GLOBAL ECONOMY. Oasis Crescent Management Company Ltd FUND FACTS September 2001

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1 Oasis Crescent Management Company Ltd FUND FACTS GLOBAL ECONOMY The events of 11 have placed additional short-term pressure on the global economy, which has caused it to slow down significantly. These affects occurred at a time when the macro economic stimuli were starting to take effect as leading indicators signaled that the significant downward movement of most major economies was nearing an end. The macro economic response by central governments to these events has been swift, prompt and substantial. This response includes the global interest rate cuts, increases in available liquidity, tax cuts and other incentives that have supported the economy. Never before in the financial history of the global economy has such a drastic action not been able to stimulate the economy over the short to medium term. Therefore, there is no reason to assume that these actions will not lead to an economic recovery in this particular instance. It is anticipated that economies will start to respond to the persuasive action over the next 6 to 9 months. A further factor that will assist in an economic recovery is that, with the exception of Japan, the global banking system is robust and is in very good order. This is mainly as a result of the downward economic growth and the 18 bear months, which eradicated the excesses in the banking system. The microeconomic responses have also been significant and dramatic. Corporate enterprises that may have been slow to cut their expense base and restructure their labour force have responded swiftly following the events of 11. Although this will add short term downward pressure to the economy as the unemployment rate rises it is the appropriate medicine to restructure the cost base of corporate enterprises to secure a long term growth path. Commodity prices, which were weak prior to 11, have collapsed and some commodities are now at generation lows (eg. Zinc). In addition to the low price of most commodities the collapse in the oil price should provide additional support to the economy. Therefore while we believe that the developed economies will go into a recession over the next two quarters we do believe that as a result of the dramatic micro and macro economic responses this recession will be a short sharp downswing, which will be followed by a sharp upswing, rather than a protracted downswing. The Japanese economy is suffering at present as it follows a path of reconstruction. It has incurred further setbacks as a result of the slowing United States (US) economy and the short-term rise in the Yen against the US Dollar. It should be noted that they have completed a large part of the reconstruction, which would include the transformation of the banking sector. It will however still take another year or two of further suffering before Japan returns to a normal economic cycle. The economies of emerging markets that export Information Technology (IT) and IT related components are being significantly affected by the downswing in IT capital expenditure. This decrease in capital expenditure has been prevalent for some time now and there is little sign of change in the short term. Emerging countries such as Korea, Taiwan, Malaysia and Singapore have therefore been negatively affected. Those emerging economies, which rely on the exporting of commodities, have recently felt the pressure of lower commodity prices. This category would include South Africa, Australia and Brazil. The currencies of these countries have been severely adversely affected with the Australian dollar down %, the Brazil Reaal down 40.59%, and the South African Rand down 23.4 % this year. In addition to the poor price of commodities the currencies have also been effected by: The flight of Global investors to high quality currencies. The Global investors perception of sluggish commodity prices putting local economic growth at risk.

