Can Active Management

Beat Index Funds?

The best course may run counter to popular thinking.

THE APPEAL OF STOCK INDEX FUNDS IS Display 1

clear. It’s tough to beat the market, and most managers The case for indexing can appear compelling
haven’t done it long-term. Higher fees are part of the
problem: It’s much cheaper to run an indexed portfo- Index Fund vs. Active-Manager Performance
After Taxes (20-Yr. Horizon)*
lio than an actively managed one. Taxes are another,
since index funds sell stocks only when companies S&P 500 Index Fund Active Management
enter or leave the index they’re mirroring.That hap- Compound 9.00%†
pens infrequently, so index-fund shareholders rarely Return 7.76%
incur capital-gains taxes. In contrast, we estimate the 6.77% 6.45%
6.14%
average active portfolio manager’s annual turnover
rate (the percentage of stocks traded annually) at more
than 90%.* Every time a sale nets a profit, capital-
gains taxes are incurred.And so it’s not surprising that
the efficacy of active investing for taxable assets has Turnover Rate N/A 5% 30% 50% 75%
been the subject of serious debate—one to which Active-Mgr.
Bernstein has contributed its own research. Return Gap
vs. Index Fund
(basis pts.) -- -- (99) (131) (162)
HOW INDEX FUNDS Growth of
$10 Mil. $56.0 $44.6 $37.0 $34.9 $32.9
BECAME SO POPULAR
Pretax After Taxes
Proponents of stock index funds make a very simple
*Pretax return assumes 7% in pretax appreciation and 2% in dividend yield. Tax rates as
point: The funds have usually outperformed active follows: blended federal and state long-term capital gains at 20.1% through 2008, 23.9%
managers. Assuming that an S&P 500 index fund for 2009–10, and 23.6% thereafter; blended dividend tax at 20.1%, 38.9%, and 43.2%,
respectively, for the same periods. Blended rates assume highest marginal federal bracket
compounds at an annual rate of 9%—more or less and 6% state tax. We assume that the latest Tax Code will remain in effect as written,
including the “sunset” reversions to older, higher rates within six to eight years.
what we forecast for the market over time—a Transaction costs associated with turnover are presumed to be 1% round-trip. These
$10 million portfolio would grow to $56 million assumptions also apply to the following three displays
†Assumed
after 20 years (Display 1). But after the taxes on the Source: Bernstein estimates
fund’s dividends and minimal realized capital gains,
as well as the associated transaction costs, that
$56 million would decline to less than $45 million, 1.6 percentage points per year. On an initial $10 mil-
for an annualized return of 7.76%. This assumes an lion investment, that shortfall would translate into
annual turnover rate of 5%,† in line with what we’ve $12 million less than the index fund after taxes over
observed for index funds. the 20 years. Even with turnover of only 30%, the
The active manager’s typically far higher turnover active manager would lag the index fund by almost
rate puts him at a dramatic disadvantage. The com- a full percentage point of return (99 basis points) per
pound annual return of a manager who runs his year after taxes. This sharp contrast in returns (plus
portfolio at a 75% turnover rate and earns no pre- their lower fees) is why index funds have grown so
mium over the market would trail the index fund by dramatically.
*Latest data available from Lipper and Morningstar mutual-fund evaluators
†Includes the effect of share issuance for events such as acquisitions and divestitures

