reuters.com Mon March 3, 2003 01:02 PM ET (Adds U.S. manufacturing data, updates prices, comments)

By Andrea Ricci

NEW YORK, March 3 (Reuters) - The dollar eased on Monday as listless U.S. manufacturing data encouraged selling of the U.S. currency, but dealers said they expected it to remain in well-established ranges absent major developments in Iraq.

"Manufacturing is still growing, but it's a real wait-and-see situation. There's a lot of geopolitical risk, not just in Iraq, but with oil prices up from the strike in Venezuela and North Korea not helping," said Kurt Karl, chief economist at Swiss Re America in New York.

By midday in New York, the dollar was down about a third of a percent against the euro at $1.0828 per euro and off four tenths of a percent against the Swiss franc at 1.3467 francs .

Joe Francomano, vice president of foreign exchange at Erste Bank in New York, said the uncertainty over what will happen in Iraq, and how that will affect the U.S. economy, was keeping pressure on the dollar.

"People seem to be writing off the first half of the year, whether it's because of the mixed U.S. economic data, high oil prices or worry over Iraq. Other than the housing market, we're not seeing much sign of growth," he said.

"It's tough to make gains in market conditions like that, and obviously we are seeing confidence in the dollar erode," Francomano added.

A key survey on manufacturing in the United States showed the manufacturing sector expanded for a fourth straight month but at a slower-than-expected pace.

The Institute for Supply Management said its February index slipped to 50.5 in February from 53.9 a month earlier, below expectations of a dip to 52.4. It said concerns about a possible war with Iraq were a "major deterrent" for many industries.

Against the Japanese currency, the dollar eased 0.23 percent to 117.85 yen .

Dealers said they were reluctant to sell the dollar aggressively against the yen after Japan disclosed last week that it had intervened in February for a second straight month to weaken its currency.

IRAQ THE KEY

The weak U.S. factory data also put pressure on U.S. stocks, which had opened higher on speculation that recent events may have pushed back a possible war on Iraq.

Baghdad agreed over the weekend to destroy banned missiles and on Monday said it would submit a report on its stocks of biological weapons.

Turkey's parliament over the weekend blocked a U.S. plan to use the country as a base for a possible attack on Iraq, though on Monday the two parties said they were reviewing other options.

Equity investors also were cheered by news that a key member of the al Qaeda network had been captured in Pakistan, an arrest U.S. officials said was significant in the war on terror.

Oil and gold prices also were lower on easing war worries.

But currency dealers were more cautious, with some reading Turkey's surprise rejection of U.S. troops as a further blow to White House efforts at coalition building, and therefore a negative for the dollar.

The worst-case scenario for the dollar would be for the United States to wage war on Iraq with limited international backing.

"The dollar has been range trading, and will continue to do, probably with a weaker bias, until we some resolution on the Iraq issue," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.

CENTRAL BANK MEETINGS AWAITED

The dollar showed little reaction to an unexpected 0.1 percent fall in U.S. consumer spending, long a mainstay of the economic recovery. Economists had expected a 0.1 percent rise.

It also shrugged off a bigger-than-expected 1.7 percent rise in construction spending in January.

Data from Europe were mixed.

Switzerland's industrial sector contracted further, with a key purchasing management index falling to 48 in February from 48.3 in January, the eighth time in nine months that the index has been below the boom-or-bust line of 50.

But manufacturing in the euro zone stabilized in February. The Reuters Eurozone Purchasing Managers' Index rose to 50.1 last month from 49.3 in January, beating consensus forecasts.

Nevertheless, analysts said the survey was unlikely to stop the European Central Bank cutting interest rates this week to shore up business and consumer confidence.

A Reuters poll taken last week found that 38 of 53 economists expect the ECB to cut rates this week.

Erste Bank's Francomano, echoing a sentiment expressed by other traders, said an ECB rate cut would erode the euro's yield advantage, "which may favor the dollar."

Central banks of Japan, Britain, Australia, New Zealand, Canada and Norway also hold policy meetings this week.

Norway is widely expected to cut rates and economists believe there is some chance that Canada will raise rates. But the other banks are expected to keep interest rates on hold.

cbs.marketwatch.com By Thom Calandra, CBS.MarketWatch.com Last Update: 12:12 PM ET March 3, 2003

SAN FRANCISCO (CBS.MW) -- Not six months ago, gold miners were the stock market's biggest money-maker. Now they're the new whipping boys.

Investors are treating mining companies as if the price of gold were 10 percent lower than it actually is, says a veteran metals-watcher. This is a rare occurrence in an industry whose share movements the past 18 months have magnified gold's gains by a factor of three or more.

