Final Results

RNS Number : 0948T

JPMorgan American IT PLC

23 March 2016

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN AMERICAN INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2015

The Directors of JPMorgan American Investment Trust plc announce the Company's results for the year ended 31st December 2015.

Chairman's Statement

As shareholders will be aware, this report covers a particular 12 month period in the life of JPMorgan American Investment Trust. We publish estimated Net Asset Values daily and our share price is quoted minute by minute. The Trust has been in existence since 1881. I therefore see the Chairman's Statement as an opportunity both to bring shareholders up to date with the Board's thinking, and to put the year covered by the annual report and financial statements into a longer term context. Over the longer term, your Company has performed well and has provided strong returns. Since the end of the reporting period, markets have seen some turbulence.

In 2015, the US equity market, as measured by the S&P 500 total return Index in sterling terms, provided a return of 6.9%. In local currency terms, the market was more or less flat, and the gain to investors arose largely from the strength of the US dollar compared with sterling.

Over the period, your Company's net asset value ('NAV') underperformed the S&P 500 by just over 2%. The 10 year record (over which period Garrett Fish has been responsible for fund management) remains ahead of the Index and the performance of the NAV of the trust, over the 10 years to 31st December 2015, ranks it in the top 2% of the 270 US large capitalisation 'blend' funds in the relevant Morningstar universe. Garrett produced a very strong relative performance in 2008, and outperformed in 2013 and 2014 and has started this year well. He reports upon the reasons behind the performance returns for 2015 in his statement below. Overall, the underperformance in the period was due to his long term preference for "value" stocks which led him not to invest in some of the strongest performers over the year, such as Amazon, which he considered to be expensive. In addition, he had one or two stock disappointments.

The share price total return was -2.4%. This was somewhat disappointing to us as it represents the combination of portfolio underperformance and the establishment of a small discount. Having issued shares at a small premium in 2014 and early 2015, we saw investors changing preferences in mid 2015. We have therefore, as we indicated we would, bought back shares and will continue so to do. From the emergence of the discount in the first quarter of 2015, we have now repurchased 10,468,652 shares into Treasury as at the date of this statement, representing 3.7% of the Company's issued share capital at the beginning of 2015.

Dividend growth from the portfolio was again quite significant, helped by the strength of the dollar. This enables your Company to provide an increased final dividend of 2.5p per share, taking the dividends for the year as a whole to 4.0p per share, an increase of 23.1% on 2014.

Gearing

Gearing has remained within the Board's strategic gearing level of 10%, plus or minus 2% over the year. The investment manager, Garrett Fish, has the ability to hold cash of up to 5% of net assets if he believes there to be a real risk of capital loss and we have indicated that our highest level of gearing would be 20%. The ability to gear is an important feature of a closed end investment vehicle. The Board has developed a diversified debt strategy in order to avoid having to refinance all our debt at a particular point, to alleviate the need to time a particular interest rate level and to maintain flexibility. In April 2015, the Company put in place an additional £25 million of flexible bank debt through a five year facility with National Australia Bank to ensure that the Board's strategic gearing level could be maintained. The Company now has bank facilities totalling £60 million which are or will be drawn down in dollars, together with a £50 million sterling debenture in respect of which the currency mismatch is hedged. Repayment dates for the bank debt are December 2016 and April 2020; the debenture matures in June 2018. For full details of the terms of these facilities please refer to the Company's Annual Report & Financial Statements for the year ended 31st December 2015 ('Annual Report 2015').

Dividends

US companies continued to provide a reasonably strong dividend flow and the income we received last year showed further gains. The increase in your Company's income was approximately 12%. Our analysis shows that, just over 7% of the income increase over the year came from the strengthening of the US dollar vs. sterling. The remainder was due to an increase in dividends received in the portfolio. The Company paid an interim dividend in respect of the 2015 financial year of 1.5p on 9th October 2015. Subject to shareholder approval at the Annual General Meeting, a final dividend of 2.5p will be paid on 13th May 2016 to shareholders on the register on 15th April 2016, making a total of 4.0p per share, compared with last year's total of 3.25p per share.

After the payment of the proposed final dividend, we will have a balance in the revenue reserves of £13.7 million (equivalent to 5.0 pence per share or 1.25 times the current dividend). It is our intention that such reserves be used to support dividend payments when corporate pay outs are less healthy, or if there are other fluctuations in the revenue account which we assess to be temporary. Our manager expects further income growth from the portfolio in 2016.

