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JPMorgan US Smaller Companies Investment Trust plcAnnual Report & Accounts for the year ended 31st December 2016

US Smaller Co 4pp cover 17/03/2017 10:13 Page FC1

ObjectiveCapital growth from investing in US smaller companies.

Investment teamThe investment team is situated in New York. The portfoliomanager, Don San Jose, has managed the portfolio sinceNovember 2008. Don is supported by Dan Percella and threeexperienced investment professionals dedicated to researchingUS smaller companies, as well as the wider JPMAM investmentmanagement team.

Investment PolicyThe portfolio is a product of the investment team’s bottom-upinvestment approach and disciplined portfolio construction.The investment philosophy is simple and straightforward: toinvest in companies that have a sustainable competitiveadvantage, run by competent management teams who have atrack record of success and are good stewards of capital, and tofocus on owning equity stakes in businesses that trade at adiscount to their intrinsic value.

BenchmarkThe Russell 2000 Index total return with net dividendsreinvested, expressed in sterling terms. This index is a smallercompanies’ index and is rebalanced annually to represent thebottom 10% by market capitalisation of all quoted companiesin the US. Comparison of JPMorgan US Smaller CompaniesInvestment Trust plc’s (the ‘Company’) performance is madewith this benchmark.

Capital StructureAt 31st December 2016, the Company’s share capital comprised56,970,928 ordinary shares of 2.5p each, including 1,384,000shares held in Treasury. Changes since the year-end aredetailed in the Chairman’s statement on page 3.

Continuation Vote In accordance with the Company’s Articles of Association, theDirectors are required to propose a resolution that theCompany continue as an investment trust at the Annual GeneralMeeting in 2020 and every fifth year thereafter.

Management Company and Company SecretaryThe Company employs JPMorgan Funds Limited (‘JPMF’ or the‘Manager’) as its Alternative Investment Fund Manager andCompany Secretary. JPMF delegates the management of theCompany’s portfolio to JPMorgan Asset Management (‘JPMAM’).

FCA regulation of ‘non-mainstream pooledinvestments’The Company currently conducts its affairs so that the sharesissued by JPMorgan US Smaller Companies Investment Trust plccan be recommended by Independent Financial Advisers toordinary retail investors in accordance with the FCA’s rules inrelation to non-mainstream investment products and intends tocontinue to do so for the foreseeable future.

The shares are excluded from the FCA’s restrictions which applyto non-mainstream investment products because they areshares in an investment trust company.

AICThe Company is a member of the Association of InvestmentCompanies.

WebsiteThe Company’s website, which can be found atwww.jpmussmallercompanies.co.uk, includes usefulinformation on the Company, such as daily share prices,factsheets and current and historic half year and annualreports.

Features

US Smaller Co 4pp cover 17/03/2017 10:13 Page IFC2

1

Contents

2 FINANCIAL RESULTS

STRATEGIC REPORT

3 Chairman’s Statement

6 Investment Managers’ Report

10 Summary of Results

11 Long Term Financial Record

12 Ten Largest Investments

13 Sector Analysis

14 List of Investments

16 Business Review

GOVERNANCE

21 Board of Directors

23 Directors’ Report

25 Corporate Governance Statement

31 Directors’ Remuneration Report

34 Statement of Directors’ Responsibilities

35 INDEPENDENT AUDITOR’S REPORT

FINANCIAL STATEMENTS

39 Statement of Comprehensive Income

40 Statement of Changes in Equity

41 Statement of Financial Position

42 Statement of Cash Flows

43 Notes to the Financial Statements

60 REGULATORY DISCLOSURES

SHAREHOLDER INFORMATION

61 Notice of Annual General Meeting

64 Glossary of Terms and Definitions

65 Where to buy J.P. Morgan Investment Trusts

67 Information about the Company

US Smaller Co pp01-20 16/03/2017 21:20 Page 1

2 JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & ACCOUNTS 2016

Financial Results

TOTAL RETURNS (INCLUDES DIVIDENDS REINVESTED)

+44.4%Benchmark total return3

(2015: +0.9%)

Long Term PerformanceTOTAL RETURNS FOR PERIODS ENDED 31ST DECEMBER 2016

1 Source: Morningstar.2 Source: J.P. Morgan/Morningstar, using net asst value per share, cum income. 10yera performance is based on capital only net asset values, due to a lack of historic cum incomenet asset values.

3 Source: Russell Investments. The Company’s benchmark is the Russell 2000 Index total return with net dividends reinvested, expressed in sterling terms.

A glossary of terms and definitions is provided on page 64.

0

50

100

150

200

250

300

10 Year Performance5 Year Performance3 Year Performance1 Year Performance

JPMorgan US Smaller Companies – return to shareholders1

JPMorgan US Smaller Companies – return on net assets2

Benchmark total return3

53.4 50.1 44.473.0 76.0

61.9

209.4

174.6143.9

246.2

202.4 204.9

%

+53.4%Return to shareholders1

(2015: +6.8%)

+50.1%Return on net assets2

(2015: +4.0%)


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Strategic Report

CHAIRMAN’S STATEMENT

PerformanceThe Chairman’s Statement should be an easy one to write given the share price increasedby over 53% during the financial year. However, looking back over the events of 2016 whenmarkets got off to one of their worst starts to a year since the 1970s (China slowdown,refugee crisis, global terrorist attacks, Iran and Saudi tensions), it is almost impossible toenvisage we would have experienced these returns. The backdrop to the dramatic shareprice rise was an increase of 50.1% in the Company’s net asset value (NAV), which comparesfavourably with the rise of 44.4% in our benchmark, the Russell 2000 in sterling terms.Around half of the gain in the benchmark was down to the weakness of sterling against theUS dollar post the Brexit vote (our assets are all priced in US dollars) and the remainderreflects a strong rally in the Russell 2000 in the latter part of 2016, which saw the index(in US dollar terms) rise by 21.3% over the 12 months. The increase in our NAV was furtherboosted by strong stock selection over the year, which will be discussed in the InvestmentManagers’ Report.

Discount and PremiumAt the end of 2016 it was pleasing to see that the outperformance of the share price relativeto the NAV meant the shares ended the year on a small premium. The year on year changedoes however mask a difficult year for keeping the relationship between the share price andthe NAV stable. As a reminder halfway through 2016 the discount widened to such an extentthat the shares were only up 1.4% against the NAV which had risen by 20.5% and, as wasexplained in the half year report, the Board was reluctant to buy in shares aggressively ata time when the Investment Managers had made such effective use of the Company’scapital, as buybacks can reduce liquidity in the shares which is often quoted as a concernfor prospective and existing shareholders.

It is always going to be a challenge to align our share price movement with the change inthe NAV as US smaller companies are seen as riskier assets and will therefore be volatile innature. The relationship between the share price and the NAV is, however, monitored on adaily basis by your Board and our professional advisers. To help the management of thediscount, we have in place the authority to repurchase up to 14.99% of the Company’s issuedshare capital and we will be seeking renewal of this authority at the AGM. During the yearthis authority was exercised and we bought back 1,689,000 shares into Treasury. Currentlythe Company holds 534,000 shares in Treasury, having issued 850,000 shares since the yearend.

Revenue and DividendThe revenue for the year, after taxation, was £1,389,000 (2015: £929,000). Despite theCompany generating positive revenue during the year, it still has a revenue reserve deficit(page 50 note on Reserves), albeit now a modest one. Although the rules were changed in2012 and companies are now allowed to distribute net income despite having a revenuereserve deficit, the Board does not believe it is in shareholders’ best interests to propose adividend payment until this deficit has been cleared. Based on the current revenue run rateand a significant change in attitude to dividends within US small cap company managements(dividends are now an important part of a company’s capital allocation priorities) the Boardwould expect the revenue deficit to be cleared in 2017 and will then be in a position toconsider paying a dividend. Shareholders should note the Company’s objective remains thatof capital growth and thus our dividend policy will simply be to pay out sufficient of ourdividend income needed to maintain investment company status, which in turn means it willonly be the natural outcome of the Investment Managers’ investment style.



Strategic Report continued

CHAIRMAN’S STATEMENT CONTINUED

GearingIn April 2016 our revolving credit facility with Scotiabank was renewed at US$20 million withan option to draw a further US$10 million. At the end of 2016 US$20 million was drawn andthe portfolio was 4.1% geared. This facility matures in April 2017 and the Board will consideranother gearing facility at this point.

Currency HedgingOur portfolio is denominated in US dollars but is converted into sterling on a daily basisfor calculating the NAV which exposes the assets to fluctuations in the US dollar/sterlingexchange rate. The Board has the authority to reduce or eliminate the exposure tofluctuating currencies through the use of currency hedging. We review our policy oncurrency hedging regularly but to date we have not carried out any hedging and haveno plans to do so in the immediate future.

Board Succession PlanningThe Board has set in place a succession plan which we believe will smooth over thediscontinuity that can be caused by the retirement of non-executive directors afternine years’ service when a board consists of only five directors. In November we weredelighted to welcome to the Board Dr Shefaly Yogendra who brings a wealth of experienceof working with companies in the healthcare and technology sectors, as well as knowledgeof the US political scene. It is with great sadness though, as part of the Board refreshment,Mark Ansell will be retiring at the forthcoming AGM. Mark has made an outstandingcontribution to the Company during his time as a Director, particularly when the Companywent through a turbulent period in 2008 which culminated in the appointment of thecurrent investment management team. His input will be much missed and the Board wouldlike to place on record their thanks to him. Following the AGM, the Board will consist offive directors, of which three will have been appointed since 2012 and we believe we havegood diversity and the correct balance of skills.

Annual General MeetingWe are holding our AGM at 60 Victoria Embankment, London EC4Y 0JP on Wednesday26th April 2017 at 2.30 p.m. As in previous years, there will be a presentation by one of theinvestment management team which will cover a review of 2016 as well as the outlook forthe current year. Following the meeting some refreshments will be served which will provideshareholders with the opportunity to meet the Directors and the representatives fromJPMAM and ask any questions on the portfolio and performance. If you have any detailed ortechnical questions, it would be helpful if you could raise them in advance of the meeting bywriting to the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP.


5

OutlookAt the end of each year when financial journalists make all their predictions for the comingyear it seems there is always a smattering of articles discussing the lack of performancefrom active managers and whether investors would not be better off investing in the index(passive investment). I would therefore urge our investors to look at the Long Term FinancialRecord set out on page 11 where the Annual Returns to 31st December show that since thecurrent investment team took over managing this portfolio (end of 2008) the team hasproduced consistent outperformance (return on net assets) of the benchmark after allmanagement fees and other costs. This is an impressive record but it is not an accidentalone, as we believe that our Company has in place the key ingredients that should make aninvestment rewarding, namely: people, investment philosophy, investment process, strongstable ownership and performance. I have listed performance last deliberately as you cannot‘buy’ past performance whereas the other factors will be there in the future.

Mindful that my role in the Chairman’s Statement is to discuss outlook I am going to leavethe market outlook to the experts on page 9 and remind investors why the Board wouldhope your Company can continue to deliver superior investment returns over the long term.‘People’ is undoubtedly the key factor and with Don San Jose and his co-head Dan Percellathe Company has two experienced US small cap managers who, along with three othermembers of the team, have built a strong team culture around them within the NewYork-based group. The team has a clearly defined investment philosophy, a disciplinedinvestment process and importantly, with JPMAM being part of one of the strongest financialinstitutions, the asset management business is both stable and well-resourced. Over thelong term the US economy has a long history of creating exciting growth prospects in thesmall cap sector and our Company should continue to take advantage of these opportunitiesfor the reasons set out above.

Davina WalterChairman 17th March 2017




INVESTMENT MANAGER’S REPORT

Market Review US equity markets in 2016 can be best described as a tale of two halves. In the first half,volatility was attributable to several factors including the sudden devaluation of the Chineserenminbi (RMB), crude oil prices falling below US$30.00/bbl. and fears of a global economicslowdown. As a result, the S&P 500 Index (S&P 500), which represents large cap equities,reached a closing low of 1829.08 on 11th February, down more than 10% in dollar terms.Small Caps suffered a greater correction, with the Russell 2000 falling roughly 17% beforebottoming in mid-February. Equity markets were quite choppy through the spring asinvestors remained on edge over the sub-par growth of the US economy. As the summermonths approached, investor focus turned towards the UK referendum on European Union(EU) membership. The outcome caught investors by surprise as the majority of UK votersvoted in favour of leaving the EU which initially threw global equity markets, bond yields andthe British pound into a tailspin. As investors slowly realised that the potential economicimpact would be more localised to the UK, global equity markets calmed and rebounded.The S&P 500 rallied on June’s final three trading days to finish the year’s first six monthswith a gain of 3.8% while the Russell 2000 ended with 2.2% gains in US$. Even though themarket’s resilience was impressive, the tone of the market remained defensive.

However, improvement in global economic growth, recovering commodity prices and therealisation that ‘Brexit’ was a political crisis rather than a financial crisis contributed toequity markets stabilising during the second half of the year. Improving sentiment led toa shift in market leadership from the defensive to the cyclical sectors. The rotation intocyclicals intensified when, in a surprising turn of events, Donald J. Trump was elected the45th president of the United States. As investors anticipated a pro-growth, pro-businessagenda to be put forth by the incoming president, equity markets rallied, bond yields roseand the US dollar, which had been stable for most of the year, strengthened. The yield onthe US 10-year US Treasury bond which had been rising steadily from its July low of 1.36%climbed to 2.45% at year end, with the majority of the increase coming after the election.This fuelled a strong rally in financial stocks, particularly banks and a rotation out of moredefensive sectors like REITs.

Despite the S&P 500 making 18 new highs in 2016, the turn in investor sentiment andPresident elect Trump’s proposals favouring US centric companies enabled small cap stocksto be the clear winners in 2016. Small cap stocks as measured by the Russell 2000 rose21.3% in US$, dramatically outperforming the S&P 500 which advanced a very respectful12.0%. The outcome looked even better in GBP due to sterling weakness where the Russell2000 Index (Net) and the S&P 500 Index (Net) gained 44.4% and 33.1% respectively. Froma sector point of view, financials and technology bounced back from the worst performingsectors in the first half to the best in the second half. Above all, the energy sector was thewinner given the recovery in crude oil prices which closed out 2016 at US$53.72/bbl. On theother hand, real estate was the worst performing sector due to the considerable rise in bondyields.

PerformanceThe Company’s net asset value grew by 50.1% in 2016. The return was ahead of thebenchmark, the Russell 2000 Index (Net), which rose by 44.4% in GBP. The majority of theadded value was driven by strong stock picking, which is highlighted in more detail in thefollowing paragraphs, as well as our sector allocation in the health care and materials and

Don San Jose

Don San Jose has been with J.P. Morgan for 16 years

and was responsible for co-managing the

Company’s portfolio from November 2008 until

February 2013. In February 2013, Don assumed

lead portfolio management duties of the Company.

Don first joined J.P. Morgan as a research analyst

and for the past ten years has worked as a

co-portfolio manager on JPMAM’s US small cap

core active strategy.

Dan Percella

With effect from February 2014 Dan Percella

became co-manager of the Company’s portfolio,

with Don remaining as lead portfolio manager.

Dan has been with J.P. Morgan since 2008. He

was previously a member of institutional

investor-ranked equity research teams covering

the transportation sector at other investment firms.

Prior to equity research, Dan worked as an analyst

at an economic consulting firm.

Don and Dan are supported by a team of three

investment professionals dedicated to researching

US smaller companies:

Jon Brachle

Jon has been with J.P. Morgan since 2007. He was

previously a research assistant covering software

and IT services companies for JPMAM’s large cap

equity group.

Jason Blumstein

Jason has been with J.P. Morgan since 2007. He was

previously the lead US equity due diligence and

portfolio construction analyst for JPMAM’s asset

allocation product, and was the co-developer of

this product.

Chris Carter

Chris has been with J.P.Morgan since 2015. He was

previously on the Sell Side for seven years covering

the Healthcare Services sector, and started his

career on the Buy Side as an equity analyst.


7

processing sectors. Additionally, the portfolio’s gearing was beneficial to the Company’sperformance during this period.

With regards to relative performance, our stock selection in the producer durables sectorproved very beneficial. In the sector, Douglas Dynamics, a snow and ice managementequipment maker, rose on strong earnings results due to strength at their dealer basewhich helped their core commercial snow/ice business. The company also benefited fromcontinued strong demand for the products they launched in 2015. We continue to hold aposition in the name, but have trimmed it somewhat on strength to manage position sizesand exposure. We have confidence in the company’s strong leadership position in the stablecore truck-mounted snowplough market, management’s strategy to expand into other worktruck attachments, and their intense focus on shareholder value creation. Within the samesector, a turf equipment provider, Toro, similarly contributed to performance as it continuedto impress investors through strong earnings results while raising their quarterly dividends.We are positive on its solid share gains in both equipment and irrigation industries andoverall healthy demand.

On a stand-alone basis, our investment in the energy name Patterson-UTI Energy added themost value for the period. The operator of contract drilling and pressure pumping reportedearnings which beat consensus, and proved it can continue to execute in this tough marketenvironment through a strong balance sheet and operational execution. The Companybenefitted from improving drilling activities as well as increased revenue in their pressurepumping segment. The company also rose on the heels of higher oil prices which helped theoverall industry.

In contrast, underweights in the technology and financial services sectors as well as weakstock selection within materials & processing and technology weighed on relative returns.

Our investment in the materials & processing name AptarGroup hurt our performance. Thecompany, which is a leader in dispensing technologies failed to meet investors’ expectations.The struggles derived from their Beauty & Home and Food & Beverage segments duringchallenging market conditions, which weighed on their volumes. The stock price was alsopressured on lowered guidance pointing to macro uncertainty. However, we remain positiveon the company due to their pharmaceutical segment which is growing with healthy marginsand the company continues to be a leader in the niches they participate in. In addition, theypossess a strong balance sheet and have demonstrated solid capital allocation over time.

Our position in Sequential Brands, which owns a portfolio of consumer brands, detractedfrom performance in the consumer discretionary space. Sequential’s share price plungedafter the company lowered their 2017 EBITDA guidance by 10%. Inconsistent execution ondeals, a weaker balance sheet and concerns about the credibility of management led us toadjust our position accordingly. Our position in the health care company Hanger alsodetracted for the period. The company delayed filing financial statements with the Securitiesand Exchange Commission and was delisted from the New York Stock Exchange. It initiatedan accounting review in 2014 and more recently lawyers have found potential acts of fraudwithin the lower levels of the company, which sparked a further review of it’s financials. Thelatest update included the possibility of the board pursuing claims against the previous CFOand CAO and making internal changes to rectify accounting control weakness. We did notview Hanger as a core holding and have exited the position.




INVESTMENT MANAGER’S REPORT CONTINUED

Portfolio PositioningWith regards to our portfolio positioning, not much has changed as we continue to focus onfinding companies with durable franchises, good management teams and stable earningsthat trade at a discount to intrinsic value. During the year we were able to find newcompanies to add to the portfolio and the analysts continue to be very productive as19 companies were added. As you would expect, most of the new ideas were added to theportfolio during periods of market volatility. However, the portfolio’s positioning remainsrelatively unchanged. Similar to the previous year, our main allocations remained in thefinancial services, consumer discretionary and producer durables sectors, which make upclose to 60% of the overall portfolio’s allocation. On a relative basis, the financial servicessector was among the largest underweights which is mainly due to our underweightexposure to Real Estate Investment Trusts. The financial services sector has rallied stronglypost the US election in the hopes of corporate tax reform, less regulation and rising interestrates. At this time, we are comfortable with our relative underweight position as we struggleto add to our exposure mainly due to valuations. The technology sector remains the areawhere we have had a difficult time finding opportunities that meet our quality and valuationcriteria. Lastly, a trend throughout 2016 was the narrowing of the health care relativeposition due to a combination of new ideas, outperformance of existing holdings andunderperformance of the biotech industry, to which we have no direct exposure. The healthcare sector ended the year as a small underweight.

