Annual Financial Report

RNS Number : 3693U

Jupiter US Smaller Companies PLC

15 October 2014

 



Jupiter US Smaller Companies plc (the "Company")

Annual Financial Report for the year ended 30 June 2014

This announcement contains regulated information

Financial Highlights

Capital Performance	30 June 2014	30 June 2013	% change
Net Assets (£'000)	164,957	147,688	+11.7
Ordinary Share Performance
	30 June 2014	30 June 2013	% change
Net Asset Value (pence)	686.34	618.35	+11.0
Middle Market Price (pence)	668.00	644.00	+3.7
Russell 2000 Index (Sterling adjusted)	697.70	644.48	+8.3
(Discount)/premium to Net Asset Value (%)	(2.7)	4.1	-

Ten year record

			Year-on-
		Net	year
		Asset	change in	Year-on-
		Value	Net Asset	year
		per	Value per	change in
	Net	Ordinary	Ordinary	Benchmark
	Assets	Share	Share	Index
	£'000	p	%	%
Year ended 30 June
2004	64,763	244.5	-	-
2005	71,350	296.0	+21.1	+9.4
2006	75,464	318.5	+7.6	+9.8
2007	73,177	336.1	+5.5	+6.1
2008	55,982	269.3	-19.9	-16.6
2009	60,607	292.7	+8.7	-10.9
2010	77,298	373.3	+27.5	+32.0
2011	96,201	464.6	+24.5	+26.5
2012	99,248	468.3	+0.8	-1.2
2013	147,688	618.4	+32.1	+26.6
2014	164,957	686.3	+11.0	+8.3

Chairman's Statement

Dear fellow shareholders

Over the last year to 30 June 2014, the US stock market rose strongly. Weakness in the dollar reduced these gains for UK investors. Easy money policies and good US economic performance helped the market. The Company performed well over the year.

Performance

I am pleased to report that the Net Asset Value ("NAV") per share rose by 11.0% to 686.3p in the twelve months to 30 June 2014. This compared to a gain of 8.3% in our benchmark, the sterling adjusted Russell 2000 Index and a similar rise for the sterling adjusted Standard & Poor's 500 Index.

Since the Company's formation in March 1993, the NAV per share has risen 586.3%, compared with a gain of 342.4% for the sterling adjusted Russell 2000 Index.

Manager and company name

Following the recruitment of the Company's longstanding portfolio manager, Robert Siddles, by Jupiter Asset Management Limited early in 2014, the management of the Company was transferred to Jupiter Asset Management Limited on 21 February 2014 from F&C Management Ltd ("F&C").

At a General Meeting held on 8 April 2014 a resolution was passed to change the name of the Company from F&C US Smaller Companies PLC to Jupiter US Smaller Companies PLC, effective 9 April 2014.

Market review

During the year under review and in dollar terms, the Russell 2000 Index and the Standard & Poor's Composite 500 Index both rose 22%, lagging the more technology orientated NASDAQ Composite Index which increased by 29%.

Sterling investors did not enjoy the full amount of these gains because of a fall in the dollar exchange rate in the year. The Company's investments are denominated in dollars but are valued in the portfolio in sterling. The 11.3% drop in the dollar against sterling this year meant that shareholders suffered from this. The dollar suffered compared to sterling due to the relative strength of the recovery in the UK economy.

In the first half of the twelve month period, equities rose strongly, helped by record low interest rates and signs of improved economic activity abroad. In the second half, small companies, as represented by the Russell 2000, marked time as the US was hit by exceptionally cold winter weather and tension in Ukraine rose markedly.

During the year, the usually reliable Institute of Supply Management survey of manufacturing showed that US economic activity expanded, notwithstanding a weather-related dip in the first quarter of 2014.

One feature of the market in the period was investor euphoria about biotech and internet related stocks. This began in earnest in April 2013 and persisted until March 2014 when the bubble seemed to burst as higher risk stocks retreated in the face of Russian threats to invade Crimea. When the market is led by such high risk stocks, the Company's conservative investment style can underperform. I am pleased to report that despite this, performance for the year as a whole was satisfactory as the Company's NAV performed well from March onwards.

Discount and buybacks

The price of the shares rose 3.7% to 668p over the year. The discount to NAV per share was 2.7% at the end of the period compared to a premium of 4.1% on 30 June 2013. The average during the year was a discount of 0.4%. At 7 October 2014 the price stood at a discount of 5.0%.

The Company did not buy back any shares. Instead, in the first half of the year, it issued 150,000 new shares to meet demand from the market, bringing the total shares in issue to 24,034,135. This issuance raised £989,375 and the average premium to NAV of the shares issued was 1.2%: each issue of shares during the period was at a premium.

