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Aberdeen European Opportunities Fund Annual report to 30 September 2014

Performance Review The Aberdeen European Opportunities Fund rose by 2.35% in Singapore dollar terms for the year under review, compared with a gain in the benchmark, the FTSE World – Europe Index, of 7.96%.

Market Review Pan-European equities rose in the year under review. Initial concerns over the US Federal Reserve’s taper of quantitative easing gave way to hopes that economic recovery in America was becoming more sustainable. Also lifting market sentiment were an increase in mergers and acquisitions, hopes that the European Central Bank’s (ECB’s) unorthodox policies would revive the Eurozone economy, upbeat GDP growth in Britain and Scotland’s decision to stay in the Union. However, the gains were capped by a slew of worries, including fears over a hard landing in China, geopolitical tensions in Ukraine and the Middle East, Russia’s retaliatory sanctions to Western embargoes and contagion fears triggered by the collapse of Portugal’s second largest lender, Banco Espirito Santo.

Portfolio Review At the stock level, benefiting the fund was Novo-Nordisk, as it continued to deliver good profit growth and benefited from a positive regulatory outcome for one of its anti-obesity treatments. Also adding to relative performance was insurer Prudential. It performed well after first-half results reflected good underlying growth in both the US and Asia. Last, Associated British Foods was another contributor to return as it reported better-than-expected results in its sugar business, while the restructuring in grocery started to bear fruit and Primark continued to grow strongly.

Conversely, holdings that detracted from performance includedTesco, after its shares underperformed in the wake of a downgrade in its profit expectations amid intensifying competition. Additionally, it was announced that its first-half profits and full-year forecast were overstated due to accounting irregularities in its UK food business. Another detractor was Standard Chartered, which faced difficult market conditions, including continued weakness in financial markets and specific challenges in Korea. It has moved quickly to dispose of non-core businesses and reduce costs. Finally, our exposure to Centrica proved costly. It has had a difficult year, hampered by the heightened political rhetoric in the UK, as well as weaker-than-expected results in its US energy supply business following extreme weather.

In portfolio activity, we sold Amec, after an earlier deal increased its leverage and heightened cyclicality. Against this, we introduced leading Swiss watch components-maker Swatch, which owns a number of well-established watch brands. We also took up our allocation in Cobham’s share placement, from which the company will fund an attractive acquisition.

Source: Aberdeen Asset Management Asia Limited The performance returns are sourced from Lipper, based on percentage growth, calculated on a NAV-to-NAV basis with gross income reinvested.

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