The fund returned 1.6% over the past quarter, bringing the return for the year-to-date to 9.7%, and for the past year to 20%. This return is in line with the annualised return of 19.5% over the past five years.

Importantly this performance has again been achieved within the risk tolerance level set for the fund. This was demonstrated again during the large market drawdown from mid-July to mid-August. During this period the All Share Index declined by as much as 8.8%, while the fund drawdown was only 2.8%.

During the quarter the fund had significant hedging in place over the equity component of the portfolio, allowing us to utilise this sell-off to buy shares at attractive valuations. Purchases included adding to banking shares Stanbic and Absa and a new buy in Nedcor, as well as building on existing industrial holdings in Netcare, Woolworths, Naspers and Bidvest. A new addition to the fund is Ellerines, which we see as a cheap entry into Abil. This purchase was motivated by the proposed take-over of Ellerines, which we believe has a high likelihood of going through. Abil management are extremely competent, with a long history in credit granting and risk management. This transaction will allow them to add 1.4 million new customers and extend the existing store footprint substantially. Added to this the potential to extract surplus capital from the company, lower the cost of credit to existing customers, and significantly reduce the costs of running the business, makes us very optimistic about the prospects going forward.

We reduced our position in Sasol on the back of a favourable resolution of the windfall tax issue and an increasing oil price, which resulted in an increasing share price. We remain very positive on the prospects for the company, and it remains a large position in the fund, so this is essentially a risk management exercise.

The take-out transaction of Primedia was finally consummated during the quarter, which added meaningfully to fund performance.

Bonds had a reasonable performance over the quarter, and the fund benefited from the increased bond exposure bought in the second quarter of this year. During the past quarter we participated in the new SAB bond issue, which was offered at an attractive spread to the equivalent government bond.

Listed property continued to perform extremely well. The fund holds a few high quality property companies, with a focus on 'A' shares such as ApexHi 'A' and Hospitality 'A' where there is capital protection inherent in the capital structure of the companies.

The international component of the fund detracted slightly from overall performance, on the back of positive hard currency returns, but a further appreciation in the currency. We remain committed to a 15% international holding, which is seen as strategic to reduce risk of capital loss in the fund, but also on the back of attractive developed market equity valuations.

Effective equity exposure in the portfolio is currently at 40%, and we believe the fund is well placed to continue meeting return and risk objectives.

Edwin Schultz and Gavin Joubert
Portfolio Managers

The Coronation Capital Plus Fund appreciated by 8% over the first half of 2007, taking its 12-month return to 24.6%, which is well ahead of its return objective of CPIX + 4%. We believe that longer time periods are more meaningful and in this regard the fund has generated a return of around 19.4% per annum over the past five years. Very importantly these returns have been achieved without taking on large amounts of risk and an equity exposure of between 35% and 50%.

The equity exposure of the fund has not changed significantly over the past few months and the SA equity exposure of the fund, adjusted for the Primedia position which we consider to be near cash and the delta-adjusted index put options, is around 40%. We remain somewhat cautious towards equities and prefer to hold positions in more 'boring' companies with long-term track records and attractive valuations than companies with little operating history and/or high valuations fuelled by takeover speculation or daily positive newspaper reports and broker research notes. New small construction stock listings and junior mining companies are currently the most in favour and hyped sectors, yet as hard as we try we cannot find value in either of these areas and in fact see many parallels with past listing booms and/or takeover speculation in other sectors in the past. Investors in these stocks may well continue to enjoy good returns, however our experience is that investing in places where everyone wants to invest typically results in poor returns at best (as expectations are so high) and more seriously can result in a permanent loss of capital.

In contrast, superior returns are quite often found in places where no-one else wants to invest. One such place is in one of the fund's largest equity holdings: Sasol's share price has barely increased over the past 18 months against a resources sector which has appreciated by around 50% over the same period. Interestingly, the oil price (one of the biggest drivers of Sasol's earnings) continues to rise and most emerging markets oil stocks continue to appreciate (Petrobras, the Brazilian equivalent of Sasol, has almost doubled over the past 18 months), yet concerns over the proposed windfall tax and delays in GTL projects continue to dominate short-term focused investors views. Our view on the windfall tax remains unchanged: a tax will only be triggered at higher oil price levels and we value Sasol using an oil price of $45 a barrel (well below the current price of $72). Therefore, the 'net' benefit to our valuation, should oil prices indeed remain well above $45, would be very positive after adjusted for taxes. We continue to believe that Sasol is one of the most undervalued shares in the SA market and we do not believe that it is possible to time markets and 'wait' until the sentiment turns positive, or try to identify a 'catalyst' before buying Sasol. Valuation is the only catalyst that you need: if a share is cheap enough that value will be realised and no mere mortal can time when that happens, although many believe they can and continue trying to do so.

