Half Yearly Report

RNS Number : 2478N

F&C U.S. Smaller Companies PLC

12 February 2009

Date: 12 February 2009

Contact: Robert Siddles

F&C Management Limited

020 7628 8000

F&C US Smaller Companies PLC

Unaudited statement of results

for the half-year ended 31 December 2008

Summary of Unaudited Results

Attributable to equity shareholders	31 December 2008	30 June 2008	% Change

Net assets	£60.60m	£55.98m	8.3

Net asset value per share	292.21p	269.32p	8.5

Russell 2000 Index (sterling adjusted)	347.38p	346.54p	0.2

Share price	248.00p	245.50p	1.0

Increase in net asset value per share since inception on 8 March 1993			202.9%
Increase in the Russell 2000 Index (sterling adjusted) since 8 March 1993			119.8%

Chairman's Statement

I am pleased to report that the net asset value ('NAV') per share of your Company rose 8.5% in the six month period to 31 December 2008 compared to an increase of 0.2% in the Company's benchmark, the sterling-adjusted Russell 2000 Index. Good investment performance accounts for this. The very small increase in the benchmark however conceals two large counter-balancing movements: a considerable drop in the equity market offset by a sharp rise in the value of the dollar compared to sterling.

Although very large falls in the US equity market have not been common since World War 2, they are not entirely out of the ordinary taking a longer perspective and have occurred several times in the last eighty years: the Standard and Poor's Composite Index suffered similar annual losses to this year's on four occasions: 1930, 1931, 1937 and 1974, with losses ranging in size from 28.5% to 47.1%. The index also lost 25.6% in the twelve month period to the end of June 1970.

Market review

During the six month period, the US equity market suffered a substantial decline as the economy sank into recession. The Russell 2000 Index fell 27.6% in dollar terms, less than the Standard & Poor's Composite Index, which lost 29.4% and the technology-orientated NASDAQ Composite Index, which plunged 31.2%.

Sterling investors benefited from a rebound in the US dollar of 38.4% over the same six months. The dollar gained against sterling because of its status as a safe haven and the poor prospects for the UK economy.

Smaller companies initially held up quite well but then the Russell 2000 Index plummeted by 51% between 19 September and 20 November. Subsequently the Russell 2000 Index staged a recovery to end the year 30% above its lows.

The catalyst for these falls was a loss of confidence in the handling of the financial crisis after Lehman Brothers was allowed to fail. Further blows to confidence were dealt by the need to rescue Fannie Mae and Freddie Mac, the government sponsored mortgage enterprises, the leading insurer AIG, and several major banks and investment banks. This caused an abrupt dislocation to the flow of credit and finally pushed the economy, already weakened by the housing crisis and record oil prices, into recession.

The best performing sectors were consumer staples, financial services and utilities. The laggards were other energy (which includes exploration and production as well as oil service companies), producer durables, and materials and processing. Here the bursting of the oil price bubble and a higher dollar adversely affected the sectors.

Portfolio review

The portfolio benefited from a recovery in Crawford & Company, an insurance claims adjuster, where new management is turning around the business; Centennial Communications, a mobile phone service provider in the US and a telecommunications service provider in Puerto Rico, which received a bid from AT&T at a substantial premium; and Career Education, a post secondary education provider, which is another turnaround. On the negative side, ATP Oil & Gas and Lamar Advertising were both adversely affected by debt fears.

The overall portfolio positioning has changed since 30 June 2008: the underweight position in other energy has been reversed and the portfolio is now overweight in this area. The Manager is capitalising on the very large falls in share prices in the sector. Exposure was also increased in producer durables, in particular, infrastructure-related stocks such as producers of road building and mining equipment. The main areas where exposure was reduced were consumer-related; in addition exposure in financials was reduced relative to the benchmark. In the former, several stocks were sold outright and in the latter, profits were taken in insurance.

In addition to the bid for Centennial Communications, three other companies in the portfolio also agreed to bids: Longs Drug Stores, Cherokee International (power supplies) and Intervoice (voice recognition systems).

