Setting Investment Objectives

Setting Investment Objectives
Individuals
This presentation booklet has been provided to you for use in a private and confidential meeting to discuss a potential or existing investment advisory relationship. This presentation is not an advertisement and is not intended for public use or distribution beyond our private meeting. Bernstein does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.
A Written Investment Objective Statement: The Steps
Beat inflation by x.x% Limit the annual loss to x.x% Establish the acceptable asset classes Set a strategic asset allocation target with tactical bands Establish rebalancing rules Manage in a tax-savvy manner Diversify by investment style
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Setting Investment Objectives: The Process
Define overall objective

Long-term goal above inflation +3% Limit annual loss (10)% in a calendar year
Choose asset classes

Stocks, bonds, international, emerging markets, REITs, hedge funds Define the projected risk/return and relationship (correlation) to each other
Create a mix of assets that achieves overall objective
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How Much Can I Spend?
19652006
60% Stocks/ 40% Bonds 9.6% (1.8) 7.8% (4.6)
Stocks Annualized Return* Taxes Nominal Return After Taxes** Inflation*** Real Return After Taxes and Inflation 10.4% (1.7) 8.7% (4.6)
Bonds 7.5% (2.1) 5.9% (4.6)
4.1%
0.8%
3.2%
Amount You Can Spend
*Stock returns are based on S&P 500 Index. Bond returns before taxes are based on five-year Treasuries, and after-tax returns are based on five-year municipals. Turnover is assumed to be 5% for stocks and 10% for bonds, with two-way transaction costs of 1.0% for stocks and 0.5% for bonds. All income is reinvested, and the mixed portfolio is rebalanced annually. **After-tax results assume a portfolio with a starting value of $1 million, all taxes are paid, no taxable income outside the portfolio, the filing of a joint return, and taxation at the prevailing federal rates over the years for the amount of income and gains generated. ***The compound inflation rate from 19652006 is 4.6%. Source: Bureau of Labor Statistics, Center for Research in Security Prices (CRSP), Federal Reserve, Lehman Brothers, S&P Compustat and AllianceBernstein
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The Amount You Could Have Spent

Total Annualized Return*
19652006 10.4% Pre-Tax 10.1% 10.3%
7.5%
0.8% 2.1%
7.9%
1.3% 2.0%
8.3%
1.7%
8.6%
2.1%
9.0%
9.3%
9.6%
9.8%
2.5%
2.9%
3.2%
3.4%
3.8%
4.0%
4.1%
After Taxes and Inflation (Amount You Can Spend)
2.0%
1.9%
1.9%
1.8%
1.8%
1.8%
1.7%
1.7%
1.7%
Taxes
4.6%
4.6%
4.6%
4.6%
4.6%
4.6%
4.6%
4.6%
4.6%
4.6%
4.6%
Inflation**
Stocks Bonds
0% 100%
10% 90%
20% 80%
30% 70%
40% 60%
50% 50%
60% 40%
70% 30%
80% 20%
90% 10%
100% 0%
*The display above represents the difference between the return before and after inflation. Stock returns are based on S&P 500 Index. Bond returns before taxes are based on five-year Treasuries, and after-tax returns are based on five-year municipals. Turnover is assumed to be 5% for stocks and 10% for bonds, with two-way transaction costs of 1.0% for stocks and 0.5% for bonds. All income is reinvested, and the mixed portfolio is rebalanced annually. After-tax results assume a portfolio with a starting value of $1 million, all taxes are paid, no taxable income outside the portfolio, the filing of a joint return, and taxation at the prevailing federal rates over the years for the amount of income and gains generated. **The compound inflation rate is 4.6%. Source: Bureau of Labor Statistics, CRSP, Federal Reserve, S&P Compustat, and AllianceBernstein
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Key Wealth Forecasting Questions
How long will my money last? How much can I spend without eroding my wealth?
On nominal or inflation-adjusted basis
How will asset allocation affect my:

Wealth? Ability to spend? Risk?
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Analytical Approach Is Essential

Client Profile Wealth Forecasting Model
Distribution of 10,000 Outcomes
Probability Distribution
Financial Goals Assets Income Requirements Inputs Risk Tolerance Tax Rates Time Horizon
Simulated observations based on Bernsteins proprietary capital markets research
What are the chances of meeting goals?
Assumes uncertainty in the future to determine a realistic range of outcomes Incorporates complex interrelationships among asset classes Takes into account current market conditions Considers historical patterns of returnswithout relying on averages
SIO I_2007 The Wealth Forecasting System, one of the biggest R&D projects ever undertaken at our firm, is based upon our proprietary analysis of historical capital markets data over many decades. We looked at variables such as past returns, volatility, valuation ratios, and the correlations among them to address the planning questions our clients ask. The models output is a vast range of possible outcomesrelating to market asset classes, not Bernstein portfoliosthat serve as grist for a clients decision-making mill. Of course, there is no assurance that any specific outcome suggested by the model will actually come to pass. But by quantifying the possibilities of achieving financial goals under changing, and sometimes extreme, capital markets conditions, the tool should help our clients make better choices.
The Path of Returns Matters

Different Paths, Same Compound Return Wealth Value
Spending $50,000 plus Inflation*
Average Return Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Compound Annual Return 10% 10 10 10 10 10 10 10 10%
Return Path 1 38% 23 33 29 21 (9) (12) (22) 10%
Return Path 2 Path 1 (22)% (12)

$ Millions 3
(9) 21 29 33 23 38 10%
Average
1
$1.8 $1.6 $1.2 Path 1 ends with 50% more wealth than Path 2
7 8
Path 2
0 0 1 2 3 4 Years 5 6
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Returns for Path 1 represent annual returns for S&P 500 from 19952002; returns for Path 2 are identical to those for Path 1, but the order is reversed. *Spending in the first year is calculated as a percentage (5%) of initial assets; after the first year, spending is assumed to grow with inflation. All figures are pretax. Source: Standard & Poors and Bernstein
How Long Will My Money Last?

Probability of Running out of Money
60% Stocks/40% Bonds*
(%) 80
Chances 7-in-10
Spending** 6%
60
40
4-in-10
5%
20
1-in-10 chance
1-in-10
4% 3%
0 5 10 15 Years 20 25 30
*Represents globally diversified balanced portfolio: 21% US growth stocks, 21% US value stocks, 15% developed international stocks, 3% emerging markets stocks, and 40% intermediate municipal bonds **Spending in the first year is calculated as a percentage of initial assets; after the first year, spending is assumed to grow with inflation. Spending represents after-tax net spending from a taxable portfolio. Based on Bernsteins estimates of the range of returns for the applicable capital markets over the next 30 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System for further details.
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How Much Can I Spend Without Eroding My Wealth?

