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JP Morgan Inc & Cap (JPI)

  Print      Mail a friend       Annual reports

Thursday 25 October, 2007

JP Morgan Inc & Cap

Interim Results

JPMorgan Income & Capital IT PLC
25 October 2007




                                31ST AUGUST 2007

The following are comments from the Chairman:

Portfolio Performance

The summer months were volatile with the sub-prime crisis in the US particularly
affecting financial stocks where the Company has an overweight position. Further
details of the portfolio returns are given in the investment manager's report.

The overall value of the portfolio rose by 1.2% during the six months under
review, whereas the benchmark index had a comparable rise of 3.7%. Over the
longer-term, the net asset value ('NAV') performance has been impressive. Since
the Company's inception on 6th March 2002, the NAV of the ordinary shares in
total return terms has risen by 97.5%, the unit NAV is up 75.7% and the zero
dividend preference shares have risen by 53.6%. The benchmark index rose by
50.7% on a comparable basis.

Share Price Performance

During the review period, the discount on the ordinary shares rose from 7.1% to
8.2% and on the units from 4.0% to 6.3%, while the zero dividend preference
shares moved from a premium of 1.6% to a discount of 0.3%. At the time of
writing, the discounts have reduced and this trend can be expected to continue
as the Company approaches the end of its life in February 2008.

Revenue and Dividends

During the review period, the Board has declared two quarterly interim
dividends, each of 2.00p per ordinary share, paid to ordinary shareholders and
unit holders on 2nd July 2007 and 1st October 2007. It is intended that the
third quarter dividend will be paid on 2nd January 2008. The final quarter
dividend, together with the balance of undistributed revenue reserves, will be
paid just before the Company becomes available to roll over into a successor

Hurdle Rate

The Hurdle Rate measures the amount by which the total assets of the Company
have to grow each year in order to return the current share price to ordinary
shareholders when the Company winds up in February 2008. At the end of August
2007, the Hurdle Rate required to return the then current ordinary share price
of 130.3p was 1.6% per annum, and to return the original 100p subscription price
was minus 30.0% per annum.

Share Repurchases

At the Annual General Meeting in July 2007, shareholders renewed the Board's
authority to repurchase up to 14.99% of the Company's issued share capital.
During the six months to 31st August 2007 the Company repurchased 785,000
ordinary shares at an average discount of 8.7% and a cost of £1,092,000, thus
modestly improving net asset value for continuing shareholders.

VAT Case

As shareholders will be aware, in 2004 the Association of Investment Companies
('AIC') launched an appeal, with JPMorgan Claverhouse Investment Trust plc, for
VAT to be removed from the payment of investment trust management fees. In June
of this year, the European Court of Justice found in favour of the AIC,
confirming that investment trust management fees should be exempt from VAT in
the same way as management fees for unit trusts and open ended investment
companies. We now await HM Revenue and Customs' response to this judgement and
confirmation as to whether a change in interpretation of applicable tax
legislation will allow refunds of unrecovered VAT from previous years to be
made. It may take some time for confirmation of entitlement to any refunds and
the timing of any repayments to be determined.  The Board has been advised that
the possible value for ordinary shareholders represented by these refunds might
amount to in excess of 1p per ordinary share.

At present, it is unlikely that it will be possible to reach a resolution of
this matter prior to the winding up of the Company on 29th February 2008 and,
accordingly, such resolution will become the responsibility of the liquidators.
It is important, however, to stress that entitlement to any possible refund
currently remains uncertain.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into five broad
categories: investment and strategy; accounting; legal and regulatory; corporate
governance and shareholder relations; operational and financial. Information on
each of these areas is given in the Business Review within the Annual Report and
Accounts for the year ended 28th February 2007.

Related Parties Transactions

During the first six months of the current financial year, no transactions with
related parties have taken place which have materially affected the financial
position or the performance of the Company during the period.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

i)          the condensed set of financial statements contained within the half
yearly financial report has been prepared in accordance with the Accounting
Standards Board's Statement 'Half-Yearly Financial Reports'; and

ii)         the interim management report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure
and Transparency Rules.

Life of the Company

The Board believes that our traditional split capital structure still has appeal
and that the Company has demonstrated that a well managed split capital
investment trust can deliver attractive returns. Accordingly, the Board and its
advisers are currently developing proposals for a tax-efficient rollover
opportunity into a successor vehicle to be offered to shareholders on the
winding up of the Company.

