The long-end of the money market yield curve continued to rally through September and into October as investors price in interest rate cuts in early 2009 with greater certainty. We decreased the duration of the Fund to 74 days from 83 days and increased the cash holdings. We made these changes to improve the liquidity position of the Fund in these uncertain times. The flatter yield curve, which is anticipating rate cuts, also gives less compensation for buying longer dated assets.

The anticipated 1% repo rate increase on 12 June did not occur as the Monetary Policy Committee decided to rather increase interest rates by only 0.5%. This decision surprised the market and term money market rates rallied 0.4%. Money market rates have since increased a little, pricing in one further 0.5% interest rate increase in August. The longer-term money market rates have recently rallied as investors' inflation expectations have moderated. We are still cautious on inflation but longer-term money market instruments do offer some value. The duration of the fund is 62 days.

In the lead up to the Monetary Policy Committee (MPC) meeting of 10 April the data on inflation and inflationary forces in the economy continued to deteriorate. However most of the inflationary pressures in the economy are driven by supply side issues rather than excess consumer demand In fact the consumer seems to be under some pressure. The MPC's decision to increase interest rates by 0.5% was not the consensus view but the risk of a rate increase was priced into term interest rates to some extent. The Fund duration of 70 days before the meeting took these conflicting factors into account. We believe the risks to interest rates remain skewed to the upside and have positioned The Fund accordingly.

Money market rates have been stable since the December interest rate increase and the money market is not pricing in any further rate increases. We agree with the market view that the interest rate hiking cycle has come to an end. A concern that we have is the risk of a weaker Rand and the affect this may have on interest rates. The duration of the fund has declined to 60 days since November, as the longer end of the yield curve no longer offers compelling value over the short end.