The Seed Absolute Return Fund has been significantly transformed over the past quarter to better reflect the long term target structure of the Fund. At the end of June the majority of the Fund was invested into one strategy, but over the past quarter new strategies were added.

The evolution has occurred primarily as a result of two factors. The first is an increase in the size of the Fund and the second is changes in legislation that now allow the Fund to have a higher allocation to other funds.

The Fund's objective is to generate CPI + 4% pa as consistently as possible and will be achieved through investing into a diverse range of uncorrelated strategies. While the process of populating the Fund with a full range of strategies is by no means complete, there are now four independent strategies that are each more than 10% of the Fund. We are currently looking to include one or two new strategies.

The processes followed by each of these four strategies will ensure that they are exposed to different return drivers. We therefore expect them to have different return profiles, while all generating in excess of CPI + 4% over a full investment cycle.

Seed's role is to ensure that each of these strategies remains relevant, search for new CPI + 4% strategies, and to increase the allocation to those strategies that are expected to outperform over the shorter term.

One of the larger investments in the Seed Absolute Return Fund is the Foord Compass Debenture (4.2%). The debenture is a closed end investment vehicle that seeks to generate a return of CPI + 10% per annum over rolling 5 year periods while avoiding negative returns over anyone year period. The debenture gives investors access to Dave Foord's considerable skill in an unconstrained mandate.

During the past 10 years, the investments managed by Foord Asset Management (the majority of the debenture) have generated a return of 23.1% po versus 15.6% po from CPI + 10% and 15.5% po from the ALSI. This return has been achieved with significantly lower risk than the ALSI.

Over time the listed debenture will track the performance of its Net Asset Value (NAV), but will generally trade at a discount or premium to its NAV in much the same way as a listed conglomerate trades around its NAV.

Foord is able to have a longer investment horizon in this portfolio when compared to other mandates as the closed end nature of the debenture provides a permanent capital source. This longer term mindset, coupled with the relatively illiquid nature of the debenture, should combine to generate excellent real returns for debenture holders into the future.

In selecting securities for this portfolio and in the determining the portfolio asset allocation, the manager shall seek to achieve this objective, where possible, regardless of stock market trends. The portfolio may invest in global and local equity securities, government bonds, corporate bonds and inflation linked bonds, debentures, non-equity securities, property shares, property related securities, preference shares, money market instruments and assets in liquid form. The portfolio may also invest in participatory interests and other forms of participation in portfolios of collective investment schemes or other similar schemes operated in territories with a regulatory environment which is to the satisfaction of the manager and trustee of a sufficient standard to provide investor protection at least equivalent to that in South Africa and which is consistent with the portfolio's primary objective. The portfolio may from time to time invest in financial instruments, in accordance with the provisions of the Act, and the Regulations thereto, as amended from time to time, in order to achieve the portfolio's investment objective. The manager may also include unlisted forward currency agreements, interest rate and exchange rate swap transactions. The manager shall have the flexibility to vary assets between the various markets, asset classes and countries to reflect the changing economic and market conditions. The portfolio's composition shall comply with prudential guidelines.