. .............................. 34,600 1,015,683 -0- 1,015,683
Honda Motor Co., Ltd. ........................ 9,200 -0- 447,632 447,632
Hoya Corp. ................................... 32,200 2,518,291 791,463 3,309,754
Ito-Yokado Co., Ltd. ......................... 18,000 699,672 -0- 699,672
Japan Wind Development Co., Ltd. (a).......... 27 -0- 64,473 64,473
JFE Holdings, Inc. ........................... 36,600 -0- 875,614 875,614
JSR Corp. .................................... 6,600 -0- 109,314 109,314
KDDI Corp. ................................... 388 1,527,277 454,607 1,981,884
Keyence Corp. ................................ 4,100 867,148 -0- 867,148
Leopalace21 Corp. ............................ 25,400 -0- 505,059 505,059
Matsushita Electric Industrial
Co., Ltd. .................................. 129,000 919,215 799,318 1,718,533
Mitsubishi Corp. ............................. 226,000 1,405,018 769,873 2,174,891
Mitsubishi Tokyo Financial
Group, Inc. ................................ 261 1,414,121 921,864 2,335,985
Nippon Mining Holdings, Inc. ................. 103,500 -0- 434,831 434,831
Nitto Denko Corp. ............................ 47,600 1,464,159 527,097 1,991,256
Nok Corp. .................................... 12,100 -0- 364,971 364,971
OBIC Co., Ltd. ............................... 2,100 -0- 405,314 405,314
2
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
July 31, 2004 (unaudited) AllianceBernstein All-Asia Investment Fund
================================================================================
Pro Forma Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein AllianceBernstein
International International All-Asia International
Premier Growth Fund Premier Growth Fund Investment Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
Reins International, Inc. .................... 23 $ -0- $ 117,896 $ 117,896
Ricoh Co., Ltd. .............................. 80,000 1,558,418 -0- 1,558,418
Sammy Corp. .................................. 12,000 -0- 591,409 591,409
Sumitomo Corp. ............................... 53,000 -0- 370,160 370,160
Sumitomo Mitsui Financial
Group, Inc. ................................ 195 602,361 572,243 1,174,604
Takashimaya Co., Ltd. ........................ 41,000 -0- 381,310 381,310
TDK Corp. .................................... 5,800 -0- 400,916 400,916
Tokyo Steel Manufacturing Co., Ltd. .......... 21,300 -0- 325,059 325,059
Touei Housing Corp. .......................... 5,290 -0- 174,283 174,283
Toyota Motor Corp. ........................... 21,300 -0- 856,627 856,627
--------------- ------------- ------------
17,707,706 15,577,820 33,285,526
--------------- ------------- ------------
MALAYSIA-0.4%
Maxis Communications Berhad................... 92,000 -0- 213,053 213,053
Public Bank Berhad............................ 106,000 -0- 195,263 195,263
--------------- ------------- ------------
-0- 408,316 408,316
--------------- ------------- ------------
MEXICO-1.6%
America Movil SA de CV Series L
(ADR)..................................... 49,000 1,750,770 -0- 1,750,770
--------------- ------------- ------------
NETHERLANDS-1.1%
ASML Holding NV(a)............................ 55,100 786,283 -0- 786,283
ING Groep NV.................................. 19,760 458,006 -0- 458,006
--------------- ------------- ------------
1,244,289 -0- 1,244,289
--------------- ------------- ------------
NORWAY-0.5%
Norsk Hydro ASA............................... 8,973 567,206 -0- 567,206
--------------- ------------- ------------
SINGAPORE-0.7%
Oversea-Chinese Banking Corp. ................ 55,000 -0- 409,326 409,326
United Overseas Bank, Ltd. ................... 50,000 -0- 398,279 398,279
--------------- ------------- ------------
-0- 807,605 807,605
--------------- ------------- ------------
SOUTH KOREA-2.7%
Hyundai Motor Co., Ltd. ...................... 3,460 -0- 128,400 128,400
Kookmin Bank (a).............................. 9,380 -0- 257,860 257,860
POSCO ....................................... 1,560 -0- 212,758 212,758
Samsung Electronics Co., Ltd. ................ 5,710 1,604,532 431,441 2,035,973
Shinhan Financial Group Co., Ltd. ............ 10,170 -0- 148,267 148,267
SK Telecom Co., Ltd. ......................... 2,350 -0- 319,495 319,495
--------------- ------------- ------------
1,604,532 1,498,221 3,102,753
--------------- ------------- ------------
SPAIN-2.4%
Banco Bilbao Vizcaya Argentaria, SA........... 105,000 1,396,115 1,396,115
Industria de Diseno Textil,
SA (Inditex)................................ 57,788 1,321,371 -0- 1,321,371
--------------- ------------- ------------
2,717,486 -0- 2,717,486
--------------- ------------- ------------
SWEDEN-2.4%
LM Ericsson AB(a)............................. 1,003,533 2,682,963 -0- 2,682,963
--------------- ------------- ------------
SWITZERLAND-9.6%
Alcon, Inc. .................................. 16,400 1,256,240 -0- 1,256,240
3
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
July 31, 2004 (unaudited) AllianceBernstein All-Asia Investment Fund
================================================================================
Pro Forma Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein AllianceBernstein
International International All-Asia International
Premier Growth Fund Premier Growth Fund Investment Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
Nestle, SA.................................... 4,995 $ 1,276,366 $ -0- $ 1,276,366
Nobel Biocare Holding AG...................... 3,540 484,098 -0- 484,098
Novartis AG................................... 41,279 1,846,701 -0- 1,846,701
Roche Holding AG-Genusschein.................. 25,912 2,561,435 -0- 2,561,435
Swiss Reinsurance Co. ........................ 19,512 1,139,737 -0- 1,139,737
UBS AG ....................................... 34,200 2,287,661 -0- 2,287,661
--------------- ------------- ------------
10,852,238 -0- 10,852,238
--------------- ------------- ------------
TAIWAN-1.0%
Cathay Financial Holding Co., Ltd. ........... 22,000 -0- 36,246 36,246
Cathay Financial Holding Co., Ltd.
(GDR) (b)................................. 5,083 -0- 84,124 84,124
Chinatrust Financial Holding
Co., Ltd. .................................. 122,000 -0- 124,548 124,548
Hon Hai Precision Industry Co., Ltd. ......... 61,700 -0- 222,367 222,367
Taiwan Semiconductor Manufacturing
Co., Ltd. ................................ 349,334 217,819 223,088 440,907
United Microelectronics Corp. (a)............. 170,640 -0- 108,940 108,940
Yageo Corp. (a)............................... 271,000 -0- 112,020 112,020
--------------- ------------- ------------
217,819 911,333 1,129,152
--------------- ------------- ------------
THAILAND-0.2%
Advanced Info Service Public Co., Ltd. ....... 79,100 -0- 180,904 180,904
Siam Commercial Bank Public Co., Ltd. ........ 95,400 -0- 103,896 103,896
--------------- ------------- ------------
-0- 284,800 284,800
--------------- ------------- ------------
UNITED KINGDOM-22.2%
AstraZeneca Plc. ............................. 51,800 2,318,220 -0- 2,318,220
Carnival Plc. ................................ 63,800 3,120,946 -0- 3,120,946
Enterprise Inns Plc. ......................... 44,187 428,287 -0- 428,287
Hilton Group Plc. ............................ 228,500 1,083,487 -0- 1,083,487
HSBC Holdings Plc. ........................... 191,394 2,810,504 -0- 2,810,504
Reckitt Benckiser Plc. ....................... 106,574 2,914,824 -0- 2,914,824
Royal Bank of Scotland Group Plc. ............ 71,900 2,021,397 -0- 2,021,397
Smith & Nephew Plc. .......................... 147,056 1,484,188 -0- 1,484,188
Standard Chartered Plc. ...................... 118,049 1,952,443 -0- 1,952,443
Tesco Plc. ................................... 780,744 3,613,348 -0- 3,613,348
Vodafone Group Plc. .......................... 1,025,100 2,222,992 -0- 2,222,992
WPP Group Plc. ............................... 115,094 1,064,283 -0- 1,064,283
--------------- ------------- ------------
25,034,919 -0- 25,034,919
--------------- ------------- ------------
TOTAL INVESTMENTS-99.4%
(cost $93,078,581)........................ 86,655,783 25,588,124 112,243,907
Other assets less liabilities-0.6%............ 599,063 95,477 694,540
--------------- ------------- ------------
NET ASSETS-100%............................... $ 87,254,846 $ 25,683,601 $112,938,447
=============== ============= ============
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security is considered liquid and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. At July 31, 2004, the market value of this security amounted to $
84,124 or .07% of net assets.
Glossary of terms:
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
pfd - Preferred Stock
See notes to Pro Forma AllianceBernstein International Premier Growth Fund
financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
July 31, 2004 (unaudited) AllianceBernstein All-Asia Investment Fund
================================================================================
Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein
International All-Asia International
Premier Growth Fund Investment Fund Adjustments Premier Growth Fund
=================== ================= =========== ===================
ASSETS
Investments in securities, at value
(cost $93,078,581)..................... $ 86,655,783 $ 25,588,124 $ -0- $ 112,243,907
Cash...................................... 478,680 116,355 -0- 595,035
Foreign cash, at value
(cost $882,555)........................ 799,581 82,566 -0- 882,147
Dividends receivable...................... 100,015 28,007 -0- 128,022
Receivable for capital stock sold......... 72,665 275,499 -0- 348,164
Receivable for investment securities
sold................................... -0- 14,357 -0- 14,357
Receivable from Adviser................... -0- 7,400 (7,400) -0-
------------- ------------- ---------- ----------------
Total assets.............................. 88,106,724 26,112,308 (7,400) $ 114,211,632
------------- ------------- ---------- ----------------
LIABILITIES
Payable for capital stock redeemed........ 305,781 42,700 -0- 348,481
Payable for investment securities
purchased and foreign currency
contracts.............................. 227,030 28,100 -0- 255,130
Advisory fee payable...................... 59,836 -0- (7,400) 52,436
Distribution fee payable.................. 50,436 14,189 -0- 64,625
Transfer Agent fee payable................ 31,265 12,812 -0- 44,077
Accrued expenses and other
liabilities................................. 177,530 330,906 -0- 508,436
------------- ------------- ---------- ----------------
Total liabilities......................... 851,878 428,707 (7,400) 1,273,185
------------- ------------- ---------- ----------------
NET ASSETS.................................... $ 87,254,846 $ 25,683,601 $ -0- $ 112,938,447
============= ============= ========== ================
Class A Shares
Net assets................................ $ 22,001,482 $ 8,145,521 $ 30,147,003
------------- ------------- ----------------
Shares of capital stock outstanding....... 2,588,559 1,454,875 (496,369) 3,547,065
============= ============= ========== ================
Net asset value and redemption price
per share.............................. $ 8.50 $ 5.60 $ 8.50
Sales charge--4.25% of public
offering price......................... .38 .25 .38
============= ============= ================
Maximum offering price.................... $ 8.88 $ 5.85 $ 8.88
============= ============= ================
Class B Shares
Net assets................................ $ 38,429,729 $ 9,858,832 $ 48,288,561
============= ============= ================
Shares of capital stock outstanding....... 4,744,170 1,900,128 (682,639) 5,961,659
============= ============= ========== ================
Net asset value and offering price
per share.............................. $ 8.10 $ 5.19 $ 8.10
============= ============= ================
Class C Shares
Net assets................................ $ 12,416,883 $ 3,533,751 $ 15,950,634
============= ============= ================
Shares of capital stock outstanding....... 1,532,197 678,660 (242,139) 1,968,718
============= ============= ========== ================
Net asset value and offering price
per share.............................. $ 8.10 $ 5.21 $ 8.10
============= ============= ================
Advisor Class Shares
Net assets................................ $ 14,406,752 $ 4,145,497 $ 18,552,249
============= ============= ================
Shares of capital stock outstanding....... 1,665,133 727,230 (248,015) 2,144,348
============= ============= ========== ================
Net asset value and offering price
per share.............................. $ 8.65 $ 5.70 $ 8.65
============= ============= ================
- --------------------------------------------------------------------------------
See notes to Pro Forma AllianceBernstein International Premier Growth Fund
financial statements.
5
STATEMENT OF OPERATIONS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
July 31, 2004 (unaudited) AllianceBernstein All-Asia Investment Fund
================================================================================
Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein
International All-Asia International
Premier Growth Fund Investment Fund Adjustments Premier Growth Fund
=================== ================= =========== ===================
INVESTMENT INCOME
Dividends (net of foreign taxes
withheld of $209,822).................. $ 1,406,287 $ 425,494 $ -0- $ 1,831,781
Interest.................................. 2,611 3,210 -0- 5,821
------------- ------------- ---------- ----------------
Total income.............................. 1,408,898 428,704 -0- 1,837,602
------------- ------------- ---------- ----------------
EXPENSES
Advisory fee.............................. 979,873 269,788 (692) 1,248,969 (a)
Distribution fee--Class A................. 73,290 25,480 -0- 98,770 (b)
Distribution fee--Class B................. 452,572 109,463 -0- 562,035 (c)
Distribution fee--Class C................. 148,616 36,256 -0- 184,872 (c)
Transfer agency........................... 579,359 165,049 19,647 764,055 (d)
Custodian................................. 236,180 228,894 (165,321) 299,753 (d)
Audit and legal........................... 118,452 153,162 (121,614) 150,000 (d)
Administration............................ 105,000 40,364 (40,364) 105,000 (d)
Registration.............................. 59,290 35,591 (31,881) 63,000 (d)
Printing.................................. 55,265 30,485 (509) 85,241 (d)
Directors' fees........................... 21,696 59,273 (59,273) 21,696 (d)
Miscellaneous............................. 8,548 7,199 (3,747) 12,000 (d)
------------- ------------- ---------- ----------------
Total expenses............................ 2,838,141 1,161,004 (403,754) 3,595,391
Less: expenses waived and reimbursed
by the .....Adviser and Transfer Agent
(see Note C)........................... (241,226) (261,119) 255,019 (247,326)
Less: expense offset arrangement
(see Note C)........................... (53) (18) -0- (71)
------------- ------------- ---------- ----------------
Net expenses.............................. 2,596,862 899,867 (148,735) 3,347,994
------------- ------------- ---------- ----------------
Net investment loss....................... (1,187,964) (471,163) 148,735 (1,510,392)
------------- ------------- ---------- ----------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT
AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain of:
Investment transactions................ 9,597,116 3,723,687 -0- 13,320,803
Foreign currency transactions.......... 89,655 34,742 -0- 124,397
Net change in unrealized appreciation/
depreciation of:
Investments............................ 3,421,052 1,168,005 -0- 4,589,057
Foreign currency denominated assets
and liabilities...................... (7,580) (93,967) -0- (101,547)
------------- ------------- ---------- ----------------
Net gain on investment and foreign
currency transactions.................. 13,100,243 4,832,467 -0- 17,932,710
------------- ------------- ---------- ----------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS............................... $ 11,912,279 $ 4,361,304 $ 148,735 $ 16,422,318
============= ============= ========== ================
- --------------------------------------------------------------------------------
(a) Advisory fee based on annual rate of 1.00% of the total combined average
daily net assets.
(b) Distribution fee based on annual rate of .30% of the total combined
average daily net assets.
(c) Distribution fee based on annual rate of 1.00% of the total combined
average daily net assets.
(d) Expenses are based on one Fund.
See notes to Pro Forma AllianceBernstein International Premier Growth Fund
financial statements.
6
NOTES TO FINANCIAL STATEMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
July 31, 2004 (unaudited) AllianceBernstein All-Asia Investment Fund
================================================================================
NOTE A: General
The Pro Forma AllianceBernstein International Premier Growth Fund Financial
Statements give effect to the proposed acquisition (the "Acquisition") of the
assets and liabilities of AllianceBernstein All-Asia Investment Fund (the
"Acquired Fund") by AllianceBernstein International Premier Growth Fund (the
"Fund" or "Acquiring Fund") pursuant to Agreement and Plan of Reorganization.
The Acquisition would be accomplished by a tax-free exchange of the assets and
liabilities of AllianceBernstein All-Asia Investment Fund for shares of the
Fund.
The Fund commenced operations on March 3, 1998. The Fund's unaudited Pro Forma
Portfolio of Investments, Statement of Assets and Liabilities and Statement of
Operations are prepared as though the Acquisition was effective for the period
August 1, 2003 - July 31, 2004. You should read them in conjunction with the
Fund's historical financial statements, which are included in the Fund's
Statement of Additional Information. The Fund's Pro Forma Statement of
Operations reflects the assumption that certain expenses would be lower for the
combined Fund as a result of the Acquisition. Alliance Capital Management L.P.
will bear the expenses of the Acquisition, including the costs of proxy
solicitation, except that AllianceBernstein All-Asia Investment Fund will bear
its own costs associated with the disposition or acquisition of portfolio
securities in connection with the Acquisition.
NOTE B: Significant Accounting Policies
The Fund's Pro Forma financial statements have been prepared in conformity with
U.S. generally accepted accounting principles, 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.
1. Security Valuation
In accordance with Pricing Policies adopted by the Board of Directors of the
Fund (the "Pricing Policies) and applicable law, portfolio securities are valued
at current market value or at fair value. The Board of Directors has delegated
to Alliance Capital Management L.P. (the "Adviser"), subject to the Board's
continuing oversight, certain responsibilities with respect to the
implementation of the Pricing Policies. Pursuant to the Pricing Policies,
securities for which market quotations are readily available are valued at their
current market value. In general, the market value of these securities is
determined as follows:
Securities listed on a national securities exchange 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. If no bid or asked prices are quoted on such day, then the security is
valued in good faith at fair value in accordance with the Pricing Policies.
Securities listed on more than one exchange are valued by reference to the
principal exchange on which the securities are traded; securities not listed on
an exchange but traded on The Nasdaq Stock Market, Inc. (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 valuations, the last available closing
settlement price is used; securities traded in the over-the-counter market, (but
excluding securities traded on NASDAQ) 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 form one or more of the major broker/dealers. In cases
where broker/dealer quotes are obtained, the Pricing Policies provide that 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 form a major broker/dealer in such security. Securities for
which market quotations are not readily available are valued at fair value in
accordance with the Pricing Policies.
7
NOTES TO FINANCIAL STATEMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
(continued) AllianceBernstein All-Asia Investment Fund
================================================================================
2. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency 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 at the rates of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated 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 investments and foreign
currency contracts, the holding of foreign currencies, currency gains and losses
realized between the trade and settlement dates on foreign security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Fund'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 and
depreciation of investments and foreign currency denominated assets and
liabilities.
3. Taxes
It is the Fund'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 Fund may be subject to taxes imposed my 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.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is
informed of the dividend. Interest income is accrued daily. Investment
transactions are accounted for on the date securities are purchased or sold
Investment gains and losses are determined on the identified cost basis. The
Fund accretes discounts on short-term securities as adjustments to interest
income.
5. Income and Expenses
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the net assets of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees than
Class A shares and Advisor Class shares. Advisor Class shares have no
distribution fees.
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 accounting principles. 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 reclassification.
NOTE C: Advisory Fee and other Transactions with Affiliates
Until September 6, 2004, under ther terms of an investment advisory agreement,
the Fund paid the Adviser an advisory fee at an annual rate of 1% of the Fund's
average daily net assets. Effective September 7, 2004, the terms of the
investment advisory agreement were amended so that the advisory fee was reduced
to an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5
billion and .60% in excess of $5 billion, of the Fund's average daily net
assets. The fee is accrued daily and paid monthly.
Effective January 1, 2004 through September 6, 2004, the Adviser began waiving a
portion of its advisory fee so as to charge the Fund at the reduced annual rate
discussed above. Through July 31, 2004, such waiver amounted to $181,900.
The Fund compensates Alliance Global Investor Services, Inc. (AGIS), a
wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for
providing personnel and facilities to perform transfer agency services for the
Fund. During the period, AGIS voluntarily agreed to waive a portion of its fees
for such services. Such waiver amounted to $65,426.
For the year ended July 31, 2004, the Fund's expenses were reduced by $71 under
an expense offset arrangement with AGIS.
8
NOTES TO FINANCIAL STATEMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
(continued) AllianceBernstein All-Asia Investment Fund
================================================================================
AllianceBernstein Investment Research and Management, Inc. (the "Distributor"),
a wholly-owned subsidiary of the Adviser serves as the distributor of the Fund's
shares.
NOTE D: Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the "Agreeement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement the Fund pays distribution and servicing fees to the Disbributor at an
annual rate of up to .30% of the Fund's average daily net assets attributable to
Class A shares and 1% of the average daily net assets attributable to the Class
B and Class C shares. There are no distribution and servicing fees on the
Advisor Class 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.
NOTE E: CAPITAL SHARES
The pro-forma combining net asset value per share assumes the issuance of
Acquiring Fund shares to Acquired Fund shareholders in connection with the
proposed merger. The number of shares assumed to be issued is equal to the net
asset value of the Acquired Fund divided by the net asset value per share of the
Acquiring Fund as of July 31, 2004. The pro-forma number of shares outstanding,
by class, for the combined entity consists of the following at July 31, 2004.
- --------------------------------------------------------------------------------
Shares of Additional Shares Total Shares
Acquiring Fund Assumed Issued Outstanding
Class of Shares Pre-Combination with Merger Post-Combination
- --------------------------------------------------------------------------------
Class A 2,588,559 958,506 3,547,065
- --------------------------------------------------------------------------------
Class B 4,744,170 1,217,489 5,961,659
- --------------------------------------------------------------------------------
Class C 1,532,197 436,521 1,968,718
- --------------------------------------------------------------------------------
Advisor Class 1,665,133 479,215 2,144,348
- --------------------------------------------------------------------------------
9
PRO FORMA ALLIANCEBERNSTEIN
---------------------------
INTERNATIONAL PREMIER GROWTH FUND
---------------------------
FINANCIAL STATEMENTS
---------------------------
ALLIANCEBERNSTEIN INTERNATIONAL PREMIER GROWTH FUND
ALLIANCEBERNSTEIN NEW EUROPE FUND
JULY 31, 2004
(unaudited)
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
July 31, 2004 (unaudited) AllianceBernstein New Europe Fund
================================================================================
Pro Forma Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein AllianceBernstein
International International New Europe International
Premier Growth Fund Premier Growth Fund Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON & PREFERRED STOCKS-99.2%
FRANCE-13.6%
BNP Paribas, SA............................... 62,444 $ 977,129 $ 2,658,628 $ 3,635,757
Essilor International, SA..................... 48,341 734,504 2,235,543 2,970,047
L'Oreal, SA................................... 56,663 1,433,467 2,626,911 4,060,378
LVMH Moet Hennessy Louis
Vuitton, SA............................... 64,068 1,734,588 2,636,420 4,371,008
Sanofi-Synthelabo, SA......................... 11,010 -0- 730,377 730,377
Schneider Electric, SA........................ 60,219 1,774,441 2,054,634 3,829,075
Total, SA..................................... 48,957 2,889,331 6,613,766 9,503,097
Vinci, SA..................................... 10,147 -0- 1,032,903 1,032,903
------------- ------------- --------------
9,543,460 20,589,182 30,132,642
------------- ------------- --------------
GERMANY-7.8%
Altana AG..................................... 47,771 1,606,516 985,022 2,591,538
E.ON AG....................................... 18,415 -0- 1,308,072 1,308,072
Porsche AG pfd. .............................. 6,052 1,291,163 2,619,701 3,910,864
SAP AG ....................................... 53,313 3,398,170 5,152,897 8,551,067
Siemens AG.................................... 13,320 931,814 -0- 931,814
------------- ------------- --------------
7,227,663 10,065,692 17,293,355
------------- ------------- --------------
HONG KONG-0.3%
Esprit Holdings, Ltd. ........................ 173,000 771,876 -0- 771,876
------------- ------------- --------------
INDIA-0.6%
Housing Development Finance
Corp., Ltd. .............................. 38,222 473,953 -0- 473,953
Infosys Technologies, Ltd. ................... 12,000 402,049 -0- 402,049
Reliance Industries, Ltd. .................... 43,333 456,830 -0- 456,830
------------- ------------- --------------
1,332,832 -0- 1,332,832
------------- ------------- --------------
IRELAND-3.6%
Anglo Irish Bank Corp. Plc. .................. 118,535 -0- 1,878,065 1,878,065
CRH Plc. ..................................... 264,347 1,578,609 4,386,475 5,965,084
------------- ------------- --------------
1,578,609 6,264,540 7,843,149
------------- ------------- --------------
ISRAEL-0.7%
Teva Pharmaceutical Industries,
Ltd. (ADR)................................ 54,200 1,604,320 -0- 1,604,320
------------- ------------- --------------
ITALY-1.4%
Alleanza Assicurazioni S.p.A.................. 155,744 217,095 1,451,409 1,668,504
Eni S.p.A. ................................... 68,532 -0- 1,410,904 1,410,904
------------- ------------- --------------
217,095 2,862,313 3,079,408
------------- ------------- --------------
JAPAN-8.0%
Aeon Credit Service Co., Ltd. ................ 11,700 717,366 -0- 717,366
Canon, Inc. .................................. 45,000 2,197,585 -0- 2,197,585
Denso Corp. .................................. 32,700 801,392 -0- 801,392
Eisai Co., Ltd. .............................. 34,600 1,015,683 -0- 1,015,683
Hoya Corp. ................................... 24,500 2,518,291 -0- 2,518,291
Ito-Yokado Co., Ltd. ......................... 18,000 699,672 -0- 699,672
1
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
(continued) AllianceBernstein New Europe Fund
================================================================================
Pro Forma Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein AllianceBernstein
International International New Europe International
Premier Growth Fund Premier Growth Fund Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
KDDI Corp. ................................... 299 $ 1,527,277 $ -0- $ 1,527,277
Keyence Corp. ................................ 4,100 867,148 -0- 867,148
Matsushita Electric Industrial Co., Ltd. ..... 69,000 919,215 -0- 919,215
Mitsubishi Corp. ............................. 146,000 1,405,018 -0- 1,405,018
Mitsubishi Tokyo Financial Group, Inc. ....... 158 1,414,121 -0- 1,414,121
Nitto Denko Corp. ............................ 35,000 1,464,159 -0- 1,464,159
Ricoh Co., Ltd. .............................. 80,000 1,558,418 -0- 1,558,418
Sumitomo Mitsui Financial Group, Inc. ........ 100 602,361 -0- 602,361
------------- ------------- --------------
17,707,706 -0- 17,707,706
------------- ------------- --------------
MEXICO-0.8%
America Movil SA de CV Series L
(ADR)..................................... 49,000 1,750,770 -0- 1,750,770
------------- ------------- --------------
NETHERLANDS-0.6%
ASML Holding NV(a)............................ 55,100 786,283 -0- 786,283
ING Groep NV.................................. 19,760 458,006 -0- 458,006
------------- ------------- --------------
1,244,289 -0- 1,244,289
------------- ------------- --------------
NORWAY-0.3%
Norsk Hydro ASA............................... 8,973 567,206 -0- 567,206
------------- ------------- --------------
RUSSIA- 0.4%
Mobile Telesystems (ADR)...................... 6,900 -0- 807,645 807,645
------------- ------------- --------------
SOUTH KOREA-0.7%
Samsung Electronics Co., Ltd. ................ 4,500 1,604,532 -0- 1,604,532
------------- ------------- --------------
SPAIN-4.8%
Banco Bilbao Vizcaya Argentaria, SA........... 358,990 1,396,115 3,382,048 4,778,163
Industria de Dise~no Textil,
SA (Inditex).................................. 135,327 1,321,371 1,775,574 3,096,945
Telefonica, SA(a)............................. 185,516 -0- 2,704,790 2,704,790
------------- ------------- --------------
2,717,486 7,862,412 10,579,898
------------- ------------- --------------
SWEDEN-3.4%
LM Ericsson AB(a)............................. 2,784,928 2,682,963 4,758,806 7,441,769
------------- ------------- --------------
SWITZERLAND-14.8%
Alcon, Inc. .................................. 39,200 1,256,240 1,746,480 3,002,720
Nestle, SA.................................... 21,837 1,276,366 4,304,791 5,581,157
Nobel Biocare Holding AG...................... 15,383 484,098 1,619,983 2,104,081
Novartis AG................................... 124,951 1,846,701 3,744,262 5,590,963
Roche Holding AG-Genusschein.................. 75,330 2,561,435 4,886,370 7,447,805
Swiss Reinsurance Co. ........................ 45,082 1,139,737 1,494,007 2,633,744
UBS AG ....................................... 93,606 2,287,661 3,974,795 6,262,456
------------- ------------- --------------
10,852,238 21,770,688 32,622,926
------------- ------------- --------------
TAIWAN-0.1%
Taiwan Semiconductor
Manufacturing Co., Ltd. .................. 172,580 217,819 -0- 217,819
------------- ------------- --------------
2
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
(continued) AllianceBernstein New Europe Fund
================================================================================
Pro Forma Pro Forma
AllianceBernstein AllianceBernstein AllianceBernstein AllianceBernstein
International International New Europe International
Premier Growth Fund Premier Growth Fund Fund Premier Growth Fund
Company Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM-37.3%
AstraZeneca Plc. ............................. 155,650 $ 2,318,220 $ 4,647,491 $ 6,965,711
Capita Group Plc. ............................ 119,187 -0- 663,210 663,210
Carnival Plc. ................................ 154,953 3,120,946 4,458,859 7,579,805
Centrica Plc. ................................ 144,261 -0- 620,413 620,413
Compass Group Plc. ........................... 135,706 -0- 789,060 789,060
Enterprise Inns Plc. ......................... 183,305 428,287 1,348,376 1,776,663
GUS Plc. ..................................... 240,513 -0- 3,765,669 3,765,669
HBOS Plc. .................................... 55,351 -0- 717,151 717,151
Hilton Group Plc. ............................ 670,164 1,083,487 2,094,193 3,177,680
HSBC Holdings Plc. ........................... 600,861 2,810,504 6,012,595 8,823,099
Legal & General Group Plc. ................... 1,129,588 -0- 1,992,472 1,992,472
Man Group Plc. ............................... 47,361 -0- 1,126,495 1,126,495
Reckitt Benckiser Plc. ....................... 282,234 2,914,824 4,804,201 7,719,025
Royal Bank of Scotland Group Plc. ............ 262,629 2,021,397 5,361,999 7,383,396
Smith & Nephew Plc. .......................... 465,799 1,484,188 3,216,875 4,701,063
Standard Chartered Plc. ...................... 346,430 1,952,443 3,777,141 5,729,584
Tesco Plc. ................................... 2,141,656 3,613,348 6,298,227 9,911,575
Vodafone Group Plc. .......................... 3,071,804 2,222,992 4,438,272 6,661,264
WPP Group Plc. ............................... 258,925 1,064,283 1,329,977 2,394,260
------------- ------------- --------------
25,034,919 57,462,676 82,497,595
------------- ------------- --------------
TOTAL INVESTMENTS-99.2%
(cost $178,540,541)....................... 86,655,783 132,443,954 219,099,737
Other assets less liabilities-0.8%............ 599,063 1,212,288 1,811,351
------------- ------------- --------------
NET ASSETS-100%............................... $ 87,254,846 $ 133,656,242 $ 220,911,088
============= ============= ==============
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Glossary of terms:
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
pfd - Preferred Stock
See notes to Pro Forma AllianceBernstein International Premier Growth Fund
financial statements.
3
STATEMENT OF ASSETS AND LIABILITIES
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
(continued) AllianceBernstein New Europe Fund
================================================================================
Pro Forma
AllianceBernstein AllianceBernstein
International AllianceBernstein International
Premier Growth Fund New Europe Fund Adjustments Premier Growth Fund
=================== ================= =============== ===================
ASSETS
Investments in securities, at value
(cost $178,540,541).................... $ 86,655,783 $ 132,443,954 $ -0- $ 219,099,737
Cash...................................... 478,680 233,361 -0- 712,041
Foreign cash, at value
(cost $1,945,896)...................... 799,581 1,146,672 -0- 1,946,253
Dividends receivable...................... 100,015 324,157 -0- 424,172
Receivable for capital stock sold......... 72,665 362,510 -0- 435,175
Receivable for investment securities
sold and foreign currency contracts.... -0- 337,471 -0- 337,471
Receivable from Adviser................... -0- -0- -0- -0-
--------------- ---------------- --------------- -------------
Total assets.............................. 88,106,724 134,848,125 -0- $ 222,954,849
--------------- ---------------- --------------- -------------
LIABILITIES
Payable for capital stock redeemed........ 305,781 618,827 -0- 924,608
Payable for investment securities
purchased and foreign currency
contracts.............................. 227,030 150,639 -0- 377,669
Advisory fee payable...................... 59,836 86,981 -0- 146,817
Distribution fee payable.................. 50,436 73,383 -0- 123,819
Transfer Agent fee payable................ 31,265 46,152 -0- 77,417
Accrued expenses and other
liabilities............................ 177,530 215,901 -0- 393,431
--------------- ---------------- --------------- -------------
Total liabilities............................. 851,878 1,191,883 -0- 2,043,761
--------------- ---------------- --------------- -------------
NET ASSETS.................................... $ 87,254,846 $ 133,656,242 $ -0- $ 220,911,088
=============== ================ =============== =============
Class A Shares
Net assets................................ $ 22,001,482 $ 66,252,996 $ 88,254,478
=============== ================ =============
Shares of capital stock outstanding....... 2,588,559 4,612,759 3,180,090 10,381,408
=============== ================ =============== =============
Net asset value and redemption price
per share.............................. $ 8.50 $ 14.36 $ 8.50
Sales charge--4.25% of publi
offering price......................... .38 .64 .38
--------------- ---------------- -------------
Maximum offering price.................... $ 8.88 $ 15.00 $ 8.88
=============== ================ =============
Class B Shares
Net assets................................ $ 38,429,729 $ 49,465,577 $ 87,895,306
=============== ================ =============
Shares of capital stock outstanding....... 4,744,170 3,875,844 2,229,807 10,849,821
=============== ================ =============== =============
Net asset value and offering price
per share.............................. $ 8.10 $ 12.76 $ 8.10
=============== ================ =============
Class C Shares
Net assets................................ $ 12,416,883 $ 14,959,579 $ 27,376,462
=============== ================ =============
Shares of capital stock outstanding....... 1,532,197 1,167,557 678,913 3,378,667
=============== ================ =============== =============
Net asset value and offering price
per share.............................. $ 8.10 $ 12.81 $ 8.10
=============== ================ =============
Advisor Class Shares
Net assets................................ $ 14,406,752 $ 2,978,090 $ 17,384,842
=============== ================ =============
Shares of capital stock outstanding....... 1,665,133 205,206 139,018 2,009,357
=============== ================ =============== =============
Net asset value and offering price
per share.............................. $ 8.65 $ 14.51 $ 8.65
=============== ================ =============
- --------------------------------------------------------------------------------
See notes to Pro Forma AllianceBernstein International Premier Growth Fund
financial statements.
