INVESTMENT-MANAGEMENT SERVICES AND POLICIES
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    INVESTMENT-MANAGEMENT SERVICES AND POLICIES INVESTMENT-MANAGEMENT SERVICES AND POLICIES Document Transcript

    • INVESTMENT-MANAGEMENT SERVICES AND POLICIES Global Wealth Management
    • TABLE OF CONTENTS 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 ............................................................................................................................................................................ 15 How to Open a Pension, Profit-Sharing, Endowment or Foundation Account ............................................................................................................... 15 Policies for Opening or Closing an Account and Communicating Instructions to Us................................................................................................... 16 Portfolio Information Systems and Review ................................................................................................................................................................... 17 Client Communications ................................................................................................................................................................................................. 18 Tax-Related Strategies and Communications ................................................................................................................................................................ 18 Proxy Voting................................................................................................................................................................................................................... 19 Execution and Allocation............................................................................................................................................................................................... 19 Investment-Management Fees and Transaction Charges .............................................................................................................................................. 22 Brokerage Placement Practices ................................................................................................................................................................................... 23 Policy Review ................................................................................................................................................................................................................ 24 Other Business Activities............................................................................................................................................................................................... 24 Business Continuity Statement...................................................................................................................................................................................... 26 Privacy Policy ................................................................................................................................................................................................................ 27 AllianceBernstein Corporation—Executive Committee ............................................................................................................................................... 28 Chief Investment Officers ............................................................................................................................................................................................ 30 Auditors ......................................................................................................................................................................................................................... 31 Bernstein does not provide tax, legal or accounting advice. You should discuss your individual circumstances with professionals in those areas before making any decisions relating to your Bernstein account.
    • FOREWORD 3. Combining domestic and foreign investments, and the Bernstein Global Wealth Management (“Bernstein”), a unit value-based and growth-oriented approaches to stock of AllianceBernstein L.P. (“AllianceBernstein”),* provides investing, should further reduce your long-term risk and a variety of investment-management services for portfolios enhance your long-term return. The reason, again, is low consisting, in whole or part, of equity, fixed income, real estate correlations: Markets in different parts of the world tend investment trusts (“REITs”), and other securities—suitable to perform relatively independently of one another, and to individual risk/reward objectives. This Investment- value stocks tend to have their best and worst periods Management Services and Policies manual describes our at opposite times from growth stocks. It is also true investment-management philosophy and methods in detail. that foreign securities carry risks of their own—that the For further information, clients should speak directly with currencies they are denominated in may decline against their Bernstein Advisor. your home currency, hence lowering the value of your foreign investments; that foreign governments may Investing is risky. It may involve fluctuations in the market impose currency-exchange-control or other regulations value of your invested capital, failure to meet your particular that would prevent you from cashing out; that investor objectives, permanent loss, and possibly even negative safeguards of various other kinds may be inadequate, and effects on your lifestyle. Before offering you a particular that political, economic, regulatory, and similar concerns service, we consider all the relevant information we have (which can be more extreme outside than within the U.S.) about your circumstances, objectives, and constraints, may affect you adversely. In any given year, international including your investment temperament and tax status, in diversification may result in reduced portfolio returns addition to everything we’ve learned through decades of and/or higher volatility. All these risks are heightened in research on and experience with capital-markets behavior. the emerging markets, as are general market volatility Nevertheless, we cannot ensure that your objectives will be and trading costs. Your returns abroad may also be attained or that you’ll suffer no adverse consequences. affected by foreign taxes or withholdings on dividends With that in mind, our services are based on the and interest. We take pains to guard against as many of following tenets: these dangers as we can, through steps including locking in exchange rates through currency hedging (using 1. The most important determinant of your investment foreign-currency forward contracts) where practicable results is your asset allocation, or how your capital is and advisable. But we cannot and do not claim to be able apportioned among stocks, bonds, REITs and other to eliminate all the risks of foreign investing. securities. Stocks provide the best long-term growth potential, but their market value fluctuates widely. 4. Finally, your returns will be affected not only by Bonds provide the best current investment income, but movements of the capital markets in general but by our they hold little, if any, potential for capital growth. particular strategies in each market. Our value-oriented And REITs offer dividend income similar to that of services concentrate in industries and companies that some bonds with modest dividend growth potential. our research suggests are underpriced in the market, but our research may be mistaken. Our growth-oriented 2. Diversifying among the major asset classes should reap services concentrate in companies and industries that more long-term return for the risk you take, or a similar our research indicates have growing profits that will long-term return with less risk, than investing solely in grow faster than consensus estimates, but this research, any one market. too, may be mistaken. The performance of your account is likely to differ from that of broad market indexes. The reason is that stocks, bonds, and REITs tend to Your account may even underperform such indexes, perform differently under similar circumstances—that particularly when value-oriented investing falls out of is, they exhibit relatively low correlations of returns. favor (if your account is concentrated in value-oriented For example, bonds often make money when stocks services), or when growth-oriented investing falls are doing poorly, and REITs go through their own out of favor (if your account is concentrated in the performance cycles, with low correlations against stocks Strategic Growth service), although a combination of and bonds. With gains in one market offsetting losses these services may tend to lessen volatility over time. in another, a portfolio diversified among a range of low- Nonetheless, our active strategies have largely been correlated assets should grow more steadily than one successful in the long run, and they’re balanced in our invested in a single asset class. accounts with systematic risk controls, albeit not to a degree that would neutralize all risk. * AllianceBernstein L.P. is an investment adviser registered under the Investment Advisers Act of 1940 (SEC File #801-56720). Investment-Management Services and Policies 1
    • IMPORTANT INFORMATION ON CHANGES IN ASSET ALLOCATION AND ACCOUNT CLOSINGS A 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. Further information on specific risk factors is contained Series, Inc., AllianceBernstein Municipal Income Fund, in this brochure under the descriptions of the various Inc., AllianceBernstein Municipal Income Fund II, services and products we offer. Depending on the type AllianceBernstein Cap Fund, Inc. (each, a “Fund” and or types of portfolios a client selects, different types of collectively with the Sanford C. Bernstein Fund, Inc., the risk/reward considerations will apply. Clients should Sanford C. Bernstein Fund II, Inc., and the REIT Fund, the carefully consider the specific risk factors associated “Funds”). The Funds’ prospectuses describe the investment with our different services when evaluating their policies and procedures of the Funds. Finally, we offer investment objectives. certain of our investment-management services in private- placement collective vehicles for eligible clients. These INVESTMENT-MANAGEMENT SERVICES are described in the private-placement memoranda. Our investment-management services are (1) discretionary, (2) We manage investment portfolios for individuals, disciplined and (3) individualized. We create and maintain endowments, trusts and estates, charitable foundations, separate accounts tailored to the individual investment partnerships, corporations, investment companies, and needs and objectives of each of our clients. 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. USE OF DISCRETION or the Sanford C. Bernstein Fund II, Inc., registered Accounts are managed on a discretionary basis. This means investment companies offering fixed-income portfolios, we have the authority and responsibility to formulate developed-markets international-equity portfolios and an investment strategy on your behalf, including deciding emerging-markets equity portfolio. We also offer REIT which securities to buy and sell, when to buy and sell, and in securities in our AllianceBernstein Real Estate Investment what amounts, in accordance with agreed-upon objectives. Institutional Fund (the “REIT Fund”). Portions of our clients’ accounts may also be invested in the following DISCIPLINED INVESTMENT DECISION MAKING funds: AllianceBernstein Institutional Funds, Inc., Our investment decision making is systematic, disciplined, AllianceBernstein Trust, The AllianceBernstein Portfolios, and based on rigorous estimates of investment value. Our AllianceBernstein Variable Products Series Fund, Inc., process and philosophy are described in the section entitled AllianceBernstein Exchange Reserves, AllianceBernstein “Investment-Management Decision Making” below. Bond Fund, Inc., AllianceBernstein Blended Style 2 Bernstein Global Wealth Management
    • INDIVIDUAL TREATMENT AND INVESTMENT PLANNING with specific trust and estate vehicles and concentrated Each account is maintained separately and invested positions in low-basis stock. We provide tools to help such according to your particular financial needs and goals, clients compare the implications of holding a large position tax situation, investment temperament, and tolerance of a single equity versus selling all or a portion of that for risk. We assist most clients in setting investment position, as well as other strategies. However, before making goals appropriate to their circumstances. The role of our any decision about wealth-transfer or single-stock strategies, Bernstein Advisors is to assist clients in determining the including selling a concentrated position and options-based appropriate mix of domestic and international stocks, transactions, clients should review the implications of those fixed-income securities, REITs, and other assets—your strategies with their tax and legal advisors. For example, asset allocation. We offer investment-management services the disadvantages of selling a concentrated stock position that span the world’s capital markets. With the limited include the immediate recognition of taxable gain and the exceptions described throughout this booklet, the equity loss of any potential upside in the stock—both of which portion of your account is managed and individual may be considerable. Certain transactions used to deal with security selections are made by or under the supervision concentrated portfolios may give rise to substantial risk and of teams of senior portfolio managers or our Investment are not suitable for all clients. Policy Groups. The fixed-income portion of your account is supervised by portfolio management teams under the INVESTMENT-MANAGEMENT DECISION MAKING supervision of the Investment Strategy Committee chaired We base our investment-management activities on our by the Chief Investment Officer of Fixed Income. For all investment-research findings as supplemented by third- services, within the context of our investment approach, party research. In so doing, we follow the separate but and supported by our in-house research and trading related disciplines described below. departments, our Portfolio Management staff applies disciplined money-management techniques in order to maintain portfolios that we believe are appropriate to each VALUE EQUITY ANALYSIS client’s individual situation. In our U.S. value portfolios, our goal is to purchase stocks that trade at a significant discount to their long-term We provide global asset-allocation guidance through earnings power as determined by our investment research. our investment-planning tools. We may utilize a wealth Accordingly, forecasting corporate earnings and cash flow is forecasting analysis to illustrate a probable range of the heart of our value style equity-management process, and outcomes for your asset values over time if invested with we employ a large staff of analysts devoted to this task. different stock and fixed-income mixes. In these analyses, we utilize assumptions about the risk and reward potential Our forecasting method involves quantifying what we of different categories of financial assets, and we illustrate believe to be the critical variables that control business a probable range of outcomes after your anticipated performance and analyzing the results in order to forecast withdrawals and after deduction of taxes at your tax rates the long-term prospects of the companies we follow and to to help you determine whether a particular asset allocation develop expected returns for their securities. is suitable to your financial requirements and tolerance for We employ industry and company specialists and general risk. Although assumptions about risks and returns are analysts. Our analysts do fundamental market and company necessary decision-making tools in these analyses, actual research and draw on such diverse sources of information risks and returns may differ since they will be subject to as company reports, press releases, prospectuses, regulatory a variety of economic, market, and other variables, and filings, financial and trade newspapers and magazines, you should not construe these analyses as a promise of the corporate rating services, scholarly journals, on-line actual future results you may receive. You should review quotation services and databases compiled by government your asset-allocation decision with us at least annually, agencies and others, and conversations with managements, so that any changes in our assumptions or your financial suppliers, clients, competitors, and industry consultants. circumstances and objectives can be taken into account. Industry and company forecasts are made within the As part of our asset-allocation guidance, we also provide framework of long-term economic settings. We typically special resources through our Wealth Management Group, measure companies’ financial performance over a full whose purpose is to counsel high net worth private clients economic cycle, including a trough and a peak, and who may have special needs, such as strategies for dealing Investment-Management Services and Policies 3