Probability of Maintaining Nominal Wealth
60% Stocks/40% Bonds* Spending** (%)
100 80 60 40 20 0 Years 5 10 15 20 25 30
Probability of Maintaining Inflation-Adjusted Wealth

60% Stocks/40% Bonds Spending** (%)
100 80 60 40
98%
2% 3% 4%
75%
2% 3% 4%
43%
5%
20 0 5 10 15
22%
20 25 30
5%
Year 20
98% 99% 89% 95% 68% 82%
Market Return* 1% Premium to the Market

75% 85% 57%
Year 20
Market Return* 1% Premium to the Market
43%
59%
71% 38%
53% 22%
34%
Spending 2%
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3%
4%
5%
Spending 2%
3%
4%
5%
*Represents globally diversified balanced portfolio: 21% US growth stocks, 21% US value stocks, 15% developed international stocks, 3% emerging markets stocks, and 40% intermediate municipal bonds **Spending in the first year is calculated as a percentage of initial assets; after the first year, spending is assumed to grow with inflation. Spending represents after-tax net spending from a taxable portfolio. Based on Bernsteins estimates of the range of returns for the applicable capital markets over the next 30 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System for further details.
How Will Asset Allocation Affect My Ability to Spend?

Maximum Spending* to Maintain Nominal Wealth, Year 20, with 50% Confidence Maximum Spending* to Maintain Inflation-Adjusted Wealth, Year 20, with 50% Confidence
4.7% 3.9%
4.9% 3.7%
3.4% 2.4%
20/80
60/40
80/20
20/80
60/40
80/20
Asset Allocation**
Asset Allocation**
*Spending in the first year is calculated as a percentage of initial assets; after the first year, spending is assumed to grow with inflation. Spending represents after-tax net spending from a taxable portfolio. **Represents globally diversified balanced portfolios: The stock allocation is 35% US value, 35% US growth, 25% developed international, 5% emerging markets; the bond allocation is 100% intermediate municipals. Based on Bernstein's estimates of the range of returns for the applicable capital markets over the next 20 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System for further details.
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How Will Asset Allocation Affect My Wealth?

Probability of Achieving Various Levels of Wealth, Year 20
After Spending* and Taxes (Nominal) (%) 100
Stock/Bond**
90 80 70 60 50 40 30 20 10 0 0.1 0.5 0.9 1.3 1.7
20/80 60/40 80/20
Assumptions Original Value Spending $1 Mil. 4%
2.1
2.5
2.9
3.3
3.7
4.1
4.5
4.9
5.3
5.7
6.1
6.5
Various Levels of Wealth, Year 20 ($ Mil.)

SIO I_2007 *Spending in the first year is calculated as a percentage of initial assets; after the first year, spending is assumed to grow with inflation. Spending represents after-tax net spending from a taxable portfolio. **Represents globally diversified balanced portfolios: The stock allocation is 35% US value, 35% US growth, 25% developed international, 5% emerging markets; the bond allocation is 100% intermediate municipals. Based on Bernsteins estimates of the range of returns for the applicable capital markets over the next 20 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System for further details.
Stock Returns Have Been Volatile over the Short Term

S&P 500: Annual Returns
50
30
Percent
10
Average 12%
(10)
Best Year
(30)
54%
Worst Year (43)%
(50) 26
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42
58
74
90
06
Past performance does not guarantee future results. Source: Compustat; Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns, University of Chicago Press Journal of Business (January 1976); and AllianceBernstein
Major Declines in the Stock Market

S&P 500
$63.6 Mil.
(15)% (41)%
(15)% (30)%
(17)% (29)% (43)%
(16)% (22)% Growth of $100,000

50
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(15)%
57
64
71
78
85
92
99
06
Five-Year Losses Have Been Rare

S&P 500: Rolling Five-Year Periods (Annualized)
50
30
Percent
10
Average 10%
(10)
Best Case
(30)
29%
Worst Case (12)%
(50) 26
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34
42
50
58
66
74
82
90
98
06
Stocks Have Not Lost Money over the Long Term

S&P 500: Rolling Periods (Annualized)
30 Percent 20 10 0 26 34 42 50 58 66 74 82 90 98 06
15 Years
Average 11% Best Case Worst Case 19% 1%
30 Percent 20 10 0 26 34 42 50 58 66
20 Years
Average 11% Best Case Worst Case
74 82 90 98 06
18% 3%
30 Percent 20 10 0 26
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30 Years
Average 11% Best Case Worst Case 14% 8%
34
42
50
58
66
74
82
90
98
06
Performance During Down Stock Market Years

19512006
30% Stocks/ 70% Bonds 1953 1957 1962 1966 1969 1973 1974 1977 1981 1990 2000 2001 2002 19512006* Growth of $100,000 $5.9 Mil. $8.3 Mil. $11.5 Mil. $15.7 Mil. $21.1 Mil. $48.3 Mil. 2.3% 1.9 2.4 (0.6) (6.0) (2.2) (3.7) (0.1) 5.9 5.9 4.5 2.4 (0.4) 7.6 40/60 1.9% 0.1 0.8 (1.9) (6.4) (4.0) (7.2) (1.1) 4.3 4.6 2.5 0.4 (3.6) 8.2 50/50 1.4% (1.8) (0.7) (3.3) (6.7) (5.8) (10.6) (2.1) 2.8 3.4 0.6 (1.7) (6.9) 8.8 60/40 0.9% (3.6) (2.3) (4.7) (7.1) (7.6) (13.9) (3.1) 1.2 2.1 (1.4) (3.7) (10.0) 9.4 70/30 0.5% (5.4) (3.9) (6.0) (7.5) (9.4) (17.1) (4.2) (0.4) 0.8 (3.3) (5.7) (13.1) 10.0 100% Stocks (1.0)% (10.8) (8.7) (10.1) (8.8) (14.7) (26.5) (7.2) (4.9) (3.1) (9.1) (11.9) (22.1) 11.6
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Past performance does not guarantee future results. Stocks are represented by the S&P 500 Index; bonds are US long-term government bonds prior to 1972 and US intermediate government bonds thereafter. *Compound annualized return Source: Compustat; Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns, University of Chicago Press Journal of Business (January 1976); Lehman Brothers, Standard & Poors and AllianceBernstein
The Severity of Deep Bear Markets

Peak-to-Trough
100% Bonds Dec 1968Jun 1970 (8.0)%
30/70 (14.6)%
40/60 (16.7)%
50/50 (18.9)%
60/40 (21.0)%
70/30 (23.1)%
100% Stocks (29.1)%
Jan 1973Sep 1974
5.6
(11.5)
(16.7)
(21.6)
(26.2)
(30.7)
(42.7)
Sep 1987Nov 1987
2.3
(7.8)
(11.0)
(14.2)
(17.4)
(20.5)
(29.6)
Apr 2000Mar 2003
30.4
4.2
(3.5)
(10.8)
(17.6)
(24.0)
(40.9)
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Past performance does not guarantee future results. Stocks are represented by the S&P 500 Index; bonds are US long-term government bonds prior to 1972 and US intermediate government bonds thereafter. Source: Compustat; Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns, University of Chicago Press Journal of Business (January 1976); Lehman Brothers; Standard & Poors; and AllianceBernstein
Balanced Management
Strategic asset allocation