4
STATEMENT OF OPERATIONS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
July 31, 2004 (unaudited) AllianceBernstein New Europe Fund
================================================================================
Pro Forma
AllianceBernstein AllianceBernstein
International AllianceBernstein International
Premier Growth Fund New Europe Fund Adjustments Premier Growth Fund
=================== ================= =============== ===================
INVESTMENT INCOME
Dividends (net of foreign taxes
withheld of $499,246).................. $ 1,406,287 $ 2,927,545 $ -0- $ 4,333,832
Interest.................................. 2,611 -0- -0- 2,611
--------------- ---------------- --------------- -------------
Total income.............................. 1,408,898 2,927,545 -0- 4,336,443
--------------- ---------------- --------------- -------------
EXPENSES
Advisory fee.............................. 979,873 1,573,507 (75,078) 2,478,302 (a)
Distribution fee--Class A................. 73,290 214,340 -0- 287,630 (b)
Distribution fee--Class B................. 452,572 572,503 -0- 1,025,075 (c)
Distribution fee--Class C................. 148,616 178,095 -0- 326,711 (c)
Transfer agency........................... 579,359 911,924 (5,774) 1,485,509 (d)
Custodian................................. 236,180 249,711 108,901 594,792 (d)
Audit and legal........................... 118,452 147,393 (115,845) 150,000 (d)
Administration............................ 105,000 117,000 (117,000) 105,000 (d)
Registration.............................. 59,290 67,294 (63,584) 63,000 (d)
Printing.................................. 55,265 70,943 (15,670) 110,538 (d)
Directors' fees........................... 21,696 54,463 (54,463) 21,696 (d)
Miscellaneous............................. 8,548 17,296 (13,844) 12,000 (d)
--------------- ---------------- --------------- -------------
Total expenses............................ 2,838,141 4,174,469 (352,357) 6,660,253
Less: expenses waived and
reimbursed by the Adviser and
Transfer Agent (see Note C)........... (241,226) (293,922) 78,409 (456,739)
Less: expense offset arrangement
(see Note C)........................... (53) (80) -0- (133)
--------------- ---------------- --------------- -------------
Net expenses.............................. 2,596,862 3,880,467 (273,948) 6,203,381
--------------- ---------------- --------------- -------------
Net investment loss....................... (1,187,964) (952,922) 273,948 (1,866,938)
--------------- ---------------- --------------- -------------
REALIZED AND UNREALIZED
GAIN(LOSS) ON INVESTMENT
AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain of:
Investment transactions................ 9,597,116 20,578,411 -0- 30,175,527
Foreign currency transactions.......... 89,655 17,369 -0- 107,024
Net change in unrealized
appreciation/depreciation of:
Investments............................ 3,421,052 3,756,164 -0- 7,177,216
Foreign currency denominated
assets and liabilities............... (7,580) (5,617) -0- (13,197)
--------------- ---------------- --------------- -------------
Net gain on investment and foreign
currency transactions.................. 13,100,243 24,346,327 -0- 37,446,570
--------------- ---------------- --------------- -------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS............................... $ 11,912,279 $ 23,393,405 $ 273,948 $ 35,579,632
=============== ================ =============== =============
- --------------------------------------------------------------------------------
(a) Advisory fee based on annual rate of 1.00% of the total combined average
daily net assets.
(b) Distribution fee based on annual rate of .30% of the total combined
average daily net assets.
(c) Distribution fee based on annual rate of 1.00% of the total combined
average daily net assets.
(d) Expenses are based on one Fund.
See notes to Pro Forma AllianceBernstein International Premier Growth Fund
financial statements.
5
NOTES TO FINANCIAL STATEMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
July 31, 2004 (unaudited) AllianceBernstein New Europe Fund
================================================================================
NOTE A: General
The Pro Forma AllianceBernstein International Premier Growth Fund Financial
Statements give effect to the proposed acquisition (the "Acquisition") of the
assets and liabilities of AllianceBernstein New Europe Fund (the "Acquired
Fund") by AllianceBernstein International Premier Growth Fund (the "Fund" or
"Acquiring Fund") pursuant to Agreement and Plan of Reorganization. The
Acquisition would be accomplished by a tax-free exchange of the assets and
liabilities of AllianceBernstein New Europe Fund for shares of the Fund.
The Fund commenced operations on March 3, 1998. The Fund's unaudited Pro Forma
Portfolio of Investments, Statement of Assets and Liabilities and Statement of
Operations are prepared as though the Acquisition was effective for the period
August 1, 2003 - July 31, 2004. You should read them in conjunction with the
Fund's historical financial statements, which are included in the Fund's
Statement of Additional Information. The Fund's Pro Forma Statement of
Operations reflects the assumption that certain expenses would be lower for the
combined Fund as a result of the Acquisition. Alliance Capital Management L.P.
will bear the expenses of the Acquisition, including the costs of proxy
solicitation, except that AllianceBernstein New Europe Fund will bear its own
costs associated with the disposition or aquisition of portfolio securities in
connection with the Acquisition.
NOTE B: Significant Accounting Policies
The Fund's Pro Forma financial statements have been prepared in conformity with
U.S. generally accepted accounting principles, 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.
1. Security Valuation
In accordance with Pricing Policies adopted by the Board of Directors of the
Fund (the "Pricing Policies) and applicable law, portfolio securities are valued
at current market value or at fair value. The Board of Directors has delegated
to Alliance Capital Management L.P. (the "Adviser"), subject to the Board's
continuing oversight, certain responsibilities with respect to the
implementation of the Pricing Policies. Pursuant to the Pricing Policies,
securities for which market quotations are readily available are valued at their
current market value. In general, the market value of these securities is
determined as follows:
Securities listed on a national securities exchange 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. If no bid or asked prices are quoted on such day, then the security is
valued in good faith at fair value in accordance with the Pricing Policies.
Securities listed on more than one exchange are valued by reference to the
principal exchange on which the securities are traded; securities not listed on
an exchange but traded on The Nasdaq Stock Market, Inc. (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 valuations, the last available closing
settlement price is used; securities traded in the over-the-counter market, (but
excluding securities traded on NASDAQ) 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 form one or more of the major broker/dealers. In cases
where broker/dealer quotes are obtained, the Pricing Policies provide that 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 form a major broker/dealer in such security. Securities for
which market quotations are not readily available are valued at fair value in
accordance with the Pricing Policies.
6
NOTES TO FINANCIAL STATEMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
(continued) AllianceBernstein New Europe Fund
================================================================================
2. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency 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 at the rates of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated 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 investments and foreign
currency contracts, the holding of foreign currencies, currency gains and losses
realized between the trade and settlement dates on foreign security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Fund'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 and
depreciation of investments and foreign currency denominated assets and
liabilities.
3. Taxes
It is the Fund'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 Fund may be subject to taxes imposed my 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.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is
informed of the dividend. Interest income is accrued daily. Investment
transactions are accounted for on the date securities are purchased or sold
Investment gains and losses are determined on the identified cost basis. The
Fund accretes discounts on short-term securities as adjustments to interest
income.
5. Income and Expenses
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the net assets of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees than
Class A shares and Advisor Class shares. Advisor Class shares have no
distribution fees.
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 accounting principles. 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 reclassification.
NOTE C: Advisory Fee and other Transactions with Affiliates
Until September 6, 2004, under ther terms of an investment advisory agreement,
the Fund paid the Adviser an advisory fee at an annual rate of 1% of the Fund's
average daily net assets. Effective September 7, 2004, the terms of the
investment advisory agreement were amended so that the advisory fee was reduced
to an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5
billion and .60% in excess of $5 billion, of the Fund's average daily net
assets. The fee is accrued daily and paid monthly.
Effective January 1, 2004 through September 6, 2004, the Adviser began waiving a
portion of its advisory fee so as to charge the Fund at the reduced annual rate
discussed above. Through July 31, 2004, such waiver amounted to $401,944.
The Fund compensates Alliance Global Investor Services, Inc. (AGIS), a
wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for
providing personnel and facilities to perform transfer agency services for the
Fund. During the period, AGIS voluntarily agreed to waive a portion of its fees
for such services. Such waiver amounted to $54,795.
For the year ended July 31, 2004, the Fund's expenses were reduced by $133 under
an expense offset arrangement with AGIS.
7
NOTES TO FINANCIAL STATEMENTS
PRO FORMA ALLIANCEBERNSTEIN AllianceBernstein
INTERNATIONAL PREMIER GROWTH FUND International Premier Growth Fund
(continued) AllianceBernstein New Europe Fund
================================================================================
AllianceBernstein Investment Research and Management, Inc. (the "Distributor"),
a wholly-owned subsidiary of the Adviser serves as the distributor of the Fund's
shares.
NOTE D: Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the "Agreeement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement the Fund pays distribution and servicing fees to the Disbributor at an
annual rate of up to .30% of the Fund's average daily net assets attributable to
Class A shares and 1% of the average daily net assets attributable to the Class
B and Class C shares. There are no distribution and servicing fees on the
Advisor Class 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.
NOTE E: CAPITAL SHARES
The pro-forma combining net asset value per share assumes the issuance of
Acquiring Fund shares to Acquired Fund shareholders in connection with the
proposed merger. The number of shares assumed to be issued is equal to the net
asset value of the Acquired Fund divided by the net asset value per share of the
Acquiring Fund as of July 31, 2004. The pro-forma number of shares outstanding,
by class, for the combined entity consists of the following at July 31, 2004.
- --------------------------------------------------------------------------------
Shares of Additional Shares Total Shares
Acquiring Fund Assumed Issued Outstanding
Class of Shares Pre-Combination with Merger Post-Combination
- --------------------------------------------------------------------------------
Class A 2,588,559 7,792,849 10,381,408
- --------------------------------------------------------------------------------
Class B 4,744,170 6,105,651 10,849,821
- --------------------------------------------------------------------------------
Class C 1,532,197 1,846,470 3,378,667
- --------------------------------------------------------------------------------
Advisor Class 1,665,133 344,224 2,009,357
- --------------------------------------------------------------------------------
8
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APPENDIX A
ALLIANCEBERNSTEIN INTERNATIONAL PREMIER GROWTH FUND, INC.
---------------------------------------------------------------
c/o Alliance Global Investor Services, Inc.
P.O. Box 786003, San Antonio, Texas 78278-6003
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
---------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
November 1, 2004, as amended March 25, 2005
---------------------------------------------------------------
This Statement of Additional Information ("SAI") is not a
prospectus but supplements and should be read in conjunction with
the current prospectus, dated November 1, 2004, for AllianceBernstein
International Premier Growth Fund, Inc. (the "Fund") that offers the
Class A, Class B, Class C and Advisor Class shares of the Fund (the
"Prospectus"). Financial statements for the Fund for the year ended
July 31, 2004 are included in the annual report to shareholders and
are incorporated into this SAI by reference. Copies of the Prospectus
and annual report may be obtained by contacting Alliance Global
Investor Services, Inc. ("AGIS") at the address or the "For Literature"
telephone number shown above.
TABLE OF CONTENTS
Page
Description of the Fund.......................................................2
Management of the Fund........................................................5
Expenses of the Fund..........................................................21
Purchase of Shares............................................................24
Redemption and Repurchase of Shares...........................................46
Shareholder Services..........................................................48
Net Asset Value...............................................................51
Dividends, Distributions and Taxes............................................54
Portfolio Transactions........................................................60
General Information...........................................................63
Financial Statements and Report of Independent
Registered Public Accounting Firm...........................................68
Appendix A: Certain Investment Practices.....................................A-1
Appendix B: Additional Information About Japan...............................B-1
Appendix C: Additional Information About the United Kingdom .................C-1
Appendix D: Statement of Policies and Procedures
for Voting Proxies...............................................D-1
- -----------
SM: This is a service mark used under license from the owner.
A-1
-------------------------------------------------------------
DESCRIPTION OF THE FUND
-------------------------------------------------------------
Investment Policies and Practices
The Fund is a diversified, open-end investment company. The Fund is
diversified and, under the Investment Company Act of 1940, as amended (the "1940
Act"), the Fund may not change this policy without a shareholder vote. With
respect to currency swaps (which the Fund may only enter into for hedging
purposes), standby commitment agreements and other commitments that may have the
effect of requiring the Fund to increase its investment in a borrower or other
issuer, the net amount of the excess, if any, of the Fund's obligations over its
entitlements will be accrued on a daily basis and an amount of liquid assets
having an aggregate value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's custodian.
For additional information on the use, risks and costs of options, futures
contracts, stock index futures, options on futures contracts and options on
foreign currencies, see Appendix A. The Fund has claimed an exclusion from the
definition of the term "commodity pool operator" under the Commodity Exchange
Act and therefore is not subject to registration or regulation as a pool
operator under that Act. The Fund may invest up to 35% of its assets in each of
Japan and the United Kingdom. The Board of Directors of the Fund has, however,
voted to replace this non-fundamental policy with a non-fundamental policy of
investing, under normal circumstances, in the equity securities of companies
based in at least three foreign countries. The effectiveness of this new
non-fundamental policy is contingent on shareholder approval of a change to the
Fund's investment objective at a meeting to be held on April 21, 2005. For
additional information concerning Japan and the United Kingdom, see Appendices B
and C, respectively.
Short Sales. A short sale is effected by selling a security that the Fund
does not own, or if the Fund does own such security, it is not to be delivered
upon consummation of the sale. A short sale is "against the box" to the extent
that the Fund contemporaneously owns or has the right to obtain securities
identical to those sold short without payment. Pursuant to the Taxpayer Relief
Act of 1997, if the Fund has unrealized gain with respect to a security and
enters into a short sale with respect to such security, the Fund generally will
be deemed to have sold the appreciated security and thus will recognize gain for
tax purposes. The Fund has adopted a non-fundamental investment policy that it
will not make a short sale if as a result more than 5% of its net assets would
be held as collateral for short sales. If the price of the security sold short
increases between the time of the short sale and the time the Fund replaces the
borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a gain.
Future Developments. The Fund may, following written notice to its
shareholders, take advantage of other investment practices which are not at
present contemplated for use by the Fund or which currently are not available
but which may be developed, to the extent such investment practices are both
consistent with the Fund's investment objective and legally permissible for the
Fund. Such investment practices, if they arise, may involve risks which exceed
those involved in the activities described above.
A-2
Certain Fundamental Investment Policies. The following restrictions, which
supplement those set forth in the Prospectus, may not be changed without
approval by the vote of a majority of the Fund's outstanding voting securities,
which means the affirmative vote of the holders of (i) 67% or more or the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented, or (ii) more than 50% of the outstanding shares, whichever is less.
Whenever any investment restriction states a maximum percentage of the Fund's
assets which may be invested in any security or other asset, it is intended that
such maximum percentage limitation be determined immediately after and as a
result of the Fund's acquisition of such securities or other assets.
Accordingly, any later increases or decreases in percentage beyond the specified
limitation resulting from a change in values or net assets will not be
considered a violation.
The Fund may not:
(i) invest 25% or more of its total assets in securities of issuers
conducting their principal business activities in the same industry,
except that this restriction does not apply to U.S. Government
securities;
(ii) borrow money or issue senior securities, except that the Fund may
borrow (a) from a bank if immediately after such borrowing there is
asset coverage of at least 300% as defined in the 1940 Act and (b)
for temporary purposes in an amount not exceeding 5% of the value of
the total assets of the Fund;
(iii) pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure permitted borrowings;
(iv) make loans, except through (a) the purchase of debt obligations in
accordance with its investment objectives and policies; (b) the
lending of portfolio securities; or (c) the use of repurchase
agreements;
(v) participate on a joint or joint and several basis in any securities
trading account;
(vi) invest in companies for the purpose of exercising control;
(vii) issue any senior security within the meaning of the 1940 Act;
(viii) make short sales of securities or maintain a short position, unless
not more than 25% of the Fund's net assets (taken at market value)
is held as collateral for such sales at any one time; or
(ix) (a) purchase or sell real estate except that it may purchase and
sell securities of companies that deal in real estate or interests
therein; (b) purchase or sell commodities or commodity contracts
including futures contracts (except foreign currencies, foreign
currency options and futures, options and futures on securities and
securities indices and forward contracts or contracts for the future
acquisition or delivery of securities and foreign currencies and
related options on futures contracts and similar contracts); (c)
purchase securities on margin, except for such short-term credits as
may be necessary for the clearance of transactions; and (d) act as
an underwriter of securities, except that the Fund may acquire
restricted securities under circumstances in which,
A-3
if such securities were sold, the Fund might be deemed to be an
underwriter for purposes of the Securities Act of 1933, as amended
(the "Securities Act").
A special meeting of the Fund's shareholders has been called for April 21,
2005 to seek shareholder approval of the elimination or modification of certain
of the foregoing fundamental investment policies. Specifically, shareholders
have been asked to eliminate fundamental restrictions (iii), (v), (vi), (vii)
and (viii) above and to make the following modifications to certain of the other
fundamental restrictions:
o Fundamental restriction (i) above will be replaced with the
following fundamental restriction:
"The Fund may not concentrate investments in an industry, as
concentration may be defined under the 1940 Act or the rules and
regulations thereunder (as such statute, rules or regulations may be
amended from time to time) or by guidance regarding, interpretations
of, or exemptive orders under, the 1940 Act or the rules or
regulations thereunder published by appropriate regulatory
authorities."
o Fundamental restriction (ii) above will be replaced with the
following fundamental restriction:
"The Fund may not issue any senior security (as that term is defined
in the 1940 Act) or borrow money, except to the extent permitted by
the 1940 Act or the rules and regulations thereunder (as such
statute, rules or regulations may be amended from time to time) or
by guidance regarding, or interpretations of, or exemptive orders
under, the 1940 Act or the rules or regulations thereunder published
by appropriate regulatory authorities.
For the purposes of this restriction, collateral arrangements,
including, for example, with respect to options, futures contracts
and options on futures contracts and collateral arrangements with
respect to initial and variation margin, are not deemed to be the
issuance of a senior security."
o Fundamental restriction (ix)(a) above will be replaced with the
following fundamental restriction:
"The Fund may not purchase or sell real estate except that it may
dispose of real estate acquired as a result of the ownership of
securities or other instruments. This restriction does not prohibit
the Fund from investing in securities or other instruments backed by
real estate or in securities of companies engaged in the real estate
business."
o Fundamental restriction (ix)(b) above will be replaced with the
following fundamental restriction:
"The Fund may not purchase or sell commodities regulated by the
Commodity Futures Trading Commission under the Commodity Exchange
Act or commodity contracts except for futures contracts and options
on futures contracts."
o Fundamental restriction (ix)(c) above will be replaced with the
following non-fundamental restriction:
A-4
"The Fund may not purchase securities on margin, except that the
Fund may obtain such short-term credits as are necessary for the
clearance of portfolio transactions, and the Fund may make margin
payments in connection with futures contracts, options, forward
contracts, swaps, caps, floors, collars and other financial
instruments."
----------------------------------------------------------------
MANAGEMENT OF THE 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.
PORTFOLIOS
IN FUND
COMPLEX OTHER
NAME, ADDRESS, PRINCIPAL OVERSEEN DIRECTORSHIPS
AGE OF DIRECTOR OCCUPATION(S) BY HELD BY
(YEARS OF SERVICE*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ------------------- ------------------- -------- --------
INTERESTED DIRECTORS
Marc O. Mayer,** 47, Executive Vice President of Alliance 66 None
1345 Avenue of the Capital Management Corporation
Americas, New York, NY 10105 ("ACMC") since 2001; prior thereto,
(Elected on November 18, 2003) Chief Executive Officer of Sanford C.
Bernstein & Co., LLC ("SCB & Co.") and
its predecessor since prior to 2000.
DISINTERESTED DIRECTORS
Chairman of the Board
William H. Foulk, Jr.,# 72, Investment adviser and an independent 113 None
Sound View Drive, Suite 100, consultant. He was formerly Senior
Greenwich, CT 06830 Manager of Barrett Associates, Inc., a
(6) registered investment adviser, with
which he had been associated since
prior to 2000. 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.
A-5
Ruth Block,***# 73, Formerly Executive Vice President and 94 None
500 S.E. Mizner Blvd., the Chief Insurance Officer of AXA
Boca Raton, FL 33432 Equitable Life Insurance Company
(6) ("Equitable"); Chairman and Chief
Executive Officer of Evlico;
Director of Avon, BP (oil and gas),
Ecolab Incorporated (specialty
chemicals), Tandem Financial Group
and Donaldson, Lufkin & Jenrette
Securities Corporation; former
Governor at Large, National
Association of Securities Dealers,
Inc.
David H. Dievler,# 75, Independent consultant. Until 98 None
P.O. Box 167, Spring Lake, December 1994 he was Senior Vice
NJ 07762 President of ACMC responsible for
(6) mutual fund administration. Prior to
joining ACMC in 1984 he was Chief
Financial Officer of Eberstadt Asset
Management since 1968. Prior to that
he was a Senior Manager at Price
Waterhouse & Co. Member of American
Institute of Certified Public
Accountants since 1953.
A-6
John H. Dobkin,# 62, Consultant. Formerly President of 96 None
P.O. Box 12, Save Venice, Inc. (preservation
Annandale, NY 12504 organization) from 2001-2002, a Senior
(6) 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 during 1988-1992,
Director and Chairman of the Audit
Committee of ACMC.
Michael J. Downey,# 61, Consultant since January 2004. 66 Asia Pacific Fund, Inc. and
1345 Avenue of the Americas Formerly managing partner of Lexington the Merger Fund
New York, NY 10105 Capital, LLC (investment advisory
(Elected January 1, 2005) firm) from December 1997 until
December 2003. Prior thereto,
Chairman and CEO of Prudential
Mutual Fund Management from 1987 to
1993.
- ----------
* There is no stated term of office for the Fund's Directors.
** Mr. Mayer is an "interested person", as defined in the 1940 Act, due to
his position as an Executive Vice President of ACMC.
*** Ms. Block was an "interested person," as defined in the 1940 Act, until
October 21, 2004 by reason of her ownership of 116 American Depositary
Shares of AXA having a value of approximately $2,396 at that date. AXA is
a controlling person of ACMC. Ms. Block received shares of The Equitable
Companies Incorporated as part of the demutualization of the Equitable
Life Assurance Society of the United States, which were subsequently
converted through a corporate action into 116 American Depositary Shares
of AXA.
# Member of the Audit Committee and the Governance and Nominating Committee.
The Fund's Board of Directors has two standing committees of the Board --
an Audit Committee and a Governance and Nominating Committee. The members of the
Audit and Governance and Nominating Committees are identified above. The
function of the Audit Committee is to assist the Board of Directors in its
oversight of the Fund's financial reporting process. The Audit Committee met
three times during the Fund's most recently completed fiscal year. The function
of the Governance and Nominating Committee is to nominate persons to fill any
vacancies or newly created positions on the Board of Directors. The Governance
and Nominating Committee did not meet during the Fund's most recently completed
fiscal year.
The Governance and Nominating Committee has a charter and, pursuant to the
charter, the Governance and Nominating Committee will consider candidates for
nomination as a director
A-7
submitted by a shareholder or group of shareholders who have beneficially owned
at least 5% of the Fund's common stock or shares of beneficial interest for at
least two years at the time of submission and who timely provide specified
information about the candidates and the nominating shareholder or group. To be
timely for consideration by the Governance and Nominating Committee, the
submission, including all required information, must be submitted in writing to
the attention of the Secretary at the principal executive offices of the Fund
not less than 120 days before the date of the proxy statement for the previous
year's annual meeting of shareholders. If the Fund did not hold an annual
meeting of shareholders in the previous year, the submission must be delivered
or mailed and received within a reasonable amount of time before the Fund begins
to print and mail its proxy materials. Public notice of such upcoming annual
meeting of shareholders may be given in a shareholder report or other mailing to
shareholders or by other means deemed by the Governance and Nominating Committee
or the Board to be reasonably calculated to inform shareholders.
Shareholders submitting a candidate for consideration by the Governance
and Nominating Committee must provide the following information to the
Governance and Nominating Committee: (i) a statement in writing setting forth
(A) the name, date of birth, business address and residence address of the
candidate; (B) any position or business relationship of the candidate, currently
or within the preceding five years, with the shareholder or an associated person
of the shareholder as defined below; (C) the class or series and number of all
shares of the Fund owned of record or beneficially by the candidate; (D) any
other information regarding the candidate that is required to be disclosed about
a nominee in a proxy statement or other filing required to be made in connection
with the solicitation of proxies for election of Directors pursuant to Section
20 of the 1940 Act and the rules and regulations promulgated thereunder; (E)
whether the shareholder believes that the candidate is or will be an "interested
person" of the Fund (as defined in the 1940 Act) and, if believed not to be an
"interested person," information regarding the candidate that will be sufficient
for the Fund to make such determination; and (F) information as to the
candidate's knowledge of the investment company industry, experience as a
director or senior officer of public companies, directorships on the boards of
other registered investment companies and educational background; (ii) the
written and signed consent of the candidate to be named as a nominee and to
serve as a Director if elected; (iii) the written and signed agreement of the
candidate to complete a directors' and officers' questionnaire if elected; (iv)
the shareholder's consent to be named as such by the Fund; (v) the class or
series and number of all shares of the Fund owned beneficially and of record by
the shareholder and any associated person of the shareholder and the dates on
which such shares were acquired, specifying the number of shares owned
beneficially but not of record by each, and stating the names of each as they
appear on the Fund's record books and the names of any nominee holders for each;
and (vi) a description of all arrangements or understandings between the
shareholder, the candidate and/or any other person or persons (including their
names) pursuant to which the recommendation is being made by the shareholder.
"Associated Person of the shareholder" means any person who is required to be
identified under clause (vi) of this paragraph and any other person controlling,
controlled by or under common control with, directly or indirectly, (a) the
shareholder or (b) the associated person of the shareholder.
The Governance and Nominating Committee may require the shareholder to
furnish such other information as it may reasonably require or deem necessary to
verify any information furnished pursuant to the nominating procedures described
above or to determine the
A-8
qualifications and eligibility of the candidate proposed by the shareholder to
serve on the Board. If the shareholder fails to provide such other information
in writing within seven days of receipt of written request from the Governance
and Nominating Committee, the recommendation of such candidate as a nominee will
be deemed not properly submitted for consideration, and will not be considered,
by the Committee.
The Governance and Nominating Committee will consider only one candidate
submitted by such a shareholder or group for nomination for election at an
annual meeting of shareholders. The Governance and Nominating Committee will not
consider self-nominated candidates. The Governance and Nominating Committee will
consider and evaluate candidates submitted by shareholders on the basis of the
same criteria as those used to consider and evaluate candidates submitted from
other sources. These criteria include the candidate's relevant knowledge,
experience, and expertise, the candidate's ability to carry out his or her
duties in the best interests of the Fund, the candidate's ability to qualify as
a disinterested Director and such other criteria as the Governance and
Nominating Committee determines to be relevant in light of the existing
composition of the Board and any anticipated vacancies or other factors.
In approving the most recent annual continuance of the Fund's investment
advisory agreement (the "Advisory Agreement"), the Directors considered all
information they deemed reasonably necessary to evaluate the terms of the
Advisory Agreement. The principal areas of review by the Directors were the
nature and quality of the services provided by Alliance Capital Management L.P.
(the "Adviser" or "Alliance") and the reasonableness of the fees charged for
those services. These matters were considered by the disinterested directors
meeting separately from the full Board with experienced counsel that is
independent of the Adviser.
The Directors' evaluation of the quality of the Adviser's services took
into account their knowledge and experience gained through meetings with and
reports of the Adviser's senior management, portfolio managers and
administrative personnel over the course of the preceding year. Both short-term
and long-term investment performance of the Fund, as well as senior management's
attention to any portfolio management issues, were considered. The Fund's
current and longer-term performance were compared to its performance benchmark
and to that of competitive funds and other funds with similar investment
objectives. The Directors also considered an expense limitation agreement for
the Fund that sets expense caps on overall Fund expenses and provides for waiver
of fees by the Adviser or reimbursement of expenses if needed to meet such caps,
the scope and quality of the in-house research capability of the Adviser and
other resources dedicated to performing its services. The quality of
administrative and other services, including the Adviser's role in coordinating
the activities of the Fund's other service providers, were considered in light
of on-going reports by management as to compliance with investment policies and
applicable laws and regulations and of related reports by management and the
Fund's independent registered public accounting firm in periodic meetings with
the Fund's Audit Committee.
In reviewing the fees payable under the Advisory Agreement, the Directors
compared the fees and overall expense levels of the Fund to those of competitive
funds and other funds with similar investment objectives. The information on
advisory fees and expense ratios, as well as performance data, included both
information compiled by the Adviser and information compiled by an independent
data service. The Directors also considered the fees of the Fund as a percentage
of assets at different asset levels and possible economies of scale to the
Adviser. The
A-9
Directors considered information provided by the Adviser concerning the
Adviser's profitability with respect to the Fund, including the assumptions and
methodology used in preparing the profitability information, in light of
applicable case law relating to advisory fees. For these purposes, the Directors
took into account not only the fees paid by the Fund, but also so-called
"fallout benefits" to the Adviser, such as the engagement of affiliates of the
Adviser to provide distribution, brokerage and transfer agency services to the
Fund, the benefits of research made available to the Adviser by reason of
brokerage commissions generated by the Fund's securities transactions, and that
the Advisory Agreement provides that the Fund reimburses the Adviser for the
cost of providing certain administrative services. In evaluating the Fund's
advisory fees, the Directors also took into account the demands, complexity and
quality of the investment management of the Fund.
The Directors also considered the business reputation of the Adviser and
its financial resources. The Directors evaluated the procedures and systems
adopted by the Adviser that are designed to fulfill the Adviser's fiduciary duty
to the Fund with respect to possible conflicts of interest, including the
Adviser's code of ethics (regulating the personal trading of its officers and
employees) and the allocation of trades among its various investment advisory
clients. The Directors also considered information concerning policies and
procedures of the Adviser with respect to the execution of portfolio
transactions.
No single factor was considered in isolation or to be determinative to the
decision of the Directors to approve continuance of the Advisory Agreement.
Rather, the Directors concluded in light of a weighing and balancing of all
factors considered that it was in the best interests of the Fund to continue its
Advisory Agreement without modification to its terms, including the fees charged
for services thereunder.
The dollar range of the Fund's securities owned by each Director and the
aggregate dollar range of securities in all of the registered investment
companies to which the Adviser provides investment advisory services
(collectively, the "AllianceBernstein Fund Complex") owned by each Director are
set forth below.
AGGREGATE DOLLAR
RANGE OF EQUITY
DOLLAR RANGE SECURITIES IN THE
OF EQUITY SECURITIES ALLIANCEBERNSTEIN
IN THE FUND AS OF FUND COMPLEX AS OF
DECEMBER 31, 2004* DECEMBER 31, 2004*
------------------- ------------------
Marc O. Mayer None Over $100,000
Ruth Block $1 - $10,000 Over $100,000
David H. Dievler None Over $100,000
John H. Dobkin None Over $100,000
William H. Foulk, Jr. None Over $100,000
*Mr. Downey is not included because he was not a Director of the Fund as of
December 31, 2004.
A-10
Officer Information
Certain information concerning the Fund's officers is set forth below.
NAME AND ADDRESS,* POSITION(S) HELD PRINCIPAL OCCUPATION
AND (AGE) WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------
Marc O. Mayer, (47) President and Chief Executive See biography above.
Officer
Bruce W. Calvert, (57) Executive Vice President Chairman and Director of ACMC,**
with which he has been associated
since prior to 2000.
Philip L. Kirstein, (59) Senior Vice President and Senior Vice President and
Independent Compliance Officer Independent Compliance Officer -
Mutual Funds of ACMC,** 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
and First Vice President of
Merrill Lynch Investment Managers,
L.P. since prior to 2000.
Christopher M. Toub, (45) Senior Vice President Executive Vice President of
ACMC,** with which he has been
associated since prior to 2000.
Edward Baker, (53) Vice President Senior Vice President and Chief
Investment Officer of Emerging
Markets of ACMC,** with which he
has been associated since prior to
2000.
Thomas J. Bardong, (59) Vice President Senior Vice President of ACMC,**
with which he has been associated
since prior to 2000.
A-11
Stephen Beinhacker, (40) Vice President Senior Vice President of ACMC,**
with which he has been associated
since prior to 2000.
Russell Brody, (37) Vice President Vice President of ACMC,** with
which he has been associated since
prior to 2000.
Mark D. Gersten, (54) Treasurer and Chief Financial Senior Vice President of AGIS**
Officer and Vice President of
AllianceBernstein Investment
Research and Management, Inc.
("ABIRM"),** with which he has
been associated since prior to
2000.
Mark R. Manley, (42) Secretary Senior Vice President, Deputy
General Counsel and Chief
Compliance Officer of ACMC,** with
which he has been associated since
prior to 2000.
Vincent S. Noto, (39) Controller Vice President of AGIS,** with
which he has been associated with
prior to 2000.
Andrew L. Gangolf, (50) Assistant Secretary Senior Vice President and
Assistant General Counsel of
ABIRM,** with which he has been
associated since prior to 2000.
- -----------
* The address for each of the Fund's officers is 1345 Avenue of the
Americas, New York, NY 10105.
** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund.
The Fund does not pay any fees to, or reimburse expenses of, its Directors
who are considered "interested persons" of the Fund. The aggregate compensation
paid by the Fund to each of the Directors during the Fund's fiscal year ended
July 31, 2004, the aggregate compensation paid to each of the Directors during
calendar year 2004 by the AllianceBernstein
A-12
Fund Complex and the total number of registered investment companies (and
separate investment portfolios within those companies) in the AllianceBernstein
Fund Complex with respect to which each of the Directors serves as a director or
trustee, are set forth below. Neither the Fund nor any other registered
investment company in the AllianceBernstein Fund Complex provides compensation
in the form of pension or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one or more other
registered investment companies in the AllianceBernstein Fund Complex.
Total Total
Number of Number of
Investment Investment
Companies Portfolios
in the within the
Alliance- Alliance-
Total Bernstein Bernstein Fund
Compensation Fund Complex, Complex,
From the Including the Including the
Alliance- Fund, as to Fund, as to
Aggregate Bernstein Fund which the which the
Compensation Complex, Director is Director is
Name of Director From the Including a Director a Director
of the Fund* Fund the Fund or Trustee or Trustee
- ---------------- ------------ ----------- ------------ -------------
Marc O. Mayer $0 $0 38 66
Ruth Block $2,862 $223,200 41 94
David H. Dievler $2,847 $268,250 45 98
John H. Dobkin $2,852 $252,900 45 96
William H. Foulk, Jr. $4,151 $465,250 49 113
*Information for Mr. Downey is not included because he was not a Director of the
Fund as of December 31, 2004.
As of February 24, 2005, the Directors and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
Adviser
Alliance, a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to provide investment
advice and, in general, to conduct the management and investment program of the
Fund under the supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
Alliance is a leading global investment management firm supervising client
accounts with assets as of December 31, 2004, totaling approximately $539
billion. Alliance provides management services for many of the largest U.S.
public and private employee benefit plans, endowments, foundations, public
employee retirement funds, banks, insurance companies and high net worth
individuals worldwide. Alliance is also one of the largest mutual fund sponsors,
with a diverse family of globally distributed mutual fund portfolios. As one of
the world's
A-13
leading global investment management organizations, Alliance is able to compete
for virtually any portfolio assignment in any developed capital market in the
world.