    • forecast financial performance within the context of In addition to the expected-return analysis, our assessment our projections for real economic growth, inflation, and of portfolio risk influences our portfolio-construction interest-rate change. decisions. To this end, we may consider aggregate portfolio characteristics (such as sector and security concentration, GROWTH EQUITY ANALYSIS price/book and price/earnings ratios, and dividend yields) when deciding how much of each security we wish to Our approach to growth-oriented U.S. equity investing purchase for each client. We also may monitor Wall Street employs a systematic, disciplined, research-based process analysts’ earnings-estimate revisions and relative return to identify large-capitalization companies with superior trends so as to better time new purchases and sales of earnings growth that seems sustainable. Specifically, we seek securities. Other client- or portfolio-specific considerations those companies shown by our analysts’ research to have may also influence our tactical decisions. For example, in earnings growth potential greater than the market consensus. global portfolios, country and currency risk are among We seek to identify such companies before their stocks the additional risk factors we consider. All our tools in become overpriced in relation to their realistic earnings selecting securities are regularly reevaluated for historical prospects, attempting to avoid companies whose fast growth efficacy. Our goal is always to refine an analytical process seems likely to slow. The process focuses on the future rather that, in disciplined fashion, synthesizes quantitative and than the past, and conceives of growth broadly rather than fundamental research. Account turnover will vary, as would within any particular market segment or industry. Our be expected under our account-by-account management ability to predict superior earnings growth depends upon the approach. For 2005 and 2004, historical turnover for correctness of our views on company fundamentals. Strategic Value accounts under the direction of the With regard to our growth strategy, we rely on research Investment Policy Group throughout the year, including analysts in the U.S. and overseas who collectively cover cash flow into these accounts, was approximately .24 and roughly 500 large-capitalization stocks. These growth .31, respectively, and for Diversified Value accounts was analysts hold meetings with company management, key approximately .26 and .27, respectively. suppliers, competitors, customers, and Wall Street analysts In the case of the Strategic Growth service, the portfolio seeks following the stocks so as to increase their understanding of long-term growth of capital by investing predominantly business strategies and competitive responses. in the equity securities of a number of large, carefully selected, high-quality U.S. companies that are judged by STOCK SELECTION AND PORTFOLIO CONSTRUCTION the investment professionals as likely to achieve superior We use a variety of tools to evaluate stocks and portfolios growth. This investment strategy emphasizes stock selection in an attempt to maximize return, given the risk levels and investment in the securities of a limited number of appropriate to our clients. For our large-capitalization issuers. We rely heavily on the fundamental analysis and U.S. value services, we use an internal-rate-of-return research of our large internal research staff, which generally methodology—i.e., a dividend discount model—that links follows a primary research universe of approximately 500 the present value of our analysts’ forecasts of company of the largest capitalization growth stocks trading in the cash flows to the current stock price in order to compute U.S. From the research analysts’ list of approximately the an “expected return” for each security in our universe of most attractive 100 companies in the large capitalization primarily U.S.-traded large-capitalization companies. We universe, a team of investment professionals distills the rank a large number of stocks based on this expected- analysts’ list down to the Strategic Growth portfolio. return measure. In addition, we rank a large number of The research analyses supporting buy and sell decisions stocks in our universe of U.S.-traded small-capitalization for our International and Tax-Managed International companies on the basis of price relative to forecasted average Portfolios (benchmarked to a Morgan Stanley Capital earnings power. Average earnings power for these small- International (“MSCI”) EAFE Index) are based largely capitalization companies is defined as the average earnings on specific company and industry findings rather than that we expect the company to generate over a full business on broad economic forecasts. We diversify the portfolios cycle. Rankings change continually as price and forecast between growth and value equity investment styles, information change. We may use a variety of valuation drawing from our growth and value investment disciplines techniques from multiple services before making decisions to produce blended portfolios. Investment decision- for a particular service. making for these portfolios is systematic and centralized, 4 Bernstein Global Wealth Management
    • pursued by an investment policy group working in concert pills”); and (iii) regulatory restrictions on ownership that with, and guided by, the findings of our international govern the issuer. We take precautions to comply with any growth and value research teams. ownership limitations applicable to any specific security as failure to monitor such levels could lead to adverse The International portfolios’ international growth stocks regulatory action or the dilution of our client holdings. In are selected using AllianceBernstein’s research-driven addition, we have adopted procedures whereby we restrict international growth investment discipline, which relies further purchases of equity securities when our aggregate heavily upon our large international growth research holdings of our client amounts (and those of our related staff to follow non-U.S. companies. We seek to have an persons) reaches 17.5% of the shares outstanding. At that in-depth understanding of these companies’ products, time, we determine if there are risk management or other services, markets, and competition, as well as a good concerns that would preclude further purchases. Moreover, knowledge of the management of most of the companies. our business activities (or those of a related person), such International growth analysts prepare their own earnings as the acquisition of a publicly traded company, could estimates and financial models for each company followed, prevent additional transactions in the securities of that and place research emphasis on identifying companies company. All of the above limitations may prevent us whose strong management, superior industry positions and from purchasing securities for our clients during periods in excellent balance sheets may contribute to substantially which it might otherwise be desirable to buy. above-average future earnings growth. The international growth investment team constructs a portfolio of equity securities of a limited number of carefully selected, FIXED-INCOME SECURITY SELECTION AND PORTFOLIO CONSTRUCTION high-quality companies that are judged likely to achieve We view fixed-income investments on a total-return basis, superior earnings growth. The International portfolios’ considering capital appreciation or depreciation—that is, international value stocks are chosen from stocks perceived change in the securities’ market prices (including currency to be underpriced —those with low price/earnings ratios, exposure)—as well as interest income. We utilize a variety low price/book-value ratios and high dividend yields. of quantitatively and qualitatively based techniques to Our international value analysts identify and quantify the evaluate the relative attractiveness of government, mortgage- critical variables that influence a business’s performance, related, corporate fixed-income, and asset-backed securities analyze the results in order to forecast each company’s denominated in many currencies, along with futures and long-term prospects and meet regularly with company options on futures and other derivative instruments issued management, suppliers, clients and competitors. As a from developed and emerging markets. Utilizing similar result, analysts have an in-depth understanding of the techniques, we evaluate municipal securities that are products, services, markets and competition of these candidates for purchase or sale based upon their relative companies in the research universe. expected returns. Our analysis includes callability, issuer, As in the International Portfolios, the research analyses quality and sector considerations. The effective duration supporting buy and sell decisions in our Emerging of an account may depend upon our sense of the general Markets Portfolio (benchmarked to an “MSCI” Emerging direction of interest rates, although it may be changed to Markets Free Index) are based largely on specific company facilitate other strategies. Effective duration, a statistic that and industry findings rather than on broad economic is expressed in time periods, is a measure of the exposure forecasts. We diversify the portfolios between growth of an account to changes in interest rates. While we do not and value equity investment styles, drawing from our respond actively to changes in interest rates, when we expect growth and value investment disciplines to produce interest rates to rise, we may shorten the effective duration blended portfolios. Investment decision-making for these of accounts. When we expect interest rates to fall, we may portfolios is systematic and centralized, pursued by an lengthen the effective duration. The maturity composition investment policy group working in concert with, and of these accounts may vary, depending upon the shape of guided by, the findings of our emerging markets growth the yield curve and opportunities in the bond market, at and value research teams. times being concentrated in the middle part of an account’s targeted range while at other times consisting of a greater We may from time to time invest in securities subject number of securities with maturities that are shorter and to various ownership limitations. These limitations others that are longer than the targeted range. include, but are not limited to: (i) charter provisions; (ii) shareholder rights plans (commonly known as “poison Investment-Management Services and Policies 5
    • REIT SECURITY SELECTION AND PORTFOLIO CONSTRUCTION role of this group is to oversee the investment of all private- Our approach to REITs is to own a broadly diversified client assets, especially with respect to asset allocation, tax group of high-quality companies that appear poised to management, rebalancing, and investment planning. deliver superior earnings growth over time. This group The Risk Advisory Group is chaired by our chief investment includes shopping centers, office space, and profitable officer of structured equities and includes the chief investment industrial and health-care facilities, as well as investments officer of global value equities, the chief investment officer in hotel properties. of style-blend equities, the director of quantitative research, the chief international economist, and senior portfolio DECISION-MAKING RESPONSIBILITY managers. The role of the Risk Advisory Group is to study Investment decision-making responsibility lies with the risk and to bring its views and conclusions to the various following: product-level Investment Policy Groups so that they can incorporate them into their investment decision-making Value Equity Services process, evaluating risk versus return at the product level. The Investment Policy Groups are responsible for the Not all members of the Investment Policy Groups participate investment strategies, individual security selections, and in individual security selections or other portfolio strategy target sector weightings, as well as general policies governing or policy decisions. asset allocation and portfolio construction for our value equity services. The respective Value Equity Investment Investment-Management Administration Policy Groups are chaired by the co-chief investment Approved investment decisions are implemented on an officers of U.S. value equities, the chief investment officer account-by-account basis by our managing director of global of global equities, our chief investment officer of emerging equity, managers of our Global Equity Portfolio Management markets value equities, our chief investment officer of small- Group, portfolio managers, associate portfolio managers, and capitalization value equities, our chief investment officer of members of our fixed-income portfolio-management teams. structured equities, our chief investment officer of Canadian This includes establishing positions in selected securities, value equities and our chief investment officer of European monitoring the tax implications of potential security sales value equities. They may also include our chief executive for each taxable client in most of our services, adjusting officer, other chief investment officers, our director of U.S. cash balances and/or investing cash balances according to value equities research, our director of global value equities investment policy, and all other matters relating to the research, our chief international economist, our director of implementation of investment strategy. quantitative research, our director of global value equities, other research directors, and senior portfolio managers. In certain cases, clients may specify that portfolio decisions or recommendations be made by Stanley M. Bogen, whose Growth Equity Service security analysis is primarily fundamental and is not The Strategic Growth equity service relies on a group of determined by the methodology and investment disciplines investment professionals, including portfolio managers and set forth in this section or the procedures described in the research analysts who confer on strategic decision making section “Execution and Allocation” on page 19. and stock selection. PORTFOLIO CONSTRUCTION AND YOUR ASSET ALLOCATION Fixed-Income Services We offer a variety of portfolio constructions—equity, fixed Our fixed-income portfolio management teams are income, REIT, balanced and fully diversified (the later responsible for investment strategies, target sector two a mix of assets)—suitable to individual risk/reward weightings, and duration structure strategy, as well objectives, and we base the asset allocation for your account as portfolio construction for the fixed-income services. on our knowledge of your unique situation and objectives. Relative sector views and our investment professionals’ Investing in securities can be risky—you can lose money overall view of economic and market direction are discussed on your investments. Investment strategies we utilize for by the Investment Strategy Committee chaired by our co- your account take into consideration the basic risk/reward chief investment officers of fixed income. character of various financial assets, your own tolerance The Private-Client Investment Policy Group is chaired by the for risk, and your tax status. Nevertheless, there can be senior investment officer of private-client investments. The no assurance that your investment objectives will actually 6 Bernstein Global Wealth Management
    • be attained. Over time, investing in stocks has achieved out of favor (if your account is concentrated in our growth more long-term growth than investing in bonds or money- services), although a combination of these services may market securities, but there is a price for this greater growth tend to lessen volatility over time. If our perception of a potential: volatility of your portfolio’s market value, with company’s intrinsic worth is not realized in the time frame appreciable chance of loss along the way, which could we expect, or, in the case of growth stocks, if a company’s even extend for a number of years. As a result, individual expected growth rate is overestimated, or if the market retirement and spending plans may be adversely affected. value of a company owned in your account declines, the With this in mind, we believe that the most important performance of your account may suffer. determinant of investment returns is asset allocation—how Accounts with lower risk/reward orientations, with lesser your invested capital is apportioned among stocks, bonds, commitment to stocks and more to fixed-income assets, and other securities in a portfolio. No one investment or while designed to provide some protection against inflation, market can always win; the best course almost always is generally emphasize capital preservation and/or income more to be in many markets. Combining investments that often than high returns, and their value tends to fluctuate less in behave differently from one another can reduce risk and rising and falling markets, although fixed-income assets enhance long-term growth. For example, adding bonds also fall in value when interest rates rise, and are subject to a stock portfolio reduces risk. In contrast to stocks, to credit risks of the issuers. We may use futures, options generally, bonds pay interest regularly and fluctuate less in on futures, and other derivatives to manage equity and market value—although bonds may also decline in market interest-rate exposure and to add to expected return where value when interest rates rise or the real or perceived credit appropriate. Derivatives can be volatile and involve various quality of an issuer deteriorates. But the relative stability types and degrees of risks, such as limited liquidity and the of bonds also exacts a price: limited growth potential over risk that a party will default on payment obligations. time, particularly after inflation. There are no absolute answers in investing, only trade- GLOBAL DIVERSIFICATION offs. The risk tolerance and financial circumstances of each client are unique—and hence his or her optimal risk/return Our asset-management capabilities extend to the worldwide trade-off is also unique. Our investment-planning process stock and bond markets, and we believe that for most is designed to identify a portfolio suitable to each client. clients adding an international component to their That is largely a task of determining an appropriate mix domestic portfolios is a prudent strategy. For example, for of stocks and fixed-income securities, since over time a U.S. investor, casting one’s investment net to encompass a portfolio’s asset allocation exerts the most important many non-U.S. markets greatly expands the pool of influence on investment results. opportunities—many industries are now dominated by non-U.S. companies—and may confer a diversification In general, our higher risk/reward accounts, with their benefit as well. Because the non-U.S. markets do not march larger commitment to stocks, are designed to earn in lockstep either with one another or the U.S. market, higher cumulative returns over time and to beat inflation investing globally tends to reduce fluctuations in returns significantly over the long run; they are more likely to over time. appreciate or depreciate in market value than lower- risk accounts, and they exhibit greater volatility—larger International investing carries additional risks relative fluctuations in value in rising and falling markets. Certain to domestic investing: Foreign currencies may decline of our stock accounts also tend to concentrate in sectors and against a client’s base currency; foreign securities markets securities that we believe are undervalued, and this may may be more volatile and less liquid than the domestic cause them to perform very differently than the broader market, making trading more difficult; and foreign markets market. Our growth-oriented accounts, on the other hand, may experience political, economic, regulatory or other concentrate in securities that we believe are likely to grow in difficulties that can affect your account’s performance. These price at an above-average rate, and they also may tend to be risk factors mean that at some future date, an investor may more volatile than the market as a whole. The performance be unable to liquidate certain holdings in a foreign portfolio. of your account is likely to differ from that of broad Some countries, particularly in the emerging world, may market indexes. Your account may even underperform such even expropriate assets. We try to minimize these risks indexes, particularly when value-oriented investing falls by performing extensive research, focusing on established out of favor (if your account is concentrated in our value- companies and market sectors and, in our stock accounts, oriented services), or when growth-oriented investing falls always broadly diversifying by country and industry. While Investment-Management Services and Policies 7