PERFORMANCE ATTRIBUTION FOR THE YEAR ENDED 31ST DECEMBER 2016

% %

Contributions to total returns

Benchmark return 44.4

Sector allocation 2.8

Stock selection 2.1

Investment Managers’ contribution 4.9

Portfolio total return 49.3

Gearing/cash 2.3

Management fee/other expenses –1.5

Other effects 0.8

Return on net assets 50.1

Return to shareholders 53.4

Source: Wilshire, JPMAM and Morningstar.

All figures are on a total return basis.

Performance attribution analyses how the Company achieved its recorded performancerelative to its benchmark.



9

Market OutlookSo what do we think about 2017? Predictions are very difficult and events in 2016 certainlymade the point. We always remind our clients that our key advantage lies in findinginvestment opportunities and that we build a portfolio from the bottom up, rather thanmaking macroeconomic predictions. Nevertheless, investor sentiment has been as high asever, accumulating since the US election. We believe that most of President Trump’s statedpolices are pro-growth and the prospect of corporate tax reform, increased fiscal spendingand less regulation are positives for equities. In addition, the future direction of corporateprofits looks encouraging while the US economy is in reasonably good shape. Nevertheless,the devil will be in the details and expectations are high for the Trump administration todeliver pro-growth policies that can lead to an acceleration in GDP growth, while makingprogress on corporate tax reform. From a valuation perspective, comparative valuesbetween equities and bonds remain favourable for equities as an asset class. Thus, wecontinue to believe that US equities can deliver positive returns, though likely less robustthan last year’s strong pace.

However, some caution is warranted regarding the post-election enthusiasm. There remainsa large degree of uncertainty as to what the final outcome of President Trump’s broadagenda will be and to the timing of when proposals will become law. The process of puttingsignificant reforms through Congress is expected to be lengthy and quite contentious.President Trump’s ambitious proposals may be scaled back and implemented later thanexpected as the legislative process unfolds. This uncertainty leads us to believe 2017 willsee a trend of increasing market volatility throughout the year. We plan to navigate thesemarkets in the way we always do – with discipline and adherence to our investment processthat focuses on high quality companies, durable business models with a sustainablecompetitive advantage, consistent profitability and run by strong management teams witha track record of value creation. We will look to acquire stakes in these companies when theyare trading below their intrinsic value, offering a margin of safety in case our investmentthesis does not play out exactly as expected.

Don San JoseDan PercellaInvestment Managers 17th March 2017




SUMMARY OF RESULTS

2016 2015

Total returns for the year ended 31st December

Return to shareholders1 +53.4% +6.8%Return on net assets2 +50.1% +4.0%Benchmark return3 +44.4% +0.9%

Net asset value, share price and premium/(discount) at 31st December % change

Shareholders’ funds (£’000) 153,824 103,805 +48.2Net asset value per share 276.7p 184.3p +50.1Share price 282.0p 183.9p +53.3Share price premium/(discount) to net asset value per share 1.9% (0.2)%

Revenue for the year ended 31st December

Net revenue return attributable to shareholders (£’000) 1,389 929 +49.5Revenue return per share 2.51p 1.66p +51.2Shares in issue (excluding shares held in treasury) 55,586,928 56,325,928

Gearing at 31st December4 4.1% 9.8%

Ongoing Charges5 1.47% 1.69%

1 Source: Morningstar.2 Source: J.P. Morgan.3 Source: Russell Investments. The Company’s benchmark is the Russell 2000 Index total return with net dividends reinvested, expressed in sterling terms. 4 The methodology to calculate gearing has been amended during the year therefore the comparative figure has been recalculated for comparative purposes. Please refer to theglossary of terms and definitions on page 64 for the revised calculation.

5 The Ongoing Charges represent the Company’s management fee and all other operating expenses, excluding finance costs, expressed as a percentage of the average of the dailynet assets during the year and is calculated in accordance with guidance issued by the Association of Investment Companies. The average of the daily net assets during the year is£121,239,000 (2015 : £104,077,000).



11

LONG TERM FINANCIAL RECORD

At 31st December 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Shareholders’ funds (£’000) 93,192 67,911 34,475 41,399 52,950 52,630 59,214 86,339 99,348 103,805 153,824

Net asset value per share (p)1 91.7 86.5 58.6 75.5 100.6 101.9 114.7 158.0 177.3 184.3 276.7

Share price (p)1 82.4 76.1 50.6 71.0 93.9 92.2 103.3 163.8 172.1 183.9 282.0

Shares in issue1,2 101,594,800 78,504,800 58,813,670 54,821,100 52,646,100 51,636,230 51,636,230 54,657,800 56,040,928 56,325,928 55,586,928

Year ended 31st December

Gross revenue (£’000) 300 285 297 322 853 719 1,255 1,172 1,390 1,728 2,317

Revenue (loss)/return per share (p)1 (0.15) (0.17) 0.25 (0.06) 0.71 0.36 1.26 1.00 1.15 1.66 2.51

Dividends per share (p)1 nil nil nil nil nil nil 0.9 0.7 nil nil nil

(Discount)/premium (%) (10.2) (11.3) (13.6) (6.0) (6.6) (9.5) (10.0) 3.7 (2.9) (0.2) 1.9

Gearing/(net cash) (%)3 12.5 3.2 (6.8) (1.3) 0.9 5.0 3.1 5.4 6.5 9.8 4.1

Ongoing charges (%) 1.30 1.40 1.49 1.75 1.66 1.79 1.71 1.77 1.73 1.69 1.47

US dollar/sterling exchange rate 1.96 1.99 1.44 1.61 1.57 1.55 1.63 1.65 1.56 1.47 1.24

Annual returns to 31st December

Return to shareholders (%)4 –1.3 –7.6 –33.5 +40.3 +32.3 –1.8 +12.0 +59.7 +5.6 +6.8 +53.4

Return on net assets (%)4,5 –3.0 –6.4 –32.1 +29.0 +33.2 +1.3 +12.5 +38.7 +12.8 +4.0 +50.1

Benchmark return (%)6 +3.5 –3.5 –8.6 +12.9 +30.5 –3.8 +10.9 +35.9 +11.1 +0.9 +44.4

1 Comparative figures prior to 2014 have been restated following the sub-division of each existing ordinary share of 25p into ten ordinary shares of 2.5p each on 6th March 2014.2 Excludes any shares held in Treasury.3 The methodology to calculate gearing has been amended during the year therefore the comparative figures have been recalculated for comparative purposes. Please refer to theglossary of terms and definitions on page 64 for the revised calculation.

4 Source: J.P. Morgan/Morningstar.5 Using net asset value per share, cum income. Prior 30th June 2008, capital only net asset value.6 Source: Russell Investments.





TEN LARGEST INVESTMENTS AT 31ST DECEMBER

2016 2015 Valuation ValuationCompany1 Sector £’000 %2 £’000 %2

Douglas Dynamics Producer Durables 4,492 2.8 2,206 1.9Toro Producer Durables 4,475 2.8 2,814 2.5AptarGroup Materials & Processing 3,647 2.3 2,669 2.3Pool Consumer Discretionary 3,429 2.1 2,952 2.6Spectrum Brands Holdings Consumer Staples 3,212 2.0 2,685 2.4Patterson-UTI Energy3 Energy 3,153 2.0 1,534 1.3IDEXX Laboratories Health Care 3,054 1.9 2,325 2.0West Pharmaceutical Services3 Health Care 2,746 1.7 1,969 1.7Brinker International Consumer Discretionary 2,661 1.6 2,152 1.9HealthSouth3 Health Care 2,520 1.6 1,603 1.4

Total 33,389 20.8 1 All companies shown are listed in the USA.2 Based on total investments of £160.2m (2015: £114.0m).3 Not included in the ten largest investments at 31st December 2015.

At 31st December 2015, the value of the ten largest investments amounted to £26.3m representing 23.1% of total investments.


13

SECTOR ANALYSIS

31st December 2016 31st December 2015 Portfolio Benchmark Portfolio Benchmark %1 % %1 %

Financial Services 24.2 28.4 23.8 26.6Consumer Discretionary 19.5 13.3 22.1 14.2Producer Durables 18.8 13.8 16.7 12.0Health Care 11.2 12.1 9.5 16.4Materials & Processing 8.8 7.5 9.4 5.7Technology 6.1 14.2 7.4 14.7Energy 4.3 3.5 3.3 2.3Consumer Staples 4.3 2.6 4.4 3.2Utilities 2.8 4.6 3.4 4.9

Total 100.0 100.0 100.0 100.0

1 Based on total investments of £160.2m (2015: £114.0m).




LIST OF INVESTMENTS AT 31ST DECEMBER 2016

ValuationCompany £’000

Financial ServicesBankUnited 2,074ProAssurance 2,035Great Western Bancorp 2,024Associated Banc-Corp. 2,018National Retail Properties, REIT 1,986Iberiabank 1,952RLJ Lodging Trust, REIT 1,887First Horizon National 1,758EastGroup Properties, REIT 1,754Western Alliance Bancorp 1,734Morningstar 1,727First Financial Bancorp 1,679HFF ‘A’ 1,545Realogy Holdings 1,419Mid-America Apartment Communities, REIT 1,418CoreLogic 1,404Eaton Vance 1,387Umpqua Holdings 1,374Glacier Bancorp 1,357Moelis ‘A’ 1,259First Hawaiian 1,216Kinsale Capital Group 1,160Outfront Media, REIT 953Wintrust Financial 836First of Long Island 783

38,739


Consumer DiscretionaryPool 3,429Brinker International 2,661Malibu Boats ‘A’ 2,443EW Scripps ‘A’ 2,079Brunswick 2,044Cinemark Holdings 1,973Chico’s FAS 1,971Monarch Casino & Resort 1,964Drew Industries 1,845Papa John’s International 1,813ServiceMaster Global Holdings 1,615Zoe’s Kitchen 1,416KAR Auction Services 1,385Instructure 1,265American Eagle Outfitters 1,143Acushnet Holdings 1,097Crocs 1,080

31,223

Producer DurablesDouglas Dynamics 4,492Toro 4,475Landstar System 2,190Allison Transmission Holdings 2,129Brady ‘A’ 1,979Waste Connections 1,955Knight Transportation 1,789Applied Industrial Technologies 1,612Herman Miller 1,494Generac Holdings 1,491Altra Industrial Motion 1,474Lincoln Electric Holdings 1,154G&K Services ‘A’ 1,092Team 999Proto Labs 948US Ecology 898

30,171


15


Health CareIDEXX Laboratories 3,054West Pharmaceutical Services 2,746HealthSouth 2,520WellCare Health Plans 2,249Catalent 2,221Medidata Solutions 1,391VWR 1,303Magellan Health 1,196Cotiviti Holdings 1,008ICU Medical 303

17,991

Materials & ProcessingAptarGroup 3,647Patrick Industries 2,420RBC Bearings 2,109Cabot Microelectronics 1,681Watsco 1,416Silgan Holdings 1,103GCP Applied Technologies 1,080Quaker Chemical 701

14,157

TechnologyQ2 Holdings 1,696GrubHub 1,548Tyler Technologies 1,539Guidewire Software 1,465Monotype Imaging Holdings 976Aspen Technology 937Imperva 809Blackbaud 714

9,684


EnergyPatterson-UTI Energy 3,153Synergy Resources 2,045Dril-Quip 935Cimarex Energy 804

6,937

Consumer StaplesSpectrum Brands Holdings 3,212Performance Food Group 1,734J&J Snack Foods 1,129AdvancePierre Foods Holdings 777

6,852

UtilitiesPortland General Electric 2,294Northwestern 2,146

4,440

Total Investments 160,194




The aim of the Strategic Report is to provide shareholders with theability to assess how the Directors have performed their duty topromote the success of the Company during the year under review.To assist shareholders with this assessment, the Strategic Reportsets out the objective and strategy of the Company, structure of theCompany, its investment policies and risk management, investmentlimits and restrictions, performance and key performanceindicators, share capital, principal risks and how the Company seeksto manage those risks, the Company’s environmental, social andethical policy and finally its long term viability.

Business of the CompanyJPMorgan US Smaller Companies Investment Trust plc (the‘Company’) is an investment trust and has a premium listing on theLondon Stock Exchange. In seeking to achieve its objectives, theCompany employs JPMorgan Funds Limited (‘JPMF’ or the‘Manager’) as its AIFM which, in turn, delegates portfoliomanagement to JPMorgan Asset Management (UK) Limited, toactively manage the Company’s assets. The Board has determinedinvestment policies and related guidelines and limits, as describedbelow.

Objective and Strategy of the CompanyThe Company’s objective is to achieve capital growth from investingin US smaller companies. It aims to outperform the Russell 2000Index total return, with net dividends reinvested, expressed insterling terms.

The dynamic nature of the US small cap market makes small capsboth exciting and challenging. As an asset class, small caps tendto be less researched, less liquid and prone to more volatility thanlarge-cap stocks. The same characteristics that make managingsmall caps so challenging provide a unique opportunity. Theextensive resources JPMAM dedicates to the process and JPMAM’scommitment to buy-side research underlies its belief that stockselection is the most important component in small-cap investing.

The Company is managed by J.P. Morgan’s US small cap investmentteam. The investment team consists of five dedicated small capspecialists based in New York.

The team employs a bottom-up, stock picking approach to portfoliomanagement. The investment philosophy is based on the followingbeliefs: long-term investments in companies with leadingcompetitive positions, run by highly motivated and talentedmanagement that can sustain growth over a period of many years,will lead to stock market outperformance. Alongside this, the teambelieves that a disciplined valuation process is necessary toenhance long-term returns.

Structure of the CompanyThe Company is subject to UK and European legislation andregulations including UK company law, UK Financial ReportingStandards, the UKLA Listing, Prospectus, Disclosure Guidance andTransparency Rules, the Market Abuse Regulation, taxation law, theCompany’s own Articles of Association and the AlternativeInvestment Fund Managers Directive.

The Company is an investment company within the meaning ofSection 833 of the Companies Act 2006 and has been approved byHM Revenue & Customs as an investment trust (for the purposes ofSections 1158 and 1159 of the Corporation Tax Act 2010). As a resultthe Company is not liable for taxation on capital gains oninvestments within the portfolio. The Directors have no reason tobelieve that approval will not continue to be retained. The Companyis not a close company for taxation purposes.

A review of the Company’s activities and prospects is given in theChairman’s Statement on pages 3 to 5, and in the InvestmentManager’s Report on pages 6 to 9.

Investment Policies and Risk ManagementIn order to achieve its investment objective, the Company invests ina diversified portfolio and employs a manager with a strong focuson research and company visits in order to identify the mostattractive stocks in the US smaller companies universe.

The Board has sought to manage the Company’s risk by imposingvarious investment restrictions and guidelines. These restrictionsand guidelines may be varied at any time by the Board at itsdiscretion.

Investment Restrictions and GuidelinesThe Board seeks to manage the Company’s risk by imposing variousinvestment limits and restrictions:

• No individual investment in the portfolio will be greater than 15%of the Company’s gross assets at the time of investment.

• The Company will invest no more than 10% of the Company’sgross assets in JPMorgan liquidity funds.

• The Company will invest no more than 10% (subject to Directors’approval) of the Company’s gross assets at the time of investmentin unquoted investments.

• The Company will not normally invest in derivative instruments,although it can undertake derivative actions to hedge against riskexposure of existing holdings in the portfolio subject to Boardapproval.

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• The Company will use liquidity and borrowings to remain investedwithin a maximum gearing limit of 15% (+2.5% if as a result ofmarket movement).

• The Company will not invest more than 15% of its gross assets inother UK listed investment companies (including investmenttrusts).

• The Company will not invest more than 10% of its gross assets incompanies that themselves may invest more than 15% of theirgross assets in UK listed investment companies.

These limits and restrictions may be varied by the Board at any timeat its discretion.

Monitoring of Compliance Compliance with the Board’s investment restrictions and guidelinesis monitored by the Manager and is reported to the Board on amonthly basis.

PerformanceIn the year to 31st December 2016, the Company’s return toshareholders was +53.4% and the return on net assets was +50.1%.This compares with the return on the Company’s benchmark of+44.4%. As at 31st December 2016, the value of the Company’sinvestment portfolio was £160.2 million. The Investment Manager’sReport on pages 6 to 9 includes a review of developments duringthe year as well as information on investment activity within theCompany’s portfolio.

Total Return, Revenue and Dividends Gross total return for the year amounted to £52,756,000 (2015:£6,047,000). Net return after deducting the management fee,administrative expenses, finance costs and taxation, amounted to£50,438,000 (2015: £3,933,000). No dividend has been proposed inrespect of the financial year (2015: nil).

Key Performance Indicators (‘KPIs’) The Board uses a number of financial KPIs to monitor and assessthe performance of the Company. The principal KPIs are:

• Performance against the benchmark indexThis is the most important KPI by which performance is judged.Information on the Company’s performance is given in theChairman’s Statement and the Investment Manager’s Report.

Performance Relative to Benchmark IndexFIGURES HAVE BEEN REBASED TO 100 AT 31ST DECEMBER 2011

Source: Morningstar/Russell.

JPMorgan US Smaller Companies – share price.

JPMorgan US Smaller Companies – net asset value.1

Benchmark index is represented by the black horizontal line.1 Using net asset value per share, cum income. Prior 30th June 2008, capital only netasset value.

Five Year PerformanceFIGURES HAVE BEEN REBASED TO 100 AT 31ST DECEMBER 2011

Source: Morningstar/Russell.

JPMorgan US Smaller Companies – share price.

JPMorgan US Smaller Companies – net asset value1.

Benchmark.1 Using net asset value per share, cum income. Prior 30th June 2008, capital only netasset value.

• Performance against the Company’s peers The principal objective is to achieve capital growth andoutperformance relative to the benchmark. The Board alsomonitors the performance relative to a broad range ofcompetitor funds.

• Performance attributionThe purpose of performance attribution analysis is to assess howthe Company achieved its performance relative to its benchmark,i.e. to understand the impact on the Company’s relativeperformance of the various components such as sector selectionand stock selection. Details of the attribution analysis for the yearended 31st December 2016 are given in the Investment Manager’sReport on page 8.

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110

115

120

125

130

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BUSINESS REVIEW CONTINUED

Premium/(Discount) Performance

Source: Morningstar.

JPMorgan US Smaller Companies discount.

• Share price (discount)/premium to net asset value (‘NAV’)per share The Board operates a share issuance and share repurchaseprogramme which seeks to address imbalances in supply of anddemand for the Company’s shares within the market. This aimsto manage the volatility and absolute level of the discount to NAVper share at which the Company’s shares trade in relation to itspeers in the sector. In the year to 31st December 2016, the sharestraded between a discount of 16.0% and a premium of 1.9%, anaverage discount of 10.7% (using month end data with debt atpar). Further details of the Company’s share capital can be foundbelow in this Strategic Report.

• Ongoing chargesThe ongoing charges represent the Company’s management feeand all other operating expenses excluding finance costs,expressed as a percentage of the average of the daily net assetsduring the year. The ongoing charges for the year ended31st December 2016 are 1.47% (2015: 1.69%). The Board reviewsthe ongoing charges of the Company regularly and on an annualbasis compares them against other companies with similarinvestment objectives and policies. As disclosed in the‘Management fee’ section of the Directors’ Report, on page 23,the management fee was reduced to 1.00% per annum from1st January 2016.

Share CapitalFollowing approval at the Company’s General Meeting on 4th March2014, the Company’s ordinary shares were sub-divided intoten ordinary shares for every one share held. This sub-divisiontook effect on 6th March 2014. The Company has authority to bothrepurchase shares in the market for cancellation or to hold inTreasury and to issue new shares in the market for cash at apremium to net asset value. The Directors re-issue shares held inTreasury only at a premium to net asset value per share.

During the year, the Company did not repurchase (2015: nil) anyshares for cancellation. The Company repurchased 1,689,000ordinary shares into Treasury (2015: nil). However, 950,000ordinary shares were re-issued from Treasury (2015: nil). No newordinary shares were issued.

