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SEB Lux Equity Fund


                                   A LUXEMBOURG MUTUAL FUND




                         UN-AUDITED ...
SEB Lux Equity Fund

TABLE OF CONTENTS
                                                                                Pag...
ORGANISATION AND GENERAL INFORMATION


                                            ORGANISATION


SEB Lux Equity Fund ("Th...
German Transfer- Paying            SEB AG
Agent and Information              Ulmenstrasse 30
Place is:                    ...
-
FINANCIAL REPORTS of the Fund are published annually and semi-annually. These reports, as well as the
OFFERING PROSPECTU...
REPORT OF THE BOARD OF DIRECTORS OF
                                SEB Lux Equity Fund Management Company S.A.
          ...
believe there would be an improvement in the economic situation. As the stock exchanges fell, some long-term investors, su...
in a global process of consolidation which has led to less buying of IT products. According to Gartner Group the electroni...
sectors. A new investment was also made in United Technologies, a company supplying high-technology products to the
aerosp...
The proportion of shares in the oil sector was increased on the basis of the political unrest in the Middle East and the g...
During the first quarter of the year, the overweight in metal companies was reduced to an underweight at the same time as ...
by equivalent companies in other countries experiencing problems with weak balance sheets. The outlook for banks is fairly...
The Sub-Fund fell by 3.4 percent over the first six months of the year at the same time as the Sub-Funds’ comparative inde...
followed these events can already be seen in current share prices. A return to a more normal situation would probably invo...
to grow faster than large companies. Small and medium-sized companies are also generally valued lower than large companies...
combination with significantly lower stocks than has been normal in the case of previous turnarounds, vouches for a marked...
SEB Lux Equity Fund - International
                                   SCHEDULE OF INVESTMENTS AS AT
                     ...
TOTAL GERMANY   1'744'237   3.93




                            18
SEB Lux Equity Fund - International
                                  SCHEDULE OF INVESTMENTS AS AT
                      ...
2'650   Anadarko Petroleum   130'645   0.30




                                       20
SEB Lux Equity Fund - International
                         SCHEDULE OF INVESTMENTS AS AT
                               ...
SEB Lux Equity Fund - International
                                SCHEDULE OF INVESTMENTS AS AT
                        ...
SEB Lux Equity Fund - International
                                   SCHEDULE OF INVESTMENTS AS AT
                     ...
SEB Lux Equity Fund - International
                                      STATEMENT OF NET ASSETS
                        ...
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  1. 1. SEB Lux Equity Fund A LUXEMBOURG MUTUAL FUND UN-AUDITED SEMI-ANNUAL REPORT JUNE 30, 2002 Subscriptions cannot be received on the basis of financial reports. Subscriptions are valid only if made on the basis of the current prospectus, supplemented by the latest annual report and the most recent semi-annual report if published thereafter. SEB Lux Equity Fund Management Company S.A. Promoted by: SKANDINAVISKA ENSKILDA BANKEN AB (publ), STOCKHOLM
  2. 2. SEB Lux Equity Fund TABLE OF CONTENTS Page(s) Organisation and general information 2–4 Reports of the Board of Directors 5 – 15 Schedule of Investments, Statements of net assets and statistical information as at June 30, 2002: SEB Lux Equity Fund – International 16 – 21 SEB Lux Equity Fund – Natural Resources 22 – 24 SEB Lux Equity Fund – Japan 25 – 28 SEB Lux Equity Fund - United Kingdom 29 – 31 SEB Lux Equity Fund – Nordic 32 – 34 SEB Lux Equity Fund - North America 35 – 38 SEB Lux Equity Fund – Mediterranean 39 – 41 SEB Lux Equity Fund – Continental Europe 42 – 44 SEB Lux Equity Fund – Global 45 – 50 SEB Lux Equity Fund – Euroland 51 – 53 SEB Lux Equity Fund - Japan Chance/Risk 54 – 56 SEB Lux Equity Fund – Wireless Communications 57 – 59 SEB Lux Equity Fund - Global Chance/Risk 60 – 62 SEB Lux Equity Fund – Opportunity Europe 63 – 65 Consolidated Statement of net assets 66 Consolidated Statistical information of net assets 66 Notes to the Financial Statements 67 – 69 Additional Information for Investors in Germany 69 2
  3. 3. ORGANISATION AND GENERAL INFORMATION ORGANISATION SEB Lux Equity Fund ("The Fund") is a Luxembourg Mutual Umbrella Fund investing mainly in shares. The Fund is sponsored by: SKANDINAVISKA ENSKILDA BANKEN AB (publ), Kungsträdgårdsgatan 8, S-10640 STOCKHOLM The Fund is managed by: SEB Lux Equity Fund Management Company S.A. 6a, Circuit de la Foire Internationale, L-1347 LUXEMBOURG The Board of Directors of the 1) Cecilia LAGER Management Company is: Chief Operating Officer at SEB Asset Management, (a Division within SKANDINAVISKA ENSKILDA BANKEN AB (publ), STOCKHOLM) Chairman of the Board (since March 28, 2002) 2) Barbro LILIEHOLM, Head of Corporate Law of SEB Invest & Fonder SKANDINAVISKA ENSKILDA BANKEN AB (publ), STOCKHOLM Director 3) Jan Lennart PALMBERG, Head of Mutual Funds at SEB Asset management, (a Division within SKANDINAVISKA ENSKILDA BANKEN AB (publ), STOCKHOLM) Director (since April 3, 2002) 4) Kaj-Gustaf Johan BERGH Former Head of SEB Invest & Fonder SKANDINAVISKA ENSKILDA BANKEN AB (publ), STOCKHOLM Director (until March 28, 2002) 5) Jos HEMMER, Former Head of Fund Administration SEB Private Bank S.A., LUXEMBOURG Director (until April 3, 2002) The Independent Auditor of PricewaterhouseCoopers S.à r. l. the Fund and the Management Réviseur d’entreprises Company is: 400, route d’Esch, L-1471 LUXEMBOURG The Custodian Bank and SEB Private Bank S.A. Administrative Agent is: 6a, Circuit de la Foire Internationale, L-1347 LUXEMBOURG The Investment Adviser is: SKANDINAVISKA ENSKILDA BANKEN AB (publ), - SEB Asset Management - Sergels Torg S-10640 STOCKHOLM The Listing Agent is: BANQUE GÉNÉRALE du LUXEMBOURG S.A. 14, rue Aldringen, L-2951 LUXEMBOURG 3
  4. 4. German Transfer- Paying SEB AG Agent and Information Ulmenstrasse 30 Place is: D - 60325 FRANKFURT AM MAIN The Legal Adviser is: Dr. Pierre BERNA Avocat à la Cour 16a, boulevard de la Foire L-1528 LUXEMBOURG GENERAL INFORMATION The Management Regulations of the Fund were deposited with the Chief Registrar of the District court of and in Luxembourg on December 3, 1987, and published in the Mémorial C No 13 as of January 15, 1988. After several amendments a restated version was deposited with the Chief Registrar of the District Court of and in Luxembourg on July 1, 1991 and published in the Mémorial C as of August 5, 1991. Amendments hereto were deposited with the Chief Registrar of the District Court of and in Luxembourg on March 17, 1992, on March 17, 1993, on December 21, 1993, on September 2, 1994, on April 11, 1997, on July 27, 1998, on July 9, 1999 and August 17, 2000 and published in the Mémorial C as of August 12, 1992, of April 30, 1993, of February 8, 1994, of October 13, 1994, of May 7, 1997, of October 3, 1998, of August 5, 1999 and September 4, 2000. The Articles of Incorporation of the Management Company were deposited with the Chief Registrar of the District Court of and in Luxembourg on December 3, 1987, and published in the Mémorial C No 13 as of January 15, 1988. Amendments hereto were deposited with the Chief Registrar of the District Court of and in Luxembourg on July 9, 1999 and published in the Mémorial C as of August 5, 1999. The net asset value per unit, computed on each Bank Business day in Luxembourg and in Sweden, is made public daily at the office of the Custodian Bank. The Fund is divided into Sub-Funds. The following Sub-Funds were in existence as at June 30, 2002: - SEB Lux Equity Fund - International - SEB Lux Equity Fund - Natural Resources - SEB Lux Equity Fund - Japan - SEB Lux Equity Fund - United Kingdom - SEB Lux Equity Fund - Nordic - SEB Lux Equity Fund - North America - SEB Lux Equity Fund - Mediterranean - SEB Lux Equity Fund - Continental Europe - SEB Lux Equity Fund - Global - SEB Lux Equity Fund - Euroland - SEB Lux Equity Fund - Japan Chance/Risk - SEB Lux Equity Fund - Wireless Communications - SEB Lux Equity Fund - Global Chance/Risk - SEB Lux Equity Fund - Opportunity Europe FINANCIAL INFORMATION is published in at least one internationally circulated newspaper. Subscription and redemption prices are - made public daily at the registered office of the Custodian Bank - published daily in at least one internationally circulated newspaper. Currently, publication is made in the International Herald Tribune. 4
  5. 5. - FINANCIAL REPORTS of the Fund are published annually and semi-annually. These reports, as well as the OFFERING PROSPECTUS and the MANAGEMENT REGULATIONS, and all information concerning the Fund can be obtained at the offices of the agents responsible for FINANCIAL SERVICES listed below: Financial Servicing for the Fund is provided by the Depository Bank SEB Private Bank S.A. 6a, Circuit de la Foire Internationale, L-1347 Luxembourg and by all branches, subsidiaries and affiliates of SKANDINAVISKA ENSKILDA BANKEN AB (publ) Kungsträdgårdsgatan 8, S-10640 Stockholm and from all branches, subsidiaries and affiliates of the Skandinaviska Enskilda Banken Group. Financial information regarding SEB Lux Equity Fund Management Company S.A. can be received, free of charge, upon request in writing to the registered office of the Management Company. 5