It is expected that the proposed rollover will be into a new split capital
investment trust with a broadly similar structure. Further details about the
characteristics of the shares, the investment approach and the timing of the
rollover into a successor vehicle will be announced in due course.

Sir Laurence Magnus Bt

Chairman         25th October, 2007

The following are comments from the Investment Manager:

Market Review

The latest interim period proved to be a volatile one. At the start of our
financial year, there was a sharp correction in the UK equity market which
started in late February and continued into early March on the back of a
sell-off in Chinese markets. This correction proved to be short lived and the
market then continued to rally up until the middle of July when it was up by
just over 8%.

Much of this gain was driven many rumoured and a number of actual bids for a
range of companies from both corporate and financial buyers who were encouraged
by the availability of cheap financing. We did not hold many of those companies
that received bids, such as Alliance Boots, Reuters and Sainsbury's, although we
did benefit from the bid approach for Domestic & General, which eventually
agreed to be taken over by a venture capital firm towards the end of the period.
Around the same time, another correction in equities occurred in response to the
tightening of credit markets as major defaults in the US sub-prime mortgage
market became apparent.

Despite this, it was another positive half year for UK equities which saw total
returns of 4.4% (including net income reinvested) as measured by the equity part
(67.5%) of our benchmark FTSE 350 Index (ex. investment trusts). The other part
of our benchmark, the Merril Lynch 1-3 Year Bond Index (32.5%), performed less
well as interest rates rose, returning 2.18%. Our combined benchmark returned
3.68% over the period.

Performance and Outlook

Against this background, the Company's portfolio performed less well than in the
past, with a total return (including net income reinvested) of +1.2%. This
under-performance against the benchmark index was driven by our lack of exposure
to bid candidates and an under-weight in the oil and mining sectors which
performed particularly well this period. In addition, some of our efforts to
increase exposure to larger stocks, which included additions to stocks in the
banking sector, failed to add value as these suffered badly late in the period
as the sub-prime crisis in the US developed.

Asset allocation was close to the benchmark, with a small bias towards equities
since May 2006. We were content with this position as equities continued to
perform relatively well and our bonds and cash gave us some protection when
markets fell recently. With the relatively short time left before the end of the
life of the Company in its current form, we are likely to remain relatively
neutrally positioned. Furthermore, we believe that the current correction is a
healthy development in the context of an on-going bull market. We do not believe
that this largely financial market event will have too much of an effect on the
broader economy. Given the recent set-back and our relatively sanguine outlook
on the economy and more attractive valuations now available in the UK stock
market we are therefore, as discussed above, content to remain with a fairly
neutral asset allocation positioning, although we will of course be looking to
exploit any opportunities thrown up by the on-going volatility in markets.

Looking ahead, while we believe that US growth may slow against a background of
tighter credit conditions, this should represent a mid cycle slow down rather
than a more serious threat to growth. Stronger growth in the Far East and Europe
should also help to offset this and achieve some rebalancing of global growth.
Indeed, with the US Federal reserve cutting interest rates in September, markets
should now be well placed to make a recovery in the fourth quarter and into
2008. This positive economic outlook is helpful for equities which are further
supported by attractive valuations in absolute terms (and relative to bonds) and
by strong balance sheets in the corporate sector.

Jamieson Streeter

Investment Manager    25th October, 2007

For further information please contact:

Lucy Dina
JPMorgan Asset Management (UK) Limited
Telephone 0207 742 6000

JPMorgan Income & Capital Investment Trust plc
Unaudited figures for the six months ended 31st August 2007

Income Statement

                          (Unaudited)                           (Unaudited)                    (Audited)

                          Six months ended                   Six months ended                 Year ended

                          31st August 2007                   31st August 2006             28th February 2007

                          Revenue  Capital    Total     Revenue   Capital    Total    Revenue   Capital    Total

                           £'000    £'000     £'000      £'000     £'000     £'000     £'000     £'000     £'000

(Losses)/gains from
investments held at fair
value through profit or
loss                             -  (1,659)    (1,659)         -     2,597     2,597         -    16,857    16.857
Income from investments      4,751        -      4,751     3,882         -     3,882     6,511         -     6,511
Other interest receivable
and similar income             699
                                          -        699     1,044         -     1,044     1,710         -     1,710
                           _______  _______     ______    ______   _______   _______   _______   _______   _______