After a brisk gold run to almost $390 an ounce, bullion in recent weeks has lost about 10 percent of its value. On Feb. 17, the metal's spot price touched $341.50 an ounce, its lowest point since the 2002 year-end rally that took it above $340. The metal, which attracts investors during terrorist flare-ups and in economic crises, has lost ground in all major currencies.

Even the weekend capture of a notorious terrorist suspect in Pakistan may send gold, hovering near $350 an ounce, down another 10 percent in coming weeks, say the skeptics. Some short-sellers, primarily $100 million (and less) hedge funds, are actively promoting gold-miner shares as doomed to lose 50 percent of their value in the next six months.

On Monday, gold stocks were selling off sharply in all of the world's major equity markets, down 3 percent and more to their lowest point since mid-December. The spot price of gold in New York also was taking it hard, down almost $4 to $345.80 an ounce. See Financial Times Gold Mines Index.

Against this backdrop, say gold-bashers, the group facing the biggest risk is gold-mining shares, in particular the highest-fliers whose market values tripled and quadrupled in less than two years. That includes small exploration companies such as Canada's Nevsun Resources (CA:NSU: news, chart, profile), which last year was the world's biggest-gaining gold share after its promising discoveries in the west African nation of Mali.

With swollen market caps, mid-sized companies such as Meridian Gold (MDG: news, chart, profile) remain vulnerable even after a 15 percent drop since mid-December, say Wall Street's gold critics.

The largest companies, among them Barrick Gold (ABX: news, chart, profile), are thought to be susceptible to coming losses for a variety of reasons, among them dwindling prospects for new discoveries, complex balance sheets and a looming wave of insider selling.

In the face of that skepticism, veteran gold watchers are steadfast. Analysts who have followed bullion since its heyday of the late 1970s and early 1980s deliver what looks like a unanimous verdict: the gold rally is merely on pause and will resume later this year.

John C. Doody, the dean of quantitative analysis for gold shares, says most gold producers, large and small, are still incredibly cheap against a $350 gold price.

Doody's Gold Stock Analyst is a number-crunching newsletter that sets the standard for the bullion metrics of publicly traded mining companies. In it, Doody regularly evaluates the miners based on their break-even market capitalizations -- the average per-ounce price of their proven and probable reserves plus their cash costs for the gold these companies actually pull from the ground.

When the total comes to less than the current gold price, a cheap gold stock is born.

Doody says the gold producers whose shares are available to investors in North America are selling as if gold were selling for $317 an ounce. Freeport-McMoRan Copper & Gold (FCX: news, chart, profile), based on Doody's market cap-per-ounce premise. Using his measure, Freeport's gold portfolio is valued by the stock market at just $57 an ounce.

"There are many other issues to be considered, such as debt, projects in the pipeline," Doody told me Monday morning from his office in Florida. "Meridian Gold's Esquel, for example, has no proven and probable yet, but the stock is priced as though the market thinks Esquel has 2 million to 3 million ounces."

Mine location is another variable. Is a promising deposit in a country, or a state, where gold mining, is an established business, aided by popular opinion and government regulations, like Canada or parts of the United States? Or is it somewhere that holds great political risk, like Venezuela or Indonesia? "If Freeport's mine were in Nevada, the stock would be $100," says Doody about Freeport McMoRan's Papua, Indonesia, mine, the world's largest gold deposit. Freeport shares sell for $17 each on the New York Stock Exchange.

Among the cheapest gold miners, according to Doody's valuation model, are African miners Randgold (RANGY: news, chart, profile), Ahanti Goldfields (ASL: news, chart, profile), Gold Fields Ltd. (GFI: news, chart, profile) and Harmony Gold (HMY: news, chart, profile). Canada's Eldorado Gold (CA:ELD: news, chart, profile), Peru's Buenaventura Mines (BVNOF: news, chart, profile) and Denver's Golden Star Resources (GSS: news, chart, profile) are also dirt-cheap, Doody says.

Doody says his valuation model is a starting point for identifying undervalued mining shares. "This is a very simplistic approach, but it's a method one can use to start evaluating the gold stocks." The gold analyst is sticking to his 2003 forecast of a $450 gold price.

Others are just as convinced the gold rally is just taking a breather. One of them, Freemarket Gold & Money Report's James Turk, had a February price projection of $430 an ounce for spot gold's price. Turk uses monetary measures, including Federal Reserve-boosted money supply levels, to forecast gold prices, which are influenced by the level of the dollar, pace of inflation and the fiscal soundness of the world's major economies.

Turk, speaking to me Monday from Toronto, says his "fear index," a ratio of America's money supply levels and the country's gold assets, indicates far higher gold prices in the coming 12 months.

