INVESTMENT ADVISERS REPORT

FOR THE YEAR ENDING 17 MARCH 2008

The last year has contained an unusually high level of bad financial news making it very hard to generate positive returns.

The Fund started the period fully invested with about half the Portfolio invested in UK Equities and half overseas with a small holding also in the BlackRock UK Absolute Return Fund which, as its name indicates, aims to give positive returns in all market conditions.

At this time, economic growth was very strong in most countries and inflation remained very much under control.  In March 2007, oil was trading at around $60 a barrel and Gold at $650 an ounce.  However, concerns over possible inflation ahead did cause the Bank of England to raise interest rates twice with the base rate reaching 5.75% by July.  The 10 year Gilt yield was 5%.

The Fund's strategy in the Spring was, after having participated in a reasonable Equity market rally, to take profits from some of the UK Funds that had not performed so well.  Therefore we sold our holding in Gartmore UK Focus and reduced the holdings in several other Funds.  Some of the proceeds were added to our existing holding in the BlackRock  UK Absolute Fund, which was now our largest holding, making up 9% of the Fund.  A further 8% was kept in cash for re-investment opportunities.

By July the Equity markets were a bit more volatile but seemed reasonably well supported with relatively high dividend yields and good earnings cover.  There had, however, been more disruption in other asset classes with a bursting in the UK Commercial Property market bubble and also poor performance from bonds due to worries about inflation.  The 10 year Gilt yield was now 5.5%.

July marked the turning point for markets with a substantial sell off in all International Equity markets and Corporate Bond markets as a mass of declared losses came out of the financial sector as a result of the side effects of mortgage defaults in the US housing market.  The UK Equity market lost nearly 15% of its value in the period of a month.

Having built up a moderate level of cash, we decided to re-invest the majority and also made an investment into a Gold Fund when the price was around $650 an ounce.

During August the unfolding financial crisis was never out of the news, with dramatic scenes  outside branches of Northern Rock.  However, as the Government stepped in to assist, the volatility reduced and the Equity markets rallied.

Up to the year end the markets traded in a range with some good news from companies and on the economy being replaced by further bad news from financial institutions.  Many commentators thought that the worst of the crisis was now over.

Early into the New Year though there was a further large bout of bad news from the financial sector with companies that had already announced hefty losses, announcing more.  The markets, as a result,  had one of their worst starts to the year.  In the Fund we were far more active than usual, in particular, selling UK Growth Funds and replacing these with cash and more defensive Income Funds.

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By late January, Commodity prices had surged to record levels with Gold over $950 an ounce and oil at $93 a barrel.  At this point we sold our Gold Fund holding, realising a 40% profit in seven months.

With the outlook being more downbeat than before, we used some of the cash raised to buy a position in the Schroder Emerging Market Debt Fund.  This invests in high quality bonds issued in Emerging markets such as Singapore, China and Malaysia.  These look particularly attractive at the moment as their currencies are undervalued against sterling and there would appear to be little downside risk with the large trade surpluses acting to support the currencies.

Equities still look good value but may be held back from a substantial rally as more bad news comes to the markets.  Therefore, towards the end of the period only a few small trades were made, selling Funds we did not want to keep on market rallies and buying others on market falls.  There was an emphasis on selling UK Equities and buying overseas.

In general our larger holdings, such as the BlackRock Absolute Alpha, Jupiter Financial Opportunities, M&G Recovery, LionTrust 1st Large Cap and M&G Global Basics have performed well.  Poor returns dragged down performance from our Japanese holdings, Technology and some UK Growth Funds.

Looking to the future, the sell off in markets has undoubtedly created opportunities.  We expect the market to continue to be volatile and, as a result, we will probably trade more.  To avoid this volatility affecting the Fund, we will be looking to consolidate gains on Equity market rallies into Funds that can offer high levels of stable returns as demonstrated by our existing holdings in the BlackRock UK Absolute Alpha and Schroder Emerging Market Debt Funds.

Over the year to 17 March 2008 the net asset value of the 'A' Units fell by 5.6% the 'B' Units by  4.9%, compared to a fall in the IMA Active Managed Sector of 3.5%.

Over 3 years the 'A' Units  rose by 24.5% and the 'B' Units by 27.0% , compared to a rise in the IMA Active Managed Sector of 23.7%.

David Stephenson