As at the end of October 2002, the Marriott Global Real Estate Fund was yielding 6.4% gross. This compared favourably with the 3.4% yield generated by the JP Morgan Global Government Bond index.

The rally in major equity markets in October left most global property indices behind as investors rotated out of defensive stocks and into early cyclical sectors where valuations have remained subdued despite relatively benign economic data. This rally turned short-term comparative performances upside down, although year-to-date, the property sector remains well ahead of all major equity market indices which have a long way to go if they are to avoid a third successive year of declines.

Marriott Global Real Estate are now well into the third quarter reporting season for North American Real Estate Investment Trusts which are crucial to the fund's overall performance . As expected, office vacancies have been rising as employment opportunities have been contracting, however the fund managers earnings growth expectations for the fund as a whole remain unchanged at around 2% to 3% per annum over the next five years.

At the end of September 2002, the Marriott Global Real Estate Fund paid a quarterly distribution of 2.3668 cents per unit. The current US dollar yield on the fund is 6.4% (before taxes), which compares favourably with the 3.4% yield generated by the JP Morgan Global Government Bond index.

The principal concern facing real estate companies is the financial health of their tenants on whom they depend to maintain their income streams. Of all of the sectors within the property market, the area of office accommodation is causing particular concern as many companies, weakened by recession and the excesses of the dot com bubble, default on their leasing obligations. Marriott intend, therefore, to continue their strategy of increasing exposure within the fund to the more resilient retail sector, which has served the fund well in 2002 to date.

With property fundamentals having deteriorated since the 3rd quarter of last year, Marriott are forecasting income growth in US dollars over the next three to five years of between 3% and 4% per annum, significantly lower than the 10% per annum average from international listed real estate securities over the last seven years. At the same time, we expect the current discounts to net asset value at which the listed real estate securities are trading to reduce as property fundamentals improve in a low interest rate environment. This should translate into US dollar total returns (before taxes) in the region of 10% per annum, with the predictable income yield contributing more than two-thirds to this figure.

The Marriott Global Real Estate Fund rose by 4.27% in August 2002 with the rand appreciating by 3.30% against the US dollar for the month. The total return over 2002 to date currently stands at -2.92% with the rand depreciating by 12.46% against the US dollar for this period. As at the end of August 2002, the Marriott Global Real Estate Fund was yielding 6.1%. This compared favourably with the 3.5% yield currently generated by the JP Morgan Global Government Bond index.
After the volatility in July, August saw a welcome return to form with steady gains across the property sector. By contrast, year-to-date, the S&P500 index has now fallen by 19.2% whilst the Morgan Stanley Capital International All-County Free index has fallen by 16.8%.
Although the fund currently has a 70% commitment to the North American real estate market, the fund manager's have been gradually raising the fund's exposure to diversified European property companies, particularly those operating within a tax efficient corporate structure such as the Dutch BV. Suitable companies are, however, quite rare and the liquidity, diversity and yield characteristics of the North American property market means that REIT's are likely to constitute a substantial part of the Marriott Global Real Estate Fund portfolio for the foreseeable future.

Over the course of a turbulent month for global equity markets, the Marriott Global Real Estate Fund fell by 4.6%. The total return over 2002 to date currently stands at 13.9%. These figures disguise the extraordinary level of volatility experienced by equity markets throughout July. The MSCI All-Country World Free index fell by 8.8% over the month to the 30th July, having at one stage fallen as low as 16.1%. For the first time this year, trauma in the broader equity market impacted the Real Estate Investment Trust (REIT) sector in the US as investors took the (rare) opportunity to realise profits ahead of the second quarter of earnings results from the property sector. In the event, results from North American property REITs have so far been in line with expectations, although companies have been guiding earnings estimates lower for the third and fourth quarters of 2002. Inevitably, the fund manager's expect some weaker numbers later this year as the slowdown in the world economy starts to influence the property sector which traditionally lags the wider market by a full calendar quarter. The strength of bond markets over the quarter has meant that the yield from the benchmark JP Morgan Global Government Bond index has fallen from 3.9% to 3.7%. The gross yield from the Marriott Global Real Estate Fund currently stands at 6.2% and the net yield (ie, after the deduction of withholding taxes) stands at 4.5%.

The Marriott Global Real Estate Fund gained 1.2% in June 2002 in US dollar terms. Set against a background of falling global equity markets (the MSCI All Country World index fell by 7.5% over the same period), this performance was encouraging. Most of the gains within the fund arose from the holdings in the North American Real Estate Investment Trust sector ('REITs') which benefited from a further shift in sentiment away from so-called 'growth stocks' into sectors perceived to offer better value and, following the collapse of Worldcom, more transparent accounting policies. At 6%, the fund continues to yield 2% more in gross terms over the 3.9% yield generated by the JP Morgan Global Government Bond index and 0.4% more in net terms (ie after the deduction of withholding taxes). Since the beginning of the year, the fund has risen by 18.5%, whilst the MSCI All-Country World index has fallen by 10.2%. At a recent REIT conference in New York, the fund manager's met several management teams of companies in which the fund is invested. The fund manager's were impressed by their track record, their commitment to shareholders and their prognosis for the long-term outlook of the real estate industry. At the start of the year, the fund manager's commented that they expected the North American REIT market (to which this fund has a 75% exposure) to return low double digit growth from a combination of income and capital gains throughout 2002. This projection is beginning to look conservative. Whilst the fund manager's do not expect growth in the sector to continue accelerating throughout the second half of 2002, the characteristics which have set the sector apart from the rest of the market still hold good today.
The June distribution of 2.64c per unit represents growth of 35% over the March quarterly distribution. This growth has been achieved through shifting exposure from low-yielding securities in South East Asia to higher yielding securities in North America, as well as through dollar income growth from the securities in the portfolio.

