South Africa is currently enjoying the benefits of a broad based economic expansion spurred by the local manufacturing sector and supported by Governments expansionary monetary and fiscal policies. Inflation is well under control, interest rates are low by historical standards and the Rand is relatively strong. In a period where international equity markets were rather dull, the local markets took off. Interest rate sensitive assets like property (+11.8%), bonds (+6.9%) and income (+4.2%) performed well, but the FTSE/JSE All Share Index (+17.4%) was the star performer. Resources (+23.7%) were a key contributor. The Rand slipped from R$6.22 to R$6.48 after touching R$5.89 in July. The Fund produced a solid 11.9% return for the quarter bringing the total return for the past 12 months to 29.3%. During the quarter, Tim Allsop (Rainmaker) was added as a specialist manager in the STANLIB Multi-Manager Equity Fund. The weightings to Allan Gray and TAQUANTA were down weighted accordingly. In the STANLIB Multi-Manager Bond Fund the weighting to Prescient Active was dropped, whilst that of African Harvest was raised. Our recent qualitative review of all the specialist property managers gives us confidence that we have selected the right managers for now. Whilst all the underlying asset class funds produced positive returns for the quarter, the 50bps cut in interest rates in August took most investment managers by surprise resulting in slight underperformance of the Fund relative to its composite benchmark. Recent research by STANLIB Multi-Manager indicates that the fund is capable of delivering CPIX+7.1% (p.a) over any rolling five-year period with a low probability of capital loss over this period. Interestingly, in the last 12 months the STANLIB Multi-Manager High Equity Fund, which has 75% exposure to equity, has produced 82% of the return of the FTSE/JSE All Share Index but exposed investors to only 67% of the risk.

Local equities (+3.7%) were the best performing asset class for the quarter followed by cash (1.8%). Bonds (-0.3%) and property (-0.94%) produced negative returns following a good run in 2003 and the perception that we are at the bottom of the interest rate cycle. The Portfolio produced a return of 2.2% for the quarter, relative to the benchmark return of 3.1% and was ranked 2/5 in its category. Over the past twelve months the fund produced a return of 32.5%, in line with the mean return of the new Domestic Asset Allocation Prudential High Equity category.
The asset allocation of the Portfolio was optimized during the quarter to allow for the inclusion of income as a separate asset class. The Portfolio now has exposure to 5 distinct asset classes, which has improved the Portfolio's overall diversifi cation benefi ts. The exposure to equities was maintained at 75%, the maximum for Regulation 28 compliant portfolios. The property weighting dropped as a result of the inclusion of income. The exposure to bonds was increased marginally. The Portfolio continues to be managed on a long-term strategic basis, avoiding the pitfalls of short-term tactical asset allocation. STANLIB Multi-Manager ensures that the funds asset allocation is kept in line with that of benchmark at all times such that out performance is attributed to superior manager selection in each of the asset class portfolios.
The Portfolio under performed its benchmark for the quarter following poor performances from the equity, bond and property portfolios relative to their respective benchmarks. Manager changes in the STANLIB Multi-Manager Equity Fund have been implemented and are designed to make the fund more competitive relative to its general equity peer group. This involved the inclusion of Fraters, a deep value stock picker and TAQUANTA, a peer group tracker. Both managers in the STANLIB Multi-Manager Property Fund under performed the benchmark following signifi cant infl ows during the quarter. This resulted in a larger than usual cash position, which diluted the funds return when the listed property market recovered in the second half of the quarter. The STANLIB MM Bond Fund marginally under performed its benchmark, whilst the STANLIB Multi-Manager Income Fund comfortably out performed its benchmark. Overall, the Portfolio is well diversifi ed and offers investors the opportunity of accessing 14 of the most talented specialist managers in one portfolio with an aggressive asset allocation. The Portfolio is well positioned to deliver above average returns with below average risk.

Due to the STANLIB amalgamation (27 Feb 2004), the Liberty Aggressive Prudential Fund of Funds, the Liberty Multi-Manager Aggressive Fund of Funds and Standard Bank Multi-Manager High Equity Fund of Funds merged to form the STANLIB Multi-Manager High Equity Fund of Funds. The history of the Standard Bank Multi-Manager High Equity Fund of Funds has been retained.

Local equity markets took off in the fourth quarter of 2004. Spurred on by lower interest rates and an improved outlook for global economies and markets, the equity market produced a return of 17.9% for the period. Property (+18.2%) also benefited from improved sentiment whilst bonds (+2.8%) and cash (2.1%) suffered following the lower than expected 50bps cut in rates in December. The fund produced a return of 14.1% (after fees) for the quarter, relative to the benchmark return of 16.4%. The fund performed well against its peers in the new Domestic Asset Allocation Prudential High Equity category where it was ranked 1st for the quarter. For the year, the fund was ranked 5/6 with a return of 16.6%.
During the quarter the asset allocation of the fund was kept in line with that of the benchmark composite. The multi-manager equity fund under performed its benchmark during the quarter, which detracted from value. Whilst several of the equity managers outperformed, the largest manager in the fund under performed its benchmark primarily because the equity environment did not favour their investment style. This should be seen as a short-term phenomenon as style performance has been shown to be random over time.
Although the multi-manager equity funds' overall sector attribution was positive, it was underweight BHP Billiton (+24.7%) and SAB (+23.7%) and overweight Implats (-0.2%) at a stock level, which contributed to under performance. The multi-manager bond and property funds performed in line with their respective benchmarks.
The multi-manager property fund performed exceptionally well during the quarter following the inclusion of Standard Bank Property Investment Managers to the fund. The fund produced a return of 18.0% for the quarter and was comfortably ranked first in its sector. STANLIB Multi-Manager enhanced the portfolio construction of the multi-manager bond fund during the quarter by collapsing the Prescient Quants mandate into the Prescient Active mandate. It is intended that whilst Prescient will still adopt quantitative processes in constructing their bond portfolio they will be more active around the periphery in the search for added alpha. STANLIB Multi-Manager continues to monitor all the managers in the underlying multi-manager funds and will make changes where these are appropriate. STANLIB Multi-Manager is also currently optimizing the asset allocation of all the risk profiled fund of funds and will notify investors of any asset allocation changes when these occur.