"Having missed February by such a large amount, one would think that prudence dictates that I should revise my targets downward, but I haven't," Turk says. "I'm sticking by my fear index, which remains bullish. When the euro starts trading above $1.085, then look for the gold price to start rising again." The euro Monday morning was worth $1.081 in American currency. See: Researcher uses monetary metric to good effect.

Global researchers say the strongest theme for the metal may be a shift by countries, Russia and China among them, to reduce their reliance on dollar-linked paper assets (mainly U.S. Treasury securities) as the main source of their foreign reserves.

"In Russia, the deputy finance minister said dollar reserves should be cut to 50 percent from 70 percent, and gold reserves more than doubled to 10 percent," says Adrian Day, a Maryland fund manager.

First Deputy Finance Minister Alexei Ulyukayev's gold bulletin in Moscow rang bells among commodity researchers, who generally credit central banks with setting long-term trends in the accumulation and disposal of physical assets such as gold.

James T.S. Tu, director of investment management and research at commodities specialist Gerstein & Fisher in New York, says central bankers are becoming convinced their dollar assets will decline under the weight of America's record-high trade deficits and Washington's willingness to triple its deficit spending in the next five years.

"They know the dollar will go down because of unsustainable deficits, unrestrained money supply, a weakening economy and the terrorist/war threat," Tu tells me. "Central banks will be the biggest gold supporters." The increased purchases of bullion will come from countries with large trade surpluses today, such as China (2 percent reserves in gold and a $102 billion trade surplus with the United States in 2002) and Japan (1.7 percent gold reserve). Resource-rich countries that will benefit from a commodity boom, such as Saudi Arabia (7.3 percent gold reserve), also will increase their central-bank gold holdings, Tu says.

Such countries' gold portions of foreign-exchange reserves fall far short of those in developed countries. The United States has about 56 percent of its foreign-exchange reserves in gold, France has 51 percent and Germany has 39 percent. "Central banks design policies that they stick to day after day, year after year. They rarely change direction. Now they're moving away from dollars and into euros and gold," says the Gerstein & Fisher director. "It will last years."

One other positive development for gold could be the introduction of an exchange-traded fund for the metal, says John Hathaway, manager of $215 million Tocqueville Gold Fund (TGLDX: news, chart, profile). Several entities, including the World Gold Council under the direction of Gold Fields' Chairman Chris Thompson, are working with index-asset managers such as State Street Global Advisors to sponsor a gold-backed ETF.

Such a security would amount to the QQQ of gold and trade real-time on a major North American exchange, most likely the American Stock Exchange. The ability to buy physical gold via a stock-market proxy almost surely would boost investors' pen-up demand for the safe-haven metal, market watchers say.

For more on investing, see our March edition of Trading Strategies. Also:  Thom Calandra on an explosive short-term war rally.

Coming soon

The Calandra Report, a $159 subscription service for Alert Investors. Brought to you by CBS.MarketWatch.com. The first issue is due out this week. Thom Calandra's StockWatch is in its seventh year at CBS.MarketWatch.com

www.arabnews.com Habib F. Faris

“In energy, investors have typically benefited from consistently strong returns provided by the large integrated oil companies, such as ExxonMobil, Royal Dutch/Shell and British Petroleum.”

LONDON, 3 March 2003 — Energy is the lifeblood of the modern economy and its growth is related to global GDP. The energy sector involves companies engaged in hydrocarbon exploration, transportation, transmission, processing, trade and distribution, as well as companies providing goods and services. In energy, investors have typically benefited from consistently strong returns provided by the large integrated oil companies, such as ExxonMobil, Royal Dutch/Shell and British Petroleum. Three sub-sectors of energy that are attractive are oil refining, US natural gas, and oil field services.

Over the last fifteen years, global oil demand (excluding the former Soviet Union) has grown at a compound rate of 2.3 percent or 1.3 million barrels/day. Demand growth during this period was split nearly evenly between OECD, the developed countries, and non-OECD countries. Oil supply during this period was characterized by OPEC’s growing market share — more than 60 percent of the incremental oil supply.

Several OPEC countries faced capacity constraints in meeting their 2000 production quotas. Additional investments will be required to meet future demand growth. A combination of growing market share, as well as capacity constraints in several countries, should allow OPEC to exercise greater influence on oil prices. OPEC has been very successful at managing oil prices in the $20-$30 a barrel range over the last three years.

Today, the global oil and gas industry is in the midst of important changes which can be described as the end of an era of overcapacity. Virtually all segments of the energy value chain were plagued with over-capacity during the last two decades. The supply overhang was a consequence of the industry’s demand growth expectations, which proved to be too optimistic. As a result of tightening supply/demand conditions, several large segments within energy, such as oil and US natural, have benefited from higher margins over the last several years.

