While the South African economy realized robust annualized growth during the first half of this year, some momentum appears to have been lost in recent months. The strong Rand has been very beneficial for consumers with lower inflation, but it is making it increasingly difficult for our manufacturers and exporters to compete effectively. While utilization levels are unlikely to increase substantially from current levels in the near term, they should be maintained considering inventory levels are still at very low levels in relation to history. The consumer appears to be on an improving trend with positive changes in net household wealth and rises in real disposable income helping to spur growth in consumer expenditure. With above inflationary wage increases continuing and inflation remaining low, household consumption expenditure should provide support to economic growth in the short term. The South African government appears to be in a relatively stable financial and fiscal position and the potential for cheap funding should help the infrastructure program gain momentum in the year ahead. However, the industrial action experienced in the public sector in recent weeks will impact economic growth negatively in the short term. In summary, economic growth will face some headwinds in the short term. In order to ensure sustained economic growth in the coming years, South Africa is reliant on the manufacturing, mining and government related sectors coming through. Total equity allocation for the average fund manager continued to be higher than the long term average. It appears that fund managers have moved out from fixed income into equity and property following the large decline in the equity market during August 2010.

We continue to favour global equities with the current rand levels providing South African investors with an attractive investment opportunity over the medium to long term. South African equities price to book and price to earnings looks high in relation to its long term average. However, as corporate profit recovers, market valuations should look more attractive on a forward basis. The resource sector has under performed year to date due to concern around the sustainability of demand from emerging markets, particularly China, as well as the continue strengthen of the rand against the USD. However, with the recent fall in resource stocks, we are starting to see some of the better quality, lower cost miners, with exposure to commodities with positive outlook in the medium to long term offering good value. 2010 has seen some pick up in M&A activities which should gain momentum as the year progresses. This will contribute to the consolidation of industries as noted with the recent HSBC I Nedbank and Wal Mart I Massmart announcements. Our exposure to high quality stocks, who are either market leaders or niche operators, could benefit from the increased activities in this area. Our portfolios are well diversified with significant exposure to domestic focused companies who stand to benefit from an economic recovery in South Africa. We remain overweight consumer staple stocks which provide some downside protection should the economic environment remain challenging. Our portfolios are focused on companies who are market leaders, have great brands or franchises, with solid balance sheet, generate robust cash flow and trade below their intrinsic values. Our South African portfolio trades at a significant discount to the market across various measures while providing a higher dividend yield. Importantly, a sustainably higher ROE relative to the market through the cycle will provide a significant out-performance for long term investors through the cycle.

Global equity markets recovered somewhat during the third quarter on the back of better than expected earnings from corporates and attractive valuations. While European markets have recovered and the currency has strengthened in recent months, they still remain flat or in negative territory in US$ due to the performance of the Euro (-5% year to date). Emerging markets performance has been mixed with India continuing to steam ahead while China has seen its market underperform this year on the back of concerns around policy measures being implemented by the Chinese authorities as well as the excessive valuations noted earlier this year. Global mega-caps are currently trading at their lowest relative value to non-mega caps despite the fact that many of these high quality companies have decent growth profiles through their foreign exposure, strong balance sheets and robust cash flow. Importantly, with their substantial cash holdings and their ability to borrow at very low financing costs, the utilisation of the cash and debt towards value enhancing acquisitions should be accretive to shareholders. Our portfolios are well exposed to superior quality companies within the technology, industrial and basic materials sectors which provide exposure to emerging markets and are geared to the global economic recovery at attractive valuations. Our significant exposure to the communications and health care sectors provide downside support should economic growth remain muted for a sustained period of time. Our global portfolios trade at a significant discount to the market across various measures with a higher sustainable ROE% through the cycle. With global bond and cash yields close to historical lows, the decent growth profile and attractive real dividend yields being offered by higher quality global equities does lay the foundation for outperformance of equities over the long term.

