The fund appreciated by 15.2% in the first nine months of the year, taking its one year return to 35.7%, compared to the 23.2% and 36.4% return of the benchmark over these respective periods. Whilst the fund has underperformed the benchmark over the shorter term, and we are naturally disappointed with this, over longer and more meaningful periods it continues to deliver handsome outperformance of the benchmark. Over the seven years since inception the fund has generated an annualised average return of 29.7%, compared to the 23.0% of the benchmark, resulting in annualised alpha of 6.7%, and at volatility levels well below that of the benchmark.

Resource shares continue to be the primary driver of the market's returns and in fact year-to- date 14% of the market's 23% return is explained by one share: Billiton, which has appreciated by 90% year-to-date. Stripping out the impact of Billiton, the market has only appreciated by 9%, reflecting the more subdued performance of most of the larger capitalisation industrial and financial shares. The fund has held a 5% position in Billiton as well as other selected commodity shares (Sasol, Impala Platinum and Exxaro Resources) and has benefited from the appreciation in these shares, but at the same time the fund has had over 2/3rd's of its assets invested in industrial and financial shares, and this has had a negative impact on performance. Our investment approach is valuation-driven and we insist on an appropriate margin of safety, and in this regard we hold the view that valuations are generally more attractive amongst the industrial and financial shares than the commodity shares. As importantly, we have far better downside protection in the industrial and financial shares than we do in the resource shares. Given the appreciation of commodity shares since the August selloff, we have continued to reduce the fund's commodity exposure as the shares that the fund holds approach what we believe is the true underlying value of these businesses. Resource shares now make up 22% of the portfolio as opposed to 27% at the end of June.

The fund's largest position remains to be its holding in Naspers. More recently, the market appears to be concerned by the entry of pay-tv competitors into the market: Four licences were issued in September breaking Naspers' (DSTV/MNet Supersport) 25 year monopoly in this market. Our view is that these new competitors will not have a meaningful impact on Naspers financial performance over the next 3 to 5 years. The reasons for this are numerous but key amongst these reasons are the fact that the barriers to entry in the pay-tv industry are very high (high capital costs, ownership and securing of content, branding); our view that the SA paytv market is still significantly under-penetrated, and that the overall market will continue to grow (from 1.5 million today to perhaps 2.5m or more over time) leaving room for Naspers and new competitors to all add subscribers. In addition to this we believe that new products (PVR, Pay-per-view, High Definition Television) will continue to drive the revenue line of DSTV/MNet Supersport. Naspers also has several other sources of media revenue and earnings streams (Pay-TVAfrica, PayTV Greece, Media24, Tencent, MWeb etc) and many of these contributions will increase over time. Lastly, we believe that the valuation of Naspers continues to be very attractive, with the implied free cash flow multiple on the pay-tv businesses making it the cheapest pay-tv stock globally, and by some margin.

Many of the fund's other large holdings (Woolworths, Standard Bank and Tiger Brands) continue to be unloved by investors. All of these companies have exceptional long-term profitability records and in our view will continue to deliver superior earnings growth in the years to come. Most importantly, we believe that all three of these shares are very attractively valued and are currently being priced on concerns over the shorter-term (6 months to 1 year) and not on what theses businesses are worth on a 5 to 10-year view.

We believe that the fund holds positions in 18 large South African companies that are trading below their true business values and that the fund will continue to generate returns in excess of the market over longer time periods.

Gavin Joubert and Neville Chester
Portfolio Managers

The Coronation Top 20 Fund appreciated by 12.6% in the first half of the year, taking its o12-month return to 40.3%, compared to the 14.4% and 34.1% return of the index (ALSI40) over these respective periods. Whilst the fund has underperformed the index over the shorter term and we are naturally disappointed with this, over one year the fund has outperformed the index by 6.2% and over longer and more meaningful periods it continues to deliver handsome outperformance of the index. Over the seven years since inception, the fund has generated an annualised average return of 30.5% compared to the 22.6% of the index, resulting in annualised alpha of 8%, and at volatility levels well below that of the index.

Over the past several months the resources shares have continued to drive the market, with the industrials and financial sectors lagging. As a result, we have reduced some of the fund's resource positions as these shares approach fair value and at the same time have been buying selected financial and industrial shares as the growth in their long-term business values exceeds the share price performance, and the gap between what we believe these businesses are worth and the current share price widens. We believe that it makes sense to own more of assets when they get cheaper and less when they get more expensive.

The fund still has 27% of its capital invested in resource shares, however a large part of this is made of two positions (almost 12% in Sasol and 10% in Impala Platimum) with smaller holdings in BHP Billiton and Exxaro Resources. The negative market sentiment towards Sasol continues: the share price has barely increased over the past 18 months against a resource 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.

The largest new purchase over the past few months was a 5% position in Tiger Brands. The fund has held Tiger Brands over the years and the decision to purchase the share again was made after the share price had underperformed the market for some time while the long-term business value had continued to appreciate significantly. This meant that the difference between what we believe the business is worth (long-term fair value) and what the market is valuing the business at (current share price) opened up considerably and gave us the appropriate margin of safety. Tiger Brands owns some of the best consumer brands in the country (All Gold Tomato Sauce, Black Cat Peanut Butter, Colemans mustard, Jungle Oats, Energade, Oros, Enterprise, Gill shampoo, Doom and the list goes on). These brands have pricing power which results in high margins. The free cash flow streams of the business are also more stable and predictable than most. The company is in the process of either selling or unbundling its pharmaceuticals division, which will result in a purer food business with an undergeared balance sheet being separately listed. All of these factors, combined with p:e multiple of less than 13 on normalised earnings, make for a compelling investment opportunity in our view.

