Dear client,

23 September 2013,

What is happening with KFHF (Kanaan Fund of Hedge Funds) and what is its potential?

Important Paragraphs to note - 1, 5, 6 and 8.

1. Two of the six underlying funds in our KFHF (Kanaan Fund of Hedge Funds) use fixed income strategies and aim to make profit by correctly predicting the “yielded curve” (the difference between the short-term and the long-term bond yield) of mainly government bonds and take positions accordingly. Unfortunately these two funds, Kadd Capital and Brait , had 2 very poor months, which caused KFHF to return -6.14% for May and -6.91% for June. The reason for the poor performances of the two mentioned funds, is because of the American reserve bank’s unexpected announcement, during the end of April, that after 5 years, since the 2008 Credit Crash Crunch and the “quantitative easing”, they are finally seeing signs of growth in the American economy.

2. Quantitative Easing entails the bailing out of big companies that were on the verge of bankruptcy, because of their huge debt build-up during 2008, by granting further debt against very low interest rates and to make more money, at low interest rates, available to the U.S economy at a rate of $85 billion a month. This method of “Quantitative Easing” is criticised by most leading economists world wide as a method that will take much longer to restore the economy and that it would have been much better to just let the mentioned companies collapse. The argument is that Governments should not interfere with the free market. They should leave it to the normal forces of supply and demand, to sort out imbalances or over valuated situations via a correction, recession or even a depression to revaluate the market. According to certain renowned economists, over the past 200 years history has shown that although very painful, when the market had been left to itself, it had recovered much sooner.

3. The intervention of a government, like in the case of quantitative easing, is socialistic, of which the most extreme form is communism, which has proved to be a great failure over the past 90 years.

4. A Majority of economists around the world believe that the U.S economy as well as other first world economies, such as Europe, will slowly start to grow again, but by no means fast enough that the so-called “quantitative easing” can be ended as soon as this year.

5. Kadd Capital and Brait are indeed two excellent hedge funds, which have contributed to the profit of KFHF in the last few years and we have little doubt that they will, just as in the past, make a comeback.

6. According to the attached factsheet of KFHF (Pg.1, Par.10), as mentioned previously, you will see a similar fall in value of the fund during May and June 2006, but the fund ended that year, Ytd (Year to date), with 25.22%. An investor who withdrew his money by the end of June 2006 would have lost 11.49% as well as the 25.22% that he could have earned by the end of 2006.

7. Normally we would not sell good funds like Kadd Capital and Brait, as we have seen in the past how they can make a comeback. KFHF did very well over the years though, which has attracted pensioners to invest in KFHF, who are withdrawing their regular income from the fund. These investors are dependent on their income and can’t buy and hold, therefore funds like Kadd Capital and Brait that has big draw downs, even though they have always recovered, have been disadvantaging these pensioners. We have thus already sold Briat and Kadd Capital’s month notice is running until the end of September 2013. Kadd however is showing growth of 6.8% up to the 12^th of September. We hope that Kadd will maintain this growth to the end of the month, which will assist KFHF to have a good month (Pg.2 letter from Kevin Pretorius of Kadd Capital).

8. Attached here to (Pg.3) is the performance schedule of the underlying funds of KFHF, which includes the funds replacing Kadd Capital and Brait, namely Blue Alpha Polar Star (representing 11% of KFHF), Kaizen Strategic Opportunities (10%) and 36One (5%). You will see that Blue Alpha ended 2012 with 23%, Kaizen with 34.4% and 36One with 25%.

9. The volatility of these funds may seem big, but as we include hedge funds with diverse strategies, it is very unlikely that the rhythm of their volatility will synchronise and the relative low standard deviation since inception 2.69 (see Pg.1 Par 7 of the factsheet) should be maintained.

Friendly greetings,

Andre Delport