The Nedgroup Investments International Balanced Feeder Fund merged with the Nedgroup Investments Global Balanced Fund. The name of the fund has changed to the Nedgroup Investments Global Balanced Feeder Fund.

With the exception of cash and sovereign bonds, all assets fell sharply in September as the credit crisis threatened to culminate in a wide spread financial meltdown. Several substantial and well-known institutions collapsed or were forced into the arms of more highly capitalised banks, often at fire sale prices. At the root of the problem lie asset prices, mainly property, which continues to fall as institutions sell to restore short-term solvency and move to hoard cash. The collective loss of confidence has all but suspended normal capital market operations with the consequence that, otherwise healthy non-financial companies, starved of liquidity, go to the wall. Indeed, there is now widespread evidence that the financial crisis is leaking into the real economy with US, UK, Continental European and Japanese manufacturing data all indicating activity at or already in recession.

Unsurprisingly, these market ructions have impacted the portfolio. While we reduced overall exposure, particularly to economically sensitive areas, all equities succumbed to weakness. The fund's equities underperformed the equity benchmark versus the MSCI World (Total Return). Stock selection was negative during September as there was a vicious sector rotation away from energy, energy services and commodity-related stocks into more consumer sensitive areas, as the market began to anticipate the prospect of lower interest rates, with Central Bankers increasingly concerned about growth rather than inflation. A number of our core energy-related holdings fell sharply despite exhibiting strong balance sheets and robust cash flow generation.

Our corporate bonds, all normally good quality, have also suffered write-downs in the face of an effective buyer's strike. Sovereign bonds have performed well and with market uncertainty, the portfolio's gold positions have rallied strongly.

Currency moves during September were also marked, with the euro and sterling particularly weak against a strong USD. With an internationally diverse equity and bond portfolio, such currency moves have held back the performance of the fund.

With the accent less on inflation than on weakening growth, it is likely interest rates will be lowered sharply in most regions shortly. An interest rate cut will be favourable to our holdings. We have accumulated strong reserves of cash and will look to invest in high quality, well-capitalised blue chip companies that have fallen to attractive levels. As we write, we are hopeful that the revised TARP (Troubled Asset Relief Program) agreement in the US will restore a degree of calm and liquidity to markets.

Stock markets succumbed to a vicious sell-off at the end of June with the MSCI Global Equity Index falling 10.6% in USD terms over the month. In fact, the US Dow Jones Industrial Average had its worst June since the Great Depression. This brought a disappointing end to what at the start of the month had looked to be a promising quarter. Renewed weakness was prompted by a combination of heightened inflation concerns, exacerbated by oil moving to an all time high, continuing weak activity and housing data and further weakness in the banking sector characterised by a further spate of write downs and badly received capital raising exercises. This market weakness coincided latterly with renewed weakness in the US $ and a flight to safer perceived assets including cash, sovereign bonds, gold and the Swiss Franc.

Over the period under review, the net equity exposure of the fund was maintained at the neutral weighting of 60% as we believed that valuations and company news, outside the banking sector, to be not unduly negative. The extent, therefore, of the sell-off was a surprise to us and we believe an overreaction occurring on low sales volumes. Investors have collectively lost confidence with some evidence of capitulation. We lost performance in absolute terms, but relative to market indices and our peer group, we made positive progress during the quarter.

We continued the restructuring of the fund, reducing exposure to Consumer Discretionary, Financials, and Telecom Services sectors. We have added particularly to energy-related stocks, as the underlying oil price continued unabated through the $140 a barrel level, which if sustainable, will bring further earnings upgrades to the sector.

On a regional basis we have reduced the European ex-UK weighting as this region seems to be undergoing more exacerbated company earnings revision momentum than other major regions. We have continued to increase exposure to the UK, although we recognise UK economic activity faces gathering headwinds from upward wage pressure and slowing productivity at a time when producer input prices are experiencing record increases. However, as the constituents of the UK equity market are not particularly reliant on the stalling UK economy for its workforce, we believe that margins will be more impacted by global events. The currency weightings of the fund were left unchanged as there have been no clear trend.

While the outlook remains uncertain with inflation and oil dominating investor consciousness, there is already a great deal of bad news priced in the market. With sentiment this negative, we believe there is scope for a rally from current oversold levels should we see some positive news or data, notwithstanding a difficult seasonal backdrop and the possibility of selective adverse company news flow. We remain predominantly exposed to equities with strong earnings flows and are lowly weighted in financials. We are positioning the fund for an equity rally from oversold levels and will deploy current high cash balances into selective valuation opportunities.

The US Federal Reserve and JP Morgan Chase jointly came to the rescue of Bear Stearns to prevent the US's fifth largest investment bank filing for bankruptcy protection. It was judged that the failure of a major cog in the wheels of international financial markets would have been devastating to financial stability. A key consequence was US dollar weakness. The Japanese yen and the euro both gained 4.2% against the US unit over the month. This boosted dollar-calculated returns in bonds where underlying returns in local currencies were modest. The total return from Japanese government bonds was 4.6% in dollar terms compared with just 0.7% from the US.