As a result of our view that developed market international equities offer better relative value than SA equities, combined with our view that the rand will depreciate over longer periods of time, the fund continues to use the full international allocation of 15%, invested in a mix of international equity funds (invested primarily in the US, European and Japanese equity markets) and cash. We believe that bonds are starting to look more interesting as government long bond yields (R157) approaches 8.5%, and as a result we started to buy bonds again and now have an 8% bond position in the fund. We also believe that the yield of around 10% currently available on NCDs is very attractive and we have built up an 8% position in these instruments. Given the very strong performance of listed property shares over the past few years, we can only find value in 4-5 listed property shares and this is reflected in the relatively small property position of 4.5%. The balance of the fund is invested in cash (15%) and preference shares (2.5% position invested in ABSA preference shares when sentiment was very negative as a result of uncertainty over the tax treatment of preference shares).

Whilst the generation of significant real returns going forward is becoming more and more difficult as all assets classes continue to appreciate, we believe that the fund is well positioned to continue to achieve its return objectives over longer periods of time and protect capital over 12-month rolling periods.

Edwin Schultz and Gavin Joubert
Portfolio Managers

The Coronation Capital Plus Fund appreciated by 6.3% over the first quarter of 2007, taking its one-year return to 22%, which is well ahead of its return objective of inflation +4%. We believe that longer time periods are more meaningful and in this regard the fund has generated a return of around 20% per annum over the past five years. Very importantly these returns have been achieved without taking on large amounts of risk and an equity exposure of between 40% and 50%.

There have not been any significant changes to the portfolio over the past few months and the equity exposure has continued to decline as we struggle to find new investment opportunities. In addition to this, several of the fund's holdings have attracted private equity interest with Edcon, Primedia and Peermont all being subject to private equity bids. The fund still holds Primedia and Peermont shares and these positions are now effectively cash, and after taking this into account as well as the delta-adjusted put options, the effective SA equity exposure of the fund is now around 37%.

Over the past few months we have added to the fund's Sasol and JSE positions. Sasol is currently arguably the most unloved commodity share in the SA market against a backdrop of a falling oil price and concerns over a windfall tax.

Why buy boring Sasol with this negative newsflow and seemingly no prospect of a share price increase over the next few months when you can buy 'exciting' small commodity shares that have strong momentum behind them and seemingly increase every month? Because Sasol has a long, profitable operating history (unlike most of the small-cap commodity shares), has long-life reserves (unlike most of the small-cap commodity shares) and most importantly is very attractively valued (unlike most of the small-cap commodity shares).

We value Sasol using a normalised oil price well below the current oil price and if the long-term oil price is indeed above our estimate, then there will be a net positive accrual to our Sasol valuation, even after taking into account a windfall tax. Superior investment returns are seldom achieved by investing where every other investor wants to invest. Few investors want to invest in Sasol today, and we are confident that the fund's additional purchase of Sasol shares will benefit investors in time to come.

The fund had already built up a position in the JSE Ltd during the course of last year and with continued buying and significant share price appreciation the share now makes up 1.5% of the fund. We believe that the JSE is a great business with a dominant position, high barriers to entry, positive operational gearing to a growing top-line over long periods of time and very little capital requirements, resulting in great free cash flow generation. The share looks expensive on current valuation multiples, however we believe that on a longer 5-10 year view it is still undervalued as a result of our view that both the turnover line and the operating margins are currently not normalised and will expand considerably over the next few years.

Amongst the other asset classes we are also not finding opportunities and hold the view that bonds are overvalued and listed property shares offer little value and as a result, the fund has a negligible bond position and a 5.5% position in listed property shares made up of small positions in very selected counters.

The fund has utilised its full 15% international allocation which is invested partly in Coronation's Global Equity Fund and partly in international cash. Around 30% of the fund is now invested in SA cash and as always we will wait patiently for new investment opportunities to arise rather than deploy this cash in overvalued assets.

Whilst the generation of significant real returns going forward is becoming more and more difficult as all assets classes continue to appreciate, we believe that the fund is well positioned to continue to achieve its return objectives over longer periods of time and protect capital over 12-month rolling periods.

