Fixed-Income Investing An Essential Component for a Well-Balanced Portfolio

Transcription

1 Fixed-Income Investing An Essential Component for a Well-Balanced Portfolio > Describing the Fundamentals of Bonds > The Advantages of Fixed-Income Investing > Making Appropriate Fixed-Income Selections FIXED INCOME

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3 Fixed-Income Investing Fixed-income investments are an important part of a well-diversified portfolio. The key to successful fixedincome investing is to understand the unique characteristics of bonds, appreciate the wide range of choices available, and recognize how they may help to enhance the performance of virtually any portfolio. Introduction to Fixed Income Fixed income, commonly referred to as bonds, can frustrate and confuse both experienced and novice investors. And understandably so. There is much to consider when sorting through the broad array of fixed-income choices, and there are many questions that need to be answered when looking for the bond that is most suitable for your financial goals. And as the number of bond products continues to grow, even bond experts may find it increasingly challenging to understand the vast array of fixed-income investment options available. The goals of this guide are: > To describe the fundamental aspects of bonds > To explain the benefits of including fixed income in an investment strategy > To guide investors in making sound fixed - income choices What Is a Bond? A bond is an investment security that functions like a loan. Essentially, an investor lends money to the issuer in exchange for a specific rate of interest during the life of the bond. When the bond matures, repayment of the bond s principal, or face value, is due from the issuer. Bonds may be issued by corporations, governments, or their agencies to raise money for various reasons. Governments may issue and sell bonds to finance national debt or to fund infrastructure or public works projects. Companies may issue and sell bonds to raise money for their capital expenditures, such as building new factories and offices or buying new equipment. Below is an example of what a corporate bond once looked like. Many bonds, although no longer issued in a physical form, include these common features. Coupon This represents the annual interest rate the corporation will pay the bondholder. A variety of considerations are taken into account when the bond issuer sets the coupon, such as the prevailing interest rates and rates offered by other comparable bonds. Issuer This is the name of the corporation that is issuing the bond. It is important for an investor to know the credit rating of the specific issuer so the risk of the investment is understood. Maturity The maturity date of a bond is when the issuer will pay back the face value of the bond, often USD 1,000, to the bondholder. Maturity is an important aspect of the bond in determining its risk as well as its return potential. Payment Schedule This tells how frequently interest payments will be made. In this example, semiannual payments are made, which means the bondholder will receive two coupons per year. Semiannual payments are the most common payments. Fixed-Income Investing 1

4 Understanding Bonds and Their Distinguishing Characteristics Not all bonds are created equal. Each type of bond possesses a unique set of characteristics, and investors will need to understand the significance of these and consider them when making decisions about which bonds most closely match their investment goals. Key considerations include the bond s quality, the interest rate environment, maturity, duration, interest rate payment structure, and coupon rate. Quality Quality, or credit quality, refers to the creditworthiness of the issuer. More specifically, creditworthiness is the likelihood that the issuer will be able to make the required periodic interest payments as well as repay its debt when the bond matures or comes due. As in all investing, there is always some level of risk an investor assumes. In the case of bond investing, there is always some risk that an issuer will fail to make its interest and principal payments when due, which is referred to as default risk. Independent credit-rating services, such as Moody s and Standard & Poor s (S&P), assess the quality of the bond issuers and assign a credit rating, which helps investors make informed investment decisions. Credit ratings not only determine the quality of bonds. They also help an issuer to select the interest rate of the bond they will be issuing. Issuers that possess lower credit ratings will typically pay a higher interest rate to compensate for their higher risk. The opposite is true for higher quality bonds. Investors need to consider the risk/return trade-off in credit quality when making bond selections for their portfolios. Importantly, investors need to understand that lower-quality bonds are associated with higher risk and potentially higher returns while higher-quality bonds are generally linked to lower risk and lower returns. Interest Rate Environment One of the basic principles of bond investing is that typically interest rates inversely affect bond prices. This means that when interest rates go down, the bond prices usually go up, and when interest rates go up, most bond prices go down. Investors need to appreciate the significance of a change in interest rates and how it may affect bond portfolios. In particular, a rising interest rate environment could be reason for concern for bondholders because newly issued bonds will offer higher interest rates than comparable bonds already in the open market. This means that older bonds will generally drop in value. In the case of a falling interest rate environment, older bonds already trading in the open market will be paying higher interest rates than newly issued bonds. A falling interest rate environment can be good news for bondholders; their bonds may increase in value. A common mistake made by bond investors is chasing a higheryielding bond without recognizing the lower credit rating associated with this type of bond. High-yield bonds, often referred to as junk bonds, are associated with higher risk. Although they can be suitable investments for various investors, it s important for investors to be aware of their various risks. Determining the Credit Quality of Bonds Moody s Rating Indicates S&P Rating Investment Grade High Yield Aaa Highest Quality AAA Aa High Quality AA A Good Quality A Baa Medium Quality BBB Ba Speculative Elements BB B Speculative B Caa More Speculative CCC Ca Highly Speculative CC -- In Default D N Not Rated N 2 AllianceBernstein