2 SOUTH AFRICAN ECONOMY The South African economic scenario is one of interest because: In light of a probable global economic recession the SA economy should hold up better than most other economies as it had a less robust upturn. The weak rand is providing a significant boost to exporters, which offsets the lower commodity prices. The sound fiscal and budgetary policies will lead to lower taxes, which for the first time in three years will filter through to the consumers pocket. As oil prices have plateaued and are on a downward trend, the price of petrol and energy should decline which would increase disposable income. With inflation coming down interest rates have declined. We would predict that interest rates would come down further or until such time as the economy recovers. The lower interest rates together with real wage increases and low levels of debt would provide consumers with additional disposable income, which will promote an increase in consumer spending over the next two years. To date the recovery of the SA economy was mainly driven by the increase in exports, however as a result of the lower interest rates, the lower tax rates, the higher disposable income, and the low consumer debt the consumer will be able to increase his spending which will lead to economic profits and an increase in the demand for local goods and services. The negative factors facing the economy are well documented. The privatization of parastatals has been delayed significantly, which has contributed to the weakness of the Rand. Our currency has also been negatively affected by the socio economic ills, which are impacting on our economy. Despite these factors we believe that the SA economy will grow by roughly 2% this year. During the middle of next year the economy should benefit from the positive stimuli, which would induce a positive economic cycle resulting in a growth rate of 2.75% for next year. It is forecasted for this growth rate to strengthen to 3.75% during the following year. GLOBAL STOCK MARKETS The US Dow Jones Industrial Average has continued to trade in an approximate range of 9,000 to 11,800 as it works its way through a level of extreme over valuation with cyclically high price earnings ratios of Corporate profits, which peaked at a level of 12% of GDP (compared to a norm of 10% of GDP), have declined dramatically over the last 12 months to current levels of 8% of GDP prior to 11 September Following the events of 11 corporate profits have decreased further to between 6% to 7% of GDP, as company profits are well below normal. When the positive economic cycle returns corporate profits should start surging during the 3 rd and 4 th quarters of next year. At current levels we believe that the earnings component of US markets has adjusted and the price earnings ratio will therefore also adjust to reflect this change. It is forecasted that over the next 12 months the market will trade in a range of between 8,000-10,000. Towards the end of 2002, when the overvaluation has worked its way through the market and corporate profits start surging, we would expect US markets to strengthen significantly contributing to a new bull phase. This is based on sound economic fundamentals, good earnings growth and well-funded corporate enterprises. Changes in overall Market Indices Market Year to date Developed World USA, S&P % % % Germany, Dax 38.98% -7.54% -34.1% Japanese, Nikkei 36.79% % % Emerging Markets Korea 82.78% % -4.94% Brazil % % % South Africa, ALSI 57.31% -2.54% -2.56%

3 European markets have declined more than their US counterparts. The overvaluation, however, has rapidly worked its way out of the European stock market. Therefore whilst the European markets have traditionally been behind the US markets we would anticipate that the European markets would again trade in a broad range until they stabilize towards the middle of next year, before their US counterparts. Given the poor economic fundamentals of the Japanese economy and the massive restructuring campaign that has been undertaken, we would anticipate it would take another full year for its markets to increase significantly. It is therefore anticipated that the Japanese markets will remain sluggish for at least another year or two. Market Price to Equity (PE) Ratios Market Year to date Developed World USA, S&P % % % Emerging Markets 38.98% -7.54% -34.1% South Africa, ALSI 36.79% % % SOUTH AFRICAN MARKETS The SA stock exchange depicts a wonderful story. After earnings growth peaked at around 40% in the beginning of the year, we expect that they will trough at a level of between 5% to 10% (positive), in the first quarter of next year. With regards to future forecasts, it is anticipated that the average earnings growth for the next couple of years will be in the order of 18% to 22%. The projected robust economy, the relatively low interest rates, and a weak Rand support this forecast. The Johannesburg Stock Exchange (JSE) All Share is currently trading at a PE of approximately 10. This is well below the fair value of 13, given the quality of South African companies, the quality of management, the competitive nature of SA corporate enterprises, the quality of earnings and a low inflationary environment. Despite the volatile global markets we believe that the SA market will deliver returns of between 20% and 22%, based on the strong fundamentals described above. The following factors will underpin the SA market in the short to medium term: Institutional investors are underexposed to the market. They currently only enjoy a 52% equity exposure to the market. Individuals have moved out of equity funds into money market funds and when they return to the market would provide positive momentum. Share buy backs from leading SA corporate enterprises have augmented once again. This significantly reduces the downside risk of the market Year to date ALSI 57.31% -2.54% -2.54% Financials 27.25% 0.5% % Industrials 47.04% % % Resources % 6.52% 18.47% Rand (USD v ZAR) 4.73% 23.23% 19.17% BOND MARKET: The bond market, which has generated returns of 19.5% before tax (14.6% after tax) for the year ended, is attractive. With the weak Rand, we believe that the true inflation rate is vulnerable at these interest rate levels. Despite this factor we still feel that bonds are not able to generate returns that are comparable to equities. PROPERTY: Despite the fantastic run we prefer property instruments to bond instruments as it not only provides a higher yield but it also includes an earnings growth of between 3% to 5%. Approximately 30% of our property portfolio is currently invested in offshore property companies. We find the investment case for US property in particular to be extremely compelling, with dividend yields of approximately 7.5% and earnings growth of approximately 8%. As foreign exchange controls are further relaxed we would like to increase our exposure to offshore properties.

