Relative to the first two quarters of this year, the third quarter could be termed as quiet, yet it has by no means been an uneventful period. Coming off a weak base from the previous quarter, the market was quick off the block with a strong reversal of fortune which saw the market surge to a confident 16.4% over a 10-week period. A stable range-bound rand (average R7.40/US$), strong commodity prices (Gold at US$390, Platinum at US$700+) and an optimistic overseas market were strong contributors to the performance during this period. The Kagiso Top 40 Tracker Fund, with its high resource exposure, benefited significantly during this period.

September saw the market lose much of its gains as the rand rallied on the back of a weakening US dollar and a poorer economic outlook in the US and Japan. Not even a 100bp cut in local interest rates from an emergency Monetary Policy Committee meeting could prevent the strength which saw the rand break R7/US$ (last seen December 2000). Renewed uncertainty from South African trading partners put pressure on the South African market even though local economic data was positive.

The Kagiso Top 40 Tracker Fund returned 7.36% for the quarter, to perform in-line with the 7.39% total return of its benchmark, the FTSE/JSE Top 40 index. For the year, the fund has returned -2.66% compared to the Index's total return of -3.10%. This outperformance was achieved partly through the fund's mandatory cash holdings over the first quarter, as well as through purchasing Top 40 futures contracts at discounts to the equity fair value. The fund has purchased futures at a strong discount, the performance of which would be realised next quarter.

The strong performance of the Industrial (10.8%) and Resources (11.3%) sectors is a positive sign for growth in the SA economy. Coupled with a lower interest rate environment, the local market is showing signs of strength.

For the third consecutive quarter, MTN remains a darling stock of the Top 40, up 22.4%, with only Impala Platinum (34.1%) and Iscor (33.1%) posting better returns. After a stellar second quarter, local financial shares came under pressure with a paltry performance of -2.3%, with all the major banks in negative territory -Standard Bank (-1.1%), ABSA (-1.9%) and FirstRand (-4.4%). Nedbank's woes continued this quarter and has remained the worst performing share in the Index with a -20.39% return.

This quarter saw Harmony successfully conclude its bid for ArmGold in early September. This brought an opportunity for PPC to enter the Index prior to the Index rebalancing data. The corporate event was monitored carefully with the Index change being efficiently executed.

The equity prospects for the last quarter remain positive. Strong domestic economic data over the past months, coupled with still lower interest rates, although tempered by a strong currency performance, bode well for the local market. The Kagiso Top 40 Tracker Fund continues to meet its mandate and remains the lowest-cost unit trust for SA equities.

Along with the conclusion to the Iraqi war, most of the world stock markets rebounded to show positive returns in the early part of the quarter. The domestic market, however, was impacted by a dominant rand that strengthened to a 24-month high of R7.05 to the US dollar. As the currency weakened, the market surged to return 21.9% over a 7-week period. However, in the final weeks of the quarter, the market gave back some of its gains due to renewed currency strength.

The Kagiso Top 40 Tracker Fund returned 8.96% for the period, compared to the 9.16% total return of its benchmark, the FTSE/JSE Top 40 index. For the year to date, the fund has returned -9.34% compared to the index total return of -9.76%. This outperformance was achieved partly through the fund's cash holdings, as well as through purchasing Top 40 futures contracts at discounts to the equity fair value.

The anticipated interest rate cut in June and positive economic indicators enabled local financial and industrial shares to perform strongly, with the sectors returning 17.6% and 13% respectively. The resources sector pulled the market lower with a 2.6% return due to the strength of the rand in June. Domestic shares again outperformed the dual-listed shares and shares with high foreign-based earnings. Most counters finished positively with the exception of unhedged gold shares AVGold (-6.1%) and Durban Deep (-5.9%). Sasol's profit warning resulted in a return of -1.6%. MTN remains the darling stock of the Top 40, up 35.9%. Investec, which lost a lot of value in the early part of the year, has since shown signs of recovery, leading the financial shares with a return of 29% for the quarter. Major retail banks Standard (24.6%), ABSA (22.6%) and First Rand (17.5%) posted strong returns. Nedbank's poor trading update in May resulted in the company being punished by the market (1.7%) for the quarter.

It was an active period for corporate events, which were closely monitored and managed. Johnnic Holdings unbundled its MTN shares in early June, which saw Johnnic immediately exit the Top 40 index, with NetCare, a healthcare company, making its debut entry into the index. The Gencor/ Impala unbundling was also concluded, which saw Impala's free float factor move up to a full 100% weighting.

The quarter-end rebalancing changes were efficiently implemented with minimal cost implications for the portfolio. The following change to the index was taken into effect as declared by the FTSE/JSE: Durban Roodepoort Deep, the gold mining house, was replaced by retailer Woolworths Holdings.

