Aberdeen Life UK Equity Mid Cap Fund

July 2010

Market review

• UK mid-cap equities tracked the broader market lower in the second quarter, weighed down by lingering fears that Greece’s debt woes may spark a full-blown regional crisis and concerns that the government’s austerity measures could dent the fragile domestic recovery. Uncertainty over the general election, which ended with a coalition government, coupled with potential credit ratings downgrades in light of the country’s deteriorating fiscal wellbeing, exacerbated market jitters. Economic indicators were muted: business and consumer confidence dipped in the wake of the planned government spending cuts. The manufacturing sector’s recent recovery was short-lived as factory output dropped, while export growth slowed, depressed by the Continent’s debt woes and the falling euro.

Fund review

• We introduced engineering IT software developer Aveva, given its solid balance sheet and recurring revenues; business software supplier Sage, which has steady revenues and a diversified customer base; and specialty chemicals company Croda, which has a strong position in various valuable niche chemical markets. We also added to Dechra Pharmaceuticals, a leader in the growing market for veterinary prescription products, and Ultra Electronics. Against this, we sold Chloride, as its share price rallied on the back of a takeover bid; Arriva, after the transport operator accepted Deutsche Bahn’s takeover offer, and Kesa Electricals in view of better opportunities elsewhere.

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