Interim Results

F&C U.S. Smaller Companies PLC 15 March 2006 Date: 15 March 2006 Contact: Robert Siddles F&C Management Limited 020 7628 8000 F&C US SMALLER COMPANIES PLC Unaudited Interim Statement of Results for the half-year ended 31 December 2005 HIGHLIGHTS OF RESULTS • The NAV per share rose 10.3%, compared to a rise of 9.9% in the benchmark, the sterling adjusted Russell 2000 Index. • The Russell 2000 Index rose 5.3% in dollar terms, compared to 4.8% for the S&P500. SUMMARY OF UNAUDITED RESULTS FOR THE HALF-YEAR TO 31 DECEMBER 2005 31 December 2005 30 June 2005 Change Net assets £77.4m *£71.4m +8.4% Net asset value per share 326.57p *296.02p +10.3% Russell 2000 Index (sterling adjusted) 392.15 356.86 +9.9% Share price 294.75p 263.50p +11.9% Increase in net asset value per share since inception on 8 March 1993 +238.2% Increase since 8 March 1993 in the Russell 2000 Index (sterling adjusted) +148.7% * Restated for change in accounting policy (see note 1) Chairman's Statement Dear Shareholder I am pleased to report an increase of 10.3% in the net assets per share of your Company, in the six month period to 31 December 2005, exceeding the rise of 9.9% in the Company's benchmark, the sterling-adjusted Russell 2000 Index. Although the degree of out-performance was modest, the performance is pleasing given the very strong performance in the fiscal year ending 30 June 2005 and the rally in smaller technology shares, which began last May. The Company's conservative investment approach means that it tends to avoid investing in what we believe to be the more risky technology sector. Market Review During the period of six months under review, the Russell 2000 Index rose 5.3% in dollar terms, slightly more than the Standard & Poors Composite Index, which gained 4.8% but less that the more technology-orientated NASDAQ Composite Index, which moved ahead 7.2%. Sterling investors benefited from a rise in the US dollar over the six months. Rising interest rates and robust economic growth helped to support the US currency, which has continued to advance against sterling following the low reached in December 2004. Strength in smaller companies stocks at the beginning of the six month period faded and the Russell 2000 declined to a low in October. A rally subsequently took hold, carrying the Index to record highs in December. Optimism centred around declining oil prices and an expectation that interest rates did not have much further to rise. The best performing sectors were commodity related, specifically integrated oils, other energy, and materials and processing. The laggards were consumer staples, utilities and the consumer discretionary sector. Portfolio Review The portfolio continues to be substantially overweight in the consumer discretionary sector (which includes both business and consumer services) but underweight in technology, reflecting the Company's risk averse style. In the financials sector, banks and REITs are under-weighted because of the potential impact of rising rates (instead commercial finance and insurance is emphasised). In the last six months, the manager used share price strength to reduce materials and processing stocks and to move from an overweight position in energy closer to a neutral weight. The portfolio has been overweight in energy for several years because of expected supply constraints but the sharp run up in share prices last Autumn suggested a more cautious approach is now appropriate. The positions in the St Joe Company and Shaw Group were sold in their entirety. The autos and transportation sector has become an area of increased emphasis, and the manager added trucking stocks following an economic scare earlier in the year which provided a buying opportunity. A variety of factors are constraining new supply in the long distance trucking industry, favouring pricing. Freight forwarder, EGL, a recent purchase, was reduced after a strong recovery. Although the consumer discretionary sector remains an area of focus, several stocks were sold: direct marketer, Harte-Hanks, arts and crafts retailer Michaels Stores (both expensive) and Furniture Brands. The last failed to live up to expectations and the manager is moving away from consumer cyclical shares where risks will increase. The manager added several inexpensive stocks with steady growth characteristics that should do well as the rate of growth in corporate profits decelerates. An example is TNS, which operates a specialised data communication network. The biggest contributions to performance came from freight forwarder EGL and retailer Conn's. The latter made a big contribution in the last fiscal year too. Others were from Genesee and Wyoming, the operator of short line railroads and LKQ, which recycles car parts. Poor performers included Lifepoint Hospitals, where a recent acquisition appears to have