Challenger High Yield Fund

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					Challenger High Yield Fund
Fund report and commentary – 31 December 2009

 Performance
                                                                                        Quarter            1 year         3 years         5 years        10 years        Inception
                                                                                           (%)               (%)          (%) p.a.        (%) p.a.       (%) p.a.         (%) p.a.
 Challenger High Yield Fund                                                                1.51              4.94          -10.02          -3.47             -              0.70
 Growth return                                                                            -0.20             -0.25          -15.68          -8.99             -             -5.40
 Distribution return                                                                      1.71              5.19            5.66            5.52             -              6.10
 UBSA Composite (All Maturities) Bond Index                                                1.03              1.73           6.56            5.72             -              5.85
 UBSA Bank Bill Index                                                                     0.88              3.47            5.92            5.90             -              5.69
 Challenger Wholesale High Yield Fund                                                      1.68              5.71           -9.36          -2.79             -              1.38
 Growth return                                                                            -0.25              0.00          -15.55          -8.71             -             -5.11
 Distribution return                                                                      1.93              5.70            6.19            5.92             -              6.49
 UBSA Composite (All Maturities) Bond Index                                                1.03              1.73           6.56            5.72             -              5.75
 UBSA Bank Bill Index                                                                     0.88              3.47            5.92            5.90             -              5.69
 Challenger Professional High Yield Fund                                                   1.70              5.77           -9.31          -2.73             -              2.71
 Growth return                                                                            -0.24              0.05          -15.76          -8.96             -             -3.72
 Distribution return                                                                      1.93              5.73            6.46            6.23             -              6.43
 UBSA Composite (All Maturities) Bond Index                                                1.03              1.73           6.56            5.72             -              6.07
 UBSA Bank Bill Index                                                                     0.88              3.47            5.92            5.90             -              5.56

Returns are calculated after fees have been deducted, assuming reinvestment of distributions. No allowance is made for tax. Past performance is not a reliable indicator of future
performance.
                                                                                             Asset allocation
Investment objective                                                                                                                     Current (%)                        Range (%)
                                                                                             Securities                                           80                           70-100
                                                                                               - Domestic                                         74
The Fund aims to outperform the UBSA Bank Bill Index and                                       - International                                     6
UBSA Composite (All Maturities) Bond Index over any 12                                       Cash                                                 20                                 0-30
month period.
                                                                                             Top five positions
                                                                                                                                                                                 Fund
Investment manager                                                                                                                                                              weight
                                                                                                                                                                                   (%)
                                                                                             Multiplex Sites Trust                                                                6.63
Challenger Managed Investments Limited                                                       Sydney Kingsford Smith Intrst Earnings Securities                                    4.79
                                                                                             Australand Holdings Trust - Assets                                                   3.92
                                                                                             Dexus Rents Trust                                                                    3.74
Investment strategy                                                                          Orica Sps                                                                            3.19

Challenger adopts an active approach to managing the Fund.                                   Maturity/Duration
Challenger is an active participant in the fixed interest and                                                                                                        Duration (years)
                                                                                             Fund                                                                                0.16
hybrid securities markets and has considerable expertise in
                                                                                             UBS Australian Composite Bond Index (All Maturities)                                3.40
assessing the investment potential of rated and unrated fixed
interest and hybrid securities.                                                              Fund facts
                                                                                                                          High Yield         Wholesale High             Professional
                                                                                                                                Fund             Yield Fund          High Yield Fund
Distribution frequency                                                                       Inception date               31/08/2002             16/09/2002               03/07/2001
                                                                                             Fund size ($M)                      36.4                 580.4                      75.8
Quarterly                                                                                    APIR code                   HOW0143AU             HOW0141AU                HOW0142AU

                                                                                             Fees
                                                                                                                           High Yield     Wholesale High         Professional
Suggested investment timeframe                                                                                                   Fund          Yield Fund     High Yield Fund
                                                                                             Entry fee                     Up to 4.0%                    Nil            Closed
At least three years                                                                         2008/09 ICR                        1.50%                0.75%             0.69%
                                                                                             Management fee                1.50% p.a.           0.75% p.a.         0.69% p.a.
                                                                                             Performance fee              20% p.a. of the Fund’s after management fee return
                                                                                                                          over and above the performance of the UBSA
                                                                                                                          Composite (All Maturities) Bond Index.
                                                                                             Buy/sell spread              +0.20%/                      +0.20%/                 +0.20%/
                                                                                                                          -0.20%                        -0.20%                  -0.20%
   Challenger High Yield Fund
   Fund report and commentary – 31 December 2009


   Sector exposure
                                                                                                                          Security type
                                                                                                                                                                          Fund weight
60%                                                                   48.8%                                                                                                       (%)
                                                                                                                          Asset Backed Securities                                1.05
40%
       19.7%
20%                                              6.9%                                              9.2%                   Commercial Paper                                       0.00
                  0.0%           4.0%                       0.0%                    3.8%
 0%                                                                                                                       Capital Notes                                          1.61
-20%                                                                                                                      Collateralised Debt Obligations                        0.92




                                                                                     Health Care
                                                 Consumer
         Cash




