Mutual Fund Expense Information on Quarterly Shareholder Statements

Transcription

1 June 2005 Mutual Fund Expense Information on Quarterly Shareholder Statements You may have noticed that beginning with your March 31 quarterly statement from AllianceBernstein, two new sections have been added. We wanted to let you know that this change was made to help you better assess the ownership costs associated with your AllianceBernstein investments. This change is part of our ongoing effort to provide full disclosure of fund information based on new client communications initiatives at our firm, along with new regulatory requirements. It is important to note that these types of fees and expenses are not new they are typical costs of operating a mutual fund. These fees and expenses are not additional no payment from you is required. In fact, all mutual funds have fees and expenses which are reflected in a mutual fund s price (they are not charged to your account directly). These fees and expenses, which are outlined in each Fund s prospectus, cover costs such as research, trading, record keeping services, web site services, toll-free phone lines, legal, and accounting all necessary requirements for operating a mutual fund. The two new sections of your statement are: 1) The Current Expense Summary section which displays: > Each fund name, fund number, account number > Annual expense ratio of each fund owned > Quarterly fees > Ending value of each of the funds owned (as of the end of the quarter) 2) The Expense Summary section which displays: A dollars-and-cents example of a hypothetical investment, and details its hypothetical returns, both before and after expenses. Keep in mind that a fund s returns are always stated after expenses. REMEMBER: these expenses are not new. All mutual fund shareholders, including AllianceBernstein shareholders, are charged fees and expenses. We are now displaying them on your quarterly statement, so you can easily compare the costs of one fund to another.

2 Important Notes Regarding Expenses > Fees and expenses are not new. > Expenses are reflected in the fund s price and are not charged to a client s individual account directly. > Operating expenses include all of the normal costs of running a mutual fund (payment to managers, maintaining phone lines, mailing prospectuses, etc.). > Expenses can vary by Share Class (e.g., A, B, C). > Funds that focus their investments on a particular industry sector generally have higher expense ratios than general equity funds, which, in turn, generally have higher expense ratios than bond funds. International funds generally have higher expense ratios than comparable domestic funds. > Fees and expenses fluctuate over time and may be higher or lower than estimates shown. > Keep in mind that a fund s returns are always stated after expenses. > If your AllianceBernstein Fund shares are held in a brokerage account, your statement may not be issued by AllianceBernstein, but rather by the brokerage firm, and therefore may not show fund fees and expenses. Deciding what information to include on statements is at the discretion of the issuing firm.

3 Understanding Your New AllianceBernstein Account Statement The Current Expense Summary section This section lists: the fund names, fund numbers, account numbers, annual expense ratios, quarterly fees and ending value for each fund you own as of the end of the quarter. To help you understand the calculations used in the Current Expense Summary, AllianceBernstein Balanced Wealth Strategy Class A shares will be used as an example. Current Expense Summary Fund Name Fund/Account Number Annual Your Quarterly Ending Value Expense Ratio Fees 03/31/05 ALLIANCEBERNSTEIN BALANCED WEALTH STRATEGY A % $66.87 $25,000 Please note that the Annual Expense Ratio for this fund is 1.07%. In reporting the figure in the Your Quarterly Fees column, the Annual Expense Ratio is divided by 4 (representing each calendar quarter) and then multiplied by the Ending Value. In this case, 1.07% (.0107) is divided by 4 = to determine the applicable Quarterly Rate. The $25, (Ending Value) is then multiplied by (Quarterly Rate) which = $66.87 (Your Quarterly Fees). Important: The above representation of applied expenses illustrates the Ending Value of Balanced Wealth Strategy Class A shares, after factoring in the rate of return since the last statement net of applied expenses. Definitions: > Annual Expense Ratio represents the Fund s annual operating expenses shown in its most current financial report, net of any applicable fee waiver and/or expense reimbursement. > Your Quarterly Fees reflects the approximate fees and expenses your Fund investment incurred over the quarter, assuming that your Ending Value was held for the entire quarter. It does not take into account any initial or contingent deferred sales charges on redemptions. Your actual fees and expenses may be higher or lower. > Ending Value is the value of your account as of the date indicated.

