The Absa Inflation Beater Fund returned 0.7% for the month, in line with its objective of steady returns in excess of inflation over time. For the 12 months to 30 September 2006, the Fund's investors earned 8.4%, exceeding the average money market return of 7.1%. The South African share market enjoyed a good month, as did the bond market, notwithstanding expectations of further rises in short term interest rates. However, the Rand again lost ground, falling from 7.19 to 7.74 to the US dollar during the month. Over the next few months the direction of movement for the Rand, the stock market and bond market will be largely determined by the frequency and size of interest rate hikes from the SA Reserve Bank.

The Fund has invested in a foreign currency asset in order to provide some protection from any currency weakness.

The Absa Inflation Beater Fund is defensively positioned so as to minimize the risk of capital loss, while targeting a return in excess of inflation.

June was another volatile month for markets. The South African stock market rose on average, though were huge divergences in performance of individual sectors. On the stock market, the Rand sensitive stocks rose while the domestically focused stocks declined. Resources stocks, which will benefit from the weaker Rand, rose by an average 10.1%, while declines were seen in sectors considered to be sensitive to rising interest rates, such as the Banks (-4.0%) and General Retailers (-12.8%) The Rand declined over the month from 6.70 to 7.15 against the US dollar, from 12.55 to 13.22 British Pounds and from 8.62 to 9.09 Euros. The All Bond index lost 3.6% and the Barclays index for inflation linked bonds fell by 0.6%.

The Absa Inflation Beater fund experienced a moderate decline of 0.3% over the month. Over the last year the Fund has returned 9.1%, and over the last 3 years the average annual return has been 10.6%. The Absa Inflation Beater Fund is defensively positioned so as to minimize the risk of capital loss, while targeting a return in excess of inflation.
Risk levels in markets have risen in recent weeks. Accordingly, the Absa Inflation Beater fund has been positioned defensively. Nevertheless, we believe that over time we can deliver inflation-beating performance.

Good demand for inflation linked bonds helped this asset class to perform well during the early part of the month. Some selling pressures however resulted in a correction in real yields toward the end of the month. Linkers still managed to contribute positively to the performance of the fund.

Bond yields drifted weaker during the month of February against a global backdrop of rising interest rates. Strong local economic fundamentals underpinned by the stable currency and relatively stable inflation rates have helped to contain the weakness. The fund continues to hold an underweight position in nominal bonds over the short to medium term.

The South African equity market returned 7.1% for the month and has delivered a gain of 13.3% for the YTD. Since March 2003, equity investors have realised significant gains, mostly as a result of a significant re-rating of stocks by both international and local investors. We continue to caution investors to tone down any expectations of a repeat performance in 2006, despite the good start to the year. The stocks in the portfolio remain attractive from both an earnings and dividend perspective. Our long-term objective is to grow (and protect) the fund’s capital by investing in financially sound companies, run by competent management and trading at a price that ensures that we are protected on the downside, while being well positioned for any potential upside.

The overweight position in cash and money market instruments will be maintained in the near term as a measure of protection against downside risk. Active participation in this asset class will be maintained over the short to medium term in line with the risk profile of this fund.

The fund continues to deliver inflation-beating performance and has exceeded this objective since its inception. Performance objectives are being maintained through tactical allocation between asset classes helping the fund to perform well against its defined benchmark.

Real yields held steady for the month of December. This allowed inflation-linked bonds to deliver in excess of 0.70% for the month. Sufficient demand for inflation-linked bonds still exists. This will help retain stability in real yields in the near term. For now the weighting in inflation-linked bonds will be held below benchmark levels as the lagged effect of inflation reduces the relative gain from this asset class in the near term.

The nominal bond market held up well during the month producing 1.97% total return for the period. Reduced government borrowing requirements together with strong economic fundamentals have helped to maintain this strong position. Bonds are presently at relatively expensive pricing levels. The fund currently has an underweight position which will be reviewed when pricing levels improve.

The South African equity market ended the year in a high note, generating a positive return of 8.05% in December 2005. The fund returned 7.2% in December and while this lagged the overall market, it easily outperformed the average equity fund. 2005 was a great year for equities and the fund ended the year as the 4 th best fund (out of 56 funds) and remains firmly in the top 10% of funds since inception of the fund.

Banking stocks staged a long overdue rally in December (up 14%), with gold and platinum stocks continuing the recent momentum. Since March 2003, equity investors have realised significant gains, mostly as a result of a significant re-rating of stocks by both international and local investors. We would caution investors to tone down any expectations of a repeat performance in 2006.

An overweight position in cash was maintained for the month of December. Active participation in this asset class will be maintained in the near term.