During the year, as a result of the transfer of management of the Company to Jupiter Asset Management Limited from F&C, the Company no longer qualified for inclusion in the F&C Savings Plan. The Board believe that the remaining shares from the F&C Savings Plan were placed in April, thus removing the overhang created by the Plan's sales.

The Board will continue to apply its policy of buying back shares at appropriate times with a view to limiting any discount in the longer term to around 10%.

New Articles of Association

At the forthcoming Annual General Meeting ("AGM"), shareholders will be asked to approve new Articles of Association of the Company in substitution for the current Articles of Association. The Board is proposing to make these amendments to the Articles in response to the Alternative Investment Fund Managers Directive ("AIFMD") Regulations coming into force. Further details on the proposed changes are provided on pages 18 and 19 of the Annual Report.

Annual General Meeting

The AGM will be held at 11.30am on Tuesday 18 November 2014 and I hope that you will attend. The meeting will be held in the offices of Jupiter Asset Management Limited at 1 Grosvenor Place, London, SW1X 7JJ. In addition to the formal business, the Investment Manager will provide a short presentation to shareholders.

Outlook

The US smaller company sector is an attractive and interesting one for investors. It is generally under-researched and so can offer patient investors reasonable long term returns. Shareholders should benefit from the Company's conservative investment approach that focuses on buying good companies when their shares are out of favour.

Gordon Grender

Chairman

14 October 2014

Investment Adviser's Review

The year was a good one overall, notwithstanding that for much of the period market conditions did not favour the Company's conservative approach. These conditions changed during the second half and performance was driven by several strong performances and relatively few bad ones. New purchases were made in a variety of out-of-favour areas such as housing-related and oil exploration and production stocks. Sales were made in areas that became expensive, for example, foods and rail.

Investment approach

The Company takes a conservative investment approach that aims to preserve capital rather than to chase growth aggressively. The approach is not particularly fashionable and does not necessarily produce good results every year but over time it should lead to superior long term returns. This approach emphasises taking a long term view of company business prospects and buying shares when they are cheap and have substantial appreciation potential. As a result, the portfolio tends to emphasise areas of the market that are out of favour or where companies have lower risk businesses. Conversely, popular market sectors tend to be shunned and stocks that can offer steady, if unspectacular, returns are preferred. An example of this is companies that can compound growth in book value per share, such as disciplined insurance underwriters.

Performance

The portfolio rose and beat its benchmark, with particular help from the best contributing stocks. The top five contributors together added approximately 5% to performance. Although there was no common theme by industry, the main reason in each case was an improvement in operations or an amelioration of other problems. The best of these, Goodrich Petroleum (exploration and production), bought this year, saw improved drilling results in the Tuscaloosa Marine Shale, which is one of the new frontiers in domestic oil exploration. Recoveries by problem stocks, Willbros Group (pipeline contractor) and Pernix Therapeutics Holdings (marketer of pediatric medicines) also contributed. Willbros had suffered both operating and balance sheet issues, an unhappy combination. However, a successful refinancing helped the stock and it was sold with a sense of relief. Pernix rebounded following a rescue orchestrated by Orbimed Advisers who injected capital and brought in new management. Orbital Sciences (small rockets and satellites) successfully launched its new Antares rocket after several delays and the shares sky-rocketed; having recovered, it was sold. Alere (diagnostic tools) rose by more than 50% after making some progress in fixing past problems and as an activist applied pressure at Board level.

Poor contributions were primarily from three stocks, which together impacted overall performance by around 2%. After a good contribution in the previous year, ViaSat (broadband satellite equipment and services) had a bad year. Growth in broadband subscribers disappointed this year after it had earlier seemed as though it was turning the corner; it appears that its strategy is not working as quickly as expected and, with competitors snapping at its heels, the position was sold. America's Car-Mart (who sell and finance used cars) lost ground as some of its better customers were picked off by offers of low down-payment credit on new cars. This is a long term holding and we believe the problem is temporary, so the position was retained. Finally Rex Energy (exploration and production) fell 10% as gas prices weakened.

There was only one bid this year, for Susser Holdings (Texas-based operator of convenience stores).

Portfolio

Over the last year, buying activity was concentrated in stocks with valuable assets, an area that has been built up in recent years. Selling was primarily in recovery stocks but also in some compounders.

The Company's conservative approach tends to lead the portfolio to own broadly four kinds of stocks.  These are a) "compounders", that is, companies capable of delivering reliable growth over a long period, where the stock price, at purchase, is very cheap compared to the underlying business value; b) "valuable assets", where the company owns an asset that can be exploited to increase overall share value; c) recovery stocks, where the shares are deeply depressed and very cheap in absolute terms; and d) turnarounds, in other words, troubled companies that require new management to set them back on the right track.

