This attachment contains the two most recent Senior ... · shareholders with a synopsis of the...

This attachment contains the two most recent Senior Officer Fee Summaries for the Fund.

SUMMARY OF SENIOR OFFICER’S EVALUATION OF INVESTMENT ADVISORY AGREEMENT1

The following is a summary of the evaluation of the Investment Advisory

Agreement between AllianceBernstein L.P. (the “Adviser”) and Sanford C. Bernstein

Fund, Inc. (the “Fund”) with respect to the following Overlay Portfolios (the

“Portfolios”):2

Tax-Aware Overlay A Portfolio Overlay A Portfolio Tax-Aware Overlay B Portfolio Overlay B Portfolio Tax-Aware Overlay C Portfolio Tax-Aware Overlay N Portfolio

The evaluation of the Investment Advisory Agreement was prepared by Philip L.

Kirstein, the Senior Officer of the Fund, for the Directors of the Fund, as required by the

August 2004 agreement between the Adviser and the New York State Attorney General

(the “NYAG”). The Senior Officer’s evaluation of the Investment Advisory Agreement

is not meant to diminish the responsibility or authority of the Board of Directors of the

Fund to perform its duties pursuant to Section 15 of the Investment Company Act of

1940 (the “40 Act”) and applicable state law. The purpose of the summary is to provide

shareholders with a synopsis of the independent evaluation of the reasonableness of the

advisory fees proposed to be paid by the Portfolios which was provided to the Directors

in connection with their review of the proposed approval of the continuance of the

Investment Advisory Agreement.

1 The Senior Officer’s evaluation was completed on October 4, 2012 and discussed with the Board on October 16 and 25, 2012. 2 Future references to the various Portfolios do not include “Sanford C. Bernstein.” It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to the Class 1shares of the Portfolios unless otherwise indicated.

2

The Overlay Portfolios, which utilizes the Adviser’s Dynamic Asset Allocation

(“DAA”) service, are not designed to be used as stand-alone investments and are used

only in conjunction with globally diversified Private Client portfolios. Overlay A

Portfolio and Tax-Aware Overlay A Portfolio are intended for use in Private Client

accounts that have a higher equity weighting (e.g., 20% fixed income and 80% equity).

Overlay B Portfolio, Tax-Aware Overlay B Portfolio, Tax-Aware Overlay C Portfolio

and Tax-Aware Overlay N Portfolio are intended for use in Private Client accounts that

have a higher fixed income weighting (e.g., 70% fixed income and 30% equity).3

Combinations of the Overlay Portfolios can be used to tailor the overlay service to suit a

variety of Private Client account asset allocations. When applied in a systematic way

over time, the overlay strategies are designed to: reduce portfolio volatility, reduce the

probability of large losses as a result of negative “tail events”, and maintain returns over

time. The side effect of such strategies is reducing the probability of large gains. These

potential benefits are intended to be realized at the level of a Private Client’s account,

which would include other investments, such as individual securities as well as holdings

in one or more of the Portfolios.

The Senior Officer’s evaluation considered the following factors:

1. Advisory fees charged to institutional and other clients of the Adviser

for like services;

2. Advisory fees charged by other mutual fund companies for like

services;

3 Both the Overlay C Portfolio and the Overlay N Portfolio seek to minimize the impact of federal and state taxes for shareholders resident in California and New York, respectively.

3

3. Costs to the Adviser and its affiliates of supplying services pursuant to

the advisory agreement, excluding any intra-corporate profit;

4. Profit margins of the Adviser and its affiliates from supplying such

services;

5. Possible economies of scale as the Portfolios grow larger; and

6. Nature and quality of the Adviser’s services including the performance

of the Portfolios.

These factors, with the exception of the first factor, are generally referred to as the

“Gartenberg factors,” which were articulated by the United States Court of Appeals for

the Second Circuit in 1982. Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F.

2d 923 (2d Cir. 1982). The first factor is an additional factor required to be considered by

the Assurance of Discontinuance between the NYAG and the Adviser. On March 30,

2010, the Supreme Court held the Gartenberg decision was correct in its basic

formulation of what §36(b) requires: to face liability under §36(b), “an investment

adviser must charge a fee that is so disproportionately large that it bears no reasonable

relationship to the services rendered and could not have been the product of arm’s length

bargaining.” Jones v. Harris Associates L.P., 130 S. Ct. 1418 (2010). In the Jones

decision, the Court stated the Gartenberg approach fully incorporates the correct

understanding of fiduciary duty within the context of section 36(b) and noted with

approval that “Gartenberg insists that all relevant circumstances be taken into account”

and “uses the range of fees that might result from arm’s-length bargaining as the

benchmark for reviewing challenged fees.” 4

4 Jones v. Harris at 1427.

4

PORTFOLIOS’ ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS

The Adviser proposed that the Portfolios pay the advisory fees set forth below for

receiving the services to be provided pursuant to the Investment Advisory Agreement.

The proposed advisory fee schedules did not contain any changes from the previous year.

Portfolio

Advisory Fee Based on % of Average Daily Net Assets5

Tax-Aware Overlay A Portfolio Overlay A Portfolio

0.90% (flat fee)

Tax-Aware Overlay B Portfolio Overlay B Portfolio Tax-Aware Overlay C Portfolio Tax-Aware Overlay N Portfolio

0.65% (flat fee)

The Portfolios’ net assets on September 30, 2012 and September 30, 2011 are set

forth below:

Portfolio

09/30/12 Net Assets

($MM)

09/30/11 Net Assets

($MM)

Change ($MM)

Tax-Aware Overlay A Portfolio

$2,836.0 $2,646.8 $189.2

Overlay A Portfolio $1,457.3 $1,392.3 $65.0 Tax-Aware Overlay B Portfolio

$1,716.6 $1,561.1 $155.5

Overlay B Portfolio $1,063.5 $925.0 $138.5 Tax-Aware Overlay C Portfolio

$433.7 $395.2 $38.6

Tax-Aware Overlay N Portfolio

$376.6 $338.4 $38.2

5 The advisory fees of each Portfolio are based on the percentage of each Portfolio’s net assets, not a combination of any of the Portfolios shown.

5

The Adviser agreed to waive that portion of its management fees and/or reimburse

the Portfolios for that portion of the Portfolios’ total operating expenses to the degree

necessary to limit the Portfolios’ expense ratios to the amounts set forth below.6, 7

During the semi-annual period ending March 31, 2012, none of the Portfolios were

operating above their expense caps. Accordingly, the Overlay Portfolios’ expense

limitation undertakings were of no effect during the semi-annual period ended March 31,

2012.

Portfolio

Semi-Annual Period Ending 03/31/12

Total Expense Ratio8 Exp. Cap Gross

Tax-Aware Overlay A Portfolio Class 1

Class 2 1.20% 1.00%

1.14% 0.94%

Overlay A Portfolio Class 1

Class 2 1.20% 1.00%

1.15% 0.95%

Tax-Aware Overlay B Portfolio Class 1

Class 2 0.90% 0.75%

0.84% 0.69%

Overlay B Portfolio Class 1

Class 2 0.90% 0.75%

0.86% 0.71%

Tax-Aware Overlay C Portfolio Class 1

Class 2 0.90% 0.75%

0.88% 0.73%

Tax-Aware Overlay N Portfolio Class 1

Class 2 0.90% 0.75%

0.88% 0.73%

6 On January 25, 2012, the Adviser notified the Board that the Adviser had determined to extend the Expense Limitation Undertaking for the Overlay Portfolios through January 31, 2013. The agreement is terminable by the Adviser upon at least 60 days’ written notice. 7 The agreement allows for the Adviser to be reimbursed through January 31, 2013 for management fees that the Adviser waived or reimbursements that the Adviser made for fund expenses exceeding the Overlay Portfolios’ expense caps through January 31, 2013. The agreement provides that such payment shall be made only to the extent that the payment does not cause the Overlay Portfolios’ aggregate expenses to exceed, on an annual basis, their expense caps, and that such payment shall not exceed the amount of the offering expenses recorded by the Portfolios for financial reporting purposes on or before February 8, 2011. 8 Annualized.

