The 3rd quarter was an eventful one with markets being characterised by increased volatility on the back of accelerated declines in the equity market. Fears of financial firms failing were manifested in the bankruptcy of Lehman Brothers and the rescue of AIG by the US government. Volatility/fear has continued in October as governments around the world struggle to secure their banking systems, both to protect depositors and stimulate lending. Some money market funds also landed up "breaking the buck" i.e. NAV dropped below 1 as sub prime holdings lost money. The Fed stepped in with a US$ 400 billion money market guarantee but this has not stopped record outflows from US cash funds. We are happy to report the underlying instruments we invest in remain AAA rated by Moody's and customers continue to have full access to their investments if they wish. Our funds had no exposure to the debt of companies that made headlines for the wrong reasons - since launch we have never held a security that has defaulted! A stable price in the underlying funds is a primary objective and a key part of how the money market funds are managed.

The 2nd quarter was much the same as the 1st. In this regard FX markets were characterised by rising volatility as a result of continued weak housing data, poor credit markets & questions surrounding the health of consumer spending. In rand terms the portfolio lost 3.1% during the period under review on the back of the local unit rebounding 4% from the sell off at the beginning of the year (it remains the worst performing primary currency in the world YTD - down 12.3% against the greenback). Our record current account deficit remains the key risk. Against the crosses the dollar was marginally up against the euro, gaining 0.5%. The gross 30 day yield of the underlying holdings is now 3.6% with the weighted average maturity at 46 days. All underlying instruments remain AAA rated by Moody's so there was no exposure to the subprime market. Looking ahead the trend of "dollar diversification" from central banks & Sovereign Wealth Funds remains a head wind for this portfolio; however we would caution that the consensus opinion on the dollar is too bearish. On a PPP basis it is considered about 25% undervalued. Suffice it to say we think concerns surrounding the greenback are well discounted in the market as the trade weighted dollar has declined more in this bear market than in any other post-war sell off. In the short term the odds are the euro could benefit from the ECB's perceived upside risk to price stability & hawkish stance, compared to the dollar potentially being undermined by the Fed's focus on lower growth coupled with investor sentiment being negatively affected by uncertainty regarding the extent of a US recession.

Q4 was characterised by increased volatility as a result of weak US housing data, poor credit markets & questionssurrounding the health of consumer spending. As we enter 2008 investor sentiment will be driven by uncertainty as towhether the US will go into a fully blown recession or a cyclical slowdown. I am of the opinion the US will move into arecession, albeit a short one. In this regard my view is the Fed is behind the curve. Its inversion last year is a warning of apotential recession & is backed up by the negative spread between the 2-year note & Fed Funds rate - rarely do bothindicators give a false signal simultaneously. The unemployment rate (a tried, tested & true recession barometer) hasrisen 60 basis points from the cycle low & at no time in the last 60 years has the aforementioned not been followed by theeconomy slipping into recession. This is significant as the dollar has historically underperformed other major currenciesdue to the Fed cutting rates more aggressively. Clearly it's been the case again with the dollar losing 2.5% & 2.7%against the euro & yen respectively resulting in the trade weighted US$ Index falling to its lowest level since inception in1973. The trend of "dollar diversification" from central banks & Sovereign Wealth Funds also remains a head wind.Conversely we believe the consensus opinion on the dollar is too bearish. On a PPP basis, its considered about 20%undervalued & could well strengthen. Additionally, 2 factors often cited to explain movements in the dollar - the currentaccount & budget deficit are on improving trends. Suffice it to say, we think concerns surrounding the dollar are welldiscounted in the market. In rand terms the fund was basically flat during the period under review as the local unit gainedamere 23bpts. Looking ahead we believe our record current account deficit will weigh on the rand; however in the shortterm flows on the capital account are offsetting this. We recommend being diversified between the crosses. The netsimple yield of the underlying holdings is now 4.8% with the weighted average maturity having risen to 46 days. Allunderlying instruments remain AAA rated by Moody's so there was no exposure to the sub primemarket.