overstretched its management resources and Andrew, the manufacturer of wireless base station subsystems, which was impacted by high copper prices. Buy-backs and discount The Company bought back 411,000 of its own shares in the six-month period at an average discount of 12.0%. The Board will continue to apply its policy of buying back shares at appropriate times with a view to limiting the discount in the longer term to around 10%. The discount narrowed slightly from 11.0% at 30 June 2005 to 9.7% at 31 December 2005. As at 14 March 2006, the discount was 5.2%. Continuation Vote At the Annual General Meeting on 15 November 2005, shareholders voted in favour of an ordinary resolution that the Company continue as an investment trust. It is the Board's intention that similar resolutions will be put forward every three years, the next occasion being the AGM in 2008. Outlook Smaller companies have rallied to new record highs after the end of the period of this review. Some consolidation is to be expected in the short term but there seem to be no signs yet that the secular bull market in small companies that began six years ago has ended. The strength of the technology sector since last May could mean that the Company's performance lags that of the market, because of the Company's risk averse approach. The Board, however, believes this approach will continue to benefit shareholders over the long term. Gordon Grender March 2006 UNAUDITED INCOME STATEMENT (incorporating the revenue account+) 6 months to 31 December 2005 6 months to 31 December 2004 Restated* Revenue Capital Total Revenue Capital Total £'000s £'000s £'000s £'000s £'000s £'000s Gains on investments - 6,936 6,936 - 2,615 2,615 Exchange gains/(losses) on currency balances - 30 30 - (116) (116) Income 667 - 667 706 - 706 Management fee (302) - (302) (259) - (259) Other expenses (96) (4) (100) (100) (3) (103) Net return before finance costs and taxation 269 6,962 7,231 347 2,496 2,843 Interest payable and similar charges - - - - - - Return on ordinary activities before taxation 269 6,962 7,231 347 2,496 2,843 Taxation on ordinary activities (98) - (98) (106) - (106) Return attributable to equity shareholders 171 6,962 7,133 241 2,496 2,737 Return per ordinary share - pence 0.72 29.11 29.83 0.93 9.58 10.51 +The total column is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. 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. * Restated for change in accounting policy (see note 1) UNAUDITED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS FUNDS Share Non- Capital Total Share premium distributable redemption Special Capital Revenue Shareholders' capital account reserve reserve reserve reserves reserve Funds £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s Balance at 30 June 2004 (as previously reported) 6,621 2,468 841 6,731 10,713 38,988 (1,599) 64,763 Investment valuation restatements* - - - - - (105) - (105) Balance at 30 June 2004 (restated) 6,621 2,468 841 6,731 10,713 38,883 (1,599) 64,658 Shares repurchased during year ended 30 June 2005 (595) - - 595 (5,367) - - (5,367) Return attributable to equity shareholders during year ended 30 June 2005 (as previously reported) - - - - - 11,816 222 12,038 Investment valuation restatements* - - - - - 21 - 21 Balance at 30 June 2005 (restated) 6,026 2,468 841 7,326 5,346 50,720 (1,377) 71,350 Shares repurchased during the period (103) - - 103 (1,111) - - (1,111) Return attributable to equity shareholders during the period - - - - - 6,962 171 7,133 Balance carried forward at 31 December 2005 5,923 2,468 841 7,429 4,235 57,682 (1,206) 77,372 * Restated for change in accounting policy (see note 1) UNAUDITED BALANCE SHEET At 31 Dec 2005 At 31 Dec 2004 At 30 June 2005 Restated* Restated* £'000s £'000s £'000s Fixed assets Investments held at fair value 75,979 64,498 70,264 Current assets Debtors 238 110 76 Cash at bank and short-term deposits 1,343 1,355 1,591 1,581 1,465 1,667 Current liabilities (188) (437) (581) Net current assets 1,393 1,028 1,086 Net assets 77,372 65,526 71,350 Shareholders equity Called up share capital 5,923 6,392 6,026 Share premium account 2,468 2,468 2,468 Non-distributable reserve 841 841 841 Capital redemption reserve 7,429 6,960 7,326 Special reserve 4,235 8,844 5,346 Capital reserves 57,682 41,379 50,720 Revenue reserve (1,206) (1,358) (1,377) Total equity shareholders' funds 77,372 65,526 71,350 Net asset value per ordinary share - pence 326.57 256.26 296.02 Restated for change in accounting policy (see note 1) UNAUDITED CASH FLOW STATEMENT 6 months to 6 months to 31 December 2005 31 December 2004 £'000s £'000s Net cash (outflow)/inflow from operating activities (116) 308 Total tax paid (63) (97) Net cash inflow from purchases and sales of investments 1,219 1,833 Net cash inflow before use of liquid resources and financing 1,040 2,044 Decrease