Share Price and Premium/Discount

In January 2015, the Company issued 600,000 shares. The shares were issued at a premium to estimated NAV. In early February 2015, the Company's shares began trading at a consistent discount, having in the main traded at a premium over the prior three years. Accordingly, having monitored the discount level on a daily basis, the Board authorised the repurchase in 2015 of a total of 5,350,884 shares into Treasury. So far this year and to the date of this report, the Company has repurchased a further 5,117,768 shares into Treasury.

As evidenced above, and as we have stated in previous years, the Board has this year demonstrated its willingness to buy shares back when they stand at anything more than a small discount. The Board remains aware of its responsibility not to let the discount widen significantly and therefore the Company will again be asking shareholders to approve the relevant share buyback resolutions at the Annual General Meeting. We will also be seeking shareholder permission to issue shares, where Directors are confident of sustainable market demand. The authority, if approved, will allow the Company to issue up to 10% of its issued share capital at prices in excess of the estimated NAV including income with the value of our debt deducted at market prices.

Investment Manager

The Company's objective is to achieve capital growth from North American investments by outperformance of the Company's benchmark, which is the S&P 500 Index (with both net asset value and benchmark measured in sterling total return terms).

In 2015, Directors met with the investment managers of both the large and small capitalisation portfolios and the investment company team in London, and had conversations over the teleconference system with our managers in New York if they are not in London. In 2015, the Board again visited the Manager's offices in New York where it held meetings with senior management, the behavioural finance team of which Garrett is a member, the corporate engagement and dealing teams. In addition to investment management, the Manager provides other services to the Company, including marketing, accounting and company secretarial services. We have analysed our relationship with the Manager in detail and robustly, as we must, and have concluded that the ongoing appointment of the Manager is in the continuing interests of shareholders.

Costs and Directors' Fees

In 2015, we have continued to keep our focus on costs through the year, given that it is important that we continue to offer attractive value for shareholders and potential shareholders. After increasing our fees in 2015, your Directors resolved not to increase the rate of fees for 2016. The table set out below is in the same format as we have used for the last two years. It aims to shows the returns generated on the Company's investments, the extent to which the capital base of the Company has grown or shrunk through share issuance and buy-backs, and the full costs of the Company's operations. Management fees generally vary with the size of the Company and therefore rose. No performance fee was payable and the Company clawed back prior amounts. Another significant cost for the Company this year was the payment of the depositary's fees. This was the first full year that such fees have been paid, subsequent to the regulatory requirement to appoint a depositary arising from the AIFM Directive. Despite these extra costs, we note that the Company's Ongoing Charges remain relatively low at 0.62% (2014: 0.64%).

	2015		2014
		Percentage		Percentage
		of opening		of opening
	£'000s	net assets	£'000s	net assets
Net assets at start of year	804,150	100.00	642,213	100.00
Increase in net assets during the year
from investing	34,762	4.32	139,421	21.71
Brokerage fees/commissions and
other dealing charges	(236)	(0.03)	(173)	(0.03)
Net investment performance	838,676	104.29	781,461	121.68
Income received from investing -
net of withholding tax	15,293	1.90	12,567	1.96
Dividends paid to shareholders	(10,448)	(1.30)	(7,467)	(1.16)
Interest paid on borrowings	(3,907)	(0.49)	(3,826)	(0.60)
Losses on currency (including hedging)	(4,940)	(0.61)	(4,884)	(0.76)
Management fee	(4,266)	(0.53)	(3,717)	(0.58)
Performance fee write back/(charged)	507	0.06	(359)	(0.06)
Directors' fees	(165)	(0.02)	(152)	(0.02)
Other costs of the Company	(582)	(0.07)	(495)	(0.08)
Issue of new shares (net of costs)	1,708	0.21	31,022	4.83
Repurchase of shares into Treasury
(net of costs)	(15,176)	(1.89)	-	-
Net assets at end of year	816,700	101.56	804,150	125.22

Operation of the Performance Fee

In 2015, and as reported at the interim stage, we considered the operation of the performance fee. From its introduction the fee has been based on the difference between the capital return of the NAV and the capital return of the S&P 500 Index. We believe that the broad structure of the fee remains in shareholders' interests as it is capped and has a mechanism to offset underperformance and thus no fee is payable for 2015, and will not be payable until this year's underperformance is recovered, as described below. However, we have amended the calculation slightly so that outperformance is measured in total return terms, which is better aligned with the returns experienced by shareholders. That is, the NAV total return is compared with the total return provided by the S&P 500, both in sterling terms. We believe this is a better measure of performance and removed distortions which can be caused by retained income, particularly as the Company's income receipts are rising. In our calculations for the 2014 performance fee we removed the retained income element from the capital calculation and have now put in place the new calculation with effect from 1st January 2015.

