Real yields remained steady during the month of August while inflation continued its downtrend. The fund maintained its underweight position in inflation-linked bonds as their performance slowed in line with this down trend. Bond yields came under pressure during the month despite the slowdown in inflation and the expected reduction in interest rates over the next six-month period. Bond exposure in the fund was reduced below benchmark levels with preference given to equities and cash. Equity holdings were maintained with purchases being made in existing holdings. Where our holdings achieve fair values we will sell and if no stocks are cheap we will wait on the sidelines until value is present. This conservative approach will serve the fund well over the long-term. The fund continues to deliver performance in line with inflation having exceeded this objective since its inception. Performance objectives are thus being maintained through tactical allocation between asset classes helping the fund to perform well against its benchmark and peers.

Inflation continued its downward trend during the month of June. This coupled with a 1.5% cut in interest rates saw nominal bond yields decline further yielding a positive return of 2.39% for the month. The fund retained its overweight position in bonds to take advantage of this move.

The downward revision of the inflation data at the end of May caused inflation-linked bonds to be repriced. Real yields weakened slightly on the back of this detracting from performance of the fund during the month of June.

Equities gave up some of the previous months gains as the rand strengthened relative to the major currencies. Your fund welcomes such times of weakness in the equity markets since it invariably creates opportunities to buy good shares at very reasonable prices.

The fund continues to deliver real returns having exceeded its inflation objective since inception.

The strong performance of the rand during the month of April propelled local bonds to yield a return of 1.39% for the period. The fund maintained a marginal overweight position in nominal bonds in order to take advantage of this move.

Real yields held steady, despite the downward trend in inflation, contributing positively towards the performance of inflation-linked bonds. The fund continues to hold it's highest weighting in inflation-linkers. In contrast to the bond market, the strong rand pushed the ALSI down 2.3% for the month, as investors adjusted the earnings of rand-hedge stock downwards. The equity portion of the fund showed a positive return for the month, resulting in significant outperformance relative to the ALSI. South African equities are at historically cheap levels and accordingly we are moving closer to the maximum weight in equities.

Performance objectives are being maintained through tactical allocation between asset classes helping the fund to perform well against its benchmark and peers.

The downward trend of inflation was confirmed by the statistical data released this month. Real yields continued to remain steady during the month thus benefiting the performance of inflation-linked bonds.

Further strength in the currency contributed favourably towards the decline in bond yields. The fund's exposure to nominal bonds had been increased and made a positive contribution to the overall performance of the fund for the month. Money market exposure was also kept at optimal levels.

Equities are offering compelling value at present. In particular, large-capitalisation stocks are now firmly in buy territory and the fund is gradually building positions in selected counters. Equity holdings remained well diversified across the industrial and financial sectors, with a lower exposure to resources.

Inflation-linked bonds continue to have the highest asset weighting in the fund whilst performance objectives are maintained through tactical allocation between asset classes as defined in the mandate.

December inflation data released towards the end of January confirmed the anticipated peak in inflation in the early part of 2003. Real yields however, held steady during the course of the month benefiting the performance of inflation-linked bonds. The Rand gave up some of its earlier gains but managed to rebound to more favourable levels at month end. The fund's government bond holdings were increased accordingly to take advantage of the interest rate move. The fund also took advantage of the decline in nominal yields caused by the anticipation of rate cuts toward the middle and second half of this year. Equity holdings in the fund were further diversified across the financial and industrial sectors with limited exposure to mining and resource sectors. The fund has maintained its benchmark weighting in inflation linked bonds and will continue to maintain its performance objectives through tactical allocation between asset classes as defined in the mandate.