In 2003, OPEC will be challenged in maintaining stability in the oil market due to the strike in Venezuela and a possible war with Iraq. Any downturn in oil prices beyond 2003 is likely to be short-lived. Also, fiscal pressures are likely to force individual OPEC countries to exercise production discipline.

Our medium-term view is that oil prices are in the midst of a secular upturn. From 1989 through 1999, oil prices averaged $19 a barrel; from 2000-2002, they have averaged $25 a barrel. This upturn was due to OPEC’s desire for higher revenues, which it achieved by relinquishing market share. Our expectation is for oil prices to average around $25 a barrel over the next several years. In this environment, many companies have assets and reinvestment opportunities, which will allow them to create shareholder value. Companies such as ExxonMobil, Royal Dutch/Shell, and BP benefit from profitable legacy assets and the ability to reinvest the cash flow from these assets into new areas such as the deep-water provinces of West Africa and the Caspian Sea.

Natural gas is one of the fastest growing components of world energy consumption, and is expected to almost double by 2002, with an average annual growth rate of 3.2 percent. Developing countries as a whole within Central and South America and Asia will likely account for the largest incremental increase in natural gas consumption.

Both US natural gas prices and oil refining have also recently witnessed profit margins above historical levels. The industry responded by increasing drilling activity. However, as the following chart illustrated, US gas production barely increased despite record drilling activity.

Looking ahead, our expectations are for prices to be higher. US natural gas, at around $3/thousand cubic feet is an attractive price for many North American independent producers.

The improvement in the US refining environment is due to growing demand and closure of some marginal refining capacity. The US and European Union regulations call for cleaner products in 2005. Refiners’ compliance is expected to result in additional capacity closures, which, in turn will further tighten the supply/demand balance and result in healthy margins.

The oil field service sub-sector conducts initial seismic studies and then drills, completes and maintains oil and gas wells for its clients, the major national and integrated oil companies. Several major themes characterize this subsector:

• Need for a strong global presence with industry-leading technologies. The “big three” international majors are Schlumberger, Baker Hughes and Halliburton.

• Ownership of important new technologies that permit a steady reduction in industry finding and development costs. Schlumberger, IHC Caland and Technip-Coflexip are examples.

• Participation in the inevitable recovery of US natural gas drilling and production. Three leading offshore drillers are GlobalSantaFe, ENSCO and Rowan plus the best onshore natural gas driller – Helmerich & Payne.

• Participation in deep offshore oil drilling. Companies such as Transocean and Noble will drill while the leading product lines of Varco International and Cooper Cameron will produce the required sophisticated equipment.

• Purchase undervalued or misunderstood securities through intensive research.

Oil field service earnings were under severe pressure in 2002 due to a significant decline in US natural gas drilling. The sub-sector will rally as investors look beyond current earnings to a more normal 2004.

In conclusion, energy is and will continue to be an attractive sector for investors. The sector is dominated by large, integrated firms, which have a demonstrated record of delivering competitive shareholder returns. Historically, the sector has provided superior returns. We believe that the various sub-sectors in the industry offer opportunities for capital appreciation in their respective investment cycles. Investment professionals are best suited to identify these areas.

(The information contained herein is for information only and should not be construed as an offer or a solicitation to purchase, subscribe, sell or redeem any investments. While Clariden Bank uses reasonable efforts to obtain information from sources, which it believes to be reliable, Clariden Bank makes no representation or warranty as to the accuracy, reliability or completeness of the information)

www.ticker.com March  2003 Cover Story TICKER Staff

High Yield Funds

If there were years when high-yield bond buyers were afraid to listen to the news, 2002 was definitely one of them. While there have been other years when high-yield funds posted negative returns, posting a negative 3-year annualized average is a rare occurrence. For 2002, the Lipper high yield category reported a 3-year return of - 2.9%, which was the third consecutive year that category had negative 3-year returns. For 2001, the return was -1% and for 2002, it was - 1.6%.

“The prices of high yield bonds can still go down significantly,” said Mark Vaselkiv, a manager with 15-year tenure in T.Rowe Price and Affiliates, running the T.Rowe Price High Yield fund. “The positive spin here is they’ve been going down for four years. We are just starting the fifth year of a bear market in high yield debt - it started in 1998 and continued through most of 2002. Fundamentally, this market is pretty undervalued.”

The depressed state of the high-yield category - the largest in terms of number of funds - widened the performance gap between the consistent performers and the average fund. During 1999, the consistent top performers returned 2.2% more than the category average, while in 2002, the top performers exceeded the average by 5.2%.