    • by definition global diversification means that you won’t portfolio. Portions of your account may be invested in capture all the benefits of the best performer in any year— one or more of the portfolios of the Funds or in the REIT whether it’s a developed market or an emerging market— Fund or managed separately, depending on the structure neither will you be solely exposed to the poorest performer. and/or size of the account. Shares of funds or portfolios On balance, we believe that this strategy may improve of funds that we develop in the future may be purchased your portfolio’s risk/reward profile. To limit currency risk unless you advise us to the contrary. We manage and in the developed markets, we may, but are not required provide shareholder servicing and administrative services to to, use forward contracts, which derive their value from the Funds. The Funds' fixed-income, international-equity, the underlying currencies, to manage or hedge currency emerging markets equity and other portfolios are designed exposure to the extent feasible and to the extent there is to meet different client objectives and tax situations, as opportunity to do so. Hedging mechanisms in the emerging more fully described in the Funds’ prospectuses. countries currently tend to be unavailable or too expensive, although they may be used in the future if feasible. INVESTMENT OBJECTIVES, RISK/REWARD CONSIDERATIONS We manage balanced portfolios along the following lines: BALANCED PORTFOLIOS Global Balanced Portfolios aim for long-term capital Holdings growth on a total-return basis (the combination of capital Balanced accounts hold stocks and fixed-income investments appreciation and interest/dividends). A U.S. client’s account in accordance with your individual objectives, risk/reward benchmark would typically include a mix of indexes orientation, tax status, and financial experience. The greater covering U.S. and non-U.S. stocks and bonds. These the commitment of a balanced account to a particular asset accounts are typically invested in the U.S. and in developed category, the more the account will take on the risk/reward non-U.S. markets; a small portion of the account may also orientation of that asset category, although diversification be invested in emerging markets, if the client desires. among asset categories may tend to reduce risk in some Non-U.S. stock and bond markets often have higher cases, since returns on certain asset categories may not move volatilities than the U.S. markets and the additional risk in tandem with returns on others. that comes from currency movements. But differences in the performance of individual markets can produce lower In line with our clients’ increasingly global orientation volatility across a globally diversified portfolio than for a toward investing, we encourage the consideration of U.S.-only portfolio—although all stock and bond portfolios balanced global portfolios, which exploit opportunities in are vulnerable to absolute-value declines. These accounts stocks and bonds worldwide. Allocation among the assets are typically rebalanced periodically to fixed proportions of depends on each client’s financial objectives. U.S. and non-U.S. stocks and bonds. Most balanced accounts are managed with a view to maintaining the agreed-upon asset allocation. This is EQUITY PORTFOLIOS accomplished through investment of cash flows, dividends, and interest and by reinvestment of funds generated by Holdings sales pursuant to the agreed-upon asset allocation. At times, We invest U.S. Strategic Value portfolios, U.S. Diversified when we believe it advisable, we may also sell a security Value™ portfolios, Strategic Growth portfolios, Enhanced in order to generate funds to reinvest for the purpose of Equity portfolios, Structured Equity portfolios, and the maintaining the agreed-upon asset allocation. In certain U.S. equity portions of balanced portfolios under our cases, clients may give us authority to vary the percentage management generally in larger-capitalization companies invested in domestic and international equity and fixed- listed on the New York Stock Exchange, the American income assets, and the percentages invested in each of the Stock Exchange, and other exchanges, as well as over-the- international markets, based on our opinion of the relative counter issues. We invest small-cap equity portfolios in attractiveness of the asset class and the market. smaller-capitalization companies listed on the New York The portfolio-construction rules of one or more of our Stock Exchange and American Stock Exchange, as well equity services may serve as the model for the equity as over-the-counter issues. Holdings in our clients’ U.S. portion of our clients’ balanced accounts. Your account’s size portfolios, and the U.S. portions of balanced portfolios, may and your risk/reward orientation determine the structure include American Depositary Receipts (ADRs) and other of the equity and fixed-income portions of your balanced non-U.S. stocks that trade on U.S. exchanges. We invest international-equity accounts (generally benchmarked 8 Bernstein Global Wealth Management
    • to an MSCI EAFE index) and the international portion U.S. Strategic Growth Accounts aim for long-term capital of global accounts in the equity markets of up to growth on a total-return basis (appreciation and dividends) 21 industrialized countries. These countries encompass and performance superior to the S&P 500 and the Russell Europe, Australasia, and the Far East, plus Canada. 1000 Growth Index over a full market cycle (a rising and Depending on account size, international accounts may falling market taken together). Like all equity portfolios, be invested in one of the International Portfolios of the these accounts are vulnerable to declines in value. Your Fund, as described above. We invest emerging markets account will typically hold 40-50 stocks at a time, chosen accounts and the emerging-markets portion of global from a group of roughly 500 of the largest-capitalization balanced accounts in equities in up to 30 countries in the developing world. Currently, we invest only in the stocks trading in the U.S., although the number of stocks more advanced emerging nations—those with relatively may vary from account to account. Since your account will more established political and legal infrastructures and have weightings in stocks and sectors that differ from those more liquid markets. Emerging markets accounts may be of the U.S. stock indexes, the performance of the account invested in the Emerging Markets Portfolio of the Fund, may be significantly better or worse than that of the market, as described above, or be separately managed, depending and the account’s volatility may also be greater. on account size. We invest Canadian Value Equity Many of our clients choose to diversify their portfolios portfolios in companies listed on the Toronto Stock by investment style to include Strategic Value and Strategic Exchange, primarily larger-capitalization companies included in the S&P/TSX Composite Index. Although Growth accounts. We aim for performance superior the situation occurs infrequently, we may include fixed- to the S&P 500 for each of these portfolio style constructions income securities in place of equities when we believe over a full market cycle (a rising and falling market fixed-income securities will provide returns comparable taken together). to those of equity securities. For certain accounts, we may It is possible that either of these accounts might purchase other instruments, such as warrants, private underperform the S&P 500 at any given time, since growth placements, financial futures, options on financial futures and value style investing have historically tended to move (including index futures), and currency forward contracts, as well as other derivative instruments. Derivatives can in and out of favor at different times. We believe that be volatile and involve various types and degrees of risks, when these accounts are held in combination, it is more such as the risk that a party will default on payment likely that their combined performance will outperform obligations and limited liquidity. 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 INVESTMENT OBJECTIVES, RISK/REWARD CONSIDERATIONS portfolio to meet a client’s specific needs. We manage equity-oriented portfolios along the following lines: U.S. Diversified Value™ Accounts seek long-term capital growth on a total return basis and are broadly diversified, U.S. Strategic Value Accounts aim for long-term capital holding approximately 150 stocks that emphasize sectors and growth on a total-return basis (appreciation and dividends) securities we consider undervalued, but the overweightings and performance superior to the S&P 500 and the Russell relative to an index are generally more modest than in the 1000 Value Index over a full market cycle (a rising Strategic Value portfolios. The goal is to outperform the and falling market taken together)—although all equity S&P 500 or the Russell 1000 Value Index over a full market portfolios are vulnerable to absolute-value declines. Your cycle (a rising and falling market taken together) while account will typically be invested in about 60 stocks (though limiting the divergence from the market’s performance to the number can vary meaningfully in different market moderate levels in most environments—although all equity environments), concentrated in out-of-favor companies and portfolios are vulnerable to absolute-value declines. industries, to the degree such opportunities are available Structured and Enhanced Equity Services are risk- in the market without undue risk. Since your account will controlled, large-cap U.S. equity services that draw upon have weightings in stocks and sectors that differ from those fundamental stock research and quantitative tools to achieve of the U.S. stock indexes, the performance of the account their long-term capital growth objectives. Both the Enhanced may be significantly better or worse than that of the market, Equity Services and the Structured Equity Services are and the account’s volatility may also be greater. designed to provide a modest annualized premium to either Investment-Management Services and Policies 9
    • the S&P 500, the Russell 1000, the Russell 1000 Value, or and value stocks will normally be about equal and will be the S&P/Barra Value Index, with relatively tight tracking rebalanced systematically to maintain that exposure across to the index returns—although all equity portfolios are both investment styles. In all cases, our international-equity vulnerable to absolute-value declines. The Enhanced Equity portfolios are diversified by industry and country, but not Services are designed to track the relevant benchmark more necessarily in the same proportions as they are represented closely than the Structured Services. Your account will be in the EAFE Index. As international-equity accounts are broadly diversified, including about 170–300 stocks on required to maintain modest cash balances, stock-index average, at position weights that never vary widely from futures in the major developed markets outside the U.S. are benchmark weights. We also control portfolio deviation used to more fully invest the portfolio. Currency exposure from benchmark concentrations in industry sectors and other is actively managed. Investment decisions concerning risk factors. We overweight those stocks we find attractive currencies are made independently of equity investments so on the basis of our long- and short-term valuation models, we may decide to hedge or not hedge stocks denominated but only to a limited degree. We also hold some stocks at or in non-U.S. dollar currencies. By their nature, currencies below their benchmark weights to provide diversification. carry their own investment risk. Returns of all non-U.S. securities are vulnerable to adverse movement of foreign U.S. Small-Cap Value Equity Portfolios aim for long- currencies in relation to the U.S. dollar and the risk term capital growth on a total-return basis (appreciation that non-U.S. governments will impose currency-exchange and dividends) and performance superior to the Russell control regulations or other restrictions that would prevent 2000 Index over a full market cycle (a rising and falling cash from being brought back to the United States. Since market taken together)—although all equity portfolios your account will have weightings in stocks and sectors that are vulnerable to absolute-value declines. A small-cap differ from those of the MSCI EAFE Index, the performance account tends to have higher volatility and less liquidity of the account may be significantly better or worse than than portfolios composed of larger-capitalization companies. that of the market, and the account’s volatility may also Your account will typically be invested in 70–90 stocks be greater. Returns of non-U.S. securities are subject to to diversify company-specific risk. At times, the account other risks not associated with U.S. investing, including a may concentrate in sectors we consider to be the most generally lower degree of market volume and liquidity than undervalued. If permitted, stock-index futures are used to that available in U.S. markets, which may result in greater participate in appreciation and/or depreciation of the stock price volatility, and settlement practices that may include market during the buy-in period, generally up to 12 weeks. delays and otherwise differ from those in U.S. markets. International Equity Portfolios seek long-term capital Returns may also be affected by foreign tax or withholding growth on a total-return basis (appreciation and dividends) on dividends and interest. You should consult your tax through investments in stocks of established foreign advisor about whether you are entitled to claim foreign tax companies making up the MSCI EAFE Index (Europe, credits or deductions on your income-tax returns. Australasia and the Far East) plus Canada. Our performance Emerging Markets Equity Portfolios are actively managed goal is to outperform the MSCI EAFE Index over full market portfolios of about 200 established companies found in cycles (a rising and falling market taken together), although countries of the developing world. Their goal is to provide all equity portfolios are vulnerable to absolute value declines. long-term capital growth through investments in equity Typically, the portfolios are invested in a well-diversified securities of companies in emerging markets countries. group of approximately 50 value stocks (selected using our We aim to outperform broad emerging markets indexes fundamental international value discipline, which looks consistently and significantly over full market cycles, for stocks that are attractively priced relative to long-term with materially lower volatility. In an effort to maximize earnings ability, dividend-paying capability, and whether opportunities and take advantage of the cyclical nature of or not the business environment and/or fundamentals are investment styles abroad, the investment strategy of the improving) and approximately 50 growth stocks (selected portfolio is a blend of growth and value. The weightings using our international growth investment discipline, which of growth and value stocks in this portfolio will normally looks for companies with dominant market positions, above- be about equal and will be rebalanced systematically to average profitability, superior earnings-growth prospects, maintain the ideal exposure across both investment styles. and reasonable stock prices). The portfolios combine growth In all cases, the portfolio will be diversified by industry and value equities in an effort to take advantage of the and country, but not necessarily in the same proportions cyclicality of investment styles abroad, and generate a more as represented in the benchmark Index. Capital-market consistent premium to the Index. The weightings of growth 10 Bernstein Global Wealth Management