  6. 6. REPORT OF THE BOARD OF DIRECTORS OF SEB Lux Equity Fund Management Company S.A. TO THE UNITHOLDERS OF SEB Lux Equity Fund Trends The general Swedish stock market index fell by 24 percent in the first six months of the year, while foreign stock markets fell by 21 percent. On the financial futures markets, the index for the Swedish interest rate portfolio showed a 2 percent return, while the foreign portfolio lost 4 percent owing to the stronger Swedish krona. Likewise, the value of mixed funds containing foreign securities was adversely affected by the appreciation in the Swedish currency during the period, especially against the US dollar. All the world's major stock markets apart from Japan fell sharply in the first half-year. The fall was so sharp that it proved to be one of the worst periods in recent stock market history. This poor performance was quite surprising, given that many of the economic statistics published during the first half-year indicated a recovery in the world economy. Nevertheless, at the end of June, market levels were close to the lows reached following last September's terrorist attacks on the US. The sharp fall in the markets is attributable to the instability in the Middle East and Kashmir, the emergence of new accounting scandals in the US, ongoing revaluation of the TMT (technology, media and telecoms) sectors following a series of profit warnings, large-scale goodwill write-offs, and the falling dollar. Towards the end of the six-month period, falling consolidation levels more or less forced insurance companies into selling off shares. A number of large companies in the telecom and technology sectors, such as Ericsson, Alcatel, IBM and Microsoft, issued profit warnings. Other negative developments that adversely affected the markets were the bankruptcy of KirchMedia, NTL and KPNQuest, and reduced credit ratings for Vivendi Universal, Deutsche Telekom, France Telecom and Tyco. The best performers were cycle-sensitive sectors such as chemicals, raw materials and vehicle manufacturing, but banks and stable consumer goods companies also weathered the decline well. The worst performers were the telecommunications, technology and media sectors, all of which fell by 40–45 percent. Pharmaceuticals also fell sharply towards the end of the period. In Sweden, the continuing poor performance of the telecom sector – equipment suppliers and phone companies alike – is the primary factor behind the downward trend. The telecom crisis is probably the worst ever seen in the industry, affecting companies on both sides of the Atlantic. Ericsson's share price dropped to 1994 levels and was 70 percent down in the first half- year. The company's turnover today is more than double the 1994 figure, but the systems market has declined sharply over the past two years, and profitability is very poor. This has forced the company into a new share issue worth SEK 30bn. Meanwhile, the growth in mobile phone sales seems to have tailed off, and total sales for this year are again expected to be in the region of 400 million handsets – a slowdown that will nevertheless affect Nokia even more. Renewed acceleration in sales of mobile systems is now vital to the Nordic markets. It is also important for Ericsson to maintain its world-leading position in this segment, with a market share of around 35 percent. Expectations that Sweden is likely to sign up for EMU had a positive effect on Swedish market rates. Joining the euro would remove the particular krona-related risk inherent in Swedish bonds. If Sweden joins, Swedish bonds would be valued like German and French bonds, but with a mark-up for poorer liquidity, likely to be around 0.2 percentage points. During the spring, the Swedish Central Bank raised its base rate twice, by a total of 0.5 percentage points, owing to the fact that Swedish inflation is exceeding the Bank's targets. There is a risk that this will create an inflationary climate that will complicate future wage settlements. The Central Bank will probably need to raise interest rates by a further half percentage point before the risk of higher inflation is eliminated. As the Swedish Central Bank has been quicker to raise its base rate than other central banks, Swedish interest rates have risen more than the corresponding euro rates. Surprisingly strong growth in the US and increased expectations of austerity measures by the Federal Reserve caused American interest rates to rise sharply in the first quarter. In the second quarter, global interest rates fell back. Investors world wide increased the proportion of bonds in their portfolios during the first quarter, owing to fears that the strong growth would not persist, coupled with the fall in the stock markets. The US stockmarket, as represented by the S&P 500 index, fell by 14 percent in the first six months of 2002, despite increasing signals that the US economy had turned the corner. The likely cause was the sharp rise in share prices in the last quarter of 2001, as a result of which many stocks already included provision for a large part of any economic recovery. There are also many indications that the recovery will not be as fast or as marked as the market at first believed. Another negative factor was that a number of companies resorted to dishonest accounting methods in order to bolster their share price. When market players were unable to determine the extent of this cheating, they chose to dispose of shares in favour of interest rate futures. The best performers were raw materials companies and stable consumer goods companies, which rose by 8 percent and 5 percent respectively. The worst performers were telecommunications and technology stocks, which fell by 36 percent and 32 percent respectively. Small and medium-sized companies significantly outperformed the market as a whole, as in 2001. These companies are generally valued lower than large companies and therefore represent a safer option for investors in times of uncertainty. The European stock exchanges fell by 17 percent in the first half of the year. The market suffered from uncertainty over companies’ accounting principles, uncertainty in the Middle East, concerns about new terrorist attacks and an unwillingness to 6
  7. 7. believe there would be an improvement in the economic situation. As the stock exchanges fell, some long-term investors, such as insurance companies, were forced to sell shares in order to fulfil consolidation requirements. Private individuals held back on share purchase and investments in mutual funds were on the thin side in the first half-year. Up to May the indexes were fluctuating between zero and minus 5 percent. In June the stock markets collapsed and fell almost 10 percent. This was mainly due to increased concerns about terrorist attacks and uncertainty about profits reported by companies. The spate of accounting scandals continued in the USA. Worldcom announced that they had reported to huge profits totalling USD 3.7 billion. In Europe too, companies were called into question as many of them had made large purchases in the USA. The uncertainty was whether these had been reported correctly. Some companies, including Elan and Amey, changed their accounting principles. However, seen in context, these are relatively small. In particular, Spanish companies with a high exposure to Argentina and Brazil came under pressure on account of trends in Latin America. The UK developed better than the European markets. In countries such as Finland and Sweden the stock exchange fell drastically. Technology and telecom operators fell sharply in June and are down 40 and 32 percent respectively this year. Telecom operators’ bond loans were affected by the downgrading. In the first half of the year most company bankruptcies were also concentrated within the telecoms sector. KPNQwest and Flag Telecom were declared bankrupt and there are question marks about whether Energis can survive. Deutsche Telecom, France Telecom and Orange had their credit ratings reduced. Both France Telecom and Deutsche Telecom are surviving as companies, as they are majority-owned by the state. They may, however, be forced to sell out their mobile operators in order to be able to settle their debts. Insurance companies also experienced poor development during the first half of the year. They were exposed to the stock market and fell in pace with the stock exchange. There has also been speculation that the equity/assets ratio of some companies is too low and that they will be forced to implement new share issues. Both cyclic and defensive sectors gave a good account of themselves during the first half of the year. Real estate was the best sector, but raw materials, banks and oil made a positive contribution. Small companies generally managed better than large companies, falling by 14 percent during the first half of the year. The US dollar fell by almost 14 percent against the euro, mainly during the second quarter. This resulted in downgrading of profits for companies that had a high exposure to the USA. Corporate profit forecasts stabilised during the first quarter. The analysts began to upgrade some of the estimates on the basis of a better economic outlook. However, the forecasts fell again during the second quarter. This was due to the fall in the dollar and weaker profit trends in companies. The forecasts for 2002 are around 22 - 24 percent, but are too high. The number of company takeovers and mergers continued to fall. Despite this, the size of business transactions actually rose during the second quarter. Major takeovers include Shell’s purchase of Enterprise Oil, Vivendi Environment’s purchase of Southern Water and E.On’s purchase of Ruhrgas. The number of announced new listings on the stock exchange increased during the second quarter. However, many were forced to withdraw in June on account of the poor stock markets. The influx into equity funds was on the thin side during the first half of the year. On average, private individuals made purchases of equity funds of approx. 3 billion euros a month. By way of comparison, private individuals made purchases of equity funds of approx. 