This month's actions, has seen a reduction in the fund manager's asset allocation from cash, in favor of bonds, equities and property unit trusts. This allocation change has worked well for the fund over the past month, with bonds equities and property unit trusts all outperforming cash significantly.

The increase in the bond allocation was done mainly by means of R153's. Two forces seem to drive the current bond rates; namely local inflation which the fund manager's believe can potentially still come down, and the international interest rate cycles which seems to be under threat of an upturn with the RBA and the BOE leading the way. To this extent the fund manager's will remain cautious and only invest in liquid bonds which can be hedged or easily sold. As the fund manager's believe that inflation is still to reach the bottom of the cycle, and with inflation carry on these bonds becoming negative, we still remain negative on inflation lined bonds for at least 3-4 months.

The increase in equities was done by means of additional exposure to property unit trusts (Puts), financials and resources. The Puts were increased in order to harvest higher yields than what is presently available in cash, while financials were increased, due to this sector remaining undervalued. The fund manager's also increased the funds exposure to resources in two ways. Firstly, the fund manager's increased the funds physical exposure in order to capture returns from a continued upturn in the commodities cycle and the fund manager's believe that this can continue as long as the dollar remains weak. However the fund manager's have also increased the funds exposure by means of out-the-money call options, which should give the fund protection in the event that the resources sector rallies on the back of a weakening rand.

Three themes continued to dominate both the equity and bond markets over the past month, namely; the rand strength, local interest rate cuts and global economic activity. The emergency MPC had a very positive effect on the bond market with yields dropping by almost 40 bpts, across the curve. However, the largest effect was felt on the money market curve where yields dropped with more than 1%, largely due to the repo rate cut. In light of this we have started to reduce our holdings in nominal bonds in favor of cash, so as to reduce our risk on the portfolio and also to remain liquid should we experience some further growth from equities over the next few months, as the repo is adjusted further by the SARB.

The local equity market was largely flat for September with a rally at the beginning of the month and a subsequent retracement towards the end of the month, as the currency strength negated the positive sentiment towards global growth. The emergency MPC meeting that resulted in an early interest rate cut could suggest more cuts are on the cards than expected, which on balance, should be negative for the rand and positive for equities. While we have reduced our equity weighting slightly over the month, in order to negate some of the pullback of the equity market towards the end of the month, we still believe that a potential global economic recovery could be on the cards. In light of this we have increased our resource exposure slightly but maintain a substantial holding in financials and selected industrial shares.

Performance
Equities consolidated during the month of June with a 2.2% decline in the All Share Index after a 14% rally during May. Bonds once again returned a respectable 2.4%, with cash trailing at 1.1%. The rand resumed its rally by appreciating by 7.3%, resulting in declines in resources counters and shares heavily exposed to foreign currency. Financials continued a steady rise (+1.7%), with banks (+2.9%) and investment companies (+3.5%) the top sub-sectors. Other sectors that shone were general retailers (+6.8%), food and drug retailers (+12%) and telecoms (+19.6%), reflecting less pressure on the consumer due to lower interest rates.

Outlook
The expected 1.5% interest rate cut in June materialised, resulting in renewed interest in the equity market. Exceptional performance from the bond market and lower yield going forward should also result in a more favourable investment case for equities. Valuations on financials and industrials are still attractive despite the rally of the past three months and lower interest rates should stimulate the local side of the South African economy. Conversely, lower interest rates leave the rand slightly more vulnerable, which bodes well for resources shares but raises a warning flag in the bond market. The currency and foreign markets will therefore still dominate local markets.

Our asset allocation to equities was therefore increased slightly, in order to take advantage of the more positive investment environment.

Another dismal month for equities, where the ALSI again gave a negative return of almost 8% for the month. Our overweight in cash and bonds was again proved to be correct, with the local bond market yielding a positive return of 0.93% and the cash market yielding a positive return of 1.1% for the month. Our exposure to properties also proved to be correct with properties yielding a positive return of 2.5% on property unit trusts and over 6% on property loan stock. While many fund managers remain positive on Inflation linked bonds, which yielded a positive return of 1.08%, we still remain concerned about two issues going forward. Firstly, we remain of the opinion that real rates have run their course. In light of the strong Rand over the past few months, we believe that inflation is in an increasingly good position to come down aggressively over the next few months. This could have negative inflation carry as a result, which could further drive real rates higher.

