The third quarter of 2002 was characterised by a crisis of confidence in Corporate America, declining economic and profit growth prospects, poor investment sentiment and war talk. This resulted in global equity markets having their worst quarterly performances in 15 years with European markets crashing 18% and Germany's mighty DAX falling by 37% - the biggest drop since 1959. Insurance stocks like Allianz, Swiss Life and Skandia dropped 45% as the eroding value of their stock holdings hampered their ability to underwrite policies and to pay claims.

The fund invests in around 60 Pan European stocks and obviously did not escape the fall. A positive achievement was that the fund out performed the benchmark MSCI Index by more than 3%. This was due to our larger than average cash position as well as certain stock positions like Autostrade and Intesa.

European markets continue to be vulnerable and volatile. It is in times like these, when market scepticism often unjustly punishes quality companies, that a disciplined, research driven approach is critical to identify attractive growth investment opportunities for the long-term investor. The fund does this.

The negative events in the US equity markets spilled over to Europe and other international equity markets and negatively affected fund performance. The Euro turned sharply stronger against the US dollar but global sentiment against equities drove Pan European markets lower.

The US Dollar fell 12% against the Euro and almost 11% versus the Yen over the past quarter while US stocks had their biggest first half loss since 1978. The led to a global decline in equity prices, reflecting growing mistrust of companies and their executives and concerns that a rebound in earnings may be slow. US and European companies lost $2.7trillion of market value this year, General Electric lost $100bn and Microsoft, IBM and Citigroup together lost $200bn.

Waning foreign demand for US assets is expected to further damp the need for Dollars and investors are moving assets into Europe, Japan etc. For the first time in 25 months, Europe's inflation rate fell below the ECB's target 2% level. This was driven by lower energy prices and good inflation figures from Germany and Italy. Europe's two biggest central banks signaled they're in no rush to raise interest rates, as declining stock prices and a strengthening euro threatened to hold back the pace of the regions economic recovery. The ECB left its rates at 3.25% and the Bank of England left theirs at 4%. Policy makers will wait for more evidence that the world economy is picking up steam.

Overweight sectors:
Commercial Services
Software and Services
Hotels, Restaurants and Leisure

Underweight sectors:
Banks
Utilities
Materials

The fund invests in all the developed countries of the Pan European Region. The largest markets include the UK, France, Germany, Switzerland, Italy, Scandinavia, Netherlands and Spain. The fund aim to select quality European companies with above average medium term growth potential. The fund is well positioned to capture good growth once global financial market volatility declines and world economic growth recovers.

The Europe Growth Fund performed poorly over the month, both on an absolute basis and against the peer group. European equity markets declined and the fund’s positions in communication services performed poorly. The rand appreciated against the Euro and the Pound and this resulted in negative rand performance.

Latest data suggest that European economic activity is following the global pattern of a recovery which is being fuelled by stronger demand from the U.S. Rising confidence among executives in Germany, France and Italy underpins the optimistic outlook. German executives are more confident than at any time in the past year, while a separate survey showed Italian executives were the most optimistic in seven months. French manufacturers were more confident in March than at any time in the past eight months and French unemployment declined in February. Also U.K. retail sales rose at the fastest pace in two years in February while Italian and French industrial production rose in January. In such an environment, cyclical stocks perform well as these stocks are largely geared to economic conditions.