7 billion euros a month in 1999. This year’s influx into equity funds is, so far, on a par with 2001. However, the influx into money market funds continued to increase. In 2001 the influx was 63 billion euros and this year up to May, 49 billion euros. The main distorting factor continues to be the weak trend in the telecom sector. This covers both suppliers of telecomm equipment and telecomm operators. The crisis in the telecomm sector is probably the worst the industry has ever experienced. It has hit companies both in Europe and the USA. The small company funds have generally done better than the funds which have a large proportion of their investments in big companies. Information technology has been important for both social development and economic growth since the 1950s. The period between 1980 and 2000 was particularly important. During this period, mass-market products such as personal computers and mobile phones were developed. These two products have been of decisive importance for the rapid growth of the modern IT industry, particularly during the 1990s. In 1995 the Internet also became available on the mass market and this meant very great demand from consumers and companies for personal computers, modem and software among other things. During the latter part of the 90s and up to today, broadband equipment has been developed and installed and a new wave of digital consumer products has been launched onto the market. However, since autumn 2000 growth has stagnated and the market for personal computers and mobile phones is no longer growing at the same rate. Now, every year approximately 140 million personal computers and approximately 400 million mobile phones are being sold. We can expect continued growth of only 5 to 10 percent from these levels. Growth in future will, to a large extent, depend on upgrade cycles, that is people buying new equipment to replace old. Obviously, the market for personal computers and mobile phones will expand in developing countries but this will take time since the purchasing power of large parts of the population is too low. It is difficult to identify any single object or application that can drive growth up to the high levels of the 1990s in the next few years. We have arrived at ‘mature markets’ at the same time as a degree of over capacity has been created – this will take time to overcome. The stock market has been involved in a process where IT shares are being revalued. This process has been painful since it is difficult to estimate the long-term growth of the sector. Historically, the IT sector has grown between 12 and 14 percent a year but we believe that for the rest of the current decade growth will be somewhere around 8 percent. This also means that growth in profits in technology companies will be lower than before. The thing that has above all pulled growth down is the crisis in the communications sector since operators around the world were formerly big buyers of equipment and software etc and no longer have the resources to invest to the same extent. During the latter part of the Internet boom, traditional and newly established operators invested large amounts to meet an expected wave of digital traffic over their networks. However, competition became so fierce and the range of offerings so large that the prices of services fell dramatically. Other large buyers of IT products such as the banking and insurance sector are also 7
  8. 8. in a global process of consolidation which has led to less buying of IT products. According to Gartner Group the electronics industry will grow by approximately 6 percent up to 2006, which is something less than over the last ten years when growth was almost 8 percent. Software and computer services are expected to grow by around 10 percent and this too is less than their historic growth. IT is a sector that has matured but despite this it remains of great strategic importance for future development. Five months of relatively good development in Japan were followed in June by a sharp decline. This means that the benchmark fell by 5.6 percent in the first half of the year. At the beginning of the year the mood was negative. However, in March the Japanese government took some action to support the market and prevent a banking crisis, which made hedge funds aggressively cover their short-term positions. During the period, the economy showed several signs of a recovery, supported by increased export and adjustment of stock levels. Expectations of a recovery started in the manufacturing industry and then spread to other sectors. The government could at last declare that the worst was over. However, the authorities still appear unwilling to devote themselves to preventive reform work. Prime Minister Koizumis popularity plummeted after he fired the Foreign Minister Tanaka, which reduced his future manoeuvring space. Despite Moody’s downgrading of Japanese government bonds, the yen rose against the dollar by over 9.7 percent. The revaluation was partly due to investors’ increased belief in a recovery of the Japanese economy. Most Japanese companies submitted their annual reports during May. After some downward revision before then, there were few surprises. Companies’ forecasts for the present year were quite positive and were in general positively received by investors. The number of companies reporting reorganisations has increased, which is positive for the market in the long term. Examples of this include factory closures or the transfer of divisions to joint ventures. These types of measure create space for companies to concentrate on more profitable core activities. Asia developed better than other markets in the global arena. The domestic mood was improved by positive economic statistics and the market developed strongly during the first quarter. During the second quarter the stock exchange deteriorated a little. There was unease about the strength of the US recovery and anxiety about the possible outcome of the tensions between India and Pakistan. South Asian markets developed well during the period. Things went best in Indonesia, which benefited from the successful renegotiation of the national debt. The government was also successful with its reform programme. Expectations of a strong profit recovery during 2002 resulted in a positive market mood during the first half of the year, from which Thailand also benefited. At the same time, investors took profits in Singapore. In North Asia the South Korean market rose, despite the fact that international institutional investors took profits. The market was strengthened by foreign investors making large investments on the basis of expected profit increases. Development in Taiwan was weak, due to worries that companies’ IT investments had not recovered. Development in Hong Kong and China was weak. The worries there were related to domestic deflation and a sluggish economy, which made the mood negative. Some losses, caused by the overweighted positions in Hong Kong, China and Taiwan, were partly offset by the South Korean overweight. Development in the Australian stock market was mixed. The report season and profit warnings from some of the biggest companies resulted in substantial price movements. Banks experienced good development, strengthened by factors such as repurchase of shares. Japan developed quite well, supported by investors’ optimistic belief in a future domestic recovery. During the first half of the year the performance improved, particularly through the selection of shares in Hong Kong. Holdings in the energy sector benefited from the rising price of oil and the underweight in Hutchison Whampoa made a positive contribution. The selection of sales in Malaysia had the same effect, with an overweight in Hong Leong Bank and Public Bank and an underweight in Tenaga. However, the holdings of technology shares in Japan and Taiwan had a negative impact on development. Sub-Funds SEB Lux Equity Fund – International Holdings of foreign shares also lost around 2 percent in relation to their benchmark index. The choice of shares is the main reason why these components underperformed somewhat, primarily during the first quarter. Holdings of Tyco, Charter Communication, Vodafone and Ahold made the largest negative contribution. The companies making the largest positive contribution included Crédit Agricole, TotalFinaElf, ABN Amro, Société Générale and Daimler-Chrysler. With regard to the spread of shares across various sectors, the Sub-Fund benefited from having taken a cautious approach to technology and media in the second quarter. The more cautious approach to stable consumer goods companies adversely affected performance. Holdings of bonds also performed somewhat better than the index. Surprisingly strong growth in the US and increased expectations of austerity measures by the Federal Reserve caused American interest rates to rise sharply in the first quarter. We had predicted this rise, and the average term of the Sub-Fund was shorter than that of the benchmark index, benefiting their performance in relative terms. In the second quarter, investors world wide increased the proportion of bonds in their portfolios, and global interest rates fell back. At this time, the Sub-Fund still had a shorter average term than that of the benchmark index, with adverse consequences for their relative performance. One of the main changes in the equity component is the increased proportion of cycle-sensitive shares. This increase was made at the expense of companies whose earning potential is less dependent on the business cycle, partly by purchasing shares in the vehicle manufacturers Daimler-Chrysler and Ford, and partly by increasing our exposure to the chemicals and raw materials 8