5 Interest Rates Inversely Affect Bond Prices Interest Rates Maturity Maturity refers to the length or life of the bond or loan. It is the amount of time over which an investor can expect to receive regular interest payments and the principal to be repaid. Generally, maturity length can fall into three categories. Classifying Bond Maturities Length of Maturity Short Term Intermediate Term Long Term Number of Years Maturities of up to 2 years Maturities of 2 to 10 years Maturities of 10 to 30 years In general, in a normal yield-curve environment, longer term bonds offer higher rates of return than shorter term bonds. This is because an investor is taking on more risk the longer a bond is held in a portfolio. The reverse is also true. A shorter term bond investment is often associated with less risk than a longer term bond and will therefore offer lower yields. Normal Yield Curve Yield Bond Prices Maturity Interest Rates Bond Prices When interest rates go down, bond prices usually go up. When interest rates go up, most bond prices go down. And the longer a bond s maturity, the more sensitive its price is to interest rate changes. In a normal yield-curve environment, bond investors will typically expect the economy to maintain a relatively normal rate of growth. There are a variety of other shapes, such as steep, flat, and inverted. These shapes will tell us different things about the economy and will indicate to bond managers how to best handle their fixed-income portfolios. Duration Duration, a commonly seen term in fixed income, is an important measure for investors to consider. Essentially, duration measures the sensitivity of a bond s price to changes in interest rates. Although measured in years, the best way to think about duration is as a percentage. In other words, duration tells you the approximate percentage change in the price of a bond if interest rates change by 100 basis points (1%). Here are some examples: Changes in Interest Rates, Effect on Bond Prices Bond Prices Bond Duration Change in Interest Rates Years 100 basis points (1%) Years 100 basis points Months (.25 Year) 100 basis points Percentage Price Changes New Bond Price 10% 110 4% 104 ¼% Duration is impacted primarily by two key factors: bond maturity and coupon. The longer the bond s maturity, the greater the sensitivity to changes in interest rates, and therefore, the higher the duration. Coupon also impacts duration. The higher the coupon, generally, the lower the duration. This is because a change in interest rates has a smaller relative impact on a higher coupon bond. Think of it this way Bond A has a coupon of 10% and Bond B has a coupon of 3%. If interest rates go up by 1%, the relative impact of the increase is much greater on a bond paying only 3%, as opposed to 10%. Interest Rate Payment There are several ways in which an issuer can pay interest to a bondholder. Here are a few of the most common: > Fixed: Most bonds still fall into this category. The investor who buys these bonds receives a fixed interest payment on a regular schedule, typically semiannually, with full principal returned at maturity. > Variable/Floating: These bonds have varying or floating interest rates that are periodically adjusted according to a specified benchmark such as the bank prime lending rate. > Zero Discount: These bonds provide the investor with no periodic interest payments. Instead, they are sold at a deep discount to face value and redeemed for the full face value at maturity. Fixed-Income Investing 3

