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%) all 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 5.9% return for the quarter bringing the total return for the past 12 months to 16.7%. This is a very pleasing return with such a low risk asset mix. 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 under-performance of the Fund relative to its composite benchmark. Recent research by STANLIB Multi-Manager indicates that the fund is capable of delivering CPIX+4.8% (p.a) over any rolling five-year period with a low probability of loss over any rolling one-year period. Over the past 33 months the fund has only produced a negative return on 6 of those months.

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 fund produced a return of 2.1% for the quarter, relative to the benchmark return of 2.3%. Over the past twelve months the fund produced a return of 20.7% marginally outperforming the mean return (20.4%) of the new Domestic Asset Allocation Prudential Low 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. As a result of the changes the benchmark weighting to equities was lowered from 35% to 27.5%, which further lowers the risk profi le of the portfolio, as equities are the highest risk asset class. 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 Portfolio's return when the listed property market recovered in the second half of the quarter. The STANLIB Multi-Manager 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 a conservative 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 Multi-Manager Conservative Fund of Funds, the Liberty Conservative Fund of Funds, the Standard Bank Conservative Fund of Funds and the Standard Bank Multi-Manager Low Equity Fund of Funds merged to form the STANLIB Multi-Manager Low Equity Fund of Funds. The history of the Standard Bank Multi-Manager Low 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 7.5% (after fees) for the quarter, relative to the benchmark return of 8.4%. The fund performed well against its peers in the new Domestic Asset Allocation Prudential Low Equity category where it was ranked 3/10 for the year with a return of 16.2%, outperforming the mean return of 14.5%. The asset allocation of the fund was tilted slightly toward equities during the quarter. This benefited the fund however 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, income 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. During the quarter, a segregated mandate was written with African Harvest on the multi-manager income fund. As a specialist income manager, African Harvest has a fundamental approach to investing, taking a longer-term view on interest rates and positioning the portfolio accordingly. The inclusion of African Harvest will help improve the competitiveness of the multi-manager income fund relative to other income funds and should therefore impact positively on this fund. 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.