Half Year Report JPMorgan US Smaller Companies Investment Trust plc · 2017-02-03 · JPMorgan US Smaller Companies Investment Trust plc. Half Year Report & Accounts 2015 1 Financial

JPMorgan US Smaller CompaniesInvestment Trust plc

Half Year Report & Accounts for the six months ended 30th June 2015

Half Year Report2015

US Smaller Companies HY cover 19/08/2015 14:07 Page 2

Features

Contents

About the Company

1 Half Year Performance2 Chairman’s Statement

Investment Review

3 Investment Manager’s Report7 Sector Analysis8 List of Investments

Financial Statements

10 Statement of Comprehensive Income11 Statement of Changes in Equity12 Statement of Financial Position13 Statement of Cash Flows14 Notes to the Financial Statements

Shareholder Information

17 Interim Management Report18 Glossary of Terms and Definitions19 Where to buy J.P. Morgan Investment

Trusts21 Information about the Company

Objective

Capital growth from investing in US smaller companies.

Investment Policy

The portfolio is a product of the investment team’s bottom-up investment approachand disciplined portfolio construction. The investment philosophy is simple andstraightforward; to invest in companies that have a sustainable competitiveadvantage, run by competent management teams who have a track record of successand are good stewards of capital; and to focus on owning equity stakes in businessesthat trade at a discount to their intrinsic value.

Benchmark

The Russell 2000 Index total return with net dividends reinvested, expressed insterling terms. This index is a smaller companies’ index and is rebalanced annually torepresent the bottom 10% by market capitalisation of all quoted companies in the US.Comparison of the Company’s performance is made with the benchmark.

Capital Structure

At 31st December 2014, the Company’s share capital comprised 56,040,928 ordinaryshares of 2.5p each. During the period the Company issued 135,000 new ordinaryshares for cash from Treasury. At 30th June 2015, the Company’s share capitalcomprised 56,175,928 ordinary shares of 2.5p each.

Continuation Vote

In accordance with the Company’s Articles of Association, the Directors are requiredto propose a resolution that the Company continue as an investment trust at theAnnual General Meeting in 2020 and every fifth year thereafter.

Management Company

The Company employs JPMorgan Funds Limited (‘JPMF’ or the ‘Manager’) as itsAlternative Investment Fund Manager and Company Secretary. JPMF delegates themanagement of the Company’s portfolio to JPMorgan Asset Management (‘JPMAM’).The investment team is situated in New York. The portfolio manager, Don San Jose, hasmanaged the portfolio since November 2008. Don is supported by Dan Percella andthree experienced investment professionals dedicated to researching US smallercompanies, as well as the wider JPMAM investment management team.

FCA regulation of ‘non-mainstream pooled investments’

The Company currently conducts its affairs so that the shares issued by JPMorganUS Smaller Companies Investment Trust plc can be recommended by IndependentFinancial Advisers to ordinary retail investors in accordance with the FCA’s rules inrelation to non-mainstream investment products and intends to continue to do so forthe foreseeable future. The shares are excluded from the FCA’s restrictions whichapply to non-mainstream investment products because they are shares in aninvestment trust.

AIC

The Company is a member of the Association of Investment Companies.

Website

The Company’s website, which can be found at www.jpmussmallercompanies.co.uk,includes useful information on the Company, such as daily share prices, factsheets andcurrent and historic half year and annual reports.


JPMorgan US Smaller Companies Investment Trust plc. Half Year Report & Accounts 2015 1

Financial Data30th June 31st December %

2015 2014 change

Shareholders’ funds (£’000) 104,224 99,348 +4.9

Number of shares in issue 56,175,928 56,040,928 +0.2

Net asset value per share 185.5p 177.3p +4.6

Share price 175.5p 172.1p +2.0

Share price discount to net asset value per share (5.4)% (2.9)%

Gearing4 9.4% 6.5%

Ongoing charges4 1.66% 1.73%

+2.0%Return to shareholders1

+4.6%Return on net assets2

A glossary of terms and definitions is provided on page 18.

1Source: Morningstar.2Source: J.P. Morgan.3Source: Russell Investments. The Company’s benchmark is the Russell 2000 Index total return with net dividendsreinvested, expressed in sterling terms.4Please refer to definition in the glossary of terms on page 18.

+3.8%Benchmark return3

Half Year Performance

Total returns

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2 JPMorgan US Smaller Companies Investment Trust plc. Half Year Report & Accounts 2015

Chairman’s Statement

Performance

It is pleasing to report a rise of 4.6% in the Company’s net asset value (‘NAV’) for thefirst six months of 2015, which compares with a rise of 3.8% in the Russell 2000 Indexin sterling terms, as these figures mask a volatile period for US equities. Marketsentiment at the beginning of 2015 benefited from the perceived improvement inEurope and the drastic decline in the oil price. The sell-off in the latter part of theperiod under review was caused by the strength of the US dollar, the low oil pricetogether with concerns about China and the Eurozone, which combined have putcorporate profits under pressure, giving rise to worries about valuations.

Discount and Premium

The Company’s share price rose 2.0% during the first six months of 2015, lagging theincrease in NAV and resulting in a small widening of the discount. Whilst it isdisappointing to report the shares’ discount widened at the end of June, US smallercompanies are seen as riskier assets, and therefore volatile in nature, and aligningour share price movement with the change in the NAV is always going to bechallenging. This relationship is monitored on a daily basis by your Board and ourprofessional advisers and to help with the management of the discount we have inplace the authority to repurchase up to 14.99% of the Company’s issued share capital.This authority has not been used during the first six months of 2015.