In relation to the Company's financial year ended 31st December 2015, the Company's NAV total return underperformed the total return of the S&P 500 Index, expressed in sterling terms, resulting in a negative performance fee calculation of £1,818,000. This amount when deducted from the £507,000 performance fee provision brought forward leaves a balance of negative £1,312,000, which will be carried forward and offset against future outperformance. Full details of the mechanics of the performance fee payments are detailed with the Annual Report 2015.

The Board

The Board has procedures in place to ensure that the Company complies fully with the AIC Code on Corporate Governance and the UK Corporate Governance Code. In accordance with corporate governance best practice, all Directors will be retiring and seeking re-election at the Company's forthcoming Annual General Meeting. The Nomination Committee met formally to evaluate the effectiveness of the Board as a whole and of each individual Director and is satisfied that all retiring Directors possess the experience and attributes required of a Director for this Company. Accordingly, the re-elections of all Directors at the forthcoming Annual General Meeting are recommended to shareholders.

The Board continues to manage succession so that it has an appropriate balance of skills and diverse approaches to its tasks. Having served as a Director since 2005, Kate Bolsover will retire from the Board by the end of 2016. Kate has contributed enormously to the deliberations of the Board over her tenure and we wish her well for the future. The Board is currently in the process of recruiting a new non-executive Director. Having chaired the Board since 2012 and having been appointed to the Board in 2005, I plan to step down from the Board during 2017. The Company's Senior Independent Director, Sir Alan Collins has overseen the process to select my successor and I am delighted to say that Dr Kevin Carter will succeed me at that point.

Annual General Meeting and Shareholder Contact

This year's Annual General Meeting is the Company's 100th and it will be held on Wednesday, 11th May 2016 at 2.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP. As in previous years, in addition to the formal part of the meeting, there will be a presentation from our investment manager Garrett, who will answer questions on the portfolio and performance. There will also be an opportunity to meet the Board, Garrett, and representatives of JPMF after the meeting. I look forward to welcoming as many shareholders as possible to this meeting. Last year, following the publication of our results for 2014, I did contact our largest shareholders and had useful discussions with several. I am pleased to hear from shareholders, and can be contacted through our Company Secretary, whose details are set out in the Annual Report 2015.

Outlook

Obviously there is much comment about the forthcoming US elections this year. There is also concern about rates of growth outside the US (particularly in China) as well as worries about geopolitical tensions. Interest rates have finally begun to rise, although how far and how fast is very unclear. Valuations are not cheap. At the same time, the US corporate sector, relative to many other places to invest, looks relatively attractive. Although there are problems in the energy and resource sectors, elsewhere profits kept growing in 2015. Profit expectations for 2016 are currently modest but corporate dividend growth is expected to continue. We expect the US equity market to continue to be a reasonable place to invest given the extraordinary breadth of opportunity it provides.

Sarah Bates

Chairman                                                                                                                                                                                                 

23rd March 2016

Investment Manager's Report

Market Review

Despite an intra-year drop of -12%, the US stock market, as represented by the S&P 500, finished almost flat in US dollar terms. Large cap stocks outperformed small caps in most sectors and growth trumped value within all size segments. The two macro themes of 2015, very low oil prices and robust US consumer spending, were reflected in the worst and best performing S&P 500 sector returns, with the energy sector falling 24% and the consumer discretionary sector rising 8% in US dollar terms.

Investor concerns in 2015 that contributed to market volatility primarily revolved around three issues: the slowdown in economic growth in China, weakness in commodity prices and a strong US dollar. The slower growth in China can be attributed to the transition to a more service-based economic model, which inherently has slower productivity growth than a manufacturing intensive economy. Furthermore, China's ability to increase exports has been muted by an overall slow-growing global economy. With regards to commodity prices, the decline in oil prices can be linked to an oversupply while softness in other commodities has resulted from a slowdown in global demand, predominantly in China. Finally, the strong US dollar weighed on equity markets in 2015 as multinationals were hurt by falling demand and it remains to be seen whether the dollar will weaken this year. It is worth noting, though, that the last three times the Federal Reserve ('Fed') began to raise rates, the dollar appreciated leading up to the rate hike and subsequently fell in the following six months.

