Uncertainties emanating from Japan's nuclear disaster, Europe's debt crisis and violence in the Middle East and North Africa dominated conditions in the local financial markets over the quarter. Despite these uncertainties, the FTSE/JSE Shareholder Weighted Top 40 Index was up by 1.9%. The rand weakened from R6.62 to R6.75 against the US dollar. Long bond rates edged higher, causing the BEASSA All Bond Index total return to decline by 1.6%. Listed property came under pressure and the FTSE/JSE Africa SA listed property total return index dedined by 2.2%.

The prime rate was left unchanged at 9.0% and the Alexander Forbes Money Market Index returned 1.4%. The inflation rate was 3.7% in February, which is marginally above its low of 3.2% in September last year. The Barclays BESA South Africa Government Inflation-Linked Bond Index was 1.2% higher.

The low exposure to asset dasses that had negative returns helped to preserve capital, while the fairly high equity exposure was the main driver of the positive performance over the quarter. Over the 12 months to March, the portfolio is comfortably ahead of its benchmark. We enter the second quarter of 2011 with a reduced equity exposure of 27.7 %, which still reflects optimism regarding equities. However, the some 8% reduction in equity exposure since the previous quarter addresses the increased level of uncertainty in the market. We have also introduced inflation-linked bonds to the portfolio, while we marginally reduced our bonds exposure. This is in line with our view that inflation may have bottomed.

Conditions in the financial markets continued to improve during the final three months of 2010.

The rand strengthened from R6.96 to R6.62 against the US dollar over the quarter and inflation remained low, although there are indications that it has bottomed. Long bonds edged marginally higher, while short rates continued to decline. The prime rate was reduced by half a percent to 9.0% in November - the lowest level in decades. The FTSE/JSE Shareholder Weighted Top 40 total return index was up by 8.3%. Listed property (FTSE/JSE Africa SA listed property total return index) was up by 3.1% and bonds (BEASSA ALBI total return index) by 0.7%. The Alexander Forbes Money Market Index returned 1.5%. The portfolio was correctly positioned to participate in these market movements.

We enter 2011 with an assertive equity exposure of 36.4%. While this benefitted our unit holders over the final quarter of 2010, we are monitoring market conditions closely and will not hesitate to reduce equities when we believe it is required.