Trades for the third quarter ending 30 September 2008 included the sale of shorter dated money market instruments to fund the purchases of longer dated bonds. The short modified duration position in the Fund was changed to a long duration position. Purchases of bonds mainly consisted of the RSA 2015 R157 paper. Sales of corporate bonds included Standard Bank, MTN and FirstRand papers. The exposure to floating rate notes was maintained and benefited the Fund due to the high level of money market rates.

During the third quarter of 2008 the SARB MPC decided to leave the repo rate unchanged at the August meeting. Although the outlook for inflation remained negative in the short term, global events have significantly changed the outlook in the fixed interest markets. As the global credit crisis progress with the probability of world economic recession elevated, the main drivers of inflation is unwinding with the oil price receding from $147 per barrel to below $100 per barrel, a fall of 33.0%. Food prices, which have been an Achilles heel, are also set to collapse, a precursor to lower inflation. Bond yields retreated sharply, the RSA 2010 (R153) paper yield collapsed by 2.5% trading from a high of 11.92% at the beginning of July to close the quarter at 9.43%. The outlook for short term rates changed dramatically with the FRA curve pricing for aggressive rate cuts in the next year. Money market rates remained elevated in relation to bond yields due to the funding constraints in the banking sector, heightened by risk aversion. The 12 month NCD rate traded a high of 13.85% at the beginning of the quarter, ending the quarter at 12.50%. The bond market has seen good demand for duration with most Funds switching from cash to bonds. When the SARB MPC meets for their next interest rate meeting, we expect interest rates to be kept on hold, but a great possibility on an early cut exists. The global financial meltdown and expectations of slower global and local economic growth is overshadowing the negative inflation outlook. In this environment, with an expected lower adjustment in inflation next year makes bonds attractive.

Trades for the second quarter ending 30 June 2008 included the purchase of longer dated money market assets due to attractive valuations against long bond yields. The short modified duration position in the Fund was maintained. Sales of corporate bonds included Absa Bank, Standard Bank, MTN and Investec. The exposure to floating rate notes was maintained and benefited the Fund in the current upward cycle in interest rates.

During the quarter the SARB MPC decided to increase the Repo rate at both meetings by 50 basis points to 12.00%, due to the CPIX numbers moving further above the upper band of the inflation target. The risks to inflation remain on the high side as inflation expectations continue to rise and general pricing power is rising due to sustained increases in commodity and energy prices. The bond and money markets are still pricing for higher interest rates in the future. The money market is pricing for rates to be increased, with the 12 month NCD trading from 12.25% at the beginning of the quarter, to end the quarter at 13.80%. The bond yield curve remained inverted, with the RSA 2010 R153 bond starting the quarter at 9.71% trading to a high of 11.77%, before closing the quarter at 11.75%. There is still good demand for government inflation linked paper, but corporate spreads are widening due to credit risk aversion trades globally. At the next SARB MPC meeting the committee will have to balance the risks between lower growth and higher inflation and decide if more policy action is required. Key to their decision will be the latest data release which show that the economy is slowing down, which may influence the ultimate rate decision.

The STANLIB Income Fund returned 8.2%, compared to the benchmark All Bond 1-3 year Index return of 7.1%, anoutperformance of 1.1% for the 12 months ending 31December 2007. The Fund remained the top performer over the 3 to 20 year measurement periods.

Trades for the fourth quarter ending 31 December 2007 included the purchase of longer dated money market assets atttractive levels. Purchases of corporate bonds consisted of the corporate issues of Standard Bank, Imperial Capital, Unitrans, Investec and Sappi Manufacturing. Sales of corporate bonds included Standard bank, Investec, Group five, MTN and Steinhoff. The exposure to floating rate notes was increased through the purchase of securitisation paperissued from Investec and SA Homeloans.

During the quarter the SARB MPC decided to increase the Repo rate by 100 basis points to 11.00%, after the CPIX numbers remained above the upper band of the inflation target. The risks to inflation remain on the high side as inflation expectations continue to rise and general pricing power are rising in the economy. The bond and money markets are still diverted in the outlook for interest rates. The money market pricing for higher rates, with the 12 month NCD trading from 10.85% at the beginning of the fourth quarter, to end the quarter at 11.90%. The bond yield curve remained inverted, theRSA 2010 R153 bond starting the quarter at 8.95% trading to a high of 9.58%, before closing the quarter at 9.37%. The demand for short dated RSA bonds from the banking sector as liquid assets, placed a cap on rising bond yields. The outcome of the peak in inflation in 2008, will determine the probability of another rate hike from the SARBMPC.