Fund Objective

To outperform the FTSE All-Share index.

View on Past Performance

The largest contributions came from the oil and mining sectors with significant exploration successes for Tullow Oil, Oilexco and BG and a strong rally in Cairn reflecting the rise in the oil price. The Oil sector added 7.7% relative in total and we remain very overweight in these oil shares as they all have further considerable upside.The Mining contribution, which added 2% relative was due mainly to some of our smaller companies such as Coal of Africa, First Quantum, African Minerals and European Goldfields. These gains were partially offset by a sharp fall in Paragon which suffered as the banks have been unwilling to renew their credit facilities.We supported a rights issue to replace the debt and following this the shares now trade at a 60% discount to asset value and are fully funded; we expect the shares to recover. Three shares cost 1% each due to poor operating performance; these were SCi Entertainment, Yell and Debenhams, all of which we have sold as we do not believe they will recover.

Future Expectations

We expect markets to continue to face a testing environment in 2008. Global and UK economic activity has clearly slowed since mid-2007 and the effects on corporate earnings will remain a key theme in 2008. In the UK, we expect economic growth to slow from around 3% in 2007 to a sub-trend rate of below 2% in 2008 as the consumer and housing sectors weaken.

Fund Details