6 Understanding the Role of Bonds Bonds add the potential for an ongoing stream of income and provide a way to mitigate risk. They are an essential component of a well-balanced portfolio. Low-Correlation Investing A well-balanced portfolio is one that contains an assortment of asset classes and investment styles that perform differently in varying market cycles a concept known as low-correlation investing. In the case of stocks and bonds, over the long term, stocks and bonds are lowcorrelating asset classes, meaning they tend to behave differently over time. Correlation with Global Stocks Mitigating Risk with Bonds Consider the chart below. In several periods marked by low-performing global stocks, global bonds delivered offsetting positive returns. When Stocks Fell Sharply, Bonds Were Up* Global Stocks Global Bonds Difference 30 Jun Oct 90 (10.7)% 5.8% 16.5% High Correlation U.S. Agency Investment-Grade Corporate Mortgage Backed-Securities Non-U.S. Government Emerging Market Debt High Yield 31 May Aug 98 (11.5)% 2.9% 14.4% 31 Mar Dec 03 (23.77)% 37.3% 61.07% Often, investors are hesitant to include fixed-income securities in their portfolios. The common misconception is that bonds will slow the upside growth potential of an equity portfolio. However, the addition of fixed-income securities should not significantly detract from returns based on longer term performance characteristics. Average Annual Total Returns in 14 Years No Correlation 0.0 Bank Loans The low correlation between stocks and bonds means that if stocks sink, bonds will probably cushion the fall, and vice versa. (January 1991 December 2006)* 9.27% 8.69% 8.35% As of 31 December Source: Lehman Brothers, CSFB, Factset SPAR The combination of stocks and bonds is one example of low-correlation investing, and this approach can be beneficial to the health of an investment portfolio. Historically, stocks have earned more than bonds; however, because bonds are not highly correlated to stocks, they play a critical role in offsetting risk. 100% Equity 0% Fixed Income 75% Equity 25% Fixed Income 60% Equity 40% Fixed Income Correlation between MSCI World Index and other asset classes. Source: Standard & Poor s AIM. * Past performance is no guarantee of future results. No fees or expenses are reflected in the performance of the index. An investor cannot invest directly in an index, and its results are not indicative of any specific investment, including any AllianceBernstein fund. Global stocks are represented by the MSCI World Index (NET). The MSCI World Index is a market-capitalization-weighted equity index comprised of over 1,500 stocks traded in over 20 countries. Global bonds are represented by the Lehman Global Aggregate Bond Index (NET). Cumulative returns. All results are annualized except for those time periods of less than one year. 4 AllianceBernstein

7 An Array of Bonds for a Variety of Needs A wide range of bonds are available that may meet the needs of virtually any investor. The bonds vary based on credit quality, interest rate, maturity, and issuer. Investors should consult their investment advisors to fully understand which types of bonds are appropriate for their investment portfolios. Government Bonds Bonds issued directly by a government, which may be issued by developed or emerging countries, possess highquality credit ratings. Developed country bonds are generally guaranteed by the issuing government. Emerging Market Bonds Bonds issued by governments and corporations in emerging economies, such as those in Russia and Brazil. Typically, these bonds are rated below investment grade and exhibit high price volatility. Emerging markets can be volatile due to political and economic instability. Corporate Bonds (Investment Grade and High Yield) Bonds issued by companies as a way to help finance part of their business. Generally, these bonds pay higher rates than government bonds since the risk is higher. Corporate bonds have a wide range of ratings and yields because the financial health of the issuers can vary widely. Bonds that have low credit ratings, also known as junk bonds, will pay a higher interest payment and exhibit greater volatility than investment-grade corporate bonds. Mortgage-Backed Securities Financial institutions, such as savings and loans, commercial banks, and mortgage companies, make loans to finance a borrower s purchase of a home or other real estate. When these loans are packaged (or pooled ) by issuers or servicers for sale to investors, the results are mortgage-backed securities (MBS). As the homeowners who have the mortgages make the payments, the investors in the MBS receive payments of interest and principal. Investors in mortgage securities include institutions of all sizes as well as individual investors. Other types of mortgage-related securities include collateralized mortgage obligations (CMO) and commercial mortgagebacked securities (CMBS). Asset-Backed Securities Asset-backed securities (ABS) are bonds or notes backed by financial assets, namely receivables, such as credit card receivables, auto loans, manufactured housing contracts, and home-equity loans. ABS are different from other types of bonds in the way their credit quality is assessed. Their creditworthiness is determined by factors other than the ability of the issuer of the underlying assets to repay the loan. Convertible Bonds Bonds that are exchangeable for a fixed number of an issuing company s stock at a preset conversion price. The investor usually pays a premium over conversion value to reflect the fact that the bond pays interest, if and until it is converted. Euro Bonds/Yankee Bonds Bonds issued and traded outside the country in whose currency they are denominated, and outside the regulations of a single country. This type of bond is issued by either a company or government for sale in Europe. Similar to the way most equities are quoted in newspapers, many of the most common bonds are shown in sections of major financial publications around the world. The listings provide investors with pricing, coupon, maturity, and yield information. Fixed-Income Investing 5

