investment management services and policies

INVESTMENT-MANAGEMENT SERVICES AND POLICIES

Foreword ..............................................................................................................................................................................1

Important Information on Changes in Asset Allocation and Account Closings ....................................................................................... 2

Investment-Management Services .............................................................................................................................................. 2

Investment-Management Decision Making ................................................................................................................................... 3

Portfolio Construction and Your Asset Allocation ........................................................................................................................... 6

How to Open an Investment Account ........................................................................................................................................ 16

How to Open a Pension, Profit-Sharing, Endowment or Foundation Account ....................................................................................... 16

Policies for Opening or Closing an Account and Communicating Instructions to Us .............................................................................. 16

Portfolio Information Systems and Review ................................................................................................................................. 18

Client Communications ......................................................................................................................................................... 18

Tax-Related Strategies and Communications ............................................................................................................................... 19

Proxy Voting ....................................................................................................................................................................... 20

Execution and Allocation ....................................................................................................................................................... 20

Investment-Management Fees and Transaction Charges ................................................................................................................ 23

Brokerage Placement Practices ............................................................................................................................................. 24

Policy Review ..................................................................................................................................................................... 25

Other Business Activities ....................................................................................................................................................... 25

Alliance Capital Management Corporation—Executive Committee .................................................................................................. 28

Chief Investment Officers ..................................................................................................................................................... 29

Investment Performance Auditors ............................................................................................................................................ 30

TABLE OF CONTENTS

FOREWORDBernstein Investment Research and Management (“Bernstein”), a unit of Alliance Capital Management L.P. (“Alliance Capital” or “Alliance”),* provides a variety of investment-management services for portfolios consisting, in whole or part, of equity, fixed income, real estate investment trusts (“REITs”), and other securities—suitable to individual risk/reward objectives. This Investment-Management Services and Policies manual describes our investment-management philosophy and methods in detail. For further information, clients should speak directly with their Bernstein Advisor.

Investing is risky. It may involve fluctuations in the market value of your invested capital, failure to meet your particular objectives, permanent loss, and possibly even negative effects on your lifestyle. Before offering you a particular service, we consider all the relevant information we have about your circumstances, objectives, and constraints, including your investment temperament and tax status, in addition to everything we’ve learned through decades of research on and experience with capital-markets behavior. Nevertheless, we cannot ensure that your objectives will be attained or that you’ll suffer no adverse consequences.

With that in mind, our services are based on the following tenets:

1. The most important determinant of your investment results is your asset allocation, or how your capital is apportioned among stocks, bonds, and other securities. Stocks provide the best long-term growth potential, but their market value fluctuates widely. Bonds provide the best current investment income, but they hold little, if any, growth potential above inflation. And REITs offer dividend income similar to that of some bonds with modest dividend growth potential.

2. Diversifying among the major asset classes should reap more long-term return for the risk you take, or a similar long-term return with less risk, than investing solely in any one market.

The reason is that stocks, bonds, and REITs tend to perform differently under similar circumstances—that is, they exhibit relatively low correlations of returns. For example, bonds often make money when stocks are doing poorly, and REITs go through their own performance cycles, with low correlations against stocks and bonds. With gains in one market offsetting losses in another, a portfolio diversified among a range of low-correlated assets should grow more steadily than one invested in a single asset class.

3. Combining domestic and foreign investments, and the value-based and growth-oriented approaches to stock investing, should further reduce your long-term risk and enhance your long-term return. The reason, again, is low correlations: Markets in different parts of the world tend to perform relatively independently of one another, and value stocks tend to have their best and worst periods at opposite times from growth stocks. It’s also true that foreign securities carry risks of their own—that the currencies they’re denominated in will decline against your home currency, hence lowering the value of your foreign investments; that foreign governments will impose currency-exchange-control or other regulations that will prevent you from cashing out; that investor safeguards of various other kinds will be inadequate, and that political, economic, regulatory, and similar concerns (which can be more extreme outside than within the U.S.) will affect you adversely. In any given year, international diversification may result in reduced portfolio returns and/or higher volatility. All these risks are heightened in the emerging markets, as are general market volatility and trading costs. Your returns abroad may also be affected by foreign taxes or withholdings on dividends and interest. We take pains to guard against as many of these dangers as we can, through steps including locking in exchange rates through currency hedging (using foreign-currency forward contracts) where practicable and advisable. But we can’t and don’t claim to be able to eliminate all the risks of foreign investing.

4. Finally, your returns will be affected not only by movements of the capital markets in general but by our particular strategies in each market. Our value-oriented services concentrate in industries and companies that our research suggests are underpriced in the market, but our research may be mistaken. Our growth-oriented services concentrate in companies and industries that our research indicates have growing profits that will continue to grow faster than elsewhere, but this research, too, may be mistaken. The performance of your account is likely to differ from that of broad market indexes. Your account may even underperform such indexes, particularly when value-oriented investing falls out of favor (if your account is concentrated in value-oriented services), or when growth-oriented investing falls out of favor (if your account is concentrated in the Strategic Growth service), although a combination of these services may tend to lessen volatility over time. Nonetheless, our active strategies have largely been successful in the long run, and they’re balanced in our accounts with systematic

1Investment-Management Services and Policies

* Alliance Capital Management L.P. is an investment adviser registered under the Investment Advisers Act of 1940 (SEC File #801-56720).

risk controls, albeit not to a degree that would neutralize all risk.

Further information on specific risk factors is contained in this brochure under the descriptions of the various services and products we offer. Depending on the type or types of portfolios a client selects, different types of risk/reward considerations will apply. Clients should carefully consider the specific risk factors associated with our different services when evaluating their investment objectives.

INVESTMENT-MANAGEMENT SERVICESWe manage investment portfolios for individuals, endowments, trusts and estates, charitable foundations, partnerships, corporations, investment companies, and tax-exempt funds such as pension and profit-sharing plans. Portions of our clients’ accounts may be invested in the portfolios of the Sanford C. Bernstein Fund, Inc. (the “Fund”), a registered investment company offering nine fixed-income portfolios, two developed-markets international-equity portfolios and an emerging-markets equity portfolio. The Fund’s prospectus describes the investment policies and procedures regarding these portfolios. We also offer REIT securities in our AllianceBernstein Real Estate Investment Institutional Fund (the “REIT Fund”), and the investment policies and procedures for that Fund are described in that Fund’s prospectus. Finally, we offer certain of our investment-management services in private-placement collective vehicles for eligible clients. These are described

in the private-placement memoranda. Our investment-management services are (1) discretionary, (2) disciplined and (3) individualized. We create and maintain separate accounts tailored to the individual investment needs and objectives of each of our clients.

USE OF DISCRETIONAccounts are managed on a discretionary basis. This means we have the authority and responsibility to formulate investment strategy on your behalf, including deciding which securities to buy and sell, when to buy and sell, and in what amounts, in accordance with agreed-upon objectives.

DISCIPLINED INVESTMENT DECISION MAKINGOur investment decision making is systematic, disciplined, and based on rigorous estimates of investment value. Our process and philosophy are described in the section entitled “Investment-Management Decision Making” below.

INDIVIDUAL TREATMENT AND INVESTMENT PLANNINGEach account is maintained separately and invested according to your particular financial needs and goals, tax situation, investment temperament, and tolerance for risk. We assist most clients in setting investment goals appropriate to their circumstances. The role of our Bernstein Advisors is to assist clients in determining the appropriate mix of domestic and international stocks, fixed-income

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IMPORTANT INFORMATION ON CHANGES IN ASSET ALLOCATION AND ACCOUNT CLOSINGSA client may change his or her asset allocation or instruct us to partially or completely liquidate his or her account at any time by sending us written notice signed by all relevant parties. Prior to receiving written notice, if a client orally requests that we discontinue management, we will do so and confirm these instructions to the client in writing. Notice becomes effective upon our receipt if it is signed by all relevant account parties and sent by U.S. mail, certified mail, express mail or facsimile transmission. However, we will not accept notice by electronic transmission over the Internet or some other electronic system (other than facsimile transmission) or by messages left on our voice-mail system. We recommend that all transmissions via facsimile be confirmed by a phone call to ensure adequate and timely delivery, since we will not be responsible for any mechanical or other failure in transmission. A notice of discontinuance of management should specify whether you wish securities and other positions that are in your account to be liquidated.

Under normal market conditions, a change in asset allocation or a partial or complete liquidation of your positions is commenced by the close of business on the business day following our receipt of the notice. While this is our policy, there are times when immediate accommodation of a client request may not be possible—notably, periods of high volatility and extreme trading volume. During such periods, which can occur anywhere in the world, it may take longer for an asset-allocation change or liquidation to be initiated, and the prices of securities may be significantly different at the time of liquidation than at the time of notice. Our concern is that short-term tactical decision making based on current events or market extremes can be difficult to implement—another reason that we advise clients to take a long-term approach to investing. When we discontinue management of a client’s account, we will refund the portion of the fee that has not been earned.

securities, REITs, and other assets—your asset allocation. We offer investment-management services that span the world’s capital markets. With the limited exceptions described throughout this booklet, the equity portion of your account is managed and individual security selections are made by or under the supervision of our Investment Policy Groups. The fixed-income portion of your account is supervised by portfolio management teams under the supervision of the Investment Strategy Committee chaired by the Chief Investment Officer of Fixed Income. For all services, within the context of our investment approach, and supported by our in-house research and trading departments, our Portfolio Management staff applies disciplined money-management techniques in order to maintain portfolios that we believe are appropriate to each client’s individual situation.

We provide global asset-allocation guidance through our investment-planning tools. We may utilize an investment-planning analysis to illustrate a probable range of outcomes for your asset values over time if invested with different stock and fixed-income mixes. In these analyses, we utilize assumptions about the risk and reward potential of different categories of financial assets, and we illustrate a probable range of outcomes after your anticipated withdrawals and after deduction of taxes at your tax rates to help you determine whether a particular asset allocation is suitable to your financial requirements and tolerance for risk. Although assumptions about risks and returns are necessary decision-making tools in these analyses, actual risks and returns may differ since they will be subject to a variety of economic, market, and other variables, and you should not construe these analyses as a promise of the actual future results you may receive. You should review your asset-allocation decision with us at least annually, so that any changes in our assumptions or your financial circumstances and objectives can be taken into account.

As part of our asset-allocation guidance, we also provide special resources through our Wealth Management Group, whose purpose is to counsel high net worth private clients who may have special needs, such as strategies for dealing with specific trust and estate vehicles and concentrated positions in low-basis stock. We provide tools to help such clients compare the implications of holding a large position of a single equity versus selling all or a portion of that position, as well as other strategies. However, before making any decision about wealth-transfer or single-stock strategies, including selling a concentrated position and options-based transactions, clients should review the implications of those strategies with their tax and legal advisors. For example,

the disadvantages of selling a concentrated stock position include the immediate recognition of taxable gain and the loss of any potential upside in the stock—both of which may be considerable. Certain transactions used to deal with concentrated portfolios may give rise to substantial risk and are not suitable for all clients.

INVESTMENT-MANAGEMENT DECISION MAKINGWe base our investment-management activities on our investment-research findings as supplemented by third-party research. In so doing, we follow the separate but related disciplines described below.

VALUE EQUITY ANALYSISIn our U.S. value portfolios, our goal is to purchase stocks that trade at a significant discount to their long-term earnings power as determined by our investment research. Accordingly, forecasting corporate earnings and cash flow is the heart of our value style equity-management process, and we employ a large staff of analysts devoted to this task.

Our forecasting method involves quantifying what we believe to be the critical variables that control business performance and analyzing the results in order to forecast the long-term prospects of the companies we follow and to develop expected returns for their securities.

We employ industry and company specialists and general analysts. Our analysts do fundamental market and company research and draw on such diverse sources of information as company reports, press releases, prospectuses, regulatory filings, financial and trade newspapers and magazines, corporate rating services, scholarly journals, on-line quotation services and databases compiled by governmental agencies and others, and conversations with managements, suppliers, clients, competitors, and industrial consultants.

Industry and company forecasts are made within the framework of long-term economic settings. We typically measure companies’ financial performance over a full economic cycle, including a trough and a peak, and forecast financial performance within the context of our projections for real economic growth, inflation, and interest-rate change.

GROWTH EQUITY ANALYSIS Our approach to growth-oriented U.S. equity investing employs a systematic, disciplined, research-based process to identify large-capitalization companies with superior earnings growth that seems sustainable. We seek to identify such companies before their stocks become overpriced in


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relation to their realistic earnings prospects, attempting to avoid companies whose fast growth seems likely to slow. The process focuses on the future rather than the past, and conceives of growth broadly rather than within any particular market segment or industry. Our ability to predict superior earnings growth depends upon the correctness of our views on company fundamentals.

With regard to our growth strategy, we rely on research analysts in the U.S. and overseas who collectively cover roughly 500 large-capitalization stocks. These growth analysts hold meetings with company management, key suppliers, competitors, customers, and Wall Street analysts following the stocks so as to increase their understanding of business strategies and competitive responses.

STOCK SELECTION AND PORTFOLIO CONSTRUCTIONWe use a variety of tools to evaluate stocks and portfolios in an attempt to maximize return, given the risk levels appropriate to our clients. For our large-capitalization U.S. value services, we use an internal-rate-of-return methodology—i.e., a dividend discount model—which links the present value of our analysts’ forecasts of company cash flows to the current stock price in order to compute an “expected return” for each security in our universe of primarily U.S.-traded large-capitalization companies. We rank a large number of stocks based on this expected-return measure. In addition, we rank a large number of stocks in our universe of U.S.-traded small-capitalization companies on the basis of price relative to forecasted average earnings power. Average earnings power for these small-capitalization companies is defined as the average earnings that we expect the company to generate over a full business cycle. Rankings change continually as price and forecast information change. We may use a variety of valuation techniques from multiple services before making decisions for a particular service.