The Fed's long awaited first move finally came on 16th December 2015 when it raised the federal funds rate from 0.25% to 0.50% ending seven years of a 'near-zero' interest rate policy. In her press conference, Fed's Chair, Yellen, emphasised that 'gradual' did not mean 'mechanical', suggesting that investors should not necessarily expect one rate hike at every other meeting.

The Company's net asset value total return (in sterling terms) rose by 4.7%, which was below our benchmark, the S&P 500 Index, which returned 6.9%.

Overall Asset Allocation and Performance

The investment management team is responsible for managing the allocation between the large and the small cap portfolios, together with the levels of cash and gearing. In 2015, the Company's gearing ranged between 8.2% and 9.7% of shareholders' funds, with the level at the year end being 8.2%. The level of gearing has been adjusted at regular intervals within the gearing guidelines laid down by the Board. Despite the market rising overall over the year, gearing and the cost of gearing detracted from relative performance.

The weighting in the small cap portfolio ranged between 3.3% and 4.9% of the Company's total assets less current liabilities and ended the year at 4.2%. Our allocation model caused us to add and trim from our small cap allocation during the year. We believe that our ability to move between the two segments enhances returns to shareholders over the long term and also helps to balance our overall risk.

Attribution data for 2015 shows that both our large cap portfolio and our smaller companies portfolio detracted for the period.  The attribution data can be found in the Annual Report 2015 to be published shortly.

Large Companies Portfolio

Our investment methodology continues to focus on investing in high quality, reasonably valued companies. This style leads us to invest in companies that exhibit good growth characteristics with growing earnings, strong cash flows and reasonable valuations. When constructing our portfolio, we use the core tenets of behavioural finance to narrow our investment universe. Behavioural finance theory indicates that on average, high quality, fast growing, cheap stocks with good news-flow outperform lower quality, slow growing, and expensive stocks with bad news-flow. Taking this approach, we rank the stocks in our universe to uncover those companies that are high quality, attractively valued and are also exhibiting improving sentiment (momentum). We then undertake fundamental research to validate the rankings. This leads us to invest in quality companies that exhibit good growth characteristics with growing earnings, strong cash flows and reasonable valuations.

2015 was a difficult investment environment for our strategy. Throughout the year there was a reduction of cyclicality and beta in the portfolio as the global economic background decelerated. The returns from the broad market were driven by companies with very strong momentum characteristics, whereas those companies which we would define as high quality and looked particularly attractive from a valuation perspective underperformed. Although your portfolio had some exposure to stocks with momentum characteristics during the year, it was not enough to offset the impact of holding higher quality companies that were cheaper than the market. Since the end of the reporting period the outperformance of those companies that have high momentum characteristics is showing signs of coming to an end, which will benefit our strategy.

The large companies portfolio detracted from performance for the period under review. This underperformance was mainly driven by weak stock selection in information technology, consumer discretionary and telecom sectors. Good sector calls did however offset some of the negative impact from disappointing stock selection. Our positioning in the information technology and consumer discretionary sectors had the largest negative impact on our performance. The best performing stocks over the year were led by a handful of mega cap leaders in Internet commerce: Facebook, Amazon, Netflix and Google (now renamed Alphabet), the now eponymous 'FANG' stocks. This group of stocks captured much of the attention and soared by an average of 80% during the year. To put that performance into perspective the S&P 500 ex-FANG average stock return ended at -2%. Despite their strong momentum characteristics we did not own them on valuation grounds. This underexposure to the FANG-stocks in the portfolio detracted from performance materially.

Among individual names, our lack of exposure to Amazon detracted from relative performance the most. Amazon reported accelerating growth globally with Amazon Prime being a key driver of retail growth and Amazon Web Services being a key driver of business growth. Our largest portfolio position was in Apple, which performed very well in the first half of the year but fell sharply in late August on concerns that slowing Chinese growth would impact sales of the iPhone. We remain positive on the longer term prospects for the Company despite the recent set back in performance.