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I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS

The advisory fees charged to investment companies which the Adviser manages

and sponsors are normally higher than those charged to similar sized institutional

accounts, including pension plans and sub-advised investment companies. The fee

differential reflects, among other things, different services provided to such clients, and

different liabilities assumed. Services provided by the Adviser to the Portfolios that are

not provided to non-investment company clients and sub-advised investment companies

include providing office space and personnel to serve as Fund Officers, who among other

responsibilities, make the certifications required under the Sarbanes–Oxley Act of 2002,

and coordinating with and monitoring the Portfolios’ third party service providers such as

Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting,

administrative, legal and compliance requirements for the Portfolios are more costly than

those for institutional assets due to the greater complexities and time required for

investment companies. Servicing the Portfolios’ Private Client and Retail investors is

more time consuming and labor intensive compared to institutional clients since the

Adviser needs to communicate with a more extensive network of financial intermediaries

and shareholders. The Adviser also believes that it incurs substantial entrepreneurial risk

when offering a new mutual fund since establishing a new mutual fund requires a large

upfront investment and it may take a long time for the fund to achieve profitability since

the fund must be priced to scale from inception in order to be competitive and assets are

acquired one account at a time. In addition, managing the cash flow of an investment

company may be more difficult than managing that of a stable pool of assets, such as an

institutional account with little cash movement in either direction, particularly, if a fund

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is in net redemption and the Adviser is frequently forced to sell securities to raise cash for

redemptions. However, managing a fund with positive cash flow may be easier at times

than managing a stable pool of assets. Finally, in recent years, investment advisers have

been sued by institutional clients and have suffered reputational damage both by the

attendant publicity and outcomes other than complete victories. Accordingly, the legal

and reputational risks associated with institutional accounts are greater than previously

thought, although still not equal to those related to the mutual fund industry.

Notwithstanding the Adviser’s view that managing an investment company is not

comparable to managing other institutional accounts because the services provided are

different, the Supreme Court has indicated consideration should be given to the advisory

fee charged to institutional accounts that have investment styles similar to the Portfolios.9

However, with respect to the Portfolios, the Adviser represented that there are no

institutional products in the Adviser’s Form ADV that have similar investment style as

the Portfolios.

The Adviser manages the AllianceBernstein Cap Fund, Inc. - Dynamic All

Market Fund (“Dynamic All Market Fund”), a retail mutual fund which has a somewhat

similar investment style as Overlay A Portfolio. Set forth below is the advisory fee

schedule of Dynamic All Market Fund and what would have been the effective advisory

fee of the Overlay A Portfolio had the retail mutual fund’s fee schedule been applicable

to the Portfolio based on the Portfolio’s September 30, 2012 net assets:

9 The Supreme Court stated that “courts may give such comparisons the weight that they merit in light of the similarities and differences between the services that the clients in question require, but the courts must be wary of inapt comparisons.” Among the significant differences the Supreme Court noted that may exist between services provided to mutual funds and institutional accounts are “higher marketing costs.” Jones v. Harris at 1428.

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Portfolio

ABMF Fund

ABMF

Fee Schedule

ABMF Effective

Fee

Portfolio Advisory

Fee Overlay A Portfolio

Dynamic All Market Fund

60 bp (flat fee) 0.600% 0.900%

The AllianceBernstein Variable Products Series Fund, Inc. (“AVPS”), which is

managed by the Adviser and is available through variable annuity and variable life

contracts offered by other financial institutions, offers policy holders the option to utilize

certain AVPS portfolios as the investment option underlying their insurance contracts.

AVPS – Dynamic Asset Allocation Portfolio has a somewhat similar investment style as

Overlay A Portfolio, and its advisory fee schedule is set forth in the table below.10

Portfolio

AVPS

Portfolio

AVPS

Fee Schedule

AVPS Effective

Fee

Portfolio Advisory

Fee Overlay A Portfolio

Dynamic Asset Allocation Portfolio

70 bp (flat fee) 0.700% 0.900%

The Adviser provides sub-advisory investment services to certain other

investment companies managed by other fund families. The Adviser charges the fees set

forth below for the sub-advisory relationships that have a similar investment style as

Overlay A Portfolio. Also shown are Overlay A Portfolio’s advisory fees, the advisory

fee schedules of the sub-advised funds and the effective advisory fees of the sub-advisory

relationships based on the Portfolio’s September 30, 2011 net assets:

10 AVPS – Dynamic Asset Allocation Portfolio is designed as a balanced fund with a neutral asset allocation of 60% equity and 40% fixed income. The Adviser utilizes its DAA principles and toolset in managing the portfolio’s risk profile and asset allocation.

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Portfolio

Sub-advised Fund

Sub-advised Fund Fee Schedule

Sub-advised Fund Effective

Fee (%)

Portfolio Advisory Fee (%)

Overlay A Portfolio

Client #1 0.40% on first $100 million 0.35% on next $100 million 0.30% on the balance

0.310%

0.900%

Client #2 0.40% on first $250 million

0.35% on next $250 million 0.325% on next $500 million 0.30% on the balance

0.334%

0.900%

Client #3 0.35% on the first $400 million

0.30% on the balance 0.314% 0.900%

It is fair to note that the services the Adviser provides pursuant to sub-advisory

agreements are generally confined to the services related to the investment process; in

other words, they are not as comprehensive as the services provided to Overlay A

Portfolio by the Adviser. In addition, to the extent that certain of these sub-advisory

relationships are with affiliates of the Adviser, the fee schedules may not reflect arm’s

length bargaining or negotiations.

While it appears that certain sub-advisory relationships are paying a lower fee

than the Overlay A Portfolio, it is difficult to evaluate the relevance of such lower fees

due to differences in terms of the service provided, risks involved and other competitive

factors between the Portfolio and sub-advisory relationships. There could also be various

business-related reasons why an investment adviser would be willing to manage a sub-

advisory relationship investment related services for a different fee level than an

investment company it is sponsoring where the investment adviser is providing all the

services generally required by a registered investment company in addition to investment

services.

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II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES.

Lipper, Inc. (“Lipper”), an analytical service that is not affiliated with the

Adviser, compared the fees charged to the Portfolios with fees charged to other

investment companies for similar services by other investment advisers.11 Lipper’s

analysis included the comparison of each Portfolio’s contractual management fee,12

estimated at the approximate current asset level of the subject Portfolio, to the median of

the Portfolio’s Lipper Expense Group (“EG”)13 and the Portfolio’s contractual

management fee ranking.

Lipper describes an EG as a representative sample of comparable funds. Lipper’s

standard methodology for screening funds to be included in an EG entails the

consideration of several fund criteria, including fund type, investment

classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size)

comparability, and expense components and attributes. An EG will typically consist of

seven to twenty funds.

As noted previously, the Portfolios were not designed as stand-alone portfolios, in

contrast to their Lipper peers, which are stand-alone. Accordingly, the peers selected for

each Portfolio from Lipper’s Global Flexible universe were based primarily on asset size

and may be of limited value for comparison purposes.