  9. 9. sectors. A new investment was also made in United Technologies, a company supplying high-technology products to the aerospace and construction industries. All Tyco shares held by the Sub-Fund were sold. Tyco had run into financial and strategic difficulties when the company and its managing director were accused of accounting irregularities and tax offences. Exposure to pharmaceuticals was reduced owing to an increasingly cautious attitude towards the sector during the first six months of the year. Shares in Sanofi-Synthelabo and the biotech company Amgen were sold off, while holdings in GlaxoSmithKline were reduced. The reason for the more restrained approach is that the industry is facing many important patent issues, increased competition from generic products, and a climate in which it is likely to be more difficult to achieve price increases. Given the expected economic improvement in 2002–03, with companies in other sectors expected to see bigger rises in profits, the pharmaceuticals sector risks being slightly overlooked by investors. There is a danger that long-term growth forecasts will have to be revised downward more than in other sectors. As far as company changes in the banking sector are concerned, we disposed of the Sub-Funds’ holdings in ABN Amro and instead reinvested in Barclays, the British bank. The Sub-Fund also reduced its exposure to pure investment banks by disposing of Lehman Brothers and reducing holdings in Credit Suisse. In their place, investments in Bank of America were increased, making this one of the Sub-Fund s' main holdings in the sector. Bank of America is a well-run, widely diversified bank with a reasonable valuation. In the telecommunications sector, we disposed of Telecom Italia entirely, investing instead in the Greek operator Ote Hellenic Telecom, a low-valued company with sound capital adequacy and good growth potential. This opportunity arose when the Greek government reduced its stake in the company. The proportion of oil stocks was increased in the light of the political turbulence in the Middle East and the generally uncertain profit outlook in many other sectors. We therefore reinvested in BP and purchased additional shares in TotalFinaElf. Meanwhile, we reduced our exposure to the media sector by disposing of Charter Communication, Liberty Media Corp and Vivendi Universal. Overall, the changes outlined above mean that the Sub-Fund is well placed for continuing economic improvement. The portfolio should also benefit in relation to the benchmark index if the pharmaceuticals and technology sectors continue to under perform. In geographical terms, Japanese stocks are slightly over weighted and American stocks slightly under weighted. The Sub-Funds' bond holdings have a slightly shorter term than that of the benchmark index. To produce larger ongoing returns, the proportion of non-government securities held by the Sub-Fund is being increased during 2002. The securities purchased have a very low credit risk. The proportion of housing bonds in the Sub-Fund was increased during the first quarter and is now larger in relation to the index figure compared with the start of the year. Over the six-month period, the Sub-Fund generally maintained a neutral balance between equities and bonds, but on one occasion during the first quarter, the equity component was over weighted. It was thought that the market had exaggerated fears of conflict in the Middle East and Kashmir, and mistrust of company accounts. After a brief upturn, worries on the stock markets increased and the equity component was again reduced. As falling share prices towards the end of the half-year reduced the proportion of equities, the equity component was increased to restore a neutral balance. The valuation of global stocks in relation to bonds is now lower than last September, whereas the conditions for growth are better overall. Consequently, expected future returns on stocks, even with cautious profit forecasts, exceed those for bonds. In the short term, companies will continue to require fresh capital (new share issues), which is perceived as a risk to the stock market. Likewise, a great deal of uncertainty surrounds reported profits. For this reason, we are not increasing the equity component beyond a neutral balance at present. SEB Lux Equity Fund - Global The net asset value of SEB Lux Equity Fund - Global decreased by 22.4 percent, while the comparison index MSCI World fell by 20.7 during the same period. Market trends during the first quarter were slightly negative, but the big market decline did not really start until April. In the latter part of 2001 the market was hoping for a relatively speedy economic recovery, accompanied by profit improvements. But as companies became increasingly cautious in their statements about the future, these hopes began to look more doubtful. Most large companies in telecoms and technology, such as Ericsson, Alcatel, IBM and Microsoft, issued profit warnings. Bankruptcies in KirchMedia, NTL and KPNQuest and reduced credit ratings for Vivendi Universal, Deutsche Telekom, France Telecom and Tyco were other negative events that had an impact on the market. It was mainly during the first quarter that the Sub-Fund developed worse than its benchmark index. The main explanation for this can be found in the selection of shares, with the holdings in Tyco, Charter Communication, Vodafone and Ahold making the largest negative contribution. Companies making the biggest positive contribution included Crédit Agricole, TotalFinaElf, ABN Amro, Société Générale and Daimler-Chrysler. With regard to share distribution among different sectors, the Sub-Fund benefited from a cautious view of technology and media during the second quarter. However, our underweight in stable consumer companies had a negative effect on development. One of the most important changes is the increased proportion of shares that are sensitive to changes in the economic climate. The increase was at the expense of companies with an earnings potential that is not dependent on the economy. It was achieved partly by purchases in the motor vehicle companies Daimler-Chrysler and Ford and partly by increasing the exposure to the chemicals and raw materials sectors. A new investment was also made in United Technologies, which supplies high-tech products to the aircraft and building industries. All the Sub-Fund’s shares in Tyco were sold. 9
  10. 10. The proportion of shares in the oil sector was increased on the basis of the political unrest in the Middle East and the generally uncertain profit outlook in many other sectors. For this reason, the Sub-Fund made a new investment in BP and additional purchases in TotalFinaElf. The exposure to pharmaceuticals was reduced, due to an increasingly cautious attitude to the sector during the first half of the year. Sanofi-Synthelabo and the biology company Amgen were sold and the holding in GlaxoSmithKline was reduced. The reason for the more restrictive view is that the sector is facing many important patent expiries, increased competition from generic preparations and a climate in which price increases will probably be more difficult to come through. With an improvement in the economy expected in 2002 – 2003, which may see companies in other sectors experiencing a big reversal in profits, the pharmaceuticals sector is in danger of finding itself a little sidelined in terms of investors’ focus. There is a danger that there will have to be more downward revision of long-term growth expectations than for other sectors. At a sector level, the exposure to media was reduced by the sale of Charter Communication, Liberty Media Corp and Vivendi Universal. This has given the Sub-Fund a cautious exposure to the media sector. In the second half of the year efforts will be made to find other media companies in which to invest. The criteria are that they must have a positive cash flow and profits that are largely positively affected by an upswing in the advertising economic situation. With regard to large company changes in the bank sector, the Sub-Fund sold ABN Amro, investing instead in UK company Barclays. The Sub-Fund also reduced the exposure to pure investment banks by selling Lehman Brothers and reducing the holding in Credit Suisse. Investments in Bank of America were increased instead. This makes the holding one of the Sub-Fund’s most important in the sector. Bank of America is a well-organised, widely diversified bank with a reasonable valuation. In telecoms, Telecom Italia was sold completely and investments made instead in the Greek operator Ote Hellenic Telecom – a low valued company with a good equity/assets ratio and good growth potential. This opportunity presented itself when the Greek government reduced its holding in the company. The holding in Verizon Communication was increased, financed by the sale of AT&T Wireless. Taken as a whole, the above changes mean that the Sub-Fund is positioned for continued improvement in the economy. The portfolios should also benefit against index if the pharmaceuticals and technology sectors continue to develop worse than the market. In terms of regions, the Sub-Fund has a small overweight in Japanese shares and some overweight in US shares. SEB Lux Equity Fund - Global Chance/Risk The Sub-Fund declined by 21.1 percent during the first half of 2002, while its comparison index MSCI World fell by 20.70 percent during the same period. The selection of shares in the retail trade sector, with Gap and Wal-Mart in the USA, was the most positive contribution to the Sub-Fund’s development. The overweight in software rather than hardware paid off well in technology. However, in retrospect there could have been more underweight in both sectors. The largest individual contribution came from Credit Agricole, a French bank that came to the market at the end of last year when it sold some of its shares. During the first half of the year, forestry companies throughout the world experienced stable positive development. The overweight in Finland’s Stora Enso and in the sector as a whole made a positive contribution to the Sub-Fund. It was not surprising to find companies in technology and media on the negative side. However, they were also joined by pharmaceutical companies such as Wyeth (formerly American Home Products). Computer Associates was only one of a number of technology companies that showed poor profit trends and were also burdened by complaints about accounting irregularities. The proportion of shares sensitive to changes in the economic climate has been constantly increased since the start of the year. This has been done by purchases, including Daimler-Chrysler, Alstom and various banks, such as Gensidige Nor Sparebank, Bank of America and Barclays. The weighting in oil was increased by the purchase of BP in the UK. The large exposure to oil is due to the unrest in the Middle East and suspense about whether the USA will attack Iraq. To compensate for the overweight in these areas, companies sensitive to changes in the economic climate were sold, such as insurance company American International Group, brewery Anheuser-Busch and pharmaceutical company Pharmacia. Telecoms operators had a difficult start to the year. The rate of growth in the whole industry was called into question and the burden of debt was overwhelming in several large European companies. The holding in Vodafone was reduced and the Sub-Fund currently owns defensive telecoms operators, such as Ote Hellenic Telecom. In terms of regions, the Sub-Fund has a small overweight in Japanese shares and some overweight in US shares. SEB Lux Equity Fund - Natural Resources The Sub-Fund has a yield relative to the index of 3.9 percent as at 30.06.2002. It is worth mentioning that the Sub-Fund has experienced a trend approximately 20 percent better than the world index for shares during the period under review. The fact that the Sub-Fund has done so well relative to its benchmark is due partly to the right choice of shares and partly to a successful distribution between sectors. The Sub-Fund has been overweighted in the gold and steel sector, i.e. the two sectors, which have experienced the best development, while energy and metal companies have been underweighted. Moreover, the Sub- Fund has put a premium on the big, global energy companies, which has proved to be profitable. 10