In the telecom services sector, an overweight position in CenturyLink was the largest detractor. The integrated communications company posted weak results early in the year with total revenue falling year-on-year. The decline in revenue was driven by weakness in data centre hosting revenue and flat growth in TV and broadband. However, operating metrics remain on track and we maintain confidence in this company. In contrast, our stock selection within industrials and healthcare proved beneficial. Solid stock selection in the energy space, the worst performing sector for the year, also aided relative performance.

Marathon Petroleum and Valero were two of the largest contributors to performance over the time period. Both companies are involved in refining crude oil into different petroleum products and benefitted from the continued decline in crude prices throughout the year. Refiners continue to look very attractive from a valuation and operating momentum standpoint. In the industrials sector, our overweight position in Northrop Grumman, a global aerospace and defence company, contributed the most to returns for the year. Northrop started 2015 on a positive note, providing profit guidance for 2015 that topped Wall Street expectations. Additionally, it continued this strength with solid earnings and reported improved guidance for the full year. Strong momentum and quality factors underpin our overweight position in this name. Within healthcare, our overweight positions in both Anthem and Cigna added value. The health benefits company Anthem, formerly known as WellPoint, rallied early in the year after it announced it has closed the acquisition of Simply Healthcare, a Florida managed care operator focused on the Medicaid and Medicare Advantage markets. The company's growth continues to be balanced with contributions from both commercial and government segments. Additionally we believe execution remains strong as does the company's pipeline of future revenue growth. During the year senior management held merger talks with Cigna. This information caused Cigna to rally strongly during the summer period. Our position in Cigna ensured that we benefitted from this rally though the company has also had a strong record of earnings per share as well as raising full year guidance for 2015.

In terms of portfolio positioning, we added to our consumer staples exposure and trimmed from consumer discretionary. Consumer staples is now the second largest overweight and consumer discretionary is our largest underweight. Our largest overweight remains in the information technology sector. We find technology to be a fertile ground for stock picking, supported by its valuation and free cash flow. We are overall optimistic on the technology sector, with a broadly diversified exposure to semiconductors, semi cap equipment, data processing and computer hardware. Our third largest absolute position, healthcare, remains relatively unchanged. On the other hand, we retain our underweight in the materials sector, as we are less excited about the long term growth prospects as well as unappealing valuation levels relative to other sectors. We have also shifted to a larger underweight in industrials during the year.

Sector Weightings of the Large Cap Portfolio versus S&P 500 as at 31st December 2015

	Large
	company		Overweight/
	portfolio	S&P 500	(underweight)
Sector	%*	%	%
Information Technology	25.6	20.7	4.9
Financials	15.4	16.5	(1.1)
Healthcare	15.6	15.2	0.4
Consumer Discretionary	8.5	12.9	(4.4)
Consumer Staples	13.9	10.1	3.8
Industrials	8.2	10.1	(1.9)
Energy	7.0	6.5	0.5
Telecom Services	2.2	2.4	(0.2)
Utilities	2.9	3.0	(0.1)
Materials	0.8	2.8	(2.0)

*Does not include small cap stocks and net current assets.

Source: Wilshire. Based on the MSCI Global Industry Classification Standards.

The table below shows the largest positive and negative stock contributors to the Company's portfolio performance in 2015:

	Average position	Stock return
	relative to	(based on
	Benchmark	average weight
	over year	over the year)	Contribution
Stock	%	%	%
Positive Contributors
Marathon Petroleum	1.1	24.1	0.50
Northrop Grumman	1.9	38.0	0.47
Broadcom	0.9	42.7	0.37
Valero Energy	0.7	22.6	0.34
Tyson Foods	1.0	42.2	0.29
Negative Contributors
Amazon	(1.0)	0.0	(0.62)
CenturyLink	1.3	(27.8)	(0.57)
Yahoo	0.8	(30.3)	(0.49)
Best Buy	0.9	(14.1)	(0.39)
General Electric	(1.5)	0.0	(0.36)

Smaller Companies Portfolio

US small caps came under pressure in 2015 and ended the period lagging their large cap peers for a second year in a row. The year presented a challenging environment for our investment style and our US small cap portfolio detracted from overall performance.

In particular, our stock selection in healthcare proved unsatisfactory and was the main driver behind our results. While much of our small cap healthcare portfolio did well, a few of our earlier stage investments materially hindered performance. On the positive side, stock selection was very strong in the materials and processing space.