The portfolio is usually dominated by compounders and recovery stocks but there has been an effort in recent years to boost the number of holdings in valuable assets and this year was no different. Seven were added, although this only resulted in a net addition of four, because three were also sold. The new acquisitions were Acxiom, Catchmark Timberland Trust, Corelogic, Covanta Holdings, Goodrich Petroleum, Resolute Energy and Tanger Factory Outlet Center. Covanta owns very difficult to duplicate assets in the shape of more than 40 waste-to-energy plants, which generate enormous cash flow. The drop in the West Texas Intermediate oil price in the autumn provided the opportunity to buy two oil-focused exploration and production stocks (Goodrich and Resolute).

Notwithstanding the overall market strength, there are always industries experiencing problems that offer potential recovery. Three recovery stocks were bought, Bally Technologies, Calix and Mercury Systems. There was a net reduction in exposure to recovery stocks, however, because seven were sold. Mercury Systems is a defence-electronics contractor whose stock had been hit by the pressure from defence spending cuts. Despite this it is well-positioned for growth as a result of America's tilt towards the Pacific and the need to upgrade ageing defence platforms.

Opportunities to buy new compounders can be hard to come by and only three were added in the period: MSC Industrial Direct, ProAssurance and Susser Holdings. There were six sales, resulting in a net reduction in this area. Susser Holdings is a well-run Texas-based operator of convenience stores benefiting from growth in the Texas economy. Unfortunately it did not stay in the portfolio very long as it received an agreed bid from Energy Transfer Partners LP.

Turnarounds are by far the most difficult category of stock to identify (because of the inherent difficulty of turning around a struggling business) and only one was acquired this year, that is, Sotheby's. The company has a great brand but it has been under-managed: recent changes to management bring a prospect for improvement.

The complete sale of a holding normally results from one of four circumstances: a) confidence is lost in management or the company's franchise; b) the price objective is met and future prospects are uncertain; c) the investment thesis no longer applies; or d) the stock is bid for. Examples of the first were ViaSat (already mentioned above), DENTSPLY International and Microsemi. In the case of the last two stocks, confidence was lost because of the failure to deliver expected growth over the two to three years of ownership. One area where investor enthusiasm led to stocks exceeding our price expectations was in foods, which benefited from a confluence of favourable market conditions that are likely to prove temporary. As a result, The Andersons, Flowers Foods and Sanderson Farms were all sold. The third reason for sale was most frequent in the year, and six stocks were sold because they had recovered: two examples were Orbital Sciences and Willbros Group, as highlighted in the performance paragraph above. As already mentioned a bid was received for Susser Holdings.

Outlook

Attempting to forecast the stock market is a largely futile exercise because markets are phenomena that move to their own beat. For those determined nevertheless to attempt to examine the auguries, the three key drivers of the equity market are rising profits, easy money and investor psychology: with all three working in the correct direction, the market will rise but with only one, it is likely to fall. An expanding US economy appears to support the first and the Fed's reluctance to raise rates helps the second. Investor scepticism, after fading over summer (a bad sign) appears to be reappearing more recently (a good sign as a bull market needs a pool of sceptics to provide fresh buying potential).

The real concern for the market in the next couple of years is the timing and pace of an interest rate rise. This is difficult to predict and for now weakness in the housing market and overseas economies helps to put off the evil day.

What can be said with more certainty is that the long term outlook for America - and by extension, domestically focused stocks, such as, smaller companies - is relatively bright, helped by the triple tailwinds of shale reserves, superior demographics and revitalised manufacturing competitiveness.

Robert Siddles

Fund Manager

Jupiter Asset Management Limited*

Investment Adviser

14 October 2014

* Appointed as Investment Manager of the Company until 21 July 2014. Subsequently appointed as Investment Adviser to JUTM, who were appointed as AIFM to the Company on 22 July 2014.

Strategic Report

The Strategic Report, which incorporates by reference the Chairman's Statement, has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, which the Company is required to comply with for the first time for the year ended 30 June 2014.

The Strategic Report seeks to provide shareholders with the relevant information to enable them to assess the performance of the Directors of the Company during the period under review.

Business and Status

During the year the Company carried on business as an investment trust with its principal activity being portfolio investment. The Company has been approved by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the eligibility conditions of sections 1158 and 1159 of the Corporation Taxes Act 2010 and the ongoing requirements for approved companies as detailed in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011. In the opinion of the Directors, the Company has conducted its affairs in the appropriate manner to retain its status as an investment trust.

The Company is an investment company within the meaning of section 833 of the Companies Act 2006.

The Company is not a close company within the meaning of the provisions of the Corporation Tax Act 2010 and has no employees.

The Company was incorporated in England & Wales on 15 January 1993.

