In the rationalisation of the African Harvest, BoE, NIBi and FT NIB ranges into Nedcor Collective Investments, four international funds survive. Nedcor has maintained two multimanager funds of funds, run from the old NIB International offices in London.

But two single-manager international funds remain. The African Harvest Global Value Fund of Funds, subcontracted to Marathon Asset Management, survives as the Nedbank Global Equity Feeder Fund, and BoE Global as the Nedbank Global Balanced Fund.

Global Balanced is managed by Chiswell Associates, which Nedcor inherited when it bought BoE. Its core business is managing money for charities, so it is conservatively managed. The list of top 10 holdings has a definite "sleep well at night" flavour with shares such as General Electric and Johnson & Johnson.

Perhaps the most adventurous holding in the fund is its 0,2% in the Invesco Perpetual UK Smaller Companies Fund.

Global Balanced has tended to adopt an asset allocation that would suit SA institutions, never going above 75% in equities. Because of the strength of the rand, many of its investors will have restless nights because of the negative 13,2% return over three years. But this was still better than the other three flexible funds with a three-year record and it also outperformed all 20 foreign general equity (asset swap) funds.

In the third quarter, Chiswell added to its bond position after taking profits on US and continental European equities.

Almost half the bond portfolio is in euro-denominated bonds and just 20% in US bonds.

There were sales of US cyclical services, financial and technology shares, as well as European basic industries and non cyclical consumer goods. But there were additions to resources and the cyclical bias in the equity portfolio has been maintained.

Chiswell takes a predominantly top-down approach to its portfolio construction - judging from its quarterly report, trends in macro factors such as interest rates influence its decision making most.

On the 1 November 2003, due to the amalgamation of various manco's the BoE Global Fund has changed its name to Nedbank Global Balanced Fund. This fund is part of the Active Return Range.

During the quarter we added to our bond position, funded out of US and continental European equities. The overweight position in equities, and equity stock selection in the US and continental Europe boosted performance. Bonds suffered a major setback but regained ground in September. UK interest rates were reduced by 0.25% in July, catching up with earlier moves in the US and
Europe.

The Bank of England's Monetary Policy Committee unexpectedly cut base rates by 25 basis points to 3.50%. Weakness in global and domestic economies, and a slight increase in the sterling effective exchange rate prompted the move. The revised estimate of GDP growth for the second quarter doubled the previously announced rate, from 0.3% to 0.6%. This, and signs of improvement in the manufacturing sector, support predictions of an early rate rise.

The European Central Bank left interest rates unchanged at 2.00%. The core economies of Germany, France and Italy remained soft. French consumer spending for August fell by 2.7%, the biggest drop in seven years. Indicators showed improvement, with better industrial production statistics from both Germany and Italy.

In the US, the Federal Open Market Committee left rates at 1.00%. Economic data releases were generally encouraging and an impression of gaining strength took hold. GDP growth for the second quarter was estimated at 2.4%, revised to 3.1% in August and 3.3% in September. Consumer confidence indicators were less encouraging, due to the adverse trend in employment.

Unemployment reached 6.4% in July (highest in nine years), before a decline to 6.1% in August. Two-year yields increased from 1.31% to 1.47%, 10-year yields from 3.52% to 3.94%, and the 30-year yield from 4.56% to 4.88%. Japan's Official Discount Rate remained unchanged (0.10%), and GDP was estimated to rise by a striking 1% in the second quarter. Industrial production and capacity utilisation improved and leading economic indicators were strongly positive. Two-year yields increased from 0.08% to 0.20%, 10-year yields from 0.84% to 1.39%, and 30-year yields from 1.41% to 2.10%.

The euro made significant progress over the month, helped by the G7 meeting, and ended the period at $1.1656.

We reduced exposure to US equities through a reduction in cyclical services, financials and information technology sectors. We added to the resources sector in continental Europe and the UK, and reduced exposure in continental European basic industries and non-cyclical consumer goods sectors. We maintained the cyclical bias of the equity portfolios.