In addition to the expected-return analysis, our assessment of portfolio risk influences our portfolio-construction decisions. To this end, we may consider aggregate portfolio characteristics (such as sector and security concentration, price/book and price/earnings ratios, and dividend yields) when deciding how much of each security we wish to purchase for each client. We also may monitor Wall Street analysts’ earnings-estimate revisions and relative return trends so as to better time new purchases and sales of securities. Other client- or portfolio-specific considerations may also influence our tactical decisions. For example, in global portfolios, country and currency risk are among the additional risk factors we consider. All our tools in

selecting securities are regularly reevaluated for historical efficacy. Our goal is always to refine an analytical process that, in disciplined fashion, synthesizes quantitative and fundamental research. Account turnover will vary, as would be expected under our account-by-account management approach. For 2003 and 2002, historical turnover for Strategic Value accounts under the direction of the Investment Policy Group throughout the year, including cash flow into these accounts, was approximately .25 and .26, respectively, and for Diversified Value accounts was approximately .24 and .19, respectively.

In the case of the Strategic Growth service, the portfolio seeks long-term growth of capital by investing predominantly in the equity securities of a number of large, carefully selected, high-quality U.S. companies that are judged by the investment professionals as likely to achieve superior growth. We attempt to determine the future share price based on the price-to-earnings ratio likely to prevail at the conclusion of the forecast period. This investment strategy emphasizes stock selection and investment in the securities of a limited number of issuers. We rely heavily on the fundamental analysis and research of our large internal research staff, which generally follows a primary research universe of approximately 500 companies that have strong management, superior industry positions, excellent balance sheets, and superior earnings-growth prospects. Each week, our research analysts with responsibility for following growth companies compile a list of the top 100 companies (the “Alliance 100”) that they consider the best investments at that time. A team of investment professionals distills the analysts’ lists down to the Strategic Growth portfolio.

The research analyses supporting buy and sell decisions for our International and Tax-Managed International Portfolios (benchmarked to a Morgan Stanley Capital International [“MSCI”] EAFE Index) are based largely on specific company and industry findings rather than on broad economic forecasts. We diversify the portfolios between growth and value equity investment styles, drawing from our growth and value investment disciplines to produce blended portfolios. Investment decision-making for these portfolios is systematic and centralized, pursued by an investment policy group working in concert with, and guided by, the findings of our international growth and value research teams.

The International portfolios’ international growth stocks are selected using Alliance’s research-driven international growth investment discipline, which relies heavily upon our large international growth research staff to follow over 500 non-U.S. companies. We seek to have an in-

Bernstein Investment Research and Management

depth understanding of these companies’ products, services, markets, and competition, as well as a good knowledge of the management of most of the companies. International growth analysts prepare their own earnings estimates and financial models for each company followed, and place research emphasis on identifying companies whose strong management, superior industry positions and excellent balance sheets may contribute to substantially above-average future earnings growth. The international growth investment team constructs a portfolio of equity securities of a limited number of carefully selected, high-quality companies that are judged likely to achieve superior earnings growth. The International portfolios’ international value stocks are chosen from stocks perceived to be underpriced —those with low price/earnings ratios, low price/book-value ratios and high dividend yields. Our international value analysts identify and quantify the critical variables that influence a business’s performance, analyze the results in order to forecast each company’s long-term prospects and meet regularly with company management, suppliers, clients and competitors. As a result, analysts have an in-depth understanding of the products, services, markets and competition of these companies and a good knowledge of the management of most companies in the research universe.

As in the International Portfolios, the research analyses supporting buy and sell decisions in our Emerging Markets Value Portfolio (benchmarked to an “MSCI” Emerging Markets Free Index) are based largely on specfic company and industry findings rather than on broad economic forecasts. We invest in underpriced stocks—those with low price/book-value ratios and high dividend yields. Investment decision-making for the Emerging Markets Value Portfolio is systematic and centralized, pursued by an investment policy group working in concert with, and guided by, the findings of a global value equity research staff.

We may from time to time invest in securities subject to various ownership limitations. These limitations include, but are not limited to: (i) charter provisions; (ii) shareholder rights plans (commonly known as “poison pills”); and (iii) regulatory restrictions on ownership that govern the issuer. We take precautions to comply with any ownership limitations applicable to any specific security as failure to monitor such levels could lead to adverse regulatory action or the dilution of our client holdings. In addition, we have adopted procedures whereby we restrict further purchases of equity securities when our aggregate holdings of our client amounts (and those of our related persons) reaches 17.5% of the shares outstanding. At that time, we determine if there are risk management or other concerns that would preclude

further purchases. Moreover, our business activities (or those of a related person), such as the acquisition of a publicly traded company, could prevent additional transactions in the securities of that company. All of the above limitations may prevent us from purchasing securities for our clients during periods in which it might otherwise be desirable to buy.

FIXED-INCOME SECURITY SELECTION AND PORTFOLIO CONSTRUCTIONWe view fixed-income investments on a total-return basis, considering capital appreciation or depreciation—that is, change in the securities’ market prices (including currency exposure)—as well as interest income. We utilize a variety of quantitatively and qualitatively based techniques to evaluate the relative attractiveness of government, mortgage-related, corporate fixed-income, and asset-backed securities denominated in many currencies, along with futures and options on futures and other derivative instruments issued from developed and emerging markets. Utilizing similar techniques, we evaluate municipal securities that are candidates for purchase or sale based upon their relative expected returns. Our analysis includes allowances for callability, issuer, quality, sector, and the like. The effective duration of an account may depend upon our sense of the general direction of interest rates, although it may be changed to facilitate other strategies. Effective duration, a statistic that is expressed in time periods, is a measure of the exposure of an account to changes in interest rates. While we do not respond actively to changes in interest rates, when we expect interest rates to rise, we may shorten the effective duration of accounts. When we expect interest rates to fall, we may lengthen the effective duration. The maturity composition of these accounts may vary, depending upon the shape of the yield curve and opportunities in the bond market, at times being concentrated in the middle part of an account’s targeted range while at other times consisting of a greater number of securities with maturities that are shorter and others that are longer than the targeted range.

REIT SECURITY SELECTION AND PORTFOLIO CONSTRUCTIONOur approach to REITs is to own a broadly diversified group of high-quality companies that appear poised to deliver superior earnings growth over time. This group includes shopping centers, office space, and profitable industrial and health-care facilities, as well as investments in hotel properties. Although rising interest rates can lead to short-term declines in REIT share prices, over time, higher interest rates usually coincide with rising economic activity, which ultimately spurs rather than impedes REIT performance.


DECISION-MAKING RESPONSIBILITY Investment decision-making responsibility lies with the following:

Value Equity ServicesThe Investment Policy Groups are responsible for the investment strategies, individual security selections, and target sector weightings, as well as general policies governing asset allocation and portfolio construction for our value equity services. The respective Value Equity Investment Policy Groups are chaired by the co-chief investment officer of U.S. value equities, the chief investment officer of global equities, our chief investment officer of emerging markets value equities, our chief investment officer of small-capitalization value equities, our chief investment officer of structured equities, our chief investment officer of Canadian value equities and our chief investment officer of European value equities. They may also include our chief executive officer, other chief investment officers, our director of U.S. value equities research, our director of global value equities research, our chief international economist, our director of quantitative research, our director of global value equities, other research directors, and senior portfolio managers.

Growth Equity ServiceThe Strategic Growth equity service relies on a group of investment professionals including portfolio managers and research analysts who confer on strategic decision making. This large-cap growth team votes weekly on security selection. Team members with the greatest seniority, years of investment experience, and track record have the greatest proportional impact on the vote.

Fixed-Income ServicesOur fixed-income portfolio management teams are responsible for investment strategies, target sector weightings, and duration structure strategy, as well as portfolio construction for the fixed-income services. Relative sector views and our investment professionals’ overall view of economic and market direction are discussed by the Investment Strategy Committee chaired by our co-chief investment officers of fixed income.

The Private-Client Investment Policy Group is chaired by the senior investment officer of private-client investments and includes the chief investment officer of U.S. value equities, the senior quantitative analyst, and senior portfolio managers. The role of this group is to oversee the investment of all private-client assets, especially with

respect to asset allocation, tax management, rebalancing, investment planning, and trust and estate strategies.

The Risk Advisory Group is chaired by our chief investment officer of structured equities and includes the chief investment officer of global value equities, the chief investment officer of style-blend equities, the director of quantitative research, the chief international economist, and senior portfolio managers. The role of the Risk Advisory Group is to study risk and to bring its views and conclusions to the various product-level Investment Policy Groups so that they can incorporate them into their investment decision-making process, evaluating risk versus return at the product level.

Not all members of the Investment Policy Groups participate in individual security selections or other portfolio strategy or policy decisions.

Investment-Management AdministrationApproved investment decisions are implemented on an account-by-account basis by senior equity portfolio managers, our managing director of global equity, managers of our global equity portfolio management group, portfolio managers, associate portfolio managers, and members of our fixed-income portfolio-management teams. This includes establishing positions in selected securities, monitoring the tax implications of potential security sales for each taxable client in most of our services, adjusting cash balances and/or investing cash balances according to investment policy, and all other matters relating to the implementation of investment strategy.

In certain cases, clients may specify that portfolio decisions or recommendations be made by Stanley M. Bogen, whose security analysis is primarily fundamental and is not determined by the methodology and investment disciplines set forth in this section or the procedures described in the section “Execution and Allocation” on page 20.

PORTFOLIO CONSTRUCTION AND YOUR ASSET ALLOCATIONWe offer a variety of portfolio constructions—equity, fixed income, REIT, and balanced (a mix of assets)—suitable to individual risk/reward objectives, and we base investment tactics for your account on our knowledge of your unique situation and objectives. Investing in securities can be risky—you can lose money on your investments. Investment tactics we utilize for your account take into consideration the basic risk/reward character of various financial assets, your own investment temperament, and your tax status. Nevertheless, there can be no assurance that your investment objectives


will actually be attained. Over time, investing in stocks has achieved more long-term growth than investing in bonds or money-market securities, but there is a price for this greater growth potential: volatility of your portfolio’s market value, with appreciable chance of loss along the way, which could even extend for a number of years. As a result, individual retirement and spending plans may be adversely affected. With this in mind, we believe that the most important determinant of investment returns is asset allocation—how your invested capital is apportioned among stocks, bonds, and other securities in a portfolio. No one investment or market can always win; the best course almost always is to be in many markets. Combining investments that often behave differently from one another can reduce risk and enhance long-term growth. For example, adding bonds to a stock portfolio reduces risk. In contrast to stocks, generally, bonds pay interest regularly and fluctuate less in market value—although bonds may also decline in market value when interest rates rise or the real or perceived credit quality of an issuer deteriorates. But the relative stability of bonds also exacts a price: limited growth potential over time, particularly after inflation.

There are no absolute answers in investing, only trade-offs. The risk tolerance and financial circumstances of each client are unique—and hence his or her optimal risk/return trade-off is also unique. Our investment-planning process is designed to identify a portfolio suitable to each client. That is largely a task of determining an appropriate mix of stocks and fixed-income securities, since over time a portfolio’s asset allocation exerts the most important influence on investment results.

In general, our higher risk/reward accounts, with their larger commitment to stocks, are designed to earn higher cumulative returns over time and to beat inflation significantly over the long run; they are more likely to appreciate or depreciate in market value than lower-risk accounts, and they exhibit greater volatility—larger fluctuations in value in rising and falling markets. Certain of our stock accounts also tend to concentrate in sectors and securities that we believe are undervalued, and this may cause them to be more volatile than the market as a whole. Our growth-oriented accounts, on the other hand, concentrate in securities that we believe are likely to grow in price at an above-average rate, and they also may tend to be more volatile than the market as a whole. The performance of your account is likely to differ from that of broad market indexes. Your account may even underperform such indexes, particularly when value-oriented investing falls out of favor (if your account is concentrated in our value-oriented services), or when growth-oriented investing

falls out of favor (if your account is concentrated in our growth services), although a combination of these services may tend to lessen volatility over time. If our perception of a company’s intrinsic worth is not realized in the time frame we expect, or, in the case of growth stocks, if a company’s expected growth rate is overestimated, or if the market value of a company owned in your account declines, the performance of your account may suffer.

Accounts with lower risk/reward orientations, with lesser commitment to stocks and more to fixed-income assets, while designed to provide some protection against inflation, generally emphasize capital preservation and/or income more than high returns, and their value tends to fluctuate less in rising and falling markets, although fixed-income assets also fall in value when interest rates rise, and are subject to credit risks of the issuers. We may use futures, options on futures, and other derivatives to manage equity and interest-rate exposure and to add to expected return where appropriate. Derivatives can be volatile and involve various types and degrees of risks, such as limited liquidity and the risk that a party will default on payment obligations.

GLOBAL DIVERSIFICATIONOur asset-management capabilities extend to the worldwide stock and bond markets, and we believe that for most clients adding an international component to their domestic portfolios is a prudent strategy. For example, for a U.S. investor, casting one’s investment net to encompass many non-U.S. markets greatly expands the pool of opportunities—many industries are now dominated by non-U.S. companies—and may confer a diversification benefit as well. Because the non-U.S. markets do not march in lockstep either with one another or the U.S. market, investing globally tends to reduce fluctuations in returns over time.

International investing carries additional risks relative to domestic investing: Foreign currencies may decline against a client’s base currency; foreign securities markets may be more volatile and less liquid than the domestic market, making trading more difficult; and foreign markets may experience political, economic, regulatory or other difficulties that can affect your account’s performance. These risk factors mean that at some future date, an investor may be unable to liquidate certain holdings in a foreign portfolio. Some countries, particularly in the emerging world, may even expropriate assets. We try to minimize these risks by performing extensive research, focusing on established companies and market sectors and, in our stock accounts, always broadly diversifying by country


Bernstein Investment Research and Management

and industry. While by definition global diversification means that you won’t capture all the benefit of the best performer in any year—whether it’s a developed market or an emerging market—neither will you be in thrall to the poorest performer. On balance, we believe that this strategy may improve your portfolio’s risk/reward profile. To limit currency risk in the developed markets, we may use forward contracts, which derive their value from the underlying currencies, to manage or hedge currency exposure to the extent feasible and to the extent there is opportunity to do so. Hedging mechanisms in the emerging countries currently tend to be unavailable or too expensive, although they may be used in the future if feasible.