Reviews of the Company's activities are included in the Chairman's Statement and Investment Adviser's Review.

Investment Objective

The Company's investment objective is to achieve long-term capital growth by investing in a diversified portfolio of quoted US smaller and medium-sized companies.

Strategy

The Board recognises that by its nature the US smaller companies sector can be a risky asset class in which to invest. The sector is highly diversified with a great many companies from which to choose. Many companies are relatively immature, whether financially or operationally or in terms of management or market position. They tend to be highly geared to growth and are particularly vulnerable to market and other changes. Against this background, the Company has adopted a disciplined and relatively conservative investment style that focuses on companies with a strong franchise, free cash flow, insider ownership by management and whose shares are considered by the Investment Manager to be cheap at the time of investment. Whilst shares in these companies will not always be the best performing, the Directors believe that this is an excellent approach to long-term investment in this sector.

Business Model & Investment Policy

The investment policy of the Company is to invest in quoted US smaller and medium-sized companies and its objective is achieved through diversification of holdings across a variety of economic/industrial sectors.

No more than 10% of the total assets of the Company may be invested in other UK listed investment companies (including investment trusts) except in such other UK listed investment companies which themselves have stated that they will invest no more than 15% of their total assets in other UK listed investment companies, as defined in section 15.6.8 of the Listing Rules, in which case the limit is 15%.

Management

The Board has appointed Jupiter Unit Trust Managers Limited as the Company's Alternative Investment Fund Manager (the "Investment Manager") for the purposes of the EU Alternative Investment Fund Managers Directive, which company has delegated its investment management functions to Jupiter Asset Management Limited, the Investment Adviser.

The Company has no employees and most of its day-to-day responsibilities are delegated to the AIFM.

The Board believes that individual fund managers holding shares in the companies they manage is a positive indicator of their conviction in those companies. Robert Siddles held 33,696 shares in the Company as at 30 June 2014.

With effect from 21 February 2014, the Company entered into an outsourcing arrangement with JPMorgan Chase Bank N.A., London for the administration and certain company secretarial functions of the Company.

Key Performance Indicators

At the quarterly Board meetings the Directors consider a number of performance indicators to help assess the Company's success in achieving its objectives. The key performance indicators used to measure the performance of the Company over time are as follows:

·      Net Asset Value changes;

·      The premium or discount of share price to Net Asset Value over time;

·      A comparison of the absolute and relative performance of the ordinary share price and the Net Asset Value per share relative to the return on the Company's Benchmark Index; and

·      Ordinary share price movement.

Information on these Key Performance Indicators and how the Company has performed against them can be found within the Chairman's Statement.

In addition, a history of the Net Asset Value, Ordinary share price and Benchmark Index are shown on the monthly factsheets which can be viewed on the Investment Manager's website www.jupiteronline.com and which are available on request from the Company Secretary.

Discount to Net Asset Value

The Directors review the level of the discount or premium between the middle market price of the Company's Ordinary shares and their Net Asset Value on a regular basis. The Directors have taken the opportunity to issue shares when there is sufficient demand.

Such issues are always at a price which is in excess of the NAV.

The Directors have powers granted to them at the last Annual General Meeting to purchase Ordinary shares and either cancel or hold them in treasury as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

150,000 Ordinary shares were issued during the year. No shares were repurchased during the year under review.

Under the Listing Rules, the maximum price that may currently be paid by the Company on the repurchase of any Ordinary shares is 105% of the average of the middle market quotations for the Ordinary shares for the five business days immediately preceding the date of repurchase. The minimum price will be the nominal value of the Ordinary shares. The Board is proposing that its authority to repurchase up to approximately 14.99% of its issued share capital should be renewed at the Annual General Meeting. The new authority to repurchase will last until the conclusion of the Annual General Meeting of the Company in 2015 (unless renewed earlier). Any repurchase made will be at the discretion of the Board in light of prevailing market conditions and within guidelines set from time to time by the Board, the Companies Act, the Listing Rules and Model Code.

Treasury Shares

In accordance with the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (the 'Regulations') which came into force on 1 December 2003 any Ordinary shares repurchased, pursuant to the above authority, may be held in treasury. These Ordinary shares may subsequently be cancelled or sold for cash. This would give the Company the ability to reissue shares quickly and cost effectively and provide the Company with additional flexibility in the management of its capital. The Company may hold in treasury any of its Ordinary shares that it purchases pursuant to the share buy back authority granted by shareholders.

As at 7 October 2014 there were no shares held in treasury.