Board Changes

At the recent Annual General Meeting Alan Kemp retired and the Board are gratefulfor the strong contribution he has made. Meanwhile we were delighted to welcomeDavid Ross as an independent non-executive Director who joined us in March. Davidstarted his career at Ivory & Sime and in 1990 became one of the founding partners ofAberforth Partners, the specialist UK small cap manager. The Board is pleased to bejoined by such an experienced investment professional, with considerable knowledgeof both small cap stocks and investment trusts.

Outlook

At the time of writing this statement we are entering the holiday period which in thepast has produced volatile markets as bad news (or good) can trigger sharp moves onlight volumes. There is clearly much uncertainty in markets currently and reasons tobe cautious over the short term, however these set-backs often produce goodinvestment opportunities for long term patient investors. We would also expect theinvestment team’s focus on balance sheet strength and intrinsic value to providesome protection to the Company’s portfolio. Over the longer term the US economyhas demonstrated its ability to create exciting growth prospects in the small capsector and our Company should continue to take advantage of these opportunities.

Davina WalterChairman 19th August 2015



Market Review

US equity markets experienced somewhat of a roller coaster over the first six monthsof the year. Investors felt relief when crude oil prices began to rebound and theUS dollar’s appreciation began to slow down. Brisk merger and acquisition activityhas also been supportive of equities. However, investor sentiment remained cautiousas global currency and fixed income markets were quite volatile. As the six monthscame to a close, fears surrounding Greece re-emerged and US equity markets sold offas Greece missed a payment to the International Monetary Fund (IMF). Large capstocks as represented by the S&P 500 Index managed a small advance of 0.2%, whilemore domestically focused small cap stocks fared better as evidenced by the Russell2000 Index’s gain of 3.8%, all in sterling terms.

Recent economic releases point to a US economy reaccelerating modestly from its1st quarter lull. The June Employment Report wasn’t spectacular, but solid. Non-farmpayrolls grew by a healthy 223,000 in June, in line with the consensus estimate of233,000. These payrolls numbers have continued the trend over the last three yearsof slow and steady progress on the employment front. The housing market and theUS consumer are also seeing improving trends. While new home sales remain at lowlevels by historic standards, the pace of sales in May was the highest reported sinceFebruary of 2008.

Across the market caps, growth is outperforming value so far this year as investorsgrapple with a continuation of the low economic growth scenarios around the world.Within the Russell 2000, the sectors that stand out on the positive side are healthcare, technology and consumer discretionary. Health care has been bolstered bystrong product pipelines and a wave of M&A that has driven shares higher. With thedecline in the price of oil, the US consumer has spent a little of the incrementalsavings on new retail purchases and travel. However, the most interesting thing tonote in this environment of significantly lower oil prices is that the US consumer hasmanaged to increase their savings rate and not spend all of the windfall from thelower price of oil. Not surprisingly one of the weakest sectors in the year to dateperiod is the energy sector, as earnings estimates have been slashed and companiesare reacting as quickly as they can to adjust their cost structures lower.

Performance

The Company’s net asset value grew by 4.6% over the first six months of 2015.The return was ahead of the benchmark, the Russell 2000 Index, which rose by 3.8%.When reviewing the portfolio’s performance, the majority of the performance wasdriven by our stock picking which is highlighted in more detail in the followingparagraphs. Additionally, in a rising equity environment, the portfolio’s gearing alsocontributed, although to a lesser extent.

In terms of key drivers of relative performance, the portfolio benefitted from strongstock selection in the financial services and consumer discretionary sectors. In thefinancial services sector, our exposure to software provider Advent Software andcommercial real estate broker Marcus & Millichap proved beneficial. Shares of Advent

Investment Manager’s Report


JPMorgan US Smaller Companies Investment Trust plc. Half Year Report & Accounts 20154

Software, which provides software to investment management firms, rose stronglyduring the period due to the announcement that its rival SS&C Technologies would beacquiring the company. Given the pending acquisition we have been trimming ourposition as the share price has rallied. Marcus & Millichap reported strong earningsduring the period which was predominately driven by a strong commercial real estate(CRE) market as transaction volumes and CRE prices are approaching prior peaklevels. Within the consumer discretionary space, we had good performance froma host of names rather than any stand out performers. Amongst the names addingvalue were Papa John’s International and Sequential Brands Group. Pizza chain PapaJohn’s reported much better than expected Q1 results driven by both strong sales andmargins. The company continues to perform very strongly from a same restaurantsales perspective and also improving margins which have been aided by lowercheese prices. Additionally, the company’s international locations are finally startingto gain traction from a profitability standpoint. We continue to like Papa John’s due totheir strong brand and large insider ownership. However, the valuation has also risen,so we have selectively trimmed our position on this strength. Sequential Brands,a diversified consumer products company specialising in brand management andlicensing, saw its share price increase over the period after announcing the additionof two prominent brands, Jessica Simpson and Martha Stewart, to its line-up.The company’s strong stable of brands compete very effectively against peers.We like the high free cash flow generation of the businesses they hold, and howmanagement thoughtfully allocate capital.

In terms of some individual names that helped, our overweight position in FreescaleSemiconductor was the top contributor to relative performance. The companydesigns and manufactures embedded processors for the global automotive,networking and industrial end markets. Freescale was a strong performer in theperiod driven by the announcement that NXP Semiconductors would be acquiringthe company. We have taken advantage of Freescale’s share price appreciation toreduce our exposure.