BALANCED PORTFOLIOS

HoldingsBalanced accounts hold stocks and fixed-income investments in accordance with your individual objectives, risk/reward orientation, tax status, and financial experience. The greater the commitment of a balanced account to a particular asset category, the more the account will take on the risk/reward orientation of that asset category, although diversification among asset categories may tend to reduce risk in some cases, since returns on certain asset categories may not move in tandem with returns on others.

In line with our clients’ increasingly global orientation toward investing, we encourage the consideration of balanced global portfolios, which exploit opportunities in stocks and bonds worldwide. Allocation among the assets depends on each client’s financial objectives.

Most balanced accounts are managed with a view to maintaining the agreed-upon asset allocation. This is accomplished through investment of cash flows, dividends, and interest and by reinvestment of funds generated by sales pursuant to the agreed-upon asset allocation. At times, when we believe it advisable, we may also sell a security in order to generate funds to reinvest for the purpose of maintaining the agreed-upon asset allocation. In certain cases, clients may give us authority to vary the percentage invested in domestic and international equity and fixed-income assets, and the percentages invested in each of the international markets, based on our opinion of the relative attractiveness of the asset class and the market.

The portfolio-construction rules of one or more of our equity services may serve as the model for the equity portion of our clients’ balanced accounts. Your account’s size and your risk/ reward orientation determine the structure of the equity

and fixed-income portions of your balanced portfolio. Portions of your account may be invested in one or more of the portfolios of the Sanford C. Bernstein Fund, Inc. (the “Fund”)* or in the REIT Fund or managed separately, depending on the structure and/or size of the account. Shares of funds or portfolios of funds that we develop in the future may be purchased unless you advise us to the contrary. We manage and provide shareholder servicing and administrative services to the Fund. The Fund’s 12 portfolios—five short-duration fixed-income portfolios (Government Short Duration, Short Duration Plus, Short Duration New York Municipal, Short Duration California Municipal, and Short Duration Diversified Municipal), four intermediate-duration fixed-income portfolios (Intermediate Duration, New York Municipal, California Municipal, and Diversified Municipal) and three international-equity portfolios (two International portfolios, one of which is tax-managed for taxable clients, and one Emerging Markets Value portfolio)—are designed to meet different client objectives and tax situations, as more fully described in the Fund prospectus.

RISK/REWARD CONSIDERATIONSWe manage balanced portfolios along the following lines:

Global Balanced Portfolios aim for long-term capital growth on a total-return basis (appreciation and interest/dividends) and performance superior to a global balanced benchmark over a full market cycle (a rising and falling market taken together). An appropriate benchmark is established with each client, reflecting individual objectives for capital growth and risk, and the client’s country of domicile. For example, a U.S. client’s account benchmark would typically include a mix of indexes covering U.S. and non-U.S. stocks and bonds in the same proportions as the account’s targeted construction. These accounts are typically invested in the U.S. and in as few as seven or as many as 12 or more major non-U.S. markets, depending on the aggressiveness of the account construction; a small portion of the account may also be invested in emerging markets, if the client desires. Non-U.S. stock and bond markets often have higher volatilities than the U.S. markets and the additional risk that comes from currency movements. But differences in the performance of individual markets can produce lower volatility across a globally diversified portfolio than for a U.S.-only portfolio—although all stock and bond portfolios are vulnerable to absolute-value declines. These accounts are typically rebalanced periodically to fixed proportions of U.S. and non-U.S. stocks and bonds. In certain circumstances, however, it may be agreed to vary these proportions within

8

*Our subsidiary, Sanford C. Bernstein & Co., LLC, acts as the Fund’s distributor.

predetermined parameters to pursue stronger-than-usual opportunities in particular markets or assets.

U.S. Balanced Portfolios aim for long-term capital growth on a total-return basis (appreciation and interest/dividends) and performance superior to a U.S. balanced benchmark over a full market cycle (a rising and falling market taken together)—although all stock and bond portfolios are vulnerable to absolute-value declines. An appropriate benchmark is established with each client, reflecting individual objectives for capital growth and risk, and typically includes a mix of indexes covering U.S. stocks and bonds (such as the S&P 500 stock index and the Lehman Brothers Aggregate Bond Index) in the same proportions as the account’s targeted construction. Balanced accounts bring together the potentially high returns of stocks and the stabilizing influence of bonds to deliver higher long-term potential return than fixed income at lower risk than an all-equities portfolio. These accounts are typically rebalanced periodically to fixed proportions of stocks and bonds.

Canadian Balanced Portfolios aim for long-term capital growth on a total-return basis (appreciation and interest/dividends) and performance superior to a Canadian balanced benchmark over a full market cycle (a rising and falling market taken together)—although all stock and bond portfolios are vulnerable to absolute-value declines. An appropriate benchmark is established with each client, reflecting individual objectives for capital growth and risk, and typically includes a mix of indexes covering Canadian stocks and bonds (such as the S&P/TSX Composite Stock Index and the Scotia MacLeod Bond Index) in the same proportions as the account’s targeted construction. Balanced accounts bring together the potentially high returns of stocks and the stabilizing influence of bonds to deliver higher long-term potential return than fixed income at lower risk than an all-equities portfolio. These accounts are typically rebalanced periodically to fixed proportions of stocks and bonds.

EQUITY PORTFOLIOS

HoldingsWe invest U.S. Strategic Value portfolios, U.S. Diversified Value™ portfolios, Strategic Growth portfolios, Enhanced Equity portfolios, Structured Equity portfolios, and the U.S. equity portions of balanced portfolios under our management generally in larger-capitalization companies listed on the New York Stock Exchange, the American Stock Exchange, and other exchanges, as well as over-the-counter issues. We invest small-cap equity portfolios in smaller-capitalization companies listed on the New York

Stock Exchange and American Stock Exchange, as well as over-the-counter issues. Holdings in our clients’ U.S. portfolios, and the U.S. portions of balanced portfolios, may include American Depositary Receipts (ADRs) and other non-U.S. stocks that trade on U.S. exchanges. We invest international-equity accounts (generally benchmarked to an MSCI EAFE index) and the international portion of global accounts in the equity markets of up to 21 industrialized countries. These countries encompass Europe, Australasia, and the Far East, plus Canada. Depending on account size, International accounts may be invested in one of the International Portfolios of the Fund, as described above. We invest Emerging Markets Value accounts and the emerging-markets portion of global balanced accounts in equities in up to 30 countries in the developing world. Currently, we invest only in the more advanced emerging nations—those with relatively more established political and legal infrastructures and more liquid markets. Emerging Markets Value accounts may be invested in the Emerging Markets Value Portfolio of the Fund, as described above, or separately managed, depending on account size. We invest Canadian Value Equity portfolios in companies listed on the Toronto Stock Exchange, primarily larger-capitalization companies included in the S&P/TSX Composite Index. Although the situation occurs infrequently, we may include fixed-income securities in place of equities when we believe fixed-income securities will provide returns comparable to those of equity securities. For certain accounts, we may purchase other instruments, such as warrants, private placements, financial futures, options on financial futures (including index futures), and currency forward contracts, as well as other derivative instruments. Derivatives can be volatile and involve various types and degrees of risks, such as the risk that a party will default on payment obligations and limited liquidity.

Risk/Reward ConsiderationsWe manage equity-oriented portfolios along the following lines:

U.S. Strategic Value Accounts aim for long-term capital growth on a total-return basis (appreciation and dividends) and performance superior to the S&P 500 and the Russell 1000 Value Index over a full market cycle (a rising and falling market taken together)—although all equity portfolios are vulnerable to absolute-value declines. Your account will typically be invested in about 50 stocks (though the number can vary meaningfully in different market environments), concentrated in sectors we consider most undervalued, and diversified within sectors. Since your account will have weightings in stocks and sectors that


differ from those of the U.S. stock indexes, the performance of the account may be significantly better or worse than that of the market, and the account’s volatility may also be greater.

U.S. Strategic Growth Accounts aim for long-term capital growth on a total-return basis (appreciation and dividends) and performance superior to the S&P 500 and the Russell 1000 Growth Index over a full market cycle (a rising and falling market taken together). Like all equity portfolios, these accounts are vulnerable to declines in value. Your account will typically hold approximately 35 stocks at a time, chosen from a group of roughly 500 of the largest-capitalization stocks trading in the U.S. Since your account will have weightings in stocks and sectors that differ from those of the U.S. stock indexes, the performance of the account may be significantly better or worse than that of the market, and the account’s volatility may also be greater.

Many of our clients choose to diversify their portfolios by investment style to include Strategic Value and Strategic Growth accounts. We aim for performance superior to the S&P 500 for each of these portfolio style constructions over a full market cycle (a rising and falling market taken together).

It is possible that either of these accounts might underperform the S&P 500 at any given time, since growth and value style investing have historically tended to move in and out of favor at different times. We believe that when these accounts are held in combination, it is more likely that their combined performance will outperform the S&P 500 on a more consistent basis over full market cycles. Accordingly, we generally advocate a 50/50 mix of growth and value, although we ultimately tailor each portfolio to meet a client’s specific needs.

U.S. Diversified Value™ Accounts are broadly diversified, holding approximately 150 stocks that emphasize sectors and securities we consider undervalued, but the overweightings are generally more modest than in the Strategic Value portfolios. The goal is to outperform the S&P 500 or the Russell 1000 Value Index over a full market cycle (a rising and falling market taken together) while limiting the divergence from the market’s performance to moderate levels in most environments—although all equity portfolios are vulnerable to absolute-value declines.

Structured and Enhanced Equity Services are risk-controlled, large-cap U.S. equity services that draw upon fundamental stock research and quantitative tools to meet their performance objectives. Both the Enhanced Equity Services and the Structured Equity Services are designed

to provide a modest annualized premium to either the S&P 500, the Russell 1000, the Russell 1000 Value, or the S&P/Barra Value Index, with relatively tight tracking to the index returns—although all equity portfolios are vulnerable to absolute-value declines. The Enhanced Equity Services are designed to track the relevant benchmark more closely than the Structured Services. Your account will be broadly diversified, including about 170–300 stocks on average, at position weights that never vary widely from benchmark weights. We also control portfolio deviation from benchmark concentrations in industry sectors and other risk factors. We overweight those stocks we find attractive on the basis of our long- and short-term valuation models, but only to a limited degree. We also hold some stocks at or below their benchmark weights to provide diversification.

U.S. Small-Cap Value Equity Portfolios aim for long-term capital growth on a total-return basis (appreciation and dividends) and performance superior to the Russell 2000 Index over a full market cycle (a rising and falling market taken together)—although all equity portfolios are vulnerable to absolute-value declines. A small-cap account tends to have higher volatility and less liquidity than portfolios composed of larger-capitalization companies. Your account will typically be invested in 70–90 stocks to diversify company-specific risk. At times, the account may concentrate in sectors we consider to be the most undervalued. If permitted, stock-index futures are used to participate in appreciation and/or depreciation of the stock market during the buy-in period, generally up to 12 weeks.

International Equity Portfolios seek long-term capital growth on a total-return basis (appreciation and dividends) through investments in stocks of established foreign companies making up the MSCI EAFE Index (Europe, Australasia, and the Far East), plus Canada. Our performance goal is to outperform the MSCI EAFE Index over full market cycles (a rising and falling market taken together), although all equity portfolios are vulnerable to absolute value declines. Typically, the portfolios are invested in a well-diversified group of 40–50 value stocks (selected using our fundamental international value discipline, which looks for stocks that are attractively priced relative to their future earnings power and dividend-paying capability) and 40–50 growth stocks (selected using our international growth investment discipline, which looks for companies with strong management, superior industry positions, excellent balance sheets, and superior earnings-growth prospects). The portfolios combine growth and value equities in an effort to take advantage of the cyclicality of investment


styles abroad, and generate a more consistent premium to the Index. Depending on market conditions, the actual weightings of growth and value stocks will normally range from 45%–55%. In extraordinary circumstances, when our research determines that conditions favoring one investment style are compelling, the range may be up to 40%–60%. In all cases, our international-equity portfolios are diversified by industry and country, but not necessarily in the same proportions as they are represented in the EAFE Index. As international-equity accounts are required to maintain modest cash balances, stock-index futures in the major developed markets outside the U.S. are used to more fully invest the portfolio. Currency exposure is actively managed. Investment decisions concerning currencies are made independently of equity investments, or they may be used to hedge securities positions. By their nature, currencies carry their own investment risk. Returns of all non-U.S. securities are vulnerable to adverse movement of foreign currencies in relation to the U.S. dollar and the risk that non-U.S. governments will impose currency-exchange control regulations or other restrictions that would prevent cash from being brought back to the United States. Since your account will have weightings in stocks and sectors that differ from those of the MSCI EAFE Index, the performance of the account may be significantly better or worse than that of the market, and the account’s volatility may also be greater. Returns of non-U.S. securities are subject to other risks not associated with U.S. investing, including a generally lower degree of market volume and liquidity than that available in U.S. markets, which may result in greater price volatility, and settlement practices that may include delays and otherwise differ from those in U.S. markets. Returns may also be affected by foreign tax or withholding on dividends and interest. You should consult your tax advisor about whether you are entitled to claim foreign tax credits or deductions on your income-tax returns.

Emerging Markets Value Equity Portfolios aim for long-term capital growth on a total-return basis (appreciation and dividends) and performance superior to broad indexes of the emerging markets. Typically, your portfolio will be well diversified, with about 80–100 stocks of established companies from up to 30 countries of the developing world. Country weights are generally broadly diversified. Stocks are chosen for low purchase price in relation to measures like book value, earnings power, and dividend-paying capability. Capital-market performance in the emerging-markets countries has been imperfectly correlated with that in the industrialized world. Hence, for clients already invested in U.S. stocks and those of the major non-U.S. markets, the emerging markets should represent further diversification.