Gearing

Gearing is defined as the ratio of a company's total loan liability, expressed as a percentage of net assets less cash held. The effect of gearing is that in rising markets a geared share class tends to benefit from any out-performance of the relevant company's investment portfolio above the cost of payment of the prior ranking entitlements of any lenders and other creditors. Conversely, in falling markets the value of the geared shares class suffers more if the Company's investment portfolio under-performs the cost of those prior entitlements.

The Company is not currently geared.

Principal Risks and Uncertainties

The principal risk factors that may affect the Company and its business can be divided into the following areas:

Investment Strategy and Share Price Movement - The Company is exposed to the effect of variations in the price of its investments. A fall in the value of its portfolio will have an adverse effect on shareholders' funds. It is not the aim of the Board to eliminate entirely the risk of capital loss, rather it is its aim to seek capital growth. The Board reviews the Company's investment strategy and the risk of adverse share price movements at its quarterly board meetings taking into account the economic climate, market conditions and other factors that may have an effect on the sectors in which the Company invests.

Liquidity Risk - The Company may invest in securities that have a very limited market which will affect the ability of the Investment Manager to dispose of securities when it is no longer felt that they offer the potential for future returns. Likewise the Company's shares may experience liquidity problems when shareholders are unable to realise their investment in the Company because there is a lack of demand for the Company's shares. At its quarterly meetings the Board considers the current liquidity in the Company's investments when setting restrictions on the Company's exposure. The Board also reviews, on a quarterly basis, the Company's buy back programme and in doing so is mindful of the liquidity in the Company's shares.

Gearing Risk - The Company's gearing can impact the Company's performance by accelerating the decline in value of the Company's Net Assets at a time when the Company's portfolio is declining. Conversely gearing can have the effect of accelerating the increase in the value of the Company's Net Assets at a time when the Company's portfolio is rising. At its quarterly meetings the Board is mindful of the outlook for equity markets when reviewing the Company's gearing.

Discount to Net Asset Value - A discount in the price at which the Company's shares trade to Net Asset Value would mean that shareholders would be unable to realise the true underlying value of their investment. The Directors have powers granted to them at the last Annual General Meeting to purchase Ordinary shares as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

Regulatory Risk - The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of section 1158 of the CTA 2010 could result in the Company being subject to capital gains tax on portfolio movements. Breaches of other

regulations such as the UKLA Listing rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers such as the Investment Adviser could also lead to reputational damage or loss. The board relies on the services of its Company Secretary, Jupiter Asset Management Limited, and its professional advisers to ensure compliance with, amongst other regulations, the Companies Act 2006, the UKLA Listing Rules, the FCA's Disclosure and Transparency Rules and the Alternative Investment Fund Managers Directive.

Credit and Counterparty Risk - The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

Loss of Key Personnel - The day-to-day management of the Company has been delegated to the Investment Adviser. The person at Jupiter Asset Management Limited who manages the assets of the Company on a daily basis is Robert Siddles. Loss of him or the Investment Manager's other key staff members could affect investment return. The Investment Adviser develops its recruitment and remuneration packages in order to retain key staff, has training and development programmes in place and undertakes succession planning.

Operational - Failure of the core accounting systems, or a disastrous disruption to the Investment Manager's business, could lead to an inability to provide accurate reporting and monitoring. The Investment Adviser is contractually obliged to ensure that its conduct of business conforms to applicable laws and regulations. Details of how the Board monitors the services provided by Jupiter Asset Management Limited and its associates are included within the Internal Control section of the Report of the Directors.

Financial - Inadequate financial controls could result in misappropriation of assets, loss of income and debtor receipts and inaccurate reporting of Net Asset Value per share. The Board annually reviews the Investment Adviser's report on its internal controls and procedures.

Social and Environmental Matters

The Investment Manager considers various factors when evaluating potential investments. While an investee company's policy towards the environment and social responsibility, including with regard to human rights, is considered as part of the overall assessment of risk and suitability for the portfolio, the Investment Manager alone decides whether or not to make an investment on environmental and social grounds.

All of the Company's activities are outsourced to third parties. As such it does not have any physical assets, property, employees or operations of its own and does not generate any greenhouse gas or other emissions.

Board Diversity

It is seen as a prerequisite that each member of the Board must have the skills, experience and character that will enable each Director to contribute individually, and as part of the Board team, to the effectiveness of the Board and the success of the Company. Subject to that overriding principle, diversity of experience and approach, including gender diversity, amongst Board members is of great value, and it is the Board's policy to give careful consideration to issues of overall Board balance and diversity in making new appointments to the Board.

The Board currently comprises four male directors.

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from its operations as its day-to-day management and administration functions have been outsourced to third parties and it neither owns physical assets or property nor has employees of its own. It therefore does not have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report on Directors' Reports) Regulations 2013.

Statement of Directors' Responsibilities in Relation to the Financial Statements

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws).