8 How We Manage Fixed Income At AllianceBernstein, we implement disciplined investment processes across the wide range of fixed-income portfolios we manage. Our analysts generate economic forecasts and return projections for various asset classes, and then work closely with our portfolio management teams to compare and contrast opportunities across industries and sectors. Our portfolio managers then make allocation decisions by country, sector, and issue. A Global Force in Fixed-Income Management As one of the largest fixed-income managers in the world, AllianceBernstein L.P. has a local presence in major capital markets, including New York, London, Tokyo, Hong Kong, and Melbourne. We manage more than USD 170 billion in fixed-income assets. Specialized teams of 65 fixed-income portfolio managers oversee virtually all types of fixed-income securities covering the entire credit quality spectrum. Our extensive in-house research team, comprising more than 65 fixed-income analysts, supports the decision making of the portfolio managers. The research team includes economists who cover developed and emerging markets, quantitative analysts who provide risk/ return analysis, and credit specialists who cover companies around the globe. Combined, our fixedincome portfolio management team averages 17 years of investment experience. The breadth of our research capabilities extends worldwide, with a local presence in New York, London, Tokyo, Hong Kong and Melbourne. On-the-ground portfolio managers and analysts in these major markets provide first-hand knowledge and insight on the issues of the regions in which they invest. Our Research Approach A top-down macroeconomic overview, which encompasses the best thinking of our entire firm, is combined with a bottom-up investment process for fixed-income sectors and individual securities, and utilizes unparalleled industry and security research. Our economists concentrate on developed and emerging markets, quantitative analysts provide risk and return forecasts, and credit specialists cover companies around the globe. Although we apply similar investment and research processes to most of our fixed-income product lines, we appreciate their differences; research specialists focus on specific fixed-income sectors to most effectively analyze their nuances. Global Perspective and Local Expertise Fixed-Income Professionals Number Average Experience Analysts/Directors of Research Years Portfolio Managers Years Traders Years As of 31 December Fixed-Income Investment Management Process Issuer- and Sector-Specific Forecasts Research Review Portfolio Construction > Credit > Economic > Quantitative > Vetting process > Synchronization of research inputs > Ex-ante alpha expectations > Security selection > Sector allocation > Yield-curve structure > Risk budgeting Client Portfolio Client Objectives 6 AllianceBernstein

