United Bank's Wealth Management Group believes that safety should be the primary consideration in the fixed income portion of a portfolio. Consequently, we have always recommended that our clients select bonds of relatively short durations and relatively high quality for the majority of their fixed income portfolio. This does not mean that every bond must meet these standards, but the overall risk/return tradeoff must be structured with safety as the primary goal.

High net worth investors typically have portfolio allocations to fixed income investments for some combination of three reasons:

1. To dampen the volatility of their overall portfolio by reducing the correlation of the total portfolio to the equity market.
2. To own low volatility assets in the event of unplanned cash needs.
3. To generate current income from interest payments.

Most often, fixed income investments are part of an overall strategic asset allocation structured to meet current and long-term income and growth needs of the investor. For some investors, the fixed income component is actually needed to produce cash flow in order to subsidize their required cash needs.

The Wealth Management Group allocation to fixed income typically consists of investments in two market segments. Normally, half of the fixed income assets are assigned to an absolute return investment vehicle, typically a diversified fund of funds or hedge fund strategies. The intent of this allocation is to reduce interest rate exposure while attempting to achieve a conservative and consistent return greater than that produced by 100% traditional fixed income investments. Absolute return funds have historically exhibited risk profiles similar to the Lehman Aggregate or Lehman Intermediate Corporate/Government indices. In addition to the low risk profile and higher return characteristics of the absolute return funds, their low correlation to equities and fixed income is seen as very attractive with respect to overall asset allocation and risk management planning.

The remaining half of the portfolio is assigned to fixed income based upon the investor's tax status. For fully taxable investors, the fixed income allocation is typically assigned to short/intermediate tax-exempt investments. For investors who can meet the minimum investment requirements, United prefers that the allocation be with a separate account manager. These managers typically run a high quality, diversified, short-intermediate municipal portfolio.

Investors not meeting the minimums will normally be allocated to a short-term bond fund, sometimes complemented with an allocation to ultra-short fund, which is used as a cash surrogate and is normally high quality. The objective of such a fund is to generate excess returns averaging 100 to 150 basis points over an average institutional tax-free money fund. For cash needs, United Bank will use institutional municipal money market funds.