Fund Objective

The Capital Growth Fund aims is designed to track the capital performance of the FTSE 350 Index and to maintain a gross income yield equal to that of the Index.

View on Past Performance

During the year under review the bid price of the Fund's units rose by 13.7%. Because the FTSE 350 Index is not published at midday, by way of comparison, from close of business over the year the FTSE 350 Index (capital only) rose by 11.3%, whilst the FTSE 350 Index (total return) rose by 15.2%.The Fund has holdings in the constituents of the Index, therefore investment activity, other than to raise or invest cash, is only necessary when changes take place in the issued share capital of the consituent companies, or to the consituents of the Index.During the year under review there were four index reviews, where a number of new companies joined the Index. HHG (Speciality & Other Finance), Vedanta Resources (Mining) and Alea Group Holdings (Insurance) and CSR (Information Technology Hardware) were added in June. In September Premier Foods (Food Producers & Processors) and Virgin Mobile (Telecommunication Service) were included along with Halfords Group (General Retailers).Other takeovers included property company Canary Wharf Group, acquired by the Morgan Stanley vehicle Songbird Acquisitions in May, while the Pharmaceutical manufacturer, UCB acquired Celtech in July 2004.A number of companies returned cash to shareholders, including Rolls-Royce, Sainsbury(J), Great Portland Estates and Centrica.

Future Expectations

The FTSE 350 Index has been in an ebullient mood in the last few months. Concerns about institutional sellers did not materialise, with strong cash returns from the corporate sector through share buy-backs more than making up for pension fund selling. Moreover UK equities have appeared attractive to overseas investors, with relatively attractive ratings, rising corporate earnings and high dividend yields.UK equities do however remain vulnerable to rising interest rates, particularly if they have a major impact on the housing market, as well as potentially being affected by political uncertainties in the fun-up to the General Election.Overall the market may therefore pause for a while until these uncertainties are resolved and further progress can be made.

Fund Details