Volatility escalated in the third quarter driven by sub prime problems in the USA. Volatility escalated in the broader market forcing a mammoth sell off in the domestic equity markets. High domestic inflation numbers scared the bond market pushing the long bonds to close to three-year highs.

The quarter started with a bang after the All share index retraced around 12% with unusually high volatility. The market quickly recovered ending the quarter with a healthy return. The portfolio had a moderate exposure in equities ending the quarter with a nominal equity exposure including futures position of around 55%.

The volatile equity market has medium term potential however we are cautious at this stage and have moved protection up to protect the funds against negative draw downs.

Financial markets were quite volatile over the period led by a sell-off in the bond markets. Growth in demand for credit from South Africa's private sector slowed marginally to 24.84% year-on- year in May from 25.08% in April.

The National Credit Act will probably prompt some further slowdown in private credit growth in the coming months. Inflation data released has hardened the case for another interest rate hike in August due to central bank concerns that CPIX inflation will remain outside the banks 3 to 6 percent band for longer than expected.

The South African listed property sector fell 1.6% in the second quarter. After a very strong performance for the first quarter the sector fell on profit taking and concerns over rising interest rates. The major contributors to performance were ApexHi C, Hospitality B and Acucap, while the detractors were ApexHi B, Monyetla and Sycom.The fund was a net seller of equities.

Cash was the best performing asset class for the month posting a return of 0.69%. Money market rates steadily increased across the curve during the month of June.

All the money market rates have adjusted higher in anticipation of a 50bpt rate hike at the next MPC meeting which will be held on the 15 and 16th of August 2007.

The quarter was characterized by equity volatility driven by wows in China and negative news flow in the US. The Top 40 Index had a performance of 9.7%. The bond market had an initial rally but weakened in the latter part of the quarter with the ALBI index achieving 1.6% for the quarter. The fund performance was up 7.1%.The equities, cash and bonds contributed 10.0%, 2.1% and 1.7% respectively, outperforming their respective benchmarks.

Whilst there was a lot of volatility, the equity market closed on new all time highs. The risk in the equity market has build up over the quarter. Pressure from the US, supported by the negative news flow from the Japanese Yen carry trade has been building up for a while. This has guided us to be more conservative in our equity allocation at the current level of around 55%. The fund will be fully protected to December 2007 from current levels. We are striving to minimize capital draw downs whilst protecting capital from current levels at year end.

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%. Absolute Provider was up 2.79% 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.