The fund returned 14.2% (in US dollar terms) for the quarter compared to 17.6% from the benchmark MSCI World Index. For a rolling 12-month period, the fund's return of 8.0 % is ahead of the benchmark's -1.6%.

The third quarter saw a continuation of the strong equity rally that started in March this year. Better than expected earnings announcements resulted in an 8% gain during July and this was followed by two equally healthy 4% returns in August and September, largely on the back of improving economic data points. Company earnings surprises were largely driven by rapid cost containment rather than top line growth and company outlooks were barely positive - it did appear that the worst of the recession had passed. Credit markets also improved over the quarter with credit spreads falling to levels prior to the collapse of Lehman Brothers and the TED spread (the interbank rate less the risk free rate) fell to more normal levels. Economic data was also broadly positive although the Fed and others were quick to say that the economy was still fragile and that they were still cautious on their outlook. There is significant debate around the sustainability of recent numbers which benefitted from the 'cash for clunkers' scheme and other state supported stimuli. Indeed, the end of September and early October saw a brief market pull back when US unemployment rose to 9.8%. Commodity prices also rose strongly over the quarter, most notably gold (8.7%), copper (24.4%) and sugar (43.3%).

In terms of regional equity performance, Asia ex-Japan was the best performing region, appreciating 27.4% (in US dollars) over the quarter led by Singapore and Australia. Europe rose 23.0% (in US dollars) with big gains in Spain, Greece, Italy and Sweden. In US dollars, Japan was by far the worst performing market, rising only 6.6% over the quarter. Over the quarter, the fund would have benefitted from an overweight to Asia ex-Japan and an underweight to North America. However, a higher than normal cash balance as we made changes to the portfolio did negatively impact performance somewhat during the quarter.

Manager performance was the main contributor to this quarter's relative under-performance. As has been the case throughout 2009 thus far, this was primarily a result of two funds; namely Ruffer European and Prusik Asia. These two managers continue to be defensively positioned. Given that they have both produced excellent long-term track records , we have persevered with them in the expectation that; taking a medium-term perspective.

Comgest Nouvelle Asie had a good quarter in absolute terms, although it did not finish ahead of its benchmark.

A Positive contribution came from Legg Mason. Although they run well diversified portfolios, they have benefitted from a large position in banks and other financials which rose strongly over the quarter. As they had pointed out to us during regular discussions with them, they held a high conviction view that these positions offered compelling value and they have been rewarded for the research and courage.

During the quarter, we fully redeemed from the Wyper Core Fund after a disappointing run of performance, coupled with a style change by the manager which we were no longer comfortable with.

Outlook
After the precipitous events of 2008 and the strong market rally over the past six months, it is important to consider cautiously how the future may evolve. The sharp equity rally has largely been in cyclical, debt challenged companies that were priced for extinction at the bottom of the market. These companies have now re-rated sharply, reflecting the improved - possibly too optimistic - economic outlook. At the same time there is also clearly substantial money on the sidelines, evidenced by the size of US money market funds. This would suggest that there is still a great deal of skepticism regarding equities in the minds of many investors. In the short term therefore, equity markets may continue to rise as some of this money is reinvested into equities. However, we also believe that a credit binge, like we have witnessed in the past few years, needs to be followed by a multi-year period of savings accumulation and debt repayment. This should exert a dampening effect on consumption; the backbone of economic growth in the Western World. Hence, we do believe that there could be some disappointments ahead, especially for the more cyclical companies.

Within the fund's equity exposure, we will continue to focus on those multi-national companies with proven brands and franchises as well as sustainable earnings growth. These companies are often trading on low multiples and pay dividends well in excess of the yields available on cash and government bonds.

Portfolio manager
Tony Gibson

In dollar terms, for the rolling 12 months the fund has returned -19.6%, which is ahead of the MSCI World Index at -29.0%.

