The listed property market was more volatile than usual this quarter, largely owing to uncertainty regarding interest rates during April and May when both the PUT and PLS indices fell significantly. However, shortly before the Monetary Policy Committee cut interest rates by 1.5% on 12 June, both indices rallied strongly, closing higher than the levels at the end of the first quarter. The fund has reached R222m and is 86% invested in property stocks with the target to be fully invested as further interest rate cuts are expected later this year. There are still some short term risks in certain of the property stocks, so short dated money market instruments are considered a better alternative in the short term. As mentioned in the first quarter report, these uncertainties relate largely to the income distribution of the newer listings. A number of these have now reported their results. As the fund manager's expected, the results were significantly below forecasts on listing and this has resulted in sharp declines in prices. As the prices are trending lower to towards levels that reflect fair value, the scope for share selection is becoming wider. Following recent publication of rental surveys conducted during the first quarter of 2003, the anecdotal evidence that the weak property market fundamentals have reached a lower turning point in good quality areas has been further confirmed. This is positive for the income of the fund and for performance of listed property going forward. There has been some market commentary that the listed property market has become expensive. However, there are two factors to counter this argument. The first is that, based on listed property prices relative to bonds historically, there is still scope for price appreciation. The second is that the current underlying property valuations are based on the weak property fundamentals experienced recently and are therefore at a low point. As property fundamentals continue to improve and lower interest rates are reflected in valuation capitalisation rates, the property valuations will rise and the currently reported listed price premiums to net asset value will narrow.

The fund manager's forecast net yield is 12.3% before fees. These are performance based, so will vary from 1.14% to 2.28%.

The performance of the fund for the 1st quarter of 2003 was a total return of 9.18% of which 3.2% was income and 5.98% was capital growth. The listed property market experienced very strong price gains following the 2003 Budget speech in which the tax payable on rental and interest income by retirement funds was cut from 25% to 17%. The fund has reached R110 million and is 77% invested in property stocks with the target to be fully invested over the next 2 months. There are some short term risks in certain of the property stocks, so short dated money market instruments are considered a better alternative in the short term. The uncertainties relate largely to the income distribution to be announced by some of the newer listings during May. During the 1st quarter, the fund 's low exposure to the newer listings proved to be beneficial and the fund was not exposed to falling prices following worse than expected results. Following recent publication of rental surveys conducted during the 4th quarter of 2002,the anecdotal evidence that the weak property market fundamentals have reached a lower turning point, have been confirmed. This is positive for the income of the fund and for performance of listed property going forward. The growth expected in the listed property sector for this year is also showing signs of becoming reality. Four new listings are well advanced, the first private placement in order to raise new equity closes this week and a further two of substantial size will come to the market over the next few weeks. Baring any external shocks to the economy, the balance of this year will see much activity in the listed property sector. Stanlib expects the inflation rate to slow rapidly in 2003,off the high base established last year. In addition, oil prices are expected to fall once the political tensions surrounding Iraq subside and the stronger Rand will dampen imported inflation. Following a fall in inflation, the prime interest rate is expected to decrease by at least 200 basis points during the year. Given the higher market prices compared with the previous quarter, our forecast net yield is 12.7% before fees. These are performance based, so will vary from 1.14% to 2.28%. The fund has declared the dividend for the first quarter of 2003 of 3.2 cents which was as expected. Although this is lower than the previous dividend, growth should be compared on an annual basis. This is because the individual property stocks generate different yields and have varying income distribution dates.