The JSE was dragged down this quarter by the turmoil in developed markets. As the credit crunch seemed to hit the financial institutions with renewed vigour in the developed world, recession fears started to grip financial markets and emerging markets sold off as growth fears dominated. The All Share was down22% during the quarter with resources leading the decline (-38%), while financials (+12%) bucked the trend as we saw rotation into cheap local financial and industrial stocks. In addition, South Africa benefited from the view that inflation had peaked and that monetary policy would be loosened early in 2009. The Top40 took the most pain and was down 23%, with small caps only down 1,5% and mid-caps closing up.

The SIM Top Choice was down by 10% in the quarter. The fund outperformed the All Share thanks to our overweight position in financial and industrial shares. Our largest holding at the end of the quarter was Remgro, which was our second largest holding the previous quarter. The diversified industrial group offers exposure to BAT, financials and industrial stocks. Management announced that they would unbundle their BAT holding by means of an inward listing on the JSE, which should unlock the substantial discount to NAV. The stock outperformed the All Share by some 32% during the quarter.

We added to our position in RMB Holdings, which is our second largest holding in the fund. RMB Holdings' value is derived mainly from its 33% holding in FirstRand. The stock outperformed the All Share by 58% during the quarter. The FirstRand share price has recovered despite posting earnings down 8% for the year ended June 2008 as the market looked forward to a rebound in earnings in 2009/10. South African banks have so far been spared the worst of the credit crunch, and liquidity in the South African interbank market remains plentiful.

Shoprite, our third largest holding, outperformed the All Share by 50% over the quarter. The stock is benefiting from the spike in food inflation while still experiencing strong demand from the bottom end of the market, and delivered strong annual results with earnings up 54% and an ROE of 40%. As a low-cost provider, it has been able to offer a better value proposition to its customers and its centralised distribution system has allowed it to deal with an environment with supply shortages and sharply rising food prices.

Despite being underweight resources, the selected resource stocks in the fund suffered large declines. BHP Billiton declined by 37% and Anglogold Ashanti by 29%. The performance of BHP Billiton has been weighed down by fear that a global recession would lead to a sharp decline in industrial production and industrial metal prices. The decline in the Anglogold share price is disappointing as the gold price in rand terms was flat over the quarter and management is closing its hedge book, which should add value over the longer term.

As the world is gripped by fears of a global recession and risky assets are being sold off indiscriminately, we are finding real value emerging from the stock market. The portfolio is now being repositioned to increase the holding in blue-chip stocks with predictable cash flows and which are now trading at reasonable valuations. This should benefit unit holders over the longer term.

Despite delivering a positive 3% return for the quarter, the JSE was subject to a lot of volatility as most of the gains racked up until May were lost as a result of global inflation concerns. The divergence in performance between resource and financial/industrial shares continued, with resources up 13% and financials down some 15% during the quarter. Resources benefited from a strong oil price and are pricing of bulk commodities, while financials were hurt by higher than expected inflation numbers, two interest rate hikes and an international environment in which financial institutions continue to announce large credit write-downs. Large caps led the way, delivering positive returns once again, while mid- and small cap stocks, geared to SA Inc, were down by over 10%.

The SIM Top Choice had a disappointing performance in the second quarter. This is a reflection of our bias towards financial and industrial shares, which underperformed the broader index.