Global Blend
Rebalancing (maintain risk level)

Among asset classes (stocks and bonds) Across geographies (domestic and foreign) Between styles (growth and value)
Taxable Bonds Tax-Exempt Bonds Low-Volatility Hedge Fund REITs
US Value High-Volatility Hedge Funds ModerateVolatility Hedge Fund International Value Emerging Value Currency Management Commodity Management
Tax-savvy
Smart turnover Offset gains with losses
Emerging Growth International Growth
Client Portfolio
US Growth
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Key to Diversification: Combining Low-Correlated Assets

Correlation to S&P 500
19812006* High Correlation 1.0 US Growth US Value
Emerging Markets Growth** Emerging Markets Value**
Global Hedge Funds** International Growth International Value REITs
Multi-Strategy Hedge Funds** Bonds
No Correlation 0
Currency Cash Commodities
Correlation between S&P 500 and other asset classes, which are represented by the followingGlobal Hedge Funds: Barclay Global HedgeSource Hedge Fund Index; Multi-Strategy Hedge Funds: Barclay Global HedgeSource Multi Strategy Index; Growth Stocks: Russell 1000 Growth; Value Stocks: Russell 1000 Value; International Value: Morgan Stanley Capital International (MSCI) EAFE Value Index; International Growth: MSCI EAFE Growth Index; REITs: National Association of Real Estate Investment Trusts (NAREIT) Index; Emerging Markets Value: MSCI Emerging Markets Value Index; Emerging Markets Growth: MSCI Emerging Markets Growth Index; Bonds: Lehman Brothers Aggregate Bond Index; Currency: exchange value of the dollar against a broad group of foreign currencies from major markets; Cash: three-month Treasury bills; Commodities: Goldman Sachs Commodities Index (GSCI). *Correlation data for Emerging Markets Growth, Emerging Markets Value, International Growth and International Value are through November 2006; data for Currency are through September 2006. **Correlation data for Emerging Markets Growth and Emerging Markets Value begin in January 1997, when their proxies, the MSCI Emerging Markets Growth and the MSCI Emerging Markets Value indexes, began; data for Global Hedge Funds and Multi-Strategy Hedge Funds begin in January 1997, when their proxies, Barclay Global HedgeSource and the Barclay Global HedgeSource Multi Strategy indexes, began. Source: The Barclay Group, FactSet, Goldman Sachs, Lehman Brothers, MSCI, NAREIT, Russell Investment Group and AllianceBernstein
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How Do You Construct a Successful Portfolio?
Focus on managers with the best five-year returns? Rely on Morningstar (or other published) ratings? Ask for recommendations from colleagues and friends? Find a talented stock picker? Use a dartboard?
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Investors More Risk Averse...

Mutual Fund Flows*
400
Market Peak
300
More Money into Stocks

200 $ Billions
100
(100)
More Money into Bonds Market Trough

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
(200)
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*Mutual fund information excludes hybrid funds. Source: Investment Company Institute
Individual Investors Have Been Trend Followers
Percent Net Cash Flow into 4- and 5-Star Mutual Funds

(%) 160
145% 140 120 100 80 60 40 20 0 96 97 98 99 00 01 02 03 04 05 06
Average 111%
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Source: Morningstar, Inc. and Strategic Insight
Investors Have Chased the Past...
Annualized Returns
19862005
11.9%
7.9%
3.9% 3.1% 1.8%
S&P 500
Inflation
Average Stock Fund Investor
Lehman Aggregate Bond Index
Average Bond Fund Investor
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Past performance does not guarantee future results. Source: Dalbar, Inc., Quantitative Analysis of Investor Behavior, July 2006
Selecting Future Performance Based on Past Returns

Methodology
Ranking of Managers by Performance Top Quartile
Performance Relative to Style Index Average Premium to Index
Previous Five Years
Next Three Years
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Based upon their reported returns, top-quartile managers were identified for each five-year period from 1979 to 2002 for the Lipper universe of US Large Cap Growth and the Lipper universe of US Value managers. The average return generated by each sub-universe of top-quartile managers was then compared to the relevant style index (Russell 1000 Growth or Russell 1000 Value) for the subsequent three-year period from 19842005.
The Future Has Been Different from the Past

Growth Managers
Premium/Discount to Russell 1000 Growth over Next Three Years
4 2 0 Percent (2) (4) (6)
Three-Year Rolling Periods

(8) 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
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Based upon their reported returns, top-quartile managers were identified for each five-year period from 19792006 for the Lipper Universe of US Large Cap Growth managers. The average return generated by each sub-universe of top-quartile managers was then compared to the Russell 1000 Growth Index for the subsequent three-year period. Source: LANA and AllianceBernstein
The Future Has Been Different from the Past
Value Managers
Premium/Discount to Russell 1000 Value over Next Three Years
2
Percent
(2)
(4)
(6)
Three-Year Rolling Periods

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
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Based upon their reported returns, top-quartile managers were identified for each five-year period from 19792006 for the Lipper Universe of US Value managers. The average return generated by each sub-universe of top-quartile managers was then compared to the Russell 1000 Value Index for the subsequent three-year period. Source: LANA and AllianceBernstein
Rebalance to Control Risk

Rebalancing must be dynamic, not static
As an asset class/style outperforms, trim investment As an asset class/style underperforms, add to investment
As value/growth outperforms, trim investment
Sell Upper Trigger +5%
Outperform 50/50 Strategic Target Rebalance Halfway
Rebalance Halfway
Underperform
Lower Trigger 5% Buy As value/growth underperforms, add to investment
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The Benefit of Rebalancing

50/50 Strategic Value/Strategic Growth Simulation* (After Fees)
(% in Value Style) Rebalance 60 55
Added to Growth
Value and Growth equities
50 45 40 78 82 86 90
Added to Value
94 98 02 06
Return Premium from Rebalancing Growth and Value (Annualized) 19782006