2 The Bernstein Journal: Perspectives on Investing and Wealth Management

TAXES CAN’T BE DEFERRED FOREVER
But as is so often the case, the issue is more compli-
cated than it looks.To begin, it’s unrealistic to assume
that an investment portfolio will remain untouched
forever. Almost all investors will need to spend from
their portfolios (and hence realize gains) at some
point, and probably more than once.*
As a simplified model for spending, presume that
a taxable investor had let an investment grow for 20
years and then withdrew all the proceeds. In this sit-
uation, the index-fund investor would suddenly find
himself liable for the taxes on all the capital gains
that the fund had been earning but leaving on paper.
In that sense, an index fund operates like an IRA or
a 401(k); they each defer (rather than eliminate) taxes.
Our research suggests that the effects of spending
and paying the deferred taxes would be to cut the
after-tax return gap between the indexer and the
30%-turnover manager in half: from 99 basis points
a year to 51 basis points. The indexer is returning
7.09% versus the manager’s 6.58% (Display 2).
Display 2
Since you can’t defer taxes forever, the indexer’s
advantage narrows
Index Fund vs. Active-Manager Performance
After Taxes and Realizing Gains*
(20-Yr. Horizon)
Index Fund Active Management
Compound Return 7.09%
6.58% 6.36%
LOWERING THE BAR:
CONVERTING LOSSES INTO
MONEY IN-POCKET
Still, the indexer remains ahead of the active manag-
er. And while the deferred taxes associated with the
lower level of turnover account for the indexer’s
advantage, ironically it is the tax strategies available
to the active manager—but unavailable to the
indexer—that help him clear the index hurdle.
One such strategy is to regularly harvest losses to
offset gains, thereby lowering or eliminating capital-
gains taxes. As a commingled vehicle with a mission
to clone the market, an index fund cannot exploit this
technique. If it were to make the attempt through a
complex set of purchases and sales, it couldn’t remain
close enough in composition to the market without
running afoul of the wash-sale prohibition against
selling and buying back the same stock within 30
days. Active managers don’t face these obstacles.
Bernstein estimates that if the low-turnover (30%)
manager systematically harvested losses, he’d add
another 11 basis points of after-tax return per year for
20 years. His annualized shortfall versus the indexer
would decline from 51 to 40 basis points (Display 3).
Display 3
Harvesting losses adds more return
Index Fund vs. Active-Manager Performance
After Taxes, Realizing Gains, and Harvesting Losses
(20-Yr. Horizon)
6.10% Index Fund Active Manager: 30% Turnover
7.09% 6.58% +0.11% 6.69%

Turnover Rate 5% 30% 50% 75%

Active-Mgr.
Return Gap Compound After + Harvesting = Compound
Return Taxes Losses Return
vs. Index Fund After and
(basis pts.) -- (51) (73) (99) Taxes and Realized
Growth of $10 Mil. $39.4 $35.8 $34.3 $32.7 Realized Gains
Gains
*Here and in Displays 3 and 4 realizing gain is defined as liquidating the portfolio Active-Mgr.
after 20 years. Return Gap
Source: Bernstein estimates vs. Index Fund
(basis pts.) -- (51) (40)

Source: Bernstein estimates

*The principle that deferred taxes eventually get paid is, we believe, solid. If no withdrawals are made from a given portfolio, more will probably be made from another. If a fund passes to
the spouse upon the fundholder’s death with a stepped-up cost basis and hence no capital-gains-tax liability, at some point the fund will likely become the property of an owner subject
to taxes. Index-fund investors should also note that even if they never withdraw money, other investors will—often in difficult markets—potentially forcing the fund to sell in order to
raise the necessary cash. In that instance, all the investors will likely find themselves with tax bills to pay, since index funds generally have latent gains even in poor markets.