Buy-backs and discount

The Company bought back 49,500 of its own shares in the six-month period at an average discount of 13.4%. The Board will continue to apply its policy of buying back shares at appropriate times with a view to limiting the discount in the longer term to around 10%.

The discount widened from 8.8% at 30 June 2008 to 15.1% at 31 December 2008. One factor causing the discount to widen at 31 December was a significant rise in the NAV per share on that date after the UK market had closed: in fact, it rose 4.5%. As a result of the higher NAV, the difference between this and the Company's share price increased. As at 11 February 2009, the discount was 12.0%.

Continuation vote

At the annual general meeting ('AGM') on 20 November 2008, shareholders voted in favour of an ordinary resolution that the Company continue as an investment trust. It is the Board's intention that similar resolutions will be put forward every three years, the next occasion being the AGM in 2011.

Outlook

The US economy appears to be in deep recession based on employment trends and the activity of corporate buyers - two of the most reliable indicators of the state of the economy. The deflationary forces that have been unleashed are powerful; however, we hope that enough will soon have been done to wrench the US economy back towards growth.

Gordon Grender

12 February 2009

Directors' Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of quoted equity securities and its principal risks are therefore market related.

Other key risks faced by the Company relate to investment strategy, currency, gearing, investment management resources, regulatory issues and financial controls. These risks, and the way in which they are managed, are described in more detail under the heading 'Principal risks' within the Directors' Report and Business Review contained within the Company's annual report for the year ended 30 June 2008. The Company's principal risks and uncertainties have not changed materially since the date of that report.

Directors' Statement of Responsibilities in Respect of the Financial Statements

In accordance with Chapter 4 of the Disclosure and Transparency Rules the Directors confirm, in respect of the report and accounts for the half-year ended 31 December 2008 of which this statement is an extract, that to the best of their knowledge:

the condensed set of financial statements has been prepared in accordance with applicable UK Accounting Standards and gives a true and fair view of the assets, liabilities, financial position and return of the Company;
the half-yearly report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;
the Directors' Statement of Principal Risks and Uncertainties shown above is fair review of the principal risks and uncertainties for the remainder of the financial year; and
the half-yearly report includes details on related party transactions.

Signed on behalf of the Board

Gordon Grender

Chairman

12 February 2009

Unaudited Income Statement

for the half-year ended 31 December	2008			2007
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s

Gains/(losses) on investments	-	3,995	3,995	-	(10,551)	(10,551)
Foreign exchange gains	-	768	768	-	10	10
Income	418	-	418	431	-	431
Management fee	(249)	(10)	(259)	(259)	-	(259)
Other expenses	(115)	(5)	(120)	(109)	(5)	(114)
Return before finance costs and taxation	54	4,748	4,802	63	(10,546)	(10,483)
Finance costs	-	-	-	-	-	-
Return on ordinary activities before taxation	54	4,748	4,802	63	(10,546)	(10,483)
Taxation on ordinary activities	(59)	-	(59)	(59)	-	(59)
Return attributable to equity shareholders	(5)	4,748	4,743	4	(10,546)	(10,542)

Return per share - pence	(0.02)	22.88	22.86	0.02	(48.57)	(48.55)

The total column of this statement is the profit and loss account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.

A statement of total recognised gains and losses is not required as all gains and losses of the Company have been reflected in the above statement.

Unaudited Reconciliation of Movements in Shareholders' Funds

Half-year ended 31 December 2008	Called- up	Share	Non-	Capital			Total equity
	share	premium	distributable	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000	£'000s	£'000s	£'000s	£'000s

Balance at 30 June 2008	5,197	2,468	841	8,155	40,400	(1,079)	55,982
Movements during the half-year ended 31 December 2008
Shares purchased and cancelled	(12)	-	-	12	(129)	-	(129)
Return attributable to equity shareholders	-	-	-	-	4,748	(5)	4,743
Balance at 31 December 2008	5,185	2,468	841	8,167	45,019	(1,084)	60,596

Half-year ended 31 December 2007	Called- up	Share	Non-	Capital			Total equity
	share	premium	distributable	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000	£'000s	£'000s	£'000s	£'000s