+1.8%
Growth of $1 Million 19782006

$53.8 $59.1
Rebalancing can add to return...
+1.5%
+0.3%
Unrebalanced Blend Our Rebalancing Method**
+$5.3 Mil.
Unrebalanced Blend Our Rebalancing Method**
Average Down-Year Performance: One-Year Rolling Periods (19782006)
...and lowers downside risk
Unrebalanced Blend
Our Rebalancing Method**
+2.1%
Past performance does not guarantee future results. (10.5)% (12.6)% Rebalancing method assumes one-way transaction costs of 50 basis points, an upper trigger of 5.0% vs. target, and a lower trigger of (5.0)% vs. target. *Accounts over $5 million. The hypothetical performance of the 50/50 Strategic Growth/Strategic Value Blended Simulation is presented for illustrative purposes only. The performance shown is hypothetical because it does not represent the performance of actual managed accounts. The results may not reflect the impact that certain material economic and market factors may have had on actual decision making if they were reflective of a managed account. No representation is being made that an investor will or is likely to achieve profits or losses similar to those shown. See Performance Disclosure at the end of this presentation for additional information regarding the calculation of the performance of the 50/50 Strategic Growth/Strategic Value Blended Simulation. **Taxable clients trigger points may be wider depending on taxes and transaction costs. Source: AllianceBernstein
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Rebalancing Increases Alpha, Reduces Extreme Outcomes

Distribution of Returns
Higher Probability Rebalancing increases the consistency of returns
Rebalanced Rebalancing reduces the likelihood of bad outcomes
Unrebalanced Rebalancing increases the median return Lower Probability

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Unrebalanced
Median Return
Source: Bernstein
Cutting-Edge Tax Management
Strategies for Optimizing After-Tax Returns Consider transaction costs Assess tax costeither short- or long-term Incur tax cost only when potential return from the alternative outweighs the costs Harvest losses
Techniques Keep turnover low Track holdings by tax lot Avoid short-term gains Delay long-term gains Take advantage of losses to offset gains
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Tax-Savvy Investing Adds to Returns
Potential Added Return from Tax Management*
+22 b.p.
+77 b.p.
+55 b.p.
Avoiding Short-Term Gains

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Delaying Long-Term Gains
Total Potential Added Return from Tax-Savvy Investing
*Based on a simulation of after-tax returns (assuming 2005 tax rates) over nearly three decades for a portfolio using Bernsteins actual research for the relevant period and current portfolio management techniques for Strategic Value. This does not represent any past performance and is not a promise of actual future results. Source: AllianceBernstein
A Rare Combination
Correlation Among 7,728 Pairs of Growth and Value Managers

15 Years Ending 2006
Outperform
Strategic Growth & Strategic Value* Negatively Correlated Median
1 Standard Deviation Positively Correlated
Underperform
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*A simulated 50/50 combination of Strategic Growth and Strategic Value Strategic Growth is represented by the Alliance Large Cap Growth composite through March 31, 2001, and thereafter by Strategic Growth, accounts over $5 million, after fees. Strategic Growth differs from Alliance Large Cap Growth in that, among other things, it offers tax management and may contain fewer stocks. Strategic Value is represented by the Bernstein Strategic Value composite, accounts over $5 million, after fees. Source: Mercer Investment Consulting and AllianceBernstein
Strategic Growth and Strategic Value

Performance Profile
19792006
Entire Period Percent of Quarters Strategic Growth Premium to S&P 500** Strategic Value Premium to S&P 500** 100%
Growth Quarters 30%
Value Quarters 36%
Neutral Quarters* 34%
0.7
3.1
(2.4)
0.8
2.3
(2.6)
3.7
0.2
Strategic Growth is represented by the Alliance Large Cap Growth composite through March 31, 2001, and thereafter by Strategic Growth, accounts over $5 million, after fees. Strategic Growth differs from Alliance Large Cap Growth in that, among other things, it offers tax management and may contain fewer stocks. Strategic Value is represented by the Strategic Value composite, accounts over $5 million, after fees. Past performance does not guarantee future results. See Performance Disclosure at end of presentation. *Neutral quarters are quarters in which neither Russell 1000 Growth nor Russell 1000 Value outperformed the other by more than 2%. **Premiums for the entire period represent annualized returns vs. those of the S&P; those for the growth, value, and neutral quarters represent the arithmetic average premium of quarterly returns vs. the S&Ps. Source: Frank Russell Company, Standard & Poors, Alliance Capital, and Bernstein
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Rules for Success in Combining Investment Styles
Establish risk tolerance Allocate assets strategically Rebalance and manage taxes to control risk and add value Demand style discipline from managers Avoid psychological traps
Implementation Is Difficult
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Appendix

Number of Years Money Will Last
100% Equities
Confidence Level 90% 50% 10% Spending* 1% >30 >30 >30 2% >30 >30 >30 3% >30 >30 >30 4% 24 >30 >30 5% 18 >30 >30 6% 14 26 >30 8% 10% 10 8 17 13 >30 23 Confidence Level 90% 50% 10% 1% >30 >30 >30
40% Equities/60% Bonds

Spending* 2% >30 >30 >30 3% >30 >30 >30 4% 28 >30 >30 5% 21 30 >30 6% 17 23 >30 8% 10% 12 9 16 12 21 15

Confidence Level 90% 50% 10% Spending* 1% >30 >30 >30 2% >30 >30 >30 3% >30 >30 >30 4% 27 >30 >30 5% 19 >30 >30 6% 15 25 >30 8% 10% 11 9 17 13 30 20 Confidence Level 90% 50% 10% 1% >30 >30 >30

Spending* 2% >30 >30 >30 3% >30 >30 >30 4% 28 >30 >30 5% 21 27 >30 6% 17 21 27 8% 10% 12 9 15 11 18 13

Confidence Level 90% 50% 10%
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100% Bonds
8% 10% 12 9 16 12 25 17 Confidence Level 90% 50% 10% Spending* 1% >30 >30 >30 2% >30 >30 >30 3% >30 >30 >30 4% 25 >30 >30 5% 19 24 >30 6% 16 19 23 8% 10% 12 9 14 11 16 12
Spending* 1% >30 >30 >30 2% >30 >30 >30 3% >30 >30 >30 4% 28 >30 >30 5% 20 >30 >30 6% 16 24 >30
*Spending in the first year is calculated as a percentage of initial assets; after the first year, spending is assumed to grow with inflation. Spending represents after-tax net spending from a taxable portfolio. The allocation to stocks is 35% US value, 35% US growth, 25% developed international, 5% emerging markets; the allocation to bonds is 100% intermediate municipals. Based on Bernstein's estimates of the range of returns for the applicable capital markets over the next 30 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System for further details.

