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.

Pan Europe:
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. European economic growth lags the global recovery, mainly owing to 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%.

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.

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%. French growth and consumer confidence remain low and Germany, the largest European economy, is battling to recover. Business confidence, measured by the Ifo Economic Institute, fell to a nine-month low in June.

The OECD expects economic growth of 1.6% vs a decade low of 0.4% in 2003.

The UK, on the other hand, is growing much stronger. GDP grew at 3.4% in the 1 st quarter, unemployment is at its lowest point in 25 years, and business and government investment is continuing. Inflation is a problem and the BOE has raised rates four times since late 2003 - currently at 4.5%.

The Fund's positions in France and Italy added substantial value, but the underweight positions in the Netherlands and the UK detracted from performance. As far as sectors are concerned, the Fund's positions in banks and hotels/restaurants added value.

The upward momentum in European equity markets went into reverse in March. The terrorist attacks in Madrid and a steady weakening in macro-economic indicator readings led to a sharp sell-off. Bargain hunting lifted share prices somewhat towards the end of the month, but the MSCI Europe still ended March down 2% in euro terms. Consumer confidence across Europe appears to have been dented by the Madrid bombings, raising doubts about the strength of the upswing in household spending. The resulting uncertainty has convinced most market participants that the European Central Bank will reduce its official interest rates later this year.

A batch of weaker macro-economic data on both sides of the Atlantic did nothing to dispel the impression that global economic growth is still gathering momentum, with the laggard countries in Continental Europe finally joining the party in 2004. The fact that the US dollar's slide seemed to have been arrested also aided sentiment. Company results continued to be mixed in February with good progress on cost cutting and balance sheet repair but less convincing news so far on top-line growth.

The technology hardware sector stood out with an advance of 9% (against a backdrop of growing belief that corporate investment is recovering), but this proved to be an exception. Cyclical and growth sectors were mostly out of favour (Semiconductors -3%, Automobiles -1%, Software & Services -1%).

Effective from 1 Apr 04, the Sanlam Europe Growth Fund changed its name to the Sanlam Pan-Europe Fund.

The MSCI Europe Equity Index rose by more than 8% in USD terms in December, ending the year up 35.1%. The SA rand appreciated by more than 20% against the US dollar during 2003, resulting in substantially lower fund returns when measured in rands. The euro was exceptionally strong against a weak dollar, appreciating to record levels of more than $1.25 per euro.

Lower interest rates globally, improved economic growth prospects and the end to the Iraq war all contributed to improved market sentiment in the second half of 2003. European markets were driven by strong performances in Germany, Spain and Finland and winning stocks included software companies, transport and construction. Underperformers included beverage stocks, life assurers and pharmaceutical companies.