Balance at 30 June 2007	5,444	2,468	841	7,908	57,635	(1,119)	73,177
Movements during the half-year ended 31 December 2007
Shares purchased and cancelled	(98)	-	-	98	(1,042)	-	(1,042)
Return attributable to equity shareholders	-	-	-	-	(10,546)	4	(10,542)
Balance at 31 December 2007	5,346	2,468	841	8,006	46,047	(1,115)	61,593

Year ended 30 June 2008	Called- up	Share	Non-	Capital			Total equity
	share	premium	distributable	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000	£'000s	£'000s	£'000s	£'000s

Balance at 30 June 2007	5,444	2,468	841	7,908	57,635	(1,119)	73,177
Movements during the year ended 30 June 2008
Shares purchased and cancelled	(247)	-	-	247	(2,480)	-	(2,480)
Return attributable to equity shareholders	-	-	-	-	(14,755)	40	(14,715)
Balance at 30 June 2008	5,197	2,468	841	8,155	40,400	(1,079)	55,982

Unaudited Balance Sheet

	31 December 2008	31 December 2007	30 June 2008
	£'000s	£'000s	£'000s
Fixed assets
Listed investments	57,363	61,109	54,413
Current assets
Debtors	454	67	50
Cash at bank and short-term deposits	3,092	716	1,720
	3,546	783	1,770
Current liabilities	(313)	(299)	(201)
Net current assets	3,233	484	1,569
Net assets	60,596	61,593	55,982

Capital and reserves
Called-up share capital	5,185	5,346	5,197
Share premium account	2,468	2,468	2,468
Non-distributable reserve	841	841	841
Capital redemption reserve	8,167	8,006	8,155
Capital reserves	45,019	46,047	40,400
Revenue reserve	(1,084)	(1,115)	(1,079)
Total shareholders' funds - equity	60,596	61,593	55,982

Net asset value per share - pence	292.21	288.06	269.32

Unaudited Summary Cash Flow Statement

	Half-year ended	Half-year ended
	31 December 2008	31 December 2007
	£'000s	£'000s
Net cash inflow from operating activities	90	51
Total tax paid	(61)	(58)
Net cash inflow/(outflow) from purchases and sales of investments	743	(421)
Net cash inflow/(outflow) before use of liquid resources and financing	772	(428)
Increase in short-term deposits	(612)	-
Net cash outflow from financing	(129)	(994)
Increase/(decrease) in cash during the period	31	(1,422)

Reconciliation of net cash flow to movement in net funds
Increase/(decrease) in cash	31	(1,422)
Increase in short-term deposits	612	-
Foreign exchange movement	768	10
Movement in net funds	1,411	(1,412)
Net funds at the beginning of the period	1,681	2,128
Net funds at the end of the period	3,092	716

Represented by:
Short-term deposits	3,074	716
Cash at bank/(bank overdraft)	18	-
	3,092	716

Notes

1 Accounting policies

The half-yearly financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 30 June 2008. These accounting policies are expected to be followed throughout the year ending 30 June 2009.

2 Dividend

The Directors do not propose to pay an interim dividend.

3 Return per share

Return per share attributable to ordinary shareholders reflects the overall performance of the Company in the period. Net revenue recognised in the first six months is not indicative of the total likely to be received in the full accounting year.

	Half-year ended	Half-year ended
	31 December 2008 £'000s	31 December 2007 £'000s
Revenue return	(5)	4
Capital return	4,748	(10,546)
Total return	4,743	(10,542)

Weighted average number of ordinary shares in issue	20,753,803	21,713,699

4 Results

The results for the half-year ended 31 December 2008 and 31 December 2007, which are unaudited, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 June 2008; the report of the auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The abridged financial statements shown above for the year ended 30 June 2008 are an extract from those accounts.

5 Report and accounts

The report and accounts for the half-year ended 31 December 2008 will be posted to shareholders and made available on the website www.fandcussmallers.com at the end of February 2009. Copies may also be obtained from the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.