Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

October 8, 2009 - AllianceBernstein Income Fund (ACG-NYSE) is a close-ended fixed income mutual fund launched and managed by AllianceBernstein L.P. It invests in the fixed income markets of the United States. The fund invests mostly in fixed income securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, and repurchase agreements pertaining to U.S. Government securities.

If you want to invest in the treasury market but don't have the expertise or the millions it takes to do it comfortably, then ACG is a good fund to consider. While it doesn't hold only treasury debt (it also has Fannie Mae and government sponsored paper as well as other types of debt), the majority of its holdings are a direct obligation of the U.S. government.

Its blended overall yield as of this writing is 7.2%, not bad for a market where finding good returns with almost certainty are impossible to uncover. Obviously, the fund is buying and selling bonds, notes and bills (a bill matures within one year, a note matures between one and ten years, and a bond matures more than ten years out), not just buying and holding. And they're doing it for profits as rates have dropped over the last couple of years (there was a loss in 2008 from realized losses but most other years show gains). Those additional profits go into the overall yield of the fund.

However, it's important to remember that when yields go up, prices on notes and bonds go down. So depending on how many longer maturity issues ACG holds, an investor will be at risk in the pricing of the fund. Here are the latest largest holdings as of September 23 and the percentage of the portfolio each represents:

 1) U.S. Treasury Notes 1.00%, 7/31/11 10.90%
 2) U.S. Treasury Notes 3.625%, 8/15/19 7.56%
 3) U.S. Treasury Notes 1.75%, 8/15/12 6.65%
 4) U.S. Treasury STRIPS Zero Coupon, 5/15/17 6.55%
 5) U.S. Treasury Notes 2.625%, 6/30/14 5.68%
 6) U.S. Treasury Bonds 11.25%, 2/15/15 4.80%
 7) U.S. Treasury STRIPS Zero Coupon, 11/15/21 3.25%
 8) U.S. Treasury Bonds 6.625%, 2/15/27 3.18%
 9) Federal National Mortgage Association 5.375%, 6/12/17 2.19%
10) Federal Home Loan Mortgage Corp. Gold Series 1.73%

That's a little over 50% of the fund's investments in those 10 issues, with only 3 over 10 years until maturity. Those 3 make up about 14% of the total fund. So exposure to longer term price fluctuations isn't too bad. However, even notes maturing in 5 to 10 years will go down in price when interest rates move up. And they will most certainly be going higher over the next several years.

The fund is designed to give a high dividend yield consistent with preservation of capital. As a rule, the fund invests 65% of its total assets in securities issued or guaranteed by the U.S. government. The fund also buys commercial mortgage-backed securities, high yield corporates and bank loan debt as well as emerging market issues.

Income investors with long term horizons will find this fund appealing. Further investigation is warranted as any investor will want to know exactly how the fund invests all money and what the risks are. Management has consistently taken a long term view in its investments and the price of the fund, with the exception of late last year, has held very steady for years.

There is no Web site for the fund. But there is plenty of information available at Morningstar.com or Finance.yahoo.com

- Ted Allrich