On the 1st of November 2007, Nedgroup Investments Renaissance Fund changed its name to Nedgroup Investments Balanced Fund. The fund retained it's history.

During the quarter we undertook a complete restructuring of the fund, during which roughly 90% of the equity portion of the portfolio was traded.This restructuring, the outcome of a bottom up stock selection process, resulted in the fund having a significantly increased exposure to the resources and financial sectors and a reduction in its exposure to the industrial sector. We do not subscribe to the widespread practice by South African asset managers of permanently preferring industrials and financials to resources. Nor are we beholden to any permanent minimum allocation to resources. However, when multi-national diversified mining groups such as Billiton trade at almost half the valuation of rand hedge industrials such as SAB, we become interested.

Subsequent to this repositioning the fund posted a pleasing improvement in relative performance during the last two months of the quarter. Much of this performance stemmed from the significantly greater exposure to AngloAmerican, BHP Billiton and Sasol that was introduced. Two of our small market capitalisation picks, Oceana Fishing and Sasfin Bank, also contributed noticeably.

While it is gratifying to be able to point to an improved relative performance in the short-term, our overriding concern remains the fund's performance in the long-term. The changes were made with this objective in mind.

The fund's strong preference for equities over bonds (70% vs 10%, the remainder being in cash) paid off with index returns for the quarter of 6.7% and 3.4% respectively. Nevertheless, we were wrong in anticipating worse returns from the bond market, which we still believe to be dependent on far better than prevailing levels of inflation. As with equities, we prefer to hold securities already braced for bad news (such as the Mittal example above) to those beholden to private forecasts of benign conditions. In addition, the inverted slope of the yield curve forces the incurrence of a "negative carry" as one moves further out along the maturity spectrum. Whether this has to do with expectations of much more favourable conditions to come or with the business constraints of life assurers and others is of no concern to us. We are not obliged to assume opportunity costs, so we prefer shorter duration bonds and bonds offering generous yield enhancement.

Rowan Williams-Short & Douw Steenekamp
Orthogonal Investments

The Nedgroup Investments Renaissance Fund changed sectors from Domestic - Asset Allocation - Prudential High Equity to Domestic - Asset Allocation - Prudential Variable Equity on the 01/08/2007.

With a handsome return of 41.2%, the equity market stole all the honours once again in 2006. The bond market return of 5.5% failed to beat cash (7.3%), although both managed to stay ahead of CPIX inflation of4.8% (1 month lagged). The strong growth environment continues to underpin an earnings momentum which favours equity valuations over current bond yield levels.

The South African Reserve Bank hiked rates by 2% in 0.5%increments at each of its four MPC meetings between June and December2006. The Bank's December forecast still showed CPIX inflation rising to a peak above 6% over the second quarter of 2007, followed by a downward trend to just above 5% at the end of its two-year forecast horizon. Deteriorating inflation expectations, strong credit-based spending and rising indebtedness, food price inflation, oil prices, rand volatility and the fundability of the current account remain the key risks to the Bank's inflation outlook. Real growth moderated towards trend in the third quarter, although revisions to historical data raised the growth trajectory. Real gross domestic product (GDP) expanded at an annualised rate of 4.7% over the third quarter compared to 5.5% over the second quarter (revised from4.9%), 5.0% over the first quarter (revised from 4.0%) and 5.1% in 2005(revised from 4.9%). A pickup in fixed investment spending partially offset weaker consumption spending and lower inventory accumulation over the third quarter.

Consumer and producer inflation bucked their rising trends in October and November due to lower oil prices and large petrol price cuts. Targeted consumer inflation was unchanged at 5.0% over these two months and producer inflation was unchanged at 10.0% over the same period. Although higher food prices have been the key inflation bugbears up to now, rand weakness was feeding through into higher prices, a process that will continue in coming months, especially given the general deterioration in the inflation environment since the second quarter, with high local capacity utilisation rates, strong local demand and higher inflation expectations. With big petrol price cuts now in the numbers, both consumer and producer inflation is expected to continue its rising trends through to the second quarter of 2007.