Autumn 2003 3
 And that 11-basis-point pick-up assumes only The active manager is now compounding at 6.86%
one portfolio. Investors of means typically have a year, only 23 basis points short of the indexer (before
several, focusing on different assets—U.S. and foreign fees). And while an indexed investor can donate fund
stocks, for example—or different investment styles, shares to charity as well, she cannot choose the highly
such as U.S. value and growth stocks. Losses can be appreciated stocks that will net the largest tax benefit.
harvested across such portfolios—whether or not Donating stock to charity holds benefit only for
they’re run by the same manager—boosting the the year in which the contribution is made. Other
return advantage. While we can’t quantify this strategies offer long-term advantages. Charitable
potential additional benefit, the 11 basis points is remainder trusts (CRTs) are a good example: vehi-
probably a conservative estimate. cles through which investors get an immediate tax
deduction and tax-free diversification of a selected
LOWERING THE BAR: highly appreciated stock (just like contributing a
GIFTING stock to charity). But there’s an extra benefit with a
The tax laws also allow investors to make their char- CRT: a regular income stream to the investor (or a
itable contributions in the form of appreciated stock recipient of his choice) over the term of the trust.*
rather than cash, giving them an up-front tax deduc- While an investor can use proceeds from an index
tion and tax-free diversification, since charities pay fund to set up a CRT, he can’t choose the stocks that
no gains taxes. Assuming an investor contributes the will help minimize his tax burden.
equivalent of 1% a year of his equity portfolio Thus far in our analysis, the low-turnover active
($100,000 on a $10 million portfolio, for example), manager has narrowed a 99-basis-point disadvantage
Bernstein estimates that the active manager will earn versus the indexer to just 23 basis points pre-fee,
an incremental 17 basis points a year after taxes solely through tax-related strategies.† But the active
(Display 4).And these 17 basis points accrue to every manager has many additional abilities.
increment of 1% contributed as stock.
THE POWER OF REBALANCING
Display 4
A prime tool for an active manager is the ability to
Adding still more return by using the portfolio as a source regularly rebalance a portfolio comprising multiple
of charitable contributions assets. Rebalancing entails trimming what is over-
Index Fund vs. Active-Manager Performance
priced in a portfolio and buying more of the cheaper
After Taxes, Realizing Gains, Harvesting Losses, and Gifting asset—thus maintaining a portfolio’s target
(20-Yr. Horizon) allocation over time. By its very nature, rebalancing
goes against the grain of most investors (it’s natural to
Index Fund Active Manager: 30% Turnover want more of what’s “hot” and less of what’s not), but
7.09% 6.58% +0.11% +0.17% 6.86% systematically buying low and selling high increases
the chance of outperformance. Index funds, on the
other hand, hold stocks in proportion to the value of
their outstanding shares in the market; thus, as a stock
rises in price, it comes to represent more of the index.
Compound After + Harvesting + Gifting = Compound In addition, though not always the case, stocks
Return Taxes Losses Return that enter the index tend to be more expensive than
After and
Taxes and Realized those that leave. And—in order to mirror the mar-
Realized Gains ket—index funds also have to buy more of stocks
Gains
that are net issuers of shares, and trim net repur-
Active-Mgr.
Return Gap
chasers; generally, the effect of this dynamic is to
vs. Index Fund favor more expensive stocks.Altogether, indexers’ tilt
(basis pts.) -- (51) (23) toward higher-priced stocks can be overpowering.
In 1999, for example, as the tech bubble approached
Source: Bernstein estimates
its apogee, 99% of the S&P 500’s return was earned
*Investors can choose between receiving their income in fixed amounts (in a charitable remainder annuity trust) or fixed percentages of the trust value (in a charitable remainder unitrust).
†Investment-management fees are eligible for an itemized tax deduction, subject to certain limitations.

4 The Bernstein Journal: Perspectives on Investing and Wealth Management

by just 30 stocks.This kind of vulnerability could— Display 5
and did—become very dangerous. The potential of active management, when multiple
The key to maximizing the rebalancing benefit is tools are used
to combine assets whose premiums are negatively
Results: Jan 1980–July 2003
correlated with one another, just as the key to
assembling a balanced portfolio is combining Bernstein 50/50 Vanguard S&P 500
low-correlated assets. With negatively correlated Value/Growth Simulation* Index Fund
premiums, when one asset is doing poorly the other 14.8% $130.6
is likely to be doing well. Hence, the overall premi- 13.1%
$91.2
um should be more stable and thus higher over time.
A good example is combining growth and value
stocks, whose premiums versus the S&P 500 have
tended to move in opposite directions. Over the last Annualized Growth Annualized Growth
quarter-century, using a proprietary algorithm, Returns of $5 Mil. Returns of $5 Mil.
(after fees) (after fees)
Bernstein would have rebalanced a simulated 50/50
mix of our Strategic Value and Strategic Growth For Bernstein and Vanguard, past performance does not guarantee future results.
*Prior to 2001, Strategic Growth is represented by Alliance Large Cap Growth (LCG).
portfolios no fewer than 15 times, as one or the LCG differs from Strategic Growth in that, among other things, Strategic Growth
offers tax management and may contain fewer stocks. See Notes on Performance
other group of stocks migrated by more than five Statistics and Simulation on pages 23-24.
percentage points off its 50% target. Source: The Vanguard Group and Bernstein

