Jupiter Merlin Portfolio Full Report interim report (unaudited) for the six months ended 15 April 2011 1
Jupiter Merlin Portfolio Full Report for the six months ended 15 April 2011 Investment Objective To achieve a high and rising income with some potential for capital growth. Investment Policy To invest predominantly in unit trusts, OEICs, Exchange Traded Funds and other collective investment schemes across several management groups. The underlying funds invest in equities, fixed interest stocks, commodities and property, principally in the UK. The Manager has the power to use derivatives but it is intended that these will only be used for efficient portfolio management and not for investment purposes. Status The Fund operates under the Collective Investment Schemes Sourcebook (COLL) of the Financial Services Authority. The Fund is an authorised unit trust scheme under Section 237 of the Financial Services and Markets Act 2000 and is a Non UCITS Retail Scheme (NURS) as defined in the COLL rules. It is in the Cautious Managed Investment Management Association category. The Fund is a qualifying fund for inclusion within a stocks and shares Individual Savings Account (ISA). It is the Manager s intention to continue to manage the affairs of the Fund in order to meet the qualifying requirements as outlined in current legislation. Percentage change and sector ranking from 1 May 1997 to 15 April 2011 6 months 3 years 5 years 10 years Since 1 May 1997* Percentage growth 0.32 21.76 26.87 85.93 168.30 Sector position 150/165 10/114 8/78 2/25 2/13 Quartile ranking 4th 1st 1st 1st 1st Source: Financial Express, bid to bid, net income reinvested. *The Jupiter Merlin Portfolio was managed by John Chatfeild-Roberts and his team at Lazard from 1 May 1997 until March 2001. In March 2002, the management of the Fund was fully transferred to Jupiter Unit Trust Managers Limited, under the same management team. Warning: Jupiter Unit Trust Managers Limited is authorised and regulated by the Financial Services Authority and its registered address is 1 Grosvenor Place, London SW1X 7JJ. The value of an investment in a unit trust and the income from it can go down as well as up, it may be affected by exchange rate variations and you may not get back the amount invested. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term. All of the Fund s expenses are charged to capital. This has had the effect of increasing the distributions paid on an annualised basis by up to 2.33% of the Fund s average Net Asset Value during the period under review and constraining the Fund s capital performance to an equivalent extent. Quoted yields are not guaranteed. Current tax levels and reliefs will depend on your individual circumstances, and details are contained in the Key Features (incorporating the Simplified Prospectus). Past performance should not be seen as a guide to future performance. For your security we will record and randomly monitor all telephone calls. If you are unsure of the suitability of this investment please contact your Independent Financial Adviser. No material in this report should be interpreted as investment advice. 1
Jupiter Merlin Portfolio Manager s Report Performance Review For the six months to 15 April 2011 the total return on your units was 0.32%*, compared to 2.35%* for the Cautious Managed sector average and 3.50%* for the FTSE APCIMS Index. The Fund was ranked 150th out of 165 funds over six months, 10th out of 114 funds over 3 years, 8th out of 78 funds over 5 years, 2nd out of 25 funds over 10 years and 2nd out of 13 funds since 1 May 1997 in the Cautious Managed sector*. It remains in the first quartile of its sector over 3, 5, 10 years and since 1 May 1997*. A quarterly distribution of 1.1427 (accumulation 2.0331 ) will be paid to unitholders on 15 June 2011, bringing the total paid for the period under review to 1.6627 (accumulations 2.9545 ) compared to 1.7300 (accumulations 2.9873 per unit) for the same period last year. *Source: Financial Express, bid to bid, net income reinvested. Market Review After 2009 and 2010 brought one of the most powerful equity market rallies in decades, many investors were nervous and expected volatility to rise as 2011 opened. This