BROWN ADVISORY US SMALLER COMPANIES PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 30 JUNE 2023 ## BROWN ADVISORY ## US SMALLER ## COMPANIES PLC ## ANNUAL REPORT AND FINANCIAL STATEMENTS ### FOR THE YEAR ENDED 30 JUNE 2023 4 FOR THE YEAR ENDED 30 JUNE 2023 Contents ### Introduction to Brown Advisory US Smaller Companies PLC 2 ### Investment Objective, Investment Policy and Benchmark Index 5 Strategic Report | Financial Highlights | 7 | | --- | --- | | Chairman’s Statement | 8 | | Portfolio Manager’s Review | 12 | | Twenty Largest Holdings | 15 | | List of Investments | 19 | | Portfolio Manager’s ESG Report | 24 | | Strategic Report | 25 | Report of the Directors and Governance | Directors | 34 | | --- | --- | | Report of the Directors | 36 | | Corporate Governance | 44 | | Report of the Audit and Risk Committee | 48 | | Directors’ Remuneration Report and Policy | 51 | | Statement of Directors’ Responsibilities | 55 | | Independent Auditor’s Report | 56 | Financial Statements | Income Statement | 64 | | --- | --- | | Statement of Financial Position | 65 | | Statement of Changes in Equity | 66 | | Notes to the Financial Statements | 67 | | Company Information | 80 | | Investor Information | 81 | | Important Risk Warnings | 83 | | Glossary of Terms including Alternative Performance Measures | 84 | Annual General Meeting ### Notice of Annual General Meeting 86 ### Notes for the Annual General Meeting 88 1 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Introduction to Brown Advisory US Smaller Companies PLC What does Brown Advisory US Smaller Companies PLC (the “Company”) do? The Company aims to achieve long-term capital growth by investing in a diversified portfolio of quoted US smaller and medium-sized companies. Who is it suitable for? Brown Advisory manages the Company’s portfolio on behalf of individual investors and wealth managers. The Company provides a cost-eective way to access the large, entrepreneurial group of smaller companies in the world’s largest economy – the United States of America. For individuals who are willing to invest over the long-term, these companies often outperform their large-cap peers (as the chart on the following page demonstrates) so make for a compelling investment opportunity. How is Brown Advisory US Smaller Companies invested? Managed by Chris Berrier and George Sakellaris, CFA, of the US-based investment manager, Brown Advisory, the Company focuses on businesses with strong growth potential, scalable go-to-market strategies and well-aligned management and shareholder interests. The resulting portfolio is diversified across sectors, business models and economic cycles. The power of compounding – the managers recognise the potential of compounding in order to achieve long-term, risk-adjusted returns. Therefore, they seek to invest in companies that present above average capital growth rates. Harnessing their local knowledge and innovative research approach, they aim to capitalise on market ineciencies in valuations and invest in businesses that exhibit what they refer to as “3G” qualities:   Out of a universe of over 2,000 companies, this process reduces the available market to around 500 companies, while the portfolio itself is typically made up of 70-80 of these companies.    Benchmark agnostic – while the Company’s performance is measured against the sterling adjusted Russell 2000 Total Return Index, the managers are not beholden to this benchmark – individual sector and security weightings are driven by their rigorous stock selection process.               2                 FOR THE YEAR ENDED 30 JUNE 2023 ## Introduction to Brown Advisory US Smaller Companies PLC (continued) ### Why invest in US smaller companies? - US-based smaller companies include an exciting and dynamic group of growing businesses that typically demonstrate high innovation and strong entrepreneurial cultures. - Over half of global smaller companies – more than 2,000 companies – are listed in the US, creating a huge opportunity. - US smaller companies offer a deep and liquid market but are typically not as well covered by sell-side research analysts as their larger counterparts, creating inefficiencies and missed opportunities that Brown Advisory aims to exploit. - A US stock market listing means there are high governance hurdles relative to some of their global peers, considerably reducing the risk profile of US smaller companies. ### Over the long-term, small and mid-caps have outperformed large-cap companies $1 invested at 31/12/1925 as of 12/03/2023 ![img-0.jpeg](img-0.jpeg) Source: Furey Research Partners, FactSet, CRSP, Ibbotson; as at 31/03/2023. Past performance is not a guarantee of future performance and investors may not get back the amount invested. ### Why have the directors of Brown Advisory US Smaller Companies PLC appointed Brown Advisory as the Portfolio Manager? Chris Berrier and George Sakellaris, CFA, the portfolio leads between them have more than 44 years' experience investing in US small and mid-caps and are supported by a large team of fundamental, investigative and environmental, social and governance (ESG) analysts. Based in the US, the team have direct access to the companies in which they invest. Brown Advisory has more than 25 years' experience of investing in small and medium-sized companies in the US and within its broader US Small-Cap Growth strategy it manages $6.6bn*. The firm benefits from an extensive network of venture capital, private equity and corporate relationships, which helps provide a strong overview of the broader small to mid-sized company market. *As at 30/06/2023 B Brown ADVISORY Thoughtful Investing. 3 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Introduction to Brown Advisory US Smaller Companies PLC (continued) Brown Advisory believes that disciplined, bottom-up research, coupled with teamwork and the free exchange of ideas amongst colleagues, are the keys to achieving long-term outperformance. The combination of its investment philosophy and its client-first culture were important factors in the Board’s decision to appoint Brown Advisory as the Company’s Portfolio Manager.                                 | |  |  |  |  | | | --- | --- | --- | --- | --- | --- | | |  |  |  |  | | | |  |  |  |  |   | | |  | |  |  | | | 4 4 |  | | |  | | | |  | | |  | | | |  | | |  | |  FOR THE YEAR ENDED 30 JUNE 2023 FOR THE YEAR ENDED 30 JUNE 2023 ## Investment Objective, Investment ## Policy and Benchmark Index Investment Objective The Company’s objective is to achieve long-term capital growth by investing in a diversified portfolio consisting primarily of quoted US smaller and medium-sized companies. 5 5 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Investment Objective, Investment Policy and Benchmark (continued) Investment Policy The Portfolio Manager takes a disciplined approach to investment, emphasising long-term risk-adjusted returns. The Portfolio Manager believes that the US smaller and medium-sized company sector is a diverse and dynamic part of the North American market and continues to provide opportunities for capital growth over the long term. The sector is highly diversified with a great many companies from which to choose. Many companies are relatively immature, whether financially or operationally or in terms of management or market position. They tend to be highly geared to growth and are particularly vulnerable to market and other changes. Against this background, the Company has adopted an investment style that focuses on companies with durable growth, scalable go-to-market strategies and well-aligned management and shareholder interests, and whose shares are considered by the Portfolio Manager to oer above-average capital growth at attractive valuations. The Portfolio Manager believes that this is an excellent approach to long-term investment in this sector. Investment Limits The Board has prescribed limits on the investment policy, including:  The Portfolio will comprise at all times a minimum of 40 securities (excluding cash);  No single holding shall constitute more than 5% of total assets at the time of investment;  No derivative instruments (excluding warrants) may be held without the prior approval of the Board;  Investments in unlisted securities shall not exceed 5% of total assets at the time of investment and any such investments shall require prior Board approval;  The Company shall not make any new investments in other UK listed investment companies;  In any event, not more than 10% in aggregate of the total assets of the Company, and any of its subsidiaries, may be invested in other closed-ended investment funds (including listed investment trusts) whether or not such funds have stated investment policies to invest no more than 15% of their total assets in other listed closed-ended investment funds (including listed investment trusts);  Borrowings, including overdraft facilities, shall not exceed 20% of the Company’s total assets and shall require prior Board approval;  The Company shall not take legal or management control over any investments in its portfolio. Benchmark Index Sterling adjusted Russell 2000 Total Return Index (the ‘benchmark’). THE COMPANY IS A MEMBER OF THE 6 FOR THE YEAR ENDED 30 JUNE 2023 ### Strategic Report Financial Highlights for the year ended 30 June 2023 Ordinary Share Performance 30 June 30 June % change 2023 2022 1 Net asset value (pence) 1,431.9 1,303.9 +9.8 Closing price (pence) 1,220.0 1,105.0 +10.4 Russell 2000 Total Return Index (sterling adjusted) 7,860.0 7,308.5 +7.5 1 Discount to net asset value (%) (14.8) (15.3) – 1 Ongoing charges ratio (%) 1.00 0.97 – Ten year record Ye ar - | | | | | Net | | on-year | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | asset | | change in | | | | Ye a r - | | | | | | | value | | net asset | | | on-year | | | | | | | | per | | value per | | change in | | | | | | | Net | Ordinary | | | Ordinary | | Benchmark | | | | | | assets | | | share | | share | | | | Index | | | Year ended 30 June | £’000 | | | | p | | % | | | | % | 2014 164,957 686.3 +11.0 +9.8 2015 174,033 724.1 +5.5 +15.8 2016 174,163 787.3 +8.7 +9.7 2017 181,687 911.1 +15.7 +28.2 2018 163,339 1,103.4 +21.1 +15.7 2019 161,520 1,152.7 +4.5 +0.3 2020 145,011 1,116.3 -3.2 -3.8 2021 181,426 1,516.3 +35.8 +45.1 2022 155,840 1,303.9 -14.0 -15.2 2023 171,147 1,431.9 +9.8 +7.5 1 For definitions of the above Alternative Performance Measures please refer to the Glossary of Terms on pages 84 and 85. 7 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Chairman’s Statement Dear Fellow Shareholder However, the mood changed in the last four months of our financial year as a potential I am pleased to report that for the year ended financial crisis erupted in the regional banks. With 30 June 2023, your Company’s net asset value rising interest rates encouraging depositors to (NAV) per share rose from 1,303.9p to 1.431.9p, look elsewhere for higher yields, several regional an increase of 9.8%. This compares favourably banks suered significant outflows of liquidity, with the 7.5% gain in the Company’s benchmark, which could only be met through realising the sterling adjusted Russell 2000 Total Return their loan and bond portfolios at a loss. Most Index, over the same period. It was encouraging notable of these was Silicon Valley Bank which to see the US smaller company sector generate eectively collapsed. Only through swift action a positive return again after a very disappointing by the authorities with injections of liquidity and performance in the previous year, even if it still takeovers by stronger peers was the turmoil lagged those of its larger peers, the S&P500 and brought to heel. Given the potential risks to the the tech-heavy Nasdaq. economy from such a situation, bond yields Over the twelve months under review, the eased again as investors speculated on whether Company’s share price rose from 1,105.00p to the peak in rates was nearing, despite continuing 1,220.00p, an increase of 10.4%. This resulted in Federal Reserve rhetoric to the contrary. With | a small narrowing of the discount to NAV from | hopes of an imminent peak in interest rates | | --- | --- | | 15.3% on 30 June 2022 to 14.8% on 30 June | and news on the economy remaining generally | | 2023. No shares were bought in or issued during | positive, the stock market enjoyed another lift in | | the year, as touched on below. | the run up to our financial year end. That said, | the major winners were again the narrow group Market Review of technology mega-caps that had led the market before, rather than the broader market or the In the first nine months of our financial year, US smaller company asset class. equity markets lost ground. The geopolitical background worsened as China/US relations Over the year, in US dollar terms, the Russell 2000 deteriorated and the war in Ukraine ground Index returned 12.3%, the S&P 500 returned on with no signs of resolution. Supply chain 19.6% and the Nasdaq Composite returned problems remained an issue, while at home in the 26.1%. Although the pound suered a weak patch US the inflation numbers continued to come in last autumn at the time of the unsettling changes stubbornly above expectations. This persuaded in British Prime Minister, it recovered thereafter to the Federal Reserve to stick firmly to its policy of end the financial year slightly higher, thus eroding raising interest rates to rein in inflation. Despite some of the equity market gains for sterling-based the Federal Reserve’s actions, the US economy investors. continued to hold up well, supported by better- than-expected employment numbers and by Portfolio Manager and Continuation the willingness of consumers to spend savings Vote accumulated during the pandemic. Corporate A more detailed coverage of the development results were also largely positive. Unsurprisingly, of the US smaller company sector over the past with interest rates rising sharply, merger and twelve months and our activity and performance acquisition activity fell o, and with many is included in the Portfolio Manager’s Review on investors preferring to sit on the side-lines and pages 12 to 14. merely add to their money market funds, volumes on the exchanges dwindled. For much of this As I mentioned in our most recent half yearly period, as interest rates rose there was some report, the Board was pleased in October to visit rotation within the markets back towards more the Baltimore oces of our Portfolio Manager, ‘value’ stocks and away from the highly rated Brown Advisory, and to review in detail with names, notably those in tech, that had led the Chris Berrier and his team their investment earlier bull market. The smaller company asset process and strengthen our knowledge of the class followed a similar trend. 8 FOR THE YEAR ENDED 30 JUNE 2023 ### Chairman’s Statement (continued) portfolio. The visit gave us an enhanced insight market conditions and sentiment, the liquidity in into the investment operations in Baltimore. the shares and discounts in the investment trust sector overall. Between 31 March 2021, the date on which Brown Advisory took over the management of the Alongside this share buyback policy, the Board | portfolio, and 30 June 2023, a mixed period for | believes that the Company’s discount will also | | --- | --- | | markets, the decline in the Company’s NAV was | be driven by demand for the Company’s shares, | | held at 1.6%, compared to a negative return of | reflecting its long-term investment performance, | | 4.9% from the Company’s benchmark over the | its relevance to investors, the appropriate | | same period. | marketing of the Company and general market | conditions. In accordance with the three-year cycle prescribed in the Company’s Articles of Given the continuing volatility in markets during Association, there will be a continuation vote the period under review and to allow further at this year’s Annual General Meeting (AGM) time for our Portfolio Manager to build and (please see AGM details below). The Board has market its performance record, we considered it considered the Company’s investment remit, inappropriate to buy in any shares in this period. strategy, performance and ongoing viability and As at 30 June 2023, the number of shares held believes that the Company’s oering remains in treasury was unchanged at 6,271,254 and the attractive. Accordingly, the Board strongly total number in public hands was also unchanged recommends that shareholders vote in favour of at 11,952,159. the continuation of the Company in its present form, which as fellow shareholders they will be Gearing doing themselves. As an investment trust, the Company may use Revenue and Capital Returns gearing for investment purposes to enhance returns. However, over the past year the Board, The net gain per Ordinary share was 128.07p, taking into consideration the views of the Portfolio split (6.82p) to Revenue and 134.89p to Capital. Manager regarding investment opportunities Dividend income was higher as some companies and outlook, did not feel it appropriate to deploy raised pay-outs again as confidence returned and gearing given the continuing unsettled geopolitical interest income benefited from the rise in rates. and economic background and resultant market With management expenses broadly unchanged, volatility. Should conditions improve and the the net revenue loss was thus marginally lower. We outlook become more certain, the Board will still believe it appropriate to allocate all expenses review its decision to gear, as it is mindful that the to the Revenue account. No distributable revenue ability to gear to enhance returns is considered is available for the payment of dividends. one of the advantages of a closed-end vehicle. Share Price and Discount Environment, Social and Governance After careful consideration, the Board has (‘ESG’) amended the Company’s share buyback policy The Board has continued to engage with the that has been in place for several years. The Portfolio Manager on ESG matters. Governance revised policy will see the Board committed to has been a key focus within the Portfolio using share buybacks with the aim of reducing Manager’s investment process for many years discount volatility and working to reduce any and it uses its regular meetings with management discount should it become significantly wider to discuss and challenge them on their adherence than those of similar investment trusts. It to best practice. Further information on the believes this to be in shareholders’ interests. In Portfolio Manager’s approach to ESG matters is determining whether to buy back shares, the set out in the ESG Report on page 24. Board will consider, amongst other factors, and at its discretion, the size of the Company, general 9 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Chairman’s Statement (continued) Board Composition In February, Jasper Judd took on the role of audit chair from Lisa Booth. My thanks again to Lisa for In our half yearly report, I noted that we would her work as previous audit chair and her help in be looking for a replacement non-executive organising a very smooth handover, as well as to director for Tina Soderlund-Boley, who had Jasper for taking on his new role. All five directors accepted a senior position at a Swedish real will be representing themselves at the AGM. estate investment company. In view of the time commitments required by this role, Tina decided Finally, as part of our refreshment of the Board to step down from the Board once a replacement and ahead of next year when both Clive and Lisa non-executive director had been appointed. This will be stepping down, we will begin a new search she did at the end of June. I should like to thank for a fourth independent non-executive director. Tina for her outstanding contribution to the Going forward, we expect the size of the Board to Company over the past three years and wish her oscillate between four and five members. every success for the future. The Board is aware of the FCA’s Diversity and I was therefore pleased to announce in March Inclusion Policy and notes and supports their that, with the help of search firm Nurole targets. Accordingly, two out of the five non- Limited, we had appointed Jane Routledge as a executive directors presenting themselves at replacement independent non-executive director the forthcoming AGM are female, while one of with eect from 1 April. Jane is a non-executive the three senior positions will be occupied by a director of M&G Credit Income Investment female when Jane becomes Senior Independent Trust plc, having previously had a long career Director early next year. As the Board going in the investment management sector, holding forward will only comprise four to five members, several senior marketing positions, including it may not be big enough for us to ensure that at at Schroders, Invesco, Hermes and Seven least one member will be from a minority ethnic Investment Management. Her considerable background. That said, we look to create and marketing knowledge and experience in this field maintain a Board that has the correct mix of skills, will be of great use to the Board. diversity of thought and a collegiate culture drawn from as wide a range of sources as possible. As a result of Tina’s resignation, the Board has revisited its succession planning arrangements. Annual General Meeting Previously, the Board had anticipated that Tina would replace Clive Parritt as Senior Independent This year’s AGM will be held on Monday, 6 Director (SID) at this year’s AGM when Clive November 2023 at 2.00pm at the oces of Brown was due to retire. The Board believes that Jane Advisory, 18 Hanover Square, London W1S 1JY. Routledge has all the necessary skills for this It will include a short presentation via video-link role, and she has agreed that, after allowing for a by Chris Berrier, covering the performance of the period of getting to know the Company, she will Company over the past year as well as his outlook become SID on 1 April 2024. for the future. The Board and Portfolio Manager would welcome questions which shareholders In view of this, we have asked Clive Parritt to may submit to: InvestmentTrustEnquiries@ stay on the Board for a further period in order to brownadvisory.com. Subject to confidentiality, we help smooth the transition. He will retire during will respond to any questions submitted either 2024 as Jane takes on the role of SID. Although a directly or by publishing our response on the long-standing Board member, we deem Clive to Company website. be independent and the Company has benefited hugely from his continuity, knowledge and Electronic proxy voting is now available, and experience. The Board believes that it is in the shareholders are encouraged to submit voting interests of shareholders that he be re-elected for instructions using the web-based voting this period. facility www.eproxyappointment.com and www.proxymity.io for institutional shareholders. 10 FOR THE YEAR ENDED 30 JUNE 2023 ### Chairman’s Statement (continued) In order to use electronic proxy voting, remain, the economy may slow if the consumer shareholders will require their shareholder finally becomes more cautious and corporate registration number, control number and pin. If earnings may be impacted. you do not have access to these details please As we look further out, we become more contact the Company’s Registrar, Computershare, optimistic. We expect the Federal Reserve’s tough whose details can be found on page 80 of this medicine to work and for the inflation numbers report. as we enter the autumn to trend lower, allowing Notice of the AGM, containing full details of the interest rates to ease back too. Although possibly business to be conducted at the meeting, is set somewhat softer, we still expect the domestic US out on pages 86 and 87 of this report. economy to hold its own, with demand supported by recent wage growth and still high levels of Shareholder Communications employment. We see this as a generally favourable background for the US smaller company sector The Board encourages shareholders to visit the which should again draw investors given its Company website (www.brownadvisory.com/ attractive valuations and extended period of basc) for the latest information, podcasts and underperformance relative to its larger peers. monthly factsheets. Any period of weakness in the short-term will thus be welcome and oer our Portfolio Manager Outlook the opportunity to add to positions at attractive So far in 2023, both the US economy and the US prices, having cash on hand and the ability to gear. stock market have defied expectations on the upside. Despite major headwinds comprising a Stephen White huge jump in interest rates, persistent inflation, 15 September 2023 the depletion of pandemic era savings, concerning geopolitical tensions and a minor regional banking crisis, the US consumer has remained resilient and continued to drive the American economy. As a result, the recession forecast by many a year ago has failed so far to materialise. The stock market has responded positively, and it has been supported further by hopes that the peak in interest rates is within sight. Given the market’s rise to date, some setback should not, of course, be ruled out. While the Federal Reserve may have paused its rate increases in June, this was done merely in order to take stock and assess the impact so far. With the resilience of the economy and still high inflation numbers, the trajectory for interest rates remains upwards in view of the Federal Reserve’s determination to bring inflation back into its target range. The diculty for the Federal Reserve is in determining at what point the rise in rates will achieve this, without putting the economy severely at risk. With the Federal Reserve putting inflation restraint before economic activity, there is a risk that investors underestimate the extent and duration of tightening potentially to come. At the same time, the geopolitical concerns 11 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Portfolio Manager’s Review | Performance review | Portfolio review | | --- | --- | | During the year ended 30 June 2023, the | For the twelve-month period, the largest | | Company’s NAV increased by 9.8%, compared to | absolute contributors to the Company’s overall | | the benchmark Russell 2000 Index return of 7.5%. | performance were the information technology, | healthcare and industrials sectors. However, on Overall, we are pleased with the Company’s a relative basis, the financials sector was the absolute and relative returns over the last primary driver as our eclectic list of holdings financial year, representing a solid rebound from outperformed the bank-laden benchmark. the challenging market conditions experienced Consumer discretionary and industrials saw toward the end of 2021 and most of 2022. Our relative weakness due to their comparative lack of emphasis on quality has certainly helped results cyclicality. more recently. However, we see this condition | as temporary considering current economic | At the individual stock level, EVO Payments, | | --- | --- | | and market dynamics. If current conditions | ChampionX Corporation and Workiva were | | persist, we think there could be an increased | the strongest contributors. EVO Payments Inc, | | reliance on idiosyncratic successes to drive | which operates a global merchant acquirer and | | relative outperformance. Nonetheless, our overall | payment processor servicing company, entered | | approach remains steady as we continue to wait | into a definitive agreement to be acquired by | | patiently for opportunities to introduce new ideas | Global Payments for $34 per share in an all- | | and increase our investment in a select group of | cash transaction. ChampionX Corporation is a | | existing portfolio holdings. | chemicals company specializing in delivering | solutions that optimize the extraction and drilling EVO Payments Inc, which operates a global merchant acquirer and payment processor servicing company, was the top contributor to performance over the period after entering into a definitive agreement to be acquired by Global Payments. Indeed a substantial amount of the turnover in the portfolio this year can be attributed to positive M&A activity. 