11 The Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since “these comparisons are problematic because these fees, like those challenged, may not be the product of negotiations conducted at arm’s length.” Jones v. Harris at 1429. 12 The contractual management fee is calculated by Lipper using each Portfolio’s contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined current net assets of all classes of the Portfolio, rounded up to the next $25 million. Lipper’s total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of “1” means that the Portfolio has the lowest effective fee rate in the Lipper peer group. 13 Lipper does not consider average account size when constructing EGs. Funds with relatively small average account sizes tend to have a higher transfer agent expense ratio than comparable sized funds that have relatively large average account sizes.

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Portfolio

Contractual Management

Fee (%)

Lipper Exp. Group

Median (%)

EG

Rank Tax-Aware Overlay A Portfolio 0.900 0.774 9/11 Overlay A Portfolio 0.900 0.828 9/13 Tax-Aware Overlay B Portfolio 0.650 0.784 4/11 Overlay B Portfolio 0.650 0.853 4/15 Tax-Aware Overlay C Portfolio 0.650 0.900 1/13 Tax-Aware Overlay N Portfolio 0.650 0.900 1/14

Lipper also compared the Portfolios’ total expense ratios to the medians of the

Portfolios’ EG and Lipper Expense Universe (“EU”). The EU14 is a broader group

compared to the EG, consisting of all funds that have the same investment

classification/objective and load type as the subject Portfolio.

Portfolio

Expense Ratio (%)15

Lipper Exp. Group

Median (%)

Lipper Group Rank

Lipper Exp. Universe

Median (%)

Lipper Universe

Rank Tax-Aware Overlay A Portfolio

1.145 1.145 6/11 1.079 75/134

Overlay A Portfolio 1.167 1.016 9/13 1.079 79/134 Tax-Aware Overlay B Portfolio

0.857 1.016 4/11 1.079 30/134

Overlay B Portfolio 0.875 1.016 4/15 1.079 32/134 Tax-Aware Overlay C Portfolio

0.892 1.350 1/13 1.079 35/134


0.900 1.309 2/14 1.079 36/134

14 Except for asset (size) comparability, Lipper uses the same criteria for selecting an EG when selecting an EU. Unlike the EG, the EU allows for the same adviser to be represented by more than just one fund. 15 The total expense ratios are for the Portfolios’ most recently completed fiscal year Class 1 shares.

12

Based on this analysis, the Portfolios have lower contractual management fees

than their respective EG medians with the exception of Tax-Aware Overlay A Portfolio

and Overlay A Portfolio, which have higher contractual management fees.

The Portfolios have lower total expense ratios than their respective EG medians,

with the exception for Tax-Aware Overlay A Portfolio, which has an equal total expense

ratio, and Overlay A Portfolio, which has a higher total expense ratio.

III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT.

The Adviser utilizes two profitability reporting systems, which operate

independently but are aligned with each other, to estimate the Adviser’s profitability in

connection with investment advisory services provided to the Portfolios. The Senior

Officer has retained a consultant to provide independent advice regarding the alignment

of the two profitability systems as well as the methodologies and allocations utilized by

both profitability systems. See Section IV for additional discussion.

IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES.

Members of the Adviser’s Controller’s Office provided the Board of Directors

information regarding the Adviser’s profitability attributable to the Portfolios. The

Adviser’s profitability with respect to the Portfolios increased in 2011 compared to 2010.

The Adviser provides the Portfolios with shareholder servicing services. For

these services, the Adviser charges Tax-Aware Overlay A Portfolio and Overlay A

Portfolio a fee of 0.20% of average daily net assets, and Overlay B Portfolio and the Tax-

Aware Overlay B, C and N Portfolios a fee of 0.15% of average daily net assets. Set

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forth below are the fees paid by the Portfolios under the Shareholder Servicing

Agreement during the fiscal year ended September 30, 2011:

Portfolio

Shareholder Serving Agreement Fee

Tax-Aware Overlay A Portfolio $3,777,784 Overlay A Portfolio $2,058,920 Tax-Aware Overlay B Portfolio $1,317,311 Overlay B Portfolio $1,067,785 Tax-Aware Overlay C Portfolio $329,469 Tax-Aware Overlay N Portfolio $376,132

In addition to the Adviser’s direct profits from managing and providing certain

shareholder services to the Portfolios, certain of the Adviser’s affiliates have business

relationships with the Portfolios and may earn a profit from providing other services to

the Portfolios. The courts have referred to this type of business opportunity as “fall-out

benefits” to the Adviser and indicated that such benefits should be factored into the

evaluation of the total relationship between the Portfolios and the Adviser. Neither case

law nor common business practice precludes the Adviser’s affiliates from earning a

reasonable profit on this type of relationship provided the affiliates’ charges and services

are competitive.

During the fiscal year ended September 30, 2011, none of the Portfolios effected

brokerage transactions through and paid commissions to the Adviser’s affiliate, Sanford

C. Bernstein & Co., LLC (“SCB & Co.”) and/or its U.K. affiliate, Sanford C. Bernstein

Limited (“SCB Ltd.”), collectively “SCB”.

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V. POSSIBLE ECONOMIES OF SCALE

The Adviser has indicated that economies of scale are being shared with

shareholders through pricing to scale, breakpoints, fee reductions/waivers and

enhancement to services.

An independent consultant, retained by the Senior Officer, provided the Board of

Directors information on the Adviser’s firm-wide average costs from 2005 through 2011

and the potential economies of scale. The independent consultant noted that from 2005

through 2007 the Adviser experienced significant growth in assets under management

(“AUM”). During this period, operating expenses increased, in part to keep up with

growth, and in part reflecting market returns. However, from 2008 through the first

quarter of 2009, AUM rapidly and significantly decreased due to declines in market value

and client withdrawals. When AUM rapidly decreased, some operating expenses

categories, including base compensation and office space, adjusted more slowly during

this period, resulting in an increase in average costs. Since 2009, AUM has experienced

less significant changes. The independent consultant noted that changes in operating

expenses reflect changes in business composition and business practices in response to

changes in financial markets. Finally, the independent consultant concluded that the

increase in average cost and the decline in net operating margin across the Adviser since

late 2008 are inconsistent with the view that there are currently reductions in average

costs due to economies of scale that can be shared with the AllianceBernstein Mutual

Funds managed by the Adviser through lower fees.

15


shareholders through fee structures,16 subsidies and enhancement to services. Based on

some of the professional literature that has considered economies of scale in the mutual

fund industry, it is thought that to the extent economies of scale exist, they may more

often exist across a fund family as opposed to a specific fund. This is because the costs

incurred by the Adviser, such as investment research or technology for trading or

compliance systems, can be spread across a greater asset base as the fund family

increases in size. It is also possible that as the level of services required to operate a

successful investment company has increased over time, and advisory firms make such

investments in their business to provide services, there may be a sharing of economies of

scale without a reduction in advisory fees.

Previously in September 2007, the independent consultant provided the Board of

Directors an update of the Deli17 study on advisory fees and various fund

characteristics.18 The independent consultant first reiterated the results of his previous

two dimensional comparison analysis (fund size and family size) with the Board of

Directors.19 The independent consultant then discussed the results of the regression

model that was utilized to study the effects of various factors on advisory fees. The

regression model output indicated that the bulk of the variation in fees predicted were 16 Fee structures include fee reductions, pricing at scale and breakpoints in advisory fee schedules. 17 The Deli study, originally published in 2002 based on 1997 data and updated for the February 2008 Presentation, may be of diminished value due to the age of the data used in the presentation and the changes experienced in the industry over the last four years. 18 As mentioned previously, the Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since the fees may not be the product of negotiations conducted at arm’s length. See Jones V. Harris at 1429. 19 The two dimensional analysis showed patterns of lower advisory fees for funds with larger asset sizes and funds from larger family sizes compared to funds with smaller asset sizes and funds from smaller family sizes, which according to the independent consultant is indicative of a sharing of economies of scale and scope. However, in less liquid and active markets, such is not the case, as the empirical analysis showed potential for diseconomies of scale in those markets. The empirical analysis also showed diminishing economies of scale and scope as funds surpassed a certain high level of assets.

