The Marriott Global Income Fund is currently yielding 4.1% from a portfolio of four investment grade bonds. Fixed interest market have remained very strong over the last quarter as interest rate expectations remain low on the back of any clear signs of economic recovery. Whilst, technically, further rate cuts are possible, real interest rates are already close to zero or in some instances in negative territory. Inflation expectations are also low, evidenced by the negative yields on US Treasury inflation proofed bonds. We are worried, however, that the market may have become too complacent about the likely trajectory of inflation over the next few years. Whilst it is true that economic growth remains weak, other factors suggest that inflation could pose a greater threat than is currently anticipated. Rising food prices, higher energy costs and hikes in the price of raw materials are all likely to put upwards pressure on consumer prices, even if demand remains subdued in major markets. The monetary authorities' preferred alternative to lower interest rates, quantitative easing ('QE'), is also likely to be inflationary although it is difficult to accurately estimate the extent of such pressure on consumer prices given the lack of historic data. All of this is very relevant to our bond portfolio where we have two major issues to deal with. If inflation does begin to accelerate then it will be bad news for bonds and for medium and longer dated issues in particular. We have, therefore, positioned the portfolio generally at the shorter end of the yield curve where income streams are lower but where the risk of capital losses are also greatly reduced. Secondly, this is a Dollar denominated fund and we have elected to hold only Dollar issues for the time being. A side effect of QE is likely to be currency depreciation but with all of the major markets adopting this strategy simultaneously, currency movements are likely to be erratic and very unpredictable in the short term making it even more difficult than usual to be on the right side of this zero sum game.

The Marriott Global Income Fund is currently yielding 4.39% from a portfolio of four investment grade bonds. We expect interest rates in North America to begin rising in early 2011 as inflation accelerates alongside improving economic growth. Such an environment is generally negative for longer dated bonds where yields and prices are particularly sensitive to such movements. We have, therefore focused the portfolio on short dated and inflation proofed bonds to take these anticipated movements into account. Whilst this means accepting a slightly lower yield than might otherwise be the case, we believe that this is entirely justified given the position in the current market cycle. The one exception to this strategy is our holding in a perpetual bond issued by Barclays Bank which is callable in mid 2011. The excellent running yield generated by this bond more than compensates for the risk of rising interest rates in the future, in our view. The bond market has performed well over the last 12 months as the market has recognised that Barclays is likely to prosper in the current financial climate as the economy recovers and many of its competitors are caught up repaying government loans acquired during the dark days of the credit crisis in 2008.The current portfolio is 82% invested in the Dollar. This is again entirely deliberate. None of the major global currencies have, in our view, any particular appeal given the debt ridden nature of their domestic balance sheets. The US economy is, however, likely to emerge from recession quicker than the others and with interest rates moving higher, we believe that the Dollar will be the best of a weakened bunch on a medium term view.

The portfolio continues to have dominant exposure to US and European listed bonds as well as US Dollar cash deposits. The currency exposure currently stands at approximately 80.715% US Dollars and 13.54% Euros, with the remainder in Rands. The December distribution amounted to 3.3222 cents per unit. The volatility in distribution levels within the fund over the last five years has been a function of the volatility in the domestic currency market, however, during this time the fund has produced consistent First World currency income. There is unlikely to be a significant change in the income produced by the fund due to the low risk and predictable nature of the underlying investments. Conversely, any changes in the value of the Rand will result in income fluctuations.

The portfolio continues to have dominant exposure to US and European listed corporate bonds. The currency exposure of the bond allocation currently stands at approximately 80% US dollars and 16% euro, with the remainder in UK pounds sterling and Rands. The December distribution amounted to 3.3222 cents per unit. The volatility in distribution levels within the fund over the last five years has been a function of the volatility in the domestic currency market, however, during this time the fund has produced consistent First World currency income. There is unlikely to be a significant change in the income produced by the fund due to the low risk and predictable nature of the underlying investments. Conversely, any changes in the value of the rand will result in income fluctuations.