Probability of Running Out of Money
100% Equities
Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years <2% <2% <2% <2% <2% <2% <2% <2% 10 years <2% <2% <2% <2% <2% <2% 7% 22% 15 years <2% <2% <2% <2% 4% 11% 36% 65% 20 years <2% <2% <2% 5% 14% 29% 62% 84% 25 years <2% <2% 3% 11% 27% 46% 77% 92% 30 years <2% <2% 5% 18% 38% 59% 85% 95% Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years <2% <2% <2% <2% <2% <2% <2% <2%

10 years <2% <2% <2% <2% <2% <2% <2% 13% 15 years <2% <2% <2% <2% <2% 3% 39% 88% 20 years <2% <2% <2% <2% 6% 27% 86% >98% 25 years <2% <2% <2% 4% 25% 61% 97% >98% 30 years <2% <2% <2% 13% 48% 83% >98% >98%

Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years <2% <2% <2% <2% <2% <2% <2% <2% 10 years <2% <2% <2% <2% <2% <2% 4% 19% 15 years <2% <2% <2% <2% 2% 8% 35% 69% 20 years <2% <2% <2% 3% 11% 27% 67% 89% 25 years <2% <2% <2% 8% 24% 47% 83% 96% 30 years <2% <2% 3% 15% 38% 62% 90% 98% Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years <2% <2% <2% <2% <2% <2% <2% <2%

10 years <2% <2% <2% <2% <2% <2% <2% 11% 15 years <2% <2% <2% <2% <2% 2% 48% >98% 20 years <2% <2% <2% <2% 6% 33% 98% >98% 25 years <2% <2% <2% 4% 31% 79% >98% >98% 30 years <2% <2% <2% 16% 65% 96% >98% >98%

Spending 1% 2% 3% 4% 5% 6% 8% 10% SIO I_2007 5 years <2% <2% <2% <2% <2% <2% <2% <2% 10 years <2% <2% <2% <2% <2% <2% <2% 16% 15 years <2% <2% <2% <2% <2% 5% 36% 77% 20 years <2% <2% <2% <2% 8% 26% 75% 95% 25 years <2% <2% <2% 6% 24% 52% 90% >98% 30 years <2% <2% <2% 13% 40% 70% 96% >98% Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years <2% <2% <2% <2% <2% <2% <2% <2% 10 years <2% <2% <2% <2% <2% <2% <2% 16%
100% Bonds
15 years <2% <2% <2% <2% <2% 3% 73% >98% 20 years <2% <2% <2% <2% 11% 55% >98% >98% 25 years <2% <2% <2% 8% 54% 97% >98% >98% 30 years <2% <2% 2% 33% 89% >98% >98% >98%
Can I Preserve My Wealth?

Probability of Maintaining Wealth (Nominal)
100% Equities
Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 80% 76% 71% 66% 60% 55% 44% 34% 10 years 88% 83% 76% 69% 59% 51% 33% 20% 15 years 94% 89% 80% 69% 57% 43% 23% 11% 20 years 97% 92% 82% 68% 52% 37% 16% 7% 25 years >98% 94% 83% 66% 47% 31% 12% 4% 30 years >98% 96% 83% 63% 43% 27% 9% 3% Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 91% 85% 76% 65% 52% 40% 19% 8%

10 years >98% 94% 85% 67% 46% 27% 6% <2% 15 years >98% 98% 89% 67% 37% 16% <2% <2% 20 years >98% >98% 91% 62% 28% 9% <2% <2% 25 years >98% >98% 91% 56% 20% 5% <2% <2% 30 years >98% >98% 89% 49% 15% 3% <2% <2%

Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 83% 78% 73% 66% 60% 53% 40% 28% 10 years 92% 86% 79% 70% 59% 47% 27% 14% 15 years 97% 92% 83% 70% 55% 39% 17% 6% 20 years >98% 95% 86% 69% 49% 32% 11% 3% 25 years >98% 97% 87% 67% 44% 25% 7% <2% 30 years >98% >98% 87% 64% 39% 20% 5% <2% Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 96% 90% 78% 58% 38% 20% 3% <2%

10 years >98% >98% 87% 58% 24% 6% <2% <2% 15 years >98% >98% 91% 52% 13% <2% <2% <2% 20 years >98% >98% 90% 42% 6% <2% <2% <2% 25 years >98% >98% 88% 33% 3% <2% <2% <2% 30 years >98% >98% 84% 25% <2% <2% <2% <2%

Spending 1% 2% 3% 4% 5% 6% 8% 10% SIO I_2007 5 years 86% 81% 74% 66% 57% 49% 32% 19% 10 years 95% 90% 81% 70% 55% 40% 18% 6% 15 years >98% 95% 87% 70% 50% 31% 8% <2% 20 years >98% 98% 89% 68% 43% 22% 4% <2% 25 years >98% >98% 89% 65% 35% 16% 2% <2% 30 years >98% >98% 89% 60% 30% 12% <2% <2% Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 98% 89% 65% 30% 6% <2% <2% <2% 10 years >98% >98% 74% 16% <2% <2% <2% <2%
100% Bonds
15 years >98% >98% 72% 10% <2% <2% <2% <2% 20 years >98% >98% 65% 7% <2% <2% <2% <2% 25 years >98% >98% 56% 4% <2% <2% <2% <2% 30 years >98% >98% 46% 3% <2% <2% <2% <2%

Probability of Maintaining Wealth (Inflation-Adjusted)
100% Equities
Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 68% 64% 59% 54% 49% 44% 34% 26% 10 years 73% 67% 60% 52% 44% 36% 24% 15% 15 years 79% 71% 60% 50% 40% 30% 16% 8% 20 years 83% 73% 61% 48% 36% 26% 11% 5% 25 years 87% 76% 62% 47% 32% 21% 8% 3% 30 years 90% 78% 62% 45% 30% 18% 6% 2% Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 69% 60% 49% 40% 30% 22% 10% 4%

10 years 75% 63% 50% 35% 22% 12% 3% <2% 15 years 82% 68% 49% 30% 15% 6% <2% <2% 20 years 87% 72% 49% 26% 10% 4% <2% <2% 25 years 90% 75% 48% 23% 8% 2% <2% <2% 30 years 93% 77% 48% 20% 6% <2% <2% <2%

Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 69% 63% 58% 51% 45% 39% 29% 20% 10 years 75% 67% 59% 49% 40% 32% 18% 9% 15 years 81% 71% 59% 47% 35% 25% 11% 4% 20 years 86% 75% 61% 45% 31% 20% 6% 2% 25 years 89% 78% 61% 43% 27% 15% 4% <2% 30 years 92% 80% 62% 42% 24% 13% 3% <2% Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 66% 53% 38% 25% 14% 7% <2% <2%

10 years 73% 56% 37% 18% 7% <2% <2% <2% 15 years 79% 59% 34% 13% 3% <2% <2% <2% 20 years 84% 62% 32% 10% <2% <2% <2% <2% 25 years 87% 63% 31% 8% <2% <2% <2% <2% 30 years 89% 66% 29% 6% <2% <2% <2% <2%

