This annual report of the Executive Board of the clean development mechanism (CDM) to the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (COP/MOP) covers activities from the end of November 2005 to 21 July 2006. Since the entry into force of the Kyoto Protocol, the implementation of the CDM has made notable progress. In the period covered by this report, 225 CDM project activities were registered (total registered 252), more than 10 million certified emission reductions (CERs) were issued, six operational entities began performing validation of projects and 16 such entities began undertaking verification and requesting issuance of CERs. Among the 62 approved methodologies for baselines and monitoring, nine are consolidated methodologies. Simplified methodologies for small-scale projects, including afforestation and reforestation projects, were further developed. Access to information through the UNFCCC CDM website, including for 6,400 subscribers to the CDM News facility, was further improved. The report also highlights the areas of governance, management and resources, which are critical to ensuring the efficient, cost-effective and transparent functioning of the CDM. The Board has revised its CDM management plan and reiterates the urgent need for adequate and predictable resources to implement its activities. The report recommends decisions to be taken by the COP/MOP at its second session, including guidance on matters arising and on the designation of operational entities. The work of the Board from 22 July to late October 2006 will be covered in an addendum to this report. Mr. José Domingos Miguez, Chair of the Board, will highlight achievements and future challenges of the CDM in his presentation to the COP/MOP at its second session.