Fund Objective

The fund focuses on providing a high income.

View on Past Performance

The third quarter proved to be a very difficult time for corporate bonds. The market has been rocked by the collapse of Lehman Brothers, the government rescue of AIG and the bankruptcy of Washington Mutual. The fund was particularly impacted by the decision of the UK Government to nationalise Bradford & Bingley.The attempts of governments around the world to stabilise the financial system is a key ingredient required to normalise the situation but we fear it is too late to prevent recessionary conditions.Liquidity in fixed income markets was poor throughout the period and there were relatively few transactions within the Fund. However, the few new issues to come to market were attractive and we bought Cadbury and GECC. In August we sought to decrease risk within the portfolio, selling bonds in Fiat, Severn Trent, BAT, RBS and Lloyds TSB.The proceeds were reinvested into government bonds. In addition we switched a Barclays UT2 deal into a cheaper US Dollar denominated Barclays bond.

Future Expectations

The near term outlook for corporate bond markets remains challenging. Corporate cash flow is likely to come under pressure during the economic downturn which for lower rated credits is likely to lead to a substantial rise in defaults and continued volatility. However, the current pricing of credit is very attractive compared to historic levels even though it may be many months before the confidence of investors is restored.

Fund Details