Edwin Schultz and Gavin Joubert
Portfolio Managers

The fund had a very good quarter, returning 9.4%. This brings the return for the calendar year to 22.4%. The annualised return over the past 5 years now stands at 18.4%, which is well above the performance target of inflation plus 4%.

Performance has been achieved within a very disciplined approach to risk management within the fund, as reflected by a low level of volatility over the return period. Fund risk has been lowered by, amongst other strategies, a low and flexible equity allocation, derivative based protection strategies and share selection with emphasis on the downside characteristics of every investment.

The past quarter continued to be a good environment for the fund, with financial and industrial shares performing much better than resource shares. Resource shares were adversely affected by a strong rand, which appreciated by 11% against the dollar over the quarter. We have for some time now preferred the valuations of largely domestic stocks, while we believe resource stock are generally overvalued. This positioning combined with good stock selection has benefited the fund significantly.

The main contributors to good equity performance over the past year have been old favourites and top holdings such as Implats, Naspers, Remgro, Sasol, Richemont and SABMiller, as well as domestic stocks such as Woolworths, Standard Bank, Edgars and Primedia. We continue to emphasise a long-term approach as a key philosophy in the management of the fund, and this has evidenced itself in a low level of portfolio turnover in the equity component of the fund. We calculate that annual equity portfolio turnover has averaged 24% over the past year, implying broadly that equity positions are typically held for more than 4 years. There has been limited activity in the equity portion of the fund recently, apart from small recent purchases including adding to Telkom, where we believe that overly negative perceptions of the fixed line business, potential competition and litigation issues have created a buying opportunity. While we recognise these to be important issues, we believe the share price has more than discounted these issues, and the valuation is attractive on a single digit p:e and expected dividend yield approaching cash return levels.

Two relatively new purchases are Zeder Investments and the JSE.

Zeder Investments was recently listed and provides access to unlisted investment opportunites that would otherwise be inaccessible. We believe these investments are under researched and thus under-appreciated by the market. The main underlying investments in Zeder currently are Pioneer and KWV Investments which we believe are both attractive businesses. Pioneer is a FMCG company with well known brands such as Bokomo, Sasko, SAD, Ceres and Liquifruit, and trades at a large discount to comparable listed food companies. KWV is the holding company of Distell, which has a dominant position in several liquor categories in SA, significant exports that will benefit from a depreciating currency, and also trades at a significant discount to our valuation of the business. Zeder also invests in other unlisted agri companies, which are often inefficiently managed along cooperative lines, and thus provide attractive opportunity as they become more shareholder focused.

The JSE is also a recent listing and we believe an attractive opportunity. Exchanges globally are premium businesses as they are generally monopolies, strongly cash-generative and have great opportunities to grow revenue as markets rise over time, and new products and services are added. Even after significant price appreciation the JSE valuation still looks very attractive when compared with the global peer group.

Significant recent sales include MTN which we believe has become fully priced given the risk inherent in the investment, and also Makalani where we believe we can deploy fund capital more productively elsewhere.

We will continue to hedge a portion of the equity portfolio against price declines, and currently have 20% hedged not too far from current market levels.

The fund did very well from its investment in listed property, which returned 19% over the past quarter. While we believe the sector has become fully priced on aggregate, fundamentals for property distribution growth remain strong, and there are selective opportunities. One such opportunity is Acucap where we increased our position in a recent capital raising exercise. The company has a predominantly retail based exposure, with two large regional malls in Krugersdorp and Kempton Park. We believe they have an excellent management team, and the prospect to show good distribution growth through an economic cycle.

We have generally maintained a very low bond exposure throughout the year. Bonds returned a lacklustre 5.5% for the year, well below the cash return of 7.9%. We have managed to add value in the bond portfolio through trading the volatile environment in the past few months, but remain convinced that bonds are significantly overvalued. Our main exposure remains through inflation-linked bonds, which we have also been reducing, and corporate bonds were we can earn an attractive spread relative to government bonds.

The international component of the fund performed well over the year, on the back of a weak currency (9.4% depreciation against the dollar for the year), and a good performance from offshore managers. We aim to retain maximum offshore exposure going forward, and believe it continues to play an important part in reducing the risk profile of the overall fund.

The fund has performed very well over the past few years, but we must caution that it has generally been in a good market environment. Equity markets have shown great returns in each of the past four years, and listed property in the last eight. We remain confident in our investment philosophy, risk management and positioning of the fund to achieve our return objectives over time, but the level of returns achieved in the past three to four years are very unlikely to be repeated.

Edwin Schultz and Gavin Joubert
Portfolio Managers