Interim Management Statement

Montanaro UK Smaller Companies Investment Trust PLC

Interim Management Statement - 3 months to 30 June 2010

Investment Objective

 
MUSCIT's investment objective is capital appreciation through 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.
 
Benchmark

FTSE SmallCap (excluding Investment Companies)

Net Asset Value Performance

                   3 months     1 year    3 years   5 years       Launch
                                                                       
                                                                       
                                                                       
MUSCIT                                                              
(excluding                                                             
current period                                                         
revenue)              2.8%      36.9%    (15.9%)     36.4%       211.4%                                                 
                                                                                                                                                                                          
Benchmark            (6.3%)     16.6%    (43.0%)    (23.4%)       30.1%
                                                                       

Performance Summary (capital only)

 
                  As at 30 June   As at 31 March        Movement
                           2010             2010                
                                                                
                                                                
                                                                
Gross Assets        120,183,391      112,697,331             6.6%
                                                                
Net asset value                                                 
per share                311.76p          302.59p            3.0%
                                      
                                                                                        
Share price              238.75p          234.00p            2.0%
                                                                
Discount                   23.4%            22.7%                
                                                                
Actual Gearing             14.4%             9.9%                
                                                                
Net Gearing                 9.7%             7.7%                
  

Period Review

Although the markets were generally weak in the first three months, it was a
good quarter in relative terms for both small cap stocks and the company.
 Small Cap equities outperformed Large Cap equities by more than 8.5% (FTSE
SmallCap ex ICs vs FTSE 100and the company's NAV rose by 2.8% in comparison to
a  fall of 6.3% in the FTSE SmallCap Index (ex ICs). Much of this out
performance came in June when the Fund was amongst the top three performing
Investment Trusts across all asset classes, a very pleasing performance.


The sovereign debt crisis reached a climax in the early days of May when
10-year Greek bonds traded at 65 cents on the dollar. European policymakers
responded forcefully, announcing a €750bn bail-out plan for Southern Europe
with the involvement of the IMF. The sheer number was in itself a shock
(equivalent to ~9% of the Euro Area's GDP), but what caught most observers by
surprise was the unprecedented level of coordination and determination of
Europe's leaders.


Fiscal austerity has become the name of the game. After the Baltic countries,
Ireland, and Greece started the ball rolling, Portugal, Spain, France, the UK
and even Germany soon jumped in. As for the UK, the new coalition Government's
drastic supply-side reforms have reassured markets. Consensus is currently for
growth to surpass 2% next year. Since the start of the year, bond yields have
fallen by 66bp (10y Gilt yields 3.4%), providing some breathing space to the
private and public sectors alike.


On the corporate front US companies have increasingly found value in Europe and
particularly in the UK. During the last three months the Fund received bids for
Chloride and Scott Wilson and a possible bid for Dana. In addition normality
returned to the market and the "Dash for Trash" seen in the middle of 2009
became unfashionable and quality investing returned to favour. Trading
statements have generally remained positive and analysts have continued to
increase forecasts. This was particularly evident at companies such as Domino
Printing, Immunodiagnostic Systems, AG Barr, Devro and Domino's Pizza.


The global recovery appears to be slowing but calling it a double-dip recession
is perhaps premature. In the short term the budget was well received by the
bond markets with 10 year Gilt yields falling and Sterling strengthening
against the Euro and Dollar. The current volatility and uncertainty about the
strength of the recovery will require Analysts and Fund Managers to
increasingly focus on companies' earnings power and balance sheets. This,
together with the revival of M&A, bodes well for quality companies and will
emphasize the benefits of active stock-picking.


The Board is pleased to announce that all resolutions were passed at the Annual
General Meeting held 30 July 2010. As previously announced, Christopher Jones
stood down from the Board at the conclusion of the AGM; and we would like to
thank Chris for his long service and contribution to the Company.


It is with great sadness that the Board reports our friend and former Director
Laurie Petar died on 25 July 2010, we will miss him.

Charles Montanaro

Montanaro Asset Management Limited


Top Ten Holdings as at 30 June 2010

 

Company                     Sector                                             % of total      
                                                                                portfolio            
                                                                                       
Domino Printing Sciences    Electronic and Electrical                               3.1
PLC                         Equipment                                                  
                                                                                       
Victrex PLC                 Chemicals                                               3.0
                                                                                       
Domino's Pizza UK & IRL PLC Travel and Leisure                                      2.9
                                                                                       
Dignity PLC                 General Retailers                                       2.7
                                                                                       
Devro PLC                   Food Producers                                          2.7
                                                                                       
Dialight PLC                Electronic and Electrical                               2.5
                            Equipment                                                  
                                                                                       
Dana Petroleum PLC          Oil & Gas Producers                                     2.4
                                                                                       
Premier Oil PLC             Oil & Gas Producers                                     2.2
                                                                                       
Fisher (James) & Sons PLC   Industrial Transportation                               2.2
                                                                                       
Ricardo PLC                 Support Services                                        2.1
                                                                                       
                                                                                   25.8

Sector Breakdown

Sector                                                             
                                                                   
                                   % of total portfolio % of market
                                                                   
Aerospace & Defence                                 3.2         1.4
                                                                   
Beverages                                           2.0         0.0
                                                                   
Chemicals                                           6.5         2.7
                                                                   
Construction & Materials                            1.9         4.3
                                                                   
Electronic & Electrical Equipment                   8.4         2.4
                                                                   
Equity Investment Instruments                       1.1         0.0
                                                                   
Food & Drug Retailers                               1.5         0.8
                                                                   
Food Producers                                      4.0         4.4
                                                                   
General Financial                                   5.6         6.3
                                                                   
General Retailers                                   5.2         5.3
                                                                   
Health Care Equipment & Services                    4.0         1.1
                                                                   
Household Goods                                     0.0         1.0
                                                                   
Industrial Engineering                              6.0         2.9
                                                                   
Industrial Transportation                           4.8         4.5
                                                                   
Leisure Goods                                       0.0         0.7
                                                                   
Life & Nonlife Insurance                            0.8         4.4
                                                                   
Media                                               1.5         5.4
                                                                   
Mining                                              0.0         1.9
                                                                   
Oil & Gas Producers                                 4.6         3.3
                                                                   
Other                                               0.0         3.2
                                                                   
Pharmaceuticals & Biotechnology                     3.1         3.2
                                                                   
Real Estate                                         6.6        12.8
                                                                   
Software & Computer Services                        9.7         5.4
                                                                   
Support Services                                   14.2        15.6
                                                                   
Technology, Hardware and Equipment                  0.0         1.8
                                                                   
Travel & Leisure                                    5.3         5.2
                                                                   
                                                  100.0       100.0
                                                                   

Other than as stated above, the Directors are not aware of any significant
events or transactions which have occurred between 30 June 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.