The £387m Dunedin Income and Growth investment trust, managed in Edinburgh by Aberdeen Asset Management, trailed its benchmark last year as the yield-seeking fund missed out on the boom in resources stocks.

Net asset value fell by 11.2% and total share price return by 10.9%, while the FTSE All-Share index fell by 3.6%.

But the trust is able to lift its dividend by 11.1% to 10p, as revenue return per share increased by 5.4%.

Chairman John Scott said it had been a difficult year for higher-yielding shares, and 2007 was the flipside of the outperformance recorded the previous year. The trust was still well ahead of the benchmark over five and 10 years.

"Despite the shortfall in performance, the underlying holdings have generally been performing well at an operational level, and this has been reflected in robust dividend growth."

He said the UK was more constrained than the US in its ability to reduce interest rates, given the current inflationary pressures, which pointed to a more difficult economic environment.

"Against this backdrop, the UK stock market has already witnessed sharp divergences in performance amongst the various constituent companies that make up the market. Many of these companies are now trading on lower valuations than has been evident for a number of years as a matter of prudence, however, gearing (borrowing to buy) has been reduced in the trust."

The trust reduced its drawn-down borrowings from £22m to £13m during the second half of the year.

l Baillie Gifford Japan has blamed a "savage de-rating" of several of its smaller companies and "foreign investors appearing to sell quality Japanese companies indiscriminately" for its first-half decline in net asset value of 14.4%, against 7% for the benchmark in sterling terms.

The discount on the £116m trust more than doubled to 11.5% as the shares slid by almost 20%.