9 The Fixed-Income Investment Spectrum at AllianceBernstein Through AllianceBernstein, investors may access an assortment of bond mutual funds. With over USD 170 billion of fixed-income assets under management, we are one of the largest managers of fixed-income investments. We believe that rigorous, independent research is the key to adding value for our clients in terms of both increasing returns and minimizing risk. We possess the capability to analyze and successfully manage a broad array of fixed-income investments. We devote enormous resources to provide our portfolio management teams with the highest quality fundamental and quantitative research. Our global research team covers a multitude of bond sectors across the credit spectrum. We offer an array of fixed-income mutual funds that fall into most of the investment spectrum categories meaning that through AllianceBernstein investors may satisfy a variety of their fixed-income investment objectives. A Full Range of Investment Choices Higher Credit Risk Global High Yield Portfolio U.S. High Yield Portfolio Emerging Market Debt American Income Portfolio European Income Portfolio Global Strategic Income Portfolio (Euro) Global Strategic Income Portfolio Global Bond Portfolio (Euro) Global Bond Portfolio (USD) For many investors, bond mutual funds are an efficient way to capture a stream of income, balance equity investments, and mitigate portfolio volatility. Short Maturity Dollar Portfolio Lower Credit Risk The Benefits of Bond Mutual Funds Income A bond mutual fund provides a steady stream of income by paying dividends, typically on a monthly basis. These dividends may be received as cash or reinvested for compounded growth. Typically, an individual bond issues semiannual income payments to an investor. Diversification Bond mutual funds provide diversification by investing in many individual fixed-income securities across a variety of sectors, countries, currencies, and maturities. The pooling of resources in bond mutual funds allows shareholders to invest in a greater variety of bonds than the average investor could individually. This diversification reduces exposure to risk; one bond s value on the entire fund s share price affects the shareholder less than it would an investor who owns only a single bond. Convenience For most investors, bond funds can be a more convenient, liquid, and cost-effective way to invest in the fixed-income asset class than individual bonds. Professional Management Professionally managed portfolios capitalize on investment experts extensive knowledge of the complex fixed-income markets. The investment professionals will also analyze the key features of each bond issue that may affect the performance of the portfolio. Additionally, they are able to buy individual bonds at competitive prices, access a variety of markets for issues, and seek out new opportunities. Fixed-Income Investing 7

10 AllianceBernstein Fixed-Income Funds A Complement to Your Investment Portfolio Global High Yield Regional Short Duration Global Bond Portfolio (USD denominated) Seeks a high total return through an investment in a global portfolio of investment-grade, fixed-income securities from around the world, typically located in developed markets. Global Bond Portfolio (Euro) ( denominated) Seeks a high total return through investments in a global portfolio of investment-grade, fixed-income securities from around the world, typically located in developed markets. Global Strategic Income Portfolio Seeks to balance income and stability across market cycles through a global, multisector portfolio. The investment management team continuously adjusts the portfolio s allocations to reflect current markets risks and opportunities. Emerging Market Debt Seeks to maximize total returns from price appreciation and income by investing in sovereign debt obligations and non-u.s. corporate fixed-income securities from issuers in emerging and developed countries. The investment manager utilizes the research of its global fixed income, global economic, and global credit teams in managing the Portfolio. Global High Yield Portfolio Seeks to produce high current income as well as overall total return by investing in a portfolio of high-yield debt securities of issuers located throughout the world, including the U.S. and emerging markets. U.S. High Yield Portfolio Seeks to achieve a high total return by maximizing current income and, to the extent consistent with that objective, capital appreciation. Investments are concentrated in issues rated BB or B or their equivalent, where the risk/reward relationship is most attractive. American Income Portfolio Seeks to provide a high level of current income with the potential for capital appreciation by investing in a diversified portfolio of USD-denominated investment-grade and high-yield securities. Through credit-barbell construction, investors get exposure to both ends of the credit risk spectrum. European Income Portfolio Seeks to achieve a high current income with the potential for capital appreciation by investing in a diversified portfolio of Euro- or European currency-denominated investment grade and non-investment grade fixed-income securities. Through credit-barbell construction, investors get exposure to both ends of the credit risk spectrum. Short Maturity Dollar Portfolio Seeks the highest level of current income, consistent with low volatility of Net Asset Value, that is available from a portfolio of high-quality mortgage-related and asset-backed securities. > Inception 1996 > Management team with an average of 15 years of investment experience > Average Duration: 5.4 Years > Average Credit Quality: AAA > Inception 2002 > Management team with an average of 15 years of investment experience > Average Duration: 5.21 Years > Average Credit Quality: AAA > Inception 2006 > Management team that averages 15 years of investment experience > Average Duration: 1 7 Years > Average Credit Quality: AAA BBB > Inception 2006 > Management team that averages 16 years of investment experience > Average Duration: 7.01 Years > Average Credit Quality: BBB+ > Inception 1997 > Management team that averages more than 14 years of investment experience > Average Duration: 5.22 Years > Average Credit Quality: Less than BBB > Inception 1998 > Management team with 22 years of investment experience > Average Duration: 4.43 Years > Average Credit Quality: Less than BBB > Inception 1993 > Management team that averages more than 17 years of investment experience > Average Duration: 5 Years > Average Credit Quality: BBB+ > Inception 1999 > Management team that averages more than 15 years of investment experience > Average Duration: 5.27 Years > Average Credit Quality: BBB > Inception 1994 > Management team that averages more than 14 years of investment experience > Average Duration: 0.18 Years > Average Credit Quality: AAA All information as of 31 December AllianceBernstein

