Global equity markets continued their upward momentum in the second quarter of 2003 with the MSCI (USD) producing a 4.9% return. This was driven largely by improved sentiment toward technology shares, demonstrated by the NASDAQ's impressive return of 10.1%, and strength in the Japan (21.7%) and Asia Pacific Basin (17.9%) regions. The dollar weakened significantly against most major currencies and as a result the USA equity market (2.1%) was a relative under performer. The rand appreciated against the dollar by 6.9% for the quarter and subsequently the MSCI was down 2.25% in rand terms. Comparatively, the fund produced a return of -1.87% (after fees) for the quarter and was ranked 9/27 in the Foreign Equity General sector. Over the longer term (3 years) the fund (after fees) continues to beat its benchmark and remains highly ranked amongst its peers.

Japan and the Asia Pacific Basin were the best performing regions during the quarter with returns of 13.2% and 9.7% respectively in rand terms. The fund held slight overweight positions in both these regions, which benefited performance. Performance was diluted through the exposure to USA equities (-5%) in the benchmark, however this was weighted toward small cap stocks, which fared better. Technology shares continued to strengthen with the NASDAQ producing a return of 10.1% in dollar terms. Over the past 12 months the NASDAQ has risen 52.5% and given that it is a very sentiment driven exchange with high volatility, we feel that it is starting to look a bit frothy at current levels.

The funds investment approach is to invest in the underlying regional equity funds offered by Frank Russell, the global leader in multi-management with 30 years of manager research experience. These regional multi-manager funds have produced consistent returns over time with lower risk. In fact, over the three year period, 5 of the 6 Frank Russell funds employed are ranked in the top half amongst their peers and 2 in the top quartile namely the FRIC Japan Equity Fund and the FRIC Asia Pacific Basin Fund. This consistency was recognised in the Plexus Offshore Survey (June 2003) where Frank Russell was ranked 1st overall amongst the 12 international product providers to the South African market over the past 5 years.

Global equity markets shrugged off a four-quarter losing streak, posting healthy gains in the second quarter of 2003. The suspicion that global economic growth was starting to recover prompted a rally in equity markets, with the benchmark MSCI producing a 14.6% return in dollars for the quarter. As the rand continued to strengthen during the period, the MSCI in rand terms was up only 8.8%. The MSCI (in rand terms) is still down 29% over the last 12 months following the rands impressive recovery. The fund grew from R135m to R168m during the quarter and produced a return of 5.8%. The fund under performed its benchmark during the period as a result of currency fluctuations and market movements following inflows during the quarter. The fund took the opportunity to rebalance its holdings to be regionally neutral relative to the MSCI and is now positioned to produce returns in line with the benchmark. Over the longer term the fund continues to beat its benchmark and remains highly ranked in the Foreign Equity General category of unit trusts.

Continental Europe was the best performing region during the quarter with a 14.1% return in rand terms. Japan (3%) and Asia Pacific (5%) were the worst performing regions, however it seems likely that the worst is over following encouraging signs of a pick-up in consumption expenditure and a reduction in excess capital in these areas. Technology shares benefited from the markets renewed appetite for equities with the NASDAQ producing a return of 11.8% in rand terms for the quarter. Interest rate sensitive sectors also tended to perform well given that global inflation appears subdued following rate cuts in several of the larger nations. During the quarter the fund invested its excess rands into the Liberty Global Fund in an attempt to get more fully exposed to the rising global equity markets. This positioned benefited the fund as the Liberty Global Fund produced a 10.9% return for the quarter and was ranked 3/26 in the Foreign General Equity category. This investment will be realised when additional foreign capacity becomes available and the assets can be sent offshore to Frank Russell, the global leader in multi-management.

The first quarter of 2003 saw the continuation of the global bear market in equities that has developed over the last three years. The MSCI was down 4.9% in dollars for the quarter but down 12.8% for South African investors given the strength in the rand relative to the dollar over the quarter. The MSCI (in rand terms) was down a massive 47.3% over the last 12 months.

The fund was down only 10.2% for the quarter, outperforming its benchmark by 2.6%. Whilst the fund lost value during the quarter it was ranked comfortably in the top half of the Foreign Equity General category of unit trusts. The key points contributing to this positive attribution are highlighted below.

During the quarter the fund was rebalanced to be geographically neutral relative to the MSCI. This resulted in a flow of fund asset from the Continental Europe, Japan and Asia Pacific regions to the USA. This provided positive attribution for the fund as the USA (-3.6%) was the best performing region for the quarter. Further to this, the Frank Russell US Equity Fund, which is the largest component of the Liberty Multi-Manager International FOF (46.5%) out performed its benchmark by 0.5%. The rebalance also resulted in a shift from small cap US stocks to large caps. This benefited the fund because large caps stocks out performed as investors sought refuge from the uncertainty of world and economic events.

In general growth shares, lead largely by technology stocks, outperformed value shares, however it was manager, stock and sector selections that created the most alpha during the quarter. Within the USA, Energy (+2.8%) followed by Health care (+1.5%) and Integrated Oils (+1%) were the best performing sectors. Barclays Global Investors, the largest manager in the Frank Russell US Equity Fund, benefited from being overweight health care and technology stocks.

The fund also benefited from a large rand cash position. The fund partially hedged this position toward the end of the quarter through the purchase of dollars, which will be employed as value presents itself in the market.