Prominent risks attend investments in emerging-markets countries: The markets have been more volatile and less liquid than in the developed world; information about them is more limited; and social and political instability has been greater. For these reasons, trading can be more difficult; an investor may be unable to liquidate certain holdings in an emerging-markets portfolio, and in the case of the Emerging Markets Value Portfolio of the Fund, the risk exists that at some future point you may not be able to redeem your shares. Currently, currency hedging is generally unavailable or prohibitively expensive, so the portfolio will typically be exposed to foreign-currency movements, though currency hedging may be used in the future if feasible.

Canadian Value Accounts aim for long-term capital growth on a total-return basis (appreciation and dividends) and performance superior to the S&P/TSX Composite Index over a full market cycle (a rising and falling market taken together)—although all equity portfolios are vulnerable to absolute-value declines. Your account will typically be invested in about 30–40 stocks listed on the Toronto Stock Exchange, primarily larger-capitalization companies included in the S&P/TSX Composite Stock Index and broadly diversified by sector and industry. At times, the account may concentrate in sectors we consider to be the most undervalued. If permitted, stock index futures are used to participate in appreciation and/or depreciation of the stock market during periods when the cash component of the account may be high, such as initial funding or following a large cash contribution. Since your account will have weightings in stocks and sectors that differ from the S&P/TSX Composite Index, the performance of the account may be significantly better or worse than that of the market, and the account’s volatility may also be greater.

Global Value Equity Accounts, including Global Strategic Value Equity, Global Value Equity, and Global Diversified Value Equity, seek long-term capital growth on a total-return basis (appreciation and dividends) through investments in stocks of established companies around the world. We tailor the global value services to the specific characteristics of each client; this is possible because we are able to adjust stock selection, country allocation, currency management, and benchmark selection to meet the client’s mandate with no change in our investment process.

The primary source of our expected performance premium for our global value services is research-driven security selection. We use a disciplined portfolio construction framework to develop a portfolio with the desired risk/reward tradeoff. We look for securities that are attractively


priced relative to their future earnings power and dividend-paying capability.

Global value portfolios are diversified by industry and country, but not necessarily in the same proportion as the benchmark. Stock-index futures in the major global markets may be used to more fully invest the transactional cash balances. Investment decisions concerning currencies are made independently of equity investments. Depending on the client mandate, currency forward contracts may be used to hedge currency exposures or to go long currencies in excess of underlying equity investments. The same unique risks as described above for the International Equity Portfolios and the Emerging Markets Value Portfolios pertain to global value portfolios. Since your account will have weightings in stocks, sectors, countries, and currencies that differ from the benchmark’s weight, the performance of the account may be significantly better or worse that that of the market, and the account’s volatility may also be greater. Returns may also be affected by foreign tax or withholding on dividends and interest. You should consult your tax advisor about whether you are entitled to claim foreign tax credits or deductions on your income tax returns.

FIXED-INCOME PORTFOLIOS

HoldingsFixed-income accounts may be invested in a wide variety of securities issued throughout the world, including but not limited to U.S. Treasury instruments, securities of U.S. agencies and instrumentalities, issues of governments and related entities, supranational institutions such as the World Bank, corporate debt securities, obligations of state and local governments, mortgage-related securities and other asset-backed securities, convertible debt (which may be converted into the underlying shares of common stock), preferred stock, private placements, and repurchase and reverse repurchase agreements. We also invest in a variety of U.S.-dollar-denominated fixed-income securities issued by such entities from the developed and emerging markets that may or may not be registered in the United States. Investments may include debt of issuers located in, and sovereigns of, newly developed and emerging markets. Where appropriate and authorized by the client, our clients’ fixed-income accounts may also be invested in high-yield bonds, (i.e., debt rated below investment-grade, or, if unrated, of comparable quality). These lower-quality debt securities are generally considered to be speculative and involve greater risk of default or price change due to changes in the issuer’s creditworthiness. The secondary market for high-yield bonds may be less liquid than that

of higher-quality securities, and high-yield bonds may be particularly susceptible to economic downturns. Where we have not been given authority to purchase high-yield bonds in an account, securities that have been downgraded to non-investment-grade subsequent to purchase may be held in the account. We continually monitor the investments in the account and evaluate whether to dispose of or retain securities whose credit rating or credit quality may have changed.

Depending on account size and type of service, our clients’ accounts may be invested in one or more portfolios of the Fund, as described above. We take clients’ tax status and tolerance for risk into account in determining the appropriate fixed-income service.

When appropriate and authorized by the client, we may use financial futures and options on financial futures. We may also use other derivatives for certain accounts whose objectives, in our view, make their use advisable. Derivatives can be volatile and involve various types and degrees of risks, such as the risk that a party will default on payment obligations and limited liquidity. When appropriate and authorized by the client, we may invest in fixed-income securities denominated in currencies other than the client’s domestic currency. Foreign-currency forward agreements as well as futures and options on futures on foreign fixed-income securities and currencies may also be used. Financial instruments denominated in other currencies are subject to foreign-currency risks. By their nature, currencies carry their own investment risk. Returns of foreign securities are vulnerable to adverse movement of foreign currencies in relation to the client’s domestic currency and the risk that foreign governments will impose currency-exchange control regulations or other restrictions that would prevent cash from being removed from their countries. There are special risk factors associated with investing in non-U.S. markets. Such markets generally are not as developed or efficient as those in the U.S. Securities of some non-U.S. issuers are less liquid and more volatile than securities of comparable U.S. issuers. The risk of investing in foreign securities may be intensified in the case of investments in emerging markets or countries with limited or developing capital markets. Returns may also be affected by foreign tax or withholding on dividends and interest. You should consult your tax advisor about whether you are entitled to claim foreign tax credits or deductions on your income-tax returns.

Risk/Reward ConsiderationsThe investment spectrum ranges from overnight instruments to issues maturing in 100 years or more. The longer the maturity, the more stable the income level and the


greater the expected return, but also the greater the price volatility—that is, the greater the vulnerability of market price to interest-rate change. The probability of a negative annual return on 20- and 30-year bonds is considerable because of their price volatility. In contrast, short-term investments—those maturing in less than a year—have an extremely high probability of exhibiting positive annual returns, although their income levels are volatile and their expected returns are usually relatively low.

There are other risks associated with the various financial instruments in which fixed-income accounts may be invested. For example, mortgage-related securities are subject to prepayment risk: A borrower is more likely to prepay a mortgage that bears a relatively high rate of interest. Thus, the value of the securities may not increase as much as other debt securities when interest rates fall. However, when interest rates rise, the rate of prepayments may slow and the value of the mortgage-related securities may decrease like other debt securities. In addition, commercial mortgage-backed securities are subject to credit risks associated with the performance of the underlying properties. Asset-backed securities present certain additional risks that are not presented by mortgage-backed securities. There is the possibility that recoveries on the underlying collateral may not, in some cases, be available to support payments on these securities. Reverse repurchase agreements present the risk that the underlying securities will gain value during the time they are lent and the opposite parties will then default. Zero coupon and payment-in-kind securities, whose prices may react more strongly to changes in interest rates than the prices of comparable-maturity cash-payment coupon bonds, may also be purchased for your account. Your account may also include variable- and floating-rate securities, as well as inflation-protected securities. Decreases in the inflation rate or in investors’ expectations about inflation could cause inflation-protected securities to underperform non-inflation-adjusted securities on a total-return basis. In addition, these securities may have limited liquidity in the secondary market.

We offer the following fixed-income alternatives, which may be combined in a bond or balanced account:

U.S. Government Cash Accounts attempt to achieve a higher return than three-month Treasury bills and inflation, and to limit state and local taxes, nearly assuring a positive annual return. These accounts hold no securities with maturities greater than 12 months and are designed generally to maintain a level of risk comparable to that of a portfolio with an effective duration of two to four months. These accounts will be invested exclusively in U.S. Treasury

and agency securities, with agency securities normally constituting no more than half of the portfolio.

U.S. Government Short Duration Accounts attempt to achieve a higher return than money-market instruments and inflation, while seeking a high probability of positive annual return. While the maturities of individual securities in these accounts may vary widely, the accounts are designed generally to maintain a level of risk comparable to that of a portfolio with an average effective duration of one to three years. Normally, these accounts will be largely or exclusively invested in U.S. Treasury and agency securities, and the income earned by the accounts will for the most part be exempt from state and local taxes. Other fixed-income securities may be purchased, but only if their expected returns are higher than those available from Treasury or agency issues.

U.S. Short Duration Plus Accounts share many of the objectives and techniques of the Government Short Duration Accounts, but they should produce higher returns than the Government Short Duration Accounts because their investments will normally include a higher percentage of nongovernment securities, such as corporate bonds and mortgages. When authorized by the client, we may invest in non-U.S.-currency-denominated securities when, in our judgment, they hold high return potential relative to U.S.-dollar-denominated securities. Risk-control guidelines may limit the non-U.S.-dollar-denominated bond weightings in the account, both in aggregate and for any individual country. We actively manage currency exposure separately from security selection; here as well, risk-control guidelines may limit the size of our positions.

CORE/CORE Plus Accounts attempt to outperform the bond market as a whole, the median fixed-income manager, and inflation, while seeking a moderate-to-high probability of positive annual return. Investments can include securities from a wide range of market sectors. While the maturities of the individual securities in these accounts may vary widely, the accounts are designed generally to maintain a level of risk comparable to that of an intermediate portfolio with an average effective duration of three to six years. Because CORE/CORE Plus Accounts are managed without regard to potential tax consequences, they may be particularly appropriate for investors not subject to current taxation, such as IRAs. When authorized by the clients, we may invest in non-U.S.-currency-denominated securities (including emerging markets) and high-yield securities when, in our judgment, they hold high return potential relative to U.S.-dollar-denominated securities. Risk-control guidelines may limit the non-U.S.-dollar-denominated


bond weightings in the account, both in aggregate and for any individual country. In almost all cases, foreign currency exposure is hedged back to U.S. dollars.

U.S. Limited Duration Accounts share many of the objectives and techniques of the CORE/CORE Plus Accounts but will produce somewhat lower returns on average and be slightly less volatile on average because the accounts maintain a lower level of interest-rate sensitivity. Limited Duration Accounts will typically have an effective duration in the range of two to five years.

Global/International Fixed-Income Accounts attempt to outperform either global or non-U.S. bond indexes over a full market cycle (a rising and falling market taken together). These accounts are invested primarily in government, corporate, and supranational securities issued throughout the world. We may also use bond futures on U.S. and non-U.S. bonds as well as currency forwards to manage bond and currency exposure. We select securities and adjust country and sector weightings consistent with our assessment of opportunities, and actively manage currency exposure with the goal of increasing return and limiting currency risk.

Canadian Fixed-Income Accounts attempt to outperform the Canadian bond market as a whole. The majority of investments consists of Canadas, Provincials, and investment-grade corporate securities. When authorized by the client, we may purchase mortgage-related securities, inflation-linked bonds, non-investment-grade corporate securities, and foreign-currency-denominated securities when we believe they hold higher return potential or provide risk-reducing benefits. When utilizing foreign-currency-denominated securities, we actively manage the currency risk in an attempt to maintain the desired level of portfolio risk and to add value. Unless specifically authorized by the client, Canadian fixed-income accounts are invested solely in securities considered to be Canadian content.

U.S. Municipal Bond Accounts attempt to maximize return after consideration of the client’s federal tax bracket. Municipal accounts may include nonmunicipal securities to maintain the target duration of the account, pending investment of cash balances in municipal securities and when market conditions cause the expected after-tax return of nonmunicipal securities to be higher than that of municipal securities. Short Duration Municipal Bond Accounts seek a high probability of positive annual returns; the overall risk level of the accounts is designed to be comparable to a portfolio with an average effective duration of one-half to two and one-half years, although maturities

of individual securities may vary widely. Intermediate Duration Municipal Bond Accounts seek a moderate-to-high probability of positive annual returns; in general, the overall risk level of the accounts is designed to be comparable to a portfolio with an average effective duration of three to seven years, although maturities of individual securities may vary widely. We also offer Short and Intermediate Duration New York and California Municipal Accounts, which take state and local taxes (if any) into account.

Inflation-Protected Bond Accounts aim to provide a high-quality portfolio whose long-term returns exceed the general level of inflation in the U.S. as measured by the Consumer Price Index (CPI). These accounts invest primarily in a new class of securities whose coupons and/or principal payments are linked to the inflation rate in the U.S. These securities are designed to protect an investor’s wealth in inflationary environments. The total return on these accounts is likely to exceed that of conventional bonds in environments when inflation is rising. These accounts are likely to underperform conventional bonds when inflation is lower than expected. Decreases in the inflation rate or in investors’ expectations about inflation could cause these accounts to underperform conventional bonds on a total-return basis. Over the long term, these accounts are likely to produce a lower level of returns than stocks and bonds because they offer an additional level of risk protection. In addition, inflation-protected securities may have limited liquidity in the secondary market.

The total return on these accounts may be negative for a time, even in the years where inflation is positive, because, like all bonds, inflation-linked securities are subject to price losses when interest rates rise. However, since the yields on inflation-protected securities tend to move less than other bond yields, their returns are likely to be less volatile than the returns of intermediate-term bonds.

A portion of the accounts may be invested in high-quality fixed-income securities whose returns are not directly linked to U.S. inflation. These may include conventional Treasury, mortgage, agency, and corporate securities, as well as non-U.S. inflation-linked bonds that may entail some currency risk.

Stable Value Services are Guaranteed Investment Contract (GIC) alternatives for institutional savings plans. These accounts are actively managed bond portfolios that seek to maximize return according to targeted specifications set by such plans; an agreement (termed a “wrapper”) purchased from a bank or insurance company provides for book-value payment for plan-permitted employee withdrawals. The


rate of interest credited on book value is based on current bond yields and the account’s performance. The crediting rate is reset quarterly, semiannually or annually, depending on the plan sponsor’s preference, and moves with the same responsiveness to market interest rates as the blended rate on a laddered GIC portfolio of similar duration. Stable Value Services accounts are tailored to the level of diversification, credit quality, and duration desired by the plan sponsor.

THE REIT FUNDAllianceBernstein Real Estate Investment Institutional Fund (the “REIT Fund”) is a registered investment company that invests in real-estate companies that we believe have strong property fundamentals and management teams. We are the REIT Fund’s investment adviser.* The REIT Fund offers an actively managed vehicle for clients seeking to diversify their portfolios by participating in the commercial real-estate market.