In contrast, our relative performance was hindered by both our stock and sectorpositioning in the health care sector. As we mentioned previously, health care was thebest performing sector in the Russell 2000 over the period, and its strongperformance was aided significantly by the performance of the biotech segment.We have no exposure to this area, as we find if difficult to find biotech companieswhich meet our investment criteria, and our underweight hindered relativeperformance. With regards to stock selection, our exposure to IDEXX Laboratoriesalso weighed on our performance in this sector. IDEXX provides diagnostic testingproducts and reference lab services to companion animal veterinary practicesworldwide. The stock exhibited some weakness due to mis-execution bymanagement around the company’s recent move to all-direct distribution. While thecompany’s key profit centres, diagnostic consumables and reference lab services,posted solid organic growth in their earnings report, the company’s much smallerrapid assay business suffered a decline. Management blamed the weakness onunexpected competitive pressure in first generation stand-alone feline tests. While

Investment Manager’s Reportcontinued



these tests are fairly immaterial at less than 5% of revenue and carry relatively lowermargins, the stock sold off on concerns that this competitive pressure would spreadinto the company’s much more lucrative diagnostic consumables business now thatthe distribution landscape is open to competitors. While some concern is warranted,we have seen compelling evidence that suggests the competitive pressure will belargely contained to the stand-alone feline tests, and our conversations withmanagement suggest that competitive pressure is not getting worse. Customerretention in IDEXX’s key diagnostic modalities remains at 96-98%, and we think thefact that IDEXX continues to spend 80% of the veterinary diagnostic industry’s R&Ddollars will enable them to retain the strong competitive position they have alwaysenjoyed. We believe IDEXX remains a compelling long term investment and havebeen adding to our position on weakness.

In addition, our overweight position in the producer durables name Generac, whichmanufacturers portable and standby generators and mobile light towers, alsodetracted. Disappointing performance in the company’s residential standby business,which is driven by electricity outages from storm activity, weighed on the stock.US outages have been below normal for several years following Hurricane Sandy,which has put pressure on top-line growth in recent quarters. Moreover, Generac hadbeen offsetting some of the weakness in the residential standby market by a strongcommercial and industrial (C&I) business which was being driven by telecom carriersinstalling backup power on cell towers. However, consolidation in the telecom spacein 2014-2015 has resulted in a short-term freeze/reduction to capex spending bytelecom carriers to fund M&A, which has weighed on C&I revenues at Generac. Weremain confident in the management team and their strategy, but without any insightand visibility into when storm activity increases from current trough levels, we havenot aggressively added to the position, though we do consider Generac a coreholding at current levels.

In terms of our overall positioning, we remain focused on finding companies withdurable franchises, good management teams and stable earnings that trade ata discount to intrinsic value. Not much has changed in terms of sector exposure overthis period and the consumer discretionary, producer durables and materials &processing are the largest overweight sectors. In contrast, our largest underweightsare focused in health care, technology and utilities.

In terms of the Company’s level of gearing, which was 9.4% as of 30th June 2015, ithas increased slightly from six months ago, when it was 6.5%. As always, we will lookto add or trim our gearing opportunistically.

Market Outlook

Little has changed since I wrote my 2014 annual commentary to affect our outlook forthe US equity market and we continue to remain somewhat constructive on theoutlook for US equities. Our view of overall profitability has not altered much; our2015 forecasts have stabilised after the sharp downwards revisions required by therise in the Dollar and fall in the oil price, and our long-term estimates actually edged



Investment Manager’s Reportcontinued

slightly higher over the period. Upwards revisions were concentrated in thehealthcare, media and financial sectors, with the industrials the focus for lowerforecasts. For most companies, fundamentals still look pretty strong, with animprovement in domestic consumer spending a healthy antidote to weak demand inmany foreign economies. And even with operating margins close to record levels,revenue gains are still being enhanced by operating margin improvement. This“golden age” of profitability will suffer another cyclical interruption at some point, butwe see little chance of that in the domestic economy for at least a couple of years.And from a long-term viewpoint, eventually competition must rise and high marginswill be undermined, but so far most American companies have proved resilient toglobal competition. Overall we see little growth in profits this year thanks to thestrong Dollar and weak oil price, but the underlying growth rate looks solid enough tosustain operating profits growth in the mid-single digits.

Meanwhile the use of capital remains a huge theme and differentiator in the currentmarket. Stock buybacks at record levels are boosting earnings growth by about 2%this year, although the market is rewarding buybacks less these days, which isa logical response to the much higher prices that companies now have to pay whenrepurchasing their own shares. The M&A cycle is now in full swing, driven byabundant cash flow and cheap financing. Deals are coming thick and fast, especiallyin the healthcare sector, while the market is still often rewarding acquirers as well ofcourse as the targets. Eventually M&A booms end in tears with companiesoverreaching and overpaying, but we do not think we have reached that stage justyet.

For this outlook, investors are paying around 19 times forward earnings estimates forthe small cap market; not cheap at all, and a premium to large caps, though valuationlevels in equities do seem more reasonable relative to fixed income alternatives,especially when comparing today’s earnings yields with the yield on the ten yeargovernment bond and long-term interest rates. We would expect equities to be a bitmore volatile in the second half, especially as the Fed begins to increase rates. Whilethe stock market has been very easy to live with in recent years history tells us thatsingle-digit returns and double-digit volatility are the norm. Setbacks of 8-10% in themarket are both inevitable and impossible to forecast, but bigger declines usuallycome at the end of the business cycle, though we suspect that this cycle may have afew years left to run.

Don San JoseDan PercellaInvestment Managers 19th August 2015


7JPMorgan US Smaller Companies Investment Trust plc. Half Year Report & Accounts 2015

30th June 2015 31st December 2014Overweight/ Overweight/

(Underweight) (Underweight)Portfolio1 Benchmark Position Portfolio1 Benchmark Position

% % % % % %

Financial Services 25.1 25.2 (0.1) 24.8 25.4 (0.6)

Consumer Discretionary 21.8 15.3 6.5 21.7 14.4 7.3

Producer Durables 15.8 12.4 3.4 15.5 13.4 2.1

Technology 9.9 14.3 (4.4) 10.2 14.8 (4.6)

Materials & Processing 9.4 6.2 3.2 9.2 6.5 2.7

Health Care 8.7 16.0 (7.3) 9.7 14.8 (5.1)

Consumer Staples 3.3 2.8 0.5 3.3 3.0 0.3

Energy 3.1 3.4 (0.3) 2.5 3.2 (0.7)

Utilities 2.9 4.4 (1.5) 3.1 4.5 (1.4)

100.0 100.0 100.0 100.0

1Based on investments, excluding liquidity funds, at fair value of £114.1m (2014: £105.7m).

