Legal & Other Unavoidable Technicalities

The Bernstein Value & Income Portfolio (“BVIP”) is a legally segregated trust fund, with Bernstein Trust & Capital Service OÜ (“BTCS”) acting as trustee. Given that all the assets of the BVIP are exclusively held in listed securities or cash, the corresponding daily account statements provide a full and final disclosure of the BVIP financial position at any given date.

 

We are acutely aware of the many instances of fraud related to funds entrusted by investors to third parties. As such, the independent auditors of BTCS have the right and obligation to access and review all account statements pertaining to the BVIP at any time and in intervals of their choosing. Thanks to the straightforward set-up of the BVIP, there are absolutely no circumstances imaginable under which funds should be transferred outside of the dedicated bank and brokerage accounts of the BVIP.

 

The Managing Partners of BTCS have deposited undated resignation notices with the auditors in respect to their mandates to act for the BVIP, which can be triggered immediately and unilaterally by the auditors, should they see only the slightest sign of inappropriate transfers outside of the BVIP, or comparable actions, which they deem out of line with the fiduciary obligations of the Trustee(s).

The individual ownership interest of the investor in the BVIP is structured as participatory loans, issued by BTCS. For legal reasons related to securities and banking law, it is subordinated to other claims against BTCS, which however is economically irrelevant given that the value and income in the BVIP accrues solely to the loan holders.

 

BTCS issues numbered loan certificates - electronically signed by its Managing Director(s) - to the investors. The denomination of these loan certificates is EUR 250 per unit or multiples thereof.

 

These loan certificates can be transferred at any time to other investors, subject to the endorsement, again by way of electronic signature, of BTCS. This system also allows for a flexible exchange by way of the price quotation system to be implemented on the BTCS website.

 

BTCS will update the loan certificate ledger accordingly for each transaction that occurs.

 

The net asset value of the respective economic participation in the BVIP of one loan certificate with a nominal value of EUR 250 will be published quarterly on the BTCS website.

As indicated, we try to keep the paperwork and fine print at a minimum. The actual implementation of the investment can hence be done quite fast. Just let us know the amount you like to invest as an initial investment and/or in monthly intervals, and we send you the documentation swiftly.

 

All contractual documentation is available in English and German and in itself is subject to German law. Given that Estonia is (still) a little off from the usual travel routes, the venue for any legal disputes, which we are confident, are very unlikely ever to occur, is Frankfurt /Main in Germany.

 

As a final note we would like to make you explicitly aware that - given the way the investment in the BVIP is legally structured – there is no obligation, as of now, to issue a prospectus. This saves time, hassle and costs. Some pending changes in the applicable German legislation, which we plan to fully comply with, may change that though.

 

We are nonetheless of the firm opinion that a prospectus is usually only read by the lawyers drafting it. Investors usually do not read them. This is due to the fact that most prospectuses are so bereft of any specific economic substance and mainly filled with a long list of boiler-plate risk considerations, that reading is actually of limited value.

 

Accordingly, we finish up this section with a couple of paragraphs which would be the essence of a prospectus for the BVIP:

 

1. Any investment in risky assets, as are shares and bonds issued by corporations and the derivatives related thereto (which form the key elements of the BVIP), can substantially lose its value for a number of reasons.
2. As such, we recommend that an investor should not invest more than 25% of his or her liquid assets in the BVIP as one-off investments and not more than 50% of the cash available for long-term savings, on a monthly basis.
3. The BVIP is recommended only for investors with a very long-term investment horizon. It is very likely to generate stable dividend income, but it is likely to deteriorate temporarily in value terms, notably given the current high valuations in parts of the market.
4. As such we encourage a mixture of initial and then regular monthly investments to average the purchasing costs.
5. The positive effect of the BVIP holding only marketable securities is a high degree of constant verification by the auditors.
6. The underlying investment approach of the BVIP is 100% in line with the 10 investment commandments developed over the years by the Managing Partners of BTCS. We promise you not to deviate from them, unless and until we publicly change or update them, based on our own constant learning experience.
7. We are looking forward towards establishing a mutually beneficial investment partnership with you. We hence report summarily on a quarterly basis and once a year in our annual meeting in the most comprehensive way, comparable to the standards of a public company. Hold us fully accountable to that, but also do not expect more.
8. We plan to distribute around 50% of the annual net return of the BVIP, capped at 4%, as interest on the participatory loans. This should work out in all profitable years, but there may also be (hopefully not, obviously) negative ones.
9. The fees we are generating for us from our joint investments in the BVIP contain only two elements: 1) a 20% share of any returns above an annualized 8% over a five year period and 2) a 0.40% annual cost fee. We believe this is fair and equitable.
10. The large majority of the banking and brokerage accounts related to the BVIP are held in the name of our US subsidiary Bernstein Financial Inc., acting as an appointed trustee. We believe that in addition to substantial cost and implementation advantages, this provides an additional cushion against any remote geopolitical risks one may want to anticipate. The United States will continue to be the ultimate safe haven of investments.