The fund finally had a positive return in rands as the rise in offshore stock markets (17% in dollars) outweighed the 5.2% appreciation of the rand against the US dollar. The underlying investment is the Fidelity International Fund, whose quarterly review is provided below. During the quarter, the fund returned 13.3% in US dollar terms, compared to the benchmark index, which returned 17% over the same period.

The fund's underperformance was derived primarily from its US sub-portfolio, particularly during April. While equities rose sharply that month, the US sub-portfolio's relatively low exposure to high-beta stocks ie, those stocks whose performance is highly sensitive to overall market performance, limited gains from the rally. For example, medical equipment company Johnson & Johnson has a fairly stable earnings track record, which is being further driven by new products such as Cypher drug-coated stent. However, the stock's strong performance in the beginning of the year, plus its low market sensitivity, meant that it underperformed relative to the market during the second quarter.

The fund's largest contributing region was Japan. While Japanese holdings across most sectors performed well, the fund's low exposure to utilities, and good stock picking within the semiconductor industries were the most helpful.

The fund's exposure to Europe detracted slightly from relative performance. This resulted from poor stockpicking among European tobacco and food companies. Meanwhile, the fund's exposure to Asia was comparatively neural to relative performance.

All in all, the decision last November to lower the volatility of the US portfolio and thereby lower the risk of the overall portfolio has contributed to the fact that the portfolio underperformed its benchmark this quarter.

The same themes seen in 2002 continued during the first quarter of 2003,namely a consistently stronger rand (up a further 8.9% against the dollar, after appreciating by 39.6% in 2002) and weaker offshore stock markets (down 5.5% in dollar terms). There has, however, been one positive change regarding your fund. Although it 's unit price declined by 6.38% during the quarter in direct response to the stronger rand and the weaker offshore markets, the fund is finally climbing the ranks of its sector and in the short-term (3 months) is now in the top quartile. In fact it was ranked second in its sector during the first quarter.

This is heartening in the sense that it has spent some time near the bottom of the ranking tables of its sector. In November, the Fidelity US fund manager for the fund 's underlying investment (the Fidelity International Fund), who manages over 50% of the fund, made some important changes to the way he manages the fund, effectively lowering the risk profile of his portfolio.

The sharp trend of the past 3 years, where growth shares have strongly underperformed value shares, also appears to have changed and growth shares and value shares are now tracking each other more or less. This is good for the US portion of the fund in particular because of its growth share bias.

We are pleased to see a rally in offshore equities unfolding since end March, although it has admittedly been diluted by the continuing strong rand.

Thank goodness 2002 is over! It was a terrible year for international funds, especially international equity funds. The double pincers of an extraordinarily strong rand (the fi rst time in 15 years the rand had risen against the dollar)and a 3rd consecutive year of very weak offshore stock markets wreaked havoc on the fund 's unit price. The fourth quarter was another bad one as the rand ran riot over the dollar, gaining over 22% in just 3 months against the once mighty US dollar. This has a direct influence on the fund 's unit price because over 50% of the fund is invested in US shares. Moreover, the rand was the strongest currency in the world in the fourth quarter and thus appreciated against all currencies, including the euro, yen and sterling, adding to the declining fund unit price. However, ironically the MSCI World Index and the International Fund actually gained in US Dollars during the quarter, so it really was a currency problem! So the main problems for investors in the fund have been firstly the shocking three year down (bear) market, the worst since the Great Depression of the 1930 's and the first time since World War 11 that offshore markets had declined for 3 consecutive years; secondly, as mentioned, the currency situation where the rand appreciated during 2002 by 39.6% against the dollar. However, the fund continues to languish at or near the bottom of the rankings of its sector versus its competitors. The problem is partly attributable to the fact that our funds and Fidelity 's funds maintain full weightings in the asset class concerned, in this case equities (shares), whereas some of our competitors raise cash in their funds. Clearly a fund more heavily invested in shares in a declining global share market environment would tend to decline more than one that holds more cash. Our view is that investing in cash is the prerogative of the investor and that he or she should expect to be in shares when investing in a share fund. This is a negative in a declining market and a benefit in a rising market.