It’s difficult to be precise about how much return

rebalancing adds. Using Bernstein’s own Value and account. Since 1980, such a combined portfolio
Growth accounts, we estimate that from 1979 would have outperformed a typical index fund by 1.7
through the end of 2002, a systematically rebalanced percentage points a year—after all costs (Display 5).
50/50 combination of the two (before taxes and By July 2003, that premium would have meant
after fees) would have earned a premium to the S&P earning $39.4 million more on an initial investment
500 larger by 0.4 percentage point a year than an of $5 million. Not all our portfolios will do that well,
unrebalanced portfolio whose assets were allowed to but in our judgment these results speak to the
drift in weight with their performance.* Over 25 viability of active management.
years, that would have fueled a meaningful incre-
mental return.†
WHAT YOU SEE IS NOT ALWAYS
WHAT YOU GET
EARNING A PREMIUM
For certain investors, index funds are a viable
And so it is indeed possible to close that 23-basis-point alternative to active management. But what looked
gap. Further, there’s a whole arena we haven’t at the outset like an open-and-shut case for indexing
explored: the wide spectrum of stock-, industry-, and turned out to be far more complex. In sum, active
sector-selection techniques open to active managers managers can draw on (among other advantages):
and geared to selecting the securities with the highest

Tax strategies such as harvesting losses and
return potential. Indeed, most managers claim they can
earn the necessary premium over the market—called philanthropic gifting;
“alpha” in the language of investment theory—to beat
Portfolio-construction techniques such as
indexers. Finding those who have proven themselves rebalancing;
isn’t hard. In our information age, performance data
A range of security-selection strategies, the best of
are available—after fees, as is legally required. Because which (in Bernstein’s view) are backed by
of market vagaries, five-, 10-, and 20-year periods are extensive research capabilities.
more revelatory of a manager’s true abilities. A manager who puts these capabilities to good use
In our own case we can go back even further, has an excellent chance of adding value versus an
using a simulated 50/50 Value/Growth rebalanced index fund.

*See footnote to Display 5 and Notes on Performance Statistics and Simulation on pages 23–24.
†Thoughtful rebalancing strategies for taxable assets should take account of the fact that rebalancing may entail extra tax costs.