The operating fundamentals for SA property companies remain unchanged since the beginning of 2010, with pressures from lower rentals on new leases and higher electricity costs making it difficult for landlords to increase rentals over the medium term. However, these pressures are largely offset by healthy annual contractual rental escalations of 7-8% p.a. on current leases. The operating environment is expected to improve gradually and there are already indications that vacancies have started reducing in the industrial and retail sectors while there are some office nodes that are lagging where vacancies are only expected to start improving during 2011. The current listed property sector yields are below historic levels and are trading in line with government bond yields, which increases the risk of downside but this also creates an opportunity for Oasis to add value through our detailed in house research and stock selection skills. In line with our philosophy, we continue to focus on property companies with good quality assets, top quality tenants, long lease expiry profiles, solid balance sheets and experienced management teams. Despite underlying pressure from wages and administered services the SA consumer inflation has moderated to 3.5% and it appears that we are approaching a cyclical bottom. Inflation remains well within the target range and the slow economic recovery should result in interest rates remaining low for some time and there remains a probability of South African policy makers implementing another rate cut. Due to the consistent decline in short term yields the yield curve has steepened substantially over the past 18 months with the shorter end of the yield curve continuing to decline faster over the past 9 months. Driven by the unprecedented low level of yields in developed markets there has been strong foreign demand for SA bonds with year to date net foreign inflows of R80bn. However, over the medium term there is a risk of South African long term interest rates moving higher due to inflation pressure and the high level of government infrastructure spending resulting in an increased level of borrowing. The resultant increase in supply of government bond issues combined with potential selling by foreigners, if they decide to reduce exposure to emerging markets, will result in higher yields and potential capital loss. In line with our philosophy we remain focused on the quality of the instruments and the cash flows of the underlying issuers.

The SA economy appears to have lost some momentum in its recovery in recent months after robust annualized growth being realized during the first quarter of this year. Manufacturing capacity utilization remained relatively low highlighting the cautious stance from manufacturers around sustainability of demand & the impact of the strong Rand. Post the World Cup & extended school holidays, we could expect a pick up in restocking from the current low inventory levels. Sustainable growth in manufacturing is important to overall economic growth & a pick up in global & domestic demand together with a weaker currency will assist in meeting this objective. Household consumption expenditure came through strongly as the benefit of the rise in real disposable income encouraged consumer spending in both semi-durables & durable goods.

Despite household debt levels declining somewhat during the year, debt levels by historical standards remain very high. Having been a key driver of economic growth in SA over the past decade as consumers ratcheted up debt from low levels, consumer spending is unlikely to be as a significant driver of economic growth over the next few years. The South African government is in a relatively better position than its developed market peers with lower budget deficits & debt levels to contend with. This should allow for financial flexibility & hence support the fixed investment related program over the next few years. Sustained economic growth over the next few years will have to come through the manufacturing, mining & government related sectors as the high debt levels of consumers is likely to constrain the rate of growth in consumer spending. Total equity allocation for the average fund manager was above the long term average earlier this year. As equity risks increased & rand continued to be strong, we have seen a shift in the fund manager allocation from SA equity to fixed interest & global equity. We continue to favour global equities with the current rand levels providing SA investors with an attractive investment opportunity over the medium to long term. SA equities are attractive in relation to other asset classes. Further, as inflation remains low & the rand strong, making any rise in interest rate unlikely in the foreseeable future, equities continues to be the preferred investment opportunity. South African equities are offering some value on a Price to Book bases while on earning bases it appears high in relation to its long term average. However, as corporate profit recovers, market valuations should look more attractive on the forward bases. The global financial crisis forced corporates in SA to cut their cost base & capacity, strengthen their balance sheet & focus on cash flow generation. The strengthening of the rand added further pressure as it became more challenging for manufacturing & export related companies to compete with imported products. However, we believe that the lean structure of many of the domestic focused companies positions them well for any recovery in demand & restocking with inventory levels still at record lows. We continue to focus on companies that are market leader in their respective sectors, with strong balance sheet, robust cash flow generation, low ROE contraction risk, & trading below its intrinsic value. Our portfolio is well diversified with a significant exposure to domestic related stocks that is expected to benefit from any recovery in the SA economy. We are also over weight consumer staples which will provide downside protection should the economic environment remain challenging. Our SA portfolio trades at a significant discount to the SA market across various measures while providing a higher dividend yield.

