The outlook for world economies and stock markets appears more uncertain than ever. On the one hand, plagued by problems of the sub-prime crisis, declining property values and rising inflation and, on the other hand, supported by ongoing growth in Asian and emerging economies. At the time of writing, the JSE All Share Index stands at 30,900 or at 15.6 times earnings. At this level, the index appears to be discounting a positive South African economic environment (especially if one takes into account the high base of corporate earnings) and suggests that investors believe the interest rate cycle may have peaked.

Our approach to the inflation concern has been to increase exposure to food retailers and producers, as well as precious metals. We remain positive on the outlook for fixed investment in Southern Africa and retain a significant exposure to companies that will benefit from growth in power generation and distribution.

Lastly, we continue to believe that the rand has more downside than upside, given the burgeoning Current Account deficit, and not withstanding our more bullish view on gold and platinum. We maintain a large and relatively defensive exposure to Industrial rand hedges, most notably Remgro and Richemont.

We are hopeful of an improvement in performance in the last quarter of 2007, given the underperformance of many of the fund's largest positions in the last period.

Tim Allsop
Polaris Capital

During April, the fund's performance was in line with the All Share Index (+3.5%) but below the performance of the General Equity sector average (+4.3%).

Fund performance relative to the General Equity average has again followed the trend of the rand, which strengthened from R7.25 to the USdollar at 30 March 2007 to R7.01 at 30 April 2007. The portfolio has a relatively high exposure to rand hedges and consequently performed relatively poorly. Anglo American and Billiton were down 1.6% and 2.1%respectively and we increased our positions in these stocks into weakness-selling Telco's and some Sasol. Rumours of corporate action in Goldfields sent the stock soaring and we took advantage of the spike to sell most of the fund's holding.

Although the year-to-date performance has exceeded our expectations, and the market may have a healthy pull back in the next months, we are not concerned that the market has reached an over-valued level. This view is supported by our expectations for further strong growth in profits for the next two years in the companies we are invested in; and further growth in the South African economy

Tim Allsop
Polaris Capital

The fund's unit price rose by 5.3% in December 2006 and by 13.1%for the 4th calendar quarter of 2006. Performance was satisfactorily ahead of the All Share Index (+4.2% and +11.8% for the respective periods) but marginally behind that of the Unit Trust General Equity Sector Average (+5.4% and +14.6% respectively).

The quarter to end December 2006 was generally positive for global equity markets. Locally we saw GDP growth of 4.9% recorded for the third quarter of 2006, CPIX increased by 5.1% and the South African Reserve Bank raised the Repo rate from 8% to 9% citing higher inflation and credit growth as primary concerns. Credit extension by the banks increased to26% year-on-year in Q4 2006, and the trade deficit reached a recordR12.9 billion in October (R10.5 billion in November). Notwithstanding these factors, the rand strengthened by 10% against a weak US dollar, driven primarily by a resurgence of foreign portfolio flows.

Given Rainmaker's relatively high exposure to rand hedges, we believe the fund has performed well. The negative impact of a strong rand on our investments in Billiton (down 3.5% in Q4 2006) and Sasol (up only1% in Q4 2006), was offset to some extent by the sale of Anglos at good levels and well-timed additions to our "local" portfolio, Tiger Brands, Investec and Altech in October; Naspers and Barloworld in November; and Standard Bank in December.

We invested into market weakness in early December, but used the markets strong close to 2006 to trim holdings in First rand and Tiger Brands.

We enter the New Year defensively positioned with a relatively high cash component, and significant equity exposure to rand hedges and local fixed-investment stocks.