was before the extraordinary events of the so-called Arab Spring and the devastating earthquake and tsunami in Japan. However, while markets reacted negatively to these events in the short term, they soon recovered ground, thanks primarily to abnormally low interest rates and quantitative easing (QE), both of which have continued to pump-prime asset prices and stoke inflation in developing economies. Thanks to those economies, global growth has kept up an impressive pace in the last six months, which in turn has fed into company share prices. Better news has come not only from emerging economies, but the western world where in February US manufacturing data neared a seven-year high and German unemployment levels fell to a new post-reunification low. Policy Review The emphasis of the portfolio remains one of exploiting the secular growth trends apparent on a global basis while trying to avoid potentially unrewarding risks. An appreciation of the macro economic environment, an acute awareness of the extent and duration of the current rally in risk assets and recognition of the unique nature of the monetary and fiscal situation in the West, have all been at the forefront of our approach. This has resulted in a number of adjustments being made during the period under review. New money into the Fund was generally directed towards existing holdings, but we also instigated a number of changes. In light of higher equity market volatility at the start of the year, we reduced exposure to our gold mining fund, Latin American and Asian investments. Some capital was added to more defensive UK equity exposure and a global equity fund during the period. With the prospects of a very tight oil market going forward, we also decided in mid January to initiate an exposure to an energy fund. This was prior to the Middle Eastern turmoil, which has added a potential supply shock to the equation of excess demand. Within the fixed interest investments, exposure continued to be orientated towards strategically managed corporate debt. In recognition of higher inflation prospects, fixed interest has also been kept close to the minimum permitted and cash levels have been raised. Investment Outlook Strong growth should lead to higher corporate earnings, however there remain plenty of factors that may cause investors to worry going forward. Among them are the ongoing sovereign debt problems in Europe, most recently Portugal, and the end of the US s second QE programme in June. Another is the response of central banks to higher global food and energy prices. Many emerging economies have already raised interest rates in an attempt to curb inflation, and even in the West, where economies have been weaker, the European Central Bank has just raised its interest rate to 1.25%. This comes at a time when western consumers are still highly indebted (though repaying those debts), and banks are still trying to clean up their balance sheets. Also, thanks to higher input prices, some company profit margins will be squeezed. In recent months, there has been the additional worry of considerable unrest in the Middle East. Two years ago Brent Crude was around US$60/barrel, today it stands around US$120/barrel. The problem, of course, is that political turmoil has erupted in oil-producing areas such as Libya just at a time when global oil demand is on the rise again. Elsewhere, the tragic consequences of the earthquake and tsunami in Japan have already had an impact on the world s third largest economy. Given that Japan accounts for 7% of global GDP, there is bound to be a knock-on effect on the world economy. Nonetheless, this sort of environment often provides skilled stock-pickers with some of their best opportunities to gain exposure to quality companies and long-term trends at attractive prices. Looking forward, we expect to see the strong companies, those with healthy 2