The world's focus remains on the US where the economy continues to deteriorate. Meanwhile CPI inflation moderated to 4.0%. The Fed first cut the Discount Rate, reducing it from a 50 basis points (bp) premium over Fed Funds to just 25 bp. Later they cut Fed Funds itself by 75 bp. After an initial fall in prices at the start of the month, bonds rallied strongly up until the last week when a preference for equities took over.

Although Japan reported strong revised Q4 GDP growth (+3.5%), there are signs of a slowdown coming and this was reinforced by the quarterly Bank of Japan Tankan survey. There has been some talk of a possible official rate cut from the already ultra-low level of just 50 bp. This proved positive for Japanese bonds in the middle of the yield curve where yields fell around 20 bp.

In the eurozone, the ECB left rates unchanged and re-iterated their concerns on inflation. The latest inflation number was 3.3%. The German public services were awarded the 8% pay increase they had been seeking, spread over 2 years, but with the majority coming this year. The ECB's hawkish tone caused short-dated bonds to no longer discount a rate cut, and yields up to the 5 year maturity point rose by around 25 bp.

The Bank of England, by contrast, was more dovish. Although rates were unchanged in March, there were 2 votes (out of 9) for a cut.

US equities declined a modest 0.6% in March, although the more notable market action was 3 separate sessions where the market rallied by over 3% in one day. A significant amount of economic uncertainty persists both on growth or lack thereof and inflation.

The UK equity market did not escape the ongoing volatility seen in global equity markets in March. Our preference for companies focused outside the UK remains and we continue to expect the UK equity market as a whole, to perform less well than most other global markets.

The DJ Eurostoxx Index was down 1.4% for March having recovered from a 7% fall during the middle of the month coinciding with the near collapse of Bear Stearns. Nestle positively surprised the market with news that both Q1 volumes and prices were ahead of expectationsand that input price increases were being passed on fairly easily. Although we do not hold Nestle, the read across from the Nestle news resulted in a good performance from our holding in Danone. Our holdings in CS Group, ING, Intesa, Santander, Swiss Re all benefited significantly from the bounce in financials. Siemens was the weakest performer for the month since it announced a profit warning due to a review of certain long-term contracts, which had experienced cost over runs. While this news was disappointing, we continue to hold Siemens within the portfolio since there is no evidence of end-market slowdown.

The MSCI Asia Pacific Index underperformed the global benchmark in March by 4.2%. Japan also underperformed, but to a lesser extent, as it was a relative outperformer within the region. In Australia, the central bank continued its steps against inflation by raising interest rates to 7.25%.

In December, currency was the key influence on fixed income performance as bonds were little changed in local currency with the exception of the UK, which ended the year on a high note. After falling fairly consistently all year, the US dollar had a significant rally last month. The net result was that non-dollar positions underperformed the US where the bond market gained just 5 basis points (bp). The dollar-adjusted returns on the JP Morgan Government Bond Index were -0.6% for Japan; -1.2% for the eurozone and -2.4% for the UK, where sterling fell 3.7%.

The US Treasury market was very volatile as investors weighed up a FOMC meeting, globally co-ordinated liquidity supply and various economic releases. In the event, the Fed cut rates by 25bp to 4.25%. This disappointed the equity market, which had been gathering strength on the hope of a 50bp cut, but had the opposite effect in bonds, halting earlier profit-taking. At the end of the month, Treasury yields had risen marginally to 4.03% at the 1 O-year maturity.

The Japanese market was much less volatile and basically consolidated the gains of the previous two months. Two-year government bond yields fell 5bp to 0.72%, while the 30-year bond rose by 3bp to 2.33%.

The eurozone market was a weak performer, particularly Germany. The gains of the previous two months were eradicated as yields returned to the end of September levels. Inflation has been the key driver, where the composite eurozone rate was reported at 3.1 %. Yields rose 13bp at the 2-year point and up to 23bp in the middle of the curve.

The UK market followed the US experience where profit-taking after November's strong performance was followed by a sharp rally. The MPC cut rates to 5.5%, and the Bank of England joined the global liquidity provision in a much more vigorous fashion than hitherto. Gilt yields fell around 18bp in shorter-dated maturities and slightly less further out along the curve.

US equities fell 0.7% in December on continued concerns over sub-prime mortgages, the credit market and the implications for economic growth for 2008. Markets initially anticipated a 50bp cut in interest rates by the Federal Reserve. They subsequently only cut by 25bp but outlined, along with other central banks, their willingness to increase liquidity available to financial markets. Earnings growth for 2008 is expected to be around 14% and the market trades on a 2008 PE of 14.5x, which does not seem excessively high, particularly in light of the fact that the Fed is likely to cut interest rates further.

The UK equity market was broadly flat in local currency terms. Little by way of trend emerged in terms of the pattern within the market, save for the weakness in earnings expectations within the financial sector. Relative performance was strong through good stock selection although absolute returns were muted.

Japanese equities underperformed the global and pacific market in December. Caution is also evident among companies as rising input costs are impinging on profitability. Fears that profit squeeze and yen appreciation could lead earnings to be revised down resulted in market volatility and weakness.