    • performance in the emerging-markets countries has been on the client mandate, currency forward contracts may be imperfectly correlated with that in the industrialized used to hedge currency exposures or to go long currencies world. Hence, for clients already invested in U.S. stocks in excess of underlying equity investments. The same and those of the major non-U.S. markets, the emerging unique risks as described above for the International Equity markets should represent further diversification. Prominent Portfolios and the Emerging Markets Portfolios pertain risks attend investments in emerging-markets countries: to Global Value portfolios. Since your account will have The markets have been more volatile and less liquid weightings in stocks, sectors, countries, and currencies that than in the developed world; information about them is differ from the benchmark’s weight, the performance of the more limited; and social and political instability has been account may be significantly better or worse that that of greater. For these reasons, trading can be more difficult; the market, and the account’s volatility may also be greater. an investor may be unable to liquidate certain holdings Returns may also be affected by foreign tax or withholding in an emerging-markets portfolio, and in the case of the on dividends and interest. You should consult your tax Emerging Markets Portfolio of the Fund, the risk exists advisor about whether you are entitled to claim foreign tax that at some future point you may not be able to redeem credits or deductions on your income-tax returns. your shares. Currently, currency hedging is generally unavailable or prohibitively expensive, so the portfolio FIXED-INCOME PORTFOLIOS will typically be exposed to foreign-currency movements, though currency hedging may be used in the future if Holdings feasible. Returns of non-U.S. securities are subject to other Fixed-income accounts may be invested in a wide variety risks not associated with U.S. investing, including greater of securities issued throughout the world, including but price volatility, and settlement practices that may include not limited to U.S. Treasury instruments, securities of delays and otherwise differ from those in U.S. markets. U.S. agencies and instrumentalities, issues of governments Returns may be affected by foreign tax or withholding on and related entities, supranational institutions such as the dividends and interest. You should consult your tax advisor World Bank, corporate debt securities, obligations of state about whether you are entitled to claim foreign tax credits and local governments, mortgage-related securities and or deductions on your income-tax returns. other asset-backed securities, convertible debt (which Global Value Equity Accounts, including Global Strategic may be converted into the underlying shares of common Value Equity, Global Value Equity, and Global Diversified stock), preferred stock, private placements, and repurchase Value Equity, seek long-term capital growth on a total-return and reverse repurchase agreements. We also invest in a basis (appreciation and dividends) through investments in variety of U.S.-dollar-denominated fixed-income securities stocks of established companies around the world. We tailor issued by such entities from the developed and emerging the global value services to the specific characteristics of markets that may or may not be registered in the United each client; this is possible because we are able to adjust States. Investments may include debt of issuers located stock selection, country allocation, currency management, in, and sovereigns of, newly developed and emerging and benchmark selection to meet the client’s mandate with markets. Where appropriate and authorized by the client, no change in our investment process. our clients’ fixed-income accounts may also be invested in high-yield bonds, (i.e., debt rated below investment-grade, The primary source of our expected performance premium or, if unrated, of comparable quality). These lower-quality for our global value services is research-driven security debt securities are generally considered to be speculative selection. We use a disciplined portfolio construction and involve greater risk of default or price change due to framework to develop a portfolio with the desired risk/ changes in the issuer’s creditworthiness. The secondary reward tradeoff. We look for securities that are attractively market for high-yield bonds may be less liquid than that priced relative to their future earnings power and dividend- of higher-quality securities, and high-yield bonds may be paying capability. particularly susceptible to economic downturns. Where Global value portfolios are diversified by industry and we have not been given authority to purchase high-yield country, but not necessarily in the same proportion as bonds in an account, securities that have been downgraded the benchmark. Stock-index futures in the major global to non-investment-grade subsequent to purchase may markets may be used to more fully invest the transactional be held in the account. We continually monitor the cash balances. Investment decisions concerning currencies investments in the account and evaluate whether to are made independently of equity investments. Depending dispose of or retain securities whose credit rating or credit quality may have changed. Investment-Management Services and Policies 11
    • Depending on account size and type of service, our clients’ high probability of exhibiting positive annual returns, accounts may be invested in one or more portfolios of although their income levels are volatile and their the Fund, as described above. We take clients’ tax status expected returns are usually relatively low. and tolerance for risk into account in determining the There are other risks associated with the various financial appropriate fixed-income service. instruments in which fixed-income accounts may be When appropriate and authorized by the client, we may invested. For example, mortgage-related securities are use financial futures and options on financial futures. We subject to prepayment risk: A borrower is more likely may also use other derivatives for certain accounts whose to prepay a mortgage that bears a relatively high rate objectives, in our view, make their use advisable. Derivatives of interest. Thus, the value of the securities may not can be volatile and involve various types and degrees of increase as much as other debt securities when interest risks, such as the risk that a party will default on payment rates fall. However, when interest rates rise, the rate of obligations and limited liquidity. When appropriate and prepayments may slow and the value of the mortgage- authorized by the client, we may invest in fixed-income related securities may decrease like other debt securities. securities denominated in currencies other than the client’s In addition, commercial mortgage-backed securities are domestic currency. Foreign-currency forward agreements subject to credit risks associated with the performance as well as futures and options on futures on foreign fixed- of the underlying properties. Asset-backed securities income securities and currencies may also be used. Financial present certain additional risks that are not presented by instruments denominated in other currencies are subject mortgage-backed securities. There is the possibility that to foreign-currency risks. By their nature, currencies carry recoveries on the underlying collateral may not, in some their own investment risk. Returns of foreign securities are cases, be available to support payments on these securities. vulnerable to adverse movement of foreign currencies in Reverse repurchase agreements present the risk that the relation to the client’s domestic currency and the risk that underlying securities will gain value during the time they foreign governments will impose currency-exchange control are lent and the opposite parties will then default. Zero regulations or other restrictions that would prevent cash coupon and payment-in-kind securities, whose prices from being removed from their countries. There are special may react more strongly to changes in interest rates risk factors associated with investing in non-U.S. markets. than the prices of comparable-maturity cash-payment Such markets generally are not as developed or efficient as coupon bonds, may also be purchased for your account. those in the U.S. Securities of some non-U.S. issuers are less Your account may also include variable- and floating- liquid and more volatile than securities of comparable U.S. rate securities, as well as inflation-protected securities. issuers. The risk of investing in foreign securities may be Decreases in the inflation rate or in investors’ expectations intensified in the case of investments in emerging markets about inflation could cause inflation-protected securities or countries with limited or developing capital markets. to underperform non-inflation-adjusted securities on a Returns may also be affected by foreign tax or withholding total-return basis. In addition, these securities may have on dividends and interest. You should consult your tax limited liquidity in the secondary market. advisor about whether you are entitled to claim foreign tax We offer the following fixed-income alternatives, which credits or deductions on your income-tax returns. may be combined in a bond or balanced account: INVESTMENT OBJECTIVES, RISK/REWARD CONSIDERATIONS U.S. Government Cash Accounts attempt to achieve a higher return than three-month Treasury bills and All of these accounts invest in fixed income securities that inflation, and to limit state and local taxes, nearly assuring provide current investment income but hold little, if any, a positive annual return. These accounts hold no securities potential for capital growth. The investment spectrum with maturities greater than 12 months and are designed ranges from overnight instruments to issues maturing generally to maintain a level of risk comparable to that in 100 years or more. The longer the maturity, the more of a portfolio with an effective duration of two to four stable the income level and the greater the expected months. These accounts will be invested exclusively in return, but also the greater the price volatility—that is, U.S. Treasury and agency securities, with agency securities the greater the vulnerability of market price to interest- normally constituting no more than half of the portfolio. rate change. The probability of a negative annual return on 20- and 30-year bonds is considerable because of their U.S. Government Short Duration Accounts attempt to price volatility. In contrast, short-term investments— achieve a higher return than money-market instruments those maturing in less than a year—have an extremely and inflation, while seeking a high probability of positive 12 Bernstein Global Wealth Management
    • annual return. While the maturities of individual securities average and be slightly less volatile on average because the in these accounts may vary widely, the accounts are accounts maintain a lower level of interest-rate sensitivity. designed generally to maintain a level of risk comparable Limited Duration Accounts will typically have an effective to that of a portfolio with an average effective duration duration in the range of two to five years. of one to three years. Normally, these accounts will be Global/International Fixed-Income Accounts attempt largely or exclusively invested in U.S. Treasury and agency to outperform either global or non-U.S. bond indexes securities, and the income earned by the accounts will, for over a full market cycle (a rising and falling market the most part, be exempt from state and local taxes. Other taken together). These accounts are invested primarily in fixed-income securities may be purchased, but only if government, corporate, and supranational securities issued their expected returns are higher than those available from throughout the world. We may also use bond futures on Treasury or agency issues. U.S. and non-U.S. bonds as well as currency forwards to U.S. Short Duration Plus Accounts share many of the manage bond and currency exposure. We select securities objectives and techniques of the Government Short and adjust country and sector weightings consistent with Duration Accounts, but they aim for higher returns than our assessment of opportunities, and actively manage the Government Short Duration Accounts because their currency exposure with the goal of increasing return and investments will normally include a higher percentage of limiting currency risk. nongovernment securities, such as corporate bonds and U.S. Municipal Bond Accounts attempt to maximize mortgages. When authorized by the client, we may invest return after consideration of the client’s federal tax bracket. in non-U.S.-currency-denominated securities when, in our Municipal accounts may include nonmunicipal securities judgment, they hold high return potential relative to U.S.- to maintain the target duration of the account, pending dollar-denominated securities. Risk-control guidelines may investment of cash balances in municipal securities and when limit the non-U.S.-dollar-denominated bond weightings market conditions cause the expected after-tax return of in the account, both in aggregate and for any individual nonmunicipal securities to be higher than that of municipal country. We actively manage currency exposure separately securities. Short Duration Municipal Bond Accounts seek from security selection; here as well, risk-control guidelines a high probability of positive annual returns; the overall may limit the size of our positions. risk level of the accounts is designed to be comparable to Intermediate Duration Accounts attempt to outperform the a portfolio with an average effective duration of one-half to bond market as a whole, the median fixed-income manager, two and one-half years, although maturities of individual and inflation, while seeking a moderate-to-high probability securities may vary widely. Intermediate Duration Municipal of positive annual return. Investments can include securities Bond Accounts seek a moderate-to-high probability of from a wide range of market sectors. While the maturities positive annual returns; in general, the overall risk level of the individual securities in these accounts may vary of the accounts is designed to be comparable to a portfolio widely, the accounts are designed generally to maintain a with an average effective duration of three to seven years, level of risk comparable to that of an intermediate portfolio although maturities of individual securities may vary widely. with an average effective duration of three to six years. We also offer Short and Intermediate Duration New York Because Intermediate Duration Accounts are managed and California Municipal Accounts, which take state and without regard to potential tax consequences, they may be local taxes (if any) into account. particularly appropriate for investors not subject to current Inflation-Protected Bond Accounts aim to provide a taxation, such as IRAs. When authorized by the clients, we high-quality portfolio whose long-term returns exceed may invest in non-U.S.-currency-denominated securities the general level of inflation in the U.S. as measured by (including emerging markets) and high-yield securities the Consumer Price Index (CPI). These accounts invest when, in our judgment, they hold high return potential primarily in securities whose coupons and/or principal relative to U.S.-dollar-denominated securities. Risk-control payments are linked to the inflation rate in the U.S. These guidelines may limit the non-U.S.-dollar-denominated bond securities are designed to protect an investor’s wealth weightings in the account, both in aggregate and for any in inflationary environments. The total return on these individual country. In almost all cases, foreign currency accounts is likely to exceed that of conventional bonds in exposure is hedged back to U.S. dollars. environments when inflation is rising. These accounts are U.S. Limited Duration Accounts share many of the likely to underperform conventional bonds when inflation objectives and techniques of the Intermediate Duration is lower than expected. Decreases in the inflation rate Accounts but will produce somewhat lower returns on or in investors’ expectations about inflation could cause Investment-Management Services and Policies 13
    • these accounts to underperform conventional bonds on Real-estate investment trusts, or REITs, are pooled a total-return basis. Over the long term, these accounts investment vehicles that invest primarily in real-estate- are likely to produce a lower level of returns than stocks related loans or interest, or income-producing real property and bonds because they offer an additional level of risk interests. REITs allow investors to participate in the protection. In addition, inflation-protected securities may commercial real-estate market without the illiquidity, have limited liquidity in the secondary market. lack of diversification or high maintenance costs that are associated with owning individual pieces of property. The total return on these accounts may be negative for a REITs own nearly all types of properties, including time, even in the years where inflation is positive, because, office buildings, industrial warehouses, shopping centers, like all bonds, inflation-linked securities are subject to price residential apartments, and hotels. To qualify as a REIT losses when interest rates rise. However, since the yields on and be exempt from corporate income taxes, the company inflation-protected securities tend to move less than other must distribute virtually all its taxable income to its bond yields, their returns are likely to be less volatile than shareholders every year. the returns of intermediate-term bonds. A portion of the accounts may be invested in high-quality INVESTMENT OBJECTIVES, RISK/REWARDS CONSIDERATIONS fixed-income securities whose returns are not directly linked to U.S. inflation. These may include conventional The REIT Fund seeks a high level of current income Treasury, mortgage, agency, and corporate securities, as well along with capital appreciation. Because the bulk of REIT as non-U.S. inflation-linked bonds that may entail some returns come in the form of current dividend income, we currency risk. encourage clients in high tax brackets to hold REITS in tax-free or tax-deferred accounts, such as an IRA. REITs Stable Value Services are Guaranteed Investment Contract carry the same risks associated with other equities: The (GIC) alternatives for institutional savings plans. These price is likely to fluctuate, and shares may be redeemed at accounts are actively managed bond portfolios that seek to a price lower than the purchase price, resulting in a loss. maximize return according to targeted specifications set by See the REIT Fund prospectus for more information. such plans; an agreement (termed a “wrapper”) purchased from a bank or insurance company provides for book- ADDITIONAL SERVICES value payment for plan-permitted employee withdrawals. The rate of interest credited on book value is based on The following additional services are available through current bond yields and the account’s performance. The your Bernstein Advisor: crediting rate is reset quarterly, semiannually or annually, CollegeBoundfund TM, which is officially known as the depending on the plan sponsor’s preference, and moves Rhode Island Tuition Savings Program, has been established with the same responsiveness to market interest rates as by the Rhode Island Higher Education Assistance Authority the blended rate on a laddered GIC portfolio of similar (the “RIHEAA”) to enable residents of any state to save money duration. Stable Value Services accounts are tailored to on a tax-advantaged basis for qualified higher-education the level of diversification, credit quality, and duration expenses of their designated beneficiaries. RIHEAA has desired by the plan sponsor. established the Rhode Island Higher Education Savings Trust (the “Trust”),* of which RIHEAA is the trustee, THE REIT FUND to hold all assets of the program. We are the manager of the program, and in that capacity provide comprehensive AllianceBernstein Real Estate Investment Institutional Fund investment, operational, and other services for the program. (the “REIT Fund”) is a registered investment company Individuals may participate in the program (regardless of that invests in real-estate companies that we believe have their income level or age) by establishing accounts with us strong property fundamentals and management teams. We representing interests in the Trust that are invested through are the REIT Fund’s investment adviser.* The REIT Fund Trust allocation portfolios in a blend of shares of open-end offers an actively managed vehicle for clients seeking to registered investment companies managed by us. Each diversify their portfolios by participating in the commercial account established by an individual has a single beneficiary real-estate market. Subject to minimum account size selected by the participant. requirements, certain clients may have separately managed REIT portfolios. * Our subsidiary, Sanford C. Bernstein & Co. LLC, acts as a distributor. 14 Bernstein Global Wealth Management