Since the year end and as at the last practicable date before thepublication of this document, 850,000 shares have been issuedfrom Treasury.

Special Resolutions to renew the authorities to repurchase andissue shares will be put to shareholders for approval at theforthcoming Annual General Meeting.

Board DiversityWhen recruiting a new Director, the Board’s policy is to appointindividuals on the basis of merit. However, diversity is important inbringing an appropriate range of skills and experience to the Board.

At 31st December 2016, there were three male Directors andthree female Directors on the Board. The Company has noemployees and therefore there is nothing further to report inrespect of gender representation within the Company.

The Company’s policy on gender is detailed under the Nominationand Remuneration Committee section on page 27.

Employee, Social, Community and Human RightsIssuesThe Company has a management contract with JPMF who delegatesthe management of the Company’s portfolio to JPMAM. TheCompany has no employees and all of its Directors arenon-executive. The day to day activities are carried out by thirdparties. There are therefore no disclosures to be made in respect ofemployees. The Board notes the policy statements of JPMAM inrespect of Social, Community and Environmental and Human Rightsissues, as highlighted in italics:

Social, Community, Environmental and Human Rights

JPMAM believes that companies should act in a socially responsiblemanner. Although our priority at all times is the best economic interestsof our clients, we recognise that, increasingly, non-financial issues suchas social and environmental factors have the potential to impact theshare price, as well as the reputation of companies. Specialists withinJPMAM’s environmental, social and governance (‘ESG’) team are taskedwith assessing how companies deal with and report on social andenvironmental risks and issues specific to their industry.

JPMAM is also a signatory to the United Nations Principles ofResponsible Investment, which commits participants to six principles,with the aim of incorporating ESG criteria into their processes when

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201620152014201320122011


19

making stock selection decisions and promoting ESG disclosure. Ourdetailed approach to how we implement the principles is available onrequest.

The Manager has implemented a policy which seeks to restrictinvestments in securities issued by companies that have beenidentified by an independent third party provider as being involved inthe manufacture, production or supply of cluster munitions, depleteduranium ammunition and armour and/or anti-personnel mines.Shareholders can obtain further details on the policy by contactingthe Manager.

Greenhouse Gas EmissionsThe Company has no premises, consumes no electricity, gas ordiesel fuel and consequently does not have a measurable carbonfootprint. JPMAM is a signatory to Carbon Disclosure Project.JPMorgan Chase is a signatory to the Equator Principles onmanaging social and environmental risk in project finance.

The Modern Slavery Act 2015 (the ‘MSA’)The MSA requires companies to prepare a slavery and humantrafficking statement for each financial year of the organisation.As the Company has no employees and does not supply goodsand services, the MSA does not apply directly to it. The MSArequirements more appropriately relate to JPMF and JPMAM.JPMorgan’s statement on Human Rights can be found on thefollowing website: www.jpmorganchase.com/corporate/About-JPMC/ab-human-rights.htm

Principal RisksThe Directors confirm that they have carried out a robustassessment of the principal risks facing the Company, includingthose that would threaten its business model, future performance,solvency or liquidity. The risks identified have not changed over theyear under review and the ways in which they are managed ormitigated are summarised as below:

With the assistance of the Manager, the Board has drawn up a riskmatrix, which identifies the key risks to the Company. These keyrisks fall broadly under the following categories:

• Investment and Strategy: An inappropriate investment strategy,for example excessive concentration of sector selection or thelevel of gearing, may lead to underperformance against theCompany’s benchmark index and peer companies, which mayresult in the Company’s shares trading on a wider discount. TheBoard manages these risks by diversification of investmentsthrough its investment restrictions and guidelines which aremonitored and reported on. The Manager, JPMF, provides theDirectors with timely and accurate management information,

including performance data and attribution analyses, revenueestimates, liquidity reports and shareholder analyses. The Boardmonitors the implementation and results of the investmentprocess with the Investment Managers, who participate at allBoard meetings, and reviews data which show statisticalmeasures of the Company’s risk profile. The Investment Managersemploy the Company’s gearing tactically, within a strategic rangeset by the Board. In addition to regular Board reviews ofinvestment strategy, the Board holds a separate meeting devotedto strategy each year.

• Loss of Investment Team or Investment Managers: A suddendeparture of the investment managers, or several members ofthe investment management team could result in a short-termdeterioration in investment performance. The Manager takessteps to reduce the likelihood of such an event by ensuringappropriate succession planning and the adoption of a team-based approach.

• Discount: A disproportionate widening of the discount couldresult in a loss of value for shareholders. In order to manage theCompany’s discount, which can be volatile, the Company operatesa share repurchase programme.

• Market: Market risk arises from uncertainty about the futureprices of the Company’s investments. It represents the potentialloss that the Company might suffer through holding investmentsin the face of negative market movements. The Board considersasset allocation, stock selection and levels of gearing on a regularbasis and has set investment restrictions and guidelines, whichare monitored and reported on by JPMAM. The Board monitorsthe implementation and results of the investment process withthe Manager.

• Political and Economic: Changes in financial or tax legislation,including in the European Union and the US, may adversely affectthe Company. The Manager makes recommendations to theBoard on accounting, dividend and tax policies and the Boardseeks external advice where appropriate. In addition, theCompany is subject to administrative risks, such as the impositionof restrictions on the free movement of capital. These risks arediscussed by the Board on a regular basis.

• Accounting, Legal and Regulatory: In order to qualify as aninvestment trust, the Company must comply with Section 1158 ofthe Corporation Tax Act 2010 (‘Section 1158’). Details of theCompany’s approval are given under ‘Structure of the Company’above. Should the Company breach Section 1158, it may loseinvestment trust status and, as a consequence, gains within theCompany’s portfolio could be subject to Capital Gains Tax. TheSection 1158 qualification criteria are monitored continually byJPMAM and the results reported to the Board each month. TheCompany must also comply with the provisions of the Companies


Act 2006 and, since its shares are listed on the London StockExchange, the UKLA Listing Rules and Disclosure Guidance andTransparency Rules (‘DTRs’). A breach of the Companies Act couldresult in the Company and/or the Directors being fined or thesubject of criminal proceedings. Breach of the UKLA Listing Rulesor DTRs could result in the Company’s shares being suspendedfrom listing which in turn would breach Section 1158. The Boardrelies on the services of its Company Secretary, the Manager, andits professional advisers to ensure compliance with theCompanies Act 2006 and the UKLA Listing Rules and DTRs.

• Corporate Governance and Shareholder Relations: Details of theCompany’s compliance with Corporate Governance best practice,including information on relations with shareholders, are set outin the Corporate Governance report on pages 25 to 30.

• Operational: Disruption to, or failure of, the Manager’saccounting, dealing or payments systems or the depositary’s orcustodian’s records could prevent accurate reporting andmonitoring of the Company’s financial position. The Company hasappointed BNY Mellon Trust & Depositary (UK) Limited to act asits depositary, responsible for oversight of the custody of theCompany’s assets and for monitoring its cash flows.

Details of how the Board monitors the services provided by theManager and its associates and the key elements designed toprovide effective internal control are included within the RiskManagement and Internal Control section of the CorporateGovernance report on pages 28 and 29.

• Cybercrime: The threat of cyber attack, in all its guises, isregarded as at least as important as more traditional physicalthreats to business continuity and security. JPMF has assuredDirectors that the Company benefits directly or indirectly fromall elements of JPMorgan’s Cyber Security programme. Theinformation technology controls around the physical security ofJPMorgan’s data centres, security of its networks and security ofits trading applications are tested by independent reportingaccountants and reported every six months against the AAFStandard. Equiniti, the Company’s Registrar, also produces anAAF report which is reported on at the Company’s AuditCommittee meeting.

• Foreign currency: The Company has exposure to foreign currencyas part of the risk reward inherent in a company that investsoverseas. The income and capital value of the Company’sinvestments can be affected by exchange rate movements as themajority of the Company’s assets and income are denominated incurrencies other than sterling which is the reporting currency.The Company’s loan facility is denominated in US dollars.

The Board has the authority to reduce or eliminate the exposureto fluctuating currencies through the use of currency hedging. Itreviews its policy on this matter regularly; to date no hedging hasbeen carried out and there are no plans to do so in theimmediate future.

• Going concern: Boards are now advised to consider goingconcern as a potential risk, whether or not there is an apparentissue arising in relation thereto. Going concern is consideredrigorously on an ongoing basis and the Board’s statement ongoing concern is detailed on page 29.

• Financial: The financial risks faced by the Company includemarket risk (comprising currency risk, interest rate risk andother price risk), liquidity risk and credit risk. Further details aredisclosed in note 20 to the financial statements on page 53.

Long Term ViabilityThe Company is an investment trust with an objective of achievingcapital growth from investing in US smaller companies. Takingaccount of the Company’s current position, the principal risks thatit faces and their potential impact on its future development andprospects, the Directors have assessed the prospects of theCompany, to the extent that they are able to do so, over the nextfive years. They have made that assessment by considering thoseprincipal risks, the Company’s investment objective and strategy,the investment capabilities of the Manager and the current outlookfor the US economy and equity market.

In determining the appropriate period of assessment the Directorshad regard to their view that, given the Company’s objective ofachieving capital growth, shareholders should consider theCompany as a long term investment proposition. This is consistentwith advice provided by independent financial advisers and wealthmanagers, that investors should consider investing in equities fora minimum of five years. Accordingly, the Directors consider fiveyears to be an appropriate time horizon to assess the Company’sviability.

The Directors confirm that they have a reasonable expectation,that the Company will continue in operation, subject toshareholders voting in favour of continuation in 2020, and meetits liabilities as they fall due over the five year period of assessment.

By order of the Board Lucy Dina, for and on behalf of JPMorgan Funds Limited Secretary

17th March 2017

JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & ACCOUNTS 201620


BUSINESS REVIEW CONTINUED


21

Governance

BOARD OF DIRECTORS

Davina Walter (Chairman of the Board, Management Engagement and Nomination andRenumeration Committees)A Director since 2002.

Last reappointed to the Board: 2016.

Current remuneration: £34,000.

She has been employed in the investment business in the City of London since 1974, havingspent over 11 years involved in US equity research at Cazenove & Co. and more than 16 years asan investment manager of US equity portfolios. Most recently she was a Managing Director atDeutsche Asset Management Limited, and has been involved in investment trusts since 1985.She was a Director of Henderson Strata Investment Trust plc and is currently employed as anInvestment Consultant.

Connections with Manager: None.

Shared directorships with other Directors: None.

Shareholding in Company: 79,916.

Christopher GalleymoreA Director since 2004.



He is a board level investment professional with 30 years experience of managing US equityportfolios, including several years working in New York. He has worked for a variety of majorinternational investment companies, most recently as senior portfolio manager and Head of theNorth American Desk at Henderson Global Investors from 1991 to 2002 where he was activelyinvolved in running investment trusts.




Mark AnsellA Director since 2005.



He has wide experience of negotiating and completing acquisitions and disposals and improvingperformance in engineering businesses, including in the USA. He was formerly Chief Executiveof the Flow Group Limited, which manufactured specialist flow control equipment for the globalenergy industry. He is currently a director of Story Events Limited.






Governance continued

Julia Le Blan (Chairman of the Audit Committee)A Director since 2012.



She is a chartered accountant and has worked in the financial services industry for over30 years. She was formerly a tax partner at Deloitte and expert on the taxation of investmenttrust companies. Before retiring from Deloitte she did two terms on the AIC’s technicalcommittee. She is currently a director of Investors Capital Trust plc, Impax EnvironmentalMarkets plc Aberforth Smaller Companies Trust plc, and the Biotech Growth Trust plc.




David RossA Director since 2015.



He is a certified accountant with over 45 years in the investment industry. He was a foundingpartner of Aberforth Partners LLP and also one of the partners responsible for the launch oftwo of Aberforth’s Investment Trusts. He is currently a director of EP Global Opportunities Trustand F&C UK Real Estate Investments Ltd.




Shefaly YogendraA Director since 2016.


She is a risk and decision-making specialist and has spent her career working with investorsand start-up companies. She earlier worked in HCL Technologies and was also founder anda director of Livyora, a fine jewellery venture. She is currently a Trustee of BeyondMe.



Shareholding in Company: Nil.

All Directors are members of the Audit, Nomination and Remuneration and ManagementEngagement Committees and are considered independent of the Manager.

BOARD OF DIRECTORS CONTINUED

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23

DIRECTORS’ REPORT

The Directors present their report and the audited financialstatements for the year ended 31st December 2016.

Management of the CompanyThe Manager and Company Secretary to the Company is JPMorganFunds Limited (‘JPMF’), a company authorised and regulated by theFCA. The active management of the Company’s assets is delegatedby JPMF to an affiliate, JPMorgan Asset Management (UK) Limited(‘JPMAM’) with day to day investment management activityconducted in New York. The Manager is a wholly-owned subsidiaryof JPMorgan Chase Bank which, through other subsidiaries, alsoprovides marketing, banking, dealing and custodian services to theCompany.

JPMF is employed under a contract which can be terminated onsix months’ notice, without penalty. If the Company wishes toterminate the contract on shorter notice, the balance ofremuneration is payable by way of compensation.

The Board conducts a formal evaluation of the performance of, andcontractual relationship with, the Manager on an annual basis. Theevaluation includes consideration of the investment strategy andprocess of the Manager, noting performance against the benchmarkover the long term and the quality of the support that the Companyreceives from the Manager. As a result of the evaluation process,the Board confirms that it is satisfied that the continuingappointment of the Manager, on the terms agreed, is in theinterests of shareholders as a whole.

The Alternative Investment Fund Managers Directive(‘AIFMD’)JPMF is the Company’s alternative investment fund manager(‘AIFM’). It is approved as an AIFM by the FCA. For the purposes ofthe AIFMD the Company is an alternative investment fund (‘AIF’).JPMF has delegated responsibility for the day to day managementof the Company’s portfolio to JPMAM. The Company has appointedBNY Mellon Trust and Depositary (UK) Limited (‘BNY’) as itsdepositary. BNY has appointed JPMorgan Chase Bank, N.A. as theCompany’s custodian. BNY is responsible for the oversight of thecustody of the Company’s assets and for monitoring its cash flows.

The AIFMD requires certain information to be made available toinvestors in AIFs before they invest and requires that materialchanges to this information be disclosed in the annual report ofeach AIF. An Investor Disclosure Document, which sets outinformation on the Company’s investment strategy and policies,leverage, risk, liquidity, administration, management, fees, conflictsof interest and other shareholder information is available on theCompany’s website at www.jpmussmallercompanies.co.uk Therehave been no material changes (other than those reflected in these

financial statements) to this information requiring disclosure. Anyinformation requiring immediate disclosure pursuant to the AIFMDwill be disclosed to the London Stock Exchange through a primaryinformation provider.

JPMF’s remuneration disclosures are set out on page 60.

Management FeeIn the year under review, the Manager received a basicmanagement fee of 1.00% per annum of the Company’s grossassets. Prior to 1st January 2016, the management fee was 1.2% perannum on assets up to £100 million and 1.00% per annum on anyassets in excess of £100 million.

Directors Shefaly Yogendra was appointed a Director on 1st November 2016.

The Directors of the Company who held office at the end of the yearare detailed on pages 21 and 22.

Details of Directors’ beneficial shareholdings may be found in theDirectors’ Remuneration Report on page 32.

In accordance with corporate governance best practice, DavinaWalter, Julia Le Blan, Christopher Galleymore and David Ross willretire at the forthcoming Annual General Meeting and, beingeligible, will offer themselves for reappointment by shareholders.The Chairman of the Nomination and Remuneration Committee,having considered their qualifications, performance andcontribution to the Board and committees, confirms that eachDirector continues to be effective and demonstrates commitmentto the role, and the Board recommends to shareholders that thosestanding for reappointment be reappointed.

Mark Ansell will retire from the Board at the conclusion of the 2016AGM.

Shefaly Yogendra, following her recent appointment asnon-executive Director of the Company, will offer herself forappointment at the forthcoming AGM.

Director Indemnification and Insurance As permitted by the Company’s Articles of Association, the Directorshave the benefit of a deed of indemnity which is a qualifying thirdparty indemnity, as defined by Section 234 of the Companies Act2006. The indemnities were in place during the year and as at thedate of this report.

An insurance policy was maintained by the Company whichindemnifies the Directors of the Company against certain liabilitiesarising in the conduct of their duties. There is no cover againstfraudulent or dishonest actions.




DIRECTORS’ REPORT CONTINUED

Disclosure of information to Auditors In the case of each of the persons who are Directors of theCompany at the time when this report was approved:

(a) so far as each of the Directors is aware, there is no relevantaudit information (as defined in the Companies Act 2006) ofwhich the Company’s Auditors are unaware; and

(b) each of the Directors has taken all the steps that he/sheought to have taken as a Director in order to makehimself/herself aware of any relevant audit information andto establish that the Company’s auditors are aware of thatinformation.

The above confirmation is given and should be interpreted inaccordance with the provisions of Section 418(2) of the CompaniesAct 2006.

Independent AuditorGrant Thornton UK LLP has expressed its willingness to continuein office as auditor to the Company and a resolution proposing itsreappointment and authorising the Directors to determine itsremuneration for the ensuing year will be put to shareholders atthe forthcoming Annual General Meeting.

The current tenure of the external auditor dates from August 2011when a tender process was last carried out. Any decision to openthe external audit to tender is taken on the recommendation of theAudit Committee.

Capital Structure and Voting Rights Capital StructureThe Company’s capital structure is summarised on the inside frontcover of this report. Details of share repurchases have beendisclosed in the Strategic Report on page 18.

Voting Rights in the Company’s sharesDetails of the voting rights in the Company’s shares as at the date ofthis report are given in note 16 to the Notice of Annual GeneralMeeting on page 63.

Environmental Matters, Social and Community IssuesInformation on environmental matters, social and community issuesis set out on page 18. Greenhouse gas emissions have beendisclosed in the Strategic Report on page 19. The Company has noemployees.

Notifiable Interests in the Company’s Voting RightsAt the financial year end the following had reported a notifiableinterest in the Company’s voting rights:

Number ofShareholders voting rights1 %3

Brewin Dolphin Limited 5,727,990 10.3JPMorgan Asset Management (UK) Limited 4,302,4282 7.7

Rathbone Brothers PLC 4,039,950 7.1

1 Number of voting rights recalculated following sub-division of shares.2 Includes shares held by JPMorgan Elect plc.3 Based on the number of shares in issue on the date of the shareholders’ latestnotifications to the Company.

Since the year-end, Brewin Dolphin Limited has notified theCompany that its holding has decreased to 5,542,265, representing9.6% of the Company’s voting rights.

The information above is derived from the Company’s internalrecords, as well as disclosures received pursuant to the Disclosureand Transparency Rules.

The Company is also aware that approximately 13% of theCompany’s total voting rights are held by individuals throughsavings products managed by JPMorgan and registered in the nameof Chase Nominees Limited. If those voting rights are not exercisedby the beneficial holders, in accordance with the terms andconditions of the savings products, under certain circumstancesJPMAM has the right to exercise those voting rights. That right issubject to certain limits and restrictions and falls away at theconclusion of the relevant general meeting.

The rules concerning the appointment and replacement ofDirectors, amendment of the Articles of Association and powersto issue or repurchase the Company’s shares are contained in theArticles of Association of the Company and the Companies Act2006.

There are no restrictions concerning the transfer of securities in theCompany; no special rights with regard to control attached tosecurities; no agreements between holders of securities regardingtheir transfer known to the Company; no agreements which theCompany is party to that affect its control following a takeover bid;and no agreements between the Company and its Directorsconcerning compensation for loss of office.


25

Listing Rule 9.8.4RListing Rule 9.8.4R requires the Company to include certaininformation in a single identifiable section of the Annual Report ora cross reference table indicating where the information is set out.The Directors confirm that there are no disclosures to be made inthis regard.