Alliance is a registered investment adviser under the Investment Advisers
Act of 1940, as amended. As of September 30, 2004, Alliance Capital Management
Holding L.P. ("Holding"), a Delaware limited partnership, owned approximately
31.6% of the issued and outstanding units of limited partnership interest in
Alliance ("Alliance Units"). Units representing assignments of beneficial
ownership of limited partnership interests in Holding ("Holding Units") trade
publicly on the New York Stock Exchange (the "Exchange") under the ticker symbol
"AC". Alliance Units do not trade publicly and are subject to significant
restrictions on transfer. ACMC is the general partner of both Alliance and
Holding. ACMC owns 100,000 general partnership units in Holding and a 1% general
partnership interest in Alliance. ACMC is an indirect wholly-owned subsidiary of
AXA Financial, Inc. ("AXA Financial"), a Delaware corporation.
As of September 30, 2004, AXA, AXA Financial, Equitable and certain
subsidiaries of Equitable beneficially owned approximately 57.8% of the issued
and outstanding Alliance Units and approximately 1.8% of the issued and
outstanding Holding Units which, including the general partnership interests in
Alliance and Holding, represent an economic interest of approximately 58.3% in
Alliance. As of September 30, 2004, SCB Partners Inc., a wholly-owned subsidiary
of SCB Inc., beneficially owned approximately 9.7% of the issued and outstanding
Alliance Units.
AXA, a French company, is the holding company for an international group
of companies and a worldwide leader in financial protection and wealth
management. AXA operates primarily in Western Europe, North America and the
Asia/Pacific region and, to a lesser extent, in other regions including the
Middle East, Africa and South America. AXA has five operating business segments:
life and savings, property and casualty insurance, international insurance
(including reinsurance), asset management and other financial services. AXA
Financial is a wholly-owned subsidiary of AXA. Equitable is an indirect
wholly-owned subsidiary of AXA Financial.
Based on information provided by AXA, as of February 1, 2004,
approximately 16.89% of the issued ordinary shares (representing 27.55% of the
voting power) of AXA were owned directly and indirectly by Finaxa, a French
holding company. As of February 1, 2004, 71.11% of the shares (representing
80.36% of the voting power) of Finaxa were owned by three French mutual
insurance companies (the "Mutuelles AXA") and 21.32% of the shares of Finaxa
(representing 12.80% of the voting power) were owned by BNP Paribas, a French
bank. As of February 1, 2004, the Mutuelles AXA owned directly or indirectly
through intermediate holding companies (including Finaxa) approximately 20.17%
of the issued ordinary shares (representing 32.94% of the voting power) of AXA.
Under the Advisory Agreement, the Adviser provides investment advisory
services and order placement facilities for the Fund and pays all compensation
of Directors and officers of the Fund who are affiliated persons of the Adviser.
The Adviser or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and provides persons
satisfactory to the Fund's Board of Directors to serve as the Fund's officers.
A-14
The Fund has, under the Advisory Agreement, assumed the obligation for
payment of all of its other expenses. As to the obtaining of services other than
those specifically provided to the Fund by the Adviser, the Fund may employ its
own personnel. For such services, it also may utilize personnel employed by the
Adviser or its affiliates. In such event, the services will be provided to the
Fund at cost and the payments specifically approved by the Fund's Board of
Directors. The Fund paid to the Adviser a total of $105,000 in respect of such
services during the fiscal year of the Fund ended July 31, 2004.
Under the Advisory Agreement, the Fund paid the Adviser a fee at the
annual rate of 1.00% of the value of the average daily net assets of the Fund.
The fee is accrued daily and paid monthly. Effective as of January 1, 2004, the
Adviser waived a portion of its advisory fee. The advisory fee waiver reduced
the advisory fee to 0.75% of the first $2.5 billion, 0.65% of the excess over
$2.5 billion up to $5 billion and 0.60% of the excess over $5 billion as a
percentage of the Fund's average daily net assets. Effective September 7, 2004,
the Board of Directors approved an amendment to the Advisory Agreement to reduce
the contractual advisory fee to these amounts. The Adviser has contractually
agreed for the current fiscal year to waive its fee and bear certain expenses so
that total expenses do not exceed on an annual basis 2.50%, 3.20%, 3.20% and
2.20% of aggregate average daily net assets, respectively, for Class A, Class B,
Class C and Advisor Class shares. This contractual agreement automatically
extends each year unless the Adviser provides written notice 60 days prior to
the Fund's fiscal year end. For the fiscal year of the Fund ended July 31, 2004,
the fiscal period of the Fund ended July 31, 2003 and the fiscal years of the
Fund ended November 30, 2002 and 2001, the Adviser received from the Fund
advisory fees of $760,533 (net of $74,684, which was waived by the Adviser due
to the expense limitation agreement and $144,656, which was waived by the
Adviser under the agreement with the New York Attorney General), $291,810 (net
of $346,165, which was waived by the Adviser), $1,322,976 (net of $34,622, which
was waived by the Adviser) and $2,045,706, respectively.
The Advisory Agreement became effective on February 2, 1998, having been
approved by the unanimous vote, cast in person, of the Fund's Directors,
including the Directors who are not parties to the Advisory Agreement or
"interested persons" as defined in the 1940 Act of any such party, at a meeting
called for that purpose and held on January 14, 1998, and by the Fund's initial
shareholder on January 14, 1998.
The Advisory Agreement continues in effect from year to year provided that
its continuance is specifically approved at least annually by a vote of a
majority of the Fund's outstanding voting securities or by the Fund's Board of
Directors, including in either case, approval by a majority of the Directors who
are not parties to the Advisory Agreement or interested persons of any such
party as defined by the 1940 Act. Most recently, continuance of the Advisory
Agreement was approved for an additional annual term by the Board of Directors,
including a majority of the Directors who are not "interested persons" as
defined in the 1940 Act, at their Regular Meetings held on June 15-17, 2004.
The Advisory Agreement is terminable without penalty by a vote of a
majority of the Fund's outstanding voting securities or by a vote of a majority
of the Fund's Directors on 60 days' written notice, or by the Adviser on 60
days' written notice, and will automatically terminate in the event of its
assignment. The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Adviser, or of
reckless disregard of
A-15
its obligations thereunder, the Adviser shall not be liable for any action or
failure to act in accordance with its duties thereunder.
The Adviser may act as an investment adviser to other persons, firms or
corporations, including investment companies, and is investment adviser to
AllianceBernstein All-Asia Investment Fund, Inc., AllianceBernstein Americas
Government Income Trust, Inc., AllianceBernstein Balanced Shares, Inc.,
AllianceBernstein Blended Style Series, Inc., AllianceBernstein Bond Fund, Inc.,
AllianceBernstein Cap Fund, Inc., AllianceBernstein Capital Reserves,
AllianceBernstein Emerging Market Debt Fund, Inc., AllianceBernstein Exchange
Reserves, AllianceBernstein Focused Growth & Income Fund, Inc.,
AllianceBernstein Global Health Care Fund, Inc., AllianceBernstein Global
Research Growth Fund, Inc., AllianceBernstein Global Strategic Income Trust,
Inc., AllianceBernstein Global Technology Fund, Inc., AllianceBernstein
Government Reserves, AllianceBernstein Greater China '97 Fund, Inc.,
AllianceBernstein Growth and Income Fund, Inc., AllianceBernstein High Yield
Fund, Inc., AllianceBernstein Institutional Funds, Inc., AllianceBernstein
Institutional Reserves, Inc., AllianceBernstein Large Cap Growth Fund, Inc.,
AllianceBernstein Mid-Cap Growth Fund, Inc., AllianceBernstein Multi-Market
Strategy Trust, Inc., AllianceBernstein Municipal Income Fund, Inc.,
AllianceBernstein Municipal Income Fund II, AllianceBernstein Municipal Trust,
AllianceBernstein New Europe Fund, Inc., AllianceBernstein Real Estate
Investment Fund, Inc., AllianceBernstein Trust, AllianceBernstein Utility Income
Fund, Inc., AllianceBernstein Variable Products Series Fund, Inc.,
AllianceBernstein Worldwide Privatization Fund, Inc., The AllianceBernstein
Portfolios, Sanford C. Bernstein Fund, Inc. and Sanford C. Bernstein Fund II,
Inc., all registered open-end investment companies; and to ACM Government
Opportunity Fund, Inc., ACM Income Fund, Inc., ACM Managed Income Fund, Inc.,
ACM Managed Dollar Income Fund, Inc., ACM Municipal Securities Income Fund,
Inc., Alliance All-Market Advantage Fund, Inc., Alliance California Municipal
Income Fund, Inc., Alliance National Municipal Income Fund, Inc., Alliance New
York Municipal Income Fund, Inc., Alliance World Dollar Government Fund, Inc.,
Alliance World Dollar Government Fund II, Inc. and The Spain Fund, Inc., all
registered closed-end investment companies.
Additional Information About the Fund's Portfolio Managers
The management of and investment decisions for the Fund's portfolio are
made by the Adviser's International Research Growth sector analyst-managers. Mr.
William Johnston, Ms. Isabel Buccellati, Mr. Michele Patri, Ms. Valli
Niththyananthan, Mr. Atsushi Yamamoto, Mr. Hiromitsu Agata and Mr. Thomas
Schmitt are the sector analyst-managers with the most significant responsibility
for the day-to-day management of the Fund's portfolio. For additional
information about the portfolio management of the Fund, see "Management of the
Fund - Portfolio Managers" in the Fund's prospectus. The dollar range of the
Fund's equity securities owned directly or beneficially by the Fund's portfolio
managers as of February 28, 2005 is set forth below:
DOLLAR RANGE OF EQUITY
SECURITIES IN THE FUND
----------------------
Mr. William Johnston None
Ms. Isabel Buccellati None
Mr. Michele Patri None
Ms. Valli Niththyananthan None
Mr. Atsushi Yamamoto None
Mr. Hiromitsu Agata None
Mr. Thomas Schmitt None
A-16
The following tables provide information regarding registered investment
companies other than the Fund, other pooled investment vehicles and other
accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of February
28, 2005.
- ----------------------------------------------------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES (excluding the Fund)
- ----------------------------------------------------------------------------------------------------------------------------
Total Number of Total Assets of Number of Registered
Registered Registered Investment Companies Total Assets of Registered
Investment Investment Managed with Investment Companies Managed
Portfolio Manager Companies Managed Companies Managed Performance-based Fees with Performance-based Fees
- ----------------------------------------------------------------------------------------------------------------------------
Mr. William Johnston 1 $13,675,561 None None
- ----------------------------------------------------------------------------------------------------------------------------
Ms. Isabel Buccellati 1 $6,811,499 None None
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Michele Patri 1 $6,277,965 None None
- ----------------------------------------------------------------------------------------------------------------------------
Ms. Valli Niththyananthan 1 $11,854,076 None None
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Atsushi Yamamoto 1 $7,758,179 None None
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Hiromitsu Agata 1 $6,782,053 None None
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Thomas Schmitt 2 $23,916,644 None None
- ----------------------------------------------------------------------------------------------------------------------------
A-17
- ----------------------------------------------------------------------------------------------------------------------------
POOLED INVESTMENT VEHICLES
- ----------------------------------------------------------------------------------------------------------------------------
Total Number of Number of Pooled
Pooled Total Assets of Pooled Investment Vehicles Total Assets of Pooled
Investment Investment Vehicles Managed with Investment Vehicles Managed
Portfolio Manager Vehicles Managed Managed Performance-based Fees with Performance-based Fees
- ----------------------------------------------------------------------------------------------------------------------------
Mr. William Johnston None None None None
- ----------------------------------------------------------------------------------------------------------------------------
Ms. Isabel Buccellati None None None None
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Michele Patri None None None None
- ----------------------------------------------------------------------------------------------------------------------------
Ms. Valli Niththyananthan None None None None
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Atsushi Yamamoto None None None None
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Hiromitsu Agata 1 $125,452,279 None None
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Thomas Schmitt 1 $732,143,766 None None
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
OTHER ACCOUNTS
- ----------------------------------------------------------------------------------------------------------------------
Number of Total Assets of
Other Accounts Other Accounts
Total Number of Managed with
Other Accounts Total Assets of Other with Performance- Performance-based
Portfolio Manager Managed Accounts Managed based Fees Fees
- ----------------------------------------------------------------------------------------------------------------------
Mr. William Johnston None None None None
- ----------------------------------------------------------------------------------------------------------------------
Ms. Isabel Buccellati None None None None
- ----------------------------------------------------------------------------------------------------------------------
Mr. Michele Patri None None None None
- ----------------------------------------------------------------------------------------------------------------------
Ms. Valli Niththyananthan None None None None
- ----------------------------------------------------------------------------------------------------------------------
Mr. Atsushi Yamamoto None None None None
- ----------------------------------------------------------------------------------------------------------------------
Mr. Hiromitsu Agata None None None None
- ----------------------------------------------------------------------------------------------------------------------
Mr. Thomas Schmitt 83 $2,226,175,324 2 $107,551,172
- ----------------------------------------------------------------------------------------------------------------------
Potential Conflicts of Interest
As an investment adviser and fiduciary, Alliance owes its clients and
shareholders an undivided duty of loyalty. We recognize that conflicts of
interest are inherent in our business and accordingly have developed policies,
procedures and disclosures reasonably designed to detect, manage and mitigate
the effects of potential conflicts of interest in the area of employee personal
trading, and managing multiple accounts for multiple clients, including funds
(hereinafter "clients"), and allocating investment opportunities. Investment
professionals, including portfolio managers and research analysts, are subject
to the above-mentioned policies and oversight monitoring to ensure that all
clients are treated equitably. We place the interests of our clients first and
expect all of our employees to maintain our fiduciary duty.
A-18
Employee Personal Trading and the Code of Business Conduct and Ethics
Alliance has policies to avoid conflicts of interest when investment
professionals and other personnel of Alliance own, buy or sell securities which
may be owned by, or bought or sold for clients. Alliance permits its employees
to engage in personal securities transactions, and also allows them to acquire
investments in the AllianceBernstein Mutual Funds through direct purchase,
401K/profit sharing plan investment and/or notionally in connection with
deferred incentive compensation awards. Personal securities transactions by an
employee may raise a potential conflict of interest when an employee owns or
trades in a security that is owned or considered for purchase or sale by a
client, or recommended for purchase or sale by an employee to a client. Alliance
has adopted a Code of Business Conduct and Ethics that is designed to detect and
prevent such conflicts of interest.
Managing Multiple Accounts for Multiple Clients
The investment professional or investment professional teams for each fund
have responsibilities for managing all or a portion of the investments of
multiple accounts with a common investment strategy, including other registered
investment companies, unregistered investment vehicles, such as hedge funds,
pension plans, separate accounts, collective trusts and charitable foundations.
Potential conflicts of interest may arise when an investment professional has
responsibilities for the investments of more than one account because the
investment professional may be unable to devote equal time and attention to each
account. Accordingly, Alliance has compliance policies and oversight to manage
these conflicts.
Allocating Investment Opportunities
In addition, the investment professionals routinely are required to select
and allocate investment opportunities among accounts. Portfolio holdings,
position sizes, and industry and sector exposures tend to be similar across
similar accounts, which minimizes the potential for conflicts of interest.
Nevertheless, investment opportunities may be allocated differently among
accounts due to the particular characteristics of an account, such as cash
position, tax status, risk tolerance and investment restrictions or for other
reasons. Potential conflicts of interest may also occur where Alliance would
have a particular financial incentive, such as a performance-based management
fee, relating to an account. An investment professional may perceive that he or
she has an incentive to devote more time to developing and analyzing investment
strategies and opportunities or allocating securities preferentially to accounts
for which Alliance could share in investment gains. As referenced above,
Alliance has procedures designed to ensure that information relevant to
investment decisions is disseminated fairly within its portfolio management
teams and investment opportunities are allocated equitably among different
clients.
A-19
Portfolio Manager Compensation
Alliance's compensation program for investment professionals(1) is
designed to be competitive and appropriate to attract and retain the highest
caliber employees. The compensation program for investment professionals is
designed to reflect their ability to generate long-term investment success for
our clients, including shareholders of the
AllianceBernstein Mutual Funds.
Investment professionals are compensated on an annual basis through a
combination of the following: (i) fixed base salary; (ii) discretionary
incentive compensation in the form of an annual cash bonus; (iii) discretionary
incentive compensation in the form of awards under Alliance's Partners
Compensation Plan ("deferred awards") and (iv) discretionary long-term incentive
compensation in the form of restricted unit grants (granted prior to 2002 and
(v) contributions under Alliance's Profit Sharing/401(k) Plan. Alliance's
overall profitability determines the total amount of incentive compensation
available to investment professionals. Deferred awards, for which there are
various investment options, vest over a four-year period and are generally
forfeited if the employee resigns or Alliance terminates his/her employment.
Investment options under the deferred awards plan include many of the same
AllianceBernstein Mutual Funds offered to mutual fund investors, thereby
creating a closer alignment between the investment professionals and Alliance's
clients and mutual fund shareholders. Alliance also permits deferred award
recipients to allocate up to 50% of their award to investments in Alliance's
publicly traded equity securities.
An investment professional's total compensation is determined through a
subjective process that evaluates numerous quantitative and qualitative factors,
including the investment success of the portfolios managed by the individual.
Investment professionals do not receive any direct compensation based upon the
investment returns of any individual client account. Not all factors apply to
each investment professional and there is no particular weighting or formula for
considering certain factors.
Among the factors considered are: relative investment performance of
portfolios (although there are no specific benchmarks or periods of time used in
measuring performance); complexity of investment strategies; participation in
the investment team/discipline's dialogue. An investment professional's
contribution to business results and overall business strategy; success of
marketing/business development efforts and client servicing; seniority/length of
service with the firm; management and supervisory responsibilities and
fulfillment of Alliance's leadership criteria are relevant to compensation
decisions.
- ----------
(1) Investment professionals at Alliance include portfolio managers and
research analysts. Investment professionals are part of investment groups (or
teams) that service individual fund portfolios. The number of investment
professionals assigned to a particular fund will vary from fund to fund.
A-20
----------------------------------------------------------------
EXPENSES OF THE FUND
----------------------------------------------------------------
Distribution Services Agreement
The Fund has entered into a Distribution Services Agreement (the
"Agreement") with ABIRM, the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute the Fund's
shares and to permit the Fund to pay distribution services fees to defray
expenses associated with distribution of its Class A shares, Class B shares and
Class C shares in accordance with a plan of distribution that is included in the
Agreement and which has been duly adopted and approved in accordance with Rule
12b-1 under the 1940 Act (the "Rule 12b-1 Plan").
During the Fund's fiscal year ended July 31, 2004, the Fund paid
distribution services fees for expenditures under the Agreement, with respect to
Class A shares, in amounts aggregating $73,290 which constituted .30% annually,
of the Fund's aggregate average daily net assets attributable to Class A shares
during the period, and the Adviser made payments from its own resources as
described above aggregating $383,217. Of the $456,507 paid by the Fund and the
Adviser under the Rule 12b-1 Plan with respect to the Class A shares, $2,240 was
spent on advertising, $432 on the printing and mailing of prospectuses for
persons other than current shareholders, $279,157 for compensation to
broker-dealers and other financial intermediaries (including, $153,769 to the
Fund's Principal Underwriter), $22,668 for compensation to sales personnel, and
$152,010 was spent on printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the Fund's fiscal year ended July 31, 2004, the Fund paid
distribution services fees for expenditures under the Agreement, with respect to
Class B shares, in amounts aggregating $452,572, which constituted approximately
1.0% annually, of the Fund's aggregate average daily net assets attributable to
Class B shares during the period, and the Adviser made payments from its own
resources as described above aggregating $0. Of the $452,572 paid by the Fund
and the Adviser under the Rule 12b-1 Plan with respect to the Class B shares,
$395 was spent on advertising, $587 on the printing and mailing of prospectuses
for persons other than current shareholders, $127,598 for compensation to
broker-dealers and other financial intermediaries (including, $28,937 to the
Fund's Principal Underwriter), $5,036 for compensation to sales personnel,
$28,910 was spent on printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, $79,940 was spent on interest on Class
B shares financing and $210,106 was used to offset the distribution service fees
paid in prior years.
During the Fund's fiscal year ended July 31, 2004, the Fund paid
distribution services fees for expenditures under the Agreement, with respect to
Class C shares, in amounts aggregating $148,616, which constituted approximately
1.0% annually, of the Fund's aggregate average daily net assets attributable to
Class C shares during the period, and the Adviser made payments from its own
resources as described above aggregating $37,130. Of the $185,746 paid by the
Fund and the Adviser under the Rule 12b-1 Plan with respect to the Class C
shares, $273
A-21
was spent on advertising, $448 on the printing and mailing of prospectuses for
persons other than current shareholders, $163,389 for compensation to
broker-dealers and other financial intermediaries (including, $18,653 to the
Fund's Principal Underwriter), $3,111 for compensation to sales personnel,
$18,310 was spent on printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $215 was spent on interest on
Class C shares financing.
Distribution services fees are accrued daily and paid monthly and charged
as expenses of the Fund as accrued. The distribution services fees attributable
to the Class B shares and Class C shares are designed to permit an investor to
purchase such shares through broker-dealers without the assessment of an initial
sales charge and at the same time to permit the Principal Underwriter to
compensate broker-dealers in connection with the sale of such shares. In this
regard the purpose and function of the combined contingent deferred sales charge
("CDSC") and respective distribution services fee on the Class B shares and
Class C shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in that in each
case the sales charge and distribution services fee provides for the financing
of the distribution of the relevant class of the Fund's shares.
With respect to Class A shares of the Fund, distribution expenses accrued
by ABIRM in one fiscal year may not be paid from distribution services fees
received from the Fund in subsequent fiscal years. ABIRM's compensation with
respect to Class B and Class C shares under the Rule 12b-1 Plan is directly tied
to the expenses incurred by ABIRM. Actual distribution expenses for Class B and
Class C shares for any given year, however, will probably exceed the
distribution services fee payable under the Rule 12b-1 Plan with respect to the
class involved and payments received from CDSCs. The excess will be carried
forward by ABIRM and reimbursed from distribution services fees payable under
the Rule 12b-1 Plan with respect to the class involved and payments subsequently
received through CDSCs, so long as the Rule 12b-1 Plan is in effect.
Unreimbursed distribution expenses incurred as of the end of the Fund's
fiscal year ended July 31, 2004, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for the Fund were,
respectively, $5,561,491 (14.47% of the net assets of Class B) and $1,212,362
(9.76% of the net assets of Class C).
The Rule 12b-1 Plan is in compliance with rules of the National
Association of Securities Dealers, Inc. ("NASD") that effectively limit the
annual asset-based sales charges and service fees that a mutual fund may pay on
a class of shares to .75% and .25%, respectively, of the average annual net
assets attributable to that class. The rules also limit the aggregate of all
front-end, deferred and asset-based sales charges imposed with respect to a
class of shares by a mutual fund that also charges a service fee to 6.25% of
cumulative gross sales of shares of that class, plus interest at the prime rate
plus 1% per annum.
In approving the Rule 12b-1 Plan, the Directors of the Fund determined
that there was a reasonable likelihood that the Rule 12b-1 Plan would benefit
the Fund and its shareholders. The distribution services fee of a particular
class will not be used to subsidize the provision of distribution services with
respect to any other class.
A-22
The Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the Securities and Exchange Commission
(the "Commission") make payments for distribution services to the Principal
Underwriter; the latter may in turn pay part or all of such compensation to
brokers or other persons for their distribution assistance.
The Agreement continues in effect so long as such continuance is
specifically approved at least annually by the Directors of the Fund or by vote
of the holders of a majority of the outstanding voting securities (as defined in
the 1940 Act) of that class, and, in either case, by a majority of the Directors
of the Fund who are not parties to the Agreement or interested persons, as
defined in the 1940 Act, of any such party (other than as directors of the Fund)
and who have no direct or indirect financial interest in the operation of the
Rule 12b-1 Plan or any agreement related thereto. Most recently, continuance of
the Agreement for an additional annual term was approved by a vote, cast in
person, of the Directors including a majority of the Directors who are not
"interested persons," as defined in the 1940 Act, at their Regular Meetings held
on June 15-17, 2004.
In the event that the Rule 12b-1 Plan is terminated by either party or not
continued with respect to the Class A shares, Class B shares or Class C shares,
(i) no distribution services fees (other than current amounts accrued but not
yet paid) would be owed by the Fund to the Principal Underwriter with respect to
that class, and (ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not previously
recovered by the Principal Underwriter from distribution services fees in
respect of shares of such class or through deferred sales charges.
Transfer Agency Agreement
AGIS, an indirect wholly-owned subsidiary of the Adviser, located
principally at 500 Plaza Drive, Secaucus, NJ 07094 and with operations at 8000
IH 10 W, 4th Floor, San Antonio, Texas 78230, receives a transfer agency fee per
account holder of each of the Class A shares, Class B shares, Class C shares and
Advisor Class shares of the Fund. The transfer agency fee with respect to the
Class B shares and Class C shares is higher than the transfer agency fee with
respect to the Class A and Advisor Class shares. For the fiscal year ended July
31, 2004, the Fund paid AGIS $385,776 pursuant to the Transfer Agency Agreement.
AGIS acts as the transfer agent for the Fund. AGIS registers the transfer,
issuance and redemption of Fund shares and disburses dividends and other
distributions to Fund shareholders.
Many Fund shares are owned by selected dealers and selected agents, as
defined below, financial intermediaries or other financial representatives
("financial intermediaries") for the benefit of their customers. In those cases,
the Fund often does not maintain an account for you. Thus, some or all of the
transfer agency functions for these accounts are performed by the financial
intermediaries. The Fund, ABIRM and/or Alliance pay to these financial
intermediaries, including those that sell shares of the AllianceBernstein Mutual
Funds, fees for sub-transfer agency and related recordkeeping services in
amounts ranging up to $19 per customer fund account per annum. Retirement plans
may also hold Fund shares in the name of the plan, rather than the participant.
Plan recordkeepers, who may have affiliated financial intermediaries who sell
shares of the Fund, may be paid for each plan participant fund account in
amounts up to $19 per account per annum and/or up to 0.20% per annum of the
average daily assets held in the plan. To the extent any of
A-23
these payments for recordkeeping services, transfer agency services or
retirement plan accounts are made by the Fund, they are included in the Fund's
Prospectus in the Fund expense tables under "Fees and Expenses of the Funds." In
addition, financial intermediaries may be affiliates of entities that receive
compensation from Alliance or ABIRM for maintaining retirement plan "platforms"
that facilitate trading by affiliated and non-affiliated financial
intermediaries and recordkeeping for retirement plans.
Because financial intermediaries and plan recordkeepers may be paid
varying amounts per class for sub-transfer agency and related recordkeeping
services, the service requirements of which may also vary by class, this may
create an additional incentive for financial intermediaries and their financial
advisors to favor one fund complex over another or one class of shares over
another.
Codes of Ethics and Proxy Voting Policies and Procedures
The Fund, the Adviser and the Principal Underwriter have each adopted
codes of ethics pursuant to Rule 17j-1 of the 1940 Act. These codes of ethics
permit personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the Fund.
The Fund has adopted the Adviser's proxy voting policies and procedures.
The Adviser's proxy voting policies and procedures are attached as Appendix D.
Information regarding how the Fund voted proxies related to portfolio
securities during the most recent 12-month period ended June 30 is available (1)
without charge, upon request, by calling (800) 227-4618; or on or through the
Fund's website at www.AllianceBernstein.com; or both; and (2) on the
Commission's website at www.sec.gov.
----------------------------------------------------------------
PURCHASE OF SHARES
----------------------------------------------------------------
The following information supplements that set forth in the Fund's
Prospectus under the heading "Investing in the Funds."
General
Shares of the Fund are offered on a continuous basis at a price equal to
their net asset value ("NAV") plus an initial sales charge at the time of
purchase ("Class A shares"), with a CDSC ("Class B shares"), without any initial
sales charge and, as long as the shares are held for one year or more, without
any CDSC ("Class C shares"), or, to investors eligible to purchase Advisor Class
shares, without any initial sales charge or CDSC ("Advisor Class shares"), in
each case as described below. All of the classes of shares of the Fund, except
the Advisor Class shares, are subject to Rule 12b-1 asset-based sales charges.
Shares of the Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the NASD and have entered
into selected dealer agreements with the Principal Underwriter ("selected
dealers"), (ii) depository institutions and other financial intermediaries or
their
A-24
affiliates, that have entered into selected agent agreements with the Principal
Underwriter ("selected agents") and (iii) the Principal Underwriter.
Investors may purchase shares of the Fund either through financial
intermediaries or directly through the Principal Underwriter. A transaction,
service, administrative or other similar fee may be charged by your financial
intermediary with respect to the purchase, sale or exchange of shares made
through the financial intermediary. Such financial intermediary may also impose
requirements with respect to the purchase, sale or exchange of shares that are
different from, or in addition to, those imposed by the Fund, including
requirements as to classes of shares available through that financial
intermediary and the minimum initial and subsequent investment amounts. The Fund
is not responsible for, and has no control over, the decision of any financial
intermediary to impose such differing requirements. Sales personnel of selected
dealers and agents distributing the Fund's shares may receive differing
compensation for selling different classes of shares.
In order to open your account, the Fund or your financial intermediary is
required to obtain certain information from you for identification purposes.
This information may include name, date of birth, permanent residential address
and social security/taxpayer identification number. It will not be possible to
establish your account without this information. If the Fund or your financial
intermediary is unable to verify the information provided, your account may be
closed and other appropriate action may be taken as permitted by law.
The Fund's Board of Directors has adopted policies and procedures designed
to detect and deter frequent purchases and redemptions of Fund shares or
excessive or short-term trading that may disadvantage long-term Fund
shareholders. These policies are described below. The Fund reserves the right to
restrict, reject or cancel, without any prior notice, any purchase or exchange
order for any reason, including any purchase or exchange order accepted by any
shareholder's financial intermediary.
Risks Associated With Excessive Or Short-term Trading Generally. While the
Fund will try to prevent market timing by utilizing the procedures described
below, these procedures may not be successful in identifying or stopping
excessive or short-term trading in all circumstances. By realizing profits
through short-term trading, shareholders that engage in rapid purchases and
sales or exchanges of the Fund's shares dilute the value of shares held by
long-term shareholders. Volatility resulting from excessive purchases and sales
or exchanges of Fund shares, especially involving large dollar amounts, may
disrupt efficient portfolio management. In particular, the Fund may have
difficulty implementing its long-term investment strategies if it is forced to
maintain a higher level of its assets in cash to accommodate significant
short-term trading activity. Excessive purchases and sales or exchanges of the
Fund's shares may force the Fund to sell portfolio securities at inopportune
times to raise cash to accommodate short-term trading activity. In addition, the
Fund may incur increased expenses if one or more shareholders engage in
excessive or short-term trading. For example, the Fund may be forced to
liquidate investments as a result of short-term trading and incur increased
brokerage costs and realization of taxable capital gains without attaining any
investment advantage. Similarly, the Fund may bear increased administrative
costs due to asset level and investment volatility that accompanies patterns of
short-term trading activity. All of these factors may adversely affect Fund
performance.
A-25
Significant investments in foreign securities may be particularly
susceptible to short-term trading strategies. This is because foreign securities
are typically traded on markets that close well before the time the Fund
calculates its NAV at 4:00 p.m. Eastern time, which gives rise to the
possibility that developments may have occurred in the interim that would affect
the value of these securities. The time zone differences among international
stock markets can allow a shareholder engaging in a short-term trading strategy
to exploit differences in Fund share prices that are based on closing prices of
foreign securities established some time before the Fund calculates its own
share price (referred to as "time zone arbitrage"). The Fund has procedures,
referred to as fair value pricing, designed to adjust closing market prices of
foreign securities to reflect what is believed to be the fair value of those
securities at the time the Fund calculates its NAV. While there is no assurance,
the Fund expects that the use of fair value pricing, in addition to the
short-term trading policies discussed below, will significantly reduce a
shareholder's ability to engage in time zone arbitrage to the detriment of other
Fund shareholders.
Investments in other types of securities may also be susceptible to
short-term trading strategies. These investments include securities that are,
among other things, thinly traded, traded infrequently, or relatively illiquid,
which have the risk that the current market price for the securities may not
accurately reflect current market values. A shareholder may seek to engage in
short-term trading to take advantage of these pricing differences (referred to
as "price arbitrage"). Investments in small cap securities, technology and other
specific industry sector securities, and in certain fixed-income securities,
such as high yield bonds, asset-backed securities, or municipal bonds may be
adversely affected by price arbitrage trading strategies.
Policy Regarding Short-term Trading. Purchases and exchanges of shares of
the Fund should be made for investment purposes only. The Fund seeks to prevent
patterns of excessive purchases and sales or exchanges of Fund shares. The Fund
will seek to prevent such practices to the extent they are detected by the
procedures described below. The Fund reserves the right to modify this policy,
including any surveillance or account blocking procedures established from time
to time to effectuate this policy, at any time without notice.
o Transaction Surveillance Procedures. The Fund, through its agents, ABIRM
and AGIS, maintains surveillance procedures to detect excessive or
short-term trading in Fund shares. This surveillance process involves
several factors, which include scrutinizing transactions in Fund shares
that exceed certain monetary thresholds or numerical limits within a
specified period of time. Generally, more than two exchanges of Fund
shares during any 90-day period or purchases of shares followed by a sale
within 90 days will be identified by these surveillance procedures. For
purposes of these transaction surveillance procedures, the Fund may
consider trading activity in multiple accounts under common ownership,
control, or influence. Trading activity identified by either, or a
combination, of these factors, or as a result of any other information
available at the time, will be evaluated to determine whether such
activity might constitute excessive or short-term trading. These
surveillance procedures may be modified from time to time, as necessary or
appropriate to improve the detection of excessive or short-term trading or
to address specific circumstances, such as for certain retirement plans,
to conform to plan exchange limits or U.S. Department of Labor
regulations, or for certain automated or pre-established exchange, asset
allocation or dollar cost averaging programs, or omnibus account
arrangements.
A-26
o Account Blocking Procedures. If the Fund determines, in its sole
discretion, that a particular transaction or pattern of transactions
identified by the transaction surveillance procedures described above is
excessive or short-term trading in nature, the relevant Fund account(s)
will be immediately "blocked" and no future purchase or exchange activity
will be permitted. However, sales of Fund shares back to the Fund or
redemptions will continue to be permitted in accordance with the terms of
the Fund's current Prospectus. In the event an account is blocked, certain
account-related privileges, such as the ability to place purchase, sale
and exchange orders over the internet or by phone, may also be suspended.