16

explained by various factors, but substantially by fund AUM, family AUM, index fund

indicator and investment style.

VI. NATURE AND QUALITY OF THE ADVISER’S SERVICES INCLUDING THE PERFORMANCE OF THE PORTFOLIO.

With assets under management of approximately $411 billion as of August 31,

2012, the Adviser has the investment experience to manage the Portfolios and provide

non-investment services (described in Section I) to the Portfolios.

The information prepared by Lipper in the table below shows the 1 year gross

performance returns of the Portfolios20 relative to the medians of the Portfolios’ Lipper

Performance Groups (“PG”) and Lipper Performance Universes (“PU”) 21 for the period

ended July 31, 2012.22 Also shown are the gross performance rankings of the Portfolios.

It should be noted that the Overlay Portfolios are not designed to be used as stand-alone

investments, unlike its peers, and are used only in conjunction with globally diversified

Private Client portfolios. Accordingly, the Lipper performance comparisons for the

Overlay Portfolios are shown only for information purposes and do not indicate how

successful the Overlay Portfolios are in meeting their investment objectives.

Portfolio

Return (%) PG

Median (%)PU

Median (%) PG

Rank PU

Rank

Tax-Aware Overlay A Portfolio 1 year -7.25 -0.59 -1.54 10/11 199/247 Overlay A Portfolio 1 year -3.79 0.08 -1.54 12/13 164/247

20 The gross performance returns are for the Class 1 shares for the Overlay Portfolios. 21 The Portfolios’ PGs are identical to the Portfolios’ EGs. The Portfolios’ PUs are not identical to the Portfolios’ EUs as the criteria for including/excluding a fund in/from a PU are somewhat different from that of an EU. 22 Note that the current Lipper investment classification/objective dictates the PG and PU throughout the life of the fund even if a fund had a different investment classification/objective at a different point in time.

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Portfolio

Return (%) PG

Median (%)PU

Median (%) PG

Rank PU

Rank Tax-Aware Overlay B Portfolio 1 year 2.34 2.34 -1.42 6/11 58/247 Overlay B Portfolio 1 year 3.04 1.30 -1.42 5/15 38/247 Tax-Aware Overlay C Portfolio

1 year 2.52 0.32 -1.42 4/13 53/247 Tax-Aware Overlay N Portfolio 1 year 2.03 -0.37 -1.42 4/14 61/247

Set forth below are the 1 year and since inception net performance returns of the

Portfolios (in bold)23 versus their benchmarks.24 As previously indicated, the Overlay

Portfolios are not designed to be used as stand-alone investments and are used only in

conjunction with globally diversified Private Client portfolios. Accordingly, the

benchmark performance comparisons for the Overlay Portfolios are shown only for

information purposes and are not meant to indicate how successful the Overlay Portfolios

are in meeting their investment objectives.25

23 The performance returns shown in the table for the Class 1 shares for the Overlay Portfolios were provided by the Adviser. 24 The Adviser provided Portfolio and benchmark performance return information for the periods through July 31, 2012. 25 Providing a comparison of each individual Overlay Portfolio’s performance against a broad-based securities market index is consistent with the SEC requirement that each registered investment company specify such a benchmark.

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Periods Ending July 31, 2012 Annualized Net Performance (%)

1 Year (%)

Since Inception (%)

Tax-Aware Overlay A Portfolio -8.30 3.22 S&P 500 Stock Index 9.13 13.64 Inception Date: February 8, 2010 Overlay A Portfolio -4.90 5.01 S&P 500 Stock Index 9.13 13.64 Inception Date: February 8, 2010 Tax-Aware Overlay B Portfolio 1.47 5.22 Barclays Capital 5 Year GO Municipal Bond Index 4.60 4.47 Inception Date: February 8, 2010 Overlay B Portfolio 2.15 6.02 Barclays Capital Global Aggregate Bond Index 6.94 5.25 Inception Date: February 8, 2010 Tax-Aware Overlay C Portfolio 1.61 5.24 Barclays Capital 5 Year GO Municipal Bond Index 4.60 4.47 Inception Date: February 8, 2010 Tax-Aware Overlay N Portfolio 1.12 4.99 Barclays Capital 5 Year GO Municipal Bond Index 4.60 4.47 Inception Date: February 8, 2010

As indicated previously, the Overlay Portfolios were not designed as stand-alone

portfolios, in contrast to the Portfolios’ Lipper peers. The Overlay Portfolios are used in

conjunction with globally diversified Private Client portfolios. The table below shows

the impact of the Overlay Portfolios, herein referred to as DAA as of July 31, 2012 on a

Tax-Aware account and on a Non-Taxable account:26

26 Information with respect to DAA’s impact on a Tax-Aware account and a Non-Taxable account was provided by the Adviser.

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Tax-Aware Portfolio 1 Year Period 1 Year Period Inception- Inception- Ending 7/31/12 Ending 7/31/12 7/31/2012 7/31/2012

% Return % Volatility % Return % Volatility

30/70 Investor Fully Diversified - With DAA 2.35 6.51 4.97 5.69 Fully Diversified - Traditional Portfolio 2.70 7.37 4.85 6.17 Impact of DAA -0.35 -0.86 0.12 -0.48

Fully Diversified - Benchmark27 5.58 6.13 7.0 5.14

60/40 Investor Fully Diversified - With DAA -1.80 12.91 4.65 11.25 Fully Diversified - Traditional Portfolio -0.73 15.23 4.85 12.62 Impact of DAA -1.07 -2.32 -0.20 -1.37



Fully Diversified - Benchmark29 3.58 17.27 10.11 14.21 Non-Taxable Portfolio 1 Year Period 1 Year Period Inception- Inception-

Ending 7/31/12 Ending 7/31/12 7/31/2012 7/31/2012 % Return % Volatility % Return % Volatility

30/70 Investor Fully Diversified - With DAA 2.99 5.94 6.83 5.34 Fully Diversified - Traditional Portfolio 3.33 6.65 7.16 5.87 Impact of DAA -0.34 -0.71 -0.33 -0.53

27 Benchmark is 21% S&P 500 Stock Index, 7.5% MSCI EAFE, 1.5% MSCI Emerging Markets, 70% Barclays 1-10 Year Munis. 28 Benchmark is 42% S&P 500 Stock Index, 15% MSCI EAFE, 3% MSCI Emerging Markets, 40% Barclays 1-10 Year Munis. 29 Benchmark is 56% S&P 500 Stock Index, 20% MSCI EAFE, 4% MSCI Emerging Markets, 20% Barclays 1-10 Year Munis.

20

Non-Taxable Portfolio 1 Year Period 1 Year Period Inception- Inception- Ending 7/31/12 Ending 7/31/12 7/31/2012 7/31/2012

% Return % Volatility % Return % Volatility Fully Diversified - Benchmark30 6.36 5.45 8.48 4.82

60/40 Investor Fully Diversified - With DAA -0.44 12.38 6.56 10.88 Fully Diversified - Traditional Portfolio 0.18 14.64 6.96 12.59 Impact of DAA -0.62 -2.26 -0.40 -1.71



Fully Diversified - Benchmark32 4.16 16.79 11.15 14.31 CONCLUSION:

Based on the factors discussed above the Senior Officer’s conclusion is that the

investment advisory fees for the Overlay Portfolios are reasonable and within the range

of what would have been negotiated at arm’s-length in light of all the surrounding

circumstances. This conclusion with respect to each Portfolio is based on an evaluation

of all of these factors and no single factor was dispositive.