Sector Analysis



ValuationCompany Sector £’000 %

Jarden Consumer Discretionary 3,063 2.6Waste Connections Producer Durables 3,020 2.6Spectrum Brands Consumer Staples 2,442 2.1Brinker Consumer Discretionary 2,348 2.0Pool Consumer Discretionary 2,229 1.9Toro Producer Durables 2,223 1.9Douglas Dynamics Producer Durables 2,005 1.7Associated Banc-Corp Financial Services 1,972 1.7AptarGroup Materials & Processing 1,951 1.7Patrick Industries Materials & Processing 1,916 1.6Silgan Materials & Processing 1,903 1.6Healthsouth Health Care 1,808 1.5West Pharmaceutical Services Health Care 1,779 1.5Portland General Electric Utilities 1,757 1.5HFF Financial Services 1,750 1.5Idexx Laboratories Health Care 1,745 1.5Crocs Consumer Discretionary 1,721 1.5Q2 Holdings Technology 1,717 1.5ProAssurance Financial Services 1,716 1.5RLJ Lodging Financial Services 1,695 1.4First of Long Island Financial Services 1,654 1.4Northwestern Utilities 1,529 1.3RBC Bearings Materials & Processing 1,529 1.3Monotype Imaging Technology 1,492 1.3Bankunited Financial Services 1,489 1.3Morningstar Financial Services 1,461 1.2Cinemark Consumer Discretionary 1,452 1.2Catalent Health Care 1,388 1.2Drew Industries Consumer Discretionary 1,382 1.2J & J Snack Foods Consumer Staples 1,376 1.2Malibu Boats Consumer Discretionary 1,347 1.2CoreLogic Financial Services 1,312 1.1KAR Auction Services Consumer Discretionary 1,285 1.1National Retail Properties Financial Services 1,262 1.1Altra Producer Durables 1,248 1.1Western Alliance Bancorp Financial Services 1,240 1.1FEI Technology 1,236 1.1Generac Producer Durables 1,229 1.1Monarch Casino & Resort Consumer Discretionary 1,227 1.0Umpqua Financial Services 1,223 1.0Rovi Technology 1,203 1.0Papa John’s International Consumer Discretionary 1,177 1.0Magellan Health Services Health Care 1,151 1.0Servicemaster Global Holdings Consumer Discretionary 1,145 1.0Herman Miller Producer Durables 1,121 1.0Wellcare Health Plans Health Care 1,092 0.9Marcus & Millichap Financial Services 1,090 0.9Patterson-Uti Energy Energy 1,076 0.9Mid-America Apartment Communities Financial Services 1,055 0.9

List of Investmentsat 30th June 2015



ValuationCompany Sector £’000 %

Advent Software Financial Services 1,037 0.9Chico’s FAS Consumer Discretionary 1,035 0.9First Republic Bank Financial Services 1,019 0.9Ascent Capital Producer Durables 1,014 0.9Hanger Orthopedic Health Care 1,007 0.9GrubHub Technology 998 0.9NN Materials & Processing 995 0.9Knight Transportation Producer Durables 982 0.8Great Western Bancorp Financial Services 978 0.8Imperva Technology 970 0.8Rexnord Materials & Processing 968 0.8Brunswick Consumer Discretionary 960 0.8Sequential Brands Consumer Discretionary 958 0.8Allison Transmission Producer Durables 950 0.8Dana Consumer Discretionary 940 0.8FactSet Research Systems Financial Services 930 0.8Cimarex Energy Energy 919 0.8Freescale Semiconductor Technology 889 0.8Greenhill Financial Services 885 0.8EW Scripps Consumer Discretionary 870 0.7American Eagle Outfitters Consumer Discretionary 863 0.7NetSuite Technology 851 0.7Glacier Bancorp Financial Services 843 0.7Watsco Materials & Processing 840 0.7Moelis & Co Financial Services 838 0.7First Financial Financial Services 832 0.7Dril Quip Energy 818 0.7Iberiabank Financial Services 805 0.7Guidewire Software Technology 791 0.7Team Industrial Services Producer Durables 785 0.7Anixter International Technology 764 0.7First Horizon National Financial Services 759 0.6Regal Beloit Producer Durables 749 0.6Janus Capital Financial Services 733 0.6Laredo Petroleum Energy 720 0.6Forward Air Producer Durables 712 0.6US Ecology Producer Durables 700 0.6Comfort Systems Materials & Processing 663 0.6Shutterstock Consumer Discretionary 630 0.5Brady Producer Durables 583 0.5Tyler Technologies Technology 387 0.3Landstar System Producer Durables 344 0.3Tidewater Producer Durables 301 0.3Career Education Consumer Discretionary 133 0.1Journal Media Consumer Discretionary 64 0.1Ply Gem Holdings Materials & Processing 14 —JPMorgan US Dollar Liquidity Fund Liquidity Funds 2,910 2.5

Total investments 116,967 100.0



Statement of Comprehensive Incomefor the six months ended 30th June 2015

(Unaudited) (Unaudited) (Audited)Six months ended Six months ended Year ended30th June 2015 30th June 2014 31st December 2014

Revenue Capital Total Revenue Capital Total Revenue Capital Total£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Gains/(losses) on investments held at fair value through profit or loss — 4,615 4,615 — (184) (184) — 12,132 12,132

Net foreign currency gains/(losses) — 158 158 — 209 209 — (371) (371)Income from investments 897 — 897 656 — 656 1,390 — 1,390