Jupiter Merlin Portfolio Manager s Report continued balance sheets, strong cash flows and enhanced dividend potential, getting even stronger and for this to be reflected in their share prices. Allied to the fact that governments have to reduce the real value of accumulated debts, we live in a world of devaluing currencies. Inflation is a live and real corollary. The investment discipline required to profit in such a scenario is very different from that experienced over the last 20 years of disinflation, or one year of deflation. We remain vigilant. There are parts of the world without the structural issues of the West. Emerging economies, and especially the domestic elements of these, present vibrant and exciting investment opportunities. Often cited as the future, their investment potential is undeniable, but investors would do well to remember that there is no such thing as a straight line to riches. We have no choice but to accept the challenges that markets present us. With two significant bull and two vicious bear markets during the last decade, and most equity markets being down in absolute terms, we are satisfied with our achievements so far. The next decade will be no less testing. Our strategy has always been to be pragmatic and not be unwilling to change our minds, as the facts change. The future will be volatile; profitable for some and costly for others. John Chatfeild-Roberts, Peter Lawery and Algy Smith-Maxwell Jupiter Asset Management Limited Investment Adviser Directors The Directors of Jupiter Unit Trust Managers Limited are: E H Bonham Carter (Chief Executive) G W Davidson (Joint Managing Director) P M Moore (Joint Managing Director) N Carter A Creedy J Crossley P Hall S Harvey S Hynes P Johnson A King R V Parker S Reynolds A Wyllie Responsible Stewardship Jupiter believes that responsible stewardship is an important issue for all shareholders who have a vital role in encouraging a higher level of corporate performance by adopting a positive approach to environmental, social and corporate governance engagement with companies. We believe companies with high standards of corporate responsibility, governance and sustainable business practices create an appropriate culture to enhance good investment performance. In addition to our Corporate Governance and Voting Policy, Jupiter publishes a biannual Voting and Engagement Report, which highlights issues we have raised with companies concerning corporate governance and sustainability. To view these go to www.jupiteronline.co.uk Other Information This document contains information based on the FTSE APCIMS Index. FTSE is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited ( FTSE ) under licence. The FTSE APCIMS Index is calculated by FTSE. FTSE does not sponsor, endorse or promote the product referred to in this document and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright and database rights in the index values and constituent list vest in FTSE. 3
Comparative Tables Net Asset Values Date Net Asset Value of Fund Net Asset Value Accumulation Number of units in issue Accumulation 15.10.06 615,647,986 109.77p 168.17p 173,770,396 389,968,416* 15.10.07 999,559,877 112.70p 179.34p 266,860,395 620,090,129* 15.10.08 1,052,081,592 88.85p 147.25p 370,548,387 813,539,913* 15.10.09 1,668,285,410 106.04p 182.48p 492,821,155 1,080,377,289* 15.10.10 2,586,285,516 116.30p 206.10p 633,023,663 1,590,720,994* 15.04.11 3,092,355,420 114.99p 206.72p 724,292,310 1,093,040,676 Unit Price Performance Calendar Year Highest offer Accumulation Lowest bid Accumulation 2006 119.22p 182.65p 102.80p 154.53p 2007 123.03p 191.67p 107.03p 168.92p 2008 118.55p 188.63p 84.00p 139.18p 2009 114.62p 197.25p 87.40p 146.24p 2010 124.77p 221.10p 106.17p 183.64p to 15.04.11 125.12p 221.73p 112.94p 201.03p /Accumulation Record Calendar Year Pence Accumulation 2006 3.9200p 5.8689p 2007 4.3300p 6.7278p 2008 4.0700p 6.5701p 2009 3.6200p 6.0879p 2010 3.3300p 5.7925p to 15.06.11 1.6627p 2.9545p *Accumulation units in issue expressed as notional income units. The net Historic Yield as at 18 April 2011 was 2.8%. The Historic Yield reflects distributions declared over the past twelve months as a percentage of the mid-market unit price of the Fund at the date shown. It does not include any initial charge and investors may be subject to tax on their distributions. Total Expense Ratio The annualised Total Expense Ratio of the Fund, based on the total expenses included within the accounts for the period as indicated below, is as follows: Expense Type Six months to 30.04.11 Year to 15.10.10 Manager s periodic charge 1.50% 1.50% Other expenses 0.83% 0.93% Total expense ratio 2.33% 2.43% 4
