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.

Country/Region comments:
US:
In the US, overall economic data weakened as employment weakened. However, payrolls rose by 144 000 and the overall unemployment rate declined to 5.4%, the lowest since October of 2001. Underlying job growth, however, still remains somewhat muted. Producer prices fell despite rising raw material prices, as some producers were unable to pass along price increases. The US trade deficit narrowed; however, it is still near record levels. Finally, core inflation was lower than expected. With an expected economic growth rate of over 4.5% for 2004 and potential inflation concerns, the Fed has raised rates in the second quarter - the first time since 2002.

Within North America, energy and materials led performance, rising 8.8% and 5.6% respectively, while consumer staples and healthcare lagged.

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 four years. Inflation remains under control and with oil prices coming off 14-year highs, the ECB remains reluctant to raise rates, currently at 2%. European technology stocks rose sharply in September as improved sales propelled the sector up 9.8%.

Asia Pacific:
In Japan, machine orders fell by more than expected and Japan unexpectedly lowered its second-quarter growth forecast, driving down both Japanese equities and the yen, although the yen did recover late in the month. Exports did however rise in Japan, the first such increase in three months, and this drove factory production higher. Australian economic growth was the slowest in nine months as inflation increased. New Zealand boosted interest rates to 6.25%, its fifth interest rate hike in 2004.

Asian markets recovered strongly in the third quarter after having had their worst quarter (2 nd ) since June 2003, mainly owing to slower expected growth in China and rising US interest rates. Australia, Singapore and Hong Kong performed very well.

Asian markets are very dependent on economic growth and export demand from the US and China and if these decline, markets will be impacted negatively. Although Asian energy and materials (up 6.6% and 4.7% respectively) continued to outperform, telecoms lagged within the region, falling by 4.3%.

The Fund is invested in all the major regions of the world, according to the MSCI World (Developed markets) Index. Due to the size and market capitalisation of the US market, US stocks will command a high percentage in the Fund. The recent dollar weakness impacted this position negatively.

Regional exposures are:
Europe ex UK : 18.4%
UK : 10.4%
North America : 55%
Pacific Basin : 12.4%

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.

The US economy continues to grow at a solid pace, driven by consumer spending and a weaker US dollar. With an expected economic growth rate of over 4.5% for 2004 and potential inflation concerns, the Fed has raised rates for the first time since 2002, to 1.25%.

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%. A recent release of the influential Japanese Tankan Survey shows that Japanese manufacturing executives are the most optimistic in 13 years due to strong demand for their products coming from China and the US.

Asian markets had their worst quarter Since June 2003, mainly driven by slower expected growth in China and rising US interest rates. China fell the most after the Government decided to slow growth going forward, aiming for 7%, down from 9% in 2003. Asian markets are very dependent on economic growth and export demand from the US and China and if these decline, markets will be negatively impacted.

The second quarter of 2004 was not good for the global bond markets. All major markets, US, Europe and Japan, posted rising yields and losses. Evidence of improved economic growth prospects, job creation prospects and rising inflation were the main reasons for rising yields. Just to show how bad it was, here are some numbers: US treasuries posted their biggest quarterly loss in nearly 20 years, European corporate bonds had their worst quarter in almost 5 years and Japanese 10-year bonds showed the biggest decline in over 6 months. The 10-year German Bund ended at over 4.3% compared with June 2003's level of 3.5%. US treasuries were the big loser globally as yields raced from under 4% at the start of the quarter to a high of nearly 4.9%.

In Europe, the Bank of England raised rates for the fourth time since the late 2003 to the current 4.5%, driven by strong consumer and business spending. The ECB decided to keep rates at 2% as Europe's growth continuous to lag other global regions and inflation remains under control. In the US, the Fed has started a tightening cycle and rates were raised, for the first time since 2000, to 1.25%.

The Fund has a 44% exposure to the global equity markets and a 17% exposure to global bond markets. The cash position remains high at over 35% and will be invested over the short term. The equity position in the Fund is primarily managed by the combined expertise of two leading international Asset Management houses, namely Bernstein and Alliance Capital. The analytical, research and portfolio management resources are immense, with offices in the major centres of the globe. Leading global bond managers manage the bond exposure. Pimco, Western Asset Management and Legal and General have substantial research and fund management resources globally that select securities for this Fund. The cash exposure is invested mainly in US dollars and euro currencies.

This fund is managed on a passive basis and the fund composition will reflect that of the MSCI World Index. It aims to track the Index and rebalancing will take place if warranted.

The MSCI World Index fell by 0.66% in USD terms in March, as investors again focused on geopolitical concerns following the train bombings in Madrid. Defensive sectors outperformed in local currency terms as the energy and industrial sectors fared well and telecoms underperformed. Economic data was mostly negative for the month as consumer confidence/investor optimism fell in Germany, France and Italy, fewer jobs than expected were added in the US, Japanese machinery orders fell sharply, and UK factory production rose by less than expected. Regional returns were varied widely in March, as the local returns for the Pacific region, Europe and North America were 5.9%, -2.3%, and -0.1% respectively. The rand appreciated strongly, negatively affecting returns for SA investors.

The MSCI World Index rose by 1.7% in USD terms in February, although economic data were mixed for the month. Regional returns were varied in February, as the USD returns for the Pacific region, Europe, and North America were 0.8%, 2.9%, and 1.3% respectively. Information technology, the best-performing sector in the Pacific region in January, was the worst relative performer in February, falling by 4%. Utilities and consumer staples were the best-performing sectors in February in Europe, rising by 7.5% and 6.2% respectively as all sectors within Europe posted positive returns for the month. In North America, technology also posted the weakest return for the month, falling by 3%, and the consumer staples sector rose by 5% for the month in North America.

Effective from 1 Apr 04, the Sanlam International Fund of Funds changed its name to the Sanlam International Equity Fund of Funds.

The MSCI World Equity Index rose by 6.27% in USD terms in December, finishing the year up 33.1%. The SA rand appreciated by more than 20% against the US dollar, resulting in substantially lower fund returns when measured in rands.

Given both the strong euro and yen in December, regional returns in US dollars for Europe, North America and the Pacific were 8.2%, 5.2% and 6.9% respectively. The US dollar weakened again in December, hitting an all-time low against the euro and an eleven-year low against sterling in December.

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. The big winners included technology stocks, selective metals and minerals (gold) and cyclical companies (such as semiconductors and construction firms). Underperforming stocks included pharmaceuticals and certain food companies.