The STANLIB Flexible Income Fund returned 13.5% for the year ending 30 June 2005. The Fund is classified in the Fixed Interest Varied Specialist category.

The Fund size remained stable over the period. Trades for the second quarter ending 30 June 2005, included the selling of government paper in the medium end and buying paper in the short end of the yield curve. The exposure to parastatals was increased through the purchase of Telkom paper. Purchases of corporate paper included, purchases of newly issued Standard Bank paper and an increase in the existing exposure to ABSA Bank.

During the quarter the SARB MPC surprised markets by cutting the Repo rate by 50 basis points to 7%, citing Rand strength as a factor in the decision to lower interest rates. The interest rate cut had the desired effect, by weakening the Rand. The currency was also weakened further by Dollar strength against most currencies over this period. International oil prices traded to new highs around $60 per barrel during the quarter, with no significant decrease in prices expected soon due to supply demand constraints. The money market curve has flattened out since the rate cut, the 12 Month NCD rate opened the quarter at 7.70% and ended at 7.10%. The money market sees interest rates sideways for the moment, but the combined effect of the weaker Rand and high oil prices will have to be monitored carefully, especially for the second round effects to inflation.

The STANLIB Flexible Income Fund was launched on 1 May 2004. It was allocated to the Domestic Fixed Interest-Varied Specialist category in the unit trust survey. The Fund attracted good inflows of R163m over the quarter, complementing the current range of fixed interest funds. Trades for the first quarter ending 31 March 2005 included the sale of government paper in the short, medium and long end of the yield curve. Exposure in parastatals was increased through purchases of Transnet and Telkom paper. Purchases of corporate paper included the following; Standard Bank, Nedbank, ABSA, Super Group. The Fund also increased exposure to property securitisations. The Funds' exposure to preference shares was decreased over the quarter. In this quarter the SARB MPC decided to keep the Repo rate unchanged at 7.5%, stating that there are too many risks to inflation to lower rates further. The risks to inflation have increased dramatically over the quarter, as international oil prices traded well above $50 per barrel. The local currency also came under pressure with risk aversion traders, selling emerging markets assets in a flight to quality. The money market curve steepened over the quarter, the 12 Month NCD rate opening the year at 7.35% and closing the quarter at 7.70%. The money market is not discounting any further rate cuts at the moment. The risks from higher oil prices and a weaker currency, translating into higher inflation in the next few months, will in all probability keep the SARB from cutting rates this year.

Modified Duration: 1.6%

The STANLIB Flexible Income Fund was launched on 1 May 2004. It was allocated to the Domestic Fixed Interest Varied Specialist category in the unit trust survey.

The Fund attracted good inflows of R100m over the quarter, complementing the current range of fixed interest funds. Trades for the third quarter ending 30 September 2004 included the sale of government paper in the short and medium end of the yield curve. Purchases included longer dated government stock. Exposure in parastatals was increased through purchases in Telkom. Exposure to corporate paper was taken in the form of ABSA, NBC, African Bank, Investec. Exposure to Standard Bank was also increased through the purchase of newly listed preference shares. In this quarter the SARB MPC surprised the markets at the August meeting, by lowering the Repo rate from 8.00% to 7.50%. The SARB cited lower than expected inflation numbers and a strong Rand as reasons to cut rates, although the high oil price was seen as a risk to inflation targeting. The rate decision caused interest rate views to be revised lower and interest rate markets pricing in the probability of more cuts in the current cycle. The persistent high oil price is a cause for concern regarding the lowering of rates in the current cycle. The money market curve moved lower over the quarter, with the 12 month NCD starting at 8.90%, continuously trading lower, easing to 7.45% at quarter end. With the Rand trading in a stable range around the R6.50 level to the Dollar, but very high oil prices, it is likely that the SARB MPC will remain neutral on monetary policy.