Comparative Tables continued Portfolio Turnover Rate The Portfolio Turnover Rate (PTR) of the Fund is based on the figures included within the accounts for the periods as indicated below, are as follows: Six months to 15.04.11 Six months to 15.04.10 Portfolio Turnover Rate 20.04% 11.38% The PTR provides an indication of the rate the Manager has bought and sold the underlying assets of the Fund during the periods as indicated above. In general, the higher the PTR of a fund, the greater level of portfolio transaction costs will be incurred. 5
Portfolio Statement as at 15 April 2011 Holding Portfolio of investments# Market value % of Total net assets UK Equity Funds 32.42% (29.41%) 83,000,000 Artemis Fund 139,697,300 4.52 31,282,000 Invesco Perpetual Fund 385,387,984 12.46 12,500,000 ishares FTSE UK Dividend Plus Fund 95,531,250 3.09 29,000,000 Jupiter Trust 124,653,600 4.03 236,000,000 Jupiter UK Special Situations Fund 257,122,000 8.32 Fixed Interest Funds 28.96% (38.51%) 68,000,000 Invesco Perpetual Monthly Plus Fund 71,835,200 2.32 57,000,000 Invesco Perpetual Tactical Bond Fund 31,384,200 1.02 328,000,000 Jupiter Strategic Bond Fund 196,701,600 6.36 321,600,000 M&G Strategic Corporate Bond Fund 203,508,480 6.58 20,150,000 Thames River Global Bond Fund 290,966,000 9.41 180,000,000 Threadneedle Emerging Market Bond Fund 101,160,000 3.27 Overseas Equity Funds 16.19% (19.78%) 7,700,000 BlackRock Global Fund World Energy Fund 132,979,000 4.30 6,185,000 First State Global Umbrella Asian Equity Plus Fund 129,876,112 4.20 177,100,000 M&G Global Dividend Fund 237,898,430 7.69 Others 7.27% (7.26%) 2,528,000 ETFS Physical Gold 224,812,450 7.27 Portfolio of investments 2,623,513,606 84.84 Net other assets 468,841,814 15.16 Net assets 3,092,355,420 100.00 #The figures in brackets show allocations as at 15 October 2010. Represents an investment in a Jupiter Investment Management Group Limited product. 6
Purchases and Sales All the purchases and sales for the six months ended 15 April 2011 Purchases Cost BlackRock Global Fund World Energy Fund 133,132,000 Jupiter UK Special Situations Fund 118,637,800 ishares FTSE UK Dividend Plus Fund 99,992,489 M&G Global Dividend Fund 92,730,500 Invesco Perpetual Fund 54,728,162 Jupiter Strategic Bond Fund 40,813,730 ETFS Physical Gold 26,543,680 Artemis Fund 26,521,600 BlackRock Gold & General Fund 16,430,000 First State Global Umbrella Asian Equity Plus Fund 14,254,229 Total purchases 623,784,190 Sales Proceeds First State Global Umbrella Asian Equity Plus Fund 128,683,749 Threadneedle Emerging Market Bond Fund 114,603,862 Findlay Park Latin American Fund 83,318,367 Schroder Fund 70,620,000 BlackRock Gold & General Fund 48,988,000 Total sales 446,213,978 7
Statement of Total Return for the six months ended 15 April 2011 Six months to 15.04.11 Six months to 15.04.10 Net capital (losses)/gains (11,014,138) 128,585,090 Revenue 46,631,580 39,176,472 Expenses (24,440,620) (15,880,261) Net revenue before taxation 22,190,960 23,296,211 Taxation (1,482,654) (2,049,959) Net revenue after taxation 20,708,306 21,246,252 Total return before distributions/accumulations 9,694,168 149,831,342 Finance costs: Distributions/Accumulations (41,591,863) (29,924,507) Change in net assets attributable to unitholders from investment activities (31,897,695) 119,906,835 Statement of Change in Net Assets Attributable to Unitholders for the six months ended 15 April 2011 Six months to 15.04.11 Six months to 15.04.10 Opening net assets attributable to unitholders 2,586,285,516 1,668,285,410 Amounts received on issue of units 507,156,930 288,315,012 507,156,930 288,315,012 Stamp Duty Reserve Tax (640,524) (446,058) Unclaimed distributions over six years old 2,141 1,933 Change in net assets attributable to unitholders from investment activities (see statement of total return above) (31,897,695) 119,906,835 Retained distribution on accumulation units 31,449,052 21,573,659 Closing net assets attributable to unitholders 3,092,355,420 2,097,636,791 8