A blocked account will generally remain blocked unless and until the
account holder or the associated financial intermediary provides evidence
or assurance acceptable to the Fund that the account holder did not or
will not in the future engage in excessive or short-term trading.
o Applications of Surveillance Procedures and Restrictions to Omnibus
Accounts. Omnibus account arrangements are common forms of holding shares
of the Fund, particularly among certain financial intermediaries,
including sponsors of retirement plans and variable insurance products.
The Fund seeks to apply its surveillance procedures to these omnibus
account arrangements. If a financial intermediary does not have the
capabilities, or declines, to provide individual account level detail to
the Fund, the Fund will monitor turnover of assets to purchases and
redemptions of the omnibus account. If excessive turnover, defined as
annualized purchases and redemptions exceeding 50% of assets is detected,
the Fund will notify the financial intermediary and request that the
financial intermediary review individual account transactions for
excessive or short-term trading activity and confirm to the Fund that
appropriate action has been taken to curtail the activity, which may
include applying blocks to accounts to prohibit future purchases and
exchanges of Fund shares. For certain retirement plan accounts, the Fund
may request that the retirement plan or other intermediary revoke the
relevant participant's privilege to effect transactions in Fund shares via
the internet or telephone, in which case the relevant participant must
submit future transaction orders via the U.S. Postal Service (i.e.,
regular mail). The Fund will continue to monitor the turnover attributable
to a financial intermediary's omnibus account arrangement and may consider
whether to terminate the relationship if the intermediary does not
demonstrate that appropriate action has been taken.
Risks to Shareholders Resulting From Imposition of Account Blocks in
Response to Excessive Short-term Trading Activity. A shareholder identified as
having engaged in excessive or short-term trading activity whose account is
"blocked" and who may not otherwise wish to redeem his or her shares effectively
may be "locked" into an investment in the Fund that the shareholder did not
intend to hold on a long-term basis or that may not be appropriate for the
shareholder's risk profile. To rectify this situation, a shareholder with a
"blocked" account may be forced to redeem Fund shares, which could be costly if,
for example, these shares have declined in value, the shareholder recently paid
a front-end sales charge or the shares are subject to a CDSC, or the sale
results in adverse tax consequences to the shareholder. To avoid this risk, a
shareholder should carefully monitor the purchases, sales, and exchanges of Fund
shares and avoid frequent trading in Fund shares.
Limitations on Ability to Detect and Curtail Excessive Trading Practices.
Shareholders seeking to engage in excessive short-term trading activities may
deploy a variety of strategies to avoid detection and, despite the efforts of
the Fund and its agents to detect excessive or short
A-27
duration trading in Fund shares, there is no guarantee that the Fund will be
able to identify these shareholders or curtail their trading practices. In
particular, the Fund may not be able to detect excessive or short-term trading
in Fund shares attributable to a particular investor who effects purchase and/or
exchange activity in Fund shares through omnibus accounts. Also, multiple tiers
of these entities may exist, each utilizing an omnibus account arrangement,
which may further compound the difficulty of detecting excessive or short
duration trading activity in Fund shares.
The Fund reserves the right to suspend the sale of its shares to the
public in response to conditions in the securities markets or for other reasons.
If the Fund suspends the sale of its shares, shareholders will not be able to
acquire its shares, including through an exchange.
If you are a Fund shareholder through an account established under a
fee-based program, your fee-based program may impose requirements with respect
to the purchase, sale or exchange of Advisor Class shares of the Fund that are
different from those described in the Prospectus. A transaction, service,
administrative or other similar fee may be charged by your financial
intermediary with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial intermediary. Such financial intermediaries
may also impose requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed by the Fund,
including requirements as to the minimum initial and subsequent investment
amounts.
The public offering price of shares of the Fund is their NAV, plus, in the
case of Class A shares, a sales charge. On each Fund business day on which a
purchase or redemption order is received by the Fund and trading in the types of
securities in which the Fund invests might materially affect the value of Fund
shares, the NAV is computed as of the next close of regular trading on the
Exchange (currently 4:00 p.m. Eastern time) by dividing the value of the Fund's
total assets, less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any day on which the Exchange is open for
trading.
The respective NAVs of the various classes of shares of the Fund are
expected to be substantially the same. However, the NAV of the Class B and Class
C shares will generally be slightly lower than the per share NAVs of the Class A
and Advisor Class shares as a result of the differential daily expense accruals
of the higher distribution and, in some cases, transfer agency fees applicable
with respect to those classes of shares.
The Fund will accept unconditional orders for its shares to be executed at
the public offering price equal to their NAV next determined (plus applicable
Class A sales charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange on each day
the Exchange is open for trading are priced at the NAV computed as of the close
of regular trading on the Exchange on that day (plus applicable Class A sales
charges). In the case of orders for purchase of shares placed through financial
intermediaries, the applicable public offering price will be the NAV as so
determined, but only if the financial intermediary receives the order prior to
the close of regular trading on the Exchange. The financial intermediary is
responsible for transmitting such orders by a prescribed time to the Fund or its
transfer agent. If the financial intermediary fails to do so, the investor will
not receive that day's NAV. If the financial intermediary receives the order
after the close of regular trading on the Exchange, the price received by the
investor will be based on the NAV
A-28
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Following the initial purchase of Fund shares, a shareholder may place
orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Subscription Application or an
"Autobuy" application obtained by calling the "For Literature" telephone number
shown on the cover of this SAI. Except with respect to certain omnibus accounts,
telephone purchase orders with payment by electronic funds transfer may not
exceed $500,000. Payment for shares purchased by telephone can be made only by
electronic funds transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House Association
("NACHA"). Telephone purchase requests must be received before 4:00 p.m. Eastern
time on a Fund business day to receive that day's public offering price.
Telephone purchase requests received after 4:00 p.m. Eastern time are
automatically placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of the close of
business on such following business day.
Full and fractional shares are credited to a shareholder's account in the
amount of his or her subscription. As a convenience, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of the Fund are not
issued except upon written request to the Fund by the shareholder or his or her
authorized financial intermediary. This facilitates later redemption and
relieves the shareholder of the responsibility for and inconvenience of lost or
stolen certificates. No certificates are issued for fractional shares, although
such shares remain in the shareholder's account on the books of the Fund.
Each class of shares of the Fund represents an interest in the same
portfolio of investments of the Fund, has the same rights and is identical in
all respects, except that (i) Class A shares bear the expense of the initial
sales charge (or CDSC, when applicable) and Class B and Class C shares bear the
expense of the CDSC, (ii) Class B shares and Class C shares each bear the
expense of a higher distribution services fee than that borne by Class A shares,
and Advisor Class shares do not bear such a fee, (iii) Class B and Class C
shares bear higher transfer agency costs than that borne by Class A and Advisor
Class shares, (iv) Class B and Advisor Class shares are subject to a conversion
feature and will convert to Class A shares under certain circumstances, and (v)
each of Class A, Class B and Class C shares has exclusive voting rights with
respect to provisions of the Rule 12b-1 Plan pursuant to which its distribution
services fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund submits to a vote
of the Class A shareholders, an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect to the Class A
shares, then such amendment will also be submitted to the Class B shareholders
and Advisor Class shareholders because the Class B and Advisor Class shares
convert to Class A shares under certain circumstances and the Class A
shareholders, the Class B shareholders and Advisor Class shareholders will vote
separately by class. Each class has different exchange privileges and certain
different shareholder service options available.
The Directors of the Fund have determined that currently no conflict of
interest exists between or among the classes of shares of the Fund. On an
ongoing basis, the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no such conflict
arises.
A-29
Alternative Purchase Arrangements
Classes A, B and C Shares. Class A, Class B and Class C shares have the
following alternative purchase arrangements: Class A shares are generally
offered with an initial sales charge, Class B shares are generally offered with
a CDSC and Class C shares are sold to investors choosing the asset-based sales
charge alternative. Special purchase arrangements are available for group
retirement plans. "Group retirement plans" are defined as 401(k) plans, 457
plans, employer-sponsored 403(b) plans, profit sharing and money purchase
pension plans, defined benefit plans, and non-qualified deferred compensation
plans where plan level or omnibus accounts are held on the books of the Fund.
See "Alternative Purchase Arrangements - Group Retirement Plans" below. These
alternative purchase arrangements permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of purchase, the
length of time the investor expects to hold the shares, and other circumstances.
Investors should consider whether, during the anticipated life of their
investment in the Fund, the accumulated distribution services fee and CDSC on
Class B shares prior to conversion, or the accumulated distribution services fee
and CDSC on Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased at the same
time, and to what extent such differential would be offset by the higher return
of Class A shares. Class A shares will normally be more beneficial than Class B
shares to the investor who qualifies for reduced initial sales charges on Class
A shares, as described below. In this regard, the Principal Underwriter will
reject any order (except orders from certain group retirement plans) for more
than $100,000 for Class B shares (see "Alternative Purchase Arrangements - Group
Retirement Plans"). Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at NAV. For this reason, the
Principal Underwriter will reject any order for more than $1,000,000 for Class C
shares.
Class A shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends per share than Class B shares
or Class C shares. However, because initial sales charges are deducted at the
time of purchase, investors purchasing Class A shares would not have all their
funds invested initially and, therefore, would initially own fewer shares.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class A shares because the accumulated continuing distribution
charges on Class B shares or Class C shares may exceed the initial sales charge
on Class A shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that, because of such
initial sales charges, not all their funds will be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution charges and being subject to a CDSC for a four-year and one-year
period, respectively. For example, based on current fees and expenses, an
investor subject to the 4.25% initial sales charge would have to hold his or her
investment approximately seven years for the Class C distribution services fee
to exceed the initial sales charge plus the accumulated distribution services
fee of Class A shares. In this example, an investor intending to maintain his or
her investment for a longer period might consider purchasing Class A shares.
This example does not take into account the time value of
A-30
money, which further reduces the impact of the Class C distribution services
fees on the investment, fluctuations in NAV or the effect of different
performance assumptions.
Those investors who prefer to have all of their funds invested initially
but may not wish to retain Fund shares for the four-year period during which
Class B shares are subject to a CDSC may find it more advantageous to purchase
Class C shares.
During the Fund's fiscal year ended July 31, 2004, the fiscal period ended
July 31, 2003 and fiscal years ended November 30, 2002 and 2001, the aggregate
amount of underwriting commission payable with respect to shares of the Fund was
$46,789, $43,702, $189,555 and $621,886. Of that amount, the Principal
Underwriter received the amount of $2,039, $1,826, $16,906 and $294,810,
representing that portion of the sales charges paid on shares of the Fund sold
during the year which was not reallowed to selected dealers (and was,
accordingly, retained by the Principal Underwriter). During the Fund's fiscal
year ended July 31, 2004, the fiscal period ended July 31, 2003 and fiscal years
ended November 30, 2002 and 2001, the Principal Underwriter received CDSCs of
$10,900, $967, $234,560 and $15,602 on Class A shares, $82,322, $143,266,
$227,725 and $350,258 on Class B shares, and $3,538, $1,528, $3,032 and $30,018
on Class C shares, respectively.
Class A Shares. The public offering price of Class A shares is the
NAV plus a sales charge, as set forth below.
Sales Charge
Discount or
Commission to
As % of As % of Dealers or Agents
Amount of Net Amount the Public Offering of up to % of
Purchase Invested Price Offering Price
- -------- ---------- ------------------- ------------------
Up to
$100,000................... 4.44% 4.25% 4.00%
$100,000 up to
$250,000................... 3.36 3.25 3.00
$250,000 up to
$500,000................... 2.30 2.25 2.00
$500,000 up to $1,000,000*.... 1.78 1.75 1.50
- ----------
* There is no initial sales charge on transactions of $1,000,000 or more.
All or a portion of the initial sales charge may be paid to your financial
representative. With respect to purchases of $1,000,000 or more, Class A shares
redeemed within one year of purchase may be subject to a CDSC of up to 1%. The
CDSC on Class A shares will be waived on certain redemptions, as described below
under "--Contingent Deferred Sales Charge."
No initial sales charge is imposed on Class A shares issued (i) pursuant
to the automatic reinvestment of income dividends or capital gains
distributions, (ii) in exchange for Class A shares of other "AllianceBernstein
Mutual Funds" (as that term is defined under "Combined
A-31
Purchase Privilege" below), except that an initial sales charge will be imposed
on Class A shares issued in exchange for Class A shares of AllianceBernstein
Exchange Reserves that were purchased for cash without the payment of an initial
sales charge and without being subject to a CDSC or (iii) upon the automatic
conversion of Class B shares or Advisor Class shares as described below under
"Class B Shares - Conversion Feature" and "--Conversion of Advisor Class Shares
to Class A Shares." The Fund receives the entire NAV of its Class A shares sold
to investors. The Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to selected dealers
and agents. The Principal Underwriter will reallow discounts to selected dealers
and agents in the amounts indicated in the table above. In this regard, the
Principal Underwriter may elect to reallow the entire sales charge to selected
dealers and agents for all sales with respect to which orders are placed with
the Principal Underwriter. A selected dealer who receives reallowance in excess
of 90% of such a sales charge may be deemed to be an "underwriter" under the
Securities Act.
In addition to the circumstances described above, certain types of
investors may be entitled to pay no initial sales charge in certain
circumstances described below.
Class A Shares - Sales at NAV. The Fund may sell its Class A shares at NAV
(i.e., without any initial sales charge) to certain categories of investors
including:
(i) investment management clients of the Adviser or its affiliates,
including clients and prospective clients of the Adviser's
AllianceBernstein Institutional Management division;
(ii) officers and present or former Directors of the Fund or other
investment companies managed by the Adviser, officers, directors and
present or retired full-time employees and former employees (for
subsequent investment in accounts established during the course of their
employment) of the Adviser, the Principal Underwriter, AGIS and their
affiliates; officers, directors and present and full-time employees of
selected dealers or agents; or the spouse, sibling, direct ancestor or
direct descendant (collectively, "relatives") of any such person; or any
trust, individual retirement account or retirement plan account for the
benefit of any such person;
(iii)the Adviser, Principal Underwriter, AGIS and their affiliates;
certain employee benefit plans for employees of the Adviser, the Principal
Underwriter, AGIS and their affiliates;
(iv) persons participating in a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial intermediary
and approved by the Principal Underwriter, under which such persons pay an
asset-based fee for service in the nature of investment advisory or
administrative services; and
(v) certain retirement plan accounts as described under "Alternative
Purchase Arrangements-Group Retirement Plans."
A-32
Class B Shares. Investors may purchase Class B shares at the public
offering price equal to the NAV per share of the Class B shares on the date of
purchase without the imposition of a sales charge at the time of purchase. The
Class B shares are sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Conversion Feature. Eight years after the end of the calendar month in
which the shareholder's purchase order was accepted, Class B shares will
automatically convert to Class A shares and will no longer be subject to a
higher distribution services fee. Such conversion will occur on the basis of the
relative NAVs of the two classes, without the imposition of any sales load, fee
or other charge. The purpose of the conversion feature is to reduce the
distribution services fee paid by holders of Class B shares that have been
outstanding long enough for the Principal Underwriter to have been compensated
for distribution expenses incurred in the sale of the shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, an equal pro rata portion of
the Class B shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under federal income tax law. The conversion of Class B shares to Class A
shares may be suspended if such an opinion is no longer available at the time
such conversion is to occur. In that event, no further conversions of Class B
shares would occur, and shares might continue to be subject to the higher
distribution services fee for an indefinite period which may extend beyond the
period ending eight years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Class C Shares. Investors may purchase Class C shares at the public
offering price equal to the NAV per share of the Class C shares on the date of
purchase without the imposition of a sales charge either at the time of purchase
or, as long as the shares are held for one year or more, upon redemption. Class
C shares are sold without an initial sales charge so that the Fund will receive
the full amount of the investor's purchase payment and, as long as the shares
are held for one year or more, without a CDSC so that the investor will receive
as proceeds upon redemption the entire NAV of his or her Class C shares. The
Class C distribution services fee enables the Fund to sell Class C shares
without either an initial sales charge or CDSC, as long as the shares are held
for one year or more. Class C shares do not convert to any other class of shares
of the Fund and incur higher distribution services fees than Class A shares, and
will thus have a higher expense ratio and pay correspondingly lower dividends
than Class A shares.
Contingent Deferred Sales Charge. Class B shares that are redeemed within
four years of purchase will be subject to a CDSC at the rates set forth below
charged as a percentage of the dollar amount subject thereto. Class A share
purchases of $1,000,000 or more and Class C shares that are redeemed within one
year of purchase will be subject to a CDSC of 1%. The charge will be assessed on
an amount equal to the lesser of the cost of the shares being redeemed or their
NAV at the time of redemption. Accordingly, no sales charge will be imposed on
A-33
increases in NAV above the initial purchase price. In addition, no charge will
be assessed on shares derived from reinvestment of dividends or capital gains
distributions.
To illustrate, assume that an investor purchased 100 Class B shares at $10
per share (at a cost of $1,000) and in the second year after purchase, the NAV
per share is $12 and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 Class B shares (proceeds of $600), 10 Class B
shares will not be subject to charge because of dividend reinvestment. With
respect to the remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in NAV of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
3.0% (the applicable rate in the second year after purchase as set forth below).
For Class B shares, the amount of the CDSC, if any, will vary depending on
the number of years from the time of payment for the purchase of Class B shares
until the time of redemption of such shares.
Contingent Deferred Sales Charge
for the Fund as a % of Dollar
Years Since Purchase Amount Subject to Charge
-------------------- ------------------------
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
In determining the CDSC applicable to a redemption of Class B and Class C
shares, it will be assumed that the redemption is, first, of any shares that are
not subject to a CDSC (for example, because the shares were acquired upon the
reinvestment of dividends or distributions) and, second, of shares held longest
during the time they are subject to the sales charge. When shares acquired in an
exchange are redeemed, the applicable CDSC and conversion schedules will be the
schedules that applied at the time of the purchase of shares of the
corresponding class of the AllianceBernstein Mutual Fund originally purchased by
the shareholder.
Proceeds from the CDSC are paid to the Principal Underwriter and are used
by the Principal Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in connection
with the sale of Fund shares, such as the payment of compensation to selected
dealers and agents for selling Fund shares. The combination of the CDSC and the
distribution services fee enables the Fund to sell shares without a sales charge
being deducted at the time of purchase.
The CDSC is waived on redemptions of shares (i) following the death or
disability, as defined in the United States Internal Revenue Code of 1986, as
amended (the "Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual retirement account
or other retirement plan to a shareholder that has attained the age of 70-1/2,
(iii) that had been purchased by present or former Directors of the Fund, by the
relative of any such person, by any trust, individual retirement account or
retirement plan
A-34
account for the benefit of any such person or relative or by the estate of any
such person or relative, (iv) pursuant to, and in accordance with, a systematic
withdrawal plan (see "Sales Charge Reduction Programs -- Systematic Withdrawal
Plan" below), (v) to the extent that the redemption is necessary to meet a plan
participant's or beneficiary's request for a distribution or loan from a group
retirement plan or to accommodate a plan participant's or beneficiary's
direction to reallocate his or her plan account among other investment
alternatives available under a group retirement plan, (vi) for Class C shares,
sold through programs offered by financial intermediaries and approved by ABIRM
where such programs offer only shares which are not subject to a CDSC, where the
financial intermediary establishes a single omnibus account for the Fund, and
where no advance commission is paid to any financial intermediary in connection
with the purchase of such shares or (vii) for permitted exchanges of shares.
Advisor Class Shares. Advisor Class shares of the Fund may be purchased
and held solely (i) through accounts established under fee-based programs,
sponsored and maintained by registered broker-dealers or other financial
intermediaries and approved by the Principal Underwriter, (ii) through
self-directed defined contribution employee benefit plans (e.g., 401(k) plans)
that have at least $10 million in assets and are purchased directly by the plan
without the involvement of a financial intermediary, (iii) by the categories of
investors described in clauses (i) through (iv) under "Class A Shares - Sales at
NAV" (other than officers, directors and present and full-time employees of
selected dealers or agents, or relatives of such person, or any trust,
individual retirement account or retirement plan account for the benefit of such
relative, none of whom is eligible on the basis solely of such status to
purchase and hold Advisor Class shares), or (iv) by directors and present or
retired full-time employees of CB Richard Ellis, Inc. Generally, a fee-based
program must charge an asset-based or other similar fee and must invest at least
$250,000 in Advisor Class shares of the Fund in order to be approved by the
Principal Underwriter for investment in Advisor Class shares. A transaction fee
may be charged by your financial intermediary with respect to the purchase, sale
or exchange of Advisor Class shares made through such financial intermediary.
Advisor Class shares do not incur any distribution services fees, and will thus
have a lower expense ratio and pay correspondingly higher dividends than Class
A, Class B or Class C shares.
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Conversion of Advisor Class Shares to Class A Shares. Advisor Class shares
may be held solely through the fee-based program accounts and employee benefit
plans and registered investment advisory or other financial intermediary
relationships described above under "Purchase of Shares--Advisor Class Shares,"
and by investment advisory clients of, and by certain other persons associated
with, the Adviser and its affiliates or the Fund. If (i) a holder of Advisor
Class shares ceases to participate in the fee-based program or plan that
satisfies the requirements to purchase shares set forth under "Purchase of
Shares--General" or (ii) the holder is otherwise no longer eligible to purchase
Advisor Class shares as described in the Prospectus and this SAI (each, a
"Conversion Event"), then all Advisor Class shares held by the shareholder will
convert automatically to Class A shares of the Fund during the calendar month
following the month in which the Fund is informed of the occurrence of the
Conversion Event. The Fund will provide the shareholder with at least 30 days'
notice of the conversion. The failure of a shareholder or a fee-based program to
satisfy the minimum investment requirements to purchase Advisor Class shares
will not constitute a Conversion Event. The conversion would occur on the basis
of the relative NAVs of the two classes and without the imposition of any sales
load, fee or other charge. Class A shares currently bear a .30% distribution
services fee. Advisor Class shares do not have any distribution services fee. As
a result, Class A shares have a higher expense ratio and may pay correspondingly
lower dividends and have a lower NAV than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that the
conversion of Advisor Class shares to Class A shares does not constitute a
taxable event under federal income tax law. The conversion of Advisor Class
shares to Class A shares may be suspended if such an opinion is no longer
available at the time such conversion is to occur. In that event, the Advisor
Class shareholder would be required to redeem the shareholder's Advisor Class
shares, which would constitute a taxable event under federal income tax law.
Alternative Purchase Arrangements - Group Retirement Plans
The Fund offers special distribution arrangements for group retirement
plans. However, plan sponsors, plan fiduciaries and other financial
intermediaries may establish requirements as to the purchase, sale or exchange
of shares of the Fund, including maximum and minimum initial investment
requirements, that are different from those described in this SAI. Group
retirement plans also may not offer all classes of shares of the Fund. In order
to enable participants investing through group retirement plans to purchase
shares of the Fund, the maximum and minimum investment amounts may be different
for shares purchased through group retirement plans from those described herein.
In addition, the Class A, Class B and Class C CDSC may be waived for investments
made through certain group retirement plans. Therefore, plan sponsors or
fiduciaries may not adhere to these share class eligibility standards as set
forth in the Prospectuses and this SAI. The Fund is not responsible for, and has
no control over, the decision of any plan sponsor or fiduciary to impose such
differing requirements.
Class A Shares. Class A shares are available at NAV to all
AllianceBernstein sponsored group retirement plans, regardless of size, and to
the AllianceBernstein Link, AllianceBernstein Individual 401(k) and
AllianceBernstein SIMPLE IRA plans with at least $250,000 in plan assets or 100
or more employees. ABIRM measures the asset levels and number of employees in
these plans once monthly. Therefore, if a plan that is not initially eligible
for Class A shares meets the
A-36
asset level or number of employees required for Class A eligibility, ABIRM may
not initially fill orders with Class A shares if an order is received prior to
its monthly measurement of assets and employees. If the plan terminates the Fund
as an investment option within one year, then all plan purchases of Class A
shares will be subject to a 1%, 1-year CDSC on redemption. Class A shares are
also available at NAV to group retirement plans with plan assets of $1 million
or more. The 1%, 1-year CDSC also generally applies. However, the 1%, 1-year
CDSC may be waived if the financial intermediary agrees to waive all commissions
or other compensation paid in connection with the sale of such shares (typically
up to a 1% advance payment for sales of Class A shares at NAV) other than the
service fee paid pursuant to the Fund's distribution service plan.
Class B Shares. Class B shares are generally not available for purchase by
group retirement plans. However, Class B shares may continue to be purchased by
group retirement plans that have already selected Class B shares as an
investment alternative under their plan prior to September 2, 2003.
Class C Shares. Class C shares are available to AllianceBernstein Link,
AllianceBernstein Individual 401(k) and AllianceBernstein SIMPLE IRA plans with
less than $250,000 in plan assets and less than 100 employees. If an
AllianceBernstein Link, AllianceBernstein Individual 401(k) or AllianceBernstein
SIMPLE IRA plan holding Class C shares become eligible to purchase Class A
shares at NAV, the plan sponsor or other appropriate fiduciary of such plan may
request ABIRM in writing to liquidate the Class C shares and purchase Class A
shares with the liquidation proceeds. Any such liquidation and repurchase may
not occur before the expiration of the 1-year period that begins on the date of
the plan's last purchase of Class C shares. Class C shares are also available to
group retirement plans with plan assets of less than $1 million.
Choosing a Class of Shares for Group Retirement Plans. As noted, plan
sponsors, plan fiduciaries and other financial intermediaries may establish
requirements as to the purchase, sale or exchange of shares of the Fund,
including maximum and minimum initial investment requirements, that are
different from those described in this SAI. Plan fiduciaries should consider how
these requirements differ from the Fund's share class eligibility criteria
before determining whether to invest. For example, the Fund makes its Class A
shares available at NAV to group retirement plans with plan assets of $1 million
or more. In addition, under certain circumstances described above, the 1%,
1-year CDSC may be waived. In addition, as described above, while Class B shares
are generally not available to group retirement plans, Class B shares are
available for continuing contributions from plans that have already selected
Class B shares as an investment option under their plans prior to September 2,
2003. Plan fiduciaries should weigh the fact that Class B shares will convert to
Class A shares after a period of time against the fact that Class A shares have
lower expenses, and therefore higher returns, than Class B shares, before
determining which class to make available to its plan participants.
Sales Charge Reduction Programs
The AllianceBernstein Mutual Funds offer shareholders various programs
through which shareholders may obtain reduced sales charges or reductions in
CDSC through participation in such programs. In order for shareholders to take
advantage of the reductions available through the combined purchase privilege,
rights of accumulation and letters of intent, the Fund must be
A-37
notified by the shareholder or his or her financial intermediary that they
qualify for such a reduction. If the Fund is not notified that that a
shareholder is eligible for these reductions, the Fund will be unable to ensure
that the reduction is applied to the shareholder's account.
Combined Purchase Privilege. Shareholders may qualify for the sales charge
reductions by combining purchases of shares of the Fund into a single
"purchase". By combining such purchases, shareholders may be able to take
advantage of the quantity discounts described under "Alternative Purchase
Arrangements - Class A Shares". A "purchase" means a single purchase or
concurrent purchases of shares of the Fund or any other AllianceBernstein Mutual
Fund, including AllianceBernstein Institutional Funds, by (i) an individual, his
or her spouse, or the individual's children under the age of 21 years purchasing
shares for his, her or their own account(s), including certain CollegeBoundfund
accounts; (ii) a trustee or other fiduciary purchasing shares for a single
trust, estate or single fiduciary account with one or more beneficiaries
involved; or (iii) the employee benefit plans of a single employer. The term
"purchase" also includes purchases by any "company," as the term is defined in
the 1940 Act, but does not include purchases by any such company that has not
been in existence for at least six months or that has no purpose other than the
purchase of shares of the Fund or shares of other registered investment
companies at a discount. The term "purchase" does not include purchases by any
group of individuals whose sole organizational nexus is that the participants
therein are credit card holders of a company, policy holders of an insurance
company, customers of either a bank or broker-dealer or clients of an investment
adviser.
Currently, the AllianceBernstein Mutual Funds include:
AllianceBernstein All-Asia Investment Fund, Inc.
AllianceBernstein Americas Government Income Trust, Inc.
AllianceBernstein Balanced Shares, Inc.
AllianceBernstein Blended Style Series, Inc.
-U.S. Large Cap Portfolio
AllianceBernstein Bond Fund, Inc.
-AllianceBernstein Corporate Bond Portfolio
-AllianceBernstein Quality Bond Portfolio
-AllianceBernstein U.S. Government Portfolio
AllianceBernstein Cap Fund, Inc.
-AllianceBernstein Small Cap Growth Portfolio
AllianceBernstein Emerging Market Debt Fund, Inc.
AllianceBernstein Exchange Reserves
AllianceBernstein Focused Growth & Income Fund, Inc.
AllianceBernstein Global Health Care Fund, Inc.
AllianceBernstein Global Research Growth Fund, Inc.
AllianceBernstein Global Strategic Income Trust, Inc.
AllianceBernstein Global Technology Fund, Inc.
AllianceBernstein Greater China '97 Fund, Inc.
AllianceBernstein Growth and Income Fund, Inc.
AllianceBernstein High Yield Fund, Inc.
AllianceBernstein International Premier Growth Fund, Inc.
AllianceBernstein Large Cap Growth Fund, Inc.
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AllianceBernstein Mid-Cap Growth Fund, Inc.
AllianceBernstein Multi-Market Strategy Trust, Inc.
AllianceBernstein Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
AllianceBernstein Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
AllianceBernstein New Europe Fund, Inc.
AllianceBernstein Real Estate Investment Fund, Inc.
AllianceBernstein Trust
-AllianceBernstein Global Value Fund
-AllianceBernstein International Value Fund
-AllianceBernstein Small/Mid Cap Value Fund
-AllianceBernstein Value Fund
AllianceBernstein Utility Income Fund, Inc.
AllianceBernstein Worldwide Privatization Fund, Inc.
The AllianceBernstein Portfolios
-AllianceBernstein Balanced Wealth Strategy
-AllianceBernstein Growth Fund
-AllianceBernstein Tax-Managed Balanced Wealth Strategy
-AllianceBernstein Tax-Managed Wealth Appreciation Strategy
-AllianceBernstein Tax-Managed Wealth Preservation Strategy
-AllianceBernstein Wealth Appreciation Strategy
-AllianceBernstein Wealth Preservation Strategy
Sanford C. Bernstein Fund, Inc.
-AllianceBernstein Intermediate California Municipal Portfolio
-AllianceBernstein Intermediate Diversified Municipal Portfolio
-AllianceBernstein Intermediate New York Municipal Portfolio
-AllianceBernstein International Portfolio
-AllianceBernstein Short Duration Portfolio
-AllianceBernstein Tax-Managed International Portfolio
Prospectuses for the AllianceBernstein Mutual Funds may be obtained
without charge by contacting AGIS at the address or the "For Literature"
telephone number shown on the front cover of this SAI.
A-39
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of the Fund may be combined with the value
of the shareholder's existing accounts, thereby enabling the shareholder to take
advantage of the quantity discounts described under "Alternative Purchase
Arrangements - Class A Shares". In such cases, the applicable sales charge on
the newly purchased shares will be based on the total of:
(i) the investor's current purchase;
(ii) the NAV (at the close of business on the previous day) of (a)
all shares of the Fund held by the investor and (b) all shares
held by the investor of any other AllianceBernstein Mutual
Fund, including AllianceBernstein Institutional Funds and
certain CollegeBoundfund accounts for which the investor, his
or her spouse, or child under the age of 21 is the
participant; and
(iii) the NAV of all shares described in paragraph (ii) owned by
another shareholder eligible to combine his or her purchase
with that of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an AllianceBernstein Mutual
Fund worth $200,000 at their then current NAV and, subsequently, purchased Class
A shares of the Fund worth an additional $100,000, the sales charge for the
$100,000 purchase would be the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
Letter of Intent. Class A investors may also obtain the quantity discounts
described under "Alternative Purchase Arrangements - Class A Shares" by means of
a written Letter of Intent, which expresses the investor's intention to invest
at least $100,000 in Class A shares of the Fund or any AllianceBernstein Mutual
Fund within 13 months. Each purchase of shares under a Letter of Intent will be
made at the public offering price or prices applicable at the time of such
purchase to a single transaction of the dollar amount indicated in the Letter of
Intent. At the investor's option, a Letter of Intent may include purchases of
shares of the Fund or any other AllianceBernstein Mutual Fund made not more than
90 days prior to the date that the investor signs a Letter of Intent, in which
case the 13-month period during which the Letter of Intent is in effect will
begin on the date of that earliest purchase. However, sales charges will not be
reduced for purchases made prior to the date the Letter of Intent is signed.
Investors qualifying for the Combined Purchase Privilege described above
may purchase shares of the AllianceBernstein Mutual Funds under a single Letter
of Intent. For example, if at the time an investor signs a Letter of Intent to
invest at least $100,000 in Class A shares of the Fund, the investor and the
investor's spouse each purchase shares of the Fund worth $20,000 (for a total of
$40,000), it will only be necessary to invest a total of $60,000 during the
following 13 months in shares of the Fund or any other AllianceBernstein Mutual
Fund, to qualify for the 3.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000).
The Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Shares purchased with the first 5% of
such amount will be held in escrow (while
A-40
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will be
involuntarily redeemed at their then NAV to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or reinvested in
additional Fund shares, are not subject to escrow. When the full amount
indicated has been purchased, the escrow will be released.
Investors wishing to enter into a Letter of Intent in conjunction with
their initial investment in Class A shares of the Fund can obtain a form of
Letter of Intent by contacting AGIS at the address or telephone numbers shown on
the cover of this SAI.
Reinstatement Privilege. A shareholder who has redeemed any or all of his
or her Class A or Class B shares may reinvest all or any portion of the proceeds
from that redemption in Class A shares of the Fund at NAV without any sales
charge, provided that (i) such reinvestment is made within 120 calendar days
after the redemption or repurchase date, and (ii) for Class B shares, a CDSC has
been paid and the Principal Underwriter has approved, at its discretion, the
reinstatement of such shares. Shares are sold to a reinvesting shareholder at
the NAV next determined as described above. A reinstatement pursuant to this
privilege will not cancel the redemption or repurchase transaction; therefore,
any gain or loss so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the proceeds are
reinvested in shares of the Fund within 30 calendar days after the redemption or
repurchase transaction. Investors may exercise the reinstatement privilege by
written request sent to the Fund at the address shown on the cover of this SAI.
Dividend Reinvestment Program. Shareholders may elect to have all income
and capital gains distributions from their account paid to them in the form of
additional shares of the same class of the Fund pursuant to the Fund's Dividend
Reinvestment Program. No initial sales charge or CDSC will be imposed on shares
issued pursuant to the Dividend Reinvestment Program. Shares issued under this
program will have an aggregate NAV as of the close of business on the
declaration date of the dividend or distribution equal to the cash amount of the
distribution. Investors wishing to participate in the Dividend Reinvestment
Program should complete the appropriate section of the Subscription Application.
Current shareholders should contact AGIS to participate in the Dividend
Reinvestment Program.