11 Bringing It All Together Investing can seem like an overwhelming task when viewed in its entirety: There is a bewildering array of financial assets to choose from and a seemingly infinite number of portfolio designs to evaluate. So, where should investors start? Smart investing begins with a plan, and we ve developed a sophisticated planning process based on well-tested techniques that can help assess investors specific objectives. In order to design an effective investment strategy, you first have to have an idea where you re headed. In over 35 years of providing wealth management services to high-net-worth clients, we ve refined an investment approach that embraces the core principles of sound investing. Diversifying across asset classes can allow a portfolio to take advantage of the differing behaviors of investments. Diversifying across styles (growth and value) and geography can expand the opportunity set while enhancing a portfolio s risk/ return profile. And the best portfolio design in the world would be much less effective if it weren t accompanied by a disciplined rebalancing strategy. By following these principles, an investor can design a sound investment plan and strategy that s tailored to his or her unique needs. At the same time, it can increase the likelihood that you ll have the money you need when you need it. Investment Strategies for Every Investor Our organization provides investment services to a diverse group of clients, including some of the largest institutional investors in the world. Our primary business goal is to design diversified investment solutions that help our clients build and preserve wealth. Our mutual fund portfolios include style-pure, styleblend strategies and Global Wealth Strategies, a suite of uniquely integrated portfolios designed to meet the needs of almost any investor. These investment strategies, together with our global, innovative research and our disciplined, principled investment processes, make our firm one of the most powerful investment organizations in the industry. Our investment services come in a variety of platforms to suit individual needs, including: > Mutual Funds > Separately Managed Accounts > Subadvisory Services Wealth Strategies Comprehensive Investment Solutions Style-Blend Strategies Equity Fixed Income Style-Pure Strategies Local Regional Global Value Equities Growth Equities Fixed Income Fixed-Income Investing 9

12 Glossary Active Management A money management approach that seeks to outperform the market by applying informed, independent judgment. The opposite of passive management, or indexing, which seeks to replicate market performance. Asset Allocation Investor s global mix of stocks, bonds, cash equivalents, and other assets. Balanced Investing Investing in bonds as well as stocks. Over time, this has produced more return for a given risk level than investing in stocks or bonds alone (see Diversification ). Callable Bond A bond that the issuer has the right to redeem prior to maturity for a stated price, typically exercised when interest rates fall. Callability represents a risk for bondholders, who are compensated by extra yield, which may or may not be adequate. Capital Gain (or Loss) Increase (or decrease) in the market value of a stock, bond, or other investment asset. Convertible Bonds This feature allows the bond investor to convert bonds into a predetermined amount of the company s stock at certain times during its life, generally at the discretion of the bondholder. Correlation The degree to which two assets behave alike under the same conditions. The lower the correlation the less they behave alike the more each diversifies the other, and the more the two in combination lower portfolio risk. Developed Markets The capital markets of countries whose economies are mature, such as the U.S., Canada, most of western Europe, and Japan. Fixed-Income Securities Bonds, notes, bills, and like securities representing loans to governments, agencies, corporations, or banks for a stated period at a fixed interest rate. Par Bonds Bonds selling at face value. Premium Bonds Bonds selling above face value because their interest rates are higher than prevailing interest rates. Putable Bonds When this feature is part of a bond, it allows the bond investor to force the issuer to repurchase the security at specified dates before maturity. The repurchase price is set at the time of issue, and is usually par value. Volatility Variability, fluctuation a common measure of investment risk. The range of outcomes for an investment over a given period; the smaller the range of individual outcomes, the lower the volatility. Yield One component of investment return interest or dividends paid as a percentage of a security s price. Yield differs from total return in not including change in the market value of the security itself. Yield Curve A line chart connecting the yields on bonds of different maturities at a given time, ranging from the shortest-term securities on the left to the longest-term on the right. Normally, the resulting line is a convex curve, because yields tend to increase sharply from one maturity to the next at the short-term end and increase thereafter much more slowly. Discount Bonds Bonds selling below face value because their interest payments are lower than prevailing rates. Diversification Investing in more than one type of asset at the same time for the purpose of lowering risk. The greater the diversification, all else equal, the lower the investor s risk. Duration A measure of a bond s interest rate sensitivity, expressed in years. For each year of duration, a bond s price will drop (or rise) roughly 1% for every one-percentage-point rise (or drop) in rates. 10 AllianceBernstein

