International equity markets were up strongly during the 3rd quarter with the MSCI up 7.1% in Dollar terms.

Performance was driven by resource stocks and energy companies as oil rose through $70 per barrel in August and other commodity prices remained strong. The robust global economic climate continued to prevail with the US in particular enjoying a strong earnings season. Additionally, investors began to speculate that the Fed would put a hold on further rate increases given the potential negative impact of Hurricane Katrina on economic growth. The Fed however viewed this as a "near term' setback and raised short term interest rates twice during the quarter to 3.75%. In Rand terms the MSCI was up 2.0% for the quarter as the stronger Rand diluted returns. The fund produced a return of 1.6% for the quarter and has risen 16.7% over the past 12-months.

The Asian markets (+13.7%) continued to perform well, however renewed positive sentiment toward Japan (+18%) ensured that it was the best performing region for the quarter. The US (+3.4%), UK (+5.7%) and Europe (+8.2%) produced positive returns but lagged markets in the East.

This fund has been managed on a regionally neutral basis, giving investors exposure to some of the best equity managers from around the world, as selected by the Russell Investment Group. STANLIB is rationalising its offshore fund offering. Going forward the assets of the fund will continue to be managed utilising multi-manager principles, however STANLIB International, together with International Manager Selection (IMS) of London, will be making the final manager selection and regional allocation decisions. All fund assets will be liquidated from the current Russell portfolios and transferred into the new structure by the 21st October 2005 when the fund rationalisation is due for completion.

Effective 21 October 2005, the STANLIB Multi-Manager Worldwide Fund of Funds, the STANLIB Global Fund and the STANLIB Global Brands Fund merged into the STANLIB International Balanced Fund of Funds.

International equity markets were up 0.6% in dollars but 7.5% in Rand terms following the Rand's 6.9% depreciation relative to the dollar during the quarter. Globally, investors are wrestling with the implications of rising interest rates, declining global economic momentum and record high oil prices. With the security blanket of extremely low US interest rates being removed, investor uncertainty has increased. Although Alan Greenspan highlighted that the US economy is on a "firm footing", interest rates were raised in total by 0.5% during the quarter to 3.25%. On a gross of fees basis, the portfolio produced returns in line with the benchmark for the quarter. Although Rand strength has hurt the portfolio over the past three years, it was ranked 8/20 amongst its peers and comfortably ahead of the average. Manager selection and performance from the underlying Russell portfolios was solid with 5 of the six regional portfolios ranked in the top half of their respective peers. In rand terms, the FRIC Asia Pacific Fund (+11.7%) and the FRIC US Small Cap Fund (+11.4%) were the best performing portfolios, which was positive as the fund held tilts toward these regions. Although all regions produced positive returns in rand terms during the quarter, the funds marginal overweight positions to the FRIC Continental European Equity Fund (+6.6%) and the FRIC UK Equity Fund (+5.9%) relative to benchmark detracted from value. The portfolio reduced its underweight exposure to the US, which has also been a good move, given the dollars renewed strength relative to other global currencies, particularly the Euro. Over the past three years, Value stocks have significantly outperformed Growth stocks globally. With economic growth slowing, investors have started to pay up for stocks exhibiting exceptional growth prospects resulting in this trend reversal. Global equities are cheap relative to global bonds, which could provide impetus to this portfolio going forward.

Frank Russell's value proposition that it will consistently give a marginally better than average return is attractive to the institutional market, but a dull prospect for retail investors, so this fund has battled to attract reasonable support. The fund does not deviate much from the global index, though it has benefited from tilts towards Asia and US small caps. The risk levels (and, in the long term, rewards) will increase soon as the management has been moved to Stanlib International.

Financial Mail - 12 August 2005

International equity markets started the quarter on a strong note following good economic data and strong company earnings reports in the US. In March however, the picture changed and global markets turned negative. This coincided with the Feds decision to increase US interest rates by a further 0.25%, citing inflationary pressures, the twin deficits and high but slowing economic growth. This, together with a spike in bond yields and volatile oil prices, put pressure on equity markets around the world. Emerging markets (down 6.7% in March alone) were particularly hard hit as the dollar strengthened and capital started to gravitate back to the US. The MSCI World Index (in dollar terms) was down 1% for the quarter. Of the larger economies, Japan (-2.3%) and the US (-2.0%) were the worst performers in dollar terms, whilst France (+1.8%) and the UK (+1.4%) performed the best. Globally, energy stocks performed best following the higher oil prices, with the energy sector producing a 12.7% return in dollars for the quarter. IT (-6.9%) and telecom services (-5.5%) performed the worst. In general Resources outperformed Financials, which was a change from previous quarters. The Rand depreciated by 9.5% to the dollar in the quarter, benefiting local investors with foreign assets. We believe that policy makers are targeting a weaker currency in 2005. In Rand terms the MSCI was up 9.6% marginally outperforming the return on the Fund (9.2%). Interestingly, over the past year only 3 out 23 funds in the Foreign General Equity sector outperformed the MSCI. The Fund was ranked 7/21 over the past 3 years and outperformed the benchmark. The Fund has benefited from good regional exposure being overweight the UK and underweight the US. Being slightly overweight Japan hurt however this was made up through strong performance in the Asia Pacific Basin region where the Fund was overweight.

International equity markets finished on a strong note with the MSCI World Index (in dollar terms) up 12.1% for the quarter and only 15.3% for the year. The strong performance for the quarter was driven by a lower oil price and rising earnings forecasts. This masked a gloomy economic picture for the world economy, particularly in the USA and Japan. Although high, economic growth in the USA is loosing momentum and economic growth in Japan has practically stalled. The dollar remains weak. The Yen appreciated 7% relative to the dollar during the quarter finishing at its highest level in 4 years. The Euro continued to strengthen relative to the dollar, and although Continental Europe produced the best returns for the quarter, various regions within the EU are suffering rising unemployment rates. Concerns over a slowing housing market in the UK have also cast doubt on the strength of that economy. The Rand strengthen by 14.9% relative to the dollar and 4.7% relative to the Euro during the quarter. This was partially a result of a strong economic picture in SA and lower inflation. In Rand terms the MSCI World Index actually dropped by 2.5% for the quarter and 2.7% for the year. Although the Fund also produced a negative return for the year, it beat its benchmark after fees and was ranked 10/23 in the Foreign General Equity sector. Over 3 years it is ranked 6/22. Looking simply at South Africa's inflation differential with its major trading partners, it would appear that the Rand is overvalued by roughly 10% to 15%. This is not to say that it will depreciate immediately by this margin. Rather, consensus suggests that it might take some time to revert to parity as the SA economy enjoys its best run in many years and the dollar remains structurally weak.