Global equity markets, measured by the MSCI World Index, ended the 3rd quarter 2004 positively and delivered a return of 1.89% in USD terms.

The South African rand depreciated by about 4% against the dollar. At one stage during the quarter the rand was as low as R6.70 but strengthened to around R6.45/$ at quarter-end. The rand's weakness impacted positively on performance.

Most countries delivered positive returns over the quarter. Hong Kong, Korea, Finland and the UK's FTSE were leaders with returns ranging between 2% and 7% in USD terms. Japan declined substantially by more than 8%, followed by other losers that included the technology Nasdaq and the Dow Jones (losing more than 3%).

Industries that performed really well included oil and gas (due to the record-breaking oil price), mining stocks and banks. Software stocks declined by more than 8% and drove the Nasdaq lower. Beverages also fell, mainly due to Coca Cola's decline on a weaker than expected profit outlook.

In the US, overall economic data weakened as employment weakened. However, payrolls rose by 144 000 and the overall unemployment rate declined to 5.4%, the lowest since October of 2001. The ECB revised its GDP and inflation forecasts upward as inflation rose, driven by higher oil prices. UK industrial production and consumer prices fell, while producer prices rose. In Germany, unemployment rose and business confidence fell; however, manufacturing orders were above expectations. In Japan, machine orders fell by more than expected and Japan unexpectedly lowered its second-quarter growth forecast, driving down both Japanese equities and the yen, although the yen did recover late in the month. Exports did however rise in Japan, the first such increase in three months, and this drove factory production higher. Australian economic growth was the slowest in nine months as inflation increased. New Zealand boosted interest rates to 6.25%, its fifth interest rate hike in 2004.

Asian markets recovered strongly in the third quarter after having had their worst quarter (2 nd quarter) since June 2003, mainly owing to slower expected growth in China and rising US interest rates. Australia, Singapore and Hong Kong performed very well.

In the third quarter, government bonds with longer maturities outperformed just about everything else. Through late September, Lehman Brothers indexes that track various parts of the bond market showed that Treasuries maturing in 20 years' time or more have had a total return of about 7% in 2004, three percentage points better than corporate bonds, and four or more percentage points ahead of US government agency bonds, bonds backed by fixed-rate mortgages and securities backed by consumer assets such as automobiles, known as asset-backed securities.

Lehman's overall Treasury Index, which includes shorter maturities such as 10-year and five-year notes, has risen about 3% this year, roughly in line with intermediate-term corporate bonds and fixed-rate mortgage-backed securities.

Corporate bonds performed well in the third quarter, despite the fact that the economy showed signs of softness. The yield on investment-grade corporate bonds, for example, stayed in a stable range of about 0.8 to 1.0 percentage point more than comparable Treasury securities, a narrow margin reflecting limited concern about the creditworthiness of US corporate-bond issuers.

Behind the bond rally was a growing belief that the US economy faced too many headwinds to expand very quickly. Investors shifted money from stocks and from cash in a renewed belief that yields on long-term debt would not shoot up soon and that current issues would remain attractive.

The Fund has a 54% exposure to global equity markets and a 23% exposure to global bond markets. The cash position is around 21%. The equity position in the Fund is primarily managed by the combined expertise of two leading international asset management houses, namely Bernstein and Alliance Capital. Their analytical, research and portfolio management resources are immense with offices in the major centres of the globe. Leading global bond managers manage the bond exposure - Pimco, Morgan Stanley and Templeton have substantial research and fund management resources globally that select securities for this Fund. The cash exposure is mainly invested in US dollars and the euro .

Global equity markets, measured by the MSCI World Index, ended the 2 nd quarter 2004 marginally positive and delivered a return of 0.32% in USD terms.

The South African rand delivered another strong performance and appreciated by more than 2% against the dollar. At one stage during the quarter, the rand was as low as R7.10 but strengthened to around R6.20/$ at quarter-end. The rand strength impacted negatively on investor performance numbers if measured in rands.

Not many countries delivered positive returns over the quarter, but Germany's Dax, the technology heavy Nasdaq and France did with returns ranging between 1% and 5% in USD terms. After many strong quarters over the past 12 months, the Asian markets suffered, with Japan losing more than 3% and Korea, Taiwan and China losing more than 10%.