in short-term deposits 21 - Net cash outflow from financing (1,204) (1,954) (Decrease)/increase in cash during the period (143) 90 Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash during the period (143) 90 Decrease in short-term deposits (21) - Exchange movement 30 (116) Movement in net funds in the period (134) (26) Net funds at the beginning of the period 1,477 1,381 Net funds at the end of the period 1,343 1,355 Notes 1 ACCOUNTING POLICIES Changes in Accounting Policy With effect from 1 July 2005, the Company has adopted Financial Reporting Standards (FRS) 21 to 26. The effects of adoption are described briefly below. FRS 25 (Financial Instruments: Disclosure and Presentation) and FRS 26 (Financial instruments: Measurement) - The Company has designated its assets and liabilities as being measured at 'fair value through profit or loss'. The fair value of fixed asset listed investments is deemed to be the bid value of those investments at the close of business on the relevant date. Previously, all listed investments were valued at mid value. There have been no other changes to accounting policies during the period. 2 DIVIDEND The directors do not propose to pay an interim dividend. 3 RETURN PER ORDINARY SHARE Returns per ordinary share attributable to ordinary shareholders reflects the overall performance of the Company in the period. Net revenue recognised in the first six months is not reflective of the total likely to be received in the full accounting year. 6 months to 6 months to Year to 31 Dec 2005 31 Dec 04 30 June 05 (Restated) (Restated) £'000s £'000s £'000s Total return 7,133 2,737 12,059 Revenue return 171 241 222 Capital return 6,962 2,496 11,837 Weighted average ordinary shares in issue 23,912,845 26,037,692 25,278,501 6 months to Year to 31 Dec 04 30 June 05 As previously stated £'000s £'000s Total return 2,736 12,038 Capital return 2,495 11,816 The total and capital returns for the six months to 31 December 2004 and year to 30 June 2005 have been increased by £1,000 (nil pence per share) and £21,000 (0.08 pence per share) respectively. This reflects the effect of the decrease in valuation of investments, as a result of the change in accounting policy, at 1 July 2004 by £105,000, 31 December 2004 by £104,000 and 30 June 2005 by £84,000. 4 RESTATEMENT OF OPENING BALANCES Balance Sheet Previously reported Restated 31 December 2004 Adjustment 31 December 2004 £'000s £'000s £'000s Fixed assets Investments held at fair value* 64,602 (104) 64,498 Current assets Debtors 110 - 110 Cash at bank and short-term deposits 1,355 - 1,355 1,465 - 1,465 Current liabilities (437) - (437) Net current assets 1,028 - 1,028 Net assets 65,630 (104) 65,526 Shareholders equity Called up share capital 6,392 - 6,392 Share premium account 2,468 - 2,468 Non-distributable reserve 841 - 841 Capital redemption reserve 6,960 - 6,960 Special reserve 8,844 - 8,844 Capital reserves* 41,483 (104) 41,379 Revenue reserve (1,358) (1,358) Total equity shareholders' funds 65,630 (104) 65,526 Net asset value per ordinary share - pence 256.67 (0.41) 256.26 Note to the restatement of opening balances * Effect of revaluation of fixed asset investments from mid to bid value Balance Sheet Previously reported Restated 30 June 2005 Adjustment 30 June 2005 £'000s £'000s £'000s Fixed assets Investments held at fair value* 70,348 (84) 70,264 Current assets Debtors 76 - 76 Cash at bank and short-term deposits 1,591 - 1,591 1,667 - 1,667 Current liabilities (581) - (581) Net current assets 1,086 - 1,086 Net assets 71,434 (84) 71,350 Shareholders equity Called up share capital 6,026 - 6,026 Share premium account 2,468 - 2,468 Non-distributable reserve 841 - 841 Capital redemption reserve 7,326 - 7,326 Special reserve 5,346 - 5,346 Capital reserves* 50,804 (84) 50,720 Revenue reserve (1,377) - (1,377) Total equity shareholders' funds 71,434 (84) 71,350 Net asset value per ordinary share - pence 296.37 (0.35) 296.02 Note to the restatement of opening balances * Effect of revaluation of fixed asset investments from mid to bid value 5 RESULTS The results for the six months to 31 December 2005 and 31 December 2004, which are unaudited, constitute non-statutory accounts within the meaning of Section 240 of the Companies Act 1985. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 June 2005; the report of the auditors thereon was unqualified and did not contain a statement under Section 237 of the Companies Act 1985. The abridged financial statements shown above for the year ended 30 June 2005 are an extract from those accounts (except as noted above). By order of the Board F&C Management Limited, Secretary Exchange House, Primrose Street, London EC2A 2NY 15 March 2006 This information is provided by RNS The company news service from the London Stock Exchange

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