  11. 11. During the first quarter of the year, the overweight in metal companies was reduced to an underweight at the same time as the proportion of steel companies increased. The main reason for this was that steel companies had for a while been experiencing a trend below the average for the market, which meant that they seemed relatively cheap. In connection with this, we also increased our positions in the gold sector, which meant that the Sub-Fund became somewhat overweighted in this sector. The price of gold had been rising for a while and we felt that this was a trend, which could continue, despite the fact that gold had lost a little of its status as a safe investment in bad times. During the second quarter, the weight in the steel sector was reduced somewhat by the sale of Acerinox. The gold sector has also gradually been reduced. SEB Lux Equity Fund - Continental Europe SEB Lux Equity Fund - Continental Europe unfortunately lost 1.5 percent against its comparison index this half year. SEB Lux Equity Fund - Continental Europe had an overweight in vehicles, raw materials, building and real estate. There was a corresponding underweight in chemicals, food and the retail trade. We also sold our holding in Holcim, investing in St Gobain instead. SEB Lux Equity Fund – Mediterranean. SEB Lux Equity Fund – Mediterranean developped 3.2 percent better than its index. In SEB Lux Equity Fund – Mediterranean, Autogrill and Vallehermoso were sold during the half-year. A large purchase was made in SCH, one of the largest banks in Spain. SEB Lux Equity Fund – Mediterranean had an overweight in telecom operators, insurance companies and public utility companies. There was a corresponding underweight in transport, bank and manufacturing. The overweight in telecom operators was in Stet Hellas, one of the biggest mobile operators in Greece. SEB Lux Equity Fund - Euroland SEB Lux Equity Fund – Euroland performed better than its index by 2 percent. SEB Lux Equity Fund – Euroland had a major position in Vallehermoso, which made a positive contribution, but Credit Agricole also performed well. The Sub-Fund’s underweight in Eni made a negative contribution, as did the Sub-Fund’s position in Bayerische Vita. Vallehermoso was sold and investments were made in Grupo Acciona. The Sub-Fund also sold Autogrill at the beginning of the year. SEB Lux Equity Fund – Euroland had an overweight in vehicles, oil, bank and building and real estate. There was a corresponding underweight in chemicals, food and service companies. We participated in the Greek government’s disposal sale of Hellenic Telecom in April, selling Telecom Italia in order to finance the purchase. We also sold Vallehermoso and invested in Grupo Acciona in its place. SEB Lux Equity Fund – Nordic The Sub-Fund fell by approximately 19.5 percent over the first six months of the year at the same time as the Sub-Funds’ comparative index fell by 18.6 percent. The Norwegian market performed best with a fall of 9 percent and the Finnish market worst with a fall of 32 percent. The smaller companies were the winners in the Nordic region generally, mainly because they were cheaply valued. Examples include the Finnish companies Uponor, Konecranes and Finnlines. Munters was one of the Sub- Fund’s best holdings, recording an increase of 20 percent. Metro was one of the losing shares. The company’s rapid expansion was capital intensive and during the year it secured, after a certain amount of trouble, a bank credit of EUR 80 million. On the whole, the company is meeting its targets in terms of expansion and profitability for the newly launched newspapers. At the same time, it is now competing in an advertising market in sharp decline. The Sub-Fund did not hold any shares in Telia during the period under review, which was a positive point as the share fell by 50 percent. Operators had a difficult start to the year and this was the worst-performing sector in the Sub-Fund. The Nordic operators are currently cheaply valued and have generally good balance sheets. Unfortunately, they are being affected by the fact that operators in Europe incurred large debts in connection with the auctions for licences for the 3G mobile network. During the first six months of the year even pharmaceuticals fell markedly, although the sector is normally a defensive one which usually copes well in a difficult stock-market climate. The sector is experiencing a period of change, with several patents running out and a shortage of new products to take their place. However, the fall was positive compared with the index. In terms of the structure, the overweight in forestry is mainly motivated by the fact that the industry has undergone a process of consolidation in recent years and that top managers are now focusing more than before on profitability. The market for forestry products also appears stable and several price rises have been announced. The portfolio also has large holdings in the retail sector which are benefiting from a continued high level of private consumption. Both H&M and Lindex recorded results which exceeded expectations and, in the case of H&M, there are still good opportunities for growth, not least in the USA. The telecoms operators have now fallen to a level where a slight overweight may be justified. Despite the fact that the Swedish operators did not have any major financial problems themselves, they were negatively affected 11
  12. 12. by equivalent companies in other countries experiencing problems with weak balance sheets. The outlook for banks is fairly positive but, overall, are still underweighted. The Sub-Fund does not hold any shares in Handelsbanken, which is assessed as being overvalued in relation to other banks. A number of engineering companies are relatively sensitive to changes in the dollar and this increases caution in investing in the sector. This applies in particular to Sandvik and Atlas Copco, which have been underweighted to some extent. The proportion of Swedish shares increased during the year at the expense of Norwegian shares. The Norwegian economy is on the verge of overheating and the Bank of Norway has raised the bank base rate by 0.5 percent to 7 percent. The weight in Statoil was reduced during the spring when the share was showing strong development thanks to a high oil price. At the same time, the holding in H&M was increased as the share fell, reaching attractive levels. The position in Sonera was also increased. The share was reasonably valued and traded at a discount to Telia’s offer. The English Davis Group took over the Danish company Sophus Berendsen, which was a major position. Even the favourite, the Swedish paper manufacturer Munksjö, is now in foreign hands following an offer from Smurfit. Perlos was sold during the year owing to the anxiety about the mobile telephone market. The sugar and ingredient manufacturer Daniso was added as a new holding. This is one of the few big companies in Denmark which has an open ownership structure. Danisco has strong and stable cashflows, a good valuation and is buying back shares. The Danish company AP Möller continues to be a significant holding and is benefiting from the turnaround in market conditions and world trade. The same applies to the operator TDC in which the Sub-Fund also has shares. Sparebanken Nor is an important holding in the bank sector. The bank is cheaply valued and is an obvious candidate for take over. Nordea is another major position in the bank sector. The outlook is positive for telecom operators, transport and media companies but more cautious in the pharmaceutical, oil and engineering sectors. SEB Lux Equity Fund – North America The US stockmarket (S&P 500) fell by 24.5 percent during the first half of the year if expressed in SEK. The North America Sub-Fund fell by around 29.5 percent over the same period if expressed in SEK. Small and medium-sized companies significantly outperformed large corporations in the first half-year, which was one of the reasons why the Sub-Fund underperformed in relation to the stockmarket as a whole, as the Sub-Fund invests primarily in large corporations. In the wake of last year's Enron scandal, the accounting policies of American companies were called into question. Hardest hit were large companies that had expanded by acquisition, among them the Tyco manufacturing conglomerate, despite its repeated assurances that it had adhered to the relevant accounting standards. Tyco made the largest negative contribution of a single company to the Sub-Fund’s performance during the six-month period. Worldcom's accounts were not only called into question, but found to be inaccurate. However, the Sub-Fund was largely unaffected by the scandal. Most of our holdings in Worldcom were sold off last September, and the remainder in April. Nevertheless, to a certain extent, Worldcom was a negative factor in the performance of the Sub-Fund. The spread of shares across sectors adversely affected the Sub-Fund’s performance during the period, primarily owing to overweighting in software companies and underweighting in stable consumer goods companies. The companies that made the largest positive contributions to Sub-Fund’s performance were IBM, the finance houses Principal Financial and Washington Mutual, and the clothing chain Gap. Consumer spending remained healthy in spite of the recession during the period. Consequently, profits by consumer good companies fell significantly less than company profits in other sectors. The relatively healthy profits were reflected in the share prices of consumer good companies during the first few months of the year. However, consumer-related stocks rose at the start of the second quarter. Holdings of stable consumer stocks were therefore reduced in favour of cash. Holdings of manufacturing stocks were also reduced to an underweight position during the period, by reducing holdings in the large financial and industrial conglomerate General Electric (GE). The reason for this move was a fear that GE's accounting policies would also be questioned. The Sub-Fund was neutrally positioned in the technology sector. However, the risk in this sector was reduced by selling Sun Microsystems, Oracle and Computer Sciences in favour of IBM and Intel. Elsewhere, the Sub-Fund held overweight positions in pharmaceuticals and chemicals. SEB Lux Equity Fund - UK The UK developed better than the European markets. The Sub-Fund declined by 10.96 percent if expressed in its base currency during the first half of 2002. SEB Lux Equity Fund - Japan The Sub-Fund fell by 5.4 percent over the first six months of the year at the same time as the Sub-Funds’ comparative index fell by 5.6 percent. Exposure to shares that are sensitive to changes in the economic climate increased during the period. The remaining bank holdings were sold and the Sub-Fund is generally overweighted in electrical equipment, in particular component shares. Credit Saison was sold following strong development and the position in NTT was reduced. At the same time, the positions in Ricoh and JR East were increased, taking advantage of their short-term weak development. SEB Lux Equity Fund – Japan Chance/Risk 12