Gross return 897 4,773 5,670 656 25 681 1,390 11,761 13,151Management fee (67) (607) (674) (56) (505) (561) (114) (1,027) (1,141)Other administrative expenses (206) — (206) (170) — (170) (402) — (402)

Net return/(loss) on ordinary activities before finance costs and taxation 624 4,166 4,790 430 (480) (50) 874 10,734 11,608

Finance costs (5) (43) (48) (4) (29) (33) (9) (68) (77)

Net return/(loss) on ordinary activities before taxation 619 4,123 4,742 426 (509) (83) 865 10,666 11,531

Taxation (122) — (122) (99) — (99) (218) — (218)

Net return/(loss) on ordinary activities after taxation 497 4,123 4,620 327 (509) (182) 647 10,666 11,313

Return/(loss) per share (note 4) 0.89p 7.35p 8.24p 0.58p (0.90)p (0.32)p 1.15p 18.96p 20.11p

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

The ‘Total’ column of this statement is the profit and loss account of the Company and the ‘Revenue’ and ‘Capital’ columnsrepresent supplementary information prepared under guidance issued by The Association of Investment Companies.



Statement of Changes in Equity

Called up CapitalSix months ended share Share redemption Capital Revenue30th June 2015 capital premium reserve reserves1 reserve1 Total(Unaudited) £’000 £’000 £’000 £’000 £’000 £’000

At 31st December 2014 1,424 7,936 1,851 90,471 (2,334) 99,348Shares issued from Treasury — 60 — 196 — 256Net return on ordinary activities — — — 4,123 497 4,620

At 30th June 2015 1,424 7,996 1,851 94,790 (1,837) 104,224

Called up CapitalSix months ended share Share redemption Capital Revenue30th June 2014 capital premium reserve reserves1 reserve1 Total(Unaudited) £’000 £’000 £’000 £’000 £’000 £’000

At 31st December 2013 1,366 4,550 1,851 81,553 (2,981) 86,339Shares issued 58 3,391 — — — 3,449Net (loss)/return on ordinary activities — — — (509) 327 (182)Dividends appropriated in the period — — — (398) — (398)

At 30th June 2014 1,424 7,941 1,851 80,646 (2,654) 89,208

Called up CapitalYear ended share Share redemption Capital Revenue31st December 2014 capital premium reserve reserves1 reserve1 Total(Audited) £’000 £’000 £’000 £’000 £’000 £’000

At 31st December 2013 1,366 4,550 1,851 81,553 (2,981) 86,339Shares issued 58 3,643 — — — 3,701Repurchase of shares into Treasury — — — (1,350) — (1,350)Costs of placing — (257) — — — (257)Net return on ordinary activities — — — 10,666 647 11,313Dividends appropriated in the year — — — (398) — (398)

At 31st December 2014 1,424 7,936 1,851 90,471 (2,334) 99,348

1These reserves form the distributable reserves of the Company and may be used to fund distribution of profits to investors via dividend payments.



Statement of Financial Positionat 30th June 2015

(Unaudited) (Unaudited) (Audited)30th June 2015 30th June 2014 31st December 2014

£’000 £’000 £’000

Fixed assetsInvestments held at fair value through profit or loss 114,057 93,814 105,663Cash equivalents (including liquidity funds) held at

fair value through profit or loss1 2,910 2,072 2,264

116,967 95,886 107,927

Current assetsDebtors 352 305 216Cash and short term deposits 1 — 907

353 305 1,123Creditors: amounts falling due within one year2 (13,096) (6,983) (9,702)

Net current liabilities (12,743) (6,678) (8,579)

Total assets less current liabilities 104,224 89,208 99,348

Net assets 104,224 89,208 99,348

Capital and reservesCalled up share capital 1,424 1,424 1,424Share premium 7,996 7,941 7,936Capital redemption reserve 1,851 1,851 1,851Capital reserves 94,790 80,646 90,471Revenue reserve (1,837) (2,654) (2,334)

Shareholders’ funds 104,224 89,208 99,348

Net asset value per share (note5) 185.5p 156.6p 177.3p

1This line item was shown as ‘Investment in liquidity fund held at fair value through profit or loss’ in the financial statements for the year ended 31st December 2014.2At 30th June 2015, the Company had drawn down US$20.0million (GBP £12.7 million equivalent) on its loan facility with Scotiabank.

The Company’s registration number is 552775.



Statement of Cash Flowsfor the six months ended 30th June 2015


£’000 £’000 £’000

Cash outflow from operations (note 6) (77) (122) (364)Interest paid (51) (41) (71)Overseas tax recovered 16 16 23

Net cash outflow from operating activities (112) (147) (412)

Purchases of investments (13,225) (15,059) (31,048)Sales of investments 9,576 12,903 28,208 Other capital charges (1) (128) (5)

Net cash outflow from investing activities (3,650) (2,284) (2,845)

Dividends paid — (398) (398)Drawdown of bank loans 3,289 6,013 9,197 Repayment of bank loans — (6,013) (6,013)Shares issued from Treasury 256 — —Issue of ordinary shares — 3,574 3,444 Repurchase of shares into Treasury — — (1,350)

Net cash inflow from financing activities 3,545 3,176 4,880

Increase/(decrease) in cash and cash equivalents (217) 745 1,623

Cash and cash equivalents at the start of the period 3,171 1,382 1,382 Exchange movements (43) (55) 166 Cash and cash equivalents at the end of the period 2,911 2,072 3,171

(Decrease)/increase in cash and cash equivalents (217) 745 1,623

Cash and cash equivalents consist of:Cash at bank 1 — 907 Investments in Liquidity funds 2,910 2,072 2,264

2,911 2,072 3,171



1. Financial statements

The information contained within the Financial Statements in this Half Year Report has not been audited or reviewed by theCompany’s Auditor.