Annual General MeetingNOTE: THIS SECTION IS IMPORTANT AND REQUIRES YOURIMMEDIATE ATTENTION. If you are in any doubt as to the actionyou should take, you should seek your own personal financialadvice from your stockbroker, bank manager, solicitor or otherfinancial adviser authorised under the Financial Services andMarkets Act 2000.

Resolutions relating to the following items of special business willbe proposed at the forthcoming Annual General Meeting (‘AGM’):

(i) Authority to allot new shares and to disapply statutorypre-emption rights (resolutions 10 and 11)

The Directors will seek authority at the Annual General Meetingto issue up to 5,697,092 new ordinary shares for cash up to anaggregate nominal amount of £142,427, such amount beingequivalent to 10% of the present issued share capital. This authoritywill expire at the Annual General Meeting in 2018. The full text ofResolutions 10 and 11 is set out in the Notice of Meeting on page 61.

It is advantageous for the Company to be able to issue new shares(or to sell Treasury shares) to investors when the Directors considerthat it is in the best interests of shareholders to do so. As such,issues are only made at prices greater than the net asset value,they increase the assets underlying each share and spread theCompany’s administrative expenses, other than the managementfee which is charged on the value of the Company’s assets, overa greater number of shares. The issue proceeds are available forinvestment in line with the Company’s investment policies.

(ii) Authority to repurchase the Company’s shares(resolution 12)

At the Annual General Meeting held on 25th April 2016,shareholders gave authority to the Company to purchase up to14.99% of its then issued share capital. At that time shareholderswere informed that this authority would expire on 24th October2017 and could be renewed by shareholders at any time at aGeneral Meeting of the Company. The Board remains committed toa stable discount, but there is a need to balance the short term of

buying shares back for cancellation or holding in Treasury with thelong term liquidity implications. It will seek shareholder approval torenew the authority at the forthcoming Annual General Meeting.

The full text of the resolution (to be proposed as a specialresolution) to renew the share repurchase authority is set out asResolution number 12 in the Notice of Meeting on pages 61 and 62.

Recommendation (resolutions 10 to 12) The Board considers that resolutions 10 to 12 are likely to promotethe success of the Company and are in the best interests of theCompany and its shareholders as a whole. The Directorsunanimously recommend that you vote in favour of the resolutionsas they intend to do in respect of their own beneficial holdingswhich amount in aggregate to 306,845 shares representingapproximately 0.54% of the voting rights in the Company.

Corporate Governance Statement

Compliance The Company is committed to high standards of corporategovernance. This statement, together with the Statement ofDirectors’ Responsibilities on page 34, indicates how the Companyhas applied the principles of good governance of the FinancialReporting Council’s 2014 UK Corporate Governance Code (the‘UK Corporate Governance Code’) and the AIC’s Code of CorporateGovernance (the ‘AIC Code’), which complements the UK CorporateGovernance Code and provides a framework of best practice forinvestment trusts.1

The Board is responsible for ensuring the appropriate level ofCorporate Governance and considers that the Company hascomplied with the best practice provisions of the UK CorporateGovernance Code and the AIC Code, insofar as they are relevantto the Company’s business, throughout the year under review.

Role of the Board A management agreement between the Company and JPMF sets outthe matters over which the Manager has authority. This includesmanagement of the Company’s assets and the provision ofaccounting, company secretarial, administrative services and somemarketing services. All other matters are reserved for the approvalof the Board. A formal schedule of matters reserved to the Boardfor decision has been approved. This includes determination and

1 Copies of the UK Corporate Code and the AIC Code may be found on the respective organisations’ websites: www.frc.org.uk and www.theaic.co.uk





monitoring of the Company’s investment objectives and policy andits future strategic direction, gearing policy, management of thecapital structure, appointment and removal of third party serviceproviders, review of key investment and financial data and theCompany’s corporate governance and risk control arrangements.

At each Board meeting, Directors’ interests are considered. Theseare reviewed carefully, taking into account the circumstancessurrounding them, and, if considered appropriate, are approved.It was resolved that there were no actual or indirect interests of aDirector which conflicted with the interests of the Company whicharose during the year.

The Board has procedures in place to deal with potential conflicts ofinterest and, following the introduction of The Bribery Act 2010, hasadopted appropriate procedures designed to prevent bribery. Itconfirms that the procedures have operated effectively during theyear under review.

The Board meets on at least six occasions during the year andadditional meetings are arranged as necessary. Full and timelyinformation is provided to the Board to enable it to functioneffectively and to allow Directors to discharge their responsibilities.

There is an agreed procedure for Directors to take independentprofessional advice if necessary and at the Company’s expense. Thisis in addition to the access that every Director has to the advice andservices of the Company Secretary, JPMF, which is responsible tothe Board for ensuring that applicable rules and regulations arecomplied with and that Board procedures are complied with.

Board Composition At the financial year-end, the Board consisted of six non-executiveDirectors, chaired by Davina Walter, all of whom are regarded by theBoard as independent of the Company’s Manager. The Chairman’sindependence was assessed upon her appointment and annuallythereafter. There have been no changes to the Chairman’s othersignificant commitments during the year under review.

The Directors have a breadth of investment, business and financialskills and experience relevant to the Company’s business and briefbiographical details of each Director are set out on pages 21 and 22.

In order to provide a balance of skills, experience, length of serviceand ages, it is the Board’s policy to introduce new Directors toprovide an orderly succession over time.

A review of Board composition and balance is included as part ofthe annual performance evaluation of the Board, details of whichmay be found below. The Board has considered whether a seniorindependent director should be appointed and has concluded that,

as the Board comprises entirely non-executive directors, this isunnecessary. However, the Chairman of the Audit Committee leadsthe evaluation of the performance of the Chairman and is availableto shareholders if they have concerns that cannot be resolvedthrough discussion with the Chairman.

Tenure Directors are initially appointed until the following Annual GeneralMeeting when, under the Company’s Articles of Association, it isrequired that they be reappointed by shareholders. Subject to theperformance evaluation carried out each year, the Board will agreewhether it is appropriate for Directors to seek annualreappointment. The Board does not believe that length of service initself necessarily disqualifies a Director from seeking reappointmentbut, when making a recommendation, the Board will take intoaccount the requirements of the UK Corporate Governance Code,including the need to refresh the Board and its Committees. TheBoard has adopted corporate governance best practice and hasa succession plan in place. All Directors must stand for annualreappointment.

The terms and conditions of Directors’ appointments are set out informal letters of appointment, copies of which are available forinspection on request at the Company’s registered office and at theAnnual General Meeting. With effect from 1st January 2015, anyappointment of a new non-executive Director of the Company shallnot exceed a nine-year term, in normal circumstances.

Induction and TrainingOn appointment, the Manager and Company Secretary provide allDirectors with induction training. Thereafter, regular briefings areprovided on changes in law and regulatory requirements that affectthe Company and the Directors. Directors are encouraged to attendindustry and other seminars covering issues and developmentsrelevant to investment trust companies. Regular reviews of theDirectors’ training needs are carried out by the Chairman by meansof the evaluation process described below.

Meetings and Committees The Board delegates certain responsibilities and functions tocommittees. Details of membership of committees are shown withthe Directors’ profiles on pages 21 and 22. All Directors aremembers of the Committees.

The table below details the number of meetings attended by eachDirector. During the financial year there were six Board meetings,including a private meeting of the Directors to evaluate theManager, three Audit Committee meetings, two Nomination and


27

Remuneration Committee meeting and one ManagementEngagement Committee meeting.

Nominationand Management

Audit Remuneration EngagementBoard Committee Committee Committee

Meetings Meetings Meetings MeetingDirector Attended Attended Attended Attended

M Ansell 6 3 2 1J Le Blan 6 3 2 1C Galleymore 6 3 2 1D Ross 6 3 2 1D Walter 6 3 2 1S Yogendra1 1 — — —

1 Appointed 1st November 2016.

As well as the formal meetings detailed above, the Boardcommunicates frequently by email or telephone to deal withmatters as they arise. Directors also visited the investmentmanagement team in New York.

Board Committees Nomination and Remuneration Committee The Nomination and Remuneration Committee, chaired by DavinaWalter, consists of all of the Directors and meets at least annuallyto ensure that the Board has an appropriate balance of skills andexperience to carry out its fiduciary duties and to select andpropose suitable candidates for appointment when necessary.

The Board’s policy on diversity, including gender, is to take accountof the benefits of these during the appointment process. However,the Board remains committed to appointing the most appropriatecandidate, regardless of gender or other forms of diversity.Therefore, no targets have been set against which to report.

Shefaly Yogendra was appointed a non-executive Director inNovember 2016, having been acting as a Board Apprentice sinceJanuary 2016. She went through the interview process prior toher appointment as Board Apprentice. The Board ApprenticeProgramme finds able candidates from diverse backgrounds.

The Committee conducts an annual performance evaluation of theBoard, its committees and individual Directors to ensure that allDirectors have devoted sufficient time and contributed adequatelyto the work of the Board and its Committees. The evaluation of theBoard considers the balance of experience, skills, independence,corporate knowledge, its diversity, including gender, and how itworks together.

Questionnaires, drawn up by the Board with the assistance of JPMF,are completed by each Director. The responses are collated and

then discussed by the Committee. The evaluation of individualDirectors is led by the Chairman who also meets with each Director.The Chairman of the Audit Committee leads the evaluation of theChairman’s performance.

The Committee also reviews Directors’ fees and makesrecommendations to the Board as and when appropriate in relationto remuneration policy. This takes into account the level of fees paidto the directors of the Company’s peers and within the investmenttrust industry generally to ensure that high quality people areattracted and retained.

Management Engagement Committee The Management Engagement Committee, chaired by DavinaWalter, consists of all the Directors, and meets at least annually toreview the performance of, and the contractual arrangements withthe Manager.

Audit Committee The Audit Committee, chaired by Julia Le Blan, comprises all of theDirectors and meets at least twice each year. The members of theCommittee consider that they have the requisite skills andexperience to fulfil the responsibilities of the Committee and aresatisfied that at least one member (Julia Le Blan) of the AuditCommittee has recent and relevant financial experience.

The Committee reviews the actions and judgements of the Managerin relation to the Half Year and Annual Report & Accounts and theCompany’s compliance with the UK Corporate Governance Code.At the request of the Board, the Audit Committee providesconfirmation to the Board as to how it has discharged itsresponsibilities so that the Board ensures that informationpresented is fair, balanced and understandable, together withdetails of how it has done so.

During its review of the Company’s financial statements for the yearended 31st December 2016, the Audit Committee considered thefollowing significant issues, including those communicated by theAuditor during their reporting:

Significant issues How the issues were addressed

The Directors have considered the Company’sinvestment objective. risk management policies.capital management policies and procedures. thenature of the portfolio and expenditure and cashflow projections. As a result, they have determinedthat the Company has adequate resources, anappropriate financial structure and suitablemanagement arrangements in place to continue inoperational existence for the foreseeable future.See statement of Going Concern on page 29.

Going concern





Significant issues How the issues were addressed

The valuation of investments is undertaken inaccordance with the financial statements policies,disclosed in note 1 to the financial statements onpage 43. Controls are in place to ensure thatvaluations are appropriate and existence is verifiedthrough custodian reconciliations.

The recognition and completeness of investmentincome is undertaken in accordance with accountingpolicy note 1(d) to the financial statements onpage 43. The Board reviews the Manager’s controlsregarding the recognition of income and regularlyreviews the Manager’s report on the treatment ofspecial dividends and agrees their accountingtreatment.

Approval for the Company as an investment trustunder Sections 1158 and 1159 has been obtained andongoing compliance with the eligibility criteria ismonitored on a regular basis.

The management fee is calculated in accordancewith the Investment Management Agreement.The Board reviews the controls reports, expenseschedules and the management fees payable to theManager. The auditor independently recalculatesthe management fee as part of the audit and hasnot reported any exceptions.

The Board was made fully aware of any significant financialreporting issues and judgements made in connection with thepreparation of the financial statements.

Having taken all available information into consideration and havingdiscussed the content of the Annual Report and Accounts with theAlternative Investment Fund Manager, investment managers,Company Secretary and other third party service providers, theAudit Committee has concluded that the Annual Report andAccounts for the year ended 31st December 2016, taken as a whole,are fair, balanced and understandable and provide the informationnecessary for shareholders to assess the Company’s position andperformance, business model and strategy, and has reported onthese findings to the Board. The Board’s conclusions in this respectare set out in the Statement of Directors’ Responsibilities onpage 34.

The Audit Committee reviews the terms of the managementagreement and examines the effectiveness of the Company’sinternal control systems, receives information from the Manager’sCompliance department and reviews the scope and results of theexternal audit, its effectiveness and cost effectiveness, the balanceof audit and non-audit services and the independence and

objectivity of the external Auditor. In the Directors’ opinion theAuditor is considered independent. It is the Company’s policy thatall non-audit services require approval of the Audit Committee. Inorder to safeguard the Auditor’s objectivity and independence, anysignificant non-audit services are carried out through a partnerother than the audit engagement partner. The Audit Committee alsoreceives confirmations from the Auditor, as part of their reporting,in regard to their objectivity and independence. Representatives ofthe Company’s Auditor attends the Audit Committee meeting atwhich the draft Annual Report and Accounts are considered.

The Audit committee is responsible for identifying the Company’sprincipal risks, monitoring the internal controls established by thirdparty service providers and monitoring compliance with relevantstatutory, regulatory and taxation requirements. The work done bythe Audit Committee is described on page 29 under RiskManagement and Internal Control.

The Audit Committee also has a primary responsibility for makingrecommendations to the Board on the reappointment and removalof external auditors. Having reviewed the performance of theexternal auditors and assessed their effectiveness, includingassessing the quality of work, timing of communications and workwith JPMF, the Committee considered it appropriate to recommendtheir reappointment. The Committee supported thisrecommendation which will be put to shareholders at theforthcoming Annual General Meeting. The Committee reviews andapproves the auditors’ fees and any non-audit services provided bythe independent auditors and assesses the impact of any non-auditwork on the ability of the auditor to remain independent. No suchwork was undertaken by the Auditor during the year under review.Details of the auditor’s fees are disclosed in note 6 on page 46.

The Directors’ statement on the Company’s system of RiskManagement and Internal Control is set out on pages 28 and 29.

Terms of Reference The Nomination and Remuneration, Management Engagement andAudit Committees have written terms of reference which defineclearly their respective responsibilities, copies of which areavailable for inspection on the Company’s website and on request atthe Company’s registered office and at the Annual General Meeting.

Risk Management and Internal Control The UK Corporate Governance Code requires the Directors, at leastannually, to review the effectiveness of the Company’s system ofrisk management and internal control and to report to shareholdersthat they have done so. This encompasses a review of all controls,which the Board has identified as including business, financial,operational, compliance and risk management.

Compliance withSections 1158 and1159

Calculation ofmanagement fee

Recognition andcompleteness ofinvestment income

Valuation, existenceand ownership ofinvestments


29

The Directors are responsible for the Company’s system of riskmanagement and internal control which is designed to safeguardthe Company’s assets, maintain proper accounting records andensure that financial information used within the business, orpublished, is reliable. However, such a system can only be designedto manage rather than eliminate the risk of failure to achievebusiness objectives and therefore can only provide reasonable,but not absolute, assurance against fraud, material misstatementor loss.

Since investment management, custody of assets and alladministrative services are provided to the Company by theManager and its associates, the Company’s system of riskmanagement and internal control mainly comprises monitoring theservices provided by the Manager and its associates, including theoperating controls established by them, to ensure they meet theCompany’s business objectives. There is an ongoing process foridentifying, evaluating and managing significant risks faced by theCompany (see Principal Risks on pages 19 and 20). This process hasbeen in place for the year under review and up to the date ofapproval of the Annual Report and financial statements, and itaccords with the Financial Reporting Council’s guidance. Whilst theCompany does not have an internal audit function of its own, theBoard considers that it is sufficient to rely on the internal auditdepartment of JPMAM. This arrangement is kept under review.

The key elements designed to provide effective internal control areas follows:

Financial Reporting – Regular and comprehensive review by theBoard of key investment and financial data, including managementaccounts, revenue projections, analysis of transactions andperformance comparisons.

Management Agreement – Appointment of a manager and custodianregulated by the Financial Conduct Authority (‘FCA’), whoseresponsibilities are clearly defined in a written agreement.

Management Systems – The Manager’s system of risk managementand internal control includes organisational agreements whichclearly define the lines of responsibility, delegated authority, controlprocedures and systems. These are monitored by JPMAM’sCompliance department which regularly monitors compliance withFCA rules and reports to the Board.

Investment Strategy – Authorisation and monitoring of theCompany’s investment strategy and exposure limits by the Board.

The Board, either directly or through the Audit Committee keepsunder review the effectiveness of the Company’s system of riskmanagement and internal control by monitoring the operation ofthe key operating controls of the Manager and its associates asfollows:

• the Board, through the Management Engagement and AuditCommittee, reviews the terms of the management agreementand receives regular reports from JPMAM’s Compliancedepartment;

• the Board reviews the report on the risk management andinternal controls and the operations of its Depositary, BNY MellonTrust & Depositary (UK) Limited, and its custodian, JPMorganChase Bank, which are themselves independently reviewed; and

• the Directors review every six months an independent report onthe risk management and internal controls and the operations ofthe Manager.

Depositary – The Board has appointed BNY Mellon Trust &Depositary (UK) Limited as depositary, with responsibilities foroversight of the safe keeping of the Company’s assets and cashflows.

Through the procedures set out above, the Board confirms that ithas reviewed the effectiveness of the Company’s system of riskmanagement and internal control for the year ended 31st December2016 and to the date of approval of this Annual Report & Accounts.

During the course of its review of the system of risk managementand internal control, the Board has not identified nor been advisedof any failings or weaknesses which it has determined to besignificant.

Going Concern The Directors believe that, having considered the Company’sinvestment objective (see page 16), risk management policies (seenote 20 on page 53), capital management policies and procedures(see note 21 on page 58), the nature of the portfolio andexpenditure and cashflow projections, the Company has adequateresources, an appropriate financial structure and suitablemanagement arrangements in place to continue in operationalexistence. For these reasons, the Directors consider that there isreasonable evidence to continue to adopt the going concern basisin preparing the Company’s financial statements. They have notidentified any material uncertainties to the Company’s ability tocontinue to do so over a period of at least 12 months from the dateof approval of these financial statements.

Relations with Shareholders The Board regularly monitors the shareholder profile of theCompany. It aims to provide shareholders with a full understandingof the Company’s activities and performance and reports formallyto shareholders two times a year by way of the Annual Report andAccounts, and Half Year Report. This is supplemented by the dailypublication, through the London Stock Exchange, of the net assetvalue of the Company’s shares.





All shareholders have the opportunity, and are encouraged,to attend the Company’s Annual General Meeting at which theDirectors and representatives of the Managers are available inperson to meet with shareholders and answer their questions.In addition, a presentation is given by the Investment Managers whoreview the Company’s performance. During the year the Company’sbroker and the Manager held regular discussions with largershareholders. The Directors are made fully aware of their views.In addition, on a regular basis the Board invites the Company’sbrokers, who are independent of the manager, to present to theDirectors and also asks them to canvass shareholder views whenappropriate. Through them, the Board not only receives anindependent and well informed report on shareholder views, butalso is able to offer shareholders meetings with the Chairman orthe Directors as and when required to address any queries. TheDirectors may be contacted through the Company Secretary whosedetails are shown on page 67 or via the ‘Ask a Question’ link on theCompany’s website. All communications from shareholders that areintended for the Board are forwarded in full directly to theChairman for his response.

The Company’s Annual Report and Accounts is published in time togive shareholders at least 20 working days’ notice of the AnnualGeneral Meeting. Shareholders wishing to raise questions inadvance of the meeting are encouraged to submit questions via theCompany’s website or write to the Company Secretary at theaddress shown on page 67.

Details of the proxy voting position on each resolution will bepublished on the Company website shortly after the Annual GeneralMeeting.