Real-estate investment trusts, or REITs, are pooled investment vehicles that invest primarily in real-estate-related loans or income-producing real property interests. REITs allow investors to participate in the commercial real-estate market without the illiquidity, lack of diversification or high maintenance costs that are associated with owning individual pieces of property. REITs own nearly all types of properties, including office buildings, industrial warehouses, shopping centers, residential apartments, and hotels.

The REIT Fund may be an appropriate investment vehicle for investors seeking a high level of current income, longer-term appreciation potential, and reduced volatility when held as part of a diversified investment strategy. See the REIT Fund prospectus for more information.

ADDITIONAL SERVICESThe following additional services are available through your Bernstein Advisor:

CollegeBoundfundSM, which is officially known as the Rhode Island Tuition Savings Program, has been established by the Rhode Island Higher Education Assistance Authority (the “RIHEAA”) to enable residents of any state to save money on a tax-advantaged basis for qualified higher-education expenses of their designated beneficiaries. RIHEAA has established the Rhode Island Higher Education Savings Trust (the “Trust”),* of which RIHEAA is the trustee, to hold all assets of the program. We are the manager of the program, and in that capacity provide comprehensive investment, operational, and other services for the program.

Individuals may participate in the program (regardless of their income level or age) by establishing accounts with us representing interests in the Trust that are invested through Trust allocation portfolios in a blend of shares of open-end registered investment companies managed by us. Each account established by an individual has a single beneficiary selected by the participant.

The assets of the CollegeBoundfundSM accounts are invested through five investment portfolio options designed for participants and their beneficiaries in different situations, and are invested in shares of stock, bond, and money-market mutual funds, or blends of these types of funds, based on the account’s investment orientation. Once a participant selects the allocation portfolio for the account, the participant may change the selected allocation once per year. See the CollegeBoundfundSM Program Description for more information on the program.

Alliance Institutional Reserves, Inc. is a registered investment company that consists of five money-market fund portfolios that are designed to fit distinct investment objectives and short-term federal government, municipal or other securities as their investment vehicles. We are the portfolios’ investment adviser.* The six portfolios are as follows: (i) Prime, which invests in commercial paper, certificates of deposit, Treasuries, U.S. Government securities, and repurchase agreements; (ii) Government, which invests in Treasuries, U.S. Government securities, and repurchase agreements; (iii) Treasury, which invests in Treasuries and repurchase agreements; (iv) Tax-Free, which invests in short-term municipal bonds; (v) California Tax-Free, which also invests in short-term municipal bonds—in particular, but not limited to, munis of California issuers; and (vi) New York Tax-Free, which also invests in short-term municipal bonds—in particular, but not limited to, munis of New York issuers. The objective of these portfolios is to seek—in the following order of priority—safety of principal, excellent liquidity, and maximum current income. See the Alliance Institutional Reserves, Inc. prospectus for more information.


* Our subsidiary, Sanford C. Bernstein & Co. LLC, acts as a distributor.

HOW TO OPEN AN INVESTMENT ACCOUNTOpening a managed investment account is simple. You read, complete, and sign an account agreement and application, and transfer or deposit cash or securities with your custodian to fund your account.

Before we accept a new account, we generally require that you talk with one of our Bernstein Advisors. In this investment-planning session, you will develop together a clear understanding of the investment objectives for your account. Your Bernstein Advisor is a trained professional who is able to work with you to help ensure that your investment program reflects your personal financial situation. We discuss your current tax status, your investment temperament, your current and future financial needs, and your current financial position.

It has been our experience that these investment-planning sessions can include topics that our clients should pursue with their attorneys and accountants: wills, estates, trusts, insurance, and other aspects of personal financial planning. We are not tax advisers, and tax planning varies greatly with individual circumstances. You should consult your accountant and attorney for counsel in their respective areas of expertise.

After we have a clear picture of your financial situation, we proceed together to set specific investment objectives. At that time, we will establish the risk/reward orientation for your account, perhaps the single most important consideration. Your Bernstein Advisor then discusses possible plans of action and investment strategies by which your goals can be achieved.

If you use securities to fund your account, we will determine whether they are appropriate to retain as part of your managed portfolio. Although in making this determination we will consider, where you provide us with cost information, any capital gains that you would realize if the securities were liquidated, it is likely that most of the securities that you transfer to your account for management will be sold, in which case you may realize capital gains. We integrate tax considerations throughout the management of our clients’ taxable accounts. See more about our tax-related strategies in the section “Tax-Related Strategies and Communications” on page 19.

After we begin managing your account, we encourage you to inform us in writing of any changes in your personal situation or your tax or financial position.

HOW TO OPEN A PENSION, PROFIT-SHARING, ENDOWMENT OR FOUNDATION ACCOUNTOur Bernstein Advisors are also trained to work with pension and profit-sharing plan sponsors.

In order to open your pension or profit-sharing account, you need to deliver to us a copy of the Trust Agreement. Your Bernstein Advisor will discuss with you any prototype IRA or other individual retirement plan that we make available to you and the initial and annual maintenance fees that are payable in connection therewith.

For 401(k) and other defined-contribution plans, we offer The Informed Choice®, a comprehensive and fully integrated package of investment options. External recordkeepers you select offer recordkeeping, reporting, and administrative services tailored to the particular needs of your plan. These services may include the ability to accommodate nonaffiliated investments, including existing GICs and company stock. The Informed Choice offers plans access to a broad range of investment options, consisting of certain portfolios of the AllianceBernstein family of funds, the Sanford C. Bernstein Fund, Inc., and collective trusts offered by Investor’s Bank & Trust Company, for which we serve as subadvisor. Changing your recordkeeper or plan administrator, if required, may create a period during which benefit processing/payments, in-service withdrawals, loan transactions, individual transfer election/processing, etc., cannot be performed. Individual participant balance information provided by the external recordkeeper is not available during this period until all prior recordkeeping information has been transferred and participant records have been reconciled.

We provide an account agreement for your review and signature. Informed Choice, endowment, and foundation accounts may have additional or different requirements. Your Bernstein Advisor will advise you as to the proper method of opening your account in light of the structure of your entity.

POLICIES FOR OPENING OR CLOSING AN ACCOUNT AND COMMUNICATING INSTRUCTIONS TO USIt usually takes up to six business days from our receipt of complete documentation—and from your delivery of cash or securities to fund your account—to the time when we begin purchasing large-capitalization U.S. and Canadian Value equity. For fixed-income, small-capitalization equity, international equity, and emerging-markets equity, as well as accounts involving complex or unusual circumstances,


it may take somewhat longer. For instance, because of the nature of the small-cap market, it generally takes up to 12 weeks before a small-cap account is fully invested. Our performance-measurement inception date for an account commences when it is substantially invested. For certain accounts, securities may be held by a custodian chosen by the client. For these accounts, clients must, or must cause the custodian or other administrator to, promptly notify us of any additions to or withdrawals from the account. We will not be responsible for accessing this information through on-line electronic reporting systems of the custodians, since such information is not necessarily available or reliable. For most private-client accounts, our subsidiary Sanford C. Bernstein & Co., LLC acts as custodian, and in these cases we will be aware of additions to and withdrawals from your account.

When you deliver to your account any assets for deposit or transfer, we will review the securities as to their appropriateness for the account. Securities deemed inappropriate in view of our investment style or legal limitations as to our aggregate ownership position, as well as the portion of securities that are overweighted in relationship to the total anticipated value of the account, will be sold. As a matter of policy, we manage securities only when, in our opinion, they are appropriate for the account in question. Otherwise, these positions will be sold. If at some later date we develop this opinion, we may reestablish an investment position in the same security.

When the value of U.S. assets delivered meets the minimum requirement for management, we may make a partial allocation, assuming that the remaining assets will be delivered. The minimum assets required for initial allocation depend upon the asset allocation of the account selected by the client. For Strategic Value and Strategic Growth, we will generally make a partial allocation when the assets received for the account, or for the corresponding equity portion of a balanced account, are at least $100,000 and equal to 25% of the anticipated equity portion. This may increase the transaction charges during the opening period, but will provide the diversification and asset mix that the account would have if all assets had been received by us at one time. For equity and balanced accounts, this partial allocation will generally be done pro rata over all the sectors and for all securities that we have approved for purchase, except that consideration will be given to securities you advise us will be used to fund your account.

For separately managed International, Canadian, Global, and Emerging Markets accounts, the amount of funding

required before making an initial allocation will be determined on a case-by-case basis.

For fixed-income accounts, depending on the size of the account, a pro-rata allocation may be made before all assets are delivered. A partial allocation may, depending upon market conditions, result in temporary exposure to interest-rate risk that varies from, and/or credit risk that may be in excess of, that which would be normal for accounts where all assets have been delivered at one time.

We accept reasonable limitations as to which securities are bought or sold, such as agreeing not to buy stock in a company for a client’s account if the client is an affiliate or controlling person in the company.

You may change your asset allocation or request partial or complete liquidation of your account at any time by sending us written notice signed by all relevant parties. Prior to receiving written notice, if a client orally requests that we discontinue management, we will do so and confirm these instructions to the client in writing. Notice becomes effective upon our receipt if it is signed by all relevant account parties and sent by U.S. mail, certified mail, express mail or facsimile transmission. A notice of discontinuance of management should specify whether you wish securities and other positions that are in your account to be liquidated.

Under normal market conditions, a change in asset allocation or a partial or complete liquidation is commenced by the close of business on the business day following our receipt of the notice. While this is our policy, there are times when immediate accommodation of a client request may not be possible—notably, periods of high volatility and extreme trading volume. During such periods, which can occur anywhere in the world, it may take longer for an asset-allocation change or liquidation to be initiated, and the prices of securities may be significantly different at the time of liquidation than at the time of notice. Our concern is that short-term tactical decision making based on current events or market extremes can be difficult to implement—another reason that we advise clients to take a long-term approach to investing. When we discontinue management of an account, we will refund the portion of the fee that has not been earned.

We will not accept any notice or instruction, including those relating to discontinuance of management, liquidation of positions or change in asset allocation, by electronic transmission over the Internet or some other electronic system (other than facsimile transmission) or by messages left on our voice-mail system. We recommend that you


confirm all transmissions via facsimile by a phone call to ensure adequate and timely delivery, since we will not be responsible for any mechanical or other failure in transmission.

PORTFOLIO INFORMATION SYSTEMS AND REVIEW

PORTFOLIO INFORMATION SYSTEMSYour portfolio is maintained for management and internal review on a computerized portfolio information system. The information system summarizes the asset allocation for your account and your tax status. (This information system has been developed for in-house use.)

The system records all information pertaining to each account, including the portfolio market value, cash balances, and securities currently in the portfolio. Current security market values and costs, the percentage of the portfolio invested in each position, realized gains or losses, and information needed for the calculation of unrealized gains or losses are also included.

Each portfolio is reviewed at least monthly by designated members of the applicable portfolio-management group. They also use the data on a day-to-day basis in a variety of situations. For instance, the portfolio is reviewed whenever material cash or securities are added to or withdrawn from the account, or whenever you advise us of a change in your circumstances that may warrant a change in the current management of the account.

QUALITY-CONTROL REPORTSA variety of internal quality-control reports monitor and review the implementation of our security-selection and investment policies.

For U.S.-equity accounts and for the U.S.-equity portion of balanced accounts, these reports include:

1. A daily summary of all orders that are recommended for trading. It is reviewed daily by members of the applicable Investment Policy Group or, in the case of Strategic Growth, by members of our large-cap growth team, to determine the appropriateness of all orders and set trading limits.

2. A computer run that includes all equity securities owned in clients’ portfolios. It is reviewed by designated members of the applicable portfolio-management group on at least a monthly basis.

3. A report of our large-cap accounts that shows aggregate weightings across those accounts and any deviations from

acceptable tolerances for every individual account. This is generated weekly and reviewed by designated members of the applicable portfolio-management group in order to determine the appropriateness of the holdings.

For non-U.S. equity accounts and for the non-U.S. equity portion of balanced accounts, a variety of proprietary reports and analyses are used to ensure that our investment decisions are implemented properly and in a timely fashion. These reports are reviewed at least weekly by the respective portfolio management group.

For fixed-income accounts, and for the fixed-income portion of balanced accounts, individual reports, which are reviewed at least monthly by the fixed-income portfolio-management teams, are used to ensure that accounts possess the desired combination of characteristics—e.g., the appropriate maturity, sector, and security mix.

SECURITY-SELECTION REVIEWMembers of the applicable Investment Policy Group, the Strategic Growth portfolio managers or fixed-income portfolio-management teams meet at least monthly to review significant issues affecting securities in your portfolio.

CLIENT COMMUNICATIONS

OPENING LETTERUpon opening a managed investment account, you receive from us an executed copy of your account agreement and application, and a letter confirming your account’s asset allocation. We try to meet with you at least annually to review your investment objectives.

FUND ANNUAL AND SEMIANNUAL REPORTSIf you hold shares of a Portfolio of the Fund, you receive semiannual and annual reports on the Fund. If your account holds Fund shares exclusively, these reports may be in lieu of the communications cited below.

QUARTERLY INVESTMENT-MANAGEMENT REPORTSAfter the close of each full quarter, you receive (or have access to, via our website) a report of our capital-markets outlook and composite performance data for our various services.

YEAR-END INVESTMENT-PERFORMANCE REPORTAt the end of each calendar year, a report of the time-weighted total return in each of your accounts for the year,


for each prior year, and from the performance inception date, compared with the major capital-market indexes, is available from your Advisor. As in all communications in which we cite performance, your investment-performance report shows performance on a total-return basis, which includes all interest, dividends, and realized and unrealized gains or losses. In individual communications with you, we show performance of our various investment services after transaction costs but before investment-management fees (except for investments in the Fund, which are always shown net of all costs), since this permits us to discuss with you the effect of fees and taxes at your tax rates on your returns. In literature addressed to the public generally, in accordance with applicable regulatory requirements, we cite performance of our investment services after fees and other expenses that clients paid; these deductions reflect average deductions rather than deductions applicable specifically to your account.