In certain circumstances where a shareholder has elected to receive
dividends and/or capital gain distributions in cash but the account has been
determined to be lost due to mail being returned to us by the Postal Service as
undeliverable, such shareholder's distributions option will automatically be
placed within the Dividend Reinvestment Program for future distributions. No
interest will accrue on amounts represented by uncashed distribution checks.
Dividend Direction Plan. A shareholder who already maintains accounts in
more than one AllianceBernstein Mutual Fund may direct that income dividends
and/or capital gains paid by one AllianceBernstein Mutual Fund be automatically
reinvested, in any amount, without the payment of any sales or service charges,
in shares of the same class of the other AllianceBernstein Mutual Fund(s).
Further information can be obtained by contacting AGIS at the address or the
"For Literature" telephone number shown on the cover of this SAI. Investors
wishing to establish a dividend direction plan in connection with their initial
investment should
A-41
complete the appropriate section of the Subscription Application. Current
shareholders should contact AGIS to establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares of the Fund having a
current NAV of at least $5,000 may establish a systematic withdrawal plan under
which the shareholder will periodically receive a payment in a stated amount of
not less than $50 on a selected date. The $5,000 account minimum does not apply
to a shareholder owning shares through an individual retirement account or other
retirement plan who has attained the age of 70-1/2 who wishes to establish a
systematic withdrawal plan to help satisfy a required minimum distribution.
Systematic withdrawal plan participants must elect to have their dividends and
distributions from the Fund automatically reinvested in additional shares of the
Fund.
Shares of the Fund owned by a participant in the Fund's systematic
withdrawal plan will be redeemed as necessary to meet withdrawal payments and
such payments will be subject to any taxes applicable to redemptions and, except
as discussed below with respect to Class B and Class C shares, any applicable
CDSC. Shares acquired with reinvested dividends and distributions will be
liquidated first to provide such withdrawal payments and thereafter other shares
will be liquidated to the extent necessary, and depending upon the amount
withdrawn, the investor's principal may be depleted. A systematic withdrawal
plan may be terminated at any time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a shareholder's
account reaches a certain minimum level. Therefore, redemptions of shares under
the plan may reduce or even liquidate a shareholder's account and may subject
the shareholder to the Fund's involuntary redemption provisions. See "Redemption
and Repurchase of Shares -- General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales charges
applicable when purchases are made. While an occasional lump-sum investment may
be made by a holder of Class A shares who is maintaining a systematic withdrawal
plan, such investment should normally be an amount equivalent to three times the
annual withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made by check or
electronically via the Automated Clearing House ("ACH") network. Investors
wishing to establish a systematic withdrawal plan in conjunction with their
initial investment in shares of the Fund should complete the appropriate portion
of the Subscription Application, while current Fund shareholders desiring to do
so can obtain an application form by contacting AGIS at the address or the "For
Literature" telephone number shown on the cover of this SAI.
CDSC Waiver for Class B Shares and Class C Shares. Under the systematic
withdrawal plan, up to 1% monthly, 2% bi-monthly or 3% quarterly of the value at
the time of redemption of the Class B or Class C shares in a shareholder's
account may be redeemed free of any CDSC.
Class B shares that are not subject to a CDSC (such as shares acquired
with reinvested dividends or distributions) will be redeemed first and will
count toward the foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares in excess of
the foregoing limitations will be subject to any otherwise applicable CDSC.
A-42
With respect to Class C shares, shares held the longest will be redeemed
first and will count toward the foregoing limitations. Redemptions in excess of
those limitations will be subject to any otherwise applicable CDSC.
Payments to Financial Advisors and Their Firms
Financial intermediaries market and sell shares of the Fund. These
financial intermediaries employ financial advisors and receive compensation for
selling shares of the Fund. This compensation is paid from various sources,
including any sales charge, CDSC and/or Rule 12b-1 fee that you or the Fund may
pay. Your individual financial advisor may receive some or all of the amounts
paid to the financial intermediary that employs him or her.
In the case of Class A shares, all or a portion of the initial sales
charge that you pay may be paid by ABIRM to financial intermediaries selling
Class A shares. ABIRM may also pay these financial intermediaries a fee of up to
1% on purchases of $1 million or more. Additionally, up to 100% of the Rule
12b-1 fees applicable to Class A shares each year may be paid to financial
intermediaries, including your financial intermediary, that sell Class A shares.
In the case of Class B shares, ABIRM will pay, at the time of your
purchase, a commission to financial intermediaries selling Class B shares in an
amount equal to 4% of your investment. Additionally, up to 30% of the Rule 12b-1
fees applicable to Class B shares each year may be paid to financial
intermediaries, including your financial intermediary, that sell Class B shares.
In the case of Class C shares, ABIRM will pay, at the time of your
purchase, a commission to firms selling Class C shares in an amount equal to 1%
of your investment. Additionally, up to 100% of the Rule 12b-1 fee applicable to
Class C shares each year may be paid to financial intermediaries, including your
financial intermediary, that sell Class C shares.
In the case of Advisor Class shares, your financial advisor may charge
ongoing fees or transactional fees. ABIRM may pay a portion of "ticket" or other
transactional charges.
Your financial advisor's firm receives compensation from the Fund, ABIRM
and/or Alliance in several ways from various sources, which include some or all
of the following:
o upfront sales commissions
o 12b-1 fees
o additional distribution support
o defrayal of costs for educational seminars and training
o payments related to providing shareholder record-keeping
and/or transfer agency services
Please read the Prospectus carefully for information on this compensation.
A-43
Other Payments for Distribution Services and Educational Support
In addition to the commissions paid to financial intermediaries at the
time of sale and the fees described under "Asset-Based Sales Charges or
Distribution and/or Service (Rule 12b-1) Fees," in the Prospectus, some or all
of which may be paid to financial intermediaries (and, in turn, to your
financial advisor), ABIRM, at its expense, currently provides additional
payments to firms that sell shares of the AllianceBernstein Mutual Funds.
Although the individual components may be higher and the total amount of
payments made to each qualifying firm in any given year may vary, the total
amount paid to a financial intermediary in connection with the sale of shares of
the AllianceBernstein Mutual Funds will generally not exceed the sum of (a)
0.25% of the current year's fund sales by that firm and (b) 0.10% of average
daily net assets attributable to that firm over the year. These sums include
payments to reimburse directly or indirectly the costs incurred by these firms
and their employees in connection with educational seminars and training efforts
about the AllianceBernstein Mutual Funds for the firms' employees and/or their
clients and potential clients. The costs and expenses associated with these
efforts may include travel, lodging, entertainment and meals.
For 2004, ABIRM's additional payments to these firms for distribution
services and educational support related to the AllianceBernstein Mutual Funds
is expected to be approximately 0.05% of the average monthly assets of the
AllianceBernstein Mutual Funds, or approximately $20 million. In 2003, ABIRM
paid approximately 0.05% of the average monthly assets of the AllianceBernstein
Mutual Funds or approximately $19 million for distribution services and
educational support related to the AllianceBernstein Mutual Funds.
A number of factors are considered in determining the additional payments,
including each firm's AllianceBernstein Mutual Fund sales, assets and redemption
rates, and the willingness and ability of the firm to give ABIRM access to its
financial advisors for educational and marketing purposes. In some cases, firms
will include the AllianceBernstein Mutual Funds on a "preferred list." ABIRM's
goal is to make the financial advisors who interact with current and prospective
investors and shareholders more knowledgeable about the AllianceBernstein Mutual
Funds so that they can provide suitable information and advice about the funds
and related investor services.
The Fund and ABIRM also make payments for recordkeeping and other transfer
agency services to financial intermediaries that sell AllianceBernstein Mutual
Fund shares. Please see "Expenses of the Fund - Transfer Agency Agreement"
above. These expenses paid by the Fund are included in "Other Expenses" under
"Fees and Expenses of the Funds - Annual Fund Operating Expenses" in the
Prospectus.
If one mutual fund sponsor makes greater distribution assistance payments
than another, your financial advisor and his or her firm may have an incentive
to recommend one fund complex over another. Similarly, if your financial advisor
or his or her firm receives more distribution assistance for one share class
versus another, then they may have an incentive to recommend that class.
Please speak with your financial advisor to learn more about the total
amounts paid to your financial advisor and his or her firm by the Fund,
Alliance, ABIRM and by sponsors of
A-44
other mutual funds he or she may recommend to you. You should also consult
disclosures made by your financial advisor at the time of purchase.
ABIRM anticipates that the firms that will receive additional payments for
distribution services and/or educational support include:
A.G. Edwards
AIG Advisor Group
American Express Financial Advisors
AXA Advisors
Banc of America
Bank One Securities Corp.
Charles Schwab
Chase Investment Services
Citigroup Global Markets
Commonwealth Financial
IFMG Securities
ING Advisors Network
Legg Mason
Lincoln Financial Advisors
Linsco Private Ledger
Merrill Lynch
Morgan Stanley
Mutual Service Corporation
National Financial
NPH Holdings
PFS Investments
Piper Jaffray
Raymond James
RBC Dain Rauscher
Securities America
SunTrust Bank
UBS Financial
Uvest Financial Services
Wachovia Securities
Wells Fargo
Although the Fund may use brokers and dealers who sell shares of the Fund
to effect portfolio transactions, the Fund does not consider the sale of
AllianceBernstein Mutual Fund shares as a factor when selecting brokers or
dealers to effect portfolio transactions.
A-45
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REDEMPTION AND REPURCHASE OF SHARES
----------------------------------------------------------------
The following information supplements that set forth in the Fund's
Prospectus under the heading "Investing in the Funds." If you are an Advisor
Class shareholder through an account established under a fee-based program your
fee-based program may impose requirements with respect to the purchase, sale or
exchange of Advisor Class shares of the Fund that are different from those
described herein. A transaction fee may be charged by your financial
intermediary with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial intermediary. The Fund has authorized one or
more brokers to receive on its behalf purchase and redemption orders. Such
brokers are authorized to designate other intermediaries to receive purchase and
redemption orders on the Fund's behalf. In such cases, orders will receive the
NAV next computed after such order is properly received by the authorized broker
or designee and accepted by the Fund.
Redemption
Subject only to the limitations described below, the Fund's Charter
requires that the Fund redeem the shares tendered to it, as described below, at
a redemption price equal to their NAV as next computed following the receipt of
shares tendered for redemption in proper form. Except for any CDSC which may be
applicable to Class A shares, Class B shares or Class C shares, there is no
redemption charge. Payment of the redemption price normally will be made within
seven days after the Fund's receipt of such tender for redemption. If a
shareholder is in doubt about what documents are required by his or her
fee-based program or employee benefit plan, the shareholder should contact his
or her financial intermediary.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after shares are tendered for
redemption, except for any period during which the Exchange is closed (other
than customary weekend and holiday closings) or during which the Commission
determines that trading thereon is restricted, or for any period during which an
emergency (as determined by the Commission) exists as a result of which disposal
by the Fund of securities owned by it is not reasonably practicable or as a
result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or for such other periods as the
Commission may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price normally will be made in cash. No interest
will accrue on uncashed redemption checks. The value of a shareholder's shares
on redemption or repurchase may be more or less than the cost of such shares to
the shareholder, depending upon the market value of the Fund's portfolio
securities at the time of such redemption or repurchase. Redemption proceeds on
Class A, Class B and Class C shares will reflect the deduction of the CDSC, if
any. Payment received by a shareholder upon redemption or repurchase of the
shareholder's shares, assuming the shares constitute capital assets in the
shareholder's hands, will result in long-term or short-term capital gains (or
loss) depending upon the shareholder's holding period and basis in respect of
the shares redeemed.
A-46
To redeem shares of the Fund for which no stock certificates have been
issued, the registered owner or owners should forward a letter to the Fund
containing a request for redemption. The Fund may require the signature or
signatures on the letter to be Medallion Signature Guaranteed. Please contact
AGIS to confirm whether a Medallion Signature Guarantee is needed.
To redeem shares of the Fund represented by stock certificates, the
investor should forward the appropriate stock certificate or certificates,
endorsed in blank or with blank stock powers attached, to the Fund with the
request that the shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each stock
certificate surrendered to the Fund for redemption must be signed by the
registered owner or owners exactly as the registered name appears on the face of
the certificate or, alternatively, a stock power signed in the same manner may
be attached to the stock certificate or certificates or, where tender is made by
mail, separately mailed to the Fund. The signature or signatures on the
assignment form must be guaranteed in the manner described above.
Telephone Redemption By Electronic Funds Transfer. Each Fund shareholder
is entitled to request redemption by electronic funds transfer (of shares for
which no stock certificates have been issued) by telephone at 800-221-5672 if
the shareholder has completed the appropriate portion of the Subscription
Application or, if an existing shareholder has not completed this portion, by an
"Autosell" application obtained from AGIS (except for certain omnibus accounts).
Telephone redemption requests by electronic funds transfer may not exceed
$100,000 per day, and must be made by 4:00 p.m. Eastern time on a Fund business
day as defined above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank account at a bank
selected by the shareholder that is a member of the NACHA.
Telephone Redemption By Check. Each Fund shareholder is eligible to
request redemption by check of Fund shares for which no stock certificates have
been issued by telephone at 800-221-5672 before 4:00 p.m. Eastern time on a Fund
business day in an amount not exceeding $50,000. Proceeds of such redemptions
are remitted by check to the shareholder's address of record. A shareholder
otherwise eligible for telephone redemption by check may cancel the privilege by
written instruction to AGIS or by checking the appropriate box on the
Subscription Application.
Telephone Redemptions - General. During periods of drastic economic,
market or other developments, such as the terrorist attacks on September 11,
2001, it is possible that shareholders would have difficulty in reaching AGIS by
telephone (although no such difficulty was apparent at any time in connection
with the attacks). If a shareholder were to experience such difficulty, the
shareholder should issue written instructions to AGIS at the address shown on
the cover of this SAI. The Fund reserves the right to suspend or terminate its
telephone redemption service at any time without notice. Telephone redemption by
check is not available with respect to shares (i) for which certificates have
been issued, (ii) held in nominee or "street name" accounts, (iii) held by a
shareholder who has changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account. Neither the Fund, the
Adviser, the Principal Underwriter nor AGIS will be responsible for the
authenticity of telephone requests for redemptions that the Fund reasonably
believes to be genuine. The Fund will employ reasonable procedures in order to
verify that telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written confirmations
of the
A-47
resulting transactions to be sent to shareholders. If the Fund did not employ
such procedures, it could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Financial intermediaries may charge a
commission for handling telephone requests for redemptions.
Repurchase
The Fund may repurchase shares through the Principal Underwriter or
financial intermediaries. The repurchase price will be the NAV next determined
after the Principal Underwriter receives the request (less the CDSC, if any,
with respect to the Class A, Class B and Class C shares), except that requests
placed through selected financial intermediaries before the close of regular
trading on the Exchange on any day will be executed at the NAV determined as of
such close of regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally 5:00 p.m.
Eastern time). The financial intermediary is responsible for transmitting the
request to the Principal Underwriter by 5:00 p.m. Eastern time (certain
financial intermediaries may enter into operating agreements permitting them to
transmit purchase information that was received prior to the close of business
to the Principal Underwriter after 5:00 p.m. Eastern time and receive that
day'sNAV). If the financial intermediary fails to do so, the shareholder's right
to receive that day's closing price must be settled between the shareholder and
that financial intermediary. A shareholder may offer shares of the Fund to the
Principal Underwriter either directly or through a financial intermediary.
Neither the Fund nor the Principal Underwriter charges a fee or commission in
connection with the repurchase of shares (except for the CDSC, if any, with
respect to Class A, Class B and Class C shares). Normally, if shares of the Fund
are offered through a financial intermediary, the repurchase is settled by the
shareholder as an ordinary transaction with or through that financial
intermediary, who may charge the shareholder for this service. The repurchase of
shares of the Fund as described above with respect to financial intermediaries
is a voluntary service of the Fund and the Fund may suspend or terminate this
practice at any time.
General
The Fund reserves the right to close out an account that through
redemption has remained below $200 for 90 days. Shareholders will receive 60
days' written notice to increase the account value before the account is closed.
No CDSC will be deducted from the proceeds of this redemption. In the case of a
redemption or repurchase of shares of the Fund recently purchased by check,
redemption proceeds will not be made available until the Fund is reasonably
assured that the check has cleared, normally up to 15 calendar days following
the purchase date.
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SHAREHOLDER SERVICES
----------------------------------------------------------------
The following information supplements that set forth in the Fund's
Prospectus under the heading "Investing in the Funds." The shareholder services
set forth below are applicable to all classes of shares unless otherwise
indicated. If you are an Advisor Class shareholder through an account
established under a fee-based program or a shareholder in a group retirement
plan, your
A-48
fee-based program or retirement plan may impose requirements with respect to the
purchase, sale or exchange of shares of the Fund that are different from those
described herein.
Automatic Investment Program
Investors may purchase shares of the Fund through an automatic investment
program utilizing electronic funds transfer drawn on the investor's own bank
account. Under such a program, pre-authorized monthly drafts for a fixed amount
(at least $25) are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering price next
determined after the Principal Underwriter receives the proceeds from the
investor's bank. In electronic form, drafts can be made on or about a date each
month selected by the shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment should complete
the appropriate portion of the Subscription Application. Current shareholders
should contact AGIS at the address or telephone numbers shown on the cover of
this SAI to establish an automatic investment program.
Exchange Privilege
You may exchange your investment in the Fund for shares of the same class
of other AllianceBernstein Mutual Funds (including AllianceBernstein Exchange
Reserves, a money market fund managed by the Adviser) if the other
AllianceBernstein Mutual Fund in which you invest offers shares of the same
class. In addition, (i) present officers and full-time employees of the Adviser,
(ii) present Directors or Trustees of any AllianceBernstein Mutual Fund and
(iii) certain employee benefit plans for employees of the Adviser, the Principal
Underwriter, AGIS and their affiliates may on a tax-free basis, exchange Class A
shares of the Fund for Advisor Class shares of the Fund. Exchanges of shares are
made at the NAV next determined and without sales or service charges. Exchanges
may be made by telephone or written request. In order to receive a day's NAV,
AGIS must receive and confirm a telephone exchange request by 4:00 p.m. Eastern
time that day.
Shares will continue to age without regard to exchanges for purpose of
determining the CDSC, if any, upon redemption and, in the case of Class B
shares, for the purpose of conversion to Class A shares. After an exchange, your
Class B shares will automatically convert to Class A shares in accordance with
the conversion schedule applicable to the Class B shares of the
AllianceBernstein Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the original shares is
applied.
Please read carefully the prospectus of the AllianceBernstein Mutual Fund
into which you are exchanging before submitting the request. Call AGIS at
800-221-5672 to exchange uncertificated shares. Except with respect to exchanges
of Class A shares of the Fund for Advisor Class shares of the Fund, exchanges of
shares as described above in this section are taxable transactions for federal
income tax purposes. The exchange service may be modified, restricted or
terminated on 60 days' written notice.
All exchanges are subject to the minimum investment requirements and any
other applicable terms set forth in the prospectus for the AllianceBernstein
Mutual Fund whose shares are being acquired. An exchange is effected through the
redemption of the shares tendered for exchange and the purchase of shares being
acquired at their respective NAVs as next determined
A-49
following receipt by the AllianceBernstein Mutual Fund whose shares are being
exchanged of (i) proper instructions and all necessary supporting documents as
described in such fund's Prospectus, or (ii) a telephone request for such
exchange in accordance with the procedures set forth in the following paragraph.
Exchanges involving the redemption of shares recently purchased by check will be
permitted only after the AllianceBernstein Mutual Fund whose shares have been
tendered for exchange is reasonably assured that the check has cleared, normally
up to 15 calendar days following the purchase date. Exchanges of shares of
AllianceBernstein Mutual Funds will generally result in the realization of a
capital gain or loss for federal income tax purposes.
Each Fund shareholder and the shareholder's financial intermediary are
authorized to make telephone requests for exchanges unless AGIS receives a
written instruction to the contrary from the shareholder, or the shareholder
declines the privilege by checking the appropriate box on the Subscription
Application. Such telephone requests cannot be accepted with respect to shares
then represented by stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account registration as the
shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange should telephone AGIS
with their account number and other details of the exchange, at 800-221-5672
before 4:00 p.m. Eastern time on a Fund business day as defined above. Telephone
requests for an exchange received before 4:00 p.m. Eastern time on a Fund
business day will be processed as of the close of business on that day. During
periods of drastic economic, market or other developments, such as the terrorist
attacks on September 11, 2001, it is possible that shareholders would have
difficulty in reaching AGIS by telephone (although no such difficulty was
apparent at any time in connection with the attacks). If a shareholder were to
experience such difficulty, the shareholder should issue written instructions to
AGIS at the address shown on the cover of this SAI.
A shareholder may elect to initiate a monthly "Auto Exchange" whereby a
specified dollar amount's worth of his or her Fund shares (minimum $25) is
automatically exchanged for shares of another AllianceBernstein Mutual Fund.
Auto Exchange transactions normally occur on the 12th day of each month, or the
following Fund business day prior thereto.
None of the AllianceBernstein Mutual Funds, the Adviser, the Principal
Underwriter or AGIS will be responsible for the authenticity of telephone
requests for exchanges that the Fund reasonably believes to be genuine. The Fund
will employ reasonable procedures in order to verify that telephone requests for
exchanges are genuine, including, among others, recording such telephone
instructions and causing written confirmations of the resulting transactions to
be sent to shareholders. If the Fund did not employ such procedures, it could be
liable for losses arising from unauthorized or fraudulent telephone
instructions. Financial intermediaries may charge a commission for handling
telephone requests for exchanges.
The exchange privilege is available only in states where shares of the
AllianceBernstein Mutual Fund being acquired may be legally sold. Each
AllianceBernstein Mutual Fund reserves the right, at any time on 60 days' notice
to its shareholders, to modify, restrict or terminate the exchange privilege.
A-50
Statements and Reports
Each shareholder of the Fund receives semi-annual and annual reports which
include a portfolio of investments, financial statements and, in the case of the
annual report, the report of the Fund's independent registered public accounting
firm, PricewaterhouseCoopers LLP, as well as a confirmation of each purchase and
redemption. By contacting his or her financial intermediary or AGIS, a
shareholder can arrange for a copy of his or her account statements to be sent
to another person.
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NET ASSET VALUE
----------------------------------------------------------------
The NAV is computed at the next close of regular trading on the Exchange
(ordinarily 4:00 p.m. Eastern time) following receipt of a purchase or
redemption order by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors deems appropriate or
necessary in order to comply with Rule 22c-1 under the 1940 Act. The Fund's NAV
is calculated by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding. A Fund business
day is any weekday on which the Exchange is open for trading.
In accordance with applicable rules under the 1940 Act and the Fund's
pricing policies and procedures adopted by the Board of Directors (the "Pricing
Policies"), portfolio securities are valued at current market value or at fair
value. The Board of Directors has delegated to the Adviser, subject to the
Board's continuing oversight, certain of its duties with respect to the Pricing
Policies.
With respect to securities for which market quotations are readily
available, the market value of a security will be determined as follows:
(a) securities listed on the Exchange or on a foreign securities exchange
are valued at the last sale price reflected on the consolidated tape at the
close of the Exchange or foreign securities exchange on the business day as of
which such value is being determined. 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. If no bid or asked prices are quoted on such day, then the security is
valued in good faith at fair value by, or in accordance with procedures
established by, the Board of Directors;
(b) securities not listed on the Exchange or on a foreign securities
exchange but listed on other national securities exchanges are valued in
accordance with paragraph (a) above, and securities traded on The Nasdaq Stock
Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official
Closing Price;
(c) securities traded on the Exchange or on a foreign securities exchange
and on one or more other national or foreign securities exchanges, and
securities not traded on the Exchange but traded on one or more other national
or foreign securities exchanges, are valued in
A-51
accordance with paragraph (a) above by reference to the principal exchange on
which the securities are traded;
(d) listed put or call options purchased by the Fund 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;
(e) open futures contracts and options thereon will be 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
valuations, the last available closing settlement price will be used;
(f) securities traded in the over-the-counter market, including securities
listed on a national securities exchange whose primary market is believed to be
over-the-counter (but excluding securities traded on NASDAQ) are valued at the
mean of the current bid and asked prices as reported by the National Quotation
Bureau or other comparable sources;
(g) 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
(unless in either case it is determined, in accordance with procedures
established by the Board of Directors, that this method does not represent fair
value);
(h) fixed-income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities. The prices provided by a pricing service take into
account many factors, including institutional size, trading in similar groups of
securities and any developments related to specific securities. For securities
where the Adviser has determined that an appropriate pricing service does not
exist, such securities may be valued on the basis of a quoted bid price or
spread from a major broker-dealer in such security;
(i) mortgage-backed and asset-backed securities may be valued at prices
obtained from a bond pricing service or at a price obtained from one or more of
the major broker-dealers in such securities when such prices are believed to
reflect the fair market value of such securities. 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 bid price on a security;
(j) OTC and other derivatives are valued on the basis of a quoted bid
price or spread from a major broker-dealer in such security; and
(k) all other securities will be valued in accordance with readily
available market quotations as determined in accordance with procedures
established by the Board of Directors.
The Fund values its securities at their current market value determined on
the basis of market quotations or, if market quotations are not readily
available or are unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors. When the Fund uses fair value pricing, it may take
A-52
into account any factors it deems appropriate. The Fund may determine fair value
based upon developments related to a specific security, current valuations of
foreign stock indices (as reflected in U.S. futures markets) and/or U.S. sector
or broader stock market indices. The prices of securities used by the Fund to
calculate its NAV may differ from quoted or published prices for the same
securities. Fair value pricing involves subjective judgments and it is possible
that the fair value determined for a security is materially different than the
value that could be realized upon the sale of that security.
The Fund expects to use fair value pricing for securities primarily traded
on U.S. exchanges only under very limited circumstances, such as the early
closing of the exchange on which a security is traded or suspension of trading
in the security. The Fund may use fair value pricing more frequently for
securities primarily traded in non-U.S. markets because, among other things,
most foreign markets close well before the Fund values its securities at 4:00
p.m., Eastern Time. The earlier close of these foreign markets gives rise to the
possibility that significant events, including broad market moves, may have
occurred in the interim. For example, the Fund believes that foreign security
values may be affected by events that occur after the close of foreign
securities markets. To account for this, the Fund may frequently value many of
its foreign equity securities using fair value prices based on third party
vendor modeling tools to the extent available.
Subject to the Board's oversight, the Fund's Board has delegated
responsibility for valuing the Fund's assets to Alliance. Alliance has
established a Valuation Committee, which operates under the policies and
procedures approved by the Board, to value the Fund's assets on behalf of the
Fund. The Valuation Committee values Fund assets as described above.
The Fund may suspend the determination of its NAV (and the offering and
sale of shares), subject to the rules of the Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is closed, other than
customary weekend and holiday closings, (2) an emergency exists as a result of
which it is not reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a suspension of the
right of redemption or a postponement of the date of payment on redemption.
For purposes of determining the Fund's NAV per share, all assets and
liabilities initially expressed in a foreign currency will be converted into
U.S. dollars at the mean of the current bid and asked prices of such currency
against the U.S. dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number of such major
banks. If such quotations are not available as of the close of the Exchange, the
rate of exchange will be determined in good faith by, or under the direction of,
the Board of Directors.
The assets attributable to the Class A shares, Class B shares, Class C
shares and Advisor Class shares will be invested together in a single portfolio.
The NAV of each class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to that class in
conformance with the provisions of a plan adopted by the Fund in accordance with
Rule 18f-3 under the 1940 Act.
A-53
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DIVIDENDS, DISTRIBUTIONS AND TAXES
----------------------------------------------------------------
Dividends paid by the Fund, if any, with respect to Class A, Class B,
Class C and Advisor Class shares will be calculated in the same manner at the
same time on the same day and will be in the same amount, except that the higher
distribution services fee applicable to Class B and C shares, and any
incremental transfer agency costs relating to Class B and Class C shares, will
be borne exclusively by the class to which they relate.
United States Federal Income Taxation of Dividends and Distributions
General
The Fund intends for each taxable year to qualify to be taxed as a
"regulated investment company" under the Code. To so qualify, the Fund must,
among other things, (i) derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of stock, securities or foreign currency, or
certain other income (including, but not limited to, gains from options, futures
or forward contracts) derived with respect to its business of investing in
stock, securities or currency; and (ii) diversify its holdings so that, at the
end of each quarter of its taxable year, the following two conditions are met:
(a) at least 50% of the value of the Fund's assets is represented by cash, cash
items, U.S. Government Securities, securities of other regulated investment
companies and other securities with respect to which the Fund's investment is
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's assets and to not more than 10% of the outstanding voting
securities of such issuer and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
Securities or securities of other regulated investment companies).
If the Fund qualifies as a regulated investment company for any taxable
year and makes timely distributions to its shareholders of 90% or more of its
investment company taxable income for that year (calculated without regard to
its net capital gain, i.e., the excess of its net long-term capital gain over
its net short-term capital loss) it will not be subject to federal income tax on
the portion of its taxable income for the year (including any net capital gain)
that it distributes to shareholders.
The Fund will also avoid the 4% federal excise tax that would otherwise
apply to certain undistributed income for a given calendar year if it makes
timely distributions to shareholders equal to the sum of (i) 98% of its ordinary
income for such year, (ii) 98% of its capital gain net income and foreign
currency gains for the twelve-month period ending on October 31 of such year,
and (iii) any ordinary income or capital gain net income from the preceding
calendar year that was not distributed during such year. For this purpose,
income or gain retained by the Fund that is subject to corporate income tax will
be considered to have been distributed by the Fund during such year. For federal
income and excise tax purposes, dividends declared and payable to shareholders
of record as of a date in October, November or December but actually paid during
the following January will be treated as if paid by the Fund on December 31 of
such earlier
A-54
calendar year, and will be taxable to these shareholders in the year declared,
and not in the year in which the shareholders actually receive the dividend.
The information set forth in the Prospectus and the following discussion
relate solely to the significant United States federal income taxes on dividends
and distributions by the Fund and assumes that the Fund qualifies to be taxed as
a regulated investment company. An investor should consult his or her own tax
advisor with respect to the specific tax consequences of being a shareholder in
the Fund, including the effect and applicability of federal, state, local and
foreign tax laws to his or her own particular situation and the possible effects
of changes therein.
Dividends and Distributions
The Fund intends to make timely distributions of the Fund's taxable income
(including any net capital gain) so that the Fund will not be subject to federal
income and excise taxes. Dividends of the Fund's net ordinary income and
distributions of any net realized short-term capital gain are taxable to
shareholders as ordinary income. The investment objective of the Fund is such
that only a small portion, if any, of the Fund's distributions is expected to
qualify for the dividends-received deduction for corporate shareholders.
Some or all of the distributions from the Fund may be treated as
"qualified dividend income," taxable to individuals, trusts or estates at a
maximum rate of 15% (5% for individuals, trusts or estates in lower tax
brackets), provided that both the Fund and the shareholder satisfy certain
holding period and other requirements. A distribution from the Fund will be
treated as qualified dividend income to the extent that it is comprised of
dividend income received by the Fund from taxable domestic corporations and
certain qualified foreign corporations, and provided that the Fund meets certain
holding period and other requirements with respect to the security paying the
dividend. In addition, the shareholder must meet certain holding period
requirements with respect to the shares of the Fund in order to take advantage
of the 15% tax rate. To the extent distributions from the Fund are attributable
to other sources, such as taxable interest or short-term capital gains,
dividends paid by the Fund will not be eligible for the lower rates. The Fund
will notify shareholders as to how much of the Fund's distributions, if any,
would qualify for the reduced tax rate, assuming that the shareholder also
satisfies the holding period requirements.
Distributions of net capital gain are taxable as long-term capital gain,
regardless of how long a shareholder has held shares in the Fund. Any dividend
or distribution received by a shareholder on shares of the Fund will have the
effect of reducing the NAV of such shares by the amount of such dividend or
distribution. Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a return of capital
to that particular shareholder, would be taxable to him or her as described
above. Dividends are taxable in the manner discussed regardless of whether they
are paid to the shareholder in cash or are reinvested in additional shares of
the Fund.
After the end of the calendar year, the Fund will notify shareholders of
the federal income tax status of any distributions made by the Fund to
shareholders during such year.
Sales and Redemptions. Any gain or loss arising from a sale or redemption
of Fund shares generally will be capital gain or loss if the Fund shares are
held as a capital asset, and will
A-55
be long-term capital gain or loss if the shareholder has held such shares for
more than one year at the time of the sale or redemption; otherwise it will be
short-term capital gain or loss. If a shareholder has held shares in the Fund
for six months or less and during that period has received a distribution of net
capital gain, any loss recognized by the shareholder on the sale of those shares
during the six-month period will be treated as a long-term capital loss to the
extent of the distribution. In determining the holding period of such shares for
this purpose, any period during which a shareholder's risk of loss is offset by
means of options, short sales or similar transactions is not counted.
Any loss realized by a shareholder on a sale or exchange of shares of the
Fund will be disallowed to the extent the shares disposed of are reacquired
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are sold or exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a reacquisition if made within the
period. If a loss is disallowed, then such loss will be reflected in an upward
adjustment to the basis of the shares acquired.
Qualified Plans. A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, such as an
individual retirement account, section 403(b)(7) retirement plan or corporate
pension or profit-sharing plan, generally will not be taxable to the plan.
Distributions from such plans will be taxable to individual participants under
applicable tax rules without regard to the character of the income earned by the
qualified plan.
Backup Withholding. Any distributions and redemption proceeds payable to a
shareholder may be subject to "backup withholding" tax (currently at a rate of
28%) if such shareholder fails to provide the Fund with his or her correct
taxpayer identification number, fails to make certain required certifications,
or is notified by the Internal Revenue Service (the "IRS") that he or she is
subject to backup withholding. Certain categories of shareholders, including all
corporations, are exempt from such backup withholding. Backup withholding is not
an additional tax; rather, a shareholder generally may obtain a refund of any
amounts withheld under backup withholding rules that exceed such shareholder's
income tax liability by filing a refund claim with the IRS, provided that the
required information is furnished to the IRS.
Foreign Income Taxes. Investment income received by the Fund from sources
within foreign countries may be subject to foreign income taxes, including taxes
withheld at the source. The United States has entered into tax treaties with
many foreign countries which entitle the Fund to a reduced rate of such taxes or
exemption from taxes on such income. It is impossible to determine the effective
rate of foreign tax in advance since the amount of the Fund's assets to be
invested within various countries is not known. If more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of the stock
or securities of foreign corporations, the Fund may elect to "pass through" to
the Fund's shareholders the amount of foreign income taxes paid by the Fund.
Pursuant to such election, shareholders would be required: (i) to include in
gross income (in addition to taxable dividends actually received), their
respective pro rata shares of foreign taxes paid by the Fund; (ii) treat their
pro rata share of such foreign taxes as having been paid by them; and (iii)
either to deduct their pro rata share of foreign taxes in computing their
taxable income, or to use it as a foreign tax credit against federal income
taxes (but not both). No deduction for foreign taxes could be claimed by a
shareholder who does not itemize deductions. In addition, certain shareholders
may be subject to rules which limit their ability to fully deduct, or claim a
credit for, their pro rata share of the foreign taxes
A-56
paid by the Fund. A shareholder's foreign tax credit with respect to a dividend
received from the Fund will be disallowed unless the shareholder holds shares in
the Fund on the ex-dividend date and for at least 15 other days during the
30-day period beginning 15 days prior to the ex-dividend date.