Our sustainable ROE is higher than the market through the cycle providing a significant out-performance for long term investors. Global equity markets experienced sharp losses during the 2nd quarter of 2010 on the back of the fiscal & sovereign debt crisis in Europe. The MSCI world market is down -10.0% year to date, with the major decline coming from the Eurozone. European markets have underperformed the US substantially this year on the back of the crisis as well as the direct impact of the weakening of the Euro against the US$ (-14% year to date). Emerging markets such as China & India have seen their equity markets come under some pressure on concerns around high valuations & rising inflation. Aggressive policy measures introduced by the Chinese authorities to curb the residential property bubble further impacted the market negatively. We continue to focus on companies in consolidating industries, with lower ROE% contraction risk & are increasing their exposure to higher growth markets at acceptable levels of risk. We have a significant exposure to the technology, telecoms & healthcare sectors with recent M & A activity in the cash flush technology sector, highlighting the opportunity in this area. Our global portfolios have increased our US exposure during the past year while our overweight exposure to Europe has impacted negatively in the short term. A key point to highlight is that our portfolios trade at significant discounts to the global markets across various measures while providing much better dividend yield. Of more importance, our sustainable ROE% is higher than the markets through the cycle with the gap having widened quite substantially against the MSCI over the past few months. We believe the value gap existing between the higher quality companies in our portfolio & inferior quality companies will close over the medium to long term, providing significant outperformance at lower downside risk. The SA listed property sector is also benefiting from significant consolidation with the average sizes of the companies & portfolios increasing substantially which does provide scope for reduction in direct property expenses as well as property management cost as a result of buying power & economies of scale. The current listed property sector yields are below historic levels & the five year government bond which increases the risk of downside but also creates an opportunity for Oasis to add value through its stock selection. In line with our philosophy we continue to focus on property companies with good quality assets, top quality tenants, long lease expiry profiles, solid balance sheets & experienced management teams. Despite pressure from administered services & products the SA consumer inflation has moderated to 4.6% & it appears that we are approaching a cyclical bottom. High inflation on administered services & products will remain for some time & combined with the recent trend of high real wage settlements we expect inflationary pressure to increase over the medium term. However, inflation is currently well within the target range & the slow economic recovery should result in interest rates remaining low for some time & there remains a small probability of SA policy makers implementing one more rate cut based on the lack of recovery in the global economy. Due to the consistent decline in short term yields the yield curve has steepened substantially over the past 18 months as indicated below with the shorter end of the yield curve continuing to decline over the past 6 months. There has also been strong foreign demand for SA bonds with year to date net foreign inflows of R39bn. However, there is a risk of long term interest rates moving higher due to pressure on the current account deficit & the high level of government infrastructure spending resulting in an increased level of borrowing. The resultant increase in supply of government bond issues combined with potential selling by foreigners, if they decide to reduce exposure to emerging markets, will result in higher yields & potential capital loss. In line with our philosophy we remain focused on the quality of the instruments & the cash flows of the underlying issuers.

Our balanced portfolios are currently well diversified with a significant weighting to equities being maintained as equities offer better relative value to cash and bonds from a long term perspective. We currently favour global equities with the current Rand levels providing South African investors with an attractive investment opportunity over the medium to long term. South African equities are currently fairly priced in relation to their long term history. Within the emerging market universe, South Africa still trades at a discount to its major peers, whose valuations do appear excessive at present. In South Africa, domestic focused companies have outperformed year to date, having lagged their global and resource based peers during 2009. This is largely on the back of some improvement in the domestic economy with the interest rate sensitive sectors being at the forefront of performance this quarter. 2010 has also seen a pick up in M&A activity which should gain momentum as the year progresses. Our treasure chest of high quality, niche operators in the small and mid cap arena, which have been out of favour, could benefit significantly from the increased M&A activity. The continued strengthening of the Rand is challenging, having impacted the performance of the non-resources Rand hedges as well as the manufacturing related sectors. Our South African equity exposure is well diversified with a significant exposure to domestic focused companies who stand to benefit from the recovery in the South African economy. We remain firm in our overweight exposure to the non-resources Rand hedges which provide significant upside to any weakness in the Rand at lower risk than the higher cost deep level miners. Our portfolios are focused on companies who are either market leaders or niche operators, have great brands or franchises, maintain solid balance sheets, generate robust cashflows and trade well below their intrinsic values. Importantly, the gap in sustainable ROE% is clearly coming through with a current 7.0% difference with the ALSI compared to -2.3% a year ago. We believe our portfolios provide a higher conviction of sustainable profits while trading at a significant discount to the market across various measures. This will provide substantial out-performance for long term investors through the cycle.

