Volatility was once again the prevailing feature of the third quarter of 2006. In spite of this, the Top 40 Index returned 5.6%, and the All Bond Index returned 2.1% against the portfolio's return of 3.00% for the quarter.

Heading into the final quarter of the year, the fund remains fully protected against equity downside risk. While we are generally positive towards equity markets over the longer term, we remain concerned about short term volatility, especially given the weaker rand and the high probability of further interest rate hikes.

Against the backdrop of extremely volatile equity markets in the second quarter of 2006, Absolute Provider was up 0.29%. Equities within the product returned 4.15% for the quarter against 7.17 % from the TOP 40 Index. Cash contributed 1.70% (equivalent to its benchmark), while bonds were down 2.86% for the quarter, outperforming the ALBI which was down 3.58%. We are currently positioned for a stronger rand over the next quarter with an estimated range of R6.50/$ to R7/$. If these levels are realised, it will decrease the likelihood of an interest rate increase at the next MPC meeting in August, which will bode well for equities. With the US Fed raising rates to 5.25% in June, we believe that the possibility for further rate hikes is limited. We are still comfortable with our lower exposure to bonds.