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 28.79%.

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 9.85% 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 9.65%.

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 capitalization 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 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 step in 2008 to protect capital by including single stock futures in the portfolio, bringing our effective property exposure to 36%. The fund has done relatively well with a decrease of -15.81% 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).

The economic outlook within South Africa has deteriorated over the past quarter. The effects of rising interest rates and high levels of inflation have started to put pressure on consumer spending. This pressure is likely to continue and we have concerns about the sustainability of dividend growth, particularly from rentals derived from the retail sector. On the other hand, the weakening rand is likely to stimulate export demand and hence the need for industrial space. We continue to hold our maximum cash holding within the fund (50%) and the property portion of the portfolio has been adjusted to minimise exposure to retail space and maximise exposure to industrial rentals. The retail exposure of the fund has reduced to 27% compared with the industry average of 50%, office exposure is currently 28% and the industrial exposure of the fund has been maximised at 43%.

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 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 9.5%. 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 same securities at a higher yield (and therefore purchasing cheaper income streams).

The fund will restrict its investments to listed property and liquid assets, and may increase liquidity to 50% during times of property market weakness.

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 12.97% (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 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 9.5%. 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 same securities at a higher yield (and therefore purchasing cheaper income streams).