Autumn 2003 5
NOTES ON PERFORMANCE STATISTICS AND SIMULATION
1. General Note
Performance Statistics Are Not Financial Statements—There are various
methods of compiling or reporting performance statistics.The standards of per-
formance measurement used in compiling these data are in accordance with the
methods set forth below. Past performance does not guarantee future results. A
portfolio could suffer losses as well as gains.
2. Strategic Value (All) Methodology
a. Composite Structure—Beginning 1993, the Bernstein Strategic Value (all
accounts) Composite (the “Composite”) includes only fee-paying private and
institutional discretionary accounts that are not subject to significant invest-
ment restrictions imposed by clients. From 1974 through 1992, the Composite
includes all private and institutional discretionary Strategic Value accounts.
b. Rate of Return—Performance returns for each account are calculated
monthly using trade-date accounting. Performance results are reported on a
total-return basis, which includes all income from dividends and interest, and
realized and unrealized gains or losses. Prior to July 1993, all cash flows were
assumed to have occurred on the last day of the month. From July 1993
through 2000, if an account’s net monthly cash flows were equal to or exceed-
ed 10% of its beginning market value, the Modified Dietz Method was used to
daily weight the cash flows. When an account’s net monthly cash flows were
less than 10% of its beginning market value, the cash flows were assumed to
have occurred on the last day of the month. Beginning 2001, all cash flows are
daily weighted using the Modified Dietz Method. Beginning 1993, the month-
ly Composite returns are calculated by weighting each account’s monthly
return by its beginning market value as a percent of the total Composite’s
beginning market value. Prior to 1993, the Composite results are equal-
weighted on a quarterly basis. These monthly and quarterly performance fig-
ures are geometrically linked to calculate cumulative and/or annualized “time-
weighted” rates of return for various time periods. Closed accounts are includ-
ed in the Composite for each full quarter prior to their closing.
c. Benchmark—The benchmark for the Composite is the S&P 500 index.
The S&P 500 index is widely regarded as the standard for measuring large-cap
U.S. stock-market performance.
d. Net-of-Fee Performance Figures for the Composite have been calculat-
ed as follows:
i. Prior to 1983, management fees were not charged; instead, the accounts
incurred transaction costs.
ii. From 1983 through 1992, the Composite’s net-of-fee return is the equal-
weighted average of the actual after-fee returns of each account in the
Composite. From 1993 forward, the Composite’s net-of-fee return is the asset-
weighted average of the actual after-fee returns of each account in the
Composite.
iii. Net-of-fee returns for the past 10 years are as follows: 1993: 26.6%; 1994:
0.7%; 1995: 37.2%; 1996: 23.8%; 1997: 27.1%; 1998: 10.1%; 1999: (0.2)%; 2000:
10.0%; 2001: 9.3%; 2002: (17.6)%.
e. Dispersion—Dispersion is calculated on the gross-of-fee annual returns of
the accounts included in the Composite for all 12 months of the calendar year;
it is the asset-weighted standard deviation of these returns. Dispersion of returns
for the Composite is as follows: 1993: 1.2%; 1994: 0.8%; 1995: 1.3%; 1996: 1.3%;
1997: 1.9%; 1998: 2.0%; 1999: 2.0%; 2000: 1.6%; 2001: 1.7%; 2002: 1.6%.
Year 2003 data are preliminary, pending completion of internal audit.
3. Strategic Growth (All) Methodology
a. Preparation of Data—The performance results of the Strategic Growth (all
accounts) Composite (the “Composite”) are calculated by geometrically linking
the asset-weighted monthly returns of the Alliance Large Cap Growth compos-
ite from 1978 through 2000 to those of Bernstein Strategic Growth (all
accounts) thereafter. These monthly returns are used to calculate cumulative
and/or annualized “time-weighted” rates of return for various periods.
Bernstein Strategic Growth differs from Alliance Large Cap Growth in that,
among other things, Strategic Growth offers tax management and may contain
fewer stocks.
Autumn 2003
b. Rate of Return—Performance returns for each account are calculated
monthly using trade-date accounting. Performance results are reported on a total-
return basis, which includes all income from dividends and interest, and realized
and unrealized gains or losses.All cash flows are daily weighted using the Modified
Dietz Method.The monthly Composite returns are calculated by weighting each
account’s monthly return by its beginning market value as a percent of the total
Composite’s beginning market value. Closed accounts are included in the
Composite for each full quarter prior to their closing.
c. Benchmark—See Strategic Value Note 2(c).
d. Alliance Large Cap Growth Composite Structure (1978–2000)—The
Composite includes fee-paying discretionary tax-exempt accounts with assets
over $10 million not subject to significant investment restrictions imposed by
clients. The Composite includes the equity segment of balanced accounts. In
these equity portfolios, the asset-allocation mix is generally determined by client
guidelines and cash flows are allocated in accordance with these guidelines. Fee
structures exclude accounts with performance-based fee arrangements. Net-of-
fee performance figures reflect the compounding effect of such fees.
e. Bernstein Strategic Growth (all accounts) Composite Structure
(2001–present)—The Composite includes only fee-paying, discretionary
accounts, both private and institutional, with assets over $5 million that are not
subject to significant client-imposed investment restrictions.
