Future Income
Interest rates declined by 1.5% in October, bringing the total to 5% for this calendar year. A further interest rate cut is expected during this quarter ending December 2003. Declines in interest rates will not affect income derived from property stocks and existing fixed deposits, nor will any decline in property yields affect the income flow from property for existing investors. Yields on long dated bonds remain low and, in the fund manager's opinion, the income stream from these long bonds remains too expensive for inclusion in the portfolio. With the current decline in short term bond yields (which operate in a similar manner to fixed deposits) and with the unwinding of very high yielding fixed deposits made a year ago, the income per unit is expected to decline to between 3.05 and 3.1 cents per unit for the quarter ending December 2003.

Capital
In the fund manager's opinion, the capital values of long bonds remain at unreasonably high levels with bond yields remaining lower than property and as a result, there is no exposure to long dated bonds.

SA listed property is now overvalued for the following reasons:
1. Current income yields are below historic averages
2. Income yields on quality funds are only marginally higher than long bond yields - bonds are generally considered expensive
3. SA listed property is more expensive than equivalent open market property
4. Lack of rental growth would indicate current prices reflect an over priced asset class
An income dependent investor securing an income yield that is currently higher than most other options must be aware of the capital risks associated with the investment.

The Marriott Core Income Fund will close to new investments on the 19 Nov 2003. Investments in the "pipeline" ie, those currently being processed through the product factories, will be accepted until Tuesday 25 Nov 2003. Existing debit orders will continue to be processed, but no new debit order requests will be accepted.

The Income Specialists are no longer comfortable to invest new inflows into bonds and listed property as the prices of these assets are currently high relative to historic averages. It is therefore necessary to close the funds as new inflows would build up the cash portion of the fund and would therefore erode the income of existing investors. Please be aware that the income distributions of the Core Income Fund will decline marginally as a result of the cash portion in the portfolio.

Distribution
The distribution declared at the end of Sep 2003 was 3.1980 cents per unit (Jun 2003: 3.1935 cpu) bringing the total distributed for the last four quarters to 12.9586 cpu (Jun 2002: 12.9048 cpu). The current distribution, when annualised, represents a yield of 12.39%. This last quarter's distribution was in line with the previous quarter's largely as a result of the fixing of a portion of the cash balances.

Future Income
Interest rates declined during the last quarter (a 1% cut in August) and further interest rate cuts are expected during this quarter ending Dec 2003. Declines in interest rates will not affect income derived from property stocks and existing fixed deposit, nor will any decline in property yields affect the income flow from property for existing investors. Yields on long dated bonds remain low and, in our opinion, the income stream from these long bonds remains too expensive for inclusion in the portfolio. New inflows into the fund continue to be invested into property and higher yielding shorter dated bonds as well as a small portion in cash. With the current decline in short term bond yields (which operate in a similar manner to fixed deposits) and with the unwinding of very high yielding fixed deposits made a year ago, the income per unit is expected to decline to between 3.05 and 3.1 cents per unit for the quarter ending Dec 2003.

Capital
In Marriott's opinion, the capital values of long bonds remain at unreasonably high levels with bond yields remaining lower than property and as a result, there is no exposure to long dated bonds. Property stocks would appear to be fully priced at the moment. There is little capital risk from the fixed deposits and short dated bonds.

Distribution
The June 2003 distribution amounts to 3.1935 cents per unit (Mar 2003: 3.2483 cpu) bringing the total distributed for the year to 12.9048 cpu (Jun 2002: 12.64 cpu). The current distribution, when annualised, represents a yield of 12.03%. This quarter's distribution is, as predicted, lower than the three previous quarters as a result of the unwinding of certain of the fixed deposits and the decline in interest rates. The previous three distributions have been higher than average as a result of the interest earned on the cash holdings being inflated by higher interest rates.