Dated: November 12, 2012

30 Benchmark is 20% S&P 500 Stock Index, 7.1% MSCI EAFE, 1.4% MSCI Emerging Markets, 3.0% FTSE/EPRA NAREIT, 68.5% Barclays US Aggregate. 31 Benchmark is 39.1% S&P 500 Stock Index, 13.9% MSCI EAFE, 2.8% MSCI Emerging Markets, 8.4% FTSE/EPRA NAREIT, 35.8% Barclays US Aggregate. 32 Benchmark is 51.8% S&P 500 Stock Index, 18.5% MSCI EAFE, 3.7% MSCI Emerging Markets, 12% FTSE/EPRA NAREIT, 14% Barclays US Aggregate.

THIS PAGE IS INTENTIONALLY LEFT BLANK.

SUMMARY OF SENIOR OFFICER’S EVALUATION OF

INVESTMENT ADVISORY AGREEMENT1

The following is a summary of the evaluation of the Investment Advisory

Agreement between AllianceBernstein L.P. (the “Adviser”) and Sanford C. Bernstein

Fund, Inc. (the “Fund”) with respect to the following Overlay Portfolios (the

“Portfolios”):2


Overlay A Portfolio

Tax-Aware Overlay B Portfolio

Overlay B Portfolio

Tax-Aware Overlay C Portfolio


The evaluation of the Investment Advisory Agreement was prepared by Philip L.

Kirstein, the Senior Officer of the Fund for the Directors of the Fund, as required by the

August 2004 agreement between the Adviser and the New York State Attorney General

(the “NYAG”). The Senior Officer’s evaluation of the Investment Advisory Agreement

is not meant to diminish the responsibility or authority of the Board of Directors of the

Fund to perform its duties pursuant to Section 15 of the Investment Company Act of

1940 (the “40 Act”) and applicable state law. The purpose of the summary is to provide

shareholders with a synopsis of the independent evaluation of the reasonableness of the

advisory fees proposed to be paid by the Portfolios which was provided to the Directors

in connection with their review of the proposed approval of the continuance of the

Investment Advisory Agreement.

1 The Senior Officer’s evaluation, excluding the conclusion, was completed and provided to the Board of

Directors on October 4, 2011 and discussed with the Board on October 11, 2011. The Adviser provided

additional information in response to questions raised by the directors. The conclusion was completed and

provided to the Board on October 19, 2011. The full evaluation was discussed with the Board of Directors

on October 19- 20, 2011. 2 Future references to the various Portfolios do not include “Sanford C. Bernstein.” It also should be noted

that references in the fee summary pertaining to performance and expense ratios refer to the Class 1shares

of the Portfolios unless otherwise indicated.

2

The Overlay Portfolios, which utilizes the Adviser’s Dynamic Asset Allocation

(“DAA”) service, are not designed to be used as stand-alone investments and are used

only in conjunction with globally diversified Private Client portfolios. Overlay A

Portfolio and Tax-Aware Overlay A Portfolio are intended for use in Private Client

accounts that have a higher equity weighting (e.g., 20% fixed income and 80% equity).

Overlay B Portfolio, Tax-Aware Overlay B Portfolio, Tax-Aware Overlay C Portfolio

and Tax-Aware Overlay N Portfolio are intended for use in Private Client accounts that

have a higher fixed income weighting (e.g., 70% fixed income and 30% equity).3

Combinations of the Overlay Portfolios can be used to tailor the overlay service to suit a

variety of Private Client account asset allocations. When applied in a systematic way

over time, the overlay strategies are designed to: reduce portfolio volatility, reduce the

probability of large losses as a result of negative “tail events”, and maintain returns over

time. The side effect of such strategies is reducing the probability of large gains. These

potential benefits are intended to be realized at the level of a Private Client’s account,

which would include other investments, such as individual securities as well as holdings

in one or more of the Portfolios.

The Senior Officer’s evaluation considered the following factors:

1. Advisory fees charged to institutional and other clients of the Adviser

for like services;

2. Advisory fees charged by other mutual fund companies for like

services;

3 Both the Overlay C Portfolio and the Overlay N Portfolio seek to minimize the impact of federal and state

taxes for shareholders resident in California and New York, respectively.

3

3. Costs to the Adviser and its affiliates of supplying services pursuant to

the advisory agreement, excluding any intra-corporate profit;

4. Profit margins of the Adviser and its affiliates from supplying such

services;

5. Possible economies of scale as the Portfolios grow larger; and

6. Nature and quality of the Adviser’s services including the performance

of the Portfolios.

These factors, with the exception of the first factor, are generally referred to as the

“Gartenberg factors,” which were articulated by the United States Court of Appeals for

the Second Circuit in 1982. Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F.

2d 923 (2d Cir. 1982). On March 30, 2010, the Supreme Court held the Gartenberg

decision was correct in its basic formulation of what §36(b) requires: to face liability

under §36(b), “an investment adviser must charge a fee that is so disproportionately large

that it bears no reasonable relationship to the services rendered and could not have been

the product of arms length bargaining.” Jones v. Harris Associates L.P., 130 S. Ct. 1418

(2010). In Jones, the Court stated the Gartenberg approach fully incorporates the correct

understanding of fiduciary duty within the context of section 36(b) and noted with

approval that “Gartenberg insists that all relevant circumstances be taken into account”

and “uses the range of fees that might result from arms-length bargaining as the

benchmark for reviewing challenged fees.”4

4 Jones v. Harris at 1427.

4

PORTFOLIOS’ ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS

The Adviser proposed that the Portfolios pay the advisory fees set forth below for

receiving the services to be provided pursuant to the Investment Advisory Agreement.

The proposed advisory fee schedules did not contain any changes from the previous year.

Portfolio

Advisory Fee Based on % of

Average Daily Net Assets5


Overlay A Portfolio

0.90% (flat fee)

Tax-Aware Overlay B Portfolio

Overlay B Portfolio

Tax-Aware Overlay C Portfolio


0.65% (flat fee)

The Portfolios’ net assets on September 30, 2011 and September 30, 2010 are set

forth below:

Portfolio

09/30/11

Net Assets

($MM)

09/30/10

Net Assets

($MM)

Change

($MM)

Tax-Aware Overlay A

Portfolio $2,646.8 $1,701.7 $945.1

Overlay A Portfolio $1,392.3 $866.0 $526.3

Tax-Aware Overlay B

Portfolio $1,561.1 $953.2 $607.9

Overlay B Portfolio $925.0 $641.8 $283.2

Tax-Aware Overlay C

Portfolio $395.2 $239.1 $156.1

Tax-Aware Overlay N

Portfolio $338.4 $219.3 $119.1

5 The advisory fees of each Portfolio are based on the percentage of each Portfolio’s net assets, not a

combination of any of the Portfolios shown.

5

The Adviser agreed to waive that portion of its management fees and/or reimburse

the Portfolios for that portion of the Portfolios’ total operating expenses to the degree

necessary to limit the Portfolios’ expense ratios to the amounts set forth below.6 The

agreement allows for the Adviser to be reimbursed through January 31, 2013 for

management fees that the Adviser waived or reimbursements that the Adviser made for

fund expenses exceeding the Overlay Portfolios’ expense caps through January 31, 2012.