Columbia Management’s Company’s (CMC) institutional and retail high-yield portfolios take the take the top two spots for consistent top performers. Managed by Jeffrey Rippey and Kurt Havnaer, CMC High Yield and Columbia High Yield outperformed its peer group for the 3-year period ending 2002 by margins of 8% and 6.9%, respectively. The managers’ approach is to screen companies using a combination of qualitative, financial-statement and relative-value analyses and come up with a batch of 150 issuers, generally companies with market capitalizations above $100 million. The list is then submitted to the portfolio managers, who reduce it to between 50 and 70 names that are included in the portfolio.

CMC maintains its credit quality well above its benchmark Merrill Lynch High Yield Master index. While the index listed no BBB rated bonds as of Sept. 30, 2002, Columbia had 11.7% of its assets invested in BBB. Subsequently, Columbia had no bonds in the C, CC, and CCC categories, while the index was 12.3% exposed to these deep junk issues.

Janus High Yield weathered the high-yield storms in mint condition. By December 2002, it was the third-best consistent performer with a 7.66% average annual return. By the end of 2002, manager Sandy Rufenacht kept the fund 80.6% invested in high-yield bonds, 6.3% in investment-grade, and 9.6% cash, with 90% of the fund’s bond holdings rated BB or B. His top three preferred industries were Casino Hotels, Residential and Commercial Buildings, and Oil Companies.

T.Rowe Price High Yield is the highest-ranking fund in the consistent group with net assets above $1 billion. Mark Vaselkiv’s portfolio reports an 8.45% average annual total return measured since its inception in December 1984. At the end of 2002, its quality weighing was 18.3% BB and 68.1% B, with the balance being lower-rated issues.

“The way to excel in the high yield area is to avoid defaults, bad companies, and credit problems,” said Vaselkiv. “As I look historically, the basic metric to gauge success in this business is the aggregate default rate. The reason we have consistently outperformed the market is that we seem to make fewer mistakes than many of our competitors.”

“We focus on the higher quality companies in the marketplace. On average, we have much lower weightings in the most speculative, highest risk bonds,” Vaselkiv explained. “We tend to be a little bit more conservative than our rivals. Our funds will not report the highest yield in the category, but on a total return basis, we give up less in principal because of our good security selection.”

“The average annual return for BBs has been 9.5% over the 1990 to 2002 period, while Bs have returned 8% and CCCs have returned about 4%. There are times when investing in CCCs is highly rewarding, particularly when they’ve been beaten up like they have over the last three years. But to make that a long-term strategy has never worked,” said Vaselkiv.

Moderate strategies are better suited for larger portfolios, where it is harder to constantly keep one’s finger on the trigger - an absolute must for the high-yield manager. “High-yield companies blow up. That’s the reality of the market and the basic risk that you face. You need to quickly move out of a position when you anticipate trouble, when you see the fundamentals of a company deteriorate, when management is taking a risk in a new strategy, when the competitive dynamics of an industry change, or when there is a concern about the integrity of the management team,” Vaselkiv added.

For many retail investors, Pimco and William Gross are synonymous with bond fund safety in uncertain times. For institutional money, however, the Pimco High Yield I, managed by Raymond Kennedy, has provided consistent top performance in the risky times. Since its inception in December 1992, the fund has reported a 7.72% average annual return, with only two negative years - 2000 and 2002. Mr. Kennedy’s preferred sectors as of November 2002 were telecommunications, domestic banks and healthcare services. He also spiced up his portfolio by allocating 14% of the portfolio to investments in rated A and AAA debt.

The smallest portfolio among the consistent top performers is Nicholas-Applegate High Yield Bond, which is also the only fund in the group that ranked number one in any of the past four years. The institutional portfolio has a $250,000 minimum initial investment and has returned 8.5% from its inception in 1994. Managers Douglas Forsyth, William Stickney, and Michael Yee keep the average credit quality of the portfolio at BB, or a notch above its benchmark, which is the Salomon Smith Barney High Yield.

The largest two funds occupy the bottom two spots in the high-yield group. Lord Abbett Bond Debenture A invests 57% of its $3 billion assets in corporate bonds and notes, 48% in BB and B rated. The portfolio is diversified with 13% common stocks and 13% convertibles. American Funds High Income Trust A invests 71.7% in corporate issues and 12.2% in foreign currency denominated paper. Portfolio counselors David Barclay, Abner Goldstine, and Susan Tolson lean towards the more-speculative end with 31% invested in bonds rated B, 21.2% in BB, 16.8% in BBB and 12.2% in issues with credit ratings below B.

