The weakness experienced over the last quarter was anticipated and the significant cash built up over the last year in the Fund was put to good use. On the back of some weakness, we took the Fund's equity exposure to 90% from the previous level of 78%.

This action is typical of our preferred style of investing. We are not obsessed with beating the competition or the index over the short term and simply put we try to follow a rational and patient investment approach. Our return upside has to be that much greater if we buy low. The volatility in the market seen this past quarter provided us with some good entry prices. A popular principle at Aylett & Co is to invest on the right terms. During sustained periods of bull markets, this requires a strong conviction and the willingness at times to sit it out. Markets don't go up forever and with cash to spend, there will always come a time for prices to recede to more palatable levels. Buy enough of the right stocks at attractive levels and attractive investment returns are bound to follow. Since quarter end markets have recovered and buying opportunities are currently scarcer.

In terms of relative performance, should investors wish to compare the Fund to an investment universe, the ideal would be the high equity balanced funds.

Although not usually top down in our approach, we have called an end to interest rate hikes. In this regard we have taken Banks to significant exposures in the fund. Assuming the net asset values hold up and the bad debt experience is reasonable, price to book metrics look low and dividend yields appealing. The Fund also has a high exposure to Lewis Stores, a furniture retailer, with many similarities common to a Bank. Finally, we have been unable to ignore the high gold price and have introduced our first gold holding into the Fund, AngloGold Limited.

As at the end of June 2007, the fund has been open for a year. The market trend looking back on the past 12 months has continued to reflect a strongly upward curve. This type of investment environment is one that handsomely rewards those already "on board" and does just as good a job of cutting out the work for those needing "to board" the market. This has been the continued context during the fund's first year of existence. The local equity market has remained at record high levels calling for added astuteness and investment caution given the ever-increasing risk of overpaying for assets.

Against this background it felt wise to keep the equity exposure at the 80% mark holding on to a comfortable 20% cash exposure. Not only does this offer an obvious reduction in risk, it also implies having valuable arrows in one's quiver for when the right investment terms present themselves. I am confident that this is the proper current investment strategy for the fund and that our patience will be rewarded. Relative fund managers concerned about their position in weekly surveys may well challenge this thinking. To our mind and given the young longevity of the fund, it pays to remain rational and patient for the inevitable correction whilst exercising selective stock picking.

The fund delivered a cumulative annual return of 36.38% (net of all costs and a small performance fee of R5975 earned during the year) versus the return for the All Share of 35.66% (inclusive of dividend returns). At first glance our performance may appear mediocre but investors are reminded to view this return against the risk benefit of the fund's lower equity exposure and generous cash component. The fact that our return was generated with only an 80% exposure to the market and still outperformed the All Share Index is a positive indication of sound stock picking on our behalf. The benchmark (Total Return Index + 2.5%) delivered an annual return of 37.97% representing the performance fee hurdle rate.

Although the fund is currently only 80% invested, we will not hesitate to increase the equity exposure to 100% should the risks in the market diminish.

In an attempt to provide better communication to the investor, our preferred communication on the fund's performance and its strategy is via an annual letter. This will be distributed to investors in the next month and will go a long way in sharing our thinking and what actions we've taken.