Fixed Income Investments. Private Banking USA

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1 Fixed Income Investments Credit Suisse Securities (USA) llc Private Banking USA

2 2 Preservation of your wealth is our first priority.

3 Introduction Fixed Income Investing Today In the last two decades, investors have regarded fixed income in a variety of ways. Especially in times of market turmoil, bonds have been seen as somewhat less risky than equity investments. While this has been largely true through the boom in the late nineties and during the recent credit crunch, it is not always the case as some corporate bond holders have learned. Throughout all of this, however, bonds have remained a pillar of most investment portfolios. This is because the interest income provided by many fixed income investments, if appropriately structured, may provide a dependable source of income. Investors continue to favor bonds because they know that the right allocation of fixed income securities may help preserve and increase their capital. 1 The fixed income market offers investors many more investment choices than other markets. Depending on an investor s goals, tax situation and risk tolerance, they can choose from municipal, government, corporate, and international bonds. Within each of these bond market sectors, there are securities with different issuers, credit ratings, coupon rates, maturities, yields and other features with each option offering its own balance of risk and reward. Finally, with such a range of choices, an investor s unique liquidity requirements can handily be factored into the creation of an optimal asset allocation. Seasoned investors know that understanding these complex markets and the opportunities they afford is an undertaking requiring specialized knowledge. At Credit Suisse, we have been working to preserve the wealth of private investors for over 150 years. With our Swiss roots, we have been providing personal service to investors in the United States since Today, Credit Suisse s experienced bond specialists work with a vast array of fixed income securities to help investors preserve their capital, generate income, enhance portfolio returns and manage their liquidity. In the next few pages, we d like to share this experience in order to bring you a new, thoughtful perspective on fixed income investing. 1. However, investors should be aware that they are exposed to the risk that the issuer of the fixed income security will not be able to pay its obligations when due, and therefore investors may lose all or substantially all of their investment. In addition, an investor runs the risk that the price of the security will fluctuate, and if sold prior to maturity, the price the investor receives may be substantially less than the security s maturity value. Private Banking USA (PB USA) is a business in Credit Suisse Securities (USA) LLC, a US-registered broker-dealer and investment adviser indirectly owned by Credit Suisse AG. It is not a chartered bank, trust company or depository institution. It is not authorized to accept deposits or provide corporate trust services and it is not licensed or regulated by any state or federal banking authority. All references in this brochure to Credit Suisse are intended to mean Credit Suisse Securities (USA) LLC unless the context otherwise requires. 3

4 Fixed Income Market The Largest and Most Varied Investment Market in the World High grade capital instruments for capital conservation Given their widespread use to preserve capital, it should be no surprise that the world s bond markets combined are roughly twice the size of the world s equity markets. 2 By their very nature, fixed income markets are by far the most varied investment markets in the world. This is due to two underlying factors. First, no two bond issues are exactly alike. Second, the sheer number of different fixed income securities outstanding far exceeds the world s stock issues. It is important to remember that the vast majority of bonds today trade in many decentralized, over-the-counter (OTC) primary and secondary markets, as distinct from equities where transactions take place mainly in exchange or exchange-related environments. Investors portfolios commonly reflect fixed income assets drawn from the municipal bond, high-grade corporate, government and US agency debt markets. In addition, depending on their goals, many portfolios now contain global and emerging market securities, including foreign government bonds, high-yield debt and short-term instruments such as commercial paper, Treasury bills, agency discount notes and certificates of deposits. Within all of these markets, there are hundreds of thousands of different individual issues of bonds. All in all, today investors bond choices can range from the highest credit quality US Treasury securities backed by the full faith and credit of the US government to bonds that are below investment grade and considered speculative. In addition to considering this vast and complex universe of fixed income choices, investors need to be aware of the many factors for each choice which play a part in the proper selection of bonds. The key variables include the bond s maturity, redemption features, credit quality, interest rate, price, yield and tax status. In all of this, the bond specialist s aim is to provide the right choice to fit into an investor s portfolio, based solely on the distinctive, individual needs of the investor and their portfolio s specific goals Calculations are based on 2008 statistics sourced from and plus the Bank for International Settlements. 3. Unless Credit Suisse Securities (USA) LLC has been specifically authorized by a client to exercise discretion over the client s account, client is responsible for all investment decisions, including whether to make purchases or sales of securities. 4

