The Fund returned 2.5% for the month.

Ten year bond yields strengthened 0.29% during September, from 9.12% to 8.83%.

Inflation data for the 12 months to August continued to surprise on the upside. CPIX was measured at 13.6%, up from 13% in July, versus a consensus estimate of 13.2%. Rising food prices again accounted for much of the month-on-month increase.

The Fund remains neutral modified duration. In other words, no specific view in terms of long-bond rates is expressed. Over the short term, the real yield obtainable from long bonds is very low, but over a longer time horizon we are of the opinion that the available real yield from long bonds is fair.

Two new corporate bonds were issued during the month. African Bank issued a five-year, A+-rated bond at a spread of 3.75% above the equivalent government bond. This was 0.75% wider than where a similar instrument, issued by African Bank in February, was priced. The Fund participated in the issue, selling some of its shorter-dated African Bank bonds at a spread of 1.8% to fund the purchase.

Barloworld issued a new senior bond towards the end of September. The bond, rated AA- (negative watch) was issued at a spread of 2.75% above the equivalent government bond. The Fund did not participate in this issue.

Ten-year bond yields weakened from a yield of 10.06 to 10.69 during the month of June. As was the case last month, the inflation data for the 12 months to May continued to surprise on the upside. CPIX was measured at 10.9% versus a consensus estimate of 10.7%. Once again the main contributors towards the increase were food and transport costs. Based on the Reuters consensus forecast, CPIX will only return to within the Reserve Banks inflation target band at some point during 2010.

The yield curve remains inverted with overnight call rates at approximately 11.7 and 1 O-year bonds yielding 10.69, but it did flatten somewhat due to long bonds weakening by relatively more than short bonds.

One new issuer, the City of Cape Town, came to market during May. The City of Cape Town follows in the steps of the City of Johannesburg, by becoming the second municipality to issue a listed bond. The City of Cape Town issued a total of R1 bn of the 15 year CCT01, rated AA, at a spread of 2.2% above the equivalent government bond. The Fund did not participate in this issue.

The Fund returned 0.9% for the month.

Although volatile during the month, bond yields ended 0.03% lower at 8.35% compared to November. The yield curve remains inverted with the ten-year bond yielding more than 2.5% less than overnight deposits. The long bonds appear to be anchored by the South African Reserve Bank's inflation target. Even though shortterm inflation has been unexpectedly high, the long-bond yields reflect a belief that the inflation target will be met in the future.

The yield curve shows belief by market participants that short-term rates will eventually fall to levels well below current long-bond rates. In other words, over the long run returns obtainable from investing and reinvesting in shorter-rated deposits would be the same or lower than investing in longer-dated bonds.

The Fund remains neutral in its interest rate positioning relative to the All Bond Index which is a reflection of our belief that bonds are fairly priced at current levels. No new sales or purchases of corporate bonds were done in December.