4 Understanding Your New AllianceBernstein Account Statement The Expense Summary section This hypothetical example was created to show you the impact of fees and expenses on your investment over a 10-year period. This section assumes a $10,000 investment into a given fund held for a 10-year period and a hypothetical 5% rate of return each year. To help you understand the calculations used in the Expense Summary, AllianceBernstein Balanced Wealth Strategy Class A shares will be used as an example. Expense Summary The following chart illustrates the hypothetical Fees and Expenses for Annual Expense Ratio ALLIANCEBERNSTEIN BALANCED WEALTH STRATEGY CLASS A SHARES 1.07% Year Total Investment $10, $10, $10, $11, $11, $12, $12, $13, $13, $14, Performance Earnings $ $ $ $ $ $ $ $ $ $ $5, Investment After Returns $10, $10, $11, $11, $12, $12, $13, $13, $14, $14, Expenses $ $ $ $ $ $ $ $ $ $ $1, Ending Investment $10, $10, $11, $11, $12, $12, $13, $13, $14, $14, Please note that the Annual Expense Ratio for this fund is 1.07%. In this example, an account is opened with $10,000. It is assumed that the current Annual Expense Ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. It does not take into account any initial or contingent deferred sales charges on redemptions. Your actual fees and expenses may be higher or lower. In Year 1, the Performance Earning is $500, which is based on the original $10,000 investment, plus the 5% rate of return, resulting in Investment After Returns of $10,500. This amount is then multiplied by the Annual Expense Ratio of 1.07% (.0107) to determine the Expenses for the year which = $ Finally, the $ is deducted from the $10,500 to determine the Ending Investment of $10, This figure represents a hypothetical estimate of investment results less any expenses. The above example outlines this same scenario over each year of a 10-year period and shows cumulative totals after the 10-year period. Keep in mind that a fund s returns are always stated after expenses. Definitions: > Annual Expense Ratio represents the Fund s annual operating expenses shown in its most current financial report, net of any applicable fee waiver and/or expense reimbursement. > Investment is the investment amount at the beginning of each year, after the 5% return and minus any fees. > Performance Earnings represent the amount earned during the year at 5%. > Investment After Returns are earnings, plus the initial investment. > Expenses are estimated annual expenses based on the investment after returns and expenses. > Ending Investment is the dollar amount of the investment after expenses. Frequently Asked Questions About Mutual Fund Fees 1). How do these fees and expenses affect my account?

5 It s important to note that no changes have been made to your account. Fees and expenses have been applied to your account since you opened it. Mutual fund shares are not removed from your account to cover any fees and expenses, nor are you required to forward any additional money to us. All mutual fund shareholders incur fees and expenses, which are reflected in the net asset value (NAV) price of a fund. 2). Have these fees and expenses been applied to my account before? Yes. Fees and expenses are not new they have been applied to your account since you opened it, but the expense ratios may have been different. 3). Why is this information being included now? It is part of our ongoing effort to provide full disclosure of fund information based on new firm initiatives and regulatory requirements. We have included this information to help you to assess the costs associated with your AllianceBernstein investment. 4). Do the fees and expenses impact my share balance? The fees and expenses are reflected in the net asset value (NAV) of the fund. Mutual fund shares are not removed from your account to cover the fees and expenses. 5). Will this information be provided on future statements? Yes. Going forward, quarterly statements will detail quarterly fees, which reflect the approximate fees and expenses your Fund investment incurred over the quarter, as well as quarterly expense information and hypothetical expense summaries. 6). Do all mutual funds charge fees? Yes, all mutual fund companies charge fees and expenses. Annual fund operating expenses reflect the normal costs of operating a mutual fund. Unlike transaction fees, these expenses are not charged directly to an investor, but are deducted from fund assets before earnings are distributed to shareholders. 7). Why do mutual funds charge fees, and how are the fees used by the fund? The fees you pay help cover the costs of managing the fund s portfolio of securities. They also are used to pay for producing account statements, computerized account services, recordkeeping, legal services, printing, and mailing. Some fees may also compensate a financial advisor for his or her services. 8). What is an expense ratio? A fund s expense ratio is its total annual fund operating expenses as a percentage of the fund s assets. This includes management fees, 12b-1 fees, the cost of shareholder mailings, and other administrative expenses.

