The portfolio continues to be conservatively positioned to protect capital. Cash positions are at their maximum and the use of single stock futures in the portfolio has brought the effective property exposure to 53.25%.

Listed property prices have been highly volatile during the year. Prices declined some 31% during the first half of the year and then corrected upwards during July and August. The conservative positioning of the portfolio has protected investors from this volatility. The fund has experienced a decrease of only 16.83% in price for the year compared with the -31.42% price decline of the South African Property Index (SAPY).

We continue to be satisfied with our current property sector positioning in industrial, office and retail sectors of approximately 41%, 28% and 31% respectively. Our retail sector exposure remains well below the sector average of approximately 50%, which is in line with our view that the retail sector will come under pressure as the consumer is impacted by higher inflation, tighter monetary policy and the new Credit Act. The annual growth in distribution for September 2007 to September 2008 was a 9.58%.

Future Expectations
With inflation not yet under control, and forecasts showing a continued breach of the 3to 6% target range for longer, we will keep property exposure to the minimum levels. It is difficult to predict the duration and impact of a higher interest rate environment, but the potential risk of such a prolonged period on property prices is significant. We offer a conservative asset allocation focusing on property funds with a market capitalisation in excess of R2-billion and with relatively higher exposure to the industrial and office sector. This has enabled us to decrease our exposure to retail properties. Should prices decline as expected, it would give us the opportunity to reinvest a portion of the cash back into property at more appropriate prices. In so doing we would be purchasing the same securities at a higher yield (and therefore purchasing cheaper income streams).

During 2007 we positioned the portfolios conservatively to protect capital as we had anticipated further rising interest rates. Since mid-2006, interest rates have increased by 500 basis points - however, the negative impact on property values has only really been experienced in 2008. The Property Index (SAPY) prices have declined by -31.42% for the first half of 2008. We continue to be satisfied with our current property sector positioning in industrial, office and retail sectors of approximately 41%, 28% and 31% respectively. Our retail sector exposure remains well below the sector average of approximately 50%, which is in line with our view that the retail sector will come under pressure as the consumer is impacted by higher inflation, tighter monetary policy and the new Credit Act. We have taken further steps in 2008 to protect capital by including single stock futures in the portfolio, bringing our effective property exposure to 58%. The fund has done relatively well with a decrease of -25.16% in price for the year, which compares well against the -31.42% price decline of the Property Index (SAPY). The annual growth in distribution for 2007 was a creditable 9.5%.

Future Expectations
With inflation not under control, and forecasts showing a continued breach of the 3 to 6% target range for longer, we will keep property exposure to the minimum levels. It is difficult to predict the duration and impact of a higher interest rate environment, but the potential risk of a prolonged period on property prices is significant. We offer a conservative asset allocation focusing on property funds with a market capitalisation in excess of R2-billion and with relatively higher exposure to the industrial and office sector. This has enabled us to decrease our exposure to retail properties. Should prices decline as expected, it would give us the opportunity to reinvest a portion of the cash back into property at more appropriate prices. In so doing we would be purchasing the same securities at a higher yield (and therefore purchasing cheaper income streams).

South African equity prices and dividends have increased substantially over the last few years. The Marriott Dividend Growth Fund has grown its distributions in the last five years by an average of 17.7% per annum and its price has increased by 20.7% per annum over the same period. However, there have been significant changes in both local and global markets. Interest rates in South Africa have increased by 450 basis points since 2006, and there is a strong possibility of further interest rate increases as there are no signs yet signs of inflation being contained within the 3% to 6% band. There has been significant volatility in global markets as a result of the sub-prime loans crisis in the US, which has impacted local markets by an increase in volatility. With these developments, and a possible slowdown in consumer consumption, certain sectors within the JSE appear to be expensive and some have yields now higher than their long term average. As a result, we have adjusted our portfolio to decrease holdings in securities whose dividend growth is likely to come under pressure and to hold securities that we feel will be able to continue producing reliable dividend growth in a tougher economic climate. Our exposure to the financial sector (with particular emphasis on the major banks) has increased from 25% to 45% as the dividend yields are in excess of their long-term average. We continue to be concerned about the possibility of further weakening in the market and have maintained a futures position to the value of 30% of the fund in order to reduce capital risk. The futures position has no impact on the dividend streams from the underlying securities. Our forecast annual growth in distributions for 2008 is between 17% and 23%.

Future Expectations
With inflation not under control and forecasts likely to continue to breach the 3 to 6% target range for at least the next year, we will keep cash holdings in the fund to maximum levels. It is difficult to predict the duration and impact of a higher interest rate environment, but the potential risk of a prolonged period on property prices is significant. We offer a property asset allocation focusing on property funds with a market capitalisation in excess of R2-billion and with relatively higher exposure to the industrial and office sector. This has enabled us to decrease our exposure to retail properties. The annual growth in distribution for 2007 was 6.5%. Should prices decline as expected, it would give us the opportunity to reinvest a portion of the cash back into property at more appropriate prices. In so doing we would be purchasing the listed proprerty securities at a higher yield (and therefore purchasing cheaper income streams).

The fund will restrict its investments to listed property and liquid assets.

During 2007 we positioned the portfolios conservatively as we had an expectation of rising interest rates and as a result, declining asset values. Interest rates have increased by 400 basis points, however, asset values have yet to decline materially. What we have seen is significant volatility in the global and local markets. We are also in the process of increasing our industrial and office sector exposure. This is in line with our view that the retail sector will come under pressure as the consumer is impacted by higher inflation, tighter monetary policy and the new Credit Act. The fund returned 19.49% (all income reinvested) for 2007.

Future Expectations

With inflation not under control, and forecasts showing a continued breach of the 3 - 6% target range for longer, we will keep property exposure to the minimum levels. It is difficult to predict the duration and impact of a higher interest rate environment, but the potential risk of a prolonged period on property prices is significant.

We offer a conservative asset allocation focusing on larger property funds (over R 2-billion) relatively overweight in the industrial and office sector. This enabled us to decrease our retail exposure which we feel is appropriate.

The annual growth in distribution for 2007 was 6.5%. Should prices decline as expected, it would give us the opportunity to reinvest a portion of the cash back into property at more appropriate prices. In so doing we would be purchasing higher yielding securities (cheaper income streams).