12 FOR THE YEAR ENDED 30 JUNE 2023 ### Portfolio Manager’s Review (continued) | of oil and gas. The company continues to benefit | develops automated ultra-cold storage systems. | | --- | --- | | from the positive energy cycle, breathing new | The company lowered its full year profitability | | life into a new capital deployment strategy that | guidance due to a weaker than anticipated | | includes both dividends and share repurchases | rebound in what we view as a highly profitable | | – at the end of 2022 the company committed | product category. BlackLine Inc. provides cloud- | | to returning more than 60% of free cash flow to | based solutions for accounting and finance | | shareholders going forward. Workiva Inc. provides | operations. It has recently announced a CEO | | a cloud-based software platform that enables | transition that has prompted investor concerns | | organisations to collect and analyse data for | around its product roadmap and go-to-market | | compliance and management reporting. The | strategy. | company is seeing continued improvement in There were roughly an equal number of additions profitability both in the short and long-term. There and deletions to the portfolio over the twelve- have also been rumours that the company may be month period. A substantial amount of the garnering interest from private equity suitors. portfolio turnover was due to M&A activity and our The negative side of the ledger included Clarus desire to eliminate positions where our investment Corporation, Azenta Inc. and BlackLine Inc. thesis appeared violated or we believed a poor Clarus Corporation, a manufacturer of outdoor risk/reward dynamic necessitated a redeployment sporting equipment, was the victim of inventory of capital. For example, Biohaven Pharmaceutical rationalization at several national account Holdings, CMC Materials, EVO Payments, IAA customers, which prompted them to lower their Inc., ManTech International Corporation, and forecast of future profits. Azenta Inc. provides Terminex were all acquired. Catalent, Nevro Corp, gene sequencing and gene synthesis services and and Progyny were situations that fell into the latter We believe Workiva, Inc., a SaaS (software-as-a-service) company operating globally to provide cloud-based compliance and reporting functionality, can continue to show strong operating leverage as they develop their international sales and marketing and channel partner investments. Shares in the company jumped during the period amidst rumours of acquisition interest. 13 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Portfolio Manager’s Review (continued) bucket. We were pleased that the team was able Conclusion to re-deploy the vast majority of the proceeds into “Toto, I’ve a feeling we’re not in Kansas anymore.” – a diverse collection of businesses that we hope to Dorothy, The Wizard of Oz own for the next several years. Much like Dorothy’s transition from Kansas to A thought on investing the fantastical Land of Oz, we too have been transported to a dierent world in the equity Investment management is a straightforward, markets. The last decade has seen zero interest yet challenging profession. Success hinges upon rate policy (ZIRP), a global pandemic, a surge an empirically derived philosophy, a committed in inflation and a dramatic policy reversal by the team with clear roles, a culture fostering open Federal Reserve. The advent of passive capital and honest communication, and decisive actions (index funds, ETFs, etc.) has further altered the informed by collected data and evidence. Time, structure of the stock market. attention and energy should be allocated towards analysing and refining the investment process – This journey has led to dramatic changes in the controllable aspect – rather than towards the investment sentiment, capital flows, and market outcomes. Learning and growth should be the leadership. Our portfolio’s active share is high, focus of both investment successes and failures. which can cause significant shifts in short-term relative performance. Despite an interesting Unlike more predictable professions, where investment environment in the first half of following certain procedures guarantees certain 2023, our core elements have stood the test of outcomes, investing demands similarly precise time over the last 17+ years and will continue to methods but success is never guaranteed. We guide us in the future. We anticipate volatility will would all prefer it to be straightforward. remain prevalent and intend to leverage it to our Legendary NFL coach Bill Parcells once said, “You advantage. We remain pleased with our long-term are what your record says you are.” While football performance and will strive to continue to drive teams are judged by a season, investment teams solid risk-adjusted returns going forward. should be assessed over an “investment cycle.” Portfolio Manager A 3- to 5-year investment record represents a culmination of all the bottom-up capital allocation Brown Advisory LLC decisions made during this time. We make 15 September 2023 numerous decisions every day, guided by one primary thought: what potential action is most likely to benefit long-term returns? As such, we must always consider any factors that might distort or obscure our perspective. Being aware of our human fallibility, we foster a collaborative investment-decision-making process. Each of us is influenced by several behavioural or cognitive biases such as anchoring, authority, confirmation, disposition eect, egocentricity, endowment eect, familiarity, framing, hindsight, loss aversion, mental accounting, narrative bias, overconfidence, recency, and survivorship. 14 FOR THE YEAR ENDED 30 JUNE 2023 ### Twenty Largest Equity Holdings as at 30 June 2023 30 June 2023 30 June 2022 | | | Market value | | Percentage | Market value | | Percentage | | --- | --- | --- | --- | --- | --- | --- | --- | | Company Sector | | | £‘000 | of Portfolio | | £‘000 | of Portfolio | | Waste Connections | Industrials 6,255 3.9 5,611 3.8 | | | | | | | Waste Connections, Inc. provides non-hazardous solid waste collection services for commercial, industrial, and residential customers. The company oers collection, landfill disposal, and recycling services for various recyclable materials, including compost, cardboard, oce paper, plastic containers, glass bottles, and ferrous and aluminium metals. Bright Horizons Family Solutions Consumer 5,086 3.2 4,054 2.7 Bright Horizons Family Solutions Discretionary Inc. provides childcare and early education services as well as other services designed to help employers and families to better address the challenges of work and life. The company provides services primarily under multi-year contracts with employers who oer childcare and other dependent care solutions as part of their employee benefits packages. Casey’s General Stores Consumer Staples 4,050 2.6 3,581 2.4 Casey’s General Stores, Inc. operates convenience stores in the Midwest. The company oers food, beverages, tobacco products, health and beauty aids, automotive supplies, and other non-food items, as well as selling gasoline. SPDR S&P Biotech ETF Biotechnology 4,003 2.5 – – SPDR S&P Biotech ETF is an exchange-traded fund incorporated in the US. The Fund seeks to replicate the performance of the S&P Biotechnology Select Industry Index, an equal-weighted index. The index tracks all the US common stocks listed on the NYSE, American Stock Exchange, NASDAQ National Market and NASDAQ Small Cap exchanges. Abcam Healthcare 3,823 2.4 1,219 0.8 Abcam plc operates as a biotechnology company. The Company oers diagnosis, research, and therapeutic solutions. Abcam services patients worldwide. 15 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Twenty Largest Equity Holdings as at 30 June 2023 (continued) 30 June 2023 30 June 2022 | | | Market value | | Percentage | Market value | | Percentage | | --- | --- | --- | --- | --- | --- | --- | --- | | Company Sector | | | £‘000 | of Portfolio | | £‘000 | of Portfolio | | Genpact | Information | | 3,794 2.4 5,943 4.0 | | | | | | Genpact Limited designs and | Technology | | | | | | | runs business operations to manage risk and compliance. The Company focuses on the areas of finance and procurement, financial services account servicing, claims management, regulatory aairs and industrial asset optimization. Genpact operates worldwide. Dynatrace Information 3,742 2.4 2,521 1.7 Dynatrace, Inc., through its Technology subsidiaries, develops software intelligence platforms for the enterprise cloud. Its software intelligence platforms allow customers to modernize and automate IT operations, develop and release high quality software faster and improve user experiences for better business outcomes. Prosperity Bancshares Financials 3,633 2.3 4,446 3.0 Prosperity Bancshares, Inc. is the holding company for Prosperity Bank. The Bank attracts deposits from the general public and uses those funds to originate a variety of commercial and consumer loans. Prosperity Bank operates in the greater Houston metropolitan area and neighbouring counties in Texas. ChampionX Energy 3,498 2.2 968 0.6 ChampionX Corporation provides energy solutions. The company focuses on upstream and midstream oilfield technology such as chemistry programs and drilling activities. ChampionX serves customers worldwide. HB Fuller Materials 3,091 1.9 2,562 1.8 H.B. Fuller Company manufactures and markets adhesives, sealants, coatings, paints and other specialty chemical products worldwide. The company’s products are sold in countries that include North America, Europe, Latin America, the Asia Pacific region, India, the Middle East, and Africa. 16 FOR THE YEAR ENDED 30 JUNE 2023 ### Twenty Largest Equity Holdings as at 30 June 2023 (continued) 30 June 2023 30 June 2022 | | | Market value | | Percentage | Market value | | Percentage | | --- | --- | --- | --- | --- | --- | --- | --- | | Company Sector | | | £‘000 | of Portfolio | | £‘000 | of Portfolio | | HealthEquity | Healthcare 3,044 1.9 2,633 1.8 | | | | | | | HealthEquity, Inc. provides technology- enabled services platforms that allow consumers to make healthcare saving and spending decisions. The company enables consumers to access their tax-advantaged healthcare savings, compare treatment options, pay healthcare bills, receive personalised benefit and clinical information and earn wellness incentives. Workiva Information 2,945 1.9 2,538 1.7 Workiva Inc. provides cloud-based Technology and mobile-enabled platforms for enterprises. The company oers software to collect, manage, report and analyse business data in real time. Pinterest ‘A’ Communication 2,905 1.8 – – Pinterest, Inc. operates and maintains Services a social networking site. The Company provides an online platform that helps users gather ideas on oddities, decorations, places to visit, recipes and other items. Pinterest serves customers worldwide. MSA Safety Industrials 2,900 1.8 1,824 1.2 MSA Safety Inc. develops, manufactures and supplies safety products that protect people and facility infrastructures. The company’s core products include self-contained breathing apparatus, fixed gas and flame detection systems, portable gas detection, head protection and fall protection products. Rentokil Initial, American Industrials 2,878 1.8 – – Depositary Receipt Rentokil Initial plc provides fully integrated facilities management and essential support services to government and commercial sector organisations of all sizes across all business sectors. The Company provides services in pest control, hygiene, workwear, facilities and plants. 17 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Twenty Largest Equity Holdings as at 30 June 2023 (continued) 30 June 2023 30 June 2022 | | | Market value | | Percentage | Market value | | Percentage | | --- | --- | --- | --- | --- | --- | --- | --- | | Company Sector | | | £‘000 | of Portfolio | | £‘000 | of Portfolio | | Quaker Chemical | Materials 2,834 1.8 2,246 1.5 | | | | | | | Quaker Chemical Corporation, trading as Quaker Houghton, produces, develops and markets industrial chemical products. The Company oers heat treatment, metal forming, forging and tin plating fluids, as well as cleaners, casting lubricants, greases, ground control agents and metal rolling oils. Quaker Houghton serves customers globally. Entegris Information 2,831 1.8 2,127 1.4 Entegris, Inc. provides materials Technology management products and services to the microelectronics industry on a worldwide basis. The company provides products such as wafer shippers, wafer transport and process carriers, pods and work-in-process boxes. Entegris also provides chemical delivery products such as valves, fittings, tubing, pipe and containers. Neurocrine Biosciences Healthcare 2,778 1.8 2,970 2.0 Neurocrine Biosciences, Inc. is focused on the discovery and development of therapeutics for neuropsychiatric, neuroinflammatory and neurodegenerative diseases and disorders. The Company is developing therapeutic interventions for anxiety, depression, Alzheimer’s disease, insomnia, stroke, malignant brain tumours, multiple sclerosis, obesity and diabetes. EastGroup Properties, REIT Real Estate 2,761 1.7 2,466 1.7 EastGroup Properties, Inc. is an equity real estate investment trust. The trust acquires and develops industrial properties in major sunbelt markets throughout the US with a special emphasis in the states of California, Florida, Texas and Arizona. Mister Car Wash Consumer 2,749 1.7 – – Mister Car Wash, Inc. operates as a Discretionary car wash company. The Company oers car exterior and interior cleaning services. Mister Car Wash serves customers in the US. Total 69,600 43.8 The value of the twenty largest holdings represents £69.6 million (2022: £70.2 million) and 43.8% (2022: 47.5%) of the Company’s total investments. 18 FOR THE YEAR ENDED 30 JUNE 2023 ### List of Investments as at 30 June 2023 Market value Percentage Company Industry £’000 of Portfolio Biotechnology* 3.5% (2022: 0%) SPDR S&P Biotech ETF ETF which seeks to track the 4,003 2.5 performance of S&P Biotechnology Select Industry Index. Karuna Therapeutics Operates as a clinical-stage 1,671 1.0 biopharmaceutical company. Engages in business of research and development. 5,674 3.5 Communication Services* 4.5% (2022: 3.9%) Pinterest A Social networking site where ideas 2,905 1.8 on oddities, decorations, places to visit, recipes and other items are gathered. Cogent Communications Holdings Internet service provider 1,947 1.2 Take-Two Interactive Software Publisher, developer and distributor 1,539 1.0 of video games Angi Digital market place for home 791 0.5 services 7,182 4.5 Consumer Discretionary* 11.7% (2022: 13.7%) Bright Horizons Family Solutions Childcare and early education 5,086 3.2 services Mister Car Wash Engages in the provision of exterior 2,749 1.7 and interior car cleaning services Churchill Downs Gaming entertainment company 2,666 1.7 TopBuild Insulation and other building 1,524 1.0 products Choice Hotels International Hotel franchisor 1,520 1.0 XPEL The manufacture and distribution 1,081 0.7 of automotive products Leslie’s Swimming pool supplies and 1,039 0.6 related products Clarus Industrials 975 0.6 MakeMyTrip Travel services provider over the 822 0.5 internet Vizio Holding A Designer and manufacturer of 659 0.4 consumer electronics through its subsidiaries First Watch Restaurant Group Restaurant chain 477 0.3 18,598 11.7 19 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### List of Investments (continued) Market value Percentage Company Industry £’000 of Portfolio Consumer Staples* 3.7% (2022: 3.6%) Casey’s General Stores Convenience store chain 4,050 2.6 Simply Good Foods Nutritional foods and snacking 1,719 1.1 products 5,769 3.7 Energy* 5.0% (2022: 1.9%) Provider of chemistry programs and services for global upstream oil ChampionX and natural gas industry 3,498 2.2 Denbury Oil and natural gas company which 2,569 1.6 acquires, develops, operates and explores oil and gas properties. Cactus A Manufacturer of control equipment 1,853 1.2 7,920 5.0 Financials* 2.8% (2022: 3.0%) Prosperity Bancshares Provision of financial products and 3,633 2.3 solutions Houlihan Lokey A The provision of investment banking 879 0.5 services. It operates through the following segments: corporate finance, financial restructuring and financial and valuation advisory. 4,512 2.8 Healthcare* 20.2% (2022: 22.7%) Abcam Biotechnology company that oers 3,823 2.4 diagnosis, research and therapeutic solutions HealthEquity Service platforms that allow 3,044 1.9 consumers to make healthcare saving and spending decisions Neurocrine Biosciences Biopharmaceutical company 2,778 1.8 that focuses on therapeutics for neuropsychiatric, neuroinflammatory and neurodegenerative diseases and disorders Bruker Scientific instruments for molecular 2,674 1.7 and materials research Encompass Health Inpatient rehabilitative healthcare 2,620 1.6 services SI-BONE Implantable devices used in 2,521 1.6 the surgical treatment of the sacropelvic anatomy Establishment Labs Holdings Devices for aesthetic and 2.499 1.6 reconstructive plastic surgery NeoGenomics Cancer diagnostics and 2,388 1.5 pharmaceutical services company 20 FOR THE YEAR ENDED 30 JUNE 2023 ### List of Investments (continued) Market | | value | Percentage | | --- | --- | --- | | Company Industry | £’000 | of Portfolio | | Accolade Software solutions that help people | 2,076 1.3 | | better understand, navigate and utilise the healthcare system Inari Medical Innovative catheter-based 1,719 1.1 technologies for the treatment of venous thromboembolism Agilon Health Provider of healthcare platform 1,657 1.0 OrthoPediatrics Orthopaedic implants and 1,630 1.0 instruments for paediatric orthopaedic surgeons Ascendis Pharma, ADR Pharmaceutical products for the 940 0.6 treatments of growth hormone deficiency, endocrinology, central nervous system disorders, infectious diseases and diabetes Blueprint Medicines Biomedical treatments 939 0.6 Alignment Healthcare Consumer-centric platform 562 0.3 delivering customized healthcare Arvinas Clinical-stage biotechnology 251 0.2 company creating a new class of drugs 32,121 20.2 Industrials* 19.5% (2022 16.9%) Waste Connections Waste management services 6,255 3.9 Company MSA Safety Manufacturer of safety products 2,900 1.8 Rentokil Initial, ADR The provision of business support 2,878 1.8 services. The firm’s products and services protect people from pest- borne disease and the risks of poor hygiene Woodward Control systems and components 2,680 1.7 for aircraft engines FTI Consulting Business advisory firm 2,175 1.4 Valmont Industries Poles, towers and structures for 2,170 1.4 lighting, communication and utility markets John Bean Technologies Technology solutions for industrial 1,956 1.2 food processing Zurn Elkay Water Solutions Oers a range of advanced water 1,762 1.1 system solutions AZEK Outdoor living products 1,366 0.9 manufacturer Clear Secure A Provides a technology platform 1,354 0.9 which enables frictionless and safe journeys using biometric identity. Casella Waste Systems A Waste management company 1,208 0.8 21 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### List of Investments (continued) Market | | value | Percentage | | --- | --- | --- | | Company Industry | £’000 | of Portfolio | | Mueller Water Products A Manufacture and sale of products | 1,182 0.7 | | used in the transmission, distribution and measurement of water Knight-Swift Transportation Holdings Transportation and logistics 1,011 0.6 services IDEX Engineered industrial products and 960 0.6 technology SiteOne Landscape Supply Wholesale distributor of landscape 848 0.5 supplies CCC Intelligent Solutions Holdings Cloud-based software as a service 301 0.2 (SaaS) platform connects trading partners, facilitates commerce and supports mission-critical, artificial intelligence-enabled digital workflows 31,006 19.5 Information Technology* 23.3% (2022: 28.7%) Genpact Business process management 3,794 2.4 services Dynatrace Software intelligence platform 3,742 2.4 based on artificial intelligence Workiva Cloud-based enterprise software 2,945 1.9 Entegris Materials-management 2,831 1.8 products and services to the microelectronics industry WEX Payment processing and 2,519 1.6 information management services Blackline Cloud-based enterprise software 2,468 1.5 Phreesia Healthcare software 2,344 1.5 Bentley Systems B Infrastructure engineering software 2,276 1.4 company Power Integrations Supplier of high-voltage Analog 2,275 1.4 integrated circuits Littelfuse Circuit protection products for 2,085 1.3 the electronics, automotive and electrical industries Envestnet Wealth management technology 1,814 1.1 and products PROS Holdings Price optimisation, sales 1,759 1.1 improvement, opportunity detection and revenue management software Curtiss-Wright A global integrated business that 1,567 1.0 provides engineered products, solutions, and services mainly to the aerospace and defence markets 22 FOR THE YEAR ENDED 30 JUNE 2023 ### List of Investments (continued) Market | | value | Percentage | | --- | --- | --- | | Company Industry | £’000 | of Portfolio | | Infinera Digital optical telecommunications | 1,437 0.9 | | equipment Definitive Healthcare A Engages in the provision of 1,093 0.7 healthcare commercial intelligence Lattice Semiconductor Developer of programmable logic 974 0.6 devices Azenta Provider of life sciences solutions 905 0.6 SiTime A micro-electromechanical system 191 0.1 based silicon timing solutions 37,0 1 9 23.3 Materials* 3.7% (2022: 3.3%) HB Fuller Adhesives, sealants, coatings, 3,091 1.9 paints and other specialty chemical products Quaker Chemical Custom-formulated chemical 2,834 1.8 specialty products 5,925 3.7 Real Estate* 2.1% (2022: 2.3%) EastGroup Properties, REIT Industrial properties, with a 2,761 1.7 particular emphasis on Florida, Texas, Arizona and California DigitalBridge Group, REIT Infrastructure solutions focused on 647 0.4 mobile and internet connectivity 3,408 2.1 Total Investments 159,134 100.0 The number of companies in the portfolio is 78 (2022: 78). * Sector categories correspond to those used in the Russell Indices. 23 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Environmental, Social and Governance (ESG) Report ESG research integration into the Brown Advisory’s ESG research team investment process As part of our commitment to “thoughtful We believe thoughtful investing starts with investing”, we have long embedded ESG research listening to our clients, understanding their goals analysts within the firm’s broader equity and and identifying the best solutions to achieve fixed income investment research team. They them. Strong long-term performance, sound work together across asset classes to develop advice, and superior service are foundations of overarching ESG research tools, and to provide our commitment to our clients. Over the years, coverage of overlapping portfolio names that are we have found that an investment process that held or are being considered for both equity and considers ESG inputs has been an eective way to fixed income portfolios. At the same time, the deliver our commitment of “thoughtful investing” equity and fixed income ESG analysts are fully to clients. For Brown Advisory US Smaller integrated members of the research teams for Companies, this means establishing processes their respective asset classes, working closely that allow us to identify ESG risks when making with fundamental analysts and portfolio managers our investment decisions. to guide portfolio decisions for strategies making use of the firm’s ESG research tools. We believe Investment inputs this approach helps us to maintain consistent standards across asset classes while also We believe that ESG research is not a ‘style’ but seeking to embed ESG research deeply within the rather an input to our decision-making process. decision-making process. Our expertise lies in understanding the financial implications of environmental, social and Brown Advisory’s Sustainable Investing governance characteristics, both independently Advisory Board and in consideration of one another, and how this helps us gain an edge in generating performance Brown Advisory also has a Sustainable Investing for our clients. Advisory Board. This board was developed to help us focus on our business strategy as we build We employ a “3G” investment filter within out our sustainable investing capabilities beyond the Brown Advisory US Smaller Companies our ESG focused strategies. Among the strategic portfolio that seeks the following factors guidance that this board provides, they advise our when evaluating new investments: growth, investment teams as to how they might consider governance, and go-to-market strategy. To incorporating ESG information into investment highlight the governance filter, the factors that decisions in ways that have clear fundamental companies should possess include a capable and benefits. The board includes members from shareholder-friendly management team, a diverse Brown Advisory, as well as external sustainable and appropriate Board structure, well-structured investing experts. and aligned incentives, and more. Brown Advisory LLC To support this, we integrate ESG research Portfolio Manager (either third party or provided by our team of 15 September 2023 ESG analysts) for all securities before we buy. Alongside this, we receive quarterly analysis that includes certain ESG data and, where applicable, controversies associated with the holdings in the portfolio. This report ensures we remain aware of various ESG characteristics of our investments. 24 FOR THE YEAR ENDED 30 JUNE 2023 ## Strategic Report The Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013. The Strategic Report seeks to provide shareholders with the relevant information to enable them to assess the performance of the Board during the period under review. ### Business and Status During the year the Company carried on business as an investment trust with its principal activity being portfolio investment. The Company has been approved by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the eligibility conditions of sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA 2010') and the ongoing requirements for approved companies as detailed in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011. In the opinion of the Directors, the Company has conducted its affairs in the appropriate manner to retain its status as an investment trust. The Company is an investment company within the meaning of section 833 of the Companies Act 2006. The Company is not a close company within the meaning of the provisions of the CTA 2010 and has no employees. The Company was incorporated in England & Wales on 15 January 1993. Reviews of the Company's activities are included in the Chairman's Statement and Portfolio Manager's Review on pages 8 to 14. The Company's investment objective and investment policy are described on pages 5 and 6. There has been no significant change in the activities of the Company during the year to 30 June 2023 and the Directors anticipate that the Company will continue to operate in the same manner during the current financial year. ### Gearing A definition of gearing is included in the glossary of terms including Alternative Performance Measures on page 84. The Company was not geared during the year. ### Key Performance Indicators At quarterly Board meetings, the Directors consider a number of performance indicators to assess the extent to which the Company is meeting its objective. The key performance indicators used to measure the performance of the Company over time are as follows: - Net Asset Value changes; - The discount or premium of share price to Net Asset Value; - A comparison of the absolute and relative performance of the Ordinary share price and the Net Asset Value per share relative to the return on the Company's Benchmark Index and of its peers; - Ordinary share price movement; and - The Company's ongoing charges ratio. Information on performance against Key Performance Indicators can be found on page 7 and within the Chairman's Statement. In addition, a history of the Net Asset Value, Ordinary share price and Benchmark Index are shown on the monthly factsheets which can be viewed on the Portfolio Manager website www.brownadvisory.com/basc. BrownADVISORY Thoughtful Investing. 