Gross return/(loss)          5,450  (1,659)      3,791     4,926     2,597     7,523     8,221    16,857    25,078

Management fee               (378)    (567)      (945)     (348)     (522)     (870)     (712)   (1,069)   (1,781)

Other administrative         (229)        -      (229)     (199)         -     (199)     (399)         -     (399)

                           _______  _______     ______    ______   _______   _______   _______   _______   _______

Net return/(loss) on
ordinary activities
before finance costs and
taxation                    4,843   (2,226)     2,617     4,379     2,075     6,454     7,110   15,788      22,898
Dividends on ordinary      (3,557)        -    (3,557)   (2,742)         -   (2,742)   (5,264)         -   (5,264)

Loan interest                    -        -          -         -       (1)       (1)         -         -         -

                           _______  _______     ______    ______   _______   _______   _______   _______   _______

Net return/(loss) on
ordinary activities
before taxation              1,286  (2,226)      (940)     1,637     2,074     3,711     1,846    15,788    17,634

Taxation                     (414)      170      (244)     (260)       231      (29)     (652)       321     (331)

                            ______  _______     ______    ______   _______   _______   _______   _______   _______

Net return/(loss) on
ordinary activities after
taxation                       872  (2,056)    (1,184)     1,377     2,305     3,682     1,194    16,109    17,303

                             =====    =====      =====     =====     =====     =====     =====     =====     =====

Return/(loss) per
ordinary share (note 4)      6.26p  (8.18)p    (1.92)p     5.65p   (1.57)p     4.08p     8.92p    12.54p    21.46p

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

The 'Total' column of this statement is the profit and loss account of the
Company and the 'Revenue' and 'Capital' columns represent supplementary
information. The 'Total' column represents all the information that is required
to be disclosed in a 'Statement of Total Recognised Gains and Losses' ('STRGL').
For this reason a STRGL has not been presented.

JPMorgan Income & Capital Investment Trust plc
Unaudited figures for the six months ended 31st August 2007

Balance Sheet                                             (Unaudited)        (Unaudited)
                                                     31st August 2007   31st August 2006    28th February 2007
                                                                £'000              £'000                 £'000
Fixed assets
Investments at fair value through profit or loss              180,462            184,090               196,066

Current assets
Debtors                                                         1,620              1,717                 1,052
Cash at bank and in hand                                       15,335                893                 2,764
                                                              _______            _______               _______
                                                               16,955              2,610                 3,816

Creditors: amounts falling due within one year                  (582)              (263)                 (515)

Derivative financial instruments                                    -              (127)                 (260)
                                                               ______            _______               _______

Net current assets                                             16,373              2,220                 3,041
                                                               ______            _______               _______
Total assets less current liabilities                         196,835            186,310               199,107

Provision for liabilities and charges
Deferred taxation                                                (28)                  -                  (24)
                                                              _______            _______               _______
Total net assets                                              196,807            186,310               199,083
                                                              =======            =======               =======

Zero dividend preference shares                                96,447             89,127                92,715
Founder shares                                                     12                 12                    12
Ordinary shares                                               100,348             97,171               106,356
                                                              _______            _______               _______
                                                              196,807            186,310               199,083
                                                              =======            =======               =======
Net asset value (note 5)
Per zero dividend preference share                             148.2p             136.9p                142.5p
Per ordinary share                                             142.0p             134.8p                148.8p

Cash Flow Statement                                       (Unaudited)        (Unaudited)             (Audited)
                                                     Six months ended   Six months ended            Year ended
                                                          31st August        31st August             28th
                                                                 2007               2006                  2007
                                                                £'000              £'000                 £'000

Net cash inflow from operating activities                       3,624              2,381                 5,154
Net cash outflow from servicing of finance                    (3,557)            (2,743)               (5,264)
Taxation paid                                                       -                  -                  (78)
Net cash inflow/(outflow)from capital
expenditure and financial investment                           13,668            (7,325)               (4,853)
Net cash outflow from financing                               (1,164)            (1,368)               (2,143)
                                                              _______             ______                ______
Increase/(decrease) in cash for the period                     12,571            (9,055)               (7,184)
                                                               ======             ======                 =====

Notes to the Accounts

1. Financial Statements

The information contained within the Financial Statements in this half-yearly
report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 28th February 2007 are
extracted from the latest published accounts of the Company and do not
constitute statutory accounts for that year. Those accounts have been delivered
to the Registrar of Companies and included the report of the auditors which was
unqualified and did not contain a statement under either section 237(2) or 237
(3) of the Companies Act 1985.