13 A Word About Risk The sale of shares in AllianceBernstein funds may be restricted in certain jurisdictions. In particular, shares may not be offered or sold, directly or indirectly, in the United States or to U.S. persons, as is more fully described in the AllianceBernstein funds prospectus. Further details may be obtained from the Funds distributor. For more complete information on any AllianceBernstein fund, including investment objectives and policies, sales charges, expenses, risks, and other matters of importance to prospective investors, call your financial representative for a current prospectus. Please read it carefully before you decide to invest. These portfolios of ACM Global Investments are mutual funds (fonds commun de placement) organized under the laws of Luxembourg, which will be renamed ACMBernstein effective 31 July 2006 and will conduct business outside of Germany and Austria under the name AllianceBernstein. An offer of shares in the Portfolios may only be made on the basis of a current offering document. This guide is prepared for general circulation and is intended to provide information only. It is not intended to be construed as a solicitation for the sale of any particular Fund nor as investment advice and does not have regard to the specific investment objectives, financial situation, and particular needs of any person to whom the guide is sent. If you wish to receive investment advice relating to the matters referred to in this guide, please contact your Financial Advisor. Information contained in this guide is subject to amendment. Unless the context otherwise provides, terms defined in the AllianceBernstein funds prospectus shall have the same meaning when used herein. The investment return and principal value of the AllianceBernstein funds will fluctuate as the prices of the individual securities in which they invest fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Many AllianceBernstein funds are authorized to invest in securities denominated in currencies other than the U.S. dollar, which may magnify these fluctuations due to changes in international exchange rates. These risks may also be magnified for investments in emerging markets. Certain AllianceBernstein funds are highly specialized and may be subject to a greater degree of volatility than funds with more diversified portfolios. Price fluctuation in a fund s portfolio securities may be caused by changes in the general level of interest rates or changes in bond credit quality ratings. Please note, as interest rates rise, existing bond prices fall and can cause the value of your investment in the fund to decline. Changes in interest rates have a greater negative effect on bonds with longer maturities than on those with shorter maturities. Investments in the funds are not guaranteed because of fluctuation in the net asset value of the underlying fixed-income related investments. Similar to direct bond ownership, bond funds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds owned by the fund. Fund purchasers should understand that, in contrast to owning individual bonds, there are ongoing fees and expenses associated with owning shares of bond funds. While most AllianceBernstein funds invest principally in equity or fixed-income securities, in order to achieve their investment objectives, some AllianceBernstein funds may at times use certain types of investment derivatives such as options, futures, forwards, and swaps to manage currency risk and provide for efficient portfolio management. These involve risks different from, and in some cases greater than, the risks presented by more traditional investments. These and other risks are more fully described in the prospectus with regard to each AllianceBernstein fund. Please read it carefully before you decide to invest. All information on AllianceBernstein is as of 31 December AllianceBernstein provides its investment management services in Canada through its affiliates Sanford C. Bernstein & Co., LLC and AllianceBernstein Canada, Inc.

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15 Our Firm, Our Mission Building and Preserving Investor Wealth through: > A sole focus on asset management > Global, innovative research > Disciplined, principled investment processes > Investment strategies geared to client needs > Competitive performance at a good value Delivered by our most important assets... Our People

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