OUTLOOK

"Missed Forecast on the XAU Index"

10/11/2007

Our forecast for a decline in the XAU index did not go as expected.  Rather than correcting 5% from its peak level, the XAU rose along with the broader stock market and commodities in general.  Given this environment, it was difficult to short the XAU Index.

Given that all our misses this year have on been on shorts, we have been careful in how we manage risk.  To manage our risk in this trade, we risked only a small percentage of our capital with a stop loss to keep the risk at no more than 1.25% of total capital.

Mark Yuan, CFA