The fund returned 2,9% for the quarter, which is satisfactory given the outperformance of the inflation +4% target. Furthermore, it was achieved with very strong inflows to the fund during the period.

The funds heavy weighting in equities contributed positively to performance, providing a return of 8%, which is in line with the All Share index and particularly pleasing in light of the funds strong value bias to investing. On the bond market, the fund manager's remain cautious and, over the period, maintained the funds defensive stance to this asset class. The fixed interest component of the fund returned 2% against the 2.7% return of the All Bond index. Property also detracted somewhat from performance, as listed property stocks 'stopped to draw breath' after the very strong previous quarter.

However, the greatest detractor to the fund's overall performance was the funds international exposure. The fund has a full 15% weighting offshore and, as result, the 7% appreciation of the rand against the US dollar was sorely felt. Added to this, the funds exposure to the Coronation Global Equity Fund also delivered disappointing returns against the MSCI World index.

Those stocks which contributed positively were AVI, Kersaf/Sun International, Sanlam, Primedia and Comparex-all of which have been long term holdings in the fund; demonstrating the benefits of having a long term investment horizon instead of trying to time entry and exist into preferred stocks. In addition, Implats made a significant contribution after a dismal last quarter.

The detractors for the period were Nedcor on the back of the CEO's resignation and yet another profit warning. The fund manager's have nonetheless chosen not to reduce this holding as they believe that in the medium term it will recoup the losses incurred. Remgro suffered a severe set-back from the strength in the currency, an opportunity which the fund manager's used to increase the funds holding in the share. And New Africa Capital, a share where the fund manager's believe value will be unlocked once investors become more convinced of the viability of the brand and the business model and less concerned about whether or not management has the ability to turn the business around.

From a sector selection perspective, the fund manager's increased exposure to banks and reduced resources given their concerns over the sustainability of the rally in the rand and the global economic recovery. The fund manager's continue to hold the funds weightings in both domestic industrials and life assurers.

The fund posted a strong return of 7.5% over the past quarter. What is particularly pleasing is that after a very strong performance in May (+8.3%) the fund showed a marginally positive return in June (+0.5%) in what was a very challenging environment.

The main drivers of performance were a full weighting in equities, which the fund manager's still regard as the most attractive asset class, and continued good share selection.

The equity component of the fund returned 11.8% compared to 9.7% from the All Share index. Positive contributors include the insurers (New Africa Capital, Sanlam & Aflife), Remgro, Didata, Adcorp and Venfin. The fund manager's remain positive on most of these counters as they feel that they still represent good value. The main detractors from performance were the platinum shares (Implats & Northam) as a result of the strong rand. While the fund manager's remain positive on the fundamentals of these counters over the long-term, they have reduced exposure and added some protective strategies in anticipation of the impact on earnings of a very strong local currency.

The bond component of the fund showed a solid return of 5.8% over the period on the back of increased exposure (mainly through call options bought). While the fund manager's expect further strength in the bond market in the short term, they believe that the risks in this market are on the rise. The bond market is increasingly becoming 'priced for perfection', and the fund manager's will be reducing duration as well as putting protective derivative strategies in place as yields fall further.

The listed property component of the portfolio also performed very well, and justified our decision to increase allocations in selective counters in the year to date. The fund manager's believe that there are still some opportunities in this market, especially in selected retail and industrial based property stocks.

The main disappointment over the past quarter was the performance of the international component of the portfolio, showing a negative return of -1.4%. This is partly due to a stronger local currency (5.2% appreciation against the dollar over the quarter), but also due to a disappointing return from the Global Equity Fund. After many quarters of positive returns and value add, this fund showed a negative return for the period of -2.1%, which is well below the MSCI World index return of 10.1%.

The fund manager's remain positive on the prospects for the fund going forward, and believe that the fund is well placed to meet the funds performance objectives.

The fund experienced a very difficult quarter, declining by almost 6% on the back of poor equity markets. For the period, the All Share index fell by 16.3%, resources (-16.3%), financials (-13.3%) and industrials (-18.8%). The strong rand also contributed negatively when translating the international component of the portfolio, recording -6% for the quarter.

Share selection within the domestic equity component of the fund partially shielded performance, but was insufficient to offset the equity allocation effect of the funds being fully invested to the mandated maximum 50% of the total portfolio. Those shares that detracted from performance were Gencor and Amplats due to the Money Bill, the strong rand and strike action at Implats. Insurance shares Sanlam & New Africa Capital were also hard hit in the face of declining equity values, and Sasol, Venfin and Remgro were casualties of a stronger currency. Nonetheless, the fund manager's maintain their conviction in these shares, and believe that significant underlying value is realisable for the patient investor.

