What influence the performance of the fund?
Equities fell by 5,5% over the quarter, ending the bull run which began in April 2003.

Resources led the fall while financials and industrials managed to realize a positive return.

Resources weakened because dollar commodity prices peaked in April and the rand remained strong. We extended our underweight position in resources by selling down Anglo's, Impala and Gold Fields. The proceeds were switched into financials and Industrials.

We increased our overweighting in Industrials by buying Telkom, Nampak, Tiger Brands and SAB Miller. Conditions for domestic consumption remain relatively favorable and manufacturers are adjusting to the strong rand.

The other beneficiary of resource selling was financials, which continue to be a stable portion of the portfolio. We expect insurers to outperform banks given cheap valuation levels, and added to Metlife as well as Alexander Forbes.

Outlook
The rand continues to confound global currency trends by being one of the handful of currencies that have appreciated against the dollar in 2004 to date. This is going to be the most important call going forward. At present our portfolio are structured for a relatively strong rand and the local economy being fairly boyant. From a style perspective we favour value ahead of growth thus the portfolio being more defensive of nature.

What influence the performance of the fund?
The South African results season is drawing to a close with most of the major companies having produced either final or interim results. The impact of the rand was material with the entire earnings base of the market down 17,2% yoy and 6,2% lower than the start of the year. However, the market has largely ignored earnings, taking its lead rather from global markets.

Your fund experienced a good quarter ending up in the top half relative to its peers. The main contribution to this return came from our overweight exposures to Omnia, Massmart, Johnnic and Edcon. Our strong underweight gold shares further enhanced this performance. Shares that had a negative impact on our performance came mainly from companies where we had no exposure namely Iscor, Abil, RMH and Astral. Our overweight position in Amplats also detracted from performance.

Outlook
The major imponderable for 2004 in the sustainability of the current surge in commodity prices. Our view is that while the longer therm outlook is generally positive we see no real difference in the normal cycle pattern : producers are expanding capacity and demand from the main commodity consumer, China, is too strong. Inevitably China will curb its growth and the additional capacity will be placed in a softer market at much lower prices. In line with our pragmatic value approach, we are underweight most the resource stocks except forAnglos, Billiton and Sappi.

Amongst financials we are currently overweight banks and local life companies. It is our view that insurers should outperform given their cheap valuations and our expectation that equities will continue their bull run. Our largest overweights are Standard Bank, ABSA and Sanlam. Industrials continue to do well. Conditions for domestic consumption remain favorable, although manufacturers are battling to adjust to the strong rand. Our view is for rand to weaken during 2004 to approximately R7,10 : $ at year end, therefore our upweighting of certain manufacturers such as Tiger Brands and AVI. Our major overweights are Telkom, Imperial, Didata, Supergroup and Astrapak.

We also continue to favour large over small caps.

Looking forward we take the view that the rand is unlikely to strengthen much further and will probably weaken over 2004. Recent actions by the Reserve Bank also appear to be aimed at moderating volatility of the currency which would be a very healthy development for business management. The large disparity in fortunes between the retail and manufacturing sides of the economy is likely to unwind, which in due course should favour the currently unloved manufacturing sector.

In line with our view we added to local manufacturers such as Tigerbrands and Nampak. We also continued to add to SAB where we remain positive on both its international and local growth prospects. Conversely we tactically reduced our overweight exposures to Old Mutual and Richemont into earlier strength.

We also maintained our net resources underweight position where we continue to be cautious of gold shares and shares such as Sasol and Iscor where the underlying commodity prices are already at high levels.