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.
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