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JPMorganInc&CapTst (JPI)

  Print      Mail a friend       Annual reports

Wednesday 29 October, 2008


Interim Results Announcement

RNS Number : 9721G
JPMorgan Income & Capital Trust PLC
29 October 2008




Chairman's Statement


This is the first report to shareholders since the Company was launched on 3rd March 2008. The money that was then invested in the Company came from shareholders who chose to 'roll-over' their investment from The JPMorgan Income & Capital Investment Trust plc. The total initial net asset value of the Company comprised £107.46 million, made up as to £46.03 million in zero dividend preference ('ZDP') shares and £61.43 million in ordinary shares. 

Portfolio Performance

The period under review since the launch in March 2008 has been extremely difficult for investment managers generally, with the UK stock market experiencing some of the biggest challenges seen in recent times. For the period to 31st August 2008, the Company recorded a negative total return (return on investments including income received) on its units of 2.1%. By comparison, the composite benchmark (comprising 90% FTSE 350 index and 10% Merrill Lynch 5-10 year Sterling Corporate Bond Index) recorded a better negative return on assets of 0.8%. Further details of the portfolio returns are given in the investment manager's report.

Share Price Performance

The prices of the Company's two classes of share and of its units comprising two ordinary shares and one ZDP share moved from a premium over net asset value at launch date to a discount to net asset value at 31st August 2008 as follows:


3rd March (at launch)
31st August 2008

Since the period end, share prices have been very volatile. As at 21st October 2008, the prices of ordinary shares and units were at premiums of 19.5% and 1.0% respectively, whilst the ZDP share price was at a discount of 8.6%.  

Revenue and Dividends

Revenue after tax and before dividends for the period was £3.01 million and revenue returns per ordinary share were 4.86 pence.

Since the launch of the Company, the Board has declared two quarterly interim dividends, each of 1.25p per ordinary share, payable to ordinary shareholders and unit holders on 31st July 2008 and 31st October 2008. The Board anticipates that, in the absence of unforeseen circumstances, the Company will be in a position to maintain the current level of quarterly dividends to ordinary shareholders and unit holders for the remainder of the current financial period to 28th February 2009.

The undistributed revenue reserves, after allowing for the payment of the second interim dividend, are approximately £1.468 million. These reserves equate to more than five months dividend at the current level.

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 2018. At 31st August 2008, the Hurdle Rate required to return the then current ordinary share price of 77.5 pence was 2.5% per annum, and to return the original 100 pence subscription price was 3.4% per annum. At 17th October 2008, the Hurdle Rate required to return the then current ordinary share price of 60.5 pence was 5.2% per annum and to return the Final Capital Entitlement of the ZDP shares of 192.13p was 1.4% per annum.

Share issues

At launch, shareholders gave the Directors authority to disapply shareholders' pre-emption rights and to issue authorized but unissued share capital of the Company up to a maximum 10% of each class of share for cash to investors. Since 31st August 2008, the Directors have issued and allotted 6,000,000 new ordinary shares at a price of 61 pence per share which, at the time, represented a premium to net asset value of 8.54 % per share.

Shareholders also gave the Directors authority to repurchase up to 14.99% of the Company's issued share capital. During the period to 31st August 2008, the Company repurchased 708,384 ordinary shares at an average discount of 11.4% and a cost of £712,000, thus modestly improving net asset value for continuing shareholders.


The immediate outlook for the UK economy continues to look bleak as markets absorb the gloomy prospect of slower economic growth and continuing instability within the financial services sector. 

The Board believes that the Investment Manager is well placed to take advantage of opportunities that it expects to arise with equity valuations at current low levels. The Board takes comfort from the historic track record of the Investment Manager and intends to ensure that the Company achieves the objectives which were set at the time of its launch earlier this year.

Sir Laurence Magnus Bt


28th October 2008


Interim Management Report

The Company is required to make the following disclosures in its interim report:

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.

Related Parties Transactions

During the period from 3rd March 2008 to 31st August 2008 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 interim financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half-Yearly Financial Reports; and gives a true and fair view of the assets, liabilities, financial position and net return of the Company as required by the UK Listing Authority Disclosure and Transparency Rules ('DTR') 4.2.4R; and

(ii) the interim management report includes a fair review of the information required by DTR 4.2.7R and 4.2.8R. 

For and on behalf of the Board

Sir Laurence Magnus Bt

Chairman 28th October 2008

Investment Manager's Report

Portfolio construction, asset allocation and market background

We started the period with around 40% in UK equities and the balance in Gilts and cash as a result of the roll over from the previous trust. The UK equity market was weak in the first half of March as we started constructing the planned portfolio for the new Company. As this weakness delivered what we felt was an attractive entry point for UK equities we largely completed the purchases of UK equities by the third week of March to bring the proportion invested in equities close to 90%. The balance of the portfolio was invested in a few quality corporate bonds and some retained cash holdings. As we took advantage of further weakness in the market to invest cash, we ended the period with a slightly over weight position in equities (92.3%) relative to the benchmark weight of 90%, with the balance split between bonds (5.7%) and cash (2%).