The agreement provides that such payment shall be made only to the extent that the

payment does not cause the Overlay Portfolios’ aggregate expenses to exceed, on an

annual basis, their expense caps, and that such payment shall not exceed the amount of

the offering expenses recorded by the Portfolios for financial reporting purposes on or

before February 8, 2011. Set forth below are the Portfolios’ total expense ratios for the

semi-annual period ending March 31, 2011:

Portfolio

Semi-Annual Period

Ending 03/31/11

Total Expense Ratio7

Exp. Cap Gross

Tax-Aware Overlay A Portfolio Class 1

Class 2

1.20%

1.00%

1.14%

0.95%

Overlay A Portfolio Class 1

Class 2

1.20%

1.00%

1.17%

0.97%

Tax-Aware Overlay B Portfolio Class 1

Class 2

0.90%

0.75%

0.87%

0.72%

Overlay B Portfolio Class 1

Class 2

0.90%

0.75%

0.87%

0.72%

6 On January 26, 2011, the Adviser notified the Board that the Adviser had determined to extend the

Expense Limitation Undertaking for the Overlay Portfolios through January 31, 2012. The agreement is

terminable by the Adviser upon at least 60 days’ written notice. 7 Annualized.

6

Portfolio

Semi-Annual Period

Ending 03/31/11

Total Expense Ratio7

Tax-Aware Overlay C Portfolio Class 1

Class 2

0.90%

0.75%

0.90%

0.75%

Tax-Aware Overlay N Portfolio Class 1

Class 2

0.90%

0.75%

0.91%

0.76%

I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS

The advisory fees charged to investment companies which the Adviser manages

and sponsors are normally higher than those charged to similar sized institutional

accounts, including pension plans and sub-advised investment companies. The fee

differential reflects, among other things, different services provided to such clients, and

different liabilities assumed. Services provided by the Adviser to the Portfolios that are

not provided to non-investment company clients and sub-advised investment companies

include providing office space and personnel to serve as Fund Officers, who among other

responsibilities, make the certifications required under the Sarbanes–Oxley Act of 2002,

and coordinating with and monitoring the Portfolios’ third party service providers such as

Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting,

administrative, legal and compliance requirements for the Portfolios are more costly than

those for institutional assets due to the greater complexities and time required for

investment companies. Servicing the Portfolios’ Private Client and Retail investors is

more time consuming and labor intensive compared to institutional clients since the

Adviser needs to communicate with a more extensive network of financial intermediaries

and shareholders. The Adviser also believes that it incurs substantial entrepreneurial risk

when offering a new mutual fund since establishing a new mutual fund requires a large

7

upfront investment and it may take a long time for the fund to achieve profitability since

the fund must be priced to scale from inception in order to be competitive and assets are

acquired one account at a time. In addition, managing the cash flow of an investment

company may be more difficult than managing that of a stable pool of assets, such as an

institutional account with little cash movement in either direction, particularly, if a fund

is in net redemption and the Adviser is frequently forced to sell securities to raise cash for

redemptions. However, managing a fund with positive cash flow may be easier at times

than managing a stable pool of assets. Finally, in recent years, investment advisers have

been sued by institutional clients and have suffered reputational damage both by the

attendant publicity and outcomes other than complete victories. Accordingly, the legal

and reputational risks associated with institutional accounts are greater than previously

thought, although still not equal to those related to the mutual fund industry.

Notwithstanding the Adviser’s view that managing an investment company is not

comparable to managing other institutional accounts because the services provided are

different, the Supreme Court has indicated consideration should be given to the advisory

fee charged to institutional accounts that have investment styles similar to the Portfolios.8

However, with respect to the Portfolios, the Adviser represented that there are no

institutional products in the Adviser’s Form ADV that have similar investment style as

the Portfolios.

The Adviser manages the AllianceBernstein Cap Fund, Inc. - Dynamic All

Market Plus Fund (“Dynamic All Market Plus Fund”), a retail mutual fund which has a

8 The Supreme Court stated that “courts may give such comparisons the weight that they merit in light of

the similarities and differences between the services that the clients in question require, but the courts must

be wary of inapt comparisons.” Among the significant differences the Supreme Court noted that may exist

between services provided to mutual funds and institutional accounts are “higher marketing costs.” Jones v.

Harris at 1428.

8

somewhat similar investment style as Overlay A Portfolio. Set forth below are the

advisory fee schedule of Dynamic All Market Plus Fund and what would have been the

effective advisory fee of the Overlay A Portfolio had the retail mutual fund’s fee schedule

been applicable to the Portfolio based on the Portfolio’s September 30, 2011 net assets:

Portfolio

ABMF

Fund

ABMF

Fee Schedule

ABMF

Effective

Fee

Portfolio

Advisory

Fee

Overlay A

Portfolio

Dynamic All Market

Plus Fund

90 bp (flat fee) 0.900% 0.900%

The Adviser provides sub-advisory investment services to certain other

investment companies managed by other fund families. The Adviser charges the fees set

forth below for the sub-advisory relationships that have a similar investment style as

Overlay A Portfolio. Also shown are Overlay A Portfolio’s advisory fees, the advisory

fee schedules of the sub-advised funds and the effective advisory fees of the sub-advisory

relationships based on the Portfolio’s September 30, 2011 net assets:

Portfolio

Sub-advised

Fund

Sub-advised Fund

Fee Schedule

Sub-advised

Fund Effective

Fee (%)

Portfolio

Advisory

Fee (%)

Overlay A

Portfolio


0.35% on next $100 million

0.30% on the balance

0.336%

0.900%




0.30% on the balance

0.311%

0.900%

It is fair to note that the services the Adviser provides pursuant to sub-advisory

agreements are generally confined to the services related to the investment process; in

9

other words, they are not as comprehensive as the services provided to Overlay A

Portfolio by the Adviser.

While it appears that certain sub-advisory relationships are paying a lower fee

than the Overlay A Portfolio, it is difficult to evaluate the relevance of such lower fees

due to differences in terms of the service provided, risks involved and other competitive

factors between the Portfolio and sub-advisory relationships. There could also be various

business-related reasons why an investment adviser would be willing to manage a sub-

advisory relationship investment related services for a different fee level than an

investment company it is sponsoring where the investment adviser is providing all the

services generally required by a registered investment company in addition to investment

services.

II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES

FOR LIKE SERVICES.

Lipper, Inc. (“Lipper”), an analytical service that is not affiliated with the

Adviser, compared the fees charged to the Portfolios with fees charged to other

investment companies for similar services by other investment advisers.9 Lipper’s

analysis included the comparison of each Portfolio’s contractual management fee,10

estimated at the approximate current asset level of the subject Portfolio, to the median of

9 The Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny

since “these comparisons are problematic because these fees, like those challenged, may not be the product

of negotiations conducted at arm’s length.” Jones v. Harris at 1429. 10

The contractual management fee is calculated by Lipper using each Portfolio’s contractual management

fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined current net

assets of all classes of the Portfolio, rounded up to the next $25 million. Lipper’s total expense ratio

information is based on the most recent annual report except as otherwise noted. A ranking of “1” means

that the Portfolio has the lowest effective fee rate in the Lipper peer group.

10

the Portfolio’s Lipper Expense Group (“EG”)11

and the Portfolio’s contractual

management fee ranking.

Lipper describes an EG as a representative sample of comparable funds. Lipper’s

standard methodology for screening funds to be included in an EG entails the

consideration of several fund criteria, including fund type, investment

classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size)

comparability, and expense components and attributes. An EG will typically consist of

seven to twenty funds.

As noted previously, the Portfolios were not designed as stand-alone portfolios, in

contrast to their Lipper peers, which are stand-alone. Accordingly, the peers selected for

each Portfolio from Lipper’s Global Flexible universe were based primarily on asset size

and may be of limited value for comparison purposes.

Portfolio

Contractual

Management

Fee (%)

Lipper Exp.