Spending 1% 2% 3% 4% 5% 6% 8% 10% SIO I_2007 5 years 69% 62% 55% 47% 40% 33% 21% 12% 10 years 76% 66% 56% 44% 33% 24% 10% 3% 15 years 82% 71% 56% 41% 27% 16% 5% <2% 20 years 87% 75% 57% 38% 22% 11% 2% <2% 25 years 91% 78% 58% 36% 18% 8% <2% <2% 30 years 93% 81% 58% 34% 15% 6% <2% <2% Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 54% 35% 19% 7% <2% <2% <2% <2% 10 years 60% 36% 14% 2% <2% <2% <2% <2%
100% Bonds
15 years 65% 36% 12% <2% <2% <2% <2% <2% 20 years 70% 36% 10% <2% <2% <2% <2% <2% 25 years 72% 37% 9% <2% <2% <2% <2% <2% 30 years 75% 38% 8% <2% <2% <2% <2% <2%

Growth of $1 (Nominal), Median Case: 50% Confidence
100% Equities
Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 1.4 1.3 1.2 1.2 1.1 1.1 0.9 0.8 10 years 1.8 1.6 1.5 1.3 1.2 1.0 0.7 0.4 15 years 2.3 2.0 1.7 1.4 1.1 0.9 0.3 0.0 20 years 3.1 2.6 2.0 1.5 1.1 0.6 0.0 0.0 25 years 4.1 3.2 2.4 1.6 0.9 0.2 0.0 0.0 30 years 5.4 4.1 2.9 1.7 0.6 0.0 0.0 0.0 Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 1.2 1.2 1.1 1.1 1.0 1.0 0.8 0.7

10 years 1.6 1.4 1.3 1.1 1.0 0.8 0.5 0.3 15 years 2.0 1.7 1.4 1.1 0.9 0.6 0.1 0.0 20 years 2.5 2.0 1.6 1.1 0.7 0.3 0.0 0.0 25 years 3.1 2.4 1.8 1.1 0.5 0.0 0.0 0.0 30 years 4.0 3.0 1.9 1.0 0.0 0.0 0.0 0.0



Spending 1% 2% 3% 4% 5% 6% 8% 10% SIO I_2007 5 years 1.3 1.2 1.2 1.1 1.1 1.0 0.9 0.8 10 years 1.7 1.5 1.4 1.2 1.1 0.9 0.6 0.3 15 years 2.1 1.8 1.6 1.3 1.0 0.7 0.2 0.0 20 years 2.7 2.2 1.8 1.3 0.9 0.4 0.0 0.0 25 years 3.5 2.8 2.1 1.3 0.7 0.0 0.0 0.0 30 years 4.6 3.5 2.4 1.3 0.3 0.0 0.0 0.0 Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 1.1 1.1 1.0 1.0 0.9 0.9 0.7 0.6 10 years 1.3 1.2 1.1 0.9 0.8 0.7 0.4 0.1
100% Bonds
15 years 1.6 1.3 1.1 0.8 0.6 0.4 0.0 0.0 20 years 1.8 1.5 1.1 0.7 0.3 0.0 0.0 0.0 25 years 2.2 1.6 1.0 0.5 0.0 0.0 0.0 0.0 30 years 2.6 1.8 1.0 0.2 0.0 0.0 0.0 0.0

Growth of $1 (Inflation-Adjusted), Median Case: 50% Confidence
100% Equities




Spending 1% 2% 3% 4% 5% 6% 8% 10% SIO I_2007 5 years 1.1 1.1 1.0 1.0 0.9 0.9 0.8 0.7 10 years 1.3 1.2 1.1 0.9 0.8 0.7 0.5 0.2 15 years 1.5 1.3 1.1 0.9 0.7 0.5 0.1 0.0 20 years 1.7 1.4 1.1 0.8 0.5 0.3 0.0 0.0 25 years 1.9 1.5 1.1 0.7 0.4 0.0 0.0 0.0 30 years 2.2 1.7 1.2 0.7 0.1 0.0 0.0 0.0 Spending 1% 2% 3% 4% 5% 6% 8% 10% 5 years 1.0 1.0 0.9 0.9 0.8 0.8 0.7 0.6 10 years 1.0 0.9 0.8 0.7 0.6 0.5 0.3 0.1
100% Bonds
15 years 1.1 0.9 0.8 0.6 0.4 0.3 0.0 0.0 20 years 1.1 0.9 0.7 0.4 0.2 0.0 0.0 0.0 25 years 1.2 0.9 0.6 0.3 0.0 0.0 0.0 0.0 30 years 1.3 0.9 0.6 0.1 0.0 0.0 0.0 0.0
Performance Disclosure
Strategic Value (Accounts Over $5 Million)
1. General Notes: a. Performance Statistics Are Not Financial StatementsThere are various methods of compiling or reporting performance statistics. The standards of performance 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 achieve gains. b. Composite StructureBeginning in 1993, the Bernstein Strategic Value (accounts over $5 million) composite (the composite) includes only fee-paying private and institutional discretionary accounts with assets over $5 million not subject to significant investment restrictions imposed by clients. From 1983 through 1992, the composite includes all private and institutional discretionary Strategic Value accounts with assets over $5 million. Prior to 1983, the composite includes all discretionary equity-oriented accounts, regardless of size. c. Rate of ReturnPerformance 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 accounts net monthly cash flows were equal to or exceeded 10% of its beginning market value, the Modified Dietz Method was used to daily-weight the cash flows. When an accounts 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 in 2001, all cash flows are daily-weighted using the Modified Dietz Method. Beginning in 1993, the monthly composite returns are calculated by weighting each accounts monthly return by its beginning market value as a percent of the total composites beginning market value. Prior to 1993, the composite results are equal-weighted on a quarterly basis. These monthly and quarterly performance figures are geometrically linked to calculate cumulative and/or annualized time-weighted rates of return for various time periods. Closed accounts are included in the composite for each full quarter prior to their closing. d. BenchmarkThe 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 US stock market performance. 2. Net-of-Fee Performance Figures for the composite have been calculated as follows: a. Prior to 1983, management fees were not charged; instead, the accounts incurred transaction costs. b. From 1983 through 1992, the composites 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 composites net-of-fee return is the asset-weighted average of the actual after-fee returns of each account in the composite. c. Net-of-fee returns for the past 10 years are as follows: 1997: 27.2%; 1998: 10.0%; 1999: (0.2)%; 2000: 10.0%; 2001: 9.5%; 2002: (17.4)%; 2003: 31.9%; 2004: 13.6%; 2005: 8.7%; 2006: 20.3%. 3. DispersionDispersion 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 assetweighted standard deviation of these returns. Dispersion of returns for the composite is as follows: 1997: 1.9%; 1998: 1.9%; 1999: 2.0%; 2000: 2.4%; 2001: 1.6%; 2002: 1.6%; 2003: 1.4%; 2004: 1.2%; 2005: 1.0%; 2006: 0.7%.
SIO I_2007
Year 2006 data are preliminary. notes03\10AF1
Strategic Growth (Accounts Over $5 Million)
1. General Notes: a. Performance Statistics Are Not Financial StatementsThere are various methods of compiling and reporting performance statistics. The standards of performance 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 achieve gains. b. Preparation of DataThe performance results of the Strategic Growth (accounts over $5 million) composite (the composite) are calculated by geometrically linking the asset-weighted monthly returns of the Alliance Large Cap Growth composite from 1978 through 2001:Q1 to those of Bernstein Strategic Growth (accounts over $5 million) 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, it offers tax management and may contain fewer stocks. c. Rate of ReturnPerformance 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 accounts monthly return by its beginning market value as a percent of the total composites beginning market value. Closed accounts are included in the composite for each full quarter prior to their closing. d. BenchmarkThe 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 US stock market performance. 2. Alliance Large Cap Growth Composite Structure (19782001:Q1)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. 3. Bernstein Strategic Growth (accounts over $5 million) Composite Structure (2001:Q2present)The composite includes only fee-paying discretionary accounts, both private and institutional, with assets over $5 million, not subject to significant client-imposed investment restrictions. 4. Net-of-Fee Performance FiguresNet-of-fee performance figures have been calculated as follows: a. From 1978 through 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 composites gross-of-fee returns. b. From 1983 through 2001:Q1, the actual average quarterly fee charged by Bernstein for the Strategic Value (accounts over $5 million) service was deducted from the Alliance Large Cap Growth composites gross-of-fee returns. c. From 2001:Q2 forward, the composites net-of-fee return is the asset-weighted average of the actual after-fee returns of Strategic Growth accounts in the composite. d. Net-of-fee returns for the past 10 years are as follows: 1997: 37.0%; 1998: 51.6%; 1999: 32.4%; 2000: (17.2)%; 2001: (16.5)%; 2002: (31.5)%; 2003: 21.4%; 2004: 4.7%; 2005: 12.4%; 2006: (2.1)%. 5. DispersionDispersion 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 1997 to 2000 is as follows: 1997: 5.0%; 1998: 2.4%; 1999: 3.2%; 2000: 2.1%. Dispersion of returns for Strategic Growth (accounts over $5 million) is as follows: 2001: N/M; 2002: 0.8%; 2003: 1.2%; 2004: 1.2%; 2005: 1.4%; 2006: 0.9%. SIO I_2007 N/M = not meaningful; first quarter 2001 includes Large Cap Growth accounts, while second, third, and fourth quarters include Strategic Growth accounts. Year 2006 data are preliminary. notes02\SGAF4
50/50 Simulation: Strategic Value/Strategic Growth (Accounts over $5 Million)
Returns for the 50/50 Simulation (50/50), accounts over $5 million, were calculated by blending the actual returns of the Bernstein Strategic Value (accounts over $5 million) and Bernstein Strategic Growth (accounts over $5 million) composites (see disclosure for each composite on preceding pages) in a 50/50 allocation using the following methodology: 1. From January 1978 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%]. 2. 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. 3. These 50/50 quarterly and monthly returns are geometrically linked, or compounded, to calculate cumulative and/or annualized returns for various time periods. 4. This methodology assumes quarterly rebalancing from 1979 through 1982 and monthly rebalancing thereafter. Transaction costs associated with rebalancing are not considered in this simulation.
SIO I_2007
Notes on Wealth Forecasting System

