Fund Objective

To achieve long-term capital growth for investors.

View on Past Performance

The BlackRock UK Special Situations Fund underperformed its benchmark during the third quarter of 2008, falling 14.6%, versus the Morningstar UT UK All Companies Sector, which fell by 13.8%. Fears of a slowdown in shipbuilding caused a spate of profit-taking in Aveva, the engineering software company, sending the shares down. Lower commodity prices and concerns over slowing global demand caused miner First Quantum Minerals and oil services company Wood Group to underperform.Our holding in Detica, the intelligence technology provider, contributed to performance, as it received a bid approach from BAE Systems, sending the shares sharply up. SAP consulting firm Axon also received a bid approach, from Infosys of India. A number of holdings issued positive trading updates which led to earnings upgrades. These included steam trap manufacturer Spirax-Sarco and translation software provider SDL.Activity during the quarter saw us add new positions in Micro Focus (software) and QinetiQ (defence technology). We added to existing holdings in BHP Billiton and Chemring, and exited Standard Chartered, Xstrata and International Power.

Future Expectations

The outlook for the world economy continues to be challenging, with significant worries over the outlook for the UK and US. The key to a market rally lies in stabilisation of global credit markets. The recent round of trading updates from our investments has continued to be encouraging, and we will maintain our focus on high-quality companies with consistent track records of earnings growth and cash generation that demonstrate an ability to grow ahead of the market.

Fund Details