Corporate Governance and Voting Policy The Company has a management contract with JPMF, who delegatesresponsibility for voting alongside the management of theCompany’s portfolio to JPMAM. The following is a summary ofJPMAM’s policy statements on corporate governance, voting policyand social and environmental issues, which has been reviewed andnoted by the Board. Details on social and environmental issues areincluded in the Strategic Report on pages 18 and 19.

Corporate Governance JPMAM believes that corporate governance is integral to ourinvestment process. As part of our commitment to delivering superiorinvestment performance to our clients, we expect and encourage thecompanies in which we invest to demonstrate the highest standards ofcorporate governance and best business practice. We examine theshare structure and voting structure of the companies in which weinvest, as well as the board balance, oversight functions andremuneration policy. These analyses then form the basis of our proxyvoting and engagement activity.

Proxy Voting JPMAM manages the voting rights of the shares entrusted to it as itwould manage any other asset. It is the policy of JPMAM to vote in aprudent and diligent manner, based exclusively on our reasonablejudgement of what will best serve the financial interests of our clients.So far as is practicable, we will vote at all of the meetings called bycompanies in which we are invested.

Stewardship/EngagementJPMAM recognises its wider stewardship responsibilities to its clientsas a major asset owner. To this end, we support the introduction of theFRC Stewardship Code, which sets out the responsibilities ofinstitutional shareholders in respect of investee companies. Under theCode, managers should:

– publicly disclose their policy on how they will discharge theirstewardship responsibilities to their clients;

– disclose their policy on managing conflicts of interest;

– monitor their investee companies;

– establish clear guidelines on how they escalate engagement;

– be willing to act collectively with other investors whereappropriate;

– have a clear policy on proxy voting and disclose their votingrecord; and

– report to clients.

JPMAM endorses the Stewardship Code for its UK investments andsupports the principles as best practice elsewhere. We believe thatregular contact with the companies in which we invest is central to ourinvestment process and we also recognise the importance of being an‘active’ owner on behalf of our clients.

JPMAM’s Voting Policy and Corporate Governance Guidelines areavailable on request from the Company Secretary or can bedownloaded from JPMAM’s website:www.jpmorganinvestmenttrusts.co.uk/governance, which also setsout its approach to the seven principles of the FRC StewardshipCode, its policy relating to conflicts of interest and its detailedvoting record.

By order of the Board Lucy Dina, for and on behalf of JPMorgan Funds Limited, Secretary

17th March 2017


31

DIRECTORS’ REMUNERATION REPORT

The Board presents the Directors’ Remuneration Report for the yearended 31st December 2016, which has been prepared in accordancewith the requirements of Section 421 of the Companies Act 2006 asamended.

The law requires the Company’s auditor to audit certain of thedisclosures provided. Where disclosures have been audited, they areindicated as such. The auditor’s opinion is included in their reporton page 35.

As all of the Directors are non-executive, the Board has notestablished a Remuneration Committee. Instead, the Nominationand Remuneration Committee reviews Directors’ fees on a regularbasis and makes recommendations to the Board as and whenappropriate.

Directors’ Remuneration PolicyThe law requires that the Directors’ Remuneration Policy Report issubject to a triennial binding vote. However, a decision has beentaken to seek approval annually and therefore an ordinaryresolution to approve this report will be put to shareholders at theforthcoming Annual General Meeting. The policy subject to the vote,is set out in full below and is currently in force.

The Board’s policy for this and subsequent years is that Directors’fees should properly reflect the time spent by the Directors on theCompany’s business and should be at a level to ensure thatcandidates of a high calibre are recruited to the Board. TheChairman of the Board and the Chairman of the Audit Committeeare paid higher fees than other Directors, reflecting the greatertime commitment involved in fulfilling those roles.

The Nomination and Remuneration Committee, comprising allDirectors, reviews Directors’ fees on a regular basis and makesrecommendations to the Board as and when appropriate. Reviewsare based on information provided by the Manager, and includesresearch carried out by third parties on the level of fees paid to thedirectors of the Company’s peers and within the investment trustindustry generally. The involvement of remuneration consultantshas not been deemed necessary as part of this review.

The Company has no Chief Executive Officer and no employees andtherefore there was no consultation with employees, and there is noemployee comparative data to provide, in relation to the setting ofthe remuneration policy for Directors.

All of the Directors are non-executive. There are noperformance-related elements to their fees and the Company doesnot operate any type of incentive, share scheme, award or pensionscheme and therefore no Directors receive bonus payments orpension contributions from the Company or hold options to acquire

shares in the Company. Directors are not granted exit paymentsand are not provided with compensation for loss of office. No otherpayments are made to Directors, other than the reimbursement ofreasonable out-of-pocket expenses incurred in attending theCompany’s business.

During the year under review, Directors’ fees were paid at thefollowing rates: £33,350 per annum for the Chairman; £27,600 perannum for the Chairman of the Audit Committee; and £23,000 perannum for each other Director. Fees were increased with effectfrom 1st January 2017 to £34,000, £28,200 and £23,500respectively.

The Company’s Articles of Association stipulate that aggregateDirectors’ fees must not exceed £200,000 per annum. Any increasein this the maximum aggregate amount requires both Board andshareholder approval.

The Company has not sought shareholder views on its remunerationpolicy. The Nomination and Remuneration Committee considers anycomments received from shareholders on remuneration policy onan ongoing basis and will take account of these views if appropriate.

The Directors do not have service contracts with the Company. Theterms and conditions of Directors’ appointments are set out informal letters of appointment which are available for review at theCompany’s Annual General Meeting and the Company’s registeredoffice. Details of the Board’s policy on tenure are set out onpage 26.

The Company’s Remuneration policy also applies to new Directors.

Directors’ Remuneration Policy ImplementationThe Directors’ Remuneration Report, which includes details of theDirectors’ remuneration policy and its implementation, is subject toan annual advisory vote and therefore an ordinary resolution toapprove this report will be put to shareholders at the forthcomingAnnual General Meeting. There have been no changes to the policycompared with the year ended 31st December 2015 and no changesare proposed for the year ending 31st December 2017.

At the Annual General Meeting held on 25th April 2016, of votescast in respect of the Remuneration Policy, 99.2% of votes cast werein favour of (or granted discretion to the Chairman who voted infavour of) the remuneration policy and 0.8% voted against.In respect of the Remuneration Report, 99.3% of votes were castin favour and 0.7% against.

Details of voting on both the Remuneration Policy and the Directors’Remuneration Report from the 2017 Annual General Meeting will begiven in the annual report for the year ending 31st December 2017.




Details of the implementation of the Company’s remuneration policyare given below. No advice from remuneration consultants wasreceived during the year under review.

Single total figure of remunerationThe single total figure of remuneration for the Board as a whole forthe year ended 31st December 2016 was £135,066. The single totalfigure of remuneration for each Director is detailed below togetherwith the prior year comparative.

There are no performance targets in place for the Directors of theCompany and there are no benefits for any of the Directors whichwill vest in the future. There are no benefits, pension, bonus, longterm incentive plans, exit payments or arrangements in place onwhich to report.

Single total figure table1

2016 2015

Taxable TaxableFees expenses2 Total Fees expenses2 Total

£ £ £ £ £ £

Davina Walter 33,350 — 33,350 31,600 — 31,600 Mark Ansell 23,000 431 23,431 22,500 — 22,500 ChristopherGalleymore 23,000 — 23,000 22,500 — 22,500

Alan Kemp3 — — — 7,500 — 7,500 Julia Le Blan4 27,600 — 27,600 26,000 — 26,000 David Ross5 23,000 885 23,885 18,750 — 18,750 Shefaly Yogendra6 3,800 — 3,800 — — —

Total 133,750 1,316 135,066 128,850 — 128,850

1 Audited information. Other subject headings for the single figure table as prescribedby regulation are not included because there is nothing to disclose in relation thereto.A total amount of £10,084 (2015: £9,820) was paid on National Insurance.

2 Taxable travel and subsistence expenses incurred in attending Board and Committeemeetings.

3 Retired as a Director on 29th April 2015.4 Julia La Blan took over as Audit Committee Chairman on 1st January 2015.5 Appointed 1st March 2015.6 Appointed 1st November 2016.

A table showing the total remuneration for the Chairman over thefive years ended 31st December 2016 is below:

Remuneration for the Chairman over the five yearsended 31st December 2016Year ended31st December Fees

2016 £33,3502015 £31,6002014 £31,0002013 £30,2002012 £29,400

Directors’ Shareholdings1

There are no requirements pursuant to the Company’s Articles ofAssociation for the Directors to own shares in the Company. Thebeneficial shareholdings of the Directors who held office at the yearend are detailed below.

31st December2015 or as

31st December at date ofDirectors’ Name 2016 appointment2

Davina Walter 79,916 79,916Mark Ansell 136,929 136,929Christopher Galleymore 50,000 50,000Julia Le Blan 15,000 15,000David Ross2 25,000 25,000Shefaly Yogendra3 — —

Total 306,845 306,845

1 Audited information.2 Appointed as a Director on 1st March 2015.3 Appointed 1st November 2016.

As at the last practicable date before the publication of thisdocument, there have been no changes to the Directors’shareholdings since the year end.

The Directors have no other share interests or share options in theCompany and no share schemes are available.

In accordance with the Companies Act 2006, a graph showing theCompany’s share price total return compared with its benchmark,the Russell 2000 Index total return with dividends reinvested, insterling terms, over the last seven years is shown below. The Boardbelieves this Index is the most representative comparator for theCompany.

Seven Year Share Price and Benchmark Total ReturnPerformance to 31st December 2016

Source: Morningstar.

Share price total return.

Benchmark.

100

150

200

250

300

350

400

450

20162015201420132012201120102009

DIRECTORS’ REMUNERATION REPORT CONTINUED


33

A table showing actual expenditure by the Company onremuneration and distributions to shareholders for the year andthe prior year is below:

Expenditure by the Company on remuneration anddistributions to shareholders

Year ended 31st December

2016 2015

Remuneration paid to all Directors £135,066 £128,850

Distribution to shareholdersby way of:— dividend £nil £nil— share repurchases £3,042,000 £nil

For and on behalf of the Board Davina WalterChairman

17th March 2017


STATEMENT OF DIRECTORS’ RESPONSIBILITIES

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

Company law requires the Directors to prepare financial statementsfor each financial year. Under that law, the Directors have electedto prepare the financial statements in accordance with UnitedKingdom Generally Accepted Accounting Practice (United KingdomAccounting Standards, comprising Financial ReportingStandard 102, The Financial Reporting Standard Applicable in theUK and Republic of Ireland (FRS 102)) and applicable law. Undercompany law the Directors must not approve the financialstatements unless they are satisfied that, taken as a whole, theannual report and accounts are fair, balanced and understandable,provide the information necessary for shareholders to assess theCompany’s position and performance, business model and strategyand that they give a true and fair view of the state of affairs of theCompany and of the total return or loss of the Company for thatperiod. In order to provide these confirmations, and in preparingthese financial statements, the Directors are required to:

• select suitable accounting policies and then apply themconsistently;

• make judgements and estimates that are reasonable andprudent;

• state whether applicable UK Accounting Standards, comprisingFRS 102, have been followed, subject to any material departuresdisclosed and explained in the financial statements;

• notify the Company’s shareholders in writing about the use ofdisclosure exemptions, if any, in FRS 102 used in the preparationof financial statements; and

• prepare the financial statements on a going concern basis unlessit is inappropriate to presume that the Company will continue inbusiness

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper accountingrecords that are sufficient to show and explain the Company’stransactions and disclose with reasonable accuracy at any time thefinancial position of the Company and to enable them to ensure thatthe financial statements comply with the Companies Act 2006. Theyare also responsible for safeguarding the assets of the Companyand hence for taking reasonable steps for the prevention anddetection of fraud and other irregularities.

The accounts are published on the www.jpmussmallercompanies.co.ukwebsite, which is maintained by the Company’s Manager.

The maintenance and integrity of the website maintained by theManager is, so far as it relates to the Company, the responsibility ofthe Manager. The work carried out by the Auditor does not involveconsideration of the maintenance and integrity of this website and,accordingly, the Auditor accepts no responsibility for any changesthat have occurred to the accounts since they were initiallypresented on the website. The accounts are prepared in accordancewith UK legislation, which may differ from legislation in otherjurisdictions.

Under applicable law and regulations the Directors are alsoresponsible for preparing a Directors’ Report, Strategic Report,Statement of Corporate Governance and Directors’ RemunerationReport that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed onpages 21 and 22, confirms that, to the best of their knowledge:

• the financial statements, which have been prepared inaccordance with United Kingdom Generally Accepted AccountingPractice (United Kingdom Accounting Standards) and applicablelaw, give a true and fair view of the assets, liabilities, financialposition and net return or loss of the Company; and

• the Strategic Report includes a fair review of the developmentand performance of the business and the position of theCompany, together with a description of the principal risksand uncertainties that it faces.

The Board confirms that it is satisfied that the annual report andaccounts, taken as a whole are fair, balanced and understandableand provide the information necessary for shareholders to assessthe Company’s position and performance, business model andstrategy.

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

For and on behalf of the Board Davina WalterChairman

17th March 2017


JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & ACCOUNTS 201634


35

Independent Auditor’s Report

TO THE MEMBERS OF JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC

Our opinion on the financial statements is unmodifiedIn our opinion the financial statements:

• give a true and fair view of the state of the Company’s affairs as at 31st December 2016 and of its net return for the year then ended;

• have been properly prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom GenerallyAccepted Accounting Practice), including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

Who we are reporting toThis report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Ouraudit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in anauditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone otherthan the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

What we have auditedJPMorgan US Smaller Companies Investment Trust plc’s financial statements for the year ended 31st December 2016 comprise thestatement of comprehensive income, the statement of changes in equity, the statement of financial position, the statement of cash flowsand the related notes.

The financial reporting framework that has been applied in their preparation is United Kingdom Generally Accepted Accounting Practice,including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’.

Overview of our audit approach• Overall materiality: £1,538,000 which represents 1% of the Company’s net asset value; and

• Key audit risks were identified as:

– Valuation, existence and ownership of investments; and

– Accuracy and completeness of investment income.

Our assessment of riskIn arriving at our opinions set out in this report, we highlight the following risks that, in our judgement, had the greatest effect on our audit:

Audit risk How we responded to the risk

Valuation, existence and ownership of investmentsThe Company’s business objective is investing in US smallercompanies to achieve capital growth. The investment portfolio at£160 million is a significant material balance in the statement offinancial position at year-end and the main driver of the Company’sperformance. We therefore identified the valuation, existence andownership of investments as risks that require particular auditattention.

Our audit work included, but was not restricted to:

• assessing whether the Company’s accounting policy for thevaluation of investments is in accordance with United KingdomGenerally Accepted Accounting Practice and the Statement ofRecommended Practice ‘Financial Statements of Investment TrustCompanies and Venture Capital Trusts’ (the ‘SORP’) and testingwhether management have accounted for valuation inaccordance with that policy;

• confirming the existence and ownership of investments throughagreeing the holdings listed in the portfolio at year end to anindependent confirmation we received directly from theCompany’s custodian;



Independent Auditor’s Report continued

Area of focus How we responded to the risk

• independently pricing 100% of the listed equity portfolio byobtaining the bid prices from independent market sources andcalculating the total valuation based on the Company’s investmentholdings which was agreed to the Company’s records; and

• to test that investments are actively traded, extracting a report oftrading volumes in the five trading days before and after yearend from an independent market source for the equityinvestments held.

The Company’s accounting policy on valuation of investments isshown in note 1(b) and related disclosures are included in note 10.The Audit Committee identified valuation, existence and ownershipof investments as a significant issue in its report on page 28, wherethe Committee also described the action that it has taken to addressthis issue.

Accuracy and completeness of investment incomeInvestment income is the Company’s major source of revenue anda significant material balance in the Statement of ComprehensiveIncome. Accordingly, we identified the accuracy and completenessof investment income from the investment portfolio as risks thatrequire particular audit attention.

Our audit work included, but was not restricted to:

• assessing whether the Company’s accounting policy for revenuerecognition is in accordance with United Kingdom GenerallyAccepted Accounting Practice and the SORP;

• obtaining an understanding of the Company’s process forrecognising revenue in accordance with the Company’s statedaccounting policy;

• testing that income transactions were recognised in accordancewith the policy by selecting a sample of quoted investments andagreeing the relevant investment income receivable for thosequoted equities to the Company’s records. Also, for the selectedinvestments, we obtained the respective dividend rateentitlements from independent sources and checked against theamounts recorded in the Company’s accounting recordsmaintained by the administrator. In addition, we agreed thereceipt of the dividend income to bank statements; and

• performing, on a sample basis, a search for special dividends onthe equity investments held during the year to check whetherdividend income attributable to those investments has beenproperly recognised. We checked the categorisation of specialdividends as either revenue or capital receipts.

The Company’s accounting policy on income is shown in note 1(d)and related disclosures are included in note 4. The Audit Committeeidentified recognition and completeness of investment income as asignificant issue in its report on page 28, where the Committee alsodescribed the action that it has taken to address this issue.


37

Our application of materiality and an overview of the scope of our auditMaterialityWe define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions ofa reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of ourwork and in evaluating the results of that work.

We determined materiality for the audit of the financial statements as a whole to be £1,538,000, which is 1% of the Company’s net assetvalue. This benchmark is considered the most appropriate because net assets are fundamental to the performance and financial position ofthe business.

Materiality for the current year is higher than the level that we determined for the year ended 31st December 2015 reflecting the increase innet asset value in the current year.

We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of financialstatement materiality. We also determine a lower level of specific materiality for certain areas such as Directors’ remuneration and relatedparty transactions.

We determined the threshold at which we will communicate misstatements to the audit committee to be £77,000. In addition, we willcommunicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.

Overview of the scope of our auditA description of the generic scope of an audit of financial statements is provided on the Financial Reporting Council’s website atwww.frc.org.uk/auditscopeukprivate.

We conducted our audit in accordance with International Standards on Auditing (ISAs) (UK and Ireland). Our responsibilities under thosestandards are further described in the ‘Responsibilities for the financial statements and the audit’ section of our report. We believe that theaudit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

We are independent of the Company in accordance with the Auditing Practices Board’s Ethical Standards for Auditors, and we have fulfilledour other ethical responsibilities in accordance with those Ethical Standards.

Our audit approach was based on a thorough understanding of the Company’s business and is risk-based. The day-to-day management ofthe Company’s investment portfolio, the custody of its investments and the maintenance of the Company’s accounting records is outsourcedto third-party service providers. Accordingly, our audit work included:

• obtaining an understanding of, and evaluating, relevant internal controls at both the Company and third-party service providers byobtaining and reading the internal controls reports on the description, design and operating effectiveness of internal controls at both theCompany and the relevant third-party service providers; and

• substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such as ouroverall assessment of the control environment and our evaluation of the design and implementation of controls and the management ofspecific risks.

Other reporting required by regulationsOur opinion on other matters prescribed by the Companies Act 2006 is unmodifiedIn our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the CompaniesAct 2006.

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements areprepared is consistent with the financial statements; and

• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exceptionUnder the Companies Act 2006 we are required to report to you if, in our opinion:• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by

us; or



• the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accountingrecords and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Under the Listing Rules, we are required to review:• the Directors’ statements in relation to going concern and longer-term viability, set out on pages 20 and 28 and respectively; and

• the part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK CorporateGovernance Code specified for our review.

Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:• materially inconsistent with the information in the audited financial statements; or

• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course ofperforming our audit; or

• otherwise misleading.

In particular, we are required to report to you if:• we have identified any inconsistencies between our knowledge acquired during the audit and the Directors’ statement that they consider

the annual report is fair, balanced and understandable; or

• the annual report does not appropriately disclose those matters that were communicated to the audit committee which we considershould have been disclosed.

We have nothing to report in respect of the above.