25 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Strategic Report (continued) | Discount to Net Asset Value | Treasury Shares | | --- | --- | | The Directors regularly review the level of the | In accordance with the Companies (Acquisition | | discount or premium between the closing price of | of Own Shares) (Treasury Shares) Regulations | | the Company’s Ordinary shares and the Net Asset | 2003 (the ‘Regulations’), which came into force | | Value. The Company will issue shares when there | on 1 December 2003, any Ordinary shares | | is sucient demand. Such issues are always at | repurchased, pursuant to the above authority, | | a price which is in excess of the NAV. No shares | may be held in treasury. These Ordinary shares | | were issued during the year under review. | may subsequently be cancelled or sold for cash. | | The Board will apply its revised policy of buying | This gives the Company the ability to reissue | | back shares with the aim of reducing discount | shares quickly and cost eectively and provides | | volatility and maintaining any discount such | the Company with additional flexibility in the | | that it is not significantly wider than those of | management of its capital. | similar investment trusts. It believes this to be in At 30 June 2023 there were 6,271,254 Ordinary shareholders’ interests. In determining whether shares held in Treasury. to buy back shares, the Board will consider, amongst other factors, and at its discretion, the Management size of the Company, general market conditions and sentiment, the liquidity in the shares and The Company has no employees and most of its discounts in the investment trust sector overall. day-to-day responsibilities are delegated to Brown Advisory LLC, which acts as the Company’s The Directors had powers granted to them at Portfolio Manager, and FundRock Partners the last Annual General Meeting (‘AGM’) held on Limited which acts as the Company’s Alternative 31 October 2022 to purchase Ordinary shares Investment Fund Manager (‘AIFM’) and Company and either cancel or hold them in treasury as a Secretary. Further details of the Company’s method of controlling the discount to Net Asset arrangement with Brown Advisory LLC and the Value and enhancing shareholder value. No shares AIFM can be found in Note 20 to the Financial were bought back during the year under review. Statements on page 79. Under the Listing Rules, the maximum price that J.P. Morgan Europe Limited (‘JPMEL’) acts as the may be paid by the Company on the repurchase Company’s depositary. The Company has also of any Ordinary shares is 105% of the average of entered into an outsourcing arrangement with J.P. the middle market quotations for the Ordinary Morgan Chase Bank N.A. (‘JPMCB’) as custodian shares for the five business days immediately and for the provision of accounting services. preceding the date of repurchase. The minimum price will be the nominal value of the Ordinary shares. The Board is proposing that its authority to repurchase up to approximately 14.99% of its issued share capital (excluding treasury shares) be renewed at the AGM. The new authority to repurchase will last until the conclusion of the AGM of the Company in 2024 (unless renewed earlier). Any repurchase made will be at the discretion of the Board in light of prevailing market conditions and within guidelines set from time to time by the Board, the Companies Act, the Listing Rules and the Market Abuse Regulation. 26 FOR THE YEAR ENDED 30 JUNE 2023 ### Strategic Report (continued) Viability Statement  the Company has maintained a reasonable performance and share price discount to NAV; In accordance with Provision 36 of the Code | of Corporate Governance as issued by the |  the portfolio management fee is the most | | --- | --- | | Association of Investment Companies in February | significant expense of the Company. It is | | 2019 (the ‘AIC Code’), the Board has assessed the | charged as a percentage of the Company’s net | | prospects of the Company over a longer period | asset value and so would reduce if the market | | than the twelve months required by the ‘Going | value of the portfolio were to fall. The remaining | | Concern’ provision, by reviewing the next three | expenses are modest in value and predictable | | years and assessing the implications of the next | in nature; | required vote on the continuation of the Company  no significant increase to ongoing charges or at the 2023 AGM. The Board has confirmed that, operational expenses is anticipated; and following consultation with key stakeholders, it  the Board is satisfied that Brown Advisory considers the continuation vote will be approved LLC and the Company’s other key third-party by the shareholders. suppliers maintain suitable processes and The Board has considered the Company’s controls to ensure that they can continue to business model including its investment objective provide their services to the Company. and investment policy, the principal and emerging The Board has also considered the market risks and uncertainties that may aect the outlook, both for US smaller company equities Company, as detailed on pages 28 to 30, the and for investment trusts, and has concluded size threshold below which the Company would that these remain an attractive opportunity for be considered uneconomic or unviable, and the investors. Company performance and attractiveness to investors in the current environment. The Board The Board has therefore concluded that there has noted that: is a reasonable expectation that the Company will be able to continue in operation and meet its  the Company holds a liquid portfolio invested liabilities as they fall due over the next three years. predominantly in US listed equities;  the Company is not geared; 27 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Strategic Report (continued) Principal and Emerging Risks and Uncertainties The Board, through the Audit and Risk on the Company and its financial condition, Committee, carries out a regular review of the performance and prospects. The Board risk environment in which the Company operates, has carried out a robust assessment of the changes to the environment and individual Company’s principal and emerging risks, which risks. The Board also considers emerging risks include those that would threaten its business which might aect the Company. During the model, future performance, solvency, liquidity or year, the continued conflict in Ukraine and reputation. tensions between China and the US have created The principal risks and uncertainties facing the geopolitical uncertainties which have increased Company at the current time, together with a market risk and volatility. description of the mitigating actions the Board There are a number of other risks which, if has taken, are set out in the table below. realised, could have a material adverse eect Risk Mitigating Action Investment objective – the Company’s Board review: the Board formally reviews the objective becomes unattractive to investors Company’s objective and related strategies on an which could result in a lack of demand for the annual basis, or more regularly if appropriate. Company’s shares, leading to a widening of the Shareholder communication: the Board is cognisant discount of the share price to its underlying of the importance of regular communication with NAV and a fall in the value of its shares. shareholders. The Chairman oers meetings with the Company’s largest shareholders, and the Board meets with shareholders at the Annual General Meeting. Additionally a shareholder presentation with questions and answers is available at the AGM. The Board reviews shareholder correspondence and investor relations reports and also receives feedback from the Company’s broker. Discount monitoring: the Board, through the Portfolio Manager and AIFM, keeps the level of discount under constant review. The Board is responsible for the Company’s share buyback policy and is prepared to authorise the use of share buybacks to provide liquidity to the market and to try to limit any widening of the discount, to the extent that it is wider than those of similar investment trusts. 28 FOR THE YEAR ENDED 30 JUNE 2023 ### Strategic Report (continued) Risk Mitigating Action Investment strategies – the Company adopts Adherence to investment guidelines: the Board sets inappropriate investment strategies in pursuit investment guidelines and restrictions which the of its objective which could result in decreased Portfolio Manager follows, covering matters such as demand for the Company’s shares, leading to a asset allocation, diversification, gearing and currency widening of the discount and poor investment exposure. These guidelines are reviewed regularly performance. and reports on compliance with them are reviewed at Board meetings. In order to ensure adequate diversification, the Board has set absolute limits on minimum holdings and maximum exposures in the portfolio at the time of investment, which are set out on page 6. Investment performance – the appointment Monitoring of performance: the Board keeps or continuing appointment of a portfolio performance under continual review. It meets the manager with inadequate resources, skills or Portfolio Manager on a regular basis and keeps under expertise, or which makes poor investment close review (inter alia) its resources and adherence decisions. This could result in poor investment to investment guidelines. The Board discusses with performance, a loss of value for shareholders the Portfolio Manager reasons for over or under- and a widening discount. performance at every Board meeting. A detailed formal appraisal of the Portfolio Manager is carried out annually by the Board. The Board also keeps under review the adequacy of risk controls. Financial/market – insucient oversight or Management controls: the Portfolio Manager has controls over financial risks, foreign currency a range of procedures and controls relating to the risk, market price risk, interest rate risk, Company’s financial instruments and maintains a liquidity risk, credit and counterparty risk, and closed ‘approved broker’ list. insucient revenue forecasting and monitoring, Board review: as stated above, the Board sets could result in losses to the Company. investment guidelines and restrictions which are reviewed regularly and the Portfolio Manager reports on compliance with them at Board meetings. Revenue forecasting and monitoring: the AIFM presents detailed forecasts of income and expenditure covering both the current and subsequent financial years at Board meetings. Further details of the Company’s financial instruments and associated risk management are included in Note 13 to the Financial Statements. 29 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Strategic Report (continued) Risk Mitigating Action Regulatory – changes to, or failure to comply Board awareness: the Directors have an awareness with, relevant regulations (including the of the more important regulations and are provided Companies Act, the Financial Services and with information on changes by the Association Markets Act, the Alternative Investment Fund of Investment Companies. In terms of day to day Managers Directive, accounting standards, compliance with regulations, the Board is reliant investment trust regulations, the Listing Rules, on the knowledge and expertise of the AIFM and Disclosure Guidance and Transparency Rules Company Secretary. However, where necessary, the and Prospectus Rules) could result in fines, Board engages the services of external advisers. loss of reputation, reduced demand for the Management controls: the Company Secretary and Company’s shares and potentially the loss of accounting teams use checklists to aid compliance an advantageous tax regime. and these are supported by the AIFM’s compliance monitoring programme and risk-based internal audit investigations. Operational (including cyber-crime) – the Agreements: written agreements are in place defining Company is reliant on services provided by the roles and responsibilities of all third-party service third parties (in particular those of the Portfolio providers. Manager, AIFM, custodian and depositary) and Internal control systems of the AIFM and Portfolio any control gaps and failures in their operations Manager: the Board receives reports on the operation could expose the Company to loss or damage. and ecacy of IT and control systems, including those relating to cyber-crime and internal audit and compliance functions. Safekeeping of assets: the depositary is ultimately responsible for the safekeeping of the Company’s assets and holds cash and securities in segregated accounts with J.P. Morgan Chase Bank N.A. The depository reconciles these accounts daily against the records of the Portfolio Manager. Monitoring of other third-party service providers: the AIFM closely monitors the control environments and quality of services provided by third parties, including those of the depositary. This includes controls relating to cyber-crime and is conducted through service level agreements, regular meetings and key performance indicators. The Directors review reports on the AIFM’s monitoring of third-party service providers on a periodic basis. A detailed formal appraisal of the AIFM, Portfolio Manager and other key third party providers is carried out annually by the Board. Geopolitical (including a pandemic, climate Board and Portfolio Manager awareness: geopolitical change and the conflict in Ukraine) – the events over which the Company has no control are impact of geopolitical events could result in always a risk. The Board and Portfolio Manager do losses to the Company. what they can to address these risks where possible. 30 FOR THE YEAR ENDED 30 JUNE 2023 ## Strategic Report (continued) ### Directors Details of the Directors of the Company and their biographies are set out on page 34. The Company's policy on Board diversity is included in the Corporate Governance section of the Report of the Directors on page 45. At 1 July 2023 the Board comprised two$^{†}$ female and three male directors. ### Employees, Environmental, Social and Human Rights issues The Company has no employees and therefore no disclosures need to be made in respect of employees. The Board has delegated the day-to-day management and administration functions to the Portfolio Manager, the AIFM, JPMEL, JPMCB and other third-party service providers. ### Integration of Environmental, Social and Governance ('ESG') considerations into the Portfolio Manager's investment process A report from the Portfolio Manager has been included on page 24. ### Modern Slavery Act The Modern Slavery Act 2015 requires certain companies to prepare a slavery and human trafficking statement. As the Company has no employees and does not supply goods and services, no statement is required. ### Global Greenhouse Gas Emissions The Company has no greenhouse gas emissions to report from its operations as its day-to-day management and administration functions have been outsourced to third parties and it neither owns physical assets or property nor has employees of its own. It therefore does not have responsibility for any emissions-producing sources under the Companies Act 2006 (Strategic Report on Directors' Reports) Regulations 2013. ### Section 172 Statement Under Section 172 ('S172') of the Companies Act 2006, the Directors have a duty to act in good faith and to promote the success of the Company for the benefit of its shareholders as a whole. This includes taking into consideration the likely consequences of their decisions in the long-term and in respect of the Company's stakeholders such as its shareholders, employees, if any, and suppliers, while acting fairly as between shareholders. The Directors must also consider the impact of the Company's decisions on the environment, the community and its reputation for maintaining high standards of business conduct. The Company ensures that the Directors are able to discharge this duty by providing them with relevant information and training on their duties. The Company also ensures that information pertaining to its stakeholders is provided, as required, to the Directors as part of the information presented in regular Board meetings in order that stakeholder considerations can be factored into the Board's decision-making. The Directors' responsibilities are also set out in the schedule of matters reserved for the Board and the terms of reference of its Audit and Risk Committee, both of which are reviewed regularly by the Board. At all times the Directors can access, either collectively or individually, advice from its professional advisers including the Company Secretary and independent external advisers. The Company's investment objective, to achieve long-term capital growth by investing in a diversified portfolio primarily of quoted US smaller and medium-sized companies, supports the Directors' statutory obligations to consider the long-term consequences of the Company's decisions. How the long-term focus of the Company is achieved is set out in more detail in the above section on the Portfolio Manager's approach to ESG considerations. This approach is fundamental to the Company achieving long-term success for the benefit of all stakeholders. $^{†}$ Tina Soderlund-Boley resigned on 30 June 2023. **B Brown ADVISORY** Thoughtful Investing. 31 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Strategic Report (continued) The Company is aware of its own potential impact Online Information – The Company website on the environment and has practical policies in contains the annual and half yearly financial place to reduce that impact. Examples include the report along with monthly factsheets and use and sharing of electronic Board materials and commentaries from the Portfolio Manager. The the provision of electronic copies of the annual daily NAV per share, monthly top ten portfolio report and financial statements to shareholders listings and other regulatory announcements can and via the Company website. Where physical be found on the regulatory news service of the copies of the annual and half yearly financial London Stock Exchange. reports are made, materials and processes are used which are designed to both minimise the Shareholder Communications environmental impact and to maximise the Shareholders can raise issues or concerns at any recycling potential as described in more detail on time by writing to the Chairman or the Senior the inside back cover of this document. Independent Director at the Registered Oce. Engagement with suppliers, customers Further details about how the Board incorporates and others and the effect on principal the views of the Company’s shareholders can decisions be found in the UK Stewardship Code and the Exercise of Voting Powers section on page 39. The Shareholders – The shareholders of the Further information about how the Board ensures Company are both institutional and retail and that each Director develops an understanding details of those with substantial shareholdings are of the views of the Company’s shareholders can provided on page 36. be found in the section entitled Shareholder The Board believes that shareholders have a vital Relations on page 41 of this report. role in encouraging a higher level of corporate performance and is committed to listening to the The AIFM and the Portfolio Manager views of its shareholders and giving useful and Brown Advisory LLC acts as the Company’s timely information. The Board provides open and Portfolio Manager and FundRock Partners Limited accessible channels of communication including has been appointed as the Company’s AIFM. those listed below. The portfolio management function is critical to The AGM – The Company encourages the long-term success of the Company. The Board participation from shareholders at its AGMs, and the Portfolio Manager maintain an open and where they can communicate directly with the constructive relationship, with meetings taking Directors and Portfolio Manager. The upcoming place a minimum of four times per annum, with AGM will include a short presentation by the monthly updates and additional meetings as Portfolio Manager on the performance of the required. Company over the past year, as well as an outlook for the future. The Board and Portfolio The ‘Management of the Company’ section Manager welcome questions which shareholders on page 37 in this report details the Board’s may submit to InvestmentTrustEnquiries@ consideration of the Portfolio Manager’s brownadvisory.com. Subject to confidentiality, we performance, its terms of appointment and will respond to any questions submitted either the Board’s annual assessment of the Portfolio directly or by publishing our response on the Manager’s continued stewardship of the portfolio Company website. All views of the shareholders and its oversight of the administrative functions. will be taken into consideration and action taken where appropriate. 32 FOR THE YEAR ENDED 30 JUNE 2023 ### Strategic Report (continued) The Audit and Risk Committee meets at least In Summary twice a year and as part of its role considers the The governance structure and decision-making reports on the internal control objectives and process are underpinned by the duties of the procedures of the Portfolio Manager, the AIFM, Directors under S172 on all matters. The Board and other third party service providers together firmly believes that the sustainable long-term with independent, external reviews where success of the Company is dependent upon appropriate. taking account of the interests of all its key stakeholders. The AIFM also supplies company secretarial services to the Company. The AIFM oversees For and on behalf of the Board the activities of the Company’s other third-party suppliers on behalf of the Company and maintains Stephen White open and collaborative relationships to maintain Chairman quality, eciency and cost control through regular 15 September 2023 communication with operational teams. The Board regularly reviews reports from the Portfolio Manager, the AIFM and Company Secretary, the depositary, the Company’s broker, the investor relations research provider and its independent Auditor. These provide vital information concerning changes in market practice or regulation which aect the Company and assist the Board in its decision-making process. Representatives from these providers attend Company Board meetings and give presentations on a regular basis enabling in depth discussions concerning their findings and performance. Other Third-Party Service Providers As an externally managed investment company with no employees or physical assets, the principal stakeholders of the Company are its shareholders, Portfolio Manager, AIFM, depositary, custodian, administrator and registrar. The continuance, or otherwise, of engagement of key third-party service providers are principal decisions taken by the Board every year. 33 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Report of the Directors and Governance Directors † Stephen White (Chairman of the Board) Appointed to the Board in October 2020 and subsequently appointed as Chairman of the Board in October 2021. He is a non-executive director and chairman of the audit committee of BlackRock Frontiers Investment Trust plc and a non-executive director of Polar Capital Technology Trust plc and Henderson EuroTrust plc. He qualified as a Chartered Accountant at PwC before starting a career in investment management. He has more than 35 years’ investment experience, most notably as head of European equities at F&C Asset Management, where he was manager of F&C Eurotrust plc and deputy manager of the F&C Investment Trust plc, and as head of European and US equities at British Steel Pension Fund. † Lisa Booth Appointed to the Board in September 2015. Ms Booth is a solicitor with many years’ experience in private practice. She co-founded a law firm in the City of London in 2003 and developed and managed a practice focusing on private equity and investment fund transactions during the subsequent ten years. She currently works as the General Counsel of a Berlin-based company which provides online travel search and ticket booking services. † Jasper Judd (Chairman of the Audit and Risk Committee) Appointed to the Board in October 2022. He is a chartered accountant and non-executive director and chairman of the audit committee of Dunedin Income Growth Investment Trust plc and a non-executive director and chairman of the audit and risk committees of JPMorgan Indian Investment Trust plc and Schroder Asian Total Return Investment Company plc. Previously, he had a long career in finance and strategy. † Clive Parritt (Senior Independent Director) Appointed to the Board in January 2007. He is a chartered accountant with over 40 years’ experience providing strategic, financial and commercial advice to medium sized and growing businesses. He is senior independent director of London and Associated Properties PLC. He was president of the Institute of Chartered Accountants in England & Wales in 2011 to 2012. Until April 2016 he was Group Finance Director of Audiotonix Limited (an international manufacturer of audio mixing consoles) and, until 2001, he was chairman of Baker Tilly (now RSM), having been its national managing partner for ten years until June 1996. He has previously chaired or been a director of a number of investment trusts, VCTs and media businesses. † † Member of the Audit and Risk Committee. 34 FOR THE YEAR ENDED 30 JUNE 2023 ### Report of the Directors and Governance (continued) † Jane Routledge Appointed to the Board in April 2023, Ms Routledge is a non-executive director of M&G Credit Income Investment Trust plc (MGCI). She is also a non-executive director of Cumbria Education Trust. Previously, Ms Routledge had a long career in the investment management sector and has held a number of senior marketing positions including at Schroders, Invesco, Hermes and Seven Investment Management. † † Member of the Audit and Risk Committee. 35 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Report of the Directors The Directors present the Annual Report and Substantial shareholders Financial Statements of the Company for the year At 30 June 2023, the following shareholders had ended 30 June 2023. declared a notifiable interest in the Company’s voting rights: Results and Dividends The Company’s Net Asset Value per Ordinary Ordinary % of total Shares voting Date of share and the Ordinary share price increased by Shareholder held rights* notification 9.8% and 10.4% respectively in the year ended | 30 June 2023, compared to an increase of 7.5% | Rathbone | | | | | --- | --- | --- | --- | --- | | in the sterling adjusted Russell 2000 Total Return | Investment | | | | | Index. Results and reserve movements for the | Management | | 27 September | | | year are set out in the Income Statement on page | Limited 593,735 | 4.97 | | 2022 | 64 and the Notes to the Financial Statements on 1607 Capital pages 67 to 79. Partners, 5 April LLC 599,740 5.02 2023 The Net Assets of the Company at 30 June 2023 were £171.1 million (2022: £155.8 million). No * Based on number of voting rights as at the date of distributable revenue is available for payment of notification. dividends. The following updates to notifiable interests in the Company’s voting rights have been declared since Capital Structure 30 June 2023: As at 30 June 2023 the Company’s issued share capital consisted of 18,223,413 Ordinary shares Ordinary % of total Shares voting Date of of 25p each of which 6,271,254 were held in Shareholder held rights* notification Treasury. As a result, the voting shares on 30 | June 2023 totalled 11,952,159. All Ordinary shares | Brewin | | | | --- | --- | --- | --- | | rank equally for dividends and distributions and | Dolphin | | 17 July | | carry one vote each. There are no restrictions | Limited 590,224 | 4.94 | 2023 | concerning the transfer of securities in the * Based on number of voting rights as at the date of Company, no special rights with regard to control notification. attached to securities, no agreements known to the Company between holders of securities Directors regarding their transfer and no agreement to The Directors of the Company and their which the Company is party that aects its control biographies can be found on pages 34 and 35. following a takeover bid. Mr White, Ms Booth, Mrs Soderlund-Boley and Details of the capital structure can be found in Mr Parritt held oce throughout the year under Note 14 to the Financial Statements on page 77. review with Mr Judd being appointed to the Board Upon a winding-up, after meeting the liabilities on 1 October 2022 and subsequently to the role of of the Company, the surplus assets would be Chairman of the Audit and Risk Committee on 6 distributed to shareholders pro rata to their February 2023 and Ms Routledge being appointed holdings of Ordinary shares. on to the Board 1 April 2023. Mrs Soderlund-Boley resigned from the Board on 30 June 2023. Notifiable Interests in the Company’s Mr Parritt serves as the SID. The SID serves as a Voting Rights sounding board for the Chairman and acts as an In accordance with the Disclosure and intermediary for other directors and shareholders. Transparency Rules as issued by the Financial The SID is responsible for: Conduct Authority (‘FCA’), the Company is required to be notified of any new or changes to  working closely with and supporting the previously disclosed substantial interests in its Chairman; Ordinary shares. 