With the South African Reserve bank seeming to remain conservative in terms of their monetary stance, money market rates were unchanged during the month of March. Both 3-month Jibar and 12-month Jibar remained almost unchanged at 13.4% and 12.91% respectively. SIM's fundamental analysis as well as the money market curve both suggests that a rate cut should be imminent within the next 3 months. We therefore expects to see money market rates decline during the course of the second quarter (by roughly 100 basis points) in anticipation of a looser monetary stance by the SARB.

The YTM on the benchmark 10-year government bond, the R153, declined slightly to 10.16% from 10.21% at the end of February while the YTM on the longest dated government bond, the R186, rose from 9.01% to close the month at 9.14%. Our fund was however mostly exposed to the shorter end of the yield curve, where the yield on the R150 reduced from 10.98% to 10.93%. From the above it would seem that the stronger currency and the improved inflation outlook (PPI fell from 12.4% y/y in December 2002 to 6.2% y/y in February 2003) had little impact on the bond market. We believe that the yield curve, as well as the domestic macroeconomic environment suggests that the bond market could rally further into the second quarter of 2003. Especially as we approach the first interest rate cut.

Market performance during the month of December was not as good as the good performance of November. The fund did however deliver what was expected, by not loosing money during the month, while Equities returned -2.85% (All Share) for the month, Nominal bonds returned 0.81% (ALBI) and Cash 1.07% (Steffi) for the month. The reduction of exposure to cash was therefore slightly premature. Inflation linked bonds had a good month due to positive inflation carry (R189 = 1.7%). However, due to the future prospects of a reduction in inflation and the limited liquidity in these bonds we remain satisfied with our underweight in these bonds.

The short end of the money market traded sideways during December 2002 with the 3-month Jibar rate remaining unchanged at 13.47%, in line with SIM's expectations. The 12-month area of the curve continued to decline during the month with 12-month Jibar falling from 13.32% at the end of November 2002 to close the year at 13.02%. The change in the curvature of the money market curve suggests that the time for an easing in monetary policy is moving closer. SIM expects the SARB to cut its repo rate by 200 basis points during 2003 with the first 100 basis point cut expected in the first half of the year.

Compared to December 2001, December 2003 turned out to be rather un-eventful. With low levels of price volatility and a flattening of the yield curve, the yield on the R153 opened and closed the month at around 10.73%, while the yield on the R150 rose by 5 basis points to 11.07%. Although bonds yield are not driven by the currency, it was a little surprising that the bond market seemed to completely ignore the movement in the R/$ exchange rate to R8.55 per dollar at the end of 2002. The bond market may again improve during January 2003 in the event of positive inflation data. We further remain of the opinion that 2003 should be a good year for SA government bonds, and prefer nominal bonds over Inflation linked bonds.

Although the All Share declined by 8.2% while this fund yielded close to 15% during 2002 (source: S&P Fund Services). In addition the rand appreciated by 39% against the US dollar and 25% against the sterling. South Africa was therefore one of the best international investments during 2002. Our high dividend yields and interest rates should continue to attract foreign investments although the rand may have run its course in the short term. We expect the local economy to remain strong with interest rates possibly declining later in 2003. This bodes well for local industrials and banks, which trade at relatively low PE ratios. Although the global economic environment remains uncertain, the economic climate may well improve from a very low base. Resources and other globally priced shares should benefit from any signs of improvement.

With the market now perceiving inflation to have turned we have seen that FRA rates are pricing in a rate reduction as early as the first or second quarter of next year. In view of this, money market rates have reduced in the long end (12months) with the best value now being offered in the 3- 6 month area.

Looking forward we will maintain a significant weighting in money market instruments in order to diversify the fund while also providing some bias to capital protection. However, the current weighting might be reduced to some degree. Investments will be made in those areas of the curve, which we believe offer the best value; currently the 3-6 month area.

As we believe inflation rates have peaked, we maintain that Nominal bonds will outperform the Inflation linked market, while the latest strength in the Rand will only serve to strengthen this view. We will therefore continue increasing our Nominal bond exposure at the expense of Inflation Linked Bonds.

The mid and small cap sectors again outperformed the more liquid Top40. Gold, platinum and metals weighed on the market with continued Rand strength prompting earnings downgrades in the resources sector. The local economy is still strong and with the festive season nearing, general retailers continued their great performance (+14.9%). We also saw Telecoms continuing the October rally (+25.8%) and media (mainly NPN stable) gaining a respectable 10.9%. The banking sector also rallied on renewed Rand strength and firmer bond rates. Looking forward we expect more earnings downgrades in resources due to the strong Rand. We therefore prefer larger weightings in selected financial and industrial shares until a recovery in global economic conditions is confirmed.