In the platinum sector supply/demand fundamentals remain promising, and the fund manager's believe that a congruence of negative factors in the case of Implats/Gencor (Money Bill, Bafokeng double royalty issue, strong rand/dollar exchange and a strike) has created the opportunity to increase the funds holding at very attractive prices. With regard to the insurance sector, it is difficult to identify a catalyst that will unlock value in the short-term. However, attractive valuations underpinned by net asset values and attractive dividend yields should limit the potential for further downside.

Positive contributors to performance were Adcorp, Comparex, AMB (with some developments on financial restructuring to unlock value) and Kersaf (in line with the fund manager's positive view on the gambling industry and tourism). In addition, listed property contributed significantly to fund performance, with the Property Trust sector returning 14.9% for the period. The main contributions were made by Pangbourne, Martprop and Apexhi "A".

Within the fixed interest component of the fund, the fund manager's increased bond duration in line with their view of further declining yields in the short term, producing a return of 4.5% for the quarter.

While the international component of the fund declined by 6%, the MSCI World index fell by 13.3% for the period. The funds international exposure benefited from: A large cash allocation (±50%) to international; a 50% shift in currency exposure to the euro (R/EUR strengthened by 4.1% vs 8.2% for the R/$); and Outperformance in hard currency terms compared to world indices.

While the fund has fallen behind the cumulative outperformance target of CPIX+4%, its annualised return of 9.39% since inception places it in an excellent position to achieve this objective going forward. The fund manager's have undeniably experienced a very tough investment environment, with weak local equity markets, falling international equity markets and a strengthening rand. While the past quarter has been disappointing, the fund manager's believe that due to many of the positive factors detailed above, the fund has faired well. Through continued focus and adherence to risk constraints, the fund manager's are confident that the fund will deliver on its stated mandate.

The fund had a good quarter to end December 2002, returning almost 4%. On a rolling 12-month basis the fund just dropped into single digit numbers, which is credible in light of the 8% fall in the ALSI and the strengthening of the rand by 39% against the US dollar over the same period. It is, however, below the fund manager's target given the surge in inflation numbers over the last 12 months, and they remain committed to rectifying this situation in the next 12 months.

Given the uncertainty surrounding further relaxation of exchange controls and the suspension of the asset swap mechanism, the fund manager's do not believe it to be prudent to repatriate funds. The fund manager's long held view is that the currency could remain stable due to its oversold situation. However, its outperformance of 22% against the US dollar over the quarter far exceeded the fund manager's expectations and cost the fund some hard earned performance.

The fund benefited greatly from its holdings in telecommunication stocks, Johnnic Holdings and Venfin. The re-rating of insurance stocks also contributed positively, particularly African Life and New Africa Capital. The funds holding in Group 5 has doubled since acquiring the stock six months ago, and some of the banks provided good returns, particularly Nedcor, after a poor last quarter. With regard to property stocks, Pangbourne paid off handsomely.

The stocks that detracted from performance were as a direct result of the stronger currency namely, Sasol (large holding), Liberty International (pure currency conversion) and Angloplats (also posted poor operational results). Nevertheless, the fund manager's believe that the next 12 months will hold exciting prospects for these stocks.

With regard to bonds, the fund manager's underestimated the strength of the rally in the rand and therefore did not benefit fully. However, the fund manager's decision to lock in short term rates through the purchase of NCDs was correct, which is further supported by the likelihood of falling interest rates over the next 12 months.

The 22% recovery in the rand against the US dollar over the quarter meant that the fund's 15% offshore holding negatively impacted performance, surrendering 3% for the period. Nonetheless, the funds holding in MIHL did add more than 1% to performance, benefiting from the restructuring of the Naspers Group.

New additions to the portfolio were: Investec (based on long term prospects), SABMiller (disillusionment with Miller deal finally set in, over time will see that market has been too cynical on the prospects of the combined group), and Tiger Brands (improved prospects due to better than expected consumer spending patterns and strong brand management). The fund manager's also initiated holdings in Computer Services (a small domestically focused IT company with an attractive rating), Old Mutual (on valuation basis), and Trencor (a currency position that has turned against the fund in the short term).