Group

Median (%)

EG

Rank

Tax-Aware Overlay A Portfolio 0.900 0.860 10/13

Overlay A Portfolio 0.900 0.860 9/15

Tax-Aware Overlay B Portfolio 0.650 0.797 1/13

Overlay B Portfolio 0.650 0.798 1/13

Tax-Aware Overlay C Portfolio 0.650 1.000 1/11

Tax-Aware Overlay N Portfolio 0.650 1.000 1/11

Lipper also compared the Portfolios’ total expense ratios to the medians of the

Portfolios’ EG and Lipper Expense Universe (“EU”). The EU12

is a broader group

11

Lipper does not consider average account size when constructing EGs. Funds with relatively small

average account sizes tend to have a higher transfer agent expense ratio than comparable sized funds that

have relatively large average account sizes.

11

compared to the EG, consisting of all funds that have the same investment

classification/objective and load type as the subject Portfolio.

Portfolio

Expense

Ratio

(%)13

Lipper Exp.

Group

Median (%)

Lipper

Group

Rank

Lipper Exp.

Universe

Median (%)

Lipper

Universe

Rank

Tax-Aware Overlay A

Portfolio 1.200 1.200 7/13 1.113 54/92

Overlay A Portfolio 1.200 1.200 8/15 1.113 54/92

Tax-Aware Overlay B

Portfolio 0.900 1.250 4/13 1.113 20/92

Overlay B Portfolio 0.900 1.250 4/13 1.113 20/92

Tax-Aware Overlay C

Portfolio 0.900 1.497 1/11 1.113 20/92

Tax-Aware Overlay N

Portfolio 0.900 1.497 1/11 1.113 20/92

Based on this analysis, the Portfolios have lower contractual management fees

than their respective EG medians with the exception of Tax-Aware Overlay A Portfolio

and Overlay A Portfolio, which have higher contractual management fees.

The Portfolios have lower total expense ratios than their respective EG medians,

with the exception for Tax-Aware Overlay A Portfolio and Overlay A Portfolio, which

have equal total expense ratios.

III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES

PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING

ANY INTRA-CORPORATE PROFIT.

The Adviser utilizes two profitability reporting systems, which operate

independently but are aligned with each other, to estimate the Adviser’s profitability in

12

Except for asset (size) comparability, Lipper uses the same criteria for selecting an EG when selecting an

EU. Unlike the EG, the EU allows for the same adviser to be represented by more than just one fund. 13

The total expense ratios are for the Portfolios’ most recently completed fiscal year Class 1 shares.

12

connection with investment advisory services provided to the Portfolios. The Senior

Officer has retained a consultant to provide independent advice regarding the alignment

of the two profitability systems as well as the methodologies and allocations utilized by

both profitability systems. See Section IV for additional discussion.

IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR

SUPPLYING SUCH SERVICES.

Members of the Adviser’s Controller’s Office provided the Board of Directors

information regarding the Adviser’s profitability attributable to the Portfolios. The

Adviser’s profitability with respect to the Portfolios were positive, except for Tax-Aware

Overlay C Portfolio and Tax-Aware Overlay N Portfolio.

The Adviser provides the Portfolios with shareholder servicing services. For

these services, the Adviser charges Tax-Aware Overlay A Portfolio and Overlay A

Portfolio a fee of 0.20% of average daily net assets, and Overlay B Portfolio and the Tax-

Aware Overlay B, C and N Portfolios a fee of 0.15% of average daily net assets. Set

forth below are the fees paid by the Portfolios under the Shareholder Servicing

Agreement during the fiscal year ended September 30, 2010:

Portfolio

Shareholder Serving

Agreement Fee

Tax-Aware Overlay A Portfolio $860,935

Overlay A Portfolio $492,972

Tax-Aware Overlay B Portfolio $320,657

Overlay B Portfolio $268,056

Tax-Aware Overlay C Portfolio $84,476

Tax-Aware Overlay N Portfolio $89,804

13

In addition to the Adviser’s direct profits from managing and providing certain

shareholder services to the Portfolios, certain of the Adviser’s affiliates have business

relationships with the Portfolios and may earn a profit from providing other services to

the Portfolios. The courts have referred to this type of business opportunity as “fall-out

benefits” to the Adviser and indicated that such benefits should be factored into the

evaluation of the total relationship between the Portfolios and the Adviser. Neither case

law nor common business practice precludes the Adviser’s affiliates from earning a

reasonable profit on this type of relationship provided the affiliates’ charges and services

are competitive.

Tax-Overlay A Portfolio and Overlay A Portfolio effected brokerage transactions

through the Adviser’s affiliate, Sanford C. Bernstein & Co., LLC (“SCB & Co.”) and/or

its U.K. affiliate, Sanford C. Bernstein Limited (“SCB Ltd.”), collectively “SCB,” and

paid commissions for such transactions during the Portfolios’ most recently completed

fiscal year. The Adviser represented that SCB’s profitability from business conducted

with the Portfolios is comparable to the profitability of SCB’s dealings with other similar

third party clients. In the ordinary course of business, SCB receives and pays liquidity

rebates from electronic communications networks (“ECNs”) derived from trading for its

clients, including the Portfolios. These credits and charges are not being passed onto to

any SCB client. The Adviser also receives certain soft dollar benefits from brokers that

execute agency trades for its clients. These soft dollar benefits reduce the Adviser’s

research expense and increase its profitability.

14

V. POSSIBLE ECONOMIES OF SCALE


shareholders through fee structures,14

subsidies and enhancement to services. Based on

some of the professional literature that has considered economies of scale in the mutual

fund industry, it is thought that to the extent economies of scale exist, they may more

often exist across a fund family as opposed to a specific fund. This is because the costs

incurred by the Adviser, such as investment research or technology for trading or

compliance systems, can be spread across a greater asset base as the fund family

increases in size. It is also possible that as the level of services required to operate a

successful investment company has increased over time, and advisory firms make such

investments in their business to provide services, there may be a sharing of economies of

scale without a reduction in advisory fees.

At the September 2007 Board of Directors meeting, an independent consultant

retained by the Senior Officer, provided the Board of Directors an update of the Deli15

study on advisory fees and various fund characteristics.16

The independent consultant

first reiterated the results of his previous two dimensional comparison analysis (fund size

and family size) with the Board of Directors.17

The independent consultant then

discussed the results of the regression model that was utilized to study the effects of

14

Fee structures include fee reductions, pricing at scale and breakpoints in advisory fee schedules. 15

The Deli study, originally published in 2002 based on 1997 data and updated for the September 2007

presentation, may be of diminished value due to the age of the data used in the presentation and the changes

experienced in the industry over the last four years. 16

As mentioned previously, the Supreme Court cautioned against accepting mutual fund fee comparisons

without careful scrutiny since the fees may not be the product of negotiations conducted at arm’s length.

See Jones V. Harris at 1429. 17

The two dimensional analysis showed patterns of lower advisory fees for funds with larger asset sizes

and funds from larger family sizes compared to funds with smaller asset sizes and funds from smaller

family sizes, which according to the independent consultant is indicative of a sharing of economies of scale

and scope. However, in less liquid and active markets, such is not the case, as the empirical analysis

showed potential for diseconomies of scale in those markets. The empirical analysis also showed

diminishing economies of scale and scope as funds surpassed a certain high level of assets.

15

various factors on advisory fees. The regression model output indicated that the bulk of

the variation in fees predicted were explained by various factors, but substantially by

fund AUM, family AUM, index fund indicator and investment style. The independent

consultant also compared the advisory fees of the AllianceBernstein Mutual Funds to

similar funds managed by 19 other large asset managers, regardless of the fund size and

each Adviser’s proportion of mutual fund assets to non-mutual fund assets.

VI. NATURE AND QUALITY OF THE ADVISER’S SERVICES

INCLUDING THE PERFORMANCE OF THE PORTFOLIO.