For our smaller companies portfolio we believe that long-term investments in companies with leading competitive positions, run by highly motivated and talented management that can sustain growth over a period of many years, will lead to stock market outperformance. We identify companies with predictable and durable business models deemed capable of achieving sustained growth.

Outlook

As always, we remain firmly committed to our disciplined and dispassionate investment process. We will continue to monitor risks at all levels, taking only risks for which we believe we will be compensated. We continue to see valuation as the key driver of long-term returns.

We continue to believe that the global economic deceleration remains the biggest risk to the US equity markets. With the lowered economic growth it is more difficult for companies to increase their revenues and also their profits. US companies have done an admirable job of keeping their cost structures competitive with their global peers.

A lower dollar in 2016 would be a significant tailwind for the investment environment and particularly US equities, as it would provide a boost to global commodity prices and increase the dollar value of international corporate earnings.

Central bank interventions in the global financial markets through quantitative easing and low interest rates have recently benefitted equity markets. The situation is more complex at the moment with the introduction of negative interest rates. In this increasingly volatile environment, we believe that the strongest, best positioned companies will be best able to weather the turbulence.

Garrett Fish

Investment Manager                                                                                                                                                                          

23rd March 2016

Principal Risks

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

With the assistance of JPMF, the Risk Committee has drawn up a risk matrix, which identifies the key risks to the Company. These are reviewed and noted by the Board. These key risks fall broadly under the following categories:

•   Market: Market risk arises from uncertainty about the future prices of the Company's investments. This market risk comprises three elements - equity market risk, currency risk and interest rate risk. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by JPMF. The Board monitors the implementation and results of the investment process with the Manager. However, the fortunes of the portfolio are significantly determined by market movements in US equities, the rate of exchange between the US dollar and sterling and interest rate changes. This is a risk that investors take having invested into a single country fund.

•    Investment and Strategy: An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages this risk by insisting on diversification of investments through its investment restrictions and guidelines which are monitored and reported on regularly by the Managers. JPMF provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the investment manager, who attends the majority of Board meetings, and reviews data which shows statistical measures of the Company's risk profile. The investment manager employs the Company's gearing within a strategic range set by the Board.

•   Operational and Cybercrime: Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the custodian's or depositary's records could prevent accurate reporting and monitoring of the Company's financial position. On 1st July 2014, the Company appointed BNY Mellon Trust & Depositary (UK) Limited to act as its depositary, responsible for overseeing the operations of the custodian, JPMorgan Chase Bank, N.A., and the Company's cash flows. Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included in the Internal Control section of the Corporate Governance report within the Annual Report 2015. The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Board has received the cyber security policies for its key third party service providers and JPMF has assured Directors that the Company benefits directly or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by Deloitte and reported every six months against the AAF Standard.

•   Loss of Investment Team or Investment Manager: The sudden departure of the investment manager or several members of the wider investment management team could result in a short term deterioration in investment performance. The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach. The Board continues to stress to JPMF the importance of retaining the current investment manager.

•    Share Price Relative to Net Asset Value ('NAV') per Share: If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. Throughout the majority of 2015, the Company's shares traded at a discount. The Board monitors the Company's premium/discount level and, although the rating largely depends upon the relative attractiveness of the trust, the Board will seek, where deemed prudent, to address imbalances in the supply and demand of the Company's shares through a programme of share issuance and buybacks.

•    Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Business of the Company' within the Annual Report 2015. Were the Company to breach Section 1158, it might lose investment trust status and, as a consequence, gains within the  Company's portfolio would be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by JPMF and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, as its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure & Transparency Rules ('DTRs'). A breach of the Companies Act 2006 could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing, which in turn would breach Section 1158. The Directors seek to comply with all relevant regulation and legislation in the UK, Europe and the US and rely on the services of its Company Secretary, JPMF, and its professional advisers to monitor compliance with all relevant requirements.

•    Political and Economic: Changes in financial or tax legislation, including in the US and the European Union, may adversely effect the Company either directly or because of restrictions or enforced changes on the operations of the Manager. JPMF makes recommendations to the Board on accounting, dividend and tax policies and the Board seeks external advice where appropriate. In addition, the Company is subject to political risks, such as the imposition of restrictions on the free movement of capital. The Company is therefore at risk from changes to the regulatory, legislative and taxation framework within which it operates, whether such changes were designed to affect it or not.