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit and loss of the Company for that period. In preparing those financial statements, the Directors are required to:

(a) select suitable accounting policies and then apply them consistently;

(b) make judgments and estimates that are reasonable and prudent; and

(c) state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.

The financial statements are published on www.jupiteronline.com/USSmallerCompanies which is a website maintained by the Investment Manager.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, who are listed on page 15 of this report, confirms to the best of his knowledge that:

■   the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

■   the Strategic Report and Report of the Directors include a fair review of the development and performance of the Company, together with a description of the principal risks and uncertainties that the Company faces; and

■    in his opinion the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy.

By Order of the Board

Gordon Grender

Chairman

14 October 2014

Income Statement for the year ended 30 June 2014

	2014			2013
	Revenue	Capital		Revenue	Capital
	Return	Return	Total	Return	Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments at fair value through profit or loss	-	17,991	17,991	-	34,254	34,254
Foreign exchange (loss)/gain	-	(761)	(761)	-	129	129
Investment income	825	-	825	906	-	906
Other income	3	-	3	7	-	7
Total income	828	17,230	18,058	913	34,383	35,296
Investment management fee	(1,274)	-	(1,274)	(1,016)	-	(1,016)
Performance fee	-	(43)	(43)	-	-	-
Other expenses	(331)	-	(331)	(307)	(8)	(315)
Total expenses	(1,605)	(43)	(1,648)	(1,323)	(8)	(1,331)
(Loss)/return before finance costs and taxation	(777)	17,187	16,410	(410)	34,375	33,965
(Loss)/return before taxation	(777)	17,187	16,410	(410)	34,375	33,965
Taxation	(130)	-	(130)	(136)	-	(136)
Net return after taxation	(907)	17,187	16,280	(546)	34,375	33,829
Return per Ordinary share	(3.78p)	71.69p	67.91p	(2.42p)	152.16p	149.74p

The total column of this statement is the profit and loss account of the Company.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

Balance Sheet as at 30 June 2014

	2014	2013
	£'000	£'000
Fixed assets
Investments held as at fair value through profit or loss	160,742	141,061
Current assets
Debtors	518	793
Cash at bank	4,537	6,773
	5,055	7,566
Creditors: amounts falling due within one year	(840)	(939)
Net current assets	4,215	6,627
Net assets	164,957	147,688
Capital and reserves
Called up share capital	6,008	5,971
Share premium	19,550	18,598
Non-distributable reserve	841	841
Capital redemption reserve	8,175	8,175
Retained earnings	130,383	114,103
Total shareholders' funds	164,957	147,688
Net Asset Value per Ordinary Share	686.34p	618.35p

Approved by the Board of Directors on 14 October 2014 and signed on its behalf by:-

Gordon Grender

Chairman

Company Registration Number 02781968

Reconciliation of Movements in Shareholders' Funds for the year ended 30 June 2014

	Called up		Non-	Capital
	Share	Share	distributable	Redemption	Retained
	Capital	Premium	Reserve	Reserve	Earnings	Total
For the year ended 30 June 2014	£'000	£'000	£'000	£'000	£'000	£'000
1 July 2013	5,971	18,598	841	8,175	114,103	147,688
Net return for the year	-	-	-	-	16,280	16,280
Ordinary share issue	37	952	-	-	-	989
Balance at 30 June 2014	6,008	19,550	841	8,175	130,383	164,957
	Called up		Non-	Capital
	Share	Share	distributable	Redemption	Retained
	Capital	Premium	Reserve	Reserve	Earnings	Total
For the year ended 30 June 2013	£'000	£'000	£'000		£'000	£'000
1 July 2012	5,298	4,660	841	8,175	80,274	99,248
Net return for the year	-	-	-	-	33,829	33,829
Ordinary share issue	673	13,938	-	-	-	14,611
Balance at 30 June 2013	5,971	18,598	841	8,175	114,103	147,688

Cash Flow Statement for the year ended 30 June 2014

	2014	2013
	£'000	£'000
Cash flows from operating activities
Purchases of investments	(63,925)	(51,812)
Sales of investments	62,409	38,602
Investment income received	806	918
Interest received	3	7
Investment management fee paid	(1,312)	(919)
Other cash expenses	(312)	(300)
Cash outflow from operating activities before taxation	(2,331)	(13,504)
Taxation	(133)	(138)
Net cash outflow from operating activities	(2,464)	(13,642)
Financing activities
Ordinary shares issued	989	14,611
Management of liquid resources
(Decrease) in short-term deposits	-	(1,197)
(Decrease) in cash	(1,475)	(228)
Cash and cash equivalents at start of year	6,773	5,675
Increase in short-term deposits	-	1,197
Realised (loss)/gain on foreign currency	(761)	129
Cash and cash equivalents at end of year	4,537	6,773

Notes to the Accounts for the year ended 30 June 2014

1.     Accounting policies

The significant accounting policies, which have not been changed and have been applied consistently during the year ended 30 June 2014, are stated below:

(a) Basis of accounting

The accounts of the Company are prepared on a going concern basis under the historical cost convention, modified to include fixed asset investments at fair value through profit or loss and in accordance with the Companies Act 2006, Accounting Standards applicable in the United Kingdom and with the Revised Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued in January 2009.

