The Sceptre UK Fund was up by 4.0% in December which compares to a rise of 3.3% for the FT All Share index. For the calendar year the Sceptre UK Fund was up by 21.6% whilst the index rose by 13.2%. The rise in the fund was after all fees, including performance fees and was achieved with an approximate 15% cash weighting.

December was a much quieter month for us compared with November with only 3 trades – one to close the last portion of a position that had risen to our theoretical “fair value” and two trades to add to existing holdings which have both underperformed in recent months. Only two stocks from the portfolio were down during the month – both by about 5% - whilst 4 stocks rose by over 12% and 4 by over 7%. We ended the month with a portfolio of 15 stocks and 15% cash. The cash weighting reflects the lack of new opportunities that we can find and the fact that only two of our stocks dipped to levels that we feel are attractive to add to our existing positions. Whilst we do not try to forecast market direction, we feel that we can afford to be patient to wait for buying opportunities to top up positions given the overall market strength during the second half of 2006.

2006 was a strong year for the fund with only a single down month (May) and a solid outperformance of the index. The fund returned 26.9% gross and 21.6% net of all fees with low volatility versus the index. We started the year with 14 holdings (19% cash) and ended with 15 (15% cash) having sold 10 and bought 11 stocks – we retained 4 stocks from the portfolio that ended 2005 and these now make up 35% of the stock portfolio (versus 28% at 31/12/05). This is a fairly big change to the portfolio for us as long term value investors but we did close 5 (or 50%) of the positions in the last 3 months of 2006 as they had very strong price performances and believe that the changes we have made to the portfolio have eliminated holdings that have reached “fair value” and replaced them with holdings that have 30% - 70% upside to our calculation of “fair value”. This leaves us with a portfolio that has an upside of about 50% on our current estimates.

The major sector exposure changes are as follows:

	* 2006 2005 Change Retail 7% 28% -21% Support Services 20% 12% -8% Media 8% 12% -4% Industrials 15% 8% +7% Insurance (non-life) 8% 5% +3% Financials 10% 4% +6% Technology 18% - +18%

We are optimistic for 2007 for the overall portfolio and particularly so with 4 (making up 36% of the portfolio) of our top 6 holdings (55%) still close to our average cost level.

Best wishes for 2007,

Chris Broadhurst
CEO