The figures and financial information for the year ended 31st December 2014 are extracted from the latest published accountsof the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to theRegistrar of Companies and included the report of the Auditor which was unqualified and did not contain a statement undereither section 498(2) or 498(3) of the Companies Act 2006.

2. Accounting policies

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 ‘The Financial ReportingStandard applicable in the UK and Republic of Ireland’ of the United Kingdom Generally Accepted Accounting Practice (‘UKGAAP’) and with the Statement of Recommended Practice ‘Financial Statements of Investment Trust Companies and VentureCapital Trusts’ (the revised ‘SORP’) issued by the Association of Investment Companies in November 2014.

FRS 104 ‘Interim Financial Reporting’, issued by the Financial Reporting Council (‘FRC’) in March 2015 has been applied inpreparing this condensed set of financial statements for the six months ended 30th June 2015.

As a result of the first time adoption of FRS 102 and the revised SORP, comparative numbers and presentational formats havebeen restated where required.

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

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financialstatements for the year ended 31st December 2014 with the following exceptions and amendments:

Finance costsFinance costs are accounted for on an accruals basis using the effective interest rate method in accordance with the provisionsof FRS 102.

Financial instrumentsCash and cash equivalentsmay comprise cash (including demand deposits which are readily convertible to a known amount ofcash and are subject to an insignificant risk of change in value) as well as cash equivalents (in accordance with therequirements of the Alternative Investment Fund Managers Directive regulations, investments are regarded as cashequivalents if they meet all of the following criteria; highly liquid investments held in the sub-fund's base currency that arereadily convertible to a known amount of cash, are subject to an insignificant risk of change in value and provide a return nogreater than the rate of a three-month high quality government bond).

Functional currencyIn accordance with FRS 102 the Company is required to identify its functional currency, being the currency of the primaryeconomic environment in which the Company operates. The Board, having regard to the currency of the Company’s sharecapital and the predominant currency in which its shareholders operate, has determined that sterling is the functionalcurrency. Sterling is also the currency in which the accounts are presented.

TaxationCurrent tax is provided at the amounts expected to be paid or received.

Deferred tax is accounted for in accordance with FRS 102.

Notes to the Financial Statementsfor the six months ended 30th June 2015



Dividends payableIn accordance with FRS 102, the final dividend is included in the accounts in the year in which it is approved by shareholders.

Repurchases of ordinary shares for cancellationThe cost of repurchasing ordinary shares including the related stamp duty and transactions costs is charged to capital reservesand dealt with in the Statement of Changes in Equity.

Repurchase of shares to hold in TreasuryThe cost of repurchasing shares into Treasury, including the related stamp duty and transaction costs is charged to capitalreserves and dealt with in the Statement of Changes in Equity.

Only the relevant section of the applicable policies from the last year end accounts which have changed as a result of the application of the2014 AIC SORP and FRS 102 have been reproduced above – all other aspects of those policies remain the same. The impact of the changes issubstantially in relation to presentational, disclosure and non-quantifiable aspects.

3. Dividend


£’000 £’000 £’000

Final dividend paid in respect of the year ended31st December 2014 of nil (2013: 0.7p) — 398 398

No interim dividend has been declared in respect of the six months ended 30th June 2015 (2014: Nil). The figure of £398,000reflects the dividend paid in May 2014 in respect of the year ended 31st December 2013.

All the dividends paid and declared in the period have been funded from the Capital Reserve.

4. Return/(loss) per share


£’000 £’000 £’000

Return/(loss) per share is based on the following:Revenue return 497 327 647Capital return/(loss) 4,123 (509) 10,666

Total return/(loss) 4,620 (182) 11,313

Weighted average number of shares in issue 56,128,939 56,358,013 56,265,899Revenue return per share 0.89p 0.58p 1.15pCapital return/(loss) per share 7.35p (0.90)p 18.96p

Total return/(loss) per share 8.24p (0.32)p 20.11p



Notes to the Financial Statementscontinued5. Net asset value per share

Net asset value per share is based on the net assets attributable to ordinary shareholders of £104,224,000 (30th June 2014:£89,208,000 and 31st December 2014: £99,348,000) and on the 56,175,928 (30th June 2014: 56,970,928 and 31st December2014: 56,040,928) shares in issue at the period end.

6. Reconciliation of total return/(loss) on ordinary activities before finance costs and taxation to net cash outflow fromoperating activities


£’000 £’000 £’000

Net return/(loss) on ordinary activities before finance costs and taxation 4,790 (50) 11,608

(Less capital return)/Add capital loss on ordinary activitiesbefore finance costs and taxation (4,166) 480 (10,734)

Decrease in net debtors and accrued income 71 99 11(Decrease)/increase in accrued expenses (27) (34) 8Management fee charged to capital (607) (505) (1,027)Overseas withholding tax (138) (112) (230)

Net cash outflow from operating activities (77) (122) (364)

7. Fair valuation of investments

The fair value hierarchy analysis for investments held at fair value at the period end is as follows:


Assets Liabilities Assets Liabilities Assets Liabilities£’000 £’000 £’000 £’000 £’000 £’000

Quoted prices for identical instruments in active markets 114,057 — 93,814 — 105,663 —Prices of recent transactions for identical instruments1 2,910 — 2,072 — 2,264 —

Total value of investments 116,967 — 95,886 — 107,927 —

1Includes JPMorgan US Dollar Liquidity Fund.



Interim Management Report

The Company is required to make the following disclosures inits Half Year Report:

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Companyremain unchanged and fall into the following broad categories:investment and strategy; loss of investment team orinvestment manager; discount; market; political and economic;accounting, legal and regulatory; corporate governance andshareholder relations; operational; foreign currency; goingconcern; and financial. Information on each of these areas isgiven in the Business Review within the Annual Report andAccounts for the year ended 31st December 2014.