Global Income Funds

For many investors, the international credit markets are becoming more attractive due to globalization and the broad decline in interest rates. The declining dollar and the sluggish equity markets has also fueled the interest in world debt. During 2002, the weaker dollar increased the dollar value of many investments. The J.P. Morgan Global Government Bond, Non-U.S. Index rose 22.1% for the year.

According to Merrill Lynch, bonds issued in the U.S. currently account for only 52% of the global bond market primarily because of the rise of euro-zone corporate bonds and the increase of Japan’s government debt.

Global income funds are probably the least risky category among world bond funds because they keep their investments close to home. Funds in this category must invest in at least three countries, one of them being the U.S. These funds are suitable for investors who want to have some international exposure but do not want to invest entirely overseas.

The fund with the highest rank among the consistent top performers is ISI North American Government Bond (NOAMX). Despite being in the global income category, NOAMX is not different from a long-term government bond fund.

It invests in government obligations of three countries (US, Mexico, and Canada), with the majority of its bond holdings kept in U.S. government bonds. NOAMX has an unusually big position in cash - about 41% of its portfolio. U.S. Treasury notes and bonds account for about 45% of its net assets, Mexican Bonos 9%, and Canadian government obligations 5%. The performance of the fund is mainly due to the strong performance of the treasury market.

Alliance Americas Government Inc (ANAGX) also ranked high on the list. The fund changed its name last year from Alliance North American Government Income Trust. With large positions in Argentine and other Central and South American bonds, ANAGX was not complying with a SEC’s requirement that mutual funds must hold at least 80% of their holdings in securities suggested by their name. So, instead of selling the South American bonds, the fund decided to drop the “North” part of its name.

Despite its stellar performance in the past six years, investors should be warned that the fund crashed in 1994 when it lost more than 30% of its value. Shareholders sued the fund’s manager, Alliance Capital Management, partially because it had invested 25% of its assets in Argentine securities. However, the court dismissed the accusations because at that time funds were required to invest only 65% of their assets in the securities suggested by their names.

Like NOAMX, this fund invests primarily in long-term government bonds issued by the United States, Mexico, or Canada, but it is more diversified and therefore more risky. Currently, the fund invests about 53% of its assets in the U.S., 22% in Mexico, 11% in Canada, but it also has investments in Brazil, Panama, and nine other countries.

The majority of its portfolio, or 58%, is invested in high quality AAA bonds, while 33% of the holdings are invested in bonds with BBB rating or lower.

The manager of the fund, Paul J. DeNoon, has been in the position only 6 months. ANAGX is more expensive than its peers with an expense ratio of 1.96% and a front-end load of 4.24%. International Income Funds

International income funds are more diversified than global income funds. They invest in debt securities of issuers located in at least three countries, excluding the U.S.

PIMCO Foreign Bond I (PFORX) has consistently ranked second or third in this category since 1997. Its holdings include government and corporate debt, mortgage-backed and asset-backed securities. The fund invests in investment grade foreign bonds with an average duration of 3 to 7 years.

European debt, which has relatively high yield due to central banker policy, is the investment of choice for the Pimco’s Foreign Bond Portfolio. German bonds occupy an unusually large 76% of the fund’s holdings. Sudi Mariappa, manager of the fund since November 2000, believes that European interest rates have a long way to fall and that this will boost the value of its bonds.

A major strength of Pimco’s Foreign Bond fund strategy is in hedging its dollar exposure. Because currencies are so volatile, the fund either provides currency exposure or attempts to hedge that exposure. Pimco was wise enough to favor the euro last year and expects the strength of the currency to continue well into 2003.

“We’ve already seen a fairly substantial move in the euro and expect to see the trend continue,” said manager Sudi Mariappa in a recent interview. “In our view, the dollar is going to be more prone to sell off on a secular basis while the yen is going to be range-bound. So we like the European currency.”

In addition to Europe, Pimco Foreign Bond favors Japan, where the fund invests about 20% of its assets. With regard to a potential rise in Japanese interest rates, the management acknowledges that there is some risk, but it expects that rates will stay unchanged.

“We think Japanese interest rates, as a whole, will probably stay where they are because their monetary authority has been fairly accommodative,” Mariappa said. “The Japanese are not dependent on foreign purchasers of their bonds. So they’re self-funding, in essence, they should just muddle along.”

This is one of the cheapest international funds available, with an expense ratio of 0.50% and no loads. The minimum investment in the institutional class is $5 million.

Emerging Markets Bond Funds

Investing primarily in debt securities issued by the developing nations, the emerging market bond category is the most risky segment of the bond universe. Emerging markets may be highly volatile, less liquid, and subject to currency fluctuations and political disruptions. But they can also provide investors a very handsome return.