f. Net-of-Fee Performance Figures—Net-of-fee performance figures have
been calculated as follows:
From 1978–1982, 0.75%, the highest annual fee charged to an Alliance Large
Cap Growth account for that period (excluding accounts with performance-
based fee arrangements) was deducted from the Composite’s gross-of-fee returns.
i. From 1983 through 2000, the actual average quarterly fee charged by
Bernstein for the Strategic Value (all accounts) service was deducted from the
Alliance Large Cap Growth Composite gross-of-fee returns.
ii. From January 2001 forward, the Composite’s net-of-fee return is the asset-
weighted average of the actual after-fee returns of Strategic Growth accounts
in the composite.
iii. Net-of-fee returns for the past 10 years are as follows: 1993: 10.1%; 1994:
(3.4)%; 1995: 39.3%; 1996: 23.0%; 1997: 37.0%; 1998: 51.5%; 1999: 32.3%;
2000: (17.2)%; 2001: (18.5)%; 2002: (32.9)%.
g. Dispersion—Dispersion is calculated on the gross-of-fee annual returns of
the accounts included in the Composite for all 12 months of the calendar year;
it is the asset-weighted standard deviation of these returns. Dispersion of
returns for Alliance Large Cap Growth from 1993-2000 is as follows: 1993:
1.6%; 1994: 1.2%; 1995: 1.9%; 1996: 1.3%; 1997: 5.0%; 1998: 2.4%; 1999: 3.2%;
2000: 2.1%. Dispersion of returns for Strategic Growth (all accounts) is as fol-
lows: 2001: 2.0%; 2002: 1.2%.
Year 2003 data are preliminary, pending completion of internal audit.
4. 50/50 Simulation: Strategic Value/Strategic Growth
Returns for the 50/50 Simulation (“50/50”) were calculated by blending the
actual returns of the Bernstein Strategic Value and Bernstein Strategic Growth
Composites (see disclosure for each Composite above) in a 50/50 allocation
using the following methodology:
a. From January 1979 through December 1982, the summed quarterly returns
for Strategic Value and Strategic Growth were divided by two. For example, a
quarterly Strategic Value return of 1.00% and a quarterly Strategic Growth
return of 3.00%, would result in a quarterly 50/50 return of 2.00% ((1.0%+
3.0%)/2 = 2.0%).
b. From January 1983 to the present, the methodology is the same, except
monthly. composite returns are used instead of quarterly returns. Prior to 1983,
only quarterly returns are available for Strategic Value
c. These 50/50 quarterly and monthly returns are geometrically linked, or
compounded, to calculate cumulative and/or annualized returns for various
time periods.
d.This methodology assumes quarterly rebalancing from 1979 through 1982 and
monthly rebalancing thereafter. Transaction costs associated with rebalancing are
not typically considered in this simulation, although they are included in the cal-
culations of the premium provided by systematic rebalancing discussed on page 5.
23
5. Balanced Accounts importance to prospective investors, call your Bernstein Advisor for current
prospectuses. Please read the prospectuses carefully before investing.The returns
a. Total Return—Performance results of accounts and comparisons are made
for the Fund portfolios for periods ending June 30, 2003, are as follows, annu-
on a total-return basis, which includes all dividends, interest and accrued inter-
alized for multi-year periods.
est, and realized and unrealized gains or losses. Performance results are after
deductions of all transaction charges and fees. The Sanford C. Bernstein Fund, Inc.
b. Rate of Return—Investment results are computed on a “time-weighted” Past 12 Past Five Past 10 Since Inception
rate-of-return basis. Assuming dividends and interest are reinvested, the growth Portfolio Months Years Years Inception Date
in dollars of an investment in a period can be computed using these rates of Intermediate
return. In computing the time-weighted rate of return, if an account’s net Duration 10.55% 6.20% 6.23% 7.80% 1/17/89
monthly cash flow exceeds 10% of its beginning market value, the cash flows are
weighted on a daily basis. When an account’s net monthly cash flows are less Diversified
than 10% of its beginning market value, the cash flows are weighted by the Municipal 5.96 5.16 5.16 6.03 1/9/89
“end-of-the-month” assumption. Beginning 2001, all cash flows are daily New York Municipal 6.22 5.12 5.11 6.08 1/9/89
weighted using the Modified Dietz Method.
California Municipal 5.51 4.86 4.98 5.81 8/6/90
c. Preparation of Data—Investment results on a quarterly basis for All
Balanced accounts for the entire quarter were added together and the sum divid- Tax-Managed Intl. Value*
ed by the total number of accounts in each quarter to produce a series of aver- Pretax (0.14) (0.25) 6.57 7.41 6/22/92
age quarterly performance figures. These quarterly performance figures were
then linked to produce a continuous-performance index. The continuous-per- After Tax,
formance index from inception was used to create point-to-point comparisons. Pre-Liquidation† (0.55) (1.45) 5.07 6.00
Closed accounts are included for each full quarter prior to their closing. All After-Tax,
Balanced Accounts include various types of accounts with any combination of Post-Liquidation† (0.08) (0.70) 4.94 5.77
equity and fixed income, in any percentage mix.
International Value II* (0.33) — — (0.31) 4/30/99
d. Dispersion—Dispersion, or standard deviation, measures the variability of
account returns within a composite. In a normal distribution, approximately Emerging Markets Value
two-thirds of the account returns will fall within the range of one standard Before 2% purchase
deviation above and below the equal-weighted mean return. Dispersion of per- and 2% redemption
formance for All Balanced Accounts under management is as follows: 1993: 2.3; fees—paid to
1994: 2.1; 1995: 2.9; 1996: 2.1; 1997: 2.8; 1998: 4.1; 1999: 4.6; 2000: 5.7; 2001:
the Portfolio,
2.2; 2002: 3.9.
not Bernstein 16.26 7.78 — (0.01) 12/15/95
Year 2003 data are preliminary, pending completion of internal audit.
Assuming investment
6. Purpose and Description of Wealth Forecasting Analysis was bought and
Bernstein’s Wealth Forecasting Analysis is designed to assist investors in making liquidated in the
their long-term investment decisions as to their allocation of investments same period 11.65 6.91 — (0.54)
among categories of financial assets. Our new planning tool consists of a four-
step process: (1) Client-Profile Input: the client’s asset allocation, income, The AllianceBernstein Real Estate Investment Institutional Fund‡
expenses, cash withdrawals, tax rate, risk-tolerance level, goals, and other fac- 4.06% 5.22% — 3.64% 12/9/97
tors; (2) Client Scenarios: in effect, questions the client would like our guid- Performance information is as of the date shown. Because of ongoing market volatility, a
ance on, which may touch on issues such as when to retire, what his cash-flow fund’s performance may be subject to substantial fluctuations since that date and may be
stream is likely to be, whether his portfolio can beat inflation long-term, and worth more or less than shown.
how different asset allocations might impact his long-term security; (3) The
Capital-Markets Engine: a model that uses our proprietary research and his- The risks of these Fund portfolios are fully discussed in the prospectuses. For
torical data to create a vast range of market returns, which takes into account more complete information on any Bernstein or AllianceBernstein mutual
the linkages within and among the capital markets (not Bernstein portfolios), fund, including investment objectives and policies, fees, expenses, risks and
as well as their unpredictability; and finally (4) A Probability Distribution of other matters of importance to prospective investors, call your Bernstein
Outcomes: based on the assets invested pursuant to the stated asset allocation, Advisor for current prospectuses. Please read the prospectus(es) carefully before
90% of the estimated ranges of returns and asset values the client could expect you invest or send money.
to experience are represented within the range established by the 5th and 95th *International Value II (IV II) is a continuation of Bernstein’s International Value Portfolio (IVP),
percentiles on “box-and-whiskers” graphs. However, outcomes outside this now called Tax-Managed International Value (TMIV). On April 30, 1999, IVP was split into
range are expected to occur 10% of the time; thus, the range does not establish two portfolios: IV II for tax-exempt investors, such as 401(k) and other retirement plans; and
the boundaries for all outcomes. Expected market returns on bonds are derived TMIV for taxable investors. Both portfolios have the same overall investment style, except that
taking into account yield and other criteria. An important assumption is that the latter now includes tax management. IV II is an extension of the original IVP in that it is
managed without regard to tax considerations.
stocks will, over time, outperform long bonds by a reasonable amount, although
†After-tax returns are calculated using the historical highest individual federal marginal income-tax
this is in no way a certainty. Moreover, actual future results may not meet rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an
Bernstein’s estimates of the range of market returns, as these results are subject investor’s tax situation and may differ from those shown, and after-tax returns are not relevant to
to a variety of economic, market, and other variables. Accordingly, the analysis investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or
should not be construed as a promise of actual future results, the actual range Individual Retirement Accounts.
of future results, or the actual probability that these results will be realized. ‡The Fund’s operating expenses increased from 1% to 1.2% effective November 2001, which had
the effect of reducing returns.
NOTES ON FUND-PORTFOLIO RETURNS (as of 6/30/2003)
A word of caution: Foreign markets, both developed and emerging, are exposed
Past performance is no guarantee of future results. The investment return and to the usual stock fluctuations, but also to other risks, including political changes,
principal value of an investment in the Funds listed below will fluctuate as the differences in financial reporting relative to the U.S. and currency movements
prices of the individual securities in which it invests fluctuate, so that shares, (which may be impossible to hedge in many emerging markets).
when redeemed, may be worth more or less than their original cost.
Performance information is as of the date shown; because of ongoing market Because the AllianceBernstein Real Estate Institutional Investment Fund
volatility, a fund’s performance may have been subject to substantial fluctuations invests a substantial portion of its assets in the real-estate market, it is subject to
since that date and may be greater or lesser than shown. For more complete many of the same risks involved in the direct ownership of real estate and with
information on any portfolios of the Sanford C. Bernstein Fund, Inc. or the the real-estate industry in general. For example, the value of real estate could
AllianceBernstein Real Estate Investment Institutional Fund, including invest- decline owing to a variety of factors, such as overbuilding, increases in interest
ment objectives and policies, sales charges, expenses, risks, and other matters of rates, or declines in rental rates.

24 The Bernstein Journal: Perspectives on Investing and Wealth Management