The prospects for equities in the third quarter still look optimistic. Strong domestic economic data over the past months, coupled with lower interest rates, although tempered by a strong currency performance, bode well for the local market.

The Kagiso Top 40 Tracker Fund continues to meet its mandate and remains the lowest-cost unit trust for SA equities.

Early optimistic sentiment on the SA economy saw a positive start to the year. However, the uncertainty surrounding the US-led war on Iraq triggered world markets to plummet, and with that the JSE lost more than 20% from its early year high.

The Kagiso Top 40 Tracker Fund returned -16.79% for the quarter, compared to the -17.35% total return of its benchmark, the FTSE/JSE Top 40 index. This outperformance was due to the cash holding in the portfolio and the execution of low risk portfolio enhancement strategies.

Domestic shares outperformed the dual-listed shares and shares with high foreign-based earnings, due to the continued strength of the rand against foreign currencies, specifically the US dollar. Unhedged gold shares: Goldfields, Harmony and Durban Deep, were particularly hard-hit with returns of -29.8%, -33.6% and -37.5% respectively, while a fall in the platinum price saw Amplats and Implats end 26% down. Financial giants Old Mutual and Sanlam were not left unscathed, both were down by 20%; while Investec lost 32.3% of its value based on poor offshore prospects. Luxury goods supplier Richemont was down 34.4%. MTN and parent company Johnnic showed resilience over the period, down by only 2.3% and 3.1% respectively.

The quarter was an active period for corporate events which were closely monitored and managed. The long-awaited public listing of Telkom took effect on 4 March, which saw the share immediately enter the FTSE/JSE Top 40 index, and Didata, once the darling of the market, exit the index.

Many companies adjusted their shares in issue during the quarter, with Harmony increasing its shares by 5%. Iscor had its free float factor (calculated by the FTSE/JSE to decrease a company's weighting in the index to reflect the percentage of the company freely available to investors) downweighted from 75% to 50% due to the increased strategic holding by offshore steel giant Mittal Steel. The quarter-end rebalancing changes were effectively implemented with minimal cost to the portfolio. The following changes were taken into effect as declared by the FTSE/JSE: Naspers replaced Alexander Forbes; Kumba had its free float factor downweighted from 100% to 75%.

The quarter also saw the Collective Investment Schemes Control Act that regulates the Unit Trust industry come into effect. The new legislation has discarded the mandatory 5% cash holding and now permits equity funds to be 100% invested. This will allow the Tracker Fund to more closely track the FTSE/JSE Top 40 index.

The equity prospects for the second quarter look to significantly improve should the war in Iraq be brought to a swift end. Strong domestic economic data over the past months, coupled with lower interest rate expectations bode well for the local market. The Kagiso Top 40 Tracker Fund continues to meet its mandate and remains the lowest-cost unit trust for SA equities.

The large intra-day swings of the last quarter resulted in a very volatile equity market. In September and October, the financial and industrial shares performed positively at the expense of resource shares - a trend which was reversed in December. Contributing factors to market behaviour were the expectation of the US declaring war on Iraq, the strengthening rand, and increases in gold and oil prices.

The Kagiso Top 40 Tracker fund returned -2.38% for the period, which compares favourably with the benchmark FTSE/JSE Top 40 index return of -2.85%. For the year ended 31 Dec 2002, the fund outperformed its benchmark by 1.45%. This was achieved through the portfolio's cash holding and the execution of low risk portfolio enhancement strategies.

For the quarter, the resource sector returned -6.65%, with the only positive performing shares being African Rainbow Minerals (12.93%), Iscor (5.20%) and Amplats (1.98%). Gold shares posted very strong December month performances due to the significant increase in the international gold price - AngloGold (19.3%), Goldfields (20.5%) and Harmony (24.59%). The financial and industrial sectors both recorded positive returns of 3.60% and 3.92% respectively for the period. Banks performed exceptionally well with Top 40 stocks FirstRand (14.98%), Nedbank (11.77%) and ABSA (8.42%) leading the way. IT and telecommunication shares showed very strong performances - Johnnic (48.92%), MTN (47.59%) and Didata (36.07%) - a reversal of fortune from the previous quarter's worst performers. SAB Miller was the worst performing share for the quarter, down 12.5%.

A number of corporate events were closely monitored and managed over the period. The delisting of NIB as part of the Nedcor/BoE merger was finalized in October, which saw African Rainbow Minerals take its place in the Top 40 index. Additionally, many companies adjusted their shares in issue, namely Nedcor, Coronation and Barlows as part of the Top 40 index.

The quarterly rebalancing changes were effectively implemented with minimal cost implications for the portfolio. As declared by the JSE, these were: Coronation shares replaced by Avgold; Barlows' free float factor upgraded to a full 100% weighting from 75%; Amplats' free float factor downweighted from 50% to 40%.