Balance Sheet as at 15 April 2011 15.04.11 15.10.10 Assets Investment assets 2,623,513,606 2,455,986,432 Debtors 36,538,180 35,591,716 Short term deposits 443,500,000 155,500,000 Cash and bank balances 9,965,923 7,167,282 Total other assets 490,004,103 198,258,998 Total assets 3,113,517,709 2,654,245,430 Liabilities Creditors (3,276,133) (54,650,730) Bank overdrafts (9,609,668) (6,725,737) Distribution payable on income units (8,276,488) (6,583,447) Total liabilities (21,162,289) (67,959,914) Net assets attributable to unitholders 3,092,355,420 2,586,285,516 Directors Statement Jupiter Merlin Portfolio This report has been prepared in accordance with the requirements of the Financial Services Authority s Collective Investment Schemes Sourcebook and the Statement of Recommended Practice issued by the Investment Management Association. Directors: Paula Moore, Sr Reynolds Jupiter Unit Trust Managers Limited London 2 June 2011 9
Notes to the Interim Financial Statements for the six months ended 15 April 2011 1. Accounting Policies The interim financial statements have been prepared on the historical cost basis, as modified by the revaluation of investments, and in accordance with the Statement of Recommended Practice for Authorised Funds (SORP) issued by the Investment Management Association (IMA) in October 2010. Previously the requirements of the SORP issued by the IMA in November 2008 had been applied. Unless otherwise stated all the accounting policies applied are consistent with those of the annual financial statements for the year ended 15 October 2010 and are described in those financial statements. To remain consistent with current accounting practices and the requirements of the SORP, the term is now generally used to include both revenue and capital gains/(losses). Dividends, interest, fees and equivalent items previously referred to as in the Statement of Total Return are now referred to as Revenue. Note however, that any reference to distribution or dividend income allocated to unitholders, or references to income units are unaffected by this change and will still be referred to as income in the report and financial statements and in all other literature. 2. Financial Instruments In pursuing its investment objectives the Fund invests in other funds, which in turn, will invest in a number of financial instruments. The Fund, and the underlying funds, can also invest in securities and other investments, cash balances, short term fixed deposits, bank overdrafts and debtors and creditors that arise directly from its operations, for example, in respect of sales and purchases awaiting settlement, amounts receivable for issues and payable for cancellations, debtors for accrued revenue and any derivative transactions. The Fund may enter into derivative transactions, the purpose of which will only be for efficient management of the Fund and not for investment purposes. The Fund has little exposure to liquidity or cash flow risk. The risks it faces from its financial instruments are market price, credit (see below), foreign currency, counterparty and interest rate risk. The Manager reviews policies for managing these risks in pursuance of the Investment Objective and Policy as set out on page 1. Adherence to investment guidelines and to investment and borrowing powers set out in the Trust Deed, Scheme Particulars and in the rules of the Collective Investment Schemes Sourcebook mitigates the risk of excessive exposure to any particular type of security or issuer. Further information on the investment portfolio is set out in the Manager s Report and Portfolio Statement. Use of Derivatives Forward Foreign Currency Contracts The Manager made use of forward foreign currency contracts during the period in order to hedge out some of the currency exposure in the Fund. This resulted in realised losses of 8,150,056 to the Fund during the period and these are included in net capital (losses)/gains on page 8. Credit Risk Credit risk arises as the investment returns produced by the Fund s holdings in fixed interest funds and bonds are dependent on the issuers of these bond contracts maintaining due payment of interest and capital. The Cautious Managed Investment Management Association sector requires the Fund to hold at least 30% of its total holding in fixed interest funds or securities. The Manager aims to reduce this credit risk by holding a well diversified range of securities. 10