1. Purpose and Description of Wealth Forecasting Analysis Bernsteins Wealth Forecasting AnalysisSM is designed to assist investors in making long-term investment decisions regarding their allocation of investments among categories of financial assets. Our new planning tool consists of a four-step process: (1) Client Profile Input: the clients asset allocation, income, expenses, cash withdrawals, tax rate, risk-tolerance level, goals, and other factors; (2) Client Scenarios: in effect, questions the client would like our guidance on, which may touch on issues such as when to retire, what his/her cash-flow stream is likely to be, whether his/her portfolio can beat inflation long term, and how different asset allocations might impact his/her long-term security; (3) The Capital-Markets Engine: Our proprietary model, which uses our research and historical data to create a vast range of market returns, takes into account the linkages within and among the capital markets, as well as their unpredictability; and finally (4) A Probability Distribution of Outcomes: Based on the assets invested pursuant to the stated asset allocation, 90% of the estimated ranges of returns and asset values the client could expect to experience are represented within the range established by the 5th and 95th percentiles on box and whiskers graphs. However, outcomes outside this range are expected to occur 10% of the time; thus, the range does not establish the boundaries for all outcomes. Expected market returns on bonds are derived taking into account yield and other criteria. An important assumption is that stocks will, over time, outperform long bonds by a reasonable amount, although this is in no way a certainty. Moreover, actual future results may not meet Bernsteins estimates of the range of market returns, as these results are subject to a variety of economic, market, and other variables. Accordingly, the analysis should not be construed as a promise of actual future results, the actual range of future results, or the actual probability that these results will be realized. 2. Rebalancing Another important planning assumption is how the asset allocation varies over time. We attempt to model how the portfolio would actually be managed. Cash flows and cash generated from portfolio turnover are used to maintain the selected asset allocation between cash, bonds, stocks, REITs, and hedge funds over the period of the analysis. Where this is not sufficient, an optimization program is run to trade off the mismatch between the actual allocation and targets against the cost of trading to rebalance. In general, the portfolio allocation will be maintained reasonably close to its target. In addition, in later years, there may be contention between the total relationships allocation and those of the separate portfolios. For example, suppose an investor (in the top marginal federal tax bracket) begins with an asset mix consisting entirely of municipal bonds in his/her personal portfolio and entirely of stocks in his/her retirement portfolio. If personal assets are spent, the mix between stocks and bonds will be pulled away from targets. We put primary weight on maintaining the overall allocation near target, which may result in an allocation to taxable bonds in the retirement portfolio as the personal assets decrease in value relative to the retirement portfolios value.
SIO I_2007