6 9). How do fees affect returns on my mutual fund? The fees you pay for owning a mutual fund will reduce your return from the fund. Before investing, you should review a fund s prospectus carefully and decide if this cost is acceptable to you. And, it s a good idea to check your fund s fees when you review an investment you already have made. Keep in mind that a fund s returns are always stated after expenses. 10). What are the main types of mutual fund fees? Even if you do not memorize the name of every mutual fund fee, you should understand what you are paying for. Even more important, you should understand that the amount you pay in fees affects the return on your investment. Mutual fund fees generally fall into two categories. Both categories, shareholder fees and annual fund operating expenses, are disclosed in the fee table in the front of a fund s prospectus. (See question and answer #11 for more details regarding these fees and expenses.) 11). How do I read a fee table in a fund prospectus? The fee table is the key to helping you understand fees. This standardized table is always near the front of a fund s prospectus and lists all fees charged by a fund. Reading the fee table allows easy comparison of the costs of one fund versus another. Every fee table is broken into two sections. The first section describes shareholder fees which are the fees paid directly from your investment any sales charges or transaction fees you will pay when you buy, sell, or exchange your shares. The second section describes annual fund operating expenses and lists all of the ongoing fees you will pay each year for as long as you own shares in the fund. The fee table also includes a hypothetical example that tells you in dollars and cents what a $10,000 investment would cost based on a 5 percent return. 12). Do I have a choice in how I pay for my fund investment? Yes. Mutual funds offer different pricing arrangements to meet the needs of different investors. Many mutual funds make this possible by offering investors various classes of shares, which have different front-end or contingent deferred sales charges and distribution fees. Share classes represent ownership in the same mutual fund but offer investors a choice in how to pay for the fund. Share class names vary depending on the fund. You should review a fund s share classes to determine which option is right for you. Your professional financial adviser or broker is responsible for recommending the share class most suitable for you. While fund expenses may vary by class of share, each class does, in fact, have expenses reflected in its net asset value. 13). How can I estimate how much I will pay in fees? There are a number of ways to assess fund fees: > Ask your financial advisor. > Visit and use the Mutual Fund Fees and Expenses Calculators. This feature offers both Current Investment and Fee and Expense calculation capabilities. > Refer to your fund s prospectus. Every fund prospectus includes a fee table and an example showing the dollar amount of expenses on a $10,000 investment that earns 5% over various time periods, listed in 1-, 3-, 5-, and 10-year increments. Remember that this amount will not reflect what you will actually pay, (except in the unlikely event that you invest exactly $10,000 and your investment earns exactly 5%) but can be a useful way for you to compare the effect of the overall fees on different funds. Prospectuses are mailed to you each year and can also be accessed on our web site at

7 14). How can I learn which fees a fund charges? Mutual fund fees are subject to exacting regulatory standards and disclosure requirements. You can easily learn which fees your fund charges by looking at the fee table near the front of the fund s prospectus, which can be secured directly from the fund company or, in many cases, by visiting the fund s web site. AllianceBernstein s web site address is 15). Should I consider fund fees in making my investment decision? Yes. Fund fees are one of many important elements that should be considered when you are making a decision about whether to purchase a particular fund. It is important to remember that a fund s fees and expenses represent the cost you will incur for the services that you receive from the fund. You also need to consider the fund s investment objective, policies, and its risks. 16). Does anyone oversee the fees a fund charges? Yes. The fees you pay as a mutual fund shareholder are subject to ongoing oversight and review by the fund s board of directors, including its independent directors. Directors have a responsibility under the law to protect the interests of shareholders. A majority of a fund s board generally consists of directors who are independent of the fund s adviser. A mutual fund s directors, including the fund s independent directors, annually review the fees paid to manage the fund. Any change in these fees must be approved by holders of the majority of a fund s shares and a majority of the fund s directors. 17). Why doesn t my statement include this new mutual fund expense information? If your AllianceBernstein Fund shares are held in a brokerage account, your statement may not be issued by AllianceBernstein, but rather by the brokerage firm. Deciding what information to include on statements is at the discretion of the issuing firm. For more information, call your Investment Advisor, or call AllianceBernstein at (800) AllianceBernstein Investment Research and Management Inc., member NASD. Investment Products Offered: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed EXPENSESQ&A0505