The functional and reporting currency of the Company is pounds sterling because that is the currency of the primary economic environment in which the Company operates.

In accordance with the SORP, the Income Statement has been analysed between a revenue account (dealing with items of a revenue nature) and a capital account (relating to items of a capital nature). Revenue returns include, but are not limited to, dividend income, operating expenses and tax. Net revenue returns are allocated via the revenue account to the revenue reserve, out of which dividend payments may be made. Capital returns include, but are not limited to, profits and losses on the disposal and revaluation of fixed asset investments and currency profits and losses on cash and borrowings. Net capital returns may not be distributed by way of dividend and are allocated via the capital account to the capital reserves.

(b) Principal accounting policies

(i)  Financial instruments

Financial instruments include fixed asset investments, derivative assets and liabilities and long-term debt instruments.

Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The classification of financial instruments depends on the lowest significant applicable input, as follows:

Level 1 - Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities. Included within this category are investments listed on any recognised stock exchange.

Level 2 - Quoted prices for similar assets or liabilities, or other directly or indirectly observable inputs which exist for the duration of the period of investment. Examples of such instruments would be those for which the quoted price has been recently suspended, forward exchange contracts and certain other derivative instruments.

Level 3 - External inputs are unobservable. Value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instruments. Included within this category are unquoted investments.

(ii) Fixed asset investments

As an investment trust, the Company measures its fixed asset investments at "fair value through profit or loss" and treats all transactions on the realisation and revaluation of investments as transactions on the capital account. Purchases are recognised on the relevant trade date, inclusive of expenses which are incidental to their acquisition. Sales are also recognised on the trade date, after deducting expenses incidental to the sales.

Quoted investments are valued at bid value at the close of business on the relevant date on the exchange on which the investment is quoted.

(iii)       Foreign currency

Monetary assets, monetary liabilities and equity investments denominated in a foreign currency are expressed in sterling at rates of exchange ruling at the balance sheet date. Purchases and sales of investment securities, dividend income, interest income and expenses are translated at the rates of exchange prevailing at the respective dates of such transactions.

Foreign exchange profits and losses on fixed asset investments are included within the changes in fair value in the capital account. Foreign exchange profits and losses on other currency balances are separately credited or charged to the capital account except where they relate to revenue items when they are credited or charged to the revenue account.

(iv)       Income

Income from equity shares is brought into the revenue account (except where, in the opinion of the Directors, its nature indicates it should be recognised within the capital account) on the ex-dividend date or, where no ex-dividend date is quoted, when the Company's right to receive payment is established.

Dividends are accounted for in accordance with Financial Reporting Standard 16 "Current Taxation" on the basis of income actually receivable, without adjustment for the tax credit attaching to the dividends. Dividends from overseas companies are shown gross of withholding tax.

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash (scrip dividends), the amount of the cash dividend foregone is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend foregone is recognised in the capital account.

(v)      Expenses, including finance charges

Expenses are charged to the revenue account of the Income Statement, except as noted below:

- expenses incidental to the acquisition or disposal of fixed asset investments are included within the cost of the investments or deducted from the disposal proceeds of investments and are thus charged to capital reserve - arising on investments sold via the capital account; and

- performance fees insofar as they relate to capital performance are allocated to capital reserve - arising on investments sold.

All expenses are accounted for on an accruals basis. Finance charges are accrued using the effective interest rate method.

(vi)     Taxation

Deferred tax is provided in accordance with Financial Reporting Standard 19 "Deferred Tax", on an undiscounted basis, on all timing differences that have originated but not reversed by the balance sheet date, based on the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the "marginal" basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

(vii)      Capital redemption reserve

The nominal value of ordinary share capital purchased and cancelled is transferred out of called-up share capital and into the capital redemption reserve.

(viii)     Capital reserves

Capital reserve - arising on investments sold.

The following are accounted for in this reserve:

- gains and losses on the realisation of fixed asset investments;

- realised foreign exchange differences of a capital nature;

- performance fee payable to the Manager;

- costs of professional advice, including related irrecoverable VAT, relating to the capital structure of the Company;

- other capital charges and credits charged or credited to this account in accordance with the above policies; and

- the costs of purchasing ordinary share capital.