We also confirm that we do not have anything material to add or to draw attention to in relation to:

• the Directors’ confirmation in the annual report that they have carried out a robust assessment of the principal risks facing the Companyincluding those that would threaten its business model, future performance, solvency or liquidity;

• the disclosures in the annual report that describe those risks and explain how they are being managed or mitigated;

• the Directors’ statement in the financial statements about whether they have considered it appropriate to adopt the going concern basisof accounting in preparing them, and their identification of any material uncertainties to the Company’s ability to continue to do so overa period of at least twelve months from the date of approval of the financial statements; and

• the Directors’ explanation in the annual report as to how they have assessed the prospects of the Company, over what period they havedone so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation thatthe Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, includingany related disclosures drawing attention to any necessary qualifications or assumptions.

Responsibilities for the financial statements and the auditWhat the Directors are responsible for:As explained more fully in the Statement of Directors’ Responsibilities set out on page 34, the Directors are responsible for the preparationof the financial statements and for being satisfied that they give a true and fair view.

What we are responsible for:Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK andIreland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Andrew Heffron (Senior Statutory Auditor)for and on behalf of Grant Thornton UK LLPStatutory Auditor, Chartered Accountants

17th March 2017

Independent Auditor’s Report continued


39

Financial Statements

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST DECEMBER 2016

2016 2015Revenue Capital Total Revenue Capital Total

Notes £’000 £’000 £’000 £’000 £’000 £’000

Gains on investments held at fairvalue through profit or loss 3 — 52,175 52,175 — 5,007 5,007

Net foreign currency losses on cash and loans — (1,736) (1,736) — (688) (688)

Income from investments 4 2,279 — 2,279 1,718 — 1,718Interest receivable 4 38 — 38 10 — 10

Gross return 2,317 50,439 52,756 1,728 4,319 6,047Management fee 5 (134) (1,208) (1,342) (135) (1,216) (1,351)Other administrative expenses 6 (438) — (438) (407) — (407)

Net return before finance costs and taxation 1,745 49,231 50,976 1,186 3,103 4,289

Finance costs 7 (20) (182) (202) (11) (99) (110)

Net return before taxation 1,725 49,049 50,774 1,175 3,004 4,179Taxation 8 (336) — (336) (246) — (246)

Net return after taxation 1,389 49,049 50,438 929 3,004 3,933

Return per share 9 2.51p 88.76p 91.27p 1.66p 5.35p 7.01p

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

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

Net return after taxation represents the profit for the year and also Total Comprehensive Income.

The notes on pages 43 to 59 form an integral part of these financial statements.



Financial Statements continued

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2016

Called up Capital share Share redemption Capital Revenue capital premium reserve reserves1 reserve1 Total £’000 £’000 £’000 £’000 £’000 £’000

At 31st December 2014 1,424 7,936 1,851 90,471 (2,334) 99,348Shares issued from Treasury — 110 — 414 — 524Net return for the year — — — 3,004 929 3,933

At 31st December 2015 1,424 8,046 1,851 93,889 (1,405) 103,805Shares issued from Treasury — 952 — 1,671 — 2,623 Repurchase of shares into Treasury — — — (3,042) — (3,042)Net return for the year — — — 49,049 1,389 50,438

At 31st December 2016 1,424 8,998 1,851 141,567 (16) 153,824

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



41

STATEMENT OF FINANCIAL POSITION AT 31ST DECEMBER 2016

2016 2015 Notes £’000 £’000

Fixed assets Investments held at fair value through profit or loss 10 160,194 113,980

Current assets 11Debtors 651 180Cash and cash equivalents1 9,408 3,298

10,059 3,478

Creditors: amounts falling due within one year 12 (16,429) (13,653)

Net current liabilities (6,370) (10,175)

Total assets less current liabilities 153,824 103,805

Net assets 153,824 103,805

Capital and reserves Called up share capital 13 1,424 1,424Share premium 14 8,998 8,046Capital redemption reserve 14 1,851 1,851Capital reserves 14 141,567 93,889Revenue reserve 14 (16) (1,405)

Total shareholders’ funds 153,824 103,805

Net asset value per share 15 276.7p 184.3p

1 This line item combines the two lines of ‘Investment in liquidity fund held at fair value through profit or loss’ and ‘Cash and short term deposits’ in the financial statements for theyear ended 31st December 2015 into one. Under FRS 102, liquidity funds are considered cash equivalents as they are held for cash management purposes as explained in note 1(a)to the financial statements.

The financial statements on pages 39 to 59 were approved and authorised for issue by the Directors on 17th March 2017 and were signed ontheir behalf by:

Davina WalterChairman


Company registration number: 552775.



STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST DECEMBER 2016

2016 2015 Notes £’000 £’000

Net cash outflow from operations before dividends and interest 16 (1,801) (1,751)Dividends received 1,687 1,494Interest received 32 10Overseas tax recovered 7 16Interest paid (239) (341)

Net cash inflow/(outflow) from operating activities 635 (96)

Purchases of investments (29,098) (27,297)Sales of investments 34,985 23,705Settlement of foreign currency contracts 6 2

Net cash inflow/(outflow) from investing activities 5,893 (3,590)

Drawdown of bank loan — 3,289Shares re-issued from Treasury 2,623 524Repurchase of shares into Treasury (3,042) —

Net cash (outflow)/inflow from financing activities (419) 3,813

Increase/(decrease) in cash and cash equivalents 5,235 (118)

Cash and cash equivalents at start of year 3,298 3,171Foreign exchange gains 874 245Cash and cash equivalents at end of year 9,407 3,298

Increase/(decrease) in cash and cash equivalents 5,235 (118)

Cash and cash equivalents consist of:Cash and short term deposits — 5Bank overdraft (1) —Cash held in JPMorgan US Dollar Liquidity Fund 9,408 3,293

Total 9,407 3,298




43

1. Accounting policies(a) Basis of accounting

The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted AccountingPractice (‘UK GAAP’), including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ and with theStatement 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, updated in January 2017.

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 on page 29 of the Directors’Report form part of these financial statements.

The policies applied in these financial statements are consistent with those applied in the preceding year, except for the followingmatters:

The investment in liquidity fund has been presented as a cash and cash equivalent in the current year to better reflect the fact thatthe position is held as an alternative to cash. It was previously held as a non-current asset, and the comparative figures in therelevant primary financial statements and notes have been similarly amended. The impact on the previous year was to increasecurrent assets by £3,293,000 while decrease fixed assets by the same amount on the Statement of Financial Position. There was noimpact on reported profit or net assets. The following corresponding notes to the financial statements have been impacted: note 10investments, note 11 current assets, note 19 disclosures regarding financial instruments measured at fair value, and note 20 financialinstruments’ exposure to risk and risk management policies.

In March 2016, the FRC published amendments to FRS 102 concerning the fair value hierarchy disclosures. These amendments areeffective for accounting periods beginning on or after 1st January 2017. The Company has early adopted the amendment and fulldisclosure is given in note 19 on page 52.

(b) Valuation of investments

The Company has chosen to adopt Sections 11 and 12 of FRS 102 in respect of financial instruments.

The Company’s business is investing in financial assets with a view to profiting from their capital growth.

Upon initial recognition the investments are treated by the Company as held at fair value through profit or loss. They are includedinitially at fair value which is taken to be their cost, excluding expenses incidental to purchase which are written off to capital at thetime of acquisition. Subsequently the investments are valued at fair value, which are quoted bid prices for investments traded inactive markets. For investments which are not traded in active markets, unlisted and restricted investments, the Board takes intoaccount the latest traded prices, other observable market data and asset values based on the latest management accounts.

All purchases and sales are accounted for on a trade date basis.

(c) Accounting for reserves

Gains and losses on sales of investments including the related foreign exchange gains and losses, realised exchange gains and losseson foreign currency, management fee and finance costs allocated to capital and any other capital charges, are included in theStatement of Comprehensive Income and dealt with in capital reserves within ‘Gains and losses on sales of investments’.

Increases and decreases in the valuation of investments held at the year end including the related foreign exchange gains and losses,unrealised gains and losses on forward foreign currency contracts, are included in the Statement of Comprehensive Income and dealtwith in the capital reserve ‘Investment holding gains and losses’.

(d) Income

Dividends receivable from equity shares are included in revenue on an ex-dividend basis except where, in the opinion of the Board,the dividend is capital in nature, in which case it is included in capital.

Overseas dividends are included gross of any withholding tax.

Special dividends are looked at individually to ascertain the reason behind the payment. This will determine whether they are treatedas revenue or capital.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2016



NOTES TO THE FINANCIAL STATEMENTS CONTINUED


1. Accounting policies continued

(d) Income continued

Where the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cashdividend foregone is recognised in revenue. Any excess in the value of the shares received over the amount of the cash dividend isrecognised in capital.

Deposit interest receivable is taken to revenue on an accruals basis.

(e) Expenses

All expenses are accounted for on an accruals basis. Expenses are allocated wholly to the revenue with the following exceptions:

– the management fee is allocated 10% to revenue and 90% to capital, in line with the Board’s expected long term split of revenueand capital return from the Company’s investment portfolio.

– expenses incidental to the purchase and sale of an investment are charged to capital. These expenses are commonly referred to astransaction costs and comprise brokerage commission and stamp duty. Details of transaction costs are given in note 10 on page 48.

(f) Finance costs

Finance costs are accounted for on an accruals basis using the effective interest method.

Finance costs are allocated 10% to revenue and 90% to capital, in line with the Board’s expected long term split of revenue andcapital return from the Company’s investment portfolio.

(g) Financial instruments

Cash and cash equivalents may comprise cash including demand deposits which are readily convertible to a known amount of cashand are subject to an insignificant risk of change in value. Liquidity funds are considered cash equivalents as they are held for cashmanagement purposes as an alternative to cash.

Bank loans are classified as financial liabilities at amortised cost. They are initially measured at proceeds net of direct issue costs andsubsequently measured at amortised cost. Interest payable on bank loans is accounted for on an accruals basis in the Statement ofComprehensive Income. The amortisation of direct issue costs are accounted for on an accruals basis in the Statement ofComprehensive Income using the effective interest method.

Other debtors and creditors do not carry any interest, are short term in nature and are accordingly stated at nominal value, withdebtors reduced by appropriate allowances for estimated irrecoverable amounts.

(h) Taxation

Current tax is provided at the amounts expected to be paid or recovered.

Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date. Deferred taxliabilities are recognised for all taxable timing differences but deferred tax assets are only recognised to the extent that it is morelikely than not that taxable profits will be available against which those timing differences can be utilised.

Tax relief is allocated to expenses charged to capital on the ‘marginal basis’. On this basis, if taxable income is capable of beingentirely offset by revenue expenses, then no tax relief is transferred to the capital column.

Deferred tax is measured at the tax rate which is expected to apply in the periods in which the timing differences are expected toreverse, based on tax rates that have been enacted or substantively enacted at the balance sheet date and is measured on anundiscounted basis.

(i) Value Added Tax (‘VAT’)

Expenses are disclosed inclusive of the related irrecoverable VAT. Recoverable VAT is calculated using the partial exemption methodbased on the proportion of zero rated supplies to total supplies.


45

(j) Functional currency

The Company is required to identify its functional currency, being the currency of the primary economic environment in which theCompany operates.

The Board, having regard to the currency of the Company’s share capital and the predominant currency in which its shareholdersoperate, has determined that sterling is the functional currency. Sterling is also the currency in which the financial statements arepresented.

Transactions denominated in foreign currencies are converted at actual exchange rates at the date of the transaction. Monetaryassets and liabilities and equity investments held at fair value denominated in foreign currencies at the year end are translated at therates of exchange prevailing at the year end.

Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain orloss in revenue or capital, depending on whether the gain or loss is of a revenue or capital nature.

(k) Dividends payable

Dividends are included in the financial statements in the year in which they are approved by shareholders.

(l) Repurchase of shares into Treasury

The cost of repurchasing shares into Treasury, including the related stamp duty and transaction costs is charged to capital reservesand dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis. Whereshares held in Treasury are subsequently cancelled, the nominal value of those shares is transferred out of called up share capital andinto capital redemption reserve.

Should shares held in Treasury be reissued, the sales proceeds will be treated as a realised profit up to the amount of the purchaseprice of those shares and will be transferred to capital reserves. The excess of the sales proceeds over the purchase price will betransferred to share premium.

2. Significant accounting judgements, estimates and assumptionsThe preparation of the Company’s financial statements on occasion requires the Directors to make judgements, estimates andassumptions that affect the reported amounts in the primary financial statements and the accompanying disclosures. Theseassumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilitiesaffected in the current and future periods, depending on circumstance.

The Directors do not believe that any significant accounting judgements or estimates have been applied to this set of financialstatements, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within thenext financial year.

3. Gains on investments held at fair value through profit or loss 2016 2015£’000 £’000

Gains on investments held at fair value through profit or loss based on historic cost 10,601 7,309Amounts recognised in investment holding gains and losses in the previous year in

respect of investments sold during the year (5,324) (5,459)

Gains on sales of investments based on the carrying value at the previous balance sheet date 5,277 1,850

Net movement in investment holding gains and losses 46,902 3,160Other capital charges (4) (3)

Total capital gains on investments held at fair value through profit or loss 52,175 5,007





4. Income 2016 2015£’000 £’000

Income from investmentsDividends from investments 2,279 1,718Interest receivableInterest from liquidity fund 38 10

Total income 2,317 1,728

5. Management fee2016 2015

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

Management fee 134 1,208 1,342 135 1,216 1,351

Details of the management fee are given in the Directors’ Report on page 23.

6. Other administrative expenses2016 2015£’000 £’000

Administration expenses 187 169Depositary fees1 23 22Directors’ fees2 134 129Savings scheme costs3 68 61Fees payable for the audit of the Company’s annual accounts4 26 26

438 407

1 Includes £2,000 (2015: £2,000) irrecoverable VAT.2 Full disclosure is given in the Directors’ Remuneration Report on page 32.3 Paid to the Manager for marketing and administration of saving scheme products. Includes £5,000 (2015: £5,000) irrecoverable VAT.4 Includes £2,000 (2015: £2,000) irrecoverable VAT.

7. Finance costs 2016 2015

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

Bank loans and overdraft interest 20 182 202 11 99 110


47

8. Taxation (a) Analysis of tax charge in the year

2016 2015£’000 £’000

Overseas withholding tax 336 246

Total tax charge for the year 336 246

(b) Factors affecting total tax charge for the year

The tax charged for the year is lower than (2015: lower) the Company’s applicable rate of corporation tax of 20.00% (2015: 20.25%).The factors affecting the total tax charge for the year are as follows:

2016 2015Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000

Net return before taxation 1,725 49,049 50,774 1,175 3,004 4,179

Net return before taxation multiplied by theCompany’s applicable rate of corporationtax of 20.00% (2015: 20.25%) 345 9,810 10,155 238 608 846

Effects of:Non taxable capital gains — (10,088) (10,088) — (874) (874)Non taxable overseas dividends (408) — (408) (312) — (312)Unrelieved expenses 63 278 341 76 266 342Income taxed in different years — — — (2) — (2)Overseas withholding tax 336 — 336 246 — 246

Total tax charge for the year 336 — 336 246 — 246

(c) Deferred taxation

The Company has an unrecognised deferred tax asset of £3,961,000 (2015: £3,878,000) based on a prospective corporation tax rateof 17% (2015: 18%). The UK Government announced in July 2015 that the corporation tax rate is set to be cut to 19% in 2017 and 18%in 2020. These reductions in the standard rate of corporation tax were substantively enacted on 26th October 2015 and becameeffective from 18th November 2015. The deferred tax asset has arisen due to the cumulative excess of deductible expenses overtaxable income. Given the composition of the Company’s portfolio, it is not likely that this asset will be utilised in the foreseeablefuture and therefore no asset has been recognised in the financial statements.

Given the Company’s status as an investment trust company and the intention to continue meeting the conditions required to obtainapproval, the Company has not provided for deferred tax on any capital gains or losses arising on the revaluation or disposal ofinvestments.





9. Return per share2016 2015£’000 £’000

Revenue return 1,389 929Capital return 49,049 3,004

Total return 50,438 3,933

Weighted average number of shares in issue during the year 55,258,808 56,159,613

Revenue return per share 2.51p 1.66pCapital return per share 88.76p 5.35p

Total return per share 91.27p 7.01p

10. Investments 2016 20151

£’000 £’000

Investments listed on a recognised stock exchange 160,194 113,980

Opening book cost 84,904 74,237Opening investment holding gains 29,076 31,426

Opening valuation 113,980 105,663

Movements in the year:Purchases at cost 29,222 27,297Sales – proceeds (35,187) (23,715)Gains on sales of investments based on the carrying value at the previous balance sheet date 5,277 1,850Net movement in investment holding gains and losses 46,902 3,160

160,194 114,255

Closing book cost 89,540 84,904Closing investment holding gains 70,654 29,076

Total investments held at fair value through profit or loss 160,194 113,980

1 Relevant figures have been amended in line with the current presentation adopted. Under FRS 102, liquidity funds are classified as cash equivalents.

Transaction costs on purchases during the year amounted to £24,000 (2015: £20,000) and on sales during the year amounted to£19,000 (2015: £15,000). These costs comprise mainly brokerage commission and stamp duty.

During the year, prior year investment holding gains amounting to £5,324,000 have been transferred to gains on sales of investmentsas disclosed in note 14.


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11. Current assetsDebtors

2016 2015£’000 £’000

Securities sold awaiting settlement 205 6Dividends and interest receivable 330 150Overseas tax recoverable 75 —Other debtors 41 24

651 180

The Directors consider that the carrying amount of debtors approximates to their fair value.

Cash and cash equivalents

Cash and cash equivalents comprise bank balances, short term deposits and liquidity funds. The carrying amount of these representstheir fair value.

12. Creditors: amounts falling due within one year 2016 2015£’000 £’000

Securities purchased awaiting settlement 124 —Bank loan 16,186 13,569 Bank overdraft 1 —Loan interest payable 59 21 Other creditors and accruals 59 63

16,429 13,653

The Directors consider that the carrying amount of creditors falling due within one year approximates to their fair value.

On 6th April 2016, the Company renewed its US$20 million loan facility with Scotiabank for a further 364 day period. Interest on therenewed facility is payable at a margin over LIBOR as offered in the market for the loan period plus the ‘mandatory costs’ rate, whichis the lender’s cost of complying with certain regulatory requirements. This facility is unsecured and is subject to covenants which arecustomary for a credit agreement of this nature. The current facility matures on 4th April 2017 at which point the Board will review itsborrowing facility.

As at 31st December 2016, the Company had drawn down US$20.0 million (£16.2 million) on this facility. At the comparative year end,the Company had drawn down US$20.0 million (£13.6 million) on the US$20.0 million facility with Scotiabank, which expired on5th April 2016.





13. Called up share capital 2016 2015£’000 £’000

Ordinary shares allotted and fully paidOpening balance of 56,325,928 (2015: 56,040,928) shares excluding shares held in Treasury 1,408 1,401Repurchase of 1,689,000 (2015: nil) shares into Treasury (42) —Reissue of 950,000 (2015: 285,000) shares from Treasury 24 7

Subtotal of 55,586,928 (2015: 56,325,928) shares of 2.5p each excluding shares held in Treasury 1,390 1,4081,384,000 (2015: 645,000) shares held in Treasury 34 16

Closing balance of 56,970,928 (2015: 56,970,928) shares of 2.5p each including shares heldin Treasury 1,424 1,424

Further details of transactions in the Company’s shares are given in the Business Review on page 18.

