Long-term investors in Jupiter's Income Trust have lived through numerous economic and political events, including Britain's exit from the Exchange Rate Mechanism, the entry of Tony Blair's 'new' Labour party into government, the creation of an independent Bank of England plus, of course, the bull market of the 1990s and the subsequent fall out during 2000- 2003. It has been the skill and ability of our managers in being able to see which way the wind was blowing, along with a value approach to investing, that has enabled them to regularly beat their competitors and the market.

The bulk of the returns have been produced by two very talented fund managers, William Littlewood and Anthony Nutt, both of whom share a similar approach to investing. Indeed, when William was running the Trust, Anthony (the more experienced of the two, who joined Jupiter in 1996 to run the Jupiter High Income Fund) worked closely with him and was very familiar with the rationale behind the Trust's holdings.

How have the returns been achieved? Funnily enough, not by taking risky bets. If you have ever looked under the bonnet of the Trust, you would find very few racy, fashionable stocks, and rather a lot of apparently dull but worthy companies. While share prices can be volatile in the short term, their direction is determined in the medium to longer term by major themes and trends. Both William and Anthony have been very skilled at recognising these trends and, importantly, which companies will benefit from them.

For example, in the very early 1990s, William Littlewood became increasingly convinced that, despite decades of rampant inflation, the world was entering an era where the price of many goods would fall sharply. At the time, this was a highly controversial view. He identified those businesses that would actively benefit from falling prices, while avoiding companies which hid behind inflation to disguise their inability to be competitive. Having the courage of his convictions helped the Trust perform very strongly throughout that decade.

In the late 1990s, the furore over technology produced a great stock market bubble. William recognised this and his response was to fill the Income Trust full of the cheapest, most unglamorous, 'old economy' shares he could find as a defensive measure. This strategy proved sensible since the bubble burst not long after.

Anthony, who took over the Trust's management just as the stock market bubble burst, was one of the few managers to recognise the significant shift in the economic and financial climate. UK equities were about to enter the most prolonged and severe bear market since the mid-1970s. Anthony's response was to ensure the Trust was invested in a wide range of solid reliable companies which owned real assets, such as British port operators, car distributors and house builders all producing strong and steady flows of cash for their shareholders.

During this period, the British domestic economy remained well insulated from the wider global fallout. By ensuring that the bulk of the Trust's assets were invested in reliable domestic businesses, Anthony was able to protect unit holders from much of the financial impact. For example, between the height of the technology boom and the worst point of the bear market (March 2000-March 2003) the UK stock market lost some 36%* of its worth. By contrast, the Jupiter Income Trust fell by only 2.5%*.

Over the longer term, the Jupiter Income Trust has trod a steady path through such significant events, producing a very healthy return for its investors compared with other types of investment. For example, £10,000 left in a typical building society account, although considered to be risk-free, would have produced a compound annual return of 3.6%** for basic rate taxpayers, barely keeping up with inflation; while £10,000 invested in the average British house would have given a compound annual return of 7.6%**.

Over the same period, an investment in the average UK equity income fund would have given a compound return of 8.3%**. In contrast, £10,000 invested into the Jupiter Income Trust has delivered a compound annual return of 13.3%**.

But how have income investors done? £10,000 invested at launch would have paid out £18,460*** in distributions while the original capital grew to £56,189***. In contrast, the total return - i.e. including reinvested dividends - from £10,000 invested in the FTSE All-Share Index would have been £54,980***. In other words, you could have both beaten the index and had all the income paid out to you as well.

The long-term reinvestment of dividends, often referred to as 'the magic of compound interest' does indeed make a huge difference. For example, £10,000 capital invested in the Income Trust at launch, with all the income payments taken, would have grown at an annualised rate of 9.2%**. But leaving the income to reinvest within the Trust, as four out of five unit holders do, and the total compounded return leaps to 13.3%**. Reinvesting income over the long term has produced returns which are 45% higher.

Since March 2003, the UK market has recovered steadily. The most recent theme has been the surge in private equity firms using cheap debt to snap up undervalued companies. Many of these are just the kind of companies which are already held in the Income Trust, a reflection of the manager's ability to identify valuable assets. Anthony intends to stick to his long established investment approach of seeking out unglamorous, cash-generative businesses at attractive enough prices to hopefully deliver superior returns. It is an approach which has served those who have invested in the Jupiter Income Trust over the years very well.

* Source: Morningstar 03.08.87 to 01.05.07 bid to bid
** Source: Morningstar 03.08.87 to 02.01.07 bid to bid date of most recent distribution
*** Source: Morningstar 01.03.00 to 0.03.03 bid to bid

Past performance should not be seen as a guide to future performance. The value of an investment in a unit trust and the income from it can go down as well as up.