Future Income
Advantage has been taken of high short term rates to increase income from the cash and bond element of the fund. New inflows into the fund will be invested in the current short dated bond profile. Income from property assets is unlikely to show growth over the next quarter based on current market conditions. Growth in property income, though, is likely to increase over the next few years as property fundamentals strengthen. Income from cash is likely to increase should a further rise in interest take place. This will have a marginal effect on the next quarter's distribution. Based on current market conditions, there is nothing to indicate that targeted distributions for December 2002 should not be met.

Capital
The capital values of bonds and property have shown weakness as a result of the 4% increase in interest rates during 2002. Should interest rates be raised in November 2002, further weakness may be experienced by unit holders. This, though, will have no effect on distributions. It is likely, however, that interest rates over the medium term are likely to decrease, continuing the trend that commenced in previous years and which was interrupted by the collapse of the rand in December 2001. As the capital values of bonds and property are inversely related to interest rates, the capital weakness experienced during 2002 will be reversed in the period ahead. Bonds will revert to their nominal values over time and property assets should grow in line with the underlying growth in income. The capital value of cash, as always, remains constant.

Distribution
The Marriott Core Income Fund has pleasure in distributing 3.1442 cents per unit for the quarter ended September 2002 (3.1662 cents per unit, June 2002). This distribution is in line with the annual forecast of 12.5 cents per unit and brings the distribution for the 12 months past to 12.62 cents per unit, a yield of 13.1% based on June 2002 capital values.
Future Income
Income generated by Bonds over the next quarter will remain constant. New inflows into the fund will be invested to retain the current bond profile of the fund. Income from property assets is unlikely to show growth over the next quarter based on current market conditions. Growth in property income, though, is likely to increase over the next few years as property fundamentals strengthen. Income from cash is likely to increase should a further rise in interest take place. This will have a marginal effect on the next quarters distribution. Based on current market conditions, there is nothing to indicate that targeted distributions for December 2002 should not be met.
Capital
The capital values of bonds and property have shown weakness as a result of the 4% increase in interest rates during 2002. Should interest rates be raised in November 2002, further weakness may be experienced by unit holders. This, though, will have no effect on distributions. It is likely, however, that interest rates over the medium term are likely to decrease continuing the trend that commenced in previous years and which was interrupted by the collapse of the rand in December 2001. As the capital values of bonds and property are inversely related to interest rates, the capital weakness experienced during 2002 will be reversed in the period ahead. Bonds will revert to their nominal values over time and property assets should grow in line with the underlying growth in income. The capital value of cash, as always, remains constant.

The Marriott Core Income fund is one of the few in its category to offer positive returns over the shorter time periods. It has moved up to top-quartile positions over three and six months from its bottom quartile ranking for a year. But rising interest rates don't bode well for property and bond yields and this is a property-dominated fund with a one-third bond exposure. Fund manager Michael Ronald doesn't expect the fund's income distributions to change.

During the month, statistics relating to inflation were released indicating that the cost of living was still on the rise. As a result, an expectation has arisen in the market place that the Reserve Bank might increase interest rates during September. It would appear that this expectation has had little effect on capital values of bonds with only a small increase in yields. In contrast property values have shown a slight increase. These two movements have balanced each other out and the current yield of the fund at month end remains unchanged from last month's close.
Should an increase in interest rates occur, the income distributions from the fund would remain unchanged. The asset allocation of the fund also remains unaltered.

The yield on the Marriott Core Income Fund has declined slightly to 12.5% on the back of fortuitous capital gains from the fund's bond and listed property holdings. This has had no impact on the income generated by the fund and the distribution for the second half of the year is expected to equal the distributions paid in the first half of the year, bringing the total distribution for the year to 12.6c per unit.

The Marriott Core Income Fund has pleasure in distributing 3.17c cents per unit for the quarter ended June 2002. This distribution is in line with forecasts and brings the distribution for the 12 months past to 12.64 cents per unit, a yield of 13.16% based on June 2002 capital values.
During the month, the SARB increased interests rates by another 1%, the third such increase this year. This action was taken to counter the effects of an increase in inflation since the rand's devaluation at the end of last year. Inflation is expected to be relatively high over the next six months, however, the Reserve Bank's inflation target of 3% to 6% is likely to be achieved over the next two years. Working within this scenario, the current asset allocation will remain unchanged.

The asset allocation of the Core Income Fund has remained unchanged during the month. Despite the stronger rand and the positive effect it will eventually have on inflation, the market continues to expect an interest rate rise during the month of June 2002. It would appear that the bond market has already anticipated this increase.

At the end of June 2002, the fund is anticipated to declare a distribution in line with previous distributions. This demonstrates that the income earned by the fund has remained unaffected by the weakness in capital values over the last six months. It would also appear that capital values are returning to more appropriate levels.

A small but important change occurred in the bond exposure of the Core Income Fund during the month. The difference in the yields between short and long dated bonds is currently less than 1%. Advantage has been taken of this situation to increase the duration of the bonds in the fund by investing about 5% of the fund in an 8 year bond. This is the beginning of a process to normalise the bond maturity profile of the fund after protective measures were taken in January 2002 in the expectation of interest rate increases. The exposure to property remains unchanged.
Inflation statistics still indicate that the SARB might well increase interest rates in June 2002 by a further 1%. The current strength of the Rand, though, and the positive effect this will have of decreasing imported inflation might indicate that the SARB's inflation targets would be attainable next year. A decline in interest rates towards the end of the year would then become likely with a corresponding increase in the value of bonds and property.
The current status of the portfolio indicates that a June 2002 distribution similar to March 2002 is to be expected.

The Marriott Core Income Fund distributed 3.15c per unit for the quarter ended 31 March 2002. This brings the total amount distributed for the prior 12 months to 12.75 cents per unit, representing an historic yield of 13.8% based on the ex-dividend price as at quarter end.
During the last quarter, capital values of bonds and property have declined largely as a result of the 2% increase in interest rates. Income from these asset classes, however, has not been affected and as a result no change in asset allocation has taken place. Unit holders have therefore experienced a decline in the value of their investments but this decline has not affected their distributions received.
The increase in interest rates was made by the South African Reserve Bank to combat the inflationary effects of the decline of the Rand during December 2001 and January 2002. This spike in interest rates is considered to be short term in nature and interest rates are expected to decline in the medium term. All things being equal, values in bonds and property are expected to rise again as interest rates are cut.

The expected growth in income from the property stocks held in the portfolio is expected to be between 2 and 3% for 2002. It is expected that the bond component will continue to deliver the income yield as purchased and with the increase in interest rates on the cash portion the fund distributions should be at least as much as 2001.