Distribution
The distribution declared at the end of September 2004 was 3.0708 cents per unit (June 2004: 3.0606 c p u) bringing the total distributed for the last four quarters to 12.2362 cents per unit. The September 2004 distribution was marginally higher than the expected June 04 distribution. Distributions are likely to remain at this level unless there is a significant change in interest rates or a higher than expected increase in rental growth from listed property.

Future Income
There is uncertainty as to the short term direction of interest rates. From a bigger picture, it would appear that we are at the bottom of an interest rate cycle with the 1 - 2 year expectation being higher rates than current levels. The Yields on long bonds remain too low for inclusion in the fund, especially when bond yields are compared with earnings yields of equities. The portfolio is unlikely to change over the next quarter and hence the expected income of the fund is likely to remain the materially the same with the potential of being slightly higher.

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.
In the fund manager's opinion, SA listed property is currently overvalued.
1. Interest rates appear to be at the bottom of the current cycle.
2. Current income yields at 10% are below historic averages.
3. Income yields are about 0.5% higher than long bonds. Bonds are generally considered expensive.
4. Positive signs of rental growth are becoming evident.
An income dependent investor having secured an income yield that is currently higher than most other options should expect capital volatility and short term capital loss may be experienced.
As a result of current prices, the property and bond exposure in this fund should not be increased. New inflows would be directed to liquid assets and would dilute future portfolio distributions. In order to protect the interest of existing investors, this portfolio remains closed to new investments. To protect the current income levels of the fund, the existing exposure to property will be maintained. Investors may experience some capital weakness as a result.

Distribution
The distribution declared at the end of June 2004 was 3.0606 cents per unit (March 2004: 3.0575 cpu) bringing the total distributed for the last four quarters to 12.3634 cents per unit. As expected, the June 2004 distribution was marginally higher than the expected March 04 distribution.
Distributions are likely to remain at this level until there is a significant change in interest rates and/or a material increase in rental growth from listed property.
Future Income
It would appear that we are at the bottom of an interest rate cycle and there is an expectation that interest rates will increase towards the end of 2004 or early 2005. Yields on long bonds remain too low for inclusion in the fund, especially when bond yields are compared with earnings yields of equities. The portfolio is unlikely to change over the next quarter and hence the expected income of the fund is likely to remain the same.
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.
In the fund manager's opinion, SA listed property is fairly priced.
1. Interest rates appear to be at the bottom of the current cycle.
2. Current income yields at 11% are around historic averages.
3. Income yields are about 1% higher than long bonds. Bonds are generally considered expensive.
4. Positive signs of rental growth are becoming evident.
An income dependent investor having secured an income yield that is currently higher than most other options should expect capital volatility and short term capital loss may be experienced.

As a result of current prices, the property and bond exposure in this fund should not be increased. New inflows would be directed to liquid assets and would dilute future portfolio distributions. In order to protect the interest of existing investors, this portfolio remains closed to new investments.
To protect the current income levels of the fund, the existing exposure to property will be maintained. Investors may experience some capital weakness as a result.

Distribution
The distribution declared at the end of March 2004 was 3.0575 cents per unit (Dec 2003: 3.0473 c p u) bringing the total distributed for the last four quarters to 12.496 cents per unit (last 4 quarter to Dec 2003: 12.6871 c p u). The current distribution, when annualised, represents a yield, of 11.05%. This last quarter's distribution marginally increased from the previous distribution and is likely to remain in this range until there is a significant change in interest rates.

Future Income
Interest rates remain unchanged with no drop in the rate by the Reserve Bank during February. It is unlikely that there will be further cuts to interest rates. Instead a rise in interest rates may occur toward the end of this year. 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. As most of the cash element of the fund is short dated, there should be no material change to the distribution going forward unless there is a change in interest rates.

Capital
In our 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.

In our opinion, SA listed property is fairly priced:
1. Interest rates appear to be at the bottom of the current cycle.
2. Current income yields are around historic averages.
3. Income yields on quality funds are about 1% higher than long bond yields, however bonds are generally considered expensive.
4. Lack of rental growth continues to be a concern.
An income dependent investor having secured an income yield that is currently higher than most other options must be aware that capital volatility should be expected and short term capial loss may be experienced.

In our opinion and as a result of current prices, the property and bond exposure in this fund should not be added to. Any new flows into the fund would be directed to liquid assets. The effect of this would be to dilute future portfolio distributions. In order to protect the interest of existing investors, this portfolio has been closed to new investments. In order to protect the current income levels of the fund, the existing exposure to property will be maintained. Investors may experience some capital weakness as a result.

The distribution declared at the end of December 2003 was 3.0473 cpu (Sept 2003: 3.1980 c p u) bringing the total distributed for the last four quarters to 12.5921 cpu (last 4 quarter to Sept 2002: 12.9586 cpu). The current distribution, when annualised, represents a yield of 10.92%. This last quarter's distribution declined from the previous distribution as a result of fixed deposits maturing during the quarter and being replaced with lower yielding investments.

Future Income
Interest rates declined by 0.5% in December, bringing the total to 5.5% for this calendar year. Further interest rate cuts this quarter are unlikely although some commentators are mooting a cut of 0.5% in February. Any change 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 our opinion, the income stream from these long bonds remains too expensive for inclusion in the portfolio. With the maturing of fixed deposits and short term bonds and their replacement with lower yielding investments, there is likely to be a decline in the March 2004 distribution although the quantum of the decline is unlikely to be material.

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.

In the fund manager's opinion and as a result of current prices, the property and bond exposure in this fund should not be added to. Any new flows into the fund would be directed to liquid assets. The effect of this would be to dilute future portfolio distributions. In order to protect the interest of existing investors, this portfolio has been closed to new investments.