The Aylett Equity Fund was launched on the 3rd of July 2006. Not long after that we went on record stating that South African stocks were quite fully priced and hence far from the bargain basement prices we prefer. In particular, towards the second half of 2007 we witnessed the biggest run up in commodity stocks in recent history. As your fund manager, I decided to sell commodities replace them with investments that had fallen out-of-favour, such as defensive and financial stocks.

For some time we suffered huge underperformance relative to the benchmark - at one stage, I believe, we were 15% below the All Share. This was a very tough thing to go through! Financial advisors that live by studying short-term performance charts chose not to put their clients' money with us. There were however some investors that were in synch with our thinking and chose to do the opposite. The results speak for themselves, and we can safely say that the market is not efficient and we have handsomely outperformed the index. I thank those investors not only for putting their clients' money with us, but for their faith in our investing skills.

We did well because we are driven by a fear not to lose money, and as always, have never had a desire to follow the herd - there are not many fund managers who can say that their fund does not own Anglos, Billiton nor MTN. I hope that from time to time an investor will be able to view our portfolio and see for themselves that our thinking is independent and based on commonsense rather than being shaped by what the market is doing.

My apologies to our unit trust investors who have had to wait for the December Fact Sheet but as the Financial Times (2/02/08) put it "Getting through January required a full complement of trading skills or just cold-blooded, seen-it-all-before experience.

" It was a time where our strategy of holding significant amounts of cash came to fruition. A sell off of some high quality companies gave us the opportunity to purchase them at lower prices, hence with less risk.

Standard Bank is a good example. Towards the end of February the Chinese bank ICBC will purchase 10 % of our holding at R 136. Furthermore, the bank will issue additional shares at R 105. The lowest price we paid for Standard bank was R 86,50. Because of the action described we will effectively be buying into the position at about R 82. Furthermore, we expect to receive about R 2 in dividends in March. Our risk of over paying for the bank is less than it was four months ago when the deal was conceived.

In addition some small caps, which have been overpriced for sometime are starting to look more attractive. It is in this area that we hope we will be able to make some investments that are traditionally below the radar screen of very large fund managers.

Walter Aylett (February 2008).