In the third quarter, the equity market continued the strong run investors have been enjoying since the turning point in April. The JSE All Share Index (ALSI) closed out the quarter at 8925, having spent time above 9500 in early September. After starting the year at 9277, the ALSI, for the first time this year, ventured into positive territory year-to-date early in September before rand strength drove it back below 9000 by quarter end. Year-to-date, the ALSI is now down 1%. We are still well below the May 2000 peak of over 11600, but also, have recovered strongly (+21%) off the April low of 7361. For the third quarter, the ALSI was up 7%. After range trading around R7.50 to the US dollar, the rand broke decisively through the key R7 level on the last day of the quarter, dragging the equity market with it. The ALSI lost over 2% on the last day.

Although the rand has confounded economists, holding, and eventually breaking through R7/$, Resources have performed well (up 11%) this quarter. The mitigating factor has been rising commodity prices, largely offsetting the effects of the strong rand. Platinum has risen steadily from around 650$/oz to over 700$/oz over the quarter. Gold, similarly from 345$/oz to 385$/oz. Industrials have performed equally well, up 10% over the quarter. Financials, arguably the most attractively priced sector, have lagged, and are down 3% over the third quarter.

Internationally, strong second quarter performance has carried through into the third quarter, though not quite as strong. In the US, the DOW and the NASDAQ posted gains of 3% and 10% respectively. In Europe the German DAX was up 2%, and in Japan the NIKKEI gained 12%.

The funds tracking error is 1.3% annualised, on a rolling 36-month basis. The correlation coefficient over the same period is 1.00. The fund makes use of equities, index futures and money market instruments in tracking the ALSI.

In the second quarter we have seen the JSE All Share Index rally strongly off its April low of 7670, to close out the quarter at 8352, up 9%. Although the net result is favourable, it has been a rocky ride. In April, the market was weak (-2%), in May it powered ahead (+14%), before softening again in the second half of June. The reason for the volatility? - the rand. The rand has been the single biggest factor driving our market in recent months. In April we saw the rand strengthen from R8/US$ to R7/US$, only to weaken back to R8 through May, and then strengthen back to R7.50 by the end of June. As long as this volatility continues, market movement will be at the mercy of the rand.

The star performer during May was Resources (+20%). May's rand weakness coincided with strengthening gold and platinum prices. This translates directly into lower costs, and higher revenues for the Resource Companies, and the shares rallied strongly. In April and June, however, the rand worked against Resources, resulting in a net gain of only 1.7% over the quarter. For the quarter as a whole, Financials and Industrials have come out tops, outshining Resources considerably, up 15% and 14% respectively.

Internationally, the large developed markets have all enjoyed a strong quarter. In the US, the DOW and the NASDAQ posted solid gains of 12.5% and 21% respectively. In Europe, the German DAX was up 31%, and in Japan the NIKKEI, having turned a month latter was up 12%.

On the Economic front, Statistics SA revised their inflation numbers down by 1.9% in May. This was after John Stopford (Investec Asset Management), discovered an error in the way housing inflation was calculated. Even before this revision, inflation had clearly peaked, allowing the Reserve Bank to consider cutting rates.

Now, with inflation declining fast and growth slowing, economists expect interest rates to be cut by 3% to 4% by year-end, the first 1.5% of which we have already seen in June.

The fund's tracking error is 1.3% annualised, on a rolling 36-month basis. The correlation coefficient over the same period is 1.00. The fund makes use of equities, index futures and money market instruments in tracking the JSE All Share Index.

The JSE All Share Index (ALSI) had a difficult start to the year. Over the 1 st quarter (Q1), the ALSI is down 18%. Reasons for this include the rand strength, the war in Iraq and recently the royalties bill. The considerable rand appreciation of 2002 has continued into 2003. In Q1 we have seen an 8% appreciation from R8.59/$ to R7.88/$.

The effect of the war in Iraq on equity markets can be clearly seen when one looks at global equity markets. In the US and Europe, equities drifted lower leading up to the war - markets dislike uncertainty. When war was announced, markets rallied strongly anticipating a swift resolution. Later, when this became uncertain, and the possibility of a protracted conflict had to be considered, markets reverted to their bear trend. The JSE has broadly followed this pattern, with the added problem of the royalties' bill dragging the market lower.

In March, global macroeconomic data deteriorated led by US consumer data. Employment, housing and consumer spending data all worsened. Locally, the Budget was slightly more expansionary than envisaged, and was aimed at assisting the poor and unemployed rather than the middle and upper income groups.

The fund's tracking error is 1.3% annualised on a rolling 12-month basis. The correlation coefficient over the same period is 1.00. The fund makes use of equities, index futures and money market instruments in tracking the ALSI.

We closed out the year with a continuation of the trend we have seen since September - a strengthening rand and flat equity market. Throughout the fourth quarter, our market has been range bound trading around the 9500 Index level. We started out the Quarter at 9465 and ended at 9277, down 4%. Most of this decline occurred in December as the rand appreciation accelerated. In the fourth quarter alone, the rand strengthened 19% from 10.55 to 8.59. This brings the cumulative recovery from the December 2001 peak of 13.71% to 37%.

Ironically, although recent strength in the rand has done wonders for confidence and sentiment, it has put a cap on equity returns. Exporters, with rand based costs and dollar revenues benefit from a weak rand. Our Index is dominated by the large resources companies, which fall into this category. Just as these companies benefited last year during rand weakness, so this effect will now unwind, and we will see margins and earnings receding. Bearing this in mind, a sideways market over the last couple of months is actually pretty good. A dollar-based investor would have seen solid returns from our market over the past quarter. With international investors reeling after a 3 year bear market in developed equity markets, and facing minimal cash rates, Emerging Markets must begin to look more attractive.

The funds tracking error is 1.3% annualised, on a rolling 12-month basis. The correlation coefficient over the same period is 1.00. The fund makes use of equities, index futures and money market instruments in tracking the All Share Index.