THE BERNSTEIN JOURNALPrivate clients receive The Bernstein Journal: Perspectives on Investing & Wealth Management, a semiannual periodical reviewing our key research findings on critical wealth management issues, such as asset allocation, estate planning, diversification, the status of the capital markets, the investment strategies we’re employing in your accounts, and other related topics we consider of interest.

CLIENT CONFERENCESWe host periodic conferences for our private clients. At these conferences our senior executives, research staff, and portfolio managers deliver speeches that address issues affecting our management of your portfolio. Following these presentations, you may meet our staff members to discuss your individual situation and questions. Audiotapes of many conferences are available to all invitees, along with a printed copy of the slides used in presentations.

RESEARCH REPORTSThroughout the year, we conduct research into a specific topic related to investing and wealth management. Such research is published in a report and is made available to private clients.

WEBSITEOur website devoted to our private-client business, www.bernstein.com, provides access to our latest strategies, performance, research findings, and other general resources as well as account-specific information. Clients interested

in accessing account-specific information on this site should contact their Bernstein Advisor.

THE INFORMED CHOICEParticipants in our Informed Choice defined-contribution plan receive a quarterly newsletter, Your Retirement Plan Investment Report, which provides a detailed review of performance and strategies for the preceding quarter. Participants and other plan clients also receive an educational booklet, Using Your 401(k) Plan Wisely.

TAX-RELATED STRATEGIES AND COMMUNICATIONSIntegrating tax considerations into the management of our clients’ taxable accounts—factoring in each client’s unique tax situation—is a key aspect of our service. Along these lines, before the end of the calendar year, for taxable accounts, we ask that you supply us with information on any short- or long-term capital gains and/or losses you’ve realized during the year from sources other than your account(s) with Bernstein, and any short- or long-term loss carryforward; and that you confirm your tax bracket(s) for this year and the next year. We inform you that—unless you advise us otherwise—we plan to offset realized capital gains with losses on individual security positions in your account if we deem it advantageous for you, choosing among a variety of tax-trading strategies. With your permission, we may also contact your tax advisor or accountant to clarify your tax-planning situation or gather other tax information. In addition, on an account-by-account basis, we can quantify the tax penalty, amortized over various time periods, for selling an appreciated equity position. By comparing the penalty with our assessment of the expected return of a potential alternative purchase, our goal is to determine whether selling or holding the stock is more advantageous in light of your tax circumstances. The tax center on our website provides details on year-to-date capital gains and income as well as our latest tax-related research.

Where our subsidiary Sanford C. Bernstein & Co., LLC acts as your custodian, after the end of the year you will receive a comprehensive tax report for each of your accounts, which provides you with information necessary in the preparation of your tax returns. The year-end tax report is designed to provide you with summary and detailed information to complete key items on your federal and state tax returns as these items relate to your accounts with Bernstein, including capital gains and losses, taxable interest and dividend income, and investment-management fees. If applicable, the report also provides you with information on income derived from U.S. Treasury and agency securities


that is exempt from state and local taxation, margin interest, accrued interest paid on bonds, foreign withholding on dividends, state-specific information on tax-exempt income, and covered and open short-sale positions.

Tax planning and preparation vary with individual circumstances. Because of the complex nature of the tax laws and the complicated calculations required, your tax advisor should review all tax-related communications with us and verify the accuracy of any information included in your tax filings, as we are not tax advisors and are not responsible for your tax filings.

PROXY VOTINGGenerally, you will be responsible for voting proxies for the assets in your accounts. If you do not want to receive proxy-soliciting materials and annual and interim reports, you may choose to appoint a proxy-voting agent to receive these materials and the Bernstein Proxy Voting Committee will determine the vote on your behalf. Consult your Bernstein Advisor for further information.

When certain ERISA, other institutional clients and private clients have delegated proxy-voting authority to us, we will vote proxies prudently, consistent with our fiduciary duty to act in the best interests of clients and for the exclusive purpose of benefiting our clients. Proxy-voting decisions are made by our Bernstein Proxy Voting Committee, which regularly reviews existing proxy-voting guidelines and reviews new proxy proposals. In the case of a new proposal, the committee develops a recommendation on how it believes this issue should generally be voted. This recommendation is communicated to the appropriate Investment Policy Group for review. Once this group and the committee have reached agreement, the policy is considered a guideline. Each proxy for which we are to vote is then evaluated on an individual basis. Most of the time, proposals are voted in accordance with established guidelines. However, on occasion a particular proposal may deviate from the norm or the circumstances involved may suggest special consideration. In those cases, the proxy is brought to the attention of the proxy committee and we may vote contrary to the broad guidelines established. To the extent permitted by the clients’ governing documents, institutional clients may instruct us to vote proxies in accordance with their own rather than our proxy-voting guidelines. In all cases, we will vote proxies in accordance with a client’s proxy-voting guidelines to the extent consistent with our fiduciary duties under ERISA as applicable. We maintain records of our proxy-voting activities, and upon request we supply clients

with reports on how we voted each proxy for shares held in their accounts.

As a registered investment adviser that exercises proxy- voting authority over client securities, we have a fiduciary duty to vote proxies in a timely manner and make voting decisions that are in our clients’ best interests. In this regard, we have adopted a Statement of Policies and Procedures for Voting Proxies on Behalf of Discretionary Client Accounts (the “Statement of Policies and Procedures”).

Our Statement of Policies and Procedures is a set of proxy-voting guidelines that, when followed, is intended to maximize the value of the securities in our clients’ accounts. It describes our approach to analyzing voting issues and how we determine our proxy votes, and identifies the persons responsible for determining how to vote proxies. It also includes our procedures for addressing material conflicts of interest that may arise between our interests and those of our clients in connection with our consideration of a proxy.

In addition, we have adopted a Proxy-Voting Manual that provides further detail into our proxy-voting process and addresses a range of specific voting issues.

Clients may obtain a copy of the Statement of Policies and Procedures and our Proxy-Voting Manual, as well as information about how we voted with respect to their securities, by contacting their Bernstein Advisor. Alternatively, clients may make a written request to: Mark R. Manley, Senior Vice President and Assistant General Counsel, Alliance Capital Management L.P., 1345 Avenue of the Americas, New York, NY 10105.

EXECUTION AND ALLOCATION

PRE-EXECUTIONAllocation and execution policies help us to provide each client with money management on an individual basis. Our general policy is to allocate investment opportunities in a fair and equitable manner over time. Affiliated accounts (i.e., of our employees and those of Sanford C. Bernstein & Co., LLC) invested in our discretionary services are managed in the same manner as other clients’ accounts so that such affiliated account orders are aggregated with other advisory clients’ orders. The affiliated accounts are subject to the same allocation procedures, quality-control processes, and the other policies set forth in this booklet. We maintain an internal report for each account reflecting factors pertaining to the account. Bernstein operates its own order-placement facility. From time to time, Bernstein and other units of Alliance may be transacting in the same securities


at the same time, and order executions are generally not coordinated. Accordingly, your account may get a higher or lower price for the same security than orders placed by Alliance personnel other than those servicing Bernstein.

GENERAL PARTICIPATIONPrior to determining which accounts should participate in a potential purchase or sale of blocks of securities during a trading day, in addition to prevailing market conditions, we consider the following:

Purchases1. Whether the security is appropriate for all accounts; or

2. Whether the security is appropriate for all accounts, though in varying percentages for each account; or

3. Whether the security is appropriate for a certain category of accounts.

Sales1. Whether the security should not be owned for any of our

accounts or a certain category of accounts; or

2. Whether the security should be owned in lesser percentages for each account or a certain category of accounts; or

3. Whether we want to liquidate a position for tax purposes for those clients requiring a gain or loss.

Where we determine to sell a security regardless of tax considerations, both taxable and tax-exempt accounts are eligible for sale contemporaneously. In those situations where tax gains influence the sale, securities in the tax-exempt accounts may be placed for sale first to delay the realization of a taxable gain, or to address the tax implications for each taxable account. Conversely, when tax losses influence the sale, we may prioritize taxable clients first as the loss has a specific impact in a given year.

SPECIFIC PARTICIPATIONWhen orders are generated, the decision as to which accounts should participate, and in what amount, is based on the type of security, the present or desired structure of the portfolio, the nature of the account’s goals and tolerance for risk, the tax status, the permitted investment techniques and, for fixed-income accounts, the size of the account and settlement and other practical considerations. As a result, we may have different price limits at which we would wish to purchase or sell a security for different accounts. Our portfolio-information systems, portfolio reports, and

quality-control reports permit us to consider and weigh these factors as appropriate.

ADDITIONAL CONSIDERATIONSFor equity, balanced, and fixed-income accounts, allocation may also be based on the following factors:

1. Whether or not a client has an existing partial position in that particular security;

2. The tax status of the account, e.g., time constraints involved in reviewing tax consequences or effecting tax strategies;

3. The account’s risk/reward goals; and

4. Time constraints involved in reviewing guidelines that may prohibit certain allocations.

Equity Security AllocationUpon execution of the order, the appropriate amounts and prices are recorded for each account. Our internal allocation procedure provides fair treatment, as follows:

U.S. Equity SecuritiesOur Trading and Technical Group records the specific accounts that may participate in a proposed execution of U.S. equity orders. The pending orders on these accounts are then used as a basis for the allocations of executed orders. U.S. equity orders for accounts for which our subsidiary broker-dealer Sanford C. Bernstein & Co., LLC executes transactions, and for accounts that utilize other brokers, are executed on a proportional basis. Among the accounts that direct brokerage to firms other than Sanford C. Bernstein & Co., LLC, the priority of the orders is generally determined on a random basis. This procedure may vary depending on factors such as purchase or sale opportunities among brokers selected by the clients, the size of the order, and timing considerations.

Where Sanford C. Bernstein & Co., LLC executes transactions, at any particular time, all outstanding equity orders for investment-management accounts for the same security at the same limit are treated equally. When such executions occur at different prices during the day, participating clients get the average price of all eligible executions in that security during the day. If all the orders for the same security have the same limit, or if all the executions satisfy the most restrictive limit, then all the executions are price-averaged for allocation to the orders. Otherwise, the orders are grouped according to limit. For each group, portions of each execution are chosen such that the average


price of executions chosen for each group meets its limit, does not exceed the quantity ordered, and comes closer to proportional allocation than any other distribution. If the amount that Sanford C. Bernstein & Co., LLC has been able to execute in the desired price range is not sufficient to fill all the orders, the total amount executed is allocated to the accounts on a mechanical basis as follows:

Accounts under the supervision of our Investment Policy Groups, as well as Strategic Growth accounts, that utilize Sanford C. Bernstein & Co., LLC as broker, are generally divided into two categories: 1) those with equity equal to or greater than $5 million (including relationships with combined equity equal to or greater than $5 million); and 2) those with equity of less than $5 million. Accounts or account relationships falling into the first category will receive the appropriate partial allocation rounded to the nearest 100 shares if the result of the partial allocation is 1,000 shares or more. In any account or account relationship in this category where, as a result of the partial allocation, the account or account relationship would receive fewer than 1,000 shares, those accounts or account relationships are then chosen on a random basis to receive, if selected, the lesser of 1,000 shares or the number of shares remaining to be filled. Transactions for accounts or account relationships with equity of less than $5 million will be allocated on an all-or-nothing basis by random selection. This category of accounts and account relationships will receive roughly the percentage of the execution to which it is entitled as a whole (e.g., if this group represents 30% of the entire order, then approximately 30% of the shares executed will be allocated to the group). However, if there are shares remaining that would result in a partial allocation to an account with equity of less than $5 million, these shares will be allocated, if possible, to accounts with equity greater than $5 million if there are partial allocations that have not been completed. To the extent there are none, these shares will be allocated to one account with equity of less than $5 million, resulting in a partial allocation. While a defined relationship of accounts will generally be treated as a single trading entity from the standpoint of allocation, account-specific factors, such as differences in risk tolerance, tax considerations or permitted investment techniques, may make treatment of the relationship as an entity inappropriate.

For accounts managed by Stanley M. Bogen, a Senior Portfolio Manager of Bernstein, when stocks are selected for purchase, accounts are identified for participation based on the risk level of the stock and the risk tolerance of the client. Priority as to purchase is given based on relative percentages of uninvested funds. When stocks are identified for sale, priority is given to clients with the least amount of

cash and whose objectives have been obtained with respect to the position. The timing of the sale for taxable accounts may be affected by tax considerations.

Non-U.S. Equity SecuritiesWith regard to non-U.S. equity portfolios, if the amount we have been able to execute is not sufficient to fill all the orders, the total amount executed is allocated to the accounts on a mechanical basis as follows: Accounts are randomly ranked to determine the priority in which they will be considered for participation in the allocation. Allocations are then made to the accounts in the order they are ranked, subject to minimums and rounding restrictions, until the total number of shares executed has been allocated. If selected, an account with an order valued at less than $20,000 (U.S.) will receive an all-or-nothing allocation. If selected, an account with an order valued at $20,000 or more will receive its proportional share of the total shares executed, rounded to the nearest round lot, if the market value of the partial allocation is at least $10,000. Partial allocations are only made to the extent that the portion of the account’s order that remains unfilled has a value of at least $10,000, since minimum transaction costs charged by custodian banks will apply to each allocation. After selecting each account and applying the rules above, any shares remaining are allocated among the accounts already allocated in the order in which they were randomly ranked, subject to the $10,000 minimum for the portion of the account’s order that remains unfilled. For accounts that direct brokerage to particular firms, there may be times when your particular instructions cannot be satisfied using the random allocation procedures described above. In these rare cases, the orders may be executed later or handled separately in a manner that we deem to be fair.