14. Capital and reserves Capital reserves1

Gains and InvestmentCapital losses on holding

Called up Share redemption sales of gains Revenueshare capital premium reserve investments and losses reserve1 Total

£’000 £’000 £’000 £’000 £’000 £’000 £’000

Opening balance 1,424 8,046 1,851 66,304 27,585 (1,405) 103,805 Transfer of prior period unrealised foreign

currency gain on liquidity now realised2 — — — 80 (80) — —Net foreign currency gains on cash and

cash equivalents — — — 880 — — 880 Gains on sales of investments based on

the carrying value at the previous balancesheet date — — — 5,277 — — 5,277

Net movement in investment holding gainsand losses — — — — 46,902 — 46,902

Transfer on disposal of investments — — — 5,324 (5,324) — —Repurchase of shares into Treasury — — — (3,042) — — (3,042)Shares reissued from Treasury — 952 — 1,671 — — 2,623 Unrealised currency losses on loans — — — — (2,616) — (2,616)Management fee and finance costs charged

to capital — — — (1,390) — — (1,390)Other capital charges — — — (4) — — (4)Retained revenue for the year — — — — — 1,389 1,389

Closing balance 1,424 8,998 1,851 75,100 66,467 (16) 153,824

1 These reserves form the distributable reserves of the Company and may be used to fund distribution of profits to investors via dividend payments.2 Transfer of opening liquidity fund unrealised loss between reserves as a result of the reclassification of liquidity holdings from investments to cash equivalent.


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15. Net asset value per share

2016 2015

Net assets (£’000) 153,824 103,805Number of shares in issue 55,586,928 56,325,928

Net asset value per share 276.7p 184.3p

16. Reconciliation of net return on ordinary activities before finance costs and taxation to net cash outflowfrom operations before dividends and interest

2016 2015£’000 £’000

Net return on ordinary activities before finance costs and taxation 50,976 4,289Less capital return on ordinary activities before finance costs and taxation (49,231) (3,103)(Increase)/decrease in accrued income and other debtors (197) 42(Decrease)/increase in accrued expenses (4) 3Management fee charged to capital (1,208) (1,216)Overseas withholding tax (418) (262)Dividends received (1,687) (1,494)Interest received (32) (10)

Net cash outflow from operations before dividends and interest (1,801) (1,751)

17. Contingent liabilities and capital commitments At the balance sheet date there were no capital commitments or contingent liabilities (2015: same).

18. Related party transactionsDetails of the management contract are set out in the Directors’ Report on page 23. The management fee payable to the Manager forthe year was £1,342,000 (2015: £1,351,000) of which £nil (2015: £nil) was outstanding at the year end.

During the year £68,000 (2015: £61,000), including VAT, was payable to the Manager for the marketing and administration of savingsscheme products, of which £nil (2015: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 46 are safe custody fees amounting to £1,190 (2015: £1,006) payable toJPMorgan Chase of which £223 (2015: £166) was outstanding at the year end.

The Company also holds cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMorgan. At the year end this wasvalued at £9.4 million (2015: £3.3 million). Income amounting to £38,000 (2015: 10,000) was receivable during the year of which £nil(2015: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £4,000 (2015: £3,000) were payable to JPMorgan Chase during the year ofwhich £1,000 (2015: £400) was outstanding at the year end.

At the year end, total cash of £nil (2015: £5,000) was held with JPMorgan Chase. A net amount of interest of £nil (2015: £nil) wasreceivable by the Company during the year from JPMorgan Chase of which £nil (2015: £nil) was outstanding at the year end.

Full details of Directors’ remuneration and shareholdings can be found on page 32 and in note 6 on page 46.





19. Disclosures regarding financial instruments measured at fair valueThe Company’s financial instruments within the scope of FRS 102 that are held at fair value comprise its investment portfolio.

The investments are categorised into a hierarchy consisting of the following three levels:

(1) The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at themeasurement date

The best evidence of fair value is a quoted price for an identical asset in an active market. Quoted in an active market in thiscontext means quoted prices are readily and regularly available and those prices represent actual and regularly occurringmarket transactions on an arm’s length basis. The quoted price is usually the current bid price.

(2) Inputs other than quoted prices included within Level 1 that are observable (i.e.: developed using market data) for theasset or liability, either directly or indirectly

When quoted prices are unavailable, the price of a recent transaction for an identical asset provides evidence of fair value aslong as there has not been a significant change in economic circumstances or a significant lapse of time since the transactiontook place. If the entity can demonstrate that the last transaction price is not a good estimate of fair value (e.g. because itreflects the amount that an entity would receive or pay in a forced transaction, involuntary liquidation or distress sale), thatprice is adjusted.

(3) Inputs are unobservable (i.e.: for which market data is unavailable) for the asset or liability

If the market for the asset is not active and recent transactions of an identical asset on their own are not a good estimate offair value, an entity estimates the fair value by using a valuation technique. The objective of using a valuation technique is toestimate what the transaction price would have been on the measurement date in an arm’s length exchange motivated bynormal business considerations.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair valuemeasurement of the relevant asset.

Details of the valuation techniques used by the Company are given in note 1(b) on page 43.

The following table sets out the fair value measurements using the FRS 102 hierarchy at 31st December.

2016 2015Assets Liabilities Assets Liabilities£’000 £’000 £’000 £’000

Level 1 160,194 — 113,980 —

Total 160,194 — 113,980 —

There were no transfers between Level 1, 2 or 3 during the year (2015: none).


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20. Financial instruments’ exposure to risk and risk management policiesAs an investment trust, the Company invests in equities and other securities for the long term so as to secure its investment objectivestated on the ‘Features’ page. In pursuing this objective, the Company is exposed to a variety of financial risks that could result in areduction in the Company’s net assets or a reduction in the profits available for dividends.

These financial risks include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk.The Directors’ policy for managing these risks is set out below.

The objectives, policies and processes for managing the risks and the methods used to measure the risks that are set out below, havenot changed from those applying in the comparative year.

The Company’s classes of financial instruments are as follows:

– investments in US equity shares, which are held in accordance with the Company’s investment objective;

– cash held within a liquidity fund;

– short term debtors, creditors and cash arising directly from its operations;

– short term forward currency contracts for the purpose of settling short term liabilities; and

– bank loans and overdrafts, the purpose of which is to finance the Company’s operations.

(a) Market risk

The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices.This market risk comprises three elements – currency risk, interest rate risk and other price risk. Information to enable an evaluationof the nature and extent of these three elements of market risk is given in parts (i) and (iii) of this note, together with sensitivityanalysis where appropriate. The Board reviews and agrees policies for managing these risks and these policies have remainedunchanged from those applying in the comparative year. The Manager assesses the exposure to market risk when making eachinvestment decision and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.

(i) Currency risk

The majority of the Company’s assets and income are denominated in currencies other than sterling which is the Company’sfunctional currency and the currency in which it reports. As a result, movements in exchange rates will affect the sterling valueof those items.

Management of currency risk

The Manager monitors the Company’s exposure to foreign currencies on a daily basis and reports to the Board, which meetson at least six occasions each year. The Manager measures the risk to the Company of the foreign currency exposure byconsidering the effect on the Company’s net asset value and income of a movement in the rates of exchange to which theCompany’s assets, liabilities, income and expenses are exposed. Foreign currency borrowing may be used to limit theCompany’s exposure to anticipated changes in exchange rates which might otherwise adversely affect the value of the portfolioof investments. This borrowing is limited to currencies and amounts commensurate with the asset exposure to thosecurrencies. Income denominated in foreign currencies is converted to sterling on receipt. The Company may use short termforward currency contracts to manage working capital requirements.





20. Financial instruments’ exposure to risk and risk management policies continued(a) Market risk continued

(i) Currency risk

Foreign currency exposure

The fair value of the Company’s monetary items that have foreign currency exposure at 31st December are shown below.Where the Company’s equity investments (which are not monetary items) are priced in a foreign currency, they have beenincluded separately in the analysis so as to show the overall level of exposure.

2016 20151

£’000 £’000

Sterling equivalent of US$ exposureCurrent assets 10,018 2,419Creditors (124) 1Bank loans (16,186) (13,569)

Foreign currency exposure on net monetary items (6,292) (11,149)Investments held at fair value through profit or loss 160,194 113,980

Total net foreign currency exposure 153,902 102,831

The above year end amounts are broadly representative of the exposure to foreign currency risk during the current andcomparative year.

Foreign currency sensitivity

The following table illustrates the sensitivity of net return after taxation for the year and net assets with regard to theCompany’s financial assets and financial liabilities and exchange rates. The sensitivity analysis is based on the Company’sfinancial instruments held at each balance sheet date and the income receivable in foreign currency and assumes a 10%(2015: 10%) appreciation or depreciation in sterling against the US Dollar which is considered to be a reasonable illustrationbased on the volatility of exchange rates during the year.

2016 20151

If sterling If sterling If sterling If sterlingstrengthens weakens strengthens weakens

by 10% by 10% by 10% by 10%£’000 £’000 £’000 £’000

Statement of Comprehensive Income – return after taxationRevenue return (232) 232 (173) 173Capital return (15,390) 15,390 (10,283) 10,283

Total return after taxation (15,622) 15,622 (10,456) 10,456

Net assets (15,622) 15,622 (10,456) 10,456

In the opinion of the Directors, the above sensitivity analysis is broadly representative of the whole year.1 Relevant figures have been amended in line with the current presentation adopted. Under FRS102, liquidity funds are classified as cash equivalents.


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(ii) Interest rate risk

Interest rate movements may affect the level of income receivable on cash deposits, the liquidity fund and the interest payableon the Company’s variable rate cash borrowings. The Company has no exposure to fair value interest rate risk as it has no fixedinterest investments and borrowings.

Management of interest rate risk

The Company does not normally hold significant cash balances. The Company may finance part of its activities throughborrowings at levels approved and monitored by the Board. The Board’s policy is to limit gearing within the range of 5% netcash to 15% geared (+/–2.5%).

Derivatives are not used to hedge against the exposure to interest rate risk.

Interest rate exposure

The exposure of financial assets and liabilities to floating interest rates, giving cash flow interest rate risk when rates are reset,is shown below.

2016 2015£’000 £’000

Exposure to floating interest rates:Cash and short term deposits — 5JPMorgan US Dollar Liquidity Fund 9,408 3,293Bank loan (16,186) (13,569)

Total exposure (6,778) (10,271)

Interest receivable on cash balances, or paid on overdrafts, is at a margin below or above LIBOR respectively (2015: same).The target interest earned on the JPMorgan US Dollar Liquidity Fund is the 7 day $ London Interbank Bid Rate. Details of thebank loan are given in note 12 on page 49.

Interest rate sensitivity

The following table illustrates the sensitivity of the return after taxation for the year and net assets to a 0.5% (2015: 0.5%)increase or decrease in interest rates in regards to the Company’s monetary financial assets and financial liabilities. This levelof change is considered to be a reasonable illustration based on observation of current market conditions. The sensitivityanalysis is based on the Company’s monetary financial instruments held at the balance sheet date with all other variablesheld constant.

2016 20150.5% increase 0.5% decrease 0.5% increase 0.5% decrease

in rate in rate in rate in rate £’000 £’000 £’000 £’000

Statement of Comprehensive Income – return after taxationRevenue return 39 (39) 10 (10)Capital return (73) 73 (61) 61

Total return after taxation (34) 34 (51) 51

Net assets (34) 34 (51) 51

In the opinion of the Directors, this sensitivity analysis may not be representative of the Company’s future exposure to interestrate changes due to fluctuations in the level of cash balances, cash held in the liquidity fund and amounts drawn down on theCompany’s loan facilities.





20. Financial instruments’ exposure to risk and risk management policies continued(a) Market risk continued

(iii) Other price risk

Other price risk includes changes in market prices, other than those arising from interest rate risk or currency risk, which mayaffect the value of equity investments.

Management of other price risk

The Board considers on a regular basis the asset allocation of the portfolio and the risk associated with particular industrysectors. The investment management team has responsibility for monitoring the portfolio, which is selected in accordance withthe Company’s investment objectives and seeks to ensure that individual stocks meet an acceptable risk/reward profile.

Other price risk exposure

The Company’s total exposure to changes in market prices at 31st December comprises its holdings in equity investments asfollows:

2016 2015£’000 £’000

Equity investments held at fair value through profit or loss 160,194 113,980

The above data is broadly representative of the exposure to other price risk during the current and comparative year.

Concentration of exposure to other price risk

A list of the Company’s investments is given on pages 14 and 15. This shows that all of the investments are listed in the USA.Accordingly there is a concentration of exposure to that country. However it should be noted that an investment may not beentirely exposed to the economic conditions in its country of listing.

Other price risk sensitivity

The following table illustrates the sensitivity of the return after taxation for the year and net assets to an increase or decreaseof 10% (2015: 10%) in the market values. This level of change is considered to be a reasonable illustration based on observationof current market conditions. The sensitivity analysis is based on the Company’s equities, adjusting for changes in themanagement fee but with all other variables held constant.

2016 201510% increase 10% decrease 10% increase 10% decreasein fair value in fair value in fair value in fair value

£’000 £’000 £’000 £’000

Statement of Comprehensive Income – return after taxationRevenue return (16) 16 (11) 11Capital return 15,875 (15,875) 11,295 (11,295)

Total return after taxation for the year 15,859 (15,859) 11,284 (11,284)

Net assets 15,859 (15,859) 11,284 (11,284)


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(b) Liquidity risk

This is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities that are settledby delivering cash or another financial asset.

Management of the risk Liquidity risk is not significant as the Company’s assets comprise mainly readily realisable securities, which can be sold to meetfunding requirements if necessary. Short term flexibility is achieved through the use of overdraft and bank loan facilities.

The Board’s policy is for the Company to remain fully invested in normal market conditions and that short term borrowings be used tomanage short term liabilities and working capital and to gear the Company as appropriate.

Liquidity risk exposure

Contractual maturities of the financial liabilities based on the earliest date on which payment can be required are as follows:

2016 2015More than More than

Three three months Three three monthsmonths but less than months but less thanor less one year Total or less one year Total£’000 £’000 £’000 £’000 £’000 £’000

CreditorsSecurities purchased awaiting settlement 124 — 124 — — —Other creditors and accruals 59 — 59 63 — 63Bank loan, including interest 120 16,189 16,309 54 13,571 13,625

303 16,189 16,492 117 13,571 13,688

The liabilities shown above represent future contractual payments and therefore differ from the amounts shown in the Statement ofFinancial Position.

(c) Credit risk

Credit risk is the risk that the failure of the counterparty to a transaction to discharge its obligations under that transaction couldresult in loss to the Company.

Management of credit risk

Portfolio dealing

The Company invests in markets that operate DVP (Delivery Versus Payment) settlement. The process of DVP mitigates the risk oflosing the principal of a trade during the settlement process. The Manager continuously monitors dealing activity to ensure bestexecution, a process that involves measuring various indicators including the quality of trade settlement and incidence of failedtrades. Counterparty lists are maintained and adjusted accordingly.

Cash and cash equivalents

Counterparties are subject to regular credit analysis by the Manager and deposits can only be placed with counterparties that havebeen approved by JPMAM’s Counterparty Risk Group. The Board regularly reviews the counterparties used by the Manager.





20. Financial instruments’ exposure to risk and risk management policies continued(c) Credit risk continued

Exposure to JPMorgan Chase

JPMorgan Chase Bank, N.A. is the custodian of the Company’s assets. The Company’s assets are segregated from JPMorgan Chase’sown trading assets. Therefore these assets are designed to be protected from creditors in the event that JPMorgan Chase were tocease trading.

The Depositary, BNY Mellon Trust and Depositary (UK) Limited, is responsible for the safekeeping of all custodial assets of theCompany and for verifying and maintaining a record of all other assets of the Company. However, no absolute guarantee can begiven on the protection of all the assets of the Company.

Credit risk exposure

The amounts shown in the Statement of Financial Position under debtors and cash and cash equivalents represent the maximumexposure to credit risk at the current and comparative year ends.

(d) Fair values of financial assets and financial liabilities

All financial assets and liabilities are either included in the Statement of Financial Position at fair value or the carrying amount in theStatement of Financial Position is a reasonable approximation of fair value.

21. Capital management policies and proceduresThe Company’s debt and capital structure comprises the following:

2016 2015£’000 £’000

Debt:Bank loan 16,186 13,569

Equity:Called up share capital 1,424 1,424Reserves 152,400 102,381

153,824 103,805

Total debt and equity 170,010 117,374

The Company’s capital management objectives are to ensure that it will continue as a going concern and to maximise the income andcapital return to its equity shareholders through an appropriate level of gearing.


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The Board’s policy is to limit gearing within the range 5% net cash to 15% geared (+/–2.5%).

2016 2015£’000 £’000

Investments held at fair value through profit or loss 160,194 113,980

Net assets 153,824 103,805

Gearing 4.1% 9.8%

The Board, with the assistance of the Manager, monitors and reviews the broad structure of the Company’s capital on an ongoingbasis. This review includes:

– the planned level of gearing, which takes into account the Manager’s views on the market;– the need to buy back equity shares, either for cancellation or to hold in Treasury, which takes into account the share price discount

or premium; and– the opportunity for issues of new shares, including issues from Treasury.

22. Subsequent eventsThe Directors have evaluated the period since the year end and have not noted any significant subsequent events.


Regulatory Disclosures

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (‘AIFMD’)DISCLOSURES (UNAUDITED)


Leverage For the purposes of the Alternative Investment Fund Managers Directive (AIFMD), leverage is any method which increases the Company’sexposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company’s exposure and itsnet asset value and is calculated on a gross and a commitment method, in accordance with AIFMD. Under the gross method, exposurerepresents the sum of the Company’s positions without taking into account any hedging and netting arrangements. Under the commitmentmethod, exposure is calculated after certain hedging and netting positions are offset against each other.

The Company is required to state its maximum and actual leverage levels, calculated as prescribed by the AIFMD (see Glossary of Terms andDefinitions on page 64), as at 31st December 2016, which gives the following figures:

Gross CommitmentMethod Method

Leverage ExposureMaximum limit 200% 200%Actual 110% 110%

JPMF RemunerationJPMF is the authorised manager of the Company and is part of the J.P. Morgan Chase & Co. group of companies. In this disclosure, the terms‘J.P. Morgan’ or ‘Firm’ refer to that group, and each of the entities in that group globally, unless otherwise specified.

This disclosure has been prepared in accordance with the AIFMD, the European Commission Delegated Regulation supplementing theAIFMD, the ‘Guidelines on Sound Remuneration Policies’ under the AIFMD issued by the European Securities and Markets Authority and theFinancial Conduct Authority Handbook (SYSC 19B: The AIFM Remuneration Code and FUND 3.3).

JPMF Remuneration PolicyThe current remuneration policy for the EMEA Global Investment business of J.P. Morgan can be found at https://am.jpmorgan.com/gb/en/asset-management/gim/adv/legal/emea-remuneration-policy. This policy includes details of the alignment with risk management, thefinancial and non-financial criteria used to evaluate performance and the measures adopted to avoid or manage conflicts of interest.

JPMF Quantitative DisclosuresDisclosures in accordance with FUND 3.3.5, Article 22(2)e and 22(e)f of the AIFMD and Article 107 of the Delegated Regulation are disclosedon the Company’s website at www.jpmussmallercompanies.co.uk.

SECURITIES FINANCING TRANSACTIONS REGULATION (‘SFTR’) DISCLOSURES(UNAUDITED)The Company does not engage in Securities Financing Transactions (as defined in Article 3 of Regulation (EU) 2015/2365, securities financingtransactions include repurchase transactions, securities or commodities lending and securities or commodities borrowing, buy-selling backtransactions or sell-buy back transactions and margin lending transactions) or Total Return Swaps. Accordingly, disclosures required byArticle 13 of the Regulation are not applicable for the year ended 31st December 2016.


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NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the sixtieth Annual General Meeting ofJPMorgan US Smaller Companies Investment Trust plc will be held at60 Victoria Embankment, London EC4Y 0JP on Wednesday,26th April 2017 at 2.30 p.m. for the following purposes:

1. To receive the Directors’ Report, the Annual Accounts and theAuditor’s Report for the year ended 31st December 2016.

2. To approve the Directors’ Remuneration Policy.

3. To approve the Directors’ Remuneration Report for the yearended 31st December 2016.

4. To reappoint Davina Walter as a Director of the Company.

5. To reappoint Julia Le Blan as a Director of the Company.

6. To reappoint David Ross as a Director of the Company.

7. To reappoint Christopher Galleymore as a Director of theCompany.

8. To appoint Shefaly Yogendra as a Director of the Company.

9. To reappoint Grant Thornton UK LLP as Auditor to theCompany and to authorise the Directors to determine theirremuneration.

