Fund Objective

To achieve long-term capital growth.

View on Past Performance

September was marked by exceptional volatility and sharply falling share prices in response to the banking crisis.Although the fund benefited from being substantially underweight in banking stocks, its performance suffered from its exposure to industrial stocks, which were hit by increasing pessimism about the financial crisis and faltering confidence about economic growth in emerging markets. The New Star European Growth Fund fell 14.4%* while the FTSE Europe excluding UK Total Return Index lost 13%*.There were a few bright spots within the portfolio amid the general gloom. Brisa rose 10% while BNP Paribas gained 7.5% and Intesa Sanpaolo rose 4.7% as investors perceived them to be among the strongest banks in Europe.Among the weakest stocks, Wincor lost 16%, Fugro fell 21% and Fortum dropped 16% on concerns about the impact of the falling oil price. K+S lost 39% in response to general worries about commodity prices. Over the month, the fund added to positions in Schindler and Fuchs and took partial profits in Sodexo.

Future Expectations

While it is hard not to feel gloomy about the impact of the banking crisis on the wider economy, especially in those countries with too much debt, valuations in some companies have fallen so far as to give almost no value to growth. When the financial system is repaired, conservatively-run companies that generate cash and dividends will be rewarded.

Fund Details