Fund Objective

To achieve capital appreciation.

View on Past Performance

In marked contrast to the US and other major equity markets, which continued to move in a steady uptrend, November was an extremely volatile month for Japanese investors. Most notably, on 21st November the TOPIX benchmark hit a four month low, down approximately 5% intra-month, before rebounding to finish almost flat.The major influence on the market was probably the activity of foreign investors. In particular, there was a rebalancing by some international asset allocatorsaway from Japan towards the US and Europe, frustrated by the lack of very positive domestic economic data and disappointed by a lack of upward revisions to corporate earnings for the second half of the fiscal year to March 2007.At the same time, the relative weakness of the yen also added to disappointment.

Future Expectations

Our view is that this nervousness is unwarranted. First half corporate earnings were better than market expectations, but in line with our own forecasts, and we feel confident that there will be ongoing upward revisions in second half forecasts over the next two or three months.Moreover, the headline economic data fails to reflect adequately what is happening at the micro level and we think that some investors are now starting to recognize the fundamental value emerging in the Japanese equity market, which augurs well for performance in the months ahead. In particular, value is definitely starting to appear in many medium size companies in which the fund holdings are concentrated.

Fund Details