Our largest holding at the end of the quarter was Angloplats, the world's largest platinum miner. The company has had to revise its production numbers down since the electricity crisis at the beginning of year. Platinum group metals fundamentals remain solid driven by strong demand for auto catalysts, while the shortage of supply means the market is unlikely to see a surplus in the short term. Remgro remains our second-largest holding. The diversified industrial group offers exposure to BAT, financials and industrial stocks. Management are shrewd allocators of capital and invest in strong franchises that are cash generative. The stock was trading at a significant discount to NAV, which is attractive. The stock underperformed the All Share Index by some 7% during the quarter. MTN (our largest position in March) was trimmed and is now our third-largest holding. The stock has been the centre of intense corporate activity. Talks with fixed-line provider Telkom and a proposed merger with an Indian mobile operator, Bharti Airtel, were both discarded with the stock touching highs of R160. After the potential Bharti deal was terminated, another Indian mobile operator, Reliancet, stepped up to the plate. While we await the outcome of the latest talks, I remain positive that MTN is an asset in high demand despite the fact that the stock underperformed the All Share Index in the quarter. We introduced Discovery during the quarter as we believe the share is trading below its intrinsic value. Our underweight resources position hurt us during the quarter. Of the resource shares, BHP Billiton (+24%) and Sasol (+20%) were top performers on the back of an oil price that did [gained ?] 40% in the quarter! We believe our significant holding in Anglogold Ashanti should provide us with a hedge against inflation and the oil price. Anglogold Ashanti underperformed the All Share Index ahead of itsR12bn rights issue. We feel a restructuring of its hedge book will result in improved financial performance and will benefit the fund in the future.

The performance of financials continues to hurt the fund. We retained our large exposure to Nedbank, which underperformed the market by 23% during the quarter. The two interest hikes have hit financial stocks hard and Nedbank was especially hard hit despite publishing some reasonable first-quarter numbers. The stock is now trading at book value and we believe the downside is now limited.

While this has been a tough quarter, we remain confident that our philosophy of buying cheap companies with strong franchises will pay off in the longer term. The severe sell-off of SA Inc means absolute value is emerging in our market and the valuation of stocks in the portfolio should provide a peg in the ground in the face of bear market conditions.

The first quarter of 2008 was characterised by extreme volatility in the markets. The JSE plunged by 13% in January but clawed its way back to end the quarter 2% up. This performance belies the huge divergence in performance between the various sectors during the quarter. Resources benefited from a rebound in commodity prices and a weaker rand to deliver 14% during the quarter, while the financials fell by -11%, hurt by higher than expected inflation numbers and an international environment rocked by the sub-prime crisis. Large caps led the way, delivering positive returns, while mid- and small cap stocks, geared to SA Inc, lagged.

The SIM Top Choice Fund was down almost 6% in the quarter. While this is a disappointing performance, it is a reflection of our bias towards financial and industrial shares, which underperformed the broader index. The rand weakened by some 18% against the dollar and this boosted the performance of many rand hedge stocks. While this has been a tough quarter, we remain confident our philosophy of buying cheap companies with strong franchises will pay off in the longer term.

Our largest holding at the end of the quarter was MTN (which was our secondlargest position in December), which reported excellent results and whose number of subscribers in Nigeria now exceeds that in South Africa. Over the previous year the cellphone operator increased its subscriber base by over 50% with a footprint in 21 countries. Earnings were up some 17%, with strong dividend growth. MTN is now growing in the Middle East with Iran contributing over 6m subscribers. In fact, MTN is struggling to satisfy the demand for its services in many of the jurisdictions in which it operates. We remain positive on the prospects of the group, which performed in line with the JSE during the quarter.

Remgro is now our second-largest holding (up from fourth in December). The diversified industrial group offers exposure to BAT, financial and industrial stocks. Management is shrewd allocators of capital and invests in strong franchises that are cash generative. The stock was trading at a 20% discount to NAV, which is attractive. Given the volatile markets, the fact that the group's main asset is in an offshore listed tobacco group provides both some defensive and rand hedge qualities to the group. The stock underperformed the All Share Index by some 2,5% during the quarter.

Our underweight resources position hurt us during the quarter, specifically our position in Anglogold Ashanti, which outperformed the All Share Index by 25% by mid-January and ended the quarter down 9% relative the ALSI, as the hedge book weighed on sentiment. Our switch from Sappi to Mondi was more successful as the latter outperformed the Alsi by some 4%. We remained exposed to the Platinum sector through Impala Platinum, which benefited from the platinum price moving up by over 33% during the quarter.