2. Accounting policies

The accounts have been prepared in accordance with United Kingdom Generally
Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended
Practice 'Financial Statements of Investment Trust Companies' dated 31st
December 2005.

All of the Company's operations are of a continuing nature.

The accounting policies applied to these interim accounts are consistent with
those applied in the accounts for the year ended 28th February 2007.

3. Dividends
                                                          (Unaudited)        (Unaudited)             (Audited)

                                                     Six months ended   Six months ended            Year ended

                                                     31st August 2007   31st August 2006    28th February 2007

                                                                £'000              £'000                 £'000
Fourth quarterly dividend of 3.00p paid April
(2006: 2.00p)                                                   2,144              1,464                 1,464
First quarterly dividend of 2.00p paid June
(2006: 1.75p)                                                   1,413              1,278                 1,278
Second quarterly dividend  (1.75p paid October                    n/a                n/a                 1,261
Third quarterly dividend (1.75p paid January                      n/a                n/a                 1,261
                                                              _______             ______                ______
                                                                3,557              2,742                 5,264
                                                               ======             ======                 =====

A second quarterly dividend of 2.00p per share, amounting to £1,413,000, has
been declared payable in respect of the six months ended 31st August 2007.

4. Return per ordinary share

Return per ordinary share is based on the weighted average number of ordinary
shares in issue during the period of 70,794,669 (six months ended 31st August
2006: 72,886,208 and year ended 28th February 2007: 72,369,669) and on the

                                                          (Unaudited)        (Unaudited)             (Audited)

                                                     Six months ended   Six months ended            Year ended

                                                     31st August 2007   31st August 2006    28th February 2007

                                                                £'000              £'000                 £'000
Revenue return per ordinary share
Revenue return after tax                                          872              1,377                 1,194
Add back dividends on ordinary shares                           3,557              2,742                 5,264
                                                              _______             ______                ______
                                                                4,429              4,119                 6,458
                                                               ======             ======                 =====
Revenue return per ordinary share (pence)                       6.26p              5.65p                 8.92p

4. Return per ordinary share (continued)
                                                          (Unaudited)        (Unaudited)             (Audited)

                                                     Six months ended   Six months ended            Year ended

                                                     31st August 2007   31st August 2006    28th February 2007

                                                                £'000              £'000                 £'000

Capital (loss)/return per ordinary share
Capital (loss)/return after tax                               (2,056)              2,305                16,109
Less attributable to zero dividend preference
shareholders                                                  (3,732)            (3,448)               (7,036)
                                                              _______             ______                ______
                                                              (5,788)            (1,143)                 9,073
                                                               ======             ======                 =====
Capital (loss)/return per ordinary share (pence)               (8.18)p            (1.57)p                12.54p

Total (loss)/return per ordinary share
Total (loss)/return after tax                                 (1,184)              3,682                17,303
Add back dividends on ordinary shares                           3,557              2,742                 5,264
Less attributable to zero dividend preference
shareholders                                                  (3,732)            (3,448)               (7,036)
                                                              _______             ______                ______
                                                              (1,359)              2,976                15,531
                                                               ======             ======                 =====
Total (loss)/return per ordinary share (pence)                (1.92)p              4.08p                21.46p

5. Net asset values

Net asset values per share are calculated in accordance with the articles of
association as follows:

                        Zero dividend preference shares

                                                          31st August        31st August         28th February

                                                                 2007               2006                  2007

Net assets attributable (£000)                                 96,447             89,127                92,715

Shares in issue at the period end                          65,085,982         65,085,982            65,085,982

Net asset value (pence)                                        148.2p             136.9p                142.5p

                                     Ordinary shares

                                                          31st August        31st August         28th February

                                                                 2007               2006                  2007

Net assets attributable (£000)                                100,348             97,171               106,356

Shares in issue at the period end                          70,668,900         72,068,900            71,453,900

Net asset value (pence)                                        142.0p             134.8p                148.8p



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