    • The assets of the CollegeBoundfund ™ accounts are After we have a clear picture of your financial situation, invested through investment portfolio options designed for we proceed together to set specific investment objectives. participants and their beneficiaries in different situations, At that time, we will establish the risk/reward orientation and are invested in shares of stock, bond, and money- for your account, perhaps the single most important market mutual funds, or blends of these types of funds, consideration. Your Bernstein Advisor then discusses based on the account’s investment orientation. Once a possible plans of action and investment strategies by participant selects the allocation portfolio for the account, which your goals can be achieved. the participant may change the selected allocation once per If you use securities to fund your account, we will year. See the CollegeBoundfund™ Program Description for determine whether they are appropriate to retain as part more information on the program. of your managed portfolio. Although in making this Federated Money-Market Funds. We offer money-market determination we will consider, where you provide us investment opportunities through select money-market with cost information, any capital gains that you would funds (the "Federated Funds") with distinct investment realize if the securities were liquidated, it is likely that objectives managed by Federated Investment Management most of the securities that you transfer to your account for Company, a registered investment advisor and a subsidiary management will be sold, in which case you may realize of Federated Investors, Inc. The five Federated Funds are: capital gains. We integrate tax considerations throughout (1) the Federated Prime Obligations Fund; (2) Government the management of our clients’ taxable accounts. See more Obligations Tax Managed Fund (3) Municipal Obligations about our tax-related strategies in the section “Tax-Related Fund; (4) New York Municipal Cash Trust; and (5) California Strategies and Communications” on page 18. Municipal Cash Trust. Investments in the Federated Funds After we begin managing your account, we encourage you are maintained as part of your Bernstein relationship. to inform us in writing of any changes in your personal Additions to and withdrawals from the Federated Funds situation or your tax or financial position. are handled through your Bernstein Advisor. HOW TO OPEN A PENSION, PROFIT-SHARING, ENDOWMENT OR HOW TO OPEN AN INVESTMENT ACCOUNT FOUNDATION ACCOUNT Opening a managed investment account is simple. You read, complete, and sign an account agreement and Our Bernstein Advisors are also trained to work with application, and transfer or deposit cash or securities with pension and profit-sharing plan sponsors. your custodian to fund your account. In order to open your pension or profit-sharing account, Before we accept a new account, we generally require you need to deliver to us a copy of the governing plan that you talk with one of our Bernstein Advisors. In this documents. Your Bernstein Advisor will discuss with you investment-planning session, you will develop together a any prototype Defined Contribution Plan, IRA or other clear understanding of the investment objectives for your individual retirement plan that we make available to you. account. Your Bernstein Advisor is a trained professional For 401(k) and other defined-contribution plans, we who is able to work with you to help ensure that offer The Informed Choice ®, a comprehensive and fully your investment program reflects your personal financial integrated package of investment options. External situation. We discuss your current tax status, your recordkeepers you select offer recordkeeping, reporting, investment temperament, your current and future financial and administrative services tailored to the particular needs, and your current financial position. needs of your plan. These services may include the ability to accommodate nonaffiliated investments, including It has been our experience that these investment- existing GICs and company stock. The Informed Choice planning sessions can include topics that our clients offers plans access to a broad range of investment options, should pursue with their attorneys and accountants: wills, consisting of certain portfolios of the AllianceBernstein estates, trusts, insurance, and other aspects of personal family of funds, the Sanford C. Bernstein Fund, Inc., financial planning. We are not tax advisors, and tax and collective trusts offered by Investor’s Bank & Trust planning varies greatly with individual circumstances. Company, for which we serve as subadvisor. Changing your You should consult your accountant and attorney for recordkeeper or plan administrator, if required, may create counsel in their respective areas of expertise. a period during which benefit processing/payments, in- Investment-Management Services and Policies 15
    • service withdrawals, loan transactions, individual transfer When the value of U.S. assets delivered meets the minimum election/processing, etc., cannot be performed. Individual requirement for management, we may make a partial participant balance information provided by the external allocation, assuming that the remaining assets will be recordkeeper is not available during this period until all delivered. The minimum assets required for initial allocation prior recordkeeping information has been transferred and depend upon the asset allocation of the account selected by participant records have been reconciled. the client. For Strategic Value and Strategic Growth, we will generally make a partial allocation when the assets received We provide an account agreement for your review and for the account, or for the corresponding equity portion of a signature. Informed Choice, endowment, and foundation balanced account, are at least $100,000 and equal to 25% accounts may have additional or different requirements. of the anticipated equity portion. Most private clients are Your Bernstein Advisor will advise you as to the proper on a wrap (i.e., all-inclusive) fee package. For those clients method of opening your account in light of the structure on a fee schedule that charges commission, however, this of your entity. partial allocation may increase the transaction charges during the opening period but will provide the diversification and POLICIES FOR OPENING OR CLOSING AN ACCOUNT AND asset mix that the account would have if all assets had been COMMUNICATING INSTRUCTIONS TO US received by us at one time. For equity and balanced accounts, It usually takes up to six business days from our receipt this partial allocation will generally be done pro rata over all of complete documentation—and from your delivery of the sectors and for all securities that we have approved for cash or securities to fund your account—to the time when purchase, except that consideration will be given to securities we begin purchasing large-capitalization U.S. equity. For you advise us will be used to fund your account. fixed-income, small-capitalization equity, international For separately managed International, Global, and equity, and emerging-markets equity, as well as accounts Emerging Markets accounts, the amount of funding involving complex or unusual circumstances, it may take required before making an initial allocation will be somewhat longer. For instance, because of the nature determined on a case-by-case basis. of the small-cap market, it generally takes up to 12 weeks before a small-cap account is fully invested. Our For fixed-income accounts, depending on the size of the performance-measurement inception date for an account account, a pro-rata allocation may be made before all commences when it is substantially invested. For certain assets are delivered. A partial allocation may, depending accounts, securities may be held by a custodian chosen upon market conditions, result in temporary exposure by the client. For these accounts, clients must, or must to interest-rate risk that varies from, and/or credit risk cause the custodian or other administrator to, promptly that may be in excess of, that which would be normal for notify us of any additions to or withdrawals from the accounts where all assets have been delivered at one time. account. We will not be responsible for accessing this We accept reasonable limitations as to which securities information through on-line electronic reporting systems are bought or sold, such as agreeing not to buy stock in a of the custodians, since such information is not necessarily company for a client’s account if the client is an affiliate or available or reliable. For most private-client accounts, controlling person in the company. our subsidiary Sanford C. Bernstein & Co., LLC acts as custodian, and in these cases we will be aware of additions You may change your asset allocation or request partial to and withdrawals from your account. or complete liquidation of your account at any time by sending us written notice signed by all relevant parties. When you deliver to your account any assets for deposit Prior to receiving written notice, if a client orally or transfer, we will review the securities as to their requests that we discontinue management, we will do so appropriateness for the account. Securities deemed and confirm these instructions to the client in writing. inappropriate in view of our investment style or legal Notice becomes effective upon our receipt if it is signed limitations as to our aggregate ownership position, as by all relevant account parties and sent by U.S. mail, well as the portion of securities that are overweighted in certified mail, express mail or facsimile transmission. relationship to the total anticipated value of the account, A notice of discontinuance of management should specify will be sold. As a matter of policy, we manage securities whether you wish securities and other positions that are in only when, in our opinion, they are appropriate for the your account to be liquidated. 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. 16 Bernstein Global Wealth Management
    • Under normal market conditions, a change in asset QUALITY-CONTROL REPORTS allocation or a partial or complete liquidation is commenced A variety of internal quality-control reports monitor and by the close of business on the business day following our review the implementation of our security-selection and receipt of the notice. While this is our policy, there are investment policies. times when immediate accommodation of a client request may not be possible—notably, periods of high volatility For U.S.-equity accounts and for the U.S.-equity portion of and extreme trading volume. During such periods, which balanced accounts, these reports include: can occur anywhere in the world, it may take longer for 1. A daily summary of all orders that are recommended an asset-allocation change or liquidation to be initiated, for trading. It is reviewed daily by members of the and the prices of securities may be significantly different applicable Investment Policy Group or, in the case of at the time of liquidation than at the time of notice. Our Strategic Growth, by members of our large-cap growth concern is that short-term tactical decision making based team, to determine the appropriateness of all orders and on current events or market extremes can be difficult to set trading limits. implement—another reason that we advise clients to take a long-term approach to investing. When we discontinue 2. A computer run that includes all equity securities management of an account, we will refund the portion of owned in clients’ portfolios. It is reviewed by designated the fee that has not been earned. members of the applicable portfolio-management group on at least a monthly basis. We will not accept any notice or instruction, including those relating to discontinuance of management, liquidation of 3. A report of our large-cap accounts that shows aggregate positions or change in asset allocation, by e-mail, internet weightings across those accounts and any deviations from or any other electronic system (other than facsimile acceptable tolerances for every individual account. This is transmission) or by messages left on our voice-mail generated weekly and reviewed by designated members system. We recommend that you confirm all transmissions of the applicable portfolio-management group in order via facsimile by a phone call to ensure adequate and to determine the appropriateness of the holdings. timely delivery, since we will not be responsible for any For non-U.S. equity accounts and for the non-U.S. equity mechanical or other failure in transmission. portion of balanced accounts, a variety of proprietary reports and analyses are used to ensure that our investment PORTFOLIO INFORMATION SYSTEMS AND REVIEW decisions are implemented properly and in a timely fashion. These reports are reviewed at least weekly by the respective PORTFOLIO INFORMATION SYSTEMS portfolio management group. Your portfolio is maintained for management and internal For equity accounts, and the equity portion of balanced review on a computerized portfolio information system. accounts, a number of proprietary reports and analyses The information system summarizes the asset allocation are used to ensure that our investment decisions are for your account and your tax status. (This information implemented properly and in a timely fashion. Reports are system has been developed for in-house use.) reviewed by account managers as well as senior investment professionals of the respective portfolio management group The system records all information pertaining to each and are produced daily, weekly and monthly depending account, including the portfolio market value, cash upon the report's purpose. balances, and securities currently in the portfolio. Current security market values and costs, the percentage of the For fixed-income accounts, and for the fixed-income portion portfolio invested in each position, realized gains or losses, of balanced accounts, individual reports, which are reviewed and information needed for the calculation of unrealized at least monthly by the fixed-income portfolio-management gains or losses are also included. teams, are used to ensure that accounts possess the desired combination of characteristics—e.g., the appropriate Each portfolio is reviewed at least monthly by designated maturity, sector, and security mix. 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 SECURITY-SELECTION REVIEW material cash or securities are added to or withdrawn from Members of the applicable Investment Policy Group, the account, or whenever you advise us of a change in your the Strategic Growth portfolio managers or fixed-income circumstances that may warrant a change in the current portfolio-management teams meet at least monthly to review management of the account. significant issues affecting securities in your portfolio. Investment-Management Services and Policies 17