36 36 FOR THE YEAR ENDED 30 JUNE 2023 ### Report of the Directors (continued)  leading the annual assessment of the indirect interest which conflicts or might conflict performance of the Chairman; with the interests of the Company, unless the relevant conflict or potential conflict has been  holding meetings with the other directors authorised by the Board in accordance with the without the Chairman being present, when Company’s Articles of Association. The Directors required; have declared all potential conflicts of interest  carrying out succession planning for the with the Company. The register of potential Chairman’s role; conflicts of interests is kept at the Registered  working with the Chairman, other directors and Oce of the Company. It is reviewed regularly by shareholders to resolve major issues; and the Board and all Directors advise the Company Secretary as soon as they become aware of any  being available to shareholders and other potential conflicts of interest. Directors who have directors to address any concerns or issues potential conflicts of interest do not participate they feel have not been adequately dealt with in any discussions which relate to any of their through the usual channels of communication potential conflicts. (through the Chairman). Repurchase of Shares Directors’ and Officers’ Liability Insurance and Indemnification Authority to Repurchase Shares During the year under review the Company At the AGM held on 31 October 2022 shareholders purchased and maintained liability insurance for renewed the authority to buy back the Company’s its Directors and Ocers as permitted by Section Ordinary shares for cancellation or holding in 233 of the Companies Act 2006. Treasury. The Board is seeking to renew the Company’s buyback powers at the forthcoming Directors’ Indemnification AGM. It is believed that these provisions provide The Company has indemnified its Directors in a valuable tool in the management of the respect of their duties as Directors and Ocers of Company’s share value against Net Asset Value. the Company, against certain civil claims brought The current authority allows the Company to by third parties and associated legal costs to the purchase up to 14.99 per cent of the issued extent that they are permitted by the Companies Ordinary shares (excluding treasury shares). Act 2006. Purchases would be made at the discretion of the Board and within guidelines as set from time to Management of the Company time. Under the Listing Rules and the buyback and Brown Advisory LLC is appointed as the stabilisation regulation, the maximum price for Company’s Portfolio Manager and FundRock such buybacks cannot exceed the higher of (i) 105 Partners Limited is appointed as the Company’s per cent. of the average middle market price for AIFM. the five days immediately preceding the date of repurchase; and (ii) the higher of the price of the A summary of the terms of the appointment last independent trade and the highest current including the notice of termination period and independent bid. annual fee is set out in Note 20 to the Financial Statements on page 79. Directors’ Remuneration and Interests The Directors believe that it is in the best interests The Directors’ Remuneration Report and Policy of all shareholders for the Company to continue on pages 51 to 54 provides information on the the appointment of the AIFM and the Portfolio remuneration and shareholdings of the Directors. Manager on the existing terms of appointment having reviewed the services provided by the Conflicts of Interest AIFM and the Portfolio Manager during the year. Each Director has a statutory duty to avoid a situation where they have or may have a direct or 37 BROWN ADVISORY US SMALLER COMPANIES PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS ## Report of the Directors (continued) ### Leverage In accordance with the requirements under the Alternative Investments Fund Managers Directive ('AIFMD'), the leverage employed by the Company on 30 June 2023 was 1.03 as determined using the Gross method, and 1.03 as determined using the Commitment method. Average leverage on a gross exposure basis is calculated by taking the sum of the notional values of the derivatives used by the Company, without netting, and is expressed as a ratio of the Company's net asset value. Average leverage on a commitment basis is calculated by netting the sum of the notional values of the derivatives and expressing it as a ratio of the Company's net asset value. Disclosed in the table below is the level of leverage employed by the Company. | | Maximum limit | Gross exposure average leverage employed during the year | Commitment exposure average leverage employed during the year | | --- | --- | --- | --- | | 30 June 2022 | 2.10 | 1.01 | 1.01 | | 30 June 2023 | 2.10 | 1.03 | 1.03 | ### Going Concern The Financial Statements have been prepared on a going concern basis. The Directors consider that this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In considering this, the Directors took into account the Company's investment objective, risk management policies and capital management policies, the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments and the ability of the Company to meet all of its liabilities and ongoing expenses. In determining the appropriateness of the going concern basis, the Directors gave particular focus to the operational resilience and ongoing viability of the Portfolio Manager, the AIFM and other key third-party suppliers. The Directors also assessed the likelihood that the continuation vote would be approved at the Company's 2023 AGM. ### ISA Qualification The Company currently manages its affairs so as to be a qualifying investment trust under the Individual Savings Account ('ISA') rules. As a result, under current UK legislation, the Ordinary shares qualify for investment via the stocks and shares component of an ISA up to the full annual subscription limit, currently £20,000 (2023/24) in each tax year. It is the present intention that the Company will conduct its affairs so as to continue to qualify for ISA products. ### Bribery Prevention Policy The provision of bribes of any nature to third parties in order to gain a commercial advantage is prohibited and is a criminal offence. The Board takes very seriously its responsibility to prevent, through Brown Advisory LLC and the AIFM on its behalf, any bribery. To aid the prevention of bribery, Brown Advisory LLC and the AIFM have adopted a Bribery Prevention Policy. ### Risk Management and Internal Controls In accordance with the AIC Code, the Board is responsible for monitoring the Company's risk management and internal control systems and reviewing their effectiveness, at least annually, and to report on its review in the Company's Annual Report. Internal control systems are designed to meet the particular requirements of the Company and to manage rather than eliminate the risks of failure to achieve its objectives. The systems by their very nature can provide reasonable but not absolute assurance against material misstatement or loss. The Board has reviewed the effectiveness of the Company's internal control systems including the financial, operational and compliance controls and risk management. These systems have been in place for the period under review and to the date of signing the financial statements. The Company receives services from the Portfolio Manager and the AIFM relating to the management of the Company, and from JPMEL 38 FOR THE YEAR ENDED 30 JUNE 2023 ### Report of the Directors (continued) for depositary services and JPMCB for custodian which the Company invests, and by exercising services and accounting services in respect its voting rights with care. Not only is this of the Company. Documented contractual commensurate with good market practice, arrangements are in place with these service but it also goes hand in hand with ensuring the providers which define the areas where the responsible investment of its clients’ funds. Company has delegated authority to them. The Equally, companies are asked to present their Audit and Risk Committee has considered the plans for maintaining social and environmental reports on the internal control objectives and sustainability within their business. procedures of the Portfolio Manager, the AIFM, In order to assist in the assessment of corporate JPMEL and JPMCB, together with the opinion of governance and sustainability issues and the service auditors for these reports, which detail contribute to a balanced view, the Portfolio the measures and the testing of the measures Manager subscribes to external corporate which are in place to ensure the proper recording, governance and sustainability research providers valuation, physical security and protection from but does not necessarily follow their voting theft of the Company’s investments and assets recommendations. Contentious issues are and the controls which have been established to identified and, where necessary (and where ensure compliance with all regulatory, statutory timescales permit), are discussed with corporate and fiscal obligations of the Company. governance and/or sustainability analysts and The Directors have also had regard to the portfolio managers, and companies. The Portfolio procedures for safeguarding the integrity of the Manager ensures that resolutions are voted in computer systems operated by the Portfolio accordance with this practice and timely voting Manager, the AIFM, JPMEL and JPMCB and decisions are made. the key business continuity plans. The Board From time to time, resolutions will be brought to reviews the procedures described above for the annual general meetings of investee companies by management of risk on an annual basis. third parties encouraging companies to address The Company does not have an internal audit specific environmental and/or social concerns. In function. The Audit and Risk Committee considers such instances the Portfolio Manager’s corporate whether there is a need for an internal audit governance and sustainability analysts will function on an annual basis. As most of the discuss their views with the investment team Company’s functions are delegated to third-party and the Company if appropriate. The Portfolio service providers the Board does not consider it Manager will then vote for what it considers to be necessary for the Company to establish its own in the best financial interests of shareholders of internal audit function. the Company, whilst having regard for any specific sustainability concerns unless otherwise directed. UK Stewardship Code and the Exercise | of Voting Powers | Common Reporting Standards | | --- | --- | | The Portfolio Manager is responsible for voting | The Regulations for Automatic Exchange of | | the shares it holds on the Company’s behalf. | Financial Account Information (the Common | | The Portfolio Manager’s Corporate Governance | Reporting Standard, ‘CRS’) issued by OECD have | | and Voting Policy can be found at https://www. | been enacted in the UK through The International | | brownadvisory.com/intl/disclosures. | Tax Compliance Regulations 2015. | | The Board and the Portfolio Manager believe | These Regulations require all financial institutions | | that shareholders have an important role | (including investment trust companies) to share | | in encouraging a higher level of corporate | with HMRC certain information about overseas | | performance and therefore adopt a positive | shareholders under the UK FATCA regulations. | | approach to corporate governance. The Portfolio | Accordingly, the Company is required to provide | | Manager aims to act in the best interests of all | information to HMRC on the tax residencies | | its stakeholders by engaging with companies in | of a number of non-UK based certificated | 39 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Report of the Directors (continued) shareholders and corporate entities on an annual Authority Handbook is met proportionately for all basis. HMRC in turn exchanges this information AIFM Remuneration Code sta. Further details with tax authorities in the country in which of the FundRock Partners Limited remuneration the shareholder may be resident for taxation policy can be found at https://www.fundrock. purposes. HMRC has advised that the Company com/uk-remuneration-policy. will not be required to provide such information In its role as an AIFM, FundRock Partners Limited on uncertified holdings held through CREST. The deems itself as lower risk due to the nature of Company has engaged Computershare to provide the activities it conducts. Therefore, FundRock such information on certificated holdings to Partners Limited has provided a basic overview of HMRC on an ongoing basis. how sta whose actions have a material impact on the Company are remunerated. Remuneration of the AIFM Under the Alternative Investment Fund Managers Due to the size and structure of FundRock Directive (“AIFMD”), FundRock Partners Limited Partners Limited, it is determined that employees acting as the AIFM of the Company is required to of the AIFM who have a material impact on the disclose the aggregate amount of remuneration risk profile of the Company include the Board and broken down by senior management and Head of Compliance. members of sta of the AIFM whose actions The Portfolio Manager is subject to regulatory have a material impact on the risk profile of the requirements on remuneration that FundRock Company. Partners Limited deem to be equally as eective FundRock Partners Limited has established an as those detailed in the AIFMD, which would AIFM remuneration policy designed to ensure that include the Capital Requirements Directive or the AIFM Remuneration Code in the UK Financial Markets in Financial Instruments Directive. Fixed | | | | | | | remuneration | | | Variable | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | (everything | | remuneration | | | | | Carried | | | | | | Total | | else that is not | | | | paid | | | interest | | | Number of | | remuneration | | | discretionary) | | (discretionary) | | | | paid by the | | | | | 1 | | | 2 | | | | | | | | | | beneficiaries | | | | paid | | | £ | | | | £ | Company | | Total remuneration paid by FundRock Partners Limited during the financial year 24 2,284,961 2,066,296 218,665 0 Remuneration paid to employees of the AIFM who have a material impact on the risk profile of the Company 3 565,639 449,077 116,562 0 ¹ Number of beneficiaries represents employees of the AIFM who are fully or partially involved in the activities of the Company as at 30 June 2023. ² Total remuneration paid represents total compensation of those employees of the AIFM who are fully or partially involved in the activities of the Company, based on their time in the role during the reporting period. Due to the AIFM’s operational structure, the information needed to provide a further breakdown of remuneration attributable to the Company is not readily available and would not be relevant or reliable. 40 FOR THE YEAR ENDED 30 JUNE 2023 ### Report of the Directors (continued) Shareholder Relations Statement in Respect of the Annual Report and Financial Statements All shareholders have the opportunity to attend and vote at the AGM, during which the Directors Having taken all available information into and Portfolio Manager will be available to answer consideration, the Board has concluded that the questions regarding the Company. The Notice Annual Report and Financial Statements for the of Meeting sets out the business of the AGM year ended 30 June 2023, taken as a whole, is fair, and any item not of an entirely routine nature is balanced and understandable and provides the explained in the Report of the Directors or notes information necessary for shareholders to assess accompanying the Notice. the Company’s performance, business model and strategy. The Board’s conclusions in this Separate resolutions are proposed for each respect are set out in the Statement of Directors’ substantive issue. Information about proxy Responsibilities on page 55. votes is available to shareholders attending the AGM and published thereafter on the Company There were no instances where the Company website. was required to make disclosures in respect of Listing Rule 9.8.4 during the financial period under The Company reports to shareholders twice a review. year by way of the half yearly financial report and Annual Report and Financial Statements. In The Directors are not aware of any relevant audit addition, Net Asset Values are published on a daily information of which the Company’s Auditor is basis and monthly factsheets are published on unaware. The Directors also confirm that they the Company website www.brownadvisory.com/ have taken all the steps required of a director to basc. make themselves aware of any relevant audit information and to establish that the Company’s The Board has developed the following procedure Auditor is aware of that information. for ensuring that each Director develops an understanding of the views of shareholders. Significant votes against at the 2022 Regular contact with major shareholders Annual General Meeting is undertaken by the Company’s corporate brokers and the investor relations team of the There were no votes against representing 20% Portfolio Manager. Any issues raised by major or more of votes cast on any of the resolutions shareholders are then reported to the Board. put forward for shareholder approval at the 2022 The Board also receives details of all material Annual General Meeting. correspondence with shareholders and the Chairman and individual Directors are willing Annual General Meeting to meet shareholders to discuss any particular This year’s AGM will be held on Monday, items of concern regarding the performance 6 November 2023 at 2:00 p.m. at the oces of the Company. The Chairman, Directors and of Brown Advisory LLC, 18 Hanover Square, representatives of the Portfolio Manager are also London W1S 1JY. available to answer any questions which may be raised by shareholders. Please refer to the Notes for the AGM on pages 88 and 89 for full details on how to vote and to Engagement with Stakeholders the Chairman’s Statement on pages 10 and 11 for guidance on how to communicate any questions More information about how the Board fosters that you would like to be raised at the meeting. the relationships with its shareholders and other stakeholders, and how the Board considers the In addition to the ordinary business to be impact that any material decision will have on conducted at the meeting, the following relevant stakeholders, can be found in the Section resolutions in respect of special business will be 172 statement in the Strategic Report on pages 31 proposed. and 32. 41 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Report of the Directors (continued) Resolution 11: Continuation vote (ordinary earlier) and it is the intention of the Directors to resolution) seek renewal of this authority at that AGM. Any allotment of new Ordinary shares pursuant to the In accordance with the Articles, the Directors authority conferred by this Resolution will dilute are required to propose an ordinary resolution the voting power of shareholdings of existing at the forthcoming AGM (and at every third shareholders, but will not have a dilutive impact annual general meeting thereafter) that the on NAV. Company shall continue in being as an investment trust. Accordingly, the Directors are proposing Resolution 14: Authority to buy back shares Resolution 11, which will be proposed as an (special resolution) ordinary resolution. The Company is seeking shareholder approval to Resolution 12: Authority to allot shares repurchase up to 14.99% of the shares in issue (ordinary resolution) (excluding treasury shares) at a price that is not less than the nominal value of each share. The Resolution 12 seeks authority for the Directors authority being sought will last until the date of to allot Ordinary shares up to an aggregate the next AGM. nominal amount of approximately £298,804. This authority represents 10% of the Company’s The decision as to whether or not to repurchase issued share capital (excluding treasury shares) any shares will be at the discretion of the Board as at the date of this document. This authority and any shares repurchased under the authority will expire at the conclusion of the Company’s will be cancelled or held in Treasury. The Company AGM in 2024 (unless renewed earlier) and it is will only fund any purchases by utilising existing the intention of the Directors to seek renewal of cash resources or out of distributable profits as this authority at that AGM. The Board will only use defined by the Companies Act 2006. this authority where it believes that it is in the best interests of the Company to issue shares for cash. Any purchase of shares by the Company will be made in accordance with the Articles of Resolution 13: Disapplication of Pre-emption Association and the Listing Rules in force at the rights (special resolution) time. No purchase of shares will be made at a The Directors may only allot Ordinary shares for price in excess of the estimated NAV. cash (other than by way of an oer to all existing Resolution 15: Notice of General Meetings shareholders pro rata to their shareholdings) (special resolution) if they are authorised to do so by shareholders at a general meeting. The Companies Act 2006 Resolution 15 is required to reflect the requires that, unless shareholders have given Shareholders’ Rights Directive (the ‘Directive’). specific authority for the waiver of their statutory The Directive has increased the notice period for pre-emption rights, the new Ordinary shares must General Meetings of the Company to 21 days. If be oered first to existing Ordinary shareholders Resolution 15 is passed the Company will be able in proportion to their existing shareholdings. to call all General Meetings (other than Annual In certain circumstances, it may be in the best General Meetings) on 14 clear days’ notice. In interests of the Company to allot new Ordinary order to be able to do so shareholders must have shares (or to grant rights over shares) for cash approved the calling of meetings on 14 clear days’ without first oering them to existing Ordinary notice. The approval will be eective until the shareholders in proportion to their holdings. Company’s next AGM, when it is intended that a similar resolution will be proposed. The Company Accordingly, the Directors are seeking authority to will also need to meet the requirements for issue up to 10% of the issued Ordinary shares on electronic voting under the Directive before it can this basis. call a General Meeting on 14 clear days’ notice. This shorter notice period will only be used where, The authority will expire at the conclusion of the in the opinion of the Directors, it is merited by the AGM of the Company in 2024 (unless renewed purpose of the meeting. 42 FOR THE YEAR ENDED 30 JUNE 2023 ### Report of the Directors (continued) The Board, left to right: Jasper Judd, Jane Routledge, Stephen White, Lisa Booth and Clive Parritt. Recommendation The Board considers that the passing of the resolutions being put to the Company’s AGM would be in the best interests of the Company and its shareholders as a whole. It therefore recommends that shareholders vote in favour of Resolutions 1 to 15, as set out in the Notice of Annual General Meeting. By order of the Board FundRock Partners Limited Company Secretary 15 September 2023 43 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Corporate Governance Corporate Governance Compliance The Board Statement Role of the board This statement, together with the Statement The Board receives monthly reports and meets of Directors’ Responsibilities on page 55 at least quarterly to review the overall business of and the statement of Risk Management and the Company and to consider matters specifically Internal Controls on pages 38 and 39, indicates reserved for its review. At these meetings, the how the Company has complied with the Board monitors the investment performance recommendations of the AIC Code as issued in of the Company. The Directors also review the February 2019. Company’s activities every quarter to ensure that it adheres to its investment policy or, if The AIC Code addresses the Principles appropriate, to make any changes to that policy. and Provisions set out in the UK Corporate Governance Code (the ‘UK Code’) as issued in Additional ad hoc reports are received as required July 2018 by the Financial Reporting Council (the and Directors have access at all times to the ‘FRC’), as well as setting out additional provisions advice and services of the Company Secretary, on issues that are of specific relevance to the who is responsible for ensuring that Board Company. procedures are followed and that applicable rules and regulations are complied with. The Board has The Board considers that reporting against the adopted a schedule of items specifically reserved Principles and Provisions of the AIC Code, which for its decision. has been endorsed by the FRC, provides more relevant information to shareholders. A procedure has been adopted by which Directors may obtain independent professional advice at The Company has complied with the provisions of the expense of the Company in the furtherance of the AIC Code (which incorporates the UK Code), their duties. except as set out below. The UK Code include provisions relating to: Composition  The role of the chief executive; As at 30 June 2023, following the resignation of  Executive directors’ remuneration; and Tina Soderlund-Boley, the Board comprised five non-executive directors, comprising two females  The need for an internal audit function. and three males, all of whom are independent of The Board considers these provisions not the Portfolio Manager. relevant to the position of the Company being an Mr White is Chairman of the Board and has no externally managed investment company with conflicts of interest between his interests and no employees. The Company has not therefore those of shareholders. The Chairman is also a reported further in respect of these provisions. shareholder. Potential conflicts are reported to the The AIC Code is available on the AIC website rest of the board who consider such conflicts and (www. theaic.co.uk). It includes an explanation where appropriate approve them. The Chairman of how the AIC Code adapts the Principles and is not, and has never been, an employee of the Provisions set out in the UK Code to make them Portfolio Manager nor a professional adviser relevant for investment companies. to the Portfolio Manager or the Company. The Chairman does not serve as a director of any A description of the main features of the other investment companies managed by Brown Company’s internal control and risk management Advisory LLC. functions can be found on pages 38 and 39 of this report. 44 FOR THE YEAR ENDED 30 JUNE 2023 ### Corporate Governance (continued) Tenure According to new requirements of the Listing Rules (Listing Rule 9.8.7 R), companies are The Board is mindful of the AIC and UK Corporate required to include a statement in their annual Governance Codes in relation to the tenure of report and financial statements setting out directors (including the Chairman) but the Board whether it has met the following targets on board has always believed in and arranged annual re- diversity as at a chosen reference date within its election for all Directors regardless of tenure. accounting period: The Board undertakes an annual evaluation of its 1) At least 40% of individuals on its board are composition, and that of its committee, taking women; into account the requirements of the AIC Code. If appropriate, recommendations are made to 2) At least one of the senior board positions refresh the composition of the Board and its (Chairman, chief executive ocer (CEO), committee. senior independent director or chief financial ocer (CFO) is held by a woman; and Succession Planning 3) At least one individual on its board is from a The Directors recently undertook a review of the minority ethnic background, defined to include composition of the Board. those from an ethnic group, other than a | During the financial year ending 30 June 2024, | white ethnic group, as specified in categories | | --- | --- | | the Board intends to appoint an external search | recommended by the Oce for National | | consultancy to undertake the search for an | Statistics. | additional non-executive director as part of the As an externally-managed investment company, refreshment of the Board and ahead of the time the Company does not have a CFO or CEO. The when both Mr Parritt and Ms Booth will have Board considers that the senior positions in stepped down. the Company are the positions of Chairman, Chairman of the Audit and Risk Committee and Diversity Senior Independent Director. It is seen as a prerequisite that each member of As at 30 June 2023 the Company makes the the Board must have the skills, experience and following disclosures: character that will enable them to contribute to the eectiveness of the Board and the success of Number of the Company. Subject to that overriding principle, senior diversity of experience and approach, including Number of Percentage positions gender diversity, amongst Board members is of Board of the on the members Board Board great value, and it is the Board’s policy to give careful consideration to overall Board balance and Men 3 60% 100% diversity when making new appointments to the Women 2 40% – Board. Not specified/ prefer not to say – – – 45 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Corporate Governance (continued) Table for reporting on ethnic background Training The Directors are kept up to date on corporate Number of governance issues through materials provided senior Number of Percentage positions from time to time by the Company Secretary. Board of the on the members Board Board The Board may obtain training on aspects of corporate governance on an individual basis. White British or other White Performance Evaluation (including minority white The Board has arranged an externally-facilitated groups) 5 100% 100% Board eectiveness review which commenced in July 2023 and will conclude in early September Mixed Multiple 2023. On an annual basis, the Directors undertake Ethnic Groups – – – an appraisal in relation to their oversight and Asian/Asian monitoring of the performance of the Portfolio British – – – Manager and other key service providers. Black/ Board Committees African/ Caribbean/ Audit and Risk Committee Black British – – – The Board has established an Audit and Risk Other Committee. The report of the Audit and Risk ethnic group, Committee can be found on pages 48 to 50. including Arab – – – The Terms of Reference of the Committee Not are published on the Company website specified/ www.brownadvisory.com/basc. prefer not to say – – – Other Committees The Board has not established Remuneration Re-election of Directors or Nomination Committees as the functions of It was noted by the Board that, as at 30 June these committees are performed by the Board 2023 and at the time of signing of these Financial as all Directors are non-executive. Directors’ fees Statements, it did not meet the second target are considered by the Board as a whole within on gender diversity or the third target on ethnic the limits as set out in the Articles of Association diversity. The Board is committed to meeting and in accordance with the remuneration policy the Listing Rule target set out above and has approved by shareholders. The appointment of agreed to consider gender and ethnic diversity directors is considered by the entire Board on when future appointments are made, and further an ad-hoc basis with consideration given inter information on how the Board’s composition is alia to candidates’ expertise and maintaining an expected to evolve is included in the Chairman’s appropriate Board balance and composition. Statement on pages 8 to 11. The Board has not established a Management Engagement Committee as the functions of this It is the Company’s policy that all Directors stand committee, including the appointment of the for re-election on an annual basis. Portfolio Manager, are performed by the Board. 