Interim Management Statement

Montanaro UK Smaller Companies Investment Trust PLC

Interim Management Statement - 3 months to 31 December 2010

Investment Objective

MUSCIT's investment objective is capital appreciation (rather than income)
achieved by investing in small quoted companies listed on the London Stock
Exchange or traded on the Alternative Investment Market ("AIM") and to achieve
relative outperformance of its benchmark, the FTSE SmallCap (excluding
investment companies) Index ("SmallCap").

No unquoted investments are permitted.

Investment Policy

The Company seeks to achieve its investment objective by investing in a
portfolio of quoted UK small companies. At the time of initial investment, a
potential investee company must be profitable and smaller than the largest
constituent of the HGSC Index, which represents the smallest 10% of the UK
Stock Market by value. At the start of January 2011, the largest company in the
HGSC had a market capitalisation of over £1.4bn. The Manager focuses on the
smaller end of this Index.

The Manager will normally limit any one holding to a maximum of 4% of the
Company's investments. The portfolio weighting of each investment is closely
monitored to reflect the underlying liquidity of the particular company;
smaller investments are made in less liquid companies. AIM exposure is also
closely monitored by the Board and is limited to 30% of total investments with
Board approval required for exposure above 25%.

The Manager is focused on identifying high quality niche companies operating in
growth markets. This typically leads to investment in companies that enjoy high
barriers to entry, pricing power, a sustainable competitive advantage and
strong management teams. The portfolio is constructed on a "bottom up" basis
and there are no sector constraints.

The Board, in consultation with the Manager, is responsible for determining the
gearing strategy for the Company. Gearing is used to enhance returns when the
timing is considered appropriate. The Company currently has a credit facility
of £15 million through ING Bank. The Board has agreed to limit borrowings to
25% of shareholders' funds.

Investment Philosophy

Over the long-term, UK SmallCap has delivered superior returns relative to
LargeCap. Less objective, detailed research is a primary cause of continuing
inefficiency in the asset class. The Manager believes that it can exploit this
inefficiency by devoting its significant in-house analytical resource to
proprietary idea generation and research.

The Manager further believes that a conservative, long-term approach to
investing in high quality companies will deliver superior returns and has
developed its own screening and valuation tools to help identify companies
which are not only of the highest quality but also undervalued. Key to success
is emphasis on management quality, first hand research and meetings with
management, as well as experience and commonsense.

Benchmark

FTSE SmallCap (excluding Investment Companies)

Net Asset Value Performance

                    3 months      1 year     3 years   5 years       Launch
                                                                           
MUSCIT                 12.2%       42.5%       25.7%     48.8%       310.1%
(excluding                                                                 
current period                                                             
revenue)                                                                   
                                                                           
Benchmark               7.9%       13.0%     (14.4%)   (17.7%)        55.2%
                                                                           
Outperformance          4.3%       29.5%       40.1%     66.5%       254.9%

Performance Summary (capital only)

                         As at 31          As at 30        Movement
                    December 2010         September                
                                                                   
                                               2010                
                                                                   
Gross Assets         £152,929,926      £137,003,036           11.6%
                                                                   
Net asset value           409.68p           363.63p           12.7%
per share                                                          
                                                                   
Share price               357.75p           301.25p           18.8%
                                                                   
Discount                    12.7%             20.7%                
                                                                   
Actual Gearing              10.9%             12.3%                
                                                                   
Net Gearing                 10.8%              9.9%                

Period Review

For the 3 months ended 31 December 2010:

2010 was a good year for equity investors with our benchmark the FTSE SmallCap
(ex ICs) rising by 13%, most of the gains coming in the second half of the
year. MUSCIT's NAV fared even better appreciating by 42% last year and by some
12% over this quarter. This is somewhat surprising in light of the doom and
gloom that has prevailed in the media over much of 2010. Many warned of the
risk of a global "double-dip" recession caused by the austerity measures forced
on governments to cut public spending to reduce excessive deficits. The debt
problems among the "PIIGS" (Portugal, Ireland, Italy, Greece and Spain)
threatened the very existence of the Euro. North and South Korea embarked on
increasingly loud sabre rattling causing some to worry about a war that never
came.

Against such a strong background, there were a number of notable price
increases. Fenner (conveyor belting and other polymer technologies) rose
strongly as profits in its belting business recovered sharply. Other positive
performers included Severfield Rowen (structural steel) and Latchways (safety
systems for buildings).

In a strong market, the number of companies experiencing share price falls was
limited. Some mild underperformance, mainly attributable to profit taking, was
seen at Abcam (supplier of antibodies and reagents); Kewill (software for
logistics market); and A. G. Barr (soft drinks).

So what about 2011? Economists are more confident now about the outlook for the
global economy expecting growth at or above 4% over the next two years. This
comes from continued strength in the emerging world and ever more expansionary
policies in the US. In the UK, deficit reduction efforts are bearing fruit and
the Olympic Games will give a boost to the economy.