Related Parties Transactions

During the first six months of the current financial year, notransactions with related parties have taken place which havematerially affected the financial position or the performanceof the Company.

Going Concern

The Directors believe, having considered the Company’sinvestment objectives, risk management policies, capitalmanagement policies and procedures, nature of the portfolioand expenditure projections, that the Company has adequateresources, an appropriate financial structure and suitablemanagement arrangements in place to continue in operationalexistence for the foreseeable future and, more specifically, thatthere are no material uncertainties pertaining to the Companythat would prevent its ability to continue in such operationexistence for at least twelve months from the date of theapproval of this half yearly financial report. For these reasons,they consider there is reasonable evidence to continue toadopt the going concern basis in preparing the accounts.

Directors’ Responsibilities

The Board of Directors confirms that, to the best of itsknowledge:

(i) the condensed set of financial statements contained withinthe half yearly financial report has been prepared inaccordance with the Accounting Standards Board’sStatement ‘Half Yearly Financial Reports’ and gives a trueand fair view of the state of affairs of the Company and ofthe assets, liabilities, financial position and net return of theCompany, as at 30th June 2015, as required by the UKListing Authority Disclosure and Transparency Rules 4.2.4R;and

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

In order to provide these confirmations, and in preparing thesefinancial statements, the Directors are required to:

• select suitable accounting policies and then apply themconsistently;

• make judgements and accounting estimates that arereasonable and prudent;

• state whether applicable UK Accounting Standards havebeen followed, subject to any material departures disclosedand explained in the financial statements; and

• prepare the financial statements on the going concern basisunless it is inappropriate to presume that the Company willcontinue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Davina WalterChairman 19th August 2015



Glossary of Terms and Definitions

Total return to shareholders

Total return to the investor, on a mid-market price tomid-market price basis, assuming that all dividends receivedwere reinvested, without transaction costs, into the ordinaryshares of the Company at the time the shares were quotedex-dividend.

Total return on net assets

Total return on net asset value per share, on a bid value to bidvalue basis, assuming that all dividends paid out by theCompany were reinvested into the shares of the Company at theNAV per share at the time the shares were quoted ex-dividend.

Total benchmark return

Total return on the benchmark assuming that all net dividendsreceived were reinvested in the shares of the underlyingcompanies at the time the shares were quoted ex-dividend.

The benchmark is a recognised index of stocks which shouldnot be taken as wholly representative of the Company’sinvestment universe. The Company’s investment strategy doesnot follow or ‘track’ this index and consequently, there may besome divergence between the Company’s performance andthat of the benchmark.

Share price discount/premium to net asset value (‘NAV’)

If the share price of an investment trust is lower than the NAVper share, the Company’s shares are said to be trading at adiscount. The discount is shown as a percentage of the NAV.The opposite of a discount is a premium. It is more common foran investment trust’s shares to trade at a discount than ata premium.

Actual gearing factor

Investments, excluding holdings in liquidity funds, expressedas a percentage of net assets. This shows the effect of gearingon the NAV if the market value of the portfolio were to increaseby 100%.

Gearing/Net Cash

Gearing represents the excess amount above shareholders’funds of total assets expressed as a percentage of theshareholders’ funds. Total assets include total investments andnet current assets/liabilities less cash/cash equivalents andexcluding bank loans of less than one year. If the amountcalculated is negative, this is shown as a ‘net cash’ position.

Ongoing Charges

Estimated annualised management fee and all other operatingexpenses, excluding finance costs expressed as a percentage ofthe average of the daily net assets during the period. Ongoingcharges are calculated in accordance with guidance issued bythe Association of Investment Companies in May 2012.

Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out to beworthless or non-existent, or to buy shares at an inflated price in return for an upfront payment. While high profits are promised, ifyou buy or sell shares in this way you will probably lose your money.

Keep in mind that firms authorised by the FCAare unlikely to contact you out of the blue withan offer to buy or sell shares.

Do not get into a conversation, note the nameof the person and firm contacting you and thenend the call.

Check the Financial Services Register fromwww.fca.org.uk to see if the person and firmcontacting you is authorised by the FCA.

Beware of fraudsters claiming to be from anauthorised firm, copying its website or givingyou false contact details.

Use the firm’s contact details listed on theRegister if you want to call it back.

Call the FCA on 0800 111 6768 if the firm doesnot have contact details on the Register or youare told they are out of date.

Search the list of unauthorised firms to avoid atwww.fca.org.uk/scams.

Consider that if you buy or sell shares from anunauthorised firm you will not have access to theFinancial Ombudsman Service or FinancialServices Compensation Scheme.

Think about getting independent financial andprofessional advice before you hand over anymoney.

Remember: if it sounds too good to be true, itprobably is!

If you are approached by fraudsters please tell theFCA using the share fraud reporting form atwww.fca.org.uk/scams, where you can find outmore about investment scams.

You can also call the FCA Consumer Helpline on0800 111 6768.

If you have already paid money to share fraudstersyou should contact Action Fraud on 0300 123 2040.

5,000 people contact the Financial ConductAuthority about share fraud each year,with victims losing an average of £20,000

1 6

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Beware of share fraud

How to avoid share fraud

Report a scam

In association with:

Financial Conduct Authority



Where to buy J.P. MorganInvestment Trusts Savings Plan

The Company participates in the J.P. Morgan InvestmentTrusts Savings Plan, which facilitates both regular monthlyinvestments and occasional lump sum investments in theCompany’s ordinary shares. Shareholders who would likeinformation on the Savings Plan should call J.P. Morgan AssetManagement free on 0800 731 1111 or visit its website athttps://am.jpmorgan.co.uk/investor/guidance-and-planning/guides/regular-savings-made-simple-guide.aspx

Stocks & Shares Individual Savings Accounts (ISA)

The Company’s shares are eligible investments withinJ.P. Morgan’s Stocks & Shares ISA. For the 2015/16 tax year,from 6th April 2015 and ending 5th April 2016, the total ISAallowance is £15,240. Details are available from J.P. MorganAsset Management free on 0800 731 1111 or via its website athttps://am.jpmorgan.co.uk/investor/isas/what-is-a-stocks-and-shares-isa.aspx.

