Aberdeen Life UK Small Company Fund

July 2010

Market Review

• UK small-cap shares 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, and Bellway, an attractively-valued housebuilder with good management and a robust balance sheet,. We also added to Savills and Dechra Pharmaceuticals on share price weakness. Against this, we sold both Chloride Group and Care UK as their shares rallied on the back of takeover bids, and Rensburg Sheppards after Investec completed its acquisition of the wealth management firm. We also disposed of Low & Bonar and M&C Saatchi in view of better longterm opportunities elsewhere.

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