5 Fixed Income Market The Fixed Income Market at a Glance ƁƁ Close to one trillion dollars average daily trading volume in the US bond market 4 ƁƁThe majority of bond trading takes place between broker-dealers and large institutions ƁƁ Households comprise approximately 10% of investing in fixed income securities 5 An Investor s Experience with Fixed Income Careful, close collaboration produces impressive results For many private investors, municipal bonds have traditionally comprised the foundation of their investment portfolio. Historically low default rates of the bonds, combined with attractive taxable equivalent yields compared to other asset classes, have made munis a compelling investment. 6 The advent of bond insurance in the 1970s provided credit enhancement on bonds brought to market by a variety of issuers. By the late 1980s, bond insurance was prevalent and Triple-A Insured bonds were widely available to investors. While the underlying ratings on bonds during this time appeared to be less important to market participants, this was not true for the municipal trading professionals at Credit Suisse. The fixed income specialists at Credit Suisse continued to maintain that bond selection must be driven in large part by the underlying ratings of the issuer and the reliability of the issuing entity. Enter the perfect storm of the Credit Crisis, where bond insurers ability to pay was suddenly called into question. Investors needed to know whether or not the entities ultimately responsible for making debt service payments were in fact able to do so. Investors requested our muni specialists to review their portfolios. Upon review, very few portfolios constructed through Credit Suisse required adjustments, and those that did were minimal. Our specialists worked very closely with our Relationship Managers and their clients, helping our investors understand the current fixed income environment 4. The Role of Interdealer Brokers in Fixed Income Markets FINRA s TRACE and the US Corporate Bond Market, Decker, Michael Credit Suisse Securities (USA) LLC does not provide legal or tax advice. Investors should consult with their personal legal and tax counsel before making any investment decisions. 5

6 Bonds The Credit Suisse Connection Best relative value. Best execution. Validated value. A pioneer in the field, Credit Suisse has been working in an open architecture environment since the mid-nineties. Our resulting long-standing relationships with many broker-dealers across the country gives us access to fixed income inventory at dozens of firms. This provides us with a high level of market intelligence, enabling us to buy and sell bonds at the most competitive levels. Our approach has been validated by increased market transparency. We independently verify our performance using statistical data supplied by Credit Suisse and Tradeweb Markets LLC, a third-party vendor and trading platform. For the first six months of 2009, over 98% of all reportable trades were executed within one percent of the Daily Volume Weighted Average Price (DVWAP). 7 Portfolio Structuring Techniques Bond A Bond B Bond C Bond D Bond E Bond B Bond C Bond D Bond E Bond A Bond C Bond D Bond E Bond A Bond B Bond D Bond E Bond A Bond B Bond C Bond E Bond A Bond B Bond C Bond D Experienced bond professionals often employ sophisticated approaches to strive to mitigate investment risk. For example, a laddering approach may be used when bonds come due sequentially in various interest rate environments. Portfolios can also be positioned to take advantage of attractive points on the yield curve using a barbell approach. Regardless of the technique selected, Credit Suisse always works carefully with each investor to develop a highly customized strategy based on that investor s objectives DVWAP is calculated from public trading data provided from FINRA (Financial Industry Regulatory Authority) and MSRB (Municipal Securities Regulatory Board). The statistics are derived from information in the Tradeweb Gold Reports, which are believed to be reliable. 8. Investors should be aware that they are exposed to the risk that the issuer of the fixed income security will not be able to pay its obligations when due, and therefore investors may lose all or substantially all of their investment. In addition, an investor runs the risk that the price of the security will fluctuate, and if sold prior to maturity, the price the investor will receive may be substantially less than the security s maturity value. 6

7 Bonds Credit Suisse has served the needs of the world s most successful businesses and wealthiest individuals and families since

