The performance of the fund for the 3rd quarter of 2004 was a total return of 11.85% of which 3.0% was income and 8.85% was capital return. The listed property market reacted positively to the recent cut in interest rates, with the Property Unit Trust and Property Loan Stock Indices gaining 10.75% and 8.91% respectively. The fundamentals in the underlying physical property market continue to improve which is positive for income returns. Expansion of existing listed property portfolios also continues with high demand for well located retail and good quality warehousing and distribution properties in the wake of strong consumer spending. There is a renewed interest in the office market given expectations of improving market rentals and falling vacancies in certain areas. In the second quarter of 2004 the South African economy continued to improve, with real GDP growing by an annualised 3.9%. SA's economic recovery is relatively broad based across all industries, which is extremely encouraging. As expected, the divergence between retail and manufacturing has clearly started to normalise. During the first half of 2004, the service sector of the SA economy (communication and financial services) was able to maintain a strong momentum, which has been supported by robust retail spending on the back of low interest and high real income growth. More recently there has been an encouraging pick-up in manufacturing activity off a low base while construction activity remains robust helped by the strong residential property market. In addition, the agricultural and mining sectors have also improved, albeit modestly. This pattern of growth is expected to continue during the remainder of the year. For 2004 as a whole STANLIB's GDP growth forecast has been revised up slightly to 2.8% from 2.7%, then rising to 3.2% in 2005. This is positive for continued improved earnings from listed property. The fund has declared the distribution for the third quarter of 2004 of 3.0 cents per unit, which was as expected. Our forecast yield before fees for the next 12 months is 11.0%. Relative to bonds and money market, this remains an attractive yield particularly with the now confirmed income growth. On the capital side, there are indications that listed property yields could well fall below bond yields, as was the case in 1994. Therefore, given a stable inflation environment capital growth in excess of 5% is possible. Should property yields fall to 100 basis points below bond yields, the additional capital growth could be 15%. However, it should not be assumed that this scenario will materialise and the risks on capital losses if interest rates rise remain paramount.

The performance of the fund for the 1st quarter of 2004 was a total return of -1.26% of which 2.57% was income and -3.83% was capital return. For the 12 months to 31 March 2004, the total return was 22.01%. The negative performance for the quarter was a result of the market pulling back after a very strong run in December last year. Since the fall in January, the listed property market has gained 4%.
The expected new listings and further expansion of existing listed property portfolios has commenced. In addition, there is now confi rmation of strengthening underlying fundamentals in the physical property market, which is positive for income.
Stanlib expects the Rand to weaken during 2004, which is positive for the strained manufacturing sector. Domestic infl ation is expected to rise gradually, with the next move in interest rates likely to be upwards. The outlook for bonds is negative, which confi rms the end to short term capital appreciation of JSE listed property prices and therefore the price of the Fund. However, income prospects remain positive, which is positive for longer term capital appreciation. The recent 4% recovery in the listed property market followed a spate of positive results released from listed property vehicles. This is expected to continue into 2005.
The fund has declared the distribution for the fi rst quarter of 2004 of 2.67 cents. After adjusting for timing differences caused by factors such as a change of year end, the distribution was as expected. Our forecast yield before fees for the next 12 months is 10.8%.

There is a multitude of funds in the general equity category, from index trackers to high active risk funds.

Stanlib has three funds in the sector, its Index fund, Wealthbuilder and Prosperity. On March 1, Prosperity merged with Standard Bank Mutual and now holds assets of R1,15bn.

Prosperity differs from Wealthbuilder in that it is a pure domestic fund and it can take larger bets against the all share benchmark. For example, fund manager Darryll Castle holds no life assurance shares at present. There are three main themes in the fund: he growing global economy, through Anglo , BHP Billiton and Iscor; the banks, through large positions in FirstRand and Standard Bank; and retailers, particularly those geared to the emerging black middle class and increased home ownership, such as JD Group and Massmart.

Castle has been selling low-growth industrials such as Imperial and Bidvest to accommodate these themes. But he has been accumulating SABMiller, as the prospects for Miller Lite in the US improve, and he maintains a low exposure to Richemont, which will benefit from increasing duty-free sales to the Chinese.

Castle admits that the fund's relative performance has taken a knock over the past few weeks, as international fund managers have dumped resource shares out of fear that growth in China will slow. His exposure to the diversified miners was double the sector average, and to Iscor more than four times as much. But Castle says that, though market sentiment could make Anglo and Billiton even cheaper, the pullback has not been justified - China will continue to grow at 8%/year.

He says the pullback in Iscor from R42 to R32 is puzzling, as Iscor can rely on increased dollar-related prices in the domestic market with well-controlled rand-based cost increases in its iron ore.

Expect some volatility if sentiment against resource shares remains poor, but if global economic growth remains intact the prospects for the fund are good. Investors with a rand hedge bias will like it.

Due to the STANLIB amalgamation (27 Feb 2004), the Standard Bank Property Income Fund will be renamed to the STANLIB Property Income Fund.

The performance of the fund for the fourth quarter of 2003 was a total return of 15.49% of which 3.57% was income and 11.92% was capital growth. For calendar 2003 the fund generated a total return of 34.91% of which 13.52% was income yield and 21.39% capital appreciation.
Now that two fourth quarter distributions have been declared (2002 and 2003), the anticipated growth in income from the property companies in which the fund is invested has been confirmed. The 2003 fourth quarter distribution increased by 3.2% compared with the fourth quarter of 2002.
The combined market capitalisation of the Property Unit Trust and Property Loan Stock Sectors increased from R14bn to R21bn during 2003. This was caused by new listings, expansion of existing listed property portfolios and price appreciation. Further new, substantial listings are expected during the first half of 2004 as well as further expansion of existing listed property portfolios. This will further enhance the quality of share selection for the fund.
For the six months to June 2004, Stanlib expects the inflation rate to remain well within the SA Reserve Bank target range. The interest rate cutting cycle probably ended in December 2003, however consumption at the high end is expected to remain strong buoyed by strong credit and residential property cycles. Lower end consumption is expected to be less buoyant because of job losses and a poor agricultural season. The rand is expected to weaken by 8% to 10% on a trade - weighted basis by June, with the yield curve steepening at the long end. This signals an end to short term capital appreciation of JSE listed property prices and therefore the price of the fund. However, income prospects remain positive, which is positive for longer term capital appreciation.
The fund has declared the distribution for the fourth quarter of 2003 of 3.57 cents which was as expected. The fund manager's forecast yield before fees for the next 12 months is 11.0%.