    • CLIENT COMMUNICATIONS CLIENT CONFERENCES We host periodic conferences for our private clients. At these OPENING LETTER conferences our senior executives, research staff, and portfolio Upon opening a managed investment account, you receive managers deliver speeches that address issues affecting our from us an executed copy of your account agreement and management of your portfolio. Following these presentations, application, and a letter confirming your account’s asset you may meet our staff members to discuss your individual allocation. We try to meet with you at least annually to situation and questions. Audiotapes of many conferences are review your investment objectives. available to all invitees, along with a printed copy of the slides used in presentations. FUND ANNUAL AND SEMIANNUAL REPORTS If you hold shares of a Fund, you receive semiannual and RESEARCH REPORTS annual reports on the Fund. If your account holds Fund Throughout the year, we conduct research into specific shares exclusively, these reports may be in lieu of the topics related to investing and wealth management. Such communications cited below. research is published and made available to private clients. QUARTERLY INVESTMENT-MANAGEMENT REPORTS WEBSITE After the close of each full quarter, you receive (or have access Our website devoted to our private-client business, www. to, via our website) a report of our capital-markets outlook bernstein.com, provides access to our latest strategies, and composite performance data for our various services. performance, research findings, and other general resources as well as account-specific information. Clients interested in accessing account-specific information on this site should YEAR-END INVESTMENT-PERFORMANCE REPORT contact their Bernstein Advisor. At 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 THE INFORMED CHOICE inception date, compared with the major capital-market Participants in our Informed Choice defined-contribution indexes, is available from your Advisor. As in all plan receive a quarterly newsletter, Your Retirement Plan communications in which we cite performance, your Investment Report, which provides a detailed review of investment-performance report shows performance on a performance and strategies for the preceding quarter. total-return basis, which includes all interest, dividends, Participants and other plan clients also receive an educational and realized and unrealized gains or losses. In individual booklet, Using Your 401(k) Plan Wisely. communications with you, we show performance of our various investment services after transaction costs TAX-RELATED STRATEGIES AND COMMUNICATIONS (if applicable) but before investment-management fees Integrating tax considerations into the management of (except for investments in the Fund, which are always our clients’ taxable accounts—factoring in each client’s shown net of all costs). In literature addressed to the unique tax situation—is a key aspect of our service. Along public generally, in accordance with applicable regulatory these lines, before the end of the calendar year, for taxable requirements, we cite performance of our investment accounts, we ask that you supply us with information services after fees and other expenses that clients paid; on any short- or long-term capital gains and/or losses these deductions reflect average deductions rather than you’ve realized during the year from sources other than deductions applicable specifically to your account. your account(s) with Bernstein, and any short- or long- term loss carryforward; and that you confirm your tax THE BERNSTEIN JOURNAL bracket(s) for this year and the next year. We inform you Private clients receive The Bernstein Journal: Perspectives on that—unless you advise us otherwise—we plan to offset Investing & Wealth Management, a semiannual periodical realized capital gains with losses on individual security reviewing our key research findings on critical wealth positions in your account if we deem it advantageous for management issues, such as asset allocation, estate planning, you, choosing among a variety of tax-trading strategies. diversification, the status of the capital markets, the With your permission, we may also contact your tax investment strategies we’re employing in your accounts, and advisor or accountant to clarify your tax-planning other related topics we consider of interest. situation or gather other tax information. In addition, 18 Bernstein Global Wealth Management
    • on an account-by-account basis, we can quantify the tax Our Statement of Policies and Procedures is a set of penalty, amortized over various time periods, for selling proxy-voting guidelines that, when followed, is intended an appreciated equity position. By comparing the penalty to maximize the value of the securities in our clients’ with our assessment of the expected return of a potential accounts. It describes our approach to analyzing and alternative purchase, our goal is to determine whether voting issues and how we determine our proxy votes, and selling or holding the stock is more advantageous in light identifies the persons responsible for determining how to of your tax circumstances. The tax center on our website vote proxies. It also includes our procedures for addressing provides details on year-to-date capital gains and income material conflicts of interest that may arise between our as well as our latest tax-related research. interests and those of our clients in connection with our consideration of a proxy. Where our subsidiary Sanford C. Bernstein & Co., LLC acts as your custodian, after the end of the year you In addition, we have adopted a Proxy-Voting Manual that will receive a comprehensive tax report for each of your provides further detail into our proxy-voting process and accounts, which provides you with information necessary addresses a range of specific voting issues. in the preparation of your tax returns. The year-end tax Clients may obtain a copy of the Statement of Policies report is designed to provide you with summary and and Procedures and our Proxy-Voting Manual, as well detailed information to complete key items on your as information about how we voted with respect to federal and state tax returns as these items relate to their securities, by contacting their Bernstein Advisor. your accounts with Bernstein, including capital gains Alternatively, clients may make a written request to: and losses, taxable interest and dividend income, and Mark R. Manley, Senior Vice President and Deputy investment-management fees. If applicable, the report General Counsel, AllianceBernstein L.P., 1345 Avenue of also provides you with information on income derived the Americas, New York, NY 10105. 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, EXECUTION AND ALLOCATION state-specific information on tax-exempt income, and covered and open short-sale positions. PRE-EXECUTION Tax planning and preparation vary with individual Allocation and execution policies help us to provide each circumstances. Because of the complex nature of the tax client with money management on an individual basis. Our laws and the complicated calculations required, your tax general policy is to allocate investment opportunities in a advisor should review all tax-related communications fair and equitable manner over time. Affiliated accounts with us and verify the accuracy of any information (i.e., of our employees and those of Sanford C. Bernstein & included in your tax filings, as we are not tax advisors and Co., LLC) invested in our discretionary services are managed are not responsible for your tax filings. 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 PROXY VOTING same allocation procedures, quality-control processes, and Generally, you will be responsible for voting proxies the other policies set forth in this booklet. We maintain for the assets in your accounts. If you do not want to an internal report for each account reflecting factors receive proxy-soliciting materials and annual and interim pertaining to the account. Bernstein operates its own order- reports, you may choose to appoint a proxy-voting agent placement facility. From time to time, Bernstein and other to receive these materials and the Bernstein Proxy Voting units of Alliance may be transacting in the same securities Committee will determine the vote on your behalf. at the same time, and order executions are generally not Consult your Bernstein Advisor for further information. coordinated. Accordingly, your account may get a higher or lower price for the same security than orders placed by As a registered investment adviser that exercises proxy- Alliance personnel other than those servicing Bernstein. 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 GENERAL PARTICIPATION regard, we have adopted a Statement of Policies and Prior to determining which accounts should participate in Procedures for Proxy Voting (the “Statement of Policies a potential purchase or sale of blocks of securities during a and Procedures”). Investment-Management Services and Policies 19
    • trading day, in addition to prevailing market conditions, we 1. Whether or not a client has an existing partial position consider the following: in that particular security; Purchases 2. The tax status of the account, e.g., time constraints involved in reviewing tax consequences or effecting 1. Whether the security is appropriate for all accounts; or tax strategies; 2. Whether the security is appropriate for all accounts, 3. The account’s risk/reward goals; and though in varying percentages for each account; or 4. Time constraints involved in reviewing guidelines that 3. Whether the security is appropriate for a certain may prohibit certain allocations. category of accounts. Equity Security Allocation Sales Upon execution of the order, the appropriate amounts and 1. Whether the security should not be owned for any of prices are recorded for each account. Our internal allocation our accounts or a certain category of accounts; or procedure provides fair treatment, as follows: 2. Whether the security should be owned in lesser percentages for each account or a certain category of U.S. Equity Securities accounts; or Our Trading and Technical Group records the specific accounts that may participate in a proposed execution of 3. Whether we want to liquidate a position for tax U.S. equity orders. The pending orders on these accounts purposes for those clients requiring a gain or loss. are then used as a basis for the allocations of executed Where we determine to sell a security regardless of tax orders. U.S. equity orders for accounts for which our considerations, both taxable and tax-exempt accounts are subsidiary broker-dealer Sanford C. Bernstein & Co., LLC eligible for sale contemporaneously. In those situations executes transactions, and for accounts that utilize other where tax gains influence the sale, securities in the tax- brokers, are executed on a proportional basis. Among the exempt accounts may be placed for sale first to delay accounts that direct brokerage to firms other than Sanford the realization of a taxable gain, or to address the tax C. Bernstein & Co., LLC, the priority of the orders is implications for each taxable account. Conversely, when tax generally determined on a random basis. This procedure losses influence the sale, we may prioritize taxable clients may vary depending on factors such as purchase or sale first as the loss has a specific impact in a given year. opportunities among brokers selected by the clients, the size of the order, and timing considerations. SPECIFIC PARTICIPATION Where Sanford C. Bernstein & Co., LLC executes When orders are generated, the decision as to which transactions, at any particular time, all outstanding accounts should participate, and in what amount, is based equity orders for investment-management accounts for on the type of security, the present or desired structure of the same security at the same limit are treated equally. the portfolio, the nature of the account’s goals and tolerance When such executions occur at different prices during for risk, the tax status, the permitted investment techniques the day, participating clients get the average price of all and, for fixed-income accounts, the size of the account and eligible executions in that security during the day. If all settlement and other practical considerations. As a result, the orders for the same security have the same limit, or if we may have different price limits at which we would all the executions satisfy the most restrictive limit, then wish to purchase or sell a security for different accounts. all the executions are price-averaged for allocation to Our portfolio-information systems, portfolio reports, and the orders. Otherwise, the orders are grouped according quality-control reports permit us to consider and weigh to limit. For each group, portions of each execution are these factors as appropriate. 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 ADDITIONAL CONSIDERATIONS any other distribution. If the amount that Sanford C. For equity, balanced, and fixed-income accounts, partici- Bernstein & Co., LLC has been able to execute in the pation in an order may also be based on the following desired price range is not sufficient to fill all the orders, factors: the total amount executed is allocated to the accounts on a mechanical basis as follows: 20 Bernstein Global Wealth Management
    • Accounts under the supervision of our Investment Policy accounts on a mechanical basis as follows: Accounts are Groups, as well as Strategic Growth accounts, that utilize randomly ranked to determine the priority in which they Sanford C. Bernstein & Co., LLC as broker, are generally will be considered for participation in the allocation. divided into two categories: 1) those with equity equal to Allocations are then made to the accounts in the order or greater than $5 million (including relationships with they are ranked, subject to minimums and rounding combined equity equal to or greater than $5 million); and restrictions, until the total number of shares executed 2) those with equity of less than $5 million. Accounts or has been allocated. If selected, an account with an order account relationships falling into the first category will valued at less than $20,000 (U.S.) will receive an all-or- receive the appropriate partial allocation rounded to the nothing allocation. If selected, an account with an order nearest 100 shares if the result of the partial allocation is valued at $20,000 or more will receive its proportional 1,000 shares or more. In any account or account relationship share of the total shares executed, rounded to the nearest in this category where, as a result of the partial allocation, round lot, if the market value of the partial allocation is the account or account relationship would receive fewer at least $10,000. Partial allocations are only made to the than 1,000 shares, those accounts or account relationships extent that the portion of the account’s order that remains are then chosen on a random basis to receive, if selected, the unfilled has a value of at least $10,000, since minimum lesser of 1,000 shares or the number of shares remaining to transaction costs charged by custodian banks will apply to be filled. Transactions for accounts or account relationships each allocation. After selecting each account and applying with equity of less than $5 million will be allocated on an the rules above, any shares remaining are allocated among all-or-nothing basis by random selection. This category of the accounts already allocated in the order in which they accounts and account relationships will receive roughly the were randomly ranked, subject to the $10,000 minimum percentage of the execution to which it is entitled as a whole for the portion of the account’s order that remains unfilled. (e.g., if this group represents 30% of the entire order, then For accounts that direct brokerage to particular firms, approximately 30% of the shares executed will be allocated there may be times when your particular instructions to the group). However, if there are shares remaining that cannot be satisfied using the random allocation procedures would result in a partial allocation to an account with described above. In these rare cases, the orders may be equity of less than $5 million, these shares will be allocated, executed later or handled separately in a manner that we if possible, to accounts with equity greater than $5 million deem to be fair. if there are partial allocations that have not been completed. To the extent there are none, these shares will be allocated FIXED-INCOME SECURITY ALLOCATION to one account with equity of less than $5 million, resulting in a partial allocation. While a defined relationship of Allocation of securities to fixed-income accounts (including accounts will generally be treated as a single trading entity the fixed-income portfolios of the Fund) and to the fixed- from the standpoint of allocation, account-specific factors, income portion of balanced accounts is made on a priority such as differences in risk tolerance, tax considerations or basis with purchases and sales for an account executed as permitted investment techniques, may make treatment of contemporaneously as possible so that trades are executed the relationship as an entity inappropriate. in a similar interest-rate environment. Factors considered in establishing this priority are the same as those considered For accounts managed by Stanley M. Bogen, a Senior in determining which accounts are chosen to participate in Portfolio Manager of Bernstein, when stocks are selected the transaction, including the type of security, the present or for purchase, accounts are identified for participation based desired structure of the portfolio, the nature of the account’s on the risk level of the stock and the risk tolerance of the goals and tolerance for risk, the tax status, permitted client. Priority as to purchase is given based on relative investment techniques, the size of the account, and settlement percentages of uninvested funds. When stocks are identified and other practical considerations. The execution price of for sale, priority is given to clients with the least amount of fixed-income account trades is usually the actual price at cash and whose objectives have been obtained with respect which the security was traded. Occasionally, executions occur to the position. The timing of the sale for taxable accounts at different prices during the day, with the same broker; in may be affected by tax considerations. these instances, the participating clients receive the average price of executions in that security during the day. Non-U.S. Equity Securities Due to the nature of some fixed-income offerings, investment With regard to non-U.S. equity portfolios, if the amount opportunities for fixed-income securities may be too limited we have been able to execute is not sufficient to fill all to effectively allocate among all accounts, and therefore the orders, the total amount executed is allocated to the Investment-Management Services and Policies 21