There are a number of ways that you can buy shares ininvestment trust companies; you can invest throughJ.P. Morgan WealthManager+ or on the following:

Fund supermarkets:

Alternatively you can invest through an Investment Professional(e.g. a Financial Adviser) on the following 3rd party platforms:

Ascentric Nucleus Avalon Praemium Axa Elevate TransactNovia

Please note that these websites are third party websitesand J.P. Morgan Asset Management does not endorse orrecommend any of them. This list is not exhaustive and issubject to change. Please observe each site’s privacy andcookie policies as well as their platform charges structure.

You can also buy investment trusts through stockbrokers,wealth managers and banks.

To familiarise yourself with the Financial Conduct Authority(‘FCA’) adviser charging and commission rules, visitwww.fca.org.uk.

AJ BellAlliance TrustBarclays StockbrokersBestinvestCharles Stanley DirectHalifax Share Dealing ServiceHargreaves Lansdown

Interactive InvestorJames Brearley James HaySelftradeTD DirectThe Share Centre Transact


HistoryJPMorgan US Smaller Companies Investment Trust plc was incorporated in1955 as Atomic Securities Trust Limited. It was dormant until 1962 when itchanged its name to Fledgeling Investments Limited and began operationsas an unquoted investment company.

The trust was wholly owned by a number of JPMorgan investment trustsand invested in listed and unlisted companies in the UK and US which forreasons of small size, illiquidity or risk, were unsuitable for directinvestment. In 1982, with assets of £9.2 million, it obtained a listing on theLondon Stock Exchange and gained investment trust status, at which time itchanged its name to The Fleming Fledgeling Investment Trust plc. In April1998, the Company changed its mandate and also its name to The FlemingUS Discovery Investment Trust plc, then again to JPMorgan Fleming USDiscovery Investment Trust plc in May 2002 and to JPMorgan US DiscoveryInvestment Trust plc in April 2006. The Company adopted its present namein April 2010.

Continuation VoteAt the Annual General Meeting of the Company held in April 2015 aresolution of the shareholders approved the continuation of the Companyuntil the Annual General Meeting to be held in 2020.

DirectorsDavina Walter (Chairman)Mark AnsellChristopher GalleymoreJulia Le BlanDavid Ross

Company NumbersCompany registration number: 552775London Stock Exchange Code: JUSC LNISIN: GB00BJL5F346Bloomberg: JUSC LNReuters: JUSC.L

Market InformationThe Company’s net asset value (‘NAV’) is published daily, via the LondonStock Exchange. The Company’s shares are listed on the London StockExchange. The market price is shown daily in the Financial Times, TheTimes, The Daily Telegraph, The Scotsman and on the JPMorgan internetsite at www.jpmussmallercompanies.co.uk, where the share price isupdated every 15 minutes during trading hours.

Websitewww.jpmussmallercompanies.co.uk

Share TransactionsThe Company’s shares may be dealt in directly through a stockbroker orprofessional adviser acting on an investor’s behalf. They may also bepurchased and held through the J.P. Morgan Investment Account andJ.P. Morgan ISA. These products are available on the online wealthmanager service, J.P. Morgan WealthManager+ available atwww.jpmorganwealthmanagerplus.co.uk

Alternative Investment Fund Manager and Company SecretaryJPMorgan Funds Limited

Company’s Registered Office60 Victoria EmbankmentLondon EC4Y 0JPTelephone number: 020 7742 4000

For company secretarial and administrative matters, please contact Lucy Dina.

DepositaryBNY Mellon Trust and Depositary (UK) LimitedBNY Mellon Centre160 Queen Victoria StreetLondon EC4V 4LA

CustodianJPMorgan Chase Bank, N.A.25 Bank StreetCanary WharfLondon E14 5JP

RegistrarsEquinitiReference 1084Aspect HouseSpencer RoadLancingWest Sussex BN99 6DATelephone: 0871 384 2326

Calls to this number cost 8p per minute plus network charges. Lines are openfrom 8.30 a.m. to 5.30 p.m. Monday to Friday. The Equiniti overseas helplinenumber is +44 (0)121 415 0225.

Notifications of changes of address and enquiries regarding share certificatesor dividend cheques should be made in writing to the Registrar quotingreference 1084.

Registered shareholders can obtain further details on individual holdings onthe internet by visiting www.shareview.co.uk

Independent AuditorGrant Thornton UK LLPChartered Accountants and Statutory Auditor30 Finsbury SquareLondon EC2P 2YU

BrokersNumis Securities Limited 10 Paternoster SquareLondon EC4M 7LTTelephone number: 020 7260 1000

Savings Product AdministratorsFor queries on the J.P. Morgan Investment Account, J.P. Morgan ISA andJ.P. Morgan SIPP, see contact details on the back cover of this report.

Information about the Company

Financial CalendarFinancial year end 31st DecemberFinal results announced MarchHalf year end 30th JuneHalf year results announced AugustDividend (if any) MayAnnual General Meeting April/May

A member of the AIC



JPMorgan HelplineFreephone 0800 20 40 20 or +44 (0)20 7742 9995

Your telephone call may be recorded for your security

www.jpmussmallercompanies.co.uk


Half Year Report JPMorgan US Smaller Companies Investment Trust plc · 2017-02-03 · JPMorgan US Smaller Companies Investment Trust plc. Half Year Report & Accounts 2015 1 Financial

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