Global equity markets remained positive during the first quarter of this year, on the back of solid earnings reported by corporates for the last quarter of 2009. Developed markets performance year to date have been mixed with the US outperforming while concerns around the debt crisis in Greece combined with the weakening of the Euro, resulted in the Eurozone underperforming during this quarter. Major emerging markets such as China and India saw some momentum being lost due to excessive valuations and concerns around rising inflation in these countries. Global corporates (ex-financials) are currently in a solid financial position, particularly the major US companies. These companies used the recession to restructure their cost bases, shore up their balance sheets and focus on the basics of generating an abundance of cashflow. This has contributed to the significant decline in capital investment noted during 2009. Increasing management confidence around the economic recovery together with the excess cash generation by corporates, should result in increased capital investment in the year ahead as well as increased distributions to shareholders. Optimism around the global recovery has seen risk appetite approach the record levels seen in 2007. This is clearly evident not only in the low volatility in equity markets, but importantly in the substantial decline in junk bond spreads as investors have pursued the higher risk, higher beta asset plays. While we have highlighted that global corporate balance sheets are possibly in their strongest position in years, many highly indebted companies are issuing capital at a record rate to reduce their debt levels. 2009 saw US$831bn (source: Nomura) net issuance, surpassing the peak seen in 2000. This therefore highlights the risk of avoiding the poorer quality companies who were forced to raise capital, leading to significant earnings dilution and poor ROE's in the future. Our global equity exposure is overweight developed markets relative to emerging markets with an increased exposure to the US. Our overweight positioning to Europe did however impact our performance negatively during the quarter. We continue to focus on companies in consolidating industries with lower ROE contraction risk, with a significant exposure to the telecoms, technology and healthcare sectors. Our portfolios are also well positioned for the global recovery through our substantial holdings in market leaders such as Hewlett Packard, IBM, etc in the technology and industrial sectors. The significant discount our portfolios trade at relative to the global indices across various measures and our sustainably higher ROE should provide investors relative outperformance through the cycle at lower downside risk.

Although SA property companies have been impacted operationally due to rental pressures and increasing vacancies, the impact has not been as severe as experienced globally, with single digit growth in distributions continuing to be maintained. In the last quarter of 2009, vacancies appear to have peaked and while negative rental reversions are being noted in certain areas, the bulk of rental renewals have been at higher rates. The SA listed property sector is benefiting from significant consolidation with the average sizes of the companies and portfolios increasing substantially which does provide scope for reduction in direct property expenses as well as property management cost as a result of buying power and economies of scale. The current average property yields are below historic levels and the five year government bond which increases the opportunity for Oasis to add value through its stock selection. In line with our philosophy we continue to focus on property companies with good quality assets, top quality tenants, long lease expiry profiles, solid balance sheets and experienced management teams and combined with our focus on value, our property exposure is well positioned to create wealth for its investors.

The SA monetary policy has lagged its global peers and the recent interest rate reduction is against the background of global peers having either commenced monetary tightening or they are moving towards it. However, inflation is within the target range and the slow economic recovery should result in interest rates remaining low for some time, but the inflation risk remains high due to potential currency weakness and high energy and service cost increases. Our cash exposure remains focussed on the fundamental characteristics of the instruments and underlying issuers and we are well positioned to take advantage of the current opportunities while not compromising on quality. Due to the consistent decline in short term yields the yield curve has steepened substantially over the past year as indicated below. There has also been strong foreign demand for SA bonds with year to date net foreign inflows of more than R20bn. However, there is a risk of long term interest rates moving higher due to pressure on the current account deficit and the high level of government infrastructure spending resulting in an increased level of borrowing. In line with our philosophy, our bond exposure is primarily focused on high quality instruments with strong cash flows backing the underlying issuers.