FIXED-INCOME SECURITY ALLOCATION Allocation of securities to fixed-income accounts (including the fixed-income portfolios of the Fund) and to the fixed-income portion of balanced accounts is made on a priority basis with purchases and sales for an account executed as contemporaneously as possible so that trades are executed in a similar interest-rate environment. Factors considered in establishing this priority are the same as those considered in determining which accounts are chosen to participate in the transaction, including the type of security, the present or desired structure of the portfolio, the nature of the account’s goals and tolerance for risk, the tax status, permitted investment techniques, the size of the account, and settlement and other practical considerations. The execution price of fixed-income account trades is usually the


actual price at which the security was traded. Occasionally, executions occur at different prices during the day, with the same broker; in these instances, the participating clients receive the average price of executions in that security during the day.

Due to the nature of some fixed-income offerings, investment opportunities for fixed-income securities may be too limited to effectively allocate among all accounts, and therefore only a limited number of accounts can participate in a given transaction. Such investment opportunities may be allocated by rotation, provided that the rotation system implemented results in fair access to such investment opportunities over time. We may use other methods of trade allocation provided that all accounts receive fair and equitable treatment.

INITIAL PUBLIC OFFERINGSInitial public offerings (“IPOs”) of equity securities are usually made by smaller, less seasoned companies. These companies generally do not fall within the investment objectives of clients in our value services or in our Strategic Growth service; however, they may fall within the investment objectives of other clients, including clients with Small Cap Growth accounts. Many of these IPOs are deemed to be “Hot Issues.” A “Hot Issue” is an IPO that is oversubscribed and that immediately trades at a premium to its offering price. Accordingly, we will generally allocate Hot Issues first to our Small Cap Growth accounts. We may also sell the Hot Issue shortly after trading in the security commences.

In light of the size of most IPOs, the policy is to allow only client accounts with Small Cap Growth investment guidelines and objectives to participate in the majority of IPOs. In addition, certain sector clients are permitted to participate in IPOs provided the issuer is in the clients’ chosen sector and there are no minimum market capitalization requirements in the clients’ guidelines. However, given the size of many of our client’s accounts, if IPOs were allocated based on a pro-rata allocation method, one client could consume virtually all the allocation we receive. Accordingly, we have adopted a policy of treating all accounts with assets of over $500 million as capped at $500 million for purposes of IPO allocations.

While investment opportunities for IPOs are generally allocated pro-rata, with a cap as described above, we may use other methods of trade allocation provided that all accounts receive fair and equitable treatment. For example, where investment opportunities are too limited to be effectively allocated among all accounts, such investment

opportunities may be allocated by rotation, provided that the rotation system implemented results in fair access to such investment opportunities over time.

Transactions for affiliated accounts (i.e., of our employees and those of Sanford C. Bernstein & Co., LLC) in securities of the types purchased for our investment-advisory discretionary and nondiscretionary clients may be undertaken only with the approval of key executives or the Legal department and must be made only with strict regard to laws and regulations and in accordance with Alliance’s Code of Ethics and Statement of Policy and Procedures Regarding Personal Securities Transactions, as well as the Code of Ethics of Sanford C. Bernstein & Co., LLC, if applicable.

On occasion, we, our affiliates, and/or our respective employees may have a position or interest in securities that we recommend or buy or sell for clients, and an individual employee may take an action for himself or herself different from the firm’s recommendations.

INVESTMENT-MANAGEMENT FEES AND TRANSACTION CHARGESThe current schedules of fees applicable to each client’s account are available and delineate the various schedules for discretionary money management. The appropriate schedule is also sent to each new investment-management client. Our investment-management fee schedule is based on the value of the client’s managed assets, including any cash available for investment. Clients who choose to have assets held by a custodian other than Sanford C. Bernstein & Co., LLC may make arrangements with that custodian for cash-management services, for which their custodian may impose a separate fee in addition to our investment-management fee.

Sanford C. Bernstein & Co., LLC acts as an agent on both fixed-income and equity-security transactions. Your transaction charges apply to U.S.-listed and over-the-counter stocks, except for those in our Small Cap Value Service, and, in certain cases, fixed-income equity substitutes, and are based on the price and number of securities purchased or sold for your individual account. Sanford C. Bernstein & Co., LLC does not currently charge commissions on transactions in managed fixed-income accounts. However, because fixed-income securities are generally traded on a “net” rather than a transaction-charge basis, with dealers acting as principals for their own accounts without a stated transaction charge, the price of the fixed-income security purchased for your account may reflect an increase or decrease from the price paid by the dealer together with a spread between the bid and asked price, which provides the opportunity for a profit or loss to the dealer. For non-U.S.


value equity accounts, the non-U.S. brokers and dealers with whom we trade securities on your behalf will charge commissions. Traditionally, commission rates have not been negotiated on stock markets outside the United States. In recent years, however, an increasing number of non-U.S. stock markets have adopted a system of negotiated rates, although a few markets continue to be subject to an established schedule of minimum commission rates. There may be transfer taxes and other charges for transactions effected in non-U.S. markets.

Generally, client accounts under a specific market value are subject to an integrated fee and transaction-charge schedule, and all transactions are executed by our subsidiary Sanford C. Bernstein & Co., LLC. Clients with Strategic Value accounts over a specific market value may choose to have their transactions executed through broker-dealers other than Sanford C. Bernstein & Co., LLC. For clients who make that choice, the advisory fee under this arrangement is generally higher than when Sanford C. Bernstein & Co., LLC executes the transaction. Where you designate a brokerage firm, the rates for transaction charges may be negotiated by you. Your transaction charges are based on the purchase or sale of securities for your account. While we always seek to obtain the best execution for your account, when you direct brokerage to a particular broker, our ability to obtain the best execution of the trades may be impaired. When we are responsible for selecting brokers other than Sanford C. Bernstein & Co., LLC for you and negotiating transaction charges for you, we will attempt to obtain the best results.

BROKERAGE PLACEMENT PRACTICESWhen we are responsible for selecting brokers and negotiating transaction charges for you, we will attempt to obtain the best results. The factors that may be considered are: price, the broker’s trading expertise, stature in the industry, execution ability, facilities, clearing capabilities and financial services offered, the value of research provided, long-term relations with us, reliability and financial responsibility, integrity, timing and size of order and execution, difficulty of execution, current market conditions, depth of the market, and the broker’s ability and willingness to commit capital (on the infrequent occasions when deemed appropriate). Transaction charges, being a component of price, are also considered as a factor in making such determinations. We do not obligate ourselves to seek the lowest transaction charge except to the extent that it contributes to the overall goal of obtaining the best results for you. A higher transaction charge on exchange and over-the-counter trades may be determined reasonable

in light of the value of the brokerage and research services provided. These research services are of the type described in Section 28(e) of the Securities Exchange Act of 1934 and are designed to augment our internal research and investment-strategy capabilities. These services may be used for any or all of our clients’ accounts. Accordingly, the accounts that provide the brokerage transaction charges for which such services are provided do not necessarily receive the direct benefit of the services. We may also receive services that may be deemed research, at no additional cost to our clients, from dealers from whom we order the purchase or sale of over-the-counter securities.

Research services we receive may include pricing data, statistical information, financial news, historical and current financial data, information regarding trading, proxy-voting information, analyses, and reports regarding issuers, industries, securities, economic factors, and trends with respect to a variety of financial instruments, including equity and fixed-income securities and currencies from both a domestic and international perspective. Research services may be received in the form of written reports, computers on which we receive data and/or software, telephone contacts and personal meetings with security analysts, conferences, seminars, and meetings arranged with corporate and industry representatives, economists, academicians, and government representatives. Research services may be generated by the broker itself or by third parties, in which case the research would be provided to us by or through the broker. Some of the third-party products or research services that we receive may have more than one function; for example, these products and services may be used by our investment-management department to make investment decisions for any or all of our investment-management clients’ accounts or the portfolios of the Fund, by our marketing department to prepare client communications, and/or for other non-research purposes. If this is the case, we make a good-faith determination of the anticipated use of the product or service by our investment-management department and by other departments for other purposes, and allocate brokerage only with respect to the portion of the cost of such research that is attributable to use by our investment-management department for investment-management clients. We pay with our own funds the portion of the cost of such research attributable to use for other purposes.

The research services described above are designed to augment our internal research and investment-strategy capabilities. As a practical matter, we could not generate all the information currently provided by broker-dealers, and our expenses would be increased if we attempted to generate this information through our own efforts. We pay for


certain of the research services that we obtain from external sources but also allocate brokerage for research services that are available for cash; accordingly, we may be relieved of expenses that we might otherwise bear.

Semiannually, we assess the contribution of the brokerage and research services provided by broker-dealers, and attempt to allocate a portion of our brokerage business in response to these assessments. Research analysts, members of the Investment Policy Groups, other investment professionals, and our Trading department each seek to evaluate the brokerage and research services they receive from broker-dealers and make judgments as to the level of business that would recognize such services. After this assessment, a budget is drawn up specifying the total dollar amount of brokerage transactions that may be directed to such firms in return for supplying these services. Budgets are reviewed on an ongoing basis and reevaluated in light of services provided. Brokerage is then directed to these firms, based on a continual review of the amount of brokerage previously directed compared with the dollar amount that has been budgeted for that year. We don’t commit a specific amount of business to any broker-dealer over any specific time period. Broker-dealers sometimes suggest a level of business they would like to receive in return for the various brokerage and research services they provide. However, since the total business is allocated to a broker-dealer on the basis of all the considerations described above, the actual brokerage received by a broker-dealer may be more or less than the suggested allocations. An overwhelming percentage of the brokerage is allocated to broker-dealers who provide research services. Our applicable trading and portfolio-management departments continuously monitor and evaluate the performance and execution capabilities of the brokers who transact orders to ensure consistently satisfactory service.

POLICY REVIEWOur policies and procedures are under continuing review in order to improve service to our clients and to keep in step with changing laws and regulations. Hence, at any given time, there may be changes from the practices we describe.

OTHER BUSINESS ACTIVITIESOverall, our investment-management activities center on serving individuals by managing personal investment accounts on a discretionary basis, and by managing various employee-benefit funds, pension and profit-sharing plans, individual retirement accounts, trusts, endowments, charitable foundations, corporate accounts and other

institutional accounts. Also, we are retained on a fee basis as an investment advisor on a nondiscretionary basis by some institutional and fiduciary accounts. We also have a minor amount of individual nondiscretionary business. In special instances, we provide consulting services to other investment-management firms. These services are priced according to their length and complexity. Almost all our advisory billings are derived from providing investment-supervisory services.

Alliance Capital Global Derivatives Corporation, an indirect wholly owned subsidiary of Alliance, is the general partner of numerous privately placed funds to which we serve as investment adviser. Several of our senior executives and other employees, including the funds' portfolio managers, are limited partners in these funds, which utilize leverage and pay fees based, in part, on the funds’ performance. Similarly, our employees may be investors in the various mutual funds we manage (including the portfolio manager that manages the mutual fund).

We have arrangements where we pay fees to certain third parties that refer clients to us. For example, we pay participating registered investment advisers, including affiliates of public accounting firms, a percentage of the fees that we earn on the referred clients’ accounts. We may pay referral fees to other third parties, such as brokers. All such payments comply with all applicable requirements of the Investment Advisers Act of 1940.

In addition, our employees are eligible to earn an account referral bonus for referring a potential client to us. The Alliance Capital Management Corporation Executive Committee or its designate will determine, in its sole discretion, if an employee’s involvement was significant enough to warrant the account referral bonus. Certain employees may not be eligible for an account referral bonus due to a conflict of interest or other reasons as determined by the Executive Committee.

Alliance employees are prohibited from serving on boards of directors of unaffiliated publicly traded companies. However, outside (non-employee) directors of Alliance Capital Management Corporation are permitted to do so. Three outside directors serve on the boards of unaffiliated publicly traded companies. Such activity is not uncommon in the financial services industry, the directorships are disclosed in Alliance’s public filings with the Securities and Exchange Commission (“SEC”), and Alliance believes that a prohibition of this activity could impair its ability to attract qualified outside directors.


The following are the outside directors of Alliance Capital Management Corporation that currently serve on the boards of directors of unaffiliated public companies: Benjamin D. Holloway (Interstate Hotels Corporation); Frank Savage (Lockheed Martin Corp.); and Peter J. Tobin (CIT Group, Inc.). In addition, Mr. Claude Bebear, the Chairman of the Supervisory Board of AXA and a director of AXA Financial, Inc. serves on the board of directors of Vivendi Universal.

From time to time, your account may be invested in securities of companies where Mr. Bebear or one of our outside directors sits on the board.

NOT-FOR-PROFIT AFFILIATIONSOur employees are permitted to serve on the board of directors of not-for-profit organizations such as educational institutions, charitable foundations or other civic organizations. These organizations may from time to time issue publicly traded debt obligations to fund projects such as the construction of buildings, dormitories, etc. We may purchase such securities on behalf of client accounts.

We are part of a distinguished family of companies. Alliance Capital Management Corporation is the general partner of Alliance and an indirect, wholly owned subsidiary of AXA Financial, Inc., a Delaware corporation. AXA Financial is one of Alliance’s principal owners and is wholly owned by AXA, a French insurance holding company. Another major owner of Alliance is Alliance Capital Management Holding L.P., which is a limited partnership whose shares are traded on the New York Stock Exchange.

SANFORD C. BERNSTEIN & CO., LLC AND SANFORD C. BERNSTEIN LIMITEDSanford C. Bernstein & Co., LLC is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 and is a member of the New York Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. In the course of Sanford C. Bernstein & Co., LLC’s business as a broker-dealer, it regularly effects transactions for our investment-advisory clients, for compensation. Our London affiliate, Sanford C. Bernstein Limited (regulated in the United Kingdom by the Financial Services Authority), may also effect transactions for our investment-advisory clients, for compensation. Sanford C. Bernstein & Co., LLC executes transactions for the majority of clients serviced by Bernstein. All investment-advisory equity activity is monitored under the supervision of the chief investment officer in charge of the applicable portfolio-management department and the Legal department. With respect to transactions Sanford C. Bernstein & Co., LLC or its affiliates route to other firms for

execution or direct to particular exchanges, it is the policy of Sanford C. Bernstein & Co., LLC not to receive payment for order flow.

