Fund Objective

The Fund aims to achieve a level of income above the FTSE All-Share Index together with capital growth.

View on Past Performance

The third quarter of 2008 proved to be a difficult period for equity markets. The fund's benchmark index (FTSE Small-cap ex Investment Trusts) fell by 14.8%.Concerns over the stability of the Banking sector were the major influence on the equity markets during the period and, with house prices continuing to fall, the consumer outlook is weakening.Sector positions remain largely unchanged with Support Services continuing to be the fund's largest sector overweight. Software has fallen out of the top 5 overweight sectors as a result of sales in Axon, Intec, Patsystems and Phoenix IT during the period. Property remains the largest underweight position.At a stock level, Mouchel and Domino Printing are no longer within the fund's top 5 overweight holdings. We reduced the fund's position in Mouchel, but both companies were weak during the period.During the quarter five companies were sold from the fund, Heywood Williams, Oakdene, Rok, SDi Group and Silverdell. In addition to the Software companies referred to above, there were also reductions in the holdings of Bateman Litwin, Helical Bar, Mouchel, RPS, SThree and Wellstream. The new positions established during the quarter included Beazley, Cineworld, Cattles, Chloride and Charter.

Future Expectations

Despite the continuing stream of negative news on the banks and economy, newsflow released by companies has in general been robust. The valuations being awarded to shares have been depressed due to significant negative sentiment.History has shown that share prices recover 6 to 9 months before the trough in the economy, as recovery is factored in. Whilst the fund strategy remains defensively biased we are looking forward and considering how the fund should be positioned to benefit as sentiment improves.

Fund Details