With assets under management of approximately $433 billion as of August 31,

2011, the Adviser has the investment experience to manage the Portfolios and provide

non-investment services (described in Section I) to the Portfolios.

The information prepared by Lipper in the table below shows the 1 year and since

inception gross performance returns of the Portfolios18

relative to the medians of the

Portfolios’ Lipper Performance Groups (“PG”) and Lipper Performance Universes

(“PU”) 19

for the periods ended June 30, 2011.20

Also shown are the gross performance

rankings of the Portfolios. It should be noted that the Overlay Portfolios are not

designed to be used as stand-alone investments, unlike its peers, and are used only in

conjunction with globally diversified Private Client portfolios. Accordingly, the Lipper

performance comparisons for the Overlay Portfolios are shown only for information

purposes and do not indicate how successful the Overlay Portfolios are in meeting their

investment objectives.

18

The gross performance returns are for the Class 1 shares for the Overlay Portfolios. 19

The Portfolios’ PGs are identical to the Portfolios’ EGs. The Portfolios’ PUs are not identical to the

Portfolios’ EUs as the criteria for including/excluding a fund in/from a PU are somewhat different from

that of an EU. 20

Note that the current Lipper investment classification/objective dictates the PG and PU throughout the

life of the fund even if a fund had a different investment classification/objective at a different point in time.

16

Portfolio

Return (%)

PG

Median (%)

PU

Median (%)

PG

Rank

PU

Rank

Tax-Aware Overlay A

Portfolio

1 year 20.56 20.56 21.40 7/13 88/162

Since Inception 13.96 12.82 13.96 5/12 66/131

Overlay A Portfolio

1 year 17.57 19.95 21.40 9/15 120/162

Since Inception 13.24 12.43 13.68 5/14 68/131

Tax-Aware Overlay B

Portfolio

1 year 11.31 19.95 21.40 11/13 141/162

Since Inception 8.77 12.31 13.68 8/12 109/131

Overlay B Portfolio

1 year 9.82 19.95 21.40 11/13 144/162

Since Inception 9.10 12.31 13.68 8/12 108/131

Tax-Aware Overlay C

Portfolio

1 year 11.20 25.63 21.40 9/11 141/162

Since Inception 8.85 12.17 13.68 6/10 108/131

Tax-Aware Overlay N

Portfolio

1 year 9.77 23.08 25.63 9/11 142/162

Since Inception 7.79 10.56 12.12 6/10 109/131

Set forth below are the 1 year and since inception performance returns of the

Portfolios (in bold)21

versus their benchmarks.22

As previously indicated, the Overlay

Portfolios are not designed to be used as stand-alone investments and are used only in

conjunction with globally diversified Private Client portfolios. Accordingly, the

21

The performance returns shown in the table for the Class 1 shares for the Overlay Portfolios were

provided by the Adviser. 22

The Adviser provided Portfolio and benchmark performance return information for the periods through

June 30, 2011.

17

benchmark performance comparisons for the Overlay Portfolios are shown only for

information purposes and are not meant to indicate how successful the Overlay Portfolios

are in meeting their investment objectives.23

Periods Ending June 30, 2011

Annualized Net Performance (%)

1

Year

(%)

Since Inception

(%)

Tax-Aware Overlay A Portfolio 19.13 14.00

S&P 500 Stock Index 30.69 19.68

Inception Date: February 8, 2010

Overlay A Portfolio 16.17 13.39

S&P 500 Stock Index 30.69 19.68


Tax-Aware Overlay B Portfolio 10.32 8.48

Barclays Capital 5 Year GO Municipal Bond Index 4.17 3.98


Overlay B Portfolio 8.83 8.72

Barclays Capital Global Aggregate Bond Index 1.48 3.56


Tax-Aware Overlay C Portfolio 10.21 8.56



Tax-Aware Overlay N Portfolio 9.77 8.48



As indicated previously, the Overlay Portfolios were not designed as stand-alone

portfolios, in contrast to the Portfolios’ Lipper peers. The Overlay Portfolios are used in

23

Providing a comparison of each individual Overlay Portfolio’s performance against a broad-based

securities market index is consistent with the SEC requirement that each registered investment company

specify such a benchmark.

18

conjunction with globally diversified Private Client portfolios. The table below shows

the impact of the Overlay Portfolios, herein referred to as DAA as of June 30, 2011 on a

Tax-Aware account and on a Non-Taxable account:24

Tax-Aware Portfolio

Inception- Inception-

Q2 2011 YTD 6/30/11 6/30/2011 6/30/2011

% Return % Return % Return % Volatility

30/70 Investor

Fully Diversified - With DAA 1.1 3.0 7.4 5.2

Fully Diversified - Traditional

Portfolio 1.3 3.0 7.0 5.4

Impact of DAA -0.2 0.0 0.4 -0.2

Fully Diversified - Benchmark25

1.9 3.9 8.5 4.5

60/40 Investor

Fully Diversified - With DAA -0.3 2.7 10.8 10.2


Portfolio 0.0 3.0 10.4 10.8

Impact of DAA -0.3 -0.3 0.4 -0.6


1.3 4.6 13.1 9.0

80/20 Investor



Portfolio -0.8 2.9 12.5 14.5

Impact of DAA -0.4 -0.4 0.5 -0.9


0.8 5.1 16.1 12.1

24

Information with respect to DAA’s impact on a Tax-Aware account and a Non-Taxable account was

provided by the Adviser. 25

Benchmark is 21% S&P 500 Stock Index, 7.5% MSCI EAFE, 1.5% MSCI Emerging Markets, 70%

Barclays 1-10 Year Munis. 26

Benchmark is 42% S&P 500 Stock Index, 15% MSCI EAFE, 3% MSCI Emerging Markets, 40%

Barclays 1-10 Year Munis. 27

Benchmark is 56% S&P 500 Stock Index, 20% MSCI EAFE, 4% MSCI Emerging Markets, 20%

Barclays 1-10 Year Munis.

19

Non-Taxable Portfolio

Inception- Inception-

Q2 2011 YTD 6/30/11 6/30/2011 6/30/2011

% Return % Return % Return % Volatility

30/70 Investor



Portfolio 1.0 3.1 10.2 5.4

Impact of DAA 0.0 -0.2 -0.4 -0.5


1.8 3.6 10.1 4.5

60/40 Investor



Portfolio 0.1 3.3 13.2 11.3

Impact of DAA 0.0 -0.3 -0.4 -1.3


1.3 4.6 15.0 9.3

80/20 Investor



Portfolio -0.5 3.4 15.1 15.5

Impact of DAA 0.0 -0.4 -0.4 -1.9


1.0 5.2 18.2 12.8

CONCLUSION:

Based on the factors discussed above the Senior Officer’s conclusion is that the

investment advisory fees for the Overlay Portfolios are reasonable and within the range

of what would have been negotiated at arm’s-length in light of all the surrounding

28

Benchmark is 20% S&P 500 Stock Index, 7.1% MSCI EAFE, 1.4% MSCI Emerging Markets, 3.0%

FTSE/EPRA NAREIT, 68.5% Barclays US Aggregate. 29

Benchmark is 39.1% S&P 500 Stock Index, 13.9% MSCI EAFE, 2.8% MSCI Emerging Markets, 8.4%

FTSE/EPRA NAREIT, 35.8% Barclays US Aggregate. 30

Benchmark is 51.8% S&P 500 Stock Index, 18.5% MSCI EAFE, 3.7% MSCI Emerging Markets, 12%

FTSE/EPRA NAREIT, 14% Barclays US Aggregate.

20

circumstances. This conclusion with respect to each Portfolio is based on an evaluation

of all of these factors and no single factor was dispositive.

Dated: November 16, 2011

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