We sold 11% of our Standard Bank holding to ICBC, a Chinese Bank, at R136 per share during the quarter. While the Financial and Industrial Index underperformed during the first quarter and sentiment towards SA Inc appears to be at the point of maximum pessimism as a result of the Eskom load-shedding issues, higher inflation and prospects of lower economic growth, we believe this is the time to accumulate share that will deliver good long-term returns. The fund will be positioned to capitalise on such opportunities.

The SIM Top Choice ended its first calendar year strongly with a pleasing quarter, delivering a positive return to unit holders while the All Share was down by over 3% in the quarter. Looking back at the year, I am also proud to report that the fund posted a solid 28% return for our investors while the All Share Index delivered only 16%. While past performance is no indication of the future, I would like to thank those who have bought into our philosophy and style. I remain confident that, thanks to the amazing team I have at SIM, this fund will continue to distinguish itself from an extremely competitive peer group in future.

In line with our philosophy of aggressively taking positions in highest conviction stocks as reflected in SIM's specialist Equity Unit Trusts, the Top Choice Fund ended the quarter holding over 8% in four stocks. It is the stated aim of the fund to position itself aggressively into stocks where we see the best upside, thereby providing our investors with a concentrated portfolio of stocks.

Shoprite remains our top holding and the stock outperformed the All Share Index by some 24% in the quarter alone. Shoprite has invested in the past years to create a dominant food retail franchise at the bottom end of the market. The Checkers brand is also undergoing a revival and is turning out to be a serious challenger in the middle-income segment. Africa remains the untapped growth opportunity in the group. Shoprite offers defensive qualities in an environment plagued by high food inflation.

The second largest holding remains MTN, which has excellent growth prospects in the rest of Africa where mobile penetration is only 20% (compared to approx. 70% in South Africa). MTN outperformed the All Share by some 27% in the last quarter. Management has in the past demonstrated an ability to unlock value by being involved in shrewd acquisitions. It was therefore not a surprise to learn that potential talks with Telkom were called off.

The third-largest holding is Standard Bank. After underperforming in previous quarters, Standard Bank outperformed the All Share by 4%, helped by the decision of ICBC of China to acquire a 20% stake at R120. ICBC is the largest bank in the world by market capitalisation and will be able to assist Standard Bank to gain more Chinese customers and capitalise on Africa-China trade links, especially in the commodities arena.

Remgro, our fourth-largest holding, outperformed the All Share by some 17% in the quarter. Remgro owns over 10% of British American Tobacco and there are plans afoot to unlock value through a dual listing of the stock on the JSE. Remgro has been trading at a wide discount to net asset value and the impending restructuring should help close some of this discount.

We remain underweight resources as commodity prices are now at multi-decade highs. We prefer precious metals in that space. In the fund, we switched our position in Harmony into Anglogold Ashanti where we see more earnings certainty in future. We retained our position in Anglo Platinum, which performed in line with the All Share during the quarter. Finally , we switched our position in Sappi into Mondi as we see more upside in the latter given the fact that it has a more diversified portfolio of low-cost operations based mainly in emerging Europe, and its management has a better track record.

While 2007 has been friendly to equity investors, it is our view that the global economy is likely to be a more hostile place in the coming year and we therefore expect returns to be lower in 2008.

The SIM Top Choice Equity Fund's primary objective is to deliver above average growth in capital over the medium to long-term. The portfolio reflects an aggressive risk profile and volatility of capital values can happen over the short-term.

The portfolio will also be allowed to invest in participatory interests in portfolios of collective investment schemes registered in the Republic of South Africa or of participatory interests in collective investment schemes or other similar schemes operated in territories with a regulatory environment which is to the satisfaction of the manager and the trustee of a sufficient standard to provide investor protection which is at least equivalent to that in South Africa. These portfolios will have a specific equity focus, and will provide exposure that supports the equity best ideas of Sanlam Investment Management.

When investing in derivatives, the investment manager will adhere to prevailing derivative regulations.