3rd Quarter 2007
During the past quarter the ValuGro General Equity fund continued to receive significant inflows. The strategy adopted in dealing with these flows was once again primarily per part 1 of our investment process (see June 2007 and April 2005 fund commentaries at www.valugro.co.za for full details thereof). For the uninitiated, part 1 essentially focuses on identifying value amongst the top 25 JSE stocks by market capitalization and purchasing accordingly.

A comparison of the September quarter end top 10 holdings versus the June quarter end top 10 holdings illustrates the heavy implementation of the above part of our process. At the June quarter- end only 3 stocks in our top 10 holdings were not in the JSE "top 25", namely Basil Read, Aquarius Platinum and Murray & Roberts. As at 30 September 2007, however, there were no non-JSE top 25 stocks in the top 10 holdings of the fund.

We continue to hold our maximum permissible holdings in Anglo American and BHP Billiton (10% each). This is very different from our average general equity unit trust competitors.
Anglos and Billiton together make up roughly 28% of the total market cap of the JSE ALSI. As at the end of June 2007 the average holdings in these 2 stocks out of all unit trusts in the general equity sector was 4.2% and 6% respectively. We remain intrigued how unit trusts seeking to beat their benchmark (the JSE ALSI) can be so consistently underweight these heavyweights, especially when the financial results and share price performance of both these stocks over the last 2 years have been nothing short of outstanding. We will continue to hold these two stocks at maximum weightings until we become concerned they are overvalued relative to their fundamentals.

The past performance of the fund (ranked no.1 in the General Equity unit trust category over the 27 month period since the fund's inception on 17 March 2005) again resulted in large inflows during the quarter.

In the first of our quarterly commentaries in April 2005 (see www.valugro.co.za) we set out the processes we follow in managing this fund. With the JSE All Share Index approaching 30000 we are battling to find value in the overall market. For the inflows received during the latter part of the quarter we thus focused more on part 1 of our process, namely heavy spending on the top 25 JSE stocks by market cap. That is clearly evidenced by the fund's quarter-end top 10 holdings. BHP Billiton and Anglo American remain the fund's biggest holdings.

The current portfolio should ensure performance in line with the ALSI benchmark until such time as we identify alternate opportunities in which to apply capital.

The quarter itself to end June 2007 proved another successful one for the ValuGro General Equity fund. For the 3 months your fund was up 8.13% compared to the 3.92% return of the JSE All Share Index. The outperformance can be attributed to the performance of the small to mid cap stocks held in the fund. Particular mention can be made of Yorkor, Quyn and ELB Group, which returned 71%, 48% and 36% respectively over the 3 months. These stocks were all purchased at forward PEs of 8x or less. At current price levels we are reducing the weightings of such stocks in favour of the ALSI 25 as explained above.
Because we are concerned with market valuations we have increased our cash exposure to the 10% level.

The JSE All Share Index delivered a positive return to investors for the 4th calendar year in a row. This is only the 4th time since 1960 that this has occurred, suggesting "on the face of it" that some caution is required. Investors in the ValuGro General Equity fund benefited from the high exposure to All Share Index stocks, with the fund delivering a return of 35.6% for the calendar year.

The top performing sectors for the year were the Platinum, Construction & Materials, and Healthcare Services sectors. The Platinum sector delivered a return of 83.6%. Your fund benefited from its overweight position in platinum stocks, namely Aquarius, Implats, and Amplats (all in the top ten holdings). The Construction & Materials sector returned 78.3%, with Group 5 and M&R both returning over 100%. The ValuGro General Equity fund benefited from its holding in Basil Read, which beat the performance of all the stocks in that sector, returning some 270% during 2006. The Healthcare Services sector had a strong run primarily due the strength of Netcare which benefited from corporate action and a weakening rand during the year. We missed that one.

With Anglos continuing its restructuring; further likely consolidation in the gold and platinum sectors; consolidation in the property sector; and possible activity in the banking and telecoms sectors, 2007 looks set to be an eventful year in terms of corporate activity. This outweighs most of our concerns about our apparently "expensive" equity market.