The ALBI returned 1.4% for the month despite further deterioration in the economic backdrop. The Producer Price Index again shocked the market with a 9.2% year on year increase in August, well above the 8.1% rise seen in July. The PPI is a leading indicator for consumer inflation as the production price of goods feed through to the prices of consumer goods. This, combined with high credit extension numbers, highlighted the necessity to hike interest rates further in South Africa. Market participants are expecting a further 1% increase in interest rates and we would caution that the probability for more is high. It could be argued that bond yields have already discounted the majority of the negative news and therefore had room to rally in September, we would however caution against this view. With Money Market rates now around 9.5%, bond yields are looking increasingly unattractive.

The Select Manager Income Plus FoF returned 0.54% for the month. The Coronation Strategic Income and the Investec Opportunity Income funds returned 0.70% and 0.89% respectively. The Old Mutual Enhanced Income fund disappointed with a 0.31% return, their large holding in property stocks dragged down performance.

The ALBI returned 0.68% during July whilst displaying significant volatility during the month. As the oil price rose above $75/barrel during the month, bond yields worsened touching intraday highs of 9% on the 10 year benchmark bond. Market participants still appear divided in their opinions on the future of interest rates. Inflation looks set to continue rising, as June's PPI figure which surprised the market at 7.5% year on year clearly confirmed. We believe that after the initial hike in June, we are set for a series of hikes, consistent with a normal interest rate hiking cycle. The property stock sell off that started in April, continued into July. Although not cheap yet as a basket, some pockets of good value are starting to appear and the underlying managers are taking advantage of this.

The Select Manager Income Plus FoF returned 0.54% for the month. The Coronation Strategic Income fund remains a sterling performer. The fund returned 0.73% for the month having reduced property exposure and modified duration ahead of the slump in prices.

The ALBI delivered a rare negative 0.23% return for March. This concluded a poor quarter for bonds as it underperformed cash and equities. Short term bonds were the best performers, only barely outperforming cash for the quarter. Inflation linked bonds returned 2.7% for the quarter as the continued shortage in supply of these assets supported prices. Property stocks were again a sterling performer returning 7.1% for March. The interest rate and inflation outlook for South Africa remains neutral to marginally negative. This combined with the more negative outlook for global rates and inflation should see bond yields drift higher for the better part of the year. Property stock ratings are not cheap but relative to the expected returns of bonds and cash still justify a solid position in an income fund.

The Select Manager Income Plus FoF returned 0.60% for the month. The average Money Market fund delivered 0.56% for the month. The increased exposure to property stocks offset the negative contribution by bonds within the portfolio this month. The Old Mutual Enhanced Income fund delivered a strong performance of 1.00% for the month.

The SA Bond market continued to make a comeback during December, ending with a return of 2% for the month. The final quarter of 2005 therefore delivered a 5% return, almost half of the year's 10.8% return. As inflation expectations retreated and the probability of an imminent interest rate hike faded, local buyers scrambled to return to a market in which they had little participaction so far this year. The longer dated bonds were again the main beneficiaries and therefore delivered the best performance. The 7-12 year dated bonds delivered 2.4% whilst the 12+ year dated bonds delivered 3.5% for December. Cash delivered 0.5% for the month.

The Select Manager Income Plus FoF returned 1.06% for the month. The average Money Market fund delivered 0.54% for the month. At the beginning of the December we implemented a switch out of the RMB Maximum Income fund into a more Flexible Income fund with a higher bond exposure, namely the Old Mutual Enhanced Income Fund. The manager of the Old Mutual Enhanced Income Fund, Arno Lawrenz, has a very successful track record in Fixed Income markets. This should ensure increased participation in further bond market strength.

The Select Manager Income Plus FoF returned 7.3% for 2005.