  13. 13. The Sub-Fund fell by 3.4 percent over the first six months of the year at the same time as the Sub-Funds’ comparative index fell by 5.6 percent. Exposure to shares that are sensitive to changes in the economic climate increased during the period. The remaining bank holdings were sold and the Sub-Fund is generally overweighted in electrical equipment, in particular component shares. NTT is the strongest overweighted position. Several existing holdings were sold, including Nomura and Sony. New holdings include Kao and Misumi, which means increased exposure to small companies. SEB Lux Equity Fund - Wireless Communications The net asset value per unit fell by 48.3 percent during the period. The Sub-Fund has no benchmark. It has been an unremittingly subdued half-year for the companies involved in wireless communications. The expected upgrading of mobile phones to next generation GPRS phones with the new MMS (Multimedia Messaging Service) has been put off again. This has contributed to expectations of global sales of mobile phones being further revised downward, this time to around 400 million phones in 2002. The heavily indebted telecom operators’ expected investments in new technology and new software solutions to upgrade the networks have once again been postponed. Many telecom operators have established guidelines by which investments may not exceed 12 to 15 percent of sales, which indicates that investment will not gather momentum for several quarters. Some system suppliers in telecoms maintain than they are not reckoning on any improvement in sales before the end of 2003 at the earliest. The Sub-Fund’s return has been favourably affected by its holdings in the giant Japanese telecom operator NTT DoCoMo, the American semiconductor company in wireless communications Skyworks Solutions and by a cash position of just over 8 percent. The companies that affected the return on the Sub-Fund in a negative direction are principally Ericsson, the American semiconductor company RF Micro Devices and Nokia. Since the beginning of the year, the structure of the Sub-Fund has been changed in a defensive direction. We have expanded our cash position from 3.3 percent at turn of the year to 8.9 percent because the entire wireless communication sector has been characterised by great uncertainty. The large cash position has contributed to the Sub-Fund not having gone down as much as it would have done had it been fully invested. The geographical distribution of shares remains broadly speaking unchanged since the beginning of the year. Around 46 percent of the value of the Sub-Fund is invested in the USA, almost 37 percent in Europe and just over 8 percent in Asia. So far as distribution between industries is concerned, the proportion invested in companies in component manufacturing remains in principle at around 35 percent of the value of the Sub-Fund. The reason is that an ever greater proportion of components is being used in mobile phones, handheld computers and in wireless infrastructure. When wireless communication does show an upturn again, the first positive signals will be seen in the component sector – the first link in the commercial chain. The three biggest holdings in the component sector are Analog Devices, ST Microelectronics and Intersil. Almost 24 percent of the Sub-Fund is invested in communications equipment, where the largest holdings are in Nokia, Cisco Systems and Ericsson. Just under 17 percent of the Sub-Fund is invested in software and service companies, where the biggest holdings are Microsoft, Telelogic and Logica. The telecom operators account for just under 14 percent of the Sub-Fund’s holdings, with Vodafone Group, Verizon Communication and NTT DoCoMo being the biggest. We have sold the holding in Japan’s Matsushita Communication Industrial and the greater part of the software company Amdocs as the valuations were approaching relatively high levels. We sold the holding in semiconductor Conexant when the company was divided into three and are retaining only Skyworks Solutions, which is oriented towards wireless communication. We elected to realise our profit on the Australian telecom operator Telstra. We sold the holding in the generally oriented telecom operator SBC in order to invest further in the slimmed down world leading mobile operator Vodafone instead. Over the half, we have bought shares in the American communications company Qualcomm, which is primarily known for developing digital CDMA technology. Other investments have been made in the network equipment company Riverstone Networks and Ericsson. SEB Lux Equity Fund - Opportunity Europe SEB Lux Equity Fund - Opportunity Europe fell by 16.4 percent during the period. The Sub-Funds’ comparison index dropped by 17 percent in the same period. SEB Lux Equity Fund - Opportunity Europe has performed a little better than its benchmark index, mainly because we have used the opportunity to keep some of the assets in cash, instead of shares and derivative instruments. We deal in shares, share options and other derivative instruments on the European stock markets. The Sub-Funds’ strategy is to use the lever effect in share options to try and obtain a higher yield. This means that the risk is substantially higher than normal, but also makes it possible to obtain a considerably higher yield in an ascending market. Important keywords for the Sub-Fund is speed and direction in the underlying market. The direction must be positive, but at the same time it is important for the speed to be sufficiently high to compensate for time value loss in the option holding. At mid-year the proportion of shares in SEB Lux Equity Fund - Opportunity Europe was 57 percent and liquid assets 43 percent. The distribution between shares, options and cash is changing constantly with the market. During the past half-year option holdings and the lever have gradually gone down, due to falling prices. Outlook The Sub-Funds continue to have a composition, which would benefit from a recovery in the world economy and company profits in 2002-2003. Many problems should now be behind us. In 2000 the IT and telecom bubble burst, in 2001 the financial markets were affected by the terrorist attacks and this year has been characterised by problems with company’s accounting practices. At the same time, Ericsson is carrying out Sweden’s biggest ever new share issue. Much of the anxiety, which has 13
  14. 14. followed these events can already be seen in current share prices. A return to a more normal situation would probably involve significantly higher stock market prices. The big price falls have also resulted in a situation where the expected future yield on shares exceeds the expected yield on bonds, even with cautious profit forecasts. Current share prices should therefore withstand downwards adjustment of profit expectations this year. After the dramatic fall in the last quarter, it will probably take time to establish a firm basis for a long and enduring upward trend. The market will therefore probably swing relatively markedly in both directions but is likely to finish the year at higher levels than at mid-year. However, this assumes that the economy will continue to strengthen and that companies’ profits will take a serious turn for the better. Economic forecasts indicate modest growth in 2002. A growth-oriented economic policy, with high levels of debt, high energy prices and wage restraint, lead us to predict a modest increase in consumer spending. Over capacity and weak growth in profits indicate a weak upturn in the investment cycle, but accelerating growth in 2003. The cyclical recovery will lead to: 1) Productivity improvements and potential for growth in profits 2) A change in market focus from short-term profit issues to future growth 3) A switch in monetary policy from growth-oriented to neutral, i.e. increased base rates 4) Higher bond rates 5) An increase in the value of shares in relation to bonds. In the short term, new share issues and further accounting scandals will continue to pose a risk to the stock market, which may lead to declining confidence in the markets and further pressure to sell. Market interest rates are somewhat low, considering the strength of the ongoing recovery in the world economy. Low rates may be justified for some time to come, owing to the risk of more bad news concerning terrorist threats or companies with accounting irregularities. These fears are likely to subside as the economy grows stronger, which will probably lead to higher interest rates in the second half of the year, primarily on long-term bonds. The level should rise modestly, and an increase of 0.5–0.8 percentage points will ensure that interest rates in the bond market become attractive once again. Market prospects for the second half of the year are