High Income Trust - January 2012 update

We maintained our overall defensive strategy through December, retaining our index hedge to help protect the Trust from the risk of financial market deterioration. Though the Fund delivered a positive overall performance it trailed the index. We have taken the opportunity of a rising market to reduce some of the names we own where results had not gone as well as expected and so in January have reduced the index hedge.

Since September the allocation to emerging markets has performed well. We have selectively reduced some Chinese corporates where the market was more positive than us on likely outcomes. We added Brazil based oil & gas producer Petrobras, given the strong balance sheet and our positive view on Brazil’s economic outlook.

We have no material exposure to peripheral eurozone countries. Within Europe we are mainly positioned in the strong German, Dutch and Swiss cable sectors. We have gradually been adding to our US corporate exposure, mainly in the higher quality space as B rated names look quite tightly priced. We are adding exposure to US autos, where the improving industry backdrop should be reflected by credit ratings.

We are happy with the maturity profile of our holdings, with the companies facing no material refinancing issues during 2012 and 2013. 40% of the bonds we own - double the proportion in the index – have some form of security, an attractive feature in a volatile environment.