On a rolling 12-month basis the fund returned 11.7% compared with an 11.9% return on the benchmark, All Bond Index. The portfolio remains focused in the middle area of the yield curve which offers the highest yields. It does not include any of the very long bonds which the managers regard as being expensive.

At 30 September the Fund celebrated its first anniversary having marginally underperformed the benchmark. Our return for the year amounted to 13.2% versus 13.6% for the All Bond Index. As the minimum management fee is 0.285% it can readily be seen that the bulk of the deficit was sourced in this cost. The managers remain of the view that the very long bonds are overpriced. This together with their characteristic of high capital volatility ("duration") or high risk keeps them in the unattractive category. Future performance relative to the benchmark will still therefore be inversely correlated to these long bonds.

In its first 11 months the Fund has underperformed its benchmark of the All Bond Index, returning 13% (unannualised) versus 14% for the Index. The reason for the underperformance was that the managers avoided very long government bonds which remain priced at a premium to 10-year bonds. The managers believe these very long bonds are mis-priced notwithstanding that the yield gap has contracted. The Fund still has no holding in these ultra long bonds. The duration (capital movement per 1% move in rates) of the Fund remains at 5.0 which approximately equates that of the All Bond Index. Future performance relative to this benchmark will remain inversely correlated with that of ultra long bonds which, as mentioned above, are still being avoided.

In its first nine months the Fund has underperformed its benchmark of the All Bond Index, returning 11.9% (unannualised) versus 12.8% for the Index. The reason for the underperformance was that the managers avoided the very long government bond, the R186 maturing in 2025, which remains priced at a lower yield than 10-year bonds. The managers continue to feel the R186 is mispriced notwithstanding that the yield gap has contracted and the Fund still has no holding in this ultra long bond. Recently the duration (capital movement per 1% move in rates) of the Fund has been restored to 5.0 which approximately equates that of the All Bond Index. Future performance relative to this benchmark will remain inversely correlated with that of ultra long bond which, as mentioned above, is still being avoided.

In its first eight months the Fund has underperformed its benchmark of the All Bond Index, returning 9.0% (unannualised) versus 9.9% for the Index. The reason for the underperformance was that the managers avoided the very long government bond, the R186 maturing in 2025, which is priced at a significantly lower yield than 10-year bonds. The managers continue to feel that the R186 is mispriced notwithstanding that the yield gap has contracted and the Fund still has no holding in this ultra long bond. More recently some 10-year bonds have also been sold in favour of the R153 medium-term bond which has further reduced the risk of the portfolio. This was considered prudent given the possible change in direction of the Rand in the second quarter of 2005. The duration of the Fund is currently 4.5 versus 5.0 for the Index. This means that the Fund will continue to underperform given its current holdings should the bond market remain strong, but will outperform if the bond market is weak.

In its first six months the Fund has underperformed its benchmark of the All Bond Index, returning 6.5% (unannualised) versus 7.7% for the Index. The reason for the underperformance was that the managers avoided the very long government bond, the R186 maturing in 2025, which is priced at a significantly lower yield than 10-year bonds. The managers feel that the R186 is mispriced and prefer to carry an extra weighting in the 2014 bond. They believe that in the longer term this strategy will provide a better combination of risk and reward.