After pausing in September, European equity markets rebounded in October on improved investor sentiment and favourable economic data.

The German market was one of the strongest performers over the month. Defensive industries like utilities, oil and gas and beverages under performed. The euro consolidated against the dollar after a strong appreciation in September.

European equity markets enjoyed a strong third quarter, driven by the Swiss and Amsterdam exchanges and sectors such as Electrical Equipment, Household Goods and Healthcare. Poor performers include the defensive sectors e.g. Tobacco and Utilities. Oil and Gas also delivered poor returns over the quarter. A major talking point was the depreciation of the Dollar against the Euro ending the quarter at more than $1.16 per Euro after a low of $1.08 earlier the month.

Continued Rand strength against the Euro resulted in negative rand returns for SA investors.

European equity markets enjoyed a third consecutive month of positive returns with the MSCI Europe advancing by 1% in US dollar terms. Investors were encouraged by 25 basis-point interest rate cuts by both the European Central Bank and the Federal Reserve Bank. Outperformers were mostly found among the cyclical sectors: the dollar-sensitive automobile and capital goods stocks were up 12% as the euro currency retreated from its 4-year high. The fund's performance was affected during the month by falls in the share price of a number of food and beverage companies following

Unilever's disappointing current trading update. Concerns regarding US and European car sales figures also weighed on the automobile sector, while our holdings in the retail sector underperformed.

World Equity Markets remained very volatile during March but recovered from their lows after the successes of coalition forces in Iraq. Markets reacted positively on the fact that the war would end soon. The strong recovery from mid month resulted in equity markets ending flat to marginally up over the month. The Rand continued to strengthen and this resulted in negative Rand returns for investors with international exposure in whatever form.

The Fund out performed Pan European Equity markets over the month. The UK and Germany posted major falls year to date while Finland and Technology stocks added to returns. The Euro appreciated marginally against the Dollar.

After the steep decline in international markets and international hard currencies, the opportunity exists for SA investors to get exposure to these investment areas at reasonable levels. This action may result in favourable Rand returns over the longer term.

The Fund under performed its benchmark index, the MSCI Europe, by around 1% in 2002. European markets fell by 18% in US Dollar terms and the Rand strengthened by around 28% over the period, resulting in a large negative return in Rand terms.

At a sector level, the Fund's overweight positions in software and diversified financials and underweight in food beverages and tobacco detracted from performance. Positive sector contributors included our positions in transport, consumer durables and technology hardware.

Whilst the fund suffered from being significantly underweight in the UK (one of the more defensive markets), it benefited from being underweight in Germany - 2002's worst performer, and from being overweight in Italy which outperformed.

At a stock level the fund benefited from large investments in Autostrade (Italian Motoway Company which is very profitable, good balance sheet and strong defensive characteristics) and mobile phone operator Orange which was boosted by speculation regarding its restructuring via France Telecom. The Fund was negatively impacted through investments in German financial services broker MLP and Software AG which was affected by the freeze on IT spending budgets.

The positions in cyclical sectors such as software and business services as well as a few poor stock picks were the main reasons for under performance in 2002.

Overall, we believe that global stocks are ripe for a cyclical upturn after three consecutive years of steady losses. This sequence of declines has eliminated most-if not all-the froth created by the tock bubble experienced at the end of the last decade and the early part of 2000, and it has brought overall market valuations to much more reasonable levels.

Inflation is low in Europe and investor optimism about further cuts in official interest rates has increased following the monetary easing in Q4. The fall in the dollar has already taken its toll on the share price of a number of companies and this negativity is already partly discounted. Inventories are low and business could pick up relatively fast once sentiment changes.

The geopolitical tensions and uncertain global economic climate is expected to remain with us during the first half of 2003. Under such an uncertain environment, the risk-reward ratio remains high and the Fund is positioned accordingly. Our investment focus remains on well-managed companies with proven business models and robust finances.

After the steep decline in international markets and international hard currencies, the opportunity exists for SA investors to get exposure to these investment areas at reasonable levels. This action may result in favourable Rand returns over the longer term.

Buys & Sells:
The Fund reduced its underweight position in the materials sector through purchases of Lafarge, UPM, Arcelor, UPM. Other sector and country positions were not altered substantially.

Performance & Reason:
European markets were up nearly 5% in November, led by a rise in financial stocks. Although markets rose, the very strong Rand impacted negatively on the Fund's Rand performance. Many big-name commercial banks rose as fears about deteriorating credit quality diminished. Rising equity markets also helped many European insurers by bolstering their capital bases, obviating the need to issue rights or to liquidate assets in poor market conditions. Technology and telecommunications stocks also did well. In spite of depressed levels of capital spending by businesses, investors are starting to think that the bottom is in sight. Capital spending cannot stay below levels of depreciation forever, and at some point businesses are going to have to start spending again. Among telecom stocks, Vodafone (a holding in both the value and growth portions of the portfolio) announced strong first-half earnings, with operating profits up 41%.

Outlook:
We have yet to see a broadening in the economic data to suggest that a sustained upturn in activity is at hand. Consumers remain reserved in their spending attitudes while corporations continue to focus on repairing balance sheets. Relative to 2002, 2003 is likely to be a better year economically, because of a further stimulus from lower interest rates, and the potential for a resolution of issues in the Middle East.