Capital reserve - arising on investments held

The following are accounted for in this reserve:

- increases and decreases in the valuation of fixed asset investments held at the year end; and

- unrealised foreign exchange differences of a capital nature.

2.   Income

	2014	2013
	£'000	£'000
Income from investments:
Dividends from overseas companies	825	906
	825	906
Other income:
Deposit interest	3	7
Total income	828	913
Total income comprises
Dividends	825	906
Interest	3	7
	828	913
Income from investments
Listed overseas	825	906
	825	906

7.     Return per Ordinary share

	2014	2013
	£'000	£'000
Net revenue return	(907)	(546)
Net capital return	17,187	34,375
Net total profit	16,280	33,829
Weighted average number of Ordinary shares in issue during the year	23,973,656	22,591,387
Revenue return per Ordinary share	(3.78p)	(2.42p)
Capital return per Ordinary share	71.69p	152.16p
Net return per Ordinary share	67.91p	149.74p

18.  Net Asset Value per Ordinary share

The Net Asset Value per Ordinary share is based on the net assets attributable to the equity shareholders of £164,957,000 (2013: £147,688,000) and on 24,034,135 (2013: 23,884,135) Ordinary shares, being the number of Ordinary shares in issue at the year end.

21.  Related parties

The following are considered to be related parties: the Board, the Investment Manager and the Investment Adviser. There are no transactions with the Board other than aggregated remuneration for services as Directors as disclosed in the Directors' Remuneration Report and the beneficial interests of the Directors in the ordinary shares of the Company as disclosed.

During the year under review, Jupiter Asset Management Limited as Investment Manager in place of F&C on substantially the same terms, was contracted to provide investment management services to the Company (subject to termination by not less than one year's notice by either party) for a quarterly fee of 0.20% of the total assets of the Company, excluding the value of any Jupiter managed investments. The management fee for the year was £1,274,000 (2013: £1,016,000) with £257,000 outstanding as at 30 June 2014 (2013: £295,000).

Of the year's management fee, £694,000 was payable to F&C and £580,000 was payable to Jupiter. The outstanding balance of £257,000 as at 30 June 2014 was all payable to Jupiter.

During the year under review, the Investment Manager was also eligible for a performance related management fee, charged through the capital account, of 5% of any annual out-performance by the net asset value ("NAV") per share of "target performance", defined as a margin of 2 % over the Russell 2000 Index (in both cases converted to sterling). If the NAV per ordinary share performance (adjusted to exclude the relevant performance-related fee) exceeds the target, the performance-related fee is payable on the excess. If the NAV per ordinary share underperforms the Russell 2000 Index by 2% or more, the under-performance will be carried forward and no further performance-related fee will be payable until the NAV per ordinary share has both recovered the accumulated under-performance and exceeded the target performance for the year. The maximum performance-related fee which may be payable in respect of any year is 0.7% of gross assets.

The performance fee payable at the year end was £43,000 (2013: £nil) of which £27,000 is payable to F&C and £16,000 is payable to Jupiter.

22.  Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding as at 30 June 2014 (2013: nil).

23.  Post balance sheet event

Appointment of Alternative Investment Fund Manager

The Company appointed Jupiter Unit Trust Managers Limited ('JUTM') as its Alternative Investment Fund Manager ('AIFM') with effect from 22 July 2014. In order to facilitate this appointment, the Company terminated the investment management agreement (the 'IMA') with Jupiter Asset Management Limited ('JAM') and entered into a new investment management agreement with JUTM ('the new IMA'). The new IMA contains no substantive changes to the previous IMA other than to reflect regulatory changes, changes to service providers to the Company and to update the agreement to reflect current market practice. Under these new arrangements, certain investment management functions have been delegated by the AIFM.

Appointment of Depositary

As required by the Alternative Investment Fund Managers Directive, the Company has appointed J.P. Morgan Europe Limited ('JPM Europe') as its depositary for cash monitoring, the safekeeping of financial instruments, other assets and oversight with effect from 22 July 2014. The Global Custody Agreement with J.P. Morgan Chase Bank N.A. ('JPMCB') will remain in place; JPM Europe has entered into an internal delegation agreement with JPMCB to delegate the custody function to it.

Availability of Annual Report

The Annual Report & Accounts will be posted to shareholders shortly. Copies will also be available from the Company's registered office at 1 Grosvenor Place, London SW1X 7JJ. An electronic version of the Annual Report & Accounts will also be available for download from the Company's section of Jupiter Asset Management's website www.jupiteronline.com/USSmallerCompanies.

For further information, please contact:

Richard Pavry

Head of Investment Trusts

Jupiter Asset Management Limited, Company Secretary

[e-mail] 

020 7314 4822

15th October 2014

 

END

 

 

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