Your Bernstein Advisor is dually registered as our investment adviser representative and as a broker-dealer representative of Sanford C. Bernstein & Co., LLC. You should address to your Bernstein Advisor, in accordance with our notice and instruction procedures described above, instructions to Sanford C. Bernstein, Co., LLC, including instructions relating to cash withdrawals and transfers of funds or securities.

Clients’ accounts that are custodied at Sanford C. Bernstein & Co., LLC are protected by the insurance coverage provided by the Securities Investor Protection Corporation (“SIPC”). Our clients’ interests in limited partnerships or other securities that are not registered with the SEC, however, are not protected by SIPC. SIPC protection covers $500,000 worth of assets held for each individual or organization, of which $100,000 may be in cash. The way that this coverage operates is that if there were a SIPC liquidation, clients would contact the SIPC trustee and, if all but $500,000 worth of a client’s assets were found, full restitution of this $500,000 amount (which could include up to $100,000 in cash) would be completely covered. In addition, in the event there were a SIPC liquidation, for each individual or organization, Sanford C. Bernstein & Co., LLC currently has $24,500,000 of excess insurance for securities with a private insurance carrier, totaling in aggregate $25,000,000 of coverage for each individual or organization.

Sanford C. Bernstein & Co., LLC pays interest on clients’ cash balances at all times at a monthly rate based on the average discount rate of Treasury bills maturing in 30 days. Sanford C. Bernstein & Co., LLC holds clients’ cash balances in special reserve bank accounts for the exclusive benefit of customers pursuant to SEC Rule 15c3-3. The reserve account held for the benefit of clients subject to ERISA invests in 30-day Treasury bills, and the interest payments on their cash balances reflect the earnings on those investments. The reserve account held for the benefit of other clients may invest in Treasury bills of maturity greater than 30 days. Because our subsidiary, Sanford C. Bernstein & Co., LLC, keeps the spread, if any, between its investment of clients’ cash balances (other than those subject to ERISA) and the interest it pays to clients on such balances, there may be an incentive to maintain or increase cash balances in non-ERISA accounts. However, we make all portfolio-management decisions in our clients’ accounts without regard to the potential use by our subsidiary of cash balances.


Sanford C. Bernstein & Co., LLC will immediately add dividend and interest payments to client portfolios. Clients may request that we manage those additional funds, or clients may request to have the dividend and interest amounts paid over to them on either a predetermined day of each month, on the first business day of each quarter or pursuant to individual requests as desired. Currently, there is no separate charge for the custody services provided by Sanford C. Bernstein & Co., LLC for our clients, except for certain non-U.S. assets. Small accounts may be subject to a modest account maintenance fee. In general, securities are held for clients by Sanford C. Bernstein & Co., LLC in nominee name. In the event any are “called” by the issuer, an impartial random-selection process will be used to allocate the calls to particular accounts.

Each month, Sanford C. Bernstein & Co., LLC sends a statement listing in detail account activity, current holdings and their market value, cash and income received into the account, cash and income withdrawn from the account, interest earned on your credit balance, if any, and many other details. In addition to the monthly statement, Sanford C. Bernstein & Co., LLC sends a confirmation whenever a transaction is executed in the account.

In general, your Sanford C. Bernstein Fund, Inc. mutual-fund holdings are not transferable to brokers other than Sanford C. Bernstein & Co., LLC.

Cross TransactionsFrom time to time, Sanford C. Bernstein & Co., LLC or its affiliate Sanford C. Bernstein Limited executes agency cross transactions for our discretionary accounts. An agency cross transaction occurs when securities are purchased or sold between a discretionary client’s account through Sanford C. Bernstein Co., LLC (or its affiliate) and a non-managed client on the other side of the transaction for which Sanford C. Bernstein & Co., LLC (or its affiliate) acts as a broker. Agency cross transactions are executed only when we are authorized to enter into such transaction by our discretionary client. The authorization can be terminated at any time with written notice to us. In addition, other types of cross transactions may be executed between managed or advisory accounts when allowed by law; in certain such cases, specific consent for each such transaction is required from both sides.

The use of agency cross transactions often increases the probability of completing a transaction at a better price. For example, if we cause a large purchase order to be entered into the market, it might drive up the price of the security before the transaction is completed. By using an agency

cross transaction, Sanford C. Bernstein & Co., LLC (or its affiliate) may not influence the market price and therefore may achieve a better execution.

In an agency cross transaction, Sanford C. Bernstein & Co., LLC (or its affiliate) will be receiving commissions from both sides of the trade so there is a potential conflict of interest. On confirmations of purchase or sale for agency cross transactions, in addition to indicating the amount of transaction charges, Sanford C. Bernstein & Co., LLC (or its affiliate) will also indicate the amount of transaction charges incurred by all clients on the other side of the transaction. Sanford C. Bernstein & Co., LLC (or its affiliate) will notify clients annually of the total number of agency cross transactions undertaken for their accounts over the previous year, the amount of commission paid on the cross transactions and the total commission paid by the clients on the other side of the transactions.

Institutional Brokerage ClientsSanford C. Bernstein & Co., LLC and Sanford C. Bernstein Limited, in addition to functioning as brokers for our investment-management clients, also function as brokers for their institutional-nonmanagement clients. At times, investment recommendations made in research reports distributed by Sanford C. Bernstein & Co., LLC or Sanford C. Bernstein Limited to their institutional brokerage clients may differ from the recommendations indicated by our investment-management process. Additionally, Sanford C. Bernstein & Co., LLC’s and Sanford C. Bernstein Limited’s institutional brokerage clients very often have investment philosophies that differ significantly from those reflected in our investment-management process. Accordingly, the recommendations made to Sanford C. Bernstein & Co., LLC’s and Sanford C. Bernstein Limited’s institutional brokerage clients may differ from the actions taken by us for our discretionary investment-management clients.

We strongly believe that Sanford C. Bernstein & Co., LLC’s and Sanford C. Bernstein Limited’s continuing dialogue with its institutional clients increases its ability to obtain timely and advantageous executions in the marketplace for our investment-management clients and provides us with additional insight into the market generally.


ALLIANCE CAPITAL MANAGEMENT CORPORATION— EXECUTIVE COMMITTEE

Bruce W. Calvert (1947)ChairmanColgate University—B.A. 1969University of Chicago Graduate School Alliance Capital Management L.P. and its predecessors and affiliates 1973–present

Alfred Harrison (1937)Vice ChairmanCambridge University—B.A. 1961, M.B.A. 1964Alliance Capital Management L.P. and its predecessors and affiliates 1978–present

Roger Hertog (1941)Vice Chairman Bernard M. Baruch College, City University of New York—B.B.A. 1996Sanford C. Bernstein & Co., Inc. 1969–2000 and with its predecessor 1968–1969

Lewis A. Sanders (1946) Vice Chairman and Chief Executive OfficerColumbia University—B.S. 1968Sanford C. Bernstein & Co., Inc. 1969–2000 and with its predecessor 1968–1969

Laurence E. Cranch (1946)Executive Vice President and General CounselAmherst College—B.A. 1969University of Pennsylvania—J.D. 1973Clifford Chance LLP and its predecessor (Rogers & Wells) 1980–2004

Sharon E. Fay (1960)Executive Vice President and Chief Investment Officer—U.K., European and Global Value EquitiesBrown University—A.B. 1983Harvard Business School—M.B.A. 1987Sanford C. Bernstein & Co., Inc. 1990–2000

Marilyn Goldstein Fedak (1947)Executive Vice President and Co-Chief Investment Officer—U.S. Large Capitalization Value Equities Smith College—B.A. 1968Harvard Business School—M.B.A. 1972Sanford C. Bernstein & Co., Inc. 1984–2000

Mark R. Gordon (1953)Executive Vice President, Chief Investment Officer—Absolute Return, and Director of Quantitative ResearchBrown University—B.S. 1975Alliance Capital Management L.P. and its predecessors andaffiliates 1983–present

Thomas S. Hexner (1956)President—Bernstein Investment Research & ManagementExecutive Vice President—Alliance Capital Management L.P.Hamilton College—B.A. 1978Sanford C. Bernstein & Co., Inc. 1986–2000

Gerald M. Lieberman (1947)Executive Vice President and Chief Operating OfficerUniversity of Connecticut—B.S. 1969Sanford C. Bernstein & Co., Inc. 1998–2000Fidelity Investments 1993–1998

Mark R. Manley (1962)Senior Vice President, Assistant General Counsel, and Chief Compliance OfficerSt. John’s University—B.A. 1984New York Law School—J.D. 1989Alliance Capital Management L.P. and its predecessors and affiliates 1984–present

Seth J. Masters (1959)Executive Vice President and Chief Investment Officer —Style Blend ServicesPrinceton—B.A. 1981Oxford University—Masters in Economics 1983Alliance Capital Management L.P. and its predecessors and affiliates 1991–present


Marc O. Mayer (1957)Executive Vice PresidentChairman, AllianceBernstein Investment Research & Management, Inc.Yale University—B.A. 1978Columbia University—M.B.A.1983Sanford C. Bernstein & Co., Inc. 1989–2000

Douglas Peebles (1965)Executive Vice President and Co-Chief Investment Officer —Alliance Fixed Income InvestorsMuhlenberg College—B.A. 1987Rutgers University—M.B.A. 1992Alliance Capital Management L.P. and its predecessors and affiliates 1986–present

Jeffrey Phlegar (1966)Executive Vice President and Co-Chief Investment Officer—Alliance Fixed Income InvestorsHofstra University—B.S. 1988Adelphia University—M.B.A. 1991Alliance Capital Management L.P. and its predecessors and affiliates 1993–present

James G. Reilly (1961)Executive Vice President, Head of Large-Capitalization Growth EquitiesNorthwestern University—B.S. 1983University of Chicago—M.B.A. 1986Alliance Capital Management L.P. and its predecessors and affiliates 1985–present

Paul C. Rissman (1956)Executive Vice President, Director of Global Growth Equity Research and Head of Relative Value EquitiesUniversity of Pennsylvania—B.A. 1978, Ph.D. 1985Columbia Business School—M.B.A. 1990Alliance Capital Management L.P. and its predecessors and affiliates 1988–present

Lisa Shalett (1963)Executive Vice President—Alliance Capital Management L.P.Chief Executive Officer and Chairman of the Board of Directors—Sanford C. Bernstein & Co., LLCBrown University—B.S. 1985Harvard Business School—M.B.A. 1989Sanford C. Bernstein & Co., Inc. 1995–2000

David A. Steyn (1959)Executive Vice President, Head of AllianceBernstein Institutional Investment ManagementAberdeen University—Law 1979Alliance Capital Management L.P. and its predecessors and affiliates 1999–present

Christopher M. Toub (1956)Executive Vice President, Co-Head—Global Growth EquitiesWilliams College—B.A 1982Harvard Business School—M.B.A. 1987Alliance Capital Management L.P. and its predecessors and affiliates 1992–present

CHIEF INVESTMENT OFFICERS

Edward D. Baker III (1951)Chief Investment Officer—Emerging Markets Equities

University of South Florida—B.A. 1977University of California at Berkeley—M.A. 1980Alliance Capital Management L.P. and its predecessors and affiliates 1995–present

John L. Blundin (1941)Executive Vice President, Co-Head Global Growth EquitiesYale University—B.A. 1963Alliance Capital Management L.P. and its predecessors and affiliates 1972–present

Stanley M. Bogen (1937)First Vice President and Senior Portfolio ManagerUniversity of Pennsylvania—B.S. 1958New York University—M.B.A. 1959Sanford C. Bernstein & Co., Inc. 1969–2000



Drew M. Demakis (1963)Chief Investment Officer—Structured Equities University of Chicago—B.A. 1985Washington University—M.B.A. 1987Sanford C. Bernstein & Co., Inc. 1998–2000

Henry D’Auria (1961)Chief Investment Officer—Emerging Markets Value Equities and Co-Chief Investment Officer—International Value Equities Trinity College—B.A. 1983Sanford C. Bernstein & Co., Inc. 1991–2000

Sharon E. Fay (1960)Chief Investment Officer—U.K, European and Global Value Equities(See Executive Committee, above)

Marilyn Goldstein Fedak (1947) Executive Vice President and Co-Chief Investment Officer—U.S. Large Capitalization Value Equities(See Executive Committee, above)

Mark R. Gordon (1953)Chief Investment Officer—Absolute Return and Director of Quantitative Research(See Executive Committee, above)

John P. Mahedy (1963)Co-Chief Investment Officer—U.S. Large Capitalization Value EquitiesNew York University—B.A. 1985, M.B.A. 1990Sanford C. Bernstein & Co., Inc. 1989–2000

Teresa Marziano (1954)Co-Chief Investment Officer—REITsSimón Bolívar University—B.S. 1977Columbia University—M.B.A. 1982Sanford C. Bernstein & Co., Inc. 1994–2000

Seth J. Masters (1959)Executive Vice President and Chief Investment Officer— Style Blend Services(See Executive Committee, above)

Joseph Gerard Paul (1960)Chief Investment Officer—Advanced Value and Small- and Mid-Capitalization Value Equities and Co-Chief Investment Officer–REITsUniversity of Arizona—B.S. 1982Massachusetts Institute of Technology—M.S. 1984Sanford C. Bernstein & Co., Inc. 1987–2000

James G. Reilly (1961)Executive Vice President and Head of Large Capitalization Growth Equities (See Executive Committee, above)

Kevin F. Simms (1966)Director of Research—Global Value Equities and Co-Chief Investment Officer—International Value EquitiesGeorgetown University—B.S., B.A. 1987Harvard University—M.B.A. 1992Sanford C. Bernstein & Co., Inc. 1992–2000

Jeffrey W. Singer (1958)Chief Investment Officer—Canadian Value EquitiesUniversity of Western Ontario—B.A. 1980Harvard Business School—M.B.A. 1984Sanford C. Bernstein & Co., Inc. 1992–1998 and 1999–2000, Davis Selected Advisors 10/98–3/99

INVESTMENT PERFORMANCE AUDITORSPricewaterhouseCoopers LLP1117 Avenue of the AmericasNew York, NY 10036

KPMG LLP345 Park Avenue

New York, NY 10154

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October 2004S&PMANUAL0904

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