Emerging market bonds have had a very strong performance recently. The gains have been broad-based with the majority of country components registering positive returns.

Of course, there were also a number of countries with problems. Argentina, for example, was in a state of total economic collapse and political turmoil. Venezuela still faces political unrest and debilitating strikes. Brazil has elected a former left-wing union leader as president, while Turkey has elected a leader from a traditional Islamic party.

Nevertheless, emerging markets debt has avoided the crisis common during the last decade and much of it has registered strong demand. Some analysts also believe that the emerging debt markets are gradually maturing in terms of market infrastructure and availability of information.

After the Russian debt crisis of 1998, the International Monetary Fund began publishing detailed credit reports on each market. At the same time, many countries realized the importance of providing more information to investors. While problem do still arise, the impact is usually confined to that specific country.

The only fund in this category, which has consistently been among the top performers, is Salomon Brothers Institutional Emerging Market Debt Fund (SEMDX). The fund is fully invested in fixed income securities and holds less than 2% of its assets in cash. Manager Peter Wilby has been managing the fund since 1996. The minimum investment in the fund is $1 million and the fund charges 0.75% for expenses.

Intermediate Investment Grade Debt Funds

The intermediate investment grade category has had a good run during the last three years. Funds with healthy investments in TIPS, or Treasury Inflation Protected Securities and higher quality corporate debt have performed better than their peers. On the other hand, funds invested heavily into mid- and low-quality corporate debt have suffered as the corporate scandals took their toll. Similarly, funds that held positions in telecom have had a rough time with the WorldCom bankruptcy and problems at Qwest.

One of the category’s most consistent top performers has been the PIMCO Total Return Inst. (PTTRX). With net assets in excess of $39 billion, it has reported returns of 10.7%, 8 %, and 8.3% over the 3-year, 5-year, and 10-year reporting periods. While this fund does own some government debt, the bulk of its assets are invested in top quality corporate debt.

Managed by Bill Gross, this fund has consistently invested in the right sector. While it pursues only a moderately aggressive strategy, it has one of the best track records in its category.

Short Investment Grade Debt Funds

Lower interest rates have been a real boon for the short-term debt funds, and this category continues to represent one of the safer investment bets in fixed income segments. A few of the funds had exposure to the problem sectors, such as telecom and airlines, and suffered as a result. But as a category, they performed relatively well vis-‡-vis there longer-term cousins.

Vanguard Short-Term Bond Index fund (VBISX) has generally outperformed its category peers over the last few years. Tracking the Lehman Brothers 1-5 Year Government/Corporate Index, the fund has maintained a diversified investment mix, with exposures to both government and corporate debt. However, the fund does not invest in mortgage-backed securities. While it faced some problems in 2002 when some of its swapping strategies went awry, it did manage to earn a return of 6.1%. Over the most recent 3-year period, the funds return of nearly 8 % gave it the second rank in the category.

Multi-sector Income Funds

The very name of this category suggests diversification, lower volatility, and stable returns. But, during the last six years, the category has been less than outstanding. The poor performance can be traced to funds in the category that have had exposure to either junk bonds or emerging market debt. Industry estimates suggest that the multi-sector funds category had a huge 29% exposure to junk bonds in August of 2002.

Even so, there are a few balanced multi-sector funds that have had good, consistent performance over the years. The Fidelity Advisor Strategic Income T (FSIAX) is one such fund. It has reported returns of 6.1% between 2000 and 2002, and gains of 5.9% between 1997 and 1999.

Strategically, the fund focuses on high-income debt and looks for capital appreciation as a secondary objective. Generally, its assets are spread among a number of debt classes, such as high yield securities, U.S. government and investment-grade securities, emerging market securities, and foreign developed market securities.

GNMA and other U.S. Mortgage Funds

GNMA funds, or funds which invest primarily in mortgage bonds by the Government National Mortgage Association, have the advantages of relatively high yields combined with a capital guarantee from the government. Vanguard GNMA (VFIIX) has been one the top performers in this category, posting solid returns of 8.3%, 9.8% and 7.1% over 1-year, 3-year, and 5-year periods. A strategy of limiting prepayment risk combined with a low expense ratio has helped the fund to maintain steady gains. However, not only does this fund focus largely on GNMA securities, generally investing 80% or more of its assets in these bonds, but it also invests only in plain vanilla GNMAs, bypassing the potential higher returns available from non-conventional GNMAs.