The South African equity markets have moved up in tandem with global equity markets on the back of optimism around the pace of the economic recovery and the meteoric rise in risk appetite. The lag in the domestic economy relative to the global economy has resulted in domestic focused companies lagging the recovery of the global and export focused companies listed on the JSE. The strong rise in commodity prices in US$ and increased risk appetite has also been the major driver of the out-performance of the higher beta, large cap and resources plays relative to the South African focused and non-resources Rand hedged stocks, with the deep level miners in the gold and platinum industries being at the forefront. Valuations for these high risk, higher cost producers are trading at expensive levels in relation to the market and their long term history, posing significant downside risk to investors should their earnings not materialize as expected. We are therefore underweight these highly geared and higher cost resource related companies in our portfolios. We strongly believe our overweight exposure to the higher quality, non-resource based Rand hedge companies provides upside to a weaker Rand at substantially lower risk and valuation.

South African equities do appear fairly priced in relation to its history and global developed market equities, which currently offer great value to South African investors at current Rand levels. Within the emerging markets context, the South African market appears to offer some value, trading at a discount to its major peers. However, emerging markets, especially the likes of China and India, are currently at excessive valuations with potentially significant downside risk. To emphasize our underweight exposure to the deep level miners, the South African materials sector (includes platinum, golds, diversifieds, etc) trades at a premium to its emerging market peers. With the operating environment expected to remain challenging in the first half of 2010, we remain focused on the great quality and lowly geared companies. We have an overweight positioning to domestic focused companies, with a strong emphasis on the defensive, consumer staples sector, which trades at a discount to the South African market and its emerging market peers. We believe these companies provide us with a high conviction of sustainable profits and ROE at substantially lower downside risk.

On the global side, emerging markets have substantially outperformed developed markets with significant downside risk emerging for these markets due to excessive valuations driven by a combination of loose monetary policy and foreign inflows. With major emerging markets such as China and India trading at premiums across various measures in relation to major developed markets such as the US and Europe, we are underweight emerging market equities in our global portfolios. Developed markets such as the US continue to offer great value with corporate debt (ex-financials) declining significantly while their free cash flow yields are at decade highs. Our global portfolio is focused on great quality companies operating in defensive and consolidating industries such as telecommunications, health care and technology. The downside risk in cyclicals such as financials and major emerging markets such as China and India drives our underweight positioning in these sectors and regions respectively. The significant discount our portfolios trade at relative to global indices across various measures together with the widening gap in sustainable ROE's between our portfolios and the market ensures our portfolios provide investors with lower downside risk and relative out-performance through the cycle

During the current global credit crises the balance sheets of SA property companies have been stable compared to their global counterparts due to more solid NAV values and less gearing. However, the impact of weaker global fundamentals has been felt on the operational side, with SA retail trading conditions facing the same pressures experienced globally and the office sector being impacted by increasing vacancies. While office and smaller retail spaces have borne the brunt of negative rental reversions, the industrial sector has held up well due to historic low rental levels and a relative~ short development pipeline. The year ahead may be tough as a result of rental pressures but the balance sheet structures are strong and this will provide resilience to the SA listed property portfolio. In line with our philosophy we continue to focus on property companies with good quality assets, top quality tenants, long lease expiry profiles, solid balance sheets and experienced management teams and combined with our focus on value.

The South African central bank lagged in its monetary easing when compared with its global peers and the recovery in domestic economic growth, consumer demand and upward pressure in inflation is expected to lag during 2010. Interest rates are therefore expected to remain low over the short term. Our cash exposure remains focussed on the fundamental characteristics of the instruments and under~ing issuers and we are well positioned to take advantage of the current opportunities while not compromising on quality. Despite reasonable net foreign bond inflows of R26.3bn in 2009 the yield curve has shifted upwards by approximately 2% in the 1 Oyr and longer duration during 2009 due to the impact of the global financial crises and the increase in government bond issues. Our bond exposure was well positioned with a relatively low exposure to the long end of the yield curve where capital losses were the most pronounced. In line with our philosophy we remain focused on the quality of the instruments and the cash flows of the underlying issuers hence our bond allocations being invested primarily in high quality instruments with more than 70% of the current holdings being government bonds.