4 OASIS CRESCENT EQUITY FUND SECTORAL SPLIT June 2001 Domestic Equity 79% Domestic Equity 74% 11% Offshore 10% 14% Offshore 12% The Oasis Crescent Equity Fund has increased its holding of domestic equities as these equities traded at a substantial discount to fair value during the month of September. The portfolio is now well positioned to take advantage of a recovery in the domestic market. As can be seen from the graph below the Fund is well diversified in terms of industry and currency risk to endure short-term shocks. SPLIT BY THEME Performance Oasis Crescent Equity Fund 1998 (Aug-Dec) 1999 (Jan-Dec) 2000 (Jab-Dec) 2001 (Jan-Sept) (Cum) (Annual) 15.5% 80.0% 12.5% 23.2% 187.9% 39.7% ALSI -21.6% 61.4% -2.5% -0.3% 26.0% 7.6% Inflation 2.2% 7.47% 8.21% 4.86% 24.6% 7.2%

5 OASIS PROPERTY EQUITY FUND June % 47% 20% 50% 2% 24% 5% 25% The offshore property component of the Oasis Equity Fund has been increased as we find the investment case for US property in particular to be extremely compelling, with dividend yields of approximately 7.5% and earnings growth of approximately 8%. Despite the fantastic run of the domestic property instruments we still prefer them over bond instruments as it not only provides a higher yield but it also includes earnings growth of between 3% to 5% Performance 2000 (Oct-Dec) 2001 (Jan-Sept) (Cum) (Annual) Oasis Equity Fund 6.4% 10.9% 17.7% 17.7% Real Estate Index 5.4% 16.8% 23.1% 23.1% Inflation 8.21% 4.86% 5.89% 5.89% OASIS BALANCED FUND 30 September 30 June % Money Market 31% Fixed Interest 3% Equity 58% Performance 2001 (Mar-Sept) Oasis Balanced Fund 7.5% Average Prudential Fund -2.1% Inflation 3.26% The Oasis Balanced Fund has increased its holding of domestic equities as we were able to accumulate these equities at a substantial discount to the markets fair value. The portfolio is well diversified and enjoys an exposure to all asset classes. It is also well positioned to take advantage of any recovery in the domestic economy.

6 OASIS CRESCENT INTERNATIONAL FUND OF FUNDS Sectoral Diversification 30 The Oasis Crescent International Fund of Funds enjoys fantastic diversification across various different industrial sectors as the equity component depicts alongside. It is also worth mentioning that the Fund enjoys an exposure to those sectors of the global economy that are not prevalent in South Africa. In addition the Fund is well diversified in terms of geographic risk and enjoys and is invested in most developed economies. As the assets of the Fund are invested offshore it will benefit as a result of any depreciation in value of the South African Rand. Geographic Diversification 30 Asia 10% Australia 1% Europe 33% North America 56% OASIS GENERAL EQUITY FUND The Oasis General Equity Unit Trust Fund was launched on 28 to provide investors with the opportunity to invest in listed equities on both local and international stock exchanges to provide capital appreciation over the medium to long term. It is a medium to high-risk investment vehicle with a primary objective of protecting capital. The secondary objective of the fund is to grow capital, based on the stock selection criteria. The fund will be managed in accordance with the successful investment philosophy of low volatility fund management to provide Superior Returns at lower than Market Risk. OASIS MONEY MARKET FUND The Oasis Money Market Fund was launched on 28 with the objective of preserving capital and providing a high degree of liquidity to investors. In addition the fund seeks to provide a sustainable level of income within acceptable risk adverse parameters. The fund will therefore invest in high quality institutional money market instruments that are often not available to retail investors. Such instruments would include bank deposits, banker s acceptance, wholesale deposits, negotiable certificates of deposit, and other interest bearing instruments. The fund would be classified as having a low risk.