On the 19th July 2012 the South African Reserve Bank cut interest rates for the 9th time since interest rates peaked in 2008. In light of this decision the Marriott Core Income Fund distribution has declined to 2.4841 cpu reducing the fund's yield from approximately 9% to 8%.

This interest rate cut has reduced rates to their lowest levels in 38 years. This low interest rate environment has put significant strain on retired investors needing to draw an income from their investments. The Marriott Core Income Fund has been positioned to assist retired investors needing a high level of income during this difficult time and the distribution of the fund has been kept elevated to help retired investors who need the extra income. This high level of income has been achieved by including high yielding bank deposits (premium NCDs) with a known capital loss to the fund of approximately 3%. Without these instruments the fund would yield close to 5.0% with relative capital stability.

To partially offset the capital loss created by the premium NCDs, government inflation linked bonds and high yielding equities have been included in the portfolio to provide capital growth. Listed real estate and fixed interest bonds have been avoided as we feel their current low yields present investors with significant capital risk. To date, the inflation linked bonds and high yielding equities have proved successful in reducing the capital loss created by the premium NCDs. The current annual total return of the High Income Fund is 8.7% which compares favourably to the 5.5% total return of the average money market fund over the same period. Capital sensitive investors are still, however, recommended to draw a money market related rate and to re-invest the excess income to help ensure capital stability.

In this low yielding environment many investors need to draw more than the yields currently available. The Marriott Core Income Fund has been positioned to facilitate higher levels of drawings whilst minimising capital risk.

Money in the bank is currently yielding approximately 5% - the lowest it has been for more than 30 years. This low interest rate environment has put significant strain on retired investors needing to draw an income from their investments. The Marriott Core Income Fund has been positioned to assist retired investors needing a high level of income during this difficult time. The distribution of the fund was 2.6712 cpu (9% annual yield) in June and has been kept elevated to help retired investors who need the extra income. This high level of income has been achieved by including high yielding bank deposits (premium NCDs) with a known capital loss to the fund of approximately 3%. Without these instruments the fund would yield close to 6% with relative capital stability.

To partially offset the capital loss created by the premium NCDs, government inflation linked bonds and high yielding equities have been included in the portfolio to provide capital growth. Listed real estate and fixed interest bonds have been avoided as we feel their current low yields present investors with significant capital risk. The inclusion of high yielding equities and inflation linked bonds has successfully dampened the price loss and resulted in a 7.4% annual total return for the year ending June 2012. This total return compares favourably to the 5.5% total return of the average money market fund over the same period.

Despite the improved performance of the Fund, capital sensitive investors are still recommended to draw a money market related rate and to re-invest the excess income. The re-investing of income will help ensure capital stability during this period of low interest rates and volatile markets. Investors should be encouraged by the fact that income from approximately 45% of the portfolio will be influenced by interest rate movements and 20% from changes to the inflation rate. We feel this is prudent positioning in the current environment given that inflation is likely to remain elevated in 2012 and that the next move in interest rates will likely be upwards.

The Core Income Fund distributed 2.5937 cpu in March. In an environment where yields are very low with cash yields being the lowest they have been in at least 30 years, the High Income Fund is positioned to produce the highest possible income with the least amount of capital risk.

Income from approximately 45% of the portfolio would be influenced by interest rate movements (within 3 months) and 20% from changes to the inflation rate. We feel this is a prudent positioning given that inflation is set to continue rising in 2012 and that the next move in interests rates will almost certainly be upwards.

o Corporate debt held within the portfolio includes issues from Emira, Growthpoint, Steinhoff, Aspen and Netcare - all blue chip, reliable income producing companies.

o High yielding securities include Vodacom, MTN, Altech and Liberty Holdings -reliable income producing companies with dividend yields currently above cash yields.

It is important for investors to note that certain of the cash deposits held within the fund have been purchased at a premium enabling the portfolio to produce its current yield. These deposits result in a reduction in the price of the portfolio. Although the inflation linked bonds and high yielding equities should dampen this price loss, investors are recommended to draw only money market related rates from the fund and re-invest the excess to neutralise the effects of the price loss.

To date, the combination of premium deposits with their capital loss and inflation linked bonds and high yielding equity with the possibility of capital gains have worked well for investors with total return from these funds of around 8.25% for the 12 months ended March 2012, 2.85% higher than the average money market fund..

The Core Income Fund distributed 2.6758 cpu in December 2011. The portfolio continues to produce a high and consistent distribution and includes cash, premium deposits, corporate debt, preference shares, inflation linked bonds and high yielding equities.

Equities in the portfolio include Vodacom, MTN, Altech and Liberty Holdings. Equities may not be considered a 'traditional' asset class for 'income' type funds, however, when one looks at the nature of the income stream currently being produced by these companies their inclusion fits with Marriott's Income Focused Investment Style.

- Vodacom, MTN and Altech form part of the telecommunication industry. Telecommunication company earnings are derived from a multitude of secure contracts making them an ideal source of reliable income.

- Liberty Holdings is predominately a life insurer. The life insurance industry derives its income from recurring premiums and is not capital intensive. As a result life insurers are able to generate significant cash flows and hence reliable dividends.

The forward yields of Vodacom, MTN, Altech and Liberty Holdings compare favourably to current cash interest rates. On an after tax basis the yields of these securities are even more attractive. There is also the potential for a re-rating of these income streams, which may contribute positively to the total return of the two funds.

Investors should note that The Marriott Core Income Fund is currently producing returns in line with Money market. Although the recent inclusion of high yielding companies has improved the return outlook for the fund, we recommend that investors draw as close to money market rates (5.5 to 6%) as possible to ensure capital stability.