46 FOR THE YEAR ENDED 30 JUNE 2023 ### Corporate Governance (continued) Directors’ Attendance at Meetings Audit and Risk | | Board | | Committee | | --- | --- | --- | --- | | Stephen White | | 6/6 4/4 | | | Lisa Booth | | 6/6 4/4 | | † Jasper Judd 4/4 3/3 Clive Parritt 6/6 4/4 †† Jane Routledge 2/2 2/2 ††† Tina Soderlund-Boley 6/6 4/4 † Covers the period 1 October 2022 to 30 June 2023. †† Covers the period 1 April 2023 to 30 June 2023. ††† Tina Soderlund-Boley resigned on 30 June 2023. For and on behalf of the Board Stephen White Chairman 15 September 2023 47 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Report of the Audit and Risk Committee Role of the Audit and Risk Committee The Audit and Risk Committee has direct access to the Auditor, the Heads of Internal Audit, The Audit and Risk Committee changed its name and the Risk and Compliance function of the from Audit Committee so as more accurately Portfolio Manager, and of the AIFM and reports to reflect its responsibilities and role. It meets its findings to the Board. The Board retains at least twice annually to consider the principal ultimate responsibility for all aspects relating to and emerging risks of the Company, financial external financial statements and other significant reporting by the Company, the internal controls published financial information. and relations with the Company’s external Auditor. In addition, it reviews the independence and Independent Auditor and Audit Tenure objectivity of the Auditor and the eectiveness of the audit process, the quality of the audit As part of its review of the continuing engagement partner and the audit team, making appointment of the Auditor, the Audit and Risk a recommendation to the Board with respect to Committee considers the length of tenure of the the reappointment of the Auditor. It also provides audit firm, its fees and independence from the an opinion as to whether the Annual Report, taken AIFM and the Portfolio Manager along with any as a whole, is fair, balanced and understandable matters raised during each audit. Haysmacintyre and provides the information necessary for LLP (‘Haysmacintyre’) is the appointed Auditor of shareholders to assess the Company’s position the Company. and performance, business model and strategy. This year’s audit was the fourth undertaken by | The Company does not have an internal audit | Haysmacintyre, and the first led by Laura Mott | | --- | --- | | function as most of its day-to-day operations are | as engagement partner, since Haysmacintyre | | delegated to professional third parties. | was appointed in 2019. The fees paid to | Haysmacintyre in respect of audit services are The Committee also reviews the Company’s disclosed in Note 5 to the Financial Statements on compliance with the Code and the AIC Code. page 71. Composition The Audit and Risk Committee consists of Mr Judd, Ms Booth, Mr Parritt, Ms Routledge and Mr White. Mr Judd is chairman of the Audit and Risk Committee. All committee members are independent non-executive directors. Mr Judd is a chartered accountant and Mr Parritt is a past president of the ICAEW (Institute of Chartered Accountants in England and Wales). Mr White continues to be a member of the Audit and Risk Committee. The AIC Code permits the Chairman to be a member of, but not chair, the Audit and Risk Committee if they were independent on appointment – which the Chairman was and continues to be. In view of the size of the Board, the Directors feel it is appropriate for him to continue as a member so that the Audit and Risk Committee can continue to benefit from his experience and knowledge. 48 FOR THE YEAR ENDED 30 JUNE 2023 ### Report of the Audit and Risk Committee (continued) Significant Accounting Matters During its review of the Company’s Annual Report and Financial Statements for the year ended 30 June 2023, the Audit and Risk Committee considered the following significant issues, including a robust assessment of principal and emerging risks and uncertainties in light of the Company’s activities and issues communicated by the Auditor during its review, all of which were satisfactorily addressed: Issue considered How the issue was addressed  Valuation of the investment portfolio and existence  Review of reports from the Portfolio Manager and custodian  Compliance with section 1158 of the Corporation Tax  Review of portfolio holdings reports and Act 2010 revenue forecasts to ensure compliance criteria are met  Calculation of management fee  Consideration of methodology used to calculate management fee, matched against the criteria set out in the Portfolio Management Agreements  Statement of going concern  Review of the investment portfolio, risks and uncertainties and forecast revenue Auditor Effectiveness and  confirmation from the Auditor that it has Independence adequate arrangements in place to safeguard their objectivity and independence in carrying Auditor eectiveness is assessed by means of the out such work, within the meaning of the Auditor’s direct engagement with the Committee regulatory and professional requirements to at Audit and Risk Committee meetings and also which they are subject; by reference to feedback from the AIFM, Portfolio Manager and its employees who have direct  the non-audit fees to be incurred, relative to the dealings with the Auditor during the annual audit audit fees; of the Company.  the nature of the non-audit services; and  whether the Auditor’s skills and experience Disclosure of Information to the make it the most suitable supplier of such Auditor services and whether they are in a position to The Directors are not aware of any relevant audit provide them. information of which the Company’s Auditor The Committee has adopted a policy that all is unaware. The Directors also confirm that non-audit services are subject to its approval. No they have each taken all the steps required of a fee for such services was payable to the Auditor company director to make themselves aware of for the year under review and no services were any relevant audit information and to establish undertaken (2022: £nil). that the Company’s Auditor is aware of that information. Non-audit Services The Committee ensures that the Auditor’s objectivity and independence are safeguarded by requiring pre-approval by the Committee for all non-audit services provided to the Company, which takes into consideration: 49 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Report of the Audit and Risk Committee (continued) Statement in respect of the Annual Report and Financial Statements Having taken all available information into consideration, and having discussed the content of the Annual Report and Financial Statements with the AIFM, Portfolio Manager, Company Secretary and other third-party service providers, the Audit and Risk Committee has concluded that the Annual Report and Financial Statements for the year ended 30 June 2023, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy, and has reported on these findings to the Board. For and on behalf of the Audit and Risk Committee Jasper Judd Chairman of the Audit and Risk Committee 15 September 2023 50 FOR THE YEAR ENDED 30 JUNE 2023 ### Directors’ Remuneration Report and Policy Introduction approve the remuneration policy for a maximum of a further three years will be put before The Board is pleased to present the Company’s shareholders at this year’s AGM. annual remuneration report for the year ended 30 June 2023, together with its remuneration Subject to shareholder approval, the policy, in accordance with Schedule 8 of The remuneration policy as set out below will apply Large and Medium-sized Companies and until the 2026 AGM unless renewed, varied or Groups (Accounts and Reports) (Amendment) revoked by shareholders at a general meeting. Regulations 2013. The Company’s current remuneration policy is The law requires the Company’s Auditor to that fees payable to Directors are commensurate audit certain of the disclosures provided. Where with the amount of time Directors are expected to disclosures have been audited, they are indicated spend on the Company’s aairs, whilst seeking to as such. The Auditor’s opinion is included in their ensure that fees are set at an appropriate level so report on pages 56 to 63. as to enable candidates of a sucient calibre and possessing suitable knowledge and experience Statement by the Chairman to be recruited. The Company’s Articles of The Board’s policy on remuneration is set out Association state the maximum aggregate below. amount of fees that can be paid to Directors in any one year. This is currently set at £185,000 The Directors of the Company are non-executive per annum and shareholder approval is required and by way of remuneration receive an annual fee, for any changes to this. No change is proposed payable quarterly in arrears. to the remuneration policy, or to the maximum aggregate amount of fees. Shareholders are being Directors’ fees currently payable are as follows: asked to approve the unchanged remuneration policy (Resolution 3) at the 2023 AGM. Amount payable Role per annum Subject to the passing of Resolution 3 at the Chairman of the Board £37,000 forthcoming AGM, the Board plans to marginally increase Director fees next year in line with the Chairman of the Audit and Company’s peer group. Director fees were last Risk Committee £33,500 increased on 1 January 2023. Director £28,000 Each Director is entitled to a base fee. The Details of the total emoluments paid to Directors Chairman of the Board is paid a higher fee than | for the years ended 30 June 2022 and 30 June | other Directors to reflect the additional work | | --- | --- | | 2023 are provided in the Annual Report on | entailed by the role. The Chairman of the Audit | | Remuneration on page 52. | and Risk Committee also receives a higher fee on | the same basis. The Company does not award any other remuneration or benefits to the Chairman or The Board is authorised to obtain, at the Directors. There are no bonus schemes, pension Company’s expense, outside legal or other schemes, share option or long-term incentive professional advice on any matters within its schemes in place for the Directors. Terms of Reference. The Board did not seek external advice during the year under review. Directors’ Remuneration Policy The Board has not established a Remuneration The remuneration policy of the Company was Committee and any review of the Directors’ fees approved by shareholders at the 2020 AGM is undertaken by the Board as a whole and has for a maximum of three years. Accordingly, as regard to the level of fees paid to non-executive required under the Large and Medium-sized directors of other investment companies of Companies and Groups (Accounts and Reports) equivalent size. (Amendment) Regulations 2013, a resolution to 51 BROWN ADVISORY US SMALLER COMPANIES PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS ## Directors' Remuneration Report and Policy (continued) ### Directors' Service Contracts No Director has a contract of service with the Company. Accordingly, the Directors are not entitled to any compensation in the event of termination of their appointment or loss of office, other than the payment of any outstanding fees. It is the Company's policy for all Directors to stand for re-election annually. Any new Director appointed is subject to election by shareholders at the next AGM following their appointment. The terms and conditions of Directors' appointments are set out in formal letters of appointment. | Director | Date of Appointment | Due date for Re-election | | --- | --- | --- | | Stephen White | 1 October 2020 | Annually | | Lisa Booth | 29 September 2015 | Annually | | Jasper Judd | 1 October 2022 | Annually | | Clive Parritt | 2 January 2007 | Annually | | Jane Routledge | 1 April 2023 | Annually | ### Annual Report on Remuneration A single figure for the total remuneration of each Director is set out in the table below for the years ended 30 June 2023 and 30 June 2022 respectively. Directors' fees were last increased on 1 January 2023. ### Directors' emoluments for the period (audited) | Director | 30 June 2023 | | | 30 June 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Fees £ | Expenses £ | Total remuneration for the year ended £ | Fees £ | Expenses £ | Total remuneration for the year ended £ | | Stephen White | 35,825 | – | 35,825 | 31,395 | – | 31,395 | | Peter Barton^{‡} | – | – | – | 10,347 | – | 10,347 | | Lisa Booth* | 30,300 | 562 | 30,862 | 30,750 | 438 | 31,188 | | Gordon Grender^{††} | – | – | – | 12,835 | – | 12,835 | | Jasper Judd**^{†} | 22,763 | – | 22,763 | – | – | – | | Clive Parritt | 27,125 | – | 27,125 | 25,625 | – | 25,625 | | Jane Routledge^{††} | 7,000 | – | 7,000 | – | – | – | | Tina Soderlund-Boley^{†††} | 27,125 | – | 27,125 | 25,625 | – | 25,625 | | **Total** | **150,138** | **562** | **150,700** | **136,577** | **438** | **137,015** | * Chairman of the Audit and Risk Committee until 6 February 2023. ** Chairman of the Audit and Risk Committee from 6 February 2023. ‡ Covers the period 1 July 2021 to 29 November 2021. †† Chairman of the Board until 21 October 2021. † Covers the period 1 October 2022 to 30 June 2023. ††† Covers the period 1 April 2023 to 30 June 2023. ††† Tina Soderlund-Boley resigned on 30 June 2023. 52 FOR THE YEAR ENDED 30 JUNE 2023 ### Directors’ Remuneration Report and Policy (continued) Expenditure by the Company on | | 30 June | | 30 June | | | --- | --- | --- | --- | --- | | Directors’ Remuneration compared | | 2023 | | 2022 | | | | £’000 | | £’000 | with Distributions to Shareholders The table opposite compares the remuneration Remuneration paid to payable to Directors to distributions made to Directors 151 137 shareholders during the financial year under Distributions to review and the prior year. In considering these shareholders – figures, shareholders should take into account dividends – – the Company’s principal investment objective of Total value of shares achieving capital growth. In the year ended 30 June repurchased – 174 2023, the Company’s capital return was a net gain of £16 million (2022: net loss of £24 million). Statement of voting at the last AGM vote at the upcoming AGM on 6 November 2023. The Directors’ remuneration policy sets out the An ordinary resolution for the approval of the Company’s proposed forward looking policy Directors’ Remuneration Report will be put to on Directors ‘remuneration. The vote is binding shareholders annually at the Company’s Annual and the company is obliged to present a policy General Meeting. This vote is advisory and not on Directors’ remuneration to shareholders for binding on the Company, nor does it aect approval every 3 years. the remuneration payable to any individual director. However, it does give shareholders the The following sets out the votes received at the opportunity to inform the Board of their views last AGM of the shareholders of the Company, on the Directors’ remuneration. The Directors held on 31 October 2022, in respect of the remuneration policy will be put to shareholders’ approval of the Directors’ Remuneration Report. Votes cast for Votes cast against Total Number votes of votes cast withheldNumber % Number % Directors’ Remuneration Report 4,093,029 98.69 43,833 1.06 4,147,312 12,039 Directors’ Interests Directors’ interests in Ordinary shares (audited) The Directors who held oce at the end of the financial year covered by this report and their 30 June 30 June beneficial interests in the Ordinary shares of the 2023 2022 Company are detailed in the table opposite. There Lisa Booth 463 463 is no requirement for a director to hold shares in the Company. Jasper Judd 2,000 – The Directors’ interests in contractual Clive Parritt 10,000 10,000 arrangements with the Company are as detailed Jane Routledge – – in Note 20 to the Financial Statements. Subject Stephen White 20,000 20,000 to these exceptions, no Director was a party to or had any interest in any contract or arrangement On 11 July 2023, Jane Routledge purchased 857 with the Company at any time during the year or Ordinary shares in the Company. Ms Routledge subsequently. purchased a further 643 Ordinary shares in the Company on 28 July 2023. 53 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Directors’ Remuneration Report and Policy (continued) As at 13 September 2023, the latest practicable date prior to publication of this document, no further changes had been notified. Performance to 30 June 2023 The graph below provides details of the Company’s Ordinary share price performance compared against the Russell 2000 Total Return Index, expressed in sterling. Performance from 30 June 2014 to 30 June 2023 300 250 200 150 100 50 0 | Jun-14 | Sep-14 | Dec-14 | Mar-15 | Jun-15 | Sep-15 | Dec-15 | Mar-16 | Jun-16 | Sep-16 | Dec-16 | Mar-17 | Jun-17 | Sep-17 | Dec-17 | Mar-18 | Jun-18 | Sep-18 | Dec-18 | Mar-19 | Jun-19 | Sep-19 | Dec-19 | | | | | Mar-21 | Jun-21 | Sep-21 | Dec-21 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | | | | | | | | | Mar-20 | Jun-20 | Sep-20 | Dec-20 | | | | | Sep-22 | Dec-22 | Mar-23 | Jun-23 | | | | | | | | | | | | | | | | | | Share Price | | | | | | NAVBenchmark | | | | | | | | | | | | | Source: Datastream. On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large and Medium- sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, I confirm that the Directors’ Remuneration Report and policy summarises, for the year ended 30 June 2023, the review undertaken and the decisions made regarding the fees paid to the Board, as well as the future remuneration policy of the Company. By order of the Board Russell 2000 Index Stephen White Chairman 15 September 2023 54 FOR THE YEAR ENDED 30 JUNE 2023 ### Statement of Directors’ Responsibilities The Directors are responsible for preparing Directors’ Remuneration Report and Statement of the Annual Report and Financial Statements in Corporate Governance that comply with that law accordance with applicable law and regulation. and those regulations. Company law requires the Directors to prepare The Directors are responsible for the maintenance financial statements for each financial year. Under and integrity of the corporate and financial that law the Directors have elected to prepare information included on the Company website financial statements in accordance with United www.brownadvisory.com/basc, which is a website Kingdom Generally Accepted Accounting Practice maintained by Brown Advisory LLP. Visitors to the (United Kingdom Accounting Standards and website need to be aware that legislation in the applicable laws) including Financial Reporting United Kingdom governing the preparation and Standard 102, the financial reporting standard dissemination of financial statements may dier applicable in the UK and the Republic of Ireland. from legislation in other jurisdictions. Under company law the Directors must not Each of the Directors, who are listed on pages 34 approve the financial statements unless they and 35 of this report, confirms to the best of their are satisfied that they give a true and fair view knowledge that: of the state of aairs of the Company and of the 1. the financial statements, prepared in return or loss of the Company for that period. accordance with the applicable set of In preparing those financial statements, the accounting standards, give a true and fair view Directors are required to: of the assets, liabilities, financial position and (a) select suitable accounting policies and then profit or loss of the Company; and apply them consistently; 2. the Strategic Report includes a fair review (b) make judgements and accounting estimates of the development and performance of the that are reasonable and prudent; Company, together with a description of the principal risks and uncertainties that the (c) state whether applicable UK Accounting Company faces; and Standards have been followed, subject to any material departures disclosed and 3. i n their opinion the Annual Report and explained in the financial statements; and Financial Statements, taken as a whole, are fair, balanced and understandable and (d) prepare the financial statements on the provide the information necessary to assess going concern basis unless it is inappropriate the Company’s position and performance, to presume that the Company will continue business model and strategy. in business. So far as each Director is aware at the time the The Directors are responsible for keeping report is approved: adequate accounting records that are sucient to show and explain the Company’s transactions 1. there is no relevant audit information of which and disclose with reasonable accuracy at any time the Company’s Auditor is unaware; and the financial position of the Company and enable 2. the Directors have taken all steps required of a them to ensure that the financial statements company director to make themselves aware of comply with the Companies Act 2006. They are any relevant audit information and to establish also responsible for safeguarding the assets of the that the Company’s Auditor has been made Company and hence for taking reasonable steps aware of that information. for the prevention and detection of fraud and other irregularities. By order of the Board Under applicable law and regulations, the Stephen White Directors are also responsible for preparing Chairman a Strategic Report, Report of the Directors, 15 September 2023 55 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Independent Auditor’s Report To the Members of Brown Advisory US Smaller Companies PLC Our opinion on the financial An overview of the scope of our audit statements We planned the scope of our audit to ensure that | We have audited the financial statements of | we obtained sucient audit evidence to give an | | --- | --- | | Brown Advisory US Smaller Companies plc (‘the | audit opinion on the financial statements as a | | Company’) for the year ended 30 June 2023 | whole, taking into account the structure of the | | which comprise the statement of comprehensive | Company, the accounting processes and controls, | | income, the statement of financial position, the | and the industry in which it operates. | statement of changes in equity and the notes to The Company’s accounting has been outsourced the financial statements, including a summary to J.P. Morgan Chase Bank N.A, who are of significant accounting policies. The financial responsible for maintaining the Company’s reporting framework that has been applied in their accounting records. Accordingly, we review their preparation is applicable law and United Kingdom involvement as a service organisation, use reports Accounting Standards, including Financial and data provided to us by them, and consider the Reporting Standard 102 ‘The Financial Reporting operation of controls and procedures operated by Standard applicable in the UK and Republic of J. P. Morgan Chase Bank N.A. that are relevant to Ireland’ (United Kingdom Generally Accepted our audit. Accounting Practice). We obtained our audit evidence from substantive In our opinion: tests and as part of our risk assessment, we  the financial statements give a true and fair understood and assessed the internal controls in view of the state of the Company’s aairs as place at the Portfolio Manager, and the accounting at 30 June 2023 and of the return for the year service provider to the extent relevant to our audit. then ended; This assessment of the operating and accounting structure in place at these organisations involved  the financial statements have been properly obtaining and analysing the relevant control prepared in accordance with United Kingdom reports issued by the independent service Generally Accepted Accounting Practice; and auditor of these entities in accordance with  the financial statements have been prepared generally accepted assurance standards for such in accordance with the requirements of the work. Following this assessment, we applied Companies Act 2006. professional judgement to determine the extent of testing required over each balance in the financial Basis for opinion statements. We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sucient and appropriate to provide a basis for our opinion. 56 FOR THE YEAR ENDED 30 JUNE 2023 ### Independent Auditor’s Report (continued) Key audit matters: Our assessment of matters included those which had the greatest risks of material misstatement eect on: the overall audit strategy; the allocation of resources in the audit; and directing the eorts Key audit matters are those matters that, in our of the engagement team. These matters were professional judgement, were of most significance addressed in the context of our audit of the in the audit of the financial statements of the financial statements as a whole, and in forming current period and include the most significant our opinion thereon, and we do not provide a assessed risks of material misstatement (whether separate opinion on those matters. or not due to fraud) that we identified. These Key audit matter The risk Our response to the risk: Incomplete There is a risk of incomplete or We have undertaken the following or inaccurate inaccurate recognition of income through procedures to verify the appropriateness revenue the failure to recognise proper income of revenue recognition: recognition, entitlements or applying appropriate  To assess the completeness of including accounting treatment. dividends for investments held during classification In addition to the above, the Directors the year, we reviewed the dividend as revenue or are required to exercise judgement in announcements made by the investee capital determining whether income receivable companies and ensured that the Revenue for in the form of special dividends should be Company had correctly recognised the year is classified as ‘revenue’ or ‘capital’. income in respect of those dividends. £984,000 (2022: This was performed on a sample basis; £738,000) and is  We agreed the receipt of dividends to disclosed in Note bank statements on a sample basis; 3 to the financial and statements.  For a sample of accrued dividends, The accounting we assessed the date of the dividend policy for revenue declaration date and whether the is described in Company had proper legal title to note 2b(iv). those dividends. Key observations communicated to the Audit and Risk Committee Our audit procedures did not identify any matters or other observations to report to the Audit and Risk Committee. 