8 Specialists What Credit Suisse Offers Clients Expertise, objectivity and personal service Expertise Plotting a course through the varied universe of fixed income investing requires many years of experience. The fact remains for bond professionals, there is simply no substitute for this experience. Top execution for our clients depends on the specialized expertise and specific product knowledge of our bond specialists. Objectivity Our considerable business success is founded on our ability to find the best bond at the best price for our clients. Our bond professionals are able to select the best bonds for our clients from a variety of sources. This objectivity in sourcing bonds is essential to ensuring that investors receive the benefits of best execution that is, the best fit for their needs, executed at the best price, for the best relative value available. Personal Service As a Credit Suisse client, you are one person away from the market, not layers of decision makers away. There are no levels to navigate nothing between our clients order and our seasoned bond specialists who deal every day in the markets. Experienced Credit Suisse Relationship Managers work directly with our dedicated bond specialist team to make recommendations and execute strategies for you. Together, we can assist you with your overall investment portfolio, taking into account your income needs, risk preferences and funding events. We perform individual portfolio reviews and make suggestions to help you identify where your holdings may either inconsistent with your objectives or pose credit risks. Conversely, we can also assist you in helping identify where you may be better able to take advantage of market opportunities. 9. Unless Credit Suisse Securities (USA) LLC has been specifically authorized by a client to exercise discretion over the client s account, client is responsible for all investment decisions, including whether to make purchases or sales of securities. Credit Suisse s extensive roster of diverse investment resources allows you and your Relationship Manager to construct a portfolio that reflects your goals, risk tolerance, liquidity requirements and time frames. 9 8

9 Benefits Throughout our history, we have maintained a consistent focus on our mission of helping clients thrive financially in their business and personal lives by delivering innovative solutions to help protect and grow wealth. 9

10 Glossary of Terms Agency Debt Issued under the authority of an act of Congress by both federal agencies and government-sponsored enterprises created by Congress to provide credit to key sectors of the economy such as housing, agriculture, exports and small businesses. These bonds carry an AAA rating by Moody s Investor Service based on their implied guarantee by the US government. The interest on specific issuers is normally state and local tax exempt, though you should always consult your tax advisor. Corporate Bond A written contract or an IOU between a lender (investor) and a borrower (the corporation). The borrower agrees to pay a stated amount of interest ( coupon ) to the lender over the life of the contract and promises to repay the loan ( principal ) on a stated date ( maturity ). The term is usually applied to debt instruments, generally with a maturity date falling at least a year after their issue date. Municipal Bond Municipal bonds are debt obligations issued by states, cities, counties, and other governmental entities to raise money to build schools, highways, hospitals, and sewer systems, as well as many other projects for the public good. These issuers promise to pay investors a specified amount of interest (usually semiannually) and to return the principal on a specific maturity date. Muni bonds may be tax-exempt under certain circumstances. High-Yield Debt High-yield bonds are issued by entities that do not qualify for investment-grade ratings. Those issuers with a greater risk of default not paying interest or principal in a timely manner are rated below investment grade. These issuers must pay a higher interest rate to attract investors to buy their bonds and to compensate them for the risks associated with investing in organizations of lower credit quality. Highyield debt issuers include many different types of US corporations, certain US banks, various foreign governments and a few foreign corporations. International Debt Fixed income securities issued by non-us foreign organizations, which can include governments, government agencies and corporations. 10

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12 Unless otherwise specified, the term Credit Suisse is the global marketing brand name for the investment banking, asset management and private banking services offered by Credit Suisse Group AG. Unless otherwise specified, the term Credit Suisse Private Banking generally refers to the combined capabilities of Credit Suisse Group AG subsidiaries and affiliates that provide private banking services to high-net-worth clients worldwide. The term Private Banking USA generally refers to the private banking business within Credit Suisse Securities (USA) LLC ( CSSU ). The Private Banking USA business in CSSU is a regulated broker dealer and investment adviser. It is not a chartered bank, trust company or depository institution. It is not authorized to accept deposits or provide corporate trust services and it is not licensed or regulated by any state or federal banking authority. As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) Promoting, marketing or recommending to another party any plan or arrangement addressed herein. This material is for informational purposes only and is not intended to be an offer or solicitation to purchase or sell any security or to employ a specific investment strategy. Investing in securities or other products entails certain risks including the risk of loss of all or substantially all of one s investments; the suitability of any investment depends on a number of factors and must be considered in the light of an individual investor s personal financial situation. 2010, CREDIT SUISSE Group AG and/or its affiliates. All rights reserved. Credit Suisse Securities (USA) LLC Private Banking USA Eleven Madison Avenue New York, NY CP09-023A 0115