We believe that the fund holds positions in 17 large South African companies that are trading below their true business values and that the fund will continue to generate returns in excess of the market over longer time periods.

Gavin Joubert and Neville Chester
Portfolio Managers

The Coronation Top 20 Fund appreciated by 10.4% in the first quarter of the year, taking the one-year return to 38.3%, which is slightly ahead of the return of the ALSI 40.

We believe that longer time periods are far more meaningful than one or two year periods and in the almost seven years since inception, the fund's return has been over 30% per annum, which is some 10% per annum ahead of the return of the ALSI 40.

Whilst we hold the view that all of the fund's holdings still offer value, we are finding it difficult to identify new investment opportunities as the South African equity market continues to appreciate, almost indiscriminately and driven by momentum in certain areas. As a result, the fund's holdings have not changed significantly over recent months, although we did add to some of the existing positions including Sasol, Netcare and Remgro.

The only new purchase was a position in Discovery Holdings which we believe is a good business, run by an excellent management team and where we are not paying much for significant optionality in the US and UK businesses at the current share price. We sold the fund's entire position in Edcon after the announcement of the take-out offer by private equity group Bain Capital and the sharp appreciation of the share from it's lows of R26 to closer to the offer price of R46 a share.

Over the past few months we added significantly to the fund's position in Sasol as the share price continued to decline. 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 news flow 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.

Whilst we are struggling to find new investment idea's, we are comfortable that all of the fund's existing holdings are undervalued and will continue to grow their business values over time, and that the fund is therefore positioned to generate attractive returns over the long-term.

Gavin Joubert and Neville Chester
Portfolio Managers

The fund generated returns of 38.6% and 42.8% over the 1 and 3-year time periods to end December 2006. This can be compared against the FTSE/JSE Africa Top 40 benchmark returns of 40.9% and 37.1% respectively. Whilst the returns from the fund were slightly behind that of the benchmark in 2006, the fund has significantly outperformed the ALSI40 Index over all meaningful time periods, with annualised outperformance of 8.8% since inception of the fund in September 2000 and annualised outperformance of 6.1% over the past 5 years.

The last few months of the year saw significant price appreciation from the financial and industrial area of the market, in particular the banks and retailers, after these same sectors were aggressively sold by short-term focused investors in the May-June period. The fund benefited from these recent price movements, having large holdings in both the banks (Standard Bank, FirstRand and ABSA) and retailers (Woolworths and Edcon).

Whilst the fund held no Edcon in the earlier part of the year we were aggressive buyers in the May-June period when the share price declined by 30%, to the point where Edcon was a 7% position in the fund. At that time we were asked repeatedly as to why we were buying Edcon when the rand was depreciating, interest rates were rising, the consumer was slowing down, bad debts were rising and operating margins and ROEs of Edcon were at all time highs. Our response was simply that we were investing in Edcon taking a 5-10 year view of the business and not a 6-month view and on this basis Edcon was trading substantially below what we believed the business was worth. It sounds very simple, but it is far harder to actually stick to this approach in practice when there is negative news flow every day and the share price continues to decline. Human behaviour in the stock market is often irrational in the face of adversity and this provides opportunities for investors with a long-term time horizon and who are able to separate emotion from the facts. Whilst we had considered the advent of a private equity buyer for Edcon, this was certainly not a core part of our investment case: we were simply buying (after performing detailed research and sensitivity analysis) what we believed was an undervalued asset. In early October an announcement was made by the company that they had been approached by a consortium of private equity investors to take the company private. The share price rose by 15% on that news and has continued to increase subsequent to that. We have recently started reducing the fund's Edcon position as the share gets closer to what we believe is fair value for the business.

Although we added to a few of the fund's larger positions during the past few months (Sasol, Netcare and Telkom in particular) we were more active on the selling side, and in addition to reducing the fund's Edcon position we also sold out of MTN completely (after a 50% appreciation in the share price in the space of a few months) and reduced the fund's banking positions. The only significant recent new purchase was that of Exxaro Resources after Kumba was split into two companies: the one being Kumba Iron Ore, which holds the group's iron ore assets and the other being Exxaro, which holds coal assets as well as heavy minerals assets and part of the iron ore assets. As is the case with all of the fund's holdings, we bought Exxaro because we believe the valuation is attractive, using our estimates of normalised prices for the various commodities within the company's portfolio and the rand/dollar exchange rate.

The new year has seen a continuation of the rise in the SA equity market and whilst we believe that equities are still more attractive than bonds or cash, and that all of the fund's holdings are still undervalued, we are once again struggling to find new investment opportunities. As a result the cash levels have increased slightly to 6% of the fund and may well increase further if the market continues to increase. As always, we prefer to wait patiently for new opportunities to arise rather than commit capital to unattractively valued equities.

Hugo Nelson and Gavin Joubert
Portfolio Managers