Equity Markets continued to advance in the third quarter of 2003. Overall the MSCI World Index rose by 4.9% in US dollar terms. From a geographical perspective, the Far East, Japan and emerging markets in general performed particularly strongly as confidence in a broader and more synchronised global recovery became more pervasive. From a sectoral perspective, IT and materials were the strongest with advance of 12.3% and 11.8% respectively. Telecoms and healthcare were the principal laggards registering declines of 3.1% and 2%. The US dollar weakened sharply against the Rand and the Yen, and more modestly in Euro and Sterling terms.

From a style perspective it is interesting to note that the MSCI Growth Index (+4.6%) again lagged its value equivalent (+5.3%) that is unusual in a period of general market recovery. However, this has not reflected in underlying manager performance. Marvin & Palmer (growth) justified a higher weighting in the portfolio with a return well ahead of the MSCI World Index whereas Morgan Stanley (focussed value) lagged as defensive stocks continued to lose out relative to more economical cyclical plays. Merrill Lynch (core) again held overall performance back and this has been primarily attributable to a more cautious, quality large cap oriented approach.

Opinion remains very divided about future market prospects. Certainly, there remain many uncertainties and headwinds remain powerful, however, we remain constructive.

Aggressive monetary and fiscal policy relation efforts are gradually succeeding as evidenced in fundamental indicators of activity and measures of confidence. Despite certain 'hot spots' such as internet survivors, valuations are generally not excessive and earningsmomentum is positive. This is reflected in a positive technical picture, but further fundamental and earnings improvements are likely to be required to support higher market levels. We continue to believe that a strong style biases remain inappropriate but have further increased overall portfolio beta.

At the time of writing, global equity markets were somewhat overbought and periodic corrections are to be expected. However, we are inclined to persist with our more positive view. There are early signs of improving economic conditions in the US and a gradual improvement in corporate sector sentiment.

The latter is particularly crucial given that the period of weak growth has been primarily a function of corporate sector retrenchment after the excesses of the 'bubble period'. These factors should continue to lend support to world equity markets.

World equity markets enjoyed a powerful rebound in the second quarter of 2003. The speedy conclusion of the Iraq war, aggressive reflationary actions by key governments and Central Banks, and improving corporate profitability combined to cause investors to return to stockmarkets. The MSCI World Index rose by 17.2% in US dollar terms over the quarter and is now up by 11.5% on a year to date basis. The financials (+22.3%) and telecommunications (+20.8%) sectors led while the consumer staples (+10.5%) and energy (+11.7%) sectors lagged. From a geopolitical perspective, European, Asian and emerging markets outperformed the US mainstream indices. We continued to reduce the value exposure in the fund by raising the proportion of the fund allocated to our growth manager, Marvin & Palmer and we reduced our holdings in rand hedge stock to zero.

Equity markets were profoundly affected by the growing possibility, and then by the actuality of a war in Iraq. The US market again proved more resilient than others, with the S&P 500 rising by 1.0% in US$ terms in March, but falling by 3.2% over the quarter. European markets fell by 9.2% over the quarter (MSCI Europe inc. UK), the NIKKEI 225 declined by 7.0% and Asia ex Japan fell by 7.7% (MSCI AC Far east Free ex Japan). Overall, the MSCI World declined by 4.9% in US$ terms. Relative performance at sector level showed a significant shift in stock market dynamics. The MSCI World information technology sector fell by 1.8%, whereas the normally defensive consumer staples sector fell by 7.2%. The US Dollar weakened over the quarter by 9.0% against the Rand and by 4.0% against the Euro.

The changing nature of underlying market dynamics was illustrated by the positive performance delivered by Marvin and Palmer (our 'growth' manager) and the sub index return delivered by Morgan Stanley (our deep value manager). Amongst other factors, this reflected the difficult time experienced by consumer staple stocks, most notably Altria Group (formerly Philip Morris), which constitutes a significant component of the Morgan Stanley portfolio. Merrill Lynch, manager of the core portfolio, was well ahead of the benchmark, primarily as the result of good stock selection.

Overall, the fund exceeded its benchmark comfortably over the quarter but suffered in an absolute sense from the market decline and, in rand terms, from the continued strength of the rand against most other world currencies.

In effect, the MSCI World Index retested its October 2002 low and rebounded off it sharply. Sentiment remains poor, but much of that had clearly been reflected in prices. It remains to be seen whether recent geopolitical strains and uncertainties have damaged an already brittle consumer in the key economies. In the meantime, the balance of probabilities suggests a period of recovery, as short positions are unwound. From an economic perspective, China is booming and other emerging economies such as India and Eastern Europe are delivering positive growth surprises. Balance sheet repair continues albeit driven by cost cutting as opposed to top line revenue growth.

A further wave of uncertainty hit equity markets in December, which pared back the gains made in October and November. The MSCI World Index fell by 4.8% over the month, but was ahead by 7.7% over the 4 th quarter of 2002, albeit a recovery from a weak end of the 3 rd quarter levels. A 6.2% appreciation in the funds euro against the dollar offset underperformance of Continental European equity markets as a group at the local currency level. Far Eastern markets also struggled. Japan's NIKKEI delivered negative returns over the quarter, whereas the Far East ex Japan managed a gain of 3.1%. At the underlying sector level, there were signs of a sharp rotation away from defensive sectors (such as consumer staples and utilities) towards telecommunications and information technology. The rand strengthened against all major currencies and particularly against a weaker dollar against which it posted a 22% gain. Consequently, in rand terms, the MSCI World Index declined by 12.2% over the quarter.

From a performance perspective, the quarter was disappointing due to the sharp rebound in 'growth' stocks, which was not adequately captured by our global growth manager Marvin and Palmer, and the underperformance of the defensive sectors held by Morgan Stanley, the fund's global value manager. However, over the calendar year as a whole, the fund was again amongst the leading traditional 'long only' global equity funds available in the domestic market, outperforming the MSCI World Index by 9 percentage points in rand terms.

Geopolitical tensions, deflationary pressures and policy relations are pulling asset prices in opposite directions. Equities, although cheap relative to government bonds, are in many cases not yet cheap in an absolute sense. All of this is well known and as such, largely discounted. We suggest that reflationary efforts are likely to be successful, and should help to underpin the progressive improvement in corporate balance sheets and earnings that is already underway in most major economies. Such a development should extend the current equity market recovery. As a consequence, we intend to move the portfolio into a less defensive gear for the period ahead by reducing the fund's value exposure and increasing the allocation to our global growth manager.