Distribution Bonds Explained - Your questions answered

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What are they? Distributor Bonds are Insurance Company managed funds designed to provide a stable and regular income. They differ from other Insurance Managed Bond funds in that the natural dividend income from the underlying portfolio is separately identified and can be distributed. Thus, the capital performance of the fund may be distinguished from the income being produced.

How are these bonds invested? To secure a steady income stream the underlying funds tend to be more cautiously invested than traditional managed funds and typically are invested30-60% into equities with the balance in cash, fixed interest securities, and property.

How much income is available? The natural dividend yield tends to be in the 4-5% per annum bracket net of basic rate tax and may be regularly withdrawn or reinvested to boost capital growth.

How have these bonds performed? Due to the typical diversity of the underlying investments in these bonds they have weathered the 2000 - 2003 equity bear market particularly well. Also, over 10 years to 30/09/2005 the sector has outperformed the Balanced Managed, Cautious Managed and the Money Market (High Interest Deposits) Standard & Poor's Micropal sectors. Also, as can be seen the sector has enjoyed a low level of volatility.

Source of raw data: Standard & Poor's Micropal. Basis is £100 invested 29/09/1995 - 30/09/2005 offer to offer all income reinvested. LF denotes Standard & Poor's Life Investment Funds.

Review our research and special terms