Industries that performed really well included Leisure, Hotels and Airlines. Coming off a low base due to geopolitical risks and looking more stable going forward, these tourism-related stocks performed well. Software stocks also rose and the higher oil price supported Oil and Gas companies (up around 8%). Some of the underperforming sectors include Metals and Minerals, Technology Hardware and Specialist Financial Services companies. The Mining Index in Europe lost 7% in euro terms over the quarter.

The US economy continues to grow at a solid pace, driven by consumer spending and a weaker US dollar. With an expected economic growth rate of over 4.5% for 2004 and potential inflation concerns, the Fed has raised rates for the first time since 2002, to 1.25%.

European economic growth lags the global recovery, mainly driven by poor consumer spending and an unemployment rate of around 9%, the highest in 4 years. Inflation remains under control and with oil prices coming off 14-year highs, the ECB remains reluctant to raise rates, currently at 2%. A recent release of the influential Japanese Tankan Survey shows that Japanese manufacturing executives are the most optimistic in 13 years due to strong demand for their products coming from China and the US.

Asian markets had their worst quarter Since June 2003, mainly driven by slower expected growth in China and rising US interest rates. China fell the most after the Government decided to slow growth going forward, aiming for 7%, down from 9% in 2003. Asian markets are very dependent on economic growth and export demand from the US and China and if these decline, markets will be negatively impacted.

The second quarter of 2004 was not good for the global bond markets. All major markets, US, Europe and Japan, posted rising yields and losses. Evidence of improved economic growth prospects, job creation prospects and rising inflation were the main reasons for rising yields. Just to show how bad it was, here are some numbers: US treasuries posted their biggest quarterly loss in nearly 20 years, European corporate bonds had their worst quarter in almost 5 years and Japanese 10-year bonds showed the biggest decline in over 6 months. The 10-year German Bund ended at over 4.3% compared with June 2003's level of 3.5%. US treasuries were the big loser globally as yields raced from under 4% at the start of the quarter to a high of nearly 4.9%.

In Europe, the Bank of England raised rates for the fourth time since the late 2003 to the current 4.5%, driven by strong consumer and business spending. The ECB decided to keep rates at 2% as Europe's growth continuous to lag other global regions and inflation remains under control. In the US, the Fed has started a tightening cycle and rates were raised, for the first time since 2000, to 1.25%.

The Fund has a 44% exposure to the global equity markets and a 17% exposure to global bond markets. The cash position remains high at over 35% and will be invested over the short term. The equity position in the Fund is primarily managed by the combined expertise of two leading international Asset Management houses, namely Bernstein and Alliance Capital. The analytical, research and portfolio management resources are immense, with offices in the major centres of the globe. Leading global bond managers manage the bond exposure. Pimco, Western Asset Management and Legal and General have substantial research and fund management resources globally that select securities for this Fund. The cash exposure is invested mainly in US dollars and euro currencies.

Key characteristics of the portfolio

Apart from cash and assets in liquid form, investments will consist solely of participatory units in collective investments schemes, whether listed on an exchange or not, excluding participatory units in collective investments schemes in properties and participation bonds.

The fund will invest in a flexible combination of equity, bond, money and property markets. The asset allocation will be actively managed to reflect the portfolio manager's view on the changing economic and market conditions.

As the participatory interests will be in a foreign collective investment scheme, then at least 90% of the interest bearing instruments in the underlying portfolio will be assigned a credit rating on the national rating scale of a rating agency. The underlying portfolios will not have any unlisted derivatives. The underlying portfolios will not gear or leverage.

The fund will start operating on 15 April 2004.

Key characteristics of the portfolio

Apart from cash and assets in liquid form, investments will consist solely of participatory units in collective investments schemes, whether listed on an exchange or not, excluding participatory units in collective investments schemes in properties and participation bonds.

The fund will invest in a flexible combination of equity, bond, money and property markets. The asset allocation will be actively managed to reflect the portfolio manager's view on the changing economic and market conditions.

As the participatory interests will be in a foreign collective investment scheme, then at least 90% of the interest bearing instruments in the underlying portfolio will be assigned a credit rating on the national rating scale of a rating agency. The underlying portfolios will not have any unlisted derivatives. The underlying portfolios will not gear or leverage.