Global equity markets remained flat for the quarter, but Rand weakness versus the dollar resulted in improved Fund performance in Rand terms. Oil prices hit all time highs which fueled fears of inflationary pressure. There are concerns that oil producers may strain to meet demand which will send the price up even further. The Fed again hiked rates by 25bps to 3.25% and rates above 4%, to curb possible inflationary pressure, does not seem inconceivable. Corporate US are in good shape with margins currently at near 40 year highs. The US trade deficit widened less than expected to US$57bn in April as record imports signaled healthy consumer demand and unprecedented exports provided good news on manufacturing. Strength in exports from manufacturers such as airplane-maker Boeing Co. led some economists to raise growth estimates and the dollar climbed to a nine-month high against the Euro. Positive sentiment still exists on US equities however the risks continue to rise. Three key factors continue to suppress exuberant optimism in the US, namely interest rates, the oil price and rising input costs.

Recently, at a meeting of G8 finance ministers US, Japanese and IMF officials again urged China to end its decade old currency link to the dollar. Asian currencies revaluing will eventually be great news for the West. It should trim Asia's competitiveness and it should increase the buying power of the Asian consumer. All of which will bring joy to Western exporters and improvement to the US current account deficit. The potential revaluation of Asian currencies will result in decreased Asian competitiveness and will impact different sectors in different ways. Stock picking in these markets remain of the utmost importance.

The Fund employs some of the best stock picking skills which potentially result in a portfolio of undervalued high growth shares.

The fund has a relatively large holding in Google shares. Google shares have more than trebled in value since the company's initial public offering in mid-August. Google in April posted a first-quarter profit that was almost six times higher than a year earlier. Google recently ousted eBay as the Internet's most valuable name with a market valuation of more than US$87bn and is also the worlds highest valued media company, overtaking giants like Disney and Newscorp.

A distinct move to increased risk aversion has emerged in US and global equity markets. This risk aversion has been driven by two key factors, an oil price that is resiliently high and an increase in hawkish sentiment emanating from the Fed, that inflation is rising and may jeopardize the "measured" rate increases. This would force the Fed to tighten at a more aggressive rate. Whilst emerging markets have been the hardest hit, a switch from equities into more defensive asset classes has emerged. The US earnings numbers for the quarter were $17.85, beating consensus forecasts for the 7th consecutive quarter. However, earnings growth momentum in the US is showing clear signs of a slowdown from peak levels in July last year.

The Euro area remains unattractive from an equity perspective. It is likely that the Euro area will under perform other regions from a growth perspective in 2005, only able to eek out around 2% growth for 2005. There are signals that improvements are underway in Europe, and the shift from exports to domestic consumption is encouraging, as it signals an improvement in domestic demand. We do not expect the ECB to be as aggressive as the Fed during the next 12 months. Recently, Europe has significantly under performed the US equity market largely due to the growth differentials between the two economies. Unlike the US, Europe has not been a beneficiary of strong domestic demand, although there are slow signs of improvement. Therefore, European valuations are becoming increasingly compelling. Headwinds of restrictive monetary policy and high oil prices will continue to suppress any major turnaround in this market.

The Japanese stock market has withstood the pressures of the slide back into technical recession in the past quarter. Whilst we remain concerned that the Japanese economy is still stalling, the equity market appears to be supported by strong corporate profits that have been sustained despite the poor economic backdrop. Japanese corporates continue to move from the restructuring phase into the growth phase, and corporate spending continues to respond to high profits. Recent improvement in these markets combined with improving employment has contributed to improved domestic demand. The de-rating of the Japanese equity market continues, although the pace of de-rating has slowed. The Nikkei remains a highly cyclical market focused predominantly on auto manufacturers, industrials and manufacturing industries.

Global Equity markets, measured by the MSCI World Index, ended the year 2004 positively and delivered a return in excess of 12% in US Dollar terms. The South African Rand appreciated by 14% from R6.60 per US$ to R5.66 per US$ and for the 3 rd year in a row, diluted Rand returns of international investments.

Most major countries and regions delivered positive returns over the year with Korea and Brazil being star performers with returns in excess of 25%. Europe performed well, mostly on the back of Euro strength, and the FTSE, Dax (Germany) and CAC (France) generated returns in excess of 15%. Although still positive, the Japanese and US markets were the relative losers with returns varying between 8% and 13%. Even with a strong 4 th quarter, the technology driven Nasdaq was a laggard in global terms. European sovereign bonds outperformed US and Japanese debt and this was driven by slow economic growth, limited inflation fears and a strong Euro.

Industries that performed really well included Oil and Gas (due to the record breaking oil price), Steel and Hotels. Semiconductor stocks declined by over 15% and Pharmaceuticals had a difficult year, driven lower by large stocks such as Pfizer and Merck.

Two big stories on global financial markets included the Dollar slide and oil prices. The Dollar again lost against the Euro and Yen mainly due to deficit concerns but also due to speculation that foreign demand for US assets is waning. Global companies are affected differently by currency moves with Deere & Co and Heinz benefiting from a weaker dollar and increased revenue from exports while Honda Motor Corp suffers due to a stronger Yen that cuts into their US sales numbers. Large European exporters are also taking strain from a stronger Euro but recent oil price declines have offset some negative impact from the currency.

Crude oil prices surged in 2004 to levels above $48 a barrel. Even with these high prices, Opec, which controls more than a third of world oil production, decided to cut output by more than 1 million barrels on 1 January 2005.

One of the major concerns surrounding the US are budget and trade deficit concerns, which affect the demand for US assets. US imports continue to grow (demand for oil and consumer goods from Asia) and exports are falling, widening the trade deficit which ended November on a record high of $60bn. Retail sales are holding up, driven by low interest rates and a more stable economic outlook. Price incentives and lower gasoline prices have boosted 4 th quarter 2005 sales of big ticket items such as autos, appliances and furniture. Company earnings growth in the US is expected to slow to around 10%-12% in 2005, down from the 18%-20% levels achieved in 2004. US markets trade on a PE of 19-20 times and this can not be considered as cheap. Big external factors such as dollar movement, oil prices, geo political risks and global growth concerns adds risk to the equation and shareholders must be selective, carefull and prudent with their investment choices.