57 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Independent Auditor’s Report (continued) Key audit matter The risk Our response to the risk: Valuation of Investments represent the most We have undertaken the following investments significant item in the statement of procedures to gain assurance over the financial position and an error within the valuation of the investments: Investment valuation of the Company’s investment valuations at the  We agreed the bid price to an portfolio could have a material impact on year end were independent source. This was the financial position and performance of £159,134,000 performed on a sample basis; the Company. (2022:  We agreed the exchange rates applied £147,856,000) We do not consider these investments to US stocks to an independent source. which were all to be at a high risk of significant This was performed on a sample basis; listed investments. misstatement, or to be subject to  We agreed the year-end investment a significant level of judgement Disclosure of holdings to custodian confirmation; because they comprise liquid, quoted these investments investments.  We assessed the accuracy of the is included in Note calculation of Gains and losses on 9 to the financial However, due to their materiality in the investments at fair value through profit statements. context of the financial statements as and loss; and a whole, they are considered to be one The accounting  We assessed the appropriateness and of the areas which has the greatest policy for the presentation of the Gains and losses impact on our overall audit strategy and valuation of on investments at fair value through allocation of resources in planning and investments profit and loss within the financial completing our audit so therefore was is described in statements disclosures. considered a key audit matter. Note 2b(i) of the financial Key observations communicated to the Audit and Risk Committee statements. Based on the procedures performed we gained satisfactory assurance over the valuation of the Company’s investment portfolio and did not identify any matters or other observations to report to the Audit and Risk Committee. Our application of materiality Net asset value has been used as the benchmark for materiality as this is considered to be the We apply the concept of materiality both in critical performance measure used by investors to planning and performing our audit, and in assess the performance of the Company. evaluating the eect of misstatements on our audit and on the financial statements. For the Given the importance of the distinction between purposes of determining whether the financial revenue and capital for the Company we also statements are free from material misstatement applied a separate materiality level of £34,000 we define materiality as the magnitude of an for the revenue column of the Statement of omission or misstatement that, individually or in Comprehensive Income. We set this level at the aggregate, could reasonably be expected to approximately 2% of total expenditure. influence the economic decisions of a reasonably knowledgeable person, relying on the financial Performance materiality statements. On the basis of our risk assessments, together with our assessment of the Company’s overall Materiality control environment our assessment was that Materiality provides a basis for determining the performance materiality should be set at 75% of nature and extent of our audit procedures. We our overall materiality level, namely £1,190,000. determined materiality for the Company to be We have set performance materiality at this £1,590,000 which is approximately 1% of the percentage due to the absence of significant Company’s net asset value at 30 June 2023. 58 FOR THE YEAR ENDED 30 JUNE 2023 ### Independent Auditor’s Report (continued) | errors noted in the current year audit and based |  Considering the ability of the key service | | --- | --- | | on our assessment of the control framework at | organisations to continue providing services to | | the Company. | the Company. | | We also applied a separate performance | Based on the work performed, we have not | | materiality level of £25,500 for the revenue | identified any material uncertainties relating | | column of the Statement of Comprehensive | to events or conditions that, individually or | | Income. We set this at 75% of the separate | collectively, may cast significant doubt on the | | revenue account materiality level. | Company’s ability to continue as a going concern | for a period of at least twelve months from when Reporting threshold the financial statements are authorised for issue. An amount below which identified misstatements In relation to the Company’s reporting on how it are considered as being clearly trivial. We has applied the UK Corporate Governance Code, determined based on our calculations that we have nothing material to add or draw attention we would report to the Committee all audit to in relation to the directors’ statement in the dierences in excess of £79,600 as well as financial statements about whether the directors dierences below that threshold that, in our view, considered it appropriate to adopt the going warranted reporting on qualitative grounds. We concern basis of accounting. also report to the Audit and Risk Committee on disclosure matters that we identified when Our responsibilities and the responsibilities of assessing the overall presentation of the financial the directors with respect to going concern are statements. The reporting threshold for the described in the relevant sections of this report. revenue account was set at £1,700. We have nothing to report on the other Conclusions relating to going concern information in the Annual Report In auditing the financial statements, we have The Directors are responsible for the other concluded that the directors’ use of the going information presented in the Annual Report concern basis of accounting in the preparation together with the financial statements. Our of the financial statements is appropriate. The opinion on the financial statements does not Directors assessment on going concern is cover the other information and, except to the summarised in the Directors’ report and we are of extent otherwise explicitly stated in this report, we the opinion that this assessment is reasonable. do not express any form of assurance conclusion thereon. Our evaluation of the directors’ assessment of the Company’s ability to continue to adopt the going Our responsibility is to read the other information concern basis of accounting included: and, in doing so, consider whether the other information is materially inconsistent with  Evaluating the appropriateness of the the financial statements or our knowledge Directors’ method of assessing the going obtained in the audit or otherwise appears to concern position in light of market volatility be materially misstated. If we identify such and the present uncertainties by reviewing material inconsistencies or apparent material the information used by the Directors in misstatements, we are required to determine comprising their assessment; whether there is a material misstatement in the  Considering the liquidity of the investment financial statements or a material misstatement portfolio and its ability to meet the liabilities of of the other information. If, based on the work the Company as and when they fall due; we have performed, we conclude that there is a material misstatement of the other information  Considering the continuation vote at the 2023 we are required to report on that fact. AGM;  Considering the current cash position; and 59 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Independent Auditor’s Report (continued) Strategic report and Directors’ report  The Directors’ viability statement on page 27 in the Annual Report as to how they have Based solely on our work on the other assessed the prospects of the Company, information: over what period they have done so and why  we have not identified material misstatements they consider that period to be appropriate, in the strategic report and the Directors’ report; and their statement as to whether they have a reasonable expectation that the Company  in our opinion the information given in those will be able to continue in operation and meet reports for the financial year is consistent with its liabilities as they fall due over the period the financial statements; and of their assessment, including any related  in our opinion those reports have been disclosures drawing attention to any necessary prepared in accordance with the Companies qualifications or assumptions. Act 2006. We are also required to review the viability Directors’ remuneration report statement, set out on page 27 under the Listing Rules. Based on the above procedures, we In our opinion the part of the directors’ have concluded that the above disclosures remuneration report to be audited has been are materially consistent with the financial properly prepared in accordance with the statements and our audit knowledge. Companies Act 2006. Our work is limited to assessing these matters in Disclosures of emerging principal risks, the context of only the knowledge acquired during going concern and viability our financial statements audit. As we cannot predict all future events or conditions and as We are required to perform procedures to identify subsequent events may result in outcomes that whether there is a material inconsistency between are inconsistent with judgements that the above the directors’ disclosures in respect of emerging disclosures are materially consistent with the and principal risks, going concern and the viability financial statements and our audit knowledge. statement, and the financial statements and our audit knowledge. Corporate Governance disclosures Based on the knowledge we acquired during We are required to perform procedures to identify our financial statements audit, we have nothing whether there is a material inconsistency between material to add or draw attention to in relation to: the directors’ corporate governance disclosures and the financial statements and our audit  The Directors’ confirmation set out on page knowledge. 28 in the Annual Report that they have carried out a robust assessment of the principal risks We have reviewed the directors’ statement in facing the Company, including those that relation to going concern, longer-term viability and would threaten its business model, future that part of the Corporate Governance Statement performance, solvency or liquidity and the relating to the Company’s compliance with the disclosures in the Annual Report set out on provisions of the UK Corporate Governance Code pages 28 and 30 that describe the principal specified for our review by the Listing Rules. risks and explain how they are being managed or mitigated; In this context, we also have nothing to report in regard to our responsibility to specifically address  The Directors’ statement in the financial the following items in the other information and statements about whether they considered it to report as uncorrected material misstatements appropriate to adopt the going concern basis of the other information where we conclude that of accounting in preparing them, and their those items meet the following conditions: identification of any material uncertainties to the Company’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements; and 60 FOR THE YEAR ENDED 30 JUNE 2023 ### Independent Auditor’s Report (continued) |  The Directors’ statement in the financial |  The Directors’ statement of compliance with | | --- | --- | | statements about whether they considered it | the UK Corporate Governance Code set | | appropriate to adopt the going concern basis | out on page 67 – the parts of the Directors’ | | of accounting in preparing them, and their | statement required under the Listing Rules | | identification of any material uncertainties to | relating to the Company’s compliance with the | | the Company’s ability to continue to do so over | UK Corporate Governance Code containing | | a period of at least 12 months from the date of | provisions specified for review by the auditor in | | approval of the financial statements; | accordance with Listing Rule 9.8.10R(2) do not | properly disclose a departure from a relevant  The Directors’ statement on page 27 in the provision of the UK Corporate Governance Annual Report as to how they have assessed Code. the prospects of the Company, over what period they have done so and why they We are required to review the part of the consider that period to be appropriate; Corporate Governance Statement relating to the  The Directors’ statement as to whether Company’s compliance with the provisions of the they have a reasonable expectation that the UK Corporate Governance Code specified by the Company will be able to continue in operation Listing Rules for our review. We have nothing to and meet its liabilities as they fall due over report in this respect. the period of their assessment, including any | related disclosures drawing attention to any | Matters on which we are required to | | --- | --- | | necessary qualifications or assumptions; | report by exception | |  The Directors’ confirmation set out on pages | In the light of the knowledge and understanding | | 28 to 30 in the Annual Report that they | of the Company and its environment obtained | | have carried out a robust assessment of the | in the course of the audit, we have not identified | | principal risks facing the Company, including | material misstatements in; | those that would threaten its business model,  the Strategic Report or the Directors’ Report; or future performance, solvency or liquidity and the disclosures in the Annual Report set out on  the information about internal control and risk | pages 28 to 30 that describe the principal risks | management systems in relation to financial | | --- | --- | | and explain how they are being managed or | reprting processes and about share capital | | mitigated; | structures, given in compliance with rules 7.2.5 | and 7.2.6 of the FCA Rules.  The Directors’ statement on fair, balanced and understandable set out on page 41 – the We have nothing to report in respect of the statement given by the Directors that they following matters in relation to which the consider the Annual Report and financial Companies Act 2006 requires us to report to you statements taken as a whole is fair, balanced if, in our opinion: and understandable and provides the information necessary for shareholders to  adequate accounting records have not been assess the Company’s performance, business kept by the Company, or returns adequate model and strategy, is materially inconsistent for our audit have not been received from with our knowledge obtained in the audit; or branches not visited by us; or  The section of the Annual Report that describes  the Company financial statements and the the review of eectiveness of risk management part of the directors’ remuneration report and internal control systems; or to be audited are not in agreement with the accounting records and returns; or  the Audit and Risk Committee report set out on pages 48 to 50 including the significant issues  certain disclosures of directors’ remuneration that the Audit and Risk Committee considered specified by law are not made; or in relation to the financial statements, and how  we have not received all the information and these issues were addressed; and explanations we require for our audit; or 61 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Independent Auditor’s Report (continued)  a corporate governance statement has not Explanation as to what extent the audit been prepared by the parent company. was considered capable of detecting irregularities, including fraud Responsibilities of Directors The objectives of our audit, in respect to As explained more fully in the Directors’ irregularities including fraud are: Responsibilities Statement, the Directors are responsible for the preparation of the financial  To identify and assess the risks of material statements and for being satisfied that they give a misstatement of the financial statements due true and fair view, and for such internal control as to fraud; the directors determine is necessary to enable the  To obtain sucient appropriate audit evidence preparation of financial statements that are free regarding the assessed risks of material from material misstatement, whether due to fraud misstatement due to fraud, through designing or error. and implementing appropriate responses; and In preparing the financial statements, the  To respond appropriately to fraud or suspected directors are responsible for assessing the fraud identified during the audit. Company’s ability to continue as a going concern, However, the primary responsibility for the disclosing, as applicable, matters related to prevention and detection of fraud rests with both going concern and using going concern basis of those charged with governance of the entity accounting unless the directors either intend to and the entities delegated with the day-to-day liquidate the Company or to cease operations, or responsibilities and the outsourced service have no realistic alternative to do so. providers. Auditor’s responsibilities for the audit Irregularities, including fraud, are instances of of the financial statements non-compliance with laws and regulations. We design procedures in line with our responsibilities, Our objectives are to obtain reasonable assurance outlined above, to detect material misstatements about whether the financial statements as a whole in respect of irregularities, including fraud. The are free from material misstatement, whether due extent to which our procedures are capable of to fraud or error, and to issue an auditor’s report detecting irregularities, including fraud is detailed that includes our opinion. below: Reasonable assurance is a high level assurance,  We gained an understanding of the legal but not a guarantee that an audit conducted and regulatory framework applicable to the in accordance with ISAs (UK) will always Company and the industry in which it operates, detect material misstatement when it exists. and considered the risk of acts by the Company Misstatements can arise from fraud or error which were contrary to applicable laws and and are considered material if, individually or in regulations, including fraud; aggregate, they can reasonably be expected to influence the economic decisions of users taken  We considered the significant laws and on the basis of these financial statements. regulations to the Companies Act 2006, the FCA listing and DTR rules, the principles of the A further description of our responsibilities for the AIC Code of Corporate Governance, industry audit of the financial statements is located on the practice represented by the AIC SORP, the Financial Reporting Council’s website at: www.frc. applicable accounting framework and the org.uk/auditorsresponsibilities. This description Company’s qualification as an investment forms part of our auditor’s report. trust under UK tax legislation as any non- compliance of this would lead to the Company losing various deductions and exemptions from corporation tax; 62 FOR THE YEAR ENDED 30 JUNE 2023 ### Independent Auditor’s Report (continued)  We understood how the Company is complying Other matters we are required to with those frameworks through discussions address with the Audit and Risk Committee and key Following recommendation of the Audit and service providers in combination with a review Risk Committee, we were appointed by the of the Company’s documented policies and Shareholders to audit the financial statements for procedures. the year ending 30 June 2020 and subsequent We focused on laws and regulations that financial periods. The period of total uninterrupted could give rise to a material misstatement in engagement is therefore 4 years. the Company financial statements. Our tests The non-audit services prohibited by the FRC’s included: Ethical Standard were not provided to the  Agreement of the financial statement Company and we remain independent of the disclosures to underlying supporting Company in conducting our audit. documentation; Our audit opinion is consistent with the additional  Enquiries of management and those charged report to the Audit and Risk Committee. with governance relating to the existence of any non-compliance with laws and regulations; Use of our report  Review of minutes of board meetings This report is made solely to the Company’s throughout the period to identify and instance members, as a body, in accordance with Chapter of non-compliance with laws and regulations; 3 of Part 16 of the Companies Act 2006. Our audit and work has been undertaken so that we might state  Reviewing the calculation in relation to to the Company’s members those matters we are Investment Trust compliance to check that required to state to them in an auditor’s report the Company was meeting its requirements to and for no other purpose. To the fullest extent retain its Investment Trust status. permitted by law, we do not accept or assume responsibility to anyone other than the Company We evaluated the Directors and key service and the Company’s members as a body, for our providers incentives and opportunities for audit work, for this report, or for the opinions we fraudulent manipulation of the financial have formed. statements (including the risk of override of controls) and determined that the occurrence of Laura Mott fraud is low given the activities and operations of Senior Statutory Auditor the Company. If fraud were to occur it would likely for and on behalf of Haysmacintyre LLP be collusive in nature and probably occur through Statutory Auditor, Chartered Accountants posting inappropriate manual journal entries London to revenue and investments. Audit procedures performed by the engagement team included: 15 September 2023  Discussions with Audit and Risk Committee and key service providers including consideration of known or suspected instances of non-compliance with laws and regulation and fraud;  Evaluating controls designed to prevent and detect irregularities; and  Identifying and testing journals, in particular manual journal entries posted through revenue and investments, postings containing unusual phrases or with unusual descriptions. 63 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Income Statement for the year ended 30 June 2023 2023 2022 | | Revenue | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Note | | Return | Return | Total | | Return | Return | Total | | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | Gain/(loss) on investments at fair value | through profit or loss 9 | | | – 16,474 16,474 – (25,401) (25,401) | | --- | --- | --- | --- | | Foreign exchange (loss)/gain | | | – (746) (746) – 1,321 1,321 | | Investment income 3 | | 873 – 873 738 – 738 | | | Other income 3 | | 111 – 111 – – – | | | Total income/(loss) | | 984 15,728 16,712 738 (24,080) (23,342) | | | Management fee 4 | (1,172) – (1,172) (1,192) – (1,192) | | | | Other expenses 5 | | (521) (2) (523) (475) (4) (479) | | | Total expenses | (1,693) (2) (1,695) (1,667) (4) (1,671) | | | Return/(loss) before taxation (709) 15,726 15,017 (929) (24,084) (25,013) | Taxation 7 | (106) 396 290 (90) (309) (399) | | --- | --- | | Net return/(loss) after taxation | (815) 16,122 15,307 (1,019) (24,393) (25,412) | | Net return/(loss) per Ordinary share 8 | (6.82p) 134.89p 128.07p (8.52p) (204.03p) (212.55p) | The total column of this statement is the profit and loss account of the Company. The ‘Revenue’ and ‘Capital’ columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no other comprehensive income, and therefore the net return after taxation is also the total comprehensive income for the year. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. The Notes on pages 67 to 79 form part of these Financial Statements. 64 FOR THE YEAR ENDED 30 JUNE 2023 ### Statement of Financial Position as at 30 June 2023 2023 2022 Note £’000 £’000 Fixed assets Investments held at fair value through profit or loss 9 159,134 147,856 Current assets Debtors 11 67 304 Cash at bank and in hand 12,444 8,218 12,511 8,522 Creditors: amounts falling due within one year 12 (498) (538) Net current assets 12,013 7, 984 Total assets less current liabilities 171,147 155,840 Capital and reserves | Called up share capital 14 | 4,555 4,555 | | --- | --- | | Share premium account 15 | 19,550 19,550 | | Non-distributable reserve 16 | 841 841 | | Capital redemption reserve 17 | 9,628 9,628 | | Retained earnings 18 | 136,573 121,266 | | Total shareholders’ funds | 171,147 155,840 | | Net asset value per Ordinary share (pence) 19 | 1,431.9 1,303.9 | The Financial Statements on pages 64 to 66 were approved by the Board of Directors and signed on its behalf on 15 September 2023. Stephen White Chairman Company Registration Number 02781968 The Notes on pages 67 to 79 form part of these Financial Statements. 65 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Statement of Changes in Equity for the year ended 30 June 2023 | | | Called up | | | | | | Non- | | Capital | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Share | | Share | distributable | | | Redemption | | Retained | | | | | Note | | Capital | Premium | | | Reserve | | | Reserve | Earnings* | | Total | | For the year ended 30 June 2023 | | | £’000 | | £’000 | | | £’000 | | £’000 | | £’000 | £’000 | 1 July 2022 4,555 19,550 841 9,628 121,266 155,840 | Net return for the year | | | | – – – – 15,307 15,307 | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Balance at 30 June 2023 | | | 4,555 19,550 841 9,628 136,573 171,147 | | | | | | | | | | | | | | | Called up | | | | | | | Non- | | Capital | | | | | | | | Share | | | Share | distributable | | | Redemption | | Retained | | | | | Note | | Capital | | Premium | | | Reserve | | | Reserve | Earnings* | | Total | | For the year ended 30 June 2022 | | | £’000 | | | £’000 | | | £’000 | | £’000 | | £’000 | £’000 | 1 July 2021 4,555 19,550 841 9,628 146,852 181,426 Repurchase of Ordinary shares to | be held in treasury 14 | | – – – – (174) (174) | | --- | --- | --- | | Net return for the year | | – – – – (25,412) (25,412) | | Balance at 30 June 2022 | 4,555 19,550 841 9,628 121,266 155,840 | | * Dividends are only payable from the revenue return element of retained earnings (see Note 18 for further details). The Notes on pages 67 to 79 form part of these Financial Statements. 