The Fund intends to meet for each fiscal year the requirements of the Code
to "pass through" to its shareholders foreign income taxes paid, but there can
be no assurance that the Fund will be able to do so. Each shareholder will be
notified within 60 days after the close of each taxable year of the Fund whether
the foreign taxes paid by the Fund will "pass through" for that year, and, if
so, the amount of each shareholder's pro rata share (by country) of (i) the
foreign taxes paid, and (ii) the Fund's gross income from foreign sources.
Shareholders who are not liable for federal income taxes, such as retirement
plans qualified under section 401 of the Code, will not be affected by any such
"pass through" of foreign taxes.
The federal income tax status of each year's distributions by the Fund
will be reported to shareholders and to the IRS. The foregoing is only a general
description of the treatment of foreign taxes under the United States federal
income tax laws. Because the availability of a foreign tax credit or deduction
will depend on the particular circumstances of each shareholder, potential
investors are advised to consult their own tax advisers.
United States Federal Income Taxation of the Fund
The following discussion relates to certain significant United States
federal income tax consequences to the Fund with respect to the determination of
its "investment company taxable income" each year. This discussion assumes that
the Fund will be taxed as a regulated investment company for each of its taxable
years.
Passive Foreign Investment Companies. If the Fund owns shares in a foreign
corporation that constitutes a "passive foreign investment company" (a "PFIC")
for federal income tax purposes and the Fund does not elect or is unable to
elect to either treat such foreign corporation as a "qualified electing fund"
within the meaning of the Code or "mark-to-market" the stock of such foreign
corporation, the Fund may be subject to United States federal income taxation on
a portion of any "excess distribution" it receives from the PFIC or any gain it
derives from the disposition of such shares, even if such income is distributed
as a taxable dividend by the Fund to its shareholders. The Fund may also be
subject to additional interest charges in respect of deferred taxes arising from
such distributions or gains. Any tax paid by the Fund as a result of its
ownership of shares in a PFIC will not give rise to a deduction or credit to the
Fund or to any shareholder. A foreign corporation will be treated as a PFIC if,
for the taxable year involved, either (i) such foreign corporation derives at
least 75% of its gross income from "passive income" (including, but not limited
to, interest, dividends, royalties, rents and annuities), or (ii) on average, at
least 50% of the value (or adjusted tax basis, if elected) of the assets held by
the corporation produce "passive income." In some cases, the Fund may be able to
elect to "mark-to-market" stock in a PFIC. If the Fund makes such an election,
the Fund would include in its taxable income each year an amount equal to the
excess, if any, of the fair market value of the PFIC stock as of the close of
the taxable year over the Fund's adjusted basis in the PFIC stock. The Fund
would be allowed a deduction for the excess, if any, of the adjusted basis of
the PFIC stock over the fair market value of the PFIC stock as of the close of
the taxable year, but only to the extent of any net mark-to-market gains
included in the Fund's taxable income for
A-57
prior taxable years. The Fund's adjusted basis in the PFIC stock would be
adjusted to reflect the amounts included in, or deducted from, income under this
election. Amounts included in income pursuant to this election, as well as gain
realized on the sale or other disposition of the PFIC stock, would be treated as
ordinary income. The deductible portion of any mark-to-market loss, as well as
loss realized on the sale or other disposition of the PFIC stock to the extent
that such loss does not exceed the net mark-to-market gains previously included
by the Fund, would be treated as ordinary loss. The Fund generally would not be
subject to the deferred tax and interest charge provisions discussed above with
respect to PFIC stock for which a mark-to-market election has been made. If the
Fund purchases shares in a PFIC and the Fund elects to treat the foreign
corporation as a "qualified electing fund" under the Code, the Fund may be
required to include in its income each year a portion of the ordinary income and
net capital gains of such foreign corporation, even if this income is not
distributed to the Fund. Any such income would be subject to the 90% and
calendar year distribution requirements described above.
Options, Futures Contracts, and Forward Foreign Currency Contracts.
Certain listed options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for federal income
tax purposes. Section 1256 contracts held by the Fund at the end of each taxable
year will be "marked to market" and treated for federal income tax purposes as
though sold for fair market value on the last business day of such taxable year.
Gain or loss realized by the Fund on section 1256 contracts other than forward
foreign currency contracts will be considered 60% long-term and 40% short-term
capital gain or loss. Gain or loss realized by the Fund on forward foreign
currency contracts will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will increase or
decrease the amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described above. The Fund can
elect to exempt its section 1256 contracts which are part of a "mixed straddle"
(as described below) from the application of section 1256.
Gain or loss realized by the Fund on the lapse or sale of put and call
options on foreign currencies which are traded over-the-counter or on certain
foreign exchanges will be treated as section 988 gain or loss and will therefore
be characterized as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be distributed to
shareholders as ordinary income, as described above. The amount of such gain or
loss shall be determined by subtracting the amount paid, if any, for or with
respect to the option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any, for or with
respect to the option (including any amount received by the Fund upon
termination of an option held by the Fund). In general, if the Fund exercises
such an option on a foreign currency, or if such an option that the Fund has
written is exercised, gain or loss on the option will be recognized in the same
manner as if the Fund had sold the option (or paid another person to assume the
Fund's obligation to make delivery under the option) on the date on which the
option is exercised, for the fair market value of the option. The foregoing
rules will also apply to other put and call options which have as their
underlying property foreign currency and which are traded over-the-counter or on
certain foreign exchanges to the extent gain or loss with respect to such
options is attributable to fluctuations in foreign currency exchange rates.
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Tax Straddles. Any option, futures contract or other position entered into
or held by the Fund in conjunction with any other position held by the Fund may
constitute a "straddle" for federal income tax purposes. A straddle of which at
least one, but not all, the positions are section 1256 contracts may constitute
a "mixed straddle." In general, straddles are subject to certain rules that may
affect the character and timing of the Fund's gains and losses with respect to
straddle positions by requiring, among other things, that (i) loss realized on
disposition of one position of a straddle not be recognized to the extent that
the Fund has unrealized gains with respect to the other position in such
straddle; (ii) the Fund's holding period in straddle positions be suspended
while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (iii) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (iv) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to the Fund which may mitigate the effects of
the straddle rules, particularly with respect to mixed straddles. In general,
the straddle rules described above do not apply to any straddles held by the
Fund all of the offsetting positions of which consist of section 1256 contracts.
Currency Fluctuations -- "Section 988" Gains or Losses. Under the Code,
gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies, from the disposition of debt securities
denominated in a foreign currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to fluctuations in the
value of the foreign currency between the date of acquisition of the asset and
the date of disposition also are treated as ordinary income or loss. These gains
or losses, referred to under the Code as "section 988" gains or losses, increase
or decrease the amount of the Fund's investment company taxable income available
to be distributed to its shareholders as ordinary income, rather than increasing
or decreasing the amount of the Fund's net capital gain. Because section 988
losses reduce the amount of ordinary dividends the Fund will be allowed to
distribute for a taxable year, such section 988 losses may result in all or a
portion of prior dividend distributions for such year being recharacterized as a
non-taxable return of capital to shareholders, rather than as an ordinary
dividend, reducing each shareholder's basis in his or her Fund shares. To the
extent that such distributions exceed such shareholder's basis, each will be
treated as a gain from the sale of shares.
Other Taxes
The Fund may be subject to other state and local taxes.
Taxation of Foreign Stockholders
The foregoing discussion relates only to United States federal income tax
law as it affects shareholders who are United States citizens or residents or
United States corporations. The effects of federal income tax law on
shareholders who are non-resident alien individuals or foreign corporations may
be substantially different. Foreign investors should therefore consult
A-59
their counsel for further information as to the United States tax consequences
of receipt of income from the Fund.
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PORTFOLIO TRANSACTIONS
----------------------------------------------------------------
Subject to the general oversight of the Board of Directors of the Fund,
the Adviser is responsible for the investment decisions and the placing of
orders for portfolio transactions for the Fund. The Adviser determines the
broker or dealer to be used in each specific transaction with the objective of
negotiating a combination of the most favorable commission (for transactions on
which a commission is payable) and the best price obtainable on each transaction
(generally defined as "best execution"). In connection with seeking best price
and execution, the Fund does not consider sales of shares of the Fund or other
investment companies managed by the Adviser as a factor in the selection of
brokers and dealers to effect portfolio transactions and has adopted a policy
and procedures reasonably designed to preclude such considerations.
Investment decisions for the Fund are made independently from those for
other investment companies and other advisory accounts managed by the Adviser.
It may happen, on occasion, that the same security is held in the portfolio of
the Fund and one or more of such other companies or accounts. Simultaneous
transactions are likely when several funds or accounts are managed by the same
Adviser, particularly when a security is suitable for the investment objectives
of more than one of such companies or accounts. When two or more companies or
accounts managed by the Adviser are simultaneously engaged in the purchase or
sale of the same security, the transactions are allocated to the respective
companies or accounts both as to amount and price, in accordance with a method
deemed equitable to each company or account. In some cases this system may
adversely affect the price paid or received by the Fund or the size of the
position obtainable for the Fund.
Allocations are made by the officers of the Fund or of the Adviser.
Purchases and sales of portfolio securities are determined by the Adviser and
are placed with broker-dealers by the order department of the Adviser.
The extent to which commissions that will be charged by broker-dealers
selected by the Fund may reflect an element of value for research cannot
presently be determined. To the extent that research services of value are
provided by broker-dealers with or through whom the Fund places portfolio
transactions, the Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be useful and of value
to the Adviser in servicing its other clients as well as the Fund; but, on the
other hand, certain research services obtained by the Adviser as a result of the
placement of portfolio brokerage of other clients could be useful and of value
to it in serving the Fund.
The Fund may from time to time place orders for the purchase or sale of
securities (including listed call options) with SCB & Co. or Advest Inc.
("Advest"), each an affiliate of the Adviser. In such instances, the placement
of orders with such brokers would be consistent with
A-60
the Fund's objective of obtaining best execution and would not be dependent upon
the fact that SCB & Co. or Advest is an affiliate of the Adviser. With respect
to orders placed with SCB & Co. or Advest for execution on a securities
exchange, commissions received must conform to Section 17(e)(2)(A) of the 1940
Act and Rule 17e-1 thereunder, which permit an affiliated person of a registered
investment company (such as the Fund), or any affiliated person of such person
to receive a brokerage commission from such registered company provided that
such commission is reasonable and fair compared to the commission received by
other brokers in connection with comparable transactions involving similar
securities during a comparable period of time.
During the fiscal year ended July 31, 2004, the fiscal period ended July
31, 2003 and the fiscal years ended November 30, 2002 and 2001, the Fund
incurred brokerage commissions amounting in the aggregate to $323,753, $215,705,
$440,635 and $1,325,977. During the fiscal year ended July 31, 2004, the fiscal
period ended July 31, 2003 and the fiscal years ended November 30, 2002 and
2001, brokerage commissions amounting in the aggregate to $1,022, $10,698,
$7,079 and $-0- were paid to SCB & Co. During the fiscal year ended July 31,
2004, the brokerage commissions paid to SCB & Co. constituted 0.3% of the Fund's
aggregate brokerage commissions. During the fiscal year ended July 31, 2004, of
the Fund's aggregate dollar amount of brokerage transactions involving the
payment of commissions, 0.28% were effected through SCB & Co. During the fiscal
year ended July 31, 2004, transactions in portfolio securities of the Fund
aggregated $186,398,880. Brokerage commissions of approximately $311,812 were
allocated to persons or firms supplying research services to the Fund or the
Adviser.
Many of the Fund's portfolio transactions in equity securities will occur
on foreign stock exchanges. Transactions on stock exchanges involve the payment
of brokerage commissions. On many foreign stock exchanges these commissions are
fixed. Securities traded in foreign over-the-counter markets (including most
fixed-income securities) are purchased from and sold to dealers acting as
principal. Over-the-counter transactions generally do not involve the payment of
a stated commission, but the price usually includes an undisclosed commission or
markup. The prices of underwritten offerings, however, generally include a
stated underwriter's discount. The Adviser expects to effect the bulk of its
transactions in securities of companies based in foreign countries through
brokers, dealers or underwriters located in such countries. U.S. Government or
other U.S. securities constituting permissible investments will be purchased and
sold through U.S. brokers, dealers or underwriters.
Disclosure of Portfolio Holdings
The Fund believes that the ideas of Alliance's investment staff should
benefit the Fund and its shareholders, and does not want to afford speculators
an opportunity to profit by anticipating Fund trading strategies or using Fund
information for stock picking. However, the Fund also believes that knowledge of
the Fund's portfolio holdings can assist shareholders in monitoring their
investment, making asset allocation decisions, and evaluating portfolio
management techniques.
Alliance has adopted, on behalf of the Fund, policies and procedures
relating to disclosure of the Fund's portfolio securities. The policies and
procedures relating to disclosure of the Fund's portfolio securities are
designed to allow disclosure of portfolio holdings
A-61
information where necessary to the Fund's operation or useful to the Fund's
shareholders without compromising the integrity or performance of the Fund.
Except when there are legitimate business purposes for selective disclosure and
other conditions (designed to protect the Fund and its shareholders) are met,
the Fund does not provide or permit others to provide information about the
Fund's portfolio holdings on a selective basis.
The Fund includes portfolio holdings information as required in regulatory
filings and shareholder reports, discloses portfolio holdings information as
required by federal or state securities laws and may disclose portfolio holdings
information in response to requests by governmental authorities. In addition,
Alliance posts portfolio holdings information on Alliance's website
(www.AllianceBernstein.com). Alliance posts on the website a complete schedule
of the Fund's portfolio securities, as of the last day of each calendar month,
approximately 30 days after the end of that month. This posted information
generally remains accessible on the website for three months. For each portfolio
security, the posted information includes its name, the number of shares held by
the Fund, the market value of the Fund's holdings, and the percentage of the
Fund's assets represented by the Fund's holdings. In addition to the schedule of
portfolio holdings, Alliance may post information about the number of securities
the Fund holds, a summary of the Fund's top ten holdings (including name and the
percentage of the Fund's assets invested in each holding), and a percentage
breakdown of the Fund's investments by country, sector and industry, as
applicable approximately 20 days after the end of the month. The day after
portfolio holdings information is publicly available on the website, it may be
mailed, e-mailed or otherwise transmitted to any person.
Alliance may distribute or authorize the distribution of information about
the Fund's portfolio holdings that is not publicly available, on the website or
otherwise, to Alliance's employees and affiliates that provide services to the
Fund. In addition, Alliance may distribute or authorize distribution of
information about the Fund's portfolio holdings that is not publicly available,
on the website or otherwise, to the Fund's service providers who require access
to the information in order to fulfill their contractual duties relating to the
Fund, to facilitate the review of the Fund by rating agencies, for the purpose
of due diligence regarding a merger or acquisition, or for the purpose of
effecting in-kind redemption of securities to facilitate orderly redemption of
portfolio assets and minimal impact on remaining Fund shareholders. Alliance
does not expect to disclose information about the Fund's portfolio holdings that
is not publicly available to the Fund's individual or institutional investors or
to intermediaries that distribute the Fund's shares. Information may be
disclosed with any frequency and any lag, as appropriate.
Before any non-public disclosure of information about the Fund's portfolio
holdings is permitted, however, Alliance's Mutual Fund Compliance Director must
determine that the Fund has a legitimate business purpose for providing the
portfolio holdings information, that the disclosure is in the best interests of
the Fund's shareholders, and that the recipient agrees or has a duty to keep the
information confidential and agrees not to trade directly or indirectly based on
the information or to use the information to form a specific recommendation
about whether to invest in the Fund or any other security. Under no
circumstances may Alliance or its affiliates receive any consideration or
compensation for disclosing the information.
Alliance has established procedures to ensure that the Fund's portfolio
holdings information is only disclosed in accordance with these policies. Only
Alliance's Mutual Fund Compliance Director (or his designee) may approve the
disclosure, and then only if he or she and
A-62
a designated senior officer in Alliance's product management group determines
that the disclosure serves a legitimate business purpose of the Fund and is in
the best interest of the Fund's shareholders. Alliance's Mutual Fund Compliance
Director (or his designee) approves disclosure only after considering the
anticipated benefits and costs to the Fund and its shareholders, the purpose of
the disclosure, any conflicts of interest between the interests of the Fund and
its shareholders and the interests of Alliance or any of its affiliates, and
whether the disclosure is consistent with the policies and procedures governing
disclosure. Only someone approved by Alliance's Mutual Fund Compliance Director
(or his designee) may make approved disclosures of portfolio holdings
information to authorized recipients. Alliance reserves the right to request
certifications from senior officers of authorized recipients that the recipient
is using the portfolio holdings information only in a manner consistent with
Alliance's policy and any applicable confidentiality agreement. Alliance's
Mutual Fund Compliance Director or another member of the compliance team reports
all arrangements to disclose portfolio holdings information to the Fund's Board
of Directors on a quarterly basis. If the Board determines that disclosure was
inappropriate, Alliance will promptly terminate the disclosure arrangement.
In accordance with these procedures, each of the following third parties
have been approved to receive information concerning the Fund's portfolio
holdings: (i) the Fund's independent registered public accounting firm, for use
in providing audit opinions; (ii) Data Communique International and, from time
to time, other financial printers, for the purpose of preparing Fund regulatory
filings; (iii) the Fund's custodian in connection with its custody of the Fund's
assets; (iv) Institutional Shareholder Services, Inc. for proxy voting services;
and (v) data aggregators, such as Vestek. Information may be provided to these
parties at any time with no time lag. Each of these parties is contractually and
ethically prohibited from sharing the Fund's portfolio holdings information
unless specifically authorized.
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GENERAL INFORMATION
----------------------------------------------------------------
Capitalization
The Fund was organized as corporation in Maryland in 1997 under the name
"Alliance International Premier Growth Fund, Inc." The name of the Fund became
"AllianceBernstein International Premier Growth Fund, Inc." on March 31, 2003.
The authorized capital stock of the Fund currently consists of
3,000,000,000 shares of Class A Common Stock, 3,000,000,000 shares of Class B
Common Stock, 3,000,000,000 shares of Class C Common Stock and 3,000,000,000
shares of Advisor Class Common Stock, each having a par value of $.001 per
share. All shares of the Fund, when issued, are fully paid and non-assessable.
The Directors are authorized to reclassify any unissued shares to any number of
additional series and classes without shareholder approval. Accordingly, the
Directors in the future, for reasons such as the desire to establish one or more
additional portfolios with different investment objectives, policies or
restrictions, may create additional classes or series of shares. Any issuance of
shares of another class or series would be governed by the 1940 Act and the law
of the State of Maryland. If shares of another series were issued in connection
with the creation
A-63
of a second portfolio, each share of either portfolio would normally be entitled
to one vote for all purposes. Generally, shares of both portfolios would vote as
a single series on matters, such as the election of Directors, that affected
both portfolios in substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Advisory Agreement and changes in
investment policy, shares of each portfolio would vote as a separate series.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of Directors.
A shareholder will be entitled to share pro rata with other holders of the
same class of shares all dividends and distributions arising from the Fund's
assets and, upon redeeming shares, will receive the then current NAV of the Fund
represented by the redeemed shares less any applicable CDSC. The Fund is
empowered to establish, without shareholder approval, additional portfolios,
which may have different investment objectives and policies than those of the
Fund, and additional classes of shares within the Fund. If an additional
portfolio or class were established in the Fund, each share of the portfolio or
class would normally be entitled to one vote for all purposes. Generally, shares
of each portfolio and class would vote together as a single class on matters,
such as the election of Directors, that affect each portfolio and class in
substantially the same manner. Each class of shares of the Fund has the same
rights and is identical in all respects, except that each of Class A, Class B
and Class C shares of the Fund bears its own distribution expenses and Class B
shares and Advisor Class shares convert to Class A shares under certain
circumstances. Each class of shares of the Fund votes separately with respect to
the Fund's Rule 12b-1 distribution plan and other matters for which separate
class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Directors and, in
liquidation of the Fund, are entitled to receive the net assets of the Fund.
The outstanding voting shares of the Fund as of March 17, 2005 consisted
of 9,662,890.716 shares of common stock. Of this amount 2,195,006.562 shares
were Class A, 3,854,076.729 shares were Class B, 1,222,157.295 shares were Class
C and 2,391,650.130 shares were Advisor Class. To the knowledge of the Fund, the
following persons owned of record or beneficially 5% or more of a class of the
outstanding shares of the Fund as of March 15, 2005:
No of Shares % of
Name and Address of Class Class
- ---------------- ------------ -----
Class A
Pershing LLC 218,352.425 9.96%
P.O. Box 2052
Jersey City, NJ 07303-2052
A-64
Class B
Citigroup Global Markets 267,195.522 6.91%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 384,852.926 9.98%
P.O. Box 2052
Jersey City, NJ 07303-2052
First Clearing LLC 253,488.321 6.57%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
MLPF&S 563,454.473 14.61%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Class C
Citigroup Global Markets 140,756.264 11.51%
Attn: Cindy Tempesta
313 W. 34th St. Fl. 3
New York, NY 10001-2402
Pershing LLC 111,666.962 9.13%
P.O. Box 2052
Jersey City, NJ 07303-2052
First Clearing LLC 65,869.700 5.39%
Special Custody Acct. for the Exclusive
Benefit of Customer
10750 Wheat First Dr.
Glen Allen, VA 23060-9245
A-65
MLPF&S 241,417.561 19.75%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Fl.
Jacksonville, FL 32246-6484
Advisor Class
Strafe & Co. FAO 784,383.381 32.80%
Munson Medical Center Operating - Sec. Assets
P.O. Box 160
Westerville, OH 43086-0360
PIMS/Prudential Retirement 1,088,353.708 45.51%
As Nominee for the TTEE/Cust. Pl. 007
Alliance Capital Management
300 International Pkwy, Suite 270
Heathrow, FL 32746-5028
Trust for Profit Sharing Plan for Employees 364,564.411 15.24%
of Alliance Capital Management, L.P. Plan 8
Attn: Diana Marotta, Fl. 31
1345 Avenue of the Americas
New York, NY 10105
Custodian
Brown Brothers Harriman & Co. ("Brown Brothers"), 40 Water Street, Boston,
Massachusetts 02109, will act as the Fund's custodian for the assets of the Fund
but plays no part in deciding the purchase or sale of portfolio securities.
Subject to the supervision of the Fund's Directors, Brown Brothers may enter
into sub-custodial agreements for the holding of the Fund's foreign securities.
Principal Underwriter
ABIRM, an indirect wholly-owned subsidiary of Alliance located at 1345
Avenue of the Americas, New York, New York 10105, is the principal underwriter
of shares of the Fund. Under the Agreement, the Fund has agreed to indemnify the
Principal Underwriter, in the absence of its willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations thereunder, against
certain civil liabilities, including liabilities under the Securities Act.
Counsel
Legal matters in connection with the issuance of the common stock offered
hereby are passed upon by Seward & Kissel, LLP New York, New York.
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Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, New York 10017,
has been appointed as the independent registered public accounting firm for the
Fund.
Additional Information
Any shareholder inquiries may be directed to the shareholder's financial
intermediary or to AGIS at the address or telephone numbers shown on the front
cover of this SAI. This SAI does not contain all the information set forth in
the Registration Statement filed by the Fund with the Commission under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
A-67
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FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
------------------------------------------------------------
The financial statements of the Fund for the period ended July 31, 2004
and the report of PricewaterhouseCoopers LLP, independent registered public
accounting firm, are incorporated herein by reference to the Fund's annual
report. The annual report was filed on Form N-CSR with the Commission on October
12, 2004. It is available without charge upon request by calling AGIS at (800)
227-4618.
A-68
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APPENDIX A:
CERTAIN INVESTMENT PRACTICES
------------------------------------------------------------
The information in this Appendix concerns investment practices in which
the Fund is authorized to engage, but in which the Fund is not required to
engage and which may not currently be permitted under applicable laws or
regulations or may otherwise be unavailable in certain countries. The Fund's
investment policies and restrictions authorize it to engage in these practices
to the extent such practices become available and permissible in the future.
Options
The Fund may write covered put and call options and purchase put and call
options on securities of the types in which it is permitted to invest that are
traded on U.S. and foreign securities exchanges and over-the-counter, including
options on market indices. The Fund will only write "covered" put and call
options unless such options are written for cross-hedging purposes. There are no
specific limitations on the Fund's writing and purchasing of options.
The Fund may purchase put options to hedge against a decline in the value
of its portfolio. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs. The Fund may
purchase call options to hedge against an increase in the price of securities
that the Fund anticipates purchasing in the future. The premium paid for the
call option plus any transaction costs will reduce the benefit, if any, realized
by the Fund upon exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to the Fund.
A put option gives the purchaser of such option, upon payment of a
premium, the right to deliver a specified amount of a security to the writer of
the option on or before a fixed date at a predetermined price. A call option
gives the purchaser of the option, upon payment of a premium, the right to call
upon the writer to deliver a specified amount of a security on or before a fixed
date at a predetermined price. A call option written by the Fund is "covered" if
the Fund owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds a call on the same
security and in the same principal amount as the call written where the exercise
price of the call held (i) is equal to or less than the exercise price of the
call written or (ii) is greater than the exercise price of the call written if
the difference is maintained by the Fund in cash and liquid high-grade debt
securities in a segregated account with its custodian. A put option written by
the Fund is "covered" if the Fund maintains cash or high-grade liquid assets
with a value equal to the exercise price in a segregated account with its
custodian, or else holds a put on the same security and in the same principal
amount as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written. The premium paid by the
purchaser
A-1
of an option will reflect, among other things, the relationship of the exercise
price to the market price and volatility of the underlying security, the
remaining term of the option, supply and demand and interest rates.
A call option is for cross-hedging purposes if the Fund does not own the
underlying security but seeks to provide a hedge against a decline in value in
another security which the Fund owns or has the right to acquire. In such
circumstances, the Fund collateralizes its obligation under the option by
maintaining in a segregated account with the Fund's custodian cash or liquid
securities in an amount not less than the market value of the underlying
security, marked to market daily. The Fund would write a call option for
cross-hedging purposes, instead of writing a covered call option, when the
premium to be received from the cross-hedge transaction would exceed that which
would be received from writing a covered call option, while at the same time
achieving the desired hedge.
In purchasing a call option, the Fund would be in a position to realize a
gain if, during the option period, the price of the underlying security
increased by an amount in excess of the premium paid. It would realize a loss if
the price of the underlying security declined or remained the same or did not
increase during the period, by more than the amount of the premium. In
purchasing a put option, the Fund would be in a position to realize a gain if,
during the option period, the price of the underlying security declined by an
amount in excess of the premium paid. It would realize a loss if the price of
the underlying security increased or remained the same or did not decrease
during that period by more than the amount of the premium. If a put or call
option purchased by the Fund were permitted to expire without being sold or
exercised, its premium would be lost by the Fund.
If a put option written by the Fund were exercised, the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by the Fund were exercised, the Fund would be obligated to sell
the underlying security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value of the
underlying security caused by rising interest rates or other factors. If this
occurred, the option could be exercised and the underlying security would then
be sold by the option holder to the Fund at a higher price than its current
market value. The risk involved in writing a call option is that there could be
an increase in the market value of the underlying security caused by declining
interest rates or other factors. If this occurred, the option could be exercised
and the underlying security would then be sold by the Fund at a lower price than
its current market value. These risks could be reduced by entering into a
closing transaction prior to the option expiration dates if a liquid market is
available. The Fund retains the premium received from writing a put or call
option whether or not the option is exercised.
The Fund may purchase or write options on securities of the types in which
it is permitted to invest in privately negotiated (i.e., over-the-counter)
transactions. The Fund will effect such transactions only with investment
dealers and other financial institutions (such as commercial banks or savings
and loan institutions) deemed creditworthy by the Adviser, and the Adviser has
adopted procedures for monitoring the creditworthiness of such entities. Options
purchased or written by the Fund in negotiated transactions are illiquid and it
may not be possible for the Fund to effect a closing transaction at a time when
the Adviser believes it would be advantageous to do so.
A-2
An option on a securities index is similar to an option on a security
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercises of the option, an amount of cash if the closing level of
the chosen index is greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. There are no specific
limitations on the Fund's purchasing and selling of options on securities
indices.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option, since with regard to certain options, the writer may be
assigned an exercise notice at any time prior to the termination of the
obligation. Whether or not an option expires unexercised, the writer retains the
amount of the premium. This amount, of course, may, in the case of a covered
call option, be offset by a decline in the market value of the underlying
security during the option period. If a call option is exercised, the writer
experiences a profit or loss from the sale of the underlying security. If a put
option is exercised, the writer must fulfill the obligation to purchase the
underlying security at the exercise price, which will usually exceed the then
market value of the underlying security.
The writer of a listed option that wishes to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of a listed option may liquidate its position by effecting a "closing
sale transaction." This is accomplished by selling an option of the same series
as the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected in any particular
situation.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary
market for an option of the same series. If a secondary market does not exist,
it might not be possible to effect
A-3
closing transactions in particular options with the result that the Fund would
have to exercise the options in order to realize any profit. If the Fund is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. Reasons for the absence of a
liquid secondary market include the following: (i) there may be insufficient
trading interest in certain options, (ii) restrictions may be imposed by a
national securities exchange ("National Exchange") on opening transactions or
closing transactions or both, (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities, (iv) unusual or unforeseen circumstances may
interrupt normal operations on a National Exchange, (v) the facilities of a
National Exchange or the Options Clearing Corporation may not at all times be
adequate to handle current trading volume, or (vi) one or more National
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that National
Exchange (or in that class or series of options) would cease to exist, although
outstanding options on that National Exchange that had been issued by the
Options Clearing Corporation as a result of trades on that National Exchange
would continue to be exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-write transactions;
that is, the Fund may purchase a security and then write a call option against
that security. The exercise price of the call the Fund determines to write will
depend upon the expected price movement of the underlying security. The exercise
price of a call option may be below ("in-the-money"), equal to ("at-the-money")
or above ("out-of-the-money") the current value of the underlying security at
the time the option is written. Buy-and-write transactions using in-the-money
call options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upwards or downwards by the
difference between the Fund's purchase price of the security and the exercise
price. If the options are not exercised and the price of the underlying security
declines, the amount of such decline will be offset in part, or entirely, by the
premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the position or take
delivery of the security at the exercise price and the Fund's return will be the
premium received from the put option minus the amount by which the market price
of the security is below the exercise price. Out-of-the-money, at-the-money, and
in-the-money put options may be used by the Fund in the same market environments
that call options are used in equivalent buy-and-write transactions.
A-4
Futures Contracts
The Fund may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies, or contracts based on
financial indices including any index of U.S. Government securities, securities
issued by foreign government entities or common stocks. U.S. futures contracts
have been designed by exchanges which have been designated "contracts markets"
by the Commodity Futures Trading Commission ("CFTC"), and must be executed
through a futures commission merchant, or brokerage firm, which is a member of
the relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different price or interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
Stock Index Futures
The Fund may purchase and sell stock index futures as a hedge against
movements in the equity markets. There are several risks in connection with the
use of stock index futures by the Fund as a hedging device. One risk arises
because of the imperfect correlation between movements in the price of the stock
index futures and movements in the price of the securities which are the subject
of the hedge. The price of the stock index futures may move more than or less
than the price of the securities being hedged. If the price of the stock index
futures moves less than the price of the securities which are the subject of the
hedge, the hedge will not be fully effective but, if the price of the securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at all. If the price of the securities
being hedged has moved in a favorable direction, this advantage will be
partially offset by the loss on the index future. If the price of the future
moves more than the price of the stock, the Fund will experience either a loss
or gain on the future which will not be completely offset
A-5
by movements in the price of the securities which are subject to the hedge. To
compensate for the imperfect correlation of movements in the price of securities
being hedged and movements in the price of the stock index futures, the Fund may
buy or sell stock index futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the index, or if otherwise deemed to be
appropriate by the Adviser. Conversely, the Fund may buy or sell fewer stock
index futures contracts if the volatility over a particular time period of the
prices of the securities being hedged is less than the volatility over such time
period of the stock index, or it is otherwise deemed to be appropriate by the
Adviser. It is also possible that, when the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of securities held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities. However, over time the value of a diversified portfolio
should tend to move in the same direction as the market indices upon which the
futures are based, although there may be deviations arising from differences
between the composition of the Fund and the stocks comprising the index.
Where futures are purchased to hedge against a possible increase in the
price of stock before the Fund is able to invest its cash (or cash equivalents)
in stocks (or options) in an orderly fashion, it is possible that the market may
decline instead. If the Fund then concludes not to invest in stock or options at
that time because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures contract that is not offset
by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the stock index futures and the
portion of the portfolio being hedged, the price of stock index futures may not
correlate perfectly with movement in the stock index due to certain market
distortions. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and futures markets.
Secondly, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may also cause temporary price distortions. Due to the possibility of price
distortion in the futures market, and because of the imperfect correlation
between the movements in the stock index and movements in the price of stock
index futures, a correct forecast of general market trends by the investment
adviser may still not result in a successful hedging transaction over a short
time frame.
Positions in stock index futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Fund intends to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
A-6
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Options on Futures Contracts
The Fund intends to purchase and write options on futures contracts for
hedging purposes. The Fund has claimed an exclusion from the definition of the
term "commodity pool operator" under the Commodity Exchange Act and therefore is
not subject to registration or regulation as a pool operator under that Act. The
purchase of a call option on a futures contract is similar in some respects to
the purchase of a call option on an individual security. Depending on the
pricing of the option compared to either the price of the futures contract upon
which it is based or the price of the underlying debt securities, it may or may
not be less risky than ownership of the futures contract or underlying debt
securities. As with the purchase of futures contracts, when the Fund is not
fully invested it may purchase a call option on a futures contract to hedge
against adverse market conditions.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract or securities comprising an
index. If the futures price at expiration of the option is below the exercise
price, the Fund will retain the full amount of the option premium which provides
a partial hedge against any decline that may have occurred in the Fund's
portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the security or foreign
currency which is deliverable upon exercise of the futures contract or
securities comprising an index. If the futures price at expiration of the option
is higher than the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any increase in the price
of securities which the Fund intends to purchase. If a put or call option the
Fund has written is exercised, the Fund will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Fund's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may purchase a put option on a futures contract to hedge the
Fund's portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
A-7
Options on Foreign Currencies
The Fund may purchase and write options on foreign currencies for hedging
purposes in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized. For example, a decline in
the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their value
in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Fund may purchase put
options on the foreign currency. If the value of the currency does decline, the
Fund will have the right to sell such currency for a fixed amount in dollars and
will thereby offset, in whole or in part, the adverse effect on its portfolio
which otherwise would have resulted. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations in exchange
rates although, in the event of rate movements adverse to the Fund's position,
it may forfeit the entire amount of the premium plus related transaction costs.
