Effective 21 October 2005, the STANLIB Multi-Manager Worldwide Prudential Fund of Funds merged into the STANLIB International Balanced Fund of Funds - Class A.

During the period under review global equities delivered a modest positive return (MSCI up 0.4%), while bond markets continued the negative trend set in Q1 with the SBWGBI falling a further 1%in dollar terms. Against this the fund was up 1.3%, thereby outperforming its benchmark substantially. Tactical asset allocation contributed to returns as we were over weight equities at the expense of bonds. In addition South African's benefited from the rand being the worst performing currency in the world resulting in the fund gaining 6.8% in rand terms. Within major equity markets SEA was the best performer, with Japan being the worst. Our overweight position in SEA contributed to returns as did the SEA fund which outperformed its benchmark and was the best performing fund in the portfolio. The overweight position in Japan detracted from returns but this was partially offset by the Japan Smaller Companies fund, which outperformed the TOPIX. Being neutral on the US helped the fund achieve a top quartile ranking as the dollar rebounded strongly during the second quarter. Our largest holding, the America fund, also added to relative returns by outperforming the S&P 500 (up 20% for the year vs. benchmark 6%). Within Europe all 4 underlying funds beat their benchmarks and all are in the top quartile! As for the bond portfolio, it benefited from successful tilts to dollar and sterling bonds, while relative returns were also boosted by the core International bond fund which outperformed its benchmark. Looking ahead fundamentals are solid in the US and SEA but are subdued in Europe and Japan. Bears would argue higher energy prices, a slowdown in economic growth and tighter monetary policy in the US could result in earnings downgrades. Conversely bulls would point out the downside should be limited by attractive valuations, strong cash flows and declining unemployment in Japan and the US. STANLIB believes the risks are balanced, however we view equities as cheap relative to cash and bonds. The biggest threat to the portfolio is the risk of over-tightening by the Fed. To counter this we are well diversified across asset classes, regions, size and styles.

Returns of asset classes in dollar terms were generally disappointing with global equities & bonds declining by 1,8% & 3,1% respectively during Q1. The portfolio was overweight equities at the expense of bonds, so tactical asset allocation contributed to returns. While market performance was disappointing for the quarter, both asset classes have had a phenomenal run over the last 3 years resulting in the fund gaining 33.3%. In rand terms the fund had a good quarter gaining 8,2% as the local unit moved from being the best performing currency in the world last year to being the worst performer YTD. In addition the returns mentioned above were achieved at a lower risk than competitors with the fund being awarded the S&P award for the best relative risk adjusted returns for the 3 years ending 31/12/2004. Of the major markets, the best performer was SEA while the US was the worst. We were underweight the latter, which assisted in relative returns, as did two of our largest holdings, the America & American Diversified fund that outperformed the S&P 500. We remain concerned about higher inflation & rates in the US as well as the oil price, which rose above $57/barrel during the period under review. We have therefore maintained our underweight bond position but are overweight European bonds due to the bleak top down view of the region. We are however neutral on European equities due to attractive valuations with a tilt to small caps via the Euro smaller companies fund that hasn't been affected by the stronger euro (it was also our best holding gaining 7.7% in dollar terms). Performance of Japanese equities was disappointing as company earnings slowed. In addition our core Japan fund underperformed its benchmark thereby detracting from relative returns, however our satellite Japan smaller companies fund that gained 4.4% offset this. The underlying bond managers have increased their weightings to government bonds as current spread levels do not compensate investors for the additional risk. Within corporates the focus has shifted to quality with half the allocation in AAA rated credit. Most of the underlying equity funds remain overweight medium and smaller companies, though managers are increasing their exposure to large caps. Our view is equities are likely to be underpinned by the highest level of cash on balance sheets in over 30 years. This is resulting in rising dividend payouts as well as share buy backs and may support investor's appetite for equities.

In dollar terms global equities (11.6%) got the better of bonds (9.0%) during Q4.Ê For most of the year the portfolio was marginally overweight equities & underweight bonds but hadn't benefited from this position as equities had come under pressure for much of 2004 due to record oil prices, turmoil in Iraq & concern over rising interest rates. The strong rebound in Q4 helped equities end the year in the black for the second consecutive year gaining 15.2%, thereby outperforming the 10.7% return of global bonds. The fund was up 11.8% in dollar terms during the quarter & therefore outperformed the benchmark return of 10.6%. In absolute terms however it was down 2.8% due to the rand being the best performing primary currency over the same period. Some consolation for unit holders would be the ranking of the fund - it was the runner up in the raging bull awards coming second by a mere 1.5% to the Conservative fund. It was also the best performing balanced fund in the sector. Using MSCI regional dollar returns South East Asian markets were once again the best performers during 2004 gaining 29%. Europe was the next best (22.4%) followed by Japan (15%) with the US lagging (10.7%). The funds underweight position in US bonds, cash & equities added to relative returns, while the overweight position in Japanese equities detracted. The underweight exposure to both US and UK equities has been increased due to concerns over interest rate hikes and further oil price increases. In the US the widening trade deficit and consumer spending are a cause for concern. Risks in the UK include a deteriorating property market and falling consumption. Our Japanese overweight position has been kept constant due to continued improving fundamentals and attractive valuations. The bond portfolios generally have a focus on quality with more than half in AAA rated credit. The government bond portion has also been increased because our underlying bond managers have been taking profits on corporate bonds as they believe current spread levels do not compensate investors for the additional risk.