Related Parties Transactions

During the year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards) and applicable law. Under Company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the annual report and accounts are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·      prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements are published on the www.jpmamerican.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report, Strategic Report, Statement of Corporate Governance and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed in the Annual Report 2015, confirms that, to the best of their knowledge that the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return or loss of the Company;   and the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Board confirms that it is satisfied that the annual report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the strategy and business model of the Company.

The Board also confirms that it is satisfied that the Strategic Report and Directors' Report include a fair review of the development and performance of the business, and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

For and on behalf of the Board

Sarah Bates

Chairman                                                                                                                                                                                                 

23rd March 2016

 

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST DECEMBER 2015

		2015			2014
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value
through profit or loss		-	34,526	34,526	-	139,248	139,248
Net foreign currency losses1		-	(4,940)	(4,940)	-	(4,884)	(4,884)
Income from investments		17,780	-	17,780	15,228	-	15,228
Interest receivable and similar income		1	-	1	-	-	-
Gross return		17,781	29,586	47,367	15,228	134,364	149,592
Management fee		(853)	(3,413)	(4,266)	(743)	(2,974)	(3,717)
Performance fee write back/(charged)		-	507	507	-	(359)	(359)
Other administrative expenses		(747)	-	(747)	(647)	-	(647)
Net return on ordinary activities before
finance costs and taxation		16,181	26,680	42,861	13,838	131,031	144,869
Finance costs		(782)	(3,125)	(3,907)	(765)	(3,061)	(3,826)
Net return on ordinary activities before
taxation		15,399	23,555	38,954	13,073	127,970	141,043
Taxation		(2,488)	-	(2,488)	(2,661)	-	(2,661)
Net return on ordinary activities after
taxation		12,911	23,555	36,466	10,412	127,970	138,382
Return per share (note 2)		4.64p	8.47p	13.11p	3.76p	46.24p	50.00p

¹     Includes gains and losses on forward foreign currency contracts which are used to hedge the currency risk in respect of the geared portion of the portfolio. Details of the Company's hedging strategy are given in note 23(a)(i) in the Annual Report 2015.

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

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.

STATEMENT OF CHANGES IN EQUITY

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves1	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2013	13,411	119,791	8,151	485,676	15,184	642,213
Issue of ordinary shares net of costs to
the market	641	30,381	-	-	-	31,022
Net return on ordinary activities	-	-	-	127,970	10,412	138,382
Dividends appropriated in the year	-	-	-	-	(7,467)	(7,467)
At 31st December 2014	14,052	150,172	8,151	613,646	18,129	804,150
Issue of ordinary shares net of costs to
the market	30	1,678	-	-	-	1,708
Repurchase of shares into Treasury	-	-	-	(15,176)	-	(15,176)
Net return on ordinary activities	-	-	-	23,555	12,911	36,466
Dividends appropriated in the year	-	-	-	-	(10,448)	(10,448)
At 31st December 2015	14,082	151,850	8,151	622,025	20,592	816,700

¹     These 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 POSITION AT 31ST DECEMBER 2015

		2015	2014
		£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		885,383	875,701
Investments in liquidity funds held at fair value through profit or loss		18,484	11,234
		903,867	886,935
Current assets
Derivative financial assets		939	-
Debtors		923	776
Cash and short term deposits		305	3
		2,167	779
Current liabilities
Creditors: amounts falling due within one year		(36,417)	(1,808)
Derivative financial liabilities		(2,990)	(1,529)
Net current liabilities		(37,240)	(2,558)
Total assets less current liabilities		866,627	884,377
Creditors: amounts falling due after more than one year		(49,927)	(79,720)
Performance fees		-	(507)
Net assets		816,700	804,150
Capital and reserves
Called up share capital		14,082	14,052
Share premium		151,850	150,172
Capital redemption reserve		8,151	8,151
Capital reserves		622,025	613,646
Revenue reserve		20,592	18,129
Total equity shareholders' funds		816,700	804,150
Net asset value per share (note 4)		295.6p	286.1p

The Company's registration number is 15543.