TCW Galileo Total Return Bond Inst. (TGLMX) has also been one of the top performers in the mortgage fund category, delivering a return of 11.3% over the last three years, as well as an 11% return in 2002. While this fund invests at least 65% of its assets in long-term mortgage securities backed by the government, it also invests in a number of riskier securities such as inverse floaters. Nonetheless, the fund’s experienced and well-reputed management has performed consistently over the years.

www.oaklandtribune.com108341211388,00.html Article Last Updated: Friday, February 28, 2003 - 7:08:06 AM PST

Crude oil prices retreat Crude oil fell after traders who use charts, graphs and other technical tools to make decisions sold contracts after prices failed to surpass $40 a barrel. As prices fell, the U.N. Security Council met to discuss a resolution presented by the U.S. and the U.K. that says Iraq has missed its last opportunity to disarm, paving the way for a U.S.-led invasion. Prices have soared 39 percent in the past three months as a strike cut oil exports from Venezuela and the U.S. threatened to attack Iraq Crude oil for April delivery fell 50 cents, or 1.3 percent, to $37.20 a barrel on the New York Mercantile Exchange. Oil rose to $39.99 a barrel during the session, the highest price since Oct. 12, 1990, when Iraq's occupation of Kuwait led to the cutoff of exports from both nations.

Comcast losses shrink Philadelphia-based Comcast Corp., the Bay Area's cable provider, posted a narrower fourth-quarter loss in its first report since buying AT&T Broadband. The company raised a 2003 profit estimate and said it expected to stop losing subscribers this year. The net loss shrank to $51 million, or 3 cents a share, from $321 million, or 34 cents, a year earlier. Sales rose 11 percent to $5.73 billion. The results were reported as if the acquisition had been completed in January 2001 instead of November. Chief Executive Officer Brian Roberts has pledged to make the former AT&T cable systems profitable by trimming costs and stemming subscriber losses.

Lucent says SEC probe over New Jersey-based Lucent Technologies Inc., the biggest U.S. maker of telephone equipment, said it settled an SEC probe of $679 million in improperly recorded sales. Lucent doesn't have to pay any penalties or restate results, and the company agreed to abide by federal-securities laws. The SEC began its investigation of Lucent after the company reported the misstated revenue to regulators in late 2000, Lucent Chairman and Chief Executive Officer Patricia Russo said. At issue was the initial booking of $679 million in sales and later adjustment of fiscal 2000 revenue to exclude that amount after customers returned some unused equipment.

IBM to fire workers IBM Corp., the world's largest computer maker, is firing some employees in its U.S. software and services units as the company seeks to match worker skills with customer needs. Less than half of one percent of workers in the units is being fired, spokesman James Sciales said. The services business has 180,000 workers and there are 35,000 in software, Sciales said. IBM is rebalancing its workforce to ensure workers have the skills customers want, Sciales said. Chief Executive Samuel Palmisano has been trying to revive sales by adding products and service offerings. Services, bolstered by the October purchase of PricewaterhouseCoopers LLP's consulting unit, helped boost fourth- quarter sales 7 percent to $23.7 billion.

'Grand Theft' pays off New York-based Take-Two Interactive Software Inc. said first-quarter profit rose 45 percent because of higher revenue from the best-selling video game series "Grand Theft Auto." It raised sales and profit forecasts for the year. Net income in the quarter ended Jan. 31 increased to $50.5 million, or $1.20 a share, from $34.8 million, or 92 cents, a year earlier, the company said. The results exceeded company forecasts from December, driven by the popular sequel "Grand Theft Auto: Vice City." "Vice City," in which players can listen to Judas Priest and other 1980s pop music while running missions for drug lords, was the best-selling video game in the U.S. last year and has sold 8.5 million copies.

Novell sees slumping numbers Utah-based Novell Inc., a maker of software for managing computer networks, said it had a first- quarter loss on higher marketing costs and as sales declined 6.4 percent amid a slump in demand for business software. The net loss in the quarter ended Jan. 31 was $11.9 million, or 3 cents a share, compared with net income of $8.4 million, or 2 cents, a year earlier, Novell said. Sales fell to $260 million from $277.9 million. Novell has been expanding into new products to make up for slowing sales of its NetWare operating system software, which lost market share to Microsoft Corp.'s Windows programs in the 1990s.

Kmart executive to cooperate Kmart Corp., the bankrupt retailer seeking to exit Chapter 11 by the end of April, said the former head of its supply chain has agreed to cooperate with an investigation into the company's former management. Anthony D'Onofrio will testify and provide any documents he may have related to the investigation in return for Kmart dropping a request that he be held in contempt, according to a filing with the U.S. bankruptcy court in Illinois. Kmart said it filed seven subpoenas over several months to try to get D'Onofrio to cooperate with an investigation into the previous management and its accounting practices. Two former Kmart vice presidents were indicted yesterday on U.S. charges they overstated revenue in the first criminal case stemming from the retailer's bankruptcy.