Montanaro believe that we are less than half-way through a major equity Bull
Market which started in April 2009. After a severe Bear Market such as we saw
in 2007-2008, Bull Markets historically have lasted on average 5 - 6 years and
SmallCap outperformed by no less than 7% p.a.. Market valuations are attractive
and below average (notably 10% cheaper than Emerging Market equities and US
equities). Corporate earnings continue to surprise on the upside as Analysts
have remained too sceptical and conservative since the credit crunch. In 2008,
many small companies, which typically are more flexible and dynamic with more
entrepreneurial management, were quick to cut costs in the face of difficult
times. Leaner and meaner than ever today, they have recovered well and are
generating record levels of cash and profits.

One of the features we expect in 2011 is a significant pick-up in take-overs as
cash-rich buyers increasingly look at external growth to accelerate recent
earnings growth. At the peak of the last cycle, in 2006, Montanaro lost 20
companies to acquisitions. SmallCap looks under-valued based on price / book
measures. Private equity may make a comeback and will compete with trade buyers
for targets, many of which will be small companies, bidding up share prices.
Whilst this should help sentiment, as always there are two sides to every
story. We also expect an increase in profit warnings this year. Economic
conditions remain challenging and it becomes ever harder to exceed expectations
as the cycle matures. Companies on high valuations that disappoint will be
severely punished. Bouts of profit taking and market corrections are to be
expected; both are healthy - it means the Bull Market can continue after a rest
- and represent a buying opportunity.

2011 will be a year for stock pickers. SmallCap is under researched but
includes many companies which can grow faster due to their size giving
investors higher returns. Typically they are niche businesses with high
barriers to entry, pricing power, more motivated and dynamic management.
Currently, SmallCap is under-owned and unloved (bond markets still attracted
much of the inflows in 2010). But it is the contrarian investor who makes the
money. Montanaro expect SmallCap to continue to outperform LargeCap and with a
bit of luck and hard work, we hope to do better once again.

Montanaro Asset Management Limited

Top Ten Holdings as at 31 December 2010

Company                      Sector                                  % of total
                                                                      portfolio
                                                                               
Fenner PLC                   Industrial Engineering                         3.5
                                                                               
Domino Printing Sciences PLC Electronic and Electrical                      3.4
                             Equipment                                         
                                                                               
Devro PLC                    Food Producers                                 3.2
                                                                               
Domino's Pizza UK & IRL PLC  Travel and Leisure                             3.1
                                                                               
SDL PLC                      Software & Computer Services                   3.0
                                                                               
Victrex PLC                  Chemicals                                      3.0
                                                                               
NCC Group PLC                Software & Computer Services                   2.9
                                                                               
Ocean Wilson Holdings        Industrial Transportation                      2.8
Limited                                                                        
                                                                               
Brammer PLC                  Support Services                               2.7
                                                                               
RPS Group PLC                Support Services                               2.6
                                                                               
                                                                           30.2

Sector Breakdown

Sector                                % of total          % of market 
                                      portfolio                       
                                                                      
Aerospace & Defence                                  1.7%         1.0%
                                                                      
Beverages                                            1.7%         0.0%
                                                                      
Chemicals                                            7.3%         0.5%
                                                                      
Construction & Materials                             1.9%         4.0%
                                                                      
Electronic & Electrical Equipment                    8.0%         4.8%
                                                                      
Food & Drug Retailers                                1.6%         0.7%
                                                                      
Food Producers                                       4.9%         4.3%
                                                                      
General Financial                                    5.7%         3.8%
                                                                      
General Retailers                                    4.3%         5.1%
                                                                      
Health Care Equipment & Services                     4.3%         1.0%
                                                                      
Household Goods & Home Construction                  0.0%         1.1%
                                                                      
Industrial Engineering                               5.5%         2.3%
                                                                      
Industrial Transportation                            6.8%         3.7%
                                                                      
Leisure Goods                                        0.0%         1.8%
                                                                      
Life & Nonlife Insurance                             0.0%         4.0%
                                                                      
Media                                                1.3%         6.2%
                                                                      
Mining                                               1.0%         3.3%
                                                                      
Oil & Gas Producers                                  3.5%         3.0%
                                                                      
Other                                                0.0%         4.0%
                                                                      
Pharmaceuticals & Biotechnology                      5.3%         4.0%
                                                                      
Real Estate                                          7.1%        14.2%
                                                                      
Software & Computer Services                        11.1%         4.8%
                                                                      
Support Services                                    13.9%        16.0%
                                                                      
Technology, Hardware and Equipment                   0.0%         2.6%
                                                                      
Travel & Leisure                                     3.1%         3.8%
                                                                      
                                                   100.0%       100.0%

Other than as stated above, the Directors are not aware of any significant
events or transactions which have occurred between 31 December 2010 and the
date of publication of this statement which have had a material impact on the
financial position of the Company. For latest performance information, please
refer to the Company's website.

This Interim Management Statement and up to date NAV and Share Price are
available at the Company's website www.montanarouksmaller.co.uk.