66 FOR THE YEAR ENDED 30 JUNE 2023 ### Notes to the Financial Statements for the year ended 30 June 2023 1. General information accordance with the Company’s accounting policies as set out below. They are presented Brown Advisory US Smaller Companies PLC in accordance with the Companies Act (a Public Company Limited by shares) is an 2006 (the ‘Act’) and the requirements of the investment Company incorporated in the United SORP ‘Financial Statements of Investment Kingdom with a premium listing on the London Trust Companies and Venture Capital Trusts’ Stock Exchange. The Company registration issued in July 2022. number is 02781968 and the registered office is 6th floor, 125 London Wall, London, EC2Y 5AS. The Company has taken advantage of the exemption from preparing a Cash The Company conducts its affairs so as to qualify Flow Statement under FRS 102, as it is an as an investment trust under the provisions of investment fund and the investments are section 1158 of the Corporation Tax Act 2010. substantially all highly liquid and carried at The Company has qualified as an investment fair (market) value. trust in respect of all relevant years up to and | including the year ended 30 June 2023. Section | In accordance with FRS 102, the Company | | --- | --- | | 1158 was amended to allow the Company to | is required to identify its functional | | seek approval of compliance in advance and for | reporting currency in which the Company | | all subsequent financial years. The Company | predominantly operates. Having regard | | received such advance approval subject to it | to the Company’s share capital and | | continuing to meet the relevant eligible conditions | the predominant currency in which its | | and ongoing requirements. The Company intends | shareholders operate, pounds sterling, is | | to conduct its affairs so as to enable it to comply | the identified functional and presentation | | with the requirements. Such approval exempts | reporting currency of the Company. | the Company from UK corporation tax on gains The Directors are of the opinion that the realised in the relevant year on its portfolio of fixed Company is engaged in a single segment of asset investments. business activity, being investment business. A summary of the accounting policies, all of which Consequently, no business segmental have been applied consistently throughout the reporting is required. period is set out below. Statement of Compliance The Financial Statements of the Company 2. Accounting policies have been prepared in compliance with United (a) Basis of preparation Kingdom Accounting Standards, including FRS The Financial Statements for the year 102 and the Companies Act 2006. ended 30 June 2023 have been prepared | in accordance with UK Generally Accepted | (b) Principal accounting policies | | | --- | --- | --- | | Accounting Practice (‘UK GAAP’) including | (i) Financial instruments | | | Financial Reporting Standard 102 (‘FRS | | Financial instruments include fixed asset | | 102’), the financial reporting standard | | investments and derivative assets and | | applicable in the UK and Republic of Ireland | | liabilities. | and with the Statement of Recommended Accounting standards recognise a hierarchy Practice (‘SORP’) for Investment Trust of fair value measurements for financial Companies and Venture Capital Trusts issued instruments which gives the highest priority by the Association of Investment Companies to unadjusted quoted prices in active markets (‘AIC’) in July 2022. for identical assets or liabilities (level 1) and the | The Company continues to adopt the | lowest priority to unobservable inputs (level | | --- | --- | | going concern basis in the preparation of | 3). The classification of financial instruments | | the Financial Statements. The Financial | depends on the lowest significant applicable | | Statements have been prepared in | input, as follows: | 67 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Notes to the Financial Statements (continued) 2. Accounting policies (continued) Foreign exchange profits and losses on fixed asset investments are included within the Level 1 – Unadjusted, fully accessible and changes in fair value in the capital account. current quoted prices in active markets for Foreign exchange profits and losses on other identical assets or liabilities. Included within currency balances are separately credited or this category are investments listed on any charged to the capital account except where recognised stock exchange. they relate to revenue items when they are Level 2 – Quoted prices for similar assets credited or charged to the revenue account. or liabilities, or other directly or indirectly (iv) Income observable inputs which exist for the duration Income from equity shares is brought into the of the period of investment. Examples of such revenue account (except where, in the opinion instruments would be those for which the of the Directors, its nature indicates it should quoted price has been recently suspended, be recognised within the capital account) on forward exchange contracts and certain other the ex-dividend date or, where no ex-dividend derivative instruments. date is quoted, when the Company’s right to Level 3 – External inputs are unobservable. receive payment is established. Value is the Directors’ best estimate, based on Dividends from overseas companies are advice from relevant knowledgeable experts, shown gross of withholding tax. use of recognised valuation techniques and on assumptions as to what inputs other market Where the Company has elected to receive participants would apply in pricing the same its dividends in the form of additional shares or similar instruments. Included within this rather than in cash (scrip dividends), the category are unquoted investments. amount of the cash dividend foregone is recognised as income. Any excess in the value (ii) Fixed asset investments of the shares received over the amount of the As an investment trust, the Company cash dividend foregone is recognised in the measures its fixed asset investments at “fair capital account. value through profit or loss” and treats all transactions on the realisation and revaluation (v) Expenses, including finance charges of investments as transactions on the capital Expenses are charged to the revenue account account. Purchases are recognised on the of the Income Statement, except as noted relevant trade date, inclusive of expenses below: which are incidental to their acquisition. Sales are also recognised on the trade date, after  expenses incidental to the acquisition deducting expenses incidental to the sales. or disposal of fixed asset investments are included within the cost of the Quoted investments are valued at bid value investments or deducted from the at the close of business on the relevant date disposal proceeds of investments and on the exchange on which the investment is are thus charged to the capital element quoted. of retained earnings – arising on (iii) Foreign currency investments sold via the capital account; Monetary assets, monetary liabilities and and equity investments denominated in a foreign  all expenses are accounted for on an currency are expressed in sterling at rates accruals basis. Finance charges are of exchange ruling at the Statement of Financial Position date. Purchases and sales accrued using the eective interest rate of investment securities, dividend income, method. interest income and expenses are translated at the rates of exchange prevailing at the respective dates of such transactions. 68 68 FOR THE YEAR ENDED 30 JUNE 2023 ### Notes to the Financial Statements (continued) 2. Accounting policies (continued)  realised foreign exchange dierences of a capital nature; (vi) Taxation Withholding tax deducted at source from  unrealised foreign exchange dierences income received is treated as part of the of a capital nature; taxation charge in the income account, in  costs of professional advice, including instances where it cannot be recovered. related irrecoverable VAT, relating to the Deferred tax is provided in accordance with capital structure of the Company; FRS 102, on an undiscounted basis, on all  other capital charges and credits timing differences that have originated but charged or credited to this account in not reversed by the Statement of Financial accordance with the above policies; and Position date, based on the tax rates that are expected to apply in the period when the  the costs of purchasing Ordinary share liability is settled or the asset realised. capital. Deferred tax assets are only recognised if it Revenue return is considered more likely than not that there  the income return or loss for the year will be suitable profits from which the future is taken to the income element of this reversal of timing differences can be deducted. reserve. In line with the recommendations of the SORP, the allocation method used to calculate the This element of the retained earnings reserve tax relief on expenses charged to capital is the may be used to fund the distribution of profits “marginal” basis. Under this basis, if taxable to investors via dividend payments only when income is capable of being offset entirely this is in a surplus position. Currently there by expenses charged through the revenue is an accumulated loss and therefore no account, then no tax relief is transferred to the distributions can be paid. capital account. (ix) Borrowing and finance costs (vii) Capital redemption reserve Interest-bearing bank loans and overdrafts The nominal value of Ordinary share capital are recorded at the proceeds received, purchased and cancelled is transferred out net of direct issue costs and subsequently of called-up share capital and into the capital measured at amortised cost. Finance charges, redemption reserve. including premiums payable on settlement or redemption and direct issue costs, are Capital redemption reserve is not available for accounted for on an accruals basis in the the payment of dividends. Income Statement using the effective interest method and are added to the carrying amount (viii) Retained earnings of the instrument to the extent that they are This consists of the following: not settled in the period in which they arise. Capital return Finance costs are recognised in the Income The following are accounted for in this reserve: Statement in the period in which they are incurred. All finance costs are directly charged  gains and losses on the realisation of to the revenue column of the Income Account. fixed asset investments;  increases and decreases in the valuation of fixed asset investments held at the year end; 69 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Notes to the Financial Statements (continued) 2. Accounting policies (continued) to the carrying amount of assets or liabilities affected in the current and future periods, (c) Significant accounting judgements, depending on circumstance. estimates and assumptions The preparation of the Company’s Management do not believe that any Financial Statements on occasion requires significant accounting judgements have been management to make judgements, estimates applied to these Financial Statements other and assumptions that affect the reported than the allocations between capital and amounts in the primary financial statements revenue shown in Notes 4 and 5. and the accompanying disclosures. These . assumptions and estimates could result in outcomes that require a material adjustment 3. Income 2023 2022 £’000 £’000 Income from investments Dividends from United Kingdom companies 24 – Dividends from overseas companies 849 738 873 738 Other income Deposit interest 111 – 111 – Total income 984 738 4. Management fee 2023 2022 | | Revenue | | Capital | Total | Revenue | | Capital | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | | Management fee | | 1,172 – 1,172 1,192 – 1,192 | | | | | | | 1,172 – 1,172 1,192 – 1,192 Details of the calculation of the management fee are given in Note 20. 70 FOR THE YEAR ENDED 30 JUNE 2023 ### Notes to the Financial Statements (continued) 5. Other expenses 2023 2022 | | Revenue | | | Capital | Total | Revenue | | Capital | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | £’000 | | £’000 | £’000 | | £’000 | £’000 | £’000 | | Directors’ remuneration | | | 151 – 151 137 – 137 | | | | | | | | Auditor’s remuneration – audit of the company | | | 52 – 52 34 – 34 | | | | | | | | Directors’ and Ocers’ liability insurance | | | 9 – 9 12 – 12 | | | | | | | | Other expenses | | | 309 2 311 292 4 296 | | | | | | | 521 2 523 475 4 479 6. Ongoing charges 2023 2022 £’000 £’000 Management fee 1,172 1,192 | Other expenses | | 521 475 | | --- | --- | --- | | Total expenses (excluding finance costs) | | 1,693 1,667 | | Average net assets | 168,902 173,006 | | | Ongoing charges % | | 1.00 0.97 | 7. Taxation (a) Analysis of (credit)/charge in year: 2023 2022 | | Revenue | | | Capital | Total | Revenue | | Capital | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | £’000 | | £’000 | £’000 | | £’000 | £’000 | £’000 | | Overseas tax (credit)/charge relating to the | | | 106 – 106 90 309 399 | | | | | | | current year Overseas tax (credit)/charge relating to the – (396) (396) – – – prior year Total tax (see Note 7b) 106 (396) (290) 90 309 399 (b) Factors affecting current tax (credit)/charge for the year The tax assessed for the year is lower (2022: higher) than the standard rate of corporation tax for a company (20.50%) (2022: 19.00%). The differences are explained below: 2023 2022 | | Revenue | | Capital | Total | Revenue | | Capital | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | | Net return/(loss) before taxation | | (709) 15,726 15,017 (929) (24,084) (25,013) | | | | | | | | Corporation tax at 20.50% (2022: 19.00%) | | (146) 3,224 3,078 (176) (4,576) (4,752) | | | | | | | Eects of: | Tax free (loss)/gains on investments | | – (3,224) (3,224) – 4,575 4,575 | | --- | --- | --- | | Non-taxable income received | (162) – (162) (126) – (126) | | | Capital expenses deductible for tax purposes | | – – – – 1 1 | | Overseas tax relating to the current year | 106 – 106 90 309 399 | | | Overseas tax relating to the prior year | | – (396) (396) – – – | | Income taxed in dierent years | | – – – (1) – (1) | | Unutilised management expenses for the year | 308 – 308 303 – 303 | | | Total tax (credit)/charge for the year | 106 (396) (290) 90 309 399 | | 71 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Notes to the Financial Statements (continued) 7. Taxation (continued) Due to the Company’s status as an investment trust and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. There is an unrecognised deferred tax asset of £5,461,000 (2022: £5,076,000) which relates to unutilised excess expenses. The deferred tax asset would only be recovered if the Company were to generate sufficient profits to utilise these expenses. It is considered too uncertain that this will occur and therefore, no deferred tax asset has been recognised. 8. Net return/(loss) per Ordinary share The return per Ordinary share figure is based on the net profit for the year of £15,307,432 (2022: Loss £25,412,443), and on 11,952,159 (2022: 11,955,536) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. The return per Ordinary share figure detailed above can be further analysed between revenue and capital, as below. | | | 2023 | 2022 | | --- | --- | --- | --- | | | | £’000 | £’000 | | Net revenue loss | | (815) (1,019) | | | Net capital return/(loss) | | 16,122 (24,393) | | | Net return/(loss) | | 15,307 (25,412) | | | Weighted average number of Ordinary shares in issue during the year | 11,952,159 11,955,536 | | | | Revenue loss per Ordinary share | | (6.82p) (8.52p) | | | Capital return/(loss) per Ordinary share | 134.89p (204.03p) | | | | Total return/(loss) per Ordinary share | 128.07p (212.55p) | | | 9. Investments held as at fair value through profit or loss (a) Portfolio investments | | | 2023 | 2022 | | --- | --- | --- | --- | | | | £’000 | £’000 | | Valuation at beginning of year | 147,856 176,854 | | | | Investment holding gains/(losses) at beginning of year | 17,962 (8,015) | | | | Cost at beginning of year | 165,818 168,839 | | | | Purchases at cost | 42,267 48,729 | | | | Sales at cost | (46,142) (51,750) | | | | Cost at end of year | 161,943 165,818 | | | | Investment holding (losses) at end of year | (2,809) (17,962) | | | | Valuation at end of year | 159,134 147,856 | | | | Investments listed overseas | 159,134 147,856 | | | 159,134 147,856 72 FOR THE YEAR ENDED 30 JUNE 2023 ### Notes to the Financial Statements (continued) 9. Investments held as at fair value through profit or loss (continued) (b) Gains on investments | | 2023 | 2022 | | --- | --- | --- | | | £’000 | £’000 | | Net gain/(loss) realised on sale of investments | 1,321 576 | | | Movement in investment holding gains/(losses) | 15,153 (25,977) | | | Gain/(loss) on investments | 16,474 (25,401) | | 10. Transaction costs During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains (2022:(losses)) on investments in the Income Statement. The total costs were as follows: | | 2023 | 2022 | | --- | --- | --- | | | £’000 | £’000 | | Purchases | 44 42 | | | Sales | 29 31 | | 73 73 11. Debtors | | 2023 | | 2022 | | --- | --- | --- | --- | | | £’000 | | £’000 | | Prepayments and accrued income | | 10 9 | | | Dividends receivable | | 57 53 | | | Taxation | | – 242 | | 67 304 12. Creditors: amounts falling due within one year | | 2023 | 2022 | | --- | --- | --- | | | £’000 | £’000 | | Management fee | 298 275 | | | Other creditors and accruals | 98 225 | | | Purchases awaiting settlement | 102 38 | | 498 538 73 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Notes to the Financial Statements (continued) 13. Financial instruments Background The Company’s financial instruments comprise securities and other investments, cash balances and term loans, debtors and creditors that arise directly from its operations, for example, in respect of sales and purchases awaiting settlement and debtors for accrued income. The numerical disclosures below exclude short-term debtors and creditors which are denominated in sterling and do not incur interest and therefore are not subject to foreign currency risk or interest rate risk. The principal risks the Company faces in its portfolio management activities are:  foreign currency risk  market price risk  interest rate risk  liquidity risk  credit and counterparty risk The Portfolio Manager’s policies for managing these risks are summarised below and have been applied throughout the year. (a) Foreign Currency Risk A substantial portion of the financial assets of the Company are denominated in US Dollars with the result that the Statement of Financial Position and Income Statement can be significantly affected by currency movements. The Company normally takes account of this risk when making investment decisions although it could hedge against foreign currency movements affecting the value of the investment portfolio where adverse movements are anticipated. Foreign currency sensitivity The principal currency to which the Company was exposed during the year was the US Dollar as all investments are quoted in that currency. The exchange rates applying against sterling at 30 June and the average rates during the year ended 30 June were as follows: 2023 2022 | | | | Average for | | Average for | | | --- | --- | --- | --- | --- | --- | --- | | | At 30 June | | | the year At 30 June | | the year | | US Dollar | | 1.2714 1.2041 1.2144 1.3320 | | | | | 1.2714 1.2041 1.2144 1.3320 The following tables illustrate the sensitivity of the profit after tax for the year and net assets to exchange rates for sterling against the US Dollar. It assumes the following changes in exchange rates: £/US Dollar +/– 10% (2022: +/– 10%) These percentages have been determined based on market volatility in exchange rates over the previous twelve months. The sensitivity analysis is based on the company’s foreign currency financial instruments held at the date of each Statement of Financial Position. 74 FOR THE YEAR ENDED 30 JUNE 2023 ### Notes to the Financial Statements (continued) 13. Financial instruments (continued) If sterling had weakened by 10% (2022: 10%) against the currencies this would have had the following effect on revenue, capital, total return and, accordingly, net assets: 2023 2022 | | Impact on | | Impact on | | | Impact on | | Impact on | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | revenue | | capital | | | revenue | | capital | | | | | return | | return | Total | | return | | return | Total | | | | £’000 | | £’000 | £’000 | | £’000 | | £’000 | £’000 | | US Dollar | | (111) 15,913 15,802 (103) 14,786 14,683 | | | | | | | | | (111) 15,913 15,802 (103) 14,786 14,683 If sterling had strengthened by 10% (2022: 10%) against the currencies below this would have had the following effect: 2023 2022 | | Impact on | | | Impact on | | | Impact on | | Impact on | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | revenue | | | capital | | | revenue | | capital | | | | | return | | | return | Total | | return | | return | Total | | | | £’000 | | | £’000 | £’000 | | £’000 | | £’000 | £’000 | | US Dollar | | | 111 (15,913) (15,802 ) 103 (14,786) (14,683) | | | | | | | | | 111 (15,913) (15,802) 103 (14,786) (14,683) (b) Market Price Risk By the very nature of its activities, the Company’s investments are exposed to market price fluctuations. The board reviews and agrees policies for managing this risk. The investment adviser assesses the exposure to market price risk when making each investment decision, and monitors the overall level of market price risk on the whole of the investment portfolio on an ongoing basis. Further information on the investment portfolio and investment policy is set out in the Portfolio Manager’s Review on page 12. Other price risk sensitivity The following illustrates the sensitivity of the profit after taxation for the year and the total equity to an increase or decrease of 20% (2022: 20%) in the fair value of the Company’s equities. This level of change is considered to be reasonably possible based on observation of market conditions during the year. The sensitivity analysis is based on the Company’s equities at each reporting date, with all other variables held constant. The impact of a 20% increase in the value of investments on the revenue loss for the year to 30 June 2023 is a decrease of £223,000 (2022: £207,000) and on the capital return is an increase of £31,827,000 (2022: £29,571,000). The impact of a 20% fall in the value of investments on the revenue loss for the year to 30 June 2023 is an increase of £223,000 (2022: £207,000) and on the capital return is a decrease of £31,827,000 (2022: £29,571,000). 75 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Notes to the Financial Statements (continued) 13. Financial instruments (continued) (c) Interest rate risk Interest rate movements may affect:  the fair value of investments of fixed interest securities,  the level of income receivable from any floating interest-bearing securities and cash at bank and on deposit, and  the interest payable on floating interest term loans. The financial assets (excluding short-term debtors) consist of: 2023 2022 | | Cash flow | | | No | | Cash flow | | | No | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | interest | | interest | | | interest | | interest | | | | | rate risk | | rate risk | | Total | rate risk | | rate risk | | Total | | | | £’000 | £’000 | | £’000 | | £’000 | £’000 | | £’000 | | US Dollar | | 12,444 – 12,444 8,218 – 8,218 | | | | | | | | | 12,444 – 12,444 8,218 – 8,218 The floating interest rate risk assets consist of cash deposits at call. The financial liabilities consist of: 2023 2022 | | Fixed | | Non-interest | | | Fixed | Non-interest | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | rate | | | bearing | Total | rate | | bearing | Total | | | £’000 | | | £’000 | £’000 | £’000 | | £’000 | £’000 | | US Dollar | | – 102 102 – 38 38 | | | | | | | | | GBP | | – 396 396 – 500 500 | | | | | | | | – 498 498 – 538 538 (d) Liquidity risk Liquidity risk is not considered significant. All liabilities are payable within three months. The Company’s assets comprise mainly readily realisable securities which can be sold to meet funding requirements if necessary. (e) Credit and Counterparty Risk Credit risk is the exposure to loss from the failure of a counterparty to deliver securities or cash for acquisitions or disposals of investments or to repay deposits. The Company manages credit risk by using brokers from a database of approved brokers who have undergone due diligence tests by the Portfolio Manager’s Best Execution Committee and by dealing through JPMCB with banks authorised by the Financial Conduct Authority. Any derivative positions are marked to market and exposure to counterparties is monitored on a daily basis by the Portfolio Manager; the Board reviews it on a quarterly basis. The maximum exposure to credit risk at 30 June 2023 was £12,511,000 (2022: £8,522,000). The calculation is based on the Company’s credit exposure as at 30 June 2023 and may not be representative of the year as a whole. (f) Fair value of financial assets and financial liabilities The financial assets and financial liabilities are carried in the Statement of Financial Position at their fair value or the statement amount is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals and cash at bank). 76 FOR THE YEAR ENDED 30 JUNE 2023 ### Notes to the Financial Statements (continued) 13. Financial instruments (continued) Fair Value hierarchy FRS102 – section 34.22 on Financial Institutions requires an entity to classify fair value measurements using fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels: Level 1 reflects financial instruments quoted in an active market. Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables includes only data from observable markets. Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the instrument and not based on available observable market data. The financial assets measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy as follows: 2023 2022 | | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | | Investments | 159,134 – – 159,134 147,856 – – 147,856 | | | | | | | | (g) Use of derivatives In order to enhance returns, the Company may take short positions (using contracts for difference) in respect of a small number of larger capital securities. There were no derivative positions held at the year end (2022: nil). 14. Paid-up share capital 2023 2023 Number £’000 Number £’000 Ordinary shares of 25p each | Balance brought forward | 11,952,159 2,987 11,964,698 2,990 | | | --- | --- | --- | | Ordinary shares repurchased into treasury | | – – (12,539) (3) | | Closing balance of Ordinary shares | 11,952,159 2,987 11,952,159 2,987 | | Treasury shares | Balance brought forward | 6,271,254 1,568 6,258,715 1,565 | | | | --- | --- | --- | --- | | Repurchase of Ordinary shares into treasury | | – – 12,539 3 | | | Closing balance of Ordinary shares held in treasury | 6,271,254 1,568 6,271,254 1,568 | | | | Total | | | 4,555 4,555 | 77 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Notes to the Financial Statements (continued) 15. Share Premium 2023 2022 £’000 £’000 19,550 19,550 As at 30 June 19,550 19,550 16. Non-distributable reserve 2023 2022 £’000 £’000 841 841 As at 30 June 841 841 17. Capital redemption reserve 2023 2022 £’000 £’000 9,628 9,628 As at 30 June 9,628 9,628 18. Retained earnings The table below shows the movement in the retained earnings analysed between revenue and capital items. | | Revenue | Capital | | | --- | --- | --- | --- | | | return | return | Total | | | £’000 | £’000 | £’000 | | At 1 July 2022 | (8,460) 129,726 121,266 | | | | Net gain/(loss) for the year | (1,057) 16,364 15,307 | | | | At 30 June 2023 | (9,517) 146,090 136,573 | | | The capital return includes £2,809,000 of investment holding loss (2022: £17,962,000 of investment holding loss). 19. Net asset value per Ordinary share The net asset value per Ordinary share is based on the net assets attributable to the equity shareholders of £171,147,000 (2022: £155,840,000) and on 11,952,159 (2022: 11,952,159) Ordinary shares, being the number of Ordinary shares in issue at the year end. 78 FOR THE YEAR ENDED 30 JUNE 2023 ## Notes to the Financial Statements *(continued)* ### 20. Related parties and transactions with the Portfolio Manager and the AIFM #### Directors There are no transactions with the Directors other than aggregated remuneration for services as Directors as disclosed in the Directors' Remuneration Report on page 52 and as set out in Note 5 to the Financial Statements on page 71 and the beneficial interests of the Directors in the Ordinary shares of the company as disclosed on page 53. #### Transactions with the Portfolio Manager and the AIFM FundRock Partners Limited is AIFM to the Company pursuant to an Alternative Investment Fund Management Agreement between FundRock Partners Limited and the Company. FundRock Partners Limited has also been appointed to provide company secretarial services to the Company. Brown Advisory is appointed to provide portfolio management services pursuant to a Portfolio Management Agreement between the Company, FundRock Partners Limited and Brown Advisory. The management fee is calculated at an annual rate of 0.7% on the first £200 million; 0.6% of the next £300 million; and 0.5% thereafter of the Company's adjusted net assets. The management fee is payable by the Company to FundRock Partners Limited, who shall deduct from the management fee the amounts due to it as AIFM and for company secretarial services and shall pay the balance to Brown Advisory. The management fee is calculated and payable on a quarterly basis. The management fee payable to FundRock Partners Limited for the period from 1 July 2022 to 30 June 2023 was £1,172,000 (payable to FundRock Partners Limited for the period from 1 July 2021 to 30 June 2022: £1,192,000) with £298,000 outstanding as at 30 June 2023 (2022: £275,000). The appointment of Brown Advisory and FundRock Partners Limited may be terminated by not less than six months' notice. ### 21. Contingent liabilities and capital commitments There were no contingent liabilities or capital commitments outstanding at 30 June 2023 (2022: nil). **B Brown ADVISORY**^{}[] Thoughtful Investing. 