                   Derivatives




                                 Discretionary




                                                             Energy




                                                                       Financials




                                                                                                    Industrials
                                  Consumer




                                                  Staples




                                                                                                                          Convertible Notes                                      0.71

                                                                                                                          Corporate Bonds                                        9.79

                                                                                                                          Floating Rate Notes                                   24.23

                                                                                                                          Income Securities                                     16.94

                                                                                                                          Listed Unit Trust                                      3.09

                                                                                                                          Mortgage Backed Securities                            10.50

                                                                                                                          Ordinary Shares                                        0.00
   Commentary                                                                                                             Converting Preference Shares                           3.19
   The Fund’s amendment to the withdrawal process remains in place.                                                       Converting Preference Units                            0.00
   Challenger will make a withdrawal offer to investors in the Fund
   which will be open from 22 January 2010 to 19 February 2010. We                                                        Reset Securities                                       8.19
   will make 10% of all investors' units in the Fund available for                                                        Cash                                                  19.74
   withdrawal which is significantly greater than previous withdrawal
   offers due to generally improved conditions and the maturity of a                                                      Swaps and FX                                           0.04
   significant holding in the Fund. Our ability to make future
   withdrawal offers depends principally on the available liquidity
   within the Fund which we continue to monitor.                                                                                    BBB rated corporate bond spreads
                                                                                                                    bps                      (1year maturity)
   Market review
   Investor risk appetites increased during the quarter as conditions in                                           500
   financial markets improved. Sentiment in credit markets however                                                 450
   was somewhat dampened during the quarter following concerns of                                                  400
                                                                                                                                                                         December
   credit default of state-owned entity, Dubai World, but fears quickly                                            350
                                                                                                                                                                          quarter
   dissipated on the news of a US$10bn bailout by Abu Dhabi. The                                                   300
   impact on Australian credit was subdued with asset prices                                                       250
   continuing to rally over the quarter. Unsecured issuance totalled                                               200
   $21.0bn. Whilst the majority of this issuance is Government
                                                                                                                   150
   Guaranteed, the volume of this issuance is slowly decreasing as
                                                                                                                   100
   issuers are beginning to find non-Government Guaranteed paper as
   a cheaper funding alternative indicating further normalisation of                                                50
   credit conditions. Confidence in securitisation markets has improved                                              0
   significantly with a number of deals being issued during the quarter,                                             Dec-08          Mar-09         Jun-09       Sep-09        Dec-09
   most notably Westpac’s residential mortgage backed security (RMBS)                                              Source: CBA, Challenger Managed Investments Limited
   issue. Westpac is the first of the ‘big four’ banks to return to the
   RMBS market. The deal size was increased to $2bn from $1bn
   following strong demand.                                                                                       Listed hybrid securities have been the key contributors to
   The RBA lifted the Official Cash Rate by 0.75% to 3.75% during the                                             performance, supported by improving liquidity, investor
   quarter with the RBA’s accompanying commentary noting that the                                                 sentiment and the equity market rally. Security specific
   domestic outlook has improved.                                                                                 contributors included Multiplex SITES, Australand ASSETS and
                                                                                                                  Sydney Airport SKIES. Multiplex and Australand have benefited
   Portfolio update                                                                                               from improved fundamentals in the property sector while
   The Fund delivered strong positive returns for the third consecutive                                           Sydney Airport is benefiting from the economic recovery as
   quarter with returns now up 14.18% (Challenger Wholesale High                                                  passenger volumes have increased. Mortgage backed securities
   Yield Fund, net of fees) over this 9 month period. The chart opposite                                          also contributed positively to performance on the back of the
   shows how credit spreads have contracted throughout 2009,                                                      housing market recovery and increasing confidence in the asset
   stabilising in the 4th quarter.                                                                                backed security market.
  Challenger High Yield Fund
  Fund report and commentary – 31 December 2009


       Detracting from performance during the quarter were two unlisted
       Timbercorp securities. In line with Timbercorp Limited going into
       voluntary administration, the probability of recovery from these
       securities is minimal. Accordingly the value of these securities has
       reduced.
       Fund outlook
       Global economic conditions have stabilised however many
       developed economies may now face potential downside risks in the
       recovery given the fiscal challenges ahead. Domestically, the outlook
       is stronger as a solid recovery is underway supported by a robust
       fiscal position combined with close economic ties to the growing
       Asian region. Credit markets have rebounded strongly since March
       2009 and the outlook for the asset class remains positive as liquidity
       and appetite for the asset class improves. Performance however will
       likely be a more measured pace moving forward. We continue to
       actively manage the Fund to its investment objectives, whilst seeking
       to raise liquidity where appropriate.




Any information contained in this publication is current as at 31/12/09 unless otherwise specified and is provided by Challenger Managed Investments Limited ABN
94 002 835 592 AFSL 234 668, the issuer of the Funds. It should be regarded as general information only rather than advice. It has been prepared without taking
account of any person’s objectives, financial situation or needs. Because of that, each person should, before acting on any such information, consider its
appropriateness, having regard to their objectives, financial situation and needs. Each person should obtain a Product Disclosure Statement (PDS) relating to the
product and consider that PDS before making any decision about the product. A copy of the PDS can be obtained from your financial planner, our Investor Services
team on 13 35 66, or on our website: www.challenger.com.au. If you acquire or hold one of our products, we will receive fees and other benefits, which are
disclosed in the PDS for the product. We and our employees do not receive any specific remuneration for any advice provided to you. However, financial advisers
(including any Challenger group companies) may receive fees or commissions if they provide advice to you or arrange for you to invest with us. Some or all of the
Challenger group companies and their directors may benefit from fees, commissions and other benefits received by another group company.

				
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Description: Challenger High Yield Fund