The market rallied from mid March until the middle of May before experiencing another sell off. A further small rally then ensued from the middle of July until the end of our half year at the end of August. This left the UK equity market, as measured by our benchmark index the FTSE 350 Ex Investment Companies, down by around 3.5% in capital terms and down by 1% in total return terms including net income reinvested. The Merrill Lynch 5-10 Year Sterling Corporate bond index, which makes up the other 10% of our benchmark, was also broadly flat in total return terms delivering +1.1% over the period with the high running yield on bonds helping to more than offset the 2.2% decline in capital terms from this index over the period.


The return on the combined benchmark was -0.8% for the period under review. The returns on net assets were slightly behind at -2.1%. Shareholders returns were more significantly negative as the share prices fell to a discount despite the Company buying back some shares. While this is disappointing in the short term, it is important to remember that the Company has a fixed life to 2018 and, if held to the end of term, the discount will be eliminated at the end of life if not before.


This can best be described as uncertain at the moment as governments and central banks grapple with the on going credit crunch and a global financial crisis. The nature and extent of this and the counter measures from the authorities have escalated rapidly on a day by day basis since the period end.

As has been widely reported, this has led to huge volatility and generally falling asset prices globally. Perceived safer assets, such as government bonds, have benefited from a flight to safety as investors have worried more about the return of their capital. The net result of all this panic on the part of certain investors is some fairly extreme valuations, with UK equities in particular looking cheap in relation to their history over the last 20 years or so with the trailing P/E at around 9x or less.  

The yield on UK equities as measured by the FTSE 350 index was 5.17% on 7th October 2008. This compares to 10 year Gilt yields of 4.3% and the Bank of England base rate which was cut to 4.5% on the same day. Thus equity dividends would need to fall by around 10 to 15% for equity yields to fall to the same level as Gilts and cash. Already, some dividend cuts have been announced by those banks that have to access to capital from the government. However, dollar paying companies and others expected to increase their dividend will offset this to a degree. Indeed in previous earnings downturns dividend have not fallen by much if at all in the UK, although clearly this time around there could be a small overall decline at the aggregate level, but not currently to the degree suggested by the valuation comparisons above.

While this situation of equities yielding more than Gilts has pertained in the past, it has not been seen in modern times for any extended period since what is known as the reverse yield gap appeared after the Second World War. In addition while P/E valuations did reach much lower levels in 1974, that was at a time of much higher inflation and interest rates. While investors have worried about inflation in recent months, the on going de-leveraging process brought about by the global financial crisis is much more likely to be deflationary in its effects in the short term.

Consequently the authorities as they say 'are doing everything in their power to address this situation' and we do not believe the financial system will be allowed to fail, but nevertheless tough times and slower growth than in the past lie ahead as the fall out from the crisis continues to be felt. However as Warren Buffet, certainly the world's wealthiest investor says 'it pays to be fearful when others are greedy and greedy when others are fearful' and there is certainly lots of fear around at the moment. In addition Mr Buffet has been committing his personal cash to the market recently.

We will be looking to take advantage of the excellent value on offer from UK equities as a result of this crisis by re-deploying the assets we have in bonds and cash into UK equities. While further falls in share prices cannot be ruled out in the short term, we believe that these actions will serve shareholders well in the medium term by locking into cheaply valued shares which offer attractive yields that have the scope to grow going forward.

Jamieson Streeter

Investment Manager

28th October 2008

JPMorgan Income & Capital Trust plc

Unaudited figures for the period ended 31st August 2008

Income Statement for the period ended 31st August 2008


                                                                                                                                                   Period ended

                                                                                                                                               31st August 2008

                                                                                                                                            Revenue    Capital        Total

                                                                                                                                              £'000        £'000        £'000

Losses from investments held at fair value

 through profit or loss                                                                                                               -        (3,602)        (3,602)

Income from investments                                                                                                    2,901                -          2,901

Other interest receivable and similar income                                                                       678                -            678

Gross return/(loss)                                                                                                              3,579        (3,602)         (23)

Management fee                                                                                                                    (178)          (267)         (445)

Other administrative expenses                                                                                             (198)              -            (198)

Net return/(loss) on ordinary activities before

 finance costs and taxation                                                                                                   3,203        (3,869)        (666)

Finance costs                                                                                                                              (2)             (3)              (5)

Dividends on ordinary shares                                                                                               (775)             -             (775)

Net return/(loss) on ordinary activities before

 taxation                                                                                                                                    2,426        (3,872)        (1,446)

Taxation                                                                                                                                     (190)              75            (115)

Net return/(loss) on ordinary activities after taxation                                                     2,236        (3,797)        (1,561)

Return/(loss) per ordinary share (note 5)                                                                          4.86p         (8.59)p        (3.73)p

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 prepared under guidance issued by the Association of Investment Companies. 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 Trust plc

