Fund Objective

To provide capital growth.

View on Past Performance

The relatively high levels of cash held at the end of the last quarter have been maintained in the fund throughout this period, although various exchanges and adjustments have, nevertheless, been completed over this period.The liquidity in the portfolio has been high for sometime now, but this has not insulated the portfolio from the extremely difficult market conditions that we have witnessed in recent weeks, with equity markets falling sharply over the quarter following the escalation of worldwide problems associated with the sub-prime mortgage crisis in the United States and the ensuing credit crisis in the banking arena.Within capital markets, the better performing companies have tended to be those with relatively strong balance sheets together with those in perceived defensive areas such as food retailing and utilities. Against this has been the notable weakness of many companies whose businesses are more orientated towards the business cycle or who are more debt financed.It is particularly notable that smaller companies have continued to struggle in this environment and we believe that there has been a fair amount of indiscriminate selling of stocks as a result of significant cash calls from institutional fund managers and a more general rush for safety during what has proved to be a period of much increased volatility. Arguably, this should create a number of attractive opportunities once the issues of liquidity and solvency in the financial sector improve.We have recently met with the management of a number of the smaller companies held within the fund, in order to reassess our position and re-affirm views, particularly given the nature of the latest market events. In short, we remain satisfied with these companies and their specific business models and therefore optimistic with regard to future prospects.

Future Expectations

On a global perspective, economic conditions are likely to get worse before they start to get better. The world's banking system is under significant strain and further casualties are almost certain, perhaps even of hitherto seemingly safe household names. The forced reduction in leverage throughout the hedge fund universe may also prove problematic.However, on a slightly brighter note, the fall in the oil price and the easing of inflationary influences should allow interest rates to fall in the developed world, and even China has embarked tentatively on a programme of monetary easing. Equity markets are certain to remain highly volatile in the short term but it is at times of fear and tension that the best investment opportunities emerge for patient, long-term investors in solidly-financed, well-managed companies.

Fund Details