3. Expenses and Spending Plans (Withdrawals) All results are generally shown after applicable taxes and after anticipated withdrawals and/or additions, unless otherwise noted. Liquidations may result in realized gains or losses, which will have capital gains tax implications. 4. Modeled Asset Classes The following assets or indexes were used in this analysis to represent the various model classes:
Asset Class Cash Equivalents Intermediate-Term In-State Municipals Intermediate-Term Taxables U.S. Value U.S. Growth Developed International Emerging Markets 5. Volatility
Modeled As 3-month Treasury bills AA-rated in-state municipal bonds of a 7-year maturity Taxable bonds with maturity of 7 years S & P / Barra Value Index S & P / Barra Growth Index MSCI EAFE Unhedged MSCI Emerging Markets Index
Annual Turnover Rate 100% 30% 30% 15% 15% 15% 20%
Volatility is a measure of dispersion of expected returns around the average. The greater the volatility, the more likely it is that returns in any one period will be substantially above or below the expected result. The volatility for each asset class used in this analysis is listed on the Capital Markets Projections page at the end of these Notes. In general, two-thirds of the returns will be within one standard deviation. For example, assuming that stocks are expected to return 8.0% on a compounded basis and the volatility of returns on stocks is 17.0%, in any one year it is likely that two-thirds of the projected returns will be between (8.9)% and 28.8%. With intermediate government bonds, if the expected compound return is assumed to be 5.0% and the volatility is assumed to be 6.0%, two-thirds of the outcomes will typically be between (1.1)% and 11.5%. Bernsteins forecast of volatility is based on historical data and incorporates Bernsteins judgment that the volatility of fixed income assets is different for different time periods.
6. Technical Assumptions
Bernsteins Wealth Forecasting System is based on a number of technical assumptions regarding the future behavior of financial markets. Bernsteins Capital Markets Engine is the module responsible for creating simulations of returns in the capital markets. These simulations are based on inputs that summarize the current condition of the capital markets as of December 31, 2006. Therefore, the first 12-month period of simulated returns represents the period from December 31, 2006 through December 31, 2007, and not necessarily the calendar year of 2006. A description of these technical assumptions is available on request.
SIO I_2007

7. Tax Implications
Before making any asset allocation decisions, an investor should review with his/her tax advisor the tax liabilities incurred by the different investment alternatives presented herein, including any capital gains that would be incurred as a result of liquidating all or part of his/her portfolio, retirement-plan distributions, investments in municipal or taxable bonds, etc. Bernstein does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.
8. Tax Rates
Bernsteins Wealth Forecasting Analysis has used the following tax rates for this analysis:
Taxpayer
Sample Taxpayer
Scenario
Current
Start Year
2007
End Year
2036
Federal Income Tax Rate

See below
Federal Capital Gains Tax Rate

See below
State Income Tax Rate

6.00%
State Capital Gains Tax Rate

6.00%
Tax Method Type

Top Marginal Rates
The federal income tax rate represents Bernsteins estimate of either the top marginal tax bracket or an average rate calculated based upon the marginal-rate schedule. The federal capital gains tax rate is represented by the lesser of the top marginal income tax bracket or the current cap on capital gains for an individual or corporation, as applicable. Federal tax rates are blended with applicable state tax rates by including, among other things, federal deductions for state income and capital gains taxes. The state tax rate generally represents Bernsteins estimate of the top marginal rate, if applicable. The Wealth Forecasting System uses the following top marginal tax rates: From now until 2010, a federal income tax rate of 35% and a federal capital gains tax rate of 15%. For 2011 and beyond, the federal income tax rate becomes 39.6% and the federal capital gains tax rate becomes 20%. The system uses the following AMT rates: From now until 2010, a federal income tax rate of 28% and a federal capital gains tax rate of 15%. For 2011 and beyond, the federal income tax rate becomes 28% and the federal capital gains tax rate becomes 20%.
SIO I_2007

9. Assumptions: Capital Market Statistics
Median 30Year Growth Rate Cash Equivalents Int.-Term In-State Municipal Int.-Term Taxables US Value US Growth Developed International Emerging Markets Inflation 3.4% 4.3 5.3 8.0 7.9 7.7 6.5 2.4
Mean Annual Return 3.5 4.5 5.6 9.9 10.2 10.7 11.4 2.6
Mean Annual Income 3.5 4.3 5.2 3.0 1.6 3.0 3.1 n/a
OneYear Volatility 0.8 4.4 5.9 18.2 19.7 21.8 27.4 1.5
30-Year Annual Equivalent Volatility 6.4 4.7 5.9 12.5 14.7 13.5 20.6 6.8
SIO I_2007
Based on 10,000 simulated trials each consisting of 30-year periods. Reflects Bernsteins estimates and the capital market conditions of December 31, 2006. Does not represent any past performance and is not a guarantee of future specific risk levels or returns or any specific range of risk levels or returns.

Setting Investment Objectives

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Setting Investment Objectives

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Setting Investment Objectives: The Process

Define overall objective

Choose asset classes

Create a mix of assets that achieves overall objective

How Much Can I Spend?

Bonds 7.5% (2.1) 5.9% (4.6)

Amount You Can Spend

The Amount You Could Have Spent

After Taxes and Inflation (Amount You Can Spend)

Key Wealth Forecasting Questions

How will asset allocation affect my:

Analytical Approach Is Essential

Simulated observations based on Bernsteins proprietary capital markets research

What are the chances of meeting goals?

The Path of Returns Matters

Return Path 1 38% 23 33 29 21 (9) (12) (22) 10%

Return Path 2 Path 1 (22)% (12)

How Long Will My Money Last?

How Much Can I Spend Without Eroding My Wealth?

Probability of Maintaining Inflation-Adjusted Wealth

Market Return* 1% Premium to the Market

Market Return* 1% Premium to the Market

How Will Asset Allocation Affect My Ability to Spend?

How Will Asset Allocation Affect My Wealth?

90 80 70 60 50 40 30 20 10 0 0.1 0.5 0.9 1.3 1.7

20/80 60/40 80/20

Assumptions Original Value Spending $1 Mil. 4%

Various Levels of Wealth, Year 20 ($ Mil.)

Stock Returns Have Been Volatile over the Short Term

Worst Year (43)%

Major Declines in the Stock Market

(17)% (29)% (43)%

(16)% (22)% Growth of $100,000

Five-Year Losses Have Been Rare

Worst Case (12)%

Stocks Have Not Lost Money over the Long Term

Performance During Down Stock Market Years

The Severity of Deep Bear Markets

100% Bonds Dec 1968Jun 1970 (8.0)%

100% Stocks (29.1)%

Jan 1973Sep 1974

Sep 1987Nov 1987

Apr 2000Mar 2003

Strategic asset allocation

Rebalancing (maintain risk level)

Taxable Bonds Tax-Exempt Bonds Low-Volatility Hedge Fund REITs

Key to Diversification: Combining Low-Correlated Assets

Emerging Markets Growth** Emerging Markets Value**

Global Hedge Funds** International Growth International Value REITs

Multi-Strategy Hedge Funds** Bonds

Currency Cash Commodities

How Do You Construct a Successful Portfolio?

Investors More Risk Averse...

More Money into Stocks

More Money into Bonds Market Trough

Individual Investors Have Been Trend Followers

Percent Net Cash Flow into 4- and 5-Star Mutual Funds

Source: Morningstar, Inc. and Strategic Insight

Investors Have Chased the Past...

3.9% 3.1% 1.8%

Average Stock Fund Investor

Emerging Markets Growth Emerging Markets Value