Future Income
Interest rates dropped by 1.5% during the quarter and further interest rates cuts are expected before the year-end. This decline in rates will not affect income derived from property stocks nor will any decline in property yields affect the income flow from property for existing investors. Yields on bonds remain low and, in the fund manager's opinion, the income stream from bonds remains too expensive. As a substitute, that portion of the portfolio earmarked for bonds has been invested in a series of one year fixed deposits. This will have the effect of fixing the income for the year. During this period, any increase in bond yields will be taken advantage of to maximise income flows. The result of this current asset allocation will be future distributions on similar levels to the Sept 2002 distribution. With the outlook of little or no growth in the short term from property stocks, the distributions from the Core Income Fund are likely to show little growth in the next four quarters.

Capital
Capital values of bonds and property continued to strengthen over the last quarter. This was largely due to the decrease in interest rates (see above) and the expectation of future interest rate cuts. In the fund manager's opinion, the capital values of bonds remain at unreasonably high levels with bond yields remaining lower than property and, on an after tax basis, almost on a par with equities. As a result, there is no exposure to bonds. There may be future increases in capital values flowing from the exposure to property stocks, although the fund manager's feel that property is fully priced at current levels.

Distribution
The March 2003 distribution amounts to 3.2483 cents per unit (Dec 2002: 3.3188 cpu) bringing the total distributed for the year to 12.8772 cpu (Dec 2002: 12.7789 cpu). The current distribution, when annualised, represents a yield of 12.47%. This quarter's distribution is marginally lower than the previous quarter as a result of one of the dividends received being below expectation. The increase from March 2002 distribution is 3%.

Future Income
Interest rates remain at high levels but there is an expectation that interest rates will decline over the next eighteen months. Should interest rates remain unchanged over the next quarter, income derived from cash and very short dated deposits will remain unaffected. However, income from deposits maturing during the quarter will decline as these will be fixed at newer and lower rates. In the medium to long term, growth in property income is likely to increase over the next few years as property fundamentals strengthen.
This will result in a continued growth in distributions over the long term. Unit holders should expect a decline in distribution for the next quarter but not beyond levels enjoyed during the December 2002 quarter end.

Capital
Capital values of bonds and property continued to strengthen over the last quarter resulting in a decline in yields for new investors. This was partly due to the decrease in tax on rental and interest income imposed on retirement funds and it would also appear that the market has anticipated the decline in interest rates.
Because the capital values of bonds and property are inversely related to changes in interest rates, a decrease in interest rates during the year is likely to result in a continued increase in the value of bonds and property. The fund manager's remain concerned that bonds remain overvalued. Bond yields are significantly lower than property and bank deposit yields. As a result, the portfolio remains exposed to very short dated investments and property only.

Distribution
The December 2002 distribution amounts to 3.3188 cents per unit (Sept 2002: 3.1442 cents per unit) bringing the total distributed for the year to 12.7789 cents per unit. The current distribution, when annualized, represents a yield of 13.2%. This distribution is higher than the previous quarter's largely as a result of the effects of higher interest rates on cash balances.

Future Income
The effects of higher interest rates and the fact that cash balances have been fixed at these rates where possible will result in distributions for the next two quarters remaining at current levels. Thereafter in the short term, should interest rates decline at a rate greater than the growth in income from other investments, distributions might decline to the September 2002 level.

In the medium to long term, growth in property income is likely to increase over the next few years as property fundamentals strengthen. This will result in a continued growth in distributions. Based on current market conditions, there is nothing to indicate that targeted distributions for March 2003 should not be met.

Capital
Capital values of bonds and property strengthened over the last quarter regaining some of the losses experienced during the first half of the year. It would appear that the market has anticipated the containment of inflation and is looking forward to a decrease in interest rates. Because the capital values of bonds and property are inversely related to changes in interest rates, a decrease in interest rates during the year is likely to result in a continued increase in the value of bonds and property. A residual concern remains, however, that bonds remain overvalued for other reasons. (Bonds have become preferred investments for those asset managers waiting for a lifting in asset swap regulations which may have inflated bond prices). As a result, the portfolio remains exposed to very short dated investments.