    • only a limited number of accounts can participate in a On occasion, we, our affiliates, and/or our respective given transaction. Such investment opportunities may be employees may have a position or interest in securities that allocated by rotation, provided that the rotation system we recommend or buy or sell for clients, and an individual implemented results in fair access to such investment employee may take an action for himself or herself different opportunities over time. We may use other methods of from the firm’s recommendations. trade allocation provided that all accounts receive fair and equitable treatment. INVESTMENT-MANAGEMENT FEES AND TRANSACTION CHARGES The current schedules of fees applicable to each client’s INITIAL PUBLIC OFFERINGS account are available and delineate the various schedules Initial public offerings (“IPOs”) of equity securities are for discretionary money management. The appropriate usually made by smaller, less seasoned companies. These schedule is also sent to each new investment-management companies generally do not fall within the investment client. Our investment-management fee schedule is based objectives of clients in our value services or in our on the value of the client’s managed assets, including any Strategic Growth service; however, they may fall within cash available for investment. Clients who choose to have the investment objectives of other clients, including clients assets held by a custodian other than Sanford C. Bernstein with Small Cap Growth accounts. Many of these IPOs & Co., LLC may make arrangements with that custodian are oversubscribed and these issues immediately trade at for cash-management services, for which their custodian a premium to their offering price. Accordingly, we will may impose a separate fee in addition to our investment- generally allocate these issues first to our Small Cap management fee. Growth accounts. We may also sell these issues shortly after trading in the security commences. Sanford C. Bernstein & Co., LLC acts as an agent on both fixed-income and equity-security transactions. The Firm In light of the size of most IPOs, the policy is to allow does not generally impose transaction charges on U.S. only client accounts with Small Cap Growth investment equity securities transactions. Where they are imposed, guidelines and objectives to participate in the majority transaction charges apply to U.S.-listed and over-the- of IPOs. In addition, certain sector clients are permitted counter stocks, and, in certain cases, fixed-income equity to participate in IPOs provided the issuer is in the substitutes. The current industry standard rate is four clients’ chosen sector and there are no minimum market cents per share with certain discount venues available for capitalization requirements in the clients’ guidelines. executing transactions at a lower rate. Sanford C. Bernstein While investment opportunities for IPOs are generally & Co., LLC does not currently charge commissions on allocated pro-rata, with a cap as described above, we may transactions in managed fixed-income accounts. However, use other methods of trade allocation provided that all because fixed-income securities are generally traded on a accounts receive fair and equitable treatment. For example, “net” rather than a transaction-charge basis, with dealers where investment opportunities are too limited to be acting as principals for their own accounts without a effectively allocated among all accounts, such investment stated transaction charge, the price of the fixed-income opportunities may be allocated by rotation, provided that security purchased for your account may reflect an increase the rotation system implemented results in fair access to or decrease from the price paid by the dealer together such investment opportunities over time. with a spread between the bid and asked price, which provides the opportunity for a profit or loss to the dealer. Transactions for affiliated accounts (i.e., of our employees and For non-U.S. value equity accounts, the non-U.S. brokers those of Sanford C. Bernstein & Co., LLC) in securities of the and dealers with whom we trade securities on your behalf types purchased for our investment-advisory discretionary will charge commissions. Traditionally, commission rates and nondiscretionary clients may be undertaken only with have not been negotiated on stock markets outside the the approval of key executives or the Legal department and United States. In recent years, however, an increasing must be made only with strict regard to laws and regulations number of non-U.S. stock markets have adopted a system and in accordance with AllianceBernstein’s Code of Ethics of negotiated rates, although a few markets continue to be and Statement of Policy and Procedures Regarding Personal subject to an established schedule of minimum commission Securities Transactions, as well as the Code of Ethics of rates. There may be transfer taxes and other charges for Sanford C. Bernstein & Co., LLC, if applicable. transactions effected in non-U.S. markets. 22 Bernstein Global Wealth Management
    • Generally, client accounts are subject to an integrated, or Research services we receive may include pricing data, wrap, fee schedule, and all transactions in U.S. equities are statistical information, financial news, historical and current executed by our subsidiary Sanford C. Bernstein & Co., LLC. financial data, information regarding trading, proxy- Clients with Strategic Value accounts over a specific market voting information, analyses, and reports regarding issuers, value may choose to have their transactions executed through industries, securities, economic factors, and trends with broker-dealers other than Sanford C. Bernstein & Co., LLC. respect to a variety of financial instruments, including For clients who make that choice, the advisory fee under equity and fixed-income securities and currencies from both this arrangement is generally higher than when Sanford C. a domestic and international perspective. Research services Bernstein & Co., LLC executes the transaction. Where you may be received in the form of written reports, computers designate a brokerage firm, the rates for transaction charges on which we receive data and/or software, telephone contacts may be negotiated by you. Your transaction charges are and personal meetings with security analysts, conferences, based on the purchase or sale of securities for your account. seminars, and meetings arranged with corporate and industry While we always seek to obtain the best execution for your representatives, economists, academicians, and government account, when you direct brokerage to a particular broker, representatives. Research services may be generated by the our ability to obtain the best execution of the trades may broker itself or by third parties, in which case the research be impaired. When we are responsible for selecting brokers would be provided to us by or through the broker. Some other than Sanford C. Bernstein & Co., LLC for you and of the third-party products or research services that we negotiating transaction charges for you, we will attempt to receive may have more than one function; for example, obtain the best results. 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 BROKERAGE PLACEMENT PRACTICES or the portfolios of the Fund, by our marketing department When we are responsible for selecting brokers and negotiating to prepare client communications, and/or for other non- transaction charges for you, we will attempt to obtain the research purposes. If this is the case, we make a good-faith best results. The factors that may be considered are: price, the determination of the anticipated use of the product or service broker’s trading expertise, stature in the industry, execution by our investment-management department and by other ability, facilities, clearing capabilities and financial services departments for other purposes, and allocate brokerage offered, the value of research provided, long-term relations only with respect to the portion of the cost of such research with us, reliability and financial responsibility, integrity, that is attributable to use by our investment-management timing and size of order and execution, difficulty of execution, department for investment-management clients. We pay current market conditions, depth of the market, and the with our own funds the portion of the cost of such research broker’s ability and willingness to commit capital (on the attributable to use for other purposes. infrequent occasions when deemed appropriate). Transaction charges, being a component of price, are also considered as The research services described above are designed to a factor in making such determinations. We do not obligate augment our internal research and investment-strategy ourselves to seek the lowest transaction charge except to the capabilities. As a practical matter, we could not generate all extent that it contributes to the overall goal of obtaining the the information currently provided by broker-dealers, and best results for you. A higher transaction charge on exchange our expenses would be increased if we attempted to generate and over-the-counter trades may be determined reasonable this information through our own efforts. We pay for in light of the value of the brokerage and research services certain of the research services that we obtain from external provided. These research services are of the type described in sources but also allocate brokerage for research services that Section 28(e) of the Securities Exchange Act of 1934 and are are available for cash; accordingly, we may be relieved of designed to augment our internal research and investment- expenses that we might otherwise bear. strategy capabilities. These services may be used for any or Semiannually, we assess the contribution of the brokerage all of our clients’ accounts. Accordingly, the accounts that and research services provided by broker-dealers, and attempt provide the brokerage transaction charges for which such to allocate a portion of our brokerage business in response services are provided do not necessarily receive the direct to these assessments. Research analysts, members of the benefit of the services. We may also receive services that may Investment Policy Groups, other investment professionals, be deemed research, at no additional cost to our clients, from and our Trading department each seek to evaluate the dealers from whom we order the purchase or sale of over-the- brokerage and research services they receive from broker- counter securities. dealers and make judgments as to the level of business Investment-Management Services and Policies 23
    • that would recognize such services. After this assessment, portfolio managers, are limited partners in these funds, a budget is drawn up specifying the total dollar amount of which utilize leverage and pay fees based, in part, on brokerage transactions that may be directed to such firms the funds’ performance. Similarly, our employees may be in return for supplying these services. Budgets are reviewed investors in the various mutual funds we manage (including on an ongoing basis and reevaluated in light of services the portfolio manager that manages the mutual fund). provided. Brokerage is then directed to these firms, based We have arrangements where we pay fees to certain on a continual review of the amount of brokerage previously third parties that refer clients to us. For example, we pay directed compared with the dollar amount that has been participating registered investment advisers, including budgeted for that year. We don’t commit a specific amount affiliates of public accounting firms, a percentage of the fees of business to any broker-dealer over any specific time that we earn on the referred clients’ accounts. We may pay period. Broker-dealers sometimes suggest a level of business referral fees to other third parties, such as brokers. All such they would like to receive in return for the various brokerage payments comply with all applicable requirements of the and research services they provide. However, since the total Investment Advisers Act of 1940. business is allocated to a broker-dealer on the basis of all the considerations described above, the actual brokerage received In addition, our employees are eligible to earn an account by a broker-dealer may be more or less than the suggested referral bonus for referring a potential client to us. Our allocations. An overwhelming percentage of the brokerage is management Executive Committee or its designate allocated to broker-dealers who provide research services. Our will determine, in its sole discretion, if an employee’s applicable trading and portfolio-management departments involvement was significant enough to warrant the account continuously monitor and evaluate the performance and referral bonus. Certain employees may not be eligible for an execution capabilities of the brokers who transact orders to account referral bonus due to a conflict of interest or other ensure consistently satisfactory service. reasons as determined by the Executive Committee. AllianceBernstein employees are prohibited from serving POLICY REVIEW on boards of directors of unaffiliated publicly traded Our policies and procedures are under continuing review in companies. However, independent (non-employee) directors order to improve service to our clients and to keep in step of AllianceBernstein Corporation are permitted to do so. with changing laws and regulations. Hence, at any given Two independent directors serve on the boards of unaffiliated time, there may be changes from the practices we describe. publicly traded companies. Such activity is not uncommon in the financial services industry, the directorships are disclosed in our public filings with the Securities and OTHER BUSINESS ACTIVITIES Exchange Commission (“SEC”), and we believe that a Overall, our investment-management activities center prohibition of this activity could impair its ability to attract on serving individuals by managing personal investment qualified outside directors. accounts on a discretionary basis, and by managing various employee-benefit funds, pension and profit-sharing plans, The following are the outside directors of AllianceBernstein individual retirement accounts, trusts, endowments, Corporation who currently serve on the boards of directors of charitable foundations, corporate accounts and other unaffiliated public companies: Weston M. Hicks (Alleghany institutional accounts. Also, we are retained on a fee basis Corporation) and Peter J. Tobin (CIT Group, Inc.). as an investment advisor on a nondiscretionary basis by From time to time, your account may be invested in some institutional and fiduciary accounts. We also have a securities of companies where one of our outside directors minor amount of individual nondiscretionary business. In sits on the board. special instances, we provide consulting services to other investment-management firms. These services are priced NOT-FOR-PROFIT AFFILIATIONS according to their duration and complexity. Almost all our advisory billings are derived from providing investment- Our employees are permitted to serve on the board of supervisory services. directors of not-for-profit organizations such as educational institutions, charitable foundations or other civic organi- AllianceBernstein Global Derivatives Corporation, an zations. These organizations may from time to time issue indirect wholly owned subsidiary of AllianceBernstein, publicly traded debt obligations to fund projects such as is the general partner of numerous privately placed funds the construction of buildings, dormitories, etc. We may to which we serve as investment adviser. Several of our purchase such securities on behalf of client accounts. senior executives and other employees, including the funds’ 24 Bernstein Global Wealth Management
    • We are part of a distinguished family of companies. operates is that if there were a SIPC liquidation, clients AllianceBernstein Corporation is the general partner of would contact the SIPC trustee and, if all but $500,000 AllianceBernstein and an indirect, wholly owned subsidiary worth of a client’s assets were found, full restitution of this of AXA Financial, Inc., a Delaware corporation. AXA $500,000 amount (which could include up to $100,000 Financial is one of AllianceBernstein’s principal owners in cash) would be completely covered. In addition, in the and is wholly owned by AXA, a French insurance holding event there were a SIPC liquidation, for each individual or company. Another major owner of AllianceBernstein organization, Sanford C. Bernstein & Co., LLC currently is AllianceBernstein Holding L.P., which is a limited has $24,500,000 of excess insurance for securities with a partnership whose shares are traded on the New York private insurance carrier, totaling in aggregate $25,000,000 Stock Exchange. of coverage for each individual or organization. Sanford C. Bernstein & Co., LLC pays interest on clients’ SANFORD C. BERNSTEIN & CO., LLC AND cash balances at all times at a monthly rate based on the SANFORD C. BERNSTEIN LIMITED average discount rate of Treasury bills maturing in 30 Sanford C. Bernstein & Co., LLC is a broker-dealer days. Sanford C. Bernstein & Co., LLC holds clients’ cash registered with the SEC under the Securities Exchange Act balances in special reserve bank accounts for the exclusive of 1934 and is a member of the New York Stock Exchange, benefit of customers pursuant to SEC Rule 15c3-3. The Inc. and the National Association of Securities Dealers, reserve account held for the benefit of clients subject to Inc. In the course of Sanford C. Bernstein & Co., LLC’s ERISA invests in 30-day Treasury bills, and the interest business as a broker-dealer, it regularly effects transactions payments on their cash balances reflect the earnings on for our investment-advisory clients, for compensation. those investments. The reserve account held for the benefit Our London affiliate, Sanford C. Bernstein Limited of other clients may invest in Treasury bills of maturity (regulated in the United Kingdom by the Financial greater than 30 days. Because our subsidiary, Sanford C. Services Authority), may also effect transactions for our Bernstein & Co., LLC, keeps the spread, if any, between investment-advisory clients, for compensation. Sanford its investment of clients’ cash balances (other than those C. Bernstein & Co., LLC executes transactions for the subject to ERISA) and the interest it pays to clients on such majority of clients serviced by Bernstein. All investment- balances, there may be an incentive to maintain or increase advisory equity activity is monitored under the supervision cash balances in non-ERISA accounts. However, we make of the chief investment officer in charge of the applicable all portfolio-management decisions in our clients’ accounts portfolio-management department and the Legal and without regard to the potential use by our subsidiary of Compliance department. With respect to transactions cash balances. Sanford C. Bernstein & Co., LLC or its affiliates route to Sanford C. Bernstein & Co., LLC will immediately add other firms for execution or direct to particular exchanges, dividend and interest payments to client portfolios. Clients it is the policy of Sanford C. Bernstein & Co., LLC not to may request that we manage those additional funds, or receive payment for order flow. clients may request to have the dividend and interest Your Bernstein Advisor is dually registered as our amounts paid over to them on either a predetermined day investment adviser representative and as a broker-dealer of each month, on the first business day of each quarter or representative of Sanford C. Bernstein & Co., LLC. You pursuant to individual requests as desired. Currently, there should address to your Bernstein Advisor, in accordance is no separate charge for the custody services provided by with our notice and instruction procedures described Sanford C. Bernstein & Co., LLC for our clients, except for above, instructions to Sanford C. Bernstein, Co., LLC, certain non-U.S. assets. Small accounts may be subject to including instructions relating to cash withdrawals and a modest account maintenance fee. In general, securities transfers of funds or securities. are held for clients by Sanford C. Bernstein & Co., LLC in nominee name. In the event any are “called” by the issuer, Clients’ accounts that are custodied at Sanford C. Bernstein an impartial random-selection process will be used to & Co., LLC are protected by the insurance coverage provided allocate the calls to particular accounts. by the Securities Investor Protection Corporation (“SIPC”). Our clients’ interests in limited partnerships or other Each month, Sanford C. Bernstein & Co., LLC sends a securities that are not registered with the SEC, however, are statement listing in detail account activity, current holdings not protected by SIPC. SIPC protection covers $500,000 and their market value, cash and income received into the worth of assets held for each individual or organization, of account, cash and income withdrawn from the account, which $100,000 may be in cash. The way that this coverage interest earned on your credit balance, if any, and many Investment-Management Services and Policies 25