statement of cash flows for the year ended 31st December 2015

		2015	2014
		£'000	£'000
Net cash outflow from operations before dividends and interest		(4,378)	(3,666)
Dividends received		15,041	12,528
Interest received		33	20
Interest paid		(3,865)	(3,709)
Overseas tax recovered		100	11
Net cash inflow from operating activities		6,931	5,184
Purchases of investments1		(354,123)	(252,234)
Sales of investments1		377,466	213,833
Settlement of forward currency contracts		(2,239)	338
Net cash inflow/(outflow) from investing activities		21,104	(38,063)
Dividends paid		(10,448)	(7,467)
Repayment of bank loans		(6,446)	-
Draw down of bank loans		10,369	11,173
Issue of ordinary shares		1,708	30,998
Repurchase of shares into Treasury		(14,758)	-
Net cash (outflow)/inflow from financing activities		(19,575)	34,704
Increase in cash and cash equivalents		8,460	1,825
Cash and cash equivalents at the start of the year		10,329	8,504
Cash and cash equivalents at the end of the year		18,789	10,329
Increase in cash and cash equivalents		8,460	1,825
Cash and cash equivalents consist of:
Cash and short term deposits		305	3
Bank overdraft		-	(908)
Investments in liquidity funds		18,484	11,234
Total		18,789	10,329

1  Excludes liquidity funds.

Notes to the financial statements for the year ended 31st december 2015

1.     Accounting policies

(a)     Basis of accounting

The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland' and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014. All of the Company's operations are of a continuing nature.

The financial statements have been prepared on a going concern basis. The disclosures on going concern within the Directors' Report in the Annual Report 2015 form part of these financial statements.

2.     Return per share

The revenue return per ordinary share of 4.64p (2014: 3.76p) is based on the revenue earnings attributable to the ordinary shares of £12,911,000 (2014: £10,412,000) and on the weighted average number of shares in issue during the year of 278,231,109 (2014: 276,739,581).

The capital return per ordinary share of 8.47p (2014: 46.24p) is based on the capital return attributable to the ordinary shares of £23,555,000 (2014: £127,970,000) and on the weighted average number of shares in issue during the year of 278,231,109 (2014: 276,739,581).

The total return per ordinary share of 13.11p (2014: 50.00p) is based on the total return attributable to the ordinary shares of £36,466,000 (2014: £138,382,000) and on the weighted average number of shares in issue during the year of 278,231,109 (2014: 276,739,581).

3.     Dividends¹

(a)     Dividends paid and proposed

		2015	2014
		£'000	£'000
	Dividends paid
	2014 Final dividend paid of 2.25p (2013: 1.7p)	6,304	4,676
	2015 Interim dividend of 1.5p (2014: 1.0p)	4,144	2,791
	Total dividends paid in the year	10,448	7,467

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

The final dividend proposed in respect of the year ended 31st December 2014, amounted to £6,323,000. However, the actual payment amounted to £6,304,000 due to net shares repurchased after the balance sheet date but prior to the final dividend record date.

		2015	2014
		£'000	£'000
	Dividends proposed
	2015 Final dividend proposed of 2.5p (2014: 2.25p)	6,907	6,323

The final dividend has been proposed in respect of the year ended 31st December 2015 and is subject to approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 31st December 2016.

(b)     Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of dividends proposed in respect of the financial year, as follows:

		2015	2014
		£'000	£'000
	2015 Interim dividend of 1.5p (2014: 1.0p)	4,144	2,791
	2015 Final dividend proposed of 2.5p (2014: 2.25p)	6,907	6,304
	Total	11,051	9,095

The revenue available for distribution by way of dividend for the year is £12,911,000 (2014: £10,412,000).

4.     Net asset value per Ordinary share

The net asset value per share of 295.6p (2014: 286.1p) is based on the net assets attributable to the ordinary shareholders of £816,700,000 (2014: £804,150,000) and on the 276,283,026 (2014: 281,033,910) shares in issue at the year end excluding 5,350,884 (2014: nil) shares held in Treasury.

5.     Status of announcement

2014 Financial Information

The figures and financial information for 2014 are extracted from the published Annual Report and Accounts for the year ended 31st December 2014 and do not constitute the statutory accounts for that year. The Annual Report and Accounts has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2015 Financial Information

The figures and financial information for 2015 are extracted from the Annual Report and Accounts for the year ended 31st December 2015 and do not constitute the statutory accounts for the year. The Annual Report and Accounts includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

JPMORGAN FUNDS LIMITED

23rd March 2016

For further information:

Alison Vincent,

JPMorgan Asset Management (UK) Limited               020 7742 4000

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The annual report will also shortly be available on the Company's website at www.jpmamerican.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED

 

END

 

 

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