The Liberty Income Fund returned 15.5% for the year ending 30 Sep 2003. The fund also retained its first quartile position over the two and three year periods, outperforming the 1-3 year sector of the All Bond index over three years ending 30 Sep 2003.

Trades for the third quarter ending 30 Sep 2003 included the liquidation of longer dated government paper to shorten duration. The proceeds of these cashflows, as well as new cashflows, were invested in the medium end of the government curve. In the current declining interest rate environment, the short and medium end of the curve performed better than the longer end. The fund purchased medium term Anglogold, Nedbank, Investec, Standard Bank and African Bank corporate paper. The fund liquidated short term money market assets, as well as Harmony, BOE and African Bank corporate paper.

In this quarter the SARB MPC cut interest rates more aggressive than anticipated by the markets. At the August meeting, the Repo was cut by 1.0% to 11.0%. Then in September the SARB realised they were probably falling behind the curve in the current cycle, a special MPC meeting was convened and the Repo cut by a further 1.0% to 10.0%. The money market continues to trade lower as more interest rate cuts are expected. The 12 month NCD rate declining from 9.9% at the end of June to 8.50% at the end of September. The rand continues on it's strengthening path against the US dollar, contributing to the attainment of the inflation target and supplying the SARB with ample opportunity to further ease monetary policy.

The Liberty Income Fund returned 16.9% for the year ending 30 June 2003, retaining its top position in the Income Fund category. The fund also retained its top performing position over the two and three year periods, substantially outperforming the 1-3 year sector of the All Bond index over three years ending 30 June 2003.

Trades for the second quarter of 2003 included the liquidation of shorter dated money market instruments in order to add duration to the portfolio. The proceeds of these sales, complemented the new cash inflows, which were used to purchase longer dated money market instruments as well as capital market instruments. The best performance over the quarter was from the middle to longer end of the bond curve.

At the June MPC meeting, the Repo rate was lowered by 1.5% to 12.0%. The market anticipated a rate cut larger than 1% after Stats SA revised the CPI numbers downward by 2.3%. Money market rates declined sharply, with the 12 month NCD rate declining from 12.8% at the end of March to 9.9% at the end of June. The money market curve remains inverted, with another 3% of interest rate cuts expected in the cycle. The continued strength of the rand will help the likely attainment of the inflation target in 2004.

The Liberty Income Fund returned 15.6% for the year ending 31 March 2003, retaining its top performing position against its competitors in the Income Fund category. The fund marginally outperformed the 1-3 year sector of the All Bond index over the one year ending 31 March 2003.

Trades for the first quarter ending 31 March 2003 included a liquidation of Saambou Promissory notes to a value of R34m. The proceeds of these sales, complemented by new cash inflows in the fund, were used to purchase new vanilla bond issues, ie, Investec secondary capital and Daimler Chrysler five-year bonds. The fund benefited from the good performance of the Nedbank Preference shares that were bought towards the end of 2002.

A positive outlook for inflation, which is showing signs of slowing down dramatically, will drive the view on short-term interest rates. The SARB's MPC kept the repo rate unchanged at the March meeting, increasing the possibility of a cut at the June meeting. The current modified duration of the fund is 1.1%, and is positioned to benefit from the higher yields offered by the one year area of the yield curve. Longer dated bonds remain expensive relative to the yields offered in the money market.

The Liberty Income Fund was the top performing Income Fund during 2002, delivering a return of 12.5%. The fund remains the top performing Income Fund, with top positions over all important measurement periods.

During the fourth quarter, the fund liquidated shorter dated money market instruments and short dated holdings in Sasol and BOE. These investments were replaced with a combination of Libor linked assets, longer dated money market investments and 2009 Absa secondary capital bonds. Towards the end of the quarter a holding of tax free Nedbank preference shares, yielding 75% of the prime rate, were introduced. With the fund mainly invested in the longer end of the money market, the relative low capital risk exposure of the fund should benefit the performance during 2003.

The outlook is for short term interest rates to decline during 2003. This will mainly be as a result of the inflation numbers declining due to the high base created during 2002 and price benefits derived from a stronger rand exchange rate. The magnitude and timing of the repo rate declines is very unclear, however, the market is likely to be premature in anticipation of monetary policy easing. The downward cycle of money market rates is not expected to reach the previous cycle lows.