    • other details. In addition to the monthly statement, unless Institutional Brokerage Clients you affirmatively select otherwise, Sanford C. Bernstein & Sanford C. Bernstein & Co., LLC and Sanford C. Bernstein Co., LLC sends a confirmation whenever a transaction is Limited, in addition to functioning as brokers for executed in the account. our investment-management clients, also function as In general, your Sanford C. Bernstein Fund, Inc. mutual- brokers for their institutional-nonmanagement clients. fund holdings are not transferable to brokers other than At times, investment recommendations made in research Sanford C. Bernstein & Co., LLC. reports distributed by Sanford C. Bernstein & Co., LLC or Sanford C. Bernstein Limited to their institutional Cross Transactions brokerage clients may differ from the recommendations From time to time, Sanford C. Bernstein & Co., LLC indicated by our investment-management process. or its affiliate Sanford C. Bernstein Limited executes Additionally, Sanford C. Bernstein & Co., LLC’s and agency cross transactions for our discretionary accounts. Sanford C. Bernstein Limited’s institutional brokerage An agency cross transaction occurs when securities are clients very often have investment philosophies that differ purchased or sold between a discretionary client’s account significantly from those reflected in our investment- through Sanford C. Bernstein Co., LLC (or its affiliate) management process. Accordingly, the recommendations and a non-managed client on the other side of the made to Sanford C. Bernstein & Co., LLC’s and Sanford C. transaction for which Sanford C. Bernstein & Co., LLC (or Bernstein Limited’s institutional brokerage clients may its affiliate) acts as a broker. Agency cross transactions are differ from the actions taken by us for our discretionary executed only when we are authorized to enter into such investment-management clients. transaction by our discretionary client. The authorization We strongly believe that Sanford C. Bernstein & Co., LLC’s can be terminated at any time with written notice to and Sanford C. Bernstein Limited’s continuing dialogue us. In addition, other types of cross transactions may be with their institutional clients increases its ability to obtain executed between managed or advisory accounts when timely and advantageous executions in the marketplace for allowed by law; in certain such cases, specific consent for our investment-management clients and provides us with each such transaction is required from both sides. additional insight into the market generally. The use of agency cross transactions often increases the probability of completing a transaction at a better price. BUSINESS CONTINUITY STATEMENT For example, if we cause a large purchase order to be The Sanford C. Bernstein & Co., LLC business continuity entered into the market, it might drive up the price of strategy provides for the continuation of business-critical the security before the transaction is completed. By using functions in the event of a partial or total building outage an agency cross transaction, Sanford C. Bernstein & Co., affecting any of our offices or a technical problem affecting LLC (or its affiliate) may not influence the market price our applications, data centers, or network. The recovery and therefore may achieve a better execution. strategies we employ are designed to limit the impact on In an agency cross transaction, Sanford C. Bernstein & clients from any business interruption or disaster. Co., LLC (or its affiliate) may receive commissions from Our process for developing business resumption strategies both sides of the trade so there is a potential conflict of and plans involved analysis, planning, implementation, interest. On confirmations of purchase or sale for agency and testing. The process was initiated by conducting cross transactions, in addition to indicating the amount of a Business Impact Analysis (“BIA”) with each of the transaction charges, Sanford C. Bernstein & Co., LLC (or business areas. The BIA identified requirements for key its affiliate) will also indicate the amount of transaction Sanford C. Bernstein & Co., LLC employees, applications charges incurred by all clients on the other side of the and services necessary to support the business-critical transaction. Sanford C. Bernstein & Co., LLC (or its functions for a short-duration outage through a longer- affiliate) will notify clients annually of the total number term outage affecting the office. These requirements of agency cross transactions undertaken for their accounts were reviewed and approved by the business and used over the previous year, the amount of commission paid on to develop the recovery plan that will be employed in the cross transactions and the total commission paid by the event of an emergency. The recovery plan will be the clients on the other side of the transactions. periodically tested and updated based on test results as well as any new requirements that are identified when the BIAs are reviewed or any ad hoc business changes that require the plan to be updated. 26 Bernstein Global Wealth Management
    • Business recovery strategies are varied to make appropriate PRIVACY POLICY use of both internal and external capabilities. They include At AllianceBernstein, protecting the privacy and confiden- external recovery vendor solutions, interoffice relocation, tiality of our clients’ personal information is a priority. We workload shifts, and secured remote access. understand that you have entrusted us with your private Through testing, we have verified the resources identified financial information, and we do everything possible to during the BIA process as necessary for recovery of all maintain that trust. The following sets forth details of our critical business functions, and that such functions operate approach to ensuring the confidentiality of your personal in accordance with the recovery specifications outlined information. during the BIA process. While using cost-effective and • We never sell client lists or information about our technologically proven systems, equipment and techniques, clients (or former clients) to anyone. the firm continually updates both the recovery plans and the necessary technology in order to minimize the time • In the normal course of business we collect information required to recover from a disruption. about our clients from the following sources: (1) account documentation, including applications or other No plan is effective without proper documentation. forms (which may include information such as the Therefore, Sanford C. Bernstein & Co., LLC has developed client’s name, address, social security number, assets, and maintains business continuity plans for each business and income) and (2) information about our clients’ unit and office. These plans include mobilization transactions with us (such as account balances and procedures, notification guidelines, call trees and other account activity). pertinent information for the businesses as well as plans for crisis management and executive management personnel • We have strict policies and procedures to safeguard to insure proper coordination of command and control personal information about our clients (or former activities in the event of an emergency. clients) that include (1) restricting access and (2) maintaining physical, electronic, and procedural Although we have taken steps to develop detailed business safeguards that comply with federal standards for continuity plans, unforeseen circumstances may create protecting such information. situations where we are unable to fully recover from a significant business interruption. However, we believe our • To be able to serve our clients and to provide financial planning and implementation process reduces the risk in products efficiently and accurately, it is sometimes this area. necessary to share information with companies that perform administrative services for us or on our behalf. These companies are required to use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. Investment-Management Services and Policies 27
    • ALLIANCEBERNSTEIN CORPORATION Marilyn Goldstein Fedak (1947) Executive Vice President, Head—Bernstein Value Equities Business and Co-Chief Investment Officer— U.S. Value Equities EXECUTIVE COMMITTEE Smith College—B.A. 1968 Lewis A. Sanders (1946) Harvard Business School—M.B.A. 1972 Chairman of the Board and Chief Executive Officer AllianceBernstein L.P. and its predecessors and affiliates Columbia University—B.S. 1968 1984–present AllianceBernstein L.P. and its predecessors and affiliates 1968–present Mark R. Gordon (1953) Executive Vice President, Director of Global Quantitative Research and Chief Investment Officer, Roger Hertog (1941) Absolute Return Strategy Vice Chairman—Institutional and Private Asset Management Sales and Marketing Brown University—B.S. 1975 Bernard M. Baruch College, City University of New AllianceBernstein L.P. and its predecessors and affiliates York—B.B.A. 1996 1983–present AllianceBernstein L.P. and its predecessors and affiliates 1968–present Thomas S. Hexner (1956) Executive Vice President and Head of Global Wealth Management Lawrence H. Cohen (1961) Executive Vice President, Chief Technology Officer Hamilton College—B.A. 1978 Harvard University—B.A. 1982 AllianceBernstein L.P. and its predecessors and affiliates 1986–present AllianceBernstein L.P. and its predecessors and affiliates 2004–present Robert H. Joseph, Jr. (1947) Senior Vice President and Chief Financial Officer Laurence E. Cranch (1946) Executive Vice President and General Counsel Gettysburg College—B.A. 1969 Amherst College—B.A. 1969 AllianceBernstein L.P. and its predecessors and affiliates 1984–Present University of Pennsylvania—J.D. 1973 Clifford Chance LLP and its predecessor (Rogers & Wells) Gerald M. Lieberman (1947) 1980–2004 President and Chief Operating Officer AllianceBernstein L.P. and its predecessors and affiliates 2004–present University of Connecticut—B.S. 1969 AllianceBernstein L.P. and its predecessors and affiliates 1998–present Sharon E. Fay (1960) Executive Vice President and Chief Investment Officer— Global, U.K., and European Value Equities Brown University—A.B. 1983 Harvard Business School—M.B.A. 1987 AllianceBernstein L.P. and its predecessors and affiliates 1990–present 28 Bernstein Global Wealth Management
    • Mark R. Manley (1962) James G. Reilly (1961) Senior Vice President, Deputy General Counsel, Executive Vice President and and Chief Compliance Officer US Large Cap Growth Team Leader St. John’s University—B.A. 1984 Northwestern University—B.S. 1983 New York Law School—J.D. 1989 University of Chicago—M.B.A. 1986 AllianceBernstein L.P. and its predecessors and affiliates AllianceBernstein L.P. and its predecessors and affiliates 1984–present 1985–present Seth J. Masters (1959) Paul C. Rissman (1956) Chief Investment Officer—Style Blend and Executive Vice President, Director of Global Growth Core Equity Services Research and Head of the Global Research Growth Team Princeton—B.A. 1981 University of Pennsylvania—B.A. 1978, Ph.D. 1985 Oxford University—Master’s in Economics 1983 Columbia Business School—M.B.A. 1990 AllianceBernstein L.P. and its predecessors and affiliates AllianceBernstein L.P. and its predecessors and affiliates 1991–present 1988–present Marc O. Mayer (1957) Lisa Shalett (1963) Executive Vice President and Chairman of the Board, Executive Vice President and Chairman of the Board, AllianceBernstein Investment Research & Management, Inc. Sanford C. Bernstein & Co., LLC Yale University—B.A. 1978 Brown University—B.S. 1985 Columbia University—M.B.A.1983 Harvard Business School—M.B.A. 1989 AllianceBernstein L.P. and its predecessors and affiliates AllianceBernstein, L.P. and its predecessors and affiliates 1989–present 1995–present Douglas Peebles (1965) David A. Steyn (1959) Executive Vice President, Co-Head and Co-Chief Executive Vice President and Head, AllianceBernstein Investment Officer—Fixed Income and Director— Institutional Investment Management Global Fixed Income Aberdeen University—Law 1979 Muhlenberg College—B.A. 1987 AllianceBernstein L.P. and its predecessors and affiliates Rutgers University—M.B.A. 1992 1999–present AllianceBernstein L.P. and its predecessors and affiliates 1986–present Christopher M. Toub (1956) Chief Executive Officer of AllianceBernstein Limited Jeffrey Phlegar (1966) and Head of Global/International Growth Equities Executive Vice President, Co-Head and Co-Chief Williams College—B.A 1982 Investment Officer—Fixed Income and Director— Harvard Business School—M.B.A. 1987 US Investment Grade Fixed Income AllianceBernstein L.P. and its predecessors and affiliates Hofstra University—B.S. 1988 1992–present Adelphia University—M.B.A. 1991 AllianceBernstein L.P. and its predecessors and affiliates 1993–present Investment-Management Services and Policies 29
    • CHIEF INVESTMENT OFFICERS Sharon E. Fay (1960) Chief Investment Officer—U.K. European Edward D. Baker III (1951) and Global Value Equities Chief Investment Officer—Emerging Markets Equities (See Executive Committee, above) University of South Florida—B.A. 1977 University of California at Berkeley—M.A. 1980 Marilyn Goldstein Fedak (1947) AllianceBernstein L.P. and its predecessors and affiliates Executive Vice President and Co-Chief Investment 1995–present Officer—U.S. Large Capitalization Value Equities John L. Blundin (1941) (See Executive Committee, above) Executive Vice President, Co-Head Global Growth Equities Yale University—B.A. 1963 Mark R. Gordon (1953) Chief Investment Officer—Absolute Return AllianceBernstein L.P. and its predecessors and affiliates and Director of Quantitative Research 1972–present (See Executive Committee, above) Stanley M. Bogen (1937) First Vice President and Senior Portfolio Manager John P. Mahedy (1963) Co-Chief Investment Officer—U.S. Large Capitalization University of Pennsylvania—B.S. 1958 Value Equities New York University—M.B.A. 1959 New York University—B.A. 1985, M.B.A. 1990 AllianceBernstein L.P. and its predecessors and affiliates AllianceBernstein L.P. and its predecessors and affiliates 1969–present 1989–present Drew M. Demakis (1963) Teresa Marziano (1954) Chief Investment Officer—Structured Equities Co-Chief Investment Officer—REITs University of Chicago—B.A. 1985 Simón Bolívar University—B.S. 1977 Washington University—M.B.A. 1987 Columbia University—M.B.A. 1982 AllianceBernstein L.P. and its predecessors and affiliates AllianceBernstein L.P. and its predecessors and affiliates 1998–present 1994–present Henry D’Auria (1961) Seth J. Masters (1959) Chief Investment Officer—Emerging Markets Executive Vice President and Chief Investment Officer— Equities and Co-Chief Investment Officer— Style Blend Services International Value Equities (See Executive Committee, above) Trinity College—B.A. 1983 AllianceBernstein L.P. and its predecessors and affiliates 1991–present 30 Bernstein Global Wealth Management
    • Joseph Gerard Paul (1960) Chief Investment Officer—Advanced Value and Small- and Mid-Capitalization Value Equities and Co-Chief Investment Officer–REITs University of Arizona—B.S. 1982 Massachusetts Institute of Technology—M.S. 1984 AllianceBernstein L.P. and its predecessors and affiliates 1987–present 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 Equities Georgetown University—B.S., B.A. 1987 Harvard University—M.B.A. 1992 AllianceBernstein L.P. and its predecessors and affiliates 1992–present Jeffrey W. Singer (1958) Chief Investment Officer—Canadian Value Equities University of Western Ontario—B.A. 1980 Harvard Business School—M.B.A. 1984 Davis Selected Advisors 10/98–3/99 AllianceBernstein L.P. and its predecessors and affiliates 1992—1998 and 1999–present AUDITORS KPMG LLP 345 Park Avenue New York, NY 10154 Investment Management Services and Policies 31
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    • Global Wealth Management A unit of AllianceBernstein L.P. BER–0581–0206 www.bernstein.com