Equity markets rallied strongly in the second quarter as the credit crisis abated and investor confidence increased. The US Banking system stress test appeared to draw a line in the sand with regards to the major banking groups and investors reacted positively to those results. This was further emphasised by the declining TED spread (LIBOR less T-Bill) which dipped below 0.5% after peaking at over 3.0% at the height of the crisis. A final positive point was a repayment of some TARP (Troubled Asset Relief Programme) money by ten of the larger US financial institutions including Goldman Sachs, JPMorgan Chase and American Express. While global economic numbers barely showed a significant improvement, the moderation in the rate of economic decline was sufficient to convince market participants that the worst of the crisis had passed which led to an increase in most asset classes. These positive points were enough to offset plenty of bad news which would have, only months earlier, fuelled market panic. Examples of this include the Chapter 11 filings by Chrysler and GM, the situations in Iran and North Korea and the down grading of various sovereign debts.

In terms of regional performance, Asia ex-Japan was the best performing region, appreciating 32.0% (in US dollars) over the quarter led by Singapore and Hong Kong. Europe rose 25.9% (in US dollars) with big gains in Spain, Greece, Italy and Sweden. Japan was close behind Europe at +23.0%, while North America was a distant +17.1%. The fund was underweight North America and overweight Asia during the quarter and, consequently, the regional allocation was a significant contributor to relative outperformance over this period.

As reported in April, the fund had a large cash exposure on a look through basis at the end of March. This dropped substantially to 13% by the end of April as managers reinvested the cash in surging markets. It remained at this level for most of the quarter and is higher than we would have liked given the rally we experienced. The cash exposure, an obvious drag on performance this quarter, is primarily due to our investments in Ruffer European and Prusik Asia as their managers still have a cautious outlook for markets and are managing their exposure accordingly.

As can be derived from above, Ruffer European and Prusik Asia were the core reason for the relative underperformance this quarter. Tim Youngman of Ruffer had an excellent 2008 through the use of a put option and low exposure. He has maintained this conservative stance throughout the second quarter in the expectation that the initial rally would be short lived. As a house, Ruffer remains bearish and certainly do not have any enthusiasm for the 'V-shaped' recovery being touted by some. They are also concerned about inflation and have exposure to gold in all their portfolios. Generally, equity exposure is to companies with strong balance sheets, high cash flows and high dividend yields but Tim does have a bias towards small and mid cap stocks, a particular strength of his.

Prusik Asia is not positioned as defensively as Ruffer and the manager has steadily invested the cash over the quarter, bringing it down to around 15% of the fund. The fund lagged the Asian markets throughout the quarter. In April, the high cash balance caused a drag and in June, performance was hurt by the sharp decline in Taiwan.

The stand out performance was from UOB Kinetics Paradigm, which is enjoying an excellent year after a poor 2008. Paradigm has for some time had sizeable exposure to three main themes - the Canadian Oil Sands, Global Stock Exchanges and Emerging China. They see these as highly cash generative businesses/investments over the medium to long term. These themes performed well in 2007, but were big losers in 2008. Despite the assault on the stock prices, the managers held onto their positions as they saw no change in the long-term operating environments or viability in the individual businesses and have been rewarded with an excellent 20% outperformance of the S&P 500 over the quarter and limited the impact of Ruffer and Prusik.

Besides the three funds mentioned, only Cantillon Global Value had a material, but much smaller, negative impact on performance. We added Cantillon to the portfolio in March as we expected their style of investing to benefit in the prevailing market conditions in February. The lengthy rally has meant that they have largely underperformed, but we remain confident that they will prevail over time.