The Marriott Global Real Estate fund rose 3.4% during May 2002, at a time of poor sentiment towards broader stock market indices and continued uncertainty in Asia. This extends the period of outperformance by property so far this year, with the Morgan Stanley REIT (Real Estate Investment Trust) index up 9% in the year to date, outperforming the S&P500, down 5.1%, by 14% over the period. At the same time the technology biased NASDAQ Composite has fallen nearly 15% in the year to date.

In terms of subsectors within the REITs universe, we continue to be positive on the retail sectors - both regional malls and shopping centres - where the supply/demand picture is still well balanced compared to other areas, notwithstanding the problems affecting chains such as Kmart and the retrenchment at Gap. The office subsector, meanwhile, remains under pressure in specific parts of the US such as San Francisco, where owing to fallout in Silicon Valley vacancy rates are running at 30% to 40%, a rate not seen since the commercial property collapse of the late 1980s. In the United Kingdom, the property sector has been stimulated in the past month by a bout of corporate action, with an active investor applying pressure on British Land to buy back its own shares and introduce new managerial blood. While the company's existing management has not yet agreed to any of the proposals, the criticism has had a beneficial impact on the share price, with the discount to net asset value (traditionally much higher in the UK than in the US) narrowing from 45% six months ago to approximately 25%. Elsewhere, fund holding, the UK's biggest property company and a MIREF holding, has agreed to return STG500m to shareholders in a gesture that has been well received by investors.

The Global Real Estate Fund gained 1.5% in April 2002 from a combination of income and capital growth. The gross yield of the fund stood at 6% at the end of April 2002 and the net yield stood at 4.3%. The gross yield remains nearly 2% higher than the notional yield currently generated by the JP Morgan Global Government Bond index. Since the beginning of the year, the fund has gained 7.7%. The Real Estate Investment Trust (REIT) market in North America, to which the fund currently has a 72% exposure, has outperformed the broader North American equity indices, such as the S&P500 index, substantially throughout 2002 to date. Although the market has retreated from its highs in recent days, the batch of first quarter earnings within the REIT sector and the fund in particular has been in line with or slightly better than expectations. The fund manager expects the REIT sector to make steady progress from these levels supported by a modest increase in dividend payouts. Both Europe and the United Kingdom have seen major rallies in their respective property sectors during 2002. Because of their generally lower dividend yields and less attractive tax treatment, the fund manager does not expect either region to outperform the broader market throughout the rest of 2002. Indeed, in the event of any further economic recovery in these regions, the property sector may well lag behind the rest of the market and the fund is currently neutral to underweight in these regions. In summary, the fund manager expects the fund to remain focussed on the North American REIT market because of its income attractions, transparency and liquidity. It is worth pointing out that the REIT market has returned over 13% on average each year since 1972 in US Dollar terms and has done so with 12% less volatility than the S&P500 index. In addition, the sector currently trades on approximately half of the price/earnings multiple of the S&P500 making it suitable for both income and value orientated investors. It is these two characteristics which the fund manager continues to aim to capture when managing the fund.

The Global Real Estate Fund gained 4.4% in March 2002 from a combination of income and capital growth. This was ahead of both the Global Property Research 250 index which gained 3.2% over the month, and the JP Morgan Global Government Bond index which fell by 0.5%. The gross yield of the fund rose to 6.4% in March 2002. This is now a full 2% higher than the notional yield currently generated by the JP Morgan Global Government Bond index and over 5% higher than the returns currently available from short-term US Dollar deposits.
The strength of the fund in March 2002 reflected the performance of the North American real estate investment trust sector which gained sharply as investors continued to gravitate towards the attractive yields available relative to bonds. Such strong short-term performance is unusual for the real estate sector and we expect the market to pause for breath in the second quarter of the year, particularly if the broader stockmarket reacts to the recent encouraging flow of economic data.
The North American real estate investment trust sector, to which the Global Real Estate Fund currently has a 75% exposure, has risen by 8% in 2002 to date. Although consumer spending has been robust, results from companies within other sectors in the real estate industry have yet to fully reflect the difficult market conditions experienced in the final quarter of 2001. These factors will become evident as the forthcoming earnings season in April unfolds. We remain positive for the profitability of the North American real estate investment trust sector, although our belief is that the pace of growth seen in 2002 to date will prove difficult to sustain.

The performance of the Marriott Global Real Estate Fund reflected the 0.41% gain of the world property prices with a gross yield to end of December 2001 of 5.8%. The fallout from the slowdown in the US economy will adversely affect demand for new office space and residential units in 2002, however, the low volatility and attractive yields of the property sector should provide adequate compensation over the medium term