Notes to the Interim Financial Statements continued 3. Portfolio Transaction Costs Six months to 15.04.11 Six months to 15.04.10 Analysis of total purchase costs Purchases in period before transaction costs 623,746,241 397,268,623 Commissions 37,949 6,183 Total purchase costs 37,949 6,183 Gross purchases total 623,784,190 397,274,806 Analysis of total sale costs Gross sales in period before transaction costs 446,213,978 101,115,495 Taxes and other charges Total sale costs Total sales net of transaction costs 446,213,978 101,115,495 4. Unit Price Movement since the Balance Sheet date Since the last dealing day of the period on 15 April 2011 the Fund s quoted bid price has risen on income units from 116.15p to 116.54p as at 31 May 2011, a rise of 0.34% and has risen on accumulation units from 206.75p to 209.50p as at 31 May 2011, a rise of 1.33%. 11
Distribution Tables for the quarter ended 15 January 2011 Group 1: units purchased prior to 16 October 2010 Group 2: units purchased on or after 16 October 2010 to 15 January 2011 Gross Tax Credit at 10% Net Equalisation Distribution paid 15.03.11 Distribution paid 15.03.10 Units Group 1 0.5778 0.0578 0.5200 0.5200 0.5600 Group 2 0.2433 0.0243 0.2190 0.3010 0.5200 0.5600 Gross Tax Credit at 10% Net Equalisation Distribution accumulated 15.03.11 Distribution accumulated 15.03.10 Accumulation Units Group 1 1.0238 0.1024 0.9214 0.9214 0.9636 Group 2 0.4296 0.0430 0.3866 0.5348 0.9214 0.9636 Equalisation applies only to units purchased during the distribution period (Group 2 units). It is the average amount of revenue included in the purchase price of all Group 2 units and is refunded to holders of these units as a return of capital. Being capital, it is not liable to Tax but must be deducted from the cost of units for Capital Gains Tax purposes. The relevant information required by a corporate unitholder is as follows: Franked investment income 93.44% Annual payment 6.56% (non-foreign element) 12
Distribution Tables for the quarter ended 15 April 2011 Group 1: units purchased prior to 16 January 2011 Group 2: units purchased on or after 16 January 2011 to 15 April 2011 Gross Tax Credit at 10% Net Equalisation Distribution payable 15.06.11 Distribution paid 15.06.10 Units Group 1 1.2697 0.1270 1.1427 1.1427 1.1700 Group 2 0.7154 0.0715 0.6439 0.4988 1.1427 1.1700 Gross Tax Credit at 10% Net Equalisation Distribution to be accumulated 15.06.11 Distribution accumulated 15.06.10 Accumulation Units Group 1 2.2590 0.2259 2.0331 2.0331 2.0237 Group 2 1.2663 0.1266 1.1397 0.8934 2.0331 2.0237 Equalisation applies only to units purchased during the distribution period (Group 2 units). It is the average amount of revenue included in the purchase price of all Group 2 units and is refunded to holders of these units as a return of capital. Being capital, it is not liable to Tax but must be deducted from the cost of units for Capital Gains Tax purposes. The relevant information required by a corporate unitholder is as follows: Units Franked investment income 94.91% Annual payment 5.09% (non-foreign element) Accumulation Units Franked investment income 94.78% Annual payment 5.22% (non-foreign element) 13
Manager, Registrar and Administrator Jupiter Unit Trust Managers Limited PO Box 10666 Chelmsford CM99 2BG Tel: 0844 620 7600 Fax: 0844 620 7603 www.jupiteronline.co.uk Registered Address: 1 Grosvenor Place, London SW1X 7JJ. Authorised and regulated by the Financial Services Authority. Trustee The Royal Bank of Scotland plc Trustee and Depositary Services Ground Floor 15 Bishopsgate London EC2P 2AP Authorised and regulated by the Financial Services Authority. Investment Adviser Jupiter Asset Management Limited 1 Grosvenor Place London SW1X 7JJ Authorised and regulated by the Financial Services Authority. Auditor Ernst & Young LLP Ten George Street Edinburgh EH2 2DZ 14
LF477i-06.11 (60985) Jupiter Unit Trust Managers Limited, PO Box 10666, Chelmsford CM99 2BG Tel: 0844 620 7600 Fax: 0844 620 7603 www.jupiteronline.co.uk Authorised and regulated by the Financial Services Authority whose address is 25 The North Colonnade, Canary Wharf, London E14 5HS