relatively uncertain. What is certain is that the valuation excesses that existed at the time of the stock exchange peak in March 2000 have now been largely erased. However, the problem is that the market is still faced with a number of tricky questions. How strong will the US economic recovery be, bearing in mind the over-investment and over-consumption that we saw in the second half of the 1990s? The main scenario is that the recovery will be very moderate, seen from a historical perspective. How will companies’ profits develop in an environment characterised by low inflation and low nominal growth? There is large uncertainty around, but investors should probably go for relatively moderate profit increases in the future. Finally, we have to mention the uncertainty about reported profits. In light of the latest accounting scandals, new cases of irregularities can unfortunately not be ruled out. This means a danger of falling confidence in the financial markets. We are cautiously optimistic about market prospects in the slightly longer term. On the one hand, most macroeconomic indicators suggest that the economy has turned the corner, implying a steady rise in share prices during the autumn. On the other hand, some would argue that the turnaround is only temporary, and that we shall experience what is known as a double dip. This means that the economy, after picking up, again falls into a period of negative growth. There are good reasons why the economy often behaves like this. As the economy emerges from the first downturn, companies substantially increase production to compensate for a period when their stocks of goods declined sharply. However, with the recession fresh in their minds, companies tend to be intolerant of variations in demand. Variations of this kind are normal, but companies often respond with cuts in production and cost savings, pushing the economy into another downturn. In our main scenario, however, we are looking to the future with some confidence. Companies have adapted their cost structure to more normal growth rates. Meanwhile, tax cuts and lower interest rates have given consumers more disposable income, despite the falling stockmarket. In the longer term, the increase in demand should filter through to industry, which will respond by increasing production. Coupled with a lower cost base, this will create excellent conditions for improved profitability. Good profitability leads to new investment, which in turn drives economic recovery. Assuming that our main scenario becomes reality, profits should steadily improve. In the long term, however, we cannot expect to see the same growth in profits that we enjoyed in the second half of the 1990s. Unfortunately, lower profit growth also means lower returns on company shares. This applies particularly when interest rates are low, since the scope for higher price-earnings (P/E) ratios is then limited. P/E ratios are essentially governed by the market's required returns; in other words, low interest rates produce high P/E ratios and vice versa. As a consequence of economic recovery, profits in the cyclical parts of the economy rise faster than those in the more stable areas. The simple conclusion is therefore that, in times of recovery, stable growth companies should be sold in favour of cyclical shares. To complicate matters, however, many of the cyclical sectors suffer from relatively high valuations. The most reasonable type of exposure in the current situation is therefore selected cyclical companies combined with attractively valued growth companies. There are also many signs that small and medium-sized companies will continue to outperform the market as a whole. The explanation for this is that share prices over the next few years will, in all probability, be driven by profit growth rather than multiple expansion (higher P/E ratios). As small companies are expanding from a smaller base, they can be expected 14
  15. 15. to grow faster than large companies. Small and medium-sized companies are also generally valued lower than large companies, although the difference has been reduced markedly. However, it is conceivable that an autumn recovery on the stockmarket will be driven primarily by larger companies, since they have fallen considerably further. Moreover, large companies are generally more transparent than smaller ones, which is why they are often the first to attract new investments. The forecasts for the European economy indicate moderate growth in 2002. Growth is boosted by lowered interest rates and taxes, but a high level of indebtedness, high energy prices and a toning-down of salary increases are slowing factors. This also means a forecast for a moderate increase in private consumption. Low capacity utilisation and poor profitability make us believe there will be a limited improvement in the level of investment activity, but that growth will pick up in 2003. Europe has been spared from any major accounting scandals so far. There was some speculation about companies such as Vodafone, Deutsche Telekom, WPP and Vivendi Universal. However, it has not been possible to prove anything. In the short term, the need for capital (new share issues) from companies and further accounting scandals continue to represent a risk for the stock exchange. This may cause diminishing confidence in the stock markets and result in more pressure to sell. In turn, this may result in a decline in the growth potential of the US economy and a further weakening of the dollar. This will make export to the USA difficult and will stifle economic expansion in Europe. Companies such as Ericsson have already announced new share issues and the market still believes that companies such as France Telecom can be forced to the market. Europe has also seen more compulsory sales from insurance companies than has the USA. Despite the fact that the European markets are reasonably valued, we are still a little cautious about market trends in the short term. Confidence in the stock exchanges needs to recover and there must be a clear improvement in the economic situation. On a more long-term basis, however, there is every prospect of a good yield. Thanks to restructuring in Japanese companies in recent years, even a small increase in sales brings major improvements to results. The domestic economy is thought to have bottomed out. However, there is growing concern about the weak dollar. Low US demand compared with that expected may also have a negative effect on the Japanese economy. The key players in the Japanese market are still foreign investors. Their willingness to increase exposure to Japan is restricted by the weak development of the domestic markets. Japanese companies increased repurchase of own shares considerably, reducing market supply a little. This is not only positive for short-term price movements, but may also result in companies managing their assets more effectively in the long term. We are optimistic about the question of medium and long-term prospects for Asian shares. When confidence in a global recovery increases, capital is expected to come to the region from international investors. This is dependent upon investors wanting to benefit from the fact that many Asian companies are very positively affected by an economic recovery. We also believe that when the region’s domestic confidence improves, local investors will move capital from low-earning bank accounts to the stock markets. Asian companies made considerable structural improvements, which may warrant further upgrading. The transfer from investment-controlled growth to consumption-controlled growth should result in much higher return on capital employed. Together with improved management of companies, this gives room for optimism for the region’s long-term opportunities. In the short term, however, Asian shares continue to be sensitive to negative news from the USA. We believe there will be a resumption in companies’ investment in information technology beginning in the second half of 2002 and during 2003 since the economy is expected to improve. Stronger demand for IT products and services is necessary if technology shares are to achieve more positive growth. There have been great hopes of a turnaround but, at the same time, companies (the technology companies customers) have been cutting their budgets over the last year. Because companies’ cash flows are expected to improve this year and next, we believe that this will lead to something of a recovery so far as strategically important information technology projects that have been put off into the future are concerned. There is a close connection between investments and cash flow. The fourth quarter of the year is the strongest for purchases of IT products, partly because of the budgeting process within companies and partly because consumers often buy new products as part of the Christmas trade. The reports from the second quarter, which affect the immediate future, will unfortunately probably contain a great many disappointments. However, we expect some stabilisation during the third quarter and a stronger recovery during the last. For the 196 technology companies we track, we are forecasting a fall in sales of 5 percent this year and an increase of 13 percent in 2003. Profits are expected to fall this year but next year to increase strongly from a low level. On next year’s profits, the entire IT sector is valued at a P/E ratio of 23, which is a relatively attractive valuation historically speaking. However, there continues to be great uncertainty about the strength of the economic recovery and the growth of profits. Distrust of the stock market and its players has also increased substantially in connection with the recent exposure of accounting swindles and aggressive accounting practices in a number of American companies. At present, this is the single most negative factor for an increase in share prices. It is more or less well known on the market that companies will be announcing poor figures but if new accounting offenders turn up, this will be unequivocally interpreted as negative. Technology companies have also been affected since option programmes are extensive while reporting of income and expenses gives plenty of room for interpretation. However, a great many companies have opted within US GAAP (Generally Accepted Accounting Principles) to exploit the opportunities that are to make the figures better than they really are and in this way try to increase their own company's stock exchange value. However, the psychological effect of this phenomenon on the market has possibly reached its peak. In our main scenario, we envisage a slow economic recovery ahead. Seen in fundamental terms, the energy sector is felt to be the most uncertain, at least in the short term, while the prospects for the metal and forestry industries are somewhat more promising. There is much to suggest that the demand for metals has reached a turning point. Since the middle of the first quarter of 2002, the number of orders has increased appreciably and has reached the majority of the world’s markets. The increased demand, in 15