Options on foreign currencies to be written or purchased by the Fund are traded
on U.S. and foreign exchanges or over-the-counter.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where the Fund anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
The Fund intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Fund is "covered" if the Fund
owns the underlying foreign
A-8
currency covered by the call or has an absolute and immediate right to acquire
that foreign currency without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other foreign currency held in its portfolio. A call
option is also covered if the Fund has a call on the same foreign currency and
in the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government securities and other high-grade
liquid debt securities in a segregated account with its custodian.
The Fund also intends to write call options on foreign currencies for
cross-hedging purposes. An option that is cross-hedged is not covered, but is
designed to provide a hedge against a decline in the U.S. dollar value of a
security which the Fund owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change in
the exchange rate. In such circumstances, the Fund collateralizes the option by
maintaining in a segregated account with its custodian, cash or other high-grade
liquid debt securities in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked to market daily.
Additional Risks of Options on Futures Contracts, Forward Contracts and Options
on Foreign Currencies
Unlike transactions entered into by the Fund in futures contracts, options
on foreign currencies and forward contracts are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) by the Commission. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
regulation by the Commission. Similarly, options on securities may be traded
over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. Although
the purchaser of an option cannot lose more than the amount of the premium plus
related transaction costs, this entire amount could be lost. Moreover, the
option writer and a trader of forward contracts could lose amounts substantially
in excess of their initial investments, due to the margin and collateral
requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the Commission, as are other securities traded on
such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default. Further,
a liquid secondary market in options traded on a national securities exchange
may be more readily available than in the over-the-counter market, potentially
permitting the Fund to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign
A-9
currency market, possible intervention by governmental authorities and the
effects of other political and economic events. In addition, exchange-traded
options on foreign currencies involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of such options
must be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions or taxes would
prevent the orderly settlement of foreign currency option exercise, or would
result in undue burdens on the OCC or its clearing member, impose special
procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
A-10
----------------------------------------------------------------
APPENDIX B:
ADDITIONAL INFORMATION ABOUT JAPAN
----------------------------------------------------------------
The information in this section is based on material obtained by the Fund
from various Japanese governmental and other sources believed to be accurate but
has not been independently verified by the Fund or the Adviser. It is not
intended to be a complete description of Japan, its economy or the consequences
of investing in Japanese securities.
Japan, located in eastern Asia, consists of four main islands: Hokkaido,
Honshu, Kyushu and Shikoku, and many small islands. Its population is
approximately 127.6 million.
Government
The government of Japan is a representative democracy whose principal
executive is the Prime Minister. Japan's legislature (known as the Diet)
consists of two houses, the House of Representatives (the lower house) and the
House of Councillors (the upper house).
Politics
From 1955 to 1993, Japan's government was controlled by the Liberal
Democratic Party (the "LDP"), the major conservative party. Since 1993, Japan's
political scene has been very fluid, with six different governments and ten
prime ministers. Although the LDP has been unable to gain the majority of either
house of the Diet and has therefore had to form coalitions with other parties to
maintain its position of governance, it remains by far Japan's largest party and
continues to dominate Japanese politics. The current Prime Minister is Junichiro
Koizumi, who was elected by the LDP in April 2001 to replace Yoshiro Mori, who
had become one of Japan's most unpopular post-war prime ministers. The LDP
currently governs in a formal coalition with the New Komeito Party. The
coalition currently holds 283 of the 480 seats in the House of Representatives
and 138 of the 242 seats in the House of Councillors. The opposition is
dominated by the new Minshuto Party (Democratic Party of Japan), which was
established in 1998 by various opposition groups and parties. The next election
(House of Representatives) is required by law to occur no later than November
2007.
Economy
Japan altered its calculation of GDP in November 2000 and restated
historic data accordingly. As restated, Japan's real GDP grew by 1.8% in 1997,
contracted by 1.2% in 1998 and grew by 0.2%, 2.1%, 0.6% and 0.2% in 1999, 2000,
2001 and 2002, respectively. During 2003, Japan's real GDP grew by 2.6%. During
the first quarter of 2004, Japan's real GDP is estimated to have grown by 1.4%,
quarter-on-quarter.. Japan has experienced several years of consumer price
deflation, owing to continuing weaknesses in Japan's economy. Consumer prices
fell by 0.3% in 1999, 0.7% in 2000 and 2001, 0.9% in 2002 and 0.3% in 2003.
There has
B-1
been evidence in 2004 that deflation is easing. Unemployment reached 5.4% in
2002, its highest level since the end of World War II. In 2003, the unemployment
rate was 5.3%. Although high for Japan, unemployment remains low by the
standards of many other developed countries.
Japan's post World War II reliance on heavy industries has shifted to
higher technology products assembly and, most recently, to automobile,
electrical and electronic production. Japan's success in exporting its products
has generated sizable trade surpluses. While the U.S. has historically been
Japan's most important single trading partner, accounting for 28.5% of Japan's
merchandise exports and 17.1% of its merchandise imports in 2002, other Asian
countries have become important export markets as well, accounting for 28.9% of
all exports in 2002. In 2003, China supplanted the U.S. as the single most
important import trading partner, accounting for 19.7% of Japan's merchandise
imports, versus the U.S., which accounted for 15.4% of Japan's imports. On the
export side, the United States accounted for 24.6% of Japan's exports, versus
China, which accounted for 12.2% of Japan's exports in 2003. All Asian nations
as a group, including China, accounted for 32.5% of Japan's exports and 28.1% of
its imports in 2003. Since the early 1980's, Japan's relations with its trading
partners have been difficult, partly due to the concentration of Japanese
exports in products such as automobiles, machine tools and semiconductors and
the large trade surpluses resulting therefrom, and an overall trade imbalance
caused by cultural and structural impediments to merchandise imports. Japan's
overall trade surplus for 1994 was the largest in its history, amounting to
almost $145 billion. Exports totaled $386 billion, up 9.3% from 1993, and
imports were $242 billion, up 13.6% from 1993. Since then, the trade surplus has
risen in most years. During 2001, the surplus decreased 39.8%, with exports
decreasing 16.6% and imports decreasing .09%. During 2002, the surplus increased
by 33.6%, with exports increasing by 3.1% and imports decreasing by 3.7%. During
2003, the surplus increased by 13.1%, with exports increasing by 13.5% and
imports increasing by 13.7%. Japan remains the largest creditor nation and a
significant donor of foreign aid.
Japan's large merchandise trade surpluses with the U.S. have caused
numerous incidents of political conflict between the two countries. Japan's
surplus with the U.S. reached US$61 billion in 1999, its highest level since
1987. The bilateral trade surplus rose further in 2000 before slipping slightly
in 2001. It has remained relatively steady since then. Numerous rounds of
bilateral talks occurred in the 1990s. On October 1, 1994, the U.S. and Japan
reached an agreement with respect to trade in insurance, glass and medical and
telecommunications equipment. In June 1995, the two countries agreed in
principal to increase Japanese imports of American automobiles and automotive
parts. These and other agreements, however, have not been successful in
addressing Japan's trade surplus with the U.S. In October 2001, the U.S. and
Japan agreed to replace the 1995 automobile pact, a move that is viewed as a
major step toward improving U.S. - Japan auto trade. Other current sources of
tension between the two countries are disputes in connection with trade in
steel, semiconductors and photographic supplies, deregulation of the Japanese
insurance market, a dispute over aviation rights and access to Japanese ports.
It is expected that the friction between the United States and Japan with
respect to trade issues will continue for the foreseeable future.
After achieving one of the world's highest economic growth rates between
the 1960s and 1980s, by the early 1990s the economy had slowed dramatically when
the "bubble economy" collapsed and stock and real estate prices plummeted. The
collapse of asset prices in 1990-97 left Japan with cumulative losses of nearly
$10 trillion, or roughly the equivalent of two years of
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national output. The government produced ten fiscal stimulus packages in the
1990s worth more than $1 trillion that contained public works spending and tax
cuts. None of these stimulus packages have been successful in stimulating the
economy.
One of the most serious consequences of the fall in asset prices since the
early 1990s has been the pressure placed on Japan's financial institutions, many
of which lent heavily to real estate developers and construction companies
during the 1980s. The fall in land prices, together with the economic slowdown,
left Japanese banks saddled with a large amount of bad loans. By the end of the
1997/98 fiscal year, the government estimated that the banking system's bad
loans totaled 87.5 trillion Yen (approximately $600 billion), or 11% of
outstanding bank loans. On December 17, 1997, in the wake of the collapse in the
previous month of one of Japan's 20 largest banks, the government announced a
proposal to strengthen the banks by means of an infusion of public funds and
other measures. In addition, the imposition of stricter capital requirements and
other supervisory reforms scheduled to go into effect in April 1998 were
postponed. Subsequent to the December 1997 proposals, the government proposed a
series of additional proposals, culminating, after vigorous political debate, in
a set of laws that was approved by the Diet in October 1998. The new laws made
$508 billion in public funds available to increase the capital of Japan's banks,
to guarantee depositors' accounts and to nationalize the weakest banks. On
October 23, 1998, the Long-Term Credit Bank of Japan, Ltd., one of Japan's 19
largest banks, became the first Japanese bank to be nationalized pursuant to the
new laws. On December 11, 1998, the Nippon Credit Bank, Ltd. became the second
Japanese bank to be nationalized pursuant to the new laws. Since then, four
additional banks have been nationalized. These laws did not achieve their
intended effect and, as a result, the stock of bad debt continued to grow and
the financial system remained in a very fragile state.
Shortly after taking office in April 2001, Prime Minister Koizumi
announced the outlines of his reform agenda. In a departure from previous
economic packages, his plan made no reference to stimulating growth through
government spending. Rather, his plan called for a reduction in public spending
and stressed the need to rid Japan's banks of bad loans before real growth could
return, setting a timetable of 2-3 years to solve the problem. The plan called
for strengthening the Resolution & Collection Corporation, which was established
by the government to buy up the bad loans of the banks, and adopting some
programs utilized by the U.S. in its resolution of the savings-and-loan crisis
in the early 1990s, such as securitizing bad loans.
As of March 2002, the government estimated the amount of bad debt to be
43.2 trillion Yen. Private estimates ranged from 100 trillion Yen to 250
trillion Yen, or nearly 50% of GDP. Renewing its efforts to address the bad loan
problem, the government announced in July 2002 its intention to accelerate the
disposal of bad debt, and in a surprise move in September 2002, the government
announced that it would buy back the stock of the largest of the country's
troubled banks in order to infuse them with sufficient cash to rid themselves of
the bad loans.
The condition of Japan's financial system has begun to improve, with the
amount of nonperforming loans markedly decreasing, particularly with respect to
the largest banks. The government has estimated that at the end of 2003, the
total amount of bad debt was 26.6 trillion Yen. In addition to the measures
undertaken by the government, a modest economic recovery in Japan has
contributed to improving conditions in the financial system. Despite the signs
of
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improvement, problems still exist. In May 2003, Japan's fifth largest banking
group, Resona Holdings, following a stiff audit by its accountants, announced
that it was insufficiently capitalized and requested a fresh injection of public
funds. Resona's announcement was a surprise, given that only months before the
group had been well over the minimum capital threshold. The government responded
quickly with emergency loans and promised that all deposits would be protected,
thus averting a potential crisis. Nevertheless, the failure of Resona
demonstrates the continuing fragility of Japan's financial system. It also may
indicate a growing aggressiveness on the part of Japan's bank auditors.
One of the unique features of Japan's financial system is the US$3
trillion government-run postal savings system. It is currently estimated that
one-third of Japan's household deposits are in the postal savings system. There
are several reasons for this, including the erosion of confidence in the
private-sector banking system, full government deposit insurance and higher
interest rates. It has been one of Prime Minister Koizumi's chief goals to
privatize the system. To that end, the government recently approved a plan that
would achieve that goal over a ten-year period. The plan is subject to approval
by the legislature.
In November 1996, then Prime Minister Hashimoto announced a set of
initiatives to deregulate the financial sector by the year 2001. Known as
"Tokyo's Big Bang," the reforms include changes in tax laws to favor investors,
the lowering of barriers between banking, securities and insurance, abolition of
foreign exchange restrictions and other measures designed to revive Tokyo's
status in the international capital markets and to stimulate the economy. The
Big Bang was formally launched in April 1998. Some of the measures that have
already been implemented include a liberalization of foreign exchange
restrictions, a repeal of the ban on holding companies, allowing banks to sell
mutual funds and to issue bonds, the elimination of restrictions on the range of
activities permitted for securities subsidiaries and trust banking subsidiaries
and the elimination of fixed brokerage commissions on all stock trades. The
remaining reform measures, which include the entry of banks and trust banks into
the insurance business through subsidiaries, have not yet been implemented.
While in the long term the Big Bang is viewed as a positive step for Japan, in
the interim it has placed additional stress on weaker institutions.
Between 1985 and 1995, the Japanese Yen generally appreciated against the
U.S. Dollar. Between 1990 and 1994 the Yen's real effective exchange rate
appreciated by approximately 36%. On April 19, 1995, the Japanese Yen reached an
all time high of 79.75 against the U.S. Dollar. After its peak of April 19,
1995, the Yen generally decreased in value against the U.S. Dollar until
mid-1998, when the Japanese Yen began to appreciate again against the U.S.
Dollar, reaching a 43-month high against the U.S. Dollar in September 1999. This
precipitated a series of interventions in the currency market by the Bank of
Japan that slowed the appreciation of the Japanese Yen against the U.S. Dollar.
Although the appreciation continued to slow on balance in 2001, the Japanese Yen
began to gain ground against the U.S. Dollar in mid-2001 amid growing concern
about the U.S. economy. Prime Minister Koizumi underscored his government's
determination to stop the Yen's appreciation, intervening in the currency market
several times in the wake of the September 11, 2001 terrorist attacks. In the
last three months of 2001, the Japanese Yen depreciated almost 15 Japanese Yen
to the U.S. Dollar, closing the year at 131.67 Japanese Yen to the U.S. Dollar.
The average Yen-Dollar exchange rates in 1999, 2000, 2001, 2002 and 2003 were
113.73, 107.8, 121.57, 125.22 and 115.97, respectively.
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Japanese Stock Exchanges. Currently, there are eight stock exchanges in
Japan. The Tokyo Stock Exchange (the "TSE"), the Osaka Securities Exchange and
the Nagoya Stock Exchange are the largest, together accounting for approximately
99.9% of the share trading volume and for about 99.9% of the overall trading
value of all shares traded on Japanese stock exchanges during 2003. The other
stock exchanges are located in Kyoto, Hiroshima, Fukuoka, Niigata and Sapporo.
The chart below presents annual share trading volume (in millions of shares) and
annual trading value (in billions of Yen) information with respect to each of
the three major Japanese stock exchanges for the years 1993 through 2003.
Trading volume and the value of foreign stocks are not included.
All Exchanges TOKYO OSAKA NAGOYA
VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE
------ ----- ------ ----- ------ ----- ------ -----
2003 331,731 255,324 316,124 242,371 14,794 12,356 708 535
2002 224,567 209,229 213,173 193,354 10,403 14,727 847 1,065
2001 217,893 225,238 204,037 202,261 12,377 20,778 1,402 2,112
2000 196,087 290,325 174,159 248,662 17,267 34,669 4,575 6,876
1999 175,445 210,236 155,163 185,541 14,972 22,105 4,934 2,371
1998 139,757 124,102 123,198 97,392 12,836 20,532 3,367 5,986
1997 130,657 151,445 107,566 108,500 15,407 27,024 6,098 12,758
1996 126,496 136,170 101,170 101,893 20,783 27,280 4,104 5,391
1995 120,149 115,840 92,034 83,564 21,094 24,719 5,060 5,462
1994 105,937 114,622 84,514 87,356 14,904 19,349 4,720 5,780
1993 101,173 106,123 86,935 86,889 10,440 14,635 2,780 3,459
Source: The Tokyo Stock Exchange Fact Books (1994-2004)
The Tokyo Stock Exchange
Overview of the Tokyo Stock Exchange. The TSE is the largest of the
Japanese stock exchanges and as such is widely regarded as the principal
securities exchange for all of Japan. During 2003 the TSE accounted for 94.9% of
the market value and 95.3% of the share trading volume on all Japanese stock
exchanges. A foreign stock section on the TSE, consisting of shares of
non-Japanese companies, listed 32 (out of 2,206 total companies listed on the
TSE) non-Japanese companies at the end of 2003. The market for stock of Japanese
issuers on the TSE is divided into a First Section and a Second Section. The
First Section is generally for
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larger, established companies (in existence for five years or more) that meet
listing criteria relating to the size and business condition of the issuing
company, the liquidity of its securities and other factors pertinent to investor
protection. The TSE's Second Section is for smaller companies and newly listed
issuers.
The TSE, which was founded in 1949, has undertaken several new initiatives
in recent years. In November 1999, for example, the TSE established MOTHERS
(Market for the High-Growth and Emerging Stocks), a new market designed to
foster the growth of emerging companies. In addition, on October 17, 2000, the
TSE announced plans to form an alliance with the Chicago Mercantile Exchange. On
October 1, 2001, the TSE made a similar announcement with respect to the
Singapore Stock Exchange. These are the TSE's most concrete global alliances to
date. Although the TSE has entered into agreements with other exchanges,
including the New York Stock Exchange, they are for the most part limited to
information sharing arrangements. Additionally, the TSE is participating in
multilateral discussions to explore the possibility of a Global Equity Market.
Other participants include the New York Stock Exchange, the Toronto Stock
Exchange, the Bolsa Mexicana de Valores and the Hong Kong Exchanges.
Market Growth of the TSE. The First and Second Sections of the TSE grew in
terms of both average daily trading value and aggregate year-end market value
from 1982, when they were l28,320 million Yen and 98,090 billion Yen,
respectively, through the end of 1989, when they were 1,335,810 million Yen and
611,152 billion Yen, respectively. Following the peak in 1989, both average
daily trading value and aggregate year-end market value declined through 1992
when they were 243,362 million Yen and 289,483 billion Yen, respectively. In
1993 and 1994, both average daily trading value and aggregate year-end market
value increased and were 353,208 and 353,666 million Yen, respectively, and
324,357 and 358,392 billion Yen, respectively. In 1995, average daily trading
value decreased to 335,598 million Yen and aggregate year-end market value
increased to 365,716 billion Yen. In 1996, average daily trading value increased
to 412,521 million Yen and aggregate year-end market value decreased to 347,578
billion Yen. In 1997, average daily trading value increased to 442,858 million
Yen and aggregate year-end market value decreased to 280,930 billion Yen. In
1998, average daily trading value decreased to 394.3 billion Yen and aggregate
year-end market value decreased to 275,181 billion Yen. In 1999, the average
daily trading value increased to 757.3 billion Yen and aggregate year-end market
value in 1999 increased to 456,840 billion Yen. In 2000, the average daily
trading value increased to 1,002.7 billion Yen and aggregate year-end market
value in 2000 decreased to 360,554 billion Yen. In 2001, the average daily
trading value decreased to 822 billion Yen and aggregate year-end market value
decreased to 296,789 billion Yen. In 2002, the average daily trading value
decreased to 785 billion Yen and aggregate year-end market value decreased to
247,860 billion Yen. In 2003, the average daily trading value increased to 989
billion Yen and aggregate year-end market value increased to 316,483 billion
Yen.
Market Performance of the First Section. As measured by the TOPIX, a
capitalization-weighted composite index of all common stocks listed in the First
Section, the performance of the First Section reached a peak of 2,884.80 on
December 18, 1989. Thereafter, the TOPIX declined approximately 45% through
December 29, 1995. On December 30, 1996 the TOPIX closed at 1,470.94, down
approximately 7% from the end of 1995. On December 30, 1997, the TOPIX closed at
1,175.03, down approximately 20% from the end of 1996. On December 30, 1998 the
TOPIX closed at 1086.99, down approximately 7% from the end of 1997. On
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December 31, 1999 the TOPIX closed at 1722.20, up approximately 58% from the end
of 1998. On December 29, 2000 the TOPIX closed at 1283.67, down approximately
25% from the end of 1999. On December 28, 2001, the last day of trading in 2001,
the TOPIX closed at 1032.14, down approximately 20% from the end of 2000 and
down approximately 65% from its all-time high in 1989. On December 31, 2002, the
TOPIX closed at 843.29, down approximately 18% from the end of 2001 and down
approximately 70% from its all-time high in 1989. On December 31, 2003, the
TOPIX closed at 1,043.69, up approximately 23% from the end of 2002 and down
approximately 64% from its all-time high in 1989.
Japanese Foreign Exchange Controls
Under Japan's Foreign Exchange and Foreign Trade Control Law and cabinet
orders and ministerial ordinances thereunder (the "Foreign Exchange Controls"),
prior notification to the Minister of Finance of Japan (the "Minister of
Finance") of the acquisition of shares in a Japanese company from a resident of
Japan (including a corporation) by a non-resident of Japan (including a
corporation) is required unless the acquisition is made from or through a
securities company designated by the Minister of Finance or if the Yen
equivalent of the aggregate purchase price of shares is not more than 100
million Yen. Even in these situations, if a foreign investor intends to acquire
shares of a Japanese corporation listed on a Japanese stock exchange or traded
on a Japanese over-the-counter market (regardless of the person from or through
whom the foreign investor acquires such shares) and as a result of the
acquisition the foreign investor would directly or indirectly hold 10% or more
of the total outstanding shares of that corporation, the foreign investor must
file a report within 15 days from the day of such acquisition with the Minister
of Finance and any other minister with proper jurisdiction. In instances where
the acquisition concerns national security or meets certain other conditions
specified in the Foreign Exchange Controls, the foreign investor must file a
prior notification with respect to the proposed acquisition with the Minister of
Finance and any other minister with proper jurisdiction. The ministers may make
a recommendation to modify or prohibit the proposed acquisition if they consider
that the acquisition would impair the safety and maintenance of public order in
Japan or harmfully influence the smooth operation of the Japanese economy. If
the foreign investor does not accept the recommendation, the ministers may issue
an order modifying or prohibiting the acquisition. In certain limited and
exceptional circumstances, the Foreign Exchange Controls give the Minister of
Finance the power to require prior approval for any acquisition of shares in a
Japanese company by a non-resident of Japan.
In general, the acquisition of shares by non-resident shareholders by way
of stock splits, as well as the acquisition of shares of a Japanese company
listed on a Japanese stock exchange by non-residents upon exercise of warrants
or conversion of convertible bonds, are not subject to any of the foregoing
notification or reporting requirements. Under the Foreign Exchange Controls,
dividends paid on shares, held by non-residents of Japan and the proceeds of any
sales of shares within Japan may, in general, be converted into any foreign
currency and remitted abroad.
Certain provisions of the Foreign Exchange Controls were repealed or
liberalized beginning in April 1998, pursuant to the revised Foreign Exchange
and Foreign Trade Law, which was approved in May 1997 as part of the plan to
implement the Big Bang. Under the new law, Japanese citizens are permitted to
open bank accounts abroad and companies are now
B-7
permitted to trade foreign currencies without prior government approval.
Additionally, the foreign exchange bank system, which required that all foreign
exchange transactions be conducted through specially designated institutions,
has been eliminated.
Regulation of the Japanese Equities Markets
The principal securities law in Japan is the Securities and Exchange Law
("SEL") which provides overall regulation for the issuance of securities in
public offerings and private placements and for secondary market trading. The
SEL was amended in 1988 in order to liberalize the securities market; to
regulate the securities futures, index, and option trade; to add disclosure
regulations; and to reinforce the prevention of insider trading. Insider trading
provisions are applicable to debt and equity securities listed on a Japanese
stock exchange and to unlisted debt and equity securities issued by a Japanese
corporation that has securities listed on a Japanese stock exchange or
registered with the Securities Dealers Association (the "SDA"). In addition,
each of the eight stock exchanges in Japan has its own constitution, regulations
governing the sale and purchase of securities and standing rules for exchange
contracts for the purchase and sale of securities on the exchange, as well as
detailed rules and regulations covering a variety of matters, including rules
and standards for listing and delisting of securities.
The loss compensation incidents involving preferential treatment of
certain customers by certain Japanese securities companies, which came to light
in 1991, provided the impetus for amendments to the SEL, which took effect in
1992, as well as two reform bills passed by the Diet in 1992. The amended SEL
now prohibits securities companies from operating discretionary accounts,
compensating losses or providing artificial gains in securities transactions,
directly or indirectly, to their customers and making offers or agreements with
respect thereto. Despite these amendments, there have been certain incidents
involving loss compensation. To ensure that securities are traded at their fair
value, the SDA and the TSE promulgated certain rules, effective in 1992, which,
among other things, explicitly prohibit any transaction undertaken with the
intent to provide loss compensation of illegal gains regardless of whether the
transaction otherwise technically complies with the rules. The reform bill
passed by the Diet, which took effect in 1992 and 1993, provides for the
establishment of a new Japanese securities regulator and for a variety of
reforms designed to revitalize the Japanese financial and capital markets by
permitting banks and securities companies to compete in each other's field of
business, subject to various regulations and restrictions.
Further reforms in the regulation of the securities markets are
anticipated over the next several years as the Big Bang is implemented.
The SEL was further revised in May 2003 to introduce a securities
intermediary service system that helps expand and diversify market channels for
securities. These revisions became effective in April 2004 and are part of a
comprehensive plan to reform the Japanese securities markets in order to promote
broader participation of diversified investors, ensure fairness and
transparency, and improve stability and efficiency in the securities markets.
B-8
----------------------------------------------------------------
APPENDIX C:
ADDITIONAL INFORMATION ABOUT THE UNITED KINGDOM
---------------------------------------------------------------
The information in this section is based on material obtained by the Fund
from various United Kingdom government and other sources believed to be accurate
but has not been independently verified by the Fund or the Adviser. It is not
intended to be a complete description of The United Kingdom, its economy or the
consequences of investing in United Kingdom securities.
The United Kingdom of Great Britain and Northern Ireland is located off
the continent of Europe in the Atlantic Ocean. Its population is approximately
60 million.
Government
The United Kingdom is a constitutional monarchy. Queen Elizabeth II has
been the head of state since she acceded to the throne in 1952. The monarchy was
established in 1066. The monarch's power has eroded over the centuries, but the
monarch retains the power to call and dissolve Parliament, to give assent to
bills passed by Parliament, to appoint the Prime Minister and to sign treaties
or declare war. In practice, most of these acts are performed by government
ministers, and supreme legislative authority now resides in the Parliament.
Parliament, the bicameral legislature, consists of the House of Commons and the
House of Lords. Acts of Parliament passed in 1911 and 1949 limit the powers of
the House of Lords to prevent bills passed by the House of Commons from becoming
law. The main purpose of the House of Lords is now to revise and amend laws
passed by the House of Commons. The future role and composition of the House of
Lords is the subject of a December 1999 report of the Royal Commission on the
Reform of the House of Lords, whose recommendations are under consideration by a
joint committee of the House of Commons and the House of Lords. An initial step
in the reform effort was taken in November 1999, when hereditary peers lost
their right to sit and vote in the House of Lords. No further steps have been
taken in this regard. The national government is headed by the Prime Minister
who is appointed by the monarch on the basis of ability to form a government
with the support of the House of Commons.
Politics
Since World War II the national government has been formed by either the
Conservative Party or the Labour Party. The Conservative Party under the
leadership of Margaret Thatcher achieved a parliamentary majority and formed a
new government in May 1979. In June 1983 and again in June 1987, the
Conservative Party under her leadership was reelected. The Party pursued
policies of reducing state intervention in the economy, reducing taxes,
de-regulating business and industry and privatizing state-owned enterprises. It
also displayed an antipathy toward the European Union. In November 1990, Mrs.
Thatcher faced a challenge for the leadership of the party from Michael
Heseltine, one of her former cabinet ministers. The
C-1
opposition proposed changes in policy, including increased government
intervention in the economy and a less confrontational approach toward the
European Union. The two wings of the Conservative Party looked for someone who
could unite the Party and elected John Major as its leader and, by virtue of the
Conservative Party majority, to the post of Prime Minister.
Mr. Major led the Conservative Party to its fourth successive general
election victory in April 1992, after which time, the popularity of both Mr.
Major and the Conservative Party declined. In April 1995, the Conservative Party
won only 11% of the vote in Scotland local elections, which resulted in
Conservative Party control of only 81 council seats out of 1,161. It won only
25% of the vote in local council elections in England and Wales in May 1995. In
July 1995, Mr. Major won a vote of confidence with his reelection as leader of
the Conservative Party. Despite Mr. Major's strengthened position within the
Conservative Party, the Party continued to suffer setbacks. Within two weeks of
Mr. Major's victory, the Conservative Party lost its fifth by-election since the
general election of 1992. By 1996, his overall majority was reduced to one. In
the next general election, on May 1, 1997, the Labour Party gained a substantial
majority in the House of Commons as Mr. Major and the Conservative Party were
defeated by the Labour Party led by Tony Blair, who subsequently was appointed
Prime Minister. The Labour Party and Tony Blair achieved another victory in the
next general election, which occurred on June 7, 2001. The Labour Party now
holds 406 of the 659 seats in the House of Commons. The 2001 election results
marked the first time in British political history that the Labour Party secured
re-election; it was also the largest majority ever achieved by a governing party
entering its second term. The next general election is required by law to occur
no later than June 2006.
Economy
The United Kingdom's economy vies with France as the world's fourth
largest economy, behind the United States, Japan and Germany. Its economy
maintained an average annual growth rate of 3.6% in real growth domestic product
("GDP") terms from 1982 through 1988; and from 1989 through 1993, the United
Kingdom's real GDP annual growth rate was 1.0%. The economy has continued to
experience the moderate growth that began in 1993, after the 1990-1992
recession, the longest period of expansion since records began. In recent years,
real GDP has grown by 2.9% (1998), 2.9% (1999), 3.9% (2000) 2.3% (2001), 1.8%
(2002) and 2.2% (2003). In the first quarter of 2004, the United Kingdom's real
GDP growth rate was 3.4%, compared to the first quarter of 2003.
Since the early 1990s, the United Kingdom's economy has had moderate
inflation, fluctuating within a narrow range. The inflation rate (as measured by
the harmonized index of consumer prices (HICP)) during 2001, 2002 and 2003 was
1.2%, 1.3% and 1.4%, respectively. During July of 2004, the inflation rate was
1.4%, compared to July of 2003.
The sluggish growth in the United Kingdom's manufacturing sector since the
1990-1992 recession continued the trend toward the decreased importance of
manufacturing in the economy. Manufacturing accounted for just 18.1% of GDP in
2002 compared with 36.5% in 1960. As the United Kingdom's manufacturing industry
has declined in importance, the service industry, including financial services,
has increased in importance. The service industries' share of GDP has increased
to almost two-thirds from 45% in 1960.
C-2
Employment has been shifting from manufacturing to the service industry, a
trend expected to continue for the foreseeable future. Overall, unemployment (as
measured by the Labour Force Survey) has continued to fall from a post-recession
high of 10.9% in 1994 to an average of 5.0% in 2003. During the first two
quarters of 2004, unemployment averaged 4.8%.
Foreign trade remains an important part of the United Kingdom's economy.
In 2003, exports of goods and services represented 25.2% of GDP and imports
represented 28.2% of GDP. The United Kingdom has historically been an exporter
of manufactured products and an importer of food and raw materials, but there is
a growing trend toward manufactured goods forming a larger proportion of
imports. The decline of the United Kingdom's manufacturing base has resulted in
the emergence of a deficit on trade in manufactures, previously in surplus,
since the early 1980s. Currently the United Kingdom is a net importer of
foodstuffs and raw materials other than fuels, as well as of clothing and
footwear, electrical machinery and motor vehicles, and a net exporter of
petroleum and petroleum-related products, chemical products, tobacco, beverages
and mechanical machinery. For every year since 1982, the United Kingdom has been
a net importer of goods. The relative importance of the United Kingdom's trading
partners has also shifted. In 2003, the other members of the European Union
("EU") accounted for 56.0% of all exports and 55.0% of its imports, as compared
to 43.3% and 41.3%, respectively, in 1980. In 2003, the United Kingdom's largest
trading partners with respect to exports and imports were the United States and
Germany, respectively.
Historically, the United Kingdom's current account consisted of relatively
small trade deficits, sometimes outweighed by surpluses on invisibles (services,
interest, dividends, profits and transfers). Since 1980, several important
changes have taken place with regard to the United Kingdom's trading position.
Those include the increased importance to the economy of oil exports from the
North Sea, the change from being a net exporter to a net importer of goods and
the diminishing surpluses from invisibles. These developments led to a balance
of payments deficit, which has continued through 2003 with the exception of
1997, when the balance of payments moved into surplus.
The general government budget balance for the 1997/1998 fiscal year was
well below the permitted level for countries permitted to participate in the
Economic and Monetary Union ("EMU") beginning in January 1999. Although the
United Kingdom met the EMU's eligibility criteria, the government chose not to
participate in the EMU when it was launched in January 1999. Further, the
government announced that it would not take any action before a referendum was
held after the next general election, which occurred on June 7, 2001.
Nonetheless, the government submitted a report to the European Commission
detailing the steps the government is taking to prepare the United Kingdom for
joining the EMU at a later date in the event it decides to do so. The issue of
the United Kingdom's membership in the EMU has become very contentious, however,
and the possibility of a referendum before the next general election has become
a remote one. Not only is there little prospect of the United Kingdom joining
the EMU, Prime Minister Blair unexpectedly announced in April 2004 that any
future EU constitution would be subject to ratification by British voters.
Previously, Prime Minister Blair had stated that such a referendum would be
unnecessary.
Having fallen in 1999-2000 to its lowest level since the mid-1960s, public
expenditure has been on the rise, although not more than to the level of 1997,
when the Labor government
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took office. The increased public expenditure is the result of improvements to
public services and a slowdown in tax receipts. The resulting deterioration in
the United Kingdom's public finances could jeopardize the government's adherence
to two self-imposed rules - that the government should borrow to invest, but not
to fund current spending, and that public sector net debt ("PSND") should not be
more than 40% of GDP. In 2003, the PSND stood at 39.8% of GDP, which was higher
than in 2002, but still within the targeted limit and the lowest level in the
G-7 group of industrialized nations. The Euro area average in 2003 was
approximately 75% of GDP. It is anticipated that the government will have to
either raise taxes or reduce planned expenditures in order to abide by the first
rule.
Monetary and Banking System
The central bank of the United Kingdom is the Bank of England. Its main
functions are to advise on the formulation and execution of monetary policy, to
supervise banking operations in the United Kingdom, to manage the domestic
currency, and, as agent for the Government, the country's foreign exchange
reserves. Additionally, shortly after taking office in 1997, Prime Minister
Blair vested responsibility for setting interest rates in a new Monetary Policy
Committee headed by the Bank of England, as opposed to the Treasury.
