Current dividend yields of South African equities appear unreasonably low. As a result of a recovery in earnings, South African equities signifi cantly increased their dividend payouts to shareholders during the course of 2010 and 2011. This dividend growth coincided with an even greater rise in share prices which has reduced the dividend yield of local equities to well below their historic averages. To justify current low yields South African companies must produce above average dividends growth. This appears unlikely due to the continued pressure on household consumers and the prospects of rising interest rates in the years ahead.

In anticipation of a weakening Rand, the Dividend Growth Fund has been restructured to maximize investor's exposure to Rand hedge stocks. The type of rand hedge stocks included in the portfolio are companies with reliable dividend track records that are geographically diversifi ed as opposed to highly volatile resource stocks. As a result of this restructuring, the recent substantial depreciation of the currency (if sustained) has improved the future distribution growth outlook for the fund . The fund's distribution for the third quarter of 2011 increased by 7.6% to 38.5701cpu.

Current dividend yields of South African equities appear unreasonably low. As a result of a recovery in earnings, South African equities signifi cantly increased their dividend payouts to shareholders during the course of 2010 and 2011. This dividend growth coincided with an even greater rise in share prices which has reduced the dividend yield of local equities to well below their historic averages. To justify current low yields South African companies must produce above average dividends growth. This appears unlikely due to the continued pressure on household consumers and the prospects of rising interest rates in the years ahead.

In anticipation of a weakening Rand, the Dividend Growth Fund has been restructured to maximise exposure to Rand hedge securities. This increased Rand hedge nature of the fund has been achieved without exposing investors to highly volatile resource stocks but rather by increasing the fund's exposure to companies with reliable dividend track records that are geographically diversifi ed. In so doing, any Rand weakness should translate into higher fund dividend growth. The distribution for the second quarter of 2011 increased by 8% to 35.8613 cpu.

Dividends generated by South African companies increased by approximately 16% during the course of 2010. This may be attributed to the resumption of certain dividends that were waived during the fi nancial crisis as well as a buoyant consumer who has enjoyed greater spending power on the back of lower interest rates and greater than infl ation wage increases. Although historically low interest rates have allowed consumption to revert back to near pre-recession levels, the South African consumer remains overly indebted and under-saved. Consequently, any increase in interest rates is likely to impact consumption signifi cantly. With the likelihood of rising infl ation and interest rates in the years ahead, we anticipate that the consumer will have less spending power which will ultimately hamper dividend growth of many SA companies. As a result, the fund remains defensively positioned to ensure reliability in dividends despite a modest economic outlook. Over the last decade the Dividend Growth Fund has increased its distributions to investors by 13% per annum which has exceeded infl ation by approximately 7% per annum.

The final quarter of 2010 was another positive three months for South African equity investors and brought to an end what has proved too be a particularly good year for investors in the Dividend Growth Fund. Investors in the fund experienced capital appreciation of approximately 24% over the year as well as a reliable and growing tax-free income stream. We continue to caution investors not to extrapolate this recent rally in share prices into the future due to a combination of low dividend yields and the prospects of a sluggish economic recovery. Investing in companies with the ability to reliably grow their earnings (and dividends) is most often brought to the fore in a challenging economic environment. While it is Marriott's opinion that the current South African equity market appears expensive the fund should prove relatively resilient during periods of market volatility. Investors in the fund will also continue to benefit from a dividend income stream that will grow in excess of inflation.