  16. 16. combination with significantly lower stocks than has been normal in the case of previous turnarounds, vouches for a marked increase in prices over the next year. Nickel and aluminium will probably lead the price recovery. Volumes in the forestry sector have slowly crept higher at the same time as the prices per volume unit have risen too. May and June saw a downturn in prices in the energy sector. Unusually large stocks mean that the price of oil may well fall in the short term, which was reflected in the share prices. The tense situation in the Middle East also suggests that we will see extreme fluctuations in the price of oil in the near future. However, in the slightly longer term, the economic recovery should lead to a higher demand for oil, which in turn means higher oil prices. August 12, 2002 THE BOARD OF DIRECTORS NOTE : Performances mentioned in this report are historical and are not indicative of future results. 16
  17. 17. SEB Lux Equity Fund - International SCHEDULE OF INVESTMENTS AS AT June 30, 2001 (A) TRANSFERABLE SECURITIES ADMITTED TO AN OFFICIAL STOCK EXCHANGE (a) SHARES NUMBER DESCRIPTION MARKET VALUE NAV USD % AUSTRALIA 7'001 Australian Stock Exchange 52'667 0.12 41'451 BHP Billiton 239'687 0.54 18'000 Lend Lease Corp 106'509 0.24 TOTAL AUSTRALIA 398'863 0.90 BELGIUM 22'270 Fortis 476'827 1.08 5'200 Interbrew 149'290 0.34 TOTAL BELGIUM 626'116 1.42 CANADA 4'250 Alcan Inc 161'237 0.36 TOTAL CANADA 161'237 0.36 CHINA 48'500 CNOCC 64'978 0.15 80'000 Cosco Pacific 63'590 0.14 TOTAL CHINA 128'567 0.29 FINLAND 9'852 Nokia 144'196 0.33 26'160 Stora Enso R 366'607 0.83 TOTAL FINLAND 510'804 1.16 FRANCE 5'714 Aventis 404'896 0.92 19'500 Credit Agricole SA 433'310 0.98 4'360 Schneider Electronics 234'458 0.53 6'777 Société Générale 446'421 1.01 4'900 Suez 130'659 0.30 4'806 Total Fina Elf 780'309 1.76 TOTAL FRANCE 2'430'053 5.50 GERMANY 1'083 Allianz Holding Reg 218'674 0.49 9'170 Daimler-Chrysler 445'026 1.01 6'575 E.ON 381'491 0.86 803 Muenchener Rueckversicherung Reg 190'330 0.43 1'051 SAP ord 103'018 0.23 4'224 Siemens 253'551 0.57 2'940 Street Tracks MSCI Europe Industrials 152'146 0.34 17
  18. 18. TOTAL GERMANY 1'744'237 3.93 18
  19. 19. SEB Lux Equity Fund - International SCHEDULE OF INVESTMENTS AS AT June 30, 2002 (CONTINUED) GREECE 15'400 Hellenic Telecommun Organiza 243'345 0.55 TOTAL GREECE 243'345 0.55 HONG KONG 80'000 Li & Fung 107'692 0.24 TOTAL HONG KONG 107'692 0.24 NETHERLANDS 9'040 Ahold Koninklijke 190'164 0.43 9'008 Intl Nederlanden Groep 231'304 0.52 TOTAL NETHERLANDS 421'468 0.95 SINGAPORE 29'970 Development Bank of Singapore 210'340 0.48 TOTAL SINGAPORE 210'340 0.48 SPAIN 33'810 Banco Santander Central Hispano 268'462 0.61 TOTAL SPAIN 268'462 0.61 SWEDEN 9'850 Assa Abloy B 138'793 0.31 34'200 Skandia 155'548 0.35 TOTAL SWEDEN 294'340 0.66 SWITZERLAND 4'760 CS Group Reg 151'119 0.34 1'765 Nestle Reg 411'513 0.93 13'340 Novartis Reg 586'644 1.33 1'570 Swatch Group 139'774 0.32 TOTAL SWITZERLAND 1'289'050 2.92 UNITED KINGDOM 3'440 Astrazeneca 142'416 0.32 46'010 Barclays 387'134 0.88 123'770 British Petroleum 1'039'531 2.35 13'110 Diageo 170'260 0.39 4'940 GlaxoSmithkline 106'776 0.24 30'376 Pearson 302'121 0.68 10'118 Shell Transport & Trading 76'343 0.17 274'245 Vodafone Group 376'228 0.85 TOTAL UNITED KINGDOM 2'600'810 5.88 UNITED STATES 5'660 Alcoa 187'629 0.42 5'960 American Express 216'467 0.49 3'798 American Intl Group 259'138 0.59 19
  20. 20. 2'650 Anadarko Petroleum 130'645 0.30 20
  21. 21. SEB Lux Equity Fund - International SCHEDULE OF INVESTMENTS AS AT June 30, 2002 (CONTINUED) 7'111 Anheuser-Busch 355'550 0.80 3'182 Applied Materials 60'522 0.14 9'715 Bank of America 683'547 1.55 4'770 Bank of New York 160'988 0.36 3'830 Bristol Myers Squibb 98'431 0.22 1'250 Cardinal Health 76'763 0.17 4'405 Carnival Corp 121'974 0.28 2'601 ChevronTexaco Corp 230'189 0.52 23'362 Cisco Systems 325'900 0.74 17'229 Citigroup 667'624 1.51 6'253 Duke Energy 194'468 0.44 2'010 Electronic Data Systems 74'672 0.17 15'556 Exxon Mobil 636'552 1.44 5'852 Fannie Mae 431'585 0.98 19'890 Ford Motor 318'240 0.72 10'470 Gap 148'674 0.34 22'874 General Electric 664'490 1.50 11'340 General Motors Hughes 117'936 0.27 1'810 Guidant 54'716 0.12 2'380 Hewlett-Packard 36'366 0.08 9'071 Home Depot 333'178 0.75 9'730 Honeywell Intl 342'788 0.78 5'692 IBM 409'824 0.93 3'960 Ingersoll Rand 180'814 0.41 18'110 Intel 330'870 0.75 3'150 Johnson & Johnson 164'619 0.37 8'261 Metlife 237'917 0.54 12'714 Microsoft 695'456 1.57 17'302 Oracle 163'850 0.37 7'444 Pepsico 358'801 0.81 25'768 Pfizer 901'880 2.04 2'638 Pharmacia Corporation 98'793 0.22 6'191 Procter & Gamble 552'856 1.25 15'190 SBC Communications 463'295 1.05 6'330 St. Paul 246'364 0.56 5'883 Target 224'142 0.51 4'791 Texas Instruments 113'547 0.26 5'321 Transocean Sedco Forex 165'749 0.37 4'743 United Technologies 322'050 0.73 2'500 UnitedHealth Group 228'875 0.52 12'924 Verizon Communications Inc 518'899 1.17 11'651 Walmart Stores 640'920 1.45 10'098 Washington Mutual 374'737 0.85 3'478 Wyeth 178'074 0.40 TOTAL UNITED STATES 14'501'359 32.81 TOTAL SHARES 25'936'742 58.66 21
  22. 22. SEB Lux Equity Fund - International SCHEDULE OF INVESTMENTS AS AT June 30, 2002 (CONTINUED) (b) INVESTMENT TRUSTS UNITED STATES 7'499 iShares DJ US Consumer Cyclic 373'075 0.84 5'000 Ishares DJ US Industrial 215'250 0.49 22'400 S&P Basic Industries SPDR Fund (XLB) 519'456 1.17 TOTAL UNITED STATES 1'107'781 2.50 TOTAL INVESTMENT TRUSTS 1'107'781 2.50 (c) BONDS NOMINAL DESCRIPTION INTEREST MATURITY MARKET NAV VALUE RATE DATE VALUE % USD % DENOMINATED IN CANADIAN DOLLARS 70'000 Canada 5.000 040901 46'924 0.11 140'000 Canada 5.500 090601 93'447 0.21 90'000 Canada 6.000 110601 61'528 0.14 200'000 Canada 7.250 070601 144'944 0.33 80'000 Canada 8.000 230601 66'193 0.15 TOTAL CAD 413'037 0.94 DENOMINATED IN DANISH KRONER 280'000 Denmark 7.000 241110 44'733 0.10 640'000 Denmark 8.000 030515 87'918 0.20 1'100'000 Denmark 8.000 060315 162'079 0.37 TOTAL DKK 294'730 0.67 DENOMINATED IN EURO 150'000 Belgium 4.750 060928 149'177 0.34 530'000 Belgium 5.000 110928 518'822 1.17 320'000 Belgium 7.250 040429 333'948 0.76 580'000 Belgium 8.000 150328 714'996 1.62 80'000 Belgium 8.500 071001 92'651 0.21 650'000 France OAT 6.500 061025 691'870 1.56 100'000 France OAT 7.500 061025 107'276 0.24 130'000 Germany 5.250 080104 132'434 0.30 222'500 Germany 6.500 270704 254'853 0.58 260'000 Germany 7.375 050103 276'250 0.62 285'000 Italy BTPS 4.000 040715 281'590 0.64 50'000 Italy BTPS 5.000 120201 48'911 0.11 390'000 Netherlands 5.500 100715 398'452 0.90 130'000 Spain 3.000 030131 128'003 0.29 50'000 Spain 4.000 100131 46'308 0.10 410'000 Spain 6.000 080131 429'648 0.97 TOTAL EUR 4'605'189 10.41 22
  23. 23. SEB Lux Equity Fund - International SCHEDULE OF INVESTMENTS AS AT June 30, 2002 (CONTINUED) DENOMINATED IN POUND STERLING 80'000 UK Treasury Bond 5.750 091207 127'128 0.29 60'000 UK Treasury Bond 6.250 101125 98'839 0.22 230'000 UK Treasury Bond 8.000 130927 439'726 0.99 TOTAL GBP 665'693 1.50 DENOMINATED IN JAPANESE YEN 20'000'000 Austria 4.500 050928 190'490 0.43 45'000'000 European Investment Bank 2.125 070920 410'506 0.93 64'000'000 European Investment Bank 3.000 060920 596'325 1.35 80'000'000 KFW International Finance 1.000 041220 683'000 1.54 75'000'000 KFW International Finance 2.050 090921 685'365 1.55 60'000'000 Spain 4.750 050314 563'660 1.27 TOTAL JPY 3'129'344 7.07 DENOMINATED IN US DOLLAR 690'000 Asian Development Bank 6.125 040309 725'535 1.64 450'000 Asian Development Bank 6.750 070611 494'820 1.12 80'000 European Investment Bank 7.250 050615 87'576 0.20 270'000 US Treasury Bond 5.000 110215 274'601 0.62 80'000 US Treasury Bond 5.500 080215 85'029 0.19 170'000 US Treasury Bond 5.625 021231 173'314 0.39 50'000 US Treasury Bond 6.125 070815 54'510 0.12 150'000 US Treasury Bond 6.375 270815 163'712 0.37 80'000 US Treasury Bond 6.750 050515 87'316 0.20 520'000 US Treasury Bond 7.125 230215 612'056 1.38 270'000 US Treasury Bond 7.500 161115 325'223 0.74 TOTAL USD 3'083'691 6.97 TOTAL BONDS 12'191'684 27.56 TOTAL TRANSFERABLE SECURITIES ADMITTED TO AN OFFICIAL STOCK EXCHANGE 39'236'207 88.72 B) OTHER SECURITIES INVESTMENT FUNDS SWEDEN 133'412 SEB Europeiska Småbolagsfond 219'396 0.50 TOTAL SWEDEN 219'396 0.50 TOTAL OTHER SECURITIES 219'396 0.50 TOTAL PORTFOLIO 39'455'604 89.22 (PORTFOLIO AT COST USD:41'010'982) The accompanying notes are an integral part of these financial statements. 23
  24. 24. SEB Lux Equity Fund - International STATEMENT OF NET ASSETS As at June 30, 2002 Assets USD Portfolio at Cost 41'010'982 Unrealised Depreciation (1'555'378) Portfolio at Market Value (Note 2) 39'455'604 Cash at Banks 4'411'480 Other Assets 806'314 Total Assets 44'673'398 Total Liabilities 462'802 TOTAL NET ASSETS 44'210'596 SEB Lux Equity Fund - International STATISTICAL INFORMATION As at June 30, 2002 Total Net Assets USD As at June 30, 2002 44'210'596 As at December 31, 2001 49'226'535 As at December 31, 2000 66'374'136 As at December 31, 1999 88'727'083 A Units B Units Number of Units Outstanding as at June 30, 2002 1'987'003.393 324'699.012 Net Asset Value per Unit A Unit B Unit USD USD As at June 30, 2002 19.8552 14.6531 As at December 31, 2001 21.1218 15.7209 As at December 31, 2000 25.8547 19.4073 As at December 31, 1999 30.8345 23.3751 Dividend Paid 2002 Nil 0.1256 2001 Nil 0.1641 2000 Nil 0.2224 1999 Nil 0.2325 The accompanying notes are an integral part of these financial statements. 24

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