Outlook
The world is undoubtedly looking better than it did 12 months ago, but we should not underestimate the effect of the ongoing structural reform and deleveraging. Such a process will dampen growth for the foreseeable future and create further uncertainty and apprehension. The global economy and policy makers are still facing considerable challenges which are not diminished by the return of some optimism in recent months. We expect prolonged economic weakness, and it is therefore difficult to predict what effect the delay in anticipated recovery will have on market sentiment. The key issue for equity markets in the coming months is whether we will witness, and sustain, a decoupling between real economic progress and market sentiment. The gap between those believing in a prolonged downturn and those convinced that economic recovery is near, is likely to manifest itself in market volatility over the coming months. We remain of the view that any further downward pressure on equity prices over this period continues to offer an entry point to well selected equities around the world which will prove very rewarding on a five to 10 year time horizon.

Portfolio manager
Tony Gibson

The fund returned -6.0% (in US dollar terms) for the quarter, against -11.78% from the benchmark MSCI World Index. For a rolling 12-month period, the fund's return of -35.6% is ahead of the benchmark's -42.2%.

The year began in the same manner we saw 2008 come to an end as we witnessed significant declines in global equity indices. Any hope of a recovery in 2009 was quickly dashed as economic data deteriorated and negative newsflow dominated the financial press. The wave of goodwill that surrounded the inauguration of US President Barack Obama in January was overshadowed by drastic rate cuts by the Fed, Bank of England and European Central Bank as well as worsening employment, trade and GDP numbers from the dominant G20 countries. During February, the markets were further unsettled by additional "rescues" of AIG and Citigroup and concerns surrounding GE Capital, the financial service subsidiary of General Electric. Elsewhere, Japanese exports collapsed by 46% and the German IFO survey fell to a 26-year low. However, an optimistic Citigroup internal memo triggered a strong rebound in the markets during March, which gathered strength on a more detailed US rescue package.

In terms of regional performance, Japan was the worst performing country, declining 16.6% (in US dollars) over the quarter. This was a combination of the weak market and then yen, which weakened by almost 10% against the dollar over the quarter. Western Europe declined by 14.5% (in US dollars) after big falls in Germany and France. Asia (ex-Japan) was relatively strong, falling only? 2.2% over the quarter. The fund is underweight North America and Europe and overweight Asia and Japan. Consequently, the regional allocation contributed to roughly a quarter of the fund's outperformance over the quarter.

On a look-through basis, the fund has a significant cash balance of more than 20%, which indicates the general negative outlook held by most of the underlying managers. As such, the managers contributed to the majority of the performance this quarter.

Our most defensively positioned fund, Ruffer European was a key contributor to performance. Timothy Youngman, the manager, specialises in small to mid-cap stocks but over the past few months has increased his exposure to larger companies and cash. He also carries some downside protection in the form of put options and recently added a gold ETF to protect against future inflation, which he and his colleagues are confident will come through towards the end of the year.

After a long period of poor relative performance, UOB Kinetics Paradigm fund turned the corner this quarter, finishing up a decent 2% ahead of the index. The fund suffered during 2008 as oil prices and financial stocks plummeted. In the face of this onslaught, the portfolio managers have remained resolute about the quality of the investments and confident that they will at some point be rewarded for holding them. Having visited them in March, we still consider them to be a core part of the portfolio.

The four Asia and Japan funds finished ahead of their respective indices but both Edinburgh Partners funds were behind for the quarter. Wyper Core fund delivered a disappointing -1.2% in March. The fund has carried a high cash weighting for some time but the negative performance was mainly due to Munich Re, the insurance company, which missed its earnings estimates and was significantly sold down.

During the quarter, we fully redeemed from Neptune Russia and made a small redemption from the Wyper Core Fund. In April we will be taking a new position in Legg Mason Value Fund and reinvested in Cantillon Global Value. Legg Mason US Equity Fund is managed by the legendary Bill Miller who, despite years of superior performance, has suffered a run of poor performance. We believe that he remains a good manager and is more motivated than ever to prove this. More importantly, we think that his style of investing in high quality companies will dominate returns over the next few years. The same can be said for Cantillon where the focus is on finding companies with a high return on equity on a low PE multiple.