The City of London is one of the world's major financial centers. It has
the greatest concentration of banks and the largest insurance market in the
world. In 2003, approximately 450 foreign banks had a physical presence in
London, more than twice the number in the next-largest international finance
centers, Frankfurt and New York City. It is estimated that United Kingdom
insurers handle approximately 23% of the general insurance business placed in
the international market. Financial and business services currently form
approximately 25.4% of the country's GDP.
The growing importance of trade with the EU has made the Deutsche Mark
exchange rate more important to the United Kingdom than the U.S. Dollar exchange
rate over the past 20 years. Since mid-1996, the Pound has appreciated strongly
against the Deutsche Mark. After remaining in a fairly narrow range against the
U.S. Dollar since 1995, the Pound's link to the U.S. Dollar appears to have been
broken. In 1996, the average annual exchange rates of the Pound against the U.S.
Dollar and the Deutsche Mark were $1.59 and DM2.41, respectively. In 1997, the
average exchange rates of the Pound against the U.S. Dollar and the Deutsche
Mark were $1.64 and DM2.84, respectively. In 1998, the average exchange rates of
the Pound against the U.S. Dollar and the Deutsche Mark were $1.66 and DM2.91,
respectively. In 1999, the average exchange rates of the Pound against the U.S.
Dollar and the Deutsche Mark were $1.62 and DM2.97, respectively. In 2000, the
average exchange rates of the Pound against the U.S. Dollar and the Deutsche
Mark were $1.52 and DM3.21, respectively. In 2001, the average exchange rates of
the Pound against the U.S. Dollar and the Deutsche Mark were $1.44 and DM3.22
respectively. In 2002, the average exchange rates of the Pound against the U.S.
Dollar and the Euro (as discussed below, the Deutsche Mark and certain other
European currencies were withdrawn from circulation in early 2002 and replaced
by the Euro) were $1.50 and (euro)0.95, respectively. In 2003, the average
exchange rates of the Pound against the U.S. Dollar and the Euro were $1.63 and
(euro)1.44, respectively.
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On January 1, 1999 eleven member countries of the EU (Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal
and Spain) adopted the Euro as their common currency. On January 1, 2001 Greece
became the twelfth country to adopt the Euro as its currency. In the transition
period of January 1, 1999 to January 1, 2002, the national currencies of these
participating countries (e.g., the Deutsche Mark and the French Franc) were
subdivisions of the Euro. On January 1, 2002, Euro banknotes and coins were put
into general circulation in the twelve participating countries. By February 28,
2002, each of the old national currencies was withdrawn from circulation and the
Euro became the exclusive currency in those countries. The ECU, which was not a
true currency in its own right, but rather a unit of account whose value was
tied to its underlying constituent currencies, ceased to exist as of January 1,
1999, at which time all ECU obligations were converted into Euro obligations at
a 1:1 conversion rate.
The London Stock Exchange
The London Stock Exchange ("LSE") is both the national stock exchange for
the United Kingdom and the world's leading marketplace for the trading of
international equities. The LSE provides a secondary market for trading in more
than 10,000 securities. It offers markets for domestic securities (securities
issued by companies in the United Kingdom or Ireland), foreign equities, United
Kingdom gilts (securities issued by the national government), bonds or fixed
interest stocks (usually issued by companies or local authorities) and options.
As of August 31, 2004, foreign equities constituted approximately 58% and United
Kingdom equities constituted approximately 42% of the market value of all LSE
listed and quoted equity securities. The LSE was the world's third largest stock
exchange in terms of market value, the New York Stock Exchange being the largest
and the Tokyo Stock Exchange being the second largest. Although the United
Kingdom's decision not to join the EMU when it was launched in 1999 has provoked
some migration from London to other European areas, London remains a dominant
financial center in Western Europe.
The LSE comprises different markets. In addition to the market for
officially-listed securities, the LSE includes a market created in 1995 for
smaller and newer companies known as AIM. As of August 31, 2004, 917 companies
with an aggregate market value of 23.6 billion Pounds were traded on AIM. As of
August 31, 2004, the market value of the securities traded on AIM was less than
1% of the market value of the securities officially listed on the LSE. Another
new market, known as techMARK, was launched by the LSE on November 4, 1999 for
innovative technology companies. As of August 31, 2004, 171 companies with an
aggregate market value of 269.9 billion Pounds were traded on techMARK.
The LSE runs markets for trading securities by providing a market
structure, regulating the operation of the markets, supervising the conduct of
member firms dealing in the markets, publishing company news and providing trade
confirmation and settlement services. The domestic market is based on the
competing marketmaker system. The bid and offer prices are distributed digitally
via the Exchange's automated price information system, SEAQ (Stock Exchange
Automated Quotations), which provides widespread dissemination of the securities
prices for the United Kingdom equity market. Throughout the trading day,
marketmakers display their bid (buying) and offer (selling) prices and the
maximum transaction size to which
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these prices relate. These prices are firm to other LSE member firms, except
that the prices for larger transactions are negotiable.
Marketmakers in the international equity market display their quotes on
SEAQ International. The system operates in a manner similar to the domestic
SEAQ, but is divided into 40 separate country sectors, of which 15 are
developing markets sectors.
On October 20, 1997 the LSE launched the new Stock Exchange Electronic
Trading Service, an initiative that will improve efficiency and lower share
trading costs, and is expected to attract more volume and thus increase
liquidity.
On July 7, 1998 the LSE and its German counterpart, the Deutsche Borse,
unexpectedly announced their intention to form a strategic alliance under which
members of one exchange will be members of the other. While the first phase of
the proposed alliance began in January 1999, the LSE and the Deutsche Borse
still faced numerous issues, including agreement on common regulations and
promulgation by their respective governments of a common tax regime for share
trading. In September 2000, just prior to a vote of shareholders and amid
growing concerns about regulatory matters and national and cultural differences,
opposition from retail traders and a hostile bid by a rival exchange, the
planned merger was called off. The LSE suffered another setback in 2001, when it
lost out to Euronext (the institution that resulted from the merger of the
Paris, Amsterdam and Brussels bourses) to acquire the London International
Financial Futures and Options Exchange.. Although the LSE has so far failed to
play a role in the consolidation of European stock exchanges, the changed
ownership of the LSE since 2000 may lead to greater participation.
On November 23, 1999 the LSE, together with the Bank of England and CREST
(the paperless share settlement system through which trades executed on the
LSE's markets can be settled), announced proposals for the United Kingdom's
equity and corporate debt markets to move from T+5 to T+3 settlement starting in
February 2001.
Sector Analysis of the LSE. The LSE's domestic and foreign securities
include a broad cross-section of companies involved in many different
industries. In the first eight months of 2004, the five largest industry sectors
by turnover among domestic securities were banks with 16.4%, oil and gas with
8.7%, telecommunications with 8.2%, pharmaceuticals with 7.0% and
media/photography with 6.7%.
Market Growth of the LSE. LSE market value and the trading volume have
increased dramatically since the end of 1990. In 2003, 820.3 billion domestic
shares and 794.3 billion foreign shares were traded as compared with 155.4
billion and 34.8 billion, respectively in 1990. At the end of 2003, the market
value of listed domestic companies and foreign companies increased to 1,876.9
billion Pounds and 1,759.1 billion Pounds, respectively, from 450.5 billion
Pounds and 1,124.1 billion Pounds, respectively, at the end of 1990.
Market Performance of the LSE. The FT-SE 100 is an index that consists of
the 100 largest United Kingdom companies. The FT-SE 100 was introduced by the
LSE in cooperation with The Financial Times and the Institute and Faculty of
Actuaries in 1984. As measured by the FT-SE 100, the performance of the 100
largest companies reached a record high of 6663.8 on
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May 4, 1999. On December 31, 1999, the FT-SE 100 closed at 6930.2; on December
29, 2000, the FT-SE 100 closed at 6222.5; on December 31, 2001, the FT-SE 100
closed at 5217.4; on December 31, 2002, the FT-SE 100 closed at 3940.4; and on
December 31, 2003, the FT-SE 100 closed at 4476.9.
Regulation of the United Kingdom Financial Services Industry
The principal securities law in the United Kingdom is the Financial
Services Act. The Financial Services Act, which became law in November 1986,
established a new regulatory system for the conduct of investment businesses in
the United Kingdom. Most of the statutory powers under the Act were transferred
to the Securities and Investments Board ("SIB"), a designated agency created for
this purpose. The SIB was given wide-ranging enforcement powers and was made
accountable to Parliament through the Treasury. A system of self regulating
organizations ("SROs"), which regulate their members, was made accountable to
the SIB. There are three SROs covering the financial market, including the
Securities and Futures Authority which is responsible for overseeing activities
on the Exchange. The other SROs are the Investment Management Regulatory
Organization and the Personal Investment Authority. In 1988, it became illegal
for any firm to conduct business without authorization from the SRO responsible
for overseeing its activities. In addition, Recognized Investment Exchanges
("RIEs"), which include the London Stock Exchange of London, the London
International Financial Futures and Options Exchange, the London Commodities
Exchange, the International Petroleum Exchange of London, the London Metal
Exchange and the London Securities and Derivatives Exchange were made
accountable to the SIB. Recognition as an RIE exempts the exchange (but not its
members) from obtaining authorization for actions taken in its capacity as an
RIE. To become an RIE, an exchange must satisfy the SIB that it meets various
prerequisites set out in the Act, including having effective arrangements for
monitoring and enforcing compliance with its rules. Recognized Professional
Bodies ("RPBs") supervise the conduct of lawyers, actuaries, accountants and
some insurance brokers. Together the SROs, RIEs and RPBs provide the framework
for protection for investors and integrity of the markets.
On May 20, 1997 the newly installed Labour government announced a proposed
major restructuring of the regulation and supervision of the financial services
industry in the United Kingdom. The main feature of the restructuring plan was
to transfer regulatory authority over banks from the Bank of England to an
expanded SIB, which was named the Financial Services Authority (FSA). In
addition, the plan called for the merger of the three SROs into the FSA. The
transfer of banking supervision from the Bank of England to the FSA was formally
implemented on June 1, 1998. The Financial Services and Markets Act, legislation
implementing the proposed consolidation of the SROs into the FSA, became fully
implemented on December 1, 2001. The Labour government has also taken measures
to strengthen corporate governance standards.
The EU's Investment Services Directive ("ISD") provides the framework for
a single market in financial services in Europe. The ISD allows authorized firms
to provide investment services in other EU member states on a cross-border basis
without the need for separate authorization in the host state. Revisions to the
ISD are currently under consideration.
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Basic restrictions on insider dealing in securities are contained in the
Company Securities Act of 1985. The Financial Services Act provides guidelines
for investigations into insider dealing under the Criminal Justice Act of 1993
and penalties for any person who fails to cooperate with such an investigation.
In addition, the Financial Services Act introduced new listing and disclosure
requirements for companies.
United Kingdom Foreign Exchange and Investment Controls
The United Kingdom has no exchange or investment controls, and funds and
capital may be moved freely in and out of the country. Exchange controls were
abolished in 1979. As a member of the EU, the United Kingdom applies the EU's
common external tariff.
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APPENDIX D:
STATEMENT OF POLICIES AND PROCEDURES FOR VOTING PROXIES
------------------------------------------------------------
Introduction
As a registered investment adviser, Alliance Capital Management L.P.
("Alliance Capital", "we" or "us") has a fiduciary duty to act solely in the
best interests of our clients. We recognize that this duty requires us to vote
client securities in a timely manner and make voting decisions that are in the
best interests of our clients. Consistent with these obligations, we will
disclose our clients' voting records only to them and as required by mutual fund
vote disclosure regulations. In addition, the proxy committees may, after
careful consideration, choose to respond to surveys regarding past votes.
This statement is intended to comply with Rule 206(4)-6 of the Investment
Advisers Act of 1940. It sets forth our policies and procedures for voting
proxies for our discretionary investment advisory clients, including investment
companies registered under the Investment Company Act of 1940. This statement
applies to Alliance Capital's growth and value investment groups investing on
behalf of clients in both U.S. and non-U.S. securities.
Proxy Policies
This statement is designed to be responsive to the wide range of proxy
voting subjects that can have a significant effect on the investment value of
the securities held in our clients' accounts. These policies are not exhaustive
due to the variety of proxy voting issues that we may be required to consider.
Alliance Capital reserves the right to depart from these guidelines in order to
avoid voting decisions that we believe may be contrary to our clients' best
interests. In reviewing proxy issues, we will apply the following general
policies:
Corporate Governance: Alliance Capital's proxy voting policies recognize the
importance of good corporate governance in ensuring that management and the
board of directors fulfill their obligations to the shareholders. We favor
proposals promoting transparency and accountability within a company. We will
vote for proposals providing for equal access to the proxy materials so that
shareholders can express their views on various proxy issues. We also support
the appointment of a majority of independent directors on key committees and
separating the positions of chairman and chief executive officer.
Elections of Directors: Unless there is a proxy fight for seats on the Board or
we determine that there are other compelling reasons for withholding votes for
directors, we will vote in favor of the management proposed slate of directors.
That said, we believe that directors have a duty to respond to shareholder
actions that have received significant shareholder support. We may withhold
votes for directors that fail to act on key issues such as failure to implement
proposals to declassify boards, failure to implement a majority vote
requirement, failure to submit a rights plan to a shareholder vote or failure to
act on tender offers where a majority of shareholders have
D-1
tendered their shares. In addition, we will withhold votes for directors who
fail to attend at least seventy-five percent of board meetings within a given
year without a reasonable excuse. Finally, we may withhold votes for directors
of non-U.S. issuers where there is insufficient information about the nominees
disclosed in the proxy statement.
Appointment of Auditors: Alliance Capital believes that the company remains in
the best position to choose the auditors and will generally support management's
recommendation. However, we recognize that there may be inherent conflicts when
a company's independent auditor performs substantial non-audit related services
for the company. While we will recognize that there may be special circumstances
that could lead to high non-audit fees in some years, we would normally consider
non-audit fees in excess of 70% to be disproportionate. Therefore, we may vote
against the appointment of auditors if the fees for non-audit related services
exceed 70% of the total audit fees paid by the company or there are other
reasons to question the independence of the company's auditors.
Changes in Legal and Capital Structure: Changes in a company's charter, articles
of incorporation or by-laws are often technical and administrative in nature.
Absent a compelling reason to the contrary, Alliance Capital will cast its votes
in accordance with the company's management on such proposals. However, we will
review and analyze on a case-by-case basis any non-routine proposals that are
likely to affect the structure and operation of the company or have a material
economic effect on the company. For example, we will generally support proposals
to increase authorized common stock when it is necessary to implement a stock
split, aid in a restructuring or acquisition or provide a sufficient number of
shares for an employee savings plan, stock option or executive compensation
plan. However, a satisfactory explanation of a company's intentions must be
disclosed in the proxy statement for proposals requesting an increase of greater
than one hundred percent of the shares outstanding. We will oppose increases in
authorized common stock where there is evidence that the shares will be used to
implement a poison pill or another form of anti-takeover device, or if the
issuance of new shares could excessively dilute the value of the outstanding
shares upon issuance.
Corporate Restructurings, Mergers and Acquisitions: Alliance Capital believes
proxy votes dealing with corporate reorganizations are an extension of the
investment decision. Accordingly, we will analyze such proposals on a
case-by-case basis, weighing heavily the views of the research analysts that
cover the company and the investment professionals managing the portfolios in
which the stock is held.
Proposals Affecting Shareholder Rights: Alliance Capital believes that certain
fundamental rights of shareholders must be protected. We will generally vote in
favor of proposals that give shareholders a greater voice in the affairs of the
company and oppose any measure that seeks to limit those rights. However, when
analyzing such proposals we will weigh the financial impact of the proposal
against the impairment of shareholder rights.
Anti-Takeover Measures: Alliance Capital believes that measures that impede
takeovers or entrench management not only infringe on the rights of shareholders
but may also have a detrimental effect on the value of the company. We will
generally oppose proposals, regardless of whether they are advanced by
management or shareholders, the purpose or effect of which is to entrench
management or dilute shareholder ownership. Conversely, we support proposals
that
D-2
would restrict or otherwise eliminate anti-takeover measures that have already
been adopted by corporate issuers. For example, we will support shareholder
proposals that seek to require the company to submit a shareholder rights plan
to a shareholder vote. We will evaluate, on a case-by-case basis, proposals to
completely redeem or eliminate such plans. Furthermore, we will generally oppose
proposals put forward by management (including blank check preferred stock,
classified boards and supermajority vote requirements) that appear to be
intended as management entrenchment mechanisms.
Executive Compensation: Alliance Capital believes that company management and
the compensation committee of the board of directors should, within reason, be
given latitude to determine the types and mix of compensation and benefit awards
offered. Whether proposed by a shareholder or management, we will review
proposals relating to executive compensation plans on a case-by-case basis to
ensure that the long-term interests of management and shareholders are properly
aligned. We will analyze the proposed plans to ensure that shareholder equity
will not be excessively diluted, the option exercise price is not below market
price on the date of grant and an acceptable number of employees are eligible to
participate in such programs. We will generally oppose plans that permit
repricing of underwater stock options without shareholder approval. Other
factors such as the company's performance and industry practice will generally
be factored into our analysis. We will support proposals to submit severance
packages that do not exceed 2.99 times the sum of an executive officer's base
salary plus bonus that are triggered by a change in control to a shareholder.
Finally, we will support shareholder proposals requiring companies to expense
stock options because we view them as a large corporate expense.
Social and Corporate Responsibility: Alliance Capital will review and analyze on
a case-by-case basis proposals relating to social, political and environmental
issues to determine whether they will have a financial impact on shareholder
value. We will vote against proposals that are unduly burdensome or result in
unnecessary and excessive costs to the company. We may abstain from voting on
social proposals that do not have a readily determinable financial impact on
shareholder value.
Proxy Voting Procedures
Proxy Voting Committees
Our growth and value investment groups have formed separate proxy voting
committees to establish general proxy policies for Alliance Capital and consider
specific proxy voting matters as necessary. These committees periodically review
these policies and new types of corporate governance issues, and decide how we
should vote on proposals not covered by these policies. When a proxy vote cannot
be clearly decided by an application of our stated policy, the proxy committee
will evaluate the proposal. In addition, the committees, in conjunction with the
analyst that covers the company, may contact corporate management and interested
shareholder groups and others as necessary to discuss proxy issues. Members of
the committee include senior investment personnel and representatives of the
Legal and Compliance Department. The committees may also evaluate proxies where
we face a potential conflict of interest (as discussed below). Finally, the
committees monitor adherence to these policies.
D-3
Conflicts of Interest
Alliance Capital recognizes that there may be a potential conflict of
interest when we vote a proxy solicited by an issuer whose retirement plan we
manage, or we administer, who distributes Alliance Capital sponsored mutual
funds, or with whom we or an employee has another business or personal
relationship that may affect how we vote on the issuer's proxy. Similarly,
Alliance may have a potential material conflict of interest when deciding how to
vote on a proposal sponsored or supported by a shareholder group that is a
client. We believe that centralized management of proxy voting, oversight by the
proxy voting committees and adherence to these policies ensures that proxies are
voted with only our clients' best interests in mind. That said, we have
implemented additional procedures to ensure that our votes are not the product
of a material conflict of interests, including: (i) on an annual basis, the
proxy committees will take reasonable steps to evaluate the nature of Alliance
Capital's and our employees' material business and personal relationships (and
those of our affiliates) with any company whose equity securities are held in
client accounts and any client that has sponsored or has material interest in a
proposal upon which we will be eligible to vote; (ii) requiring anyone involved
in the decision making process to disclose to the chairman of the appropriate
proxy committee any potential conflict that they are aware of (including
personal relationships) and any contact that they have had with any interested
party regarding a proxy vote; (iii) prohibiting employees involved in the
decision making process or vote administration from revealing how we intend to
vote on a proposal in order to reduce any attempted influence from interested
parties; and (iv) where a material conflict of interests exists, reviewing our
proposed vote by applying a series of objective tests and, where necessary,
considering the views of a third party research service to ensure that our
voting decision is consistent with our clients' best interests.
Because under certain circumstances, Alliance Capital considers the
recommendation of third party research services, the proxy committees will take
reasonable steps to verify that any third party research service is in fact
independent based on all of the relevant facts and circumstances. This includes
reviewing the third party research service's conflict management procedures and
ascertaining, among other things, whether the third party research service (i)
has the capacity and competency to adequately analyze proxy issues; and (ii) can
make such recommendations in an impartial manner and in the best interests of
our clients.
Proxies of Certain Non-US Issuers
Proxy voting in certain countries requires "share blocking." Shareholders
wishing to vote their proxies must deposit their shares shortly before the date
of the meeting (usually one-week) with a designated depositary. During this
blocking period, shares that will be voted at the meeting cannot be sold until
the meeting has taken place and the shares are returned to the clients'
custodian banks. Alliance Capital may determine that the benefit to the client
of exercising the vote does not outweigh the cost of voting, which is not being
able to transact in the shares during this period. Accordingly, if share
blocking is required we may abstain from voting those shares.
In addition, voting proxies of issuers in non-U.S. markets may give rise
to a number of administrative issues that may prevent Alliance Capital from
voting such proxies. For example, Alliance Capital may receive meeting notices
without enough time to fully consider the proxy or
D-4
after the cut-off date for voting. Other markets require Alliance Capital to
provide local agents with power of attorney prior to implementing Alliance
Capital's voting instructions. Although it is Alliance Capital's policy to seek
to vote all proxies for securities held in client accounts for which we have
proxy voting authority, in the case of non-U.S. issuers, we vote proxies on a
best efforts basis.
Proxy Voting Records
Clients may obtain information about how we voted proxies on their behalf
by contacting their Alliance Capital administrative representative.
Alternatively, clients may make a written request for proxy voting information
to: Mark R. Manley, Senior Vice President & Chief Compliance Officer, Alliance
Capital Management L.P., 1345 Avenue of the Americas, New York, NY 10105.
D-5
PROXY CARD
Vote by Touch-Tone Phone, by Mail, or via the Internet!!
CALL: To vote by phone call toll-free 1-800-690-6903 and
follow the recorded instructions.
LOG-ON: Vote on the internet at www.proxyweb.com and
--------------------
follow the online directions.
MAIL: Return the signed proxy card in the enclosed envelope.
PROXY IN CONNECTION WITH THE SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD MAY 17, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE FUND
AllianceBernstein All-Asia Investment Fund, Inc.
The undersigned hereby appoints Dennis Bowden and Christina Morse, or either of
them, as proxies for the undersigned, each with full power of substitution, to
attend the Meeting of Shareholders (the "Meeting") of the AllianceBernstein
All-Asia Investment Fund, Inc. (the "Fund") to be held at 11:00 a.m., Eastern
Time, on May 17, 2005 at the offices of the Fund at 1345 Avenue of the Americas,
41st Floor, New York, New York 10105, and at any postponement or adjournment
thereof, to cast on behalf of the undersigned all votes that the undersigned is
entitled to cast at the Meeting and otherwise to represent the undersigned at
the Meeting with all powers possessed by the undersigned if personally present
at the Meeting. The undersigned hereby acknowledges receipt of the Notice of
Meeting and accompanying Proxy Statement, revokes any proxy previously given
with respect to the Meeting and instructs said proxies to vote said shares as
indicated on the reverse side of this proxy card.
IF THIS PROXY CARD IS PROPERLY EXECUTED, THE VOTES ENTITLED TO BE CAST BY THE
UNDERSIGNED WILL BE CAST AS SPECIFIED. IF THIS PROXY CARD IS PROPERLY EXECUTED
BUT NO SPECIFICATION IS MADE FOR ANY ONE OR MORE OF THE PROPOSALS, THE VOTES
ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST "FOR" PROPOSALS AS TO WHICH
NO SPECIFICATION IS MADE, AND IN THE DISCRETION OF THE PROXY HOLDER(S) ON ANY
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENCLOSED ENVELOPE.
/X/ Please mark votes as in this example.
- --------------------------------------------------------------------------------
PROPOSAL (1) Acquisition by AllianceBernstein International Premier Growth Fund,
Inc. (which Fund shall be named the "AllianceBernstein International Research
Growth Fund, Inc." by the time of the Meeting) of all of the assets and
liabilities of the Fund in exchange for shares of AllianceBernstein
International Premier Growth Fund, Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
PROPOSAL (2) To vote and otherwise represent the undersigned on any other matter
that may properly come before the meeting, any postponement or adjournment
thereof, including any matter incidental to the conduct of the Meeting, in the
discretion of the Proxy holder(s).
|_| FOR (Grant) |_| AGAINST (Withhold)
Please check here if you plan to attend the Meeting
|_| I WILL ATTEND THE MEETING
Please be sure to sign your name(s) exactly as it appears on this Proxy Card.
______________________________________________________________
Signature(s) of Shareholder(s)
Date: ______________________________________, 2005
______________________________________________________________
Signature(s) of Shareholder(s)
Date: ______________________________________, 2005
IMPORTANT: Please sign legibly and exactly as the name appears on this card.
Joint owners must EACH sign the proxy. When signing as executor, administrator,
attorney, trustee or guardian, or as custodian for a minor, please give the FULL
title of such. If a corporation, please give the FULL corporate name and
indicate the signer's office. If a partner, please sign in the partnership name.
***PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE***
PROXY CARD
Vote by Touch-Tone Phone, by Mail, or via the Internet!!
CALL: To vote by phone call toll-free 1-800-690-6903 and
follow the recorded instructions.
LOG-ON: Vote on the internet at www.proxyweb.com and
--------------------
follow the online directions.
MAIL: Return the signed proxy card in the enclosed envelope.
PROXY IN CONNECTION WITH THE SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD MAY 17, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE FUND
AllianceBernstein New Europe Fund, Inc.
The undersigned hereby appoints Dennis Bowden and Christina Morse, or either of
them, as proxies for the undersigned, each with full power of substitution, to
attend the Meeting of Shareholders (the "Meeting") of the AllianceBernstein New
Europe Fund, Inc. (the "Fund") to be held at 11:00 a.m., Eastern Time, on May
17, 2005 at the offices of the Fund at 1345 Avenue of the Americas, 41st Floor,
New York, New York 10105, and at any postponement or adjournment thereof, to
cast on behalf of the undersigned all votes that the undersigned is entitled to
cast at the Meeting and otherwise to represent the undersigned at the Meeting
with all powers possessed by the undersigned if personally present at the
Meeting. The undersigned hereby acknowledges receipt of the Notice of Meeting
and accompanying Proxy Statement, revokes any proxy previously given with
respect to the Meeting and instructs said proxies to vote said shares as
indicated on the reverse side of this proxy card.
IF THIS PROXY CARD IS PROPERLY EXECUTED, THE VOTES ENTITLED TO BE CAST BY THE
UNDERSIGNED WILL BE CAST AS SPECIFIED. IF THIS PROXY CARD IS PROPERLY EXECUTED
BUT NO SPECIFICATION IS MADE FOR ANY ONE OR MORE OF THE PROPOSALS, THE VOTES
ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST "FOR" PROPOSALS AS TO WHICH
NO SPECIFICATION IS MADE, AND IN THE DISCRETION OF THE PROXY HOLDER(S) ON ANY
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENCLOSED ENVELOPE.
/X/ Please mark votes as in this example.
- --------------------------------------------------------------------------------
PROPOSAL (1) Acquisition by AllianceBernstein International Premier Growth Fund,
Inc. (which Fund shall be named the "AllianceBernstein International Research
Growth Fund, Inc." by the time of the Meeting) of all of the assets and
liabilities of the Fund in exchange for shares of AllianceBernstein
International Premier Growth Fund, Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
PROPOSAL (2) To vote and otherwise represent the undersigned on any other matter
that may properly come before the meeting, any postponement or adjournment
thereof, including any matter incidental to the conduct of the Meeting, in the
discretion of the Proxy holder(s).
|_| FOR (Grant) |_| AGAINST (Withhold)
Please check here if you plan to attend the Meeting
|_| I WILL ATTEND THE MEETING
Please be sure to sign your name(s) exactly as it appears on this Proxy Card.
______________________________________________________________
Signature(s) of Shareholder(s)
Date: ______________________________________, 2005
______________________________________________________________
Signature(s) of Shareholder(s)
Date: ______________________________________, 2005
IMPORTANT: Please sign legibly and exactly as the name appears on this card.
Joint owners must EACH sign the proxy. When signing as executor, administrator,
attorney, trustee or guardian, or as custodian for a minor, please give the FULL
title of such. If a corporation, please give the FULL corporate name and
indicate the signer's office. If a partner, please sign in the partnership name.
***PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE***
ALLIANCEBERNSTEIN INTERNATIONAL PREMIER GROWTH FUND, INC.
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
Incorporated by reference to Post-Effective Amendment No. 15 to the Registrant's
Registration Statement on Form N-1A under the Securities Act of 1933 and
Amendment No.16 on Form N-1A under the Investment Company Act of 1940 (File Nos.
333-41375 and 811-08527).
Item 16. Exhibits
(1)(a) Articles of Incorporation of the Registrant - Incorporated by reference
to Exhibit 1 to Registrant's Registration Statement on Form N-1A (File
Nos. 333-41375 and 811-08527) filed with the Securities and Exchange
Commission on December 2, 1997.
(1)(b) Articles of Amendment to Articles of Incorporation dated March 19, 2003
and filed March 20, 2003 - Incorporated by reference to Exhibit (a)(2)
to Post-Effective Amendment No. 14 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-41375 and 811-08527) filed with
the Securities and Exchange Commission on October 31, 2003.
(2) Amended and Restated By-Laws of the Registrant - Incorporated by
reference to Exhibit (b) to Post-Effective Amendment No. 15 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-41375
and 811-08527) filed with the Securities and Exchange Commission on
November 1, 2004.
(3) Not applicable
(4)(a) Agreement and Plan of Reorganization of AllianceBernstein All-Asia
Investment Fund, Inc. - Constitutes Appendix A to Part A hereof.
(4)(b) Agreement and Plan of Reorganization of AllianceBernstein New Europe
Fund, Inc. - Constitutes Appendix B to Part A hereof.
(5) Not applicable.
(6)(a) Advisory Agreement between the Registrant and Alliance Capital
Management L.P. - incorporated by reference to Exhibit 5 to
Post-Effective Amendment No. 1 of Registrant's Registration Statement on
Form N-1A (File Nos. 333-41375 and 811-08527) filed with the Securities
and Exchange Commission on October 30, 1998.
(6)(b) Form of Amended and Restated Advisory Agreement - Incorporated by
reference to Exhibit (b) to Post-Effective Amendment No. 15 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-41375
and 811-08527) filed with the Securities and Exchange Commission on
November 1, 2004.
(7)(a) Distribution Services Agreement between the Registrant and
AllianceBernstein Investment Research and Management, Inc. (formerly
known as Alliance Fund Distributors, Inc.) - Incorporated by reference
to Exhibit 6(a) to Post-Effective Amendment No. 1 of Registrant's
Registration Statement on Form N-1A (File Nos. 333-41375 and 811-08527)
filed with the Securities and Exchange Commission on October 30, 1998.
7(b) Form of Selected Dealer Agreement between AllianceBernstein Investment
Research and Management, Inc. (formerly known as Alliance Fund
Distributors, Inc.) and selected dealers offering shares of Registrant -
Incorporated by reference to Exhibit (e)(2) to Post-Effective Amendment
No. 11 of Registrant's Registration Statement on Form N-1A (File Nos.
333-41375 and 811-08527) filed with the Securities and Exchange
Commission on October 30, 2002.
7(c) Form of Selected Agent Agreement between AllianceBernstein Investment
Research and Management, Inc. (formerly known as Alliance Fund
Distributors, Inc.) and selected agents making available shares of
Registrant - Incorporated by reference to Exhibit (e)(3) to
Post-Effective Amendment No. 11 of Registrant's Registration Statement
on Form N-1A (File Nos. 333-41375 and 811-08527) filed with the
Securities and Exchange Commission on October 30, 2002.
(8) Not applicable.
(9) Custodian Contract between the Registrant and Brown Brothers Harriman &
Co. - Incorporated by reference to Exhibit 8 to Post-Effective Amendment
No. 1 of Registrant's Registration Statement on Form N-1A (File Nos.
333-41375 and 811-08527) filed with the Securities and Exchange
Commission on October 30, 1998.
(10)(a) 12b-1 Plan - see Exhibit (e)(1) hereto.
10(b) Amended and Restated Rule 18f-3 Plan - Incorporated by reference to
Exhibit (b) to Post-Effective Amendment No. 15 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-41375 and 811-08527)
filed with the Securities and Exchange Commission on November 1, 2004.
(11) Form of Opinion of Counsel - filed herewith.
(12) Form of Opinion of Ropes & Gray LLP as to Tax Matters - to be filed by
Post-Effective Amendment.
(13)(a) Transfer Agency Agreement between the Registrant and Alliance Global
Investor
-2-
Services, Inc. - Incorporated by reference to Exhibit 9 to
Post-Effective Amendment No. 1 of Registrant's Registration Statement on
Form N-1A (File Nos. 333-41375 and 811-08527) filed with the Securities
and Exchange Commission on October 30, 1998.
13(b) Expense Limitation Undertaking by Alliance Capital Management L.P. -
Incorporated by reference to Exhibit (h)(2) to Post-Effective Amendment
No. 4 of Registrant's Registration Statement on Form N-1A (File Nos.
333-41375 and 811-08527) filed with the Securities and Exchange
Commission on October 29, 1999.
(14)(a) Consent of PricewaterhouseCoopers LLP, Independent Registered Public
Accounting Firm - filed herewith.
(15) Not applicable.
(16) Powers of Attorney for Ruth Block, David H. Dievler, John H. Dobkin,
Michael J. Downey, William H. Foulk, Jr., and Marc O. Mayer - filed
herewith.
(17) Not applicable.
Item 17. Undertakings
(a) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) under the Securities Act of 1933, as amended,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(b) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (a) above will be filed as a part of an amendment to this Registration
Statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new Registration Statement for the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
-3-
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of the Registrant
is on file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this Registration Statement has been executed on
behalf of the Registrant by an officer of the Registrant as an officer and not
individually, and the obligations of or arising out of this Registration
Statement are not binding upon any of the Trustees, officers, or shareholders of
the Registrant individually, but are binding only upon the assets and property
of the Registrant.
-4-
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the Registrant, in the City of New York
and the State of New York on the 24th day of March, 2005.
ALLIANCEBERNSTEIN INTERNATIONAL
PREMIER GROWTH FUND, INC.
By: Marc O. Mayer
-------------
Marc O.Mayer*
President
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Marc O. Mayer
- -------------
Marc O. Mayer* Principal Executive Officer March 24, 2005
/s/ Mark D. Gersten
- -------------------
Mark D. Gersten Treasurer and Chief Financial
Officer March 24, 2005
All of the Directors
Ruth Block*
David H. Dievler*
John H. Dobkin*
Michael J. Downey*
William H. Foulk, Jr.*
Marc O. Mayer*
*By: /s/ Joseph Bertini
----------------------
as Attorney-in-Fact
March 24, 2005
-5-
EXHIBIT INDEX
(11) Form of Opinion of Counsel.
(14)(a) Consent of PricewaterhouseCoopers LLP, Independent Registered Public
Accounting Firm.
-6-