The quarter was characterised by the Federal Reserve's decision to leave the Fed Funds target rate unchanged, after 17 consecutive increases. This contributed to a rally in equity markets, which was fuelled by easing inflation concerns as the oil price rapidly declined from its early August peak. Prospects for the remainder of the year remain murky. Internationally, and particularly in the USA, the positive prospects of declining interest rates and reasonable equity valuations are offset to a degree by potentially slowing corporate earnings. Our belief remains that this is the environment in which large market capitalisation growth stocks are likely to come to the fore.

The STANLIB Multi- Manager International Fund of Funds was the target fund for the rationalization of a number of STANLIB's offshore funds during the fourth quarter of 2005, thus the first three quarters of 2006 represent the full period during which the fund has been structured in its current format. No changes were made to either the geographic allocations of the Fund or to any of the underlying managers during quarter. Performance from the underlying funds has been mixed, as certain of the underlying managers have produced extremely disappointing performance.

The largest culprits were ACM in the Global Equity Fund, Loomis Sayles in the North American Equity Fund and Legg Mason and JP Morgan in the Asia Pacific Equity Fund. Further impacting on performance was the fact that the Fund's tilt to large capitalisation growth managers was made too early. We remain convinced, however, that this positioning is appropriate for the prevailing market conditions.

Last October, the fund absorbed the much larger Stanlib Global Fund, which was previously run entirely by Los Angeles-based Capital International. After the merger it became the largest fund in Stanlib's stable of international funds. But unlike its stablemates, which invest only through Fidelity funds, this fund can invest in whatever manager it considers to be the specialist in either a specific region, such as North America or Europe, or with managers with proven skills running global portfolios.

For ease of administration, the fund invests into a global equity fund as well as three regional funds, for North America, Pan Europe and Asia Pacific, including Japan.

The final responsibility for the fund lies with Andrew Salmon and Greg Kettles at Stanlib International, and they are advised by London-based Investment Manager Selection.

The FM had high hopes for the fund, based on the track record of the institutional funds run on this basis for seven years, which has previously won the Plexus award as top offshore manager. The management of the unit trust was moved from the international multimanager Russell Investment Group in October, as Stanlib believes that investors would benefit from the more aggressive approach of Salmon and IMS. They are much less afraid than Russell to make regional and style bets.

Unfortunately, such bets can destroy value. Salmon made a bet on large-cap growth shares when Alliance Capital was introduced into the global equity fund in October. Salmon says he is still convinced that growth shares are undervalued and they are now even more attractively priced.

Problems were compounded by an overweight position in Japan - easily the worst-performing large market - and this investment was focused primarily in domestic recovery shares such as retailers, services and real estate, which have underperformed more defensive sectors such as utilities, pharmaceuticals and railways. Stanlib's Japan fund is down 40% year to date.

But investors in the multimanager fund should be patient. It has a solid process for the long term.

Financial Mail - 01September2006

After a positive first quarter for world equity market, the second quarter was very volatile as interest rates were raised around the globe, and inflation fears set in. Although valuations by no means appear stretched, the caution so evident in markets in the first six months of the year remains. The MSCI World Index posted a return in Rand terms of 15.3% for the quarter ended 30 June 2006, and 25.6% for the twelve months then ended, performance in both periods being assisted by aweakening of the Rand against the US Dollar. The return on the Fund for the year ended 30 June 2006 of 18.4% was disappointing when measured against theMSCI World Index. The STANLIB Multi-Manager International Fund of Funds was the target fund for the rationalization of a number of STANLIB's offshore funds during the fourth quarter of 2005, thus the first two quarters of 2006 represent the full period during which the fund has been structured in its current format. The geographic structure of the Fund is such that the North American region has been underweighted relative to the MSCI World Index, with the excess taken up by the Asia Pacific region. The Pan European region is very close to a neutralweighting. The styleweighting of the Fund has been gradually shifted to a largemarket capitalization style,with a bias toward growth. The equity content of the Fund at 30 June 2006 was 100.0%, up on the level of 97.6% at 31 March 2006 following two substantial disinvestments close to the quarter end.

The first quarter of 2006 proved a positive one for world markets in general, although an air of caution remains. The MSCI World Index posted a return in Rand terms of 3.7% for the quarter ended 31 March 2006, and 16.7% for the twelve month period. The Rand strengthened marginally over the year, slightly diluting the Dollar returns. The return on the Fund for the year ended 31 March 2006 of 15.6% slightly lagged that of the MSCI World Index.

The STANLIB Multi-Manager International Fund of Funds was the target fund for the rationalization of a number of STANLIB's offshore funds during the fourth quarter of 2005, thus the first quarter of 2006 is the first full quarter in which the fund has been structured in its current format.

The quarter was an active one for the STANLIB Multi-Manager International Fund of Funds as the target fund for the rationalization of a number of STANLIB's offshore funds. The current Fund represents the amalgamation of the existing STANLIB Multi-Manager International Fund of Funds, the STANLIB Global Fund, the STANLIB Global Brands Fund and the STANLIB Multi-Manager Worldwide Fund of Funds.

Despite concerns surrounding inflation, earnings pressure and an over-extended consumer, world markets in general reflected positive returns for the final quarter of 2005, and for the year as a whole. The return of 2.9% in Rand terms on the MSCI World Index for the quarter brought the return for the year to an impressive 23.9%, although approximately one half of this annual return was due to the decline in the value of the Rand against the US Dollar. The return on the Fund for the year ended 31 December 2005 of 22.9% was slightly below that of the MSCI World Index.

The equity content of the Fund at 31 December 2005 was 100.6%, due to a substantial withdrawal at year end. This authorised overdraft has been settled post year end.