The latest fall-out in the US financial sector caused by the filing of Chapter 11 bankruptcy by the 158-year old investment bank, Lehman Brothers and the sale of Merrill Lynch to Bank of America Corp poses no immediate threat to the portfolio under the management of Sterling Asset Management.    Neither Lehman Brothers nor Merrill Lynch is a custodian of the proprietary securities offered by the local financial brokerage.

It should also be noted that the custodians of the funds under management by Sterling Asset Management are Oppenheimer & Co., Morgan Keegan and Company and the Deutsche Bank. Custodian securities in US brokerage houses are required to be strictly segregated from the brokers’ proprietary securities so that the securities belonging to custodial clients are protected even in the collapse of a brokerage house. Furthermore, our custodial accounts are protected by insurance of up to US$100 million.

On the other hand, however, the turmoil in the global financial market at this time could result in an increase in yields and a decrease in prices of Emerging Market Bonds, as well as increased volatility in US Treasuries. The increase in risk aversion, which will be part of the reaction to the problems in the US financial market, will result in a flight to quality and an increasing demand for US government bonds. Despite the problems at Fannie Mae and Freddie Mac, US government agency bonds will continue to be the next safest investment to US Government Bonds.