Special Business To consider the following resolutions:

Authority to allot new ordinary shares – Ordinary Resolution10. THAT the Directors of the Company be and they are hereby

generally and unconditionally authorised, (in substitution ofany authorities previously granted to the Directors), pursuantto and in accordance with Section 551 of the Act to exerciseall the powers for the Company to allot shares in theCompany and to grant rights to subscribe for, or convert anysecurity into, shares in the Company (‘Rights’) up to anaggregate nominal amount of £142,427, representingapproximately 10% of the Company’s issued ordinary sharecapital (including shares held in Treasury, if any) as at thedate of the passing of this Resolution, provided that thisauthority shall expire at the Annual General Meeting of theCompany to be held in 2018, unless renewed at a generalmeeting prior to such time, save that the Company maybefore such expiry make offers or agreement which would ormight require shares to be allotted on Rights to be grantedafter such expiry and so that the Directors of the Company

may allot shares and grant Rights in pursuance of such offersor agreements as if the authority conferred hereby had notexpired.

Authority to disapply pre-emption rights on allotment of newordinary shares – Special Resolution11. THAT, subject to the passing of the Resolution 10 set out

above, the Directors of the Company be and they are herebyempowered pursuant to Sections 570 and 573 of the Act toallot equity securities (within the meaning of Section 560 ofthe Act) for cash pursuant to the authority conferred byResolution 10 or by way of a sale of Treasury shares as ifSection 561(1) of the Act did not apply to any such allotment,provided that this power shall be limited to the allotment ofequity securities for cash up to an aggregate nominal amountof £142,427, representing approximately 10% of the issuedordinary share capital as at the date of the passing of thisresolution at a price of not less than the net asset value pershare and shall expire upon the expiry of the generalauthority conferred by Resolution 10 above, save that theCompany may before such expiry make offers or agreementswhich would or might require equity securities to be allottedafter such expiry and so that the Directors of the Companymay allot equity securities in pursuant of such offers oragreements as if the power conferred hereby had notexpired.

Authority to repurchase the Company’s shares – SpecialResolution12. THAT the Company be generally and subject as hereinafter

appears unconditionally authorised in accordance withSection 701 of the Companies Act 2006 (the ‘Act’) to makemarket purchases (within the meaning of Section 693 of theAct) of its issued ordinary shares on such terms and in suchmanner as the Directors may from time to time determine

PROVIDED ALWAYS THAT

(i) the maximum number of ordinary shares herebyauthorised to be purchased shall be 8,459,895 or, ifless, that number of ordinary shares which is equal to14.99% of the Company’s issued share capital (lessshares held in Treasury, if any) as at the date of thepassing of this resolution;

(ii) the minimum price which may be paid for an ordinaryshare shall be 2.5p;

Shareholder Information


Shareholder Information continued


NOTICE OF ANNUAL GENERAL MEETING CONTINUED

(iii) the maximum price which may be paid for an ordinaryshare shall be an amount equal to: (a) 105% of theaverage of the middle market quotations for anordinary share taken from and calculated by referenceto the London Stock Exchange Daily Official List for thefive business days immediately preceding the day onwhich the ordinary share is purchased; or (b) the priceof the last independent trade; or (c) the highest currentindependent bid;

(iv) any purchase of ordinary shares will be made in themarket for cash at prices below the prevailing net assetvalue per ordinary share (as determined by theDirectors);

(v) the authority shall expire on 25th October 2018 unlessthe Authority is renewed at the Company’s AnnualGeneral Meeting in 2018 or at any other generalmeeting prior to such time; and

(vi) the Company may make a contract to purchaseordinary shares under the authority hereby conferredprior to the expiry of such authority and may make apurchase of ordinary shares pursuant to any suchcontract notwithstanding such expiry.

By order of the BoardLucy Dina, for and on behalf of JPMorgan Funds Limited, Secretary

24th March 2017

Notes These notes should be read in conjunction with the notes on the reverse ofthe proxy form.

1. A member entitled to attend and vote at the Meeting may appointanother person(s) (who need not be a member of the Company) toexercise all or any of his rights to attend, speak and vote at theMeeting. A member can appoint more than one proxy in relation to theMeeting, provided that each proxy is appointed to exercise the rightsattaching to different shares held by him.

2. A proxy does not need to be a member of the Company but mustattend the Meeting to represent you. Your proxy could be theChairman, another Director of the Company or another person who hasagreed to attend to represent you. Details of how to appoint theChairman or another person(s) as your proxy or proxies using theproxy form are set out in the notes to the proxy form. If a voting box onthe proxy form is left blank, the proxy or proxies will exercise his/theirdiscretion both as to how to vote and whether he/they abstain(s) fromvoting. Your proxy must attend the Meeting for your vote to count.Appointing a proxy or proxies does not preclude you from attendingthe Meeting and voting in person.

3. Any instrument appointing a proxy, to be valid, must be lodged inaccordance with the instructions given on the proxy form no later than2.30 p.m. two business days prior to the Meeting (i.e. excludingweekends and bank holidays).

4. You may change your proxy instructions by returning a new proxyappointment. The deadline for receipt of proxy appointments alsoapplies in relation to amended instructions. Any attempt to terminateor amend a proxy appointment received after the relevant deadline willbe disregarded. Where two or more valid separate appointments ofproxy are received in respect of the same share in respect of the sameMeeting, the one which is last received (regardless of its date or thedate of its signature) shall be treated as replacing and revoking theother or others as regards that share; if the Company is unable todetermine which was last received, none of them shall be treated asvalid in respect of that share.

5. To be entitled to attend and vote at the Meeting (and for the purposeof the determination by the Company of the number of votes they maycast), members must be entered on the Company’s register ofmembers as at 6.30 p.m. two business days prior to the Meeting (the‘specified time’). If the Meeting is adjourned to a time not more than48 hours after the specified time applicable to the original Meeting,that time will also apply for the purpose of determining the entitlementof members to attend and vote (and for the purpose of determining thenumber of votes they may cast) at the adjourned Meeting. If, however,the Meeting is adjourned for a longer period then, to be so entitled,members must be entered on the Company’s register of members asat 6.30 p.m. two business days prior to the adjourned Meeting or, if theCompany gives notice of the adjourned Meeting, at the time specifiedin that notice. Changes to entries on the register after this time shallbe disregarded in determining the rights of persons to attend or voteat the Meeting or adjourned Meeting.


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6. Entry to the Meeting will be restricted to shareholders and their proxyor proxies, with guests admitted only by prior arrangement.

7. A corporation, which is a shareholder, may appoint an individual(s) toact as its representative(s) and to vote in person at the Meeting (seeinstructions given on the proxy form). In accordance with theprovisions of the Companies Act 2006, each such representative mayexercise (on behalf of the corporation) the same powers as thecorporation could exercise if it were an individual member of theCompany, provided that they do not do so in relation to the sameshares. It is therefore no longer necessary to nominate a designatedcorporate representative. Representatives should bring to the Meetingevidence of their appointment, including any authority under which it issigned.

8. Members that satisfy the thresholds in Section 527 of the CompaniesAct 2006 can require the Company to publish a statement on itswebsite setting out any matter relating to: (a) the audit of theCompany’s accounts (including the Auditors’ report and the conduct ofthe audit) that are to be laid before the AGM; or (b) any circumstancesconnected with Auditors of the Company ceasing to hold office sincethe previous AGM, which the members propose to raise at the Meeting.The Company cannot require the members requesting the publicationto pay its expenses. Any statement placed on the website must also besent to the Company’s Auditors no later than the time it makes itsstatement available on the website. The business which may be dealtwith at the AGM includes any statement that the Company has beenrequired to publish on its website pursuant to this right.

9. Pursuant to Section 319A of the Companies Act 2006, the Companymust cause to be answered at the AGM any question relating to thebusiness being dealt with at the AGM which is put by a memberattending the Meeting except in certain circumstances, including if it isundesirable in the interests of the Company or the good order of theMeeting or if it would involve the disclosure of confidential information.

10. Under Sections 338 and 338A of the 2006 Act, members meeting thethreshold requirements in those sections have the right to require theCompany: (i) to give, to members of the Company entitled to receivenotice of the Meeting, notice of a resolution which those membersintend to move (and which may properly be moved) at the Meeting;and/or (ii) to include in the business to be dealt with at the Meeting anymatter (other than a proposed resolution) which may properly beincluded in the business at the Meeting. A resolution may properly bemoved, or a matter properly included in the business unless: (a) (in thecase of a resolution only) it would, if passed, be ineffective (whether byreason of any inconsistency with any enactment or the Company’sconstitution or otherwise); (b) it is defamatory of any person; or (c) it isfrivolous or vexatious. A request made pursuant to this right may be inhard copy or electronic form, must identify the resolution of whichnotice is to be given or the matter to be included in the business mustbe accompanied by a statement setting out the grounds for therequest, must be authenticated by the person(s) making it and must bereceived by the Company not later than the date that is six clear weeksbefore the Meeting, and (in the case of a matter to be included in thebusiness only) must be accompanied by a statement setting out thegrounds for the request.

11. A copy of this notice has been sent for information only to persons whohave been nominated by a member to enjoy information rights underSection 146 of the Companies Act 2006 (a ‘Nominated Person’). Therights to appoint a proxy can not be exercised by a Nominated Person:they can only be exercised by the member. However, a NominatedPerson may have a right under an agreement between him and themember by whom he was nominated to be appointed as a proxy for theMeeting or to have someone else so appointed. If a Nominated Persondoes not have such a right or does not wish to exercise it, he may havea right under such an agreement to give instructions to the member asto the exercise of voting rights.

12. In accordance with Section 311A of the Companies Act 2006, thecontents of this notice of meeting, details of the total number of sharesin respect of which members are entitled to exercise voting rights atthe AGM, the total voting rights members are entitled to exercise at theAGM and, if applicable, any members’ statements, members’resolutions or members’ matters of business received by the Companyafter the date of this notice will be available on the Company’s websitewww.jpmussmallercompanies.co.uk.

13. The register of interests of the Directors and connected persons in theshare capital of the Company and the Directors’ letters of appointmentare available for inspection at the Company’s registered office duringusual business hours on any weekday (Saturdays, Sundays and publicholidays excepted). it will also be available for inspection at the AnnualGeneral Meeting. No Director has any contract of service with theCompany.

14. You may not use any electronic address provided in this Notice ofMeeting to communicate with the Company for any purposes otherthan those expressly stated.

15. As an alternative to completing a hardcopy Form of Proxy/VotingDirection Form, you can appoint a proxy or proxies electronically byvisiting www.sharevote.co.uk. You will need your Voting ID, Task ID andShareholder Reference Number (this is the series of numbers printedunder your name on the Form of Proxy/Voting Direction Form).Alternatively, if you have already registered with Equiniti Limited’sonline portfolio service, Shareview, you can submit your Form of Proxyat www.shareview.co.uk. Full instructions are given on both websites.

16. As at 16th March 2017 (being the latest business day prior to thepublication of this Report and Accounts), the Company’s issued sharecapital consists of 56,970,928 ordinary shares (of which 534,000 areheld in Treasury), carrying one vote each. Therefore, the total votingrights in the Company are 56,436,928.

Electronic appointment – CREST membersCREST members who wish to appoint a proxy or proxies by utilising theCREST electronic proxy appointment service may do so for the Meeting andany adjournment(s) thereof by using the procedures described in the CRESTManual. See further instructions on the proxy form.



GLOSSARY OF TERMS AND DEFINITIONS

Return to ShareholdersTotal return to the investor, on a last traded price to last tradedprice basis, assuming that all dividends received were reinvested,without transaction costs, into the shares of the Company at thetime the shares were quoted ex-dividend.

Return on Net AssetsTotal return on net asset value (‘NAV’) per share, on a bid valueto bid value basis, assuming that all dividends paid out by theCompany were reinvested, without transaction costs, into the sharesof the Company at the NAV per share at the time the shares werequoted ex-dividend.

In accordance with industry practice, dividends payable which havebeen declared but which are unpaid at the balance sheet date arededucted from the NAV per share when calculating the return onnet assets.

Benchmark Total ReturnTotal return on the benchmark assuming that all dividends receivedwere reinvested into the shares of the underlying companies at thetime the shares were quoted ex-dividend.

The benchmark is a recognised index of stocks which should notbe taken as wholly representative of the Company’s investmentuniverse. The Company’s investment strategy does not ‘track’ thisindex and consequently, there may be some divergence betweenthe Company’s performance and that of the benchmark.

Net Asset Value (‘NAV’)The net value of the Company’s assets, cash and other current netassets, having deducted all debt, including bank loans at par valueand provisions at their fair value. Current financial year income isincluded.

Gearing/(Net Cash)Gearing represents the excess amount above shareholders’ funds oftotal investments, expressed as a percentage of the shareholders’funds. Previously gearing represented the excess amount aboveshareholders’ funds of total assets expressed as a percentage ofshareholders’ funds. Total assets included total investments and netcurrent assets/liabilities less cash/cash equivalents and excludingbank loans of less than one year. If the amount calculated isnegative, this is shown as a ‘net cash’ position.

Ongoing ChargesThe Ongoing Charges represent the Company’s management feeand all other operating expenses, excluding finance costs,expressed as a percentage of the average of the daily net assetsduring the year and is calculated in accordance with guidanceissued by the Association of Investment Companies.

Overweight/Underweight PositionThe active position shows the difference between the Company’sholding of an individual stock or sector compared with that stockor sector’s weighting in the Company’s benchmark index.A positive number indicates an active decision by the managerto own more of (i.e. be overweight) a particular stock or sectorversus the benchmark and a negative number indicates a decisionto hold less of (i.e. be underweight) a particular stock or sectorversus the benchmark.

Share Price Discount/Premium to Net Asset Value (‘NAV’) per shareif the share price of an investment trust is lower than the NAV pershare, the Company’s shares are said to be trading at a discount.The discount is shown as a percentage of the NAV per share. Theopposite of a discount is a premium. It is more common for aninvestment trust’s shares to trade at a discount than at a premium.

Performance AttributionAnalysis of how the Company achieved its recorded performancerelative to the benchmark.

Performance Attribution Definitions:Sector AllocationThe impact of allocating assets differently from those in thebenchmark, via the portfolio’s weighting in different sectors or assettypes.

Stock SelectionThe effect of investing in securities to a greater or lesser extentthan their weighting in the benchmark, or of investing in securitieswhich are not included in the benchmark.

Gearing/CashThe impact of borrowings or cash balances on the Company’sperformance relative to the benchmark.

Management Fee/Other ExpensesThe negative effect on performance relative to the benchmarkarising from the management fee and other expenses.



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WHERE TO BUY J.P. MORGAN INVESTMENT TRUSTS

You can invest in a J.P. Morgan investment trust through the following;

1. Directly from J.P. MorganInvestment AccountThe Company’s shares are available in the J.P. Morgan InvestmentAccount, which facilitates both regular monthly investments andoccasional lump sum investments in the Company’s ordinary shares.Shareholders who would like information on the Investment Accountshould call J.P. Morgan Asset Management free on 0800 20 40 20 orvisit its website at am.jpmorgan.co.uk/investor

Stocks & Shares Individual Savings Accounts (ISA)The Company’s shares are eligible investments within a J.P. MorganISA. For the 2016/17 tax year, from 6th April 2016 and ending 5th April2017, the total ISA allowance is £15,240. The shares are also availablein a J.P. Morgan Junior ISA. Details are available from J.P. Morgan AssetManagement free on 0800 20 40 20 or via its website atam.jpmorgan.co.uk/investor

2. Via a third party provider Third party providers include;

Please note this list is not exhaustive and the availability of individualtrusts may vary depending on the provider. These websites are thirdparty sites and J.P. Morgan Asset Management does not endorse orrecommend any. Please observe each site's privacy and cookie policiesas well as their platform charges structure.

3. Through a professional adviserProfessional advisers are usually able to access the products of all thecompanies in the market and can help you find an investment thatsuits your individual circumstances. An adviser will let you know thefee for their service before you go ahead. You can find an adviser atunbiased.co.uk

You may also buy investment trusts through stockbrokers, wealthmanagers and banks.

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

AJ BellAlliance Trust SavingsBarclays StockbrokersBestinvestCharles Stanley DirectFundsNetworkHargreaves Lansdown

Interactive InvestorJames BrearleyJames HaySelftradeTD DirectThe Share Centre




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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Beware of share fraud

How to avoid share fraud

Report a scam

In association with:

Financial Conduct Authority


Information about the Company

HistoryJPMorgan US Smaller Companies Investment Trust plc was incorporatedin 1955 as Atomic Securities Trust Limited. It was dormant until 1962when it changed its name to Fledgeling Investments Limited and beganoperations as an unquoted investment company.

The trust was wholly owned by a number of JPMorgan investmenttrusts and invested in listed and unlisted companies in the UK and USwhich for reasons of small size, illiquidity or risk, were unsuitable fordirect investment. In 1982, with assets of £9.2 million, it obtained alisting on the London Stock Exchange and gained investment truststatus. At that time it changed its name to The Fleming FledgelingInvestment Trust plc and gradually broadened its investment scope intoEurope and the Asian markets. In April 1998, the Company changed itsname to The Fleming US Discovery Investment Trust plc and then againto JPMorgan Fleming US Discovery Investment Trust plc in May 2002.The Company adopted its present name in April 2010.

Continuation Vote At the Annual General Meeting of the Company held in April 2015 aresolution of the shareholders approved the continuation of theCompany until the Annual General Meeting to be held in 2020.

Company NumbersCompany registration number: 552775 London Stock Exchange Code: JUSC LNISIN: GB00BJL5F346 Bloomberg: JUSC LN

Market InformationThe Company’s net asset value (‘NAV’) per share is published daily viathe London Stock Exchange. The Company’s shares are listed on theLondon Stock Exchange. The market price is shown daily in theFinancial Times, The Times, The Daily Telegraph and The Scotsman, andon the J.P. Morgan internet site at www.jpmussmallercompanies.co.uk,where the share price is updated every 15 minutes during tradinghours.

Websitewww.jpmussmallercompanies.co.uk

Share TransactionsThe Company’s shares may be dealt in directly through a stockbrokeror professional adviser acting on an investor’s behalf. They may also bepurchased and held through the J.P. Morgan Investment Account, J.P.Morgan ISA and J.P. Morgan Junior ISA. These products are all availableon the online service at jpmorgan.co.uk/online

Manager and Company SecretaryJPMorgan Funds Limited

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

For company secretarial and administrative matters, please contactLucy Dina at the above address.

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

The Depositary has appointed JPMorgan Chase Bank, N.A. as theCompany’s custodian.

RegistrarsEquiniti LimitedReference 1084Aspect HouseSpencer RoadLancingWest Sussex BN99 6DATelephone number: 0371 384 2326

Lines open 8.30 a.m. to 5.30 p.m. Monday to Friday. Calls to thehelpline will cost no more than a national rate calls to a 01 or 02number. Callers from overseas should dial +44 121 415 0225

Notifications of changes of address and enquiries regarding sharecertificates or dividend cheques should be made in writing to theRegistrar quoting reference 1084. Registered shareholders can obtainfurther details on their holdings on the internet by visitingwww.shareview.co.uk.

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

BrokersNumis Securities Limited10 Paternoster Square London EC4M 7LT

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

FINANCIAL CALENDAR

Financial year end 31st December

Full year results announced March

Half year end 30th June

Half year results announced August

Annual General Meeting April

A member of the AIC

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Telephone calls may be recorded and monitored for security and training purposes.

J.P. Morgan Helpline

Freephone 0800 20 40 20 or +44 (0) 1268 444470.Telephone lines are open Monday to Friday, 9am to 5.30pm.

www.jpmussmallercompanies.co.uk

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