We are pleased to report that the equity markets are continuing its recovery. As a result the portfolio has benefited through its relative large equity exposure.

We would have preferred to have had an even larger exposure to the equity markets BUT as this fund is a prudential fund (complies with retirement/pension fund investment criteria) it is limited to the maximum exposure it can have to equities.

On the positive side this makes the investment less risky in times of downward movements in equity prices. We continue to be positive about the South African economy, company results and equity prices going forward.

Our strategy to move the portion of the portfolio that used to be invested in bonds into shorter term cash and money market type of investments has paid of with the Govenor of the Reserve Bank increasing the repo interest rate by a further 0.5 %. We foresee this upward interest rate cycle to continue for now.

There has been a great deal of uncertainty in the marketplace since mid-May, caused by rising global inflation, which in turn prompted central banks around the world to increase interest rates. This tightening in monetary policy caused a lot of selling pressure on the equity markets. Due to various geo-political uncertainties, international investors have increased their risk aversion and as a result funds flowed out of Emerging Markets to safe investments. With interest rates rising in the US (and elsewhere), has resulted in the narrowing of the risk premium on the emerging markets. This has also led to a sell-off of emerging market holdings as investors realigned their portfolios accordingly. After reaching the low, the equity market once again rallied to close the month on 21 238.

The Rand weakened considerably in June. The weaker Rand will have an impact on all imported goods which should help curb imports to a degree and help exports, this should also have a positive impact on the widening current account deficit. The problem will however have a negative effect on the local petrol price which should soar as the cost of oil imports increases. This will then negatively effect inflation which will, in my opinion lead to a further increase in the interest rates this year.

The fund had very satisfactory performance since launch. We suspected incorrect measurement by Money Mate and after investigating it was found that the dividends were being captured incorrectly. The performance reported now is correct since launch.

Markets extended their growth trend in the first quarter of 2006. International economic indicators continue to point to a year of solid growth for the year, however at a slower pace that in 2005.

US economic expansion remains solid and inflation is under control. High energy prices, tighter monetary policy and a cooling of the housing market all point to some slowing in US economic expansion this year. In March, we saw the US Federal Reserve increase interest rates to a five year high of 4.75% with the market already expecting one further increase to bring the rates to 5.0% later this year.

The Bank of Japan kept the interest rates steady, despite the faster than expected growth in 2005.

The macroeconomic picture in Europe continues to point to signs of strength. Business confidence numbers were better than expected, with Germany's Business Climate Index rising to its highest level since October 2001. The European Central Bank ("ECB") raised rates for a second time in three months by 0.25% to 2.5% with a possibility of additional increases. Eurozone economic growth for 2006 is expected to be in the region of 2.1% and 2.0% for 2007.

On the local front, the South African Reserve Bank ("SARB") left interest rates unchanged at its February and March Monetary Policy Committee Meetings, however the governor hinted that interest rates may increase in the near future. The strong local growth in 2005 resulted in steady job creation, which bodes well for the economy and the government's target to reduce the high level of unemployment in the country.

The markets ended the year on a high having posted yet another great year for investors who were had equity exposures.

Despite available data suggesting that growth may have slowed a bit in the third quarter from the very buoyant 5% annualised growth recorded in the second, it is still expected to come in above 4% for 2005 and this is expected to continue well into 2006.

Going into 2006 inflation is expected to peak at about 5%, this is still within the 3%-6% range as targeted by the SARB. Several developments have lead to this change in view, including lower-than-expected actual inflation numbers for September and October; a sharply lower petrol price in November and December and a renewed rally of the Rand against all major currencies.

Perhaps the biggest risk to the rate outlook for 2006 is the possibility that the current account deficit may widen further. The risk to the current account in 2006 is directly related to the infrastructure program, as capital spending typically contains a fairly large import content.

The metals markets rallied in 2005 and are set to continue their rally into 2006 as the global economy continues to consume ever more metal, led by China. The global economy has remained fairly robust, with positive data coming out of the US, Japan, China and many other emerging markets. Even the European Union looks positive: the consumer remains under pressure, but industrial production is accelerating on the back of strong exports.