Following a positive performance in June, the local bond market continued to rally during the month, driven mostly by a stable Rand, positive foreign flows and better than expected inflation data. Rand stability against a basket of currencies and relatively high yields, have encouraged foreign investors over the past few months. Despite a recent sharp rally by the U.S. dollar against most currencies, the Rand held ground and even strengthened due to anticipated cash inflows resulting from the completion of the ABSA/Barclays transaction and anticipation of an upgrade of South Africa's credit rating. The Rand ended the month at R6.55/US$, R11.60/British Pound and R 8.00/Euro. On balance, economic indicators remained bond friendly, with the exception of credit extension data, which remained intractably high. The ALBI gained 1% for July with R153 and R157 government bonds ending at 7.55% and 7.90% respectively.

International bond markets remained volatile driven largely by domestic factors. Worst performing bonds were U.S. Treasuries, which more than gave up recent gains, with yields ending the month sharply higher as the economic climate in the US remains positive. The U.S. benchmark 10-year treasury closed at a high yield of 4.31%. European bonds faired better as indications of economic activity remained muted.

Domestic fund managers are largely underweight bonds and this should underpin the market in the near term as the total coupon payments over the next two months is estimated to be R21 billion. Asset allocation to bonds remains low at approximately 14%. Government and corporate issuance will not be sufficient to meet potential demand for re-investment. The modified duration of the fund was 5.04 at the end of July, higher than that of ALBI and the fund was fully invested over the month.

Global bond and currency markets experienced yet another volatile month, with the local market being no exception. The bond market recouped most of the previous weeks' losses after the Reserve Bank unexpectedly reduced interest rates by 50bps. The All Bond Index gained 2.06%, as yields fell and the benchmark R153 and R157 government bonds ended at 7.75% and 8.28% respectively. The Rand strengthened despite the reduction in rates and ended the month at R6.05/US$, R11.50/British Pound and R 7.85/Euro. The prospect of currency inflows due to the anticipated conclusion of the ABSA/Barclays transaction, kept the Rand firm.

Local inflation data was marginally worse than expected and needs to be monitored closely, as the effects of the higher oil price and rising food costs have not been entirely discounted. International investors and speculators were largely buyers of South African debt during the month, reversing the trend of the previous month.

International bond markets, notably the U.S., staged an impressive rally, further underpinning the local market. The benchmark 10-year U.S. treasury yield fell to 4.20% from 4.50%.

The modified duration of the fund was 4.80 at the end of April, marginally lower than that of ALBI and the fund was fully invested over the month.

International and local bond investors experienced a sharp reversal of fortunes as yields shot higher, ending the quarter on a downbeat note. The All Bond Index lost 3.67%, one of the worst performing months in the last two years. Yields rose, with the benchmark R153 and R157 government bonds ending at 8.25% and 8.65% respectively, over 70 basis points higher than the end of February.

The Rand weakened to end the quarter at R6.25/US$, R5.85/US$, unchanged at R11.25/British Pound and R 7.80/Euro. Inflation data released during February once again surprised most market commentators positively, but failed to lure investors back to the market. Bond markets globally, continued to weaken throughout the month and the South African bond market was no exception. Fears are increasing that weak currency markets, coupled with rapidly rising oil prices, will result in an inflation increase over the coming months. Foreign investors had been sellers of emerging market debt during March, which also had the effect of weakening the local currency. Other economic data released during the month did little to ease investor concerns.

International bond markets remained weak, particularly the US bond market which saw the benchmark 10-year yield rising from 4.37% to end the month at 4.50%.

The modified duration of the fund was 5.01 at the end of March, marginally lower than that of ALBI and the fund was fully invested over the month.

Bond investors continued to benefit from the All Bond Index re-weighting and strong coupon flows during February, which saw yields grind lower. Yields fell, with the benchmark R153 and R157 government bonds ending at 7.52% and 7.80% respectively. The Rand strengthened to end at R5.85/US$, unchanged at R11.25/British Pound and R 7.80/Euro.

Inflation data released during February once again pleasantly surprised most market commentators and added to the already positive sentiment prevalent in the market. On 23 February 2005 Mr. Trevor Manuel presented the national budget for the 2005/2006 financial year. On the whole the budget appears well balanced with clear intentions from government to continue the trend of an expansionary fiscal policy within an undemanding funding structure. Increased spending to address socio-economic backlogs, infrastructure development and tax relief underscored the pro-growth nature of this budget, despite an expansionary budget. Other economic data particularly the credit-extension and money supply numbers were less bond- friendly and should alert prudent investors to the dangers of complacency. Oil prices have once again rebounded and could potentially have a negative impact on both growth and inflation especially if the Rand does not strengthen to compensate for the higher crude costs.

International bond market performances were weak during the month, particularly the US bond market which saw the benchmark 10-year yield rising from 4.16% to end the month at 4.37%. Fears that the US budget deficit would dampen foreign investor enthusiasm for US treasuries and other assets as the dollar weakened, was chiefly responsible for the sell-off.

An increase in bond volatility greeted bond investors at the start of the New Year. Local bond yields rose, with the benchmark R153 government bond peaking at 8.13% in line with weakness in the currency market which ended the month weaker at R6.05/US$, R11.25/British Pound and R7.80/Euro. Despite a weaker Rand, the bond market staged an impressive rally ending the month at record lows. The R153 and R157 benchmark bonds ended sharply lower at 7.68% and 7.90% respectively. The weaker performance of the Rand versus the US$ reflects the markets' optimism of a further interest rate cut by the Monetary Policy Committee of the South African Reserve Bank in February, as well as the anticipated rate rise in the US. Economic data released during the month has largely been bond friendly, notably the inflation data, which once again was lower than most forecasts. Strong bond coupon flows, an All Bond Index re-weighting and a low portfolio exposure to bonds has continued to underpin the market.

International bond market performances were mixed during the month, with UK yields rising and US and European yields falling. The benchmark U.S. 10-year Treasury bond ended the month at 4.16% from a previous close of 4.26%

The modified duration of the Fund was 5.02 at the end of January, higher than that of the ALBI, which ended at 4.75.

The last month of 2004 did not disappoint South African bond investors as yields dipped to record lows. The benchmark R153 government bond declined to 7.82% aided by a buoyant currency which itself had another impressive month, ending the year firmer at R5.65/US$, R10.75/British Pound and R 7.65/Euro. The year ended on a pessimistic note for the US $, which lost over 17% to the Rand. Emerging market and commodity producing currencies rallied against the dollar, with only the Polish Zloty outperforming the Rand. Inflation indicators remain benign for now, despite the resilience of the credit extension and money supply data, which have risen steadily through the year. A strong currency has shielded South Africans from the potentially detrimental effects of a rampant oil price and therefore logically from higher inflation rates. The Monetary Policy Committee (M.P.C.) of the Reserve bank did not cut interest rates as many market participants had anticipated, largely due to expectations that the economy can continue its strong performance. Anecdotal evidence suggests that the consumer has been able to continue spending at much the same pace as in early 2004.

International bond yields were marginally higher for the month. The risks for the bond market have increased, as current valuations seem stretched. The yield of the benchmark U.S. 10-year Treasury bond ended the month close to 4.26 from a previous close of 4.20.

The modified duration of the fund 4.767 at the end of December largely in line with that of the ALBI and the fund.