The second, as in the first quarter, of 2005 proved to be challenging for the fund on a relative basis. The main reason was the continuation of the rapid rise in the resource sector on the back of high USD $ commodity prices combined with a weaker rand.

The areas that led to a modest second quarter return relative to the peer group was being underweight resources and overweight mid cap.

The All Share Index returned an impressive 7.2% return for the quarter which was driven by a more broad market performance. Resources produced 9.1%, the Financial and Industrial Index 6.2% and the mid cap index 6.7%. Our net exposure to equities is less than at the end of last quarter. This is a short term tactic as we believe that there is a high probability that equities are due for a correction off a very overbought base.

Quoted property had another extremely positive quarter. Unfortunately our strategy of taking profit (mainly on the back of liquidity fears) proved to be incorrect. Our basic assumption of seeing the bottom of the interest rate cycle was too premature.

Bonds had once again an up and down quarter but producing a decent positive return for the quarter. In hindsight we should have used the weakness in the 10 yr area to accumulate more bonds when they were around the 8.5% levels. We still see better value in the nominal bond than Inflation Linked Bonds. The balance of the portfolio was made up of our off shore exposure with just under half invested in our Global Best Ideas fund.

Our future strategy will be based on our tried and tested philosophy of transparent and visible growth in key variables such as earnings, dividends and cash flows. It is becoming more apparent that certain equities in the non-resource area are offering compelling value with respect to the cash alternative, particularly when viewed on an after tax basis. We see this as an opportunity to add selectively to our equity exposure. Within the fixed income area we are likely to accumulate bonds on any weakness.

The first quarter of 2005 proved to be challenging for the fund on a relative basis. The main reason was that we did not anticipate the aggressive sector rotation that took place in the first quarter.

The main areas that led to a modest first quarter return relative to the peer group was being underweight resources and overweight mid cap. The All Share Index returned an impressive 5.9% return for the quarter but this was driven almost entirely by resources which produced 16.9% for the same period. By contrast, the Financial and Industrial Index produced a modest 0.5% return with the mid cap index only marginally ahead on 0.6%.

We mentioned in the last quarterly that we were looking to bank some profit from the high flying financial and industrial area into areas that could potentially benefit from a weaker rand such as the non-resource rand hedges. This strategy was implemented but clearly was not aggressive enough.

Quoted property ended the quarter on a strong note by returning 5.3%. Our strategy here was to reduce exposure. The main reasons being valuation relative to bonds and the fact that we believe most of the good news is now fully priced into the sector.

Bonds had an up and down quarter finally ending the quarter in negative territory returning -0.3%. Fortunately we resisted the early euphoria and sold out completely in late February. This added value to the returns of the fund over this period.

Our cash holdings rose to by the end of the quarter which in itself is returning a risk free decent real return as inflation continues to very benign at just over 3%.

The balance of the portfolio was made up of our off shore exposure with just under half invested in our Global Best Ideas fund.

Going forward the thinking is to focus on diversification and quality as we believe that the financial markets are particularly challenging at the moment. Equities and bond are undoubtedly in some form of inflection point at they attempt to digest the end of the global deflation trade as the US raises interest rates. This is against the back drop of continuing positive domestic fundamentals.

The 4 quarter in equities was a continuation of the 3 quarter with the equity market delivering the goods, particularly those sectors that benefited from lower interest rates such as certain banks and the consumer area. Resources have under performed severely in relative terms as analysts have begun to discount a stronger rand in the future. We remain well underweight this area of the market, mainly due to concern over the actual $ commodity cycle as opposed to forecasting a stronger rand.

Moving beyond equities, our exposure to bonds and particularly, quoted property added value over the fourth quarter. We are likely to hold our positions in the short term given our inflation forecasts and positive momentum in these markets.

Our money market funds were predominantly invested in the short end of the money market curve as it offered the most value. This is likely to change as it appears that a cut of 50 points is on the cards during the first quarter of 2005. This has now being dis-counted by the forward curves.

Finally, we are likely not to change the asset allocation too much in the quarter ahead but will focus our efforts on stock picking with a possible rotation out of some the high flying financials and industrials into some non-resource Rand hedges in order to guard against an unexpected crack in the currency.