US equities rallied strongly during the second quarter, as hostilities in Iraq proved not to be as bad as markets had feared. Other positives during the quarter included a further interest rate cut by the Federal Reserve, confirmation of another round of tax cuts and a decline in the oil price. First quarter earnings reports continued to show expansion, although cost cutting was again the main factor. Economic statistics, while rebounding from war-depressed levels, has yet to provide any evidence of a significant recovery.

Following a poor first quarter, continental European equities rebounded strongly to rise 18%, the best performance since the fourth quarter of 1999. Much of the rise during the quarter occurred in April, driven by an increased appetite for risk and optimism of an economic recovery following the swift and successful outcome to the war in Iraq.

UK equities also rose strongly, particularly smaller companies which recorded gains at double the rate of the broader market. Information technology shares rose by 41% and cyclical consumer goods by 36%, with other economically sensitive sectors also outperforming. Utilities and resources were the poorest performers.

We remain positive on UK and continental European equities. Notwithstanding the strong rise in markets since March, valuations remain attractive. Improved economic prospects in the US helps as does easier monetary policy, and combined should enable equities to make further progress by the year-end.

Japanese equities rebounded from fresh 20-year lows reached during the quarter, as selling pressure abated and foreigners became net buyers. On aggregate, corporate results for the fiscal year just ended showed a marked improvement, albeit from a low base, as the effects of recent restructuring filter through. The uncharacteristically swift and effective quasi-nationalisation of Resona Bank proceeded smoothly.

Markets in the Far East ex Japan rebounded from the lows reached during the peak of SARS. Although concerns over the health of the Korean credit card sector have subsided, a recent accounting scandal has further dented confidence in the region.

US equities resumed their declines in the first quarter of 2003. Events in Iraq continue to dominate and the outlook for the economy is still uncertain. However, both monetary and fiscal policy is accommodative and should fuel an economic recovery once the hostilities end. Equities are well- positioned to benefit from such an environment.

Continental European equity markets remained volatile during the quarter with equities trading on a PE ratio of approximately 15.5%, based on last year's earnings. Although European economic growth is decelerating, interest rates have begun to fall and, importantly, corporate earnings should rebound. This should act as a catalyst for European equities to trade at a higher valuation and hence perform well this year.

UK equities performed slightly better, ending the quarter down just over 8%. The UK economy continues to be driven by consumer expenditure and this followed through into the new year. However, forward-looking indicators are less encouraging. In the UK, earnings and dividend growth expectations for 2002 have largely been met without significant diminution in expectations for 2003. In time, this should lead to the re-appraisal of the value available. We continue to favour UK equities over continental European equities, primarily due to the better economic outlook in the UK.

Ahead of the end of the fiscal year, Japaneseequities fell to levels not seen for 20 years and at current levels, the Japanese market offers good value, notwithstanding the well-publicised problems.

The Far East ex Japan returned a mixed performance against developed markets, however, as global demand looks set to pick up later in 2003, the region's exports and economies should benefit. Cheap valuations and the positive impact of China and a weak US dollar, provide the platform for gains further out.

During the fourth quarter, the Cash level of the Fund was raised significantly, funded out of Cash and Bonds. Performance was boosted by stock selection in US, continental European and Pacific Basin Equities. This was partially offset by the higher level of Cash during the quarter and by the overweight position in Japanese Equities.

US, UK and continental European holdings were increased across all major economic sectors, maintaining the cyclical bias of the Equity portfolios.

The sharp rise forecast for US interest rates is simply a reflection of the fact that current policy settings cannot be regarded as normal. If the US authorities are correct and 2003 delivers a second consecutive year of reasonable growth in the economy, then the need for emergency rates of interest will have passed. In Europe, the continuing stagnation of the economy is expected to result in stable interest rates and Bond yields.

UK bank Base Rates remained at 4% for the whole of 2002. For a brief period recently, it appeared possible that rates might be reduced. However, the continuing strength of house prices, together with other developments referred to above, stayed the hand of the Monetary Policy Committee (MPC).

Within the eurozone, Germany in particular, is suffering from an overvalued exchange rate, effectively forcing Germany to deflate within its own borders. Meanwhile, the Japanese authorities have indicated a willingness to see the yen decline significantly to a rate of around 160 to the US dollar. Thus, there is a whiff of competitive devaluation in the air. Not a healthy development.