Outlook
We believe that we are presently witnessing an excellent investment opportunity. That is not to say that global equity markets might not fall even lower over the next six months. After all, there is no doubt that the global economies are in a very dire situation. It would seem logical to assume that a number of years of muted growth are a necessary remedy in order to rebuild savings and for financial prudence to reassert itself into the Western capitalist culture. That said, we do not believe that the Western economies are entering a multi-year period of deflation or depression. We do not presume to offer an opinion as to when volatility will reduce and equity markets form a sustainable low point base. However, it does seem that there are some early signs of this happening.

The fund returned -16.5% (in US dollar terms) for the quarter against -21.6% from the benchmark MSCI World Index. For a rolling 12-month period, the fund's return of -37.1% is marginally ahead of the benchmark's -40.3%.

In rand terms, the fund returned -3.5% for the quarter and an annualised return of -12.1% over 1 year.

The themes prevalent in the earlier quarters of 2008 continued into the final quarter and bought to a close one of the worst years in stock market history. The collapse of Lehman Brothers in mid-September gave rise to real panic in October further compounded by a collapse in commodities, wild swings in exchange rates and severe pressure in the hedge fund industry as investors fled to safety. The banking crisis spread rapidly and the US and major European countries were forced to bail out and nationalize many of their banks. Iceland collapsed and the IMF had to step in to assist a number of emerging countries. And finally, just before the year end, the US was forced to make loans to its ailing automotive industry to prevent bankruptcy of the GM, Ford and Chrysler. In addition to desperate monetary stimuli, many began planning or implementing fiscal packages.

In dollar terms, Japan was the best performing market for the quarter as the yen continued to strengthen against this currency. Coupled with good relative performance from Hong Kong, this resulted in the Pacific region being the best performing region, strongly benefitting the fund.

The fund further benefitted from excellent performance from a number of the underlying funds. Morant Wright Japan outperformed the Topix by 10% over the quarter and ended the year 15% ahead of that benchmark. This manager's investment philosophy, with its preference for cash and strong aversion to companies with debt, paid off handsomely in 2008.

Dale Robinson, the manager of Edinburgh Partners Europe Fund, endured a tough start to the year. Our frequent discussions with him allowed us to persevere with the fund and he delivered strongly in the fourth quarter, finishing almost 9% ahead of the MSCI Europe Index as his defensive, cash generative positions finally came through. Ruffer European Fund was ultimately our best performer for 2008 and the manager finished off on a strong note with 7% outperformance of the index. Wyper Core Fund also finished well, 5% ahead of the World Index for the quarter although the fund did disappoint somewhat over the full year.

UOB Kinetics endured another tough quarter and 2008 was a poor year for them. They have been punished for the bullish stance on the exchanges, Canadian Oil Sands and China. We rate Kinetics highly, but we expect better from them in 2009.

Outlook
2009 brings the inauguration of president-elect Barack Obama, who has made the economy his number one priority. During the transition period he has consulted the US Congress on a $500m stimulus package which may be passed in the first few weeks of his presidency. China has already started to implement an equivalent package as exports slow causing many job losses, while the UK and others are also planning fiscal packages of varying amounts. This positive news is somewhat tempered by ongoing evidence of how the downturn is beginning to take hold and deepen. Equity markets are already pricing in significant bad news and represent good value for the longterm investor. However, we expect the first half of 2009 to be volatile with a gradual improvement in the second half.

Tony Gibson
Portfolio Manager

Please note that this fund will be renamed to Coronation World Equity (ZAR) Fund of Funds, effective from 1 February 2009. This change was necessitated by the extension of our international fund range. The new name provides a more accurate description of the assets this fund is mandated to hold. This change holds no implication for the mandate or structure of the fund, but please note that future investor reports will carry the new fund name.

The Coronation International Active Fund of Funds changed its name to the Coronation World Equity [ZAR] Fund of Funds on the 01/02/2009 and it retained its history.