79 BROWN ADVISORY US SMALLER COMPANIES PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS ## Company Information | **Directors** | Stephen White, Chairman Lisa Booth Jasper Judd Clive Parritt Jane Routledge Tina Soderlund-Boley (resigned on 30 June 2023) | | --- | --- | | **Registered Office** | 6th Floor, 125 London Wall, London EC2Y 5AS | | **Portfolio Manager** | Brown Advisory LLC 901 South Bond Street, Suite 400, Baltimore, Maryland 21231 United States | | **Alternative Investment Fund Manager (AIFM)** | FundRock Partners Limited Hamilton Centre, Rodney Way, Chelmsford, Essex CM1 3BY Authorised and regulated by the Financial Conduct Authority | | **Company Secretary** | FundRock Partners Limited Hamilton Centre, Rodney Way, Chelmsford, Essex CM1 3BY | | **Telephone** | +44 (0)20 3994 7129 | | **Website** | www.brownadvisory.com/basc | | **Email** | InvestmentTrustEnquiries@brownadvisory.com | | **Custodian** | J.P. Morgan Chase Bank N.A 25 Bank Street, Canary Wharf, London E14 5JP | | **Depositary** | J.P. Morgan Europe Limited 25 Bank Street, Canary Wharf, London E14 5JP Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority | | **Registrars** | Computershare Investor Services PLC The Pavilions, Bridgwater Road, Bristol BS99 6ZZ | | **Telephone** | 0370 889 4089 | | **Website** | www.investorcentre.co.uk | | **Independent Auditor** | Haysmacintyre LLP 10 Queen Street Place, London EC4R 1AG | | **Company Registration Number** | 02781968 Registered in England & Wales An investment company under s.833 of the Companies Act 2006 | | **Investor Codes** | The Ordinary shares of the Company are traded on the London Stock Exchange. | | **Sedol Number** | | | Ordinary shares | 0346340 | | **ISIN** | | | Ordinary shares | GB0003463402 | | **Ticker** | | | Ordinary shares | BASC | The company is a member of ![img-1.jpeg](img-1.jpeg) 80 FOR THE YEAR ENDED 30 JUNE 2023 ### Investor Information Performance Updates The Company publishes a monthly factsheet which contains key information about its performance, investment portfolio and pricing. The factsheets, together with electronic copies of the most recent full and interim reports and financial statements, are available for download from www.brownadvisory.com/basc. Should you wish to be added to an email distribution list for future editions of the monthly factsheet, please send an email to InvestmentTrustEnquiries@brownadvisory.com. For investors who do not have access to the internet, these documents are also available on request from Brown Advisory’s Client Services Team on +44 (0)20 3301 8130. Further information about the Company is also available from third party websites such as www.morningstar.co.uk and www.theaic.co.uk. Retail distribution of non-mainstream products The Company currently conducts its affairs so that its shares can be recommended by Independent Financial Advisers to ordinary retail investors in accordance with the FCA’s rules in relation to non- mainstream investment products and intends to continue to do so for the foreseeable future. The Company’s Ordinary shares are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are Ordinary shares in an investment trust. Dividend Tax Allowance With effect from 6 April 2016 the dividend tax credit was replaced by an annual tax-free dividend allowance. Dividend income in excess of this allowance will be taxed according to your personal income tax bracket. The Company’s Registrar will continue to provide shareholders with confirmation of dividends paid; shareholders should retain such confirmations to enable them to calculate and report total dividend income received. Shareholders should note that it is their sole responsibility to report any dividend income in excess of their annual tax-free allowance to HMRC. Further information on changes to dividend tax allowance can be obtained from the HMRC website at: https://www.gov.uk/tax-on-dividends. Changes to our Data Privacy Notice We have updated our Privacy Notice to align with the new data privacy law in the European Union, known as the General Data Protection Regulation (GDPR) to which we are subject. Data protection and the security of your information has always been, and remains, important to us. Any information concerning Shareholders and other related natural persons (together the Data Subjects) provided to, or collected by or on behalf of, Brown Advisory LLC and/or FundRock Partners Limited (the Controllers) (directly from Data Subjects or from publicly available sources) may be processed by the Controllers as joint controllers, in compliance with the GDPR. You are not required to take any action in respect of this notice, but we encourage you to read our Privacy Notice. Our Privacy Notice can be found on our website, www.brownadvisory.com/basc. In the event that you hold your shares as a nominee, we request that you promptly pass on the details of where to find our Privacy Notice to the underlying investors and/or the beneficial owners. 81 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Investor Information (continued) Managing your account online The Company’s registrar, Computershare Investor Services PLC, allows you to manage your shareholding online. If you are a direct investor, you can view your shareholding, change the way the registrar communicates with you and buy and sell shares. If you haven’t used this service before, you can enter the name of the Company and register your account at https://www-uk.computershare.com/investor. You’ll need your Investor code (IVC) printed on your share certificate in order to register. Computershare’s contact details are as follows: Computershare Investor Services PLC The Pavilions Bridgwater Road BRISTOL BS99 6ZZ Telephone: +44 (0)370 889 4089 * Calls to this number are charged at the standard geographical rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open from 09:00 a.m. – 17:30 p.m. Monday to Friday. 82 FOR THE YEAR ENDED 30 JUNE 2023 ### Important Risk Warnings Advice to shareholders In recent years investment related scams have become increasingly sophisticated and difficult to spot. We are therefore warning all our shareholders to be cautious so that they can protect themselves and spot the warning signs. Fraudsters will often:  contact you out of the blue  apply pressure to invest quickly  downplay the risks to your money  promise tempting returns that sound too good to be true  say that they are only making the oer available to you  ask you to not tell anyone else about it You can avoid investment scams by:  Rejecting unexpected oers – Scammers usually cold call but contact can also come by email, post, word of mouth or at a seminar. If you have been oered an investment out of the blue, chances are it’s a high-risk investment or a scam.  Checking the FCA Warning List – Use the FCA Warning List to check the risks of a potential investment. You can also search to see if the firm is known to be operating without proper FCA authorisation.  Getting impartial advice – Before investing get impartial advice and don’t use an adviser from the firm that contacted you. If you are suspicious, report it.  You can report the firm or scam to the FCA by contacting their Consumer Helpline on 0800 111 6768 or using their online reporting form.  If you have lost money in a scam, contact Action Fraud on 0300 123 2040 or visit www.actionfraud.police.uk For further helpful information about investment scams and how to avoid them please visit www.fca.org.uk/scamsmart. 83 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Glossary of Terms including Alternative Performance Measures Alternative performance measures Gearing* The European Securities and Markets Authority Gearing is the borrowing of cash to buy more (‘ESMA’) published its guidelines on Alternative assets for the portfolio with the aim of making a Performance Measures (‘APMs’). APMs are defined gain on those assets larger than the cost of the as being a ‘financial measure of historical or future loan. However, if the portfolio doesn’t perform financial performance, financial position, or cash well, the gain might not cover the costs. The more flows, other than a financial measure defined or an investment company gears, the higher the risk. specified in the applicable accounting framework.’ Gearing is defined as the ratio of the Company’s The guidelines are aimed at promoting the debt less cash held, where debt exceeds cash, usefulness and transparency of APMs included compared to its net assets, expressed as a in regulated information and aim to improve percentage. comparability, reliability and/or comprehensibility of APMs. The following APMs are used throughout Middle-market price the Annual Report, Financial Statements and Notes The middle-market price is the mid-point between to the Financial Statements. the buy and the sell prices. Benchmark total return index NAV per share A total return index is a type of equity The net asset value (‘NAV’) is the value of the performance index that tracks both the capital investment company’s assets less its liabilities. gains of a group of stocks over time, and assumes The NAV per share is the NAV divided by the that any cash distributions, such as dividends, are number of shares in issue. The difference between reinvested back into the index. the NAV per share and the share price is known as the discount or premium. Discount* As at 30 June 2023, the net asset value per share The amount, expressed as a percentage, by which was 1,431.9p. the share price is less than the net asset value per share. Ongoing charges* At 30 June 2023 the share price was 1,220.0p and Ongoing charges are the total expenses including the net asset value per share (cum income) was both the portfolio management fee and other 1,431.9p, the discount therefore being 14.8%. costs, but excluding finance costs (if applicable), as a percentage of the average NAV over the Discount management financial year. Discount management is the process of the The calculation of the ongoing charges is provided buy-back and issue of company shares by the in Note 6 to the Financial Statements on page 71. company, to and from its own holding or ‘treasury’ with the intention of managing any imbalance Premium* between supply and demand for the company’s shares and thereby the market price. The aim The amount, expressed as a percentage, by which is to ensure that, in normal market conditions, the share price is more than the net asset value the market price of the company’s shares will per share. not materially vary from its NAV per share. The authority to repurchase the company’s shares is voted upon by the shareholders at each annual general meeting. * Alternative performance measure. 84 FOR THE YEAR ENDED 30 JUNE 2023 ### Glossary of Terms including Alternative Performance Measures (continued) PRIIPS Key Information Documents Since 1 January 2018 there has been a requirement to provide investors with a Key Information Document (“KID”) which includes performance projections which are the product of prescribed calculations based on the Company’s past performance. The content and format of the KID cannot be amended under the applicable EU regulations. The AIC has stated that these documents are potentially misleading for shareholders and since 1 January 2023, preparers of the PRIIPs and KIDs have been required to publish a KID in accordance with updated rules. These were introduced by the FCA as set out in PS22/2: PRIIPs – Final scope rules and amendments and changes made to the Regulatory Technical Standards (RTS). The Board is strongly of the view that these projections are not an appropriate or helpful way to assess the Company’s future prospects. Accordingly, the Board urges shareholders to consider the more complete information set out in both the Company’s half yearly financial report and Annual Report and Financial Statements, together with the monthly factsheets, and daily NAV announcements, when considering an investment in the Company’s shares. These documents are available on the Company website at: www.brownadvisory.com/basc. Treasury shares Treasury shares are the part of the issued share capital that is held by the Company. They do not rank for dividends and do not have voting rights. The Company uses treasury shares for discount management purposes as described above and in more detail in the Strategic Review on page  and in the Report of the Directors ‘Repurchase of Shares’ on page 37. 85 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Notice of Annual General Meeting This Notice of Meeting is an important document. Special Business If you are in any doubt as to what action to take, To consider, and if thought fit, to pass Resolutions you should consult an appropriate independent 11 and 12 as Ordinary Resolutions and Resolutions adviser. 13, 14 and 15 as Special Resolutions: Notice is hereby given that the Annual General Ordinary Resolutions: Meeting of Brown Advisory US Smaller 11. That the Company continue as an investment Companies PLC will be held at the offices of trust. Brown Advisory LLC, 18 Hanover Square, London W1S 1JY on Monday, 6 November 2023 at 2:00 12. That the Directors of the Company be and p.m. for the following purposes: are hereby generally and unconditionally authorised for the purposes of Section 551 Ordinary Business of the Companies Act 2006 (‘the Act’), in substitution for and to the exclusion of any To consider and, if thought fit, pass the following outstanding authority previously conferred as Ordinary Resolutions: on the Directors under Section 551 of the Act, | 1. That the Report of the Directors and the | | to allot shares in the capital of the Company | | --- | --- | --- | | | audited Financial Statements of the Company | (‘shares’) up to a maximum aggregate | | | for the year ended 30 June 2023 be received | nominal amount of £298,804 (being 10% of | | | and adopted. | the Company’s issued share capital (excluding | treasury shares)) provided that this authority 2. That the Directors’ Remuneration Report for shall expire at the conclusion of the Annual the year ended 30 June 2023 be approved. General Meeting of the Company to be held in 2024 save that the Company may, before 3. That the Directors’ remuneration policy be such expiry, make an offer or agreement which approved. would or might require shares to be allotted 4. That Ms L Booth be re-elected as a Director of after such expiry and the Directors may the Company. allot shares in pursuance of such an offer or agreement as if the authority hereby conferred 5. That Mr J Judd be elected as a Director of the had not expired. Company. Special Resolutions: 6. That Mr C Parritt be re-elected as a Director of 13. That the Directors of the Company be and are the Company. hereby granted power pursuant to Section 570 and/or Section 573 of the Companies Act 2006 7. That Ms J Routledge be elected as a Director (‘the Act’) to allot equity securities (within the of the Company. meaning of Section 560 of the Act) for cash 8. That Mr S White be re-elected as a Director of either pursuant to the authority conferred by the Company. Resolution 12 or by way of a sale of treasury shares, as if Section 561 of the Act did not apply 9. That Haysmacintyre be re-appointed as to any such allotment, provided that this power Auditor of the Company. shall be limited to: 10. That the Directors be authorised to agree the (a) the allotment of equity securities up to an remuneration of the Auditor. aggregate nominal amount of £298,804 (being 10% of the Company’s issued share capital (excluding treasury shares)); and 86 FOR THE YEAR ENDED 30 JUNE 2023 ### Notice of Annual General Meeting (continued) (b) in addition to the authority referred to in (c) the maximum price (excluding the (a) above, in connection with an offer of expenses of such purchase) which may be equity securities by way of a rights issue paid for each Ordinary share is the higher or open offer to Ordinary shareholders in of: proportion as nearly as may be practicable (i) 105% of the average middle market to their existing holdings subject to quotations for such Ordinary share such limits or restrictions or other taken from the London Stock arrangements as the Directors may deem Exchange Daily Official List for the five necessary or expedient to deal with any business days immediately preceding treasury shares, fractional entitlements the day on which such share is or securities represented by depositary purchased; and receipts, record dates, legal, regulatory or practical problems in, or under the (ii) the higher of the price of the last laws or requirements of, any territory or independent trade and the highest the requirements of any regulatory body current independent bid as stipulated or stock exchange or any other matter, by Article 5(1) of Commission and provided that this authority shall Regulation EC 22 December 2003 expire at the conclusion of the Annual implementing the Market Abuse General Meeting of the Company to be Directive as regards exemptions held in 2024 save that the Company for buy-back programmes and may, before such expiry, make an offer or stabilisation of financial instruments agreement which would or might require (No. 2273/2003); and equity securities to be allotted after such | expiry and the Directors may allot equity | (d) unless renewed, this authority shall expire | | | --- | --- | --- | | securities in pursuance of such an offer | | at the conclusion of the next Annual | | or agreement as if the authority hereby | | General Meeting of the Company to be | | conferred had not expired. | | held in 2024 save that the Company may, | prior to such expiry, enter into a contract 14. That the Company be and is generally and to purchase shares which will or may be unconditionally authorised in accordance with completed or executed wholly or partly Section 701 of the Companies Act 2006 (the after such expiry. ‘Act’) to make one or more market purchases (within the meaning of Section 693 of the Act) of 15. That a General Meeting other than an Annual Ordinary shares provided that: General Meeting may be called on not less than 14 clear days’ notice. (a) the maximum number of shares that may be purchased is 1,791,629 Ordinary By Order of the Board shares, being 14.99% of the issued number FundRock Partners Limited of shares (excluding treasury shares) Company Secretary at the date of this document or, if lower, 15 September 2023 such number as is equal to 14.99% of the issued number of shares (excluding treasury shares) at the date of passing the resolution; (b) the minimum price which may be paid shall be each of their respective nominal values; 87 ### BROWN ADVISORY US SMALLER COMPANIES PLC I ANNUAL REPORT AND FINANCIAL STATEMENTS ### Notes for the Annual General Meeting 1. A Member entitled to attend and vote may appoint properly authenticated in accordance with CRESTCo’s a proxy or proxies to attend, speak and vote instead specifications and must contain the information of him or her. A proxy need not be a member of required for such instructions, as described in the the Company. A form of proxy is enclosed which, if CREST Manual. The message, regardless of whether used, must be lodged at the Company’s Registrars, it constitutes the appointment of a proxy or an Computershare Investor Services PLC, The Pavilions, amendment to the instruction given to a previously Bridgwater Road, Bristol BS99 6ZY not less than appointed proxy must, in order to be valid, be forty-eight hours before the Meeting. Alternatively transmitted so as to be received by the Company’s you can appoint a proxy electronically by visiting agent ID (3RA50) by the latest time(s) for receipt of www.eproxyappointment.com. You will be asked to proxy appointments specified in the Notice of Meeting. enter the Control Number, the Shareholder Reference For this purpose, the time of receipt will be taken to Number and PIN which are printed on the form of proxy be the time (as determined by the timestamp applied or contained within the email sent to you. To appoint to the message by the CREST Applications Host) more than one proxy you may photocopy this form. from which the Company’s agent is able to retrieve You may appoint a person other than the Chairman as the message by enquiry to CREST in the manner your proxy. Please indicate the proxy holder’s name prescribed by CREST. After this time any change of and the number of shares in relation to which they are instructions to proxies appointed through CREST authorised to act as your proxy (which, in aggregate, should be communicated to the appointee through should not exceed the number of shares held by you). other means. Please also indicate if the proxy instruction is one of CREST members and, where applicable, their CREST multiple instructions being given. All forms must be sponsors or voting service providers should note that signed and should be returned together in the same CRESTCo does not make available special procedures envelope. in CREST for any particular messages. Normal system 2. Pursuant to Regulation 41 of the Uncertificated timings and limitations will therefore apply in relation Securities Regulations 2001, the Company to the input of CREST Proxy Instructions. It is the specifies that to be entitled to attend and vote at responsibility of the CREST member concerned to the shareholders AGM (and for the purpose of the take (or, if the CREST member is a CREST personal determination by the Company of the number of member or sponsored member or has appointed a votes they may cast), Members must be entered on voting service provider(s), to procure that his CREST the Company’s Register of Members at 2:00 p.m. on sponsor or voting service provider(s) take(s)) such 2 November 2023. If the meeting is adjourned then, action as shall be necessary to ensure that a message to be so entitled, Members must be entered on the is transmitted by means of the CREST system by any Company’s Register of Members at the time which particular time. In this connection, CREST members is 48 hours before the time fixed for the adjourned and, where applicable, their CREST sponsors or voting meeting or, if the Company gives notice of the service providers are referred, in particular, to those adjourned meeting, at the time specified in that notice. sections of the CREST Manual concerning practical limitations of the CREST system and timings. 3. As at 13 September 2023 (being the latest practicable date prior to the publication of this notice) the The Company may treat as invalid a CREST Proxy Company’s issued share capital was 18,223,413 Instruction in the circumstances set out in Regulation Ordinary shares and the total voting rights were 35(5)(a) of the Uncertificated Securities Regulations 11,952,159. 2001. 4. The vote ‘Withheld’ is provided to enable you to abstain Any corporation which is a Member can appoint one on any particular resolution. However, it should be or more corporate representatives who may exercise noted that a ‘Withheld’ vote is not a vote in law and will on its behalf all of its powers as a Member provided not be counted in the calculation of the proportion of that, if it is appointing more than one corporate the votes ‘For’ and ‘Against’ a resolution. representative, it does not do so in relation to the same shares. It is therefore no longer necessary to nominate 5. The completion and return of this form will not preclude a designated corporate representative. Representatives a Member from attending the meeting and voting in should bring to the meeting evidence of their person. appointment, including any authority under which it is 6. CREST members who wish to appoint a proxy signed. or proxies through the CREST electronic proxy If you are an institutional investor you may be able appointment service may do so for the Annual General to appoint a proxy electronically via the Proxymity Meeting to be held on 6 November 2023 and any platform, a process which has been agreed by the adjournment(s) thereof by using the procedures Company and approved by the Registrar. For further described in the CREST Manual. CREST Personal information regarding Proxymity, please go to www. Members or other CREST sponsored members, and proxymity.io. Your proxy must be lodged by 2:00 p.m. those CREST members who have appointed a voting on 2 November 2023 in order to be considered valid. service provider(s), should refer to their CREST sponsor Before you can appoint a proxy via this process you will or voting service provider(s), who will be able to take need to have agreed to Proxymity’s associated terms the appropriate action on their behalf. and conditions. It is important that you read these 7. In order for a proxy appointment or instruction made carefully as you will be bound by them and they will using the CREST service to be valid, the appropriate govern the electronic appointment of your proxy. CREST message (a ‘CREST Proxy Instruction’) must be 88 FOR THE YEAR ENDED 30 JUNE 2023 ### Notes for the Annual General Meeting (continued) 8. If you have disposed of your holding in the Company the previous AGM at which the annual financial this document should be passed on to the person statements and reports were laid in accordance through whom the sale or transfer was effected for with Section 437 of the Act. The Company may transmission to the purchaser or transferee. not require the shareholders requesting any such website publication to cover any costs incurred in 9. Any person to whom this Notice is sent who is a person complying with Section 527 or 528 and is required nominated under Section 146 of the Companies Act to forward any statement placed on a website to the 2006 to enjoy information rights (a Nominated Person) Company’s auditor not later than the time when it may, under an agreement between him/her and the makes the statement on the website. shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else The business which may be dealt with at the appointed) as a proxy for the Meeting. If a Nominated meeting includes any statements that the Company Person has no such proxy appointment right or does has been required under Section 527 of the Act to not wish to exercise it, he/she may, under any such publish on a website. agreement, have a right to give instructions to the 14. Shareholders are advised that, unless otherwise stated, shareholder as to the exercise of voting rights. any telephone number, website and email address set 10. A copy of the Notices of Meetings and other out in this Notice of Meeting, Form of Proxy, or Annual information required by section 311A of the Companies Report should not be used for the purpose of serving Act 2006, can be found at www.brownadvisory.com/ information on the Company (including the service of basc. documents or information relating to the proceedings at the Company’s AGM). 11. Pursuant to Section 319A of the Companies Act 2006, the Company must cause to be answered at the AGM any question relating to the business being dealt with at the AGM which is put by a Member attending the Meeting except in certain circumstances, including if it is undesirable in the interests of the Company or the good order of the Meeting or if it would involve the disclosure of confidential information. 12. Under Sections 338 and 338A of the 2006 Act, Members meeting the threshold requirements in those sections have the right to require the Company: (i) to give, to Members of the Company entitled to receive notice of the Meeting, notice of a resolution which those Members intend 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 any matter (other than a proposed resolution) which may properly be included in the business at the Meeting. A resolution may properly be moved, or a matter properly included in the business unless: (a) (in the case of a resolution only) it would, if passed, be ineffective (whether by reason of any inconsistency with any enactment or the Company’s constitution or otherwise); (b) it is defamatory of any person; or (c) it is frivolous or vexatious. A request made pursuant to this right may be in hard copy or electronic form, must identify the resolution of which notice is to be given or the matter to be included in the business, must be accompanied by a statement setting out the grounds for the request, must be authenticated by the person(s) making it and must be received by the Company not later than the date that is six clear weeks before the Meeting, and (in the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request. 13. Under Section 527 of the Act, shareholders meeting the threshold requirement set out in that section have the right to require the Company to publish on a website a statement setting out any matter relating to: (i) The audit of the Company’s Financial Statements (including the auditor’s report and the conduct of the audit) that are to be laid before the meeting; or (ii) any circumstances connected with the auditor of the Company ceasing to hold office since 89 PRINTED BY PARK COMMUNICATIONS ON FSC® CERTIFIED PAPER. PARK WORKS TO THE EMAS STANDARD AND ITS ENVIRONMENTAL MANAGEMENT SYSTEM IS CERTIFIED TO ISO 14001. THIS PUBLICATION HAS BEEN MANUFACTURED USING 100% OFFSHORE WIND ELECTRICITY SOURCED FROM UK WIND. 100% OF THE INKS USED ARE VEGETABLE OIL BASED, 95% OF PRESS CHEMICALS ARE RECYCLED FOR FURTHER USE AND, ON AVERAGE 99% OF ANY WASTE ASSOCIATED WITH THIS PRODUCTION WILL BE RECYCLED AND THE REMAINING 1% USED TO GENERATE ENERGY. THIS DOCUMENT IS PRINTED ON REVIVE OFFSET & SILK PAPER CONTAINING 100% RECYCLED FIBRE. THE FSC® LABEL ON THIS PRODUCT ENSURES RESPONSIBLE USE OF THE WORLD’S FOREST RESOURCES. BROWN ADVISORY US SMALLER COMPANIES PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 30 JUNE 2023 www.brownadvisory.com/basc