Unaudited figures for the period ended 31st August 2008

Balance Sheet as at 31st August 2008


                                                                                                                                                                    31st August 2008



Fixed assets

Investments at fair value through profit or loss                                                                                                     103,662

Current assets

Debtors                                                                                                                                                                                885

Cash at bank and in hand                                                                                                                                              1,663


Creditors: amounts falling due within one year                                                                                                        (520)

Derivative financial instruments                                                                                                                                   (499)

Net current assets                                                                                                                                                         1,529

Total assets less current liabilities                                                                                                                        105,191

Total net assets                                                                                                                                                           105,191

Zero dividend preference shares                                                                                                                                47,565

Ordinary shares                                                                                                                                                             57,626


Net asset values (note 6)

Per zero dividend preference share                                                                                                                             103.3p

Per ordinary share                                                                                                                                                           93.8p


JPMorgan Income & Capital Trust plc

Unaudited figures for the period ended 31st August 2008

Cash Flow Statement for the period ended 31st August 2008



                                                                                                                                                                      31st August 2008


Net cash inflow from operating activities                                                                                                                    2,256

Net cash outflow from servicing of finance                                                                                                                  (780)

Net cash outflow from capital expenditure and financial investment                                                                     (3,483)

Net cash inflow from financing                                                                                                                                       3,670

Increase in cash for the period                                                                                                                                      1,663

Reconciliation of net cash flow to movement in net funds

Net cash movement                                                                                                                                                          1,663

Exchange movements                                                                                                                                                              -

Movement in net funds in the period                                                                                                                            1,663

Net funds at the beginning of the period                                                                                                                             -

Net funds at the end of the period                                                                                                                                   1,663

Represented by:

Cash at bank and in hand                                                                                                                                               1,663


JPMorgan Income & Capital Trust plc

Unaudited figures for the period ended 31st August 2008

Notes to the Accounts for the period ended 31st August 2008

1. Accounting period

The accounts cover the period from incorporation on 13th December 2007 to 31st August 2008.

The Company began investing on 3rd March 2008.

2. Financial statements

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

3. 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.


4. Dividends                                                                                                                                                                  (Unaudited)

                                                                                                                                                                                     Period ended

                                                                                                                                                                            31st August 2008


First quarterly dividend of 1.25p paid July                                                                                                                       775


A second quarterly dividend of 1.25p per share, amounting to £768,000, has been declared payable in respect of the period ended 31st August 2008.


5. Return/(loss) per ordinary share

    Return per ordinary share is based on the weighted average number of ordinary shares in issue during the period of 61,957,859 and on the following:    



                                                                                                                                                                        31st August 2008       


Revenue return per ordinary share

Revenue return after tax                                                                                                                                                     2,236

Add back dividends on ordinary shares                                                                                                                           775


Revenue return per ordinary share                                                                                                                                  4.86p

JPMorgan Income & Capital Trust plc

Unaudited figures for the period ended 31st August 2008

Notes to the Accounts for the period ended 31st August 2008

5. Return/(loss) per ordinary share (continued)

Capital loss per ordinary share

Capital loss after tax                                                                                                                                                (3,797)

Less attributable to zero dividend preference shareholders                                                                             (1,528)


Capital loss per ordinary share                                                                                                                             (8.59)p

Total loss per ordinary share

Total loss after tax                                                                                                                                                   (1,561)

Add back dividends on ordinary shares                                                                                                                   775

Less attributable to zero dividend preference shareholders                                                                             (1,528)


Total loss per ordinary share                                                                                                                                 (3.73)p

6. Net asset values

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

Zero dividend preference shares                                                                                                                  (Unaudited)

                                                                                                                                                                      31st August 2008

Net assets attributable (£'000)                                                                                                                                 47,565

Shares in issue at the period end                                                                                                                     46,037,200

Net asset value                                                                                                                                                          103.3p


Ordinary shares

                                                                                                                                                                31st August 2008

Net assets attributable (£'000)                                                                                                                                 57,626

Shares in issue at the period end                                                                                                                     61,406,782

Net asset value                                                                                                                                                            93.8p

JPMorgan Income & Capital Trust plc

Unaudited figures for the period ended 31st August 2008

Notes to the Accounts for the period ended 31st August 2008

7. Reconciliation of net loss on ordinary activities before finance costs and taxation to net cash     inflow from operating activities


                                                                                                                                                                      Period ended

                                                                                                                                                              31st August 2008


Net loss on ordinary activities before finance costs and taxation                                                                 (1,491)

Add back capital loss before finance costs and taxation                                                                                   4,694

Increase in net debtors and accrued income                                                                                                         (688)

Net premium on debt securities allocated to income                                                                                                 8

Expenses charged to capital                                                                                                                                     (267)

Net cash inflow from operating activities                                                                                                              2,256


JPMorgan Asset Management (UK) Limited

29th October 2008

This information is provided by RNS
The company news service from the London Stock Exchange

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